Alloy Announces Dismissal of Securities Class Action and Proposed Settlement of Related Derivative Action

Business Wire, Dec 27, 2004

NEW YORK -- Alloy, Inc. (Nasdaq:ALOY), a media, marketing services, direct marketing and retail company primarily targeting the dynamic Generation Y population, today announced that it has settled the putative class action, entitled In Re Alloy, Inc. Securities Litigation, 03 CV 1597 (WHP) (the "Securities Litigation"), which action was filed against Alloy and certain of its directors in March 2003. A preliminary settlement of the Securities Litigation was reached by the parties thereto on July 12, 2004. After a hearing held on November 4, 2004, the Honorable William H. Pauley III of the United States District Court for the Southern District of New York signed an Order and a Final Judgment, each dated December 2, 2004, approving the settlement and dismissing the Securities Litigation and all claims asserted therein on the merits and with prejudice as to the plaintiffs and the Settlement Class. The Securities Litigation was settled in exchange for a payment of $6.75 million, which amount was paid by the Company's insurers.

In addition, the Company announced that it has reached a settlement in the related derivative action brought by Plaintiff Yeung Chan (the "Plaintiff") on behalf of Alloy in October 2003 and amended in March 2004 against officers and directors Matthew C. Diamond, James K. Johnson, Jr., Samuel A. Gradess, Peter M. Graham, David Yarnell and Edward Monnier (the "Derivative Action"). By order dated December 7, 2004, the Court preliminarily approved the settlement. The Company expects that an order and final judgment approving the settlement and dismissing the Derivative Action will be entered following the fairness hearing scheduled for February 25, 2005.

In connection with the proposed settlement of the Derivative Action, Alloy has agreed to make certain corporate governance changes. Alloy is sending to all of its shareholders of record as of December 14, 2004 a Notice Of Proposed Settlement Of Derivative Action, Settlement Hearing And Right To Appear (the "Notice"). The Notice is not an expression of any opinion as to the merits of any claim or defense which has been or may be asserted in the Derivative Action, but is being given to advise Alloy's shareholders that the Honorable William H. Pauley III, United States District Judge, will conduct a hearing on February 25, 2005, at 10:00 a.m. in Courtroom #11D, United States Courthouse, 500 Pearl Street, New York, New York 10007-1213 (or at such adjourned date as the Court may direct without further notice) (the "Hearing") to determine whether the Court should approve the proposed settlement of the Derivative Action (the "Settlement") as fair, reasonable and adequate, and enter judgment thereon (the "Judgment"). If the Court approves the Settlement, it will also determine the application of Plaintiff's counsel for an award of attorneys' fees and reimbursement of expenses, which fees and expenses will not exceed $198,000. Alloy expects that any fees awarded on Plaintiff's application, which Alloy has agreed not to oppose, will be paid by applicable insurance. A copy of the Notice is also being posted on Alloy's Web site, www.alloyinc.com. Requests for additional copies of the notice for this purpose should be directed to Candace Turner, Alloy, Inc., Executive Administrator, 151 West 26th Street, 11th Floor, New York, New York 10001.

Any shareholder of Alloy who objects to the Agreement, the Settlement, the Judgment to be entered thereon, and/or the application for an award of attorneys' fees and expenses, or who otherwise wishes to be heard, may appear in person or by counsel at the Hearing and present any evidence or argument that may be proper or relevant. Shareholders wishing to be heard at the Hearing, however, must, no later than fourteen (14) days before the Hearing, file with the Clerk of the United States District Court for the Southern District of New York, United States Courthouse, 500 Pearl Street, New York, New York 10007-1213 (unless the Court in its discretion shall thereafter otherwise direct): (a) a notice of the intention to appear at the Hearing; (b) a statement of their objections to any matter before the Court; and (c) the grounds for such objections or their reasons for wanting to appear and be heard, as well as all the documents and writings which they want the Court to consider. Such shareholders must also provide their name, address and telephone number; the name, address and telephone number of their attorney, if they have one; the number of shares of Alloy common stock they own and the date(s) they acquired them; and proof of ownership of such shares or a sworn statement explaining why such proof is unavailable. Contemporaneously with the filing of these documents with the Clerk of the Court, shareholders must serve them by hand delivery or first class mail, postage prepaid, upon Alloy's and the Plaintiff's counsel of record at the addresses set forth in the Notice.

The foregoing is only a summary of the provisions of the Notice and the related settlement of the Derivative Action and interested parties are referred to the text of the Notice for a complete discussion of the provisions of the Notice and the related settlement of the Derivative Action.