This is wrong:

while (<FILE1>) {
      # this
      @lines = $_;
}
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Perl is expecting a list, and all you do is assign a scalar. You have to use push to append the $_ onto the array:

while(<FILE1>) {
    push @lines, $_;
}
[download]

or, faster:

@lines = <FILE1>;
[download]

-- ar0n