AMENDMENT TO AGREEMENTS
THIS AMENDMENT TO AGREEMENTS ("AMENDMENT") is made and entered into as
of July 29, 2002, by and between MINDARROW SYSTEMS, INC., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), and the
parties ("PURCHASERS") set forth on the execution pages hereof, and amends that
certain Securities Purchase Agreement ("SPA") and Investors' Rights Agreement
("XXX"), each dated as of June 12, 2002, to which the Company and the Purchasers
are parties. Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the SPA, as amended hereby.
WITNESSETH
WHEREAS, the Lead Investor has an obligation under the SPA to purchase
a total of 3,100,000 Shares in the Second Closing for an aggregate Second
Investment Amount of $1,240,000 and an obligation under the SPA, under the terms
and conditions contained therein, to purchase a total of 2,500,000 in Demand
Shares;
WHEREAS, the Lead Investor has indicated to the Company its desire to
amend certain of their obligations under the SPA and extend the timing of the
Second Closing and purchase of Demand Shares under the SPA;
WHEREAS, the Company has scheduled a special meeting of its
stockholders to consider and vote upon the approval of the sale of securities in
the Second Closing, which the Company intends to reschedule to approximately the
week of August 5, 2002, subject to disclosure of this Amendment to the Company's
stockholders and compliance with the rules and regulations of the Securities and
Exchange Commission and Nasdaq (as rescheduled, the "SPECIAL MEETING"); and
WHEREAS, the parties desire to amend the SPA and XXX in an effort to
provide to the Company substantially the same benefits under those agreements.
NOW, THEREFORE, in consideration of these premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENT
1. AMENDMENT TO SECURITIES PURCHASE AGREEMENT.
1.1 Section 2.2(d) of the SPA is hereby deleted in the entirety and
replaced with the following:
"(d) Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 6 and Section 7 below, the sale of Shares
for the Second Investment Amount (the "SECOND CLOSING(S)") shall occur
in two closings, with (a) a closing for $700,000 to occur no later than
the third business day after the affirmative vote at the Special
Meeting (as it may be rescheduled) of the issuance of shares of Common
Stock and Warrants in the Second Closing, and (b) a closing for the
remaining $540,000 to occur no later than forty-five (45) days
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thereafter, provided, however, that the Lead Investor and the
management of the Company shall cooperate during such 45-day period to
solicit other investors to participate in the purchase of all or a
portion of the $540,000 in Shares remaining to be purchased on
substantially the same terms as those called for in the SPA. The date
on which the $1,240,000 shall have been invested in full shall be
referred to as the "SECOND CLOSING DATE". The Second Closings shall
occur at the Los Angeles offices of Buchalter, Nemer, Fields & Younger,
P.C. or at such other place as Lead Investor and the Company may
otherwise mutually agree."
1.2 The Lead Investor and EastWest Venture Group, LLC hereby (a) waive
the conditions to the Second Closing set forth in (i) Section 7.9 of the SPA
that there shall not have occurred any Material Adverse Effect from the date of
the SPA through the Second Closing Date and (ii) Section 7.5 of the SPA to the
extent it requires that the representations and warranties in Section 4.7 be
true and correct at the time of the Second Closing, in each case as to any
factual matters disclosed or made known to the Lead Investor as of the date
hereof and only as to those matters involving the financial or sales performance
of the Company, and (b) agree to extend the times of the Special Meeting and
Second Closing Date to the times contemplated in this Amendment.
1.3 Section 5.14 of the SPA is hereby deleted in the entirety and
replaced with the following:
"5.14 Future Common Stock Purchases. The Lead Investor agrees
to buy one (1) additional share of Common Stock for every three (3)
shares of Common Stock (the "DEMAND Shares") originally purchased by
the Purchasers under this Agreement at a purchase price of $.40 per
share upon a written demand (the "DEMAND") from the Company that is
authorized by a resolution passed by a majority of the Board of
Directors. For each Demand Share purchased by the Lead Investor, or its
assignee, the Company shall issue to the Lead Investor, or its
assignee, a total of 0.15 Advisory Warrants, 0.6 Consulting Warrants,
0.25 Re-Set Warrants and 0.15 Exclusivity Warrants. The Board of
Directors requesting the Demand must include as members of the Board
the two directors representing the Lead Investor as set forth in
Section 3.4 of the Investors' Rights Agreement and Section 7.12 in this
Agreement, provided, however, that if two directors representing the
Lead Investor have not yet been appointed to the Board of Directors and
the Company is not in breach of its obligations set forth in Section
3.4 of the Investors' Rights Agreement, then the Board of Directors
requesting the Demand must include at least the number of directors
representing the Lead Investor at such time. The purchase of the Demand
Shares by the Lead Investor, or assignees of the Lead Investor, is
conditioned upon shareholder approval of the issuance of the Demand
Shares. The Lead Investor agrees to purchase Demand Shares within the
later of: (i) 30 days of receipt of the Demand by the Lead Investor or
(ii) sixty (60) days after the earlier of the closing of the Company's
proposed merger with Category 5 Technologies, Inc., pursuant to that
certain Agreement and Plan of Merger dated July 12, 2002, or the date
such agreement is terminated pursuant to its provisions (the "C5
DETERMINATION DATE"). The Demand may be once or in multiple partial
closings, and must be received by the
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Lead Investor no later than nine months after the C5 Determination
Date. The Demand may be for the Lead Investor to purchase a lesser
number of Demand Shares than the maximum number of Demand Shares
allowed under this Section 5.14. Any sale of the Demand Shares shall be
upon the same terms and conditions as those contained in this Agreement
and subject to the execution and delivery of a securities purchase
agreement substantially similar in form to this Agreement."
1.4 Section 7.12 of the SPA is hereby deleted in the entirety and
replaced with the following:
"7.12 Directors. As a condition to the Second Closing, the Board of
Directors shall appoint a nominee of the Lead Investor to fill the
vacancy on the Board of Directors until the next annual meeting,
provided that the Lead Investor has made such a nomination within a
reasonable time prior to the Second Closing Date and such nomination is
made in accordance with Section 3.4(a) of the Investors' Rights
Agreement. Before the Second Closing, the Company must also comply with
and meet the requirements of Section 3.3 of the Investors' Rights
Agreement."
1.5 Annex I to the SPA is hereby deleted in the entirety and replaced
with the following:
UNDERLYING SHARES UNDERLYING SHARES PER
PER WARRANT AT WARRANT AT
WARRANTS INITIAL CLOSING SECOND CLOSING
--------------- --------------- --------------
Advisory Warrants 900,000 225,000
Consulting Warrants 3,600,000 900,000
Re-Set Warrants 1,100,000 775,000
2. AMENDMENT TO INVESTORS' RIGHTS AGREEMENT.
2.1 Section 3.1(d) of the XXX is hereby amended so that the words
"issued prior to the date hereof" in clause (vii) are deleted.
2.2 Until the Second Closing has occurred, the obligations of the
Company under Section 3.2 of the XXX shall be suspended. Upon the Second
Closing, Section 3.2 of the XXX shall become effective but shall be revised in
the entirety to read as follows:
"3.2 Protective Provisions.
(a) The Company shall not take any of the following actions
without the prior approval of the Board of Directors:
(i) Incurring third party indebtedness above
$100,000;
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(ii) Incurring any capital expenditure above
$100,000;
(iii) Appointment or removal of the Chief Executive
Officer, Chief Operating Officer, and/or Chief Financial Officer;
(iv) Sale of any material assets (including but not
limited to intellectual property);
(v) Issuance, sale, redemption or repurchase of any
of the Company's securities, except for the issuance and sale of securities
pursuant to the Securities Purchase Agreement; or
(vi) Change or alteration in the nature of the
Company's business.
(b) The Company shall not take any of the following actions
without the prior written approval of the Lead Investor:
(i) Sale (directly or indirectly, in a single
transaction or series of related transactions) of the Company whether through
(A) the disposition of all or substantially all of the assets or businesses of
the Company, (B) the sale or issuance to a purchaser of all or substantially all
of the outstanding Common Stock and/or Preferred Stock of the Company, or (C)
the merger or consolidation of the Company with or into another entity,
provided, however, (X) that such approval shall not be unreasonably withheld,
and (Y) such approval shall not be required if the Lead Investor is entitled to
receive, as a result of such transaction, any benefits or value in addition to
that which it would receive as a holder of stock or other securities of the
Company;
(ii) Distributions of cash to equity holders;
(iii) Transactions with any Affiliates of the
Company, other than direct or indirect subsidiaries of the Company;
(iv) Change in the number of authorized directors;
and
(v) Liquidation or dissolution of the Company or a
reclassification of its outstanding capital stock.
In order to obtain the approval of the Lead Investor, the Company must provide
at least ten (10) days' prior written notice to the Lead Investor of its
intention to undertake such action(s) along with additional written information
concerning the proposed action(s) to enable the Lead Investor to form a
reasonable judgment. After receipt of such notice, the Lead Investor will have
ten (10) days to approve or deny such proposed action(s) by written notice, if
no notice of approval or denial is received by the Company within such timeframe
then the action(s) contained in the original notice by the Company will be
deemed to have been approved by the Lead Investor pursuant to this Section
3.2(b)."
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2.3 Sections 3.4(a) and (b) of the XXX are hereby deleted in the
entirety and replaced with the following:
"(a) The Company has agreed to appoint Xxxx Xxxxxxx to the
Board of Directors as a nominee of the Lead Investor and will use its
commercially reasonable best efforts to encourage the Board of
Directors to appoint another nominee, who would be an Independent
Director, to the Board of Directors, effective upon the Second Closing.
Thereafter, the Company covenants and agrees that the Board of
Directors will nominate the two (2) individuals recommended by the Lead
Investor, at least one of whom would be an Independent Director, and
will put forth their reasonable best efforts to effect the election of
such directors. Each Investor covenants and agrees that such Investor
will vote its shares of Common Stock for the election of the two
individuals designated by the Lead Investor to the Company's Board of
Directors."
"(b) If a designee of any of the Investors nominated and
elected to the Board of Directors pursuant to this Section 3.4 resigns
or is removed from or vacates such position for any reason prior to the
expiration of his or her term as a director of the Company, the Lead
Investor shall have the right to select a replacement designee, at
least one of whom would be an Independent Director, and the Company
shall cause its directors to nominate such replacement designee for the
Board of Directors and the Investors shall vote their shares of Common
Stock at any regular or special meeting called for the purpose of
filling positions on the Board of Directors, or in any written consent
executed in lieu of such a meeting of stockholders, and shall take all
other actions necessary to aid in the election to the Board of
Directors of such replacement designee to fill the unexpired term of
the designee whom such new designee is replacing."
2.4 Section 4.13 of the XXX is hereby deleted in the entirety and
replaced with the following:
"4.13 Termination. This Agreement shall terminate as to each
Investor, when such Investor no longer owns any Shares or no longer has
any Warrants or the Exclusivity Warrant outstanding or, if sooner,
twenty-four (24) months after the effectiveness of a registration
statement covering the Shares or shares underlying any Warrants."
3. RE-SET WARRANTS.
3.1 The Re-Set Warrants issued to EastWest Venture Group LLC on or
about June 12, 2002 shall be amended so that the first sentence of the first
paragraph shall read as follows:
"MindArrow Systems, Inc., a Delaware corporation (the "COMPANY"),
hereby issues to EastWest Venture Group LLC (the "HOLDER") this warrant
(the "WARRANT") to purchase 912,500 shares of the Company's common
stock, $0.001 par value (the "COMMON STOCK"), at any time or from time
to time during the
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period beginning from the Second Closing Date (as defined in the
Securities Purchase Agreement dated June 12, 2002, as amended, to which
the Company and the Holder are parties) and continuing for one year
thereafter (or any earlier date specified by the Company in a written
notice given by the Company to the Holder) at the Exercise Price if and
when, during such period, the Company's Common Stock trades for 20
consecutive Trading Days at an average Closing Price of less than $0.40
per share."
3.2 Upon execution of this Amendment by any of the other Purchasers who
hold Re-Set Warrants, such other Re-Set Warrants shall be amended in a manner
consistent with the amendment to the Re-Set Warrants described in Section 3.1
above.
4. EXPENSES. The Lead Investor shall reimburse the Company for its actual costs
and expenses (including legal fees and expenses) up to $10,000 incurred by the
Company in connection with discussing, negotiating and documenting the changes
set forth in this Amendment and preparing and circulating revisions to the proxy
statement for the Company's Special Meeting of Stockholders to approve the
Second Closing. Such costs and expenses shall be reimbursed to the Company by
way of an offset to the amounts due to the Lead Investor by the Company under
Section 5.5 of the SPA.
5. REDUCTION IN EXCLUSIVITY WARRANTS.
5.1 The "Exclusivity Warrant" issued to East-West Capital Associates,
Inc. on June 12, 2002 shall be amended effective immediately to reduce the
number of shares for which the warrant is exercisable from 871,428 shares to
496,428 shares.
6. MERGER WITH CATEGORY 5.
6.1 Concurrently with the execution of this Agreement, each of
East-West Capital Associates, Inc. and EastWest Venture Group LLC shall execute
and deliver to the Company the Voting Agreement relating to the merger of the
Company with Category 5 Technologies, Inc., substantially in the form attached
hereto as Exhibit A.
6.2 East-West Capital Associates, Inc. hereby consents, pursuant to
Section 3.2(b) of the XXX, to an increase in the size of the Board of Directors
of the Company to at least nine (9) members in connection with the closing of
the proposed merger with Category 5 Technologies, Inc.
7. MISCELLANEOUS.
7.1 Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of California as such laws apply to
agreements among California residents made and to be performed entirely within
the State of California.
7.2 Entire Amendment. This Amendment constitutes the entire agreement
among the parties pertaining to the subject matter hereof and supercedes any and
all prior or contemporaneous amendments relating to the subject matter hereof.
Except as expressly amended hereby, the SPA and the XXX shall remain unchanged
and in full force and effect. This
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Amendment shall be deemed part of and is hereby incorporated into the SPA and
the XXX, as appropriate. To the extent that any term and conditions of the SPA
or the XXX shall contradict or be in conflict with any terms or conditions of
this Amendment, the terms and conditions of this Amendment shall control.
7.3 Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart.
7.4 Amendments. This Amendment may be amended and the observance of any
term hereof may be waived (either generally or in a particular instance and
either retroactively or prospectively) only in accordance with the Amendment
provisions of the SPA or the XXX, as appropriate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
AGREEMENTS as of the date first above written.
MINDARROW SYSTEMS, INC.
By: /s/ Xxxxxx Xxxxxx
-----------------------------------
Name: Xxxxxx Xxxxxx
Its: Chief Executive Officer
Address: 0000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx Xxxxx, XX 00000
SIGNATURE PAGE TO AMENDMENT TO AGREEMENTS
(Signature page to Amendment to Agreements - continued)
EAST-WEST CAPITAL ASSOCIATES, INC.,
a California corporation
By: /s/ Xxxx Xxxxxxx
-------------------------------------------
Name: Xxxx Xxxxxxx
Its: Vice President
Address: 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
EASTWEST VENTURE GROUP, LLC,
a California limited liability company
By: /s/ Xxxx Xxxxxxx
-------------------------------------------
Name: Xxxx Xxxxxxx
Its: Partner
Address: 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
SIGNATURE PAGE TO AMENDMENT TO AGREEMENTS
EXHIBIT A
VOTING AGREEMENT
In consideration of MindArrow Systems, Inc., a Delaware corporation
("Parent"), MindArrow Acquisition Corp., a Delaware corporation ("Merger Sub"),
and Category 5 Technologies, Inc., a Nevada corporation (the "Company"),
entering into the Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), pursuant to which the Company, upon the terms and subject
to the conditions thereof, will merge with and into Merger Sub (the "Merger"),
and each outstanding share of Company Common Stock will be converted into the
right to receive the Merger Consideration in accordance with the terms of the
Merger Agreement, each of the undersigned holders (each, a "Stockholder") of
shares of Parent Common Stock agrees with each of Parent, Merger Sub and the
Company as follows:
1. During the period (the "Agreement Period") beginning on the date
hereof and ending on the earlier of (i) the Effective Time, or (ii) the date of
termination of the Merger Agreement in accordance with its terms, each
Stockholder hereby agrees to vote the shares of Parent Common Stock set forth
opposite its name in Schedule A hereto and any voting securities of Parent that
may be acquired after the date hereof (collectively, the "Schedule A
Securities") to approve and adopt the Merger Agreement and the Merger (provided
that the Stockholder shall not be required to vote in favor of the Merger
Agreement or the Merger if the Merger Agreement has, without the consent of the
Stockholder, been amended in any manner that is material and adverse to such
Stockholder) and any actions directly and reasonably related thereto at any
meeting or meetings of the stockholders of Parent, and at any adjournment
thereof or pursuant to action by written consent, at or by which such Merger
Agreement, or such other actions, are submitted for the consideration and vote
of the stockholders of Parent so long as such meeting is held (including any
adjournment thereof) or written consent adopted prior to the termination of the
Agreement Period.
2. During the Agreement Period, each Stockholder hereby further agrees
to vote the Schedule A Securities to (i) elect each of the Director Nominees,
(ii) approve the Reverse Split or a reverse split based on a different ratio
that is approved by the Board of Directors of Parent, (iii) approve the 2000
Incentive Plan Amendment, and (iv) approve the Restated Certificate and any
actions directly and reasonably related thereto at any meeting or meetings of
the stockholders of Parent, and at any adjournment thereof or pursuant to action
by written consent, at or by which such Director Nominees and Proposals, as
appropriate, are submitted for the consideration and vote of the stockholders of
Parent so long as such meeting is held (including any adjournment thereof) or
written consent is adopted prior to the termination of the Agreement Period.
3. During the Agreement Period, each Stockholder hereby agrees that
such Stockholder shall not enter into any voting agreement or grant a proxy or
power of attorney with respect to the Schedule A Securities in any manner
inconsistent with the obligations of such Stockholder under this Agreement.
4. Each Stockholder hereby represents and warrants to the Company that
as of the date hereof:
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(a) Such Stockholder (i) owns of record or beneficially all of the
shares of Parent Common Stock set forth opposite the Stockholder's name in
Schedule A hereto, (ii) has the full and unrestricted legal power, authority and
right to enter into, execute and deliver this Voting Agreement without the
consent or approval of any other person, and (iii) has not entered into any
voting agreement or other similar agreement with or granted any person any proxy
(revocable or irrevocable) in respect of such shares (other than this Voting
Agreement).
(b) This Voting Agreement is the valid and binding agreement of such
Stockholder.
(c) No investment banker, broker or finder is entitled to a commission
or fee from such Stockholder, Parent or Merger Sub in respect of this Voting
Agreement based upon any arrangement or agreement made by or on behalf of the
Stockholder.
5. If any provision of this Voting Agreement shall be invalid or
unenforceable under applicable law, such provision shall be ineffective to the
extent of such invalidity or unenforceability only, without in any way affecting
the remaining provisions of this Voting Agreement.
6. This Voting Agreement may be executed in two or more counterparts
each of which shall be an original with the same effect as if the signatures
hereto and thereto were upon the same instrument.
7. The parties hereto agree that if, for any reason, any party hereto
shall have failed to perform its obligations under this Voting Agreement, then
the party seeking to enforce this Voting Agreement against such non-performing
party shall be entitled to specific performance and injunctive and other
equitable relief, and the parties hereto further agree to waive any requirement
for the securing or posting of any bond in connection with the obtaining of any
such injunctive relief. This provision is without prejudice to any other rights
or remedies, whether at law or in equity, that any party hereto may have against
any other party hereto for any failure to perform its obligations under this
Voting Agreement.
8. This Voting Agreement shall be governed by and construed in
accordance with the laws of the State of California.
9. Each Stockholder will, upon request, execute and deliver any
additional documents deemed by Parent to be reasonably necessary or desirable to
complete and effectuate the covenants contained herein.
10. This Agreement shall terminate upon the termination of the
Agreement Period.
11. No Stockholder shall sell, assign, encumber or otherwise dispose
of, or enter into any contract, option or other arrangement or understanding in
respect of the direct or indirect sale, assignment, transfer, encumbrance or
other disposition of, any Schedule A Securities during the term of this
Agreement unless such Stockholder first provides written notice thereof to the
Company and obtains a written agreement of the proposed transferee to be bound
by the terms of this Agreement.
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12. Parent, Merger Sub and the Company understand and agree that this
Agreement pertains only to each Stockholder and not to any of its affiliates, if
any, or advisers.
13. Parent, Merger Sub and the Company severally, but not jointly,
represent and warrant to each Stockholder that there is no agreement,
understanding or commitment, written or oral, to pay any consideration directly
or indirectly in connection with the Merger or otherwise to or for the benefit
of any holder of Company Common Stock or options thereon other than as set forth
in the Merger Agreement (except, in the case of directors, employees, agents,
customers, suppliers or contractors of the Company who are also holders, such
consideration as is payable by the Company in the ordinary course of business,
and except for amounts payable to officers, directors or employees in connection
with or pursuant to any options or option, stock purchase, stock ownership or
other employee benefit plans or agreements).
14. Neither Parent, Merger Sub nor the Company will enter into any
agreement with any other stockholder of Parent having a purpose or effect
substantially similar to that of this Voting Agreement on financial terms (in
respect of such other stockholder) more favorable than the terms of this Voting
Agreement.
15. Any Stockholder who is also a director or officer of Parent will
not, by execution of this Agreement, be precluded from exercising his fiduciary
duties under applicable Law in his capacity as a director or officer with
respect to Parent and nothing herein will limit or affect, or give rise to any
liability to a Stockholder by virtue of any actions taken by such Stockholder in
his or her capacity as a director or officer of Parent.
16. Nothing contained in this Voting Agreement shall be deemed to vest
in Parent, Merger Sub or the Company any direct or indirect ownership or
incidence of ownership of or with respect to any Schedule A Securities. All
rights, ownership and economic benefits of and relating to the Schedule A
Securities shall remain and belong to the applicable Stockholder and neither
Parent, Merger Sub nor the Company shall have any power or authority to direct
any Stockholder in the voting of any Schedule A Securities or the performance by
any Stockholder of its duties or responsibilities as a stockholder of Parent,
except as otherwise provided herein.
17. All capitalized terms, not otherwise defined herein, shall have the
meanings set forth in the Merger Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Voting
Agreement as of July ___, 2002.
MINDARROW SYSTEMS, INC., a Delaware
corporation
By:
--------------------------------------
Name:
Title:
MINDARROW ACQUISITION CORP., a Delaware
corporation
By:
--------------------------------------
Name:
Title:
CATEGORY 5 TECHNOLOGIES, INC., a Nevada
corporation
By:
--------------------------------------
Name:
Title:
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STOCKHOLDERS:
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5
SCHEDULE A
TO
VOTING AGREEMENT
Stockholder Class Number of Shares
----------- ----- ----------------
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