EXHIBIT 10.11
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▇▇▇▇▇▇▇▇▇▇▇.▇▇▇(TM)
NCS and ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Business Agreement
Version 1.0
March 9, 1999
Overview
1.1 NCS:
National Computer Systems, a global information services company providing
software, services and systems for the collection, management and interpretation
of data. NCS ▇▇▇▇://▇▇▇.▇▇▇.▇▇▇ serves important segments of the education,
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testing, assessment and complex data management markets.
NCS is the world's largest commercial processor of educational measurement
instruments, processing and scoring over 30 million student assessment tests.
Additionally, National Computer Systems is the nation's single largest provider
of financial management, student information, and instructional management
software and services to the K-12 education market. Across all of these markets,
NCS supports its customers by providing service solutions that include
consulting, training, network administration, system support and outsourcing.
1.2 ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇:
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ is an Internet reseller of children's educational products, and
is the fastest growing publisher of children's educational software in the US.
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ features a comprehensive database of 1000 plus educational
products including books, software, and games for children in Preschool through
Ninth Grade. Each product is characterized using a unique combination of over
100 educational attributes, making it easy to select products based on the
individual education goals of parents/teachers.
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇'s mission is to empower parents, teachers and educational
professionals to play a more productive role in the education of children. The
Company's approach is to understand a child's academic strengths and weaknesses,
using assessment tools and technology, and to apply that understanding in
identifying products and services to enhance a child's learning and to use the
Internet to enable customers to purchase those products and services
conveniently at ▇▇▇▇://▇▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇▇.
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2
Goals and Objectives
2.1 General:
The business relationship between NCS and ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ is a focused priority
on providing value-added electronic testing and educational products and
services to our clients and their constituents in the K-12 market. The theme of
the business proposition is to augment state assessment programs by offering a
variety of HelpTests for users to access on-line. These tests will provide
feedback on student skill proficiency and performance. Using this skill data,
NCS will refer parents/teachers to recommended web sites where they may find
educationally relevant information, services, and products (▇▇▇▇▇▇▇▇▇▇▇.▇▇▇).
2.2 On-line HelpTests:
The purpose of the NCS web site is to provide HelpTests aligned specifically to
individual state assessment standards and curriculum requirements. Additionally
off-grade tests and national tests (e.g., NAEP items) will also be provided
online. These tests will promote confidence in test taking skills, provide an
early assessment of student strengths and areas for improvement, an electronic
workbook for repeat test takers working to pass state matriculation standards,
and provide educational product recommendations for skill proficiency
improvement (▇▇▇▇▇▇▇▇▇▇▇.▇▇▇). Additionally, the site will accommodate direct
entry of individual student report data for parents/teachers whose children have
already taken a state assessment test.
It is not planned that a paper-based HelpTest would be provided as part of this
project.
[CONFIDENTIAL TREATMENT REQUESTED]**
2.3 Link To ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇:
At the completion of a HelpTest, the student scores and results are provided on-
line. The user will be referred to options, including "Would You Like To See
Products and Services Tailored To: 1) Concentration On Strengths 2)
Concentration On Areas For Improvement." After a selection, a Notice page will
advise the user of linking to ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ for product recommendations.
The user will arrive at the ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ web site, with special co-site
branding of NCS and ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ and navigation button(s) back to NCS. This
will promote intersite navigation and will build the brand recognition,
confidence, and quality of our relationship.
[CONFIDENTIAL TREATMENT REQUESTED]**
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
3
Project Plans
3.1 Pilot Projects:
NCS has identified two state pilot projects to kickoff the initiative. One
pilot will be a statewide initiative for Michigan and the [CONFIDENTIAL
TREATMENT REQUESTED]**. For participating in the pilot projects, NCS will
provide a special promotional offer of [CONFIDENTIAL TREATMENT REQUESTED]** and
a [CONFIDENTIAL TREATMENT REQUESTED]** merchandise credit at the ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
web store. This discount could be applied to teacher accounts and/or Title I
district funds. Participation by states in the pilot projects is subject to
their approval.
3.2 Project Phases:
This project will be divided into three phases.
Phase 1 will involve the generation of a PC based demonstration tool and
marketing materials to initiate discussions with customers to promote support
for hosting a pilot project. This system will include an alpha release of the
▇▇▇▇▇▇▇▇▇▇.▇▇▇ web site including menus and links, (1) 30Q Math Grade 4
HelpTest, test skill results mapping to ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ skill sets, and the
process of linking to the ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ web site for product recommendations.
Phase 2 will involve the active deployment of a beta ▇▇▇▇▇▇▇▇▇▇.▇▇▇ web site to
support both the Michigan and [CONFIDENTIAL TREATMENT REQUESTED]** pilots. NCS
will provide a subset of HelpTests and ReportCard entry forms for inputting
state test results. Skill results from the HelpTest and ReportCard will be
completely mapped to ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ skill sets. The user will then be windowed
to the ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ site for product recommendations.
Phase 3 will involve a postmortem analysis of the pilot projects and their
contribution to the NCS/▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ value proposition. Collected
information such as demographics, purchasing profile, adoption rates, revenue
models, customer reactions, and other meaningful market data will be assessed to
help refine the parameters of the business relationship. At the conclusion of
this phase, a Go/No Go decision will be made on a nationwide deployment of this
initiative.
3.3 Project Tasks and Schedule:
The project tasks and planned schedule associated with completion of the Phases
1 through 3 are shown in the attached project schedule:
Picture of ICON
** [CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
4
Business Agreement NCS/▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ Schedule
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[CONFIDENTIAL TREATMENT [CONFIDENTIAL [CONFIDENTIAL TREATMENT
REQUESTED]** TREATMENT REQUESTED]**
------------------------ REQUESTED]**
▇▇▇▇▇▇▇▇▇▇.▇▇▇ Site
Development
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[CONFIDENTIAL
TREATMENT
REQUESTED]**
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Marketing and Promotion
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[CONFIDENTIAL
TREATMENT
REQUESTED]**
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Business Development
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[CONFIDENTIAL
TREATMENT
REQUESTED]**
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Live Pilot
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[CONFIDENTIAL
TREATMENT
REQUESTED]**
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**[CONFIDENTIAL TREATMENT REQUESTED] indicates material that has been omitted
and for which confidential treatment has been requested. All such omitted
material has been filed with the Securities and Exchange Commission pursuant to
Rule 406 promulgated under the Securities Act of 1933, as amended.
Terms and Conditions
4.1 General:
This is the entire agreement between the parties and it, together with the Non-
Disclosure Agreement referred to herein, replaces and supersedes all other
agreements written or oral. This Agreement may only be modified by a written
instrument signed by authorized representatives of both parties. This Agreement
and the performance and relationship provided for herein shall be governed by
the laws of and subject to the exclusive jurisdictions of the courts of and
Federal courts in, the State of Minnesota.
4.2 Exclusivity:
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ and NCS agree to work on an exclusive basis for the Term of this
Agreement. This means that NCS will be ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇'s exclusive partner for
the purpose of establishing the state initiatives. ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ would be
precluded from a similar relationship with a book/test publisher or NCS
competitor in assessment administration and processing. NCS would be precluded
from a similar relationship with another PreK-9 children's educational products
company reseller (not precluded are companies marketing their own products and
any products offered by National Computer Systems) who competes with
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇.
4.3 Term:
The term of this Agreement ("Term") shall be [CONFIDENTIAL TREATMENT
REQUESTED]** years from the date set forth above. This agreement shall expire at
the end of the last day of the Term unless extended by mutual agreement of the
parties.
4.4 Database And Rights:
There are three databases that are anticipated to result from these state
initiatives.
[CONFIDENTIAL TREATMENT REQUESTED]**
** [CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
Terms and Conditions (Cont.)
4.5 Mutual Responsibilities:
The parties will contribute the following assets and responsibilities to this
initiative:
NCS will provide:
. Knowledge of state assessment practices; institutional marketing
. Test item bank development; build on-line HelpTests
. Web site for hosting, administering, scoring HelpTests
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ will provide:
. Expertise in consumer and on-line marketing
. Knowledge of leading edge computer-based assessment technology
. E-commerce, order processing, and fulfillment
. Web site for product recommendations and expert reviews
4.6 Assignment:
Neither party shall assign this business agreement in whole or in part without
the prior written approval of the other party, which shall not be unreasonably
withheld.
4.7 Liability:
Each party will, at its expense but subject to the limitations set forth in this
paragraph, defend, indemnify and hold harmless the other (the party from whom
indemnification is sought hereinafter the "Indemnifying Party") against, and pay
any costs, expenses and damages in connection therewith, an action or claim,
based upon material on the Indemnifying Party's web site, or based on material
(including, without limitation intellectual property) owned or provided by the
indemnifying party, including without limitation an action or claim for
infringement or misappropriation of a third party's trademark, trade secret or
copyrighted material, or based upon the products or operation of the
Indemnifying Party or the negligence or willful misconduct of Indemnifying Party
or its employees or agents or anyone acting on its behalf or under its direction
or control; provided that: (a) the party seeking indemnification promptly
notifies the Indemnifying Party of the claim; and (b) subject to evidence
reasonably satisfactory to the party seeking indemnification of the financial
responsibility of the Indemnifying party and selection of reputable and
appropriate counsel by the Indemnifying Party, the Indemnifying Party may, in
full satisfaction of its obligations under this section, assume the defense
and/or settlement of any such action or claim and payment of any award or
settlement amount, all at its own expense. The party seeking indemnification may
be represented in such action by counsel of its selection at its own expense.
The Indemnifying Party shall not have liability to the other party regarding any
claim to the extent arising from the negligence or willful misconduct of the
party seeking indemnification or its employees or agents or anyone acting on its
behalf or under its direction or control or arising from web site content
provided by the party seeking indemnification.
Terms and Conditions (Cont.)
EXCLUDING LIABILITY ARISING UNDER OBLIGATIONS OF NON-DISCLOSURE (AS SET FORTH IN
SECTION 4.8 BELOW), OR ARISING FROM THE INDEMNITY SET FORTH ABOVE: NEITHER PARTY
SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, CONSEQUENTIAL, OR INCIDENTAL
DAMAGES (INCLUDING DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION,
LOSS OF BUSINESS INFORMATION, AND THE LIKE) ARISING OUT OF THIS AGREEMENT, EVEN
IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, NOR SHALL
EITHER PARTY'S AGGREGATE LIABILITY (EXCLUDING LIABILITY TO MAKE PAYMENTS DUE
HEREUNDER) FOR MATTERS ARISING OUT OF THE SUBJECT MATTER OF THIS AGREEMENT,
WHETHER IN CONTRACT, TORT OR OTHERWISE, EXCEED THE AMOUNT PAID OR PAYABLE TO NCS
BY ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ DURING THE 12 MONTHS PRECEDING THE OCCURRENCE GIVING RISE TO
THE CLAIM OF LIABILITY.
4.8 Confidentiality:
The parties acknowledge and agree that performance of this Agreement shall from
time to time require disclosure of confidential information by each party to the
other. The exchange and disclosure of such information shall be governed by the
terms of that certain Non-Disclosure Agreement entered into by and between the
parties and executed on September 9, 1998.
4.9 Warranty:
UNLESS EXPRESSLY SET FORTH AND PROVIDED FOR IN THIS AGREEMENT OR AN AMENDMENT
HERETO, BOTH PARTIES DISCLAIM ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT
NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY EITHER
PARTY, THEIR AGENTS OR EMPLOYEES SHALL CREATE A WARRANTY OR IN ANY WAY INCREASE
THE SCOPE OF THE WARRANTIES IN THIS AGREEMENT. Neither party shall make any
warranty or representation concerning the products or services of the other
party or other material information concerning the other party, unless with the
express, prior written consent of that party.
Value Proposition
5.1 Revenue Model:
The revenue from this initiative will result from the purchase of products and
services at ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ by parents/teachers. For state participation in the
pilot projects, NCS will provide a special promotional offer of [CONFIDENTIAL
TREATMENT REQUESTED]**, and a [CONFIDENTIAL TREATMENT REQUESTED]** merchandise
credit at the ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ web store. This discount will be applied to
special teacher accounts and/or donations to Title/district funds, as
applicable.
It is envisioned that providing the HelpTest service for free will maximize
traffic to the NCS web site, and ultimately maximize the exposure and adoption
rate of products on the ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ site. However, these pilot projects may
validate the possibility of ultimately charging a registration fee for the
HelpTest on the NCS web site.
5.2 Financial Model:
1. Standard Affiliate Program: Revenue generated from clients linking
from the NCS web site to the ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ store. Each and every time
a client links from NCS to ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ and purchases products, NCS
will receives [CONFIDENTIAL TREATMENT REQUESTED]** of the gross margin
of all ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ sales to that client.
2. Special Affiliate Program: Revenue generated from clients returning
directly to the ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ store through a special ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
homepage especially designed for NCS and its customers. (e.g.,
▇▇▇▇://▇▇▇.▇▇▇▇▇▇▇▇▇▇▇. com/whk). Each and every time a client enters
this homepage and subsequently purchases products, NCS receives
[CONFIDENTIAL TREATMENT REQUESTED]** of the gross margin of all
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ sales to that client.
3. Special Coupon Program: Revenue generated from clients returning
directly to the ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ store and purchasing products using
special NCS incentive codes. Each and every time a client purchases
products and enters a special NCS code, NCS receives [CONFIDENTIAL
TREATMENT REQUESTED]** of the gross margin of all ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ sales
to that client.
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
Value Proposition (Cont.)
5.3 Margin Calculation:
Gross margin will be defined as the net revenue of the sale of products less the
cost of goods sold for those products:
Net revenue shall be defined as the gross revenue on the sale of all products
less any discounts, applicable promotions, merchandise incentive program
discounts or other programs that reduce the cost of the product to the customer.
Shipping and sales tax are excluded from the calculation.
Cost of Goods shall be defined as the cost of the product to ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, as
charged by our 3/rd/ party fulfillment partner. These costs consist of the
purchase cost from the product manufacturer plus handling and fulfillment fees
incurred by our fulfillment partner. Additionally, royalties to the content
providers of proprietary ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ products (the Children's Skills Test
line) shall be an additional cost of goods on those items only. Freight-out
costs are excluded from the calculation.
5.4 Terms of Payment:
Payment to NCS under this agreement shall occur quarterly, 30 days following the
close of each calendar quarter.
5.5 Audit:
NCS shall have the right to perform (or have performed on its behalf) an audit
of the books and records (including business records and web site activity
records regardless of media) of ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, relating to the performance of
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇'s obligations under this Agreement and the calculation of all
payments due to be paid to NCS hereunder. Such audits shall be conducted at
reasonable times and frequencies, with a minimum advanced notice of 10 business
days, during regular business hours and subject to the terms and condition of
the Non-Disclosure Agreement referred to in Section 4.8.
5.6 Purchase Incentives:
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ offers NCS, on a nonexclusive basis, a merchandise incentive
program. This incentive program allows NCS to offer merchandise credits to its
clients for purchasing products at the ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ web store using methods
described in Section 5.2. These credits may be applied to teacher or other
special accounts at the rate of [CONFIDENTIAL TREATMENT REQUESTED]** of sales
price. NCS and ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ shall equally share the cost burden of a client
exercising a merchandise credit.
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
Value Proposition (Cont.)
5.7 Stock Warrants:
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ will grant to NCS, with the approval of the ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Board Of Directors, warrants to purchase 75,000 shares (approximately 1.00% of
the company post financing) of the Company's common stock at an exercise price
of $2.00/share. These shares would be exercisable in four equal increments based
on completion of the planned rollout to states (to be mutually agreed upon). One
fourth would be immediately exercisable upon completion of phase three and a
"Go" decision on large scale deployment of the state initiatives. The remaining
warrants would be exercisable as completion of the rollout occurs.
This agreement ("Agreement") is entered into effective March 9, 1999 between
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc., a Delaware Corporation, with offices at ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ and National Computer Systems, Inc. a Minnesota
Corporation with offices at ▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇. The
abbreviation "NCS" as used herein refers to the State Assessment business unit
of the Measurement Services Division of National Computer Systems, Inc. In
consideration of the mutual promises, obligations and rights set forth in this
Agreement, the sufficiency of which is hereby acknowledged by both parties, and
intending to be bound by this Agreement, the parties agree as follows:
National Computer Systems, Inc.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
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Authorized Signature
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
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Title: General Manager
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Date: 3/10/99
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▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Authorized Signature
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Title: President/CEO
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Date: 3/15/99
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