EXHIBIT 99.1
INVESTMENT REPRESENTATION
AND LOCKUP AGREEMENT
Alloy Online, Inc.
000 Xxxx 00/xx/ Xxxxxx
00/xx/ Xxxxx
Xxx Xxxx, XX 00000
Attn: Chief Financial Officer
Re: Proposed issuance of shares (the "Shares") of Alloy Online, Inc.
("Parent") Common Stock, $0.01 par value per share (the "Common
Stock"), in connection with the acquisition (the "Reorganization") of
Xxxxx Marketing, Inc. (the "Company") by Alloy Acquisition Corporation
("Acquisition Sub") pursuant to an Agreement and Plan of
Reorganization, dated as of July 17, 2000, by and between Parent,
Acquisition Sub, the Company and SWI Holdings, LLC ("SWI") (the
"Reorganization Agreement")
Ladies and Gentlemen:
The undersigned has, in connection with the transactions contemplated by
the Reorganization Agreement, been issued shares of Common Stock. In connection
with such issuance, and as required by the Reorganization Agreement, the
undersigned hereby represents and warrants to you and agrees with you as
follows, effective as of the date hereof:
1. The undersigned has received and has had the opportunity to review certain
information relating to Parent and the Reorganization, including, without
limitation, copies of the following agreements and exhibits related to the
Reorganization and the following statements and reports filed by Parent
with the Securities and Exchange Commission (the "Commission"):
(a) Form of Reorganization Agreement, including the exhibits and schedules
attached thereto;
(b) Parent's Prospectus relating to the initial public offering of its
Common Stock filed with the Commission on May 14, 1999;
(c) Parent's Registration Statement on Form S-8 filed with the Commission
on November 10, 1999;
(d) Parent's Annual Report on Form 10-K for the fiscal year ended January
31, 2000; and
(e) Parent's Quarterly Report on Form 10-Q for the quarter ended April 30,
2000.
2. The undersigned has checked the box below if it is an "Accredited
Investor," as such term is defined in Section 501(a) or Regulation D
("Regulation D") of the rules and regulations promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). If the
undersigned is not an Accredited Investor, it represents and warrants that
either alone or with its purchaser representative(s) (as such term is
defined in Section 501(h) of Regulation D) has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of the Reorganization and a prospective
investment in the Shares.
"Accredited Investor" shall mean any person who comes within any of the
following categories:
(a) Any bank as defined in Section 3(a)(2) of the Securities Act or any
savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, as
amended; any insurance company as defined in Section 2(13) of the
Securities Act; any investment company registered under the Investment
Company Act of 1940, as amended, or a business development company as
defined in Section 2(a)(48) of the Securities Act; any Small Business
Investment Company licensed by the U.S. Small Business Administration
under Section 301(c) or (d) of the Small Business Investment Act of
1958, as amended; any plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its employees, is such
plan has total assets in excess of $5,000,000; any employee benefit
plan within the meaning of the Employee Retirement Income Security Act
of 1974, as amended, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is either a
bank, savings and loan association, insurance company, or registered
investment advisor, or if the employee benefit plan has total assets
in excess of $5,000,000, or, if a self-directed plan, with investment
decisions made solely by persons that are Accredited Investors;
(b) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940, as amended;
(c) Any organization described in Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended, corporation, Massachusetts or
similar business trust, or partnership, not formed for the specific
purpose of acquiring the securities offered, with total assets in
excess of $5,000,000;
(d) Any director, executive officer, or general partner of the issuer of
the securities being offered or sold, or any director, executive
officer, or general partner of a general partner of that issuer;
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(e) Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000;
(f) Any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the
current year;
(g) Any trust with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person who meets the
definition of a "purchaser representative" found in Rule 501(h) of
Regulation D; and
(h) Any entity in which all of the equity owners are Accredited Investors.
[_] The undersigned represents and warrants that it is an "Accredited
Investor."
3. Engagement of Purchaser Representative. If the undersigned has engaged a
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purchaser representative, the undersigned has checked the following box and
indicated the name of such purchaser representative.
[_] ___________________________________
The undersigned has also attached all disclosure materials provided by such
purchaser representative to the undersigned describing any material
relationship between the purchaser representative or its affiliates and
Parent or its affiliates that then exists, that is mutually understood to
be contemplated, or that has existed at any time during the previous two
years, and any compensation received or to be received as a result of such
relationship.
4. Opportunity to Investigate. The undersigned has had an opportunity for a
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reasonable period of time to ask questions of and receive answers from
Parent concerning Parent, the Shares and the terms and conditions of the
transactions contemplated by the Reorganization Agreement, and the
undersigned has had an opportunity to obtain any additional information the
undersigned considered necessary to verify the accuracy of the information
furnished in the documents listed in Section 1 above.
5. Investment Purpose. All Shares issued in connection with the
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Reorganization that are distributed to the undersigned will be so acquired
by it for its own account and not on behalf of any other person. The
undersigned will be so acquiring the Shares for investment and, except as
set forth in the following sentence, not for distribution or with the
intent to divide its participation with others or of selling, assigning,
transferring or otherwise disposing of the Shares. It is understood that
the undersigned may make bona fide gifts or distributions (including to its
members) without consideration, transfers by
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operation of law, so long as any donee or transferee agrees not to sell,
transfer or otherwise dispose of the Shares except as provided herein and
executes and delivers to Parent a Representation and Lock-Up Agreement in
substantially the form hereof.
6. The undersigned understands that:
(a) No Registration. The Shares have not been registered by Parent under
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the Securities Act or any applicable state securities laws (the "State
Acts"), and, therefore, the Shares cannot be sold or otherwise
transferred unless either they are registered under the Securities Act
and any applicable State Acts or an exemption from such registration
is available. Parent has not made any representations that it will
register the Shares under the Securities Act or the State Acts, except
in the Registration Rights Agreement of even date herewith.
(b) Required Legends. The certificates evidencing the Shares will include
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the legend set forth below, which the undersigned has read and
understands:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND
MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. THESE SECURITIES ARE ALSO SUBJECT TO AN
INVESTMENT REPRESENTATION AND LOCKUP AGREEMENT WITH THE CORPORATION
WHICH RESTRICTS THE TRANSFER THEREOF, A COPY OF WHICH CAN BE OBTAINED
FROM THE CORPORATION AT ITS EXECUTIVE OFFICES.
(c) Transfer Restrictions. Subject to the lock-up provided under Section
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9 herein, by accepting the certificates bearing the aforesaid legend,
the undersigned agrees, prior to any transfer of the Shares
represented by the Certificates (except a distribution of the Shares
for no consideration to the members of the undersigned), to give
written notice to Parent expressing its wish to effect such transfer
and describing briefly the proposed transfer. Upon receiving such
notice, Parent shall present copies thereof to its counsel and the
following provisions shall apply:
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(i) if, in the opinion of Parent's counsel, the proposed
transfer of such Shares may be effected without registration of such
Shares under the Securities Act and the State Acts, Parent shall
promptly thereafter (but in any event within 5 business days of its
receipt of the undersigned's request) notify the undersigned,
whereupon the undersigned shall entitled to transfer such Shares, all
in accordance with the terms of the notice delivered by the
undersigned to Parent and upon such further terms and conditions as
reasonably shall be required by Parent to ensure compliance with the
Securities Act and the State Acts, and Parent will deliver, upon
surrender of the certificate evidencing such Shares, in exchange
therefor, a new certificate not bearing a legend of the character set
forth above if such counsel reasonably believes that such legend is no
longer required under the Securities Act and the State Acts; and
(ii) if, in the opinion of Parent's counsel, the proposed
transfer of such Shares may not be effected without registration of
such Shares under the Securities Act or the State Acts, a copy of such
opinion shall be promptly (but in any event within 5 business days of
its receipt of the undersigned's request) delivered to the
undersigned, and such proposed transfer shall not be made unless such
registration is then in effect or otherwise subsequently is permitted
under the Securities Act and the State Acts.
(d) Stop Transfer Orders. Parent may, from time to time, make stop
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transfer notations in its records and deliver stop transfer
instructions to its transfer agent to the extent Parent reasonably
considers it necessary to ensure compliance with the Securities Act
and the State Acts.
7. Experience and Suitability. The undersigned has knowledge and experience
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in financial and business matters, knows of the high degree of risk
associated with investments generally, is capable of evaluating the merits
and risks of an investment in the Shares and is able to bear the economic
risk of an investment in the Shares in the amount contemplated. The
undersigned has adequate means of providing for its current financial needs
and contingencies and will have no current or anticipated future needs for
liquidity which would be jeopardized by the investment in the Shares. The
undersigned can afford a complete loss of its investment in the Shares.
8. Substantial Degree of Risk. The undersigned understands that an investment
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in the Shares involves a substantial degree or risk, including, without
limitation, matters discussed under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Parent's
Report on Form 10-Q for the fiscal quarter ended April 30, 2000. No
representation has been made regarding the future performance of Parent or
the future market value of the Shares.
9. Lock-Up Agreement. In order to induce Parent to enter into the
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Reorganization Agreement, the undersigned hereby agrees that it will not,
except with the prior written approval of Parent or a distribution by the
undersigned to its members for no
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consideration, engage in a Disposition (as defined below) of more than one-
twelfth (1/12) of the Shares during the period from the date hereof until
the date which is exactly one month from the date hereof and during each
subsequent monthly period thereafter, up and to the date which is exactly
one year after the date hereof (the "Anniversary Date'). The restriction
imposed by the foregoing sentence shall cease to be in effect and shall
have no further effect after the Anniversary Date. A "Disposition" shall
mean to directly or indirectly offer to sell, contract to sell or otherwise
sell or dispose of any of the Shares, or enter into any other transaction
which is designed to, or might reasonably be expected to, result in the
disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) of any right, title or
interest in any of the Shares, including, without limitation, by filing (or
participating in the filing of) a registration statement (other than
pursuant to the provisions of the Registration Rights Agreement) with the
Commission in respect of, or establishing or increasing a put equivalent
position within the meaning of Section 16 of the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission
promulgated thereunder. The undersigned agrees and consents to the entry of
stop transfer instructions with Parent's transfer agent against the
transfer of Shares held by the undersigned except in compliance with the
foregoing restrictions. Notwithstanding anything contained herein to the
contrary, the provisions of this paragraph shall not be affected in any
manner by the effectiveness of any registration statement under the
Securities Act covering all or any part of the shares of Common Stock as to
which this paragraph is then applicable.
10. Distribution of the Shares. In the event of any distribution of the Shares
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by the undersigned to one of its members (a "Member"), it shall be a
condition to such distibution that such Member agree to the terms of
Sections 10, 11 and 12 of this Agreement. Under this Section 10, such
Member agrees that (i) it will not, except with the prior written approval
of the undersigned, engage in a Disposition of more than its pro rata share
of the Monthly Distribution Amount in each month prior to the Anniversary
Date, (ii) at the undersigned's request, the Parent may enter stop transfer
instructions with Parent's transfer agent to enforce such restrictions, and
(iii) in addition to any other remedies at law or in equity, the
undersigned and the other Members of the undersigned shall be entitled to
an injunction or injunctions to prevent breaches of this Section 10 by such
Member and to enforce specifically the terms and provisions of this Section
10. The restrictions imposed by this Section 10 shall cease to be in effect
and shall have no further effect after the Anniversary Date. The
undersigned agrees to provide Parent with such information as Parent may
reasonably request such that Parent may provide appropriate instructions to
Parent's transfer agent in connection with any Disposition of Shares.
Notwithstanding the foregoing, the Parent shall have no liability to the
undersigned or any Member for a breach of the terms of this Section 10 by
such Member; provided that in any event the undersigned and any
Indemnifying Members (as defined below) agree, jointly and severally, to
indemnify and hold Parent harmless from any and all claims, and
liabilities, judgments, penalties, losses, costs, damages and expenses
resulting therefrom, including reasonable attorneys' fees (collectively,
"Claims"), made by the undersigned, its Members and/or third parties
against Parent arising in connection with this Section 10.
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"Indemnifying Members" shall mean, with respect to any Claims, any Members
whose actions directly or indirectly gave rise to or contributed to such
Claims.
11. Indemnification. The undersigned recognizes that the issuance of Shares
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will be based to a material extent upon its representations, warranties and
agreements set forth in this Agreement, and the undersigned agrees on
demand to indemnify and hold harmless Parent and its officers, directors
and agents from and against any and all loss, damage, liability or expense,
including costs and reasonable attorneys' fees, to which they may be
subject or which they may incur by reason of, or in connection with, any
misrepresentation of any material fact the undersigned has made in this
Agreement, any breach by the undersigned in any material respect of any
agreement contained in this Agreement, or arising out of the undersigned's
sale or distribution of any Shares in violation of the Securities Act, the
State Acts or this Agreement. All representations, warranties and
covenants and the indemnification contained in this Agreement shall survive
this Agreement and the undersigned's admission as a stockholder of Parent.
12. Miscellaneous.
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(a) Notices. All notices, requests, consents and other communications
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hereunder shall be in writing, shall be addressed to the receiving
party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered
by hand, (ii) made by telecopy or facsimile transmission, (iii) sent
by overnight courier, or (iv) sent by registered mail, return receipt
requested, postage prepaid.
If to the undersigned, to the address set forth on the signature
page hereto.
If to Parent, to the address set forth at the top of this
Agreement.
All notices, requests, consents and other communications hereunder
shall be deemed to have been given either (i) if by hand, at the time
of the delivery thereof to the receiving party at the address of such
party set forth above, (ii) if made by telecopy or facsimile
transmission, at the time that receipt thereof has been acknowledged
by electronic confirmation or otherwise, (iii) if sent by overnight
courier, on the next business day following the day such notice is
delivered to the courier service, or (iv) if sent by registered mail,
on the 5th business day following the day such mailing is made.
(b) Entire Agreement. This Agreement, together with the Reorganization
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Agreement and the Ancillary Agreements incorporated by reference
therein, embodies the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation,
warranty, covenant or agreement of any kind not expressly set forth in
this Agreement shall affect, or be used to interpret, change or
restrict, the express terms and provisions of this Agreement.
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(c) Further Assurances. Within ten (10) days after receipt of a written
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request from Parent, undersigned agrees to provide such information
and to execute and deliver such documents as reasonably may be
necessary to comply with any and all laws and ordinances to which
Parent is subject.
(d) Modifications and Amendments. The terms and provisions of this
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Agreement may be modified or amended only by written agreement
executed by the parties hereto.
(e) Waivers and Consents. The terms and provisions of this Agreement may
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be waived, or consent for the departure therefrom granted, only by
written document executed by the party entitled to the benefits of
such terms or provisions. No such waiver or consent shall be deemed
to be or shall constitute a waiver or consent with respect to any
other terms or provisions of this Agreement, whether or not similar.
Each such waiver or consent shall be effective only in the specific
instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
(f) Assignment. This Agreement may not be transferred or assigned
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without the prior written consent of Parent and any such transfer or
assignment shall be made only in accordance with applicable laws and
any such consent.
(g) Benefit. All statements, representations, warranties, covenants and
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agreements in this Agreement shall be binding on the parties hereto
and shall inure to the benefit of the respective successors and
permitted assigns of each party hereto. Nothing in this Agreement
shall be construed to create any rights or obligations except among
the parties hereto, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
(h) Governing Law. This Agreement and the rights and obligations of the
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parties hereunder shall be construed in accordance with and governed
by the law of the State of Delaware, without giving effect to the
conflict of law principles thereof.
(i) Severability. In the event that any court of competent jurisdiction
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shall determine that any provision, or any portion thereof, contained
in this Agreement shall be unenforceable in any respect, then such
provision shall be deemed limited to the extent that such court deems
it enforceable, and as so limited shall remain in full force and
effect. In the event that such court shall deem any such provision,
or portion thereof, wholly unenforceable, the remaining provisions of
this Agreement shall nevertheless remain in full force and effect.
(j) Interpretation. The parties hereto acknowledge and agree that: (i)
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each party and its counsel have reviewed the terms and provisions of
this Agreement; (ii) the rule of construction to the effect that any
ambiguities are resolved against the drafting party
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shall not be employed in the interpretation of this Agreement; and
(iii) the terms and provisions of this Agreement shall be construed
fairly as to the parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the
preparation of this Agreement. Whenever used herein, the singular
number shall include the plural, the plural shall include the
singular, the use of any gender shall include all persons.
(k) Headings and Captions. The headings and captions of the various
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subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect the meaning or construction of
any of the terms or provisions hereof.
(l) Enforcement. Each of the parties hereto acknowledges and agrees that
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the rights acquired by each party hereunder are unique and that
irreparable damage would occur in the event that any of the provisions
of this Agreement to be performed by the other party were not
performed in accordance with their specific terms or were otherwise
breached. Accordingly, in addition to any other remedy to which the
parties hereto are entitled at law or in equity, each party hereto
shall be entitled to an injunction or injunctions to prevent breaches
of this Agreement by the other party and to enforce specifically the
terms and provisions hereof in any federal or state court to which the
parties have agreed hereunder to submit to jurisdiction.
(m) No Waiver of Rights, Powers and Remedies. No failure or delay by a
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party hereto in exercising any right, power or remedy under this
Agreement, and no course of dealing between the parties hereto, shall
operate as a waiver of any such right, power or remedy of the party.
No single or partial exercise of any right, power or remedy under this
Agreement by a party hereto, nor any abandonment or discontinuance of
steps to enforce any such right, power or remedy, shall preclude such
party from any other or further exercise thereof or the exercise of
any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of
such party to pursue other available remedies. No notice to or demand
on a party not expressly required under this Agreement shall entitle
the party receiving such notice or demand to any other or further
notice or demand in similar or other circumstances or constitute a
waiver of the rights of the party giving such notice or demand to any
other or further action in any circumstances without such notice or
demand.
(n) Counterparts. This Agreement may be executed in one or more
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counterparts, and by different parties hereto on separate
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
13. Under penalties of perjury, the undersigned certifies that:
(a) IT HAS CONSIDERED AND FULLY UNDERSTANDING ALL OF THE RISKS INVOLVED IN
MAKING AN INVESTMENT IN THE SECURITIES OF PARENT.
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(b) THE REPRESENTATIONS AND RESPONSES PROVIDED HERERIN BY THE UNDERSIGNED
ARE TRUE AND CORRECT, AND IT ACKNOWLEDGES THAT PARENT CAN RELY ON SUCH
REPRESENTATIONS AND RESPONSES IN CONNECTION WITH THE ISSUANCE OF THE
SHARES TO THE UNDERSIGNED IN CONNECTION WITH THE REORGANIZATION.
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IN WITNESS WHEREOF, the undersigned has executed this Agreement on this
18th day of July, 2000.
SWI HOLDINGS, LLC
By: /s/ Xxxxx Xxxxx
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Name: Xxxxx Xxxxx
Title: Managing Member
The foregoing Representation and Lock-up is hereby accepted.
ALLOY ONLINE, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
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Name: Xxxxxxx X. Xxxxxxx
Title: Chief Executive Officer
DATE: July 18, 2000
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