AGREEMENT AND PLAN OF MERGER
BY AND AMONG
24/7 MEDIA, INC.,
24/7 AWARDS HOLDING CORP.,
AWARDTRACK, INC.
MEMBERWORKS INCORPORATED,
BRIAN ANDERSON, NATIONAL DISCOUNT BROKERS GROUP, INC., JEFFREY NEWHOUSE,
JOHN WATSON, GREGORY HASSETT, RANDY MOORE AND JACK DALEY
DATED AS OF FEBRUARY 2, 2000
AGREEMENT AND PLAN OF MERGER, dated as of February 2, 2000 (this
"AGREEMENT"), by and among 24/7 Media, Inc., a Delaware corporation ("24/7"),
24/7 Awards Holding Corp., a Delaware corporation and a wholly-owned subsidiary
of 24/7 (the "SUBSIDIARY"), AwardTrack, Inc., a California corporation (the
"COMPANY"), MemberWorks Incorporated ("MemberWorks"), Brian Anderson, National
Discount Brokers Group, Inc., Jeffrey Newhouse, John Watson, Gregory Hassett,
Randy Moore and Jack Daley (the "Other Shareholders;" and, together with
MemberWorks, shall be referred to collectively as the "SHAREHOLDERS").
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of the State of
California ("California Law") and the General Corporation Law of the State of
Delaware ("DELAWARE LAW"), 24/7, Subsidiary and the Company intend to enter into
a business combination transaction;
WHEREAS, the Board of Directors of the Company (i) has determined that
the Merger (as defined below) is fair to, and in the best interest of, the
Company and its shareholders, and (ii) has approved this Agreement, the Merger
and the other transactions contemplated by this Agreement;
WHEREAS, the holders of all of the outstanding shares of the capital
stock of the Company have authorized, approved and adopted this Agreement, the
Merger and the other transactions contemplated by this Agreement;
WHEREAS, the Boards of Directors of 24/7 and the Subsidiary (i) have
determined that the Merger is fair to, and in the best interest of, 24/7, the
Subsidiary and their shareholders, and (ii) have approved this Agreement, the
Merger and the other transactions contemplated by this Agreement;
WHEREAS, each Shareholder is the owner of such number of shares of
capital stock (the "SHARES") of the Company as is set forth in SCHEDULE 1 hereto
(the "OWNERSHIP TABLE");
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, 24/7, the Subsidiary and the Company hereby agree as follows:
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ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2(a))
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of California Law and Delaware Law, the Subsidiary shall
be merged with and into the Company (the "MERGER"), the separate corporate
existence of the Subsidiary shall cease, and the Company shall continue as the
surviving corporation. The Company, as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "SURVIVING CORPORATION." The
parties intend that, for federal income tax purposes, the Merger shall
constitute a tax-free reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
1.2 EFFECTIVE TIME; CLOSING
(a) As promptly as practicable after the Closing (as defined
in Section 1.2(b)), the parties hereto shall cause the Merger to be consummated
by filing a certificate of merger with the Secretary of State of the State of
Delaware (the "Certificate of Merger") and agreement of merger with the
Secretary of State of the State of California (the "Agreement of Merger"), in
such form as required by, and executed in accordance with the relevant
provisions of, California Law and Delaware Law . When used in this Agreement,
the term "EFFECTIVE TIME" shall mean the date and time at which the Merger shall
become effective under California Law and Delaware Law.
(b) The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall be held at the offices of Proskauer Rose LLP,
1585 Broadway, New York, New York 10036, on February 17, 2000, or at another
time and date to be specified by the parties, which shall be no later than the
second business day after the satisfaction or waiver, as the case may be, of the
conditions set forth in Article VI, or at such other time, date and location as
the parties hereto agree in writing (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
California Law and Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the rights,
privileges, powers, franchises and property of the Subsidiary and the Company
shall vest in the Surviving Corporation, and all restrictions, disabilities,
duties, debts and liabilities of the Subsidiary and the Company shall become the
restrictions, disabilities, duties, debts and liabilities of the Surviving
Corporation.
1.4 CERTIFICATE OF INCORPORATION.
At the Effective Time, the Articles of Incorporation of the
Surviving Corporation shall be amended and restated as set forth in the
Agreement of Merger.
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1.5 DIRECTORS AND OFFICERS. The directors and officers set forth on
SCHEDULE 1.5 hereto shall be the directors and officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of either the Subsidiary, the Company
or the holders of any of the following securities:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of common
stock, no par value, of the Company ("COMPANY COMMON STOCK") issued and
outstanding immediately prior to the Effective Time, other than any shares of
Company Common Stock to be canceled pursuant to Section 1.6(d), will be canceled
and extinguished and automatically converted (subject to Sections 1.6(f) and
(g)) into the right to receive the number of shares of validly issued, fully
paid and nonassessable common stock, par value $0.01 per share, of 24/7 (the
"24/7 COMMON STOCK"), equal to (i) $25,000,000 divided by the average closing
price per share of the 24/7 Common Stock for the five (5) trading days preceding
the date of this Agreement divided by (ii) 9,699,190 (the "Exchange Ratio") ,
upon surrender of the certificates representing such shares of Company Common
Stock in accordance with the Ownership Table. The aggregate number of shares of
24/7 Common Stock to be issued pursuant to this Section 1.6(a) is referred to
herein as the "Common Merger Consideration."
(b) CONVERSION OF COMPANY PREFERRED STOCK. All the shares of
preferred stock, no par value, of the Company ("COMPANY PREFERRED STOCK"),
issued and outstanding immediately prior to the Effective Time (including in
connection with the contribution referred to in Section 4.8), other than any
shares of Company Preferred Stock to be canceled pursuant to Section 1.6(d), and
all the rights of MemberWorks under the Agreement and Plan of Merger among
MemberWorks Incorporated, AT Merger, Inc. and the Company, dated April 19, 1999,
as amended by the Amendment to Agreement and Plan of Merger dated as of
September 30, 1999 and the Second Amendment to Agreement and Plan of Merger
dated December 30, 1999, will be canceled and extinguished and automatically
converted (subject to Sections 1.6(f) and (g)) into the right to receive the
number of shares of 24/7 COMMON STOCK, equal to $50,180,000 divided by the
average closing price per share of the 24/7 Common Stock for the five (5)
trading days preceding the date of this Agreement (the "Preferred Merger
Consideration;" and, together with the Common Merger Consideration, shall be
referred to collectively as the "Merger Consideration"), upon surrender of the
certificates representing such shares of Company Preferred Stock.
(c) (i) The Company's obligations with respect to each
outstanding option, as set forth on SCHEDULE 1.6(B) hereto (the "ASSUMED
OPTIONS"), to purchase shares of common stock of the Company issued pursuant to
the Company's 1999 Stock Option Plan (the "COMPANY OPTION PLAN"), whether vested
or unvested, shall, by virtue of this Agreement and without any further action
of the Company, 24/7 or the holder of any Assumed
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Option, be assumed by 24/7 under its 1998 Stock Incentive Plan. Unless otherwise
elected by 24/7 prior to the Effective Time, 24/7 shall make such assumption in
such manner that (i) 24/7 is a corporation "assuming a stock option in a
transaction to which Section 424(a) applies" within the meaning of Section 424
of the Code or (ii) to the extent that Section 424 of the Code does not apply to
such Assumed Option, 24/7 would be such a corporation were Section 424 of the
Code applicable to such Assumed Option; and, if not so otherwise elected, after
the Effective Time, all references to the Company Option Plan shall be deemed to
refer to 24/7's 1998 Stock Incentive Plan as of the Effective Time by virtue of
this Agreement and without any further action.
(ii) Each Assumed Option so assumed by 24/7 under this
Agreement shall continue to have, and be subject to, similar terms and
conditions (including vesting) set forth in the Company Option Plan and each
individual optionee's Option Agreement as in effect immediately prior to the
Effective Time, except that (i) such Assumed Option shall be governed by 24/7's
1998 Stock Incentive Plan, (ii) such Assumed Option will be exercisable for that
number of shares of 24/7 Common Stock equal to the product of the number of
shares of common stock of the Company that were purchasable under such Assumed
Option immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of 24/7 Common Stock, and
(iii) the per share exercise price for the shares of 24/7 Common Stock issuable
upon exercise of such Assumed Option will be equal to the exercise price per
share of common stock of the Company at which such Assumed Option was
exercisable immediately prior to the Effective Time divided by the Exchange
Ratio, and rounding the resulting exercise price up to the nearest whole cent.
For purposes of this Section 1.6(c)(ii), the fair market value of 24/7 Common
Stock is based on the closing price per share on the trading day immediately
following the Closing Date, as reported on the Nasdaq National Market System
("NASDAQ").
(iii) As soon as reasonably practicable after the
Effective Time, the Company will deliver to Assumed Option holders appropriate
notices setting forth such holders' rights pursuant to 24/7's 1998 Stock
Incentive Plan and confirming that the Assumed Options have been assumed by 24/7
under its 1998 Stock Incentive Plan in accordance with the terms and conditions
required by this Section 1.6(b).
(d) CANCELLATION OF COMPANY-OWNED STOCK. Each share of Company
Common Stock and Company Preferred Stock held by the Company immediately prior
to the Effective Time shall be canceled and extinguished without any conversion
thereof.
(e) CAPITAL STOCK OF THE SUBSIDIARY. Each share of common
stock, par value $0.01 per share, of the Subsidiary issued and outstanding
immediately prior to the Effective Time shall be exchanged for and converted
into one validly issued, fully paid and non-assessable share of common stock, no
par value, of the Surviving Corporation. Each stock certificate of the
Subsidiary evidencing ownership of any such shares shall evidence ownership of
such shares of capital stock of the Surviving Corporation.
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(f) FRACTIONAL SHARES. No fraction of a share of 24/7 Common
Stock shall be issued by virtue of the Merger, but in lieu thereof each holder
of a share of Company Common Stock or Company Preferred Stock who would
otherwise be entitled to a fraction of a share of 24/7 Common Stock (after
aggregating all fractional shares of 24/7 Common Stock that otherwise would be
received by such holder) shall receive from 24/7 an amount of cash (rounded to
the nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the average closing price of one share of 24/7 Common Stock for the five
(5) most recent days that 24/7 Common Stock has traded ending on the trading day
immediately prior to the Effective Time, as reported on Nasdaq.
(g) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect fully the appropriate effect of any stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into 24/7 Common Stock), reorganization,
recapitalization, reclassification or other like change with respect to 24/7
Common Stock occurring on or after the date hereof and prior to the Effective
Time.
(h) ALL OTHER CAPITAL STOCK OF THE COMPANY. All other capital
stock of the Company shall be canceled and retired and shall cease to exist, and
no consideration shall be issued or delivered in exchange therefor.
1.7 SURRENDER AND PAYMENT.
(a) The Merger Consideration delivered upon the surrender for
exchange of the shares of Company Common Stock and Company Preferred Stock in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares, and after the Effective
Time, there shall be no further registration or transfers of shares of Company
Common Stock and Company Preferred Stock that were outstanding prior to the
Closing Date. If after the Effective Time certificates which immediately prior
to the Effective Time represented outstanding shares of Company Common Stock and
Company Preferred Stock (the "Certificates") are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
(b) If certificates for shares of 24/7 Common Stock are to be
issued in the name of a person other than the person in whose name the
surrendered Certificate is registered, it shall be a condition of the issuance
thereof that the Certificates so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
exchange shall have paid to 24/7 or any agent designated by it any transfer or
other taxes required by reason of the issuance of certificates for shares of
24/7 Common Stock in the name of a person other than the registered holder of
the Certificate surrendered or shall have established to the satisfaction of
24/7 or any agent designated by it that such tax either has been paid or is not
applicable.
1.8 ESCROW INDEMNITY ACCOUNT. Promptly after the Closing Date, 24/7
shall
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deliver to the escrow agent (the "ESCROW AGENT") under the escrow agreement
dated the Closing Date, substantially in the form of EXHIBIT A hereto (the
"ESCROW AGREEMENT"), a certificate representing a number of shares of 24/7
Common Stock equal to an aggregate of twenty-two percent (22%) of the Merger
Consideration, to be held pursuant to the provisions of the Escrow Agreement to
be held in an escrow account (the "ESCROW INDEMNITY ACCOUNT") pursuant to the
terms of the Escrow Agreement.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. If any Certificates
shall have been lost, stolen or destroyed, 24/7 shall issue in exchange for such
lost, stolen or destroyed Certificates, upon the making of an affidavit of that
fact by the holder thereof, the Merger Consideration; PROVIDED, HOWEVER, that
24/7 may, in its discretion and as a condition precedent to the issuance and
delivery thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against 24/7 or the Company with
respect to the Certificates alleged to have been lost, stolen or destroyed.
1.10 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time
after the Effective Time, any such further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Company and the Subsidiary, the
officers and directors of the Company and the Subsidiary are fully authorized in
the name of their respective corporations or otherwise to take, and will take,
all such lawful and necessary action. 24/7 shall cause the Subsidiary to perform
all of its obligations relating to this Agreement and the transactions
contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in that section of the document of even date
herewith delivered by the Company to 24/7 prior to the execution and delivery of
this Agreement (the "COMPANY DISCLOSURE SCHEDULE") corresponding to the section
of this Agreement to which any of the representations and warranties
specifically relate or as disclosed in another section of the Company Disclosure
Schedule if it is reasonably apparent on the face of the disclosure that it is
applicable to another section of this Agreement, the Company represents and
warrants to 24/7 as follows:
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company is a
corporation or other legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite power and authority to own, lease and operate the properties it
purports to own, operate or lease and to carry on its business as it is now
being conducted and as currently proposed to be conducted, except where the
failure to
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be so organized, existing and in good standing or to have such power and
authority would not reasonably be expected to have a material adverse effect on
the business, results of operations or financial condition of the Company, taken
as a whole, or on the ability of the parties to consummate the transactions
contemplated by this Agreement (a "COMPANY MATERIAL ADVERSE EFFECT"). The
Company is duly qualified or licensed as a foreign corporation or other legal
entity to do business, and is in good standing, in each jurisdiction where the
character of its properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would not
reasonably be expected to have a Company Material Adverse Effect. The Company
does not, directly or indirectly, own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity. Except for a dormant subsidiary, a Texas
corporation with no assets or operations, the Company has no subsidiaries.
2.2 ARTICLES OF INCORPORATION AND BY-LAWS. The Company has
heretofore furnished to 24/7 a complete and correct copy of its Articles of
Incorporation (certified by the Secretary of State of the State of California)
and By-Laws, as amended to date. Such Articles of Incorporation and By-Laws of
the Company are in full force and effect. The Company is not in violation of any
of the provisions of its Articles of Incorporation or By-Laws.
2.3 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of: (i)
15,000,000 shares of Company Common Stock, of which there are 7,855,882 shares
issued and outstanding as of date hereof and (ii) 2,000,000 shares of preferred
stock, no par value, of which 1,713,614 shares are issued and outstanding. All
of the outstanding shares of Company Common Stock and Company Preferred Stock
are duly authorized, validly issued, fully paid and nonassessable and are not
subject to preemptive or similar rights created by statue, the Articles of
Incorporation or Bylaws of the Company or any agreement or document to which the
Company is a party or by which it is bound. As of the date of this Agreement
there were no shares of Company Common Stock held in treasury by the Company.
(b) As of the date of this Agreement 2,146,000 shares of
Company Common Stock are issuable pursuant to outstanding options (whether or
not currently exercisable) to purchase Company Common Stock granted under the
Company Option Plan for a weighted average price of $0.364, all of which shares
of Company Common Stock were reserved for issuance pursuant to the Company's
Option Plan.
(c) As of the date of this Agreement no shares of Company
Common Stock are issuable pursuant to outstanding warrants (whether or not
currently exercisable) to purchase Company Common Stock.
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2.4 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth
in Section 2.3 of this Agreement (including the related section of the Company
Disclosure Schedule), there are no equity securities, partnership interests or
similar ownership interests of any class of any Company equity security, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except as set forth in Section 2.3 of this
Agreement, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character (contingent or
otherwise) to which the Company is a party or by which it is bound obligating
the Company to (i) issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of the Company; (ii) grant, extend, accelerate
the vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement; or (iii) provide funds to or
make any investment (in the form of a loan, capital contribution or otherwise)
in any entity. As of the date of this Agreement, there is no voting trust, proxy
or other agreement or understanding to which the Company is a party or by which
it is bound with respect to any equity security of any class of the Company.
2.5 AUTHORITY RELATIVE TO THIS AGREEMENT; OWNERSHIP.
(a) The Company has all requisite power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and
to consummate the transactions contemplated hereby, as well as all other
agreements, certificates and documents executed or delivered, or to be executed
or delivered, by the Company in connection herewith (collectively, with this
Agreement, the "COMPANY DOCUMENTS"). The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action on the part of the Company, and no other proceedings are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby,
except for the filing of the Agreement of Merger and Certificate of Merger
pursuant to California Law and Delaware Law, respectively. Each of the Company
Documents to which the Company is, or will be, a party has been, or will be,
duly and validly executed and delivered by the Company, and, assuming the due
authorization, execution and delivery of the Company Documents by 24/7 and/or
the Subsidiary, as applicable, are (or when executed and delivered will be)
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the enforcement of creditors' rights generally and
(ii) general principles of equity, regardless of whether asserted in a
proceeding in equity or at law.
(b) The Board of Directors of the Company (including any
required committee or subgroup of the Board of Directors of the Company) at a
meeting duly called at which all members were present or by unanimous written
consent as permitted by California Law
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has (A) unanimously declared that this Agreement, the Merger and the other
transactions contemplated hereby are fair to, and in the best interests of, the
Company and its shareholders; (B) authorized, approved and adopted this
Agreement, the Merger and the other transactions contemplated hereby; and (C) as
of the date hereof, determined to recommend that the shareholders of the Company
approve and adopt this Agreement and approve the Merger. None of the aforesaid
actions by the Board of Directors of the Company has been amended, rescinded or
modified.
(c) The holders of all of the outstanding shares of the Company
Common Stock have authorized, approved and adopted this Agreement, the Merger
and the other transactions contemplated hereby and have authorized the taking of
all appropriate action pursuant to California Law and Delaware Law to cause the
Merger to be effective at the Effective Time. No other vote of the holders of
any class or series of the Company's capital stock is necessary to authorize,
approve and adopt this Agreement and the Merger.
2.6 NO CONFLICTS, REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the Company
do not, and the performance of this Agreement by the Company will not, (i)
conflict with or violate the Articles of Incorporation or By-Laws of the
Company; (ii) subject to compliance with the requirements set forth in Section
2.6(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to the Company or by which the Company or any of
its respective properties is bound or affected; or (iii) except as set forth in
Section 2.6 of the Company Disclosure Schedule, result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or impair the Company's rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of an Encumbrance on any of the properties or assets of the Company
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company is a party or by which the Company or any of its respective properties
is bound or affected, except, in the case of clauses (ii) and (iii), for such
breaches, violations or defaults that would not have a Company Material Adverse
Effect.
(b) The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will not,
require any consent, approval, authorization or permit of, or declaration,
registration or filing with or notification to, any court, administrative agency
or commission or other governmental authority or instrumentality, foreign or
domestic ("GOVERNMENTAL ENTITY") except (i) such consents, approvals, orders,
authorizations, registrations and declarations and filings as may be required
under applicable federal and state securities (or related) laws, (ii) the filing
of the Agreement of Merger and Certificate of Merger pursuant to California Law
and Delaware Law, respectively, and (iii) such consents, approvals,
authorizations, filings and registrations which if not obtained or made, would
not prevent or delay consummation of the Merger or otherwise prevent the Company
from
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performing its obligations under this Agreement.
2.7 FINANCIAL STATEMENTS. The Company has delivered to 24/7 the
unaudited balance sheet of the Company as of December 31, 1999 and statement of
profit and loss for the 12-month period then ended(collectively, the "Company
Financial Statements"). Except as disclosed in Section 2.7 of the Company
Disclosure Schedule, the Company Financial Statements are in accordance with the
books and records of the Company, and reflect accurately in all material
respects the financial position and results of operations of the Company as at
the dates and for the periods indicated. Except as disclosed in Section 2.7 of
the Company Disclosure Schedule, the Company Financial Statements do not omit
any material transactions involving the Company as at the dates and for the
periods indicated.. The accounts receivable of the Company (i) arose in the
ordinary course of business for goods or services which the Company has
contracted to deliver or render, (ii) constitute only valid, undisputed claims
and are not subject to counterclaims or setoffs, (iii) except as is disclosed in
Section 2.7 of the Company Disclosure Schedule, are good and the Company
currently believes them to be collectible in full within 90 days of the date
they were created at the aggregate recorded amounts thereof net of the reserve
therefor and (iv) have not been extended or rolled over in order to make them
current.
2.8 NO UNDISCLOSED LIABILITIES. Except as is disclosed in Section
2.8 of the Company Disclosure Schedule, the Company has no liabilities
(absolute, accrued, contingent or otherwise) which are, individually or in the
aggregate, material to the business, operations or financial condition of the
Company, except liabilities (i) adequately provided for in the Company's
unaudited balance sheet as of December 31, 1999 included in the Company
Financial Statements (the "COMPANY BALANCE SHEET"), (ii) incurred since the date
of the Company Balance Sheet in the ordinary course of business and consistent
with past practice and (iii) incurred in connection with the transactions
contemplated by this Agreement. The Company does not know of any basis for the
assertion against the Company of any other liability or loss contingency for
which a reserve is required to be disclosed in the Company Financial Statements,
in accordance with GAAP.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 2.9 of the Company Disclosure Schedule, since December 31, 1999, the
Company has conducted its business in the ordinary course and there has not
occurred: (i) any Company Material Adverse Effect, (ii) any declaration, setting
aside or payment of any dividend on, or other distribution (whether in cash,
stock or property) in respect of any of the Company's capital stock, or any
purchase, redemption or other acquisition by the Company of any of its capital
stock or any other securities of the Company, (iii) any split, combination or
reclassification of any of the Company's capital stock, (iv) any amendments or
changes in the Articles of Incorporation or By-Laws of the Company; (v) any
change by the Company in its accounting methods, principles or practices except
as required by GAAP; (vi) any revaluation by the Company of any of its assets,
including, without limitation, writing down the value of capitalized software or
inventory or writing off notes or accounts receivable other than in the ordinary
course of business; or (vii) any sale or transfer of a material amount of assets
of the Company.
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2.10 ABSENCE OF LITIGATION. Section 2.10 of the Company Disclosure
Schedule contains a complete and correct list of all actions, suits,
proceedings, claims or investigations pending or, to the knowledge of the
Company, threatened against the Company or any of its respective assets or, in
connection with the Company's business, any of the Company's officers, directors
or employees before any Governmental Entity. Except as set forth in Section 2.10
of the Company Disclosure Schedule, neither the Company nor, in connection with
the Company's business, any of the Company's officers, directors or employees is
subject or party to any judgment, order, decree or other direction of, or
stipulation with, any Governmental Entity. As of the date hereof, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against the Company or any of the shareholders that seek to prevent
or challenge, or seek damages in connection with, the transactions contemplated
by any of the Company Documents or otherwise arising out of or in any way
related to any of the Company Documents.
2.11 EMPLOYEE BENEFIT PLANS.
(a) Except as disclosed on Section 2.11(a) of the Company
Disclosure Schedule, neither the Company nor any entity that would be deemed a
"single employer" with the Company under Section 414(b), (c), (m) or (o) of the
Code or Section 4001 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (an "ERISA AFFILIATE"), maintains, sponsors, contributes to,
or has or has had an obligation to, or otherwise participated in or participates
in, or in any way, directly or indirectly, has or has had any liability with
respect to, any "employee benefit plan," as defined in Section 3(3) of ERISA, or
any other bonus, profit sharing, pension, deferred compensation, incentive,
stock option, fringe benefit, health, welfare, change in control, severance or
other similar plan, policy, or arrangement, whether written or unwritten,
insured or self-insured (each, a "PLAN"). None of the Company, any ERISA
Affiliate or any of their respective predecessors has ever contributed to,
contributes to, has ever been required to contribute to, or otherwise
participated in or participates in, or in any way, directly or indirectly, has
any liability with respect to, any plan subject to Section 412 of the Code,
Section 302 of ERISA or Title IV of ERISA, including, without limitation, any
"multiemployer plan" (within the meaning of Sections 3(37) or 4001(a)(3) of
ERISA or Section 414(f) of the Code) or any single employer pension plan (within
the meaning of Section 4001(a)(15) of ERISA). Except as disclosed on Section
2.11(a) of the Company Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not give rise to any liability of the
Company for severance pay or termination pay or accelerate the time of payment
or vesting or increase the amount of compensation or benefits due to any
employee, director, shareholder or beneficiary of the Company (whether current,
former or retired) or their beneficiaries solely by reason of such transactions
or by reason of a termination of employment following such transactions. Section
2.11(a) of the Company Disclosure Schedule contains a list of all Plans. A copy
of each such Plan has previously been delivered by the Company to 24/7. No
event, condition or circumstance exists that will prevent the amendment or
termination of any Plan.
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(b) With respect to each of the Plans listed in Section
2.11(a) of the Company Disclosure Schedule:
(i) each Plan intended to qualify under Section 401(a)
of the Code is qualified and has received a determination letter from the
Internal Revenue Service ("IRS") to the effect that the Plan is qualified under
Section 401 of the Code, any trust maintained pursuant thereto is exempt from
federal income taxation under Section 501 of the Code and to the knowledge of
the Company, nothing has occurred or is expected to occur through the Effective
Time that caused or could cause the loss of such qualification or exemption or
the imposition of any penalty or tax liability;
(ii) all payments required by any Plan, any collective
bargaining agreement or other agreement or by law (including, without
limitation, all contributions, insurance premiums or intercompany charges) with
respect to all periods through the date of the Effective Time shall have been
made prior to the Effective Time (on a pro rata basis where such payments are
otherwise discretionary at year end) or provided for by the Company, as
applicable, by full accruals as if all targets required by such Plan had been or
will be met at maximum levels on its financial statements;
(iii) no claim, lawsuit, arbitration or other action
(other than non-material or routine claims for benefits and appeals of such
claims) has been asserted or instituted, or to the knowledge of the Company,
threatened or anticipated against any Plan, any trustee or fiduciaries thereof,
the Company, any ERISA Affiliate, any director, officer or employee thereof, or
any of the assets of any trust of any Plan;
(iv) each Plan complies in all material respects and has
been maintained and administered at all times in all material respects in
accordance with its terms and all applicable laws, rules and regulations,
including, without limitation, ERISA and the Code;
(v) to the knowledge of the Company, no "prohibited
transaction," within the meaning of Section 4975 of the Code and Section 406 of
ERISA, has occurred or is expected to occur with respect to each Plan (and the
consummation of the transactions contemplated by this Agreement will not
constitute or directly or indirectly result in such a "prohibited transaction");
(vi) no Plan is under audit or to the knowledge of the
Company, investigation by the IRS, Department of Labor or any other
Governmental Entity and no such completed audit, if any, has resulted in the
imposition of any material tax or penalty; and
(vii) with respect to each Plan that is funded mostly or
partially through an insurance policy, neither the Company nor any ERISA
Affiliate has any liability in the nature of retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability arising wholly or
partially out of events occurring on or before the Effective Time.
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(c) Neither the Company nor any ERISA Affiliate maintains,
contributes to or in any way provides for any benefits of any kind whatsoever
(other than under Section 4980B of the Code, the Federal Social Security Act or
a plan qualified under Section 401(a) of the Code) to any current or future
retiree or terminee. Neither the Company nor any ERISA Affiliate has any
unfunded liabilities pursuant to any Plan that is not intended to be qualified
under Section 401(a) of the Code. No amounts payable under any Plan will fail to
be deductible for federal income tax purposes by virtue of Section 280G of the
Code.
2.12 LABOR MATTERS. Section 2.12 of the Company Disclosure Schedule
contains a list of the names, office locations, compensation and years of
credited service for severance, vacation and pension plan purposes of all full-
and part-time employees of the Company as at January 30, 2000. The Company is
not a party to a collective bargaining agreement and does not know of any
efforts within the last three years to attempt to organize the Company's
employees, and no strike or labor dispute involving the Company has occurred
during the last three years or, to the knowledge of the Company, is threatened.
To the knowledge of the Company, no key employee of the Company has indicated
that he is considering terminating his employment. The Company has complied in
all material respects with all applicable wage and hour, equal employment,
safety and other legal requirements relating to its employees.
2.13 TAXES. Except as disclosed in Section 2.13 of the Company
Disclosure Schedule, (A) the Company has timely and properly filed all federal,
foreign, state, local and other tax returns and reports which are required to be
filed by it; (B) all such tax returns were true, correct and complete in all
material respects, and all taxes, interest and penalties due and payable as
shown on such returns or claimed to be due by any taxing authority have been
timely paid; (C) all unpaid federal, foreign, state, local and other taxes,
fees, assessments, duties and other similar governmental charges payable by the
Company or which will, with the passage of time, become payable by the Company
(including interest and penalties), whether or not disputed, with respect to any
period or a portion thereof ending at, on or prior to and including December 31,
1999, have been adequately reserved against in accordance with GAAP on the face
of the Company Balance Sheet; (D) there are no outstanding waivers or extensions
of time with respect to the assessment or audit of any tax or tax return of the
Company or audits, examinations or claims now pending or matters under
discussion with any taxing authority in respect of any tax of the Company; (E)
the Company has not at any time consented to have the provisions of Section
341(f)(2) of the Code apply to it; (F) all taxes to be collected or withheld by
the Company have been duly collected or withheld and any such amounts that were
required to be remitted to any taxing authority have been duly remitted; and (G)
there are no tax rulings, requests for rulings, closing agreements or changes of
accounting method relating to the Company that could affect its tax liability
for any period after the Effective Time. Except as disclosed in Section 2.13 of
the Company Disclosure Schedule, he Company has not used any of the following
methods of accounting: installment, completed contract, or long-term contract.
For purposes of this Agreement, "tax" or "taxes" means taxes of any kind, levies
or other like
13
assessments, customs, duties, imposts, charges and including, without
limitation, income, gross receipts, ad valorem, value added, excise, real and
personal property, asset, sales, use, license, payroll, transaction, capital,
net worth and franchise taxes, estimated taxes, withholding, employment, social
security, workers compensation, occupation and other governmental taxes imposed
or payable to the United States, or any state, local or foreign government or
subdivision or agency thereof, and in each instance such term shall include any
interest, penalties or additions to tax attributable to any such tax.
2.14 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following
and all rights in, arising out of, or associated therewith: (i) all United
States, international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyright registrations
and applications therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, URLs, common law
trademarks and service marks, trademark and service mark registrations and
applications therefor throughout the world (collectively, the "TRADEMARKS");
(vi) all databases and data collections and all rights therein throughout the
world; (vii) all moral and economic rights of authors and inventors, however
denominated, throughout the world, and (viii) any similar or equivalent rights
to any of the foregoing anywhere in the world.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual
Property, including, without limitation, all Registered Intellectual Property,
that is owned by, or exclusively licensed to, the Company.
"REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents and patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; and (iv) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued, filed with, or recorded by any state, government or other public legal
authority.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the
Registered Intellectual Property owned by, or filed in the name of, the Company.
(a) A list and brief description of the Company Registered
Intellectual Property, and all contracts, licenses and agreements to which the
Company is a party (i) with
14
respect to Company Intellectual Property licensed or transferred to any third
party; or (ii) pursuant to which a third party has licensed or transferred any
Intellectual Property to the Company, other than licenses for general business
software purchased off the shelf is set forth in Section 2.14(a) of the Company
Disclosure Schedule.
(b) No Company Intellectual Property owned or developed by the
Company or product or service of the Company is subject to any proceeding or
outstanding decree, order, judgment, agreement, or stipulation of any
Governmental Entity restricting in any manner the use, transfer, or licensing
thereof by the Company, or which may affect the validity, use or enforceability
of such Company Intellectual Property.
(c) All necessary registration, maintenance and renewal fees
currently due in connection with Company Registered Intellectual Property have
been made and all necessary documents, recordations and certificates in
connection with such Company Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Registered Intellectual Property.
(d) The Company owns and has good and exclusive title to, or
has joint ownership or license (to the knowledge of the Company, sufficient for
the conduct of its business as currently conducted) to, each item of Company
Intellectual Property free and clear of any Encumbrance (excluding licenses and
related restrictions); and the Company is the exclusive owner of all Trademarks
currently used in connection with the operation or conduct of the business of
the Company, including the sale of any products or the provision of any services
by the Company.
(e) The Company owns, and has good title to, or has valid (to
the knowledge of the Company) and licenses (to the knowledge of the Company,
sufficient for the conduct of its business as currently conducted) for all
copyrightable works currently used in its business.
(f) Except as set forth in Section 2.14(f) of the Company
Disclosure Schedule, to the extent that any Intellectual Property currently used
in the Company's business has been developed or created by a third party for the
Company, the Company has a written agreement with such third party with respect
thereto which provides the Company either (i) joint or exclusive ownership of
all such third party Intellectual Property, or (ii) a license (to the knowledge
of the Company, sufficient for the conduct of its business as currently
conducted) to all such third parties' Intellectual Property by operation of law
or by valid (to the knowledge of the Company) assignment, transfer or license.
(g) The Company has not transferred ownership of, or granted
any exclusive license with respect to, any Intellectual Property currently used
in the Company's business that is or was the Company Intellectual Property, to
any third party.
15
(h) All contracts, license agreements and other agreements
relating to the Company Intellectual Property currently used in the Company's
business are in full force and effect. The consummation of the transactions
contemplated by this Agreement will neither violate nor result in the breach,
modification, cancellation, termination, or suspension of such contracts,
licenses and agreements. The Company is in compliance with, and has not breached
any material term of any such contracts, licenses and agreements and, to the
knowledge of the Company, all other parties to such contracts, licenses and
agreements are in compliance with, and have not breached any term of, such
contracts, licenses and agreements. Following the Closing Date, the Surviving
Corporation will be permitted to exercise all of the Company's rights under such
contracts, licenses and agreements to the same extent the Company would have
been able to had the transactions contemplated by this Agreement not occurred
and without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which the Company would otherwise be
required to pay.
(i) The operation of the business of the Company as such
business is currently conducted, including the Company's design, development,
marketing and sale of the products or services of the Company (including with
respect to products currently under development) and the Company's use of the
Company Intellectual Property, to the knowledge of the Company, has not, does
not and will not infringe, dilute or misappropriate the Intellectual Property of
any third party or constitute unfair competition or trade practices under the
laws of any relevant jurisdiction.
(j) Except as provided in Section 2.14(j) of the Company
Disclosure Schedule, the Company has not received actual notice from any third
party and, to the knowledge of the Company, the Company has not received any
threat, that the operation of the business of the Company or any act, product or
service of the Company, infringes, dilutes or misappropriates the Intellectual
Property of any third party or constitutes unfair competition or trade practices
under the laws of any jurisdiction.
(k) To the knowledge of the Company, no person has or is
infringing, diluting or misappropriating any Company Intellectual Property or
unfairly competing with the Company.
(l) The Company has taken reasonable steps to protect the
Company's rights in the Company's confidential information and trade secrets
that it wishes to protect or any trade secrets or confidential information of
third parties provided to the Company or its subsidiaries. Except under
confidentiality obligations, there has not been disclosure by the Company of any
such trade secrets or confidential information.
2.15 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) The Company is not in conflict with, or in default or in
violation of
16
(i) any law, rule, regulation, order, judgment or decree applicable to the
Company or by which the Company or any of its business or properties is, or the
Company believes is reasonably likely to be, bound or affected, or (ii) any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company is a party or
by which the Company or its respective properties is bound or affected, except
for conflicts, violations and defaults that (individually or in the aggregate)
would not reasonably be expected to have a Company Material Adverse Effect. No
investigation or review by any Governmental Entity is pending or, to the
Company's knowledge, has been threatened, against the Company, nor, to the
Company's knowledge, has any Governmental Entity indicated an intention to
conduct an investigation of the Company. There is no agreement, judgment,
injunction, order or decree binding upon the Company which has or could
reasonably be expected to have (after giving effect to the Merger) the effect of
prohibiting or impairing any current or future business practice of the Company,
any acquisition of property by the Company or the conduct of business by the
Company as currently conducted or as currently proposed to be conducted.
(b) The Company holds, to the extent legally required, all
permits, licenses, variances, exemptions, orders and approvals from Government
Entities that are required for the operation of the business of the Company as
currently conducted (collectively, the "COMPANY PERMITS") except for such
permits, the failure of which to hold would not reasonably be expected to have a
Company Material Adverse Effect. The Company is in compliance in all respects
with the terms of the Company Permits, except where the failure to be in
compliance with the terms of the Company Permits would not reasonably be
expected to have a Company Material Adverse Effect.
2.16 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as otherwise set
forth in Section 2.16 of the Company Disclosure Schedule, as of the date hereof
the Company is not a party to or bound by:
(a) any employment or consulting agreement, contract or
commitment with any officer or director or higher level employee or member of
the Company's Board of Directors, other than those that are terminable by the
Company on no more than 30 days notice without liability or financial
obligation, except to the extent general principles of wrongful termination law
may limit the Company's ability to terminate employees at will;
(b) any agreement of indemnification outside the ordinary
course of the Company's business or any guaranty;
(c) any agreement, contract or commitment containing any
covenant limiting the right of the Company to engage in any line of business or
to compete with any person or granting any exclusive distribution rights;
(d) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by the Company after the date of this
Agreement of assets not in
17
the ordinary course of business or pursuant to which the Company has any
material ownership interest in any corporation, partnership, joint venture or
other business enterprise;
(e) any agreement, contract or commitment currently in force to
provide source code to any third party for any product or technology; or
(f) any other agreement, contract or commitment currently in
effect that is expected to represent more than 10% of the Company's revenue for
the calendar year 2000 or that requires the Company to make payments of greater
than $500,000 per year or more than $1,500,000 in the aggregate.
Neither the Company, nor to the Company's knowledge any other party to
a Company Contract (as defined below) is in breach, violation or default under,
and the Company has not received written notice that it has breached, violated
or defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which the Company is a party or by which
it is bound that are required to be disclosed in the Company Disclosure Schedule
pursuant to clauses (a) through (f) above or pursuant to Section 2.14 hereof
(any such agreement, contract or commitment, a "COMPANY CONTRACT") in such a
manner as would permit any other party to cancel or terminate any such Company
Contract, or would permit any other party to seek damages or other remedies
which would have a Company Material Adverse Effect. The Company Contracts are in
full force and effect and the Company has performed all of the material
obligations required to be performed by it and is entitled to all accrued
benefits under all the Company Contracts.
2.17 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company owns no real property interests. Section
2.17(a) of the Company Disclosure Schedule lists all real property leases to
which the Company is a party and each amendment thereto that is in effect as of
the date of this Agreement. All such current leases are in full force and
effect, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event of default
(or event which with notice or the lapse of time, or both, would constitute a
default) that would give rise to a material claim.
(b) The Company has good and valid title to, or in the case
of leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for use
in its business, free and clear of any Encumbrances, except as reflected in the
Company Financial Statements. The Company's equipment and assets (whether owned
or leased) are in good operating condition and repair, subject to ordinary wear
and tear. All assets, properties and rights relating to the Company's business
will, at the Closing, be held by, and all agreements, obligations and
transactions relating to the Company's business will, at the Closing, be entered
into, incurred and conducted by, the Company.
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2.18 ENVIRONMENTAL MATTERS.
(a) To the knowledge of the Company, all of the current
operations of the Company and its assets, businesses and real property,
including any operations at or from any real property presently or formerly
owned, used, leased, occupied, managed or operated by the Company (collectively,
the "REAL PROPERTY"), comply in all material respects and have at all times
complied in all material respects with all applicable Environmental Laws (as
defined below). "Environmental Laws" shall mean federal, foreign, state, local
or common law, rule, regulation, ordinance, code, order or judgment (including
any judicial or administrative interpretations, guidances, directives, policy
statements or opinions) relating to the injury to, or the pollution or
protection of, human health or the environment.
(b) To the knowledge of the Company, none of the assets of the
Company, nor any of the Real Property, contains any hazardous substances in, on,
over, under or at it, in concentrations which would violate in any material
respect any applicable Environmental Laws or reasonably would be likely to
result in the imposition of material liability or obligations on the Company
under any applicable Environmental Laws, including any material liability or
obligations for the investigation, corrective action, remediation or monitoring
of hazardous substances in, on, over, under or at the Real Property. The Company
has not received any written notice from any Governmental Entity or third party
of any actual or threatened environmental liabilities.
(c) To the knowledge of the Company, the Company has all the
permits, licenses, authorizations and approvals necessary for the conduct of its
business and for the operations on, in or at the Real Property which are
required under applicable Environmental Laws (the "ENVIRONMENTAL PERMITS") and
it is in compliance in all material respects with the terms and conditions of
all such Environmental Permits. To the knowledge of the Company, no reason
exists why the Company would not be capable of continued operation of its
business in compliance in all material respects with the Environmental Permits
and the applicable Environmental Laws.
(d) To the knowledge of the Company, the Company has not
contractually, by operation of law, by the Environmental Laws, by common law or
otherwise assumed or succeeded to any environmental liabilities of any
predecessors or any other person or entity.
2.19 INSURANCE. The Company has policies of insurance and bonds of
the type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of the Company. There is no material claim
pending under any of such policies or bonds as to which coverage had been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been paid
and the Company is otherwise in compliance with the terms of such policies and
bonds. The Company has no knowledge of any threatened termination of, or
material premium increase with
19
respect to, any such policies.
2.20 CHANGE OF CONTROL PAYMENTS. Section 2.20 of the Company
Disclosure Schedule sets forth each plan or agreement pursuant to which any
amounts may become payable (whether currently or in the future) to current or
former officers and directors of the Company as a result of the Merger.
2.21 INTERESTED PARTY TRANSACTIONS. Except as provided in Section
2.21 of the Company Disclosure Schedule, the Company is not indebted to any
director, officer, employee or agent of the Company (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to the Company.
2.22 BOOKS AND RECORDS. The minute books and records of the Company
made available to 24/7 have been maintained in accordance with good business
practices, contain a complete and accurate summary of all meetings of the
directors or actions by written consent since the time of organization of the
Company, and reflect all transactions referred to in such minutes accurately in
all material respects.
2.23 IMPROPER PAYMENTS. The Company and its officers and agents have
not made any illegal or improper payments to, or provided any illegal or
improper benefit or inducement for, any governmental official, supplier,
customer or other person in an attempt to influence any such person to take or
to refrain from taking any action relating to the Company.
2.24 YEAR 2000.
(a) The computer systems of the Company (including, without
limitation, all software, hardware, workstations and related components,
automated devices, products consisting of or containing one or more thereof, and
any and all enhancements, upgrades, customizations, modifications or
maintenance, embedded chips and other date sensitive equipment such as security
systems, alarms, elevators and other systems) ("COMPUTER SYSTEMS") are Year 2000
Compliant (as defined below), except to the extent that such Computer Systems
receive data from third party computer systems that are not Year 2000 Compliant.
(b) The Company's supply of services through its Computer
Systems has not been and shall not be interrupted, delayed, decreased or
otherwise affected in any material respect by the failure of its Computer
Systems to be Year 2000 Compliant.
(c) To the knowledge of the Company, the Company's Computer
Systems have the ability to properly interface and will continue to properly
interface with internal and external applications and systems of third parties
with whom the Company exchanges data electronically (including, without
limitation, customers, clients, suppliers, service providers, subcontractors,
processors, converters, shippers, warehousemen, outsourcers, data
20
processors, regulatory agencies and banks), whether or not their Computer
Systems are Year 2000 Compliant.
For purposes of this Agreement, "YEAR 2000 COMPLIANT" means that
the Company's Computer Systems (1) are capable of recognizing, processing,
managing, representing, interpreting and manipulating correctly date-related
data for dates earlier and later than January 1, 2000, including, but not
limited to, calculating, comparing, sorting, storing, tagging and sequencing,
without resulting in or causing logical or mathematical errors or
inconsistencies in any user-interface functionalities or otherwise, including
data input and retrieval, data storage, data fields, calculations, reports,
processing or any other input or output, (2) have the ability to provide date
recognition for any data element without limitation (including, but not limited
to, date-related data represented without a century designation, date-related
data whose year is represented by only two digits and date fields assigned
special values), (3) have the ability to automatically function into and beyond
the year 2000 without human intervention and without any change in operations
associated with the advent of the year 2000, (4) have the ability to correctly
interpret data, dates and time into and beyond the year 2000, (5) have the
ability not to produce noncompliance in existing information or otherwise
corrupt such data into and beyond the year 2000, (6) have the ability to
correctly process after January 1, 2000 data containing dates before that date,
(7) have the ability to recognize all "leap years," including February 29, 2000.
2.25 DISCLOSURE. No representation, warranty or other written
statement by the Company herein contains or will contain an untrue statement of
a material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
2.26 CONDITION AND SUFFICIENCY OF ASSETS. The Company owns or has the
right to use all the tangible assets necessary for the conduct of its business
as conducted prior to the date hereof. To the knowledge of the Company, the
buildings, plants, structures, and equipment of the Company are structurally
sound, are in good operating condition and repair, and are adequate for the uses
to which they are being put and are sufficient for the continued conduct of the
Company's businesses after the Closing in substantially the same manner as
conducted prior to the Closing, and the Company has conducted, and continues to
conduct, its business only through the Company.
2.27 HART-SCOTT RODINO. The Company has no ultimate parent entity and
does not meet the "size-of-the-parties" jurisdiction test imposed by Section
201(a)(2) of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the regulations promulgated thereunder.
2.28 BROKERS. No broker, finder or investment banker, other than
Thomas Weisel Partners LLC, is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made
21
by or on behalf of the Company.
2.29 EXPENSES. The Company's expenses in connection with the
negotiation of this Agreement and the transactions contemplated hereby,
including any fees to Thomas Weisel Partners LLC and McCutchen, Doyle, Brown & Enersen, LLP, shall not exceed $1,650,000, in the aggregate, and an estimate
thereof is set forth in Section 2.29 of the Company Disclosure Schedule.
ARTICLE IIA
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders, severally, represent and warrant to 24/7 as follows:
2A.1 Ownership. Each Shareholder is, and immediately prior to the
Closing will be, the record and beneficial owner of the number and class(es) of
Shares set forth next to such Shareholder's name on the Ownership Table, free
and clear of any and all Encumbrances (as defined below) or claims of any kind
whatsoever. For the purposes of this Agreement, "ENCUMBRANCES" means any lien,
pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim,
infringement, interference, option, right of first refusal, preemptive right,
community property interest or restriction of any nature (including any
restriction on the voting of any security, any restriction on the transfer of
any security or other asset, any restriction on the receipt of any income
derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset) but does not include liens imposed by law in respect of
obligations not yet due which are owed in respect of taxes or which otherwise
are owed to carriers, warehousepersons or laborers. On the Closing Date, each
Shareholder will have the full right, power and authority to assign, transfer
and deliver such Shareholder's Shares as provided in this Agreement, and such
delivery will convey to 24/7 lawful, valid and marketable title to such Shares,
free and clear of any and all Encumbrances or claims of any kind whatsoever.
2A.2 ACQUISITION OF STOCK FOR INVESTMENT. Each of the Shareholders that
receives 24/7 Common Stock as part of the Merger Consideration hereunder
acknowledges that such shares of 24/7 Common Stock may not be sold, transferred,
offered for sale, pledged, hypothecated, lent, or otherwise disposed of by him
or it without registration under the Securities Act of 1933, as amended
("Securities Act"), except pursuant to an exemption from registration under the
Securities Act, and without compliance with applicable "blue sky" laws. Each
Shareholder is an "accredited investor" as that term is defined in Rule 501
promulgated under the Securities Act. Each Shareholder has received all
requested documents and other information from 24/7, and has had an opportunity
to ask questions of and to receive answers from the officers of 24/7 with
respect to the business, results of operations, financial conditions and
prospects of 24/7.
22
ARTICLE IIB
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF MEMBERWORKS
MemberWorks represents and warrants to 24/7 as follows:
MemberWorks is acquiring stock in 24/7 solely for the purpose of
investment for an indefinite period for its account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and has no
present intention of selling, granting participation in or otherwise
distributing the Merger Consideration. Memberworks does not intend to have its
agents participate in the management, or serve as an officer or director, of
24/7. MemberWorks acknowledges that, immediately following the Closing, all its
rights under the Agreement and Plan of Merger among MemberWorks Incorporated, AT
Merger, Inc. and the Company, dated April 19, 1999, as amended by the Amendment
to Agreement and Plan of Merger dated as of September 30, 1999 and the Second
Amendment to Agreement and Plan of Merger dated December 30, 1999, will be
canceled and extinguished.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF 24/7 AND THE SUBSIDIARY
24/7 and the Subsidiary hereby represent and warrant to the Company as
follows:
3.1 ORGANIZATION AND QUALIFICATION; ORGANIZATIONAL DOCUMENTS.
(a) Each of 24/7 and the Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite power and authority to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business as
it is now being conducted, except where the failure to be so organized, existing
and in good standing or to have such power and authority would not reasonably be
expected to have a material adverse effect on the business, results of
operations or financial condition of 24/7, taken as a whole, or on the ability
of the parties to consummate the transactions contemplated by this Agreement (a
"24/7 MATERIAL ADVERSE EFFECT"). Each of 24/7 and the Subsidiary is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not reasonably be expected
to have a 24/7 Material Adverse Effect.
(b) 24/7 has heretofore furnished to the Company a complete and
correct copy of 24/7's and the Subsidiary's Certificate of Incorporation
(certified by the Secretary of State of the State of Delaware) and By-Laws, each
as amended to date. Such Certificates of
23
Incorporation and By-Laws are in full force and effect. Neither 24/7 nor the
Subsidiary is in violation of any of the provisions of its respective
Certificate of Incorporation or By-Laws.
3.2 CAPITALIZATION.
(a) The authorized capital stock of 24/7 as of December 31,
1999 consisted of: (i) 70,000,000 shares of 24/7 Common Stock, of which
22,421,516 shares were issued and outstanding; and (ii) 10,000,000 shares of
preferred stock, par value $.01 per share, none of which were issued and
outstanding. All of the outstanding shares of 24/7 Common Stock are duly
authorized, validly issued and are fully paid and nonassessable and are not
subject to preemptive or similar rights created by statute, the Certificate of
Incorporation or By-Laws of 24/7 or any agreement or document to which 24/7 is a
party or by which it is bound. As of December 31, 1999, there were options
outstanding to purchase an aggregate of 3,235,538 shares of 24/7 Common Stock
under 24/7's stock option plans. The authorized capital stock of the Subsidiary
consists of 1,000 shares of common stock, par value $.01 per share, 100 shares
of which are issued and outstanding, and wholly owned by 24/7. The Subsidiary
was formed for the purpose of consummating the Merger and has no material assets
or liabilities except as necessary for such purpose.
(b) The shares of 24/7 Common Stock to be issued in the Merger
have been duly authorized and, when so issued in accordance with the terms
hereof, such shares will be validly issued, fully paid and nonassessable.
24
3.3 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) Each of 24/7 and the Subsidiary has all necessary corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby, as
well as all other agreements, certificates and documents executed or delivered,
or to be executed or delivered, by 24/7 and/or the Subsidiary in connection
herewith (collectively, with this Agreement, the "24/7 DOCUMENTS"). The
execution and delivery of this Agreement by 24/7 and the Subsidiary and the
consummation by 24/7 and the Subsidiary of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of 24/7 and the Subsidiary, and no other corporate proceedings on the part
of 24/7 or the Subsidiary are necessary to authorize this Agreement or to
consummate the transactions so contemplated hereby, except for the filing of the
Agreement of Merger and Certificate of Merger pursuant to California Law and
Delaware Law, respectively. Each of the 24/7 Documents to which 24/7 and/or the
Subsidiary is, or will be, a party has been, or will be, duly and validly
executed and delivered by 24/7 and/or the Subsidiary, and, assuming the due
authorization, execution and delivery of the 24/7 Documents by the Company are
(or when executed and delivered will be) legal, valid and binding obligations of
24/7 and/or the Subsidiary, enforceable against 24/7 and/or the Subsidiary in
accordance with their respective terms, except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the enforcement of creditors' rights generally and (ii)
general principles of equity, regardless of whether asserted in a proceeding in
equity or at law.
(b) The Board of Directors of 24/7 (and the Board of
Directors of the Subsidiary, as necessary) at a meeting duly called at which all
members were present has (i) unanimously declared that this Agreement, the
Merger and the other transactions contemplated hereby are fair to and in the
best interests of 24/7 and its shareholders; and (ii) authorized, approved and
adopted this Agreement, the Merger and the other transactions contemplated
hereby. None of the aforesaid actions by the Board of Directors of 24/7 has been
amended, rescinded or modified.
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3.4 NO CONFLICT, REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by 24/7 and
the Subsidiary do not, and the performance of this Agreement by 24/7 and the
Subsidiary will not, (i) conflict with or violate the Certificate of
Incorporation or By-Laws of 24/7 or the Subsidiary; (ii) subject to compliance
with the requirements of Section 3.4(b), conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to 24/7 or the Subsidiary or by
which any of 24/7's or the Subsidiary's respective properties is bound or
affected; or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
impair 24/7's or the Subsidiary's rights or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of an Encumbrance on
any of the properties or assets of 24/7 or the Subsidiary pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which 24/7 or the Subsidiary is a
party or by which 24/7 or the Subsidiary or any of their respective properties
is bound or affected, except in any such case for any such breaches, violations
or defaults that would not have a 24/7 Material Adverse Effect.
(b) The execution and delivery of this Agreement by 24/7 and
the Subsidiary does not, and the performance of this Agreement by 24/7 and the
Subsidiary will not, require any consent, approval, authorization or permit of,
or declaration, registration or filing with or notification to, any Governmental
Entity, (i) such consents, approvals, orders, authorizations, registrations and
declarations and filings as may be required under applicable federal and state
securities (or related) laws, (ii) the filing of the Agreement of Merger and
Certificate of Merger pursuant to California Law and Delaware Law, respectively;
and (iii) such consents, approvals, authorizations, filings and registrations
which if not obtained or made, would not prevent or delay consummation of the
Merger or otherwise prevent 24/7 from performing its obligations under this
Agreement.
3.5 SEC FILINGS, 24/7 FINANCIAL STATEMENTS.
(a) 24/7 has filed all forms, reports and documents required to
be filed by it with the Securities and Exchange Commission (the "SEC") since
December 31, 1998 and has delivered or made available to the Company, in the
form filed with the SEC, such forms, reports and documents. All such required
forms, reports and documents (including those that 24/7 may file subsequent to
the date hereof), as amended, are referred to herein as the "24/7 SEC REPORTS."
The 24/7 SEC Reports (including any financial statements or schedules included
therein) (i) were prepared in accordance with the requirements of the Securities
Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such 24/7 SEC Reports, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the
26
statements therein, in the light of the circumstances under which they were
made, not misleading. None of 24/7's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the 24/7 SEC Reports (the
"24/7 FINANCIALS"), including each 24/7 SEC Report filed after the date hereof
until Closing: (i) complied (or will comply) as to form in all material respects
with the rules and regulations of the SEC with respect thereto, (ii) was (or
will be) prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated therein or in the
notes thereto or, in the case of unaudited interim financial statements, as may
be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly
presented (or will fairly present) in all material respects the consolidated
financial position of 24/7 and its consolidated subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments and
such statements do not contain notes thereto.
(c) 24/7 has heretofore furnished to the Company a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by 24/7 with the SEC pursuant
to the Securities Act or the Exchange Act.
3.6 NO UNDISCLOSED LIABILITIES. Except as is disclosed in the 24/7
Financials, neither 24/7 nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of the type that are required to be
disclosed in financial statements, including the notes thereto, prepared in
accordance with GAAP which are, individually or in the aggregate, material to
the business, operations or financial condition of 24/7 and its subsidiaries
taken as a whole, except liabilities (i) adequately provided for or referred to
in the Company's balance sheet and the related notes thereto as of September 30,
1999 included in 24/7's Form 10-Q for the quarter ended September 30, 1999
(which is part of the 24/7 SEC Reports) (the "24/7 BALANCE SHEET"), (ii)
incurred since the date of the 24/7 Balance Sheet in the ordinary course of
business and consistent with past practice and (iii) incurred in connection with
the transactions contemplated by this Agreement.
3.7 NO ADVERSE CHANGE. Since the date of the 24/7 Balance Sheet,
24/7 has conducted its business in the ordinary course and there has not
occurred any material adverse change in the business, properties, assets,
liabilities, commitments, earnings or financial condition of 24/7 and its
subsidiaries, taken as a whole.
3.8 LITIGATION. There are no claims, actions, suits or proceedings
pending or, to the knowledge of 24/7, threatened that have a reasonable
likelihood of success on the merits relating to or affecting 24/7 or any of its
subsidiaries before any Governmental Entity that seek to
27
restrain or enjoin the consummation of the transactions contemplated by this
Agreement.
ARTICLE IV
COVENANTS OF THE COMPANY
The Company covenants and agrees that between the date hereof and the
Effective Time:
4.1 ACTIONS. The Company will not take any action that would cause
any of the representations and warranties made by it in any of the Company
Documents not to be true and correct in all material respects on and as of the
Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date.
4.2 ACCESS BY 24/7. 24/7 and its representatives and advisors shall,
upon prior written notice to the Company, have reasonable access during normal
business hours to the Company's assets, premises, books and records, key
employees and accountants, including the work papers of the Company's
accountants relating to the Company Financial Statements, and the Company shall
furnish 24/7 with such information and copies of such documents as 24/7 may
reasonably request. The Company shall promptly furnish to 24/7 all financial
statements of the Company that are prepared in the ordinary course of business,
including, without limitation, monthly reports of sales, revenue and cash flow
and balance sheets, if any are prepared.
4.3 CONDUCT OF BUSINESS. The business of the Company shall be
conducted in all material respects in the ordinary course, consistent with the
present conduct of its business, and the Company shall use commercially
reasonable efforts to maintain, preserve and protect the assets and goodwill of
the Company. Without limiting the generality of the foregoing, the Company shall
not, without the prior written consent of 24/7, take or commit to take any of
following actions:
(a) amend its By-Laws or Articles of Incorporation;
(b) issue any additional shares of capital stock, or issue,
sell or grant any option or right to acquire or otherwise dispose of any of its
authorized but unissued capital stock or other equity or debt securities;
(c) declare or pay any dividends or make any other distribution
in cash, property or securities on its capital stock;
(d) repurchase or redeem any shares of its capital stock;
(e) incur, or perform, pay or otherwise discharge, any material
obligation or liability (absolute or contingent), except for obligations and
liabilities incurred in
28
the ordinary course of business consistent with past practice;
(f) enter into any employment agreement with or increase the
compensation or benefits of any of its officers or employees, or grant any
severance pay or termination pay or establish, adopt or enter into any employee
benefit plan, program or arrangement;
(g) sell, lease, transfer or otherwise dispose of, or
acquire, any material properties or assets, tangible or intangible, other than
in the ordinary course of business;
(h) make any material changes in its customary method of
operations, including marketing, selling and pricing policies and maintenance of
business premises, fixtures, furniture and equipment;
(i) modify, amend or cancel any of its existing leases or enter
into any material contracts, agreements, leases or understandings other than in
the ordinary course of business or enter into any loan agreements;
(j) make any material investments other than in certificates
of deposit or short-term commercial paper; or
(k) change any of the accounting principles or practices used
by it, except to come into compliance with, or as required by GAAP.
4.4 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to 24/7 of (i) the occurrence, or non-occurrence, of any event the
occurrence, or non-occurrence, of which would be likely to cause any
representation or warranty contained in any of the Company Documents that is
qualified as to materiality to be untrue or inaccurate or any such
representation or warranty that is not so qualified to be untrue or inaccurate
in any material respect and (ii) any failure of the Company materially to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery of any notice
pursuant to this Section 4.4 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
4.5 FURTHER ACTION. Upon the terms and subject to the conditions
hereof, the Company shall use all commercially reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement and to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings.
4.6 PUBLIC ANNOUNCEMENTS. The Company and MemberWorks shall consult
with 24/7 before issuing any press release or otherwise making any public
statement with respect
29
to the Merger and shall not issue any such press release or make any such public
statement, except as may be required by law, without the prior written consent
of 24/7, which may not be unreasonably withheld or delayed.
4.7 GOVERNMENT COMPLIANCE. The Company agrees promptly to effect all
necessary registrations, filings, applications and submissions of information
required or requested by governmental authorities and to use commercially
reasonable efforts to obtain any necessary approvals and early termination of
any applicable waiting period.
4.8 MEMBERWORKS LOAN. Immediately prior to the Closing, MemberWorks
shall contribute to the capital of the Company all the outstanding debt of the
Company to MemberWorksnet of the amount of a certain invoice (approximately
$25,000) payable by MemberWorks to the Company, in exchange for additional
shares of Company Preferred Stock.
4.9 PATENT OPINION. The Company shall promptly instruct Blakely
Sokoloff Taylor & Zafman to prepare an opinion to the Company relating to the
non-infringement by the Company and/or invalidity of U.S. Patent Number
6,009,412 (the "Patent Opinion") and to use their best efforts to deliver such
opinion no later than fifteen (15) days after the date of this Agreement.
Between the date of this Agreement and the Closing, the Company shall, not less
often than every two days after the date of this Agreement (and in any event on
the last day prior to such fifteenth day), provide 24/7 with a report as to the
progress of the preparation of the Patent Opinion and a summary of any
substantive issues that have arisen that would or might adversely affect the
ability of such firm to deliver the Patent Opinion.
ARTICLE V
COVENANTS OF 24/7 AND THE SUBSIDIARY
24/7 and the Subsidiary covenant and agree that between the date
hereof and the Effective Time:
5.1 ACTIONS. Neither 24/7 nor the Subsidiary will take any action
that would cause any of the representations and warranties made by it in any of
the 24/7 Documents not to be true and correct in all material respects on and as
of the Closing Date with the same force and effect as if such representations
and warranties had been made on and as of the Closing Date.
5.2 NOTIFICATION OF CERTAIN MATTERS. 24/7 shall give prompt notice
to the Company of (i) the occurrence, or non-occurrence, of any event the
occurrence, or non-occurrence, of which would be likely to cause any
representation or warranty contained in any of the 24/7 Documents to be untrue
or inaccurate and (ii) any failure of 24/7 or the Subsidiary materially to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.2 shall not limit or otherwise affect the remedies
available hereunder to
30
the party receiving such notice.
5.3 FURTHER ACTION. Upon the terms and subject to the conditions
hereof, 24/7 and the Subsidiary shall use all commercially reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement and to
obtain in a timely manner all necessary waivers, consents and approvals and to
effect all necessary registrations and filings.
5.4 PUBLIC ANNOUNCEMENTS. 24/7 and the Subsidiary shall consult with
the Company before issuing any press release or otherwise making any public
statement with respect to the Merger and shall not issue any such press release
or make any such public statement, except as may be required by law, without the
prior written consent of the Company, which may not be unreasonably withheld or
delayed.
5.5 GOVERNMENT COMPLIANCE. 24/7 and the Subsidiary agree promptly to
effect all necessary registrations, filings, applications and submissions of
information required or requested by governmental authorities and to use
commercially reasonable efforts to obtain any necessary approvals and early
termination of any applicable waiting period.
5.6 CERTAIN RESTRICTIONS. 24/7 covenants and agrees that between the
date hereof and the Effective Time or termination of this Agreement, it will not
enter into or conduct any discussions with any party other than the Company with
respect to any (a) acquisition or merger or similar transaction of a company
primarily engaged in a web-based or Internet-related business focused primarily
on reward programs, loyalty marketing solutions or point awards, or (b) license
or purchase of technology for such a business.
5.7 PUBLIC ANNOUNCEMENTS. 24/7 agrees that it shall not issue any
press release or make any public statement with respect to the Merger prior to
the Closing, except as may be required by law.
5.8 ADVANCES. Between the date of this Agreement and the Closing,
24/7 agrees to make short-term advances to the Company up to an aggregate of
$1.0 million for working capital purposes in such amounts, at such times and on
other reasonable terms and conditions as are mutually agreed by the parties.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF 24/7 AND THE SUBSIDIARY
The obligations of 24/7 and the Subsidiary to consummate the
transactions contemplated by the 24/7 Documents are subject to the fulfillment,
at or before the Effective
31
Time, of each of the following conditions, any of which may be waived by 24/7
and the Subsidiary in writing, and the Company shall use commercially reasonable
efforts to cause such conditions to be fulfilled:
6.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company in the Company Documents shall be true and correct in
all material respects on and as of the Effective Time as if made on and as of
the Effective Time, except to the extent that any such representation or
warranty is made as of a specified date, in which case such representation or
warranty shall have been true and correct in all material respects as of such
date.
6.2 PERFORMANCE BY THE COMPANY. The Company shall have performed and
complied in all material respects with all agreements, covenants and conditions
required by the Company Documents to be performed or complied with by the
Company at or before the Effective Time.
6.3 CERTIFICATE. 24/7 shall have received a certificate executed by
the Company, dated the Closing Date, certifying, in such detail as 24/7 may
reasonably request, as to the fulfillment of the conditions set forth in
Sections 6.1 and 6.2.
6.4 EMPLOYMENT AGREEMENT. Brian Anderson, Jack Daley, Randy Moore,
Peter Sclafani and Russell Burnside shall have each entered into an Employment
Agreement with 24/7 in the form attached hereto as EXHIBIT B and a
Non-Competition and Non-Disclosure Agreement with 24/7 in the form attached
hereto as EXHIBIT C (collectively, the "Employment Agreements").
6.5 REGISTRATION RIGHTS AGREEMENT. The Company and the Shareholders
shall have entered into a Registration Rights Agreement with 24/7 in the form
attached hereto as EXHIBIT D (the "Registration Rights Agreements").
6.6 OPINION OF COUNSEL TO THE COMPANY. The Company shall have
delivered to 24/7 an opinion of McCutchen, Doyle, Brown & Enersen, LLP , counsel
to the Company, dated the Closing Date, covering, in substance , the legal
matters described in Sections 2.1 (as relates to Company only), 2.5 (a), (b),
(c) and (d), and 2.6 (a) (i) and (ii) and (b).
6.7 CONSENTS. The Company shall have obtained, or to the reasonable
satisfaction of 24/7 obviated the need to obtain, all consents, approvals and
waivers from governmental and regulatory authorities and third parties necessary
for the execution, delivery and performance of the Company Documents and the
transactions contemplated thereby, without any material cost or adverse
consequences to the Company.
6.8 LITIGATION. No action or proceeding shall be pending or
threatened before any court, tribunal or governmental entity, and no claim or
demand shall have been made against
32
24/7, the Subsidiary, any Shareholder or the Company, seeking to restrain or
prohibit or to obtain damages or other relief in connection with the
consummation of the transactions contemplated by any of the Company Documents,
or which might materially adversely affect the business of the Company, which in
the reasonably exercised opinion of 24/7 makes it inadvisable to consummate such
transactions.
6.9 NO VIOLATION. There shall not have been any action taken, or any
statute, rule, regulation or order enacted, promulgated, issued or deemed
applicable to the Merger by any federal or state government or governmental or
regulatory authority or court, which would: (i) prohibit the Surviving
Corporation's ownership or operation of all or a material portion of the
Company's business or assets, or compel the Surviving Corporation to dispose of
or hold separate all or a material portion of the Company's business or assets,
as a result of the Merger; (ii) render any party hereto unable to consummate the
Merger; (iii) make such consummation illegal; or (iv) impose or confirm material
limitations on the ability of 24/7 effectively to exercise full rights of
ownership of shares of the capital stock of the Surviving Corporation,
including, without limitation, the right to vote any such shares on all matters
properly presented to the shareholders of the Surviving Corporation, and no such
action shall have been taken or any such statute, rule, regulation or order
enacted, promulgated, issued or deemed applicable to the Merger which is
reasonably likely to produce such result.
6.10 PATENT OPINION. 24/7 shall have received a copy of the Patent
Opinion, and such opinion shall be reasonably satisfactory to 24/7 and its
counsel; PROVIDED, HOWEVER, that such condition shall be deemed to have been
waived by 24/7 unless it shall have notified the Company within one business day
after its receipt of the opinion that the opinion is not reasonably satisfactory
to 24/7.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions
contemplated by the Company Documents are subject to the fulfillment, at or
before the Effective Time, of each of the following conditions, any of which may
be waived by the Company in writing, and 24/7 and the Subsidiary shall use
commercially reasonable efforts to cause such conditions to be fulfilled:
7.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of 24/7 and/or the Subsidiary in the 24/7 Documents shall be true and
correct in all material respects on and as of the Effective Time as if made on
and as of the Effective Time, except to the extent that any such representation
or warranty is made as of a specified date, in which case such representation or
warranty shall have been true and correct in all material respects as of such
date.
33
7.2 PERFORMANCE BY 24/7 AND THE SUBSIDIARY. 24/7 and the Subsidiary
shall have per formed and complied in all material respects with all agreements,
covenants and conditions required by the 24/7 Documents to be performed or
complied with by 24/7 and/or the Subsidiary at or before the Effective Time.
7.3 CERTIFICATE. The Company shall have received a certificate
executed by 24/7, dated the Closing Date, certifying, in such detail as the
Company may reasonably request, as to the fulfillment of the conditions set
forth in Sections 7.1 and 7.2.
7.4 EMPLOYMENT AGREEMENT. 24/7 shall have entered into the
Agreements and the Non-Disclosure Agreements.
7.5 REGISTRATION RIGHTS AGREEMENT. 24/7 shall have entered into the
Registration Rights Agreement.
7.6 OPINION OF COUNSEL TO 24/7 AND THE SUBSIDIARY. 24/7 and the
Subsidiary shall have delivered to the Company an opinion of Proskauer Rose LLP,
counsel to 24/7 and the Subsidiary, dated the Closing Date, covering, in
substance, the legal matters described in Sections 3.1(a), 3.2(b), 3.3(a),
3.4(a)(i) and (ii) and (b).
7.7 NO VIOLATION. There shall not have been any action taken, or any
statute, rule, regulation or order enacted, promulgated, issued or deemed
applicable to the Merger by any federal or state governmental or regulatory
authority or court, which would (i) render any party hereto unable to consummate
the Merger or (ii) make such consummation illegal.
ARTICLE VIII
CLOSING DELIVERIES
8.1 DELIVERIES OF THE COMPANY. At the Closing (or as provided
below), the Company and the Shareholders shall deliver, or shall cause to be
delivered, to 24/7 and the Subsidiary the following:
(a) The Employment Agreements;
(b) The Registration Rights Agreement;
(c) The opinion of McCutchen, Doyle, Brown & Enersen, LLP,
counsel to the Company;
(d) The certificate referred to in Section 6.3, duly
executed;
34
(e) The Escrow Agreement;
(f) The minute books of the Company; and
(g) Duly executed resignations of all directors, officers and
fiduciaries of the Company.
8.2 24/7 AND SUBSIDIARY DELIVERIES. At the Closing (or as provided
below), 24/7 and the Subsidiary shall deliver, or shall cause to be delivered,
to the Company and the Shareholders, as the case may be, the following:
(a) As promptly as practicable after the Closing, in accordance
with instructions received from the Company and the Shareholders, the Merger
Consideration, including Certificates representing shares of 24/7 Common Stock
in payment of the Merger Consideration, registered in the name of each of the
holders of the Shares, subject to Section 1.8;
(b) The Employment Agreements;
(c) The Registration Rights Agreement;
(d) The opinion of Proskauer Rose LLP, counsel to 24/7 and
the Subsidiary;
(e) The Escrow Agreement; and
(f) The certificate referred to in Section 7.3 hereof, duly
executed.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS. Subject to
the limitations set forth in Article X below, the Company (prior to the Closing)
and the Shareholders shall indemnify, defend and hold harmless 24/7 and its
affiliates (including the Surviving Corporation), promptly upon demand at any
time and from time to time, against any and all losses, liabilities, claims,
actions, damages and expenses (including without limitation, reasonable
attorneys' fees and disbursements) (collectively, "LOSSES"), arising out of or
in connection with any of the following: (i) any misrepresentation or breach of
any warranty made by the Company in any of the Company Documents; (ii) any
breach or non-fulfillment of any covenant or agreement made by the Company in
any of the Company Documents; or (iii) the
35
claims of any broker or finder engaged by the Company other than Thomas Weisel
Partners LLC.
9.2 INDEMNIFICATION BY THE SHAREHOLDERS. Each Shareholder shall
severally indemnify, defend and hold harmless 24/7 and its affiliates (including
the Surviving Corporation), promptly upon demand at any time and from time to
time, against any and all Losses arising out of or in connection with any of the
following: (i) any misrepresentation or breach of any warranty made by such
Shareholder in any of the Company Documents; or (ii) any breach or
non-fulfillment of any covenant or agreement made by such Shareholder in any of
the Company Documents.
9.3 INDEMNIFICATION BY 24/7. 24/7 shall indemnify, defend and hold
harmless the Shareholders, promptly upon demand at any time and from time to
time, against any and all Losses arising out of or in connection with any of the
following: (i) any misrepresentation or breach of any warranty made by 24/7 or
the Subsidiary in this Agreement; (ii) any breach or nonfulfillment of any
covenant or agreement made by 24/7 or the Subsidiary in this Agreement or in any
of the 24/7 Documents; or (iii) the claims of any broker or finder engaged by
24/7 or the Subsidiary.
ARTICLE X
FURTHER PROVISIONS REGARDING INDEMNIFICATION
10.1 SURVIVAL. All representations and warranties made by the Company
or the Shareholders in the Company Documents or by 24/7 or the Subsidiary in
this Agreement shall survive the Closing until April 30, 2001; provided,
however, that if at the Effective Time a party has knowledge of facts
constituting a breach by another party of any representation or warranty by such
other party, the party having such knowledge shall not be entitled to assert a
claim for Losses under this Agreement arising out of such breach.
10.2 LIMITATIONS. Notwithstanding the foregoing,
(a) The indemnification in Sections 9.1, 9.2 and 9.3, as the
case may be, shall be the exclusive remedy of the Shareholders, the Company and
of 24/7 and its affiliates with respect to claims for Losses;
(b) The indemnification provided for in Section 9.1(i) or
9.3(i) above shall not be required unless and until, at the time of any such
determination, the total amount of Losses otherwise subject to indemnification
under such section exceeds $500,000, in which event the indemnified party or
parties will be entitled to indemnification for the amounts of their Losses
exceeding $250,000;
(c) The total amount of indemnification pursuant to Section
9.1 shall
36
in no event exceed an amount equal to the cash and number of shares of
24/7 Common Stock held in the Escrow Indemnity Account at the time a claim is
made by 24/7;
(d) Neither any Shareholder, on the one hand, nor 24/7 or any
of its affiliates, on the other, shall be entitled to indemnification for Losses
arising out of matters referred to in Section 9.1(i) or 9.3(i), as applicable,
unless it shall have given written notice to the indemnifying party, setting
forth its claim for indemnification in reasonable detail, within the period from
the Closing Date until April 30, 2001;
(e) An indemnified party shall promptly give written
notice to the indemnifying party after the indemnified party has knowledge that
any legal proceeding has been instituted or any claim has been asserted in
respect of which indemnification may be sought under the provisions of Sections
9.1, 9.2 or 9.3. If the indemnifying party, within 30 days after the indemnified
party has given such notice (or within such shorter period of time as an answer
or other responsive motion may be required), shall have acknowledged in writing
his or its obligation to indemnify, then the indemnifying party shall have the
right to control the defense of such claim or proceeding, and the indemnifying
party shall not settle or compromise such claim or proceeding without the
written consent of the indemnified party. The indemnified party may in any event
participate in any such defense with his or its own counsel and at his or its
own expense; and
(f) The indemnified party shall be kept fully informed by the
indemnifying party of such action, suit or proceeding at all stages thereof,
whether or not he or it is represented by counsel. The indemnifying party shall,
at the indemnifying party's expense, make available to the indemnified party and
its attorneys and accountants all books and records of the indemnifying party
relating to such action, suit or proceeding, and the parties hereto agree to
render to each other such assistance as they may reasonably require of each
other in order to ensure the proper and adequate defense of any such action,
suit or proceeding.
10.3 EXCLUSIVE REMEDY. In accordance with the provisions of the
Escrow Agreement, 24/7 shall be entitled, from time to time, to receive from the
Escrow Agent the number of shares of 24/7 Common Stock having a value equal to
the Losses of 24/7 as to which 24/7 is entitled to be indemnified pursuant to
9.1 or 9.2 above, subject to the provisions of Section 10.2(c), as applicable.
For purposes of this Section 10.3 and the Escrow Agreement, the value of 24/7
Common Stock to be delivered to cover Losses shall be the average of the closing
prices of the 24/7 Common Stock on the five trading days preceding the delivery
of the shares to 24/7 in accordance with the provisions of the Escrow Agreement.
The right to receive such shares and cash in accordance with the provisions of
this Article X shall be 24/7's sole remedy for Losses that it is entitled to
recover under Section 9.1, and 24/7 shall look solely to the property or cash
held in the Escrow Indemnity Account for all such Losses.
10.4 DELIVERY OF NOTICE. 24/7 shall deliver such written notices to
such parties and at such times as required by the provisions of the Escrow
Agreement, and the releases of
37
shares provided for in Article X shall be governed by the provisions of the
Escrow Agreement. 24/7 and the Company agree to promptly deliver a written
notice to the Shareholders upon any determination that a claim for Losses under
Section 9.1 or 9.2 is reasonably likely to exist.
10.5 INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY. 24/7
(A) for a period of five years after the Effective Time, will not take or
knowingly permit to be taken any action to alter or impair any exculpatory or
indemnification provisions now existing in the Articles of Incorporation or
Bylaws of the Company for the benefit of any individual who served as officer or
director of the Company at any time prior to the Effective Time, and (B) shall
cause the Surviving Corporation to honor and fulfill such provisions.
ARTICLE XI
MISCELLANEOUS
11.1 NOTICES. All notices or other communications in connection with
this Agreement shall be in writing and shall be considered given when personally
delivered or three days after when mailed by registered or certified mail,
postage prepaid, return receipt requested, or by overnight courier as follows:
If to the Company:
AwardTrack, Inc.
125 Bethany Drive
Scotts Valley, CA 95066
Attention: Brian Anderson
with a copy to:
McCutchen, Doyle, Brown & Enersen, LLP
3150 Porter Drive
Palo Alto, CA 94304
Attention: Robert Cox, Esq.
If to 24/7 or the Subsidiary:
24/7 Media, Inc.
1250 Broadway, 28th Floor
New York, NY 10001
Attn: General Counsel
38
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attn: Ronald R. Papa, Esq.
Any party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other party notice in
the manner set forth in this Section 11.1.
11.2 TERMINATION. This Agreement shall terminate if the Closing shall
have not occurred by March 1, 2000; provided, however, that (a) 24/7 may
terminate this Agreement at any time after February 29, 2000, if the condition
set forth in Section 6.10 is not satisfied by such date, and (b) the Company may
terminate this Agreement on not less than one business day's notice to 24/7 at
any time after February 17, 2000, if (i) it has fully complied with the
provisions of Section 4.9, (ii) the condition set forth in Section 6.10 has not
been satisfied or waived by such date, provided that such termination will not
be effective if, after receipt of the Company's notice of termination but before
the effective date of the termination, 24/7 notifies the Company that it waives
such condition and elects to complete the Merger, and (c) the Company may
terminate this Agreement on notice to 24/7 if the Patent Opinion has been timely
delivered but the condition set forth in Section 6.10 is not satisfied because
24/7 has delivered to the Company the notice contemplated by Section 6.10. The
right to terminate this Agreement under this Section 11.2 shall not be available
to any party whose action or failure to act has been the cause or resulted in
the failure of such condition or of the Closing to occur on or before such date.
11.3 ENTIRE AGREEMENT. This Agreement (which includes the schedules
and exhibits hereto), sets forth the parties' final and entire agreement with
respect to its subject matter and supersedes any and all prior and
contemporaneous understandings, representations, warranties and agreements
(whether oral or written) with respect to the subject matter herein. This
Agreement can be amended, supplemented or changed, and any provision hereof can
be waived, only by a written instrument making specific reference to this
Agreement signed by the party against whom enforcement of any such amendment,
supplement, change or waiver is sought.
11.4 SUCCESSORS. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, executors,
administrators, personal
39
representatives, successors and assigns; PROVIDED, HOWEVER, that neither this
Agreement nor any right or obligation hereunder may be assigned or transferred,
except that 24/7 or the Subsidiary may assign this Agreement and its rights
hereunder to any direct or indirect wholly-owned subsidiary of 24/7.
11.5 PARAGRAPH HEADINGS. The paragraph and section headings in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.6 OTHER DISCUSSIONS. Unless this Agreement shall have been
terminated, the Company (and any representatives of the Company) shall not,
directly or indirectly, initiate, solicit, encourage, consider, entertain or
otherwise consider any other offers for or inquiries about, or hold discussions
with any person regarding, the acquisition of any assets or capital stock of the
Company. The Company (and any representatives of the Company) will not, directly
or indirectly, engage in any negotiations concerning, provide any confidential
information or data to, or have any discussions with, any person relating to the
acquisition of any assets or capital stock of the Company, whether initiated
before or after this Agreement. The Company (and any representatives of the
Company) will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to the acquisition of any assets or capital stock of the Company.
The Company will notify 24/7 immediately of any inquiries or proposals received
by the Company and the name of such person and the material terms and conditions
of any proposals or offers.
11.7 FEES AND EXPENSES. If the Merger is consummated, 24/7 shall pay
up to $550,000 of fees and expenses incurred by the Company in connection with
the Merger. MemberWorks shall pay $1,000,000 towards any investment banking fee
incurred by the Company in connection with the Merger and 66 2/3% of other fees
and expenses incurred by the Company in connection with the Merger. Other than
as set forth in the preceding sentence, each party hereto will pay its own fees
and expenses, including, without limitation, legal, accounting and other
professional fees and expenses, incurred in connection with the execution,
delivery and performance of this Agreement, whether or not the Merger is
consummated.
11.8 SEVERABILITY. If any provision of this Agreement shall be held
by any court of competent jurisdiction to be illegal, invalid or unenforceable,
such provision shall be construed and enforced as if it had been more narrowly
drawn so as not to be illegal, invalid or unenforceable, and such illegality,
invalidity or unenforceability shall have no effect upon and shall not impair
the enforceability of any other provision of this Agreement.
11.9 GOVERNING LAW AND CONSENT TO JURISDICTION. This Agreement shall
be governed by and construed and interpreted in accordance with the internal
laws of the State of New York. The state courts of the State of New York in New
York County and, if the jurisdictional prerequisites exist at the time, the
United States District Court for the Southern District of New York, shall have
sole and exclusive jurisdiction to hear and determine any
40
dispute or controversy arising under or concerning this Agreement. In any action
or proceeding concerning such dispute or controversy, the parties consent to
such jurisdiction and waive personal service of any summons, complaint or other
process; a summons or complaint in any such action or proceeding may be served
by mail in accordance with Section 11.1.
11.10 COUNTERPARTS. This Agreement may be executed by facsimile
and in one or more counterparts, each of which shall be deemed an original, but
all of which taken together shall constitute one and the same instrument.
11.11 DEFINITION OF KNOWLEDGE. As used herein, the words "knowledge",
"knowledge" or "known" shall, (i) with respect to the Company or Company
management, mean the actual knowledge of the executive officers of the Company,
in each case after such individuals have made due and diligent inquiry as to the
matters which are the subject of the statements which are "known" by the Company
or made to the "knowledge" or "knowledge" of the Company, (ii) with respect to
24/7 or 24/7 management, mean the actual knowledge of the executive officers of
24/7, in each case after such individuals have made due and diligent inquiry as
to the matters which are the subject of the statements which are "known" by 24/7
or made to the "knowledge" or "knowledge" of 24/7, and (iii) with respect to the
Subsidiary or the Subsidiary management, mean the actual knowledge of the
corporate executive officers of 24/7 or the Subsidiary, in each case after such
individuals have made due and diligent inquiry as to the matters which are the
subject of the statements which are "known" by the Subsidiary or made to the
"knowledge" or "knowledge" of the Subsidiary.
11.12 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any person or entity other than the parties and
their respective successors and permitted assigns; provided, however, that the
provisions in Sections 9.1 and 9.2 above concerning indemnification are intended
for the benefit of the individuals specified therein and their respective legal
representatives.
[Signature pages to follow]
41
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed by a duly authorized officer as of the day and year first written
above.
AWARDTRACK, INC. 24/7 MEDIA, INC.
By: /s/ Brian Anderson By: /s/ David J. Moore
-------------------------- ----------------------
Brian Anderson David J. Moore
President and CEO President and CEO
24/7 AWARDS HOLDING CORP.
By: /s/ David J. Moore
--------------------------
David J. Moore
President
SHAREHOLDERS:
MEMBERWORKS INCORPORATED
By: /s/ George W. M. Thomas
--------------------------
George W. M. Thomas
Sr. Vice President and
General Counsel
NATIONAL DISCOUNT BROKERS GROUP, INC.
By: /s/ Frank E. Lawatsch, Jr.
--------------------------
Frank E. Lawatsch, Jr.
EVP, Secretary and
General Counsel
/s/ Brian Anderson
---------------------
Brian Anderson
/s/ Jeffrey Newhouse
---------------------
Jeffrey Newhouse
/s/ John Watson
---------------------
John Watson
/s/ Gregory Hassett
---------------------
Gregory Hassett
/s/ Randy Moore
---------------------
Randy Moore
/s/ Jack Daley
---------------------
Jack Daley