<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 2000
REGISTRATION NO. [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
24/7 MEDIA, INC.
(Exact Name of Registrant as Specified In Its Charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7319 13-3995672
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1250 BROADWAY
NEW YORK, NEW YORK 10001
(212) 231-7100
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
DAVID MOORE
CHIEF EXECUTIVE OFFICER
24/7 MEDIA, INC.
1250 BROADWAY
NEW YORK, NEW YORK 10001
(212) 231-7100
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT A. KINDLER, ESQ. JAMES C.T. LINFIELD
FAIZA SAEED, ESQ. LAURA M. MEDINA
CRAVATH, SWAINE & MOORE JOHN W. BENDER
WORLDWIDE PLAZA COOLEY GODWARD LLP
825 EIGHTH AVENUE 2595 CANYON BOULEVARD
NEW YORK, NEW YORK 10019 SUITE 250
(212) 474-1000 BOULDER, COLORADO 80302
(303) 546-4000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the proposed merger described herein have
been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SHARE OFFERING PRICE (2) REGISTRATION FEE (2)
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share..... 8,161,530 Not Applicable 93,367,903 $24,649
</TABLE>
(1) Based upon the maximum number of shares of each class or series of capital
stock expected to be issued in connection with the transactions described
herein.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f). The registration fee was calculated in
accordance with Rule 457(f)(1) based on the average of the high and low sale
prices for shares of common stock of Exactis.com on The Nasdaq National
Market on April 18, 2000: Exactis.com common stock, 8,161,530 shares,
multiplied by average price $11.44.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION--DATED [ ], 2000
[LOGO]
TO THE STOCKHOLDERS OF 24/7 MEDIA, INC. AND EXACTIS.COM, INC. [LOGO]
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
24/7 Media, Inc. has agreed to acquire Exactis.com, Inc. The acquisition will
result in Exactis.com continuing as a wholly owned subsidiary of 24/7 Media. We
are proposing the merger because we believe the combined strengths of our two
companies will enable us to offer an integrated, end-to-end customer
relationship management solution that will assist our combined company's clients
in acquiring new customers and retaining existing customers. We believe the
merger will benefit the stockholders of both companies and we ask for your
support in voting for the merger proposals at our special meetings.
When the merger is completed, Exactis.com common stockholders will receive
0.60 shares of 24/7 Media common stock for each share of Exactis.com they own.
The shares of 24/7 Media common stock that will be received by Exactis.com
stockholders will be quoted on The Nasdaq National Market.
The boards of directors of both 24/7 Media and Exactis.com have unanimously
approved the merger and recommend that their respective stockholders vote FOR
the merger proposals as described in the attached materials. In addition, the
board of directors of 24/7 Media has approved an amendment to the 24/7 Media
certificate of incorporation to increase the number of authorized shares of 24/7
Media's common stock, par value $.01 per share, from 70,000,000 to 140,000,000
shares and recommends that its stockholders vote FOR the amendment as described
in the attached materials. In addition, the board of directors of Exactis.com
has approved amendments to the Exactis.com equity incentive plan to increase the
number of shares of Exactis.com common stock authorized for issuance under the
plan by one million shares and recommends that its stockholders vote FOR the
amendments as described in the attached materials. Information about the merger,
the amendment to the 24/7 Media certificate of incorporation and the amendments
to the Exactis.com equity incentive plan is contained in this joint proxy
statement-prospectus.
WE URGE YOU TO READ THIS MATERIAL, INCLUDING THE SECTION DESCRIBING RISK
FACTORS RELATING TO THE MERGER THAT BEGINS ON PAGE [ ].
The dates, times and places of the stockholder meetings are as follows:
<TABLE>
<S> <C>
For 24/7 Media stockholders: For Exactis.com stockholders:
[ ] [ ]
</TABLE>
Your vote is very important, regardless of the number of shares you own.
PLEASE VOTE AS SOON AS POSSIBLE TO MAKE SURE THAT YOUR SHARES ARE REPRESENTED AT
THE MEETING. TO VOTE YOUR SHARES, YOU MAY COMPLETE AND RETURN THE ENCLOSED PROXY
CARD. IF YOU ARE A HOLDER OF RECORD, YOU MAY ALSO CAST YOUR VOTE IN PERSON AT
THE SPECIAL MEETING. IF YOUR SHARES ARE HELD IN AN ACCOUNT AT A BROKERAGE FIRM
OR BANK, YOU MUST INSTRUCT THE BROKER OR BANK ON HOW TO VOTE YOUR SHARES. IF YOU
ARE A 24/7 MEDIA STOCKHOLDER AND YOU DO NOT VOTE OR DO NOT INSTRUCT YOUR BROKER
OR BANK HOW TO VOTE, IT WILL HAVE NO EFFECT ON THE OUTCOME OF THE VOTE TO
APPROVE THE ISSUANCE OF 24/7 MEDIA COMMON STOCK IN THE MERGER AND IT WILL HAVE
THE SAME EFFECT AS VOTING AGAINST APPROVAL OF THE AMENDMENT TO THE 24/7 MEDIA
CERTIFICATE OF INCORPORATION. IF YOU ARE AN EXACTIS.COM STOCKHOLDER AND YOU DO
NOT VOTE OR DO NOT INSTRUCT YOUR BROKER OR BANK HOW TO VOTE, IT WILL HAVE THE
SAME EFFECT AS VOTING AGAINST THE MERGER AND AGAINST APPROVAL OF THE AMENDMENTS
TO THE EXACTIS.COM EQUITY INCENTIVE PLAN.
We strongly support this combination of our companies and join with our
boards of directors in enthusiastically recommending that you vote in favor of
the merger and the other proposals outlined above.
<TABLE>
<S> <C>
David J. Moore E. Thomas Detmer, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER PRESIDENT AND CHIEF EXECUTIVE OFFICER
24/7 MEDIA, INC. EXACTIS.COM, INC.
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN
CONNECTION WITH THE MERGER OR DETERMINED IF THIS JOINT PROXY
STATEMENT-PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This joint proxy statement-prospectus is dated [ ], 2000, and is first
being mailed to stockholders of 24/7 Media and Exactis.com on or about [ ],
2000.
<PAGE>
ADDITIONAL INFORMATION
This joint proxy statement-prospectus incorporates important business and
financial information about 24/7 Media from other documents that are not
included in or delivered with the joint proxy statement-prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain the documents about 24/7 Media incorporated by reference
in this joint proxy statement-prospectus by requesting them in writing or by
telephone or over the Internet from the appropriate company at the following
address:
24/7 MEDIA, INC.
Investor Relations
1250 Broadway
New York, NY 10001
(212) 231-7100
email: [email protected]
IF YOU WOULD LIKE TO REQUEST ANY DOCUMENTS, PLEASE DO SO BY [ ],
2000 IN ORDER TO RECEIVE THEM BEFORE THE 24/7 MEDIA SPECIAL MEETING.
See "Where You Can Find More Information" that begins on page [ ].
2
<PAGE>
[24/7 MEDIA, INC. LOGO]
24/7 MEDIA, INC.
1250 BROADWAY
NEW YORK, NEW YORK 10001
NOTICE OF SPECIAL MEETING OF 24/7 MEDIA, INC. STOCKHOLDERS
[ ], 2000
[ ] AT [ ]:00 A.M.
To the stockholders of 24/7 Media, Inc.:
We will hold a special meeting of the stockholders of 24/7 Media, Inc. on
[ ], 2000, at [ ]:00 a.m., local time, at [ ], for the following
purposes:
1. To consider and vote upon a proposal to approve the issuance of 24/7
Media common stock in the merger pursuant to which Exactis.com will
become a wholly owned subsidiary of 24/7 Media and each share of
Exactis.com common stock will be converted into 0.60 shares of 24/7 Media
common stock.
2. To consider and vote upon the amendment to the 24/7 Media certificate of
incorporation.
3. To transact any other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
These items of business are described in the attached joint proxy
statement-prospectus. Holders of record of 24/7 Media common stock at the close
of business on [ ], 2000, the record date, are entitled to notice of, and to
vote at, the special meeting and any adjournments or postponements of the
special meeting.
Your vote is very important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented at
the meeting. To vote your shares, you may complete and return the enclosed proxy
card. If you are a holder of record, you may also cast your vote in person at
the special meeting. If your shares are held in an account at a brokerage firm
or bank, you must instruct them on how to vote your shares. If you do not vote
or do not instruct your broker or bank how to vote, it will have no effect on
the outcome of the vote to approve the issuance of 24/7 Media common stock in
the merger and it will have the same effect as voting against approval of the
amendment to the 24/7 Media certificate of incorporation.
By Order of the board of directors of 24/7
Media, Inc.,
Mark E. Moran
SECRETARY
New York, New York
[ ], 2000
<PAGE>
[EXACTIS.COM, INC. LOGO]
EXACTIS.COM, INC.
717-17TH STREET, SUITE 500
DENVER, CO 80202
NOTICE OF SPECIAL MEETING OF EXACTIS.COM, INC. STOCKHOLDERS
[ ], 2000
[ ] AT [ ]:00 A.M.
To the stockholders of Exactis.com, Inc.:
We will hold a special meeting of the stockholders of Exactis.com, Inc. on
[ ], 2000, at [ ] a.m., local time, at [ ], for the following
purposes:
1. To consider and vote upon a proposal to adopt a merger agreement between
24/7 Media and Exactis.com pursuant to which Exactis.com will become a
wholly owned subsidiary of 24/7 Media and each share of Exactis.com
common stock will be converted into 0.60 shares of 24/7 Media common
stock.
2. To consider and vote upon the amendments to the Exactis.com equity
incentive plan.
3. To transact any other business that may properly come before the special
meeting or any adjournment or postponement of the special meeting.
These items of business are described in the attached joint proxy
statement-prospectus. Holders of record of Exactis.com common stock at the close
of business on [ ], 2000, the record date, are entitled to notice of,
and to vote at, the special meeting and any adjournments or postponements of the
special meeting.
Your vote is very important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented at
the meeting. To vote your shares, you may complete and return the enclosed proxy
card. If you are a holder of record, you may also cast your vote in person at
the special meeting. If your shares are held in an account at a brokerage firm
or bank, you must instruct them on how to vote your shares. If you do not vote
or do not instruct your broker or bank on how to vote, it will have the same
effect as voting against the merger and against approval of the amendments to
the Exactis.com equity incentive plan.
Please do not send any stock certificates at this time.
By Order of the board of directors of
Exactis.com, Inc.,
Kenneth W. Edwards, Jr.
SECRETARY
Denver, Colorado
[ ], 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.......... l
SUMMARY OF THE JOINT PROXY
STATEMENT--PROSPECTUS......................... 3
The Companies................................. 3
The Structure of the Merger................... 4
Recommendation of the Boards of Directors and
Opinions of Financial Advisors.............. 4
Amendments to Exactis.com Equity Incentive
Plan........................................ 4
Stockholder Approvals......................... 4
The Special Meetings.......................... 6
Board of Directors of 24/7 Media Following the
Merger...................................... 6
Interests of Directors and Executive Officers
in the Merger............................... 6
Treatment of Exactis.com Stock Options and
Warrants.................................... 6
Tax Consequences.............................. 6
Overview of the Merger Agreement.............. 6
Stockholder Agreements........................ 8
Market Price Information...................... 8
Selected Historical and Pro Forma Financial
Data and Comparative per Share
Information................................. 10
RISK FACTORS.................................... 15
Risks Associated with the Merger.............. 15
Risks Associated with 24/7 Media's Business... 16
Risks Associated with Exactis.com's
Business.................................... 25
Risks Associated with Exactis.com's
Technology.................................. 28
Risks of Exactis.com Associated with the
Internet.................................... 31
Risks Associated with Exactis.com's Corporate
Structure...................................
THE SPECIAL MEETINGS............................ 33
Joint Proxy Statement-Prospectus.............. 33
Date, Time and Place of the Special
Meetings.................................... 33
Purpose of the Special Meetings............... 33
Stockholder Record Date for the Special
Meetings.................................... 34
Required Votes................................ 34
Proxies....................................... 35
Solicitation of Proxies....................... 36
THE MERGER...................................... 37
Background of the Merger...................... 37
24/7 Media's Reasons for the Merger and
Recommendation of 24/7 Media's Board of
Directors................................... 38
Exactis.com's Reasons for the Merger and
Recommendation of Exactis.com's Board of
Directors................................... 40
Opinion of 24/7 Media's Financial Advisor..... 42
Opinion of Exactis.com's Financial Advisor.... 48
Interests of Certain Exactis.com Directors and
Executive Officers in the Merger............ 56
Completion and Effectiveness of the Merger.... 59
Structure of the Merger and Conversion of
24/7 Media and Exactis.com Stock............ 59
Exchange of Stock Certificates for 24/7 Media
Stock Certificates.......................... 59
Treatment of Exactis.com Stock Options and
Warrants.................................... 60
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Exactis.com Employee Benefit Matters.......... 60
Material United States Federal Income Tax
Consequences of the Merger.................. 61
Accounting Treatment of the Merger............ 62
Regulatory Matters............................ 62
Restrictions on Sales of Shares by Affiliates
of Exactis.com.............................. 63
The Nasdaq National Market Quoting of
24/7 Media Common Stock to be Issued in the
Merger...................................... 63
Appraisal Rights.............................. 63
THE MERGER AGREEMENT............................ 64
Conditions to the Merger...................... 64
No Solicitation by Exactis.com................ 65
Termination................................... 67
Effect of Termination......................... 67
Conduct of Business Pending the Merger........ 68
Stock Options and Warrants.................... 69
Amendment, Extension and Waiver............... 69
Expenses...................................... 69
Representations and Warranties................ 70
STOCKHOLDER AGREEMENTS.......................... 71
24/7 Media Stockholder Agreement.............. 71
Exactis.com Stockholder Agreement............. 71
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS.................................... 72
DESCRIPTION OF EXACTIS.COM...................... 83
Description of Business....................... 83
Description of Property....................... 95
Legal Proceedings............................. 95
Selected Historical and Pro Forma Financial
Statements..................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 95
Changes/Disagreements on Accounting/Financial
Disclosure.................................. 101
Quantitative and Quantitative Disclosures
about Market Risk........................... 101
OWNERSHIP OF EXACTIS.COM COMMON STOCK........... 102
DESCRIPTION OF 24/7 MEDIA CAPITAL STOCK......... 104
General....................................... 104
24/7 Media Common Stock....................... 104
24/7 Media Preferred Stock.................... 104
Transfer Agent................................ 105
Anti-Takeover Considerations.................. 105
COMPARISON OF RIGHTS OF 24/7 MEDIA STOCKHOLDERS
AND EXACTIS.COM STOCKHOLDERS.................. 106
Capitalization................................ 106
Voting Rights................................. 106
Number and Election of Directors.............. 106
Vacancies on the Board of Directors and
Removal of Directors........................ 107
Amendments to the Certificate of
Incorporation............................... 107
Amendments to Bylaws.......................... 108
Action by Written Consent..................... 108
</TABLE>
i
<PAGE>
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PAGE
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<S> <C>
Notice of Stockholder Action.................. 108
Limitation of Personal Liability of Directors
and Officers................................ 110
Indemnification of Directors and Officers..... 110
Rights Plans.................................. 111
State Anti-Takeover Statutes.................. 111
BOARD OF DIRECTORS OF 24/7 MEDIA FOLLOWING THE
MERGER........................................ 112
BUSINESS RELATIONSHIPS BETWEEN 24/7 MEDIA AND
EXACTIS.COM...................................
PROPOSAL TO APPROVE AMENDMENTS TO THE
EXACTIS.COM EQUITY INCENTIVE PLAN............. 115
Summary of Amendments......................... 115
Summary of Plan Provisions.................... 115
LEGAL MATTERS................................... 119
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
EXPERTS......................................... 119
STOCKHOLDER PROPOSALS........................... 119
24/7 Media.................................... 119
Exactis.com................................... 120
WHERE YOU CAN FIND MORE INFORMATION............. 120
STATEMENTS REGARDING FORWARD LOOKING
INFORMATION................................... 121
EXACTIS.COM'S FINANCIAL STATEMENTS.............. F-1
INFORMATION NOT REQUIRED IN PROSPECTUS.......... II-1
Indemnification of Directors and Officers..... II-1
Exhibits and Financial Statement Schedules.... II-2
Undertakings.................................. II-3
</TABLE>
<TABLE>
<S> <C>
ANNEX A Agreement and Plan of Merger
ANNEX B 24/7 Media Stockholder Agreement
ANNEX C Exactis.com Stockholder Agreement
ANNEX D Opinion of Lazard Freres & Co. LLC
ANNEX E Opinion of Thomas Weisel Partners
ANNEX F Stockholder Lock-up Agreement
ANNEX G Form of Amendment to 24/7 Media Certificate of Incorporation
ANNEX H Restated Exactis.com Equity Incentive Plan
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE 24/7 MEDIA AND EXACTIS.COM PROPOSING THE MERGER?
A: We are proposing the merger because we believe the combined strengths of our
two companies will enable us to offer an integrated, end-to-end customer
relationship management solution that will assist our combined company's
clients to acquire new customers and retain existing customers.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Stockholders of 24/7 Media will continue to own their shares in 24/7 Media,
and Exactis.com will become a wholly owned subsidiary of 24/7 Media.
Stockholders of Exactis.com will receive 0.60 shares of 24/7 Media common
stock for each share of Exactis.com common stock they own.
Q: WHAT STOCKHOLDER APPROVALS ARE NEEDED?
A: For 24/7 Media, the affirmative vote of a majority of the votes cast at the
24/7 Media special meeting is required to approve the issuance of 24/7 Media
common stock in the merger.
For Exactis.com, the affirmative vote of a majority of the outstanding
shares of Exactis.com's common stock is required to adopt the merger
agreement.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
joint proxy statement-prospectus, please respond by completing, signing and
dating your proxy card and returning it in the enclosed postage paid
envelope as soon as possible so that your shares may be represented at your
special meeting.
Q: WHAT IF I DON'T VOTE?
A: If you are a 24/7 Media stockholder and you do not vote, it will have no
effect on the outcome of the vote to approve the issuance of 24/7 Media
common stock in the merger.
If you are an Exactis.com stockholder:
- If you fail to respond, it will have the same effect as a vote against the
merger.
- If you respond and do not indicate how you want to vote, your proxy will
be counted as a vote in favor of the merger.
- If you respond and abstain from voting, your proxy will have the same
effect as a vote against the merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE DELIVERED MY PROXY?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can revoke
your proxy. Second, you can submit a new proxy. If you choose either of
these two methods, you must submit your notice of revocation or your new
proxy to the secretary of 24/7 Media or Exactis.com, as appropriate, before
the special meeting. If your shares are held in an account at a brokerage
firm or bank, you should contact your brokerage firm or bank to change your
vote. Third, if you are a holder of record, you can attend the special
meeting and vote in person.
1
<PAGE>
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, stockholders of Exactis.com will receive
written instructions from the exchange agent on how to exchange their stock
certificates for shares of 24/7 Media. Stockholders of 24/7 Media will keep
their stock certificates.
Q: WHO IS THE EXCHANGE AGENT FOR THE MERGER?
A: The Bank of New York is the exchange agent.
Q: WHERE WILL MY SHARES OF 24/7 MEDIA COMMON STOCK BE "QUOTED"?
A: 24/7 Media common stock is quoted on The Nasdaq National Market under the
symbol "TFSM".
Q: WILL I RECEIVE DIVIDENDS ON MY 24/7 MEDIA SHARES?
A: 24/7 Media does not currently intend to pay dividends on its common stock.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible. We expect to
complete the merger during the summer of 2000.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or how to submit your proxy, or
if you need additional copies of this joint proxy statement-prospectus or
the enclosed proxy card, you should contact one of the following:
- all stockholders:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
Telephone: (800) [ ]
(212) 269-5550
- if you are a 24/7 Media stockholder:
24/7 MEDIA
Mark E. Moran
1250 Broadway
New York, NY 10001
Telephone: (212) 231-7100
email: [email protected]
- if you are an Exactis.com stockholder:
EXACTIS.COM
Wendy Parker
717-17th Street, Suite 500
Denver, CO 80202
Telephone: (303) 675-2388
email: [email protected]
2
<PAGE>
SUMMARY OF THE JOINT PROXY STATEMENT-PROSPECTUS
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION IN THE JOINT PROXY
STATEMENT-PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD CAREFULLY READ THIS ENTIRE JOINT PROXY
STATEMENT-PROSPECTUS AND THE OTHER DOCUMENTS WE REFER TO FOR A MORE COMPLETE
UNDERSTANDING OF THE MERGER. IN PARTICULAR, YOU SHOULD READ THE DOCUMENTS
ATTACHED TO THIS JOINT PROXY STATEMENT-PROSPECTUS, INCLUDING THE MERGER
AGREEMENT AND THE STOCKHOLDER AGREEMENTS, WHICH ARE ATTACHED AS ANNEXES A, B AND
C, RESPECTIVELY. IN ADDITION, WE INCORPORATE BY REFERENCE IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT 24/7 MEDIA, SABELA, AND IMAKE INTO THIS JOINT PROXY
STATEMENT-PROSPECTUS. YOU MAY OBTAIN THE INFORMATION INCORPORATED BY REFERENCE
INTO THIS JOINT PROXY STATEMENT-PROSPECTUS WITHOUT CHARGE BY FOLLOWING THE
INSTRUCTIONS IN THE SECTION ENTITLED "WHERE YOU CAN FIND MORE INFORMATION" THAT
BEGINS ON PAGE [ ] OF THIS JOINT PROXY STATEMENT-PROSPECTUS.
THE COMPANIES
24/7 MEDIA, INC.
1250 Broadway
New York, New York 10001-3701
(212) 231-7100
http://www.247media.com
24/7 Media is a leading global provider of end-to-end advertising and
marketing solutions for Web publishers, online advertisers, advertising
agencies, e-marketers and e-commerce merchants. 24/7 Media provides a
comprehensive suite of media and technology products and services that enable
such Web publishers, online advertisers, advertising agencies and e-marketers to
attract and retain customers worldwide, and to reap the benefits of the Internet
and other electronic media. 24/7 Media's solutions include advertising and
direct marketing sales, ad serving, promotions, email list management, email
list brokerage, email delivery, data analysis, loyalty marketing and convergence
solutions, all delivered from our industry-leading data and technology
platforms. 24/7 Media's 24/7 Connect ad serving technology solutions are
designed specifically for the demands and needs of advertisers and agencies, Web
publishers and e-commerce merchants.
EXACTIS.COM, INC.
717-17th Street, Suite 500
Denver, Colorado 80202
(303) 675-2300
http://www.exactis.com
Exactis.com is a leading provider of permission-based outsourced email
marketing and communications solutions. Exactis.com provides a comprehensive and
scalable suite of email services which enable its clients to deliver large
numbers of custom email messages in an efficient, timely and cost-effective
manner. Exactis.com's primary services consist of the distribution of email
newsletters and information bulletins, as well as the delivery of personalized
order and trade confirmation messages, which are triggered by specific
transactions or events. Exactis.com also serves targeted banner advertisements
within the email communications that we deliver to over two million subscribers
of Sony Music's daily email newsletters. Exactis.com's newest product launched
in December 1999 offers targeted messaging capabilities to allow its clients to
conduct personalized one-to-one email marketing campaigns. Exactis.com's
advanced, proprietary technology allows it to deliver a large volume of email
messages for its clients. In the fourth quarter of 1999, Exactis.com delivered
over 675 million email messages for over 75 clients, primarily in the media,
e-commerce and financial services industries.
3
<PAGE>
STRUCTURE OF THE MERGER (SEE PAGE [ ])
To accomplish the merger, 24/7 Media formed a new company, Evergreen
Acquisition Sub Corp. At the time the merger is completed, Evergreen Acquisition
Sub Corp. will be merged into Exactis.com, and Exactis.com will be the surviving
corporation. As a result, Exactis.com will become a wholly owned subsidiary of
24/7 Media.
RECOMMENDATION OF THE BOARDS OF DIRECTORS AND OPINIONS OF FINANCIAL ADVISORS
(SEE PAGE [ ])
TO 24/7 MEDIA STOCKHOLDERS: The 24/7 Media board of directors believes that
the merger is fair to you and in your best interest and, with one member absent,
unanimously voted to approve the merger agreement and unanimously recommends
that you vote FOR approval of the issuance of 24/7 Media common stock in the
merger.
TO EXACTIS.COM STOCKHOLDERS: The Exactis.com board of directors believes
that the merger is fair to you and in your best interest and unanimously voted
to approve the merger agreement and unanimously recommends that you vote FOR the
adoption of the merger agreement.
OPINION OF 24/7 MEDIA'S FINANCIAL ADVISOR. In deciding to approve the
merger and the issuance of 24/7 Media common stock in the merger, the 24/7 Media
board of directors considered the opinion of its financial advisor, Lazard
Freres & Co. LLC, that, as of the date of its opinion, based upon and subject to
the various considerations set forth in the opinion, the exchange ratio in
connection with the merger was fair to 24/7 Media from a financial point of
view. The full text of this opinion is attached as Annex D to this joint proxy
statement-prospectus. 24/7 MEDIA URGES ITS STOCKHOLDERS TO READ THE OPINION OF
LAZARD IN ITS ENTIRETY.
OPINION OF EXACTIS.COM'S FINANCIAL ADVISOR. In deciding to approve the
merger, the Exactis.com board of directors considered the opinion of its
financial advisor, Thomas Weisel Partners LLC, that, as of the date of its
opinion, and subject to and based on the considerations referred to in its
opinion, the ratio to exchange Exactis.com common stock for 24/7 Media common
stock is fair, from a financial point of view, to the holders of Exactis.com
common stock. The full text of this opinion is attached as Annex E to this joint
proxy statement-prospectus. EXACTIS.COM URGES ITS STOCKHOLDERS TO READ THE
OPINION OF THOMAS WEISEL PARTNERS IN ITS ENTIRETY.
AMENDMENT TO 24/7 MEDIA CERTIFICATE OF INCORPORATION
24/7 Media stockholders are being asked to approve an amendment to the 24/7
Media certificate of incorporation that would increase the number of authorized
shares of 24/7 Media's common stock, par value $.01 per share, from 70,000,000
to 140,000,000 shares.
The 24/7 Media board of directors unanimously voted to approve the amendment
and unanimously recommends that you vote FOR the amendment to the 24/7 Media
certificate of incorporation.
AMENDMENTS TO EXACTIS.COM EQUITY INCENTIVE PLAN
Exactis.com stockholders are being asked to approve amendments to the
Exactis.com equity incentive plan that would increase the number of shares of
Exactis.com common stock authorized for issuance under the plan by one million
shares.
The Exactis.com board of directors unanimously voted to approve the
amendments and unanimously recommends that you vote FOR the amendments to the
Exactis.com equity incentive plan.
STOCKHOLDER APPROVALS (SEE PAGE [ ])
APPROVAL OF 24/7 MEDIA'S STOCKHOLDERS. The affirmative vote of a majority
of the votes cast at the 24/7 Media special meeting is required to approve the
issuance of shares of 24/7 Media common stock
4
<PAGE>
in the merger. Exactis.com has entered into a stockholder agreement with certain
stockholders of 24/7 Media pursuant to which these 24/7 Media stockholders have
agreed to vote all their shares of 24/7 Media common stock in favor of approval
of the issuance of 24/7 Media common stock in the merger. As of the record date,
these stockholders owned shares representing approximately 29% of the
outstanding shares of 24/7 Media common stock entitled to vote at the 24/7 Media
special meeting. The affirmative vote of the holders of a majority of the
outstanding shares of 24/7 Media common stock entitled to vote at the 24/7 Media
special meeting is required to approve the amendment to the 24/7 Media
certificate of incorporation. As of the record date, 24/7 Media directors and
executive officers and their affiliates owned approximately [ ]% of the
outstanding shares.
APPROVAL OF EXACTIS.COM'S STOCKHOLDERS. The affirmative vote of the holders
of a majority of the outstanding shares of Exactis.com common stock entitled to
vote at the Exactis.com special meeting is required to adopt the merger
agreement. 24/7 Media has entered into a stockholder agreement with certain
stockholders of Exactis.com pursuant to which these Exactis.com stockholders
have agreed to vote all their shares of Exactis.com common stock in favor of the
adoption of the merger agreement. As of the record date, these stockholders
owned shares representing a majority of the outstanding shares of Exactis.com
common stock entitled to vote at the Exactis.com special meeting. The
affirmative vote of the holders of a majority of the outstanding shares of
Exactis.com common stock entitled to vote at the Exactis.com special meeting is
required to approve the amendments to the Exactis.com equity incentive plan. As
of the record date, Exactis.com directors and executive officers and their
affiliates owned approximately [ ] shares of Exactis.com common stock, which
represented approximately [ ]% of the outstanding shares of Exactis.com common
stock entitled to vote at the Exactis.com special meeting.
PROCEDURES FOR VOTING YOUR SHARES. YOUR VOTE IS VERY IMPORTANT, REGARDLESS
OF THE NUMBER OF SHARES YOU OWN. PLEASE VOTE AS SOON AS POSSIBLE TO MAKE SURE
THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. You may vote your shares by
signing your proxy card and mailing it in the enclosed return envelope. If you
are a holder of record, you may vote in person at the special meeting. If you do
not include instructions on how to vote your properly executed proxy card, your
shares will be voted FOR approval of the issuance of 24/7 Media common stock in
the merger and FOR approval of the amendment to the 24/7 Media certificate of
incorporation, if you are a 24/7 Media stockholder, or FOR adoption of the
merger agreement and FOR approval of the amendments to the Exactis.com equity
incentive plan, if you are an Exactis.com stockholder. If your shares are held
in an account at a brokerage firm or bank, your broker will vote your shares
only if you provide instructions on how to vote by following the information
provided to you by your broker. IF YOU ARE A 24/7 MEDIA STOCKHOLDER AND YOU DO
NOT VOTE OR DO NOT INSTRUCT YOUR BANK OR BROKER HOW TO VOTE, IT WILL HAVE NO
EFFECT ON THE OUTCOME OF THE VOTE TO APPROVE THE ISSUANCE OF 24/7 MEDIA COMMON
STOCK IN THE MERGER AND IT WILL HAVE THE SAME EFFECT AS VOTING AGAINST APPROVAL
OF THE AMENDMENT TO THE 24/7 MEDIA CERTIFICATE OF INCORPORATION. IF YOU ARE AN
EXACTIS.COM STOCKHOLDER AND YOU DO NOT VOTE OR DO NOT INSTRUCT YOUR BANK OR
BROKER HOW TO VOTE, IT WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE MERGER
AND AGAINST APPROVAL OF THE AMENDMENTS TO THE EXACTIS.COM EQUITY INCENTIVE PLAN.
PROCEDURE FOR CHANGING YOUR VOTE. You can change your vote at any time
before your proxy is voted at the special meeting of your company's
stockholders. You can do this in one of three ways. First, you can send a
written notice stating that you are revoking your proxy. Second, you can
complete and submit a new proxy card. If you choose either of these two methods,
you must submit your notice of revocation or your new proxy for 24/7 Media
shares to the Secretary of 24/7 Media at the address on page [ ] and for
Exactis.com shares to the Secretary of Exactis.com at the address on page [ ].
If your shares are held in an account at a brokerage firm or bank, you should
contact your broker to change your vote. Third, if you are a holder of record,
you can attend the special meeting of your company's stockholders and vote in
person.
5
<PAGE>
APPRAISAL RIGHTS. Under Delaware law, Exactis.com stockholders are not
entitled to appraisal rights in connection with the merger.
THE SPECIAL MEETINGS (SEE PAGE [ ])
SPECIAL MEETING OF 24/7 MEDIA'S STOCKHOLDERS. The 24/7 Media special
meeting will be held at [ ] on [ ], 2000, starting at
[ ] a.m., local time.
SPECIAL MEETING OF EXACTIS.COM'S STOCKHOLDERS. The Exactis.com special
meeting will be held at [ ] on [ ], 2000, starting at
[ ] a.m., local time.
BOARD OF DIRECTORS OF 24/7 MEDIA FOLLOWING THE MERGER (SEE PAGE [ ])
If the merger is completed, Adam Goldman and Linda Fayne Levinson, who are
both currently members of Exactis.com's board of directors, will become members
of the 24/7 Media board of directors.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER (SEE PAGE [ ])
Some of the directors and executive officers of Exactis.com have interests
in the merger that are different from, or are in addition to, the interests of
their company's stockholders. If the merger is completed, two directors of
Exactis.com will become members of the 24/7 Media board of directors, certain
options to acquire Exactis.com common stock will vest upon the completion of the
merger and the indemnification arrangements for Exactis.com directors and
officers will be continued. In addition, if the merger is completed, seven
current executives of Exactis.com will enter into employment agreements with
24/7 Media and Exactis.com and seven current executives will receive additional
options to purchase common stock which the Exactis.com board of directors has
previously approved.
TREATMENT OF EXACTIS.COM STOCK OPTIONS AND WARRANTS (SEE PAGE [ ])
When the merger is completed, each outstanding Exactis.com stock option and
some of the warrants will be converted into an option or warrant to purchase the
number of shares of 24/7 Media common stock that is equal to the product of 0.60
multiplied by the number of shares of Exactis.com common stock that would have
been obtained before the merger upon the exercise of the option or warrant,
rounded down to the nearest whole share. The exercise price per share will be
equal to the exercise price per share of Exactis.com common stock subject to the
option or warrant before the conversion divided by 0.60, rounded up to the
nearest tenth of a cent. As a result of the completion of the merger, certain
Exactis.com stock options will vest and become exercisable. Certain executives
of Exactis.com have agreed to waive such vesting in connection with their
entering into employment agreements with 24/7 Media and Exactis.com. Some of the
Exactis.com warrants that have not been exercised prior to the completion of the
merger, by their terms, will terminate upon the completion of the merger.
TAX CONSEQUENCES (SEE PAGE [ ])
We have structured the merger so that 24/7 Media, Exactis.com and their
respective stockholders will not recognize gain or loss for United States
federal income tax purposes in connection with the merger, except for taxes
payable because of cash received by Exactis.com stockholders instead of
fractional shares of 24/7 Media common stock.
OVERVIEW OF THE MERGER AGREEMENT (SEE PAGE [ ])
CONDITIONS TO THE COMPLETION OF THE MERGER. Each of 24/7 Media's and
Exactis.com's obligation to complete the merger is subject to the satisfaction
or waiver of specified conditions, including those listed below:
6
<PAGE>
- the issuance of shares of 24/7 Media common stock must be approved by the
24/7 Media stockholders;
- the merger agreement must be adopted by the Exactis.com stockholders;
- no law, injunction or order preventing the completion of the merger may be
in effect;
- the applicable waiting period under U.S. antitrust laws must expire or be
terminated;
- the shares of 24/7 Media common stock to be issued in the merger must have
been approved for quotation on The Nasdaq National Market;
- the Form S-4 of which this joint proxy statement-prospectus is a part must
be declared effective;
- we must have complied with our respective covenants in the merger
agreement;
- our respective representations and warranties in the merger agreement must
be true and correct; and
- we must each receive an opinion of tax counsel to the effect that the
merger will qualify as a tax-free reorganization.
TERMINATION OF THE MERGER AGREEMENT. 24/7 Media and Exactis.com can jointly
agree to terminate the merger agreement at any time. Either company may also
terminate the merger agreement if:
- the merger is not completed on or before August 31, 2000, so long as the
failure to complete the merger is not the result of the failure by that
company to fulfill any of its obligations under the merger agreement;
- government actions do not permit the completion of the merger;
- 24/7 Media's stockholders do not vote to approve the issuance of common
stock in the merger or Exactis.com stockholders do not vote to adopt the
merger agreement, at a duly held meeting of that company's stockholders;
- the board of directors or officers of the other company fail to take
required actions as described on page [ ]; or
- the other company breaches its representations, warranties or covenants in
the merger agreement in a material way.
TERMINATION FEES. The merger agreement provides that in several
circumstances 24/7 Media or Exactis.com may be required to pay termination fees
to the other party as described on pages [ ] and [ ].
"NO SOLICITATION" PROVISIONS. The merger agreement contains detailed
provisions prohibiting Exactis.com from seeking an alternative transaction.
These "no solicitation" provisions prohibit Exactis.com, as well as its
officers, directors, subsidiaries and representatives, from taking any action to
solicit an acquisition proposal as described on page [ ]. The merger agreement
does not, however, prohibit Exactis.com or its board of directors from informing
themselves of an unsolicited bona fide written superior proposal from a third
party as described on pages [ ] and [ ].
REGULATORY MATTERS. Under U.S. antitrust laws, we may not complete the
merger until we have notified the Antitrust Division of the Department of
Justice and the Federal Trade Commission of the merger and filed the necessary
report forms, and until a required waiting period has ended. We have received
notification from the Federal Trade Commission that early termination of the
waiting period has been granted.
7
<PAGE>
ACCOUNTING TREATMENT. We intend to account for the merger under the
purchase method of accounting for business combinations.
COMPLETION AND EFFECTIVENESS OF THE MERGER. We will complete the merger
when all of the conditions to completion of the merger are satisfied or waived
in accordance with the merger agreement. The merger will become effective when
we file a certificate of merger with the Secretary of State of the State of
Delaware. We expect to complete the merger during the summer of 2000.
STOCKHOLDER AGREEMENTS (SEE PAGE [ ])
24/7 MEDIA. 24/7 Media has entered into a stockholder agreement with
certain stockholders of Exactis.com pursuant to which these Exactis.com
stockholders have agreed to vote all their shares of Exactis.com common stock in
favor of the adoption of the merger agreement. As of the record date, these
stockholders owned shares representing a majority of the outstanding shares of
Exactis.com common stock entitled to vote at the Exactis.com special meeting. In
addition, each Exactis.com stockholder who is party to the stockholder agreement
is also party to a lock-up agreement with 24/7 Media, pursuant to which these
stockholders have agreed not to sell more than a certain portion of their
Exactis.com shares during the first five months after the completion of the
merger. The full text of the lock-up agreement is attached as Annex F to this
joint proxy statement-prospectus.
EXACTIS.COM. Exactis.com has entered into a stockholder agreement with
certain stockholders of 24/7 Media pursuant to which these 24/7 Media
stockholders have agreed to vote all their shares of 24/7 Media common stock in
favor of approval of the issuance of 24/7 Media common stock in the merger. As
of the record date, these stockholders owned shares representing approximately
29% of the outstanding shares of 24/7 Media common stock entitled to vote at the
24/7 Media special meeting.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
24/7 MEDIA
Since 24/7 Media's initial public offering on August 13, 1998, 24/7 Media's
common stock has traded on the Nasdaq National Market under the symbol "TFSM."
The following table sets forth the high and low sales prices of the 24/7 Media
common stock, for the periods indicated, as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Third Quarter (from August 14, 1998)........................ $22.75 $ 6.50
Fourth Quarter.............................................. 41.25 6.38
YEAR ENDED DECEMBER 31, 1999
First Quarter............................................... 59.00 22.88
Second Quarter.............................................. 69.63 23.88
Third Quarter............................................... 48.38 21.75
Fourth Quarter.............................................. 65.25 34.38
YEAR ENDED DECEMBER 31, 2000
First Quarter............................................... 65.00 36.13
</TABLE>
8
<PAGE>
EXACTIS.COM
Since Exactis.com's initial public offering on November 19, 1999,
Exactis.com's common stock has traded on the Nasdaq National Market under the
symbol "XACT." The following table sets forth the high and low sale prices of
the Exactis.com common stock, for the periods indicated, as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Fourth Quarter (from November 20, 1999)..................... $28.63 $20.25
YEAR ENDED DECEMBER 31, 2000
First Quarter............................................... 35.81 16.75
</TABLE>
We list below the per share closing market prices on (1) February 28, 2000, the
last trading day before public announcement of the signing of the merger
agreement, and (2) April 18, 2000, the latest practicable trading day before the
printing of this proxy statement/prospectus, as reported on the Nasdaq for
shares of 24/7 Media and Exactis.com. We also list the implied equivalent per
share value for shares of Exactis.com common stock, which is the 24/7 Media
common stock price multiplied by the exchange ratio of 0.60.
<TABLE>
<CAPTION>
FEBRUARY 28, APRIL 18,
2000 2000
------------ ---------
<S> <C> <C>
24/7 Media share price.................................. $49.50 $22.38
Exactis.com share price................................. 18.69 12.19
Exactis.com share equivalent value...................... 29.70 13.43
</TABLE>
Because the market price of 24/7 Media common stock is subject to
fluctuation, the market value of the shares of 24/7 Media common stock that
holders of Exactis.com common stock will be entitled to receive pursuant to the
merger may increase or decrease prior to and following the merger. The exchange
ratio is fixed and will not be adjusted to compensate Exactis.com's stockholders
for decreases in the market price of 24/7 Media common stock which could occur
prior to the merger becoming effective. WE URGE STOCKHOLDERS TO OBTAIN CURRENT
MARKET QUOTATIONS FOR 24/7 MEDIA COMMON STOCK AND EXACTIS.COM COMMON STOCK. WE
CANNOT ASSURE YOU AS TO THE FUTURE PRICES OR MARKETS FOR 24/7 MEDIA COMMON STOCK
OR EXACTIS.COM COMMON STOCK.
9
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
We are providing the following financial information to assist you in your
analysis of the financial aspects of the merger. We derived the 24/7 Media
information from the audited consolidated financial statements of 24/7 Media as
of and for each of the years in the five-year period ended December 31, 1999. We
believe that due to the many acquisitions that 24/7 Media made in recent years,
the period to period comparisons for 1995 through 1999 are not meaningful and
should not be relied upon as indicative of future performance. We derived the
Exactis.com information from the audited financial statements of Exactis.com as
of and for each of the years in the three-year period ended December 31, 1999.
The 1996 information for Exactis.com is as of December 31, 1996 and the year
ended December 31, 1996 information is for the period from January 30, 1996
(inception) to December 31, 1996. Historical results of Exactis.com are not
necessarily indicative of the results to be expected in the future. The
information is only a summary and should be read together with the historical
consolidated financial statements of 24/7 Media that has been filed with the
Securities and Exchange Commission. See "Where You Can Find More Information"
for information on where you can obtain copies of this other information.
24/7 MEDIA--HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues........................................ $ 90,011 $ 20,866 $ 3,217 $ 1,547 $ 152
Cost of revenues................................ 65,963 16,149 1,669 1,596 198
----------- ----------- ---------- ---------- ----------
Gross profit (loss)............................. 24,048 4,717 1,548 (49) (46)
Operating expenses:
Sales and marketing........................... 23,396 8,235 1,857 2,364 115
General and administrative.................... 26,730 9,396 3,258 3,414 679
Product development........................... 1,891 2,097 1,603 1,617 426
Other expenses................................ -- -- 989 -- --
Write-off of acquired in-process technology... -- 5,000 -- -- --
Amortization of goodwill and other intangible
assets...................................... 15,097 5,722 -- -- --
----------- ----------- ---------- ---------- ----------
Total operating expenses.................... 67,114 30,450 7,707 7,395 1,220
----------- ----------- ---------- ---------- ----------
Loss from operations............................ (43,066) (25,733) (6,159) (7,444) (1,266)
Interest income (expense), net.................. 3,025 576 (154) (38) --
----------- ----------- ---------- ---------- ----------
Loss before minority interest................... (40,041) (25,157) (6,313) (7,482) (1,266)
Minority interest in loss of consolidated
subsidiaries.................................. 979 -- -- -- --
----------- ----------- ---------- ---------- ----------
Net loss........................................ (39,062) (25,157) (6,313) (7,482) (1,266)
Cumulative dividends on manditorily convertible
preferred stock............................... -- (276) -- -- --
----------- ----------- ---------- ---------- ----------
Net loss attributable to common stockholders.... $ (39,062) $ (25,433) $ (6,313) $ (7,482) $ (1,266)
=========== =========== ========== ========== ==========
Basic and diluted net loss per common share..... $ (1.96) $ (2.48) $ (3.50) $ (4.24) $ (1.22)
=========== =========== ========== ========== ==========
Weighted average common shares outstanding...... 19,972,446 10,248,677 1,802,235 1,765,053 1,036,634
=========== =========== ========== ========== ==========
AS OF DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ---------- ---------- ----------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents....................... $ 42,786 $ 34,049 $ 121 $ 1,847 $ 216
Working capital (deficit)....................... 41,189 31,290 (1,668) (232) (235)
Intangible assets, net.......................... 62,398 10,935 -- -- --
Total assets.................................... 534,012 63,108 1,463 4,687 713
Long-term debt.................................. -- -- 2,317 -- --
Obligations under capital leases, excluding
current installments.......................... 13 34 80 -- --
Total stockholders' equity (deficit)............ 397,791 51,087 (2,947) 1,888 462
</TABLE>
10
<PAGE>
EXACTIS.COM--HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
FOR THE YEARS ENDED DECEMBER 31, JANUARY 30, 1996
------------------------------------ (INCEPTION) TO
1999 1998 1997 DECEMBER 31, 1996
---------- ---------- ---------- ------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.............................................. $ 10,986 $ 2,779 $ 855 $ --
Cost of revenue....................................... 1,782 2,780 2,039 161
---------- ---------- ---------- ----------
Gross profit (loss)................................... 9,204 (1) (1,184) (161)
Operating expenses:
Marketing and sales................................. 8,071 1,810 1,458 935
Research, development and engineering............... 10,259 2,915 2,201 1,206
General and administrative.......................... 4,003 2,039 1,978 1,009
Depreciation and amortization....................... 1,740 1,031 805 174
---------- ---------- ---------- ----------
Total operating expenses.......................... 24,073 7,795 6,442 3,324
---------- ---------- ---------- ----------
Loss from operations.................................. (14,869) (7,796) (7,626) (3,485)
Interest income (expense), net........................ 225 (101) (73) 93
---------- ---------- ---------- ----------
Net loss.............................................. (14,644) (7,897) (7,699) (3,392)
Accretion of preferred stock to liquidation value..... (144) (103) (53) (3)
---------- ---------- ---------- ----------
Net loss attributable to common stockholders.......... $ (14,788) $ (8,000) $ (7,752) $ (3,395)
========== ========== ========== ==========
Net loss per share--basic and diluted................. $ (6.26) $ (7.96) $ (7.75) $ (3.40)
========== ========== ========== ==========
Shares used in computing net loss per share--basic and
diluted............................................. 2,360,958 1,004,461 1,000,255 1,000,000
========== ========== ========== ==========
AS OF DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996
---------- ---------- ---------- ----------
(IN THOUSANDS)
BALANCE SHEETS DATA:
Cash and cash equivalents............................. $ 52,350 $ 6,383 $ 3,747 $ 3,798
Working capital....................................... 49,535 3,484 3,863 3,420
Total assets.......................................... 64,843 10,806 7,065 5,791
Long-term debt........................................ 128 610 824 30
Redeemable convertible preferred stock and warrants... -- 18,673 15,349 7,540
Total stockholders' equity (deficit).................. 53,076 (18,000) (10,039) (2,288)
</TABLE>
11
<PAGE>
UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma combined selected financial information
has been derived from, and should be read together with, the Unaudited Pro Forma
Condensed Combined Financial Statements and related notes thereto included
elsewhere in this joint proxy statement-prospectus, the historical financial
statements and related notes thereto of 24/7 Media, Sabela and IMAKE each of
which have been incorporated by reference, and the separate historical financial
statements and related notes thereto of Exactis.com which are included elsewhere
in this proxy statement-prospectus. See "Where You Can Find More Information" on
page 120.
In the table below, we provide you unaudited condensed combined statement of
operations data (a) on an historical basis; and (b) on a pro forma basis, to
give effect to (i) 24/7 Media's acquisition of Sabela and IMAKE announced on
January 10, 2000 as if such acquisitions had been completed on January 1, 1999;
and (ii) the acquisition of IMAKE, Sabela and 24/7 Media's proposed acquisition
of Exactis.com as if the aquisitions had been completed on January 1, 1999. Each
of these acquisitions are expected to be accounted for as a purchase business
combination.
With respect to the balance sheet data, the transactions referred to above
are assumed to have been completed as of December 31, 1999. The allocation of
the purchase price of Exactis.com is preliminary and may be subject to change
depending upon the final outcome of valuations and appraisals.
These unaudited selected pro forma combined financial data are for
illustrative purposes only and do not necessarily indicate the operating results
or financial position that would have been achieved had the mergers described
above been completed as of the dates indicated or of the results that may be
12
<PAGE>
obtained in the future. In addition, the data do not reflect synergies that
might be achieved from combining these operations.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999
-------------------------------------
COMBINED COMBINED
PRO FORMA FOR PRO FORMA FOR
24/7 MEDIA SABELA AND SABELA, IMAKE
HISTORICAL IMAKE AND EXACTIS.COM
----------- ---------------- ----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................................. $ 90,011 $ 98,516 $ 109,502
Cost of revenues..................................... 65,963 70,079 71,861
----------- ----------- -----------
Gross profit..................................... 24,048 28,437 37,641
----------- ----------- -----------
Operating expenses:
Selling, general and administrative................ 50,126 58,344 75,038
Research and product development................... 1,891 2,811 13,070
Amortization of goodwill and other intangible
assets........................................... 15,097 39,158 140,145
----------- ----------- -----------
Total operating expenses......................... 67,114 100,313 228,253
----------- ----------- -----------
Loss from operations................................. (43,066) (71,876) (190,612)
Other expense........................................ -- (11) (11)
Interest income, net................................. 3,025 3,113 3,338
----------- ----------- -----------
Loss before minority interest........................ (40,041) (68,774) (187,285)
----------- ----------- -----------
Minority interest in loss of consolidated
subsidiaries....................................... 979 979 979
----------- ----------- -----------
Net loss............................................. (39,062) (67,795) (186,306)
Accretion of preferred stock to liquidation value.... -- -- (144)
----------- ----------- -----------
Net loss attributable to common stockholders......... $ (39,062) $ (67,795) $ (186,450)
=========== =========== ===========
Net loss per common share--basic and diluted......... $ (1.96) $ (3.12) $ (6.23)
=========== =========== ===========
Weighted average common shares outstanding........... 19,972,446 21,757,446 29,918,976
=========== =========== ===========
AS OF DECEMBER 31, 1999
-------------------------------------------------
COMBINED
COMBINED PRO FORMA FOR
24/7 MEDIA PRO FORMA FOR SABELA, IMAKE
HISTORICAL SABELA AND IMAKE AND EXACTIS.COM
----------- ---------------- ----------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............................ 42,786 40,971 93,321
Working capital...................................... 41,189 33,116 78,152
Total assets......................................... 534,012 628,895 1,094,487
Long-term debt....................................... 13 13 141
Total stockholders' equity........................... 397,791 485,132 934,457
</TABLE>
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UNAUDITED COMPARATIVE PER SHARE INFORMATION
The following tables reflect (a) the historical net loss per share and book
value per share of common stock of 24/7 Media and the historical net loss per
share and book value per share of common stock of Exactis.com in comparison to
the unaudited pro forma net loss and book value per share after giving effect to
the Sabela and IMAKE mergers, and the proposed Exactis.com merger, and (b) the
equivalent historical net loss and book value per share attributable to 0.60
shares of 24/7 Media common stock that will be received for each share of
Exactis.com common stock pursuant to the merger. The information presented in
the following tables should be read in conjunction with the unaudited pro forma
condensed combined financial statements and the historical consolidated
financial statements and related notes thereto of 24/7 Media, Sabela and IMAKE
each of which are incorporated by reference, and the historical financial
statements and related notes thereto of Exactis.com which are included elsewhere
in this proxy statement/prospectus.
The unaudited pro forma combined per common share information does not
purport to represent what the actual financial position or results of operations
of 24/7 Media, Sabela, IMAKE and Exactis.com would have been had the mergers
occurred on January 1, 1999 or to project 24/7 Media's, Sabela's, IMAKE's and
Exactis.com's financial position or results of operations for any future date or
period.
<TABLE>
<S> <C>
24/7 MEDIA - HISTORICAL
Net loss per common share (basic and diluted) $(1.96)
Book value per common share(1) $17.74
24/7 MEDIA - COMBINED PRO FORMA FOR SABELA AND IMAKE
Net loss per common share (basic and diluted)(2) $(3.12)
Book value per common share(3) $20.04
EXACTIS.COM - HISTORICAL
Net loss per common share (basic and diluted) $(6.26)
Book value per common share(1) $ 4.18
24/7 MEDIA - COMBINED PRO FORMA FOR SABELA, IMAKE AND
EXACTIS.COM
Net loss per 24/7 Media common share (basic and diluted)(2) $(6.23)
Net loss per equivalent Exactis.com common share (basic and
diluted)(5) $(3.74)
Book value per 24/7 Media common share(4) $28.87
Book value per equivalent Exactis.com common share(5) $17.32
</TABLE>
- ------------------------
(1) The historical book value per share amounts are computed by dividing 24/7
Media's and Exactis.com's stockholders' equity, respectively, by their
actual common shares outstanding as of December 31, 1999.
(2) The average common shares outstanding used in calculating pro forma net loss
per common share are calculated assuming that the number of shares of 24/7
Media common stock issued or to be issued in the acquisitions of Sabela,
IMAKE and Exactis.com were outstanding from the beginning of the period
presented.
(3) The pro forma combined book value per share amounts are computed by dividing
pro forma stockholders' equity by the pro forma number of common shares of
24/7 Media outstanding as of December 31, 1999, assuming the Sabela and
IMAKE mergers occurred as of that date.
(4) The pro forma combined book value per share amounts are computed by dividing
pro forma stockholders' equity by the pro forma number of common shares of
24/7 Media outstanding as of December 31, 1999, assuming the Sabela, IMAKE
and Exactis.com mergers occurred as of that date.
(5) The equivalent pro forma combined book value per Exactis.com share amounts
are calculated by multiplying the net loss and pro forma net loss and
combined book value per 24/7 Media share, respectively, by the exchange
ratio of 0.60 shares of 24/7 Media common stock for each share of
Exactis.com common stock.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS JOINT PROXY STATEMENT-PROSPECTUS, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO VOTE FOR THE ISSUANCE
OF 24/7 MEDIA COMMON STOCK OR ADOPTION OF THE MERGER AGREEMENT.
RISKS ASSOCIATED WITH THE MERGER
THE VALUE OF THE SHARES OF 24/7 MEDIA COMMON STOCK THAT YOU RECEIVE MAY BE
LESS THAN THE VALUE OF YOUR SHARES OF EXACTIS.COM COMMON STOCK
Upon completion of the merger, all shares of Exactis.com common stock will
be converted into shares of 24/7 Media common stock. The ratio at which the
shares will be converted is fixed, and there will be no adjustment for changes
in the market price of either 24/7 Media common stock or Exactis.com common
stock. Neither party is permitted to "walk away" from the merger or resolicit
the vote of its stockholders solely because of changes in the market price of
either party's common stock. Stock price changes may result from a variety of
factors that are beyond the control of 24/7 Media and Exactis.com, including
changes in their businesses, operations and prospects, regulatory considerations
and general market and economic conditions.
The market value of the shares of 24/7 Media common stock that will be
received in exchange for shares of Exactis.com common stock in the merger will
not be known at the time stockholders of 24/7 Media vote on the approval of the
issuance of 24/7 Media common stock in the merger and stockholders of
Exactis.com vote on the adoption of the merger agreement. Shares of Exactis.com
common stock may have a greater market value than the shares of 24/7 Media
common stock for which they are exchanged.
DIRECTORS AND CERTAIN OFFICERS OF EXACTIS.COM HAVE POTENTIAL CONFLICTS OF
INTEREST IN RECOMMENDING THAT YOU VOTE IN FAVOR OF THE MERGER AGREEMENT
A number of directors and certain officers of Exactis.com who recommend that
you vote in favor of the adoption of the merger agreement have employment or
severance agreements or benefit arrangements that provide them with interests in
the merger that differ from yours. Additionally, a number of directors are
affiliated with certain principal stockholders of Exactis.com.
The receipt of compensation or other benefits in the merger, or the
continuation of indemnification arrangements for current directors and officers
of Exactis.com following completion of the merger, may influence these directors
and officers in making their recommendation that you vote in favor of the
adoption of the merger agreement.
24/7 MEDIA AND EXACTIS.COM MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF
THE MERGER
The success of the merger will depend, in part, on the ability of 24/7 Media
and Exactis.com to realize the anticipated growth opportunities and synergies
from combining their businesses. 24/7 Media and Exactis.com will face
significant challenges in consolidating functions, integrating their
organizations, procedures, operations and services in a timely and efficient
manner. The integration of 24/7 Media and Exactis.com will be time-consuming and
will require substantial attention from management. The diversion of management
attention and any difficulties encountered in the transition and integration
process could have an adverse effect on the revenues, level of expenses and
operating results of 24/7 Media.
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RISK ASSOCIATED WITH 24/7 MEDIA'S BUSINESS
WE HAVE A LIMITED OPERATING HISTORY ON WHICH AN INVESTOR CAN EVALUATE OUR
BUSINESS
We were formed as a result of three companies in February 1998. None of the
companies nor any company that we have since acquired had an operating history
of more than four years prior to acquisition or merger. We, therefore, have an
extremely limited operating history. You must consider the risks, expenses and
difficulties typically encountered by companies with limited operating
histories, particularly companies in new and rapidly expanding markets such as
Internet advertising. These risks include our ability to:
- develop new relationships and maintain existing relationships with our Web
sites, advertisers, and other third parties;
- further develop and upgrade our technology;
- respond to competitive developments;
- implement and improve operational, financial and management information
systems; and
- attract, retain and motivate qualified employees.
WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE THE COMPANIES THAT WE HAVE
ACQUIRED
We were formed in February 1998 to consolidate three Internet advertising
companies and have since acquired or agreed to acquire eleven more companies. In
combining these entities, we have faced risks and continue to face risks of
integrating and improving our financial and management controls, ad serving
technology, reporting systems and procedures, and expanding, training and
managing our work force. This process of integration may take a significant
period of time and will require the dedication of management and other
resources, which may distract management's attention from our other operations.
We intend to continue pursuing selective acquisitions of businesses,
technologies and product lines as a key component of our growth strategy. Any
future acquisition or investment may result in the use of significant amounts of
cash, potentially dilutive issuances of equity securities, incurrence of debt
and amortization expenses related to goodwill and other intangible assets. In
addition, acquisitions involve numerous risks, including:
- the difficulties in the integration and assimilation of the operations,
technologies, products and personnel of an acquired business;
- the diversion of management's attention from other business concerns;
- the availability of favorable acquisition financing for future
acquisitions; and
- the potential loss of key employees of any acquired business.
Our inability to successfully integrate any acquired company could adversely
affect our business.
WE ANTICIPATE CONTINUED LOSSES AND WE MAY NEVER BE PROFITABLE
We incurred net losses attributable to common stockholders of $39.1 million
and $25.4 million for the years ended December 31, 1999 and 1998, respectively.
Each of our predecessors had net losses in every year of their operation. We
anticipate that we will incur operating losses for the foreseeable future due to
a high level of planned operating and capital expenditures. Although our revenue
has grown rapidly in recent periods, this growth may not continue and may not
lead to profitability. Even if we do achieve profitability, we cannot assure you
that we can sustain or increase profitability on a quarterly or annual basis in
the future.
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OUR FUTURE REVENUES AND RESULTS OF OPERATIONS MAY BE DIFFICULT TO FORECAST
Our results of operations may fluctuate significantly in the future as a
result of a variety of factors, many of which are beyond our control. These
factors include:
- the addition of new or loss of existing clients;
- changes in fees paid by advertisers and direct marketers;
- changes in service fees payable by us to owners of Web sites or email
lists, or ad serving fees payable by us to third parties;
- the introduction of new Internet marketing services by us or our
competitors;
- variations in the levels of capital or operating expenditures and other
costs relating to the maintenance or expansion of our operations,
including personnel costs; and
- general economic conditions.
Our future revenues and results of operations may be difficult to forecast
due to the above factors. In addition, our expense levels are based in large
part on our investment plans and estimates of future revenues. Any increased
expenses may precede or may not be followed by increased revenues, as we may be
unable to, or may elect not to, adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. As a result, we believe that
period-to-period comparisons of our results of operations may not be meaningful.
You should not rely on past periods as indicators of future performance. In
future periods, our results of operations may fall below the expectations of
securities analysts and investors, which could adversely affect the trading
price of our common stock.
OUR REVENUES ARE SUBJECT TO SEASONAL FLUCTUATIONS
We believe that our revenues are subject to seasonal fluctuations because
advertisers generally place fewer advertisements during the first and third
calendar quarters of each year and direct marketers mail substantially more
marketing materials in the third quarter each year. Expenditures by advertisers
and direct marketers tend to vary in cycles that reflect overall economic
conditions as well as budgeting and buying patterns. Our revenue could be
materially reduced by a decline in the economic prospects of advertisers, direct
marketers or the economy in general, which could alter current or prospective
advertisers' spending priorities or budget cycles or extend our sales cycle.
OUR BUSINESS MAY NOT GROW IF THE INTERNET ADVERTISING MARKET DOES NOT
CONTINUE TO DEVELOP
The Internet as a marketing medium has not been in existence for a
sufficient period of time to demonstrate its effectiveness. Our business would
be adversely affected if the Internet advertising market fails to continue to
develop. There are currently no widely accepted standards to measure the
effectiveness of Internet marketing other than clickthrough rates, which
generally have been declining. We cannot be certain that such standards will
develop to sufficiently support Internet marketing as a significant advertising
medium. Actual or perceived ineffectiveness of online marketing in general, or
inaccurate measurements or database information in particular, could limit the
long-term growth of online advertising and cause our revenue levels to decline.
BANNER ADVERTISING, FROM WHICH WE CURRENTLY DERIVE MOST OF OUR REVENUES, MAY
NOT BE AN EFFECTIVE ADVERTISING METHOD IN THE FUTURE
The majority of our revenues are derived from the delivery of banner
advertisements. If advertisers determine that banner advertising is an
ineffective or unattractive advertising medium, we cannot assure you that we
will be able to effectively make the transition to any other form of Internet
advertising. Also, there are "filter" software programs that limit or prevent
advertising from being
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delivered to a user's computer. The commercial viability of Internet
advertising, and our business, results of operations and financial condition,
would be materially and adversely affected by Web users' widespread adoption of
such software.
GROWTH OF OUR BUSINESS DEPENDS ON THE DEVELOPMENT OF ONLINE DIRECT MARKETING
Adoption of online direct marketing, particularly by those entities that
have historically relied upon traditional means of direct marketing, such as
telemarketing and direct mail, is an important part of our business model.
Intensive marketing and sales efforts may be necessary to educate prospective
advertisers regarding the uses and benefits of our products and services to
generate demand for our direct marketing services. Enterprises may be reluctant
or slow to adopt a new approach that may replace, limit, or compete with their
existing direct marketing systems. In addition, since online direct marketing is
emerging as a new and distinct market apart from online advertising, potential
adopters of online direct marketing services will increasingly demand
functionality tailored to their specific requirements. We may be unable to meet
the demands of our clients.
OUR DEVELOPMENT OF A NEXT GENERATION AD SERVING TECHNOLOGY MAY NOT BE
SUCCESSFUL AND MAY CAUSE BUSINESS DISRUPTION
24/7 Connect is our proprietary next generation ad serving technology that
is intended to serve as our sole ad serving solution. We recently launched 24/7
Connect, and to successfully complete the roll-out of 24/7 Connect, we must,
among other things, ensure that this technology will function efficiently at
high volumes, interact properly with our Profilz database, offer the
functionality demanded by our customers and assimilate our sales and reporting
functions. This development effort could fail technologically or could take more
time than expected. Even if we successfully address all these challenges, we
must then work with our Web sites, advertisers and direct marketing clients to
transition them to our new system, which would also create a risk of business
disruption and loss of any of our clients.
LOSS OR FAILURE OF OUR THIRD PARTY AD SERVING TECHNOLOGY COULD DISRUPT OUR
BUSINESS
Unless and until the complete roll-out and transition to 24/7 Connect is
complete, we will be partially dependent on AdForce, Inc. to deliver ads to our
networks and Web sites. If such service becomes unavailable or fails to serve
our ads properly or fails to produce the frequent operational reports required,
our business would be adversely affected. Additionally, our use of multiple
systems to serve ads requires us to employ significant effort to prepare
information for billing, client statements and financial reporting. We are
upgrading our systems to integrate a new accounting system with our ad serving
technologies to improve our accounting, control and reporting methods. Our
inability to upgrade our existing reporting systems and streamline our
procedures may cause delays in the timely reporting of financial information.
LOSS OF OUR MAJOR WEB SITES WOULD SIGNIFICANTLY REDUCE OUR REVENUES
The 24/7 Network generates substantially all of our revenues and it consists
of a limited number of our Web sites that have contracted for our services under
agreements cancelable generally upon a short notice period. For the twelve month
periods ended December 31, 1999 and 1998, approximately 32% and 47%,
respectively, of our total revenues were derived from advertisements on our top
ten Web sites. For the twelve month period ended December 31, 1999, the top ten
Web sites included AT&T WorldNet Service, Mapquest.com, Havas Interactive,
Netscape Communications, Earthlink Network, Goto.com, Small World Sports,
AllAdvantage.com, Multi-Player Games Network and World Gaming Corp. We
experience turnover from time to time among our Web sites, and we cannot be
certain that the Web sites named above remain or will remain associated with us.
Our business, results of
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operations and financial condition would be materially adversely affected by the
loss of one or more of the Web sites that account for a significant portion of
our revenue from the 24/7 Network.
LOSS OF OUR ADVERTISERS OR AD AGENCIES WOULD REDUCE OUR REVENUES
We generate our revenues from a limited number of advertisers and ad
agencies that purchase space on our Web sites. We expect that a limited number
of these entities may continue to account for a significant percentage of our
revenues for the foreseeable future. For the twelve month period ended
December 31, 1999, our top ten advertisers and ad agencies accounted for
approximately 26% of our total revenues.
ADVERTISERS AND AD AGENCIES TYPICALLY PURCHASE ADVERTISING UNDER PURCHASE
ORDER AGREEMENTS THAT RUN FOR A LIMITED TIME
Typically, we enter into short-term contracts with advertisers and ad
agencies. Since these contracts are short-term, we will have to negotiate new
contracts or renewals in the future that may have terms that are not as
favorable to us as the terms of existing contracts. We cannot be certain that
current advertisers and ad agencies will continue to purchase advertising from
us or that we will be able to attract additional advertisers and ad agencies
successfully, or that agencies and advertisers will make timely payment of
amounts due to us. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products or services to address
the needs of our prospective clients.
OUR FAILURE TO SUCCESSFULLY COMPETE MAY HINDER OUR GROWTH
The markets for Internet advertising and related products and services are
intensely competitive and such competition is expected to increase. Our failure
to successfully compete may hinder our growth. We believe that our ability to
compete depends upon many factors both within and beyond our control, including:
- the timing and market acceptance of new products and enhancements of
existing services developed by us and our competitors;
- changing demands regarding customer service and support;
- shifts in sales and marketing efforts by us and our competitors; and
- the ease of use, performance, price and reliability of our services and
products.
Many of our competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than ours. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products or
services to address the needs of our prospective clients. We cannot be certain
that we will be able to successfully compete against current or future
competitors. In addition, the Internet must compete for a share of advertisers'
total budgets with traditional advertising media, such as television, radio,
cable and print, as well as content aggregation companies and other companies
that facilitate Internet advertising. To the extent that the Internet is
perceived to be a limited or ineffective advertising or direct marketing medium,
advertisers and direct marketers may be reluctant to devote a significant
portion of their advertising budgets to Internet marketing, which could limit
the growth of Internet marketing.
WE MAY BE UNABLE TO CONTINUE TO SUCCESSFULLY MANAGE RAPID GROWTH
We continue to increase the scope of our operations both domestically and
internationally, in both sales and marketing as well as technological
development. We expect that we will need to continue to
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improve our financial and managerial controls, reporting procedures and systems.
We have experienced rapid growth and expansion in operations that have placed a
significant strain on our managerial, operational and financial resources. We
expect the number of employees to increase in the future. To successfully
compete in the evolving Internet industry, we must:
- continue to improve our financial and management controls;
- enhance our reporting systems and procedures;
- continue to scale our ad serving systems and upgrade their functional
capabilities;
- expand, train and manage our work force; and
- expand, train, retain and manage our work force.
We cannot be certain that our systems, procedures or controls will be
adequate to support our expanding operations, or that management will be able to
respond effectively to such growth. Our future results of operations also depend
on the expansion of our sales, marketing and customer support departments.
OUR INTERNATIONAL EXPANSION MAY POSE LEGAL AND CULTURAL CHALLENGES
We have operations in a number of international markets, including Canada,
Europe, Asia, Australia and Latin America. We intend to continue to expand our
international operations and international sales and marketing efforts. To date,
we have limited experience in marketing, selling and distributing our solutions
internationally. International operations are subject to other risks, including:
- changes in regulatory requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences;
- general import/export restrictions relating to encryption technology
and/or privacy;
- difficulties and costs of staffing and managing foreign operations;
- political and economic instability;
- fluctuations in currency exchange rates; and
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world.
In addition to these factors, due to our minority stake in the 24/7 Network
in Asia, we are relying on chinadotcom corporation to conduct operations, build
the network, aggregate Web publishers and coordinate sales and marketing
efforts. The success of the 24/7 Network in Asia is directly dependent on the
success of chinadotcom corporation and its dedication of sufficient resources to
our relationship.
IF WE LOSE OUR CHIEF EXECUTIVE OFFICER OR OTHER SENIOR MANAGERS WE MAY NOT
BE ABLE TO GROW
Our success depends upon our senior management and key sales and technical
personnel, particularly David J. Moore, our Chief Executive Officer. The loss of
the services of one or more of these persons could materially adversely affect
our ability to develop our business. Our success also depends on our ability to
attract and retain qualified technical, sales and marketing, customer support,
financial and accounting, and managerial personnel. Competition for such
personnel in the Internet industry is intense, and we cannot be certain that we
will be able to retain our key personnel or that we can attract, integrate or
retain other highly qualified personnel in the future. We have experienced in
the past, and may continue to experience in the future, difficulty in hiring and
retaining candidates with
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appropriate qualifications, especially in sales and marketing positions.
Although we have not experienced any material impact from the difficulty in
hiring and retaining qualified employees, we may be materially impacted in the
future from such hiring difficulties.
DEPENDENCE ON PROPRIETARY RIGHTS AND RISK OF INFRINGEMENT
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of patent, copyright, trade secret and trademark law. We have
received two patents in the United States, and have filed and intend to file
additional patent applications in the United States. In addition, we apply to
register our trademarks in the United States and internationally. We cannot
assure you that any of our patent applications or trademark applications will be
approved. Even if they are approved, such patents or trademarks may be
successfully challenged by others or invalidated. If our trademark registrations
are not approved because third parties own such trademarks, our use of such
trademarks will be restricted unless we enter into arrangements with such third
parties that may be unavailable on commercially reasonable terms.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our solutions or technologies. We cannot assure you that the steps we have taken
will prevent misappropriation of our solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
We have licensed, and we may license in the future, elements of our
trademarks, trade dress and similar proprietary rights to third parties. While
we attempt to ensure that the quality of our brand is maintained by these
business partners, such partners may take actions that could materially and
adversely affect the value of our proprietary rights or our reputation. We
cannot assure you that any of our proprietary rights will be viable or of value
in the future since the validity, enforceability and scope of protection of
certain proprietary rights in Internet-related industries is uncertain and still
evolving.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD HINDER OUR ABILITY TO
DELIVER ADVERTISEMENTS OVER THE INTERNET
We may be subject to claims of alleged infringement of the trademarks and
other intellectual property rights of third parties by us or the Web publishers
with Web sites in the 24/7 Network. Such claims and any resultant litigation
could subject us to significant liability for damages and could result in the
invalidation of our proprietary rights. In addition, even if we prevail, such
litigation could be time-consuming and expensive to defend, and could result in
the diversion of our time and attention, any of which could materially and
adversely affect our business, results of operations and financial condition.
Any claims or litigation from third parties may also result in limitations on
our ability to use the trademarks and other intellectual property subject to
such claims or litigation unless we enter into arrangements with the third
parties responsible for such claims or litigation which may be unavailable on
commercially reasonable terms.
In December 1999, DoubleClick, Inc. filed a patent infringement lawsuit
against our subsidiary, Sabela Media, Inc. in the United States District Court
for the Southern District of New York. The suit alleges that Sabela is
infringing, and inducing and contributing to the infringement by third parties
of, a patent held by DoubleClick entitled "Method for Delivery, Targeting and
Measuring Advertising Over Networks". DoubleClick is seeking treble damages in
an unspecified amount, a preliminary and permanent injunction from further
alleged infringement and attorneys' fees and costs. This litigation can be
expected to result in significant expenses to us and the diversion of management
time and other
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resources, the extent of which cannot be quantified with any reasonable accuracy
given the early stage of this litigation. In addition, some of our contracts
with Web publishers require us to indemnify the Web publishers for losses they
incur arising from any infringement by our ad serving technology of a third
party's intellectual property rights. If DoubleClick is successful in its claims
against Sabela or files a similar suit against us, we may be hindered or even
prevented from competing in the Internet advertising market and our operations
could be severely harmed. The DoubleClick suit could result in limitations on
how we implement our 24/7 Connect for Advertisers and Publishers product, delays
and costs associated with redesigning our 24/7 Connect for Advertisers and
Publishers product and payments of license fees and other monies. An injunction
obtained by DoubleClick could eliminate our ability to deliver advertisements
over the Internet through our 24/7 Connect for Advertisers and Publishers
product. If DoubleClick is successful in its claims against Sabela, we cannot
assure you that we would be able to enter into a licensing agreement with
DoubleClick on commercially reasonable terms, if at all for our 24/7 Connect for
Advertisers and Publishers product. In that case, we would be required to alter
our technology in a way that would not infringe the DoubleClick patent, and we
cannot assure you that these alterations would be successful.
WE MAY INCUR INTELLECTUAL PROPERTY LIABILITY
We may be liable for content available or posted on the Web sites of our
publishers. We may be liable to third parties for content in the advertising we
serve if the music, artwork, text or other content involved violates the
copyright, trademark or other intellectual property rights of such third parties
or if the content is defamatory. Any claims or counterclaims could be time
consuming, result in costly litigation or divert management's attention.
PRIVACY CONCERNS MAY PREVENT US FROM COLLECTING DEMOGRAPHIC OR OTHER
CONSUMER DATA
Our 24/7 Connect technology targets advertising to users through the use of
identifying data, or "cookies" and other non-personally-identifying information.
24/7 Connect enables the use of cookies to deliver targeted advertising, to help
compile demographic information, and to limit the frequency with which an
advertisement is shown to the user. Any reduction or limitation in the use of
cookies could limit the effectiveness of our sales and marketing efforts and
impair our targeting capabilities. Due to privacy concerns, some Internet
commentators, advocates and governmental bodies have suggested that the use of
cookies be limited or eliminated. The effectiveness of our 24/7 Connect
technology to deliver targeted advertisements could be limited by any regulation
or limitation in the collection or use of information regarding Internet users.
Since many of the limitations are still in the proposal stage, we cannot yet
determine the full impact of these regulations on our business.
In addition, we are developing our Profilz database to collect data derived
from user activity on our networks and from other sources. We collect and
compile information in databases for the product offerings of all our
businesses. Individuals or entities may claim in the future, that our collection
of this information is illegal. Although we believe that we have the right to
use and compile the information in these databases, we cannot assure you that
our ability to do so will remain lawful, that any trade secret, copyright or
other intellectual property protection will be available for our databases, or
that statutory protection that is or becomes available for databases will
enhance our rights. In addition, others may claim rights to the information in
our databases. Further, pursuant to our contracts with Web publishers using our
solutions, we are obligated to keep certain information regarding each Web
publisher confidential and, therefore, may be restricted from further using that
information in our business.
CHANGES IN LAWS AND STANDARDS RELATING TO DATA COLLECTION AND USE PRACTICES
AND THE PRIVACY OF INTERNET USERS AND OTHER INDIVIDUALS COULD HARM OUR
BUSINESS
Growing public concern regarding privacy and the collection, distribution
and use of information about individuals has led to increased federal and state
scrutiny and legislative and regulatory activity.
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In addition, the high-technology and direct marketing industries are considering
various new, additional or different self-regulatory standards. This focus, and
any legislation, regulations or standards promulgated, impacts us.
The U.S. federal and various state governments have recently proposed
limitations on the collection and use of information regarding Internet users.
In October 1998, the European Union adopted a directive that may limit our
collection and use of information regarding Internet users in Europe. Various
technology and direct marketing industry groups have also been addressing this
issue. The Network Advertising Initiative, an industry self-regulatory group
comprised of third-party ad servers, including us, has proposed a series of
self-regulatory principles. We cannot assure you that the Federal Trade
Commission and the Department of Commerce will endorse these principles, and the
position that these agencies adopt may be more adverse to us than those
currently under discussion. Other trade associations are active as well. The
Online Privacy Alliance, a broad coalition of high-technology companies, is
examining fair information practices and may offer proposals for industry
acceptance. The Direct Marketing Association, or DMA, the leading trade
association of direct marketers, has adopted guidelines regarding the fair use
of information which it recommends that industry participants, including us,
follow.
We are also subject to various federal and state regulations concerning the
collection and use of information regarding individuals. These laws include the
Children's Online Privacy Protection Act, and state laws which limit or preclude
the use of voter registration and drivers license information, as well as other
laws that govern the collection and use of consumer credit information. Although
our compliance with applicable federal and state laws, regulations and industry
guidelines has not had a material adverse effect on us, governments, trade
associations and industry self-regulatory groups may enact more burdensome laws,
regulations and guidelines, including antitrust and consumer privacy laws, for
us and our clients. These regulations and guidelines could materially and
adversely affect the business, financial condition and results of operations of
our business.
Furthermore, computer users may also use software designed to filter or
prevent the delivery of advertising to their computers. We cannot assure you
that the number of computer users who employ filtering software will not
increase or that additional Web publishers will not seek contractual provisions
barring us from developing profiles of users of their Web sites, either of which
could materially and adversely affect our business, results of operations and
financial condition.
Also, as a consequence of governmental legislation or regulation or
enforcement efforts or evolving standards of fair information collection
practices, we may be required to make changes to our products or services in
ways that could diminish the effectiveness of the product or service or its
attractiveness to potential customers, which could materially and adversely
affect our business, financial condition or results of operations.
CHANGES IN GOVERNMENT REGULATION COULD DECREASE OUR REVENUES AND INCREASE
OUR COSTS
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent, and new laws and
regulations are under consideration by the United States Congress and state
legislatures. Any legislation enacted or restrictions arising from current or
future government investigations or policy could dampen the growth in use of the
Internet generally and decrease the acceptance of the Internet as a
communications, commercial and advertising medium. The governments of other
states or foreign countries might attempt to regulate our transmissions or levy
sales or other taxes relating to our activities. The European Union has enacted
its own privacy regulations that may result in limits on the collection and use
of certain user information. The laws governing the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property privacy, libel and taxation apply to the
Internet and Internet advertising.
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In addition, the growth and development of the market for Internet commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business over the Internet. Our business, results of operations and financial
condition could be materially and adversely affected by the adoption or
modification of laws or regulations relating to the Internet.
OUR SUCCESS WILL DEPEND LARGELY ON THE WEB INFRASTRUCTURE
Our success will depend, in large part, upon the maintenance of the Web
infrastructure, such as a reliable network backbone with the necessary speed,
data capacity and security, and timely development of enabling products such as
high speed modems, for providing reliable Web access and services and improved
content. We cannot assure you that the Web infrastructure will continue to
effectively support the demands placed on it as the Web continues to experience
increased numbers of users, frequency of use or increased bandwidth requirements
of users. Even if the necessary infrastructure or technologies are developed, we
may have to spend considerable amounts to adapt our solutions accordingly.
Furthermore, the Web has experienced a variety of outages and other delays due
to damage to portions of its infrastructure. Such outages and delays could
impact the clients using our solutions and the level of user traffic on Web
sites on our networks.
WE EXPERIENCE RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE
The Internet and Internet advertising markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, and changing customer demands. Our future success will
depend on our ability to adapt to rapidly changing technologies and to enhance
existing solutions and develop and introduce a variety of new solutions to
address our customers' changing demands. We may experience difficulties that
could delay or prevent the successful design, development, introduction or
marketing of our solutions. In addition, our new solutions or enhancements must
meet the requirements of our current and prospective customers and must achieve
significant market acceptance. Material delays in introducing new solutions and
enhancements may cause customers to forego purchases of our solutions and
purchase those of our competitors.
THE MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE
The market price of our common stock has fluctuated in the past and is
likely to continue to be highly volatile and could be subject to wide
fluctuations. In addition, the stock market has experienced extreme price and
volume fluctuations. The market prices of the securities of Internet-related
companies have been especially volatile. Investors may be unable to resell their
shares of our common stock at or above the purchase price. In the past,
companies that have experienced volatility in the market price of their stock
have been the object of securities class action litigation. If we were the
object of securities class action litigation, it could result in substantial
costs and a diversion of management's attention and resources.
INTEREST RATE RISK, MARKET RISK AND CURRENCY RATE FLUCTUATIONS
24/7 Media's investments are classified as cash and cash equivalents with
original maturities of three months or less. Therefore, changes in the market's
interest rates do not affect the value of the investments as recorded by 24/7
Media. 24/7 Media's accounts receivables are subject, in the normal course of
business, to collection risks. 24/7 Media regularly assesses these risks and has
established policies and business practices to protect against the adverse
effects of collection risks. As a result, 24/7 Media does not anticipate any
material losses in this area. We transact business in various foreign countries.
Accordingly, we are subject to exposure from adverse movements in foreign
currency exchange rates. This exposure is primarily related to revenue and
operating expenses in the countries
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where currency is the Euro. The effect of foreign exchange rate fluctuations for
1999 was not material. 24/7 Media does not use derivative financial instruments
to limit its foreign currency risk exposure.
RISKS ASSOCIATED WITH EXACTIS.COM'S BUSINESS
WE HAVE A HISTORY OF LOSSES, WE EXPECT CONTINUING LOSSES AND WE MAY NEVER
ACHIEVE PROFITABILITY
We have not generated enough revenue to cover the substantial amounts we
have spent to create, launch and enhance our services. If our revenue does not
increase substantially, we may never become profitable. Even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future. This may, in turn, cause our stock price to decline.
In addition, if we do not achieve or sustain profitability in the future, we may
be unable to continue our operations. Our operating costs have exceeded our
revenue in all quarters since our inception. We incurred net losses of
approximately $3.4 million from January 30, 1996, the date of our inception,
through December 31, 1996, $7.7 million in 1997, $7.9 million in 1998 and
$14.6 million in 1999. We had an accumulated deficit of $33.9 million at
December 31, 1999. We expect to incur net losses and negative cash flows from
operations for the foreseeable future.
We have invested heavily in technology and infrastructure development. We
expect to continue to invest substantial financial and other resources to
develop and introduce new services and expand our sales and marketing
organizations, strategic relationships and operating infrastructure. We expect
that our cost of revenue, sales and marketing expenses, general and
administrative expenses, research development and engineering expenses,
operations and customer support expenses and depreciation and amortization
expenses will continue to increase in absolute dollars and may increase as a
percent of revenue. If our revenue does not correspondingly increase, we may
never become profitable.
OUR BUSINESS WILL SUFFER IF THE MARKET FOR EXACTIS EMAIL MARKETING AND
COMMUNICATIONS SOLUTIONS FAILS TO GROW
The market for outsourced email marketing and communications solutions is
new and rapidly evolving. If sufficient demand for our services does not
develop, we may not generate sufficient revenue to offset our costs and we may
never become profitable. Market acceptance of our existing and planned services
will depend on the acceptance and use of outsourced email marketing and
communications solutions. Our current and planned services are very different
from the traditional advertising and direct mail methods that our clients have
historically used to attract new customers and maintain customer relationships.
Businesses that have already invested substantial resources in traditional or
other methods of marketing and communications may be reluctant to adopt new
marketing strategies and methods. Consumers may also be reluctant to alter
established patterns of purchasing goods and services. Moreover, the sales cycle
for the new targeted messaging services that we are developing may be longer
than for existing services.
ONE OF OUR CLIENTS ACCOUNTED FOR A MAJORITY OF OUR REVENUE AND A SMALL
NUMBER OF CLIENTS ACCOUNTED FOR A HIGH PERCENTAGE OF OUR REVENUE IN A RECENT
PERIOD; THEREFORE, THE LOSS OF A MAJOR CLIENT COULD HARM OUR BUSINESS
A small number of clients account for most of our revenue. If we lose
existing clients and do not replace them with new clients, our revenue will
decrease and may not be sufficient to cover our costs. In 1999, Sony Music
accounted for approximately 65% of our total revenue and our two next largest
clients accounted for approximately 11% of our total revenue. We expect that a
small number of clients will continue to account for a high percentage of our
total revenue for at least the foreseeable future. This could cause our revenue
and earnings to fluctuate from quarter to quarter. The loss of a major client
could harm our business.
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INTENSE COMPETITION EXISTS IN THE EMAIL SERVICES MARKET AND WE EXPECT
COMPETITION TO CONTINUE TO INTENSIFY
Competition in the email services market is intense. If we do not respond
successfully to competitive pressures, we could lose market share. We may not be
able to compete successfully against our current or future competitors which
include the in-house email capabilities of many businesses. An increasing number
of companies are entering our market. Many of our competitors have greater brand
recognition, longer operating histories, larger customer bases and greater
financial, marketing and other resources than we have. These factors may place
us at a disadvantage when we respond to our competitors' pricing strategies,
technological advances and other initiatives. Additionally, our competitors may
develop or provide services that are superior to ours or that achieve greater
market acceptance. We expect competition to persist and intensify. Barriers to
entry may be insubstantial and we may face substantial and growing competitive
pressures from companies both in the United States and abroad.
DELAYS IN THE INTRODUCTION OF NEW SERVICES MAY HARM OUR BUSINESS
We may experience delays in the development, sales and launch of new
services, which could adversely affect our revenue and profitability. We have
recently completed development of a new service to provide our clients with a
wide variety of targeted marketing capabilities. Our ability to sell and launch
these new targeted marketing services is unproven. We are also developing or
plan to develop other new services and enhancements to existing services. We may
experience delays in the development, sale and launch of these new services.
Additionally, actual service offerings and benefits could differ materially from
those currently planned for many reasons, some or all of which may be out of our
control, which could result in a loss of clients.
WE DEPEND ON KEY STRATEGIC RELATIONSHIPS, INCLUDING RELATIONSHIPS WITH SONY
MUSIC AND E.PIPHANY, INC., TO GENERATE REVENUE AND OUR BUSINESS COULD SUFFER
IF ANY OF THESE RELATIONSHIPS ARE TERMINATED
We are highly dependent on our strategic relationships with Sony Music and
E.piphany, Inc. If these relationships are terminated early, our revenue will
decrease. Our relationship with Sony Music accounted for approximately 65% of
our total revenue in 1999. Our relationship with E.piphany is critical to our
recently developed targeted messaging capabilities. Our agreement with Sony
Music terminates in December 2001 and certain terms of our agreement with
E.piphany related to pricing terminate in March 2001. These agreements, as well
as others covering future strategic relationships, may not be renewed at the end
of their respective terms or may be terminated early in certain circumstances
upon written notice by either party. We may also be unable to effectively
reallocate personnel, equipment and other resources that were allocated to these
relationships.
In October 1999, we found that the software we use to deliver the InfoBeat
newsletter for Sony permitted certain advertisers to access the email addresses
of InfoBeat subscribers who elected to view advertisements in the newsletter.
Sony's privacy policy prohibits disclosure of a subscriber's email address to
advertisers without the subscriber's consent. We have revised our software to
prevent unauthorized disclosure of a subscriber's email address. We believe that
this issue has not seriously harmed our relationship with Sony. However, this
event and the November 8, 1999 Wall Street Journal article reporting this issue
may have harmed our reputation with our current and potential customers, which
could negatively impact our ability to retain and attract customers.
OUR FAILURE TO MANAGE OUR PLANNED RAPID GROWTH COULD CAUSE OUR BUSINESS TO
SUFFER
Our failure to manage our growth effectively could result in service
disruptions, loss of competitive position and lack of adequate financial
controls. We plan to expand our operations rapidly and to significantly augment
our infrastructure. We must effectively manage our operational, customer service
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and financial systems, procedures and controls to manage this future growth.
This expansion is expected to place a significant strain on our managerial,
operational and financial resources.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE AND MAY FALL BELOW MARKET
EXPECTATIONS AS A RESULT OF NON-CASH CHARGES RELATED TO STOCK OPTIONS
Our operating results will be affected by non-cash charges associated with
stock-based arrangements with employees. As a result of stock option grants in
1999 with exercise prices below fair value, we are recognizing total non-cash
compensation expense of $3.7 million over the vesting periods of the options,
which are generally three or four years.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE AND MAY FALL BELOW MARKET
EXPECTATIONS AS A RESULT OF VARIATIONS IN EQUIPMENT EXPENDITURES
Our operating results may be affected by variations in equipment
expenditures. Due to lead times required to purchase, install and test
equipment, we typically need to purchase equipment well in advance of the
recognition of any expected revenue. Delays in obtaining this equipment could
result in unexpected revenue shortfalls. Small variations in the timing of the
recognition of specific revenue, including deferred revenue, could cause
significant variations in operating results from quarter to quarter.
Period-to-period comparisons of our operating results are not a good indication
of our future performance. Our operating results in some quarters may be below
market expectations. In this event, the price of our common stock is likely to
decline.
IF WE DO NOT SUCCESSFULLY EXPAND OUR EMAIL SERVICES AND OPERATIONS INTO
INTERNATIONAL MARKETS, OUR BUSINESS COULD SUFFER
We are expanding into international markets and plan to spend significant
financial and managerial resources to do so. If our revenue from international
operations does not exceed the expense of establishing and maintaining these
operations, we may never achieve profitability or may attain significantly
reduced profitability. We do not have expertise in conducting business
internationally and may not be able to compete effectively in international
markets. Therefore, we face several risks, including:
- compliance with regulatory requirements which could change in unexpected
ways;
- difficulties and costs of staffing and managing international operations;
- varying technology standards from country to country;
- uncertainties regarding protection of intellectual property rights in
certain countries;
- difficulties in collecting accounts receivable;
- fluctuations in currency exchange rates;
- imposition of currency exchange controls; and
- potentially adverse tax consequences.
WE MAY NOT BE ABLE TO ENTER INTO NEW STRATEGIC RELATIONSHIPS BECAUSE WE MAY
COMPETE WITH EXISTING OR FUTURE RELATIONSHIPS
Our existing and future strategic relationships may limit our ability to
enter into other strategic relationships or sell our services to similar
businesses. This could limit our ability to compete effectively. For example,
our agreements with Sony Music prevent us from entering into a relationship that
is competitive with the online publishing services that we provide to Sony
Music. We may also enter into similar non-competition arrangements in connection
with future strategic relationships.
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OUR BUSINESS WILL SUFFER IF WE DO NOT ATTRACT AND RETAIN ADDITIONAL HIGHLY
SKILLED PERSONNEL
In order for us to succeed, we must identify, attract, retain and motivate
highly skilled technical, managerial, sales and marketing personnel. Failure to
retain and attract necessary personnel will limit our ability to compete
effectively and provide our services. We plan to significantly expand our
operations and we will need to hire additional personnel as our business grows.
Competition for qualified personnel is intense. In particular, we have
experienced difficulties in hiring highly skilled technical personnel and in
retaining employees due to significant competition for experienced personnel in
our market.
RISKS ASSOCIATED WITH EXACTIS.COM'S TECHNOLOGY
IF WE FAIL TO UPGRADE OUR SYSTEMS AND INFRASTRUCTURE TO CONTINUE TO EXPAND
OUR BUSINESS AND TO ACCOMMODATE INCREASES IN EMAIL TRAFFIC, WE MAY
EXPERIENCE SLOWER RESPONSE TIMES OR SYSTEM FAILURES
We must continue to expand our network infrastructure as the number of our
clients increases. Additionally, we must adapt our network infrastructure to the
increasing volume and complexity of information our clients wish to transmit and
as their requirements change. If we do not add sufficient capacity to handle
growing volume and complexity of messages, we could suffer slower response times
or system failures which could result in a loss of clients. We have made and
intend to continue to make substantial investments to increase our capacity by
adding new hardware and upgrading our software. Our services may be unable to
handle growing message volume and complexity. The expansion of our network
infrastructure will also require substantial financial, operational and
managerial resources.
In addition, we may not be able to accurately project the rate or timing of
email traffic increases or upgrade our systems and infrastructure to accommodate
future traffic levels. As we upgrade our network infrastructure to increase
capacity available to our clients, we may encounter equipment or software
incompatibility which may cause delays in implementation. We may not be able to
expand or adapt our network infrastructure to meet additional demand or our
clients' changing requirements in a timely manner or at all.
WE MAY NOT COMPETE SUCCESSFULLY AND THE VALUE OF YOUR INVESTMENT MAY DECLINE
IF WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY AND MARKET
CONDITIONS
If we do not successfully respond to new technological developments in our
industry or are unable to respond in a cost-effective manner, we may experience
a loss of competitive position and lose market share. We operate in an industry
that is characterized by rapid technological change, frequent new service
introductions, changing client demands and the emergence of new industry
standards and practices that could render our existing services, proprietary
technology and systems obsolete. We must continually improve the performance,
features and reliability of our services, particularly in response to
competitive offerings. Our success depends, in part, on our ability to enhance
our existing services and to develop new services, functionality and technology
that address the increasingly sophisticated and varied needs of our prospective
clients. The development of our technology and necessary service enhancements
entail significant technical and business risks and require substantial
expenditures and lead-time. We may not be able to keep pace with the latest
technological developments or adapt our services to client requirements or
emerging industry standards.
IF WE ENCOUNTER SYSTEM FAILURE, WE MAY NOT BE ABLE TO PROVIDE ADEQUATE
SERVICE AND OUR BUSINESS AND REPUTATION COULD BE DAMAGED
Our ability to successfully receive and send email messages and provide
acceptable levels of customer service largely depends on the efficient and
uninterrupted operation of our computer and communications hardware and network
systems. All of our communications systems are located in Denver, Colorado. As a
result, if there were to be a natural disaster affecting the Denver area, our
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communications systems could be disrupted and our business would be harmed. We
may not be able to relocate quickly under those circumstances.
Our clients have experienced some interruptions in our email service in the
past due to network outages and internal system failures. Similar interruptions
may occur from time to time in the future. Our revenue depends on the number of
end users who use our email services. Our business will suffer if we experience
frequent or long system interruptions that result in the unavailability or
reduced performance of our systems or networks or reduce our abilities to
provide email services. Our systems and operations are also vulnerable to damage
or interruption from fire, flood, earthquake, power loss, telecommunications
failure, physical break-ins and similar events. If any of these events occur, we
could fail to meet our minimum performance standards and incur monetary
penalties under our contracts.
IF WE FAIL TO MEET MINIMUM PERFORMANCE STANDARDS, WE MAY BE UNABLE TO
ATTRACT AND RETAIN CLIENTS
We have entered into service agreements with some of our clients that
require certain minimum performance standards. If we fail to meet these
standards, our clients could terminate their relationships with us and we could
be subject to contractual monetary penalties. Any unplanned interruption of
services may adversely affect our ability to attract and retain clients and
could damage our reputation.
IF WE DO NOT SUCCESSFULLY RELOCATE OUR DATA CENTER TO A FACILITY WITH
APPROPRIATE BACK-UP POWER AND COOLING CAPABILITIES, WE MAY EXPERIENCE AN
OUTAGE AND OUR CURRENT SYSTEMS MAY TEMPORARILY CEASE OPERATING
Due to insufficient access to back-up power and cooling capabilities in our
current data center, we may experience a system interruption. We are currently
in the process of relocating our offices and data center to a facility with more
extensive back-up power and cooling capabilities. This relocation is expected to
be complete in April 2000. Any failure of our systems would materially harm our
business. Moreover, our relocation to a new site requires that we rebuild and
enhance our system. Although we plan to continue operating in our current site
until our new site is fully operational, any defects or delays in building our
system at the new site could harm our business.
SERVICE INTERRUPTIONS FROM OUR THIRD PARTY INTERNET AND TELECOMMUNICATIONS
PROVIDERS COULD HARM OUR BUSINESS
We depend heavily on our third party providers of Internet and related
telecommunications services. Any interruption by our Internet and
telecommunications providers would likely disrupt the operation of our messaging
platform, causing a loss of revenue and a potential loss of clients. In the
past, we have experienced disruptions and delays in our email service due to
service disruption from those providers. These companies may be unable to
provide services to us without disruptions, at the current cost or at all. The
costs associated with a transition to a new service provider would be
substantial. We would have to reroute our computer systems and
telecommunications infrastructure to accommodate a new service provider. This
process would be both expensive and time consuming.
UNKNOWN SOFTWARE DEFECTS COULD DISRUPT OUR SERVICES, WHICH COULD HARM OUR
BUSINESS AND REPUTATION
Our service offerings depend on complex software, both internally developed
and licensed from third parties. Complex software often contains defects,
particularly when first introduced or when new versions are released. These
defects could cause service interruptions, which could damage our reputation,
increase our service costs, cause us to lose revenue, delay market acceptance
and divert our development resources. Although we test our software, we may not
discover software defects that affect current or planned services or
enhancements until after they are deployed.
IF OUR SECURITY SYSTEM IS BREACHED, OUR BUSINESS AND REPUTATION COULD SUFFER
We must securely receive and transmit confidential information over public
networks and maintain that information on internal systems. Our failure to
prevent security breaches could damage our
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reputation, expose us to risk of loss or liability, result in a loss of our
clients and adversely affect our ability to obtain new clients. Although we have
implemented network security measures, our servers are vulnerable to computer
viruses, which could lead to interruptions, delays or loss of data. We may be
required to expend significant capital and other resources to license encryption
technology and additional technologies to protect against security breaches or
to alleviate problems caused by any breach.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY ADVERSELY
AFFECT OUR COMPETITIVE POSITION
The unauthorized misappropriation of our proprietary rights could harm our
competitive position and adversely affect our profitability. If we resort to
legal proceedings to enforce our proprietary rights, the proceedings could be
burdensome and expensive and the outcome could be uncertain.
Trademarks, service marks, trade secrets, copyrights, patents and other
proprietary rights are important to our success and competitive position. Our
efforts to protect our proprietary rights may be inadequate and may not prevent
others from claiming violations by us of their proprietary rights. Existing
trade secret, copyright and trademark laws offer only limited protection.
Further, effective trademark, copyright and trade secret protection may not be
available in every country in which our services are made available and policing
unauthorized use of our proprietary information is difficult.
In addition, the status of United States patent protection in the software
industry is not well defined and will evolve as the U.S. Patent and Trademark
Office grants additional patents. We have obtained two patents and we have two
patents pending in the United States. We may seek additional patents in the
future. We do not know if our pending patent applications or any future patent
applications will be issued with the scope of the claims we seek, if at all, or
whether the patents we own or any patents we receive will be challenged or
invalidated. Furthermore, we may not be successful in obtaining registration of
several pending trademark applications in the United States and in other
countries.
WE MAY BE SUBJECT TO CLAIMS ALLEGING INTELLECTUAL PROPERTY INFRINGEMENT
We may be subject to claims alleging that we have infringed third party
proprietary rights. If we were to discover that we have infringed third party
rights, we may not be able to obtain permission to use those rights on
commercially reasonable terms. If we resort to legal proceedings to enforce our
proprietary rights or defend against alleged infringements, the proceedings
could be burdensome and expensive and could involve a high degree of risk.
WE ARE DEPENDENT ON LICENSED THIRD PARTY TECHNOLOGIES AND WE MAY NEED TO
LICENSE ADDITIONAL TECHNOLOGIES TO SUCCEED IN OUR BUSINESS
We intend to continue to license technology from third parties. We are
highly dependent on the technology we license from SendMail, which enables us to
send email through the Internet, and E.piphany, Inc., which will allow us to
offer a variety of targeted marketing capabilities. The market is evolving and
we may need to license additional technologies to remain competitive. We may not
be able to license these technologies on commercially reasonable terms or at
all. Our inability to obtain any of these licenses could delay the development
of our services until equivalent technology can be identified, licensed and
integrated. Any delays could cause our operating results to suffer. In addition,
we may not be able to integrate any licensed technology into our services. These
third party licenses may expose us to increased risks, including risks related
to the integration of new technology, the diversion of resources from the
development of our own proprietary technology and our inability to generate
revenue from new technology sufficient to offset associated acquisition and
maintenance costs.
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RISKS OF EXACTIS.COM ASSOCIATED WITH THE INTERNET
OUR BUSINESS WILL SUFFER AND THE VALUE OF YOUR INVESTMENT WILL DECLINE IF
THE INTERNET DOES NOT ACHIEVE CONTINUING, WIDESPREAD ACCEPTANCE AS A
MARKETING AND COMMUNICATIONS MEDIUM
Our revenue and profitability will be adversely affected if the Internet
does not achieve continuing, widespread acceptance as a marketing and
communications medium. Our future success will depend substantially upon our
assumption that the Internet will continue to evolve as an attractive platform
for marketing and communications applications and the use of outsourcing to
solve businesses' email marketing and communications needs. Most businesses and
consumers have only limited experience with the Internet as a marketing and
communications medium.
WE WILL NOT BE ABLE TO GROW OUR BUSINESS UNLESS CONSUMERS AND BUSINESSES
INCREASE THEIR USE OF THE INTERNET AND THE INTERNET IS ABLE TO SUPPORT THE
DEMANDS OF THIS GROWTH
Our success depends on increasing use of the Internet by consumers and
businesses. If use of the Internet as a medium for consumer and business
communications does not continue to increase, demand for our services will be
limited. Consumers and businesses might not increase their use of the Internet
for a number of reasons, such as:
- high Internet access costs;
- perceived security and privacy risks;
- legal and regulatory issues;
- inconsistent service quality; and
- unavailability of cost-effective, high-speed service.
Even if consumers and businesses increase their use of the Internet, the
Internet infrastructure may not be able to support demands of this growth. The
Internet infrastructure must be continually improved and expanded in order to
alleviate overloading and congestion. Failure to do so will degrade the
Internet's performance and reliability. Internet users may experience service
interruptions as a result of outages and other delays occurring throughout the
Internet. Frequent outages or delays may cause consumers and businesses to slow
or stop their use of the Internet as a communications medium.
WE MAY HAVE LIABILITY FOR INTERNET CONTENT AND WE MAY NOT HAVE ADEQUATE
LIABILITY INSURANCE
As a provider of email services, we face potential liability for defamation,
negligence, copyright, patent or trademark infringement and other claims based
on the nature and content of the materials transmitted via email. We do not and
cannot screen all of the content generated by our users, and we could be exposed
to liability with respect to this content. Furthermore, some foreign governments
have enforced laws and regulations related to content distributed over the
Internet that are stricter than those currently in place in the United States.
Any imposition of liability, particularly liability that is not covered by
insurance or is in excess of insurance coverage, could harm our reputation and
our operating results or could result in the imposition of criminal penalties.
Although we carry general liability and umbrella liability insurance, our
insurance may not cover claims of these types or may not be adequate to
indemnify us for all liability that may be imposed. A single claim or multiple
claims, if successfully asserted against us, could exceed the total of our
coverage limits or may not qualify for coverage under our insurance policies as
a result of coverage exclusions that are contained within these policies. In
this case, we may need to use capital contributed by our stockholders to settle
claims.
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WE MAY LOSE CLIENTS AND OUR REPUTATION MAY SUFFER BECAUSE OF SPAM
If we fail in our attempts to prevent the distribution of unsolicited bulk
email, or spam, our business and reputation may be harmed. Spam-blocking efforts
by others may also result in the blocking of our clients' legitimate messages.
Additionally, spam may contain false email addresses or be generated by the use
of false email addresses. Our reputation may be harmed if email addresses with
our domain names are used in this manner. Any of these events may cause clients
to become dissatisfied with our service and terminate their use of our services.
INCREASED GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES MAY IMPAIR THE
GROWTH OF THE INTERNET AND DECREASE DEMAND FOR OUR SERVICES OR INCREASE OUR
COST OF DOING BUSINESS
Although there are currently few laws and regulations directly applicable to
the Internet and commercial email services, the adoption of additional laws or
regulations may impair the growth of our business and the Internet which could
decrease the demand for our services and increase our cost of doing business. A
number of laws have been proposed involving the Internet, including laws
addressing:
- user privacy;
- pricing;
- content;
- copyrights;
- characteristics and quality of services; and
- consumer protection.
In particular, a number of states have already passed statutes prohibiting
unsolicited commercial email. A number of statutes have been introduced in
Congress and state legislatures to impose penalties for sending unsolicited
emails which, if passed, could impose additional restrictions on our business.
In addition, a California court recently held that unsolicited email
distribution is actionable as an illegal trespass for which the sender could be
subject for monetary damages.
Further, the growth and development of the market for online email may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online, including us.
If we were alleged to have violated federal, state or foreign, civil or criminal
law, even if we could successfully defend these claims, it could harm our
business and reputation.
CHANGES IN TELECOMMUNICATIONS REGULATIONS COULD CAUSE REDUCED DEMAND FOR OUR
SERVICES
Several telecommunications carriers are advocating that the Federal
Communications Commission regulate the Internet in the same manner as other
telecommunications services by imposing access fees on Internet service
providers. These regulations could substantially increase the costs of
communicating on the Internet. This, in turn, could slow the growth in Internet
use and thereby decrease the demand for our services.
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THE SPECIAL MEETINGS
JOINT PROXY STATEMENT-PROSPECTUS
This joint proxy statement-prospectus is being furnished to you in
connection with the solicitation of proxies by each of 24/7 Media's and
Exactis.com's board of directors for use at the special meetings.
This joint proxy statement-prospectus is first being furnished to
stockholders of 24/7 Media and Exactis.com on or about [ ], 2000.
DATE, TIME AND PLACE OF THE SPECIAL MEETINGS
The special meetings are scheduled to be held as follows:
<TABLE>
<CAPTION>
FOR 24/7 MEDIA STOCKHOLDERS: FOR EXACTIS.COM STOCKHOLDERS:
- ---------------------------- -----------------------------
<S> <C>
[ ], 2000 [ ], 2000
[ ] a.m., local time [ ] a.m., local time
[ ] [ ]
</TABLE>
PURPOSE OF THE SPECIAL MEETINGS
24/7 MEDIA. The special meeting of 24/7 Media stockholders is being held
for the following purposes:
- to consider and vote upon a proposal to approve the issuance of 24/7 Media
common stock in exchange for shares of Exactis.com common stock in
connection with the merger of Evergreen Acquisition Sub Corp., a wholly
owned subsidiary of 24/7 Media, into Exactis.com, pursuant to the merger
agreement among 24/7 Media, Evergreen Acquisition Sub Corp. and
Exactis.com;
- to approve the amendment to the 24/7 Media certificate of incorporation,
pursuant to which the number of authorized shares of 24/7 Media's common
stock will be increased from 70,000,000 to 140,000,000 shares; and
- to transact any other business that properly comes before the special
meeting or any adjournment or postponement of the special meeting.
Approval of the issuance of 24/7 Media common stock in the merger will also
constitute approval of the merger and the other transactions contemplated by the
merger agreement. An aggregate of approximately 8,161,530 shares of 24/7 Media
common stock will be issued in the merger.
EXACTIS.COM. The special meeting of Exactis.com stockholders is being held
for the following purposes:
- to consider and vote upon a proposal to adopt a merger agreement among
24/7 Media, Evergreen Acquisition Sub Corp., a wholly owned subsidiary of
24/7 Media, and Exactis.com, pursuant to which Evergreen Acquisition Sub
Corp. will merge into Exactis.com and Exactis.com will become a wholly
owned subsidiary of 24/7 Media;
- to approve the amendments to the Exactis.com equity incentive plan,
pursuant to which the number of shares of Exactis.com common stock
authorized for issuance under the plan will be increased by one million
shares and the Exactis.com board of directors will be permitted to grant
nonstatutory stock options with exercise prices at less than 85% of the
fair market value of the underlying stock; and
- to transact any other business that properly comes before the special
meeting or any adjournment or postponement of the special meeting.
Adoption of the merger agreement will also constitute approval of the merger
and the other transactions contemplated by the merger agreement.
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If the stockholders of 24/7 Media approve the issuance of shares of 24/7
Media common stock in the merger and the stockholders of Exactis.com adopt the
merger agreement, upon completion of the merger each outstanding share of
Exactis.com common stock will be converted into 0.60 shares of 24/7 Media common
stock and Exactis.com will become a wholly owned subsidiary of 24/7 Media.
STOCKHOLDER RECORD DATE FOR THE SPECIAL MEETINGS
24/7 MEDIA. 24/7 Media's board of directors has fixed the close of business
on [ ], 2000 as the record date for determination of 24/7 Media stockholders
entitled to notice of and to vote at the 24/7 Media special meeting. On the
record date, there were [ ] shares of 24/7 Media common stock outstanding, held
by approximately [ ] holders of record.
EXACTIS.COM. Exactis.com's board of directors has fixed the close of
business on [ ], 2000 as the record date for determination of Exactis.com
stockholders entitled to notice of and to vote at the Exactis.com special
meeting. On the record date, there were [ ] shares of Exactis.com common
stock outstanding, held by approximately [ ] holders of record.
REQUIRED VOTES
24/7 MEDIA. A majority of the outstanding shares of 24/7 Media common stock
entitled to vote must be represented, either in person or by proxy, to
constitute a quorum at the 24/7 Media special meeting. Under applicable rules of
The Nasdaq National Market, the affirmative vote of a majority of the votes cast
at the 24/7 Media special meeting is required to approve the issuance of 24/7
Media common stock in the merger. Exactis.com has entered into a stockholder
agreement with certain stockholders of 24/7 Media pursuant to which these 24/7
Media stockholders have agreed to vote all their shares of 24/7 Media common
stock in favor of approval of the issuance of 24/7 Media common stock in the
merger. As of the record date, these 24/7 Media stockholders owned shares
representing a approximately 29% of the outstanding shares of 24/7 Media common
stock entitled to vote at the 24/7 Media special meeting.
The affirmative vote of the holders of a majority of the outstanding shares
of 24/7 Media common stock entitled to vote at the 24/7 Media special meeting is
required to approve the amendment to the 24/7 Media certificate of
incorporation.
As of the record date, 24/7 Media directors and executive officers and their
affiliates owned approximately [ ]% of the outstanding shares of 24/7 Media
common stock entitled to vote at the 24/7 Media special meeting.
EXACTIS.COM. A majority of the outstanding shares of Exactis.com common
stock entitled to vote must be represented, either in person or by proxy, to
constitute a quorum at the Exactis.com special meeting. The affirmative vote of
the holders of a majority of the outstanding shares of Exactis.com common stock
entitled to vote at the Exactis.com special meeting is required to adopt the
merger agreement. 24/7 Media has entered into a stockholder agreement with
certain stockholders of Exactis.com pursuant to which these Exactis.com
stockholders have agreed to vote all their shares of Exactis.com common stock in
favor of the adoption of the merger agreement. As of the record date, these
Exactis.com stockholders owned shares representing a majority of the outstanding
shares of Exactis.com common stock entitled to vote at the Exactis.com special
meeting.
The affirmative vote of the holders of a majority of the outstanding shares
of Exactis.com common stock entitled to vote at the Exactis.com special meeting
is required to approve the amendments to the Exactis.com equity incentive plan.
As of the record date, Exactis.com directors and executive officers and
their affiliates owned approximately [ ]% of the outstanding shares of
Exactis.com common stock entitled to vote at the Exactis.com special meeting.
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PROXIES
All shares of 24/7 Media common stock represented by properly executed
proxies received before or at the 24/7 Media special meeting and all shares of
Exactis.com common stock represented by properly executed proxies received
before or at the Exactis.com special meeting will, unless the proxies are
revoked, be voted in accordance with the instructions indicated on those
proxies. If no instructions are indicated on a properly executed proxy card, the
shares will be voted FOR the approval of the issuance of shares of 24/7 Media
common stock in the merger and FOR approval of the amendment to the 24/7 Media
certificate of incorporation, in the case of shares of 24/7 Media common stock,
or FOR adoption of the merger agreement and FOR approval of the amendments to
the Exactis.com equity incentive plan, in the case of shares of Exactis.com
common stock. You are urged to mark the box on the proxy card to indicate how to
vote your shares.
If a properly executed proxy card is returned and the stockholder has
abstained from voting on the issuance of 24/7 Media common stock in the merger
or the approval of the amendment to the 24/7 Media certificate of incorporation,
in the case of 24/7 Media stockholders, or on adoption of the merger agreement
or the approval of the amendments to the Exactis.com equity incentive plan, in
the case of Exactis.com stockholders, the 24/7 Media common stock or Exactis.com
common stock represented by the proxy will be considered present at the special
meeting for purposes of determining a quorum, but will not be considered to have
been voted in favor of the approval of the issuance of shares of 24/7 Media
common stock in the merger, the approval of the amendment to the 24/7 Media
certificate of incorporation, the adoption of the merger agreement or the
approval of the amendments to the Exactis.com equity incentive plan,
respectively. If your shares are held in an account at a brokerage firm or bank,
you must instruct them on how to vote your shares. If an executed proxy card is
returned by a broker or bank holding shares which indicates that the broker or
bank does not have discretionary authority to vote on the approval of the
issuance of shares of 24/7 Media common stock in the merger or the approval of
the amendment to the 24/7 Media certificate of incorporation, the adoption of
the merger agreement or the approval of the amendments to the Exactis.com equity
incentive plan, the shares will be considered present at the meeting for
purposes of determining the presence of a quorum, but will not be considered to
have been voted in favor of the approval of the issuance of shares of 24/7 Media
common stock in the merger, the adoption of the merger agreement or the approval
of the amendments to the Exactis.com equity incentive plan, respectively. Your
broker or bank will vote your shares only if you provide instructions on how to
vote by following the information provided to you by your broker.
Because adoption of the merger agreement and approval of the amendments to
the Exactis.com equity incentive plan requires the affirmative vote of the
holders of at least a majority of the outstanding shares of Exactis.com common
stock entitled to vote at the Exactis.com special meeting, abstentions, failures
to vote and broker non-votes will have the same effect as a vote against
adoption of the merger agreement and approval of the amendments to the
Exactis.com equity incentive plan, respectively.
Because approval of the issuance of 24/7 Media common stock in the merger
requires the affirmative vote of a majority of the votes cast at the 24/7 Media
special meeting, abstentions, failures to vote and broker non-votes will have no
effect on the outcome of the vote to approve the issuance of 24/7 Media common
stock in the merger. Because approval of the amendment to the 24/7 Media
certificate of incorporation requires the affirmative vote of the holders of at
least a majority of the outstanding shares of 24/7 Media common stock entitled
to vote at the 24/7 Media special meeting, abstentions, failures to vote and
broker non-votes will have the same effect as a vote against approval of the
amendment to the 24/7 Media certificate of incorporation.
Neither 24/7 Media nor Exactis.com expects that any matter other than
approval of the issuance of 24/7 Media common stock in the merger and approval
of the amendment to the 24/7 Media certificate of incorporation, in the case of
24/7 Media, and adoption of the merger agreement and approval of the
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amendments to the Exactis.com equity incentive plan, in the case of Exactis.com,
will be brought before its respective special meeting. If, however, other
matters are properly presented, the persons named as proxies will vote in
accordance with their judgment with respect to those matters, unless authority
to do so is withheld on the proxy card.
A stockholder may revoke his or her proxy at any time before it is voted by:
- notifying in writing the Secretary of 24/7 Media at 1250 Broadway, New
York, New York 10001, if you are a 24/7 Media stockholder, or the
Secretary of Exactis.com at 717-17(th) Street, Suite 500, Denver,
Colorado 80202, if you are an Exactis.com stockholder;
- granting a subsequently dated proxy; or
- appearing in person and voting at the special meeting if you are a holder
of record.
Attendance at the special meeting will not in and of itself constitute
revocation of a proxy.
SOLICITATION OF PROXIES
24/7 Media and Exactis.com will equally share the expenses incurred in
connection with the printing and mailing of this joint proxy
statement-prospectus. 24/7 Media has retained D.F. King & Co., Inc., at an
estimated cost of $15,000 plus reimbursement of expenses, to assist in the
solicitation of proxies. Exactis.com has retained D.F. King & Co., Inc., at an
estimated cost of $15,000 plus reimbursement of expenses, to assist in the
solicitation of proxies. 24/7 Media, Exactis.com and their respective proxy
solicitors will also request banks, brokers and other intermediaries holding
shares of 24/7 Media and Exactis.com common stock beneficially owned by others
to send this joint proxy statement-prospectus to, and obtain proxies from, the
beneficial owners and will reimburse the holders for their reasonable expenses
in so doing.
YOU SHOULD NOT SEND IN ANY EXACTIS.COM STOCK CERTIFICATES WITH YOUR PROXY
CARD. A TRANSMITTAL LETTER WITH INSTRUCTIONS FOR THE SURRENDER OF EXACTIS.COM
STOCK CERTIFICATES WILL BE MAILED TO YOU AS SOON AS PRACTICABLE AFTER COMPLETION
OF THE MERGER.
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THE MERGER
THIS SECTION OF THE JOINT PROXY STATEMENT-PROSPECTUS DESCRIBES MATERIAL
ASPECTS OF THE PROPOSED MERGER, INCLUDING THE MERGER AGREEMENT AND THE
STOCKHOLDER AGREEMENTS. WHILE WE BELIEVE THAT THE DESCRIPTION COVERS THE
MATERIAL TERMS OF THE MERGER, THIS SUMMARY MAY NOT CONTAIN ALL OF THE
INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD READ THIS ENTIRE JOINT PROXY
STATEMENT-PROSPECTUS AND THE OTHER DOCUMENTS WE REFER TO CAREFULLY FOR A MORE
COMPLETE UNDERSTANDING OF THE MERGER. COMPLETE COPIES OF THE MERGER AGREEMENT
AND THE STOCKHOLDER AGREEMENTS ARE ATTACHED AS ANNEXES TO THIS JOINT PROXY
STATEMENT-PROSPECTUS.
BACKGROUND OF THE MERGER
From time to time, 24/7 Media and Lazard Freres & Co. LLC have discussed
potential strategic alternatives, including potential acquisitions by
24/7 Media, that would, among other objectives, offer opportunities to improve
operations and expand its presence in growing, profitable markets, increase the
number of marketing services and technologies owned by 24/7 Media and enhance
24/7 Media's ability to provide its clients with a broad range of Internet based
marketing services.
In early January, Ken Leidner, Vice President of 24/7 Media, contacted Tom
Detmer, Chief Executive Officer of Exactis.com, and suggested that the two
companies meet to discuss possibilities for working together, including a
potential business combination of the two companies. On January 5, 2000, 24/7
Media and Exactis.com entered into a confidentiality agreement. On January 10,
2000, Mr. Leidner and Michael Rowsom, Senior Vice President of Strategic
Planning and General Manager of 24/7 Mail, flew to Colorado to meet with
Mr. Detmer; Kenny Edwards, Chief Financial Officer; Cindy Brown, Vice President
of Engineering; Mike Rosol, Vice President of Sales; Greg Schneider, Vice
President of Marketing; and Brian Meyer of Thomas Weisel Partners at
Exactis.com's headquarters. During the meeting, the participants discussed the
companies' respective businesses and agreed to continue conversations regarding
a strategic relationship, including a potential business combination.
In conjunction with initial conversations, the companies began consulting
with financial and legal advisors regarding potential terms of a transaction.
24/7 Media retained Lazard as financial advisor and Cravath, Swaine & Moore as
legal advisor and Exactis.com retained Thomas Weisel Partners as financial
advisor and Cooley Godward LLP as legal advisor.
On January 25, 2000, the two companies signed a non-binding letter of intent
in respect of a potential business combination. The letter of intent provided
for a two week period during which Exactis.com would negotiate exclusively with
24/7 Media in an effort to reach a binding agreement for a business combination.
On January 26, 2000, representatives of 24/7 Media and Exactis.com and their
financial and legal advisors met in Colorado to intensify their due diligence
efforts.
During the period from January 25 to February 7, 2000, representatives of
24/7 Media and Exactis.com and their financial and legal advisors engaged in
numerous conversations regarding terms of a potential merger. However, no
agreements were reached and, on February 7, 2000, the parties determined to
discontinue discussions.
During the succeeding weeks, representatives of 24/7 Media and Exactis.com
continued to speak informally regarding a potential merger; however, the
discussions remained at a general level and no agreements were reached. On
February 21, 2000, the two parties began again to formally consider a merger. On
February 23, 2000, representatives of 24/7 Media, Exactis.com and their
financial advisors met at 24/7 Media offices in New York to resume due diligence
activities and continue their discussions concerning the terms of a business
combination.
During the period from February 23 through February 28, 2000,
representatives of 24/7 Media, Exactis.com and their financial and legal
advisors completed due diligence and negotiated the merger agreement and related
agreements.
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On Monday, February 28, 2000, at 6:30 p.m., the board of directors of
24/7 Media met telephonically to consider the proposed transaction. At this
meeting, Mr. Moore and other members of management reviewed the transaction with
the board, including strategic reasons for the proposed transaction, the
principal terms of the proposed transaction, a financial review of the proposed
transaction and the results of 24/7 Media's due diligence review. At the
meeting, Lazard presented its oral opinion, subsequently confirmed in writing,
that the exchange ratio in connection with the merger was fair to 24/7 Media
from a financial point of view. Cravath described the terms of the merger
agreement and the stockholder agreement with certain Exactis.com stockholders.
After questions by the board of directors of 24/7 Media to its management and
its financial and legal advisors and after further discussions, the board of
directors of 24/7 Media determined that its proposal to acquire Exactis.com was
in the best interest of 24/7 Media and its stockholders. The board of directors
of 24/7 Media then, absent one director, unanimously voted to approve the merger
agreement and the transactions contemplated by the merger agreement and to
authorize 24/7 Media's management and its advisors to conclude the negotiation
of the merger agreement.
On Monday, February 28, 2000, the board of directors of Exactis.com met
telephonically to consider the proposed transaction. At this meeting,
Mr. Detmer and Thomas Weisel Partners reviewed the transaction with the board of
directors, including strategic reasons for the proposed transaction, the
principal terms of the proposed transaction, a financial review of the proposed
transaction and the results of Exactis.com's due diligence review. At the
meeting, Thomas Weisel Partners presented its oral opinion, subsequently
confirmed in writing, that the exchange ratio in connection with the merger was
fair to the stockholders of Exactis.com from a financial point of view. Cooley
Godward described the terms of the merger agreement and the stockholder
agreement with certain 24/7 Media stockholders. After questions by the board of
directors of Exactis.com to its management and its financial and legal advisors
and after further discussion, the board of directors of Exactis.com determined
that 24/7 Media's proposal to acquire Exactis.com was in the best interest of
Exactis.com and its stockholders. The board of directors of Exactis.com then
unanimously voted to approve the merger agreement and the transactions
contemplated by the merger agreement and to authorize Exactis.com's management
and its advisors to conclude the negotiation of the merger agreement.
24/7 MEDIA'S REASONS FOR THE MERGER AND RECOMMENDATION OF 24/7 MEDIA'S BOARD OF
DIRECTORS
The 24/7 Media board of directors believes that the merger is fair to
24/7 Media's stockholders and in their best interest, and unanimously recommends
the approval of the issuance of 24/7 Media common stock in the merger.
In reaching its decision, the 24/7 Media board of directors identified
several potential benefits of the merger, including:
- the belief that at the contemplated exchange ratio, the merger could
reduce 24/7 Media's cash loss per share;
- the belief that Exactis.com's software based business model could increase
24/7 Media's long-term operating margins;
- the belief that the combined email operations of 24/7 Media and
Exactis.com should create a strong competitor in the email sector with
broad service capabilities in customer acquisition and retention;
- the belief that the combination of Exactis.com's technology expertise with
24/7 Media's sales and marketing infrastructure should enable the combined
company to both increase sales and expand the range of services offered;
- the belief that the acquisition of Exactis.com would provide 24/7 Media
with an opportunity to position its email business in the market as a
broad based market leader.
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The 24/7 Media board of directors also identified and considered a number of
uncertainties and risks concerning the merger, including:
- at the contemplated exchange ratio, the merger would be dilutive on a
revenue and gross profit per share basis;
- the risk that the merger might not be consummated;
- the possibility of management disruption associated with the merger and
integrating the operations of the companies, and the risk that, despite
the efforts of the combined company, key management, sales and technical
personnel of 24/7 Media or Exactis.com might not continue with the
combined company;
- the risk that the benefits sought in the merger might not be realized; and
- the other applicable risks described in this joint proxy
statement-prospectus under "Risk Factors."
The decision of the 24/7 Media board of directors to adopt the merger
agreement and approve the issuance of 24/7 Media common stock in the merger was
the result of its careful consideration of a range of strategic alternatives,
including potential business combinations and relationships with Exactis.com and
other companies in the pursuit of 24/7 Media's long-term business strategy. In
reaching its decision to adopt the merger agreement, the 24/7 Media board of
directors considered, among other things:
- the impact of the merger on 24/7 Media's customers and employees;
- the results of the due diligence review by 24/7 Media's management, legal
and financial advisors regarding Exactis.com's business, operations,
technology and competitive position;
- the judgment, advice and analyses of its management recommending the
merger;
- management challenges associated with successfully integrating the
businesses of the two companies;
- the strategic benefits of the merger and the anticipated environment in
the Internet emarketing industry;
- the terms and conditions of the merger agreement and the stockholder
agreements;
- Lazard's fairness opinion dated February 28, 2000, and its presentation to
the 24/7 Media board of directors, as described under "The Merger--Opinion
of 24/7 Media's Financial Advisor"; and
- current industry, economic and market conditions.
In view of the variety of factors considered in connection with its
evaluation of the proposed merger, the 24/7 Media board of directors did not
find it practicable to and did not quantify or otherwise assign relative weights
to the specific factors considered in reaching its determination. In addition,
individual members of the 24/7 Media board of directors may have given different
weight to different factors. The 24/7 Media board of directors considered all of
these factors as a whole, and overall considered the factors to be favorable.
After careful consideration, the 24/7 Media board of directors has
determined that the merger and the terms of the merger agreement are advisable,
fair to and in the best interests of 24/7 Media and its stockholders and
recommends that 24/7 Media shareholders vote for approval of the issuance of
24/7 Media common stock in the merger.
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EXACTIS.COM'S REASONS FOR THE MERGER AND RECOMMENDATION OF EXACTIS.COM'S BOARD
OF DIRECTORS
The Exactis.com board of directors has determined that the terms of the
merger and the merger agreement are fair to, and in the best interests of,
Exactis.com and its stockholders. Accordingly, the Exactis.com board of
directors has adopted the merger agreement and the consummation of the merger
and recommends that you vote for adoption of the merger agreement and the
merger.
In reaching its decision, the Exactis.com board of directors identified
several potential benefits of the merger, including:
- the benefit access to 24/7 Media's customer base, permission-based email
marketing database and greater financial resources would bring to
Exactis.com's strategy of becoming a leading provider of outsourced
permission-based email marketing and communications solutions;
- the potential to increase Exactis.com's ability to compete effectively in
a rapidly emerging industry;
- the potential to accelerate the offering of Exactis.com's products and
services internationally;
- the potential for accelerating new product development and features for
current and future email marketing solutions;
- the price per share implied by the exchange ratio in the merger, as of the
last trading day prior to the announcement of the merger, which the board
of directors determined represents: (a) a premium of approximately 59%
over the closing price of the Exactis.com common stock on February 28,
2000, and (b) a premium of approximately 37% over the average closing
price in the prior 30 trading days; and
- the ability of Exactis.com shareholders to continue to participate in the
future growth and success of Exactis.com through their receipt of shares
of 24/7 Media common stock in the merger.
The decision of the Exactis.com board of directors to adopt the merger
agreement and the merger was the result of its careful consideration of a range
of strategic alternatives, including potential business combinations and
relationships with 24/7 Media and other companies in the pursuit of
Exactis.com's long-term business strategy. In reaching its decision to adopt the
merger, the Exactis.com board of directors consulted with Exactis.com's senior
management, as well as its legal counsel and financial advisors. Among the
factors considered by the Exactis.com board of directors in its deliberations
were the following:
- the impact of the merger on Exactis.com's customers and employees;
- the results of the due diligence review by Exactis.com's management, legal
and financial advisors regarding 24/7 Media's business, operations,
technology and competitive position;
- the current and prospective economic and industry environment in which
Exactis.com operates, including (a) the trend of consolidation in the
Internet emarketing industry; (b) the ability of larger industry
participants to increase market share; and (c) the trend of such companies
toward offering a more complete spectrum of Internet emarketing solutions;
- the prospects of Exactis.com as an independent company;
- the fairness and reasonableness to Exactis.com of the merger agreement and
related agreements, which were negotiated at arm's-length;
- the judgment, advice and analyses of its management recommending the
merger;
- the financial condition, results of operations and cash flows of
Exactis.com and 24/7 Media, both on a historical and a prospective basis;
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- management challenges associated with successfully integrating the
businesses of the two companies;
- the strategic benefits of the merger and the anticipated environment in
the Internet emarketing industry;
- the terms and conditions of the merger agreement and the stockholder
agreements;
- current industry, economic and market conditions;
- that two members of the current Exactis.com board of directors would
become directors of 24/7 Media, as described under "Interests of Certain
Exactis.com Directors and Executive Officers in the Merger"; and
- the opinion of Thomas Weisel Partners, delivered orally on February 28,
2000, and subsequently confirmed in writing, that as of that date, and
subject to the assumptions made, matters considered and limitations on the
review set forth in its opinion, the share exchange ratio in the merger is
fair to Exactis.com. shareholders from a financial point of view. See
"Opinions of Exactis.com's Financial Advisor".
In particular, the Exactis.com board of directors considered: the events
triggering payment of the termination fee by 24/7 Media to Exactis.com and by
Exactis.com to 24/7 Media; the limitations of Exactis.com's ability to negotiate
an alternative transaction with other companies; and the potential effect of
these provisions on Exactis.com receiving alternative proposals that could be
superior to the merger. The Exactis.com board of directors also considered the
terms of the stockholder agreement to be entered into by certain key Exactis.com
stockholders and 24/7 Media. The Exactis.com board of directors noted that,
under the stockholder agreement, Exactis.com stockholders holding shares
representing a majority of the outstanding shares of Exactis.com common stock
would agree to vote those shares in favor of adoption of the merger agreement.
Because the Exactis.com board of directors reviewed its strategic alternatives
prior to entering into the merger agreement, and because these provisions were
required by 24/7 Media in order for it to enter into the merger agreement, and
the key Exactis.com stockholders entering into the stockholder agreement
informed the Exactis.com board of directors of their intentions in light of
current facts and circumstances to support the merger and no other transaction,
the Exactis.com board of directors determined that the value for Exactis.com
stockholders represented by the merger justified these requirements.
The Exactis.com board of directors also identified and considered a number
of uncertainties and risks concerning the merger, including:
- the risk that the per share value of the consideration received by
Exactis.com's shareholders might be significantly less than the price per
share implied by the exchange ratio immediately prior to the announcement
of the merger because the exchange ratio will not be adjusted for changes
in the market price of either 24/7 Media common stock or Exactis.com
common stock;
- the risk that the merger might not be consummated;
- the potential loss of revenue and business opportunities for Exactis.com
as a result of confusion in the marketplace as a result of the
announcement of the merger, and the possible exploitation of this
confusion by Exactis.com's and 24/7 Media's competitors;
- the possibility of management disruption associated with the merger and
integrating the operations of the companies, and the risk that, despite
the efforts of the combined company, key management, sales and technical
personnel of Exactis.com might not continue with the combined company;
- the risk that the benefits sought in the merger might not be realized; and
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- the other applicable risks described in this joint proxy
statement-prospectus under "Risk Factors."
As a result of the foregoing considerations, the Exactis.com board of
directors determined that the potential advantages of the merger outweighed the
benefits of remaining as a separate company. The Exactis.com board of directors
believes that the combined company will have a greater opportunity than
Exactis.com alone to successfully compete in its industry.
In view of the variety of factors considered in connection with its
evaluation of the merger, the Exactis.com board of directors did not find it
practicable to, and accordingly did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, many of the factors contained elements which may have both a positive
and negative effect on the fairness of the merger. Except as described above,
the Exactis.com board of directors, as a whole, did not attempt to analyze each
individual factor separately to determine its impact on the fairness of the
merger. Consequently individual members of the Exactis.com board of directors
may have given different weight to different factors and may have viewed
differently each factor's effect on the fairness determination.
For the reasons discussed above, the Exactis.com board of directors has
unanimously adopted the merger agreement and has determined that the merger is
advisable and fair to, and in the best interests of, Exactis.com and its
stockholders and unanimously recommends that Exactis.com stockholders vote for
adoption of the merger agreement and the merger.
In considering the recommendation of the Exactis.com board of directors with
respect to the merger agreement, you should be aware that certain directors and
executive officers of Exactis.com have interests in the merger that are
different from, or are in addition to, the interests of Exactis.com
stockholders. Please see the section entitled "Interests of Certain Exactis.com
Directors and Executive Officers in the Merger" that begins on page [ ] of this
joint proxy statement-prospectus.
OPINION OF 24/7 MEDIA'S FINANCIAL ADVISOR
On February 28, 2000, Lazard delivered its oral opinion to the 24/7 Media
board of directors, which was subsequently confirmed in writing, to the effect
that, as of the date of its opinion, based upon and subject to the various
considerations set forth in the opinion, the exchange ratio in connection with
the merger was fair to 24/7 Media from a financial point of view.
A copy of the full text of the opinion of Lazard, dated February 28, 2000,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached to this joint
proxy statement-prospectus as Appendix D. This summary discussion of Lazard's
opinion is qualified in its entirety by reference to the full text of the
opinion. The engagement of Lazard and its opinion are solely for the benefit of
the 24/7 Media board of directors, and its opinion was rendered to the
24/7 Media board of directors in connection with the 24/7 Media board of
directors' consideration of the merger. Lazard's opinion is directed only to the
fairness of the exchange ratio from a financial point of view to 24/7 Media, and
does not address any other aspects of the merger. The opinion is not intended
to, and does not, constitute a recommendation to any holder of 24/7 Media's
common stock as to how any such holder should vote with respect to the proposal
to issue shares of 24/7 Media's common stock to facilitate the closing of the
merger. Holders of 24/7 Media's common stock are urged to read the opinion of
Lazard in its entirety.
In connection with its written opinion, dated February 28, 2000, to the
24/7 Media board of directors, Lazard:
- reviewed the financial terms and conditions of a draft merger agreement,
dated February 27, 2000, and draft stockholders agreements, dated
February 27, 2000, between 24/7 Media and
42
<PAGE>
certain stockholders of Exactis.com and between Exactis.com and certain
stockholders of 24/7 Media;
- analyzed certain historical business and financial information relating to
24/7 Media and Exactis.com;
- reviewed various publicly available forecasts prepared by nationally
recognized research analysts who report on 24/7 Media and Exactis.com and
certain preliminary financial projections provided to Lazard by
24/7 Media and Exactis.com relating to their respective businesses;
- held discussions with members of senior management of 24/7 Media and
Exactis.com with respect to the businesses and prospects of 24/7 Media and
Exactis.com and the strategic objectives of each;
- reviewed public information with respect to certain other companies in
lines of business Lazard believed to be generally comparable to those of
24/7 Media and Exactis.com;
- reviewed the financial terms of certain business combinations involving
companies in lines of business Lazard believed to be generally comparable
to those of 24/7 Media and Exactis.com;
- reviewed the historical stock prices and trading volumes of 24/7 Media's
common stock and Exactis.com's common stock; and
- conducted other financial studies, analyses and investigations as Lazard
deemed appropriate.
Lazard relied upon the accuracy and completeness of the foregoing
information and did not assume any responsibility for any independent
verification of that information or any independent valuation or appraisal of
any of the assets or liabilities of 24/7 Media or Exactis.com, or concerning the
solvency of or issues relating to solvency concerning 24/7 Media or Exactis.com.
With the consent of 24/7 Media, Lazard relied upon publicly available forecasts
prepared by nationally recognized research analysts who report on 24/7 Media and
Exactis.com and relied on the statements of the managements of 24/7 Media and
Exactis.com that those forecasts were consistent with the currently available
estimates and judgments of the managements of 24/7 Media and Exactis.com as to
the future financial performance of 24/7 Media and Exactis.com. With respect to
the preliminary projections provided to Lazard by 24/7 Media and Exactis.com,
Lazard assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements of
24/7 Media and Exactis.com as to the future financial performance of 24/7 Media
and Exactis.com. Lazard assumed no responsibility for and expressed no view as
to such forecasts or the assumptions on which they were based.
The written opinion of Lazard was necessarily based on economic, monetary,
market and other conditions as in effect on, and the information made available
to it as of, February 28, 2000. In rendering its opinion, Lazard did not address
the relative merits of the merger, any alternatives potential transaction or
24/7 Media's underlying decision to effect the merger.
In rendering its opinion, Lazard assumed that the merger would be
consummated on the terms described in the merger agreement, without any waiver
of any material term or condition by 24/7 Media and that obtaining the necessary
regulatory approvals, if any, for the merger would not have an adverse effect on
24/7 Media. Lazard also assumed that the definitive merger agreement would not
differ in any material respects from the draft furnished to it.
43
<PAGE>
The following is a summary of the material financial and comparative
analyses performed by Lazard in connection with providing to, and reviewing
with, the 24/7 Media board of directors its oral opinion at the meeting of the
24/7 Media board of directors on February 28, 2000.
COMPARABLE PUBLICLY TRADED COMPANIES ANALYSIS. Lazard compared the
enterprise value implied by the exchange ratio expressed as a multiple of
estimated revenues to the trading multiples of selected public companies in
lines of business believed to be generally comparable to those of 24/7 Media and
Exactis.com.
EXACTIS.COM. The selected public companies in lines of business believed to
be generally comparable to those of Exactis.com's digital marketing business
included:
- Digital Impact, Inc.
- MessageMedia, Inc.
Lazard compared the enterprise value of each of these comparable companies
as a multiple of its 1999, 2000 and 2001 estimated revenues to the multiples of
Exactis.com based on the exchange ratio as follows:
<TABLE>
<CAPTION>
ENTERPRISE VALUE/REVENUE
--------------------------------------
SECTOR/COMPANY 1999E 2000E 2001E
-------------- -------- -------- --------
<S> <C> <C> <C>
EXACTIS.COM COMPS - DIGITAL
MARKETING
- ----------------------------------
Digital Impact 88.3x 24.2x NA
MessageMedia 80.8x 18.4 8.1
Exactis.com 21.3x 11.7x 6.7x
</TABLE>
24/7 MEDIA. The selected public companies in lines of business believed to
be generally comparable to those of 24/7 Media's email list management business
included:
- Mypoints.com, Inc.
- NetCreations, Inc.
The selected public companies in lines of business believed to be generally
comparable to those of 24/7 Media's advertising network business included:
- DoubleClick Inc.
- Engage Technologies, Inc.
- L90, Inc.
- Mediaplex, Inc.
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<PAGE>
Lazard compared the enterprise value of each of these comparable companies
as a multiple of its 1999, 2000 and 2001 estimated revenues to the multiples of
24/7 Media based on the exchange ratio as follows:
<TABLE>
<CAPTION>
ENTERPRISE VALUE/REVENUE
------------------------------
SECTOR/COMPANY 1999E 2000E 2001E
- ------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
24/7 COMPS--EMAIL LIST MANAGEMENT
Mypoints.com........................................... 57.8x 21.5x 12.0x
NetCreations........................................... 39.6 17.1 NA
24/7 COMPS--AD.NETWORKS
DoubleClick............................................ 37.4x 21.7x 14.9x
Engage................................................. 312.0 144.2 82.2
L90.................................................... NA NA NA
Mediaplex.............................................. 165.3 80.4 40.0
24/7 Media............................................. 9.5x 5.2x NA
</TABLE>
SELECTED PRECEDENT TRANSACTIONS ANALYSIS. Lazard reviewed selected publicly
available financial, operating and stock market information of six merger
transactions in the e-marketing industry in 1999.
These transactions consisted of (acquirer/target):
<TABLE>
<CAPTION>
SELECTED E-MARKETING PRECEDENT TRANSACTIONS
- -------------------------------------------------------
ANNOUNCED ACQUIROR TARGET
- --------- ----------- -----------
<S> <C> <C>
December 15, 1999.... CMGI Yesmail.com
November 16, 1999.... E.piphany Rightpoint
September 30, 1999... CMGI Flycast
September 20, 1999... CMGI AdForce
July 12, 1999........ DoubleClick Netgravity
June 14, 1999........ DoubleClick Abacus
</TABLE>
Based upon information for these transactions, the ranges of the transaction
value as a multiple of the last fiscal year plus one year revenues and the
transaction value as a multiple of the last twelve months revenues and, based
upon the publicly available forecasts prepared by nationally recognized research
analysts who report on 24/7 Media and Exactis.com, the projected transaction
value of the merger as a multiple of the last fiscal year plus one year revenues
and the transaction value of the merger as a multiple of last twelve months
revenues were as follows:
<TABLE>
<CAPTION>
RANGE EXACTIS.COM
-------------------- -----------
<S> <C> <C>
Transaction Value as a multiple of LTM Revenues..... 19.4x-111.0x 37.9x
Transaction Value as a multiple of LFY +1
Revenues.......................................... 14.8x-44.6x 20.8x
</TABLE>
PREMIUMS PAID ANALYSIS. Lazard reviewed the publicly available information
concerning premiums paid in 12 acquisition transactions in the internet
marketing industry since January 1999. The following table summarizes the
purchase prices paid in all of these transactions as well as the premium
45
<PAGE>
represented by the exchange ratio to the closing price of the Exactis.com shares
on February 27, 2000, and to the average closing prices for the 10 day period
and 30 day period prior to such date.
<TABLE>
<CAPTION>
RANGE EXACTIS.COM
-------------------- -----------
<S> <C> <C>
Premium to closing price of target company's stock
on day prior to announcement.................... (2.7%)-69.1% 58.9%
Premium to average closing price of target
company's stock for the 10-day period prior to
announcement.................................... 20.7%-62.3% 40.7%
Premium to average closing price of target
company's stock for the 30-day period prior to
announcement.................................... 16.7%-116.9% 37.8%
</TABLE>
CONTRIBUTION ANALYSIS. Lazard analyzed the relative contributions by
24/7 Media and Exactis.com to the pro forma combined companies and compared the
relative contribution by 24/7 Media to certain financial data for the pro forma
combined companies, as follows:
<TABLE>
<CAPTION>
CONTRIBUTION
------------------------
24/7 MEDIA EXACTIS.COM
---------- -----------
<S> <C> <C>
REVENUE
1999E................................................ 88.6% 11.4%
2000E................................................ 88.6% 11.4%
GROSS PROFIT
1999E................................................ 70.7% 29.3%
2000E................................................ 73.4% 26.6%
NET INCOME (PRE-GOODWILL)
1999E................................................ 75.2% 24.8%
2000E................................................ 78.5% 21.5%
OWNERSHIP.............................................. 73.8% 26.2%
</TABLE>
PRO FORMA ANALYSIS. Based upon publicly available forecasts prepared by
nationally recognized analysts who report on 24/7 Media and Exactis.com, Lazard
estimated the pro forma value of the combined companies after giving effect to
the merger. Such publicly available forecasts upon which Lazard based its
calculations did not include the recent acquisition of Sabela Media, Inc., IMAKE
Software & Services, Inc. and AwardTrack, Inc. by 24/7 Media. Lazard
mathematically derived the pro forma share price for the combined companies by
taking into consideration the values of 24/7 Media and Exactis.com based upon
the closing price of each company's common stock prior to the announcement of
the merger and the shares of 24/7 Media's common stock issued in the merger
based on the premium paid. The pro forma value calculation does not take into
consideration qualitative factors such as market conditions, potential investor
reaction to the merger, potential operating synergies or any other factors not
explicitly described above. Based upon the factors described above, Lazard
calculated a pro forma share price for the combined companies after giving
effect to the merger as summarized below. Lazard also compared the enterprise
value as a multiple of 1999 and 2000 estimated revenues and 1999 and 2000
estimated gross profits of each of 24/7 Media and Exactis.com
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<PAGE>
on a stand-alone basis to the projected pro forma enterprise value as a multiple
of 1999 and 2000 estimated revenues and 1999 and 2000 estimated gross profits of
the combined companies as follows:
<TABLE>
<CAPTION>
24/7 MEDIA EXACTIS.COM PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
CURRENT PRICE................................ $49.50 $18.69 $44.68
ENTERPRISE VALUE/REVENUE:
1999E...................................... 9.5x 21.3x 10.8x
2000E...................................... 5.2 11.7 6.0
GROSS PROFIT
1999E...................................... 36.7x 25.4x 33.4x
2000E...................................... 17.4 13.8 16.4
</TABLE>
ACCRETION/(DILUTION) ANALYSIS. Lazard analyzed the impact on holders of
24/7 Media's common stock of a range of financial metrics. The analysis
indicated that the merger would be dilutive to the 2000 estimated revenues per
share and post-goodwill earnings per share of the holders of 24/7 Media's common
stock, and that the merger would be accretive to the 2000 estimated gross
profits per share and 2000 estimated pre-goodwill earnings per share.
The summary set forth above does not purport to be a complete description of
the analyses performed by Lazard, although it is a summary of the material
financial and comparative analyses performed by Lazard in arriving at its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or the summary set forth above without considering the
analyses as a whole could create an incomplete or misleading view of the process
underlying the opinion of Lazard. No company or transaction used in the above
analyses as a comparison is identical to 24/7 Media, Exactis.com or the
transactions contemplated by the merger agreement. In arriving at its opinion,
Lazard considered the results of all of the analyses and did not assign relative
weights to any of the analyses. The analyses were prepared solely for the
purpose of Lazard providing its opinion to the 24/7 Media board of directors in
connection with the 24/7 Media board of directors' consideration of the merger
and do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold, which may be significantly more
or less favorable than as set forth in these analyses. With the consent of
24/7 Media, Lazard relied upon publicly available forecasts prepared by
nationally recognized research analysts who report on 24/7 Media and
Exactis.com. Lazard was also provided by the managements of 24/7 Media and
Exactis.com with preliminary drafts of estimates and forecasts based upon
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
24/7 Media, Exactis.com and Lazard. Any estimate of values or forecast of future
results contained in the analyses is not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
suggested by such analyses.
In performing its analyses, Lazard made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters. Because the analyses are inherently subject to uncertainty, being based
upon numerous factors or events beyond the control of the parties or their
advisors, none of 24/7 Media, Exactis.com, Lazard or any other person assumes
responsibility if future results or actual values are materially different from
those forecasts or estimates contained in the analyses.
The opinion and presentation of Lazard to the 24/7 Media board of directors
was only one of many factors taken into consideration by the 24/7 Media board of
directors in making its determination to approve the merger agreement. In
addition, the terms of the merger agreement were determined through arm's-length
negotiations between 24/7 Media and Exactis.com, and were approved by the
24/7 Media board of directors.
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<PAGE>
Lazard is an internationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts, and valuations for estate, corporate and other purposes. Lazard was
selected to act as investment banker to the 24/7 Media board of directors
because of its expertise and its reputation in investment banking and mergers
and acquisitions.
In connection with Lazard's services as investment banker to 24/7 Media,
including its delivery of the opinion summarized above, 24/7 Media has agreed to
pay Lazard a fee of approximately $3.4 million, a substantial portion of which
is contingent upon the completion of the merger. Lazard has in the past provided
financial advisory services to 24/7 Media for which it received usual and
customary compensation. 24/7 Media also has agreed to reimburse Lazard for its
reasonable out-of-pocket expenses (including reasonable fees and expenses of its
legal counsel) and will indemnify Lazard and certain related parties against
certain liabilities that may arise out of the rendering of the opinion.
In the ordinary course of its business, Lazard and its affiliates may
actively trade in the securities of 24/7 Media for its own account and for the
account of its customers and, accordingly, may at any time hold a long or short
position.
OPINION OF EXACTIS.COM'S FINANCIAL ADVISOR
Thomas Weisel Partners was selected by the Exactis.com board of directors to
act as Exactis.com's financial advisor based on Thomas Weisel Partners'
qualifications, expertise and reputation. Thomas Weisel Partners is a nationally
recognized merchant bank specializing in technology and information services
businesses. At the meeting of the Exactis.com's board of directors held on
February 28, 2000, Thomas Weisel Partners delivered to the Exactis.com board of
directors its oral opinion (which was subsequently confirmed in writing) that,
as of that date and based upon the assumptions made, matters considered and
limits of review set forth in Thomas Weisel Partners' written opinion, the
exchange ratio was fair, from a financial point of view, to the shareholders of
Exactis.com.
Exactis.com determined the exchange ratio in the merger through negotiations
with 24/7 Media. Exactis.com did not impose any limitations on Thomas Weisel
Partners with respect to the investigations made or procedures followed in
rendering its opinion.
The full text of Thomas Weisel Partners' written opinion, which sets forth,
among other things, the assumptions made, procedures followed, matters
considered and limitations on the scope of the review undertaken by Thomas
Weisel Partners in delivering its opinion, is attached as Annex E to this joint
proxy statement-prospectus. You should read this opinion carefully and in its
entirety. The following description of the Thomas Weisel Partners opinion is
only a summary of the written opinion and is qualified and not a substitute for
the written opinion.
Thomas Weisel Partners directed its opinion to the Exactis.com board of
directors. The opinion does not constitute a recommendation to the stockholders
of Exactis.com as to how they should vote with respect to the merger. The
opinion addresses only the financial fairness of the exchange ratio in the
merger. It does not address the relative merits of the merger or any
alternatives to the merger. Further, it does not address the business decision
of the Exactis.com board of directors to proceed with or effect the merger.
In connection with its opinion, Thomas Weisel Partners, among other things:
- reviewed publicly available financial and other data with respect to
24/7 Media, including the consolidated financial statements for recent
years and interim periods to September 30, 1999, and other relevant
financial and operating data relating to 24/7 Media made available to
Thomas Weisel Partners from published sources and from the internal
records of 24/7 Media;
- reviewed the consolidated financial statements of Exactis.com for recent
years and interim periods to December 31, 1999, and other relevant
financial and operating data relating to
48
<PAGE>
Exactis.com made available to Thomas Weisel Partners from published
sources and the internal records of Exactis.com;
- reviewed the financial terms and conditions of a draft of the merger
agreement, dated February 28, 2000;
- reviewed publicly available information concerning the trading of and the
trading market for Exactis.com common stock and 24/7 Media common stock;
- compared Exactis.com and 24/7 Media from a financial point of view with
certain other companies in the email services and online advertising
services industries which Thomas Weisel Partners deemed to be relevant;
- considered the financial terms, to the extent publicly available, of
selected recent business combinations of companies in the email services
and online advertising services industries which Thomas Weisel Partners
deemed to be comparable, in whole or in part, to the merger;
- reviewed and discussed with representatives of the managements of
Exactis.com and 24/7 Media certain information of a business and financial
nature regarding Exactis.com and 24/7 Media, furnished to Thomas Weisel
Partners by Exactis.com and 24/7 Media, including financial forecasts and
related assumptions of Exactis.com and 24/7 Media;
- made inquiries regarding and discussed the merger and drafts of the merger
agreement and other matters related thereto with Exactis.com's counsel;
and
- performed other analyses and examinations as Thomas Weisel Partners deemed
appropriate.
In preparing its opinion, Thomas Weisel Partners assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to it and did not assume any responsibility to verify independently
the information referred to above or undertake an independent evaluation,
appraisal or physical inspection of any of the assets or liabilities of
Exactis.com or 24/7 Media and was not furnished with that kind of evaluation or
appraisal. Thomas Weisel Partners also assumed the following:
- with respect to the financial forecasts of Exactis.com and 24/7 Media
provided to Thomas Weisel Partners by their respective managements, upon
their advice and with their consent, Thomas Weisel Partners assumed that
these forecasts (a) had been reasonably prepared on bases reflecting the
best available estimates and judgments of their respective managements at
the time of preparation as to the future financial performances of
Exactis.com and 24/7 Media and (b) provided a reasonable basis upon which
Thomas Weisel Partners could form its opinion;
- that there had been no material changes in the assets, financial
condition, results of operations, business or prospects of Exactis.com or
24/7 Media since the respective dates of their last financial statements
made available to Thomas Weisel Partners;
- that the merger would be consummated in a manner that complies in all
respects with the applicable provisions of the federal securities laws and
all other applicable federal and state statutes, rules and regulations;
- that the merger would be treated as a tax-free reorganization, pursuant to
the U.S. Internal Revenue Code of 1986, as amended;
- that the merger would be recorded as a purchase under generally accepted
accounting principles; and
- that the merger would be consummated in accordance with the terms
described in the February 28, 2000 draft of the merger agreement, without
further amendments thereto, and without any waiver by Exactis.com of any
of the conditions to its obligations thereunder.
The Thomas Weisel Partners opinion was based on economic, monetary, market
and other conditions as in effect on, and the information made available to
Thomas Weisel Partners as of, the date of its opinion. Accordingly, although
subsequent developments may affect its opinion, Thomas Weisel Partners has not
assumed any obligation to update, revise or reaffirm its opinion.
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<PAGE>
The following is a summary of the financial analyses performed by Thomas
Weisel Partners in connection with preparing its opinion to the Exactis.com
board of directors. Some of the summaries of financial analyses performed by
Thomas Weisel Partners include information presented in tabular format. In order
to fully understand the financial analyses performed by Thomas Weisel Partners,
you should read the tables together with the text of each summary. Considering
the data set forth in the tables without considering the full narrative
description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of the financial analyses performed by Thomas Weisel Partners.
SELECTED PUBLIC COMPANY ANALYSIS. Thomas Weisel Partners compared the
valuation multiples implied by the merger to those of selected publicly traded
Internet companies. Since there are no directly comparable publicly traded
companies, Thomas Weisel Partners analyzed companies with similar business
models in the email technology area. The companies included in the analysis are:
- ClickAction, Inc.
- CommTouch Software Ltd.
- Critical Path, Inc.
- Digital Impact, Inc.
- Mail.com, Inc.
- MessageMedia, Inc.
- Tumbleweed Communications Corp.
For each of these companies, Thomas Weisel Partners calculated the multiples
of enterprise value to estimates of total revenues and of gross profit for the
fiscal years 1999 through 2001. For purposes of this analysis, Thomas Weisel
Partners defined enterprise value as equity value plus debt less cash and cash
equivalents and calculated equity value on the basis of closing stock prices on
February 28, 2000. Estimated revenues and gross profit for the comparable
companies were derived from equity research reports published by investment
banks. Thomas Weisel Partners then compared the range of multiples of enterprise
value to revenue and gross profit estimates for fiscal years 1999 through 2001
to the multiples of Exactis.com implied by the consideration to be received in
the merger as follows:
<TABLE>
<CAPTION>
RANGE OF MULTIPLES
--------------------------------------
COMPARISON OF IMPLIED VALUE OF
ENTERPRISE VALUE EMAIL TECHNOLOGY EXACTIS.COM
---------------- ------------------- ----------------
<S> <C> <C>
Estimated 1999 Revenues..................................... 12.3x--408.9x 34.7x
Estimated 2000 Revenues..................................... 8.7x--129.9x 18.0x
Estimated 2001 Revenues..................................... 5.4x--67.4x 8.7x
Estimated 1999 Gross Profit................................. 17.0x--760.1x 41.4x
Estimated 2000 Gross Profit................................. 11.5x--188.9x 21.0x
Estimated 2001 Gross Profit................................. 6.4x--89.6x 10.0x
</TABLE>
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<PAGE>
Thomas Weisel Partners also compared the valuation multiples of 24/7 Media
in relation to those of selected publicly traded ad serving and/or network
companies. These companies included:
- DoubleClick, Inc.
- Engage Technologies, Inc.
- L90, Inc.
- MediaPlex, Inc.
For each of these companies, Thomas Weisel Partners also calculated the
multiples of enterprise value to estimates of total revenues and gross profit
for the fiscal years 1999 through 2001. Thomas Weisel Partners then compared the
range of multiples of enterprise value to revenue and gross profit estimates for
fiscal years 1999 and 2001 to the multiples of 24/7 Media as follows:
<TABLE>
<CAPTION>
AD SERVING AND/OR
COMPARISON OF ENTERPRISE VALUE NETWORK COMPANIES 24/7 MEDIA
- ------------------------------ ---------------------------- ----------
<S> <C> <C>
Estimated 1999 Revenues............................. 26.9x--288.2x 14.7x
Estimated 2000 Revenues............................. 13.5x--160.9x 8.0x
Estimated 2001 Revenues............................. 7.2x--94.6x 5.3x
Estimated 1999 Gross Profit......................... 70.6x--779.0x 57.9x
Estimated 2000 Gross Profit......................... 38.6x--423.4x 28.3x
Estimated 2001 Gross Profit......................... 22.9x--163.1x 17.6x
</TABLE>
SELECTED PRECEDENT TRANSACTIONS ANALYSIS. Thomas Weisel Partners reviewed
the following nineteen comparable acquisitions of selected email services and
online advertising services companies that have been announced since January 1,
1998:
EMAIL SERVICES:
<TABLE>
<CAPTION>
ANNOUNCEMENT DATE NAME OF ACQUIROR NAME OF TARGET
- ----------------- ---------------- --------------
<S> <C> <C>
February 15, 2000............ Netcentives, Inc. Post Communications, Inc.
December 15, 1999............ CMGI, Inc. Yesmail.com, Inc.
December 1, 1999............. DoubleClick, Inc. Opt-In Email.com, Inc.
October 4, 1999.............. Kana Communications, Inc. Connectify, Inc.
August 31, 1999.............. Flycast Communications Corp. InterStep, Inc.
August 24, 1999.............. Sony Music Corp. Emazing, Inc.
July 6, 1999................. ClickAction, Inc. MarketHome, Inc.
June 9, 1999................. MessageMedia, Inc. Revnet Systems, Inc.
June 2, 1999................. Xoom.com, Inc. MightyMail Networks, Inc.
March 10, 1999............... 24/7 Media, Inc. Sift, Inc.
</TABLE>
Although information regarding the enterprise value of the target company
implied by the transaction was available with respect to nearly all of these
transactions, revenue and gross profit information was publicly available for
only one of these transactions: the acquisition of Yesmail.com, Inc. by CMGI.
Consequently, Thomas Weisel Partners also considered transactions involving
target companies which provide online advertising services.
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<PAGE>
ONLINE ADVERTISING SERVICES:
<TABLE>
<CAPTION>
ANNOUNCEMENT DATE NAME OF ACQUIROR NAME OF TARGET
- ----------------- ----------------------------- -----------------------------
<S> <C> <C>
January 20, 2000............. Engage Technologies, Inc. Adsmart Corp. and Flycast
Communications Corp.
September 30, 1999........... CMGI Flycast Communications
September 20, 1999........... CMGI AdForce
July 13, 1999................ DoubleClick NetGravity
December 18, 1998............ @Home Narrative Communications
November 4, 1998............. Microsoft LinkExchange
October 12, 1998............. Yahoo! Yoyodyne Entertainment
March 12, 1998............... CMGI Accipiter
January 15, 1998............. Excite Matchlogic
</TABLE>
Although information regarding the enterprise value of the target company
implied by the transaction was available with respect to nearly all of these
selected transactions, revenue and gross profit information was publicly
available for only three of these transactions: the acquisition of Flycast
Communications by CMGI; the acquisition of AdForce by CMGI; and the acquisition
of NetGravity by DoubleClick.
For each of the four transactions for which revenue and gross profit
information was publicly available, Thomas Weisel Partners calculated multiples
of the enterprise value of the target company implied by the transaction to the
latest twelve month revenues and gross profit of the target company and to the
estimated next twelve month revenues and gross profit of the target company.
Estimated revenues and gross profit for the target companies were derived from
equity research reports published by investment banks at the time of the
announcement of the transaction.
Using the revenue estimate provided by the management of Exactis.com for
fiscal year 1999 and projected fiscal year 2000, Thomas Weisel Partners then
compared the implied multiples and ratios of these four transactions with the
multiples and ratios for Exactis.com implied by the consideration to be received
in the merger as follows:
<TABLE>
<CAPTION>
ONLINE
ONLINE ONLINE ONLINE ADVERTISING
EMAIL ADVERTISING ADVERTISING ADVERTISING SERVICES
SERVICES SERVICES SERVICES SERVICES -------------
-------- ----------- ----------- ------------ IMPLIED VALUE
CMGI/ CMGI/ CMGI/ DOUBLECLICK/ OF
YESMAIL FLYCAST ADFORCE NETGRAVITY EXACTIS.COM
-------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Enterprise Value to latest twelve
month revenues...................... 46.0x 39.8x 47.6x 34.9x 34.7x
Enterprise Value to next twelve month
revenues............................ 17.2x 18.7x 18.0x 14.3x 18.0x
Enterprise Value to latest twelve
month gross profit.................. 186.2x 151.4x 248.8x 63.0x 41.4x
Enterprise Value to next twelve month
gross profit........................ 63.0x 66.6x 50.2x 24.0x 21.0x
</TABLE>
52
<PAGE>
No company or transaction used in the comparable company or comparable
transactions analyses is identical to Exactis.com or 24/7 Media or the merger.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which
Exactis.com, 24/7 Media and the merger are being compared.
CONTRIBUTION ANALYSIS. Based on the number of shares outstanding and
covered by options and warrants as of November 19, 1999, following the merger,
Exactis.com shareholders and 24/7 Media stockholders will own approximately 23%
and 77%, respectively, of the combined company. Using estimates prepared by the
managements of Exactis.com and 24/7 Media, Thomas Weisel Partners calculated the
estimated contribution by Exactis.com and 24/7 Media to total revenues, Gross
Profit and earnings before interest, taxes, depreciation, and amortization
("EBITDA") of the combined company for the fiscal years 1999 to 2000. In light
of the negative EBITDA projected for fiscal years 1999 and 2000, Thomas Weisel
Partners focused on Gross Profit and revenue contributions in fiscal years 1999
to 2000.
Thomas Weisel Partners then compared these relative contributions to the
relative contributions of Exactis.com and 24/7 Media to the combined company's
enterprise value (which Thomas Weisel Partners defined for purposes of this
analysis as equity value plus total debt less cash and cash equivalents) and
equity value (calculated on the basis of closing stock prices on February 28,
2000).
This analysis yielded the following relative contributions:
<TABLE>
<CAPTION>
EXACTIS.COM 24/7 MEDIA
----------- ----------
<S> <C> <C>
Estimated Revenue
1999...................................................... 11% 89%
2000...................................................... 9% 91%
Estimated Gross Profit
1999...................................................... 28% 72%
2000...................................................... 21% 79%
Enterprise Value............................................ 22% 78%
Aggregate Equity Value...................................... 23% 77%
</TABLE>
PREMIUMS PAID ANALYSIS. Thomas Weisel Partners reviewed the premiums paid
by acquirors in selected Internet merger transactions to the closing stock price
one week prior and to the closing stock price one month prior to the
announcement of each transaction. The Internet transactions selected were
divided into two groups: (a) transactions with an implied target company
enterprise value greater than one billion dollars which had been announced since
January 1, 1997 and (b) transactions with an implied target company enterprise
value less than one billion dollars which had been announced since January 1,
1997.
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<PAGE>
Transactions with Implied Target Company Enterprise Value Greater than
$1 billion
<TABLE>
<CAPTION>
ANNOUNCEMENT DATE NAME OF ACQUIROR NAME OF TARGET
- ----------------- ----------------------------- -----------------------------
<S> <C> <C>
February 14, 2000............ Healtheon/WebMD Medical Manager/Careinsite
February 7, 2000............. Akamai Technologies INTERVU
February 7, 2000............. Kana Communications Silknet Software
January 10, 2000............. America Online Time Warner
December 13, 1999............ Whitman-Hart Inc. USWeb/CKS
September 23, 1999........... Mindspring Earthlink
June 23, 1999................ MetroMedia Fiber AboveNet
June 1, 1999................. E*Trade Telebanc Financial
April 1, 1999................ Yahoo! Broadcast.com
January 27, 1999............. Yahoo! GeoCities
January 19, 1999............. @Home Excite
November 24, 1998............ America Online Netscape
</TABLE>
Transactions with Implied Target Company Enterprise Value Less than $1 billion
<TABLE>
<CAPTION>
ANNOUNCEMENT DATE NAME OF ACQUIROR NAME OF TARGET
- ----------------- ------------------------------------ ------------------
<S> <C> <C>
February 10, 2000................... CMGI uBid.com
December 7, 1999.................... RoweCom, Inc. NewsEdge
November 8, 1999.................... Prodigy Flashnet
November 4, 1999.................... CoStar Comps.com
October 26, 1999.................... Bamboo.com IPIX
October 21, 1999.................... Critical Path Isocor
October 7, 1999..................... Intuit Rock Financial
September 30, 1999.................. CMGI Flycast
September 20, 1999.................. CMGI Adforce
September 8, 1999................... Concentric ITG
August 23, 1999..................... PSINet Trans. Netw. Svces
August 10, 1999..................... Razorfish i-Cube
July 14, 1999....................... Onsale Egghead.com
July 13, 1999....................... Excite@Home iMall
July 13, 1999....................... DoubleClick NetGravity
June 25, 1999....................... AnswerThink ThinkNewIdeas
June 23, 1999....................... Multex MarketGuide
June 14, 1999....................... DoubleClick Abacus
February 1, 1999.................... America Online MovieFone
October 23, 1998.................... CDnow N2K
September 2, 1998................... USWeb CKS Group
</TABLE>
The range of premiums paid by acquirors to the closing stock price one-week
prior and to the closing stock price one-month prior to the announcement of each
transaction was compared with the implied premiums to be paid by 24/7 Media for
Exactis.com in the merger as follows:
<TABLE>
<CAPTION>
RANGE OF PREMIUMS
-------------------------------------
INTERNET
TRANSACTIONS INTERNET
GREATER THAN TRANSACTIONS LESS
$1 BILLION THAN $1 BILLION EXACTIS.COM
----------------- ----------------- -----------
<S> <C> <C> <C>
Premium to Target Stock Price One-Week Prior to
Announcement..................................... 21%--95% (19%)--138% 32%
Premium to Target Stock Price One-Month Prior to
Announcement..................................... (8%)--236% (28%)--233% 63%
</TABLE>
54
<PAGE>
PRO FORMA MERGER ANALYSIS. Thomas Weisel Partners reviewed the pro forma
effects of the merger on the combined company's earnings per share, utilizing
financial forecasts for Exactis.com and 24/7 Media provided by their respective
managements and not taking into account any merger-related cost savings or
revenue enhancements.
This analysis indicated that the impact of the merger on the combined
company's earnings per share before taking into account goodwill, amortization
and transaction-related expenses, would be accretive in 1999 and dilutive in
2000. On this basis, the pro forma earnings per share accretion or dilution is
as follows:
<TABLE>
<CAPTION>
PER SHARE
YEAR ACCRETION/(DILUTION)
- ---- --------------------
<S> <C>
1999........................................... $0.51
2000........................................... ($0.26)
</TABLE>
This analysis further indicated that the impact of the merger on the
combined company's earnings per share, taking into account goodwill and
amortization, would be dilutive in all years analyzed. The pro forma earnings
per share dilution is as follows:
<TABLE>
<CAPTION>
PER SHARE
YEAR ACCRETION/(DILUTION)
- ---- --------------------
<S> <C>
1999........................................... ($1.16)
2000........................................... ($2.11)
</TABLE>
The foregoing description is only a summary of the analyses and examinations
that Thomas Weisel Partners deems material to its opinion. The preparation of a
fairness opinion necessarily is not susceptible to partial analysis or summary
description. Thomas Weisel Partners believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of its
analyses and of the factors considered, without considering all analyses and
factors, would create an incomplete view of the process underlying the analyses
set forth in its presentation to us. In addition, Thomas Weisel Partners may
have given various analyses more or less weight than other analyses, and may
have deemed various assumptions more or less probable than other assumptions.
The fact that any specific analysis has been referred to in the summary above is
not meant to indicate that this analysis was given greater weight than any other
analysis. Accordingly, the ranges of valuations resulting from any particular
analysis described above should not be taken to be the view of Thomas Weisel
Partners with respect to the actual value of Exactis.com or 24/7 Media.
In performing its analyses, Thomas Weisel Partners made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Exactis.com and 24/7
Media. The analyses performed by Thomas Weisel Partners are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than those suggested by these analyses. These analyses
were prepared solely as part of the analysis performed by Thomas Weisel Partners
with respect to the financial fairness of exchange ratio pursuant to the merger,
and were provided to Exactis.com in connection with the delivery of the Thomas
Weisel Partners opinion. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at any time in the future.
Under its engagement letter dated December 21, 1999, Exactis.com agreed to
pay Thomas Weisel Partners a fee of 1.0% of the consideration involved due upon
the consummation of the merger. Exactis.com also agreed to reimburse Thomas
Weisel Partners for its reasonable out-of-pocket expenses and to indemnify
Thomas Weisel Partners, its affiliates, and their respective partners,
directors, officers, agents, consultants, employees and controlling persons
against specific liabilities, including liabilities under the federal securities
laws.
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<PAGE>
In the ordinary course of its business, Thomas Weisel Partners actively
trades the equity securities of Exactis.com for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in these securities. Thomas Weisel Partners also acted as underwriter
in connection with a public offering of Exactis.com's securities and has
performed various investment banking services for Exactis.com.
INTERESTS OF CERTAIN EXACTIS.COM DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
In considering the recommendation of the board of directors of Exactis.com
to vote for the proposal to adopt the merger agreement, stockholders of
Exactis.com should be aware that members of the Exactis.com board of directors
and members of Exactis.com's management team have agreements or arrangements
that provide them with interests in the merger that differ from those of
Exactis.com stockholders generally, including certain stock options to be
granted immediately before the merger is completed. The Exactis.com board of
directors was aware of these agreements and arrangements during its
deliberations of the merits of the merger and in determining to recommend to the
stockholders of Exactis.com that they vote for the proposal to adopt the merger
agreement.
NEW DIRECTORS OF 24/7 MEDIA. Pursuant to the merger agreement, 24/7 Media
will elect Adam Goldman and Linda Fayne Levinson, who are both currently members
of Exactis.com's board of directors, to the 24/7 Media board of directors if the
merger is completed. Mr. Goldman and Ms. Levinson will receive the same
directors' compensation paid by 24/7 Media to its other non-employee directors.
EXACTIS.COM STOCK OPTIONS AND WARRANTS. Certain outstanding Exactis.com
stock options, by their terms, will vest and become exercisable upon the
completion of the merger. However, certain executives of Exactis.com have agreed
to waive such vesting in connection with their entering into employment
agreements and non-disclosure and development agreements with 24/7 Media and
Exactis.com as described below.
Pursuant to the terms of the merger agreement, each Exactis.com stock option
and some of the warrants outstanding immediately prior to the completion of the
merger will be converted, upon completion of the merger, into an option or
warrant to acquire, on the same terms and conditions, the number of shares of
24/7 Media common stock that is equal to the product of the number of shares of
Exactis.com common stock that could have been acquired upon exercise of the
option or warrant immediately before completion of the merger multiplied by
0.60, rounded down to the nearest whole share. The exercise price of these stock
options and warrants will be the exercise price for the stock option or warrant
immediately before completion of the merger divided by 0.60, rounded up to the
nearest tenth of a cent. Some of the Exactis.com warrants that have not been
exercised prior to the completion of the merger, by their terms, will terminate
upon the completion of the merger.
On February 28, 2000, the compensation committee of Exactis.com's board of
directors adopted a resolution indicating its intent to grant options to
purchase an additional 1,115,675 shares of Exactis.com common stock immediately
prior to the completion of the merger with 24/7 Media at a per share exercise
price equal to the lesser of $19.375 or 85% of the closing price of
Exactis.com's common stock on the day the merger is completed.
56
<PAGE>
EMPLOYMENT AGREEMENTS AND NON-COMPETITION, NON-DISCLOSURE AND DEVELOPMENTS
AGREEMENTS. 24/7 Media and Exactis.com entered into employment agreements on
the same date as the merger agreement with the following Exactis.com executives:
E. Thomas Detmer, Jr., Chief Executive Officer, President and Director; Kenneth
W. Edwards, Jr., Chief Financial Officer, Secretary and Treasurer; Cynthia L.
Brown, Vice President of Engineering; Michael J. Rosol, Vice President of Sales;
Gregory B. Schneider, Vice President of Marketing and Business Development;
Lonnie R. Maynard, Chief Technologist and Director, Enterprise Architecture
Group; and Michael T. Schrader, Director, Database Administration. Each
employment agreement will become effective upon the completion of the merger and
provides that each executive will be employed by 24/7 Media and Exactis.com in
the same position and capacity with Exactis.com as the executive was employed
immediately before the completion of the merger, or in any other position that
may be designated by the board of directors of 24/7 Media.
Each employment agreement provides for the executive's employment during the
period from the completion of the merger through December 31, 2001, with
automatic one-year extensions until either party terminates the agreement.
During the term of the employment agreement, each executive will receive an
annual base salary and target incentive bonus for 2000 as set forth below:
<TABLE>
<CAPTION>
TARGET
INCENTIVE
EXECUTIVE BASE SALARY* BONUS
- --------- ------------ ---------
<S> <C> <C>
E. Thomas Detmer, Jr........................................ $160,000 $ 80,000
Kenneth W. Edwards, Jr...................................... $125,000 $ 40,000
Cynthia L. Brown............................................ $165,000 $ 60,000
Michael J. Rosol............................................ $150,000 $120,000**
Gregory B. Schneider........................................ $150,000 $ 37,500
Lonnie R. Maynard........................................... $165,000 $ 30,000
Michael T. Schrader......................................... $150,000 $ 22,500
</TABLE>
- ------------------------
* In the event that an employment agreement is extended automatically as
described above and the parties do not agree otherwise, the base salary will
be increased by at least 5% on January 1, 2001, and by at least 5% on the
first date of each successive one-year term thereafter, if any.
** Earned quarterly and in an amount proportionate to the percentage of the
revenue goal attained. In addition, a quarterly over-attainment bonus of
$1,000 will be paid for every 1% that actual revenue attained exceeds the
revenue goal. For 2001 and subsequent calendar years, Exactis.com and Mr.
Rosol will devise a new bonus plan that provides Mr. Rosol with bonus
targets comparable to those above.
In addition, each employment agreement provides that upon termination of the
executive's employment by 24/7 Media without "cause" or by the executive for
"good reason", or upon the non-renewal of the employment agreement by 24/7
Media, the executive is entitled to receive continued base salary for six
months, a lump sum payment at the end of those six months of one-half of his or
her target incentive bonus for the fiscal year in which the executive's
employment is terminated, plus a pro rata portion of the target incentive bonus
for the fiscal year in which the executive's employment is terminated based on
the portion of the fiscal year actually worked through the date of termination,
and six months continuation of fully paid medical coverage.
Each executive has acknowledged in his or her employment agreement that the
vesting and exercisability of, and the lapse of restrictions on, any stock
awards granted under the Exactis.com equity incentive plan will not be
accelerated as a result of either the execution by 24/7 Media of the stockholder
agreement with certain stockholders of Exactis.com or the consummation of the
transactions contemplated by the merger agreement, including the merger. In
addition, each employment agreement includes a waiver by the executive of any
acceleration of vesting and
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<PAGE>
exercisability of stock options granted under the Exactis.com 1997 stock option
plan that would otherwise occur as a result of the consummation of the merger or
any other transaction contemplated by the merger agreement. However, if the
executive's employment is terminated by 24/7 Media or Exactis.com without
"cause", by the executive for "good reason" or due to the executive's death or
disability, any acceleration of vesting and exercisability (or lapse of
restrictions) that would have been applicable to stock options granted under the
Exactis.com 1997 stock option plan, as a result of either the execution by 24/7
Media of the stockholder agreement with certain stockholders of Exactis.com or
the consummation of the merger or any other transactions contemplated by the
merger agreement, shall be deemed to apply as of the moment immediately
preceding the executive's termination of employment.
In addition, each Exactis.com executive who entered into an employment
agreement also entered into a non-competition, non-disclosure and developments
agreement with 24/7 Media that provides that until the earlier of five years
after the execution of the agreement and one year after the termination of the
executive's employment, the executive will not:
- directly or indirectly, either for his or her own account or for the
benefit of any person, firm or corporation, engage in any competitive
business;
- discuss or accept any relationship as a sales or marketing representative,
consultant, director, manager, officer, executive, or other employee, or
representative with any person, firm or corporation, which during the term
of the agreement was or is engaged in competitive business activities that
are competitive to the businesses of 24/7 Media, except for any such
relationship that would not in any way involve or relate to the businesses
of 24/7 Media;
- directly or indirectly own or be a shareholder or partner of or otherwise
participate in any company that is engaged in competitive business
activities; PROVIDED, HOWEVER, that the executive may hold up to a five
percent interest in any such publicly held or traded company and has an
unlimited right to invest in any mutual fund that is publicly traded or
managed by a major financial institution; or
- knowingly, directly or indirectly, solicit the employees or independent
agents of 24/7 Media or its subsidiaries and affiliates, so as to induce
them to leave their employment or relationship with 24/7 Media and its
subsidiaries and affiliates; PROVIDED, HOWEVER, that this covenant will
continue to apply for an additional six months after the expiration of the
5-year or 1-year period described above.
The above covenants will cease to apply following the termination of the
executive's employment by 24/7 Media or Exactis.com without "cause" or by the
executive for "good reason".
INDEMNIFICATION AND INSURANCE. The merger agreement provides that all
rights to indemnification, advancement of expenses and exculpation from
liabilities for acts or omissions of current or former directors or officers of
Exactis.com occurring before the completion of the merger, as provided in
Exactis.com's certificate of incorporation or by-laws or any indemnification
agreement of Exactis.com, will survive the merger and continue in accordance
with their terms. In addition, the merger agreement provides that 24/7 Media
will guarantee the performance of Exactis.com's indemnification obligations up
to a maximum total amount of $45,000,000.
The merger agreement also provides that, upon completion of the merger,
Exactis.com will cause to be maintained, for a period of six years after
completion of the merger, the current policies of directors' and officers'
liability insurance maintained by Exactis.com, or policies containing terms with
respect to coverage and amount that are no less favorable to the insured than
the current policies maintained by Exactis.com, with respect to claims arising
from acts or omissions that occurred on or before the completion of the merger,
although Exactis.com will not be required to expend in any one
58
<PAGE>
year an amount in excess of 200% of the annual premiums currently paid by
Exactis.com for directors' and officers' liability insurance and fiduciary
liability insurance.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including the approval of the issuance of 24/7
Media common stock in the merger by the stockholders of 24/7 Media and the
adoption of the merger agreement by the stockholders Exactis.com. The merger
will become effective upon the filing of a certificate of merger with the
Secretary of State of the State of Delaware.
We are working toward completing the merger as quickly as possible. We
expect to complete the merger during the summer of 2000.
STRUCTURE OF THE MERGER AND CONVERSION OF 24/7 MEDIA AND EXACTIS.COM STOCK
STRUCTURE. To accomplish the merger, 24/7 Media formed a new company,
Evergreen Acquisition Sub Corp. At the time the merger is completed, Evergreen
Acquisition Sub Corp. will be merged into Exactis.com, and Exactis.com will be
the surviving corporation. As a result, Exactis.com will become a wholly owned
subsidiary of 24/7 Media.
CONVERSION OF EXACTIS.COM COMMON STOCK. When the merger is completed
Exactis.com common stockholders will receive 0.60 shares of 24/7 Media common
stock for each share they own.
The number of shares of 24/7 Media common stock issuable in the merger will
be proportionately adjusted for any stock split, stock dividend or similar event
with respect to Exactis.com capital stock effected between the date of the
merger agreement and the date of completion of the merger.
EXCHANGE OF STOCK CERTIFICATES FOR 24/7 MEDIA STOCK CERTIFICATES
When the merger is completed, the exchange agent will mail to stockholders
of Exactis.com a letter of transmittal and instructions for use in surrendering
Exactis.com stock certificates in exchange for 24/7 Media stock certificates.
When stockholders of Exactis.com deliver their stock certificates to the
exchange agent along with a properly executed letter of transmittal and any
other required documents, their stock certificates will be canceled and they
will receive 24/7 Media common stock certificates representing the number of
full shares of 24/7 Media common stock to which they are entitled under the
merger agreement. Exactis.com stockholders will receive payment in cash, without
interest, in lieu of any fractional shares of 24/7 Media common stock or series
common stock which would have been otherwise issuable to them as a result of the
merger.
STOCKHOLDERS OF EXACTIS.COM SHOULD NOT SUBMIT THEIR EXACTIS.COM STOCK
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A
FORM OF LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
Stockholders of Exactis.com are not entitled to receive any dividends or
other distributions on 24/7 Media common stock until the merger is completed and
they have surrendered their Exactis.com stock certificates in exchange for 24/7
Media stock certificates.
If there is any dividend or other distribution on 24/7 Media common stock
with a record date after the date on which the merger is completed and a payment
date prior to the date stockholders of Exactis.com surrender their Exactis.com
stock certificates in exchange for 24/7 Media stock certificates, stockholders
of Exactis.com will receive the dividend or distribution with respect to the
whole shares of 24/7 Media common stock issued to them promptly after the shares
are issued. If there is any dividend or other distribution on 24/7 Media common
stock with a record date after the date on which the merger is completed and a
payment date after the date stockholders of Exactis.com surrender their
Exactis.com stock certificates in exchange for 24/7 Media stock certificates,
stockholders of Exactis.com
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<PAGE>
will receive the dividend or distribution with respect to the whole shares of
24/7 Media common stock issued to them promptly after the payment date.
24/7 Media will only issue a 24/7 Media stock certificate or a check in lieu
of a fractional share in a name other than the name in which a surrendered
Exactis.com stock certificate is registered if a stockholder of Exactis.com
presents the exchange agent with all documents required to show and effect the
unrecorded transfer of ownership and show that the stockholder paid any
applicable stock transfer taxes.
TREATMENT OF EXACTIS.COM STOCK OPTIONS AND WARRANTS
When the merger is completed, each outstanding Exactis.com stock option will
be converted into an option to purchase the number of shares of 24/7 Media
common stock that is equal to the product of 0.60 multiplied by the number of
shares of Exactis.com common stock that would have been obtained before the
merger upon the exercise of the option, rounded down to the nearest whole share.
The exercise price per share will be equal to the exercise price per share of
Exactis.com common stock subject to the option before the conversion divided by
0.60, rounded up to the nearest tenth of a cent. As a result of the completion
of the merger, certain Exactis.com stock options, by their terms, will vest and
become exercisable immediately prior to the completion of the merger. Certain
executives of Exactis.com have agreed to waive such vesting in connection with
their entering into employment agreements with 24/7 Media and Exactis.com. See
"--Interests of Certain Exactis.com Directors and Executive Officers in the
Merger."
Upon completion of the merger, some of the outstanding Exactis.com warrants
will be converted into warrants to purchase the number of shares of 24/7 Media
common stock that is equal to the product of 0.60 multiplied by the number of
shares of Exactis.com common stock that would have been obtained before the
merger upon the exercise of the warrants, rounded down to the nearest whole
share. The exercise price per share will be equal to the exercise price per
share of Exactis.com common stock subject to the warrants before the conversion
divided by 0.60, rounded up to the nearest tenth of a cent. Some of the
Exactis.com warrants that have not been exercised prior to the completion of the
merger, by their terms, will terminate upon the completion of the merger.
The other terms of each Exactis.com option and warrants referred to above
will continue to apply.
24/7 Media will file a registration statement covering the issuance of the
shares of 24/7 Media common stock subject to each Exactis.com option.
EXACTIS.COM EMPLOYEE BENEFIT MATTERS
During the period following the completion of the merger through
December 31, 2000, 24/7 Media will provide employee benefits to employees of
Exactis.com that are, in the aggregate, no less favorable than the employee
benefits provided to similarly situated employees of 24/7 Media.
Employees of Exactis.com will be given credit for past service, for purposes
of eligibility and vesting under any of 24/7 Media's employee benefit plans made
available to Exactis.com employees after completion of the merger, to the extent
such past service is credited under Exactis.com's employee benefit plans. In
addition, to the extent permitted by 24/7 Media's employee benefit plans and
applicable law, 24/7 Media will waive any pre-existing condition limitations,
waiting periods or similar limitations (other than limitations or waiting
periods already in effect that have not been satisfied as of the completion of
the merger) under any 24/7 Media employee plans made available to Exactis.com
employees after completion of the merger and shall provide such employees with
credit for any co-payments previously made and deductibles previously satisfied.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
In the opinion of Cooley Godward LLP, special counsel to Exactis.com, and
Cravath, Swaine & Moore, special counsel to 24/7 Media, the following general
discussion summarizes the anticipated material United States federal income tax
consequences of the merger to holders of Exactis.com common stock who exchange
their stock for 24/7 Media common stock in the merger. This discussion addresses
only stockholders who hold their Exactis.com common stock as a capital asset
(and will hold their 24/7 Media common stock as a capital asset), and does not
address all the United States federal income tax consequences that may be
relevant to particular stockholders in light of their individual circumstances
or to stockholders who are subject to special rules, such as financial
institutions, tax-exempt organizations, insurance companies, dealers in
securities or foreign currencies, foreign holders, persons who hold such shares
as a hedge against currency risk, or as part of a constructive sale or
conversion transaction, or holders who acquired their shares upon the exercise
of employee stock options or otherwise as compensation. The following discussion
is not binding on the Internal Revenue Service. It is based upon the Internal
Revenue Code, laws, regulations, rulings and decisions in effect as of the date
of this joint proxy statement/prospectus, all of which are subject to change,
possibly with retroactive effect. Tax consequences under state, local and
foreign laws are not addressed.
Cooley Godward LLP has delivered to Exactis.com and Cravath, Swaine & Moore
has delivered to 24/7 Media opinions, attached as Exhibits 8.1 and 8.2 to the
registration statement on Form S-4 filed with the Securities and Exchange
Commission, which includes this joint proxy statement-prospectus, in each case
stating that the merger will qualify for United States federal tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. Such opinions are based on customary assumptions and representations made
by Exactis.com, Evergreen Acquisition Sub Corp. and 24/7 Media and assume the
merger will be completed as set out in the merger agreement and this joint proxy
statement-prospectus. An opinion of counsel represents counsel's best legal
judgment and is not binding on the Internal Revenue Service or any court. No
ruling has been, or will be, sought from the Internal Revenue Service as to the
United States federal income tax consequences of the merger.
Based on the foregoing, the merger will qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code. Exactis.com and 24/7
Media will each be a party to such reorganization within the meaning of
Section 368(b) of the Internal Revenue Code. Holders of Exactis.com common stock
who exchange their Exactis.com common stock for 24/7 Media common stock in the
merger will not recognize gain or loss for United States federal income tax
purposes, except with respect to cash, if any, they receive instead of a
fractional share of 24/7 Media common stock. Each holder's aggregate tax basis
in the 24/7 Media common stock received in the merger will be the same as his or
her aggregate tax basis in the Exactis.com common stock surrendered in the
merger, decreased by the amount of any tax basis allocable to any fractional
share interest for which cash is received. The holding period of the 24/7 Media
common stock received in the merger by a holder of Exactis.com common stock will
include the holding period of Exactis.com common stock that he, she or it
surrendered in the merger.
A holder of Exactis.com common stock who receives cash instead of a
fractional share of 24/7 Media common stock will recognize gain or loss equal to
the difference between the amount of cash received and his, her or its tax basis
in the 24/7 Media common stock that is allocable to the fractional share. That
gain or loss generally will constitute capital gain or loss. In the case of an
individual stockholder, any such capital gain will be subject a maximum United
States federal income tax rate of 20% if the individual has held his or her
Exactis.com common stock for more than 12 months at the effective time of the
merger. The deductibility of capital losses is subject to limitations for both
individuals and corporations.
REPORTING REQUIREMENTS. Each Exactis.com stockholder that receives 24/7
Media common stock in the merger will be required to file a statement with his
or her federal income tax return setting forth
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his or her basis in the Exactis.com capital stock surrendered and the fair
market value of the 24/7 Media common stock and cash received in the merger, and
to retain permanent records of these facts relating to the merger.
BACKUP WITHHOLDING. Unless an exemption applies under applicable law and
regulations, the exchange agent is required to withhold, and will withhold, 31%
of any cash payments to a Exactis.com stockholder in the merger unless the
stockholder provides the appropriate form as described below. Each Exactis.com
stockholder should complete and sign the Substitute Form W-9 included as part of
the letter of transmittal to be sent to each Exactis.com stockholder, so as to
provide the information, including such stockholder's taxpayer identification
number, and certification necessary to avoid backup withholding, unless an
applicable exemption exists and is proved in a manner satisfactory to 24/7 Media
and the exchange agent.
THE SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES IS INTENDED TO
PROVIDE ONLY A GENERAL SUMMARY AND IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. IN
ADDITION, THE SUMMARY DOES NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY WITH, OR
ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THE SUMMARY DOES NOT
ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF
THE MERGER. THE SUMMARY DOES NOT ADDRESS THE TAX CONSEQUENCES OF ANY TRANSACTION
OTHER THAN THE MERGER. ACCORDINGLY, EACH 24/7 MEDIA AND EXACTIS.COM STOCKHOLDER
IS STRONGLY URGED TO CONSULT WITH A TAX ADVISOR TO DETERMINE THE PARTICULAR
FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES OF THE MERGER
TO THE HOLDER.
ACCOUNTING TREATMENT OF THE MERGER
We intend to account for the merger under the purchase method of accounting
for business combinations. See "Unaudited Pro Forma Condensed Combined Financial
Statements."
REGULATORY MATTERS
We have summarized below the material regulatory requirements affecting the
merger. Although we have not yet received the required approvals we discuss, we
anticipate that we will receive regulatory approvals sufficient to complete the
merger by the summer of 2000.
ANTITRUST CONSIDERATIONS. The merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, which prevents specified
transactions from being completed until required information and materials are
furnished to the Antitrust Division of the Department of Justice and the Federal
Trade Commission and specified waiting periods are terminated or expire. We have
received notification from the Federal Trade Commission that early termination
of the waiting period has been granted.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the merger on antitrust grounds, either before or after
expiration of the waiting period. Accordingly, at any time before or after the
completion of the merger, either the Antitrust Division of the Department of
Justice or the Federal Trade Commission could take action under the antitrust
laws as it deems necessary or desirable in the public interest, or other persons
could take action under the antitrust laws, including seeking to enjoin the
merger. Additionally, at any time before or after the completion of the merger,
notwithstanding that the applicable waiting period expired or was terminated,
any state could take action under the antitrust laws as it deems necessary or
desirable in the public interest. There can be no assurance that a challenge to
the merger will not be made or that, if a challenge is made, we will prevail.
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RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF EXACTIS.COM
The shares of 24/7 Media common stock to be issued in connection with the
merger will be registered under the Securities Act of 1933 and will be freely
transferable under the Securities Act, except for shares of 24/7 Media common
stock issued to any person who is deemed to be an "affiliate" of Exactis.com at
the time of the special meetings. Persons who may be deemed to be affiliates
include individuals or entities that control, are controlled by, or are under
the common control of Exactis.com and may include executive officers and
directors of Exactis.com, as well as significant stockholders of Exactis.com.
Affiliates may not sell their shares of 24/7 Media common stock acquired in
connection with the merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- any other applicable exemption under the Securities Act.
24/7 Media's registration statement on Form S-4, of which this joint proxy
statement-prospectus forms a part, does not cover the resale of shares of 24/7
Media common stock to be received by Exactis.com's affiliates in the merger.
THE NASDAQ NATIONAL MARKET QUOTING OF 24/7 MEDIA COMMON STOCK TO BE ISSUED IN
THE MERGER
24/7 Media will use reasonable best efforts to cause the shares of 24/7
Media common stock to be issued in connection with the merger to be approved for
quotation on The Nasdaq National Market, subject to official notice of issuance,
before the completion of the merger.
APPRAISAL RIGHTS
Under Delaware law, Exactis.com stockholders are not entitled to appraisal
rights in connection with the merger.
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THE MERGER AGREEMENT
THE FOLLOWING SUMMARY OF THE MERGER AGREEMENT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE COMPLETE TEXT OF THE MERGER AGREEMENT, WHICH IS INCORPORATED
BY REFERENCE AND ATTACHED AS ANNEX A TO THIS JOINT PROXY STATEMENT-PROSPECTUS.
WE URGE YOU TO READ THE FULL TEXT OF THE MERGER AGREEMENT.
CONDITIONS TO THE MERGER
Each of 24/7 Media's and Exactis.com's obligations to complete the merger
are subject to the satisfaction or waiver of specified conditions before
completion of the merger, including the following:
- the adoption of the merger agreement by the affirmative vote of the
holders of a majority of the voting power of all outstanding shares of
Exactis.com common stock;
- the approval of the issuance of 24/7 Media common stock in the merger by
the affirmative vote of a majority of the votes cast at the 24/7 Media
special meeting;
- the expiration or termination of the applicable waiting periods under
Hart-Scott-Rodino Antitrust Improvements Act of 1976;
- the absence of any law, judgment, order or proceeding preventing
completion of the merger;
- the absence of any governmental litigation seeking to prevent the
completion of the merger or to require 24/7 Media to divest assets;
- the declaration of effectiveness of the registration statement on
Form S-4, of which this joint proxy statement-prospectus forms a part, by
the Securities and Exchange Commission, and the absence of any stop order
or proceedings seeking a stop order; and
- the approval for quotation on The Nasdaq National Market of the shares of
24/7 Media common stock to be issued in the merger, subject to official
notice of issuance.
In addition, each party's obligation to effect the merger is further subject
to the satisfaction or waiver of the following additional conditions:
- the representations and warranties, disregarding all qualifications and
exceptions contained in the merger agreement relating to materiality or
material adverse effect, must be true and correct as of the date of the
merger agreement and as of the date of the completion of the merger with
the same effect as if made at and as of such time or, if such
representations and warranties expressly relate to an earlier date, then
as of such date, except where the failure of these representations and
warranties to be so true and correct, without giving effect to any
limitation as to materiality or material adverse effect, individually or
in the aggregate, does not have, and is not reasonably likely to have, a
material adverse effect on the party making the representations and
warranties; and
- the other party to the merger agreement having performed in all material
respects all obligations required to be performed by it under the merger
agreement;
- with respect only to 24/7 Media's obligation to complete the merger, 24/7
Media having received from Cravath, Swaine & Moore, a written opinion to
the effect that the merger will qualify for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code; and
- with respect only to Exactis.com's obligation to complete the merger,
Exactis.com having received from Cooley Godward LLP, a written opinion to
the effect that the merger will qualify for federal income tax purposes as
a reorganization within the meaning of section 368(a) of the Code.
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"Material Adverse Effect" or "Material Adverse Change", when used in
reference to 24/7 Media of Exactis.com, means any change, effect, event,
occurrence, condition or development or state of facts that is materially
adverse to the business (viewed in its entirety), results of operations or
financial condition of such party and its subsidiaries taken as a whole.
However, there will be no Material Adverse Effect or Material Adverse Change
as a result of any change, effect, event, occurrence, condition, development or
state of facts:
- relating to the economy or securities markets in general;
- relating to the industries in which such party operates in general; or
- resulting from the merger agreement or the transactions contemplated in
the merger agreement or the announcement of the merger.
NO SOLICITATION BY EXACTIS.COM
In the merger agreement, Exactis.com has agreed that it will not, nor will
it permit any of its subsidiaries to, nor will it authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person:
- solicit, initiate or encourage, or take any other action to facilitate,
any inquiries or the making of a proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal, as described
below; or
- enter into, continue or otherwise participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, any Takeover Proposal.
In the event Exactis.com receives a Superior Proposal, as described below,
Exactis.com may be required by its fiduciary duties to participate in
discussions regarding any Superior Proposal in order to inform itself. If
discussions regarding the Superior Proposal occur, Exactis.com must:
- no less then 48 hours prior to participating in discussions, inform 24/7
Media of the material terms and conditions of the Superior Proposal,
including the identity of the person making the Superior Proposal;
- promptly inform 24/7 Media of the substance of discussions relating to the
Superior Proposal; and
- promptly keep 24/7 Media fully informed of the status, including any
change to the details of, the Superior Proposal.
"Takeover Proposal" means any proposal or offer from any person relating to:
- any direct or indirect acquisition or purchase of 15% or more of the
assets of 24/7 Media and its subsidiaries, taken as a whole;
- any direct or indirect acquisition or purchase of 15% or more of any class
or series of equity securities of Exactis.com or any of its subsidiaries;
- any tender offer or exchange offer that if consummated would result in
that person beneficially owning 15% or more of any class or series of
equity securities of Exactis.com or any of its subsidiaries; or
- any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving that person and
Exactis.com or any of its subsidiaries.
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"Superior Proposal" means any offer not solicited by Exactis.com made by a
third party to consummate a tender offer, exchange offer, merger, consolidation
or similar transaction:
- resulting in the third party owning:
- directly or indirectly more than 50% of the shares of Exactis.com common
stock then outstanding, or of the surviving entity in the merger; or
- all or substantially all of the assets of Exactis.com; and
- on terms which the board of directors of Exactis.com determines in good
faith to provide consideration to holders of Exactis.com common stock with
a greater value than the consideration payable in the merger.
The merger agreement prohibits Exactis.com, the board of directors of
Exactis.com and any committee of the Exactis.com board of directors from:
- withdrawing or modifying, or proposing to withdraw or modify, in a manner
adverse to 24/7 Media, the approval or recommendation by the board of
directors or the committee of the merger or the merger agreement, except
to the extent that the board of directors determines in good faith that
such action would, in the absence of such prohibitions, be required by its
fiduciary duties;
- approving or recommending, or proposing to approve or recommend, any
Takeover Proposal; or
- approving or recommending, or proposing to approve or recommend, or
execute or enter into, any letter of intent, memorandum of understanding,
agreement in principle, merger agreement, acquisition agreement, option
agreement, joint venture agreement, partnership agreement or other similar
agreement or propose or agree to do any of the foregoing constituting or
related to, or which is intended to or is reasonably likely to lead to,
any Takeover Proposal.
Exactis.com must immediately (and no later than 48 hours) advise 24/7 Media
orally and in writing of any request for information or of any inquiry with
respect to a Takeover Proposal including:
- the name of the person, material terms and conditions of any request,
inquiry or Takeover Proposal; and
- the status and details of any such request, inquiry or Takeover Proposal.
Nothing contained in the "no solicitation" provisions of the merger
agreement will prohibit Exactis.com from:
- taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Securities Exchange Act of 1934; or
- making any disclosure to its stockholders if, in the good faith judgment
of the board of directors of Exactis.com, after consultation with outside
counsel, failure to disclose would be inconsistent with its obligations
under applicable law;
PROVIDED, HOWEVER, that neither Exactis.com nor its board of directors nor any
committee of the Exactis.com board of directors withdraw or modify, or propose
to withdraw or modify, its position with respect to the merger agreement or the
merger or approve or recommend, or propose to approve or recommend, a Takeover
Proposal.
Neither the board of directors of 24/7 Media nor any committee of the 24/7
Media board of directors will withdraw or modify, in a manner adverse to
Exactis.com, the approval or recommendation by the board of directors or the
committee of the merger or the merger agreement.
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The merger agreement does not prohibit 24/7 Media from:
- taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Securities Exchange Act of 1934; or
- making any disclosure to its stockholders if, in the good faith judgment
of the board of directors of 24/7 Media, after consultation with outside
counsel, failure to disclose would be inconsistent with its obligations
under applicable law;
PROVIDED, HOWEVER, that neither 24/7 Media nor its board of directors nor any
committee of the 24/7 Media board of directors will withdraw or modify, or
propose to withdraw or modify, its position with respect to the merger agreement
or the merger.
TERMINATION
The merger agreement may be terminated at any time prior to the completion
of the merger, whether before or after the stockholder approvals sought by this
joint proxy statement-prospectus have been obtained:
- by mutual written consent of 24/7 Media and Exactis.com;
- by either 24/7 Media or Exactis.com if the merger is not completed by
August 31, 2000; PROVIDED, HOWEVER, that this right to terminate the
merger agreement will not be available to any party whose failure to
perform any of its obligations under the merger agreement has resulted in
the failure of the merger to be completed by August 31, 2000;
- by either 24/7 Media or Exactis.com if the approval of either party's
stockholders is not obtained at that party's duly held special meeting or
at any adjournment or postponement of the special meeting;
- by either 24/7 Media or Exactis.com if any legal restraint or prohibition
is in effect and becomes final and nonappealable; PROVIDED, HOWEVER, that
the party seeking to terminate the merger agreement uses reasonable
efforts to prevent the entry of, and to remove, the restraint or
prohibition; or
- by 24/7 Media or Exactis.com, if the other party breaches or fails to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in the merger agreement, which
breach or failure to perform would give rise to the failure of either the
condition to completion of the merger relating to the accuracy of
representations and warranties or the condition relating to the
performance of obligations under the merger agreement and the breach or
failure has not been or cannot be cured within 30 calendar days after
receipt of written notice from the other party of the breach or failure.
EFFECT OF TERMINATION
As set forth below, the merger agreement requires 24/7 Media and Exactis.com
to pay a termination fee to one another in specified circumstances.
24/7 MEDIA TERMINATION FEE. If the merger agreement is terminated by 24/7
Media or Exactis.com because the approval by the stockholders of 24/7 Media of
the issuance of 24/7 Media common stock is not obtained or by Exactis.com
because 24/7 Media breached or failed to perform in any material respect the
representations, warranties, covenants or other agreements in the merger
agreement by refusing to hold the 24/7 Media stockholder meeting, then 24/7
Media must pay Exactis.com $12.8 million.
EXACTIS.COM TERMINATION FEE. If 24/7 Media terminates the merger agreement
because Exactis.com breached or failed to perform in any material respect any of
its representations, warranties, covenants
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or other agreements in the merger agreement by refusing to hold the Exactis.com
stockholder meeting, then Exactis.com must pay 24/7 Media $6.4 million.
CONDUCT OF BUSINESS PENDING THE MERGER
EXACTIS.COM. Under the merger agreement, Exactis.com has agreed that,
during the period from the date of the merger agreement to the completion of the
merger, it will carry on its business in the ordinary course in all material
respects, substantially in the same manner as previously conducted, and will use
its reasonable efforts to preserve intact its current business organization, use
reasonable efforts to keep available the services of its officers and employees
and preserve its relationships with third parties.
In addition to these agreements regarding the conduct of business generally,
Exactis.com has agreed to some specific restrictions relating to the following:
- the declaration or payment of dividends;
- the alteration of share capital, including, among other things, stock
splits, combinations or reclassifications;
- the repurchase or redemption of capital stock;
- the issuance or sale of capital stock, any voting debt or other equity
interests;
- the amendment of its certificate of incorporation or by-laws;
- the acquisition of assets or other entities;
- the disposition of assets;
- the incurrence or the guarantee of debt;
- the extension of loans, advances, capital contributions or investments;
- the sale of debt securities, warrants or other rights to acquire debt
securities;
- the making of capital expenditures;
- the making of tax elections;
- the payment, discharge or satisfaction of claims, liabilities or
obligations, or litigation outside the ordinary course of business;
- the enforcement of confidentiality, standstill or similar agreements;
- the adoption, change and acceleration of benefit plans, benefit
arrangements and pension plans;
- compensation of directors, executive officers and other employees;
- the transfer or license of intellectual property rights;
- entrance into certain types of agreements including real property,
employment, marketing and exclusive rights to technology and agreements
and agreements containing guarantees of future revenues;
- accounting policies and procedures;
- the hire of additional employees;
- any action that would cause or that is reasonably likely to result in
representations and warranties in the merger agreement to no longer be
true; and
- the authorization, commitment, resolution or agreement to take, any of the
foregoing actions.
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24/7 MEDIA. Under the merger agreement, 24/7 Media has agreed that from the
date of the merger agreement to the completion to the merger, except as
otherwise expressly contemplated by the merger agreement or consented to in
writing by Exactis.com, it will and will cause its subsidiaries to carry on its
respective business in the ordinary course consistent with past practice and in
compliance in all material respects with all applicable laws and regulations,
and use all reasonable efforts to keep available the services of their current
officers and other employees and preserve its relationships with third parties
with the objective to minimize the impairment of its ongoing business.
In addition to these agreements regarding the conduct of business generally,
24/7 Media has agreed to some specific restrictions, for itself and its
subsidiaries, relating to the following:
- actions that would result, or are reasonably likely to result, in any of
the representations and warranties in the merger agreement no longer being
true;
- actions that would result, or are reasonably likely to result, in any of
the conditions to the merger agreement not being satisfied; and
- the acquisition of any business entity, unless 24/7 Media's board of
directors determines in good faith that the acquisition would not
materially delay the consummation of the transactions contemplated by the
merger agreement.
STOCK OPTIONS AND WARRANTS
Under the merger agreement, at the effective time of the merger, each
outstanding Exactis.com stock options and some of the warrants will be converted
into an option or a warrant to acquire shares of 24/7 Media common stock. For a
description of the conversion of stock options and warrants, see "Treatment of
Exactis.com Stock Options and Warrants."
AMENDMENT, EXTENSION AND WAIVER
The merger agreement may be amended by the parties, by action taken or
authorized by their respective boards of directors, at any time after the
completion of the merger agreement; PROVIDED, HOWEVER, that after the
stockholder approvals have been obtained, no amendment may be made which by law
requires further approval by the 24/7 Media stockholders or the Exactis.com
stockholders. All amendments to the merger agreement must be in writing signed
by each party.
At any time before the completion of the merger, the parties may by action
taken or authorized by their respective boards of directors, to the extent
legally allowed:
- extend the time for the performance of any of the obligations or other
acts of the other parties;
- waive any inaccuracies in the representations and warranties contained in
the merger agreement or in any document delivered pursuant to the merger
agreement; or
- waive compliance by the other party with any of the agreements or
conditions in the merger agreement.
All waivers must be in writing and signed by the party against whom the
waiver is to be effective.
EXPENSES
Whether or not the merger is completed, all expenses and fees incurred in
connection with the merger agreement and the merger will be paid by the party
incurring the expenses or fees, except:
- if the merger is completed, 24/7 Media will pay any property or transfer
taxes imposed in connection with the merger;
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- all expenses and fees incurred in connection with the filing, printing and
mailing of this joint proxy statement-prospectus and the registration
statement of which it is a part will be shared equally by 24/7 Media and
Exactis.com; and
- expenses incurred by a party in successfully seeking a judgment requiring
the other party to pay a termination fee will be paid by the party owing
the termination fee.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
24/7 Media and Exactis.com relating to, among other things:
- corporate organization and similar corporate matters;
- subsidiaries;
- capital structure;
- authorization and absence of conflicts;
- documents filed with the Securities and Exchange Commission and financial
statements included in those documents;
- information supplied in connection with this joint proxy
statement-prospectus and the registration statement of which it is a part;
- absence of specified changes or events;
- litigation;
- compliance with applicable laws;
- absence of changes in benefit plans;
- Employee Retirement Income Security Act of 1974 compliance and excess
parachute payments;
- board of directors approval and applicable state takeover laws;
- the stockholder vote required to adopt the merger agreement and approve
the issuance of 24/7 Media common stock in the merger;
- brokers and finders;
- opinions of financial advisors;
- intellectual property and Year 2000;
- taxes;
- specified contracts;
- stockholder rights plan;
- employee benefits;
- title to properties; and
- privacy policy.
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STOCKHOLDER AGREEMENTS
24/7 MEDIA STOCKHOLDER AGREEMENT
GENERAL. In addition to the merger agreement, Exactis.com entered into a
stockholders agreement with certain 24/7 Media stockholders: The Travelers
Insurance Company, David J. Moore, Big Flower Holdings, Inc., Prospect Street
NYC Discovery Fund, L.P., Mark Schaszberger, Trami Tran, Jacob I. Friesel, Paul
Chachko, Prospect Street NYC Co-Investment Fund, L.P., and James Green. These
stockholders combined held approximately 29% of the 24/7 Media common stock then
outstanding.
VOTING. The stockholders signing the stockholders agreement agreed, among
other things, to vote their shares of 24/7 Media common stock in favor of the
issuance of shares of 24/7 Media common stock in the merger. The stockholders
signing the agreement also agreed to grant Exactis.com an irrevocable proxy to
vote their 24/7 Media common stock in favor of the issuance of shares of 24/7
Media common stock in the merger or any other transaction contemplated by the
merger agreement.
TERMINATION. The stockholders agreement provides that it will terminate
upon the earlier of the completion of the merger and the termination of the
merger agreement in accordance with its terms.
EXACTIS.COM STOCKHOLDER AGREEMENT
GENERAL. In addition to the merger agreement, 24/7 Media entered into a
stockholders agreement with certain Exactis.com stockholders: Centennial Fund
IV, L.P., Tribune Company, Telecom Partners, L.P., American Express Travel
Related Services Company, Inc., Global Retail Partners, L.P., Boulder Ventures
III, L.P., E. Thomas Detmer, Jr., Boulder Ventures, Ltd., DLJ Diversified
Partners, LP, Boulder Ventures II, L.P. These stockholders combined represented
a majority of the Exactis.com common stock then outstanding.
VOTING. The stockholders signing the stockholders agreement agreed, among
other things, to vote their shares of Exactis.com common stock in favor of the
adoption of the merger agreement and approval of the merger and any other
transactions contemplated by the merger agreement. This vote will be sufficient
to approve the merger agreement. The stockholders signing the agreement also
agreed to grant 24/7 Media an irrevocable proxy to vote their Exactis.com common
stock in favor of the merger agreement and approval of the merger and any other
transactions contemplated by the merger agreement.
NO SOLICITATION. The stockholders have agreed that they will not, nor will
they permit any investment banker, financial advisor, attorney, accountant or
other advisor or representative of stockholder to, directly or indirectly
through another person, solicit, initiate, encourage or otherwise facilitate
certain specified proposals to acquire the equity or assets of Exactis.com or
enter into, continue or participate in discussions or negotiations regarding
such proposals.
TERMINATION. The stockholders have also agreed not to transfer their shares
to any person unless that person has agreed to be bound by the stockholders
agreement. The stockholders agreement provides that it will terminate upon the
earlier of the completion of the merger and the termination of the merger
agreement in accordance with its terms.
LOCK-UP AGREEMENT. The Exactis.com stockholders that entered into the
stockholders agreement also entered into a lock-up agreement with 24/7 Media
pursuant to which they agreed not to sell more than a certain portion of their
Exactis.com shares during the first five months after the completion of the
merger.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31,
1999, gives effect to (a) 24/7 Media's acquisition of Sabela Media, Inc.
("Sabela") and IMAKE Software and Media Divisions ("IMAKE"), and (b) the
acquisition of Exactis.com, as if each of these acquisitions had occurred on
December 31, 1999. The Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1999, gives effect to the acquisition
of Sabela, IMAKE and Exactis.com, as if these acquisitions had occurred at the
beginning of the period presented, or January 1, 1999.
ACQUISITION OF SABELA
On January 10, 2000, 24/7 Media announced the acquisition of Sabela, a
privately-held Delaware corporation and a global ad serving, tracking and
analysis company with products for online advertisers and Web publishers, for
approximately $70.0 million. On January 10, 2000, 24/7 Media acquired all of the
issued and outstanding shares of capital stock of Sabela in a merger transaction
whereby a subsidiary of 24/7 Media was merged with and into Sabela. 24/7 Media
also assumed all of the outstanding stock options of Sabela under 24/7 Media's
stock incentive plan.
Under the terms of the transaction the holders of Sabela common stock
received shares of 24/7 Media common stock on the basis of an exchange ratio of
0.1104 shares of 24/7 Media common stock for each share of Sabela common stock.
Warrants assumed are also convertible at this ratio. The number of shares of
24/7 Media common stock issued to the holders of Sabela stock options was
determined on the basis of an exchange ratio of .1146 of 24/7 Media common stock
for each share of Sabela stock option. The conversion ratio was determined
through arm's length negotiations.
The consideration paid by 24/7 Media in connection with the acquisition of
approximately $70.0 million consisted of the following:
- The issuance of approximately 1.3 million shares of 24/7 Media common
stock valued at approximately $58.4 million as consideration for all
Sabela shares outstanding;
- cash consideration of $2.3 million for outstanding shares of Sabela;
- fair value of warrants assumed of $4.6 million;
- fair value of options assumed of $1.7 million; and
- estimated transaction costs of $3.0 million.
For accounting purposes, 24/7 Media will be deemed to be the surviving
corporation in the merger. The pro forma adjustments are based upon currently
available information and upon assumptions that management of each of 24/7 Media
and Sabela believes are reasonable. We will account for the merger based upon
the estimated fair market value of the net tangible and intangible assets
(liabilities) acquired at the date of acquisition. The adjustments included in
the Unaudited Pro Forma Combining Financial Statements represent the preliminary
determination of these adjustments based upon available information. We cannot
assure you that the actual adjustments will not differ from the pro forma
adjustments reflected in the pro forma financial information.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the purchase price will be allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed on
the basis of their fair values on the acquisition date. 24/7 Media is in the
process of performing an independent valuation of Sabela. The preliminary
allocation of the purchase price may be subject to change depending on the final
outcome of the valuation. For pro forma purposes, the Company has assumed that
the historical carrying amounts of such assets and liabilities approximated
their fair values. The remaining purchase price over the fair value of the
assets acquired
72
<PAGE>
and liabilities assumed has preliminarily been allocated to goodwill, workforce
and technology. The workforce allocation approximate $1.1 million. The
technology allocation approximates $7.1 million with a possible range of
$6.0 million to $8.2 million. The remaining portion of purchase price in excess
of tangible and intangible assets, estimated at $61.0 million, has been
allocated to goodwill. Goodwill and other intangible assets will be amortized
over their expected period of benefit ranging from two to four years (four years
for goodwill and technology and two years for workforce).
ACQUISITION OF IMAKE
On January 10, 2000, 24/7 Media announced the acquisition of IMAKE, a
privately-held Maryland close corporation for approximately $29.3 million,
excluding contingent consideration of approximately $41.0 million. IMAKE is a
provider of technology products that facilitate the convergence of Internet
technologies with broadband video programming. On January 13, 2000, 24/7 Media
acquired all of the issued and outstanding shares of capital stock of IMAKE in a
merger transaction whereby a subsidiary of 24/7 Media was merged with and into
IMAKE. 24/7 Media also assumed all of the outstanding stock options of IMAKE
under 24/7 Media's 1998 stock incentive plan.
Under the terms of the transaction, approximately 400,000 shares of common
stock of 24/7 Media were exchanged for all of the outstanding shares of capital
stock of IMAKE. The consideration paid by 24/7 Media in connection with the
acquisition of approximately $29.3 million consisted of the following:
- The issuance of approximately 400,000 shares of the Company's common stock
valued at approximately $18.7 million;
- Fair value of options assumed of $9.9 million;
- Estimated transaction costs of $750,000; and
- The issuance of 134,000 restricted shares to employees valued at
$6.3 million not included in the purchase price which is accounted for as
deferred compensation.
In addition, 880,000 shares of common stock and 26,000 shares of restricted
stock are expected to be issued upon the achievement of certain revenue targets.
These amounts are excluded from the purchase price until such revenue targets,
as defined, are achieved.
For accounting purposes, 24/7 Media will be deemed to be the surviving
corporation in the merger. The pro forma adjustments are based upon currently
available information and upon assumptions that management of each of 24/7 Media
and IMAKE believes are reasonable. We will account for the merger based upon the
estimated fair market value of the net tangible and intangible assets acquired
at the date of acquisition. The adjustments included in the Unaudited Pro Forma
Combining Financial Statements represent the preliminary determination of these
adjustments based upon available information. We cannot assure that the actual
adjustments will not differ significantly from the pro forma adjustments
reflected in the pro forma financial information.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price will be allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed on
the basis of their fair values on the acquisition date. 24/7 Media is in the
process of performing an independent valuation of IMAKE. The preliminary
allocation of the purchase price may be subject to change depending on the final
outcome of the valuation. For pro forma purposes, the Company has assumed that
the historical carrying amounts of such assets and liabilities approximated
their fair value. A preliminary valuation of in-process research and development
of $4.7 million in connection with the acquisition of IMAKE is based on an
independent appraisal which determined that the e.merge technology acquired from
IMAKE had not been fully developed at the date of acquisition. As a result, the
Company will be required to incur additional costs to successfully develop and
integrate the e.merge platform. The remaining purchase price in excess of the
liabilities
73
<PAGE>
assumed was allocated to workforce and goodwill. The allocation to workforce was
approximately $1.0 million, and will be amortized over two years. The allocation
to goodwill was approximately $23.9 million and will be amortized over its
expected period of benefit of four years.
ACQUISITION OF EXACTIS.COM
Under the terms of the transaction, the holders of shares of Exactis.com
common stock will be entitled to receive shares of 24/7 Media common stock on
the basis of an exchange ratio of 0.60 shares of 24/7 Media common stock for
each share of Exactis.com common stock. Warrants and options assumed will also
be convertible at this ratio. The conversion ratio was determined through arm's
length negotiations.
The consideration to be paid by 24/7 Media in connection with the
acquisition approximates $466.9 million consisting of the following:
- the issuance of approximately 8.2 million shares of 24/7 Media common
stock valued at approximately $383.3 million as consideration for all
Exactis.com shares outstanding;
- fair value of options assumed of $52.2 million;
- fair value of warrants assumed of $1.1 million;
- fair value of options to be issued by Exactis.com to its employees
immediately prior to the closing of the merger of $25.8 million; and
- estimated transaction costs of $4.5 million.
For accounting purposes, 24/7 Media will be deemed to be the surviving
corporation in the merger. The pro forma adjustments are based upon currently
available information and upon assumptions that management of each of 24/7 Media
and Exactis.com believes are reasonable. We will account for the merger based
upon the estimated fair market value of the net tangible and intangible assets
acquired and liabilities assumed at the date of acquisition. The adjustments
included in the Unaudited Pro Forma Condensed Combined Financial Statements
represent the preliminary determination of these adjustments based upon
available information. We cannot assure you that the actual adjustments will not
differ from the pro forma adjustments reflected in the pro forma financial
information.
The acquisition is expected to be accounted for using the purchase method of
accounting, and accordingly, the purchase price will be allocated to the
tangible and indentifable intangible assets acquired and liabilities assumed of
Exactis.com on the basis of their fair values on the acquisition date. 24/7
Media is in the process of performing an independent valuation of Exactis.com.
The preliminary allocation of the purchase price may be subject to change
depending upon the final outcome of the valuation. For pro forma purposes, 24/7
Media has assumed that the historical carrying amounts of such assets and
liabilities approximated their fair values. The remaining purchase price over
the fair value of the assets acquired and liabilities assumed has preliminarily
been allocated to tradename, workforce, customer base, existing technology and
goodwill. The tradename allocation is approximately $1.0 million, the workforce
allocation is approximately $3.2 million and the customer base allocation is
approximately $2.1 million. The existing technology allocation is approximately
$60.8 million. The remaining portion of purchase price in excess of tangible and
intangible assets, estimated at $333.6 million, has been allocated to goodwill.
Goodwill and other intangible assets will be amortized over their expected
period of benefit ranging from two to four years (four years for tradename,
customer base, technology and goodwill; and two years for workforce).
74
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following information should be read in conjunction with the pro forma
information provided:
- accompanying notes to the Unaudited Pro Forma Condensed Combined Financial
Statements;
- separate historical consolidated financial statements of 24/7 Media as of
December 31, 1999 and 1998 and for each of the years the three-year period
ended December 31, 1999, which are incorporated by reference into this
joint-proxy statement-prospectus and filed in 24/7 Media's Annual Report
on Form 10-K, dated March 24, 2000;
- separate historical consolidated financial statements of Sabela as of
December 31, 1999 and 1998 and for the year ended December 31, 1999 and
the period from June 29, 1998 (inception) to December 31, 1998, which are
incorporated by reference into this joint-proxy statement-prospectus and
filed in 24/7 Media's Current Report 8-K/A dated March 24, 2000;
- separate historical combined financial statements of IMAKE as of
December 31, 1999 and 1998 and for the years then ended, which are
incorporated by reference into this joint-proxy statement-prospectus and
filed in 24/7 Media's Current Report 8-K/A dated March 28, 2000; and
- separate historical financial statements of Exactis.com as of and for each
of the years in the three-year period ended December 31, 1999, which are
contained elsewhere in this joint proxy statement-prospectus.
The pro forma financial information is intended for informational purposes
only and is not necessarily indicative of the financial position and results of
operations that would have been achieved had the mergers been consummated on the
dates indicated or of the future financial position or future results of
operations of 24/7 Media after the mergers.
75
<PAGE>
24/7 MEDIA, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
24/7 COMBINED PRO FORMA FOR
MEDIA SABELA IMAKE PRO FORMA PRO FORMA FOR EXACTIS PRO FORMA SABELA, IMAKE
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS SABELA AND IMAKE HISTORICAL ADJUSTMENTS AND EXACTIS.COM
---------- ---------- ---------- ----------- ---------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 42,786 $ 415 $ 87 $ (2,317)1) $ 40,971 $ 52,350 $ -- $ 93,321
Restricted cash........ -- -- -- -- -- 1,200 -- 1,200
Accounts receivable,
net of allowances.... 34,004 347 885 -- 35,236 3,071 -- 38,307
Deferred taxes......... -- -- 507 (507)4) -- -- -- --
Prepaid expenses and
other current
assets............... 4,846 -- 48 -- 4,894 1,354 -- 6,248
--------- --------- --------- --------- --------- --------- --------- ----------
Total current
assets............. 81,636 762 1,527 (2,824) 81,101 57,975 -- 139,076
Property and equipment,
net.................... 18,595 365 622 19,582 6,610 26,192
Intangible assets, net... 62,398 -- -- 69,174 1) 156,517 -- 400,749 3) 557,266
24,945 2)
Investments.............. 366,630 -- -- -- 366,630 -- -- 366,630
Deferred cost of partner
agreements, net........ 4,260 -- -- -- 4,260 -- -- 4,260
Other assets............. 493 312 -- -- 805 258 -- 1,063
--------- --------- --------- --------- --------- --------- --------- ----------
Total assets......... $ 534,012 $ 1,439 $ 2,149 $ 91,295 $ 628,895 $ 64,843 $ 400,749 $1,094,487
========= ========= ========= ========= ========= ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....... $ 24,504 $ 1,288 $ 262 $ -- $ 26,054 $ 1,291 $ -- $ 27,345
Accrued liabilities.... 13,875 20 253 3,000 1) 17,898 2,761 4,500 3) 25,159
750 2)
Due to affiliates...... -- -- 40 -- 40 -- -- 40
Income tax liability... -- -- 208 -- 208 -- -- 208
Current installments of
obligations under
capital leases....... 49 -- -- -- 49 -- -- 49
Deferred revenue....... 2,019 -- 1,717 -- 3,736 3,860 -- 7,596
Current portion of
notes payable........ -- -- -- -- -- 527 -- 527
--------- --------- --------- --------- --------- --------- --------- ----------
Total current
liabilities........ 40,447 1,308 2,480 3,750 47,985 8,439 4,500 60,924
--------- --------- --------- --------- --------- --------- --------- ----------
Obligations under capital
leases, excluding
current installments... 13 -- -- -- 13 -- -- 13
Deferred revenue, net of
current portion -- -- -- -- -- 3,200 -- 3,200
Notes payable, less
current portion........ -- -- -- -- -- 128 -- 128
Deferred tax liability... 95,656 -- 4 -- 95,660 -- -- 95,660
Minority interest........ 105 -- -- -- 105 -- -- 105
Commitments and
contingencies
Stockholders' equity
(deficit):
Common stock........... 224 10 -- 13 1) 251 127 82 3) 333
(10 )1) (127 )3)
14 2)
Additional paid-in
capital.............. 282,806 3,829 -- 58,359 1) 382,245 89,508 383,183 3) 844,613
4,592 1) 34,011 3)
1,708 1) 18,256 3)
(3,847)1) 1,095 3)
18,650 2) 14,304 3)
9,896 2) (89,508)3)
6,252 2) 11,519 10)
Receivable from
stockholders........... -- (684) -- -- (684) -- (684)
Deferred stock
compensation........... (232) -- -- (6,252)2) (6,484) (2,624) 1,018 3) (19,609)
(11,519)10)
Accumulated other
comprehensive income... 194,790 (1) -- 1 1) 194,790 -- -- 194,790
Accumulated deficit...... (79,797) (3,023) (335) 3,041 1) (84,986) (33,935) 33,935 3) (84,986)
335 2)
(4,700)2)
(507)4)
--------- --------- --------- --------- --------- --------- --------- ----------
Total stockholders'
equity (deficit)....... 397,791 131 (335) 87,545 485,132 53,076 396,249 934,457
--------- --------- --------- --------- --------- --------- --------- ----------
Total liabilities and
stockholders' equity
(deficit).............. $ 534,012 $ 1,439 $ 2,149 $ 91,295 $ 628,895 $ 64,843 $ 400,749 $1,094,487
========= ========= ========= ========= ========= ========= ========= ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements
76
<PAGE>
24/7 MEDIA, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
COMBINED
PRO FORMA FOR
COMBINED SABELA,
PRO FORMA IMAKE
24/7 MEDIA SABELA IMAKE PRO FORMA FOR SABELA EXACTIS PRO FORMA AND
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS AND IMAKE HISTORICAL ADJUSTMENTS EXACTIS.COM
---------- ---------- ---------- ----------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ 90,011 $ 742 $ 13,849 $ (6,086)6) $ 98,516 $ 10,986 $ -- $ 109,502
Cost of revenues......... 65,963 1,403 4,843 (2,130)6) 70,079 1,782 -- 71,861
----------- ---------- --------- ----------- ----------- ---------- ---------- -----------
Gross profit (loss).... 24,048 (661) 9,006 (3,956) 28,437 9,204 -- 37,641
----------- ---------- --------- ----------- ----------- ---------- ---------- -----------
Operating expenses:
Selling, general and
administrative....... 50,126 2,301 3,417 2,500 7) 58,344 13,814 2,880 10) 75,038
Research and product
development.......... 1,891 -- 920 -- 2,811 10,259 -- 13,070
Amortization of
goodwill and other
intangible assets.... 15,097 -- -- 17,575 5) 39,158 -- 100,987 5) 140,145
6,486 5) -- --
----------- ---------- --------- ----------- ----------- ---------- ---------- -----------
Total operating
expenses........... 67,114 2,301 4,337 26,561 100,313 24,073 103,867 228,253
----------- ---------- --------- ----------- ----------- ---------- ---------- -----------
Income (loss) from
operations........... (43,066) (2,962) 4,669 (30,517) (71,876) (14,869) (103,867) (190,612)
Other expense............ -- (11) -- -- (11) -- -- (11)
Interest income, net..... 3,025 19 69 -- 3,113 225 -- 3,338
----------- ---------- --------- ----------- ----------- ---------- ---------- -----------
Net income (loss)
before provision
for income taxes
and minority
interest........... (40,041) (2,954) 4,738 (30,517) (68,774) (14,644) (103,867) (187,285)
Provision for income
taxes.................. -- -- (1,849) 1,849 4) -- -- -- --
----------- ---------- --------- ----------- ----------- ---------- ---------- -----------
Net income (loss)
before minority
interest........... (40,041) (2,954) 2,889 (28,668) (68,774) (14,644) (103,867) (187,285)
Minority interest in loss
of consolidated
subsidiaries........... 979 -- -- -- 979 -- -- 979
----------- ---------- --------- ----------- ----------- ---------- ---------- -----------
Net income (loss).... (39,062) (2,954) 2,889 (28,668) (67,795) (14,644) (103,867) (186,306)
Accretion of preferred
stock to liquidation
value.................. -- -- -- -- -- (144) -- (144)
Net income (loss)
attributable to common
stockholders........... $ (39,062) $ (2,954) $ 2,889 $ (28,668) $ (67,795) $ (14,788) $ (103,867) $ (186,450)
=========== ========== ========= =========== =========== ========== ========== ===========
Net loss per common
share--basic and
diluted................ $ (1.96) $ (3.12) $ (6.23)
=========== =========== ===========
Weighted average common
shares outstanding..... 19,972,446 1,251,000 8) 21,757,446 8,161,530 8) 29,918,976
=========== =========== ========== ===========
534,000 8)
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements
77
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
1. Reflects the acquisition by 24/7 Media of Sabela at January 10, 2000 as
follows:
The consideration paid by 24/7 Media of approximately $70.0 million in
connection with the acquisition consisted of the following:
a) The issuance of approximately 1.3 million shares of 24/7 Media common
stock valued at approximately $58.4 million as consideration for all of
the outstanding shares of Sabela;
b) cash consideration of $2.3 million for outstanding shares of Sabela;
c) the value of the 195,000 warrants, with a weighted exercise price of
$9.61, assumed has been determined using the Black-Scholes valuation
model assuming 88% volatility, an average risk free interest rate of
6.97% and an average exercise period of 5 years. Because of the limited
history of 24/7 Media as a public company, companies with similar
operations were used to estimate volatility in valuing the warrants;
d) the value of 42,000 options, with a weighted average exercise price of
$9.96, assumed has also been determined using the Black-Scholes valuation
model assuming 128% volatility, an average risk free interest rate of
6.19%, and an average exercise period of 1 year;
e) estimated transaction costs of $3 million; and
f) the elimination of historical net assets acquired comprised of Sabela
historical stockholders' equity excluding receivables from stockholders.
The following represents the preliminary allocation of the purchase price:
<TABLE>
<S> <C> <C> <C>
(a) Issuance of 24/7 Media's common stock:
Shares issued for Sabela shares..................... 1,141,000
Shares issued for non-assumed options............... 110,000
-----------
Total shares issued to acquire Sabela............... 1,251,000
Per share price $ 46.66
-----------
(IN
THOUSANDS)
Value of shares issued $ 58,372
b) Cash paid for outstanding shares 2,317
c) Value of warrants exchanged 4,592
d) Value of options exchanged 1,708
e) Estimated transaction costs 3,000
------------
Total purchase price 69,989
f) Less: Fair value of net assets acquired 131
f) Receivable from stockholders 684
------------
Excess of cost over fair value of net assets
acquired $ 69,174
============
</TABLE>
78
<PAGE>
24/7 Media has made a preliminary allocation of excess cost over
estimated net assets acquired to goodwill and other intangibles as
Sabela's assets and liabilities are estimated to approximate fair value.
2. Reflects the acquisition by 24/7 Media of IMAKE at January 1, 2000 as
follows:
a) the issuance of approximately 400,000 shares of 24/7 Media common stock
for all outstanding shares of capital stock of IMAKE; and the issuance of
134,000 restricted shares to IMAKE employees;
b) the value of options exchanged, with a weighted average exercise price
of $46.00, has been determined using the Black-Scholes method assuming
88% volatility, an average risk free interest rate of 6.59%, and an
average exercise period of 5 years. Because of the limited history of
24/7 Media as a public company, companies with similar operations were
used to estimate volatility in valuing the options;
c) estimated transaction costs of $750,000;
d) the elimination of historical net liabilities assumed;
e) 24/7 Media has made a preliminary allocation of excess cost over
estimated net liabilities assumed to goodwill and workforce as IMAKE's
assets and liabilities are estimated to approximate fair value; and
f) the one time charge relating to in-process research and development
relating to the e.merge technology of approximately $4.7 million has been
recorded as an increase to the accumulated deficit.
The following represents the preliminary allocation of the purchase price:
<TABLE>
<S> <C> <C> <C>
(a) Issuance of 24/7 Media's common stock:
Shares issued to acquire all IMAKE shares outstanding....... 400,000
Per share price............................................. $46.66
--------
(IN
THOUSANDS)
Value of shares issued...................................... $18,664
(b) Value of options exchanged.................................. 9,896
(c) Estimated transaction costs................................. 750
-----------
Purchase price.............................................. 29,310
(d) Add: Net liabilities assumed................................ (335)
-----------
Excess of cost over fair value of net assets acquired....... 29,645
(e) Less: Write-off of in-process research and development...... 4,700
-----------
Excess of cost over fair value of net assets acquired....... $24,945
-----------
Deferred compensation (134,000 restricted shares at $46.66
per share)................................................ $6,252
-----------
</TABLE>
For purposes of the pro forma financial information, the estimated
amount of in-process research and development is approximately
$4.7 million. Because such in-process technologies did not reach the
stage of technological feasibility as of the acquisition date and is
expected to have no future use, this amount shall be immediately written
off by the Company and has been reflected in the pro forma balance sheet
as a charge to stockholders' equity.
79
<PAGE>
3. Reflects the proposed acquisition by 24/7 Media of Exactis.com as follows:
(a) the issuance of approximately 7.6 million shares of 24/7 Media common
stock for all outstanding shares of capital stock of Exactis.com at
$46.96 per share based upon the average trading price before and after
the date the agreement was signed and announced; and the issuance of
approximately 541,000 shares for warrants expected to convert just prior
to the acquisition;
(b) the value of 755,000 vested options assumed with a weighted average
exercise price of $4.98, which has been determined using the Black
Scholes option pricing method assuming 128% volatility, an average risk
free interest rate of 6.22%, and an average exercise period of 1 year;
(c) the value of 489,000 unvested options assumed with a weighted average
exercise price of $21.85, which has been determined using the Black
Scholes option pricing method assuming 96% volatility, an average risk
free interest rate of 6.43%, and an average exercise period of
2.6 years. Due to the limited history of 24/7 Media as a public company,
companies with similar operations were used to estimate volatility in
valuing the options;
(d) the value of 669,000 options to be issued by Exactis.com to its
employees immediately prior to the closing. For proforma purposes, the
fair market value of such options was $49.50 per share and an exercise
price of $32.29 per share, on as if converted basis based on the date the
agreement was signed and announced. The exercise price will be equal to
the lesser of $32.29 (on an as if converted basis) or 85% of the closing
price of Exactis.com's common stock on the day the merger is completed.
The fair market value and exercises prices will be adjusted on the date
of the closing. The value has been determined using the Black Scholes
option pricing method assuming 99% volatility, an average risk free
interest rate of 6.54% and an average exercise period of 4 years. Due to
the limited history of 24/7 Media as a public company, companies with
similar operations were used to estimate volatility in valuing the
options. Since these options will be issued at below fair market value,
the portion of the value attributed to the difference between the
exercise price of $32.29 and the fair value of $49.50, totaling
$11.5 million, will be allocated to deferred compensation.
(e) the value of 24,000 warrants to purchase common shares assumed with a
weighted average exercise price of $5.00, which has been determined using
the Black Scholes option pricing method assuming 99% volatility, an
average risk free interest rate of 6.43%, and an average exercise period
of 2.3 years. Due to the limited history of 24/7 Media as a public
company, companies with similar operations were used to estimate
volatility in valuing the options;
(f) the estimated transaction costs of $4.5 million;
(g) the elimination of historical net assets assumed excluding certain
deferred stock option compensation relating to options which will
continue to vest after the acquisition;
(h) 24/7 Media has made a preliminary allocation of excess cost over
estimated net liabilities assumed to goodwill and other intangible assets
as Exactis.com's assets and liabilities are estimated to approximate fair
value; and
(i) the reclassification of historical deferred compensation relating to
those options which vest upon change of ownership.
The following represents the preliminary allocation of the purchase price over
the historical net book values of the acquired assets and assumed liabilities at
December 31, 1999, and is for illustrative purposes only. Actual fair values
will be based on finanicial information as of the closing date.
80
<PAGE>
<TABLE>
<S> <C> <C> <C>
(a) Issuance of 24/7 Media's common stock:
Shares issued to acquire all outstanding shares of
capital stock of Exactis.com....................... 7,620,539
Shares issued for warrants expected to convert on or
before date of acquisition......................... 540,991
-----------
Total shares........................................ 8,161,530
Per share price..................................... $ 46.96
(IN
THOUSANDS)
Value of shares issued.............................. $ 383,265
</TABLE>
<TABLE>
<S> <C> <C> <C>
(b) Value of vested options exchanged...................... 34,011
(c) Value of unvested options exchanged.................... 18,256
(d) Value of options to be issued by Exactis.com to
employees immediately prior to the closing of the
merger................................................ 25,823
(e) Value of warrants exchanged............................ 1,095
(f) Estimated transaction costs............................ 4,500
--------
Total purchase price................................... 466,950
(g) Less: fair value of net assets acquired................ 53,076
(i) Add: deferred stock compensation on remaining unvested
options from (c) above................................ (1,606)
--------
$412,268
--------
Less: Deferred Compensation relating to options to be issued by
Exactis.com prior to the merger from (d) above................ 11,519
--------
Excess of cost over fair value of net assets required.......... $400,749
========
</TABLE>
4. IMAKE's provision for income taxes has been reversed as the combined losses
of the entities would not result in the need for a tax provision. The
deferred tax asset has also been fully reserved based on the Company's
uncertainty of realizing the asset in the future.
5. Reflects amortization expense for the year ended December 31, 1999 assuming
the transactions had occurred on January 1, 1999. This amortization expense
includes amortization relating to:
<TABLE>
<CAPTION>
EXPECTED
YEARS OF
INTANGIBLE ASSETS BENEFIT SABELA IMAKE EXACTIS.COM TOTAL
- ----------------- -------- -------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Workforce.................................... 2 $ 1,100 $ 1,000 $ 3,200 $ 5,300
Tradename.................................... 4 -- -- 1,000 1,000
Customer base................................ 4 -- -- 2,100 2,100
Existing technology.......................... 4 7,100 -- 60,800 67,900
Goodwill..................................... 4 60,974 23,945 333,649 418,568
-- ------- ------- -------- --------
$69,174 $24,945 $400,749 $494,868
</TABLE>
Workforce is being amortized over a two-year period. Tradename, technology
and goodwill are being amortized over a four-year period. Each amortization
period represents the expected useful lives of the intangible assets. The
amounts allocated to all intangibles are preliminary, and, therefore, the
amortization expense is subject to change based on a change in this
allocation.
6. Sales from IMAKE to 24/7 Media and the related costs have been eliminated as
these sales are deemed to be intercompany for pro forma purposes.
7. The value of IMAKE's restricted shares issued is recorded as deferred
compensation and amortized over two years, according to the terms of the
agreement--40% of the value is amortized in the first year and for pro forma
purposes, 60% in the second year.
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8. The pro forma basic and diluted net loss per common share are computed by
dividing the net loss attributable to common stockholders by the weighted
averaged number of common shares outstanding. The calculation of the
weighted average number of shares outstanding assumes that 1,251,000 and
534,000 (includes 134,000 of restricted) shares of 24/7 Media's common stock
issued in connection with its acquisitions of Sabela and IMAKE respectively,
and 8,161,530 shares of 24/7 Media's common stock to be issued in connection
with its acquisition of Exactis.com were outstanding for the entire period.
Diluted net loss per share equals basic net loss per share, as common stock
equivalents are anti-dilutive for the period presented.
9. The issuance of 880,000 common shares and 26,000 restricted shares are
expected to be distributed based upon the achievement of certain revenue
targets, as defined, and have not been included in IMAKE's purchase price as
of the acquisition date due to their contingent nature.
10. The portion of the value of stock options to be granted in conjunction with
the Exactis.com merger related to the below market exercise price is
recorded as deferred compensation and amortized over the life of the options
which is expected to be 4 years.
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DESCRIPTION OF EXACTIS.COM
DESCRIPTION OF BUSINESS
OVERVIEW
We are a leading provider of permission-based outsourced email marketing and
communications solutions. We provide a comprehensive and scalable suite of email
services which enable our clients to deliver large numbers of custom email
messages in an efficient, timely and cost-effective manner. Our primary services
consist of the distribution of email newsletters and information bulletins, as
well as the delivery of personalized order and trade confirmation messages,
which are triggered by specific transactions or events. We also serve targeted
banner advertisements within the email communications that we deliver to over
two million subscribers of Sony Music's daily email newsletters. Our newest
product launched in December 1999 offers targeted messaging capabilities to
allow our clients to conduct personalized one-to-one email marketing campaigns.
Our advanced, proprietary technology allows us to deliver a large volume of
email messages for our clients. In the fourth quarter of 1999, we delivered over
675 million email messages for over 75 clients, primarily in the media,
ecommerce and financial services industries.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND EMAIL. The Internet has emerged as a significant
tool for global communications, commerce and media. According to Computer
Industry Almanac, there were over 110 million Internet users in the United
States at the end of 1999. Jupiter Communications expects this number to grow to
over 157 million users by the end of 2003. The growth of the Internet is the
result of a number of factors, including the extensive and growing installed
base of advanced personal computers in the home and workplace, increasingly
faster and cheaper access to the Internet, improvements in network
infrastructure and bandwidth, development of Internet-based applications and
increasingly useful content available online. The proliferation of alternative
access devices providing Internet connectivity, including Internet appliances,
pagers and Internet capable wireline and wireless phones, is also contributing
to the increasing use of the Internet.
Email is now the most used Internet application. Increased use of the
Internet has resulted in the widespread adoption of email as a regular and
dependable communications medium. Initially developed for people working on
single mainframe computers or on small networks, email has expanded rapidly to
become a widely used medium for business and personal communications worldwide.
The ability to inexpensively communicate at any time and from any location with
Internet access has resulted in the rapid increase in email use in recent years.
Continued growth in the use of email is being driven by its convenience, speed,
low cost and the ability to send increasingly large and complex files and
attachments, including documents, spreadsheets and multimedia.
Today, email is a powerful, cost-effective business communication tool.
Forrester Research estimates that by 2004, U.S. marketers will send 200 billion
emails generating a $1.6 billion opportunity for email list owners and
$3.2 billion for email marketing services outsourcers. Because email provides an
immediate, targeted and inexpensive method to reach an expanding number of
online consumers, businesses are facing increasing competitive pressure to
develop comprehensive Internet and email communications strategies. These email
strategies are driving a wide range of customer communications, including
promotional messages, announcements, confirmations, order acknowledgments,
customer requested information and one-to-one marketing initiatives.
GROWTH OF PERMISSION-BASED EMAIL MARKETING AND COMMUNICATIONS. Consumer
marketing has traditionally been conducted through a variety of media, including
direct mail and telephone. The widespread adoption of the Internet and email has
enabled companies to create new direct marketing and communications strategies
to target and acquire new customers, as well as retain and enhance
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existing customer relationships. The Direct Marketing Association estimates that
online direct marketing expenditures will increase from $1.3 billion in 1999 to
$8.6 billion in 2004.
Permission-based email marketing and communications strategies are gaining
acceptance as unsolicited commercial email receives negative reaction and banner
ads have declining response rates. Permission-based email marketing is currently
used to generate leads, increase sales, retain, cross-sell and up-sell
customers, and build site traffic. Permission-based email marketing and
communications strategies have several advantages over traditional direct
marketing methods, including the following:
- Cost-Effectiveness--The cost for traditional direct mail can range from
$1.00 to $2.00 per piece compared to $0.01 to $0.25, per email piece,
depending on the level of targeting and customization required.
- Instantaneous Communication--As compared to many other traditional
marketing channels, email enables significantly faster communication with
a large audience. Jupiter Communications reports that 80% of all responses
to an email campaign occur within two days, as compared to six to eight
weeks for a marketing campaign done via mail.
- Higher Response Rates--Jupiter Communications research shows click-through
rates of opt-in email lists to be between 5.0-15.0%, compared to response
rates of 0.5-2.0% for postal mail.
CHALLENGES IN IMPLEMENTING EMAIL MARKETING AND COMMUNICATIONS
SOLUTIONS. Companies seeking to successfully utilize email as a channel for
marketing and communications face several challenges. Many companies attempting
to develop and manage an in-house solution to expanding and increasingly
sophisticated email systems lack the resources and expertise required to
cost-effectively launch email marketing initiatives. Businesses often find it
difficult and costly to integrate state-of-the-art technology into their
infrastructure, resulting in email marketing efforts which are defined by a
company's technological capabilities, rather than the company's strategic
marketing and communications goals. Sophisticated email marketing initiatives
require technology solutions with the following capabilities:
- sufficient bandwidth to handle peak volumes of emails;
- email content integration with selected email lists;
- inbound message management, including bounces from undeliverable addresses
and responses from recipients;
- subscriber and recipient database management, including email addresses
and demographic, transactional and behavioral data;
- applications which enable campaign management, Web-based reporting and
targeting and predictive modeling; and
- safeguards to avoid distribution of unsolicited bulk mail, or spam, and to
operate in accordance with existing governmental regulations.
The demonstrated success of the Internet and permission-based email as a
marketing and communications channel, combined with the challenges of developing
and managing in-house solutions, has led many companies to seek email
outsourcing services that can rapidly deploy large-scale marketing and
communications programs.
OUR SOLUTION
We offer a comprehensive suite of end-to-end outsourced email marketing and
communications solutions. Our email services provide our clients with the
following benefits:
LEADING EDGE TECHNOLOGIES. Our advanced, proprietary technologies enable us
to quickly distribute large quantities of email messages for our clients. In
addition, our technologies allow us to deliver
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customized messages according to user-defined preferences or client-defined
message templates, which are personalized through our mail merge technology. Our
Internet-based email solutions are designed to afford our clients choice and
flexibility. Our clients are able to:
- send email messages in both text and graphically-rich HyperText Markup
Language, commonly known as HTML, formats;
- send email messages including rich media such as audio, video, and
streaming media;
- define bounce rules for handling undeliverable emails;
- select the schedule for delivery of their email communications one month
in advance;
- generate report information based on a variety of menu options and dates;
and
- create the content in subscribe and unsubscribe confirmation messages and
provide users multiple ways to subscribe and unsubscribe.
We also serve targeted advertising banners within the email newsletters that
we deliver to over two million subscribers of Sony Music's InfoBeat newsletters,
enabling Sony Music to generate advertising revenue.
HIGHLY SCALABLE AND RELIABLE SOLUTION. Our email engine delivered an
average of over 10 million email messages per weekday in December 1999. We have
the capacity to deliver up to 30 million email messages per day without
additional hardware or infrastructure improvements. Our system can accommodate
rapid growth in the volume and complexity of the messaging needs of our clients
and is designed to be highly reliable. We have identified single points of
failure and designed redundancy where appropriate. We maintain two separate
Internet connections and have separate routers connected to one another in the
event a router fails. We do not need to interrupt our service during maintenance
periods. Automated performance monitoring allows us to intervene promptly if
required.
BROAD SUITE OF INTEGRATED EMAIL APPLICATIONS. Our comprehensive suite of
email marketing and communications solutions is designed to address all aspects
of our clients' email program needs. Currently, we send and manage email news
and information bulletins as well as deliver personalized order and trade
confirmation messages triggered by specific transactions and events. We also
offer a wide variety of targeted marketing capabilities to allow our clients to
conduct one-to-one email marketing campaigns. Our end-to-end solution includes
email list administration, subscription management, bounce and reply processing,
logging and reporting, customer service, content submission and a high level of
account management with availability 24 hours per day, seven days per week.
COST-EFFECTIVE OUTSOURCED SOLUTIONS. Compared to internally developed
solutions, our outsourcing services allow our clients to conduct cost-effective
email marketing and communications initiatives. We offer our clients a complete
turnkey solution, from professional implementation of all required systems to
24 hours per day, seven days per week account service. By outsourcing their
email programs to us, our clients can focus on their core business competencies
rather than managing a complex email delivery system. This reduces our clients'
need to invest in complex infrastructure, bandwidth and technical professionals.
SECURE DATA CAPABILITIES. To ensure protection of client data, we have
established strict security measures including multiple firewalls to prevent
unauthorized sending of email, tampering or unauthorized access to files. Our
clients' data and lists are kept confidential and we do not sell their lists or
data. All data and client interfaces are password protected and our clients
oversee the permission process for sending and scheduling capabilities to
appropriate parties. We have procedures for regular on-site and off-site back-up
of client information, including subscriber databases, reports and logging and
account information.
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COMPREHENSIVE SPAM POLICY. We understand that if email is used improperly,
it can cause significant harm to our own and our clients' reputations and
customer relationships. It is our policy not to send unsolicited commercial
email. We assist our clients in conducting email programs that are anti-spam
compliant. Our clients are required to represent to us that their email
addresses have been obtained using permission-based methods.
We are members of the Internet Alliance Federal Policy Council, Direct
Marketing Association and the Association for Interactive Media and serve on its
Council for Responsible Email. These associations provide us with updates of
legislative activity around the country that could affect our clients' email
marketing initiatives and result in changes to our spam policy.
STRATEGY
Our objective is to be a world leader in the delivery of permission-based
email marketing and communications services. We plan to achieve this objective
by pursuing the following strategies:
EXTEND INDUSTRY LEADING TECHNOLOGIES. We intend to further develop our
technology infrastructure to increase our email capacity, system reliability and
security. Our goal is to increase our capacity to 100 million email messages per
day by the end of 2000. In addition to expanding our capacity, we plan to
continue to offer a high level of system reliability and security by improving
our redundancy and failsafe features in our primary data center and in our
secondary data center for disaster recovery and additional failsafe
capabilities.
We are developing a unified software-based platform that will support our
entire range of services and offer our clients a consistent user interface and
single database. This will allow us to share new features and capabilities that
we develop among different products and clients. This new platform is being
designed to reduce product development and implementation time, allowing us
quicker time-to-market while spreading infrastructure costs across our various
service offerings.
BROADEN OUR SUITE OF EMAIL SERVICES. We intend to continue to offer our
clients a full line of feature-rich email marketing and communications services
to meet their email needs across a variety of applications. We are enhancing our
email marketing solutions. New features that we plan to introduce over the next
12 months include:
- Targeted Ad-Serving Capabilities--to enable all of our clients to insert
targeted banner advertisements within the body of an email.
- Expanded TargetMessaging Capabilities--to enable our clients to conduct
triggered sends and target their content based on marketing rules.
- SelectMessaging Capabilities--to provide clients with the ability to allow
their subscribers to customize the content they receive based upon
predefined categories.
We also plan to provide professional services that complement our email
service offerings. These professional services are intended to extend our
relationships with current clients, attract new clients and allow us to
differentiate ourselves in the outsourced email services market. These services
may consist of the procurement of email lists, email program consulting and
campaign results analysis.
CONTINUE TO DEVELOP AND LEVERAGE STRATEGIC RELATIONSHIPS. In order to
strengthen our market position and offer our clients additional services, we
plan to develop strategic relationships with companies that possess
complementary technical and marketing services. Through these strategic
relationships, we will undertake joint product development and marketing
efforts, such as integrating email with e-commerce applications and developing
relationships with permission-based email list partners. Potential strategic
partners include database design, ad-serving, e-commerce, secure email and
language translation companies, as well as technology service providers.
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INCREASE MARKETING AND SALES EFFORTS. We intend to increase the size of our
direct sales force substantially over the next 12 to 18 months. As our sales
force grows, we intend to move from our current geographic focus to a vertical
market focus, allowing our sales staff to become experts within specific
vertical markets and to offer more consultative email marketing and
communications solutions specifically tailored to each client's individual
needs. We also plan to increase our sales efforts by developing relationships
with a network of partners that are in a position to influence their clients'
marketing strategies and tactics, including advertising agencies, marketers and
systems integrators. Additionally, we are expanding into international markets
through the opening of our sales office in London and developing alliances with
international partners.
ACQUIRE NEW BUSINESSES AND TECHNOLOGIES. We intend to pursue acquisitions
of businesses, products, services and technologies that are complementary to our
existing business. These may include acquisitions of secure email solutions,
permission-based lists of email addresses, statistical analysis and consulting
services, inbound email processing capabilities and Internet ad-serving
solutions. We currently have no agreements regarding acquisitions.
SERVICES AND FEATURES. We provide a comprehensive suite of email services
which enable our clients to develop and send large numbers of custom email
messages. Our services are designed to offer clients a reliable, timely and
cost-effective means of communicating with their customers and prospects. Our
clients can select from a broad array of features and functions to develop email
messaging solutions for a wide range of business communication needs. We offer
clients a complete turnkey solution, from professional implementation of all
required systems to 24 hours per day, seven days per week account service. We
generally charge clients on a per message basis.
CURRENT SERVICES
We offer our comprehensive suite of email services to a variety of clients,
primarily in the media, e-commerce and financial services industries. Our
solutions include:
NEWS AND INFORMATION DISTRIBUTION. Our services enable our clients to send
the same message to a large number of recipients or subscribers. A Web-based
interface allows our clients to input content, preview the message and approve
the message for sending. Typically, news and information distributions are sent
in response to consumer requests for information. Our clients utilize these
services to retain customers and drive traffic to their Web sites. Messages
distributed through this service offering include newsletters, announcements and
welcome notices.
We currently offer a highly customized version of our news and information
distribution service to two clients, Sony Music for its InfoBeat newsletters and
Tribune Media Services for its MovieQuest service. Our service allows Sony
Music's email subscribers to select preferences from a menu or list of options
and receive only the information they have requested, thereby customizing the
news, weather and financial, entertainment and other information that they
receive via email. The MovieQuest service allows Tribune Media's subscribers to
receive weekly updates of movie listings for theaters they have selected. We are
further developing our capabilities to offer a standard customized messaging
solution that can be used by all of our clients across a range of industries and
applications.
EVENT-DRIVEN CUSTOMER COMMUNICATIONS. This service allows our clients to
send high volumes of personalized email messages that are triggered by a
specific event or transaction, such as executing an online trade or making an
online purchase. These emails have a similar format but include content that is
unique and personalized to each recipient. We create, maintain and store a
customized template for each client and use mail merge technology to insert data
from the clients into the template to create a personalized message for each
customer. These messages may be archived in a manner that meets regulatory
requirements that apply to the financial services industry. This service is
faster and less expensive than traditional mailings.
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TARGETED CUSTOMER COMMUNICATIONS. We have developed a system to enable
targeted marketing initiatives across a wide range of industries. Our system is
designed to enable our clients to communicate with their customers through
targeted and personalized communications based on selected demographics,
purchase behavior or other characteristics. Under this service, we would host
the client's customer database, perform database queries and evaluate the
effectiveness of each email marketing campaign. We also offer clients access to
a Web-based interface to perform these querying and analysis activities on their
own. Targeted email uses templates and the client's database to merge customer
specific information with messages or content similar to a segmented direct mail
program, allowing us to send personalized messages based on the name, purchase
behavior, demographic profile or any other attribute of an individual customer.
We believe that our database querying and targeting capabilities will result in:
- more cost-effective direct marketing efforts due to improved customer
response rates;
- immediate feedback;
- reporting and measurability features; and
- one-to-one customer communication capabilities.
PROSPECT MESSAGING. This service allows clients to do customer prospecting
and acquisition through permission-based opt-in email. The solution is
full-service and consultative. Our experienced list and acquisition experts
guide clients in list selection, then manage client email campaigns aimed at
turning prospects into customers. We have partnered with respected email list
owners to offer clients access to permission-based opt-in email address lists.
We have five list partners, including Mail.com, yesmail.com and 24/7 Media.
Combined, our list partners represent more than 48 million permission-based
opt-in email addresses.
We have strict criteria in selecting list partners. Partners must compile
lists in adherence to the industry's opt-in standard and be adept in list
hygiene processes, including effectively and efficiently handling bounce mail
and unsubscribe requests. Also important is the partner's ability to limit the
number of messages sent to any one name within a given time period. Lastly,
partner lists must offer a variety of selections based on key targeting
variables, such as demographics, lifestyle and purchase behavior.
AD-SERVING CAPABILITIES. We currently serve targeted advertising banners
within the email newsletters to subscribers of Sony Music's InfoBeat
newsletters. Our ad-serving capabilities generate additional revenue
opportunities for Sony Music, which receives advertising revenue based upon
clickthrough rates and images served as a result of the banner ads embedded
within the email messages. We are currently serving banner advertisements to
over two million subscribers of Sony Music's daily email newsletters. This
service is included in our per message price to Sony Music and does not generate
additional revenue for us. However, we intend to further develop and offer our
ad-serving services to other clients.
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CURRENT FEATURES AND FUNCTIONS
Our current email services include a variety of standard and optional
features and functionality that can be flexibly implemented based upon the
client's preferences, including the following:
<TABLE>
<CAPTION>
FEATURE/FUNCTION DESCRIPTION BENEFITS
- ---------------- ------------------------------ --------
<S> <C> <C> <C>
Targeting and Predictive Gives clients the ability to - More proactive marketing
Modeling perform sophisticated analyses capabilities.
to
target potential customers - More relevant content.
based on their profiles and on
a comparison model to current
buyers.
List Management Manages invalid email - Keeps subscriber lists
addresses. accurate.
- Lowers costs.
Web Interface Using a Web interface, client - Client controls approval.
can
submit content, approve email - Client controls scheduling.
and schedule sending time. - User-friendly interface.
Online Reporting Using a Web interface, client - Client generates timely
can reports.
request information about - Client selects time periods to
email sends, i.e., messages evaluate results.
delivered, bounces,
clickthroughs and mail opened.
Bounce Management Tracks undeliverable email - Keeps subscriber lists
accurate.
addresses. - Lowers costs.
Inbound Reply Processing Handles reply emails on - Timely response to customer
client's behalf. emails.
- Less staff required by client.
Content Archiving All content is stored at - Ability to recreate email
Exactis.com. distributions.
- Less storage space required at
client site.
Personalization Ability to personalize email - Personalized to each customer.
content using customer data - Higher response rates.
and template.
Clickthrough Reporting Ability to determine which - Tracking of customer response.
customers clicked on specific
URLs in the email.
Open Mail Reporting Ability to HTML emails to - Tracking of customer response.
determine which customers
opened the email.
Attachments Ability to send an attachment - Client can send more
with the email. customized information.
Format Identification Ability to determine in which - HTML email messages receive
format (HTML or text) an email higher response rates, but not
message should be sent. all browsers can read them.
Alternate Content Submission Client can submit content via - Flexible for client.
email, web or user interface.
</TABLE>
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<TABLE>
<CAPTION>
FEATURE/FUNCTION DESCRIPTION BENEFITS
- ---------------- ------------------------------ --------
<S> <C> <C> <C>
Expanded Database Ability to store demographic - Segmentation of customer for
and response information about varying offers.
each customer.
Database Synchronization Ability to transport and - Flexibility in database
synchronize databases between management and hosting.
Exactis.com and client.
Advanced Response Analysis and Ability to analyze campaign - Improve effectiveness of
Reporting results. campaigns over time.
Tracking and analysis of
results.
</TABLE>
MARKETING AND SALES
MARKETING STRATEGY. The key components of our marketing strategy are to:
- continue to develop our reputation as an industry leader;
- build brand awareness; and
- aggressively generate sales leads.
We employ a number of marketing methods to promote our brand and reputation,
as well as to generate leads for our sales organization. The essence of our
brand is "precision," reflecting our ability to precisely target, time and
personalize email messages even at very high message volumes. Our positioning
statement is as follows: "For large companies marketing online seeking to
establish one-to-one reliant relationships with "best' customers, we provide
outsourcing solutions to complex, online communications requiring precision
targeting, messaging and impact through a legacy of marketing expertise and
front-line Internet technology."
Our marketing methods include media relations, press releases, magazine and
newspaper advertisements, speaking engagements and attendance at trade shows and
seminars. We also use our Web site to build our image and to provide information
about our services, technology and organization to potential clients. We are
scheduled to have a presence at more than 20 national and international
conferences and trade shows during 2000, including Jupiter Consumer Online,
Internet World, as well as New Media Marketing in London. We are implementing an
aggressive lead generation program using direct marketing campaigns to key
decision makers within specific targeted markets, including e-commerce, media
and financial services companies.
SALES STRATEGY. Through our direct sales force, we have historically
targeted the media, e-commerce and financial services segments. Currently, our
sales force is geographically focused, with sales representatives covering a
particular region. As our sales force grows, we intend to move to a vertical
market focus, allowing our sales staff to become experts within specific
vertical markets and to offer more consultative email marketing and
communications solutions specifically tailored to each client's individual
needs.
As of February 29, 2000, we had seven sales professionals in our direct
sales force located in San Francisco, Denver, Boston, Tampa, New York, and
London. We plan to significantly expand this group in the next 12 months. In
addition to the sales professionals, we had two sales engineers and three lead
generation associates who support potential clients and the sales process.
SUBSCRIBER SERVICES AND ACCOUNT MANAGEMENT
We offer a high level of subscriber service and account management to our
clients and to their customers. As of February 29, 2000, we employed 12
subscriber service representatives who handle all incoming responses via email.
Typical responses include subscribing, unsubscribing, format changes and
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report requests. In many cases, we utilize an automated response tool to respond
without human intervention. Our subscriber service representatives attempt to
handle all responses within 24 hours of receipt.
In addition to our subscriber service representatives, as of February 29,
2000, we employed 11 account managers who oversee the day-to-day relationships
with our clients. Account managers are available 24 hours per day, seven days
per week. As the clients' primary point of contact, our account managers are
responsible for providing day-to-day operational support through regular client
interactions. Automated monitoring tools inform the account manager and
operations staff of the status of client mailings.
STRATEGIC RELATIONSHIPS
We seek to enter into strategic relationships to expand our services and
product offerings and to undertake joint product development and marketing
efforts. Our existing strategic relationships include Sony Music and E.piphany.
SONY MUSIC. In connection with the sale of our online publishing business
to Sony Music Entertainment in December 1998, we entered into a long-term
strategic relationship under which we provide the editorial services, content
and technical operations for the InfoBeat newsletters and deliver more than
7.0 million InfoBeat newsletters per weekday. Subscribers can choose from a menu
of preferences to customize the news, weather, financial, entertainment and
other information that they receive via email. Additionally, we provide Sony
Music with customer support and database management services and host and
maintain Web sites on our servers related to the delivery of the services. Our
service agreement with Sony Music has a three-year term and Sony Music may, at
its sole option, renew the agreement for up to two additional years. In
addition, the agreement may be terminated early under certain circumstances upon
60 days written notice by either party. We will recognize minimum revenue of
$14.8 million during the initial three-year term for sending a base amount of
email messages each quarter. We are also entitled to a monthly editorial fee, a
variable per message fee for each email message we send in excess of the base
amount and an hourly fee for requested custom engineering development work.
E.PIPHANY. In March 1999, we entered into an agreement with E.piphany, a
leader in software solutions for analysis of customer data and marketing
campaign management. Under the agreement, we offer E.piphany E.4 analytic
applications as part of the highly targeted email marketing solution we have
developed. Our agreement with E.piphany includes a perpetual software license
and specified pricing terms and conditions. E.piphany's E.4 solutions enables
our clients to develop and implement highly-targeted relationships via email.
E.piphany's E.4 solutions assist clients to quickly profile customers and design
and execute customer-specific marketing campaigns, measure results and refine
future campaigns based on those results. We believe that the combination of
E.piphany's solutions with our technologies and expertise enable our clients to
precisely target their marketing efforts to appropriate audiences and deliver
relevant, personalized information in each email message in a timely and
cost-effective manner.
TECHNOLOGY
ARCHITECTURE. Our technology infrastructure has been designed to achieve
reliable, scalable and secure operations. We currently process between seven and
twelve million messages per day and plan to expand our data center to support
100 million messages per day by the end of 2000. Our technology is based on a
distributed architecture utilizing Sun Microsystems processor systems and
servers, Intel processor based servers, Cisco Systems routers and Oracle
databases. Our system is designed to enable parallel processing while providing
redundancy at any point of failure. Our current software environment is
primarily UNIX and Linux based.
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Our distributed architecture manages outbound and inbound message flow which
enables us to scale rapidly by adding additional servers to assemble and deliver
email. All of the system functions may be replicated, enabling the network to
expand for additional functionality and volume growth.
DATA CENTER AND NETWORK ACCESS. Our principal data facility is located in
Denver, Colorado. Our data center has a high-speed connection to two Internet
service providers to allow high-bandwidth access to the Internet. We operate
separate production, test and development networks. The test and development
networks have the same hardware and software environment as our production
network, which enables us to develop and fully test our services prior to
putting any upgrades, enhancements or fixes into our production system.
We are in the process of relocating our data center operations to a new data
center located in Denver, Colorado. The relocation will be completed in
April 2000. The new data center has two separate high-speed connections to our
Internet service providers to prevent a loss of connectivity and will provide
the environment necessary to support our planned increase in messaging capacity.
In addition, the new center features redundant systems for power, cooling, fire
protection and security surveillance 24 hours per day, seven days per week by
both personnel and video monitors.
NETWORK SECURITY. We seek to assure network security through multiple
firewalls. External firewalls operate at the network link layer and a second
layer of firewalls separates every public network from its companion private
network.
OFFSITE DISASTER RECOVERY. We have established an offsite disaster recovery
facility, which is located in an existing data center in Sunnyvale, California.
This data center is acting solely as a recovery site, which is operational
within twenty-four hours of a service interruption at our principal facility. By
June 2000, this center will receive continuous data feeds from our principal
facility. This facility will be able to convert to sending mode within 30
minutes of any service interruption at our principal facility by
September 2000. Ultimately, we plan to expand this facility into a full
production center.
NEW SERVICE DEVELOPMENT
Our ability to design, develop, test and support new services, features and
functions on a timely basis is critical to our success. Our product managers
define new service and feature requirements by analyzing market trends, client
needs and competitive offerings. Under the supervision of the product manager, a
team creates a design and specifications document, development schedule and
ultimately a new service or feature.
We cannot assure you that we will be successful in developing and marketing
new services and enhancements that meet changing customer needs or which respond
to technology changes or evolving industry standards. Our current services are
compatible with widely used and accepted standards. Current and future use of
our services will depend, in part, on industry acceptance of these standards and
practices as they apply to the Internet and e-commerce.
COMPETITION
The email marketing industry is intensely competitive. There are few
barriers to entry, as evidenced by the many new entrants to the market over the
last year, and we expect that established and new entities will continue to
enter the market. We cannot assure you that we will compete effectively with
current or future competitors or that competitive pressures will not harm our
business, operating results and financial condition.
We offer clients a combination of both scalability and functionality. Our
email engine allows us to send large volumes of complex email messages within
client-defined time frames. Our ability to compete depends upon our ability to
offer:
- technical expertise;
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- scalability;
- consistent and reliable service;
- features and functionality;
- full service solutions; and
- direct marketing expertise.
The majority of businesses today use their internal email systems to provide
solutions to manage and deliver outbound email campaigns. For companies seeking
outsourced solutions, we compete with email outsourcing companies that offer
services similar to ours, including email distribution, list management,
reporting and bounce processing. In addition, several of these competitors offer
email consulting and campaign analysis. Key competitors in this category include
Bigfoot International, Digital Impact, floNetwork, InterStep, L-Soft
International, Lyris Technologies, MarketHome, MessageMedia, Post Communications
and Responsys.com. Many of these competitors, such as L-Soft, Lyris and
MessageMedia, also offer customers the choice of purchasing or licensing
software to internally handle their own email marketing programs. Other email
outsourcing companies that specialize in corporate email management, including
Critical Path, Mail.com and USA.Net, have the technical capabilities and
infrastructure to enter our market.
Several competitors maintain and rent permission-based email lists that
identify customers by certain interest categories or demographic areas. Clients
pay the list brokers a one-time use fee that includes sending the email to the
customer and tracking results. Competitors in this category include MatchLogic,
MyPoints.com, NetCreations and yesmail.com. Clients must currently use the email
sending service provided by the list broker to reach the end-customer.
There are several other potential competitors that could enter the email
marketing and communications industry, including direct marketing companies,
Internet service providers, Internet ad networks, advertising agencies and
others with large established Internet businesses. Potential competitors include
America Online, Acxiom, DoubleClick, Experian Information Solutions, Harte-
Hanks Communications, IBM, Microsoft and Netscape Communications. Large Internet
portals, such as Yahoo!, also have the financial resources and technical
capabilities to enter this market. Email communication offers Internet portals a
powerful tool to build customer loyalty while driving traffic to their Web site.
These potential competitors could enter the market by acquiring one of our
existing competitors or by forming strategic alliances with our competitors.
Either of these occurrences could harm our ability to compete effectively.
INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success and rely on trademark
and copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to protect our
proprietary rights. We have no service marks and only one registered trademark
to date; however, we have several applications currently pending. It may be
possible for unauthorized third parties to copy certain portions of our products
or reverse engineer to obtain and use information that we regard as proprietary.
Certain end-user license provisions protecting against unauthorized use may be
unenforceable under the laws of certain jurisdictions and foreign countries. We
have two patents that have been issued and two patents pending in the United
States. We do not know whether these pending patents will be issued or, if
issued, that the patents will not be challenged or invalidated. In addition, the
laws of some foreign countries do not protect proprietary rights to the same
extent, as do the laws of the United States. We cannot assure you that our means
of protecting our proprietary rights in the United States or abroad will be
adequate or that competing companies will not independently develop similar
technology.
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We also strategically license certain technology from third parties,
including E.piphany and the Accipter Ad-Manager product from Engage
Technologies, Inc. In the future, if we add certificate technology to our
systems, we may license additional technology from third-party vendors. We
cannot be certain that these third-party content licenses will be available to
us on commercially reasonable terms, "or at all", or that we will be able to
successfully integrate the technology into our products and services. These
third-party content licenses may expose us to increased risks, including risks
associated with the assimilation of new technology, the diversion of resources
from the development of our own proprietary technology and our inability to
generate revenues from new technology sufficient to offset associated
acquisition and maintenance costs. The inability to obtain any of these licenses
could result in delays in product and service development until equivalent
technology can be identified, licensed and integrated. Any delays in services
could cause our business, financial condition and operating results to suffer.
We have also been subject, and may be subject in the future, to claims
alleging that we have infringed third party proprietary rights. We are not
currently subject to any material claims alleging the infringement of third
party proprietary rights. If we were to discover that any of our services
infringed third party rights, we may not be able to obtain permission to use
those rights on commercially reasonable terms. This may require us to expend
significant resources to make our services non-infringing or to discontinue the
use of our services. We might incur substantial costs defending against an
infringement claim, even if the claim is invalid. If we have to defend against
an infringement claim, it could distract our management from our business.
Further, a party making a claim could secure a judgment that requires us to pay
substantial damages or that prevents us from using or selling our products and
services. Any of these events could harm our business, financial condition and
operating results. Our success depends significantly on our proprietary
technology.
GOVERNMENT REGULATION
As the Internet continues to evolve, we expect that federal, state or
foreign agencies will adopt regulations covering such issues as user privacy,
pricing, content and quality of products and services. A number of legislative
and regulatory proposals are currently under consideration by federal and state
lawmakers and regulatory bodies and may be adopted with respect to the Internet.
In particular, a number of states have already passed statutes prohibiting
unsolicited commercial email, or spam. A number of statutes have also been
introduced in Congress and state legislatures to impose penalties for sending
unsolicited emails which, if passed, could impose additional restrictions on our
business. In addition, a California court recently held that unsolicited email
distribution is actionable as an illegal trespass for which the sender could be
subject for monetary damages.
The adoption of any such laws or regulations may decrease the growth of the
Internet, which could in turn decrease the projected demand for email services
or increase our cost of doing business. The applicability to the Internet of
existing United States and international laws governing issues such as property
ownership, copyright, trade secret, libel, taxation and personal privacy is
uncertain and developing and may take years to resolve.
Any new legislation or regulation, or application or interpretation of
existing laws could harm our business, operating results and financial
condition. Additionally, because we expect to expand our operations outside the
United States, the international regulatory environment relating to the Internet
could harm our business, operating results and financial condition.
EMPLOYEES
As of February 29, 2000, we employed 178 people, all of whom were full-time.
The 178 employees included 16 in general and administrative functions, 86 in
engineering, 38 in sales and marketing, 22 in subscriber service/account
management, 14 editors and two Sony/InfoBeat sales persons. Employees are
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not represented by a labor union or covered by any collective bargaining
agreements. We consider our employee relations to be good.
DESCRIPTION OF PROPERTY
We are relocating our principal executive offices into 46,418 square feet of
space in Denver, Colorado, under a lease expiring on February 28, 2010. The
relocation, which includes our data center, will be completed in April 2000. We
also lease 20,281 square feet of space in Denver, Colorado, under a lease
agreement expiring on December 31, 2001. In addition, we are also leasing 23,209
square feet of space on a temporary month-to-month basis until we complete our
relocation. We believe that our facilities will be adequate for our needs for
the next 12 months.
LEGAL PROCEEDINGS
From time to time, we are subject to legal proceedings arising out of our
operations. We are not currently a party to any material legal proceedings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH
EXACTIS.COM'S FINANCIAL STATEMENTS, INCLUDING THE NOTES, APPEARING ELSEWHERE IN
THIS JOINT PROXY STATEMENT-PROSPECTUS. CERTAIN INFORMATION CONTAINED IN THE
DISCUSSION AND ANALYSIS SET FORTH BELOW AND ELSEWHERE IN THIS JOINT PROXY
STATEMENT-PROSPECTUS, INCLUDING INFORMATION WITH RESPECT TO EXACTIS.COM'S PLANS
AND STRATEGY FOR ITS BUSINESS AND RELATED FINANCING, INCLUDES FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISK AND UNCERTAINTIES.
OVERVIEW
We are a leading provider of permission-based outsourced email marketing and
communications solutions primarily to companies in the media, e-commerce and
financial services industries. We were founded in January 1996 under the name
Mercury Mail, Inc. In August 1997, we changed our name to InfoBeat Inc. and in
January 1999 we changed our name to Exactis.com, Inc. In November 1999, we
completed our initial public offering.
Our initial business was the publication of a suite of advertising supported
newsletters delivered daily to subscribers via email, which we refer to as the
online publishing business. This business consisted of the online publication of
newsletters and other bulletins about a variety of topics of interest to
consumers, which we refer to as the InfoBeat newsletters. In 1997, we began
using the email technologies we developed for the online publishing business to
deliver email newsletters for another client. In early 1998, we launched our
outsourced email marketing and communications services, which we refer to as our
email services business. In addition, we provide other services related to the
email services business, primarily consisting of custom engineering development
work.
In December 1998, we sold our online publishing business to Sony Music and
simultaneously entered into a service agreement to manage the production and
delivery of the InfoBeat newsletters for Sony Music. Under the service
agreement, we will provide services to Sony Music through December 2001. Sony
Music agreed to pay us a minimum of $14.8 million associated with the sale and
service agreements. The assets sold to Sony Music consisted primarily of
intangible assets, the fair value of which were not objectively determinable.
Therefore, under applicable accounting standards, the $14.8 million of proceeds
is being recognized as email and other services revenue over the term of the
service agreement based on the monthly minimum number of email messages to be
provided under the service agreement. Because the Sony Music revenue includes
the proceeds of the sale and service agreements, margins recognized on the Sony
Music contract may not be indicative of other email services contracts. We
received advance payments from Sony Music of $7.8 million in cash and
receivables in December 1998 and $2.8 million in December 1999 which have been
recorded as deferred revenue and will be recognized as revenue in the period in
which services are performed. The
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deferred revenue balance related to Sony Music totaled $7.1 million at
December 31, 1999. We will recognize a minimum of $4.9 million in revenue in
2000 and $5.2 million in 2001 from the deferred revenue and the $3.0 million
remaining to be paid by Sony Music over the balance of the service agreement.
Total revenue from services provided to Sony Music constituted
$7.1 million, or 65%, of our total revenue for the year ended December 31, 1999.
For more information about the sale of our online publishing business, please
refer to note 2 to the financial statements.
Since January 1999, we have focused primarily on providing outsourced email
marketing and communications solutions to a wide range of clients primarily in
the media, e-commerce and financial services industries. We generate revenue
based on a fee per email message sent, charges for related services and custom
engineering development work. The actual per message fees are related to each
client's monthly email message volume and generally decline as a client's volume
increases. The majority of our clients execute a 12-month contract with
guaranteed monthly minimum charges based upon their expected volume of messages.
Revenue is recognized in the period in which services are provided. We record
deferred revenue for payments received and receivables which are contractually
due in advance of services provided. Beginning in January 1999, we agreed to
provide Sony Music with editorial services related to the InfoBeat newsletters.
Our online publishing revenue in 1999 consists of cost reimbursements by Sony
Music for employees providing these editorial services. Prior to 1999, we also
received revenue from the sale of advertising within the InfoBeat newsletters.
Since January 1999, cost of revenue consists primarily of editorial costs
associated with the InfoBeat newsletters, sales commissions and network
connectivity charges from our Internet service providers. Internet service
providers charge us for network connectivity based on monthly minimum charges up
to a certain level of usage and incrementally for usage above that level. Sales
commissions are paid monthly based on a percentage of revenue recognized during
the month. Prior to 1999, our cost of revenue also included advertising sales
and subscriber acquisition costs related to our online publishing business. Sony
Music is now responsible for these costs. Because the components of our cost of
revenue have changed significantly, we do not believe period-to-period
comparisons of our gross margins are meaningful. Please refer to note 8 to the
financial statements for additional information on our email and other services
and online publishing segments.
Our average cost to deliver an email message is significantly influenced by
the volume of email messages processed by our systems. As we continue to add new
clients, and as our existing clients increase both the size of their email lists
as well as their overall usage of our services, we expect our average cost to
deliver an email message to decline over the long term. In addition, a portion
of our research, development and engineering efforts are devoted to improving
the performance and efficiency of our systems.
As a result of stock option grants in 1999 with exercise prices below fair
value, we are recognizing total non-cash compensation expense of $3.7 million
over the vesting periods of the options, which are generally three or four
years. For the year ended December 31, 1999, we recognized non-cash general and
administrative compensation expense of $1.1 million with respect to these option
grants.
In December 1998, we issued to Sony Music a warrant to purchase 600,000
shares of Series D preferred stock at an exercise price of $6.00 per share. The
vesting of this warrant was contingent upon the achievement by Sony Music of
certain performance milestones. On November 18, 1999, the terms of this warrant
were amended. The amended warrant is for the purchase of 400,000 shares of
Series D preferred stock at an exercise price of $6.00 per share. The warrant is
fully vested and expires on December 31, 2003. In connection with the amended
warrant, we recorded non-cash charges of $4.7 million as sales and marketing
expense in the fourth quarter of 1999.
In July 1997, we issued to American Express a warrant to purchase 425,000
shares of Series C preferred stock at a purchase price of $6.00 per share. The
warrant expires in July 2000. The vesting of
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this warrant is contingent upon the achievement by American Express of certain
performance milestones. In accordance with accounting standards in effect at the
time of the issuance of this warrant, the estimated fair value of the warrant,
using the Black-Scholes option pricing model, was calculated at the time awarded
and is being amortized over the life of the warrant. We estimate the number of
warrant shares that will ultimately vest under the warrant at the end of each
reporting period and, based upon these estimates, may recognize additional
non-cash charges both currently and over the remaining life of the warrant. We
recognized non-cash charges of $46,000 in 1997, $118,000 in 1998 and $105,000
for the year ended December 31, 1999 related to the American Express warrant
and, based on estimates as of December 31, 1999 as to the ultimate vesting of
the warrant, we plan to recognize an additional $22,000 of non-cash charges over
the next year. Should American Express achieve one or both remaining milestones
in 2000, then we would record additional non-cash charges of up to approximately
$150,000.
We incurred net losses of approximately $3.4 million from January 30, 1996,
the date of our inception, through December 31, 1996, $7.7 million in 1997,
$7.9 million in 1998 and $14.6 million in 1999. We had an accumulated deficit of
$33.9 million at December 31, 1999. We expect to increase spending on marketing
and sales as we expand our sales force and increase promotional and advertising
expenditures. We also expect substantially higher general and administrative and
research, development and engineering expenses as we expand our infrastructure
to support expected growth and as we broaden our suite of email services. As a
result of these increases, we expect to continue to incur significant net losses
on a quarterly and annual basis through at least 2000.
In view of the rapidly evolving nature of our business, our limited
operating history and our recent focus on providing outsourced email marketing
and communications solutions, we believe that period-to-period comparisons of
our revenue and operating results, including our operating expenses as a
percentage of total revenue, are not meaningful and should not be relied upon as
an indication of future performance. In addition, we do not believe that our
historical growth rates are indicative of future results.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUE. Total revenue consists of email and other services revenue and
online publishing revenue. Our total revenue increased to $11.0 million in 1999
from $2.8 million in 1998. Email and other services revenue consists of charges
for providing email messaging services and includes fees based on the volume of
email messages sent, charges for related services and custom engineering
development work. Email and other services revenue increased to $10.1 million in
1999 from $821,000 in 1998. Email and other services revenue from Sony Music for
providing the InfoBeat services under our contract which began on January 1,
1999 constituted $6.2 million, or 61% of the 1999 email and other services
revenue. The balance of the growth is attributable to increases in both our
client base and the volume of email messages sent. Excluding Sony Music, we sent
approximately 580 million email messages for 91 clients in 1999, as compared to
approximately 115 million email messages for 25 clients in 1998. We also sent
approximately 1.4 billion email messages for Sony Music in 1999. In 1999 online
publishing revenue consists of cost reimbursements by Sony Music for employees
providing editorial services related to the InfoBeat newsletters. In 1998 online
publishing revenue was derived from the sale of advertising within the InfoBeat
newsletters. We had no advertising revenue in 1999.
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COST OF REVENUE. Cost of revenue currently consists primarily of editorial
costs associated with the InfoBeat newsletters, sales commissions and network
connectivity charges from our Internet service providers. Prior to 1999, cost of
revenue also included advertising sales and subscriber acquisition costs related
to our online publishing business. Cost of revenue declined to $1.8 million in
1999 from $2.8 million in 1998, reflecting the change in our business from
online publishing to email services. Of the 1999 amount, editorial costs
reimbursed by Sony Music related to the Infobeat newsletters totaled $862,000,
approximating the amount of online publishing revenue. Costs related to our
online publishing business represented $2.5 million of the 1998 amount. Sales
commissions related to email services increased $298,000 in 1999 as a result of
our growing sales force and corresponding email services revenue growth. Because
the components of our cost of revenue have changed significantly, we do not
believe period-to-period comparisons of our gross margins are meaningful.
MARKETING AND SALES. Marketing and sales costs consist primarily of
salaries and other personnel costs related to our sales, account management,
customer care and marketing employees, as well as travel, advertising and other
promotional costs. Marketing and sales costs increased to $8.1 million in 1999
from $1.8 million in 1998. 1999 costs included $4.7 million in non-cash charges
related to the 400,000 warrants issued to Sony Music. Marketing and sales costs
related to our online publishing business represented $189,000 of the 1998
amount. Salaries and other personnel costs represented the majority of the 1999
increase as the number of marketing and sales employees increased to 49 as of
December 31, 1999 from 15 at the beginning of 1998. We expect to significantly
increase the number of employees, as well as advertising and promotional
spending in this area in the future.
RESEARCH, DEVELOPMENT AND ENGINEERING. Research, development and
engineering costs consist primarily of salaries and other personnel costs
related to our operations and research and development groups, consultants and
outside contractor costs, and software and hardware maintenance expenses.
Research, development and engineering costs increased to $10.3 million in 1999
from $2.9 million in 1998. The cost of outside contractors and consultants, who
are utilized to speed development efforts, increased by $5.1 million in 1999. In
addition, salaries and other personnel costs significantly increased in 1999 as
the number of research, development and engineering employees increased to 74 as
of December 31, 1999 from 22 at the beginning of 1998. Research, development and
engineering costs related to our online publishing business represented
$1.1 million of the 1998 amount; however, since most of the employees of the
online publishing business were redeployed to the email services business in
1999, costs related to those employees are included in the 1999 period. We are
continuing to invest substantially in this area to develop the new features and
services required to meet the needs of current and potential clients, and plan
to maintain or increase the dollar amount we spend on research, development and
engineering activities in the future.
GENERAL AND ADMINISTRATIVE. General and administrative costs consist
primarily of salaries and other personnel costs related to executive and
administrative personnel, occupancy and general office costs and professional
fees. General and administrative costs increased to $4.0 million in 1999 from
$2.0 million in 1998. Non-cash stock option compensation expense increased by
$1.1 million in 1999 as a result of options granted in 1999 with exercise prices
below fair value. Professional fees increased $220,000 in 1999, primarily due to
costs related to recently settled patent infringement lawsuits. Occupancy and
general office costs represented $220,000 of the increase in the 1999 period due
to an increase in the total number of our employees. Increased salaries and
other personnel costs accounted for $298,000 of the increase in the 1999 period,
as the number of general and administrative employees increased to 14 as of
December 31, 1999 from six at the beginning of 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
consists primarily of depreciation of equipment, software and furniture and
amortization of leasehold improvements. Fixed assets are recorded at cost and
depreciated over the estimated useful lives of the assets which range from three
to five years. Depreciation and amortization expense increased to $1.7 million
in 1999 from
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$1.0 million in 1998. Purchases of equipment and software necessary to deliver
higher email message volume, as well as for general corporate use, were
responsible for this increase in the 1999 period.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
REVENUE. Our total revenue increased to $2.8 million in 1998 from $855,000
in 1997. Email and other services revenue increased to $821,000 in 1998 from
$359,000 in 1997 as a result of increases in our client base, email message
volume and average price per message sent. We sent approximately 115 million
email messages for 25 clients in 1998 as compared to approximately 104 million
email messages for one client in 1997. We did not begin to make our outsourced
email services generally available until early 1998. Online publishing revenue
increased to $2.0 million in 1998 from $496,000 in 1997 as we expanded both our
advertising sales efforts and the distribution of the InfoBeat newsletters.
COST OF REVENUE. Cost of revenue increased to $2.8 million in 1998 from
$2.0 million in 1997. Costs related to our online publishing business
represented $2.5 million of 1998 and $1.9 million of 1997 amounts. These costs
increased primarily due to a $400,000 increase in advertising sales commissions
due to revenue growth. Sales commissions related to email services revenue
increased $76,000 in 1998 due to the establishment of a sales force and the
associated payment of commissions. Network connectivity charges increased
$121,000 in 1998 due to higher email message volume.
MARKETING AND SALES. Marketing and sales costs increased to $1.8 million in
1998 from $1.5 million in 1997. Salaries and other personnel costs increased in
1998 due to the increase in the number of marketing and sales employees to 32 as
of December 31, 1998 from 12 at the beginning of 1997. This increase in salaries
and other personnel costs was partially offset by a decline of $244,000 in
advertising and other promotional costs in 1998.
RESEARCH, DEVELOPMENT AND ENGINEERING. Research, development and
engineering costs increased to $2.9 million in 1998 from $2.2 million in 1997.
Salaries and other personnel costs increased in 1998, as the number of research,
development and engineering employees increased to 36 as of December 31, 1998
from 21 at the beginning of 1997.
GENERAL AND ADMINISTRATIVE. General and administrative costs remained
relatively unchanged at $2.0 million in both 1998 and 1997. Occupancy and
general office costs increased $168,000 in 1998 due to the increase in the
number of our employees. This increase was partially offset by a $127,000
decline in salaries and other personnel costs for general and administrative
functions in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased to $1.0 million in 1998 from $806,000 in 1997. Purchases of equipment
and software necessary to deliver higher email message volume, as well as for
general corporate use, were responsible for this increase in 1998.
INCOME TAXES
As of December 31, 1999, a net operating loss carryforward for federal
income tax purposes of approximately $22 million was available to offset future
federal taxable income, if any, through 2019. No tax benefit for these losses
has been recorded by us in 1999 due to uncertainties regarding the utilization
of the loss carryforward. The utilization of a portion of the net operating loss
carryforwards will be limited under Section 382 of the Internal Revenue Code due
to changes in ownership interests.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our historical unaudited quarterly
information for our most recent eight quarters. This quarterly information has
been prepared on a basis consistent with our audited financial statements and,
we believe, includes all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the information shown. Our
quarterly operating results
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have fluctuated and may continue to fluctuate significantly as a result of a
variety of factors and operating results for any quarter are not necessarily
indicative of results for a full fiscal year.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Email and other
services........... $ 52 $ 102 $ 295 $ 372 $ 1,759 $ 2,250 $ 2,597 $ 3,481
Online publishing.... 411 526 604 417 246 189 226 238
------- ------- ------- ------- ------- ------- ------- -------
Total Revenue...... 463 628 899 789 2,005 2,439 2,823 3,719
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenue:
Email and other
services........... 46 47 88 75 143 264 234 279
Online Publishing.... 574 583 699 668 224 203 217 218
------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenue.......... 620 630 787 743 367 467 451 497
------- ------- ------- ------- ------- ------- ------- -------
Gross profit
(loss)........... (157) (2) 112 46 1,638 1,972 2,372 3,222
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Marketing and
sales.............. 257 421 592 540 612 663 783 6,013
Research, development
and engineering.... 551 631 878 855 963 2,171 3,097 4,028
General and
administrative..... 331 528 471 708 1,118 810 833 1,242
Depreciation and
amortization....... 235 240 275 282 310 379 485 566
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 1,374 1,820 2,216 2,385 3,003 4,023 5,198 11,849
------- ------- ------- ------- ------- ------- ------- -------
Loss from
operations..... (1,531) (1,822) (2,104) (2,339) (1,365) (2,051) (2,826) (8,627)
Interest income
(expense), Net....... (9) (21) (15) (56) 3 (21) 7 236
------- ------- ------- ------- ------- ------- ------- -------
Net loss............... $(1,540) $(1,843) $(2,119) $(2,395) $(1,362) $(2,072) $(2,819) $(8,391)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Our limited operating history and the emerging nature of the Internet-based
email services market make it very difficult for us to accurately forecast our
revenue. Our revenue could fall short of our expectations if we experience
delays or cancellations of even a small number of contracts. A number of factors
are likely to cause fluctuations in our operating results, including but not
limited to:
- continued growth of the Internet, in general, and of email usage, in
particular;
- demand for our services;
- our ability to attract and retain clients and maintain client
satisfaction;
- our ability to upgrade, develop and maintain our systems and
infrastructure;
- the amount and timing of operating costs and capital expenditures relating
to expansion of our business and infrastructure;
- technical difficulties or system outages;
- the announcement or introduction of new or enhanced services by our
competitors;
- pricing policies of our competitors;
- our ability to attract and retain qualified personnel with Internet and
direct marketing industry expertise, particularly technology, sales and
marketing personnel; and
- governmental regulation regarding the Internet, email and direct
marketing.
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LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering, we financed our operations primarily
from sales of our preferred stock and, to a lesser extent, proceeds from bank
loans.
Net cash used by operating activities was $6.9 million in 1997, $302,000 in
1998 and $6.8 million in 1999. Net cash used by investing activities was
$1.0 million in 1997, $885,000 in 1998 and $6.5 million in 1999. In each year,
net cash used by investing activities was primarily the result of capital
expenditures for equipment and software used in our data centers from which we
operate our email message platform.
Net cash provided by financing activities was $7.9 million in 1997,
$3.8 million in 1998 and $59.3 million in 1999. Proceeds from our initial public
offering in November 1999 and the sale of preferred stock in 1999 and prior
years, net of payments for debt and capital lease obligations, were the primary
source of the net cash provided by financing activities. In the year ended 1997,
proceeds from notes payable of $3.5 million were also a significant source of
financing. Approximately $2.0 million of this amount was converted into
preferred stock in July 1997. The balance consists primarily of proceeds from
bank loans.
At December 31, 1998 and 1999, we had $6.4 million and $52.3 million,
respectively, in cash and cash equivalents. In July 1999, we received a
$1.5 million payment from Sony Music related to the sale of our online
publishing business. In July and August 1999, we received net proceeds of
$8.8 million from the sale of Series E preferred stock and warrants. In November
and December 1999 we received net proceeds of $51.2 million from our initial
public offering. In December 1999 we received $2.8 million from Sony Music
related to future services to be provided under our service agreement. We plan
to increase our general level of spending in the future and plan to expend
significant resources on capital expenditures in 2000 for equipment and
software, furniture, and leasehold improvements. We plan to relocate our
existing data center and corporate offices in the first quarter of 2000. We
expect to incur operating losses through at least the end of 2000.
We expect that existing cash resources will be sufficient to fund currently
anticipated working capital and capital expenditure needs at least through the
end of 2000. Thereafter, we may require additional funds to support our working
capital requirements or for other purposes. If we are not successful in raising
capital when we need it and on terms acceptable to us, it could harm our
business, financial condition and operating results.
CHANGES/DISAGREEMENTS ON ACCOUNTING/FINANCIAL DISCLOSURE
None.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999, we had debt in the aggregate amount of $655,000, and
we may incur additional debt in the future. A change in interest rates would not
affect our obligations related to debt existing as of December 31, 1999, as the
interest payments related to that debt are fixed over the term of the debt.
Increases in interest rates could, however, increase the interest expense
associated with future borrowings.
We have invested a portion of our cash and cash equivalents in short-term,
investment-grade, interest-bearing securities. The value of these investments
may decline as a result of changes in equity markets and interest rates.
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OWNERSHIP OF EXACTIS.COM COMMON STOCK
The following table sets forth information, as of March 15, 2000, with
respect to beneficial ownership of Exactis.com common stock by:
- each director of Exactis.com;
- all directors and executive officers of Exactis.com as a group;
- the chief executive officer and the four other most highly compensated
executive officers of Exactis.com; and
- each person known to beneficially own more than 5% of the outstanding
shares of Exactis.com common stock.
In accordance with the rules of the Securities and Exchange Commission, the
following table gives effect to the shares of common stock that could be issued
upon the exercise of outstanding options within 60 days of March 15, 2000.
Unless otherwise noted in the footnotes to the table and subject to community
property laws where applicable, the following individuals have sole voting and
investment control with respect to the shares beneficially owned by them. We
have calculated the percent of shares beneficially owned based on 12,700,898
shares of Exactis.com common stock outstanding as of March 15, 2000.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------
NAME NUMBER PERCENTAGE
- ------------------------------------------------------------ --------- ----------
<S> <C> <C>
Centennial Fund IV, L.P. (1)................................ 2,237,789 17.5%
American Express Travel Related Services Company, Inc.
(2)....................................................... 1,282,500 9.8%
Tribune Company (3)......................................... 1,218,374 9.5%
Telecom Partners, L.P. (4).................................. 1,031,290 8.1%
Global Retail Partners, L.P. (5)............................ 944,393 7.4%
Boulder Ventures, L.P., Boulder Ventures II, L.P., Boulder
Ventures II (Annex), L.P., Boulder Ventures III, L.P. and
Boulder Ventures II (Annex), L.P. (6)..................... 716,949 5.6%
Janus Capital Corporation (7)............................... 675,000 5.3%
Pierric D. Beckert (8)...................................... -- --
Cynthia L. Brown (9)........................................ 3,500 *
E. Thomas Detmer, Jr. (10).................................. 431,655 3.4%
Kenneth W. Edwards, Jr. (11)................................ 15,679 *
Adam Goldman (12)........................................... -- --
Linda Fayne Levinson (13)................................... 944,393 7.4%
Michael J. Rosol (14)....................................... 25,736 *
Gregory B. Schneider (15)................................... 38,247 *
Raymond H. Van Wagener, Jr. (16)............................ 20,319 *
David D. Williams (17)...................................... -- --
Officers and directors as a group (9 Persons) (18).......... 1,459,210 11.25%
</TABLE>
- ------------------------------
* Less than one percent
(1) Includes 117,691 shares of common stock issuable upon exercise of warrants.
The address of Centennial Fund IV, L.P. is 1428 Fifteenth Street, Denver,
Colorado 80202.
(2) Includes 407,500 shares of common stock issuable upon exercise of vested
warrants. Excludes 148,750 shares of common stock issuable upon exercise of
unvested warrants. The address of American Express Travel Related Services
Company, Inc. is 3 World Financial Center, 40th Floor, New York, New York
10285.
(3) Includes 71,821 shares of common stock issuable upon exercise of warrants.
The address of Tribune Company is 435 North Michigan Avenue, Suite 1500,
Chicago, Illinois 60611.
(4) Includes 30,000 shares of common stock issuable upon exercise of warrants.
The address of Telecom Partners, L.P. is 4600 S. Syracuse St., Suite 1000,
Denver, Colorado 80237.
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(5) Consists of (i) the following shares of common stock (A) 575,902 shares
held by Global Retail Partners, L.P., (B) 171,609 shares held by DLJ
Diversified Partners, L.P., (C) 63,729 shares held by DLJ Diversified
Partners--A, L.P., (D) 37,439 shares held by GRP Partners, L.P.,
(E) 39,652 shares held by Global Retail Partners Funding, Inc. and
(F) 9,912 shares held by DLJ ESC II, L.P., and (ii) the following shares of
common stock issuable upon exercise of warrants (A) 29,590 shares held by
Global Retail Partners, L.P., (B) 8,817 shares held by DLJ Diversified
Partners, L.P., (C) 3,274 shares held by DLJ Diversified Partners--A, L.P.,
(D) 1,923 shares held by GRP Partners, L.P., (E) 2,037 shares held by
Global Retail Partners Funding, Inc., and (F) 509 shares held by DLJ ESC
II, L.P. The address of Global Retail Partners, L.P. and its affiliates is
2121 Avenue of the Stars, Suite 1630, Los Angeles, California 90067.
(6) Consists of (i) the following shares of common stock: (A) 185,100 shares
held by Boulder Ventures, L.P., (B) 154,236 shares held by Boulder Ventures
II, L.P., (C) 23,048 shares held by Boulder Ventures II (Annex), L.P.,
(D) 334,248 shares held by Boulder Ventures III, L.P., and (E) 20,317
shares held by Boulder Ventures III (Annex), L.P. Boulder Ventures, Boulder
Ventures II, Boulder Ventures II (Annex), Boulder Ventures III and Boulder
Ventures III (Annex) are affiliated entities. The address of Boulder
Ventures, Boulder Ventures II, Boulder Ventures II (Annex), Boulder
Ventures III and Boulder Ventures III (Annex) is 1634 Walnut Street, Suite
301, Boulder, Colorado 80302.
(7) The address of Janus Capital Corporation is 100 Fillmore Street, Denver, CO
80206. We relied on a Schedule 13D filed by Janus Capital Corporation
pursuant to which it reported sole or shared voting power over an aggregate
of 675,000 shares of common stock as of December 31, 1999.
(8) Mr. Beckert is the vice president of Interactive Enterprise Development, a
division of American Express Relationship Services and part of American
Express Travel Related Services.
(9) Includes 3,500 shares of common stock owned by Ms. Brown's spouse.
(10) Includes 509 shares of common stock issuable upon exercise of warrants and
174,735 shares of common stock issuable upon exercise of stock options.
(11) Includes 14,829 shares of common stock issuable upon exercise of stock
options.
(12) The sole general partner of Centennial Fund IV is Centennial Holdings IV,
L.P. Centennial Holdings IV may be deemed to beneficially own the shares
owned by Centennial Fund IV. Mr. Goldman is a general partner of Centennial
Holdings IV and may be deemed to be the indirect beneficial owner of the
shares owned by Centennial Fund IV. Mr. Goldman disclaims beneficial
ownership of all shares held by Centennial Fund IV, except to the extent of
his pecuniary interest.
(13) Ms. Levinson is a partner of Global Retail Partners, L.P. The shares listed
represent shares held by Global Retail Partners, L.P. and it affiliated
entities. Ms. Levinson disclaims beneficial ownership of all shares held by
Global Retail Partners, L.P. and it affiliated entities, except to the
extent of her pecuniary interest. The address of Ms. Levinson is Global
Retail Partners, L.P., 2121 Avenue of the Stars, Suite 1630, Los Angeles,
California 90067.
(14) Includes 23,236 shares of common stock issuable upon exercise of stock
options.
(15) Includes 10,437 shares of common stock issuable upon exercise of stock
options.
(16) The address of Mr. Van Wagener is 9230 East Crestline Avenue Greenwood
Village, Colorado 80111.
(17) Mr. Williams is president and chief executive officer of Tribune Media
Services, Inc., a wholly-owned subsidiary of Tribune Company.
(18) Includes shares included pursuant to note (13).
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DESCRIPTION OF 24/7 MEDIA CAPITAL STOCK
This section of this joint proxy statement-prospectus describes the material
terms of the capital stock of 24/7 Media under the certificate of incorporation
and by-laws that will be in effect immediately after the merger is completed.
The following also summarizes relevant provisions of the Delaware General
Corporation Law, which we refer to as "Delaware law". The terms of the 24/7
Media certificate of incorporation and the 24/7 Media by-laws, as well as the
terms of Delaware law, are more detailed than the general information provided
below. Therefore, you should carefully consider the actual provisions of these
documents. The 24/7 Media certificate of incorporation is attached as Annex G to
this joint proxy statement/prospectus, and the 24/7 Media by-laws are attached
as Annex H to this joint proxy statement-prospectus.
GENERAL
The authorized capital stock of 24/7 Media consists of 70,000,000 shares of
common stock, par value $0.01 per share, and 10,000,000 shares of preferred
stock, par value $0.01 per share. As of March 15, 2000, 25,968,461 shares of
24/7 Media common stock were outstanding. Following completion of the merger, we
anticipate that approximately [ ] shares of 24/7 Media common stock will be
outstanding. Currently, no shares of 24/7 Media preferred stock are outstanding.
24/7 MEDIA COMMON STOCK
VOTING RIGHTS. Holders of 24/7 Media common stock have the right to cast
one vote for each share of 24/7 Media common stock they hold of record on all
matters on which stockholders of 24/7 Media are generally entitled to vote.
DIVIDENDS. Holders of 24/7 Media common stock will be entitled to receive
dividends or other distributions when, as and if declared by the 24/7 Media
board of directors. The right of the 24/7 Media board of directors to declare
dividends, however, will be subject to the rights of any holders of 24/7 Media
preferred stock at the time outstanding and the availability of sufficient funds
under Delaware law to pay dividends.
LIQUIDATION RIGHTS. Upon the dissolution, liquidation or winding up of 24/7
Media, subject to the rights, if any, of the holders of any outstanding shares
of 24/7 Media preferred stock, the holders of 24/7 Media common stock will be
entitled to receive the assets of 24/7 Media available for distribution to its
stockholders ratably in proportion to the number of shares held by them.
PREEMPTIVE RIGHTS AND OTHER. Holders of 24/7 Media common stock have no
preemptive rights to purchase or subscribe for any stock or other securities of
24/7 Media. There are no redemption or sinking fund provisions applicable to
24/7 Media common stock, nor is it subject to calls or assessments by 24/7
Media. All outstanding shares of 24/7 Media common stock are legally issued,
fully paid and nonassessable. Holders of 24/7 Media common stock do not have
preference, conversion or exchange rights.
LISTING. 24/7 Media common stock is quoted on The Nasdaq National Market
under the symbol "TFSM".
24/7 MEDIA PREFERRED STOCK
The 24/7 Media board of directors may issue 24/7 Media preferred stock at
various times in one or more classes and/or series and fix all powers,
designations, preferences, rights and qualifications, limitations and
restrictions of the shares in each class and/or series.
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TRANSFER AGENT
The transfer agent and registrar for the 24/7 Media common stock is The Bank
of New York.
ANTI-TAKEOVER CONSIDERATIONS
Delaware law and the 24/7 Media certificate of incorporation and by-laws
will contain a number of provisions that may have the effect of discouraging
transactions that involve an actual or threatened change of control of 24/7
Media. For a description of the provisions, see "Comparison of Rights of 24/7
Media Stockholders and Exactis.com Stockholders--Number and Election of
Directors", "--Vacancies on the Board of Directors and Removal of Directors",
"--Amendments to the Certificate of Incorporation", "--Amendments to By-laws"
and "--State Anti-Takeover Statutes".
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COMPARISON OF RIGHTS OF 24/7 MEDIA STOCKHOLDERS
AND EXACTIS.COM STOCKHOLDERS
24/7 Media and Exactis.com are both organized under the laws of the State of
Delaware. Any differences, therefore, in the rights of holders of 24/7 Media
capital stock and Exactis.com capital stock arise primarily from differences in
their respective certificates of incorporation and by-laws. Upon completion of
the merger, holders of Exactis.com common stock will become holders of
24/7 Media common stock and their rights will be governed by Delaware law, the
24/7 Media certificate of incorporation and the 24/7 Media by-laws.
This section of this proxy statement-prospectus describes the material
differences between the rights of 24/7 Media stockholders and Exactis.com
stockholders. This section does not include a complete description of all
differences among the rights of these stockholders, nor does it include a
complete description of the specific rights of these stockholders. In addition,
the identification of some of the differences in the rights of these
stockholders as material is not intended to indicate that other differences that
are equally important do not exist. All 24/7 Media stockholders and Exactis.com
stockholders are urged to read carefully the relevant provisions of Delaware
law, as well as the certificates of incorporation and by-laws of both
24/7 Media and Exactis.com. Copies of the certificate of incorporation and
by-laws for 24/7 Media are attached to this joint proxy statement-prospectus as
Annexes G and H, respectively. Copies of the certificates of incorporation and
by-laws of 24/7 Media and Exactis.com will be sent to 24/7 Media stockholders
and Exactis.com stockholders, as applicable, upon request. See "Where you can
find more information."
CAPITALIZATION
24/7 MEDIA. The authorized capital stock of 24/7 Media is described under
"Description of 24/7 Media Capital Stock."
EXACTIS.COM. The authorized capital stock of Exactis.com consists of:
- 35,000,000 shares of Exactis.com common stock; and
- 3,500,000 shares of Exactis.com preferred stock.
VOTING RIGHTS
24/7 MEDIA. The voting rights of 24/7 Media common stock are described
under "Description of 24/7 Media Capital Stock."
EXACTIS.COM. Holders of Exactis.com common stock have the right to cast one
vote for each share of Exactis.com common stock they hold of record on all
matters on which stockholders of Exactis.com are generally entitled to vote.
NUMBER AND ELECTION OF DIRECTORS
24/7 MEDIA. The board of directors of 24/7 Media has six members. The
24/7 Media by-laws provide that the 24/7 Media board of directors will consist
of a number of directors to be fixed from time to time by the 24/7 Media board
of directors, and the by-laws provide that any change in the size of the board
of directors requires the vote of a majority of the total number of authorized
directors.
The 24/7 Media certificate of incorporation and by-laws provide for the
24/7 Media board of directors to be divided into three classes, as nearly equal
in size as possible, with one class being elected annually. Members of the
24/7 Media board of directors are elected to serve a term of three years, and
until their successors are elected and qualified.
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The 24/7 Media by-laws provide for directors to be elected by a plurality of
the votes cast by 24/7 Media stockholders entitled to vote in the election of
directors at a meeting at which a quorum is present.
Under Delaware law, stockholders do not have cumulative voting rights for
the election of directors unless the corporation's certificate of incorporation
so provides. 24/7 Media's certificate of incorporation does not provide for
cumulative voting.
EXACTIS.COM. The board of directors of Exactis.com has five members. The
Exactis.com by-laws provide that the Exactis.com board of directors will consist
of a number of directors to be fixed from time to time pursuant to a resolution
adopted by the Exactis.com board of directors.
The Exactis.com certificate of incorporation and by-laws provide for the
Exactis.com board of directors to be divided into three classes, as nearly equal
in size as possible, with one class being elected annually. Members of the
Exactis.com board of directors are elected to serve a term of three years, and
until their successors are elected and qualified.
The Exactis.com by-laws provide for directors to be elected by a plurality
of the votes cast by Exactis.com stockholders entitled to vote in the election
of directors at a meeting at which a quorum is present.
Exactis.com's certificate of incorporation does not provide for cumulative
voting.
VACANCIES ON THE BOARD OF DIRECTORS AND REMOVAL OF DIRECTORS
24/7 MEDIA. Vacancies on the board of directors of 24/7 Media, including
vacancies resulting from newly created directorships resulting from any increase
in the authorized number of directors, may be filled only by a majority vote of
the directors then in office, though less than a quorum. Delaware law provides
that if, at the time of the filling of any vacancy or newly created
directorship, the directors then in office constitute less than a majority of
the authorized number of directors, the Chancery Court for the State of Delaware
may, upon application of any stockholder or stockholders holding at least 10% of
the shares of 24/7 Media common stock entitled to vote generally in the election
of directors, order an election to be held to fill the vacancy or replace the
directors selected by the directors then in office.
24/7 Media's by-laws provide that directors may be removed, with or without
cause, by the affirmative vote of a majority of the shares of 24/7 Media common
stock entitled to vote generally in the election of directors.
EXACTIS.COM. Vacancies on the board of directors of Exactis.com, including
vacancies resulting from newly created directorships resulting from any increase
in the authorized number of directors, may only be filled by the majority of the
remaining directors in office, though less than a quorum, unless the board of
directors determines by resolution that a vacancy or newly created directorship
should be filled by Exactis.com stockholders.
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
24/7 MEDIA. Under Delaware law, an amendment to the certificate of
incorporation of a corporation requires the approval of the corporation's board
of directors and the approval of holders of a majority of the outstanding stock
entitled to vote upon the proposed amendment, unless a higher vote is required
by the corporation's certificate of incorporation. These provisions of Delaware
law regarding the amendment of a corporation's certificate of incorporation will
govern the amendment of 24/7 Media's certificate of incorporation.
EXACTIS.COM. Exactis.com's certificate of incorporation provides that the
affirmative vote of the holders of 66 2/3% or more of the combined voting power
of the then outstanding shares of Exactis.com
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voting stock, voting together as a single class, is required to amend, alter or
repeal the provisions of Exactis.com's certificate of incorporation relating to:
- the board of directors, including the powers and authority expressly
conferred upon the board of directors, the number of members, board
classification, removal and vacancies;
- the manner in which stockholder action may be effected;
- amendments to Exactis.com's by-laws;
- indemnification of directors of Exactis.com; and
- amendments to Exactis.com certificate of incorporation.
AMENDMENTS TO BY-LAWS
24/7 MEDIA. Under Delaware law, stockholders entitled to vote have the
power to adopt, amend or repeal by-laws. In addition, a corporation may, in its
certificate of incorporation, confer this power on the board of directors. The
stockholders always have the power to adopt, amend or repeal the by-laws, even
though the board of directors may also be delegated the power by 24/7 Media's
board of directors.
24/7 Media's certificate of incorporation authorizes the 24/7 Media board of
directors to adopt, amend or repeal 24/7 Media's by-laws. 24/7 Media's by-laws
provides that provisions of 24/7 Media's by-laws may be adopted, amended or
repealed by 24/7 Media's board of directors.
EXACTIS.COM. The Exactis.com certificate of incorporation authorizes the
Exactis.com board of directors to adopt, amend or repeal the Exactis.com
by-laws.
The Exactis.com certificate of incorporation and by-laws further provide
that the affirmative vote of the holders of 66 2/3% or more of the combined
voting power of the then outstanding shares of Exactis.com capital stock
entitled to vote, is required for stockholders to adopt, amend or repeal any
provision of the Exactis.com by-laws.
ACTION BY WRITTEN CONSENT
24/7 MEDIA. Delaware law provides that, unless otherwise stated in the
certificate of incorporation, any action which may be taken at an annual meeting
or special meeting of stockholders may be taken without a meeting, if a consent
in writing is signed by the holders of the outstanding stock having the minimum
number of votes necessary to authorize the action at a meeting of stockholders.
The 24/7 Media certificate of incorporation does not state otherwise.
EXACTIS.COM. The Exactis.com certificate of incorporation prohibits
stockholder action by written consent.
NOTICE OF STOCKHOLDER ACTION
24/7 MEDIA. Under the 24/7 Media by-laws, at any annual meeting of
stockholders, only such business will be conducted as is brought before the
annual meeting pursuant to 24/7 Media's notice of meeting, by or at the
direction of the board of directors, or by any stockholder who is a holder of
record at the time of the giving of proper notice in accordance with the
provisions of 24/7 Media's by-laws.
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must give written notice to the Secretary of
24/7 Media not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting. If the date of the annual
meeting is more than 30 days earlier or later than the anniversary date of the
preceding year's annual meeting, notice will also be timely made if delivered
within 10 days of the date on which public announcement of the meeting was first
made by 24/7 Media.
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A stockholder's notice to 24/7 Media must include certain information,
including a description of the business to be brought before the meeting and the
reasons for conducting that business at the meeting, the name and address of the
stockholder, the class and number of shares of 24/7 Media capital stock owned by
the stockholder and any material interest of the stockholder in the business
being proposed.
The chairman of any 24/7 Media stockholder meeting has the power to
determine whether the business brought by the stockholder was made by the
stockholder in accordance with the advance notice procedures set forth in
24/7 Media's by-laws. If the chairman determines that the business brought by
the stockholder is not in compliance with 24/7 Media's advance notice
procedures, the chairman may declare that the defective notice will be
disregarded.
EXACTIS.COM. Under the Exactis.com by-laws, at any annual meeting of
stockholders, only such business will be conducted as is brought before the
annual meeting pursuant to Exactis.com's notice of meeting, by or at the
direction of the board of directors, or by any stockholder who is a holder of
record at the time of the giving of proper notice in accordance with the
provisions of Exactis.com's by-laws.
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must give written notice to the Secretary of
Exactis.com not less than 90 days nor more than 120 days prior to the first
anniversary of the preceding year's annual meeting. If the date of the annual
meeting is more than 30 days earlier or later than the anniversary date of the
preceding year's annual meeting, then the stockholder must deliver written
notice to the Secretary of Exactis.com not earlier than the 120th day prior to
the annual meeting nor later than the close of business on the later of the 90th
day prior to the annual meeting or the 10th day following the day on which
public announcement of the date of the annual meeting is made.
A stockholder's notice to Exactis.com must satisfy specified requirements
that are set forth in Exactis.com's by-laws.
In addition, if the number of directors to be elected is increased and no
public announcement is made by Exactis.com naming all of the nominees or
specifying the size of the increased board of directors at least 100 days before
the first anniversary of the preceding year's annual meeting, a stockholder's
notice will be considered timely, with respect to the nominees for any new
positions created by the increase, if it is delivered to the Secretary of
Exactis.com within 10 days of the date on which public announcement of the
meeting was first made by Exactis.com.
The chairman of any annual meeting of Exactis.com's stockholders may refuse
to permit any business to be brought before the meeting that fails to comply
with the advance notice procedures set forth in Exactis.com's by-laws. If the
chairman determines that the nomination or proposal is not in compliance with
Exactis.com's advance notice procedures, the chairman may declare that the
defective proposal or nomination will be disregarded.
In the case of special meetings of stockholders, only such business will be
conducted as is brought pursuant to Exactis.com's notice of meeting. Nominations
of persons for election to the board of directors of Exactis.com at a special
meeting for which the election of directors is a stated purpose in the notice of
the meeting may be made by any stockholder who complies with the notice and
other requirements set forth in the Exactis.com by-laws. If Exactis.com calls a
special meeting of stockholders to elect one or more directors, any stockholder
may nominate a candidate if notice from the stockholder is delivered to, and
received by, Exactis.com not earlier than the 120th day prior to the special
meeting nor later than the close of business of the 90th day prior to the
special meeting or the 10th day following the day on which public announcement
of the meeting and of the nominees proposed by the Exactis.com board of
directors is first made.
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LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
GENERAL. Delaware law provides that a corporation may include in its
certificate of incorporation a provision limiting or eliminating the liability
of its directors to the corporation and its stockholders for monetary damages
arising form a breach of fiduciary duty, except for:
- a breach of the duty of loyalty to the corporation or its stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- payment of a dividend or the repurchase or redemption of stock in
violation of Delaware law; or
- any transaction from which the director derived an improper personal
benefit.
24/7 MEDIA. The 24/7 Media certificate of incorporation provides that, to
the fullest extent Delaware law permits, no director of 24/7 Media will be
liable to 24/7 Media or its stockholders for monetary damages for breach of
fiduciary duty as a director.
EXACTIS.COM. The Exactis.com certificate of incorporation provides that, to
the fullest extent applicable law permits, no director of Exactis.com will be
liable for monetary damages.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
GENERAL. Under Delaware law, a corporation may indemnify directors and
officers:
- for actions taken in good faith and in a manner they reasonably believed
to be in, or not opposed to, the best interests of the corporation; and
- with respect to any criminal proceeding, they had no reasonable cause to
believe that their conduct was unlawful.
In addition, Delaware law provides that a corporation may advance to a director
or officer expenses incurred in defending any action upon receipt of an
undertaking by the director or officer to repay the amount advanced if it is
ultimately determined that he or she is not entitled to indemnification.
24/7 MEDIA. The 24/7 Media certificate of incorporation provides that any
person who was or is a party to, or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, because
that person was a director or officer, or is or was serving at the request of
24/7 Media as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise will be indemnified and held harmless by
24/7 Media to the fullest extent permitted by Delaware law. The indemnification
rights conferred by 24/7 Media are not exclusive of any other right which
persons seeking indemnification may otherwise have or acquire.
In addition, 24/7 Media may pay expenses incurred by its directors and
officers in defending an action, suit or proceeding because they are directors
or officers in advance of the final disposition of the action, suit or
proceeding.
EXACTIS.COM. The Exactis.com by-laws provide for indemnification, to the
fullest extent permitted by Delaware law, of any person who is or was a director
or executive officer of Exactis.com, although no indemnification is available to
a director or executive officer with respect to a proceeding that was commenced
by the director or executive officer unless indemnification is expressly
required by law, the proceeding was authorized by the board of directors of
Exactis.com or Exactis.com chooses, in its sole discretion, to indemnify the
director or executive officer.
In addition, the Exactis.com by-laws provide that all reasonable expenses
incurred by or on behalf of a director or executive officer entitled to
indemnification in connection with any action, suit or proceeding will be
advanced to the director or executive officer by Exactis.com upon the request of
the director or executive officer which request will include an undertaking by
or on behalf of the director or executive officer to repay the amounts advanced
if ultimately it is determined that the director or
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executive officer was not entitled to be indemnified against the expenses.
However, Exactis.com is not required to indemnify a director or executive
officer against expenses if a determination is made by a specified portion of
the board of directors that the director or executive officer acted in bad faith
or in a manner the director or executive officer did not believe to be in the
best interests of Exactis.com.
RIGHTS PLANS
EXACTIS.COM. In 1999, Exactis.com adopted a stockholder rights plan
pursuant to a stockholder agreement between Exactis.com and certain of its
stockholders. Exactis.com and certain of those stockholders have agreed that
this stockholder agreement will terminate upon the completion of the merger.
STATE ANTI-TAKEOVER STATUTES
GENERAL. Under the business combination statute of Delaware law, a
corporation is prohibited from engaging in any business combination with an
interested stockholder who, together with its affiliates or associates, owns, or
within a three-year period did own, 15% or more of the corporation's voting
stock, unless:
- prior to the time the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder;
- the interested stockholder owned at least 85% of the voting stock of the
corporation, excluding specified shares, upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder; or
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized by the affirmative vote, at an
annual or special meeting and not by written consent, of at least 66% of
the outstanding voting shares of the corporation, excluding shares held by
that interested stockholder.
A business combination generally includes:
- mergers, consolidations and sales or other dispositions of 10% or more of
the assets of a corporation to or with an interested stockholder;
- specified transactions resulting in the issuance or transfer to an
interested stockholder of any capital stock of the corporation or its
subsidiaries; and
- other transactions resulting in a disproportionate financial benefit to an
interested stockholder.
The provisions of the Delaware business combination statute do not apply to
a corporation if, subject to certain requirements, the certificate of
incorporation or by-laws of the corporation contain a provision expressly
electing not to be governed by the provisions of the statute or the corporation
does not have voting stock listed on a national securities exchange, authorized
for quotation on the NASDAQ Stock Market or held of record by more than 2,000
stockholders.
24/7 MEDIA. Because 24/7 Media has not adopted any provision in its
certificate of incorporation or by-laws to "opt-out" of the Delaware business
combination statute, the Delaware business combination statute applies to
24/7 Media.
EXACTIS.COM. Because Exactis.com has not adopted any provision in its
certificate of incorporation or by-laws to "opt-out" of the Delaware business
combination statute, the statute is applicable to business combinations
involving Exactis.com.
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BOARD OF DIRECTORS OF 24/7 MEDIA FOLLOWING THE MERGER
Pursuant to the merger agreement, 24/7 Media will elect Adam Goldman and
Linda Fayne Levinson, who are both currently members of Exactis.com's board of
directors, to the 24/7 Media board of directors if the merger is completed.
ADAM GOLDMAN has served as a director of Exactis.com since March 1996 and as
chairman of the board of directors of Exactis.com since January 1999.
Mr. Goldman is a general partner of Centennial Fund IV, LP and Centennial Fund
V, LP, and is a managing principal of Centennial Fund VI, LLC. Centennial
Ventures manages over $750 million in private equity and specializes in
communication, media and technology investments. Mr. Goldman also serves on the
boards of VIA Net.Works, an Internet service provider. Mr. Goldman is a senior
vice president of Centennial Holdings, Inc., a venture capital investment
company, which he joined in 1992. Mr. Goldman received a B.A. from Northwestern
University and an M.M. from the J.L. Kellogg Graduate School of Management at
Northwestern University.
LINDA FAYNE LEVINSON has served as a director of Exactis.com since
July 1998. Ms. Levinson is a partner of Global Retail Partners, L.P., a private
equity investment fund, where she has been since April 1997. From 1994 to 1997,
she served as the president of Fayne Levinson Associates, a senior management
consulting firm. During 1993, Ms. Levinson served as an executive at Creative
Arts Agency, Inc., a talent agency. Prior to that, Ms. Levinson was a partner at
Alfred Checchi Associates, Inc., a merchant banking firm; a senior vice
president of American Express Travel Related Services Company, Inc.; and a
partner at McKinsey & Co., a global consulting firm. She is a director of NCR
Corporation, Administaff, Inc., Jacobs Engineering Group Inc., GoTo.com, Inc.,
CyberSource, Inc. and Lastminute.com, plc. Ms. Levinson received an A.B. from
Barnard College, an M.A from Harvard University and an M.B.A. from New York
University.
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PROPOSAL TO APPROVE AN AMENDMENT
TO THE 24/7 MEDIA CERTIFICATE OF INCORPORATION
THE FOLLOWING IS A DISCUSSION OF THE PROPOSED AMENDMENT TO THE 24/7 MEDIA
CERTIFICATE OF INCORPORATION TO BE SUBMITTED FOR STOCKHOLDER APPROVAL AT THE
24/7 MEDIA SPECIAL MEETING.
The 24/7 Media board of directors has determined that it is in the best
interests of 24/7 Media and its stockholders to amend 24/7 Media's certificate
of incorporation to increase the number of authorized shares of common stock of
24/7 Media from 70,000,000 to 140,000,000 shares. Accordingly, the 24/7 Media
board of directors has approved the proposed amendment to the certificate of
incorporation, in substantially the form attached to this joint proxy
statement-prospectus as Annex G, and solicits the approval of 24/7 Media's
stockholders of the amendment.
If the 24/7 Media stockholders approve the amendment, the 24/7 Media board
of directors currently intends to file the amendment with the Secretary of State
of the State of Delaware as soon as practicable following the stockholder
approval. If the amendment is not approved by stockholders, the existing
certificate of incorporation will continue in effect.
The completion of the merger is not conditioned upon the approval of the
amendment to the 24/7 Media certificate of incorporation, and the effectiveness
of the amendment to the 24/7 Media certificate of incorporation is not
conditioned upon the completion of the merger.
PURPOSE OF THE PROPOSED AMENDMENT
The objective of the increase in the authorized number of shares of common
stock is to ensure that 24/7 Media has a sufficient number of authorized shares
available for future issuances. The 24/7 Media board of directors believes that
it is prudent to increase the authorized number of shares of common stock to the
proposed level in order to provide a reserve of shares available for issuance to
meet business needs as they arise. Such future activities may include
financings, establishing strategic relationships with corporate partners,
providing equity incentives to employees, officers or directors, or effecting
stock splits or dividends. The additional shares of common stock authorized may
also be used to acquire or invest in complementary businesses or products or to
obtain the right to use complementary products. Although 24/7 Media has no
present obligation to issue additional shares of common stock (except pursuant
to employee stock incentive plans and currently outstanding warrants), 24/7
Media continues to evaluate and conduct discussions with third parties with
respect to potential acquisitions or investments. However, 24/7 Media has no
current plans, agreements or commitments, and is not currently engaged in any
negotiations with respect to any such transactions.
Adoption of the proposed amendment would not affect the rights of the
holders of currently outstanding common stock of 24/7 Media, except for rights
incidental to increasing the number of shares of 24/7 Media's common stock
outstanding.
POSSIBLE EFFECTS OF THE PROPOSED AMENDMENT
If the 24/7 Media stockholders approve the proposed amendment, the 24/7
Media board of directors may cause the issuance of additional shares of common
stock without further vote of the 24/7 Media stockholders, except as provided
under Delaware corporate law or under the rules of any securities exchange on
which shares of 24/7 Media common stock are then listed. Current holders of
common stock have no preemptive or similar rights, which means that current
stockholders do not have a prior right to purchase any new issue of capital
stock of 24/7 Media in order to maintain their proportionate ownership in 24/7
Media. The issuance of additional shares of 24/7 Media common stock would
decrease the proportionate equity interest of the current stockholders and,
depending upon the price paid for such additional shares, could result in
dilution to 24/7 Media's current stockholders.
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REQUIRED VOTE
The affirmative vote of the holders of a majority of the outstanding shares
of 24/7 Media common stock entitled to vote at the 24/7 Media special meeting is
required to approve the amendment to the 24/7 Media certificate of
incorporation. Abstentions, failures to vote and broker non-votes will have the
same effect as a vote against approval of the amendment to the 24/7 Media
certificate of incorporation.
THE 24/7 MEDIA BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE 24/7 MEDIA CERTIFICATE OF INCORPORATION.
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PROPOSAL TO APPROVE AMENDMENTS TO THE EXACTIS.COM EQUITY INCENTIVE PLAN
THE FOLLOWING IS A DISCUSSION OF THE EXACTIS.COM EQUITY INCENTIVE PLAN AND
THE PROPOSED AMENDMENTS TO THE PLAN TO BE SUBMITTED FOR STOCKHOLDER APPROVAL AT
THE EXACTIS.COM SPECIAL MEETING. YOU ARE URGED TO READ MORE CAREFULLY THE
EXACTIS.COM EQUITY INCENTIVE PLAN, RESTATED TO INCORPORATE THE AMENDMENTS
ADOPTED BY THE EXACTIS.COM BOARD OF DIRECTORS, IN ITS ENTIRETY, A COPY OF WHICH
IS ATTACHED TO THIS JOINT PROXY STATEMENT-PROSPECTUS AS ANNEX I.
On August 11, 1999, Exactis.com stockholders approved the Exactis.com equity
incentive plan. On September 13, 1999, the Exactis.com stockholders approved an
increase in the number of shares reserved for issuance under the Exactis.com
equity incentive plan to include up to 1,600,000 additional shares previously
reserved for issuance pursuant to options granted under the Exactis.com 1997
Stock Option Plan. The additional shares become available for issuance under the
equity incentive plan only to the extent options under the 1997 plan expire or
terminate without having been exercised in full. As a result of this amendment,
up to 3,000,000 shares were available for awards under the equity incentive
plan, depending on option expirations or terminations under the 1997 plan. At
its meeting on February 28, 2000, the Exactis.com board of directors approved
amendments increasing to a maximum of 4,000,000 the number of shares authorized
for issuance under the equity incentive plan and permitting the Exactis.com
board of directors to grant nonstatutory stock options with exercise prices
below 85% of the fair market value of the underlying stock. The Exactis.com
board of directors recommended that the equity incentive plan, as so amended, be
submitted to the stockholders of Exactis.com at the Exactis.com special meeting
for their approval. If approved by the Exactis.com stockholders, the amendment
to the equity incentive plan will be effective as of February 28, 2000.
The completion of the merger is not conditioned upon the approval of the
amendments to the equity incentive plan, and the effectiveness of the amendments
to the equity incentive plan is not conditioned upon the completion of the
merger.
SUMMARY OF AMENDMENTS
The proposed amendments to the equity incentive plan will increase the
number of shares of Exactis.com common stock authorized for issuance under the
equity incentive plan by one million shares and will permit the Exactis.com
board of directors to grant nonstatutory stock options with exercise prices less
than 85% of the fair market value of the underlying common stock.
THE EXACTIS.COM BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDED EXACTIS.COM EQUITY INCENTIVE PLAN.
SUMMARY OF PLAN PROVISIONS
ADMINISTRATION. The Exactis.com board of directors administers the equity
incentive plan unless it delegates administration to a committee. The board of
directors has the authority to construe, interpret and amend the equity
incentive plan as well as to determine:
- the grant recipients;
- the grant dates;
- the number of shares subject to the award;
- the exercisability and vesting of the award;
- the exercise price;
- the type of consideration; and
- the other terms of the award.
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SHARE RESERVE. Exactis.com has reserved a total of up to 4,000,000 shares
of its common stock for issuance under the equity incentive plan. If the
recipient of a stock award does not purchase the shares subject to his or her
stock award before the stock award expires or otherwise terminates, the shares
that are not purchased again become available for issuance under the equity
incentive plan.
ELIGIBILITY. The Exactis.com board of directors may grant incentive stock
options that qualify under Section 422 of the Internal Revenue Code to
Exactis.com employees and to the employees of its affiliates. The board of
directors also may grant nonstatutory stock options, stock bonuses and
restricted stock purchase awards to Exactis.com employees, directors and
consultants as well as to the employees, directors and consultants of
Exactis.com affiliates.
- A stock option is a contractual right to purchase a specified number of
Exactis.com shares at a specified price (exercise price) for a specified
period of time.
- An incentive stock option is a stock option that meets the
requirements of Section 422 of the internal Revenue Code. This type of
option is free from regular tax at both the date of grant and the date
of exercise. However, the difference between the fair market value on
date of exercise and the exercise price is an item of alternative
minimum tax unless there is a disqualifying disposition in the year of
exercise. Profit from the sale of stock purchased by exercising an
incentive stock option will qualify for long-term capital gain tax
treatment if the optionee holds the stock until the later of two years
after the option grant date and one year after the date the option is
exercised. However, if this holding period is not satisfied, the sale
of the stock will be a disqualifying disposition, and a portion of any
profit will be taxed at ordinary income rates.
- A nonstatutory stock option is a stock option that either does not
meet the Internal Revenue Code criteria for qualifying incentive stock
options or is not intended to be an incentive stock option. The
exercise of a nonstatutory stock option is a taxable event requiring
payment of state and federal income tax and, if applicable, employment
taxes on the difference (if any) between the exercise price and the
fair market value on the exercise date.
- A restricted stock purchase award is an offer to sell shares at a price
either at or near the fair market value of the shares. A stock bonus, on
the other hand, is a grant of shares at no cost to the recipient in
consideration for past services rendered.
Under certain conditions, the Exactis.com board of directors may grant an
incentive stock option to a person who owns or is deemed to own stock possessing
more than 10% of the total combined voting power of Exactis.com or an affiliate
of Exactis.com. The exercise price of an incentive stock option in those cases
must be at least 110% of the fair market value of the stock on the grant date,
and the option term must be five years or less.
LIMITS ON OPTION GRANTS. There are limits on the number of shares that the
Exactis.com board of directors may grant under an option.
- Section 162(m) of the Internal Revenue Code, among other things,
denies a deduction to publicly held corporations for compensation paid
to the chief executive officer and the four highest compensated
officers in a taxable year to the extent that the compensation for
each the officer exceeds $1,000,000. In order to prevent options
granted under the equity incentive plan from being counted toward this
$1,000,000 limit, the Exactis.com board of directors may not grant
options under the equity incentive plan to an employee covering an
aggregate of more than 700,000 shares in any calendar year.
- In addition, an employee may not receive incentive stock options that
exceed the $100,000 per year limitation set forth in Section 422(d) of
the Internal Revenue Code. In calculating
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the $100,000 per year limitation, Exactis.com counts the aggregate
number of shares under all incentive stock options granted to that
employee that will become exercisable for the first time during a
calendar year. For this purpose, Exactis.com includes incentive stock
options granted under the equity incentive plan as well as under any
other stock plans that Exactis.com affiliates or maintain. Exactis.com
then determines the aggregate fair market value of the stock as of the
grant date of the option. Taking the options into account in the order
in which they were granted, Exactis.com treats only the options
covering the first $100,000 worth of stock as incentive stock options.
Exactis.com treats any options covering stock in excess of $100,000 as
nonstatutory stock options.
OPTION TERMS. The Exactis.com board of directors may grant incentive stock
options with an exercise price of 100% or more of the fair market value of a
share of Exactis.com common stock on the grant date. The exercise price of
nonstatutory stock options will be determined in the discretion of the
Exactis.com board of directors. If the value of Exactis.com shares declines
thereafter, the board of directors may offer optionholders the opportunity to
replace their outstanding higher-priced options with new lower-priced options.
To the extent required by Section 162(m) of the Internal Revenue Code, the old
repriced option is deemed to be canceled and a new option granted, but both
options will be counted against the Section 162(m) limit discussed above.
The maximum option term is 10 years. Subject to this limitation, the board
of directors may provide for exercise periods of any length in individual option
grants. However, generally an option terminates three months after the
optionholder's service to Exactis.com affiliates and to Exactis.com terminates.
If this termination is due to the optionholder's disability, the exercise period
generally is extended to 12 months. If this termination is due to the
optionholder's death or if the optionholder dies within three months after his
or her service terminates, the exercise period generally is extended to 18
months following the optionholder's death.
The board of directors may provide for the transferability of nonstatutory
stock options but not incentive stock options. However, the optionholder may
designate a beneficiary to exercise either type of option following the
optionholder's death. If the optionholder does not designate a beneficiary, the
optionholder's option rights will pass by his or her will or by the laws of
descent and distribution.
TERMS OF OTHER STOCK AWARDS. The board of directors determines the purchase
price of other stock awards. However, the board of directors may award stock
bonuses in consideration of past services without a purchase payment. Shares
issued under the equity incentive plan may, but need not be, restricted and
subject to a repurchase option in Exactis.com's favor in accordance with a
vesting schedule that the board of directors determines. The board of directors
however, may accelerate the vesting of the restricted stock.
OTHER PROVISIONS. Transactions not involving receipt of consideration by
Exactis.com, including a merger, consolidation, reorganization, stock dividend
and stock split, may change the class and number of shares subject to the equity
incentive plan and to outstanding awards. In that event, the board of directors
will appropriately adjust the equity incentive plan as to the class and the
maximum number of shares subject to the equity incentive plan, to the cap on the
number of shares available for incentive stock options, and to the Section
162(m) limit. It also will adjust outstanding awards as to the class, number of
shares and price per share subject to the awards.
If Exactis.com dissolves or liquidates then outstanding stock awards will
terminate immediately prior to this event. However, Exactis.com treats
outstanding stock awards differently in the following situations:
- a sale of substantially all of Exactis.com's assets;
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- a merger or consolidation in which Exactis.com is not the surviving
corporation (other than a merger or consolidation in which Exactis.com
stockholders immediately before the merger or consolidation have,
immediately after the merger or consolidation, greater stock voting
power); or
- a reverse merger in which Exactis.com is the surviving corporation but the
shares of Exactis.com common stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether
in the form of securities, cash or otherwise (other than a reverse merger
in which Exactis.com stockholders immediately before the merger have,
immediately after the merger, greater stock voting power).
In these situations, the surviving entity will either assume or replace all
outstanding awards under the equity incentive plan. If it declines to do so,
then generally the vesting and exercisability of the awards will accelerate in
full. In addition, any transaction or series of related transactions in which in
excess of 50% of Exactis.com's voting power is transferred will also trigger
acceleration of vesting and exercisability unless it also constitutes one of the
three types of transactions listed above, in which case, the rules applicable to
those transactions apply.
STOCK AWARDS GRANTED. As of March 31, 2000, no options had been exercised
under the equity incentive plan; options to purchase 904,400 shares at a
weighted average exercise price of $14.78 were outstanding; and 1,540,999 shares
remained available for future grant (including the increase of 1,000,000 shares
to the share reserve approved by the Exactis.com board of directors on
February 28, 2000). As of March 31, 2000, the board of directors had not granted
any stock bonuses or restricted stock under the equity incentive plan. In
addition, at its February 28, 2000 meeting, the compensation committee of the
board of directors indicated its intention to grant options to purchase an
additional 1,115,675 shares under the equity incentive plan immediately prior to
the completion of the merger with 24/7 Media at a per share exercise price equal
to the lesser of $19.375 or 85% of the closing price of Exactis.com's common
stock on the day the merger is completed.
PLAN TERMINATION. The equity incentive plan will terminate in 2009 unless
the board of directors terminates it sooner.
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LEGAL MATTERS
The validity of the shares of 24/7 Media stock offered by this joint proxy
statement-prospectus will be passed upon for 24/7 Media by Cravath, Swaine &
Moore. Cravath, Swaine & Moore from time to time acts as counsel for 24/7 Media.
Cravath, Swaine & Moore, counsel for 24/7 Media, and Cooley Godward LLP,
counsel for Exactis.com, will pass upon certain Federal income tax consequences
of the merger for 24/7 Media and Exactis.com, respectively. Cooley Godward LLP
from time to time acts as counsel for Exactis.com.
EXPERTS
The consolidated financial statements of 24/7 Media and subsidiaries as of
December 31, 1999 and 1998, and for each of the years in the three-year period
ended December 31, 1999, have been audited by KPMG LLP, independent certified
public accountants, as set forth in their report with respect to these
consolidated financial statements. These consolidated financial statements are
included in 24/7 Media's Annual Report on Form 10-K for the year ended
December 31, 1999, and are incorporated by reference in this joint proxy
statement-prospectus in reliance upon the report given and upon the authority of
KPMG as experts in accounting and auditing.
The financial statements of Exactis.com, Inc. as of December 31, 1999 and
1998, and for each of the years in the three-year period ended December 31,
1999, have been audited by KPMG LLP, independent certified public accountants,
as set forth in their report with respect to these financial statements. These
financial statements are included elsewhere in this joint proxy
statement-prospectus in reliance upon the report given and upon the authority of
KPMG as experts in accounting and auditing.
The consolidated financial statements of Sabela Media, Inc. and subsidiaries
as of December 31, 1999 and 1998, and for the year ended December 31, 1999 and
the period from June 29, 1998 (inception) to December 31, 1998, have been
incorporated by reference herein and in the registration statement in reliance
upon the reports of KPMG LLP, independent certified public accountants,
incorporated by reference in this joint proxy statement-prospectus, and upon the
authority of KPMG as experts in accounting and auditing. These consolidated
financial statements are included in 24/7 Media's Current Report on Form 8-K/A
dated March 24, 2000, and are incorporated by reference in this joint proxy
statement-prospectus in reliance upon the report given and upon the authority of
KPMG as experts in accounting and auditing.
The combined financial statements of the media divisions of IMAKE Software &
Services, Inc. and IMAKE Consulting, Inc. as of December 31, 1999 and 1998, and
for the years then ended, have been audited by KPMG LLP, independent certified
public accountants, as set forth in their report with respect to these
consolidated financial statements. These consolidated financial statements are
included in 24/7 Media's Current Report on Form 8-K/A dated March 28, 2000, and
are incorporated by reference in this joint proxy statement-prospectus in
reliance upon the report given and upon the authority of KPMG as experts in
accounting and auditing.
STOCKHOLDER PROPOSALS
24/7 MEDIA
Stockholder proposals intended to be presented at the 2000 annual meeting of
24/7 Media stockholders pursuant to Rule 14a-8 under the Securities Exchange Act
of 1934 must have been received by the Secretary of 24/7 Media at the executive
office of 24/7 Media no later than April 9, 2000, in order to be included in the
proxy materials sent by 24/7 Media management for the annual meeting.
Stockholder proposals intended to be presented at the 2000 annual meeting of
24/7 Media stockholders that are not intended to be included in management's
proxy materials under Rule 14a-8
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must be received by the Secretary of 24/7 Media at the executive office of 24/7
Media between [ ], 2000, and [ ], 2000, in order to be considered at the 2000
annual meeting.
EXACTIS.COM
If the merger is not completed, Exactis.com will hold a 2000 annual meeting
of its stockholders. If such a meeting is held, stockholder proposals intended
to be presented at that annual meeting of Exactis.com stockholders pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934 must have been received by
the Secretary of Exactis.com at the executive office of Exactis.com no later
than [ ], 2000, in order to be included in the proxy materials sent by
Exactis.com management for the annual meeting. Stockholder proposals intended to
be presented at the 2000 annual meeting of Exactis.com stockholders that are not
intended to be included in management's proxy materials under Rule 14a-8 must be
received by the Secretary of Exactis.com at the executive office of Exactis.com
between [ ], 2000, and [ ], 2000, in order to be considered at the 2000 annual
meeting.
WHERE YOU CAN FIND MORE INFORMATION
This joint proxy statement-prospectus incorporates documents by reference
that are not presented in or delivered with this joint proxy
statement-prospectus.
All documents filed by 24/7 Media pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 after the date of this joint proxy
statement-prospectus and before the date of its special meeting are incorporated
by reference into and are deemed to be a part of this joint proxy
statement-prospectus from the date of filing of those documents.
You should rely only on the information contained in this document or that
which we have referred you to. We have not authorized anyone to provide you with
any additional information.
The following documents, which have been filed by 24/7 Media with the
Securities and Exchange Commission (SEC file number 0-29768), are incorporated
by reference into this joint proxy statement-prospectus:
- Annual Report on Form 10-K for the fiscal year ended December 31, 1999
(filing date March 24, 2000).
- Current Report on Form 8-K filed January 25, 2000, as amended by
Form 8-K/A filed March 24, 2000.
- Current Report on Form 8-K filed January 28, 2000, as amended by
Form 8-K/A filed March 28, 2000.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this joint proxy statement-prospectus will be
deemed to be modified or superseded for purposes of this joint proxy
statement-prospectus to the extent that a statement contained in this joint
proxy statement-prospectus or any other subsequently filed document that is
deemed to be incorporated by reference into this joint proxy
statement-prospectus modifies or supersedes the statement. Any statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this joint proxy statement-prospectus.
The documents incorporated by reference into this joint proxy
statement-prospectus are available from us upon request. We will provide a copy
of any and all of the information that is incorporated by reference in this
joint proxy statement-prospectus to any person, without charge, upon written or
oral request. If exhibits to the documents incorporated by reference in this
joint proxy statement-prospectus are not themselves specifically incorporated by
reference in this joint proxy statement-prospectus, then the exhibits will not
be provided. ANY REQUEST FOR DOCUMENTS SHOULD BE MADE BY [ ], 2000 TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS.
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Requests for documents relating to 24/7 Media should be directed to:
24/7 Media, Inc., 1250 Broadway, New York, NY 10001, Attention: Secretary;
telephone: (212) 231-7100; email: [email protected].
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. Copies of our reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Reports, proxy statements and other information concerning 24/7 Media may
also be inspected at:
The Nasdaq Stock Market
1735 K Street, N.W.
Washington, D.C. 20006
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a website that contains reports, proxy statements and other
information regarding each of us. The address of the Securities and Exchange
Commission website is http://www.sec.gov.
24/7 Media has filed a registration statement on Form S-4 under the
Securities Act with the Securities and Exchange Commission with respect to 24/7
Media's stock to be issued in the merger. This joint proxy statement-prospectus
constitutes the prospectus of 24/7 Media filed as part of the registration
statement. This joint proxy statement-prospectus does not contain all of the
information set forth in the registration statement because certain parts of the
registration statement are omitted in accordance with the rules and regulations
of the Securities and Exchange Commission. The registration statement and its
exhibits are available for inspection and copying as set forth above.
If you have any questions about the merger, please call either 24/7 Media
Investor Relations at (212) 231-7100 or Exactis.com Investor Relations at
(303) 675-2399.
STATEMENTS REGARDING FORWARD LOOKING INFORMATION
The Securities and Exchange commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This joint proxy
statement prospectus contains such "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements may be made directly in this joint proxy statement-prospectus
referring to 24/7 Media or Exactis.com, and they may also be made a part of this
joint proxy statement-prospectus by reference to other documents filed with the
Securities and Exchange Commission by 24/7 Media or Exactis.com, which is known
as "incorporation by reference." These statements may include statements
regarding the period following completion of the merger.
Words such as "anticipate," "estimate," "expects," "projects," "intends,"
"plans," "believes" and words and terms of similar substance used in connection
with any discussion of future operating or financial performance or the merger,
identify forward-looking statements. All forward-looking statements are
management's present expectations of future events and are subject to a number
of factors and uncertainties that could cause actual results to differ
materially from those described in the
121
<PAGE>
forward-looking statements. These factors include: the risk that the 24/7 Media
and the Exactis.com businesses will not be integrated successfully, the
potential for impairment of relationships with employees or customers, the costs
related to the merger, the inability of the companies to realize synergies or
other anticipated benefits of the merger, and other economic, business,
competitive and/or regulatory factors affecting the businesses of 24/7 Media and
Exactis.com. Stockholders are cautioned not to place undue reliance on the
forward-looking statements, which speak only of the date of this joint proxy
statement-prospectus or the date of the document incorporated by reference in
this joint proxy statement-prospectus. None of 24/7 Media and Exactis.com is
under any obligation, and each expressly disclaims any obligation, to update or
alter any forward-looking statements, whether as a result of new information,
future events or otherwise.
For additional information that could cause actual results to differ
materially from those described in the forward-looking statements, please see
the quarterly reports on Form 10-Q and the annual reports on Form 10-K that 24/7
Media has filed with the Securities and Exchange Commission.
All subsequent forward-looking statements attributable to 24/7 Media or
Exactis.com or any person acting on their behalf are expressly qualified in
their entirety by the cautionary statements contained or referred to in this
section.
122
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Exactis.com, Inc.:
We have audited the accompanying balance sheets of Exactis.com, Inc. as of
December 31, 1998 and 1999 and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Exactis.com, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
KPMG LLP
Denver, Colorado
January 31, 2000, except as to
note 9, which is as of
February 29, 2000
F-1
<PAGE>
EXACTIS.COM, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,383,255 $52,349,712
Restricted cash........................................... -- 1,200,000
Accounts receivable, net of allowance of $75,000 and
$100,000, respectively.................................. 727,295 3,070,685
Receivable from sale of online publishing business........ 1,500,000 --
Prepaid expenses and other................................ 96,961 1,353,712
----------- -----------
Total current assets.................................. 8,707,511 57,974,109
----------- -----------
Property and equipment, at cost:
Computers and equipment--production....................... 2,304,982 5,713,751
Computers and equipment--administrative................... 465,920 860,833
Furniture and fixtures.................................... 438,630 794,825
Purchased computer software............................... 322,973 1,566,333
Leasehold improvements.................................... 314,879 1,411,711
----------- -----------
3,847,384 10,347,453
Less accumulated depreciation and amortization............ (2,010,118) (3,736,961)
----------- -----------
1,837,266 6,610,492
Other assets................................................ 261,494 257,903
----------- -----------
Total assets.......................................... $10,806,271 $64,842,504
=========== ===========
</TABLE>
F-2
<PAGE>
EXACTIS.COM, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
------------ -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 194,540 1,290,851
Accrued liabilities....................................... 517,019 2,119,952
Accrued payroll and benefits.............................. 181,995 640,555
Deferred revenue.......................................... 3,644,452 3,860,444
Current portion of notes payable.......................... 677,777 527,351
Obligations under capital leases.......................... 8,056 --
------------ -----------
Total current liabilities............................. 5,223,839 8,439,153
Deferred revenue, net of current portion.................... 4,300,000 3,200,000
Notes payable, less current portion......................... 609,700 127,831
------------ -----------
Total liabilities..................................... 10,133,539 11,766,984
------------ -----------
Mandatorily redeemable preferred stock, converted to common
stock during 1999; none authorized issued or outstanding
at December 31, 1999:
Series B, par value $.01, authorized 2,570,000 shares;
issued and outstanding 2,523,333 shares (aggregate
liquidation preference of $7,569,999)................... 7,553,489 --
Series C, par value $.01, authorized 3,550,000 shares;
issued and outstanding 1,911,533 shares (aggregate
liquidation preference of $7,646,132)................... 7,318,061 --
Series D, par value $.01, authorized 1,300,000 shares;
issued and outstanding 625,001 shares in 1998 (aggregate
liquidation preference of $3,175,005)................... 3,153,037 --
Warrants for the purchase of mandatorily redeemable
preferred stock......................................... 647,936 --
------------ -----------
18,672,523 --
------------ -----------
Stockholders' equity (deficit):
Undesignated preferred stock, 3,500,000 shares authorized
in 1999, none issued or outstanding..................... -- --
Series A preferred stock, par value $.01, authorized,
issued and outstanding 880,000 shares (aggregate
liquidation preference of $1,100,000) in 1998, converted
to common stock in 1999................................. 1,094,413 --
Common stock, par value $.01. Authorized 35,000,000
shares; issued and outstanding 1,009,053 and 12,688,872
shares, respectively.................................... 10,091 126,689
Additional paid-in capital................................ 43,138 89,508,055
Unearned stock option compensation........................ -- (2,623,764)
Accumulated deficit....................................... (19,147,433) (33,935,460)
------------ -----------
Total stockholders' equity (deficit).................. (17,999,791) 53,075,520
------------ -----------
Commitments and contingencies
Total liabilities and stockholders' equity
(deficit)........................................... $ 10,806,271 64,842,504
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
EXACTIS.COM, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ---------- -----------
<S> <C> <C> <C>
Revenue:
Email and other services.............................. $ 358,801 821,410 10,087,611
Online publishing..................................... 496,099 1,957,700 898,773
----------- ---------- -----------
Total revenue....................................... 854,900 2,779,110 10,986,384
----------- ---------- -----------
Cost of revenue:
Email and other services.............................. 132,000 255,859 920,115
Online publishing..................................... 1,906,768 2,524,175 862,133
----------- ---------- -----------
Total cost of revenue............................... 2,038,768 2,780,034 1,782,248
----------- ---------- -----------
Gross profit (loss)................................. (1,183,868) (924) 9,204,136
----------- ---------- -----------
Operating expenses:
Marketing and sales................................... 1,457,898 1,809,645 8,071,090
Research, development and engineering................. 2,200,920 2,914,771 10,259,019
General and administrative............................ 1,977,760 2,039,367 4,002,549
Depreciation and amortization......................... 805,520 1,031,607 1,739,960
----------- ---------- -----------
Total operating expenses............................ 6,442,098 7,795,390 24,072,618
----------- ---------- -----------
Loss from operations................................ (7,625,966) (7,796,314) (14,868,482)
Interest income (expense), net.......................... (72,947) (100,907) 224,856
----------- ---------- -----------
Net loss............................................ (7,698,913) (7,897,221) (14,643,626)
Accretion of preferred stock to liquidation value....... (53,473) (102,782) (144,401)
----------- ---------- -----------
Net loss attributable to common stockholders........ $(7,752,386) (8,000,003) (14,788,027)
----------- ---------- -----------
Net loss per share--basic and diluted................... $ (7.75) (7.96) (6.26)
=========== ========== ===========
Weighted average number of common shares outstanding--
basic and diluted..................................... $ 1,000,255 1,004,461 2,360,958
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
EXACTIS.COM INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK ADDITIONAL UNEARNED
--------------------- --------------------- PAID-IN STOCK OPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
-------- ---------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997............................ 880,000 $1,094,413 1,000,000 $ 10,000 2,282 --
Exercise of common stock options....................... -- -- 1,000 10 1,241 --
Accretion of redeemable preferred stock to liquidation
value................................................ -- -- -- -- -- --
Net loss............................................... -- -- -- -- -- --
-------- ---------- ---------- -------- ---------- ----------
Balances at December 31, 1997.......................... 880,000 1,094,413 1,001,000 10,010 3,523 --
Exercise of common stock options....................... -- -- 8,053 81 9,911 --
Issuance of common stock options for services.......... -- -- -- -- 29,704 --
Accretion of redeemable preferred stock to liquidation
value................................................ -- -- -- -- -- --
Net loss............................................... -- -- -- -- -- --
-------- ---------- ---------- -------- ---------- ----------
Balances at December 31, 1998.......................... 880,000 1,094,413 1,009,053 10,091 43,138 --
Exercise of common stock options....................... -- -- 256,657 2,567 490,549 --
Exercise of common stock warrants...................... -- -- 81,105 811 623,609 --
Issuance of common stock in public offering, net of
issuance costs....................................... -- -- 4,020,000 40,200 51,232,265 --
Issuance of common stock options at less than fair
value................................................ -- -- -- -- 3,711,835 (3,711,835)
Amortization of unearned compensation.................. -- -- -- -- -- 1,088,071
Accretion of redeemable preferred stock to liquidation
value................................................ -- -- -- -- -- --
Conversion of preferred stock to common stock.......... (880,000) (1,094,413) 7,322,057 73,020 33,406,659 --
Net loss............................................... -- -- -- -- -- --
-------- ---------- ---------- -------- ---------- ----------
Balances at December 31, 1999.......................... -- $ -- 12,688,872 $126,689 89,508,055 (2,623,764)
======== ========== ========== ======== ========== ==========
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
------------ -----------
<S> <C> <C>
Balances at January 1, 1997............................ (3,395,044) (2,288,349)
Exercise of common stock options....................... -- 1,251
Accretion of redeemable preferred stock to liquidation
value................................................ (53,473) (53,473)
Net loss............................................... (7,698,913) (7,698,913)
----------- -----------
Balances at December 31, 1997.......................... (11,147,430) (10,039,484)
Exercise of common stock options....................... -- 9,992
Issuance of common stock options for services.......... -- 29,704
Accretion of redeemable preferred stock to liquidation
value................................................ (102,782) (102,782)
Net loss............................................... (7,897,221) (7,897,221)
----------- -----------
Balances at December 31, 1998.......................... (19,147,433) (17,999,791)
Exercise of common stock options....................... -- 493,116
Exercise of common stock warrants...................... -- 624,420
Issuance of common stock in public offering, net of
issuance costs....................................... -- 51,272,465
Issuance of common stock options at less than fair
value................................................ -- --
Amortization of unearned compensation.................. -- 1,088,071
Accretion of redeemable preferred stock to liquidation
value................................................ (144,401) (144,401)
Conversion of preferred stock to common stock.......... -- 32,385,266
Net loss............................................... (14,643,626) (14,643,626)
----------- -----------
Balances at December 31, 1999.......................... (33,935,460) 53,075,520
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
EXACTIS.COM, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(7,698,913) (7,897,221) (14,643,626)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization..................... 805,520 1,031,607 1,739,960
Amortization of deferred marketing and financing
costs........................................... 77,606 162,237 130,554
Preferred stock and preferred stock warrants
issued for debt financing costs, marketing costs
and interest expense............................ 113,197 -- 4,666,000
Common stock options issued for services and
compensation.................................... -- 29,704 1,088,071
Accretion of premium on notes payable............. 29,748 53,286 45,482
Changes in operating assets and liabilities:
Receivables......................................... (193,687) (2,033,608) (843,390)
Prepaid expenses and other.......................... 26,601 7,246 (1,256,751)
Other assets........................................ (12,692) (66,693) (30,275)
Accounts payable and accrued liabilities............ (75,170) 479,494 3,157,804
Deferred revenue.................................... 12,591 7,931,861 (884,008)
----------- ---------- -----------
Net cash used by operating activities........... (6,915,199) (302,087) (6,830,179)
----------- ---------- -----------
Cash flows from investing activities:
Purchase of property and equipment.................... (1,056,942) (894,493) (6,513,651)
Proceeds from sale of equipment....................... 7,358 9,275 466
----------- ---------- -----------
Net cash used by investing activities........... (1,049,584) (885,218) (6,513,185)
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common and preferred
stock............................................... 5,414,330 3,160,588 61,195,654
Principal payments on capital lease obligations....... (19,768) (22,307) (8,056)
Proceeds from notes payable........................... 3,522,658 477,343 --
Payments on notes payable............................. (253,471) (542,087) (677,777)
Change in restricted cash............................. (750,320) 750,320 (1,200,000)
----------- ---------- -----------
Net cash provided by financing activities....... 7,913,429 3,823,857 59,309,821
Net increase (decrease) in cash and cash
equivalents................................... (51,354) 2,636,552 45,966,457
Cash and cash equivalents at beginning of year.......... 3,798,057 3,746,703 6,383,255
----------- ---------- -----------
Cash and cash equivalents at end of year................ $ 3,746,703 6,383,255 52,349,712
=========== ========== ===========
Supplemental cash flow information -cash paid for
interest.............................................. $ 86,865 107,558 76,841
=========== ========== ===========
Supplemental noncash investing and financing activities:
Redeemable preferred stock warrants issued for
financing and marketing costs....................... $ 320,394 70,223 4,762,688
=========== ========== ===========
Notes payable and accrued interest payable converted
to preferred stock.................................. $ 2,021,697 -- --
=========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION
Exactis.com, Inc. (formerly InfoBeat Inc.) (the Company), a Delaware
corporation, was formed on January 30, 1996. In January 1999, the Company
changed its name from InfoBeat Inc. to Exactis.com, Inc. The Company provides
permission-based outsourced email marketing and communications services. Through
December 1998, the Company also operated an online publishing business, which
consisted of the publication of advertising supported newsletters delivered
daily to subscribers via email (see note 2).
The Company completed an initial public offering of shares of its common
stock in November 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ significantly from those estimates.
(b) CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments with maturities of three
months or less at the date of purchase to be cash equivalents. Cash equivalents
at December 31, 1999 consists primarily of money market funds.
Restricted cash at December 31, 1999 consists of a certificate of deposit
securing a line of credit from a financial institution. The line of credit was
required by the lessor under a lease agreement which commences in January 2000.
(c) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
is calculated using the straight-line method over the estimated useful lives of
the assets, which range from 3 to 5 years. Leasehold improvements are amortized
over the lesser of the lease term or the estimated lives, which range from 3 to
10 years.
(d) INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS
No. 109). Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and iabilities of
a change in tax rates is recognized in operations in the period that includes
the enactment date. A valuation allowance is required to the extent any deferred
tax assets may not be realizable.
F-7
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of certain of the Company's financial instruments,
including accounts receivable and accrued liabilities, approximate fair value
because of their short maturities. Because the interest rates on the Company's
certificates of deposit and notes payable reflect market rates and terms, the
fair values of these instruments approximate carrying amounts.
(f) REVENUE RECOGNITION
Email and other services revenue generally is derived from the delivery of
email messages for clients on a pre-determined price per message basis and is
recognized upon delivery. The Company records deferred revenue for payments
received and receivables contractually due in advance of services performed. See
note 2 for revenue recognition related to the email and other services provided
to Sony Music.
Online publishing revenue consisted principally of short-term advertising
contracts whereby the Company guaranteed a minimum number of impressions (a view
of an advertisement by a consumer) for a fixed fee. The Company recorded
deferred revenue for payments received in advance of delivered impressions.
(g) IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS TO BE DISPOSED OF
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, the Company reviews
long-lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
generally measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is equal to the
amount by which the carrying amounts of the assets exceed the fair values of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value, less costs to sell.
(h) STOCK-BASED COMPENSATION
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price of the option. Statement of
Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation,
(SFAS No. 123) permits entities to recognize as expense, over the vesting
period, the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income or loss
disclosures as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures required by SFAS No. 123.
(i) CONTINGENT STOCK PURCHASE WARRANTS
The Company recorded contingent stock purchase warrants issued prior to
November 21, 1997 in accordance with Emerging Issues Task Force Bulletin 96-3:
Accounting for Equity Instruments That
F-8
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Are Issued for Consideration Other Than Employee Services under FASB Statement
No. 123. Under EITF 96-3, the number of warrants estimated to eventually be
issued are recorded at fair value at the grant date. The Company expenses
subsequent revisions to the estimated number of warrants to be issued based on
the fair value of the warrants, as determined at the grant date.
The Company has recorded contingent stock purchase warrants issued
subsequent to November 20, 1997 in accordance with Emerging Issues Task Force
Bulletin 96-18: Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services. At
the grant date, the minimum number of warrants which may eventually be issued
are recorded at their fair value, which is adjusted in subsequent periods for
revisions of the minimum number of warrants to be issued and the then current
fair value of the warrants.
(j) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development costs totaled approximately $265,000, $546,000 and $3,500,000 in
1997, 1998 and 1999, respectively.
(k) LOSS PER SHARE
Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128).
Under SFAS No. 128, basic earnings (loss) per share (EPS) excludes dilution for
potential common stock and is computed by dividing income or loss available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Basic and diluted EPS are the same in 1997, 1998 and 1999, as
all potential common stock instruments are antidilutive.
The weighted average number of common shares outstanding for 1997, 1998 and
1999 were computed as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Common shares outstanding at beginning of
year...................................... 1,000,000 1,001,000 1,009,053
Effect of shares issued during the year..... 255 3,461 1,351,905
--------- --------- ---------
Basic and diluted weighted average common
shares.................................... 1,000,255 1,004,461 2,360,958
--------- --------- ---------
</TABLE>
(2) SALE OF ONLINE PUBLISHING BUSINESS
Prior to December 1998, the Company operated in two lines of business. The
Company's initial business, the online publishing business, was the publication
of advertising supported newsletters delivered daily to subscribers via email.
In early 1998, the Company launched its outsourced email marketing and
communications services business (the email services business).
In December 1998 the Company sold the online publishing business, including
rights to the InfoBeat brand, the consumer newsletters and the subscriber lists
to Sony Music, a Group of Sony
F-9
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(2) SALE OF ONLINE PUBLISHING BUSINESS (CONTINUED)
Music Entertainment Inc. The Company also entered into a service agreement to
manage the production and delivery of the InfoBeat newsletters for Sony Music
through December 2001. At December 31, 1999, the Company had received
$11.8 million under the sales agreement and related service agreement. The
agreements also provide for additional minimum payments of $3.0 million over the
term of the service agreement. In connection with the agreements, Sony Music was
granted preferred stock purchase warrants with contingent vesting provisions
based on future performance criteria. In November 1999, the warrants were
replaced with 400,000 fully vested warrants (see note 3).
The separate fair values of the sales and service agreements were not
objectively determinable. Therefore, the proceeds of the sales and service
agreements are being recognized as email services revenue over the term of the
service agreement based on the monthly minimum number of email messages to be
provided under the service agreement. At December 31, 1999 substantially all of
the current and long-term deferred revenue is related to the Sony Music
agreements.
Beginning in January 1999, the Company agreed to provide Sony Music with
editorial services related to the InfoBeat newsletters. Online publishing
revenue in 1999 consists of cost reimbursements by Sony Music for employees
providing these editorial services.
(3) PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(a) PREFERRED STOCK
In June 1998, the Company issued 625,001 shares of Series D preferred stock
at $5.08 per share. In July and August 1999, the Company issued 1,357,284 shares
of Series E preferred stock at $6.50 per share. Warrants were also issued in
conjunction with the sale of the Series E preferred stock (see below). All
preferred stock was converted into an equal number of shares of common stock in
connection with the Company's November 1999 initial public offering of common
stock.
(b) WARRANTS
In April 1997, the Company issued warrants to purchase 46,666 shares of
Series B preferred stock at $3.00 per share in connection with the issuance of
notes payable to a bank. The warrants expire in 2007 and at December 31, 1999,
all of the warrants were exercisable. The fair value of the warrants at the date
of issuance was recorded as deferred financing costs and is being amortized to
interest expense over the term of the notes using the interest method.
In June 1997, the Company issued warrants to purchase 75,000 shares of
Series C preferred stock at $4.00 per share in connection with a bridge
financing. The warrants expire in 2001 and at December 31, 1999, 7,656 warrants
had been exercised and 67,344 warrants were exercisable. The fair value of the
warrants at the date of issuance was recognized as interest expense in 1997.
In July 1997, the Company issued warrants to purchase 210,917 shares of
Series C preferred stock at $4.00 per share in connection with the issuance of
Series C preferred stock. The warrants expire in 2001 and at December 31, 1999,
3,355 warrants had been exercised and 207,562 warrants were exercisable. The
fair value of the warrants at the date of issuance was separately recorded as
warrants for the purchase of mandatorily redeemable preferred stock and as a
reduction to the Series C preferred stock.
F-10
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(3) PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
In July 1997, the Company issued warrants to purchase 425,000 shares of
Series C preferred stock at $6.00 per share in connection with a marketing
agreement. Vesting of the warrants is contingent upon the recipient meeting
certain performance requirements under the agreement. The warrants expire in
2000 and at December 31, 1999, 170,000 of the warrants were vested and
exercisable. The fair value of the warrants is being recognized as marketing and
sales expense over the term of the agreement, based on management's periodic
estimate of the number of warrants which will ultimately vest under the
agreement. Such estimate was adjusted in 1999 and the Company recorded an
additional $96,688 of deferred marketing expense.
In December 1998, the Company issued warrants to purchase 600,000 shares of
Series D preferred stock in connection with the agreements described in note 2.
In November 1999, the warrants were replaced with warrants to purchase 400,000
shares of Series D preferred stock at $6.00 per share. The fair value of the
warrants was determined to be $4,666,000 and was recognized as marketing and
sales expense in 1999.
In July and August, 1999, the Company issued warrants to purchase a total of
203,586 shares of Series E preferred stock at $8.00 per share in connection with
the issuance of Series E preferred stock. The warrants expire in 2004 and at
December 31, 1999, 75,000 of the warrants had been exercised and 128,586 of the
warrants were exercisable. The fair value of the warrants at the date of
issuance was separately recorded as warrants for the purchase of mandatorily
redeemable preferred stock and as a reduction to the Series E preferred stock.
In November 1999, all warrants issued by the Company to purchase shares of
Series B, C, D and E preferred stock were converted to warrants to purchase an
equivalent number of shares of common stock in conjunction with the Company's
initial public offering.
(C) STOCK OPTIONS
In 1996, 1997 and 1999 the Company adopted stock option plans (the 1996
Plan, the 1997 Plan and the 1999 Plan) pursuant to which the Company's Board of
Directors may grant incentive stock options and non-qualified stock options to
employees, directors and consultants. The 1996 Plan, the 1997 Plan and the 1999
Plan authorize grants of options to purchase up to an aggregate of 3,000,000
shares of authorized but unissued common stock. No further options will be
granted under the 1996 and 1997 Plans. Options currently outstanding under the
1996 and 1997 Plans will continue to be outstanding under the terms of the 1996
and 1997 Plans until exercised or terminated. Options forfeited under the 1996
Plan are available for grant under the 1997 Plan and options forfeited under the
1997 Plan are available for grant under the 1999 Plan. Stock options are
generally granted with an exercise price equal to the stock's fair market value
at the date of grant. Incentive stock options have ten-year terms and generally
vest 25% one year from the grant date with the remainder vesting on a pro-rata
basis over 36 months. Non-qualified stock options have ten-year terms and
generally vest over periods up to four years from the grant date, although
658,000 non-qualified stock options with three-year vesting were granted in
May 1999.
At December 31, 1999, 821,211 shares were available for grant under the 1999
Equity Incentive Plan. The per share weighted-average fair value of stock
options granted with exercise prices equal to the stock's fair market value at
the date of grant during 1997, 1998 and 1999 was $0.33, $0.41 and $2.57,
respectively, on the date of grant. Prior to the Company's initial public
offering in
F-11
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(3) PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
November 1999, the fair values of stock options granted were calculated using
the Black Scholes option-pricing model with the following weighted-average
assumptions: no volatility or dividends, risk-free interest rate of 6%, and an
expected life of 2 years. Subsequent to the initial public offering, the same
assumptions were used except volatility was assumed to be 100%.
The Company utilizes APB Opinion No. 25 in accounting for its Plans and,
accordingly, since the Company generally grants options at fair value, no
compensation cost was recognized for stock options in the accompanying financial
statements in 1997 and 1998. In 1999, a total of 1,117,000 stock options were
granted with exercise prices less than fair value, resulting in total
compensation expense to be recognized over the vesting period of $3,711,835,
$1,088,071 of which was recognized during the year ended December 31, 1999. If
the Company determined compensation cost based on the fair value of the options
at the grant date under SFAS No. 123, the Company's net loss would have been
approximately $7,714,000, $7,963,000 and $14,809,133 and the Company's net loss
per share would have been $7.71, $7.93 and $6.27 in 1997, 1998 and 1999,
respectively.
The following table summarizes stock option activity for the three years
ended December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Balance at January 1, 1997............................... 616,143 $.93
Exercised.............................................. (1,000) 1.25
Granted................................................ 657,160 2.88
Forfeited.............................................. (378,667) 1.14
---------
Balance at December 31, 1997............................. 893,636 1.71
Exercised.............................................. (8,053) 1.25
Granted................................................ 513,065 3.74
Forfeited.............................................. (385,729) 2.04
---------
Balance at December 31, 1998............................. 1,012,919 3.05
Exercised.............................................. (256,657) 1.92
Granted................................................ 1,797,500 5.30
Forfeited.............................................. (640,683) 3.30
---------
Balance at December 31, 1999............................. 1,913,079 5.26
=========
</TABLE>
At December 31, 1999, the weighted average remaining contractual life of
outstanding options was 9.24 years. At December 31, 1999, 151,337 incentive
options and 68,342 non-qualified options were exercisable.
F-12
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(3) PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------- ------------------------
WEIGHTED NUMBER
RANGE AVERAGE WEIGHTED EXERCISABLE WEIGHTED
OF REMAINING AVERAGE AS OF AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES OUTSTANDING LIFE PRICE 1999 PRICE
--------------------- ------------ ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$ 1.25 74,694 6.88 $ 1.25 74,694 $1.25
1.50 481,000 9.36 1.50 -- --
3.00 - 3.40 189,969 7.88 3.28 99,248 3.24
4.32 474,916 9.27 4.32 45,737 4.32
5.53 432,500 9.65 5.53 -- --
12.00 185,500 9.88 12.00 -- --
25.38 - 27.00 74,500 9.98 26.34 -- --
--------- -------
1,913,079 9.24 5.26 219,679 2.79
========= =======
</TABLE>
(4) INCOME TAXES
Income tax benefit relating to losses for the years ended December 31
differs from the amounts that would result from applying the federal statutory
rate of 34% in 1997 and 1998 and 35% in 1999 as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Expected tax benefit..................... $(2,617,630) (2,685,055) (4,978,833)
State income taxes, net of federal
benefit................................ (152,438) (156,364) (289,942)
Change in valuation allowance for
deferred tax assets.................... 2,841,912 2,869,286 5,315,497
Other, net............................... (71,844) (27,867) (46,722)
----------- ---------- ----------
Actual income tax benefit................ $ -- -- --
=========== ========== ==========
</TABLE>
No tax benefit has been recorded by the Company due to net operating losses
and an increase in the valuation allowance for deferred tax assets.
F-13
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(4) INCOME TAXES (CONTINUED)
Temporary differences that give rise to significant components of deferred
tax assets as of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Net operating loss carryforwards................... $ 4,372,641 8,301,912
Receivables due to allowance for doubtful accounts
for tax purposes only............................ 27,771 37,021
Deferred revenue................................... 2,362,453 1,961,002
Equipment and leasehold improvements due to
differences in depreciation and amortization..... 71,082 110,359
Accrued expenses................................... 78,692 78,692
Stock warrants..................................... -- 1,726,420
Other, net......................................... 49,827 62,557
----------- -----------
Gross deferred tax asset....................... 6,962,466 12,277,963
Valuation allowance................................ (6,962,466) (12,277,963)
----------- -----------
Net deferred tax asset......................... $ -- --
=========== ===========
</TABLE>
At December 31, 1999, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $22 million, which is available to
offset future federal taxable income, if any, through 2019. Management believes
the utilization of carryforwards will be limited by Internal Revenue Code
Section 382 relating to changes in ownership, as defined.
Due to the uncertainty regarding the realization of the deferred tax assets
relating to the net operating loss carryforwards and other temporary
differences, a valuation allowance has been recorded for the Company's net
deferred tax asset at December 31, 1997, 1998 and 1999.
F-14
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(5) NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
---------- --------
<S> <C> <C>
14.0% note, payable in monthly installments of $31,669,
including interest, with final payment of $75,000 due
March 1, 2000; secured by computer equipment......... $ 502,994 167,034
12.5% note, payable in monthly installments of $12,815,
including interest, with final payment of $30,622 due
October 1, 2000; secured by computer equipment and
furniture............................................ 276,148 149,368
12.5% note, payable in monthly installments of $3,585,
including interest, with final payment of $8,577 due
December 1, 2000; secured by computer equipment...... 82,830 48,044
12.3% note, payable in monthly installments of $3,487,
including interest with final payment of $8,359 due
May 1, 2001, secured by computer equipment........... 93,631 61,409
12.3% note, payable in monthly installments of $11,454,
including interest, with final payment of $27,442 due
August 1, 2001, secured by computer equipment........ 331,874 229,327
---------- --------
1,287,477 655,182
Less current portion............................... (677,777) (527,351)
---------- --------
Notes payable, net of current portion.................. $ 609,700 127,831
========== ========
</TABLE>
The above notes payable are included in a bank financing agreement. The
aggregate maturities for long-term debt for each of the years subsequent to
December 31, 1999 are as follows: 2000 -$527,351 and 2001--$127,831.
F-15
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(6) COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company leases office facilities under operating lease agreements which
expire in 2001 and 2010. Future minimum lease payments as of December 31, 1999,
are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
2000........................................................ $ 949,846
2001........................................................ 1,143,255
2002........................................................ 974,778
2003........................................................ 1,052,141
2004........................................................ 1,144,977
Thereafter.................................................. 6,459,839
-----------
Total future minimum lease payments......................... $11,724,836
===========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
$152,461, $167,862 and $245,285, respectively.
(b) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan that allows eligible employees to contribute
up to 15% of their compensation up to a maximum amount provided by the Internal
Revenue Code. The Company may make discretionary contributions to the 401(k)
plan. The Company has made no contributions to the Plan since inception.
(c) LITIGATION
The Company is subject to litigation and claims incidental to its business.
While it is not feasible to predict or determine the financial outcome of these
matters, management does not believe that the ultimate resolution of these
matters will result in a significant adverse effect on the Company's financial
position, results of operations or liquidity.
(7) SIGNIFICANT CUSTOMERS
Revenue attributable to significant customers (as a percentage of total
revenue) in 1997, 1998 and 1999 was as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Customer A--online publishing and email and other
services................................................. -- -- 65%
Customer B--email and other services....................... 42% 2% --
Customer C--online publishing and email and other
services................................................. 13% 6% --
</TABLE>
Receivables from Customer A represented 52% of total accounts receivable at
December 31, 1999. Receivables from Customer B represented 11% of total accounts
receivable at December 31, 1998.
F-16
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(8) BUSINESS SEGMENTS
The Company had two reportable business segments, email and other services
and online publishing. The online publishing business was sold to Sony Music in
December 1998 (see note 2). The following sets forth selected segment data for
the years ended December 31, 1997 and 1998. Online publishing revenue for 1999
consists of cost reimbursements by Sony Music for employees providing editorial
services related to the InfoBeat newsletters. The Company operates in a single
segment in 1999 as it does not prepare segment financial information related to
the editorial services provided to Sony Music. The Company primarily evaluates
segment performance based on net income or loss. General and administrative
costs, depreciation and amortization and interest were allocated between the two
segments based upon revenue. The tangible assets used by the two segments were
not separately identifiable.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------
EMAIL
AND OTHER ONLINE
SERVICES PUBLISHING TOTAL
--------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue..................................................... $ 359 496 855
Cost of revenue............................................. 132 1,907 2,039
------- ------ ------
Gross profit (loss)..................................... 227 (1,411) (1,184)
------- ------ ------
Operating expenses:
Marketing and sales....................................... 1,033 425 1,458
Research, development and engineering..................... 701 1,500 2,201
General and administrative................................ 831 1,147 1,978
Depreciation and amortization............................. 338 467 805
------- ------ ------
Total operating expenses................................ 2,903 3,539 6,442
------- ------ ------
Loss from operations.................................... (2,676) (4,950) (7,626)
Interest expense............................................ (104) (148) (252)
Interest income............................................. 74 105 179
------- ------ ------
Net loss................................................ $(2,706) (4,993) (7,699)
======= ====== ======
</TABLE>
F-17
<PAGE>
EXACTIS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(8) BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------
EMAIL
AND OTHER ONLINE
SERVICES PUBLISHING TOTAL
--------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue..................................................... $ 821 1,958 2,779
Cost of revenue............................................. 256 2,524 2,780
------- ------ ------
Gross profit (loss)..................................... 565 (566) (1)
------- ------ ------
Operating expenses:
Marketing and sales....................................... 1,621 189 1,810
Research, development and engineering..................... 1,807 1,108 2,915
General and administrative................................ 602 1,437 2,039
Depreciation and amortization............................. 305 726 1,031
------- ------ ------
Total operating expenses................................ 4,335 3,460 7,795
------- ------ ------
Loss from operations.................................... (3,770) (4,026) (7,796)
Interest expense............................................ (64) (157) (221)
Interest income............................................. 35 85 120
------- ------ ------
Net loss................................................ $(3,799) (4,098) (7,897)
======= ====== ======
</TABLE>
(9) SUBSEQUENT EVENT
On February 29, 2000, the Company agreed to be acquired by 24/7 Media, Inc.
Under the terms of the proposed transaction, each outstanding share of the
Company's common stock is to be exchanged for 0.60 shares of common stock of
24/7 Media, Inc. Completion of the transaction is subject to regulatory and
stockholder approval.
F-18
<PAGE>
ANNEX A
================================================================================
AGREEMENT AND PLAN OF MERGER
Dated as of February 29, 2000
By and Among
24/7 MEDIA, INC.,
EVERGREEN ACQUISITION SUB CORP.
And
EXACTIS.COM, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
The Merger
SECTION 1.01. The Merger..................................................2
SECTION 1.02. Closing.....................................................3
SECTION 1.03. Effective Time..............................................3
SECTION 1.04. Effects of the Merger.......................................3
SECTION 1.05. Certificate of Incorporation and By-laws....................3
SECTION 1.06. Board of Directors and Officers.............................3
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock...................................4
(a) Capital Stock of Sub..................................4
(b) Cancelation of Treasury Stock and Parent-Owned Stock..4
(c) Conversion of Target Common Stock.....................4
(d) Anti-Dilution Provisions..............................4
SECTION 2.02. Exc hange of Certificates.................................5
(a) Exchange Agent........................................5
(b) Exchange Procedures...................................5
(c) Distributions with Respect to Unexchanged Shares......6
(d) No Further Ownership Rights in Target Common Stock....6
(e) No Fractional Shares..................................7
(f) Termination of Exchange Fund..........................7
(g) No Liability..........................................7
(h) Investment of Exchange Fund...........................7
(i) Lost Certificates.....................................8
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of Target..................8
(a) Organization, Standing and Corporate Power............8
(b) Subsidiaries..........................................9
(c) Capital Structure.....................................9
<PAGE>
Contents, p. 2
Page
----
(d) Authority; Noncontravention..........................11
(e) SEC Documents; UndisclosedLiabilities................13
(f) Information Supplied.................................14
(g) Absence of Certain Changes or Events.................14
(h) Litigation...........................................15
(i) Compliance with Applicable Laws......................15
(j) Absence of Changes in Benefit Plans..................16
(k) ERISA Compliance; Excess Parachute Payments..........17
(l) Taxes................................................21
(m) Voting Requirements..................................23
(n) State Takeover Statutes..............................23
(o) Brokers..............................................23
(p) Opinion of Financial Advisor.........................24
(q) Intellectual Property; Year 2000.....................24
(r) Contracts............................................26
(s) Title to Properties..................................28
(t) Privacy Policy.......................................29
SECTION 3.02. Representations and Warranties of Parent and Sub.........30
(a) Organization, Standing and Corporate Power...........31
(b) Subsidiaries.........................................31
(c) Capital Structure....................................31
(d) Authority; Noncontravention..........................32
(e) SEC Documents; Undisclosed Liabilities...............33
(f) Information Supplied.................................34
(g) Absence of Certain Changes or Events.................35
(h) Litigation...........................................35
(i) Compliance with Applicable Laws......................35
(j) ERISA Compliance.....................................35
(k) Taxes................................................35
(l) Voting Requirements..................................36
(m) State Takeover Statutes..............................36
(n) Intellectual Property; Year 2000.....................36
(o) Title to Properties..................................37
(p) Privacy Policy.......................................37
(q) Tax Matters..........................................38
(r) Interim Operations of Sub............................38
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business......................................38
(a) Conduct of Business by Target........................38
(b) Conduct of Business by Parent........................42
(c) Advice of Changes....................................42
SECTION 4.02. No Solicitation by Target................................43
<PAGE>
Contents, p. 3
Page
----
SECTION 4.03. Recommendation by Parent................................43
ARTICLE V
Additional Agreements
SECTION 5.01. Preparation of the Form S-4 and the Proxy
Statement; Target Stockholders Meeting;
Parent Stockholders Meeting.............................44
SECTION 5.02. Letters of Target's Accountants.........................46
SECTION 5.03. Letters of Parent's Accountants.........................46
SECTION 5.04. Access to Information; Confidentiality..................46
SECTION 5.05. Reasonable Efforts......................................47
SECTION 5.06. Stock Options; Warrants.................................48
SECTION 5.07. Employee Matters........................................50
SECTION 5.08. Indemnification, Exculpation and Insurance..............51
SECTION 5.09. Fees and Expenses.......................................52
SECTION 5.10. Public Announcements....................................53
SECTION 5.11. Affiliates..............................................53
SECTION 5.12. Quotation...............................................54
SECTION 5.13. Litigation..............................................54
SECTION 5.14. Tax Treatment...........................................54
SECTION 5.15. Target Stockholder Agreement Legend; Parent
Stockholder Agreement Legend............................54
SECTION 5.16. Termination of Agreements...............................55
SECTION 5.17. Resignations............................................55
SECTION 5.18. Composition of Board of Directors of Parent.............55
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Each Party's Obligation To
Effect the Merger.......................................55
(a)Stockholder Approval.................................55
(b)HSR Act..............................................55
(c)No Litigation........................................55
(d)Form S-4.............................................56
SECTION 6.02. Conditions to Obligations of Parent and Sub.............56
(a)Representations and Warranties.......................56
(b)Performance of Obligations of Target.................56
SECTION 6.03. Conditions to Obligations of Target.....................57
(a)Representations and Warranties.......................57
(b)Performance of Obligations of Parent and Sub.........57
(c)Tax Opinion..........................................57
(d) Nasdaq Quotation...................................57
SECTION 6.04. Frustration of Closing Conditions.......................57
<PAGE>
Contents, p. 4
Page
----
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01. Termination.............................................58
SECTION 7.02. Effect of Termination...................................59
SECTION 7.03. Amendment...............................................59
SECTION 7.04. Extension; Waiver.......................................59
SECTION 7.05. Procedure for Termination, Amendment,
Extension or Waiver...................................60
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations and
Warranties ...........................................60
SECTION 8.02. Notices.................................................60
SECTION 8.03. Definitions.............................................61
SECTION 8.04. Interpretation..........................................62
SECTION 8.05. Counterparts............................................62
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries..........62
SECTION 8.07. Governing Law...........................................63
SECTION 8.08. Assignment..............................................63
SECTION 8.09. Enforcement.............................................63
SECTION 8.10. Severability............................................64
Annex I - Index of Defined Terms
Exhibit A - Form of Affiliate Letter
Exhibit B - Form of Tax Representation Letters
Schedule I - Board of Directors of Parent
<PAGE>
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of
February 29, 2000, among 24/7 MEDIA, INC., a Delaware
corporation ("Parent"), EVERGREEN ACQUISITION SUB CORP., a
Delaware corporation and a wholly owned subsidiary of Parent
("Sub"), and EXACTIS.COM, INC., a Delaware corporation
("Target").
WHEREAS the respective Boards of Directors of Parent, Sub and Target
have approved and declared advisable this Agreement and the merger of Sub with
and into Target (the "Merger"), upon the terms and subject to the conditions set
forth in this Agreement, whereby each issued and outstanding share of common
stock, par value $0.01 per share, of Target ("Target Common Stock"), other than
shares owned by Parent, Sub or Target, will be converted into the right to
receive the Merger Consideration, and the Boards of Directors of Parent and
Target have recommended that their respective stockholders adopt this Agreement;
WHEREAS the respective Boards of Directors of Parent, Sub and Target
have each determined that the Merger and the other transactions contemplated
hereby are consistent with, and in furtherance of, their respective business
strategies and goals;
WHEREAS Parent, Sub and Target desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
WHEREAS for U.S. federal income tax purposes, it is intended that
(a) the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
rules and regulations promulgated thereunder and (b) this Agreement constitutes
a plan of reorganization;
WHEREAS simultaneously with the execution and delivery of this
Agreement and as a condition and inducement to the willingness of Parent and Sub
to enter into this Agreement, Parent and certain stockholders of Target
(collectively, the "Target Stockholders") are entering into an agreement (the
"Target Stockholder Agreement") pursuant to which the Target Stockholders will
agree to vote to adopt
<PAGE>
2
and approve this Agreement and to take certain other actions in furtherance of
the Merger upon the terms and subject to the conditions set forth in the Target
Stockholder Agreement;
WHEREAS simultaneously with the execution and delivery of this
Agreement and as a condition and inducement to the willingness of Target to
enter into this Agreement, Target and certain stockholders of Parent
(collectively, the "Parent Stockholders") are entering into an agreement (the
"Parent Stockholder Agreement") pursuant to which the Parent Stockholders will
agree to vote to approve the issuance of shares of Parent Common Stock (as
defined in Section 2.01(c)) in connection with the Merger upon the terms and
subject to the conditions set forth in the Parent Stockholder Agreement;
WHEREAS simultaneously with the execution and delivery of this
Agreement, Parent and certain individuals are entering into employment
agreements (the "Employment Agreements") pursuant to which Parent will agree to
employ such individuals following the Effective Time (as defined in Section
1.03) and such individuals will agree to be subject to non-compete and
non-solicitation obligations upon the terms and conditions set forth in the
Employment Agreements; and
WHEREAS simultaneously with the execution and delivery of this
Agreement and as a condition and inducement to the willingness of Parent to
enter into this Agreement, Parent and the Target Stockholders have entered into
Lock-Up Agreements (collectively, the "Lock-Up Agreements") pursuant to which
the Target Stockholders have agreed to certain restrictions relating to the
disposition of Parent Common Stock following the Effective Time under certain
circumstances.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Merger
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Delaware
General Corporation Law (the "DGCL"), Sub shall be merged with and into Target
at the Effective Time. Following the Effective Time, Target shall be the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of Sub in accordance with the DGCL.
SECTION 1.02. Closing. The closing of the Merger (the "Closing")
will take place at 10:00 a.m. on a date to
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3
be specified by the parties (the "Closing Date"), which shall be no later than
the second business day after satisfaction or waiver of the conditions set forth
in Article VI (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or waiver of those
conditions), unless another time or date is agreed to by the parties hereto. The
Closing will be held at such location in the City of New York as is agreed to by
the parties hereto.
SECTION 1.03. Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file a certificate of merger or other appropriate documents (in any such
case, the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL and shall make all other filings or recordings required
under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Delaware Secretary of State, or at
such subsequent date or time as Parent and Target shall agree and specify in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the
effects set forth in Section 259 of the DGCL.
SECTION 1.05. Certificate of Incorporation and By-laws. (a) The
certificate of incorporation of Target, as in effect immediately prior to the
Effective Time, shall be amended as of the Effective Time so that Article IV of
such certificate of incorporation reads in its entirety as follows: "The total
number of shares of all classes of stock which the Corporation shall have
authority to issue is 1,000 shares of common stock, par value $0.01 per share.",
and, as so amended, such certificate of incorporation shall be the certificate
of incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
(b) The by-laws of Target, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.06. Board of Directors and Officers. (a) The directors of
Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may be.
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4
(b) The officers of Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Target Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
capital stock of Sub shall be converted into one share of common stock of
the Surviving Corporation.
(b) Cancelation of Treasury Stock and Parent- Owned Stock. Each
share of Target Common Stock that is owned by Target, Sub or Parent shall
automatically be canceled and shall cease to exist, and no consideration
shall be delivered or deliverable in exchange therefor.
(c) Conversion of Target Common Stock. Subject to Section 2.02(e),
each issued and outstanding share of Target Common Stock (other than
shares to be canceled in accordance with Section 2.01(b)) shall be
converted into the right to receive 0.60 (the "Exchange Ratio") fully paid
and nonassessable shares of common stock, par value $0.01 per share, of
Parent ("Parent Common Stock") (the "Merger Consideration"). As of the
Effective Time, all such shares of Target Common Stock shall no longer be
outstanding and shall automatically be canceled and shall cease to exist,
and each holder of a certificate representing any such shares of Target
Common Stock shall cease to have any rights with respect thereto, except
the right to receive the Merger Consideration to be issued in
consideration therefor upon surrender of such certificate in accordance
with Section 2.02, without interest.
(d) Anti-Dilution Provisions. In the event Parent changes (or
establishes a record date for changing) the number of shares of Parent
Common Stock issued and outstanding prior to the Effective Time as a
result of a stock split, stock dividend, recapitalization, subdivision,
reclassification, combination, exchange of shares or similar transaction
with respect
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5
to the outstanding Parent Common Stock and the record date therefor shall
be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted to reflect such stock split, stock dividend,
recapitalization, subdivision, reclassification, combination, exchange of
shares or similar transaction.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. As of
the Effective Time, Parent shall enter into an agreement with such bank or trust
company as may be designated by Parent (the "Exchange Agent"), which shall
provide that Parent shall deposit with the Exchange Agent as of the Effective
Time, for the benefit of the holders of shares of Target Common Stock, for
exchange in accordance with this Article II, through the Exchange Agent,
certificates representing the shares of Parent Common Stock (such shares of
Parent Common Stock, together with any dividends or distributions with respect
thereto with a record date after the Effective Time being hereinafter
referred to as the "Exchange Fund") issuable pursuant to Section 2.01 in
exchange for outstanding shares of Target Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Target Common Stock (the "Certificates") whose
shares were converted into the right to receive the Merger Consideration
pursuant to Section 2.01, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent and Target may reasonably
specify) and (ii) instructions for use in surrendering the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancelation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall receive in exchange
therefor a certificate representing that number of whole shares of Parent Common
Stock which such holder has the right to receive pursuant to the provisions of
this Article II and certain dividends or other distributions in accordance with
Section 2.02(c), and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of Target Common Stock which is not
registered in the transfer records of Target, a certificate representing the
proper number of shares of Parent Common Stock may be issued to a person other
than the person in whose name the Certificate so surrendered is registered if
such Certificate
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6
shall be properly endorsed or otherwise be in proper form for transfer and the
person requesting such issuance shall pay any transfer or other taxes required
by reason of the issuance of shares of Parent Common Stock to a person other
than the registered holder of such Certificate or establish to the satisfaction
of Parent that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.02(b), each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive the Merger
Consideration to be issued in consideration therefor upon surrender of such
certificate in accordance with this Section 2.02. No interest shall be paid or
will accrue on any cash payable to holders of Certificates pursuant to the
provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends
or other distributions with respect to Parent Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby, and all such dividends and other distributions shall be paid by Parent
to the Exchange Agent and shall be included in the Exchange Fund, until the
surrender of such Certificate in accordance with this Article II. Subject to the
effect of applicable escheat or similar laws, following surrender of any such
Certificate there shall be paid to the holder of the certificate representing
whole shares of Parent Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Parent Common Stock and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of Parent
Common Stock.
(d) No Further Ownership Rights in Target Common Stock. All shares
of Parent Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to this Article II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of Target Common Stock
theretofore represented by such Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been declared or
made by Target on such shares of Target Common Stock which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Target Common
Stock
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7
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Exchange Agent for any reason, they shall be canceled and exchanged as provided
in this Article II, except as otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of Parent shall relate to
such fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of Parent.
(ii) Notwithstanding any other provision of this Agreement, each
holder of shares of Target Common Stock exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a share of Parent
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount,
less the amount of any withholding taxes that may be required thereon, equal to
such fractional part of a share of Parent Common Stock multiplied by the per
share last reported sale price of Parent Common Stock on the Closing Date, as
such price is quoted by Nasdaq.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of the Certificates who have not theretofore complied with this Article
II shall thereafter look only to Parent for payment of their claim for Merger
Consideration and any dividends or distributions with respect to Parent Common
Stock.
(g) No Liability. None of Parent, Sub, Target or the Exchange Agent
shall be liable to any person in respect of any shares of Parent Common Stock or
any dividends or distributions with respect thereto, in each case delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificate shall not have been surrendered prior to one
year after the Effective Time (or immediately prior to such date on which any
amounts payable pursuant to this Article II would otherwise escheat to or become
the property of any Governmental Entity), any such amounts shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of all claims or interest of any person previously entitled
thereto.
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8
(h) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Parent.
(i) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Parent, the posting by such person of a bond in such reasonable amount as Parent
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent shall issue in exchange for such
lost, stolen or destroyed Certificate the applicable Merger Consideration with
respect thereto and, if applicable, any unpaid dividends and distributions on
shares of Parent Common Stock deliverable in respect thereof, in each case
pursuant to this Agreement.
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of Target. Except as
disclosed in the Target Filed SEC Documents or as set forth on the Disclosure
Schedule delivered by Target to Parent prior to the execution of this Agreement
(the "Target Disclosure Schedule") (each section of which qualifies the
correspondingly numbered representation and warranty or covenant to the extent
specified therein and such other representations and warranties or covenants to
the extent a matter in such section is disclosed in such a way as to make its
relevance to the information called for by such other representation and
warranty or covenant reasonably apparent), Target represents and warrants to
Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. Target is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the requisite corporate power
and authority to carry on its business as now being conducted. Target is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership, leasing
or operation of its assets makes such qualification or licensing
necessary, except for those jurisdictions where the failure to be so
qualified or licensed or to be in good standing, individually and in the
aggregate, is not reasonably likely to have a material adverse effect on
Target. Target has made
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9
available to Parent prior to the execution of this Agreement complete and
correct copies of its certificate of incorporation and by-laws, as amended
to the date of this Agreement.
(b) Subsidiaries. Target has no subsidiaries.
(c) Capital Structure. The authorized capital stock of Target
consists of 35,000,000 shares of Target Common Stock and 3,500,000 shares
of preferred stock, par value $0.01 per share, of Target ("Target
Authorized Preferred Stock"). At the close of business on February 10,
2000, (i) 12,700,898 shares of Target Common Stock were issued and
outstanding; (ii) no shares of Target Common Stock were held by Target in
its treasury; (iii) no shares of Target Authorized Preferred Stock were
issued and outstanding; (iv) 3,202,264 shares of Target Common Stock were
reserved for issuance pursuant to the Target 1996 Stock Option Plan, the
Target 1997 Stock Option Plan, the Target 1999 Equity Incentive Plan and
the Target 1999 Employee Stock Purchase Plan (such plans, collectively,
the "Target Stock Plans") of which 2,073,548 are subject to outstanding
Target Stock Options; and (v) 1,275,158 shares of Target Common Stock were
reserved for issuance upon the exercise of the warrants (the "Warrants")
subject to the warrant agreements listed in Section 3.01(c) of the Target
Disclosure Schedule. Except as set forth above, at the close of business
on February 10, 2000, no shares of capital stock or other voting
securities of Target were issued, reserved for issuance or outstanding.
There are no outstanding stock appreciation rights ("SARs") or rights
(other than the Target Stock Options) to receive shares of Target Common
Stock on a deferred basis granted under the Target Stock Plans or
otherwise. Target has delivered to Parent a complete and correct list, as
of February 10, 2000, of each holder of outstanding stock options or other
rights to purchase or receive Target Common Stock granted under the Target
Stock Plans (collectively, "Target Stock Options") and the Warrants, the
number of shares of Target Common Stock subject to each such Target Stock
Option and Warrant, the name of the Target Stock Plan pursuant to which
such Target Stock Options were granted, the grant dates and exercise
prices of such Target Stock Options and Warrants and the dates on which
such Target Stock Options and Warrants become vested. All (i) outstanding
shares of Target Common Stock in respect of which Target has a right under
specified circumstances to repurchase such shares at a fixed purchase
price and (ii) outstanding Target Stock Options, are evidenced by stock
option agreements and
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10
restricted stock purchase agreements in substantially the forms attached
as Exhibit A to Section 3.01(c) of the Target Disclosure Schedule, and no
stock option agreement or restricted stock purchase agreement contains
terms that are substantially inconsistent with such forms. No bonds,
debentures, notes or other indebtedness of Target having the right to vote
(or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which stockholders of Target may vote are issued
or outstanding or subject to issuance. All outstanding shares of capital
stock of Target are, and all shares which may be issued will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and
will be delivered free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"), other than Liens created by or imposed upon the
holders thereof, and not subject to preemptive rights. Except as set forth
in this Section 3.01(c) (including pursuant to the conversion or exercise
of the securities referred to above), (x) there are not issued, reserved
for issuance or outstanding (A) any shares of capital stock or other
voting securities of Target, (B) any securities of Target convertible into
or exchangeable or exercisable for shares of capital stock or other voting
securities of, or other ownership interests in, Target or (C) any
warrants, calls, options or other rights to acquire from Target, and no
obligation of Target to issue, any capital stock or other voting
securities of, or other ownership interests in, or any securities
convertible into or exchangeable or exercisable for any capital stock or
other voting securities of, or other ownership interests in, Target and
(y) there are not any outstanding obligations of Target to repurchase,
redeem or otherwise acquire any such securities or to issue, deliver or
sell, or cause to be issued, delivered or sold, any such securities.
Target is not a party to any voting agreement with respect to the voting
of any such securities. Target does not directly or indirectly
beneficially own any securities or other beneficial ownership interests in
any other entity. The Target Stockholders hold of record over 50% of the
outstanding shares of Target Common Stock (calculated on a fully diluted
basis assuming the exercise of all outstanding securities of Target that
are currently, or may become on or prior to August 31, 2000, convertible
into or exchangeable or exercisable for, shares of capital stock or other
voting securities of Target).
(d) Authority; Noncontravention. Target has all requisite corporate
power and authority to enter into
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11
this Agreement and, subject to the Target Stockholder Approval, to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Target and the consummation by Target of
the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of Target, subject, in the
case of the Merger, to the Target Stockholder Approval. This Agreement has
been duly executed and delivered by Target and, assuming the due
authorization, execution and delivery by each of the other parties
thereto, constitutes a legal, valid and binding obligation of Target,
enforceable against Target in accordance with its terms. The execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancelation or
acceleration of any obligation or to the loss of a benefit under, or
result in the creation of any Lien upon any of the properties or assets of
Target under, (i) the certificate of incorporation or by-laws of Target,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease
or other contract, agreement, obligation, commitment, arrangement,
understanding, instrument, permit, concession, franchise, license or
similar authorization (each, a "Contract") applicable to Target or its
properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, (A) any judgment,
order or decree or (B) any statute, law, ordinance, rule or regulation, in
each case applicable to Target or its properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights, losses or Liens that, individually and in the aggregate,
are not reasonably likely to (x) have a material adverse effect on Target,
(y) impair the ability of Target to perform its obligations under this
Agreement or (z) prevent or materially delay the consummation of the
transactions contemplated by this Agreement. No consent, approval, order
or authorization of, action by or in respect of, or registration,
declaration or filing with, any federal, state, local or foreign
government, any court, administrative, regulatory or other governmental
agency, commission or authority or any non-governmental self-regulatory
agency, commission or authority (each a "Governmental Entity") is required
by or with respect to Target in connection with the execution and delivery
of this Agreement by Target or the consummation by Target of the
transactions contemplated by this
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12
Agreement, except for (1) the filing of a premerger notification and
report form by Target under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and any applicable filings and
approvals under similar foreign antitrust or competition laws and
regulations; (2) the filing with the Securities and Exchange Commission
(the "SEC") of (A) a joint proxy statement relating to the Target
Stockholders Meeting and the Parent Stockholders Meeting (such proxy
statement, as amended or supplemented from time to time, the "Proxy
Statement"), and (B) such reports under Section 13(a), 13(d), 15(d) or
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may be required in connection with this Agreement, the Target
Stockholder Agreement, the Parent Stockholder Agreement and the
transactions contemplated by this Agreement, the Target Stockholder
Agreement and the Parent Stockholder Agreement; (3) the filing of the
Certificate of Merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which Target is
qualified to do business and such filings with Governmental Entities to
satisfy the applicable requirements of state securities or "blue sky"
laws; and (4) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be made or
obtained, individually and in the aggregate, are not reasonably likely to
(x) have a material adverse effect on Target, (y) impair the ability of
Target to perform its obligations under this Agreement or (z) prevent or
materially delay the consummation of the transactions contemplated by this
Agreement.
(e) SEC Documents; Undisclosed Liabilities. Target has filed all
required reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated therein) with
the SEC since November 24, 1999 (together with Target's Registration
Statement on Form S-1 (Registration No. 333-85315), the "Target SEC
Documents"). As of their respective dates, the Target SEC Documents
complied in all material respects with the requirements of the Securities
Act of 1933 (the "Securities Act") or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Target SEC Documents, and none of the Target SEC
Documents when filed contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
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13
statements of Target included in the Target SEC Documents comply as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto (the "Accounting Rules"),
have been prepared in accordance with generally accepted accounting
principles ("GAAP") (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly present in all material respects the financial position of Target
as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements,
to normal recurring year-end audit adjustments). Except (i) as reflected
in the financial statements contained in the Target Filed SEC Documents or
in the notes thereto or (ii) for liabilities incurred in connection with
this Agreement or the transactions contemplated hereby, Target does not
have any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) which, individually or in the
aggregate, when taken as a whole with any benefits or rights corresponding
to such liabilities or obligations, are reasonably likely to have a
material adverse effect on Target.
(f) Information Supplied. None of the information supplied or to be
supplied by Target specifically for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with
the SEC by Parent in connection with the issuance of Parent Common Stock
in the Merger (the "Form S-4") will, at the time the Form S-4 becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii)
the Proxy Statement will, at the date it is first mailed to Target's or
Parent's stockholders or at the time of the Target Stockholders Meeting or
the Parent Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder.
No representation or warranty is made by Target with respect to statements
made or incorporated by reference therein based on information supplied by
Parent specifically
<PAGE>
14
for inclusion or incorporation by reference in the Proxy Statement.
(g) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement, the Parent Stockholder
Agreement or the transactions contemplated hereby or thereby and except as
disclosed in the Target SEC Documents filed and publicly available prior
to the date of this Agreement (as amended to the date of this Agreement,
the "Target Filed SEC Documents"), from December 31, 1998 to the date of
this Agreement, Target has conducted its business only in the ordinary
course, and during such period there has not been (1) any material adverse
change in Target, (2) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to any of Target's capital stock, (3) any split, combination or
reclassification of any of Target's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of Target's capital stock, (4) (A)
any granting by Target to any current or former director, consultant,
executive officer or other employee of Target of any increase in
compensation, bonus or other benefits, except for normal increases in cash
compensation in the ordinary course of business consistent with past
practice or as was required under any employment agreements in effect as
of the date of the most recent audited financial statements included in
the Target Filed SEC Documents, (B) any granting by Target to any such
current or former director, consultant, executive officer or employee of
any increase in severance or termination pay, (C) any entry by Target
into, or any amendments of, any Target Benefit Agreement or (D) any
amendment to, or modification of, any Target Stock Option, (5) except
insofar as may have been required by a change in GAAP, any change in
accounting methods, principles or practices by Target materially affecting
their respective assets, liabilities or businesses, (6) any tax election
that individually or in the aggregate is reasonably likely to adversely
affect in any material respect the tax liability or tax attributes of
Target or (7) any settlement or compromise of any material income tax
liability. Except for liabilities incurred in connection with this
Agreement, the Parent Stockholder Agreement or the transactions
contemplated hereby or thereby and except as disclosed in the Target Filed
SEC Documents, since December 31, 1998, there has not been any material
adverse change in Target.
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15
(h) Litigation. There is no suit, action or proceeding pending or,
to the knowledge of Target, threatened against or affecting Target that,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on Target nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against
Target having, or which is reasonably likely to have, individually or in
the aggregate, a material adverse effect on Target. Section 3.01(h) of the
Target Disclosure Schedule sets forth a true and complete list, as of the
date of this Agreement, of each settlement or similar agreement in respect
of any pending or threatened suit, action, proceeding, judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator which
Target has entered into or become bound by since June 30, 1999.
(i) Compliance with Applicable Laws. (i) Target holds all material
permits, licenses, variances, exemptions, orders, registrations and
approvals of all Governmental Entities (the "Target Permits") that are
required for them to own, lease or operate their assets and to carry on
their businesses. Target is in compliance with the terms of the Target
Permits and all applicable statutes, laws (including Environmental Laws),
ordinances, rules and regulations, except for such failures to comply
that, individually and in the aggregate, are not reasonably likely to have
a material adverse effect on Target. No action, demand, requirement or
investigation by any Governmental Entity and no suit, action or proceeding
by any person, in each case with respect to Target or any of its
properties that, individually or in the aggregate, is reasonably likely to
have a material adverse effect on Target, is pending or, to the knowledge
of Target, threatened.
(ii) To Target's knowledge, there have been no Releases of any
Hazardous Materials at, on or under any facility or property currently or
formerly owned, leased, or operated by Target that, individually or in the
aggregate, are reasonably likely to have a material adverse effect on
Target. Target is not the subject of any pending or, to Target's
knowledge, threatened investigation or proceeding under Environmental Law
relating in any manner to the off-site treatment, storage or disposal of
any Hazardous Materials generated at any facility or property currently or
formerly owned, leased or operated by Target. The term "Environmental Law"
means any and all applicable laws or regulations or other requirements of
any Governmental Entity concerning the protection of human
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16
health or the environment. The term "Hazardous Materials" means all
explosive or radioactive materials, hazardous or toxic substances, wastes
or chemicals, petroleum (including crude oil or any fraction thereof) or
petroleum distillates, asbestos or asbestos-containing materials, and all
other materials or chemicals regulated under any Environmental Law. The
term "Release" means any spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching, emanation or migration
in, into, onto, or through the environment.
(j) Absence of Changes in Benefit Plans. Since the date of the most
recent audited financial statements included in the Target Filed SEC
Documents, there has not been any adoption or amendment by Target of any
collective bargaining agreement or any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, thrift, savings, stock
bonus, restricted stock, cafeteria, paid time off, perquisite, fringe
benefit, vacation, severance, disability, death benefit, hospitalization,
medical, welfare benefit or other plan, arrangement or understanding
(whether or not legally binding) providing benefits to any current or
former employee, officer, consultant or director of Target (collectively,
the "Target Benefit Plans"), or any change in any actuarial or other
assumption used to calculate funding obligations with respect to any
Target pension plans, or any change in the manner in which contributions
to any Target pension plans are made or the basis on which such
contributions are determined. Except as disclosed in the Target Filed SEC
Documents, there are not any employment, consulting, deferred
compensation, indemnification, severance or termination agreements or
arrangements between Target and any current or former employee, officer,
consultant or director of Target (collectively, the "Target Benefit
Agreements").
(k) ERISA Compliance; Excess Parachute Payments. (i) Section 3.01(k)
of the Target Disclosure Schedule contains a list of all "employee pension
benefit plans" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to
herein as "Target Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA) and all other Target Benefit Plans and
Target Benefit Agreements maintained, or contributed to, by Target, or to
which Target is a party, for the benefit of any current or former
employees, officers or directors of Target. Target has
<PAGE>
17
made available to Parent or will make available to Parent upon request
true, complete and correct copies of (a) each Target Benefit Plan and
Target Benefit Agreement (or, in the case of any unwritten Target Benefit
Plan or Target Benefit Agreement, a description thereof), (b) the most
recent annual report on Form 5500 filed with the Internal Revenue Service
with respect to each Target Benefit Plan (if any such report was
required), (c) the most recent summary plan description for each Target
Benefit Plan for which such summary plan description is required and (d)
each trust agreement and group annuity contract relating to any Target
Benefit Plan.
(ii) Each Target Benefit Plan has been administered in all material
respects in accordance with its terms. Target and each Target Benefit Plan
are in substantial compliance with the applicable provisions of ERISA and
the Code, and all other applicable laws and the terms of all collective
bargaining agreements. All Target Pension Plans intended to be qualified
have received favorable determination letters from the Internal Revenue
Service with respect to "TRA" (as defined in Section 1 of Rev. Proc.
93-39), to the effect that such Target Pension Plans are qualified and
exempt from Federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, and no such determination letter has been
revoked nor, to the knowledge of Target, has revocation been threatened,
nor has any such Target Pension Plan been amended since the date of its
most recent determination letter or application therefor in any respect
that would adversely affect its qualification or materially increase its
costs. There is no pending or, to the knowledge of Target, threatened
litigation relating to Target Benefit Plans.
(iii) None of Target or any person which is considered one employer
with Target under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate") has or could reasonably be expected to have any
liability under Title IV of ERISA with respect to any Target Benefit Plan.
None of Target, any officer of Target or any of the Target Benefit Plans
which are subject to ERISA, including the Target Pension Plans, any trusts
created thereunder or, to the knowledge of Target, any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as such
term is defined in Section 406 of ERISA or Section 4975 of the Code) or
any other breach of fiduciary responsibility that could subject Target or
any officer of Target to the tax or penalty on prohibited transactions
imposed by such Section 4975 in an amount that would be
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18
material or to any material liability under Section 502(i) or 502(l) of
ERISA. All contributions and premiums required to be made under the terms
of any Target Benefit Plan as of the date hereof have been timely made or
have been reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the Filed Target SEC Documents. Neither any
Target Pension Plan nor any single-employer plan of an ERISA Affiliate has
an "accumulated funding deficiency" (as such term is defined in Section
302 of ERISA or Section 412 of the Code), whether or not waived.
(iv) With respect to any Target Benefit Plan that is an employee
welfare benefit plan, (a) no such Target Benefit Plan is unfunded or
funded through a "welfare benefit fund" (as such term is defined in
Section 419(e) of the Code) and (b) each such Target Benefit Plan that is
a "group health plan" (as such term is defined in Section 5000(b)(1) of
the Code) complies with the applicable requirements of Section 4980B(f) of
the Code. Target has no obligations for retiree health and life benefits
under any Target Benefit Plan or Target Benefit Agreement.
(v) The consummation of the Merger or any other transaction
contemplated by this Agreement, the Target Stockholder Agreement or the
Parent Stockholder Agreement will not (x) entitle any employee, officer,
consultant or director of Target to severance pay, (y) accelerate the time
of payment or vesting or trigger any payment or funding (through a grantor
trust or otherwise) of compensation or benefits under, increase the amount
payable or trigger any other material obligation pursuant to, any of the
Target Benefit Plans or Target Benefit Agreements or (z) result in any
breach or violation of, or a default under, any of the Target Benefit
Plans or Target Benefit Agreements.
(vi) Other than payments that may be made to the persons listed in
Section 3.01(k)(vi) of the Target Disclosure Schedule (the "Primary Target
Executives"), any amount or economic benefit that could be received
(whether in cash or property or the vesting of property) as a result of
the Merger or any other transaction contemplated by this Agreement, the
Target Stockholder Agreement or the Parent Stockholder Agreement
(including as a result of termination of employment on or following the
Effective Time) by any employee, officer or director of Target or any of
its affiliates who is a "disqualified individual" (as such term is defined
in proposed Treasury Regulation
<PAGE>
19
Section 1.280G-1) under any Target Benefit Plan or Target Benefit
Agreement or otherwise would not be characterized as an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code), and no
disqualified individual is entitled to receive any additional payment from
Target or any other person in the event that the excise tax under Section
4999 of the Code is imposed on such disqualified individual. Set forth in
Section 3.01(k)(vi) of the Target Disclosure Schedule is (a) the estimated
maximum amount that could be paid to each Primary Target Executive as a
result of the Merger and the other transactions contemplated by this
Agreement, the Target Stockholder Agreement and the Parent Stockholder
Agreement (including as a result of a termination of employment on or
following the Effective Time) under all Target Benefit Plans and Target
Benefit Agreements and (b) the "base amount" (as defined in Section
280G(b)(3) of the Code) for each Primary Target Executive calculated as of
the date of this Agreement.
(vii) Target is in compliance with all Federal, state and local
requirements regarding employment, except for such failures to comply
that, individually and in the aggregate, are not reasonably likely to have
a material adverse effect on Target. As of the date of this Agreement,
Target is not a party to any collective bargaining or other labor union
contract applicable to persons employed by Target and no collective
bargaining agreement is being negotiated by Target. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against
Target pending or, to the knowledge of Target, threatened which may
interfere with the business activities of Target. As of the date of this
Agreement, to the knowledge of Target, none of Target or any of its
representatives or employees has committed an unfair labor practice in
connection with the operation of the business of Target, and there is no
charge or complaint against Target by the National Labor Relations Board
or any comparable governmental agency pending or threatened in writing.
(l) Taxes. (i) Target has filed all tax returns and reports required
to be filed by it and all such returns and reports are complete and
correct in all material respects, or requests for extensions to file such
returns or reports have been timely filed, granted and have not expired,
except to the extent that such failures to file, to be complete or correct
or to have extensions granted that remain in effect, individually and in
the aggregate, are not reasonably likely to have a material adverse effect
on Target. Target has paid all taxes due with respect to such returns, and
the
<PAGE>
20
most recent financial statements contained in the Target Filed SEC
Documents reflect an adequate reserve for all taxes payable by Target for
all taxable periods and portions thereof accrued through the date of such
financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against Target that are not adequately reserved for, except for
deficiencies that individually or in the aggregate are not reasonably
likely to have a material adverse effect on Target. The Federal income tax
returns of Target for periods ending on or before December 31, 1995, have
closed by virtue of the applicable statute of limitations and no requests
for waivers of the time to assess any such taxes are pending, and, with
respect to all subsequent periods, no Federal or state tax return or
report or any other material tax return or report of Target is currently
under audit and no written or unwritten notice of any such audit or
similar examination has been received by Target. There is no currently
effective agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any taxes and no
power of attorney with respect to taxes has been executed or filed with
any taxing authority.
(iii) There are no material liens for taxes (other than for current
taxes not yet due and payable) on the assets of Target. Target is not
bound by any agreement with respect to taxes.
(iv) Target has not been and is not a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii).
(v) Section 3.01(l)(v) of the Target Disclosure Schedule sets forth
each state in which Target has filed a tax return relating to state
income, franchise, license, excise, net worth, property and sales and use
taxes, except in a case where Target is or has been required to file such
a tax return and such failures to file could not individually or in the
aggregate reasonably be expected to have a material adverse effect on
Target. To the knowledge of Target, it is not required to file any tax
return or report in any other state and no claim has ever been made by a
taxing authority in a jurisdiction where Target does not file a tax return
that it is, or may be subject to, taxation in that jurisdiction.
<PAGE>
21
(vi) Target has not taken any action or knows of any fact,
agreement, plan or other circumstance that is reasonably likely to prevent
the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(vii) Target has not paid and has not entered into any binding
agreement to pay any amount, nor will any bonuses paid by Target with
respect to which a deduction is claimed for the 1999 fiscal year
constitute amounts, to which Section 162(m) of the Code will apply so as
to result in the disallowance of any material deduction.
(viii) Target has not constituted either a "distributing
corporation" or a "controlled corporation" in a distribution of stock
qualifying for tax-free treatment under Section 355 of the Code (x) in the
two years prior to the date of this Agreement or (y) in a distribution
which could otherwise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
(ix) As used in this Agreement, "taxes" shall include all (x)
Federal, state, local or foreign income, property, sales, excise and other
taxes or similar governmental charges, including any interest, penalties
or additions with respect thereto, and (y) liability for the payment of
any amounts as a result of being party to any tax sharing agreement or as
a result of any express or implied obligation to indemnify any other
person with respect to the payment of any amounts of the type described in
clause (x).
(m) Voting Requirements. The affirmative vote of the holders of a
majority of the voting power of all outstanding shares of Target Common
Stock to adopt this Agreement (the "Target Stockholder Approval") is the
only vote of the holders of any class or series of Target's capital stock
necessary to approve and adopt this Agreement and the transactions
contemplated hereby.
(n) State Takeover Statutes. The Board of Directors of Target has
unanimously approved the terms of this Agreement and the Target
Stockholder Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement and the Target Stockholder
Agreement and such approval constitutes approval of this Agreement and the
Target Stockholder Agreement and the Merger and the other transactions
contemplated by this Agreement and the Target Stock-
<PAGE>
22
holder Agreement by the Board of Directors of Target under the provisions
of Section 203 of the DGCL and represents all the action necessary to
ensure that the restrictions contained in such Section 203 do not apply to
Parent or Sub in connection with the Merger and the other transactions
contemplated by this Agreement and the Target Stockholder Agreement. To
the knowledge of Target, no other state takeover statute is applicable to
the Merger or the other transactions contemplated hereby and by the Target
Stockholder Agreement.
(o) Brokers. No broker, investment banker, financial advisor or
other person, other than Thomas Weisel Partners LLC, the fees and expenses
of which will be paid by Target, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Target. Target has furnished to Parent true and
complete copies of all agreements under which any such fees or expenses
are payable and all indemnification and other agreements related to the
engagement of the persons to whom such fees are payable.
(p) Opinion of Financial Advisor. Target has received the written
opinion of Thomas Weisel Partners LLC, dated the date of this Agreement,
to the effect that, as of such date, the Exchange Ratio is fair from a
financial point of view to the stockholders of Target, a signed copy of
which opinion has been or promptly will be delivered to Parent.
(q) Intellectual Property; Year 2000. (i) As used herein,
"Intellectual Property Rights" shall mean all trademarks, service marks,
trade names, brands, copyrights and patents, all applications for
registration and registrations for such trademarks, copyrights and patents
and all mask works, trade secrets, confidential and proprietary
information, compositions of matter, formulas, designs, proprietary
rights, know-how and processes; and "Target Intellectual Property Rights"
shall mean all Intellectual Property Rights owned by or licensed to or
used by Target. A list and brief description of all Target Intellectual
Property Rights that are material to the conduct of the business of
Target, and all licenses, contracts, rights and arrangements with respect
to the foregoing, are set forth in Section 3.01(q) of the Target
Disclosure Schedule. To Target's knowledge, all the Target Intellectual
Property Rights which are material to the conduct of its business are
valid, enforceable and in full force and effect. Target owns, free and
clear of
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23
all Liens, or is validly licensed or otherwise has the right to use all
the Target Intellectual Property Rights which are material to the conduct
of its business.
(ii) To Target's knowledge, Target has not interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property Rights or other proprietary information of any other
person. Target has not received any written charge, complaint, claim,
demand or notice alleging any such interference, infringement,
misappropriation or other conflict (including any claim that Target or any
such subsidiary must license or refrain from using any Intellectual
Property Rights or other proprietary information of any other person)
which has not been settled or otherwise fully resolved, except for such
charges, complaints, claims, demands or notices that, individually and in
the aggregate, are not reasonably likely to have a material adverse effect
on Target. To Target's knowledge, no other person has materially
interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Target Intellectual Property Rights.
(iii) As the business of Target is presently conducted, Parent's use
after the Closing of the Target Intellectual Property Rights which are
material to the conduct of the business of Target will not interfere with,
infringe upon, misappropriate or otherwise come into conflict with the
Intellectual Property Rights or other proprietary information of any other
person, except for such interferences, infringements, misappropriations or
other conflicts that, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on Target.
(iv) Target has taken, and until the Closing Date, Target will take
all steps reasonably necessary to preserve Target's legal rights in all
the Target Intellectual Property Rights, except for such steps the failure
of which to be taken, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on Target. In
addition, each employee, agent, consultant or contractor who has
materially contributed to or participated in the creation or development
of any copyrightable, patentable or trade secret material on behalf of
Target or any predecessor-in-interest thereto either (x) is a party to a
"work-for-hire" relationship under which Target is deemed to be the
original owner/author of all property rights therein or (y) has executed
an assignment or an agreement to assign in favor of Target or such
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24
predecessor-in-interest, as applicable, all right, title and interest in
such material.
(v) Target has reviewed and assessed all areas within its business
and operations that could be adversely affected by the "Target Year 2000
Problem" (that is, the risk that computer applications used by Target or
used by any of the suppliers and vendors of Target and that interface with
a computer application used by Target may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999). Based on the foregoing, Target
represents that all computer applications used by Target and all computer
applications used by the suppliers and vendors of Target that interface
with any computer application used by Target that are material to its
business or operations are Year 2000 Compliant, except for such failures
to be Year 2000 Compliant that, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on Target. The term
"Year 2000 Compliant", with respect to a computer system or software
program, means that such computer system or program: (a) is capable of
correctly recognizing, processing, managing, representing, interpreting
and manipulating accurate and correctly formatted date-related data for
dates earlier and later than January 1, 2000; (b) does not lack the
ability to function automatically into and beyond the year 2000 without
human intervention and without any change in operations as a result of the
advent of the year 2000; (c) has the ability to interpret accurate and
correctly formatted date data correctly into and beyond the year 2000; (d)
does not lack the ability not to produce noncompliance in existing data,
nor otherwise corrupt such data, into and beyond the year 2000 as a result
of the advent of the year 2000; (e) has the ability to process correctly
after January 1, 2000, accurate and correctly formatted date data
containing dates and times before that date; and (f) has the ability to
recognize all "leap year" dates, including February 29, 2000.
(r) Contracts. Except for Contracts filed as exhibits to the Target
Filed SEC Documents, Target is not a party to or bound by, and none of its
properties or assets are bound by or subject to, any written or oral:
(i) Contract not made in the ordinary course
of business entered into prior to the date of this
Agreement;
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25
(ii) Contract pursuant to which Target has agreed not to
compete with any person or to engage in any activity or business, or
pursuant to which any benefit is required to be given or lost as a
result of so competing or engaging;
(iii) Contract pursuant to which Target is restricted in any
material respect in the development, marketing or distribution of
its products or services;
(iv) Contract with (A) any affiliate of Target or (B) any
current or former director or officer of Target or of any affiliate
of Target or any of the 25 most highly compensated employees of
Target or (C) any affiliate of any such person (other than (w)
contracts on arm's-length terms with companies whose common stock is
publicly traded, (x) offer letters providing solely for "at will"
employment, (y) invention assignment and confidentiality agreements
relating to the assignment of inventions to Target not involving the
payment of money and (z) Target Benefit Plans referred to in Section
3.01(j));
(v) license or franchise granted by Target pursuant to which
Target has agreed to refrain from granting license or franchise
rights to any other person;
(vi) Contract under which Target has (i) incurred any
indebtedness that is currently owing or (ii) given any guarantee in
respect of indebtedness, in each case having an aggregate principal
amount in excess of $250,000;
(vii) Contract that requires consent, approval or waiver of or
notice to a third party in the event of or with respect to the
Merger, including in order to avoid termination of or a loss of
material benefit under any such Contract, except for such Contracts
the termination or loss of material benefit under which,
individually and in the aggregate, are not reasonably likely to have
a material adverse effect on Target;
(viii) Contract or other agreement, whether written or oral,
that contains any guarantees as to Target's future revenues;
(ix) Contract providing for payments of royalties to third
parties;
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26
(x) Contract granting a third party any license to
Intellectual Property Rights that is not limited to the internal use
of such third party;
(xi) Contract providing confidential treatment by Target of
third party information other than non-disclosure agreements and
provisions entered into by Target in the ordinary course of business
consistent with past practice;
(xii) Contract granting the other party to such Contract or a
third party "most favored nation" status that, following the Merger,
would in any way apply to Parent or any of its subsidiaries (other
than Target and its products or services (other than any similar
products or services produced or offered by Parent or any of its
subsidiaries (other than Target))); and
(xiii) Contract which (i) has aggregate future sums due from
Target in excess of $250,000 and is not terminable by Target for a
cost of less than $250,000 or (ii) is otherwise material to the
business of Target as presently conducted or as proposed to be
conducted.
Each Contract of Target is in full force and effect and is a legal, valid
and binding agreement of Target and, to the knowledge of Target, of each
other party thereto, enforceable against Target and, to the knowledge of
Target, against the other party or parties thereto, in each case, in
accordance with its terms, except for such failures to be in full force
and effect or enforceable that, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on Target. Target has
performed or is performing all material obligations required to be
performed by it under its Contracts and is not (with or without notice or
lapse of time or both) in breach or default in any material respect
thereunder, and, to the knowledge of Target, no other party to any of its
Contracts is (with or without notice or lapse of time or both) in breach
or default in any material respect thereunder except, in each case, for
such breaches that, individually and in the aggregate, are not reasonably
likely to have a material adverse effect on Target.
(s) Title to Properties. (i) Section 3.01(s) of the Target
Disclosure Schedule sets forth a true and complete list, as of the date of
this Agreement, of all real property and leasehold property owned or
leased by
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27
Target or any of its subsidiaries. Target has good and valid title to, or
valid leasehold interests in or valid rights to, all its material
properties and assets except for such as are no longer used or useful in
the conduct of its businesses or as have been disposed of in the ordinary
course of business and except for defects in title, easements, restrictive
covenants and similar encumbrances that, individually and in the
aggregate, do not materially interfere with its ability to conduct its
business as currently conducted. All such material assets and properties,
other than assets and properties in which Target has a leasehold interest,
are free and clear of all Liens except for Liens that, individually and in
the aggregate, do not materially interfere with the ability of Target to
conduct its business as currently conducted.
(ii) Target has complied in all material respects with the terms of
all leases to which it is a party and under which it is in occupancy, and
all such leases are in full force and effect. Target enjoys peaceful and
undisturbed possession under all such leases, except for failures to do so
that, individually and in the aggregate, are not reasonably likely to have
a material adverse effect on Target.
(t) Privacy Policy. (i) For purposes of this Section 3.01(t):
(A) "Privacy Statement" means the written privacy policy of
Target to be established by Target on or before the Policy Launch
Date regarding the collection, use and distribution of personal
information from visitors to its web site as in effect from time to
time;
(B) "Policy Launch Date" means the date on which Target makes
the Privacy Statement accessible to visitors of its website,
provided that such date shall occur no later than March 15, 2000;
and
(C) "Terms and Conditions" means Target's written agreements
with its customers that establish the terms and conditions of
Target's services as in effect from time to time.
(ii) On and after the Policy Launch Date, the Privacy Statement will
be conspicuously linked at all times on Target's homepage and from any
page on Target's website on which personal information is collected from
visitors to its web site. The Privacy Statement will include at the
minimum the
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28
following: (A) notice to visitors about Target's web site's information
collection policies and practices prior to disclosing their personal
information; (B) options for the visitors regarding how their personal
information will be used, including any uses beyond those for which the
information was provided and the option to choose whether or not to allow
their personal information to be disclosed and used for such purposes and
by third parties, but excluding the use and disclosure of personal
information to the extent that Target believes in good faith (based on the
advise of outside counsel) that applicable law requires such use or
disclosure or for administrative purposes to the extent that Target
determines in good faith that such use or disclosure is reasonably
necessary to maintain or service its site or its services; (C) a mechanism
by which visitors may view and correct their personal data if it is
inaccurate or incomplete; (D) representation that Target uses industry
standard security measures to protect all data collected by Target from
visitors; and (E) a notice that visitors under the age of eighteen should
not disclose personal information without the consent of a parent or
guardian.
(iii) Except as set forth in the Terms and Conditions, Target does
not sell, rent or otherwise make available to third parties any personal
data submitted by visitors and consumers; provided, however, that Target
does make use of non-personally identifiable statistical information
including, but not limited to, browser-type, geographical location, age
and gender, solely for its own statistical analysis.
(iv) Target and its employees have (A) complied with all privacy
policies issued by Target, all applicable privacy laws and all applicable
Terms and Conditions regarding the disclosure and use of data, (B) not
violated the Privacy Statement and (C) taken all steps to protect and
maintain the confidential nature of the personal information provided to
Target by visitors who do not consent to the disclosure of such
information to third parties or have otherwise expressly requested that
Target not disclose such information. All personal data collected by
Target from time to time is or will be used in accordance with the most
current privacy policies of Target or, to the extent applicable, the Terms
and Conditions.
SECTION 3.02. Representations and Warranties of Parent and Sub.
Except as disclosed in the Parent Filed SEC Documents or as set forth on the
Disclosure Schedule delivered by Parent to Target prior to the execution of this
Agreement (the "Parent Disclosure Schedule") (each section
<PAGE>
29
of which qualifies the correspondingly numbered representation and warranty or
covenant to the extent specified therein and such other representations and
warranties or covenants to the extent a matter in such section is disclosed in
such a way as to make its relevance to the information called for by such other
representation and warranty or covenant reasonably apparent), Parent and Sub
represent and warrant to Target as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated and has the
requisite corporate power and authority to carry on its business as now
being conducted. Each of Parent and Sub is duly qualified or licensed to
do business and is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its assets makes such
qualification or licensing necessary, except for those jurisdictions where
the failure to be so qualified or licensed or to be in good standing,
individually and in the aggregate, is not reasonably likely to have a
material adverse effect on Parent. All outstanding shares of capital stock
of Parent are duly authorized, validly issued, fully paid and
nonassessable. Parent has made available to Target prior to the execution
of this Agreement complete and correct copies of its certificate of
incorporation and by-laws and the certificate of incorporation and by-laws
of Sub, in each case as amended to the date of this Agreement.
(b) Subsidiaries. Section 3.02(b) of the Parent Disclosure Schedule
sets forth a true and complete list, as of the date of this Agreement, of
each of Parent's subsidiaries. All the outstanding shares of capital stock
of, or other equity interests in, each subsidiary of Parent have been
validly issued, are fully paid and nonassessable and are owned directly or
indirectly by Parent, free and clear of all Liens.
(c) Capital Structure. The authorized capital stock of Parent
consists of 70,000,000 shares of Parent Common Stock and 10,000,000 shares
of preferred stock, par value $0.01 per share, of Parent ("Parent
Authorized Preferred Stock"). At the close of business on January 31,
2000, (i) 22,615,709 shares of Parent Common Stock were issued and
outstanding; (ii) no shares of Parent Authorized Preferred Stock were
issued and outstanding; (iii) 4,218,874 shares of Parent Common Stock were
reserved for issuance pursuant to Parent's 1998 Stock Incentive Plan; and
(iv) 3,411,832
<PAGE>
30
shares of Parent Common Stock were reserved for issuance upon exercise of
outstanding warrants. As of the date of this Agreement, no bonds,
debentures, notes or other indebtedness of Parent having the right to vote
(or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which stockholders of Parent may vote are issued
or outstanding or subject to issuance. The authorized capital stock of Sub
consists of 1,000 shares of common stock, par value $0.01 per share, all
of which are issued and outstanding and wholly owned by Parent. All
outstanding shares of capital stock of Parent and Sub are, and all shares
which may be issued will be, when issued, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights.
(d) Authority; Noncontravention. Each of Parent and Sub has all
requisite corporate power and authority to enter into this Agreement and,
subject to the Parent Stockholder Approval, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this
Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of Parent and Sub, subject, in
the case of the issuance of shares of Parent Common Stock in connection
with the Merger, to the Parent Stockholder Approval. This Agreement has
been duly executed and delivered by Parent and Sub and, assuming the due
authorization, execution and delivery by each of the other parties
thereto, constitutes a legal, valid and binding obligation of Parent and
Sub, enforceable against each of them in accordance with its terms. The
execution and delivery of this Agreement do not, and the consummation of
the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancelation or
acceleration of any obligation or loss of a benefit under, or result in
the creation of any Lien upon any of the properties or assets of Parent or
Sub under, (i) the certificate of incorporation or by-laws of Parent or
Sub, (ii) any Contract applicable to Parent or Sub or their respective
properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, (A) any judgment,
order or decree or (B) any statute, law, ordinance, rule or regulation, in
each case applicable to Parent or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii)
and
<PAGE>
31
(iii), any such conflicts, violations, defaults, rights, losses or Liens
that, individually and in the aggregate, are not reasonably likely to (x)
have a material adverse effect on Parent, (y) impair the ability of Parent
or Sub to perform its obligations under this Agreement or (z) prevent or
materially delay the consummation of the transactions contemplated by this
Agreement. No consent, approval, order or authorization of, action by or
in respect of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement by Parent and
Sub or the consummation by Parent and Sub of the transactions contemplated
by this Agreement, except for (1) the filing of a premerger notification
and report form by Parent under the HSR Act and any applicable filings and
approvals under similar foreign antitrust or competition laws and
regulations; (2) the filing with the SEC of (A) the Form S-4 and (B) such
reports under Section 13(a), 13(d), 15(d) or 16(a) of the Exchange Act as
may be required in connection with this Agreement, the Target Stockholder
Agreement, the Parent Stockholder Agreement and the transactions
contemplated by this Agreement, the Target Stockholder Agreement and the
Parent Stockholder Agreement; (3) the filing of the Certificate of Merger
with the Delaware Secretary of State and appropriate documents with the
relevant authorities of other states in which Parent is qualified to do
business and such filings with Governmental Entities to satisfy the
applicable requirements of state securities or "blue sky" laws; (4) such
filings with and approvals of The Nasdaq National Market ("Nasdaq") to
permit the shares of Parent Common Stock that are to be issued in the
Merger to be quoted on Nasdaq; and (5) such other consents, approvals,
orders, authorizations, registrations, declarations and filings the
failure of which to be made or obtained, individually and in the
aggregate, are not reasonably likely to (x) have a material adverse effect
on Parent, (y) impair the ability of Parent or Sub to perform its
obligations under this Agreement or (z) prevent or materially delay the
consummation of the transactions contemplated by this Agreement.
(e) SEC Documents; Undisclosed Liabilities. Parent has filed all
required reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated therein) with
the SEC since December 31, 1997 (collectively, the "Parent SEC
Documents"). As of their respective dates, the Parent SEC Documents
complied in all material respects with the requirements
<PAGE>
32
of the Securities Act or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder applicable to such
Parent SEC Documents, and none of the Parent SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of Parent included in
the Parent SEC Documents comply as to form, as of their respective dates
of filing with the SEC, in all material respects with the Accounting
Rules, have been prepared in accordance with GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated
in the notes thereto) and fairly present in all material respects the
consolidated financial position of Parent and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal recurring year-end audit adjustments).
Except (i) as reflected in the financial statements contained in the
Parent Filed SEC Documents or in the notes thereto or (ii) for liabilities
incurred in connection with this Agreement or the transactions
contemplated hereby, neither Parent nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) which, individually or in the aggregate, when
taken as a whole with any benefits or rights corresponding to such
liabilities or obligations, are reasonably likely to have a material
adverse effect on Parent.
(f) Information Supplied. None of the information supplied or to be
supplied by Parent specifically for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii)
the Proxy Statement will, at the date it is first mailed to Target's or
Parent's stockholders or at the time of the Target Stockholders Meeting or
the Parent Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Form S-4
will comply as to form in all
<PAGE>
33
material respects with the requirements of the Exchange Act and the rules
and regulations thereunder. No representation or warranty is made by
Parent with respect to statements made or incorporated by reference
therein based on information supplied by Target specifically for inclusion
or incorporation by reference in the Form S-4.
(g) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement, the Target Stockholder
Agreement, the Employment Agreements or the transactions contemplated
hereby or thereby and except as disclosed in the Parent SEC Documents
filed and publicly available prior to the date of this Agreement (as
amended to the date of this Agreement, the "Parent Filed SEC Documents"),
from December 31, 1998 to the date of this Agreement, Parent and its
subsidiaries have conducted their business only in the ordinary course,
and during such period there has not been (1) any material adverse change
in Parent, (2) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to
any of Parent's capital stock, (3) any split, combination or
reclassification of any of Parent's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of Parent's capital stock, (4) (A)
any granting by Parent or any of its subsidiaries to any current or former
director, consultant, executive officer or other employee of Parent or its
subsidiaries of any increase in compensation, bonus or other benefits,
except for normal increases in cash compensation in the ordinary course of
business consistent with past practice or as was required under any
employment agreements in effect as of the date of the most recent audited
financial statements included in the Parent Filed SEC Documents, (B) any
granting by Parent or any of its subsidiaries to any such current or
former director, consultant, executive officer or employee of any increase
in severance or termination pay, (C) any entry by Parent or any of its
subsidiaries into, or any amendments of, any Parent Benefit Agreement or
(D) any amendment to, or modification of, any Parent Stock Option, (5)
except insofar as may have been required by a change in GAAP, any change
in accounting methods, principles or practices by Parent or any of its
subsidiaries materially affecting their respective assets, liabilities or
businesses, (6) any tax election that individually or in the aggregate is
reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of Parent or any of its subsidiaries or (7)
any settlement or compromise of any
<PAGE>
34
material income tax liability. Except for liabilities incurred in
connection with this Agreement, the Target Stockholder Agreement, the
Employment Agreements or the transactions contemplated hereby or thereby
and except as disclosed in the Parent Filed SEC Documents, since December
31, 1998, there has not been any material adverse change in Parent.
(h) Litigation. There is no suit, action or proceeding pending or,
to the knowledge of Parent or any of its subsidiaries, threatened against
or affecting Parent or any of its subsidiaries that, individually or in
the aggregate, is reasonably likely to have a material adverse effect on
Parent nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Parent or any of its
subsidiaries having, or which is reasonably likely to have, individually
or in the aggregate, a material adverse effect on Parent. Section 3.02(h)
of the Parent Disclosure Schedule sets forth a true and complete list, as
of the date of this Agreement, of each settlement or similar agreement in
respect of any pending or threatened suit, action, proceeding, judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
which Parent or any of its subsidiaries has entered into or become bound
by since June 30, 1999.
(i) Compliance with Applicable Laws. (i) Parent and its subsidiaries
hold all material permits, licenses, variances, exemptions, orders,
registrations and approvals of all Governmental Entities (the "Parent
Permits") that are required for them to own, lease or operate their assets
and to carry on their businesses. Parent and its subsidiaries are in
compliance with the terms of the Parent Permits and all applicable
statutes, laws (including Environmental Laws), ordinances, rules and
regulations, except for such failures to comply that, individually and in
the aggregate, are not reasonably likely to have a material adverse effect
on Parent. No action, demand, requirement or investigation by any
Governmental Entity and no suit, action or proceeding by any person, in
each case with respect to Parent or any of its subsidiaries or any of
their respective properties that, individually or in the aggregate, is
reasonably likely to have a material adverse effect on Parent, is pending
or, to the knowledge of Parent, threatened.
(ii) To Parent's knowledge, there have been no Releases of any
Hazardous Materials at, on or under any facility or property currently or
formerly owned, leased, or operated by Parent or any of its subsid-
<PAGE>
35
iaries that, individually or in the aggregate, are reasonably likely to
have a material adverse effect on Parent. Neither Parent nor any of its
subsidiaries is the subject of any pending or, to Parent's knowledge,
threatened investigation or proceeding under Environmental Law relating in
any manner to the off-site treatment, storage or disposal of any Hazardous
Materials generated at any facility or property currently or formerly
owned, leased or operated by Parent or any of its subsidiaries.
(j) ERISA Compliance. (i) Section 3.02(j) of the Parent Disclosure
Schedule contains a list of all "employee pension benefit plans" (as
defined in Section 3(2) of ERISA) (sometimes referred to herein as "Parent
Pension Plans"), "employee welfare benefit plans" (as defined in Section
3(1) of ERISA), all other collective bargaining agreements or any bonus,
pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
thrift, savings, stock bonus, restricted stock, cafeteria, paid time off,
perquisite, fringe benefit, vacation, severance, disability, death
benefit, hospitalization, medical, welfare benefit or other plan,
arrangement or understanding (whether or not legally binding) providing
benefits to any current or former employee, officer, consultant or
director of Parent (collectively, the "Parent Benefit Plans"), and
employment, consulting, deferred compensation, indemnification, severance
or termination agreements or arrangements between Parent and any current
or former employee, officer, consultant or director of Parent
(collectively, the "Parent Benefit Agreements") maintained, or contributed
to, by Parent or any of its subsidiaries, or to which Parent or any of its
subsidiaries is a party, for the benefit of any current or former
employees, officers or directors of Parent or any of its subsidiaries.
Parent has made available to Target or will make available to Target upon
request true, complete and correct copies of (a) each Parent Benefit Plan
and Parent Benefit Agreement (or, in the case of any unwritten Parent
Benefit Plan or Parent Benefit Agreement, a description thereof), (b) the
most recent annual report on Form 5500 filed with the Internal Revenue
Service with respect to each Parent Benefit Plan (if any such report was
required), (c) the most recent summary plan description for each Parent
Benefit Plan for which such summary plan description is required and (d)
each trust agreement and group annuity contract relating to any Parent
Benefit Plan.
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36
(ii) Each Parent Benefit Plan has been administered in all material
respects in accordance with its terms. Parent, its subsidiaries and each
Parent Benefit Plan are in substantial compliance with the applicable
provisions of ERISA and the Code, and all other applicable laws and the
terms of all collective bargaining agreements. All Parent Pension Plans
intended to be qualified have received favorable determination letters
from the Internal Revenue Service with respect to "TRA" (as defined in
Section 1 of Rev. Proc. 93-39), to the effect that such Parent Pension
Plans are qualified and exempt from Federal income taxes under Sections
401(a) and 501(a), respectively, of the Code, and no such determination
letter has been revoked nor, to the knowledge of Parent, has revocation
been threatened, nor has any such Parent Pension Plan been amended since
the date of its most recent determination letter or application therefor
in any respect that would adversely affect its qualification or materially
increase its costs. There is no pending or, to the knowledge of Parent,
threatened litigation relating to Parent Benefit Plans.
(iii) None of Parent or any person which is considered an ERISA
Affiliate of Parent has or could reasonably be expected to have any
liability under Title IV of ERISA with respect to any Parent Benefit Plan.
None of Parent, any of its subsidiaries, any officer of Parent or any of
its subsidiaries or any of the Parent Benefit Plans which are subject to
ERISA, including the Parent Pension Plans, any trusts created thereunder
or, to the knowledge of Parent, any trustee or administrator thereof, has
engaged in a "prohibited transaction" (as such term is defined in Section
406 of ERISA or Section 4975 of the Code) or any other breach of fiduciary
responsibility that could subject Parent, any of its subsidiaries or any
officer of Parent or any of its subsidiaries to the tax or penalty on
prohibited transactions imposed by such Section 4975 in an amount that
would be material or to any material liability under Section 502(i) or
502(l) of ERISA. All contributions and premiums required to be made under
the terms of any Parent Benefit Plan as of the date hereof have been
timely made or have been reflected on the most recent consolidated balance
sheet filed or incorporated by reference in the Filed Parent SEC
Documents. Neither any Parent Pension Plan nor any single-employer plan of
an ERISA Affiliate of Parent has an "accumulated funding deficiency" (as
such term is defined in Section 302 of ERISA or Section 412 of the Code),
whether or not waived.
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37
(iv) With respect to any Parent Benefit Plan that is an employee
welfare benefit plan, (a) no such Parent Benefit Plan is unfunded or
funded through a "welfare benefit fund" (as such term is defined in
Section 419(e) of the Code) and (b) each such Parent Benefit Plan that is
a "group health plan" (as such term is defined in Section 5000(b)(1) of
the Code) complies with the applicable requirements of Section 4980B(f) of
the Code. Neither Parent nor any of its subsidiaries has any obligations
for retiree health and life benefits under any Parent Benefit Plan or
Parent Benefit Agreement.
(v) Parent and its subsidiaries are in compliance with all Federal,
state and local requirements regarding employment, except for such
failures to comply that, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on Parent. As of the
date of this Agreement, neither Parent nor any of its subsidiaries is a
party to any collective bargaining or other labor union contract
applicable to persons employed by Parent or any of its subsidiaries and no
collective bargaining agreement is being negotiated by Parent or any of
its subsidiaries. As of the date of this Agreement, there is no labor
dispute, strike or work stoppage against Parent or any of its subsidiaries
pending or, to the knowledge of Parent, threatened which may interfere
with the respective business activities of Parent or its subsidiaries. As
of the date of this Agreement, to the knowledge of Parent, none of Parent,
any of its subsidiaries or any of their respective representatives or
employees has committed an unfair labor practice in connection with the
operation of the respective businesses of Parent or any of its
subsidiaries, and there is no charge or complaint against Parent or any of
its subsidiaries by the National Labor Relations Board or any comparable
governmental agency pending or threatened in writing.
(k) Taxes. (i) Each of Parent and its subsidiaries has filed all tax
returns and reports required to be filed by it and all such returns and
reports are complete and correct in all material respects, or requests for
extensions to file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures to file, to
be complete or correct or to have extensions granted that remain in
effect, individually and in the aggregate, are not reasonably likely to
have a material adverse effect on Parent. Parent and each of its
subsidiaries has paid (or Parent has paid on its behalf) all taxes due
with respect to such returns, and
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38
the most recent financial statements contained in the Parent Filed SEC
Documents reflect an adequate reserve for all taxes payable by Parent and
its subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against Parent or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the
aggregate are not reasonably likely to have a material adverse effect on
Parent. The Federal income tax returns of Parent and each of its
subsidiaries consolidated in such returns for periods ending on or before
December 31, 1995, have closed by virtue of the applicable statute of
limitations and no requests for waivers of the time to assess any such
taxes are pending, and, with respect to all subsequent periods, no Federal
or state tax return or report or any other material tax return or report
of Parent and such subsidiaries is currently under audit and no written or
unwritten notice of any such audit or similar examination has been
received by Parent. There is no currently effective agreement or other
document extending, or having the effect of extending, the period of
assessment or collection of any taxes and no power of attorney with
respect to taxes has been executed or filed with any taxing authority.
(iii) There are no material liens for taxes (other than for current
taxes not yet due and payable) on the assets of Parent or any of its
subsidiaries. Neither Parent nor any of its subsidiaries is bound by any
agreement with respect to taxes.
(iv) Neither Parent nor any of its subsidiaries has been or is a
United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii).
(v) Section 3.02(k)(v) of the Parent Disclosure Schedule sets forth
each state in which Parent or any of its subsidiaries has filed a tax
return relating to state income, franchise, license, excise, net worth,
property and sales and use taxes, except in a case where Parent or any of
its subsidiaries is or has been required to file such a tax return and
such failures to file could not individually or in the aggregate
reasonably be expected to have a material adverse effect on Parent or any
of its subsidiaries. To the knowledge of Parent, it is not required to
file any tax return or report in any other state and no claim has
<PAGE>
39
ever been made by a taxing authority in a jurisdiction where any of Parent
and each of its subsidiaries does not file a tax return that it is, or may
be subject to, taxation in that jurisdiction.
(vi) Neither Parent nor any of its subsidiaries has taken any action
or knows of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(vii) The Parent Benefit Plans and other Parent employee
compensation arrangements in effect as of the date of this Agreement have
been designed so that the disallowance of a material deduction under
Section 162(m) of the Code for employee remuneration will not apply to any
amounts paid or payable by Parent or any of its subsidiaries under any
such plan or arrangement and, to the knowledge of Parent, no fact or
circumstance exists that is reasonably likely to cause such disallowance
to apply to any such amounts.
(viii) Neither Parent nor any of its subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" in a
distribution of stock qualifying for tax-free treatment under Section 355
of the Code (x) in the two years prior to the date of this Agreement or
(y) in a distribution which could otherwise constitute part of a "plan" or
"series of related transactions" (within the meaning of Section 355(e) of
the Code) in conjunction with the Merger.
(l) Voting Requirements. The affirmative vote of a majority of the
votes cast at the Parent Stockholders Meeting to approve the issuance of
shares of Parent Common Stock in connection with the Merger in accordance
with the rules and regulations of Nasdaq (the "Parent Stockholder
Approval") is the only vote of the holders of any class or series of
Parent's capital stock necessary to approve such issuance and the
transactions contemplated hereby.
(m) State Takeover Statutes. The Board of Directors of Parent has
unanimously approved the terms of this Agreement and the Parent
Stockholder Agreement and the consummation of the transactions
contemplated by this Agreement and the Parent Stockholder Agreement and
such approval constitutes approval of this Agreement and the Parent
Stockholder Agreement and the transactions contemplated by this Agreement
and the Parent Stockholder Agreement by the Board of Directors of Parent
under the provisions of Section 203 of the DGCL and represents all the
action necessary to ensure
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40
that the restrictions contained in such Section 203 do not apply to Target
in connection with the transactions contemplated this Agreement and the
Parent Stockholder Agreement. To the knowledge of Parent, no other state
takeover statute is applicable to the transactions contemplated hereby and
by the Parent Stockholder Agreement.
(n) Intellectual Property; Year 2000. (i) As used herein, "Parent
Intellectual Property Rights" shall mean all Intellectual Property Rights
owned by or licensed to or used by Parent as of the date of this
Agreement. To the knowledge of Parent, all the Parent Intellectual
Property Rights which are material to the conduct of its business are
valid, enforceable and in full force and effect. Parent and its
subsidiaries own, free and clear of all Liens, or are validly licensed or
otherwise have the right to use all the Parent Intellectual Property
Rights which are material to the conduct of the business of Parent and its
subsidiaries.
(ii) To the knowledge of Parent, neither Parent nor any of its
subsidiaries has materially interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
Property Rights or other proprietary information of any other person.
Neither Parent nor any of its subsidiaries has received any written
charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or other conflict (including any claim that
Parent or any such subsidiary must license or refrain from using any
Intellectual Property Rights or other proprietary information of any other
person) which has not been settled or otherwise fully resolved, except for
such charges, complaints, claims, demands or notices that, individually
and in the aggregate, are not reasonably likely to have a material adverse
effect on Parent. Except as set forth in Section 3.02(n) of the Parent
Disclosure Schedule, to Parent's knowledge, no other person has materially
interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Parent Intellectual Property Rights or any Intellectual
Property Rights of any of its subsidiaries.
(iii) Parent has reviewed and assessed all areas within its business
and operations that could be adversely affected by the "Parent Year 2000
Problem" (that is, the risk that computer applications used by Parent or
used by any of the suppliers and vendors of Parent and that interface with
a computer application used by Target that may be unable to recognize and
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41
perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999). Based on the foregoing, Parent
represents that all computer applications used by Parent and all computer
applications used by the suppliers and vendors of Parent that interface
with any computer application used by Target that are material to its
business or operations are Year 2000 Compliant, except for such failures
to be Year 2000 Compliant that, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on Parent.
(o) Title to Properties. (i) Each of Parent and its subsidiaries has
good and valid title to, or valid leasehold interests in or valid rights
to, all its material properties and assets except for such as are no
longer used or useful in the conduct of its businesses or as have been
disposed of in the ordinary course of business and except for defects in
title, easements, restrictive covenants and similar encumbrances that,
individually and in the aggregate, do not materially interfere with its
ability to conduct its business as currently conducted. All such material
assets and properties, other than assets and properties in which Parent or
any of its subsidiaries has a leasehold interest, are free and clear of
all Liens except for Liens that, individually and in the aggregate, do not
materially interfere with the ability of Parent and its subsidiaries to
conduct their respective businesses as currently conducted.
(ii) Each of Parent and its subsidiaries has complied in all
material respects with the terms of all leases to which it is a party and
under which it is in occupancy, and all such leases are in full force and
effect. Each of Parent and its subsidiaries enjoys peaceful and
undisturbed possession under all such leases, except for failures to do so
that, individually and in the aggregate, are not reasonably likely to have
a material adverse effect on Parent.
(p) Privacy Policy. (i) For purposes of this Section 3.02(p):
(A) "Privacy Statement" means Parent's written privacy
policies regarding the collection, use and distribution of personal
information from visitors to its web site and consumers of its
products and services as in effect from time to time; and
(B) "Data Collection and Security Statement" means Parent's
written data collection and
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42
security statement, comprising a part of the Privacy Statement as in
effect from time to time.
(ii) The Privacy Statement is conspicuously linked at all times on
Parent's homepage. The Privacy Statement is clearly written and includes
at the minimum the following: (A) notice to visitors about Parent's web
site's information collection policies and practices prior to disclosing
their personal information; (B) options for the visitors regarding how
their personal information will be used, including any uses beyond those
for which the information was provided and the option to choose whether or
not to allow their personal information to be disclosed and used for such
purposes and by third parties, but excluding the use and disclosure of
personal information to the extent that Parent believes in good faith
(based on the advise of outside counsel) that applicable law requires such
use or disclosure or for administrative purposes to the extent that Parent
determines in good faith that such use or disclosure is reasonably
necessary to maintain or service its site or its services; (C) a mechanism
by which visitors may view and correct their personal data if it is
inaccurate or incomplete; (D) representation that Parent uses industry
standard security measures to protect all data collected by Parent from
its visitors.
(iii) Parent and its employees have (A) complied with all privacy
policies issued by Parent, all applicable privacy laws regarding the
disclosure and use of data, (B) not violated the Privacy Statement or the
Data Collection and Security Statement and (C) taken all reasonable steps
to protect and maintain the confidential nature of the personal
information provided to Parent by visitors who do not consent to the
disclosure of such information to third parties or have otherwise
expressly requested that Parent not disclose such information. All
personal data collected by Parent from time to time is used in accordance
with the most current privacy policies of Parent.
(q) Tax Matters. Neither Parent nor any of its subsidiaries has
taken any action or knows of any fact, agreement, plan or other
circumstance that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
(r) Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby, has engaged in no
other business
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43
activities and has conducted its operations only as contemplated hereby.
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business. (a) Conduct of Business by
Target. Except as set forth in Section 4.01(a) of the Target Disclosure
Schedule, as otherwise expressly contemplated by this Agreement or as consented
to in writing by Parent, during the period from the date of this Agreement to
the Effective Time, Target shall carry on its business only in the ordinary
course consistent with past practice and in compliance in all material respects
with all applicable laws and regulations and, to the extent consistent
therewith, use all reasonable efforts to preserve intact its current business
organization, use reasonable efforts to keep available the services of its
current officers and other key employees and preserve its relationships with
those persons having business dealings with it to the end that its goodwill and
ongoing business shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing (but subject to the above exceptions), during the
period from the date of this Agreement to the Effective Time, Target shall not,
without the prior written consent of Parent, which consent shall not be
unreasonably withheld:
(i) (x) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock, property or otherwise) in
respect of, any of its capital stock, (y) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (z) purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Target or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject
to any Lien (w) any shares of its capital stock, (x) any other voting
securities, (y) any securities convertible into, or any rights, warrants
or options to acquire, any such shares, voting securities or convertible
securities or (z) any "phantom" stock or stock rights, SARs or stock-based
performance units other than (A) the issuance of Target Stock Options
granted in the ordinary course of business consistent with past practice
to new or promoted employees, so long as (I) the vesting of such
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Target Stock Options will not accelerate as a result of this Agreement,
the Target Stockholder Agreement or the transactions contemplated hereby
or thereby and (II) the exercise of such Target Stock Options would not
result in the Target Stockholders failing to hold of record more than 50%
of the outstanding shares of Target Common Stock (calculated on a fully
diluted basis assuming the exercise of all outstanding securities of
Target that are then, or may become on or prior to August 31, 2000,
convertible into or exchangeable or exercisable for, shares of capital
stock or other voting securities of Target), and (B) the issuance of
Target Common Stock upon the exercise of Target Stock Options or the
Warrants outstanding as of the date hereof in accordance with their
present terms, or upon the exercise of Target Stock Options referred to in
clause (A) in accordance with their terms;
(iii) amend Target's certificate of incorporation or by-laws;
(iv) acquire or agree to acquire by merging or consolidating with,
or by purchasing assets of, or by any other manner, any business or any
person;
(v) sell, lease, license, sell and leaseback, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any of its
properties or assets (including securitizations), other than sales or
licenses of finished goods or services in the ordinary course of business
consistent with past practice;
(vi) incur any indebtedness in excess of an aggregate principal
amount of $250,000 for borrowed money or guarantee any such indebtedness
of another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of Target, guarantee any debt
securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing, except for short-term borrowings incurred in the ordinary
course of business (or to refund existing or maturing indebtedness)
consistent with past practice;
(vii) make any loans, advances or capital contributions to, or
investments in, any other person;
(viii) make or agree to make any new capital expenditures, or enter
into any agreements providing for payments which, individually, are in
excess of $500,000 or, in the aggregate, are in excess of
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45
$5,000,000;
(ix) make any tax election that, individually or in the aggregate,
is reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of Target or settle or compromise any material
income tax liability;
(x) (A) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the date of
this Agreement) other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities recognized or
disclosed in the most recent financial statements (or the notes thereto)
of Target included in the Target Filed SEC Documents or incurred since the
date of such financial statements, or (B) waive the benefits of, agree to
modify in any manner, terminate, release any person from or fail to
enforce any confidentiality, standstill or similar agreement to which
Target is a party or of which Target is a beneficiary;
(xi) except as required by law or contemplated hereby and except for
labor agreements negotiated in the ordinary course, (x) establish, enter
into, adopt or amend or terminate any Target Benefit Plan or Target
Benefit Agreement, (y) change any actuarial or other assumption used to
calculate funding obligations with respect to any Target Pension Plan, or
change the manner in which contributions to any Target Pension Plan are
made or the basis on which such contributions are determined or (z) take
any action to accelerate any rights or benefits, or make any material
determinations not in the ordinary course of business consistent with past
practice, under any collective bargaining agreement, Target Benefit Plan
or Target Benefit Agreement;
(xii) (w) increase the compensation, bonus or other benefits of any
current or former director, consultant, officer or other employee, except
for (A) salary increases for non-officer employees as part of an annual
review process or part of a promotion in job title or responsibility in an
amount not to exceed 15% of such employee's salary as of the date of this
Agreement individually and 5% of the total salary base of all non-officer
employees of Target in the aggregate for all such increases or (B) salary
increases for officers consistent with the salary for the respective
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46
officer set forth in such officer's Employment Agreement with Parent, (x)
grant any current or former director, consultant, officer or other
employee any increase in severance or termination pay, (y) amend or modify
any Target Stock Option or (z) pay any benefit or amount not required by a
plan or arrangement as in effect on the date of this Agreement to any such
person;
(xiii) transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Intellectual Property Rights of
Target other than in the ordinary course of business consistent with past
practice; provided that in no event shall Target license on an exclusive
basis or sell any Intellectual Property Rights of Target;
(xiv) enter into or amend any agreements pursuant to which any
person is granted exclusive marketing or other exclusive rights with
respect to any Target product, process or technology;
(xv) enter into or amend any Contract or other agreement, whether
written or oral, that contains any guarantees as to Target's future
revenues or as to the future revenues of any other party to such Contract
or other agreement;
(xvi) obtain, through acquisition, lease, sublease or otherwise, any
real property for use as an office or similar facility of Target;
(xvii) hire additional employees in excess of the limits set forth
in Target's budget for the fiscal year ending December 31, 2000 attached
to Section 4.01(a)(xvii) of the Target Disclosure Schedule;
(xviii) except insofar as may be required by a change in GAAP, make
any changes in accounting methods, principles or practices;
(xix) take any action that would, or that is reasonably likely to,
result in (x) any of the representations and warranties made by Target in
this Agreement that are qualified as to materiality becoming untrue, (y)
any of such representations and warranties that are not so qualified
becoming untrue in any material respect or (z) any condition to the Merger
set forth in Article VI not being satisfied; or
(xx) authorize, or commit, resolve or agree to take, any of the
foregoing actions.
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47
(b) Conduct of Business by Parent. Except as set forth in Section
4.01(b) of the Parent Disclosure Schedule, as otherwise expressly contemplated
by this Agreement or as consented to in writing by Target, during the period
from the date of this Agreement to the Effective Time, Parent shall, and shall
cause its subsidiaries to, carry on their respective businesses only in the
ordinary course consistent with past practice and in compliance in all material
respects with all applicable laws and regulations and, to the extent consistent
therewith, use all reasonable efforts to preserve intact their current business
organizations, use reasonable efforts to keep available the services of their
current officers and other key employees and preserve their relationships with
those persons having business dealings with them to the end that their goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing (but subject to the above exceptions),
during the period from the date of this Agreement to the Effective Time, Parent
shall not, and shall not permit any of its subsidiaries to, without the prior
written consent of Target, which consent shall not be unreasonably withheld:
(i) take any action that would, or that is reasonably likely to,
result in (x) any of the representations and warranties made by Parent in
this Agreement that are qualified as to materiality becoming untrue, (y)
any of such representations and warranties that are not so qualified
becoming untrue in any material respect or (z) any condition to the Merger
set forth in Article VI not being satisfied; or
(ii) acquire any business entity, whether by merger, consolidation,
stock purchase or otherwise, unless Parent's board of directors determines
in good faith that such acquisition would not materially delay the
consummation of the transactions contemplated by this Agreement.
(c) Advice of Changes. Target and Parent shall promptly advise the
other party orally and in writing to the extent it has knowledge of (i) any
representation or warranty made by it (and, in the case of Parent, made by
Sub) contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty that
is not so qualified becoming untrue or inaccurate in any material respect, (ii)
the failure by it (and, in the case of Parent, by Sub) to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement and (iii) any change or event having, or
which is reasonably likely to have, a material adverse effect on such party or
on the truth of
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48
their respective representations and warranties or the ability of the conditions
set forth in Article VI to be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement.
SECTION 4.02. No Solicitation by Target. (a) Target shall not, nor
shall it permit any of its subsidiaries to, nor shall it authorize or permit any
of its directors, officers or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover Proposal or
(ii) enter into, continue or otherwise participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, any Takeover Proposal. Notwithstanding the foregoing, in the event that,
notwithstanding compliance with the preceding sentence, Target receives a
Superior Proposal, Target may, to the extent that the Board of Directors of
Target determines in good faith (after consultation with outside counsel) that
such action would, in the absence of the foregoing proscriptions, be required by
its fiduciary duties, participate in discussions regarding any Superior Proposal
in order to be informed with respect thereto in order to make any determination
permitted pursuant to Section 4.02(b)(i). In such event, Target shall, (i) no
less than 48 hours prior to participating in any such discussions, inform Parent
of the material terms and conditions of such Superior Proposal, including the
identity of the person making such Superior Proposal, (ii) promptly inform
Parent of the substance of any discussions relating to such Superior Proposal
and (iii) promptly keep Parent fully informed of the status, including any
change to the details of, any such Superior Proposal.
For purposes of this Agreement, "Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of 15% or more of the assets of Target and its
subsidiaries, taken as a whole, or 15% or more of any class or series of equity
securities of Target or any of its subsidiaries, any tender offer or exchange
offer that if consummated would result in any person beneficially owning 15% or
more of any class or series of equity securities of Target or any of its
subsidiaries, or any merger, consolidation, business combination,
recapitalization,
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49
liquidation, dissolution or similar transaction involving Target or any of its
subsidiaries, other than the transactions contemplated by this Agreement.
For purposes of this Agreement, "Superior Proposal" means any offer
not solicited by Target made by a third party to consummate a tender offer,
exchange offer, merger, consolidation or similar transaction which would result
in such third party (or its shareholders) owning, directly or indirectly, more
than 50% of the shares of Target Common Stock then outstanding (or of the
surviving entity in a merger) or all or substantially all of the assets of
Target and otherwise on terms which the Board of Directors of Target determines
in good faith (following receipt of the advice of a financial advisor of
nationally recognized reputation) to provide consideration to the holders of
Target Common Stock with a greater value than the consideration payable in the
Merger.
(b) Neither Target nor the Board of Directors of Target nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent, the approval or recommendation by such
Board of Directors or such committee of the Merger or this Agreement, except to
the extent that such Board of Directors determines in good faith (after
consultation with outside counsel) that such action would, in the absence of the
foregoing proscriptions, be required by its fiduciary duties, (ii) approve or
recommend, or propose to approve or recommend, any Takeover Proposal or (iii)
approve or recommend, or propose to approve or recommend, or execute or enter
into, any letter of intent, memorandum of understanding, agreement in principle,
merger agreement, acquisition agreement, option agreement, joint venture
agreement, partnership agreement or other similar agreement or propose or agree
to do any of the foregoing constituting or related to, or which is intended to
or is reasonably likely to lead to, any Takeover Proposal.
(c) In addition to the obligations of Target set forth in paragraphs
(a) and (b) of this Section 4.02, Target shall immediately (and no later than 48
hours) advise Parent orally and in writing of any request for information or of
any inquiry with respect to a Takeover Proposal, the material terms and
conditions of such request, inquiry or Takeover Proposal and the identity of the
person making such request, inquiry or Takeover Proposal. Target will promptly
keep Parent informed of the status and details (including amendments or changes
or proposed amendments or changes) of any such request, inquiry or Takeover
Proposal.
(d) Nothing contained in this Section 4.02 shall prohibit Target
from taking and disclosing to its stock-
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50
holders a position contemplated by Rule 14e-2(a) promulgated under the Exchange
Act or from making any disclosure to Target's stockholders if, in the good faith
judgment of the Board of Directors of Target, after consultation with outside
counsel, failure so to disclose would be inconsistent with its obligations under
applicable law; provided, however, that, subject to Section 4.02(b)(i), neither
Target nor its Board of Directors nor any committee thereof shall withdraw or
modify, or propose to withdraw or modify, its position with respect to this
Agreement or the Merger or approve or recommend, or propose to approve or
recommend, a Takeover Proposal.
SECTION 4.03. Recommendation by Parent. Neither Parent nor the Board
of Directors of Parent nor any committee thereof shall withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Target, the approval or
recommendation by such Board of Directors or such committee of the Merger or
this Agreement, except to the extent that such Board of Directors determines in
good faith (after consultation with outside counsel) that such action would, in
the absence of the foregoing proscriptions, be required by its fiduciary duties.
The foregoing sentence shall not prohibit Parent from taking and disclosing to
its stockholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act or from making any disclosure to its stockholders if, in the good
faith judgment of the Board of Directors of Parent, after consultation with
outside counsel, failure so to disclose would be inconsistent with its
obligations under applicable law; provided, however, that, subject to the first
sentence of this Section 4.03, neither Parent nor its Board of Directors nor any
committee thereof shall withdraw or modify, or propose to withdraw or modify,
its position with respect to this Agreement or the Merger.
ARTICLE V
Additional Agreements
SECTION 5.01. Preparation of the Form S-4 and the Proxy Statement;
Target Stockholders Meeting; Parent Stockholders Meeting. (a) As soon as
practicable following the date of this Agreement, Parent and Target shall
prepare and file with the SEC the Proxy Statement and Parent and Target shall
prepare and Parent shall file with the SEC the Form S-4, in which the Proxy
Statement will be included as a prospectus. Each of Target and Parent shall use
all reasonable efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. Parent and Target
will use all reasonable efforts to cause the Proxy Statement to be mailed to
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51
Parent's and Target's stockholders, respectively, as promptly as practicable
after the Form S-4 is declared effective under the Securities Act. Parent shall
also take any action (other than qualifying to do business in any jurisdiction
in which it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with the issuance of Parent Common Stock in the Merger and Target
shall furnish all information concerning Target and the holders of capital stock
of Target as may be reasonably requested in connection with any such action and
the preparation, filing and distribution of the Proxy Statement. No filing of,
or amendment or supplement to, or correspondence to the SEC or its staff with
respect to, the Form S-4 will be made by Parent, or the Proxy Statement will be
made by Target or Parent, without providing the other party a reasonable
opportunity to review and comment thereon. Parent will advise Target, promptly
after it receives notice thereof, of the time when the Form S-4 has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of the Parent Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or any request by the SEC for amendment of the Form S-4 or comments thereon and
responses thereto or requests by the SEC for additional information. Target or
Parent will advise the other party, promptly after it receives notice thereof,
of any request by the SEC for the amendment of the Proxy Statement or comments
thereon and responses thereto or requests by the SEC for additional information.
If at any time prior to the Effective Time any information relating to Target or
Parent, or any of their respective affiliates, officers or directors, should be
discovered by Target or Parent which should be set forth in an amendment or
supplement to any of the Form S-4 or the Proxy Statement, so that any of such
documents would not include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of Target.
(b) Target shall, as soon as practicable following the date of this
Agreement, establish a record date (which will be as soon as practicable
following the date of this Agreement) for, duly call, give notice of, convene
and hold a meeting of its stockholders (the "Target Stockholders Meeting")
solely for the purpose of obtaining the Target Stockholder Approval. Subject to
Section 4.02(b)(i), Target shall, through its Board of
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52
Directors, recommend to its stockholders the approval and adoption of this
Agreement, the Merger and the other transactions contemplated hereby. Without
limiting the generality of the foregoing, Target agrees that its obligations
pursuant to the first sentence of this Section 5.01(b) shall not be affected by
(i) the commencement, public proposal, public disclosure or communication to
Target of any Takeover Proposal or (ii) the withdrawal or modification by the
Board of Directors of Target or any committee thereof of such Board of
Directors' or such committee's approval or recommendation of the Merger or this
Agreement.
(c) Parent shall, as soon as practicable following the date of this
Agreement, establish a record date (which will be as soon as practicable
following the date of this Agreement) for, duly call, give notice of, convene
and hold a meeting of its stockholders (the "Parent Stockholders Meeting") for
the purpose of obtaining the Parent Stockholder Approval. Subject to the first
sentence of Section 4.03, Parent shall, through its Board of Directors,
recommend to its stockholders the approval of the issuance of shares of Parent
Common Stock in connection with the Merger. Without limiting the generality of
the foregoing, Parent agrees that its obligations pursuant to the first sentence
of this Section 5.01(c) shall not be affected by (i) the commencement, public
proposal, public disclosure or communication to Parent of any acquisition
proposal involving Parent or any of its subsidiaries or (ii) the withdrawal or
modification by the Board of Directors of Parent or any committee thereof of
such Board of Directors' or such committee's approval or recommendation of the
Merger or this Agreement.
SECTION 5.02. Letters of Target's Accountants. Target shall use all
reasonable efforts to cause to be delivered to Parent two letters from Target's
independent public accountants, one dated a date within two business days before
the date on which the Form S-4 shall become effective and one dated a date
within two business days before the Closing Date, each addressed to Parent, in
form and substance reasonably satisfactory to Parent and customary in scope and
substance for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
SECTION 5.03. Letters of Parent's Accountants. Parent shall use all
reasonable efforts to cause to be delivered to Target two letters from Parent's
independent accountants, one dated a date within two business days before the
date on which the Form S-4 shall become effective and one dated a date within
two business days before the Closing Date, each addressed to Target, in form and
sub-
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53
stance reasonably satisfactory to Target and customary in scope and substance
for comfort letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
SECTION 5.04. Access to Information; Confidentiality. Upon
reasonable notice and subject to the Confidentiality Agreement dated as of
January 5, 2000, between Parent and Target (the "Confidentiality Agreement"),
Target shall, and shall cause each of its subsidiaries to, afford to Parent and
to its officers, employees, accountants, counsel, financial advisors and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to all its properties, books, contracts,
commitments, personnel and records and, during such period, Target shall, and
shall cause each of its subsidiaries to, furnish promptly to Parent (a) a copy
of each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or state securities
laws and (b) all other information concerning its business, properties and
personnel as Parent may reasonably request (including Target's outside
accountants work papers). Target shall not be required to provide access to or
disclose information where such access or disclosure would contravene any law,
rule, regulation, order or decree. No review pursuant to this Section 5.04 shall
have an effect for the purpose of determining the accuracy of any representation
or warranty given by either party hereto to the other party hereto. Parent will
hold, and will cause its officers, employees, accountants, counsel, financial
advisors and other representatives and affiliates to hold, any nonpublic
information in accordance with the terms of the Confidentiality Agreement.
SECTION 5.05. Reasonable Efforts. (a) Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties agrees to use
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, the Target Stockholder Agreement and the Parent
Stockholder Agreement, including using reasonable efforts to accomplish the
following: (i) the taking of all reasonable acts necessary to cause the
conditions to Closing to be satisfied as promptly as practicable; (ii) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities,
including under the HSR Act) and the taking of all
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54
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity; (iii) the obtaining of all
necessary consents, approvals or waivers from third parties; (iv) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement, the Target Stockholder Agreement or the Parent
Stockholder Agreement or the consummation of the transactions contemplated by
this Agreement, the Target Stockholder Agreement or the Parent Stockholder
Agreement, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed; and (v)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the purposes of, this
Agreement, the Target Stockholder Agreement and the Parent Stockholder
Agreement; provided, however, that Parent will not be required to agree to, or
proffer to, (i) divest or hold separate any of Parent's, Target's or any of
their respective affiliates' businesses or assets or (ii) cease to conduct
business or operations in any jurisdiction in which Parent, Target or any of
Parent's subsidiaries conducts business or operations as of the date of this
Agreement.
(b) In connection with and without limiting the foregoing, Target
and its Board of Directors and Parent and its Board of Directors shall (i) take
all action necessary to ensure that no state takeover statute or similar statute
or regulation is or becomes applicable to the Merger, this Agreement, the Target
Stockholder Agreement or the Parent Stockholder Agreement or any other
transactions contemplated by this Agreement, the Target Stockholder Agreement or
the Parent Stockholder Agreement and (ii) if any state takeover statute or
similar statute or regulation becomes applicable to the Merger, this Agreement,
the Target Stockholder Agreement or the Parent Stockholder Agreement or any
other transaction contemplated by this Agreement, the Target Stockholder
Agreement or the Parent Stockholder Agreement, take all action necessary to
ensure that the Merger and the other transactions contemplated by this
Agreement, the Target Stockholder Agreement and the Parent Stockholder Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement, the Target Stockholder Agreement and the Parent Stockholder Agreement
and otherwise to minimize the effect of such statute or regulation on the Merger
and the other transactions contemplated by this Agreement, the Target
Stockholder Agreement and the Parent Stockholder Agreement.
SECTION 5.06. Stock Options; Warrants. (a) On or as soon as
practicable following the date of this Agreement, the Board of Directors of
Target (or, if
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55
appropriate, any committee thereof administering the Target Stock Plans) shall
adopt such resolutions or take such other actions as may be required to effect
the following:
(i) adjust the terms of all outstanding Target Stock Options granted
under the Target Stock Plans (each, as so adjusted, an "Adjusted Option"),
whether vested or unvested, as necessary to provide that, at the Effective
Time, each Target Stock Option outstanding immediately prior to the
Effective Time shall be amended and converted into an option to acquire,
on the same terms and conditions as were applicable under such Target
Stock Option, the number of shares of Parent Common Stock (rounded down to
the nearest whole share) equal to (A) the number of shares of Target
Common Stock subject to such Target Stock Option immediately prior to the
Effective Time multiplied by (B) the Exchange Ratio, at an exercise price
per share of Parent Common Stock (rounded up to the nearest tenth of a
cent) equal to (x) the exercise price per share of such Target Common
Stock immediately prior to the Effective Time divided by (y) the Exchange
Ratio; and
(ii) make such other changes to the Target Stock Plans as Target and
Parent may agree are appropriate to give effect to the Merger.
(b) The adjustments provided in this Section 5.06 with respect to
any Target Stock Option to which Section 421(a) of the Code applies shall be and
are intended to be effected in a manner which is consistent with Section 424(a)
of the Code so that no such adjustment shall cause (other than de minimis
changes resulting from mathematical rounding) (i) the ratio of the exercise
price of each Adjusted Option to the fair market value of the Parent Common
Stock subject to such Adjusted Option immediately following the Effective Time
to be more favorable to the optionee than the ratio of the corresponding Target
Stock Option exercise price to the fair market value of the Target Common Stock
subject to such corresponding Target Stock Option immediately prior to the
Effective Time or (ii) the excess of the aggregate fair market value of all
shares of Parent Common Stock subject to each Adjusted Option immediately
following the Effective Time over the aggregate exercise price of such Adjusted
Option to be more than the excess of the aggregate fair market value of all
shares of Target Common Stock subject to the corresponding Target Stock Option
immediately prior to the Effective Time over the aggregate exercise price of
such corresponding Target Stock Option. As soon as practicable after the
Effective Time, Parent shall deliver to the holders of Target Stock Options
appropriate notices setting forth such holders'
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56
rights pursuant to the respective Target Stock Plans and the agreements
evidencing the grants of such Target Stock Options and that such Target Stock
Options and agreements shall be assumed by Parent and shall continue in effect
on the same terms and conditions (subject to the adjustments required by this
Section 5.06 after giving effect to the Merger).
(c) A holder of an Adjusted Option may exercise such Adjusted Option
in whole or in part in accordance with its terms by following procedures to be
communicated by Parent with the notice contemplated by Section 5.06(b), together
with the consideration therefor and the federal withholding tax information, if
any, required in accordance with the related Target Stock Plan.
(d) Except as otherwise expressly provided by this Section 5.06 and
except to the extent required under the respective terms of the Target Stock
Options, all restrictions or limitations on transfer and vesting with respect to
Target Stock Options awarded under the Target Stock Plans or any other plan,
program or arrangement of Target or any of its subsidiaries, to the extent that
such restrictions or limitations shall not have already lapsed, and all other
terms thereof, shall remain in full force and effect with respect to such
options after giving effect to the Merger and the assumption by Parent as set
forth above.
(e) Within two business days following the Effective Time, Parent
shall prepare and file with the SEC a registration statement on Form S-8 (or
another appropriate form) registering a number of shares of Parent Common Stock
equal to the number of shares subject to the Adjusted Options. Target shall
cooperate with, and assist Parent in the preparation of, such registration
statement. Prior to the Effective Time, Parent shall take all necessary actions
in connection with the assumption of the Adjusted Options, including the
reservation, issuance and listing of Parent Common Stock in a number at least
equal to the number of shares of Parent Common Stock that will be subject to the
Adjusted Options.
(f) Target shall take, or cause to be taken, all action necessary to
cause the termination of Target's 1999 Employee Stock Purchase Plan and all
future offering periods thereunder, in each case, effective as of the date that
is no later than five business days prior to the Closing Date.
(g) As soon as practicable following the date of this Agreement, the
Board of Directors of Target (or, if
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appropriate, any committee thereof) shall adopt such resolutions or take such
other actions as may be required to effect the following:
(i) adjust the terms of all outstanding Warrants granted under the
warrant agreements listed in Section 3.01(c) of the Target Disclosure
Schedule as necessary to provide that, at the Effective Time, each Warrant
outstanding immediately prior to the Effective Time shall be amended and
converted into a warrant to acquire, on the same terms and conditions as
were applicable under such Warrant, the number of shares of Parent Common
Stock (rounded down to the nearest whole share) equal to (A) the number of
shares of Target Common Stock subject to such Warrant immediately prior to
the Effective Time multiplied by (B) the Exchange Ratio, at an exercise
price per share of Parent Common Stock (rounded up to the nearest tenth of
a cent) equal to (x) the exercise price per share of such Target Common
Stock immediately prior to the Effective Time divided by (y) the Exchange
Ratio; and
(ii) make such other changes to the warrant agreements listed in
Section 3.01(c) of the Target Disclosure Schedule as Target and Parent may
agree are appropriate to give effect to the Merger.
SECTION 5.07. Employee Matters. (a) Parent shall provide, or cause
to be provided, from the Effective Time through December 31, 2000, to current
employees of Target who continue employment through the Effective Time (the
"Target Employees"), employee benefits that are, in the aggregate, no less
favorable than the employee benefits provided to similarly situated employees of
Parent.
(b) For purposes of eligibility and vesting (but not benefit
accrual) under the employee benefit plans of Parent and its subsidiaries
providing benefits to Target Employees, Parent shall credit, and shall cause the
Surviving Corporation to credit, each Target Employee with his or her years of
service with Target before the Effective Time, to the same extent as such Target
Employee was entitled immediately prior to the Effective Time to credit for such
service under any similar Target Benefit Plan. To the extent permitted by
Parent's employee benefit plans and applicable law, Parent, the Surviving
Corporation and its subsidiaries shall waive any pre-existing condition
limitations, waiting periods or similar limitations applicable to Target
Employees and their covered dependents (other than limitations or waiting
periods that are already in effect with respect to such employees and dependents
and that have not been satisfied as of the Effective Time) under such employee
benefit plans of Parent and shall provide each
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such Target Employee with credit for any co-payments previously made and any
deductibles previously satisfied.
(c) Nothing contained in this Section 5.07 or elsewhere in this
Agreement shall be construed to prevent the termination of employment of any
individual Target Employee or any change in the employee benefits available to
any individual Target Employee or the amendment or termination of any particular
Target Benefit Plan or Target Benefit Agreement to the extent permitted by its
terms as in effect immediately prior to the Effective Time.
SECTION 5.08. Indemnification, Exculpation and Insurance. (a) Parent
agrees that all rights to indemnification, advancement of expenses and
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time now existing in favor of the current or former directors or
officers of Target as provided in its certificate of incorporation or by-laws
and any indemnification agreements of Target (as each is in effect on the date
hereof), the existence of which does not constitute a breach of this Agreement,
shall be assumed by the Surviving Corporation in the Merger, without further
action, as of the Effective Time and shall survive the Merger and shall continue
in full force and effect in accordance with their terms, and Parent shall cause
the Surviving Corporation to honor all such rights.
(b) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
is not the continuing or surviving corporation or entity of such consolidation
or merger or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, or otherwise dissolves the Surviving
Corporation, then, and in each such case, Parent shall cause proper provision to
be made so that the successors and assigns of the Surviving Corporation assume
the obligations set forth in this Section 5.08. Parent hereby guarantees to the
current or former directors or officers of Target the performance of the
obligations of the Surviving Corporation under Section 5.08(a) up to a maximum
aggregate amount of $45,000,000.
(c) The Surviving Corporation shall, at its option, either (i)
maintain for a period of not less than six years after the Effective Time,
Target's current directors' and officers' liability insurance covering acts or
omissions occurring prior to the Effective Time ("D&O Insurance") with respect
to those persons who are currently covered by Target's directors' and officers'
liability insurance policy on terms with respect to such coverage and amount no
less favorable than those of such policy in effect on the date hereof or (ii)
cause to be provided coverage no
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less favorable to such directors or officers, as the case may be, than the D&O
Insurance, in each case so long as the annual premium therefor would not be in
excess of 200% of the last annual premium paid for the D&O Insurance prior to
the date of this Agreement (such 200% amount the "Maximum Premium"). If the
existing or substituted directors' and officers' liability insurance expires, is
terminated or canceled during such six-year period, the Surviving Corporation
will obtain as much D&O Insurance as can be obtained for the remainder of such
period for an annualized premium not in excess of the Maximum Premium. Target
represents that (a) the Maximum Premium is $466,804 and (b) the maximum amount
payable under the D&O Insurance is $20,000,000. At the option of Parent, Parent
may assume the obligations of the Surviving Corporation set forth in Sections
5.08(a) and (b), and thereafter neither Parent nor the Surviving Corporation
shall have any further obligations pursuant to this Section 5.08(c) for so long
as Parent continues to so assume the obligations of the Surviving Corporation.
(d) The provisions of this Section 5.08 (i) are intended to be for
the benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 5.09. Fees and Expenses. (a) All fees and expenses incurred
in connection with the Merger, this Agreement, the Target Stockholder Agreement,
the Parent Stockholder Agreement and the transactions contemplated by this
Agreement, the Target Stockholder Agreement and the Parent Stockholder Agreement
shall be paid by the party incurring such fees or expenses, whether or not the
Merger is consummated, except that each of Parent and Target shall bear and pay
one-half of the costs and expenses incurred in connection with the filing,
printing and mailing of the Form S-4 and the Proxy Statement (including SEC
filing fees). Parent shall file any return with respect to, and shall pay, any
state or local taxes (including any penalties or interest with respect thereto),
if any, which are attributable to the transfer of the beneficial ownership of
Target's real property (collectively, the "Real Estate Transfer Taxes") as a
result of the Merger (other than any such taxes that are solely the obligations
of a stockholder of Target, in which case Target shall pay any such taxes).
Target shall cooperate with Parent in the filing of such returns including, in
the case of Target, supplying in a timely manner a complete list of all real
property interests held by Target and any information with respect to such
property that is reasonably necessary to complete such
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returns. The fair market value of any real property of Target subject to the
Real Estate Transfer Taxes shall be as agreed to between Parent and Target.
(b) In the event that this Agreement is terminated (x) by Parent or
Target pursuant to clause (B) of Section 7.01(b)(ii) or (y) by Target pursuant
to Section 7.01(d) as a result of a breach of this Agreement by Parent by reason
of Parent's refusal to hold the Parent Stockholders Meeting in accordance with
Section 5.01(c), then Parent shall promptly, but in no event later than the date
of such termination, pay Target a fee equal to $12,800,000.00, payable by wire
transfer of same day funds. If Parent fails to pay any amount due pursuant to
this Section 5.09(b) and, in order to obtain such payment, Target commences a
suit which results in a judgment against Parent for the payment of such fee,
Parent shall pay to Target its out-of-pocket expenses incurred in connection
with such suit.
(c) In the event that this Agreement is terminated by Parent
pursuant to Section 7.01(c) as a result of a breach of this Agreement by Target
by reason of Target's refusal to hold the Target Stockholders Meeting in
accordance with Section 5.01(b), then Target shall promptly, but in no event
later than the date of such termination, pay Parent a fee equal to
$6,400,000.00, payable by wire transfer of same day funds. If Target fails to
pay any amount due pursuant to this Section 5.09(c) and, in order to obtain such
payment, Parent commences a suit which results in a judgment against Target for
the payment of such fee, Target shall pay to Parent its out-of-pocket expenses
incurred in connection with such suit.
SECTION 5.10. Public Announcements. Parent and Target will consult
with each other before issuing, and provide each other the opportunity to
review, comment upon and concur with, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, the Target Stockholder Agreement and the Parent
Stockholder Agreement, and shall not issue any such press release or make any
such public statement prior to such consultation, except as either party may
determine is required by applicable law, the SEC, court process or by
obligations pursuant to any listing or quotation agreement with any national
securities exchange or national trading system. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement, the Target Stockholder Agreement and the Parent Stockholder
Agreement shall be in the form heretofore agreed to by the parties. Promptly
after the date of this Agreement, Parent and Target shall each file with the
SEC, in a form agreed to by the parties,
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a Current Report on Form 8-K relating to the execution of this Agreement and the
transactions contemplated hereby, attaching as exhibits thereto a copy of this
Agreement, the Parent Stockholder Agreement, the Target Stockholder Agreement
and the press release referred to in the previous sentence.
SECTION 5.11. Affiliates. Target shall deliver to Parent at least 30
days prior to the Closing Date a letter identifying all persons who are, at the
time this Agreement is submitted for adoption by the stockholders of Target,
"affiliates" of Target for purposes of Rule 145 under the Securities Act. Target
shall use reasonable efforts to cause each such person to deliver to Parent at
least 30 days prior to the Closing Date a written agreement substantially in the
form attached as Exhibit A hereto.
SECTION 5.12. Quotation. Parent shall use reasonable efforts to
cause the Parent Common Stock issuable in the Merger to be approved for
quotation on Nasdaq, subject to official notice of issuance, as promptly as
practicable after the date hereof, and in any event prior to the Closing Date.
SECTION 5.13. Litigation. Target shall give Parent the reasonable
opportunity to participate, at its expense, in the defense of any litigation
against Target and/or its directors relating to the transactions contemplated by
this Agreement and the Target Stockholder Agreement.
SECTION 5.14. Tax Treatment. Each of Parent and Target shall use
best efforts to cause the Merger to qualify as a reorganization under the
provisions of Section 368 of the Code, and each of Parent and Target shall use
reasonable efforts to obtain the opinion of counsel referred to in Sections
6.02(d) and 6.03(c), including the execution of the letters of representation
referred to therein.
SECTION 5.15. Target Stockholder Agreement Legend; Parent
Stockholder Agreement Legend. (a) As soon as practicable after the date of this
Agreement, Target will inscribe upon any certificate representing Target Subject
Shares (as defined in the Target Stockholder Agreement) the following legend:
"THE SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF TARGET REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDER AGREEMENT DATED AS OF FEBRUARY 29,
2000, AND THE TRANSFER AND VOTING THEREOF ARE SUBJECT TO THE TERMS THEREOF.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICES OF
TARGET."; and Target will return such certificate containing such inscription to
the Target Stockholders within three business days following Target's receipt
thereof.
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(b) As soon as practicable after the date of this Agreement, Parent
will inscribe upon any certificate representing Parent Subject Shares (as
defined in the Parent Stockholder Agreement) the following legend: "THE SHARES
OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF PARENT REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A STOCKHOLDER AGREEMENT DATED AS OF FEBRUARY 29,
2000, AND THE VOTING THEREOF ARE SUBJECT TO THE TERMS THEREOF. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICES OF PARENT."; and
Parent will return such certificate containing such inscription to the Parent
Stockholders within three business days following Parent's receipt thereof.
SECTION 5.16. Termination of Agreements. Target shall cause all
provisions of all purchase agreements, stockholder agreements, registration
rights agreements, investors' rights agreements, co-sale agreements, rights of
first refusal and similar agreements between any stockholder of Target and
Target to terminate and be of no further force and effect upon consummation of
the Merger. A list of all of such agreements is set forth on Section 5.16 of the
Target Disclosure Schedule.
SECTION 5.17. Resignations. Prior to the Effective Time, Target
shall cause each member of its Board of Directors to execute and deliver a
letter effectuating his or her resignation as a director of such Board effective
immediately prior to the Effective Time.
SECTION 5.18. Composition of Board of Directors of Parent. At or
prior to the Effective Time, Parent shall take all action necessary to cause to
be appointed to the Board of Directors of Parent as of the Effective Time the
two designees of Target referenced on Schedule I hereto in accordance with the
terms set forth in such Schedule.
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Target Stockholder Approval and the
Parent Stockholder Approval shall have been obtained.
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(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(c) No Litigation. No judgment, order, decree, statute, law,
ordinance, rule or regulation, entered, enacted, promulgated, enforced or
issued by any court or other Governmental Entity of competent jurisdiction
or other legal restraint or prohibition (collectively, "Restraints") shall
be in effect, and there shall not be pending or threatened any suit,
action or proceeding by any Governmental Entity (i) preventing the
consummation of the Merger or (ii) prohibiting or limiting the ownership
or operation by Target or Parent and Parent's subsidiaries of any material
portion of the business or assets of Target or Parent and Parent's
subsidiaries taken as a whole, or compelling Target or Parent and Parent's
subsidiaries to dispose of or hold separate any material portion of the
business or assets of Target or Parent and Parent's subsidiaries taken as
a whole, as a result of the Merger or any of the other transactions
contemplated by this Agreement, the Target Stockholder Agreement or the
Parent Stockholder Agreement; provided, however, that each of the parties
shall have used its reasonable efforts to prevent the entry of any such
Restraints and to appeal as promptly as possible any such Restraints that
may be entered.
(d) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(e) Nasdaq Quotation. The shares of Parent Common Stock issuable to
Target's stockholders as contemplated by this Agreement shall have been
approved for quotation on Nasdaq, subject to official notice of issuance.
SECTION 6.02. Conditions to Obligations of Parent and Sub. The
obligation of Parent and Sub to effect the Merger is further subject to
satisfaction or waiver of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Target set forth in this Agreement, disregarding all
qualifications and exceptions contained therein relating to materiality or
material adverse effect, shall be true and correct as of the date hereof
and as of the Effective Time, with the same effect as if made at and as of
such time (except to the extent such representations and
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warranties were expressly made as of an earlier date, in which case such
representations and warranties shall be true and correct as of such
earlier date), except where the failure of such representations and
warranties to be true and correct would not, individually or in the
aggregate, be reasonably likely to have a material adverse effect on
Target. Parent shall have received a certificate signed on behalf of
Target by the chief executive officer of Target to such effect.
(b) Performance of Obligations of Target. Target shall have
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
Parent shall have received a certificate signed on behalf of Target by the
chief executive officer of Target to such effect.
(c) Parent shall have received from Cravath, Swaine & Moore,
counsel to Parent, on the date on which the Form S-4 is declared effective
by the SEC and on the Closing Date, an opinion, in each case dated as of
such respective date and stating that the Merger will qualify for U.S.
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code. The issuance of such opinion shall be
conditioned upon the receipt by such tax counsel of customary
representation letters from each of Target, Sub and Parent, in each case,
in the form and substance attached hereto as Exhibits B-1 and B-2.
SECTION 6.03. Conditions to Obligations of Target. The obligation of
Target to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Parent and Sub set forth in this Agreement, disregarding all
qualifications and exceptions contained therein relating to materiality or
material adverse effect, shall be true and correct as of the date hereof
and as of the Effective Time, with the same effect as if made at and as of
such time (except to the extent such representations and warranties were
expressly made as of an earlier date, in which case such representations
and warranties shall be true and correct as of such earlier date), except
where the failure of such representations and warranties to be true and
correct would not, individually or in the aggregate, be reasonably likely
to have a material adverse effect on Parent. Target shall have received a
certificate
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signed on behalf of Parent by an authorized signatory of Parent to such
effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub
shall have performed in all material respects all obligations required to
be performed by them under this Agreement at or prior to the Closing Date.
Target shall have received a certificate signed on behalf of Parent by an
authorized signatory of Parent to such effect.
(c) Tax Opinion. Target shall have received from Cooley Godward LLP,
counsel to Target, on the date on which the Form S-4 is declared effective
by the SEC and on the Closing Date, an opinion, in each case dated as of
such respective date and stating that the Merger will qualify for U.S.
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code. The issuance of such opinion shall be
conditioned upon the receipt by such tax counsel of customary
representation letters from each of Target, Sub and Parent, in each case,
in the form and substance attached hereto as Exhibits B-1 and B-2.
SECTION 6.04. Frustration of Closing Conditions. None of Parent, Sub
or Target may rely on the failure of any condition set forth in Section 6.01,
6.02 or 6.03, as the case may be, to be satisfied if such failure was caused by
such party's failure to use reasonable efforts to consummate the Merger and the
other transactions contemplated by this Agreement, the Target Stockholder
Agreement and the Parent Stockholder Agreement, as required by and subject to
Section 5.05.
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01. Termination. This Agreement may be terminated at any
time prior to the Effective Time, notwithstanding any requisite approval and
adoption of this Agreement by the stockholders of Parent, Sub or Target:
(a) by mutual written consent of Parent and
Target;
(b) by either Parent or Target:
(i) if the Merger shall not have been consummated by August
31, 2000; provided, however, that the right to terminate this
Agreement pursuant to this Section 7.01(b)(i) shall not be
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available to any party whose failure to perform any of its
obligations under this Agreement results in the failure of the
Merger to be consummated by such time;
(ii) if (A) the Target Stockholder Approval shall not have
been obtained at a Target Stockholders Meeting duly convened
therefor or at any adjournment or postponement thereof or (B) the
Parent Stockholder Approval shall not have been obtained at a Parent
Stockholders Meeting duly convened therefor or at any adjournment or
postponement thereof; or
(iii) if any Restraint having any of the effects set forth in
Section 6.01(c) shall be in effect and shall have become final and
nonappealable; provided that the party seeking to terminate this
Agreement pursuant to this Section 7.01(b)(iii) shall have used
reasonable efforts to prevent the entry of and to remove such
Restraint;
(c) by Parent, if Target shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or
other agreements contained in this Agreement, which breach or failure to
perform (A) would give rise to the failure of a condition set forth in
Section 6.02(a) or (b), and (B) is incapable of being or has not been
cured by Target within 30 calendar days after giving written notice to
Target of such breach or failure to perform; or
(d) by Target, if Parent shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or
other agreements contained in this Agreement, which breach or failure to
perform (A) would give rise to the failure of a condition set forth in
Section 6.03(a) or (b), and (B) is incapable of being or has not been
cured by Parent within 30 calendar days after giving written notice to
Parent of such breach or failure to perform.
SECTION 7.02. Effect of Termination. In the event of termination of
this Agreement by either Target or Parent as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent or Target, other than the provisions of
Section 3.01(o), the last sentence of Section 5.04, Section 5.09, this Section
7.02 and Article VIII, which provisions survive such termination, and except to
the extent that such termination results from the willful and material breach by
a party of any of its
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representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 7.03. Amendment. This Agreement may be amended by the
parties at any time prior to the Effective Time; provided, however, that after
the Target Stockholder Approval or the Parent Stockholder Approval has been
obtained, there shall not be made any amendment that by law requires further
approval by the stockholders of Target or Parent without the further approval of
such stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the Effective
Time, a party may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to the proviso of Section 7.03, waive compliance by the other party with any of
the agreements or conditions contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
SECTION 7.05. Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 7.01, an amendment
of this Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 shall, in order to be effective, require, in the case of Parent or
Target, action by its Board of Directors or, with respect to any amendment to
this Agreement, the duly authorized committee of its Board of Directors to the
extent permitted by law.
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations and Warranties. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 8.01 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
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SECTION 8.02. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to
24/7 Media, Inc.
1250 Broadway, 28th Floor
New York, NY 10001-3701
Telecopy No.: (212) 760-1081
Attention: David Moore
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Telecopy No.: (212) 474-3700
Attention: Robert A. Kindler
Faiza J. Saeed; and
(b) if to Target, to
Exactis.com, Inc.
707-17th Street, Suite 2850
Denver, CO 80202
Telecopy No.: (303) 675-2399
Attention: E. Thomas Detmer, Jr.
with a copy to:
Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, CO 80302-6737
Telecopy No.: (303) 546-4099
Attention: James C. T. Linfield
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SECTION 8.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, such first person, where "control"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management policies of a person, whether
through the ownership of voting securities, by contract, as trustee or
executor, or otherwise;
(b) "business day" means any day other than Saturday, Sunday or any
other day on which banks are legally permitted to be closed in New York;
(c) "knowledge" of any person which is not an
individual means the knowledge of such person's
executive officers after reasonable inquiry;
(d) "material adverse change" or "material adverse effect" means,
when used in connection with Target or Parent, any change, effect, event,
occurrence, condition or development or state of facts that is materially
adverse to the business (viewed in its entirety), results of operations or
financial condition of such party and its subsidiaries taken as a whole,
other than any change, effect, event, occurrence, condition, development
or state of facts (i) relating to the economy or securities markets in
general, (ii) relating to the industries in which such party operates in
general or (iii) resulting from this Agreement or the transactions
contemplated hereby or the announcement thereof;
(e) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(f) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person.
SECTION 8.04. Interpretation. When a reference is made in this
Agreement to an Article, Section or Exhibit, such reference shall be to an
Article or Section of, or an
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Exhibit to, this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All terms defined in this Agreement shall have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to herein means
such agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a person are also to its permitted successors and
assigns.
SECTION 8.05. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein), the
Target Stockholder Agreement, the Parent Stockholder Agreement, the Employment
Agreements, the Lock-Up Agreements and the Confidentiality Agreement (a)
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) except for the provisions of Article
II, Section 5.06, and Section 5.08, are not intended to confer upon any person
other than the parties any rights or remedies.
SECTION 8.07. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of conflict
of laws thereof.
<PAGE>
71
SECTION 8.08. Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties hereto
without the prior written consent of the other parties. Any assignment in
violation of the preceding sentence shall be void. Subject to the preceding two
sentences, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 8.09. Enforcement. Each of the parties hereto agrees that
irreparable damage would occur and that the parties would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a federal court sitting in the State of
Delaware or a Delaware state court.
SECTION 8.10. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
<PAGE>
72
IN WITNESS WHEREOF, Parent, Sub and Target have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
24/7 MEDIA, INC.,
by
/s/ C. Andrew Johns
-----------------------------
Name:C. Andrew Johns
Title:Executive Vice President
EVERGREEN ACQUISITION SUB CORP.,
by
/s/ C. Andrew Johns
-----------------------------
Name:C. Andrew Johns
Title:Executive Vice President
EXACTIS.COM, INC.,
by
/s/ E. Thomas Detmer, Jr.
----------------------------
Name:E. Thomas Detmer, Jr.
Title:Chief Executive Officer
<PAGE>
1
ANNEX I
TO THE MERGER AGREEMENT
Index of Defined Terms
Term Page
- ---- ----
Accounting Rules..........................................................13
Adjusted Option...........................................................55
affiliate.................................................................69
Agreement................................................................. 1
business day..............................................................70
Certificate of Merger..................................................... 3
Certificates.............................................................. 5
Closing................................................................... 3
Closing Date.............................................................. 3
Code..................................................................... 2
Confidentiality Agreement.................................................53
control...................................................................69
D & O Insurance...........................................................59
Data Collection and Security
Policy..................................................................41
DGCL...................................................................... 2
Effective Time............................................................ 3
Employment Agreements......................................................2
Environmental Law.........................................................16
ERISA.....................................................................16
ERISA Affiliate...........................................................17
Exchange Act..............................................................12
Exchange Agent............................................................ 5
Exchange Fund............................................................. 5
Exchange Ratio............................................................ 4
Form S-4..................................................................13
GAAP......................................................................13
Governmental Entity.......................................................12
Hazardous Materials.......................................................16
HSR Act...................................................................12
Intellectual Property
Rights..................................................................22
knowledge.................................................................70
Liens.....................................................................10
Lock-Up Agreements.........................................................2
material adverse change...................................................70
material adverse effect...................................................70
Maximum Premium...........................................................59
Merger.....................................................................1
Merger Consideration.......................................................4
Nasdaq....................................................................31
Parent.....................................................................1
Parent Authorized Preferred
Stock...................................................................30
Parent Benefit Agreements.................................................36
Parent Benefit Plans......................................................35
Parent Common Stock........................................................4
Parent Disclosure Schedule................................................29
Parent Filed SEC Documents................................................33
Parent Intellectual Property
Rights..................................................................40
Parent Pension Plans......................................................35
Parent Permits............................................................34
Parent Stockholder
Agreement................................................................2
Parent Stockholder
Approval ..............................................................40
Parent SEC Documents......................................................32
Parent Stockholder
Approval...............................................................40
Parent Stockholders........................................................2
Parent Stockholders
Meeting................................................................52
person....................................................................70
Policy Launch Data........................................................27
Primary Target Executives.................................................18
Privacy Statement.........................................................27
Proxy Statement...........................................................12
Real Estate Transfer Taxes................................................60
Release...................................................................16
Restraints................................................................63
SARs.......................................................................9
SEC.......................................................................12
Securities Act............................................................17
Sub........................................................................1
subsidiary................................................................70
Surviving Corporation......................................................2
Takeover Proposal.........................................................49
Target.................................................................... 1
Target Authorized Preferred
Stock....................................................................9
Target Benefit Agreements.................................................16
Target Benefit Plans......................................................16
Target Common Stock....................................................... 1
Target Disclosure Schedule................................................ 8
Target Filed SEC Documents................................................14
Target Intellectual Property
Rights.................................................................22
Target Pension Plans......................................................16
Target Permits............................................................15
Target SEC Documents......................................................12
Target Stock Options.......................................................9
Target Stock Plans.........................................................9
Target Stockholder
Agreement................................................................1
Target Stockholder
Approval...............................................................21
Target Stockholders
Meeting................................................................52
taxes.....................................................................21
Terms and Conditions......................................................28
Warrants...................................................................9
Year 2000 Compliant.......................................................24
<PAGE>
EXHIBIT A
TO THE MERGER AGREEMENT
Form of Affiliate Letter
Dear Sirs:
The undersigned, a holder of shares of common stock, par value $0.01
per share ("Target Common Stock"), of Exactis.com, Inc., a Delaware corporation
("Target"), is entitled to receive in connection with the merger (the "Merger")
of a subsidiary of 24/7 Media, Inc., a Delaware corporation ("Parent"), with and
into Target, securities of Parent, as the parent of the surviving corporation in
the Merger (the "Parent Securities"). The undersigned acknowledges that the
undersigned may be deemed an "affiliate" of Target within the meaning of Rule
145 ("Rule 145") promulgated under the Securities Act of 1933 (the "Securities
Act") by the Securities and Exchange Commission (the "SEC"), although nothing
contained herein should be construed as an admission of such fact.
If in fact the undersigned were an affiliate under the Securities
Act, the undersigned's ability to sell, assign or transfer the Parent Securities
received by the undersigned in exchange for any shares of Target Common Stock in
connection with the Merger may be restricted unless such transaction is
registered under the Securities Act or an exemption from such registration is
available. The undersigned understands that such exemptions are limited and the
undersigned has obtained or will obtain advice of counsel as to the nature and
conditions of such exemptions, including information with respect to the
applicability to the sale of such securities of Rules 144 and 145(d) promulgated
under the Securities Act. The undersigned understands that Parent will not be
required to maintain the effectiveness of any registration statement under the
Securities Act for the purposes of resale of Parent Securities by the
undersigned.
The undersigned hereby represents to and covenants with Parent that
the undersigned will not sell, assign or transfer any of the Parent Securities
received by the undersigned in exchange for shares of Target Common Stock in
connection with the Merger except (i) pursuant to an effective registration
statement under the Securities Act, (ii) in conformity with the volume and other
limitations of Rule 145 or (iii) in a transaction which, in the opinion of
counsel reasonably acceptable to Parent or as described in a "no-action" or
interpretive letter from the Staff of the SEC specifically issued with respect
to a transaction to be engaged in by the undersigned, is not required to be
registered under the Securities Act.
<PAGE>
2
In the event of a sale or other disposition by the undersigned of
Parent Securities pursuant to Rule 145, the undersigned will supply Parent with
evidence of compliance with such Rule, in the form of a letter in the form of
Annex I hereto and the opinion of counsel or no-action letter referred to above.
The undersigned understands that Parent may instruct its transfer agent to
withhold the transfer of any Parent Securities disposed of by the undersigned,
but that (provided such transfer is not prohibited by any other provision of
this letter agreement) upon receipt of such evidence of compliance, Parent shall
cause the transfer agent to effectuate the transfer of the Parent Securities
sold as indicated in such letter.
Parent covenants that it will take all such actions as may be
reasonably available to it to permit the sale or other disposition of Parent
Securities by the undersigned under Rule 145 in accordance with the terms
thereof.
The undersigned acknowledges and agrees that the legends set forth
below will be placed on certificates representing Parent Securities received by
the undersigned in connection with the Merger or held by a transferee thereof,
which legends will be removed by delivery of substitute certificates upon
receipt of an opinion in form and substance reasonably satisfactory to Parent
from independent counsel reasonably satisfactory to Parent to the effect that
such legends are no longer required for purposes of the Securities Act.
There will be placed on the certificates for Parent Securities
issued to the undersigned, or any substitutions therefor, a legend stating in
substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933
(the "Securities Act") applies. The shares have not been acquired by the
holder with a view to, or for resale in connection with, any distribution
thereof within the meaning of the Securities Act. The shares may not be
sold, pledged or otherwise transferred except (i) pursuant to an effective
registration under the Securities Act, (ii) in conformity with the volume
and other limitations of Rule 145 or (iii) in accordance with an exemption
from the registration requirements of the Securities Act."
The undersigned acknowledges that (i) the undersigned has carefully
read this letter and understands the requirements hereof and the limitations
imposed upon the
<PAGE>
3
distribution, sale, transfer or other disposition of Parent Securities and (ii)
the receipt by Parent of this letter is an inducement to Parent's obligations to
consummate the Merger.
Very truly yours,
Dated:
<PAGE>
ANNEX I
TO EXHIBIT A
[Name] [Date]
On , the undersigned sold the securities of 24/7 Media, Inc., a
Delaware corporation ("Parent"), described below in the space provided for that
purpose (the "Securities"). The Securities were received by the undersigned in
connection with the merger of a subsidiary of Parent with and into Exactis.com,
Inc., a Delaware corporation.
Based upon the most recent report or statement filed by Parent with
the Securities and Exchange Commission, the Securities sold by the undersigned
were within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933 (the "Securities Act").
The undersigned hereby represents that the Securities were sold in
"brokers' transactions" within the meaning of Section 4(4) of the Securities Act
or in transactions directly with a "market maker" as that term is defined in
Section 3(a)(38) of the Securities Exchange Act of 1934, as amended. The
undersigned further represents that the undersigned has not solicited or
arranged for the solicitation of orders to buy the Securities, and that the
undersigned has not made any payment in connection with the offer or sale of the
Securities to any person other than to the broker who executed the order in
respect of such sale.
Very truly yours,
[Space to be provided for description of the Securities.]
<PAGE>
EXHIBIT B-1
TO THE MERGER AGREEMENT
Form of Target's Tax Representation Letter
[Letterhead of Target]
[Date]
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, CO 80302-6737
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant to Sections
6.02(d) and 6.03(c) of the Agreement and Plan of Merger (the "Merger Agreement")
dated as of February 29, 2000, by and among 24/7 Media, Inc., a Delaware
corporation ("Parent"), Evergreen Acquisition Sub Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("Sub"), and Exactis.com, Inc., a
Delaware corporation (the "Target"), and in connection with the filing with the
Securities Exchange Commission (the "SEC") of the registration statement on Form
S-4 (the "Registration Statement") relating to the Merger Agreement, which
includes the proxy statement/prospectus of Parent and Target, the undersigned
certifies and represents on behalf of Target, after due inquiry and
investigation (including consultation with Target's counsel and auditors
regarding the meaning of, and factual support for, such representations if and
to the extent Target's management deems necessary), as follows (any capitalized
term used but not defined herein having the meaning given to such term in the
Merger Agreement):
1. The facts relating to the contemplated merger (the "Merger") of
Sub with and into Target as described in the Registration Statement and the
documents described in the Registration Statement are and, as of the Effective
<PAGE>
2
Time, will be, insofar as such facts pertain to Target, true, correct and
complete in all material respects. The Merger will be consummated substantially
in accordance with the Merger Agreement and none of the material terms and
conditions therein has been or will be modified.
2. The formula set forth in the Merger Agreement pursuant to which
each issued and outstanding share of common stock, par value $.01 per share, of
Target, (the "Target Common Stock") will be converted into 0.60 of a common
share, par value .01 per share, of Parent ("Parent Common Stock") is the result
of arm's length bargaining.
3. Cash payments to be made to stockholders of Target in lieu of
fractional shares of Parent Common Stock that would otherwise be issued to such
stockholders in the Merger will be made for the purpose of saving Parent the
expense and inconvenience of issuing and transferring fractional shares of
Parent Common Stock, and do not represent separately bargained for
consideration. The total cash consideration that will be paid in the transaction
to Target stockholders instead of issuing fractional shares of Parent Common
Stock will not exceed [one percent (1%)] of the total consideration that will be
issued in the transaction to the Target stockholders in exchange for their
shares of Target Common Stock. The fractional share interests of each Target
stockholder will be aggregated, and no Target stockholder will receive cash in
an amount equal to or greater than the value of one full share of Parent Common
Stock.
4. (i) Neither Target nor any corporation "related" to Target has
acquired or has any present plan or intention to acquire any Target Common Stock
in contemplation of the Merger, or otherwise as part of a plan of which the
Merger is a part.
(ii) For purposes of this representation, two corporations shall be
treated as related to one another if immediately prior to or immediately after
the Merger, (a) the corporations are members of the same affiliated group
(within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), but determined without regard to Section 1504(b) of the
Code) or (b) one corporation owns 50% or more of the total combined voting power
of all classes of stock of the other corporation that are entitled to vote or
50% or more of the total value of shares of all classes of stock of the other
corporation (applying the attribution rules of Section 318 of the Code, as
modified pursuant to Section 304(c)(3)(B) of the Code).
<PAGE>
3
5. Target has not made, and does not have any present plan or
intention to make, any distributions (other than dividends made in the ordinary
course of business) prior to, in contemplation of or otherwise in connection
with, the Merger.
6. Except for Transfer Taxes and filing fees with respect to the
Proxy Statement and the Form S-4 and the HSR Act, Parent, Sub, Target and
holders of Target Common Stock will each pay their respective expenses, if any,
incurred in connection with the Merger. Except with respect to Transfer Taxes,
Target has not agreed to assume, nor will it directly or indirectly assume, any
expense or other liability, whether fixed or contingent, of any holder of Target
Common Stock nor, to the best knowledge of (but not pursuant to due inquiry or
investigation by) the management of Target, will any Target Common Stock
acquired by Parent in the Merger be subject to any liabilities.
7. Immediately following the Merger, Target will hold (i) at least
90% of the fair market value of the net assets and at least 70% of the fair
market value of the gross assets that were held by Target immediately prior to
the Merger and (ii) at least 90% of the fair market value of the net assets and
at least 70% of the fair market value of the gross assets that were held by Sub
immediately prior to the Merger. For purposes of this representation, amounts
paid to stockholders who receive cash or other property (including cash in lieu
of fractional shares of Parent Common Stock) in connection with the Merger,
assets of Target used to pay reorganization expenses, assets disposed of by
Target or Sub (other than assets transferred from Sub to Target in the Merger
and asset transfers described in both Section 368(1)(2)(C) of the Code and
Treasury Regulations Section 1.368-2(k)(2)) prior to or subsequent to the Merger
and in contemplation thereof (including without limitation, any asset disposed
of by Target, other than in the ordinary course of business, pursuant to a plan
or intent existing during the period beginning with the commencement of
negotiations (whether formal or informal) with Parent regarding the Merger (the
"Pre-Merger Period") and ending at the Effective Time, except to the extent
proceeds of such sale are retained in Target or Sub as the case may be, and all
redemptions and distributions made by Target (other than dividends made in the
ordinary course of business) immediately preceding, or in contemplation of, the
Merger will be included as assets held by Target immediately prior to the
Merger.
8. Except as provided in the Merger Agreement, immediately prior to
the time of the Merger, the only class of stock of the Company that will be
outstanding will be the Target Common Stock and Target will not have outstanding
any
<PAGE>
4
warrants, options, convertible securities or any other type of right pursuant to
which any person could acquire Target Common Stock.
9. In connection with the Merger, all Target Common Stock will be
converted solely into Parent Common Stock (except for cash paid in lieu of
fractional shares of Parent Common Stock). The shares of Target Common Stock
converted into Parent Common Stock will represent Control of Target. As used
herein, "Control" shall consist of direct ownership of shares of stock
possessing at least eighty percent (80%) of the total combined voting power of
shares of all classes of stock entitled to vote and at least eighty percent
(80%) of the total number of shares of each other class of stock of Target. For
purposes of determining Control, a person shall not be considered to own shares
of voting stock if rights to vote such shares (or to restrict or otherwise
control the voting of such shares) are held by a third party (including a voting
trust) other than an agent of such person. For purposes of this representation,
Target Common Stock redeemed for cash or other property furnished, directly or
indirectly, actually or constructively, by Parent or a person related to Parent
will be considered as exchanged for other than Parent Common Stock. The total
market value of all consideration other than shares of Parent Common Stock that
will be paid for shares of Target stock in connection with the Merger (including
without limitation cash paid to Target stockholders in lieu of fractional
shares) will be less than [ten percent (10%)] of the aggregate fair market value
of shares of Target stock outstanding immediately prior to the Merger.
10. Target is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
11. Target will not take, and, to the best knowledge of the
management of Target, there is no present plan or intention by stockholders of
Target to take, any position on any Federal, state or local income or franchise
tax return, or take any other tax reporting position, that is inconsistent with
the treatment of the Merger as a reorganization within the meaning of Section
368(a) of the Code, unless otherwise required by a "determination" (as defined
in Section 1313(a)(1) of the Code) or by applicable state or local tax law (and
then only to the extent required by such applicable state or local tax law).
12. None of the compensation to be received by any
stockholder-employee or stockholder-independent contractor of Target in respect
of periods ending at or prior to the Effective Time will represent separate
consideration for, or is allocable to, any of its Target Common Stock. None of
the Parent Common Stock that will be
<PAGE>
5
received by any stockholder-employees or stockholder-independent contractor of
Target in the Merger represents separately bargained for consideration which is
allocable to any employment agreement, consulting agreement, covenant not to
compete, release or other similar arrangement. The compensation paid to any
stockholder-employees or stockholder-independent contractors of Target will be
for services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
13. There is no intercorporate indebtedness existing between Parent
(or any of its subsidiaries, including Sub) and Target (or any of its
subsidiaries) that was issued or acquired, or will be settled, at a discount.
14. Target is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. The Merger Agreement, the Registration Statement and the other
documents described in the Registration Statement represent the entire
understanding of Target with respect to the Merger.
16. No assets of Target have been sold, transferred or otherwise
disposed of which would prevent Parent from continuing the "historic business"
of Target or from using a significant portion of the "historic business assets"
of Target in a business following the Merger (as such terms are defined in
Treasury Regulations Section 1.368-1(d)), and Target intends to continue its
historic business or use a significant portion of its historic business assets
in a business following the Merger.
17. As of the time of the Merger, the fair market value of the
assets of Target will equal or exceed the sum of its liabilities, plus the
amount of liabilities, if any, to which such assets are subject.
18. No holders of Target Common Stock have dissenters' rights with
respect to the Merger under applicable laws.
19. Other than in the ordinary course of business or pursuant to its
obligations under the Merger Agreement, Target has made no transfer of any of
its assets (including any distribution of assets with respect to, or in
redemption of, stock) in contemplation of the Merger or during the Pre-Merger
Period.
20. Except for transfers described in both Section 368(a)(2)(C) of
the Code and Treasury Regulations Sections 1.368-2(k)(2), the Target has no plan
or intention
<PAGE>
6
to sell or otherwise dispose of any of its assets or of any of the assets
acquired from Sub in the Merger, except for dispositions in made in the ordinary
course of business or to pay expenses incurred by Target pursuant to the Merger.
21. Target's principal reasons for participating in the Merger are
bona fide business purposes unrelated to Taxes.
22. Target has no plan, obligation, understanding, agreement or
intention to issue additional shares of stock after the Merger, or to take any
other action, that would result in Parent losing Control of Target.
23. The liabilities of Target were incurred in the ordinary course
of Target's business.
24. The fair market value of the shares of Parent Common Stock
received by each stockholder of Target will be approximately equal to the fair
market value of the shares of stock of Target surrendered in exchange therefor
and the aggregate consideration received by stockholders of Target in exchange
for their shares of Target Common Stock will be approximately equal to the fair
market value of all the outstanding shares of stock of Target immediately prior
to the Merger.
25. With respect to each instance, if any, in which shares of stock
of Target have been purchased by a stockholder of Parent (a "Parent
Stockholder") during the Pre-Merger Period (a "Stock Purchase"): (i) to the
knowledge of Target, (A) the Stock Purchase was made by such Parent Stockholder
on its own behalf, rather than as a representative, or for the benefit, of
Parent, (B) the Stock Purchase was entered into solely to satisfy the separate
interests of such Parent Stockholder and the seller and (C) the purchase price
paid by such Parent Stockholder pursuant to the Stock Purchase was the product
of arm's length negotiation and was funded by such Parent Stockholder's own
assets, and such purchase price was not advanced and will not be reimbursed,
either directly or indirectly, by Parent; and (ii) the Stock Purchase was not a
formal or informal condition to consummation of the Merger.
26. The undersigned is authorized by Target to make all the
representations set forth herein.
The undersigned acknowledges that (i) the opinions to be delivered
pursuant to Sections 6.02(d) and 6.03(c) of the Merger Agreement will be based
on the accuracy of the representations set forth herein and on the accuracy of
the representations and warranties and the satisfaction of the
<PAGE>
7
covenants and obligations contained in the Merger Agreement and the various
other documents related thereto, and (ii) such opinions will be subject to
certain limitations and qualifications including that it may not be relied upon
if any such representations or warranties are not accurate or if any such
covenants or obligations are not satisfied in all material respects.
The undersigned acknowledges that such opinions will not address any
tax consequences of the Merger or any action taken in connection therewith
except as expressly set forth in such opinions.
Notwithstanding anything herein to the contrary, the undersigned
makes no representations regarding any actions or conduct of Target pursuant to
Parent's exercise of control over Target after the Merger, unless Target's
management has actual knowledge of such actions or conduct.
Target undertakes to inform you immediately should any of the
foregoing statements or representations become untrue, incorrect or incomplete
in any respect on or prior to the Effective Time.
Very truly yours,
EXACTIS.COM, INC.,
by
--------------------------
Title:
<PAGE>
EXHIBIT B-2
TO THE MERGER AGREEMENT
Form of Parent's Tax Representation Letter
[Letterhead of Parent]
[Date]
Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, CO 80302-6737
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant to Sections
6.02(d) and 6.03(c) of the Agreement and Plan of Merger (the "Merger Agreement")
dated as of February 29, 2000, by and among 24/7 Media, Inc., a Delaware
corporation ("Parent"), Evergreen Acquisition Sub Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("Sub"), and Exactis.com, Inc., a
Delaware corporation ("Target"), and in connection with the filing with the
Securities Exchange Commission (the "SEC") of the registration statement on Form
S-4 (the "Registration Statement") relating to the Merger Agreement, which
includes the proxy statement/prospectus of Parent and Target, the undersigned
certifies and represents on behalf of Parent and Sub, after due inquiry and
investigation (including consultations with Parent's counsel and auditors
regarding the meaning of, and factual support for, such representations if and
to the extent Parent's management deems necessary), as follows (any capitalized
term used but not defined herein having the meaning given to such term in the
Merger Agreement):
1. The facts relating to the contemplated merger (the "Merger") of
Sub with and into Target as described in
<PAGE>
2
the Registration Statement and the documents described in the Registration
Statement are and, as of the Effective Time, will be, insofar as such facts
pertain to Parent and Sub, true, correct and complete in all material respects.
The Merger will be consummated substantially in accordance with the Merger
Agreement and none of the material terms and conditions therein has been or will
be waived or modified.
2. The formula set forth in the Merger Agreement pursuant to which
each issued and outstanding share of common stock, par value $.01 per share, of
Target (the "Target Common Stock") will be converted into 0.60 of a common
share, par value $.01 per share, of Parent ("Parent Common Stock") is the result
of arm's length bargaining.
3. Cash payments to be made to stockholders of Target in lieu of
fractional shares of Parent Common Stock that would otherwise be issued to such
stockholders in the Merger will be made for the purpose of saving Parent the
expense and inconvenience of issuing and transferring fractional shares of
Parent Common Stock, and do not represent separately bargained for
consideration. The total cash consideration that will be paid in the transaction
to Target stockholders instead of issuing fractional shares of Parent Common
Stock will not exceed [one percent (1%)] of the total consideration that will be
issued in the transaction to the Target stockholders in exchange for their
shares of Target Common Stock. The fractional share interests of each Target
stockholder will be aggregated, and no Target stockholder will receive cash in
an amount equal to or greater than the value of one full share of Parent Common
Stock.
4. (i) Parent has no present plan or intention, after, but in
connection with, the Merger, to reacquire, or to cause any corporation that is
related to Parent to acquire, any Parent Common Stock; provided, however, that
Parent may adopt an open market stock repurchase program that satisfies the
requirements of Revenue Ruling 99-58. To the best knowledge of the management of
Parent, no corporation that is "related" to Parent has a present plan or
intention to purchase any Parent Common Stock following the Merger.
(ii) For purposes of this representation, two corporations shall be
treated as related to one another if immediately prior to or immediately after
the Merger, (a) the corporations are members of the same affiliated group
(within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), but determined without regard to Section 1504(b) of the
Code) or (b) one corporation owns 50% or more of the total combined voting power
of all classes of stock of the other
<PAGE>
3
corporation that are entitled to vote or 50% or more of the total value of
shares of all classes of stock of the other corporation (applying the
attribution rules of Section 318 of the Code, as modified pursuant to Section
304(c)(3)(B) of the Code).
5. Parent has no present plan or intention to make any distributions
after, but in connection with, the Merger to holders of Parent Common Stock
(other than dividends made in the ordinary course of business).
6. Neither Parent nor Sub (nor any other subsidiary of Parent) has
acquired, or, except as a result of the Merger, will acquire, or has owned in
the past five years, any Target Common Stock.
7. Prior to the Merger, Parent will own all the capital stock of
Sub. Parent has no plan or intention to cause Target to issue additional shares
of its capital stock that would result in Parent ceasing to have "control" of
Target. As used herein, "Control" shall consist of direct ownership of shares of
stock possessing at least eighty percent (80%) of the total combined voting
power of shares of all classes of stock entitled to vote and at least eighty
percent (80%) of the total number of shares of each other class of stock of
Target. For purposes of determining Control, a person shall not be considered to
own shares of voting stock if rights to vote such shares (or to restrict or
otherwise control the voting of such shares) are held by a third party
(including a voting trust) other than an agent of such person.
8. Parent has no present plan or intention, following the Merger, to
liquidate Target, to merge Target with and into another corporation, to sell or
otherwise dispose of any of the stock of Target, to cause Target to distribute
to Parent or any of its subsidiaries any assets of Target or the proceeds of any
borrowings incurred by Target, or to cause Target to sell or otherwise dispose
of any of the assets held by Target at the time of the Merger, except for
dispositions of such assets in the ordinary course of business and transfers
described in Section 368(a)(2)(C) of the Code or Treasury Regulations Sections
1.368-1(d) or 1.368-2(k).
9. Immediately following the Merger, Target will hold (i) at least
90% of the fair market value of the net assets and at least 70% of the fair
market value of the gross assets that were held by Target immediately prior to
the Merger and (ii) at least 90% of the fair market value of the net assets and
at least 70% of the fair market value of the gross assets that were held by Sub
immediately prior to the Merger. For purposes of this representation, amounts
<PAGE>
4
paid to stockholders who receive cash or other property (including cash in lieu
of fractional shares of Parent Common Stock) in connection with the Merger,
assets of Target used to pay reorganization expenses, assets disposed of by
Target or Sub (other than assets transferred from Sub to Target in the Merger
and asset transfers described in both Section 368(a)(2)(C) of the Code and
Treasury Regulations Section 1.368-2(k)(2)) prior to or subsequent to the Merger
and in contemplation thereof (including without limitation any asset disposed of
by Target, other than in the ordinary course of business, pursuant to a plan or
intent existing during the period beginning with the commencement of
negotiations (whether formal or informal) with Parent regarding the Merger (the
"Pre-Merger Period") and ending at the Effective Time, except to the extent
proceeds from such sale are retained in Target or Sub as the case may be, and
all redemptions and distributions made by Target (other than dividends made in
the ordinary course of business) immediately preceding, or in contemplation of,
the Merger will be included as assets held by Target immediately prior to the
Merger.
10. Except for Transfer Taxes and filing fees with respect to the
Proxy Statement and the Form S-4 and the HSR Act, Parent, Sub, Target and
holders of Target Common Stock will each pay their respective expenses, if any,
incurred in connection with the Merger. Except to the extent specifically
contemplated under the Merger Agreement and Target Stockholder Agreement,
neither Parent nor Sub has paid (directly or indirectly) or has agreed to assume
any expenses or other liabilities, whether fixed or contingent, incurred or to
be incurred by Target or any holder of Target Common Stock in connection with or
as part of the Merger or any related transactions nor, to the best knowledge of
(but not pursuant to due inquiry or investigation by) the management of Parent,
will any Target Common Stock acquired by Parent in the Merger be subject to any
liabilities.
11. Following the Merger, Parent intends to cause Target to continue
its "historic business" or to use a significant portion of its "historic
business assets" in a business (as such terms are defined in Treasury
Regulations Section 1.368-1(d)).
12. Neither Parent nor Sub is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
13. Neither Parent nor Sub will take any position on any Federal,
state or local income or franchise tax return, or take any other tax reporting
position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Section 368(a) of the
<PAGE>
5
Code unless otherwise required by a "determination" (as defined in Section
1313(a)(1) of the Code) or by applicable state or local tax law (and then only
to the extent required by such applicable state or local tax law).
14. None of the compensation to be received by any
stockholder-employee or stockholder-independent contractor of Target in respect
of periods ending after the Effective Time will represent separate consideration
for, or is allocable to, any of their Target Common Stock. None of the Parent
Common Stock that will be received by any stockholder-employee or
stockholder-independent contractor of Target in the Merger represents separately
bargained for consideration which is allocable to any employment agreement,
consulting agreement, covenant not to compete, release or similar arrangement.
The compensation paid to any stockholder-employees or stockholder-independent
contractors of Parent after the Effective Time will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
15. There is no intercorporate indebtedness existing between Parent
(or any of its subsidiaries, including Sub) and Target (or any of its
subsidiaries) that was issued or acquired, or will be settled, at a discount.
16. Neither Parent nor Sub is under the jurisdiction of a court in a
Title 11 or similar case. For purposes of the foregoing, a "Title 11 or similar
case" means a case under Title 11 of the United States Code or a receivership,
foreclosure or similar preceding in a federal or state court.
17. In connection with the Merger, all Target Common Stock will be
converted solely into Parent Common Stock (except for cash paid in lieu of
fractional shares of Parent Common Stock). The shares of Target Common Stock
converted into Parent Common Stock will represent Control of Target. For
purposes of this representation, Target Common Stock redeemed for cash or other
property furnished, directly or indirectly, actually or constructively, by
Parent or a person related to Parent will be considered as acquired by Parent
for other than Parent Common Stock. The total market value of all consideration
other than shares of Parent Common Stock that will be paid for shares of Target
stock in connection with the Merger (including without limitation cash paid to
Target stockholders in lieu of fractional shares) will be less than [ten percent
(10%)] of the aggregate fair market value of shares of Target stock outstanding
immediately prior to the Merger.
<PAGE>
6
18. The Merger Agreement, the Registration Statement and the other
documents described in the Registration Statement represent the entire
understanding of Parent and Sub with respect to the Merger.
19. Sub is a corporation newly formed for the purpose of
participating in the Merger and at no time prior to the Merger has had assets
(other than nominal assets contributed upon the formation of Sub, which assets
will be held by Sub following the Merger) or business operations. Prior to the
Merger, Parent will be in Control of Sub. As used herein, "Control" shall
consist of direct ownership of shares of stock possessing at least eighty
percent (80%) of the total combined voting power of shares of all classes of
stock entitled to vote and at least eighty percent (80%) of the total number of
shares of each other class of stock of Sub. For purposes of determining Control,
a person shall not be considered to own shares of voting stock if rights to vote
such shares (or to restrict or otherwise control the voting of such shares) are
held by a third party (including a voting trust) other than an agent of such
person.
20. The Merger is being undertaken for purposes of enhancing the
business of Parent and for good and valid business purposes of Parent.
21. No Target stockholder is acting as agent for Parent in
connection with the Merger or the approval thereof; Parent will not reimburse
any Target stockholder for any Target stock that such stockholder may have
purchased or for other obligations such stockholder may have incurred.
22. The fair market value of the shares of Parent Common Stock
received by each stockholder of Target will be approximately equal to the fair
market value of the shares of stock of Target surrendered in exchange therefor
and the aggregate consideration received by stockholders of Target in exchange
for their shares of Target Common Stock will be approximately equal to the fair
market value of all the outstanding shares of stock of Target immediately prior
to the Merger.
23. With respect to each instance, if any, in which shares of stock
of Target have been purchased by a stockholder of Parent (a "Parent
Stockholder") during the Pre-Merger Period (a "Stock Purchase"): (i) to the
knowledge of Parent, (A) the Stock Purchase was made by such Parent Stockholder
on its own behalf, rather than as a representative, or for the benefit, of
Parent, (B) the Stock Purchase was entered into solely to satisfy the separate
interests of such Parent Stockholder and the seller and (C) the purchase price
paid by such Parent Stockholder
<PAGE>
7
pursuant to the Stock Purchase was the product of arm's length negotiation and
was funded by such Parent Stockholder's own assets, and such purchase price was
not advanced and will not be reimbursed, either directly or indirectly, by
Parent; and (ii) the Stock Purchase was not a formal or informal condition to
consummation of the Merger.
24. The undersigned is authorized to make all the representations
set forth herein on behalf of Parent and Sub.
The undersigned acknowledges that (i) the opinions to be delivered
pursuant to Sections 6.02(d) and 6.03(c) of the Merger Agreement will be based
on the accuracy of the representations set forth herein and on the accuracy of
the representations and warranties and the satisfaction of the covenants and
obligations contained in the Merger Agreement and the various other documents
related thereto, and (ii) such opinions will be subject to certain limitations
and qualifications including that it may not be relied upon if any such
representations or warranties are not accurate or if any such covenants or
obligations are not satisfied in all material respects.
The undersigned acknowledges that such opinions will not address any
tax consequences of the Merger or any action taken in connection therewith
except as expressly set forth in such opinions.
Notwithstanding anything herein to the contrary, the undersigned
makes no representations regarding any actions or conduct of Target prior to the
Merger, unless Parent's management has actual knowledge of such actions or
conduct.
Parent undertakes to inform you immediately should any of the
foregoing statements or representations become untrue, incorrect or incomplete
in any respect on or prior to the Effective Time.
Very truly yours,
PARENT
by
----------------------------
Name:
Title:
<PAGE>
SCHEDULE I
TO THE MERGER AGREEMENT
Board of Directors of Parent
Name(1) Class of Membership
---- -------------------
Adam Goldman II(2)
Linda Fayne Levinson III
- ----------------
(1) If either or both of the individuals set forth in the table are
unavailable at the Effective Time to serve as directors of Parent, Target shall
be entitled to substitute in their place any members of Target's Board of
Directors as constituted immediately prior to the date of the Merger Agreement;
provided that any such new designees must qualify as independent directors under
the Nasdaq rules.
(2) Parent shall take all action to ensure that the individual appointed
to serve as a Class II director of Parent will also be included in Parent's
slate of directors nominated for election at Parent's 2000 annual meeting of
stockholders.
<PAGE>
ANNEX B
STOCKHOLDER AGREEMENT dated as of February 29, 2000 (this
"Agreement"), among 24/7 MEDIA, INC., a Delaware corporation
("Parent"), and the individuals and other parties listed on
Schedule A hereto (each, a "Stockholder" and, collectively,
the "Stockholders").
WHEREAS, Parent, Evergreen Acquisition Sub Corp., a Delaware
corporation ("Sub"), and Exactis.com, Inc., a Delaware corporation ("Target"),
propose to enter into an Agreement and Plan of Merger dated as of the date
hereof (as the same may be amended or supplemented, the "Merger Agreement";
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement) providing for the merger of Sub with and into Target;
and
WHEREAS, each Stockholder owns the number of shares of Target Common
Stock set forth opposite his, her or its name on Schedule A hereto (such shares
of Target Common Stock, together with any other shares of capital stock of
Target acquired by such Stockholder after the date hereof and during the term of
this Agreement (including through the exercise of any stock options, warrants or
similar instruments), being collectively referred to herein as the "Target
Subject Shares" of such Stockholder);
WHEREAS, the Board of Directors of Target has approved the terms of
this Agreement; and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent has requested that each Stockholder enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, covenants and agreements contained
herein, the parties hereto, intending to be legally bound, agree as follows:
SECTION 1. Representations and Warranties of Each Stockholder. Each
Stockholder hereby, severally and not jointly, represents and warrants to Parent
as of the date hereof in respect of himself, herself or itself as follows:
(a) Authority; Execution and Delivery; Enforceability. The
Stockholder has all requisite power and authority to execute this Agreement and
to consummate the transactions contemplated hereby. The Stockholder has duly
executed and delivered this Agreement, and this Agreement constitutes the legal,
valid and binding obligation of the
<PAGE>
2
Stockholder, enforceable against the Stockholder in accordance with its terms.
The execution and delivery by the Stockholder of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancelation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any Lien upon any of
the properties or assets of the Stockholder under, any provision of any Contract
to which the Stockholder is a party or by which any properties or assets of the
Stockholder are bound, including the Third Amended and Restated Stockholders
Agreement referred to in the Merger Agreement, or, subject to the filings and
other matters referred to in the next sentence, any provision of any judgment,
order or decree (collectively, "Judgment") or any statute, law, ordinance, rule
or regulation (collectively, "Applicable Law") applicable to the Stockholder or
the properties or assets of the Stockholder. No consent, approval, order or
authorization (collectively, "Consent") of, action by or in respect of, or
registration, declaration or filing with, any Governmental Entity is required to
be obtained or made by or with respect to the Stockholder in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, other than (i) compliance with and filings
under the HSR Act, if applicable to the Stockholder's receipt in the Merger of
Parent Common Stock, and (ii) such reports under Sections 13(d) and 16 of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby. If the Stockholder is married and the Target
Subject Shares of the Stockholder constitute community property or otherwise
need spousal or other approval to be legal, valid and binding, this Agreement
has been duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, the Stockholder's spouse, enforceable against such spouse
in accordance with its terms.
(b) The Target Subject Shares. Except as set forth on Schedule A
hereto, the Stockholder is the record and beneficial owner of, or is the trustee
of a trust that is the record holder of, and whose beneficiaries are the
beneficial owners of, and has good and marketable title to, the Target Subject
Shares set forth opposite his, her or its name on Schedule A attached hereto,
free and clear of any Liens. The Stockholder does not own, of record or
beneficially, any outstanding shares of capital stock of Target other than the
Target Subject Shares set forth
<PAGE>
3
opposite his, her or its name on Schedule A attached hereto. Except as set forth
on Schedule A hereto, the Stockholder has the sole right to vote such Target
Subject Shares, and except as contemplated by this Agreement, none of such
Target Subject Shares is subject to any voting trust or other agreement,
arrangement or restriction with respect to the voting of such Target Subject
Shares.
SECTION 2. Representations and Warranties of Parent. Parent hereby
represents and warrants to each Stockholder as follows: Parent has all requisite
corporate power and authority to execute this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by Parent of this
Agreement and consummation of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of Parent. Parent has duly
executed and delivered this Agreement, and, assuming this Agreement constitutes
the legal, valid and binding obligation of each of the other parties hereto,
this Agreement constitutes the legal, valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms. The execution and
delivery by Parent of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancelation or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of Parent under, any provision of any Contract to which Parent is a party
or by which any properties or assets of Parent are bound or, subject to the
filings and other matters referred to in the next sentence, any provision of any
Judgment or Applicable Law applicable to Parent or the properties or assets of
Parent. No Consent of, action by or in respect of, or registration, declaration
or filing with, any Governmental Entity is required to be obtained or made by or
with respect to Parent in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby, other than such reports under Sections 13(d) and 16 of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby.
<PAGE>
4
SECTION 3. Covenants of Each Stockholder. Each Stockholder,
severally and not jointly, covenants and agrees as follows:
(a) (1) At any meeting (whether annual or special and whether or not
an adjourned or postponed meeting) of the stockholders of Target called to seek
Target Stockholder Approval or in any other circumstances upon which a vote,
consent or other approval (including by written consent) with respect to the
Merger Agreement, the Merger or any other transaction contemplated by the Merger
Agreement is sought, the Stockholder shall, including by executing a written
consent solicitation if requested by Parent, vote (or cause to be voted) the
Target Subject Shares of the Stockholder in favor of adoption of the Merger
Agreement and approval of the Merger and any other transactions contemplated by
the Merger Agreement.
(2) The Stockholder hereby irrevocably grants to, and appoints,
Parent and Mark Moran and C. Andrew Johns, or any of them, and any individual
designated in writing by any of them, and each of them individually, as the
Stockholder's proxy and attorney-in-fact (with full power of substitution), for
and in the name, place and stead of the Stockholder, to vote the Target Subject
Shares of the Stockholder, or grant a consent or approval in respect of the
Target Subject Shares of the Stockholder, in favor of adoption of the Merger
Agreement and approval of the Merger and any other transactions contemplated by
the Merger Agreement. The Stockholder understands and acknowledges that Parent
is entering into the Merger Agreement in reliance upon the Stockholder's
execution and delivery of this Agreement. The Stockholder hereby affirms that
the irrevocable proxy set forth in this Section 3(a) is given in connection with
the execution of the Merger Agreement, and that such irrevocable proxy is given
to secure the performance of the duties of the Stockholder under this Agreement.
The Stockholder hereby further affirms that the irrevocable proxy is coupled
with an interest and may under no circumstances be revoked. The Stockholder
hereby ratifies and confirms all that such irrevocable proxy may lawfully do or
cause to be done by virtue hereof. Such irrevocable proxy is executed and
intended to be irrevocable in accordance with the provisions of Section 212(e)
of the DGCL. The irrevocable proxy granted hereunder shall automatically
terminate upon the termination of Sections 3(a) and 3(b) in accordance with
Section 4.
(b) Other than this Agreement, the Stockholder shall not (i) sell,
transfer, pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer"),
<PAGE>
5
or enter into any Contract, option or other arrangement (including any profit
sharing arrangement) with respect to the Transfer of, any Target Subject Shares
to any person (other than pursuant to the Merger), unless and until such person
agrees, pursuant to a writing in customary form to which Parent is a party or a
stated third-party beneficiary, to be bound by the terms of this Agreement,
including without limitation the terms of Section 3(a)(2), to the same extent,
and in the same manner, as if such person were explicitly named a Stockholder
hereunder or (ii) enter into any voting arrangement, whether by proxy, voting
agreement or otherwise, with respect to any Target Subject Shares and shall not
commit or agree to take any of the foregoing actions. The Stockholder shall not,
nor shall such Stockholder permit any entity under such Stockholder's control
to, deposit any Target Subject Shares in a voting trust.
(c) The Stockholder shall not, nor shall it authorize or permit any
employee or affiliate of, or any investment banker, financial advisor, attorney,
accountant or other representative of, the Stockholder to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal or (ii) enter into, continue or
otherwise participate in any discussions or negotiations regarding, or furnish
to any person (other than Parent and any of its affiliates and representatives)
any information with respect to, any Takeover Proposal. The Stockholder promptly
shall advise Parent orally and in writing of any Takeover Proposal or inquiry
made to the Stockholder with respect to or that could reasonably be expected to
lead to any Takeover Proposal.
(d) The Stockholder shall use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by the Merger
Agreement. The Stockholder shall not issue any press release or make any other
public statement with respect to the Merger Agreement, the Merger or any other
transaction contemplated by the Merger Agreement without the prior written
consent of Parent, except as may be required by Applicable Law.
(e) The Stockholder hereby consents to and approves the actions
taken by the Board of Directors of
<PAGE>
6
Target in approving the Merger Agreement and this Agreement, the Merger and the
other transactions contemplated by the Merger Agreement. The Stockholder hereby
waives, and agrees not to exercise or assert, any appraisal or similar rights
under Section 262 of the DGCL or other applicable law in connection with the
Merger.
(f) If, at the time the Merger Agreement is submitted for adoption
by the stockholders of Target, the Stockholder is an "affiliate" of Target for
purposes of Rule 145 under the Securities Act, the Stockholder shall deliver to
Parent at least 30 days prior to the Closing a written agreement substantially
in the form attached as Exhibit A to the Merger Agreement.
SECTION 4. Termination. This Agreement shall terminate upon the
earliest of (i) the Effective Time and (ii) the termination of the Merger
Agreement in accordance with its terms.
SECTION 5. Additional Matters. (a) Each Stockholder shall, from time
to time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments as Parent may
reasonably request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
(b) Each Stockholder agrees that this Agreement and the obligations
hereunder shall attach to such Stockholder's Target Subject Shares and shall be
binding upon any person to which legal or beneficial ownership of such Subject
Shares shall pass, whether by operation of law or otherwise, including such
Stockholder's heirs, guardians, administrators or successors, and that each
certificate representing such Target Subject Shares will be inscribed with a
legend to such effect. In the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital structure of
Target affecting the Target Subject Shares, or the acquisition of additional
shares of Target's capital stock by any Stockholder, the number of Target
Subject Shares listed in Schedule A beside the name of such Stockholder shall be
adjusted appropriately and this Agreement and the obligations hereunder shall
attach to any additional shares of Target's capital stock issued to or acquired
by such Stockholder.
(c) No person executing this Agreement who is or becomes during the
term hereof a director or officer of Target makes any agreement or understanding
herein in his or
<PAGE>
7
her capacity as such a director or officer of Target. Each Stockholder signs
solely in his, her or its capacity as the record holder and beneficial owner of,
or the trustee of a trust whose beneficiaries are the beneficial owners of, such
Stockholder's Target Subject Shares and nothing herein shall limit or affect any
actions taken by any Stockholder in his capacity as an officer or director of
Target to the extent specifically permitted by the Merger Agreement.
SECTION 6. General Provisions.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) Notice. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or sent by
overnight courier (providing proof of delivery) to Parent in accordance with
Section 8.02 of the Merger Agreement and to the Stockholders at their respective
addresses set forth on Schedule A hereto (or at such other address for a party
as shall be specified by like notice).
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation".
(d) Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement. This
Agreement shall become effective against Parent when one or more
<PAGE>
8
counterparts have been signed by Parent and delivered to each Stockholder. This
Agreement shall become effective against any Stockholder when one or more
counterparts have been executed by such Stockholder and delivered to Parent.
Each party need not sign the same counterpart.
(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
(g) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law thereof.
(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise, by Parent without the prior written
consent of each Stockholder (except that Parent may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder, to
any direct or indirect wholly owned subsidiary of Parent) or by any Stockholder
without the prior written consent of Parent, and any purported assignment
without such consent shall be void. Subject to the preceding sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
(i) Enforcement. The parties agree that irreparable damage would
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in any Delaware state court, the foregoing being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the
<PAGE>
9
transactions contemplated by this Agreement, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court, (iii) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal court sitting in the State of
Delaware or any Delaware state court and (iv) waives any right to trial by jury
with respect to any claim or proceeding related to or arising out of this
Agreement or any transaction contemplated by this Agreement.
(j) Agent for Service of Process. Each Stockholder hereby appoints
The Prentice-Hall Corporation System, Inc., with offices on the date hereof at
1013 Centre Road, Wilmington, Delaware 19805-1297, as its authorized agent (the
"Authorized Agent"), upon whom process may be served in any suit, action or
proceeding arising out of or relating to this Agreement or any transaction
contemplated by this Agreement that may be instituted in any court described in
Section 6(i)(i). Each Stockholder agrees to take any and all action, including
the filing of any and all documents, that may be necessary to establish and
continue such appointment in full force and effect as aforesaid. Each
Stockholder agrees that service of process upon the Authorized Agent shall be,
in every respect, effective service of process upon such Stockholder.
<PAGE>
10
IN WITNESS WHEREOF, each party has duly executed this Agreement, all
as of the date first written above.
24/7 MEDIA, INC.,
by
/s/ C. Andrew Johns
-----------------------------------
Name: C. Andrew Johns
Title: Executive Vice President
CENTENNIAL FUND IV, L.P.,
by
/s/ Adam Goldman
-----------------------------------
Name: Adam Goldman
Title: General Partner
TRIBUNE COMPANY,
by
/s/ David Miller
-----------------------------------
Name: David Miller
Title: Senior Vice President
TELECOM PARTNERS, L.P.,
by
/s/ Stephen Schovee
-----------------------------------
Name:S tephen Schovee
Title: Managing Member of
Telecom Management, LLC, its
General Partner
AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC.,
by
/s/ Pierric Beckert
-----------------------------------
Name: Pierric Beckert
Title: Senior Vice President
<PAGE>
11
GLOBAL RETAIL PARTNERS, L.P.,
by
/S/ Osamu R. Watanabe
-----------------------------------
Name: Osamu R. Watanabe
Title: Vice President
BOULDER VENTURES III, L.P.,
by
/s/ Kyle Lefkoff
-----------------------------------
Name: Kyle Lefkoff
BOULDER VENTURES II, L.P.,
by
/s/ Kyle Lefkoff
-----------------------------------
Name: Kyle Lefkoff
BOULDER VENTURES, LTD.,
by
/s/ Kyle Lefkoff
-----------------------------------
Name: Kyle Lefkoff
DLJ DIVERSIFIED PARTNERS, LP,
by
/s/ Osamu R. Watanabe
-----------------------------------
Name: Osamu R. Watanabe
Title: Vice President
E. THOMAS DETMER, JR.,
by
/s/ E. Thomas Detmer, Jr.
-----------------------------------
<PAGE>
SCHEDULE A
NUMBER OF
SHARES OF
TARGET
COMMON STOCK
HELD OF
NAME ADDRESS RECORD
---- ------- ------
Centennial Fund IV, L.P. 1428 Fifteenth Street 2,120,098
Denver, CO 80202
Tribune Company 435 N. Michigan Avenue 1,146,553
Suite 1500
Chicago, IL 60611
Telecom Partners, L.P. 6400 S. Fiddler's Green Circle 1,001,290
Suite 720
Englewood, CO 80111
American Express Travel Related 3 World Financial Center 875,000
Services Company, Inc. 40th Floor
New York, NY 10285
Global Retail Partners, L.P. 2121 Avenue of the Stars 575,902
16th Floor, Suite 1630
Los Angeles, CA 90067
Boulder Ventures III, L.P. 1634 Walnut Street 336,934
Suite 301
Boulder, CO 80302
E. Thomas Detmer, Jr. 707 17th Street 256,411
Suite 2850
Denver, CO 80202
<PAGE>
2
NUMBER OF
SHARES OF
TARGET
COMMON STOCK
HELD OF
NAME ADDRESS RECORD
---- ------- ------
Boulder Ventures, Ltd. 1634 Walnut Street 185,100
Suite 301
Boulder, CO 80302
DLJ Diversified Partners, LP 2121 Avenue of the Stars 171,609
16th Floor, Suite 1630
Los Angeles, CA 90067
Boulder Ventures II, L.P. 1634 Walnut Street 154,236
Suite 301
Boulder, CO 80302
<PAGE>
ANNEX C
STOCKHOLDER AGREEMENT dated as of February 29, 2000
(this "Agreement"), among EXACTIS.COM, INC., a Delaware
corporation ("Target"), and the individuals and other parties
listed on Schedule A hereto (each, a "Stockholder" and,
collectively, the "Stockholders").
WHEREAS, Target, Evergreen Acquisition Sub Corp., a Delaware
corporation ("Sub"), and 24/7 Media, Inc., a Delaware corporation ("Parent"),
propose to enter into an Agreement and Plan of Merger dated as of the date
hereof (as the same may be amended or supplemented, the "Merger Agreement";
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement) providing for the merger of Sub with and into Target;
and
WHEREAS, each Stockholder owns the number of shares of Parent Common
Stock set forth opposite his, her or its name on Schedule A hereto (such shares
of Parent Common Stock, together with any other shares of capital stock of
Parent acquired by such Stockholder after the date hereof and during the term of
this Agreement (including through the exercise of any stock options, warrants or
similar instruments), being collectively referred to herein as the "Parent
Subject Shares" of such Stockholder); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Target has requested that each Stockholder enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, covenants and agreements contained
herein, the parties hereto, intending to be legally bound, agree as follows:
SECTION 1. Representations and Warranties of Each Stockholder. Each
Stockholder hereby, severally and not jointly, represents and warrants to Target
as of the date hereof in respect of himself, herself or itself as follows:
(a) Authority; Execution and Delivery; Enforceability. The
Stockholder has all requisite power and authority to execute this Agreement and
to consummate the transactions contemplated hereby. The Stockholder has duly
executed and delivered this Agreement, and this Agreement constitutes the legal,
valid and binding obligation of the Stockholder, enforceable against the
Stockholder in accordance with its terms. The execution and delivery by the
Stockholder of this Agreement do not, and the
<PAGE>
2
consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancelation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any Lien upon any of
the properties or assets of the Stockholder under, any provision of any Contract
to which the Stockholder is a party or by which any properties or assets of the
Stockholder are bound, or, subject to the filings and other matters referred to
in the next sentence, any provision of any judgment, order or decree
(collectively, "Judgment") or any statute, law, ordinance, rule or regulation
(collectively, "Applicable Law") applicable to the Stockholder or the properties
or assets of the Stockholder. No consent, approval, order or authorization
(collectively, "Consent") of, action by or in respect of, or registration,
declaration or filing with, any Governmental Entity is required to be obtained
or made by or with respect to the Stockholder in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, other than (i) compliance with and filings
under the HSR Act, if applicable to the Stockholder's receipt in the Merger of
Parent Common Stock, and (ii) such reports under Sections 13(d) and 16 of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby. If the Stockholder is married and the Parent
Subject Shares of the Stockholder constitute community property or otherwise
need spousal or other approval to be legal, valid and binding, this Agreement
has been duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, the Stockholder's spouse, enforceable against such spouse
in accordance with its terms.
(b) The Parent Subject Shares. Except as set forth on Schedule A
hereto, the Stockholder is the record and beneficial owner of, or is the trustee
of a trust that is the record holder of, and whose beneficiaries are the
beneficial owners of, and has good and marketable title to, the Parent Subject
Shares set forth opposite his, her or its name on Schedule A attached hereto,
free and clear of any Liens. The Stockholder does not own, of record or
beneficially, any outstanding shares of capital stock of Parent other than the
Parent Subject Shares set forth opposite his, her or its name on Schedule A
attached hereto. Except as set forth on Schedule A hereto, the Stockholder has
the sole right to vote such Parent Subject Shares, and except as contemplated by
this Agreement, none of such Parent Subject Shares is subject to any voting
trust or
<PAGE>
3
other agreement, arrangement or restriction with respect to the voting of such
Parent Subject Shares.
SECTION 2. Representations and Warranties of Target. Target hereby
represents and warrants to each Stockholder as follows: Target has all requisite
corporate power and authority to execute this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by Target of this
Agreement and consummation of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of Target. Target has duly
executed and delivered this Agreement, and, assuming this Agreement constitutes
the legal, valid and binding obligation of each of the other parties hereto,
this Agreement constitutes the legal, valid and binding obligation of Target,
enforceable against Target in accordance with its terms. The execution and
delivery by Target of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancelation or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of Target under, any provision of any Contract to which Target is a party
or by which any properties or assets of Target are bound or, subject to the
filings and other matters referred to in the next sentence, any provision of any
Judgment or Applicable Law applicable to Target or the properties or assets of
Target. No Consent of, action by or in respect of, or registration, declaration
or filing with, any Governmental Entity is required to be obtained or made by or
with respect to Target in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby, other than such reports under Sections 13(d) and 16 of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby.
SECTION 3. Covenants of Each Stockholder. Each Stockholder,
severally and not jointly, covenants and agrees, except as set forth on Schedule
A hereto, as follows:
(a) At any meeting (whether annual or special and whether or not an
adjourned or postponed meeting) of the stockholders of Parent called to seek
Parent Stockholder Approval or in any other circumstances upon which a vote,
consent or other approval (including by written consent) with respect to the
issuance of shares of Parent Common
<PAGE>
4
Stock in connection with the Merger or any other transaction contemplated by the
Merger Agreement is sought, the Stockholder shall, including by executing a
written consent solicitation if requested by Target, vote (or cause to be voted)
the Parent Subject Shares of the Stockholder in favor of the issuance of shares
of Parent Common Stock in connection with the Merger or any other transaction
contemplated by the Merger Agreement.
(b) The Stockholder hereby irrevocably grants to, and appoints,
Target and E. Thomas Detmer, Jr. and Kenneth W. Edwards, Jr., or any of them,
and any individual designated in writing by any of them, and each of them
individually, as the Stockholder's proxy and attorney-in-fact (with full power
of substitution), for and in the name, place and stead of the Stockholder, to
vote the Parent Subject Shares of the Stockholder, or grant a consent or
approval in respect of the Parent Subject Shares of the Stockholder, in favor of
the issuance of shares of Parent Common Stock in connection with the Merger or
any other transaction contemplated by the Merger Agreement. The Stockholder
understands and acknowledges that Target is entering into the Merger Agreement
in reliance upon the Stockholder's execution and delivery of this Agreement. The
Stockholder hereby affirms that the irrevocable proxy set forth in this Section
3(b) is given in connection with the execution of the Merger Agreement, and that
such irrevocable proxy is given to secure the performance of the duties of the
Stockholder under this Agreement. The Stockholder hereby further affirms that
the irrevocable proxy is coupled with an interest and may under no circumstances
be revoked. The Stockholder hereby ratifies and confirms all that such
irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such
irrevocable proxy is executed and intended to be irrevocable in accordance with
the provisions of Section 212(e) of the DGCL. The irrevocable proxy granted
hereunder shall automatically terminate upon the termination of Sections 3(a)
and 3(b) in accordance with Section 4.
(c) The Stockholder shall use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by the Merger
Agreement. The Stockholder shall not issue any press release or make any other
public statement with respect to the Merger Agreement, the Merger or any other
transaction contemplated by the
<PAGE>
5
Merger Agreement without the prior written consent of Target, except as may be
required by Applicable Law.
(d) The Stockholder hereby consents to and approves the actions taken by
the Board of Directors of Parent in approving the Merger Agreement and this
Agreement, the Merger, the issuance of shares of Parent Common Stock in
connection with the Merger and the other transactions contemplated by the Merger
Agreement.
SECTION 4. Termination. This Agreement shall terminate upon the
earliest of (i) the Effective Time and (ii) the termination of the Merger
Agreement in accordance with its terms.
SECTION 5. Additional Matters. (a) Each Stockholder shall, from time
to time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments as Target may
reasonably request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
(b) No person executing this Agreement who is or becomes during the
term hereof a director or officer of Parent makes any agreement or understanding
herein in his or her capacity as such a director or officer of Parent. Each
Stockholder signs solely in his, her or its capacity as the record holder and
beneficial owner of, or the trustee of a trust whose beneficiaries are the
beneficial owners of, such Stockholder's Parent Subject Shares and nothing
herein shall limit or affect any actions taken by any Stockholder in his
capacity as an officer or director of Parent to the extent specifically
permitted by the Merger Agreement.
SECTION 6. General Provisions.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) Notice. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or sent by
overnight courier (providing proof of delivery) to Target in accordance with
Section 8.02 of the Merger Agreement and to the Stockholders at their respective
addresses set forth on Schedule A hereto (or at such other address for a party
as shall be specified by like notice).
<PAGE>
6
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation".
(d) Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement. This
Agreement shall become effective against Target when one or more counterparts
have been signed by Target and delivered to each Stockholder. This Agreement
shall become effective against any Stockholder when one or more counterparts
have been executed by such Stockholder and delivered to Target. Each party need
not sign the same counterpart.
(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
(g) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law thereof.
(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law
<PAGE>
7
or otherwise, by Target without the prior written consent of each Stockholder
(except that Target may assign, in its sole discretion, any or all of its
rights, interests and obligations hereunder, to any direct or indirect wholly
owned subsidiary of Target) or by any Stockholder without the prior written
consent of Target, and any purported assignment without such consent shall be
void. Subject to the preceding sentences, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
(i) Enforcement. The parties agree that irreparable damage would
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in any Delaware state court, the foregoing being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (ii) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (iii) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a Federal court sitting in the State of
Delaware or any Delaware state court and (iv) waives any right to trial by jury
with respect to any claim or proceeding related to or arising out of this
Agreement or any transaction contemplated by this Agreement.
(j) Agent for Service of Process. Each Stockholder hereby appoints
The Corporation Service Company, with offices on the date hereof at 1013 Centre
Road, Wilmington, Delaware 19805-1297, as its authorized agent (the "Authorized
Agent"), upon whom process may be served in any suit, action or proceeding
arising out of or relating to this Agreement or any transaction contemplated by
this Agreement that may be instituted in any court described in Section 6(i)(i).
Each Stockholder agrees to take any and all action, including the filing of any
and all documents, that may be necessary to establish and continue such
appointment in full force and effect as aforesaid. Each
<PAGE>
8
Stockholder agrees that service of process upon the Authorized Agent shall be,
in every respect, effective service of process upon such Stockholder.
<PAGE>
9
IN WITNESS WHEREOF, each party has duly executed this Agreement, all
as of the date first written above.
EXACTIS.COM, INC.,
by
/s/ E. Thomas Detmer, Jr.
-----------------------------------
Name: E.Thomas Detmer, Jr.
Title: Chief Executive Officer
THE TRAVELERS INSURANCE COMPANY,
by
/s/ John R. Britt
-----------------------------------
Name: John R. Britt
Title: Asst. Corporate
Secretary
BIG FLOWER DIGITAL SERVICES, INC.,
by
/s/ R. Theodore Ammon
-----------------------------------
Name: R. Theodore Ammon
PROSPECT STREET NYC
DISCOVERY FUND, L.P.,
by
/s/ John F. Barry
-----------------------------------
Name: John F. Barry
Title: Managing General Partner
PROSPECT STREET NYC
CO-INVESTMENT FUND, L.P.,
by
/s/ John F. Barry
-----------------------------------
Name: John F. Barry
Title: Managing General Partner
<PAGE>
10
FRESHWATER CONSULTING LTD.,
by
/s/ David Turner
-----------------------------------
Name: David Turner
GALMOS HOLDINGS, INC.,
by
/s/ Gour Lentell
-----------------------------------
Name: Gour Lentell
DAVID J. MOORE,
/s/ David J. Moore
-----------------------------------
MARK SCHASZBERGER,
/s/ Mark Schaszberger
-----------------------------------
TRAMI TRAN,
/s/ Trami Tran
-----------------------------------
JACOB I. FRIESEL,
/s/ Jacob I. Friesel
-----------------------------------
PAUL C. CHACHKO,
/s/ Paul C. Chachko
-----------------------------------
JAMES GREEN,
/s/ James Green
-----------------------------------
<PAGE>
SCHEDULE A
NUMBER OF
SHARES OF
PARENT
COMMON STOCK
HELD OF
NAME ADDRESS RECORD
---- ------- ------
Travelers Insurance Company(1) One Tower Square 1,666,829
Hartford, CT 06183-2030
David J. Moore c/o 24/7 Media, Inc. 887,343
1250 Broadway, 28th Floor
New York, NY 10001
Big Flower Holdings 3 East 54th Street 875,351
New York, NY 10022
Prospect Street Discovery Fund 10 East 40th Street 656,513
44th Floor
New York, NY 10016
Mark Schaszberger c/o 24/7 Media, Inc. 653,062
1250 Broadway, 28th Floor
New York, NY 10001
Trami Tran c/o 24/7 Media, Inc. 626,938
1250 Broadway, 28th Floor
New York, NY 10001
- ----------
(1) Nothing in this Agreement shall restrict the ability of Travelers
Insurance Company to transfer its shares of Parent Common Stock without regard
to the irrevocable proxy or any other restriction set forth in this Agreement.
<PAGE>
12
NUMBER OF
SHARES OF
PARENT
COMMON STOCK
HELD OF
NAME ADDRESS RECORD
---- ------- ------
Jacob I. Friesel c/o 24/7 Media, Inc. 508,371
1250 Broadway, 28th Floor
New York, NY 10001
Paul Chachko c/o 24/7 Media, Inc. 495,836
1250 Broadway, 28th Floor
New York, NY 10001
Prospect Street Co-Investment
Fund 10 East 40th Street 218,838
44th Floor
New York, NY 10016
Freshwater Consulting Ltd. c/o 24/7 Media, Inc. 156,294
1250 Broadway, 28th Floor
New York, NY 10001
Galmos Holdings, Inc. c/o 24/7 Media, Inc. 156,294
1250 Broadway, 28th Floor
New York, NY 10001
James Green c/o 24/7 Media, Inc. 156,294
1250 Broadway, 28th Floor
New York, NY 10001
<PAGE>
ANNEX D
[LETTERHEAD OF LAZARD FRERES & CO., LLC]
February 28, 2000
The Board of Directors
24/7 Media, Inc.
1250 Broadway, 28th Floor
New York, NY 10001-3701
Dear Members of the Board:
We understand that 24/7 Media, Inc., a Delaware corporation (the
"Company"), Evergreen Acquisition Sub Corp., a Delaware corporation and a wholly
owned subsidiary of the Company ("Sub"), and Exactis.com, Inc., a Delaware
corporation ("Exactis"), propose to enter into an Agreement and Plan of Merger
(the "Merger Agreement"), pursuant to which Sub will merge with and into Exactis
with Exactis being the surviving corporation (the "Merger"). Pursuant to the
Merger, each share of common stock of Exactis, par value $0.01 per share (the
"Exactis Common Stock"), issued and outstanding immediately prior to the
effective time of the Merger, other than shares of the Exactis Common Stock held
by the Company and Sub and shares of the Exactis Common Stock held in the
treasury of Exactis, will be converted into the right to receive 0.60 shares
(the "Exchange Ratio") of common stock of the Company, par value $0.01 per share
(the "Company Common Stock").
You have requested our opinion as to the fairness, from a financial
point of view, to the Company of the Exchange Ratio. In connection with this
opinion, we have, among other things:
(i) Reviewed the financial terms and conditions of a draft Merger
Agreement dated February 27, 2000 and draft Stockholders
Agreements dated February 27, 2000 between the Company and
certain stockholders of Exactis and between Exactis and
certain stockholders of the Company;
(ii) Analyzed certain historical business and financial information
relating to the Company and Exactis;
(iii) Reviewed various publicly available forecasts prepared by
nationally recognized research analysts who report on the
Company and Exactis and certain preliminary financial
projections provided to us by the Company and Exactis relating
to their respective businesses;
<PAGE>
(iv) Held discussions with members of senior management of the
Company and Exactis with respect to the businesses and
prospects of the Company and Exactis, respectively, and the
strategic objectives of each;
(v) Reviewed public information with respect to certain other
companies in lines of business we believe to be generally
comparable to those of the Company and Exactis;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of business we believe to be
generally comparable to those of the Company and Exactis;
(vii) Reviewed the historical stock prices and trading volumes of
the Company Common Stock and the Exactis Common Stock; and
(viii) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company and Exactis, or concerning the
solvency of or issues relating to solvency concerning the Company or Exactis.
With the consent of the Company, we have relied upon publicly available
forecasts prepared by nationally recognized research analysts who report on the
Company and Exactis and have relied on the statements of the managements of the
Company and Exactis that such forecasts are consistent with the currently
available estimates and judgments of the managements of the Company and Exactis
as to the future financial performance of the Company and Exactis, respectively.
With respect to the preliminary projections provided to us by the Company and
Exactis, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of the Company and Exactis as to the future financial performance of
the Company and Exactis, respectively. We assume no responsibility for and
express no view as to such forecasts or the assumptions on which they are based.
Further, our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof. In rendering our opinion, we did not address the
relative merits of the Merger, any alternative potential transaction or the
Company's underlying decision to effect the Merger.
2
<PAGE>
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by the Company and that obtaining the
necessary regulatory approvals, if any, for the Merger will not have an adverse
effect on the Company. We have also assumed that the definitive Merger Agreement
will not differ in any material respect from the draft thereof furnished to us.
Lazard Freres & Co. LLC is acting as investment banker to the
Company in connection with the Merger and will receive a fee for our services, a
substantial portion of which is contingent upon the consummation of the Merger.
We have in the past provided investment banking services to the Company for
which we received usual and customary compensation.
Our engagement and the opinion expressed herein are solely for the
benefit of the Company's Board of Directors and our opinion is rendered to the
Company's Board of Directors in connection with its consideration of the Merger.
This opinion is not intended to and does not constitute a recommendation to any
holder of the Company Common Stock as to whether such stockholder should vote
for the Merger, if such vote is required under the Company's certificate of
incorporation and/or applicable law. We are not expressing any opinion herein as
to the prices at which the Company Common Stock will trade following the
announcement or consummation of the Merger. It is understood that this letter
may not be disclosed or otherwise referred to without our prior consent, except
as may otherwise be required by law or by a court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that
the Exchange Ratio in connection with the Merger is fair to the Company from a
financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ Robert E. Hougie
--------------------------------------
Robert E. Hougie
Managing Director
3
<PAGE>
ANNEX E
PRIVILEGED AND
CONFIDENTIAL
February 28, 2000
Board of Directors
Exactis.com, Inc.
707 17th Street
Suite 2850
Denver, CO 80202
Ladies and Gentlemen:
We understand that Exactis.com, Inc., a Delaware corporation ("Seller"),
and 24/7 Media, Inc., a Delaware corporation ("Buyer"), have entered into a
Merger Agreement dated February 28, 2000 (the "Merger Agreement"), pursuant to
which a wholly-owned subsidiary of Buyer will be merged with and into Seller,
which will be the surviving entity (the "Merger"). Pursuant to the Merger, as
more fully described in the Merger Agreement and as further described to us by
management of Seller, we understand that each issued outstanding share of the
common stock, $0.01 par value per share ("Seller Common Stock"), of Seller,
except those to be canceled pursuant to the Merger Agreement, will be converted
into the right to receive 0.60 shares of the common stock, $0.01 par value per
share ("Buyer Common Stock"), of Buyer, (the "Consideration"). The terms and
conditions of the Merger are set forth in more detail in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the
exchange ratio pursuant to the Merger Agreement is fair to the shareholders from
a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to Seller and
Buyer, including the consolidated financial statements for recent years and
interim periods to September 30, 1999 for Buyer and December 31, 1999 for Seller
and certain other relevant financial and operating data relating to Seller and
Buyer made available to us from published sources; (ii) reviewed certain other
relevant financial and operating data relating to Seller from the internal
records of Seller; (iii) reviewed certain other relevant financial and operating
data relating to Buyer from the internal records of Buyer (iv) reviewed the
financial terms and conditions of the Merger Agreement; (v) reviewed certain
publicly available information concerning the trading of, and the trading market
for, Seller Common Stock and Buyer
<PAGE>
Board of Directors
Exactis.com, Inc.
February 28, 2000
Page 2
Common Stock; (vi) compared Seller and Buyer from a financial point of view with
certain other companies in the e-mail services and online advertising services
industries which we deemed to be relevant; (vii) considered the financial terms,
to the extent publicly available, of selected recent business combinations of
companies in the e-mail services and online advertising services industries
which we deemed to be comparable, in whole or in part, to the Merger; (viii)
reviewed and discussed with representatives of the management of Seller and
Buyer certain information of a business and financial nature regarding Seller
and Buyer, furnished to us by them, including financial forecasts and related
assumptions of Seller and Buyer; (ix) made inquiries regarding and discussed the
Merger and the Merger Agreement and other matters related thereto with Seller's
counsel; and (x) performed such other analyses and examinations as we have
deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller provided to us by its management, upon its advice and with
your consent we have assumed for purposes of our opinion that the forecasts have
been reasonably prepared on bases reflecting the best available estimates and
judgments of its management at the time of preparation as to the future
financial performance of Seller and that they provide a reasonable basis upon
which we can form our opinion. We have also assumed that there have been no
material changes in Seller's or Buyer's assets, financial condition, results of
operations, business or prospects since the respective dates of their last
financial statements made available to us. We have relied on counsel and
independent accountants to Seller as to all legal and financial reporting
matters with respect to Seller, the Merger and the Merger Agreement, including
the legal status and financial reporting of litigation involving Seller and
Buyer. We have assumed that the Merger will be consummated in a manner that
complies in all respects with the applicable provisions of the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934 and
all other applicable federal and state statutes, rules and regulations. In
addition, we have not assumed responsibility for making an independent
evaluation, appraisal or physical inspection of any of the assets or liabilities
(contingent or otherwise) of Seller or Buyer, nor have we been furnished with
any such appraisals. You have informed us, and we have assumed, that the Merger
will be treated as a tax-free reorganization, pursuant to the U.S. Internal
Revenue Code of 1986, as amended. Finally, our opinion is based on economic,
monetary and market and other conditions as in effect on, and the information
made available to us as of, the date hereof. Accordingly, although subsequent
developments may affect this opinion, we have not assumed any obligation to
update, revise or reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Seller of any of
the conditions to its obligations thereunder.
<PAGE>
Board of Directors
Exactis.com, Inc.
February 28, 2000
Page 3
We have acted as financial advisor to Seller in connection with the Merger
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the Merger.
In the ordinary course of our business, we actively trade the equity securities
of Seller for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also acted as an underwriter in connection with the public offering of
securities of Seller and performed various investment banking services for
Seller.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the exchange ratio pursuant to the Merger Agreement is
fair to the shareholders of Seller from a financial point of view, as of the
date hereof.
We are not expressing an opinion regarding the price at which the Buyer
Common Stock may trade at any future time. The Consideration to be received by
the shareholders of Seller pursuant to the Merger is based upon a fixed exchange
ratio and, accordingly, the market value of the Consideration may vary
significantly.
This opinion is directed to the Board of Directors of Seller in its
consideration of the Merger and is not a recommendation to any shareholder as to
how such shareholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Consideration to the
shareholders and does not address the relative merits of the Merger and any
alternatives to the Merger, Seller's underlying decision to proceed with or
effect the Merger, or any other aspect of the Merger. In furnishing this
opinion, we do not admit that we are experts within the meaning of the term
"experts" as used in the Securities Act and the rules and regulations
promulgated thereunder, nor do we admit that this opinion constitutes a report
or valuation within the meaning of Section 11 of the Securities Act.
Very truly yours,
/s/ Thomas Weisel Partners LLC
THOMAS WEISEL PARTNERS LLC
<PAGE>
ANNEX F
LOCK-UP AGREEMENT
24/7 Media, Inc.
1250 Broadway, 28th Floor
New York, NY 10001-3701 February 29, 2000
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Merger dated as of February
29, 2000 (the "Agreement") among 24/7 Media, Inc., a Delaware corporation
("Acquiror"), a subsidiary of Acquiror and Exactis.com, Inc., a Delaware
corporation (the "Company"), the undersigned will receive shares of common
stock, par value $.01 per share, of Acquiror (the "Shares"), in exchange for
shares of common stock, par value $.01 per share, of the Company owned by the
undersigned. In order to induce Acquiror to enter into the Agreement, the
undersigned hereby agrees as follows:
1. Until the date that is five (5) months after the Effective Time (as
defined in the Agreement), the undersigned will not sell, offer to sell,
contract to sell, sell any option or contract for the sale or purchase of,
lend, enter into any swap or other arrangement that transfers to another
any of the economic consequences of ownership of, or otherwise dispose of
(collectively, "transfer") (a) more than one-tenth (1/10) of the Shares
in any one day and (b) more than one-fourth (1/4) of the Shares in any ten
consecutive trading days.
2. The undersigned acknowledges that the Acquiror may impose stock transfer
restrictions on the Shares to enforce the provisions of this Lock-Up
Agreement.
This Agreement may not be amended except by an instrument in writing signed by
each party hereto.
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of Delaware regardless of the laws that might otherwise govern
under applicable principles of conflicts of law thereof.
Very truly yours,
CENTENNIAL FUND IV, L.P.,
by
/s/ Adam Goldman
---------------------------------
Name: Adam Goldman
Title: General Partner
<PAGE>
TRIBUNE COMPANY,
by
/s/ David Miller
---------------------------------
Name: David Miller
Title: Senior Vice President
TELECOM PARTNERS, L.P.,
by
/s/ Stephen Schovee
---------------------------------
Name: Stephen Schovee
Title: Managing Member of
Telecom Management, LLC, its
General Partner
AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC.,
by
/s/ Pierric Beckert
---------------------------------
Name: Pierric Beckert
Title: Senior Vice President
GLOBAL RETAIL PARTNERS, L.P.,
by
/S/ Osamu R. Watanabe
---------------------------------
Name: Osamu R. Watanabe
Title: Vice President
BOULDER VENTURES III, L.P.,
by
/s/ Kyle Lefkoff
---------------------------------
Name: Kyle Lefkoff
BOULDER VENTURES II, L.P.,
by
/s/ Kyle Lefkoff
---------------------------------
Name: Kyle Lefkoff
<PAGE>
BOULDER VENTURES, LTD.,
by
/s/ Kyle Lefkoff
---------------------------------
Name: Kyle Lefkoff
DLJ DIVERSIFIED PARTNERS, LP,
by
/s/ Osamu R. Watanabe
---------------------------------
Name: Osamu R. Watanabe
Title: Vice President
E. THOMAS DETMER, JR.,
by
/s/ E. Thomas Detmer, Jr.
---------------------------------
AGREED TO:
24/7 MEDIA, INC.,
By: /s/ C. Andrew Johns
---------------------------------
Name: C. Andrew Johns
Title: Executive Vice President
<PAGE>
ANNEX G
FORM OF
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
24/7 MEDIA, INC.
24/7 Media, Inc., a Delaware corporation (the ""Corporation''), does
hereby certify as follows:
FIRST: At a duly held meeting, the board of directors adopted resolutions
proposing and declaring it advisable that the Certificate of Incorporation of
the Corporation be amended as follows:
(a) By striking the first sentence of Article Fourth and substituting
in lieu thereof the following sentence:
The Corporation shall have the authority to issue an aggregate of
150,000,000 (one hundred fifty million) shares, consisting of
140,000,000 (one hundred forty million) shares of common stock,
par value $.01 per share, and 10,000,000 (ten million) shares of
preferred stock, par value $.01 per share.
SECOND: The stockholders of the Corporation have duly adopted the foregoing
amendment at a Special Meeting of the Stockholders duly called and held on
[ ], 2000, in accordance with the provisions of the
Section[nb]222 of the General Corporation Law of Delaware.
THIRD: Such amendment to the Certificate of Incorporation was duly adopted
in accordance with the applicable provisions of Sections 222 and 242 of the
General Corporation Law of Delaware.
FOURTH: Such amendment to the Certificate of Incorporation shall be
effective on and as of the date of filing of this Certificate of Amendment
with the office of the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed in its name by its [ ], and attested to by its
[ ], this [ ] day of [ ], 2000, and the statements contained
herein are affirmed as true under penalties of perjury.
24/7 MEDIA,INC.
By:
----------------------
Name:
Title:
ATTEST:
By:
-----------------
Name:
Title:
<PAGE>
ANNEX H
EXACTIS.COM, INC.
1999 EQUITY INCENTIVE PLAN
Adopted August 11, 1999
Approved By Stockholders August 11, 1999
Termination Date: August 10, 2009
Amended: September 13, 1999
Amended: February 28, 2000
1. PURPOSES.
(a) Eligible Stock Award Recipients. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) Available Stock Awards. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(c) General Purpose. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Exactis.com, Inc., a Delaware corporation.
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(g) "Consultant" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
(h) "Continuous Service" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "Director" means a member of the Board of Directors of the Company.
(k) "Disability" means (i) before the Listing Date, the inability of a
person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person's position with the Company or an
Affiliate of the Company because of the sickness or injury of the person and
(ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day
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<PAGE>
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common Stock shall
be determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.
(o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "Officer" means (i) before the Listing Date, any person designated by
the Company as an officer and (ii) on and after the Listing Date, a person who
is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.
(t) "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "Option Agreement" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
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<PAGE>
(v) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(x) "Participant" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
(y) "Plan" means this Exactis.com, Inc. 1999 Equity Incentive Plan.
(z) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(aa) "Securities Act" means the Securities Act of 1933, as amended.
(bb) "Stock Award" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(cc) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "Ten Percent Stockholder" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) Administration by Board. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c). Any interpretation of the Plan by the Board and any decision by
the Board under the Plan shall be final and binding on all persons.
(b) Powers of Board. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock
4
<PAGE>
Award granted (which need not be identical), including the time or times when a
person shall be permitted to receive Common Stock pursuant to a Stock Award; and
the number of shares of Common Stock with respect to which a Stock Award shall
be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) Delegation to Committee.
(i) General. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) Committee Composition when Common Stock is Publicly Traded. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate
to a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock
5
<PAGE>
Awards shall not exceed in the aggregate four million (4,000,000) shares of
Common Stock. This share reserve shall be comprised of: (i) up to one million
six hundred thousand (1,600,000) shares of Common Stock of the Company from any
options granted under the Company's 1997 Stock Option Plan which subsequently
for any reason expire or terminate, in whole or in part, without having been
exercised in full, so that such shares of Common Stock of the Company are not
issued pursuant to the terms of such options, plus (ii) an additional two
million four hundred thousand (2,400,000) shares of Common Stock of the Company.
(b) Reversion of Shares to the Share Reserve. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such Stock
Award shall revert to and again become available for issuance under the Plan.
(c) Source of Shares. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
(d) Share Reserve Limitation. Prior to the Listing Date and to the extent
then required by Section 260.140.45 of Title 10 of the California Code of
Regulations, the total number of shares of Common Stock issuable upon exercise
of all outstanding Options and the total number of shares of Common Stock
provided for under any stock bonus or similar plan of the Company shall not
exceed the applicable percentage as calculated in accordance with the conditions
and exclusions of Section 260.140.45 of Title 10 of the California Code of
Regulations, based on the shares of Common Stock of the Company that are
outstanding at the time the calculation is made.
5. ELIGIBILITY.
(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
(b) Ten Percent Stockholders.
(i) A Ten Percent Stockholder shall not be granted an Incentive
Stock Option unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of the Common Stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.
(ii) Prior to the Listing Date, a Ten Percent Stockholder shall not
be granted a Nonstatutory Stock Option unless the exercise price of such Option
is at least (i) one hundred ten percent (110%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
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<PAGE>
(iii) Prior to the Listing Date, a Ten Percent Stockholder shall not
be granted a restricted stock award unless the purchase price of the restricted
stock is at least (i) one hundred percent (100%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
(c) Section 162(m) Limitation. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than seven hundred
thousand (700,000) shares of Common Stock during any calendar year. This
subsection 5(c) shall not apply prior to the Listing Date and, following the
Listing Date, this subsection 5(c) shall not apply until (i) the earliest of:
(1) the first material modification of the Plan (including any increase in the
number of shares of Common Stock reserved for issuance under the Plan in
accordance with Section 4); (2) the issuance of all of the shares of Common
Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or
(4) the first meeting of stockholders at which Directors are to be elected that
occurs after the close of the third calendar year following the calendar year in
which occurred the first registration of an equity security under Section 12 of
the Exchange Act; or (ii) such other date required by Section 162(m) of the Code
and the rules and regulations promulgated thereunder.
(d) Consultants.
(i) Prior to the Listing Date, a Consultant shall not be eligible
for the grant of a Stock Award if, at the time of grant, either the offer or the
sale of the Company's securities to such Consultant is not exempt under Rule 701
of the Securities Act ("Rule 701") because of the nature of the services that
the Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by Rule 701, unless the Company
determines that such grant need not comply with the requirements of Rule 701 and
will satisfy another exemption under the Securities Act as well as comply with
the securities laws of all other relevant jurisdictions.
(ii) From and after the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, a Form S-8
Registration Statement under the Securities Act ("Form S-8") is not available to
register either the offer or the sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (i) that such grant (A) shall be registered in another
manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(B) does not require registration under the Securities Act in order to comply
with the requirements of the Securities Act, if applicable, and (ii) that such
grant complies with the securities laws of all other relevant jurisdictions.
(iii) As of April 7, 1999 Rule 701 and Form S-8 generally are
available to consultants and advisors only if (i) they are natural persons; (ii)
they provide bona fide services to the issuer, its parents, its majority-owned
subsidiaries or majority-owned subsidiaries of the
7
<PAGE>
issuer's parent; and (iii) the services are not in connection with the offer or
sale of securities in a capital-raising transaction, and do not directly or
indirectly promote or maintain a market for the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) Term. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option granted prior to the Listing Date shall be
exercisable after the expiration of ten (10) years from the date it was granted,
and no Incentive Stock Option granted on or after the Listing Date shall be
exercisable after the expiration of ten (10) years from the date it was granted.
(b) Exercise Price of an Incentive Stock Option. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the Common Stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may
be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) Exercise Price of a Nonstatutory Stock Option. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option granted on or after the Listing
Date shall be determined by the Board in its discretion.
(d) Consideration. The purchase price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.
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In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) Transferability of an Incentive Stock Option. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock
Option granted prior to the Listing Date shall not be transferable except by
will or by the laws of descent and distribution and, to the extent provided in
the Option Agreement, to such further extent as permitted by Section
260.140.41(d) of Title 10 of the California Code of Regulations at the time of
the grant of the Option, and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on or
after the Listing Date shall be transferable to the extent provided in the
Option Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) Vesting Generally. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) Minimum Vesting Prior to the Listing Date. Notwithstanding the
foregoing subsection 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California Code
of Regulations at the time of the grant of the Option, then:
(i) Options granted prior to the Listing Date to an Employee who is
not an Officer, Director or Consultant shall provide for vesting of the total
number of shares of Common Stock at a rate of at least twenty percent (20%) per
year over five (5) years from the date the Option was granted, subject to
reasonable conditions such as continued employment; and
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(ii) Options granted prior to the Listing Date to Officers,
Directors or Consultants may be made fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company.
(i) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which period shall not be less than thirty (30) days for Options
granted prior to the Listing Date unless such termination is for cause), or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, the Option shall terminate.
(j) Extension of Termination Date. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(k) Disability of Optionholder. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(l) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement, which period shall not be less than six (6) months for
Options granted
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prior to the Listing Date) or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(m) Early Exercise. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Subject to the "Repurchase Limitation" in subsection 10(h), any
unvested shares of Common Stock so purchased may be subject to a repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.
(n) Right of Repurchase. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares of Common Stock acquired by the Optionholder pursuant to the
exercise of the Option.
(o) Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares of Common Stock received
upon the exercise of the Option. Except as expressly provided in this subsection
6(o), such right of first refusal shall otherwise comply with any applicable
provisions of the Bylaws of the Company.
(p) Re-Load Options. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares of Common Stock
equal to the number of shares of Common Stock surrendered as part or all of the
exercise price of such Option; (ii) have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such
Re-Load Option; and (iii) have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option shall be subject to the same exercise price and
term provisions heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a)
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and the "Section 162(m) Limitation" on the grants of Options under subsection
5(c) and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) Stock Bonus Awards. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) Consideration. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.
(ii) Vesting. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock awarded under the stock bonus agreement may, but
need not, be subject to a share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.
(iii) Termination of Participant's Continuous Service. Subject to
the "Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.
(iv) Transferability. For a stock bonus award made before the
Listing Date, rights to acquire shares of Common Stock under the stock bonus
agreement shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. For a stock bonus award made on or after the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall be transferable by the Participant only upon such terms and conditions as
are set forth in the stock bonus agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the stock bonus agreement
remains subject to the terms of the stock bonus agreement.
(b) Restricted Stock Awards. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
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(i) Purchase Price. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
eighty-five percent (85%) of the Common Stock's Fair Market Value on the date
such award is made or at the time the purchase is consummated. For restricted
stock awards made on or after the Listing Date, the purchase price shall not be
less than eighty-five percent (85%) of the Common Stock's Fair Market Value on
the date such award is made or at the time the purchase is consummated.
(ii) Consideration. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) Vesting. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iv) Termination of Participant's Continuous Service. Subject to the
"Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
(v) Transferability. For a restricted stock award made before the
Listing Date, rights to acquire shares of Common Stock under the restricted
stock purchase agreement shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a restricted stock award made on or
after the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the restricted stock purchase agreement remains
subject to the terms of the restricted stock purchase agreement.
8. COVENANTS OF THE COMPANY.
(a) Availability of Shares. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
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(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) Acceleration of Exercisability and Vesting. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) Stockholder Rights. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) Incentive Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
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(e) Investment Assurances. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
(f) Withholding Obligations. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; provided, however, that no
shares are withheld with a value exceeding the minimum amount of tax required to
be withheld by law; or (iii) delivering to the Company owned and unencumbered
shares of Common Stock.
(g) Information Obligation. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.
(h) Repurchase Limitation. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations at the time a Stock Award is made, any repurchase
option contained in a Stock Award granted prior to the Listing Date to a person
who is not an Officer, Director or Consultant shall be upon the terms described
below:
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(i) Fair Market Value. If the repurchase option gives the Company
the right to repurchase the shares of Common Stock upon termination of
employment at not less than the Fair Market Value of the shares of Common Stock
to be purchased on the date of termination of Continuous Service, then (i) the
right to repurchase shall be exercised for cash or cancellation of purchase
money indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (ii) the right terminates when the shares
of Common Stock become publicly traded.
(ii) Original Purchase Price. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination of
Continuous Service at the original purchase price, then (i) the right to
repurchase at the original purchase price shall lapse at the rate of at least
twenty percent (20%) of the shares of Common Stock per year over five (5) years
from the date the Stock Award is granted (without respect to the date the Stock
Award was exercised or became exercisable) and (ii) the right to repurchase
shall be exercised for cash or cancellation of purchase money indebtedness for
the shares of Common Stock within ninety (90) days of termination of Continuous
Service (or in the case of shares of Common Stock issued upon exercise of
Options after such date of termination, within ninety (90) days after the date
of the exercise) or such longer period as may be agreed to by the Company and
the Participant (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code regarding "qualified small business stock").
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) Capitalization Adjustments. If any change is made in the Common Stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
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(c) Change in Control--Asset Sale, Merger, Consolidation or Reverse
Merger. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall assume
or continue any Stock Awards outstanding under the Plan or shall substitute
similar stock awards (including an award to acquire the same consideration paid
to the stockholders in the transaction described in this subsection 11(c)) for
those outstanding under the Plan. In the event any surviving corporation or
acquiring corporation refuses to assume or continue such Stock Awards or to
substitute similar stock awards for those outstanding under the Plan, then with
respect to Stock Awards held by Participants whose Continuous Service has not
terminated, the vesting of such Stock Awards (and, if applicable, the time
during which such Stock Awards may be exercised) shall be accelerated in full,
and the Stock Awards shall terminate if not exercised (if applicable) at or
prior to such event. With respect to any other Stock Awards outstanding under
the Plan, such Stock Awards shall terminate if not exercised (if applicable)
prior to such event.
(d) Change in Control--Securities Acquisition. After the Listing Date, in
the event of an acquisition by any person, entity or group within the meaning of
Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
Directors, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) Contemplated Amendments. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the
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Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(d) No Impairment of Rights. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) Amendment of Stock Awards. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of Colorado shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such
state's conflict of laws rules.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall have
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), because the person is or was a director
or officer of the corporation. Such indemnity may be against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such action, suit or
proceeding, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and if, with respect to any criminal action or proceeding, the
person did not have reasonable cause to believe the person's conduct was
unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the corporation,
against any expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection with the defense or settlement of such
action or suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
be indemnified for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 145(g) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the corporation against any
liability asserted against the person and incurred by the person in any such
capacity, or arising out of the person's status as such, whether or not the
corporation would have the power to indemnify the person against such liability
under the provisions of the law.
Article Ninth of the Registrant's certificate of incorporation
indemnification to the fullest extent permitted under Delaware law of any person
who is or was a director or officer of the Registrant who is or was involved or
threatened to be made so involved in any proceeding, whether civil, criminal,
administrative or investigative, because that person is or was serving as a
director or officer of the Registrant or was serving at the request of the
Registrant as a director or officer of any other enterprise.
The foregoing statements are subject to the detailed provisions of
Section 145 of the Delaware Corporation Law and Article Ninth of the By-laws of
the Registrant.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filled herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of February 29, 2000,
among 24/7 Media, Inc., Evergreen Acquisition Sub Corp. and
Exactis.com (attached as Annex A to the joint proxy
statement-prospectus included in this Registration
Statement)
3.1 Amended and Restated Certificate of Incorporation of 24/7
Media (filed as Exhibit 3.1 to 24/7 Media's Registration
Statement on Form S-1 (Registration No. 333-56085))*
3.2 By-laws of 24/7 Media (filed as Exhibit 3.2 to 24/7 Media's
Registration Statement on Form S-1 (Registration
No. 333-56085))*
4.1 Specimen certificate of 24/7 Media common stock, par value
$.01 per share**
5.1 Form of Opinion of Cravath, Swaine & Moore regarding
legality of securities being registered
8.1 Form of Opinion of Cravath, Swaine & Moore regarding certain
U.S. income tax aspects of the merger
8.2 Form of Opinion of Cooley Godward LLP regarding certain U.S.
income tax aspects of the merger
23.1 Consent of Cravath, Swaine & Moore (included in Exhibit 5.1)
23.2 Consent of Cooley Godward LLP (included in Exhibit 8.2)
23.3 Consent of KPMG LLP, Independent Auditors for 24/7 Media
23.4 Consent of KPMG LLP, Independent Auditors for Exactis.com
23.5 Consent of KPMG LLP, Independent Auditors for Sabela
23.6 Consent of KPMG LLP, Independent Auditors for IMAKE
23.7 Consent of Lazard Freres & Co. LLC
23.8 Consent of Thomas Weisel Partners
24.1 Powers of Attorney (included on Signature Page)
99.1 Opinion of Lazard Freres & Co. LLC (included as Annex D to
this joint proxy statement-prospectus included in this
Registration Statement)
99.2 Opinion of Thomas Weisel Partners (included as Annex E to
this joint proxy statement-prospectus included in this
Registration Statement)
99.3 Consent of Adam Goldman to be named a director
99.4 Consent of Linda Fayne Levinson to be named a director
99.5 Form of Proxy of 24/7 Media
99.6 Form of Proxy of Exactis.com
</TABLE>
- ------------------------
* Incorporated by reference.
** To be filed by amendment.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(2) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of any such request, and to send
the incorporated documents by first-class mail or other equally prompt
means, including information contained in documents filed after the
effective date of this registration statement through the date of responding
to such request; and
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement when
it became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. If a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in a successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on April 20, 2000.
<TABLE>
<S> <C> <C>
24/7 MEDIA, INC.
By: /s/ DAVID J. MOORE
-----------------------------------------
Name: David J. Moore
Title: Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints David J. Moore, C. Andrew Johns and Mark E.
Moran, and each of them, his true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
This power of attorney may be executed in counterparts.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID J. MOORE Chief Executive Officer and
- -------------------------------------- Director (principal executive April 20, 2000
David J. Moore officer)
/s/ R. THEODORE AMMON
- -------------------------------------- Chairman of the Board April 20, 2000
R. Theodore Ammon
/s/ JACOB I. FRIESEL
- -------------------------------------- Executive Vice President and April 20, 2000
Jacob I. Friesel Director
/s/ JOHN F. BARRY
- -------------------------------------- Director April 20, 2000
John F. Barry
/s/ ARNIE SEMSKY
- -------------------------------------- Director April 20, 2000
Arnie Semsky
/s/ CHARLES W. STRYKER, PH.D.
- -------------------------------------- Director April 20, 2000
Charles W. Stryker, Ph.D.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Executive Vice President,
/s/ C. ANDREW JOHNS Treasurer & Chief Financial
- -------------------------------------- Officer (Principal Financial April 20, 2000
C. Andrew Johns Officer)
/s/ STUART D. SHAW Senior Vice President and
- -------------------------------------- Controller (Principal Accounting April 20, 2000
Stuart D. Shaw Officer)
</TABLE>
II-5
<PAGE>
Exhibit 5.1
[FORM OF CRAVATH, SWAINE & MOORE OPINION]
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
o , 2000
Dear Ladies and Gentlemen:
We have acted as counsel for 24/7 Media, Inc., a Delaware
corporation (the "Company"), in connection with the registration by the Company
of shares of its Common Stock, par value $0.01 per share (the "Shares"),
pursuant to a Registration Statement on Form S-4 (the "Registration Statement"),
to which this opinion is being filed as an exhibit. The Shares are proposed to
be issued pursuant to the Agreement and Plan of Merger, dated as of February 29,
2000, among the Company, Evergreen Acquisition Sub Corp. and Exactis.com, Inc.
(the "Merger Agreement").
As counsel for the Company, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for the purposes of this opinion, including: (a) the Amended and
Restated Certificate of Incorporation of the Company; (b) the By-laws of the
Company; (c) the Merger Agreement; (d) various corporate records and proceedings
relating to the organization of the Company and the issuance by the Company of
the Shares; (e) various resolutions of the Company relating to the organization
of the Company and the issuance by the Company of the Shares; and (f) a specimen
certificate representing the Shares.
Based upon the foregoing, we are of opinion that the Shares have
been duly and validly authorized, and when issued in the manner referred to in
the Merger Agreement, will be validly issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference
<PAGE>
2
to this opinion under the heading "Legal Matters" in the Joint Proxy
Statement-Prospectus included therein.
Very truly yours,
24/7 Media, Inc.
1250 Broadway
New York, New York 10001
<PAGE>
Exhibit 8.1
[FORM OF CRAVATH, SWAINE & MOORE OPINION]
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
[Date]
Dear Ladies and Gentlemen:
This opinion is being delivered to you in connection with the
Form S-4 Registration Statement (the "Registration Statement") filed pursuant to
the Agreement and Plan of Merger dated as of February 29, 2000 (the
"Reorganization Agreement"), by and among 24/7 Media, Inc., a Delaware
corporation ("Parent"), Evergreen Acquisition Sub Corp., a Delaware corporation
and wholly owned subsidiary of Parent ("Merger Sub"), and Exactis.com, Inc., a
Delaware corporation (the "Company").
Except as otherwise provided, capitalized terms used but not
defined herein shall have the meanings set forth in the Reorganization
Agreement. All section references, unless otherwise indicated, are to the
Internal Revenue Code of 1986, as amended (the "Code").
We have acted as counsel to Parent in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have
examined, and are relying upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents
(including all exhibits and schedules attached thereto):
(a) the Reorganization Agreement;
(b) the Form S-4;
(c) the Proxy Statement;
<PAGE>
(d) those certain tax representation letters dated ______ __, 2000 and
delivered to us by Parent, Merger Sub and the Company containing certain
representations of Parent, Merger Sub and the Company (the "Tax Representation
Letters"); and
(e) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related to
the consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed
(without any independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
(b) All representations, warranties and statements made or agreed to by
Parent, Merger Sub and the Company, their managements, employees, officers,
directors and stockholders in connection with the Merger, including, but not
limited to, those set forth in the Reorganization Agreement (including the
exhibits thereto) and the Tax Representation Letters are true and accurate at
all relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
(d) The Merger will be reported by Parent and the Company on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
(e) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
(f) The opinion dated ___________ __, 2000, rendered by Cooley Godward
LLP to the Company pursuant to Section VI.3(c) of the Reorganization Agreement
has been delivered and has not been withdrawn.
<PAGE>
Based on our examination of the foregoing items and subject to
the limitations, qualifications, assumptions and caveats set forth herein, we
are of the opinion that, for federal income tax purposes, the Merger will be a
reorganization within the meaning of Section 368(a) of the Code.
In addition to your request for our opinion on this specific
matter of federal income tax law, you have asked us to review the discussion of
federal income tax issues contained in the Form S-4. We have reviewed the
discussion entitled "Material Federal Income Tax Consequences" contained in the
Form S-4 and believe that, insofar as it relates to statements of law and legal
conclusions, it is correct in all material respects.
This opinion does not address the various state, local or
foreign tax consequences that may result from the Merger or the other
transactions contemplated by the Reorganization Agreement. In addition, no
opinion is expressed as to any federal income tax consequence of the Merger or
the other transactions contemplated by the Reorganization Agreement except as
specifically set forth herein, and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein. No opinion is
expressed as to the federal income tax treatment that may be relevant to a
particular investor in light of personal circumstances or to certain types of
investors subject to special treatment under the federal income tax laws (for
example, financial institutions, insurance companies, foreign individuals and
entities, tax-exempt entities, dealers in securities, persons who are subject to
the alternative minimum tax provisions of the Code, persons who acquired their
shares of Company capital stock pursuant to the exercise of an employee option
(or otherwise as compensation), persons whose shares of Company capital stock
are qualified small business stock for purposes of Section 1202 of the Code, or
persons who acquired Company capital stock as part of an integrated investment,
such as a "hedge," "straddle," or other risk reduction transaction, composed of
Company capital stock and one or more other positions).
No opinion is expressed as to any transaction other than the
Merger as described in the Reorganization Agreement, or as to any transaction
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of the
Reorganization Agreement and without
<PAGE>
waiver of any material provision thereof. To the extent that any of the
representations, warranties, statements and assumptions material to our opinion
and upon which we have relied are not accurate and complete in all material
respects at all relevant times, our opinion would be adversely affected and
should not be relied upon.
This opinion only represents our best judgment as to the
federal income tax consequences of the Merger and is not binding on the Internal
Revenue Service or any court of law, tribunal, administrative agency or other
governmental body. The conclusions are based on the Code, existing judicial
decisions, administrative regulations and published rulings. No assurance can be
given that future legislative, judicial or administrative changes or
interpretations would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, by rendering this opinion, we undertake no
responsibility to advise you of any new developments in the application or
interpretation of the federal income tax laws.
This opinion is being delivered solely in connection with the
filing of the Form S-4. It is intended for the benefit of Parent and may not be
relied upon or utilized for any other purpose or by any other person and may not
be made available to any other person without our prior written consent.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement and to the reference to this opinion under the
heading "Legal Matters" in the Form S-4 included therein.
Very truly yours,
24/7 Media, Inc.
1250 Broadway
New York, NY 10001
<PAGE>
Exhibit 8.2
[LETTERHEAD]
April __, 2000
[FORM OF COOLEY GODWARD LLP TAX OPINION]
Exactis.com, Inc.
707 17th Street, Suite 2850
Denver, Colorado 80202
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement (the "Registration Statement") filed pursuant to the
Agreement and Plan of Merger dated as of February 29, 2000 (the "Reorganization
Agreement"), by and among 24/7 Media, Inc., a Delaware corporation ("Parent"),
Evergreen Acquisition Sub Corp., a Delaware corporation and wholly owned
subsidiary of Parent ("Merger Sub"), and Exactis.com, Inc., a Delaware
corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Reorganization Agreement;
(b) the Form S-4;
(c) the Proxy Statement;
(d) those certain tax representation letters dated ______ __, 2000 and
delivered to us by Parent, Merger Sub and the Company containing certain
representations of Parent, Merger Sub and the Company (the "Tax Representation
Letters"); and
(e) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related to
the consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
<PAGE>
Exactis.com, Inc.
April __, 2000
Page Two
(a) Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
(b) All representations, warranties and statements made or agreed to by
Parent, Merger Sub and the Company, their managements, employees, officers,
directors and stockholders in connection with the Merger, including, but not
limited to, those set forth in the Reorganization Agreement (including the
exhibits thereto) and the Tax Representation Letters are true and accurate at
all relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
(d) The Merger will be reported by Parent and the Company on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
(e) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
(f) The opinion dated ___________ __, 2000, rendered by Cravath, Swaine
& Moore to the Parent pursuant to Section VI.2(c) of the Reorganization
Agreement has been delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that, for federal income tax purposes, the Merger will be a reorganization
within the meaning of Section 368(a) of the Code.
In addition to your request for our opinion on this specific matter of federal
income tax law, you have asked us to review the discussion of federal income tax
issues contained in the Form S-4. We have reviewed the discussion entitled
"Material Federal Income Tax Consequences" contained in the Form S-4 and believe
that, insofar as it relates to statements of law and legal conclusions, it is
correct in all material respects.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. No opinion is expressed as to
the federal income tax treatment that
<PAGE>
Exactis.com, Inc.
April __, 2000
Page Three
may be relevant to a particular investor in light of personal circumstances or
to certain types of investors subject to special treatment under the federal
income tax laws (for example, financial institutions, insurance companies,
foreign individuals and entities, tax-exempt entities, dealers in securities,
persons who are subject to the alternative minimum tax provisions of the Code,
persons who acquired their shares of Company capital stock pursuant to the
exercise of an employee option (or otherwise as compensation), persons whose
shares of Company capital stock are qualified small business stock for purposes
of Section 1202 of the Code, or persons who acquired Company capital stock as
part of an integrated investment, such as a "hedge," "straddle," or other risk
reduction transaction, composed of Company capital stock and one or more other
positions).
No opinion is expressed as to any transaction other than the Merger as described
in the Reorganization Agreement, or as to any transaction whatsoever, including
the Merger, if all of the transactions described in the Reorganization Agreement
are not consummated in accordance with the terms of the Reorganization Agreement
and without waiver of any material provision thereof. To the extent that any of
the representations, warranties, statements and assumptions material to our
opinion and upon which we have relied are not accurate and complete in all
material respects at all relevant times, our opinion would be adversely affected
and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered solely in connection with the filing of the Form
S-4. It is intended for the benefit of the Company and the stockholders of the
Company and may not be relied upon or utilized for any other purpose or by any
other person and may not be made available to any other person without our prior
written consent.
<PAGE>
Exactis.com, Inc.
April __, 2000
Page Four
We consent to the reference to our firm under the caption "Material Federal
Income Tax Consequences" in the Proxy Statement included in the Form S-4 and to
the reproduction and filing of this opinion as an exhibit to the Form S-4.
Sincerely,
COOLEY GODWARD LLP
Webb B. Morrow III
<PAGE>
EXHIBIT 23.3
Independent Auditors' Consent
The Board of Directors
24/7 Media, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-4 of 24/7 Media, Inc. of our report dated March 8, 2000, relating to the
consolidated balance sheets of 24/7 Media, Inc. and subsidiaries, as of December
31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 1999, and to the
reference to our firm under the heading "Experts" in the joint proxy
statement-prospectus.
/s/KPMG LLP
KPMG LLP
New York, New York
April 18, 2000
<PAGE>
EXHIBIT 23.4
Independent Auditors' Consent
The Board of Directors
Exactis.com, Inc.:
We consent to the inclusion in the registration statement on Form S-4 of 24/7
Media, Inc. of our report dated January 31, 2000, except as to note 9 which
is as of February 29, 2000, with respect to the balance sheets of
Exactis.com, Inc. as of December 31, 1998 and 1999, and the related
statements of operations, stockholders' equity (deficit) and cash flows for
each of the years in the three-year period ended December 31, 1999, and to
the reference to our firm under the heading "Experts" in the joint proxy
statement-prospectus.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
April 19, 2000
<PAGE>
EXHIBIT 23.5
Independent Auditors' Consent
The Board of Directors
Sabela Media, Inc. and subsidiaries:
We consent to the incorporation by reference in the registration statement on
Form S-4 of 24/7 Media, Inc. of our report dated March 10, 2000 relating to the
consolidated balance sheets of Sabela Media, Inc. and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations and comprehensive income, stockholders' equity and cash flows for the
year ended December 31, 1999 and the period from June 29, 1998 (inception) to
December 31, 1998, which report appears in the Current Report on Form 8-K/A of
24/7 Media, Inc. dated March 24, 2000, incorporated by reference herein, and to
the reference to our firm under the heading "Experts" in the joint proxy
statement-prospectus.
/s/ KPMG LLP
KPMG LLP
Los Angeles, California
April 14, 2000
<PAGE>
EXHIBIT 23.6
Independent Auditors' Consent
The Board of Directors
IMAKE Software & Services, Inc. and IMAKE Consulting, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-4 of 24/7 Media, Inc. of our report dated March 14, 2000, relating to
the combined balance sheets of the media divisions of IMAKE Software &
Services, Inc. and IMAKE Consulting, Inc. as of December 31, 1999 and 1998,
and the related combined statements of operations, division equity (deficit)
and cash flows for the years then ended, which report appears in the Current
Report on Form 8-K/A of 24/7 Media, Inc. dated March 28, 2000, incorporated
by reference herein, and to the reference to our firm under the heading
"Experts" in the joint proxy statement-prospectus.
/s/KPMG LLP
KPMG LLP
McLean, Virginia
April 14, 2000
<PAGE>
Exhibit 23.7
April 14, 2000
The Board of Directors
24/7 Media, Inc.
1250 Broadway, 27th Floor
New York, NY 10001-3701
Re: Proxy Statement of 24/7 Media, Inc. ("24/7 Media")
Filed as Part of the Joint Proxy Statement-Prospectus
-----------------------------------------------------
Dear Members of the Board:
Reference is made to our opinion letter dated February 28, 2000 with
respect to the fairness, from a financial point of view, to 24/7 Media of the
exchange ratio in connection with the Merger as defined in the first
paragraph of such opinion letter pursuant to the Merger Agreement referred to
therein.
The foregoing opinion letter is for the information and assistance of
the Board of Directors of 24/7 Media in connection with its consideration of
the transactions contemplated therein and is not to be used, circulated,
quoted or otherwise referred to for any other purposes, nor is it to be filed
with or referred to in whole or in part in any registration statement, proxy
statement or any other document, except in accordance with our prior written
consent.
In that regard, we hereby consent to the reference to the opinion of our
firm under the caption "Opinion of 24/7 Media's Financial Advisor" and to the
inclusion of the foregoing opinion as Annex D to the Joint Proxy
Statement-Prospectus of 24/7 Media and Exactis.com, Inc., which Joint Proxy
Statement-Prospectus is part of the initial filing of the Registration
Statement on Form S-4 of 24/7 Media. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1993 or the rules and
regulations of the Securities and Exchange Commission thereunder nor do we
consent to the reference or inclusion of our opinion in any subsequent filing
or amendments to the above-referenced Registration Statement.
Very truly yours,
LAZARD FRERES & CO. LLC
By: /s/ Robert Hougie
--------------------------------
Robert Hougie
Managing Director
<PAGE>
Exhibit 23.8
CONSENT OF THOMAS WEISEL PARTNERS
We hereby consent to the use of our name and to the description of our
opinion letter, dated February 28, 2000, under the caption "Opinion of
Exactis.com's Financial Advisor" in, and to the inclusion of such opinion
letter as Annex E to, the Joint Proxy Statement-Prospectus of 24/7 Media,
Inc. and Exactis.com, Inc., which Joint Proxy Statement-Prospectus is part of
the Registration Statement on Form S-4 of 24/7 Media, Inc. By giving such
consent we do not thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "expert" as
used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
THOMAS WEISEL PARTNERS LLC
By /s/ David Bayl
----------------------------
Name:
Title:
San Francisco, California
April 14, 2000
<PAGE>
EXHIBIT 99.3
Consent of Person Named
as About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of 1933,
I, Adam Goldman, hereby consent to be named as a person about to become a
director of 24/7 Media, Inc. in the Registration Statement on Form S-4 of 24/7
Media, Inc., dated April 19, 2000, and any amendments thereto.
Dated: April 19, 2000
/s/ Adam Goldman
--------------------------
Adam Goldman
<PAGE>
EXHIBIT 99.4
Consent of Person Named
as About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of
1933, I, Linda Fayne Levinson, hereby consent to be named as a person about to
become a director of 24/7 Media, Inc. in the Registration Statement on Form S-4
of 24/7 Media, Inc., dated April 19, 2000, and any
amendments thereto.
Dated: April 19, 2000
/s/ Linda Fayne Levinson
-------------------------
Linda Fayne Levinson
<PAGE>
Exhibit 99.5
[FORM OF PROXY]
24/7 MEDIA, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of 24/7 Media, Inc. hereby appoints David J.
Moore, C. Andrew Johns and Mark E. Moran, and each of them, with full power of
substitution to represent and to vote on behalf of the undersigned all of the
shares of 24/7 Media, Inc. which the undersigned is entitled to vote at the
Special Meeting of Stockholders to be held at [ ] on [ ], 2000,
at [ ] a.m., local time, and at any adjournment or adjournments thereof,
hereby revoking all proxies heretofore given with respect to such stock, upon
the following proposals more fully described in the notice of and joint proxy
statement- prospectus for the meeting (receipt of which is hereby acknowledged).
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2.
(To be Signed on Reverse Side)
24/7 MEDIA, INC.
1250 BROADWAY
NEW YORK, NEW YORK 10001
See Reverse
<PAGE>
2
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR (1) and (2).
1. PROPOSAL TO APPROVE THE ISSUANCE OF 24/7 MEDIA COMMON STOCK IN THE MERGER.
FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE THE AMENDMENT TO THE 24/7 MEDIA, INC. CERTIFICATE OF
INCORPORATION.
FOR AGAINST ABSTAIN
3. In their discretion upon such other matters as may properly come before
the meeting.
I will attend the meeting. I will not attend the meeting.
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee, or guardian, please give
full title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
______________________________ Date___________________
Signature
______________________________ Date___________________
Signature if held jointly
Votes must be indicated in Black or Blue ink.
Please return promptly in the enclosed postage-paid envelope.
<PAGE>
Exhibit 99.6
[FORM OF PROXY]
EXACTIS.COM, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Exactis.com, Inc. hereby appoints E. Thomas
Detmer, Jr. and Kenneth W. Edwards, Jr., and each of them, with full power of
substitution to represent and to vote on behalf of the undersigned all of the
shares of Exactis.com, Inc. which the undersigned is entitled to vote at the
Special Meeting of Stockholders to be held at [ ] on [ ], 2000,
at [ ] a.m., time, and at any adjournment or adjournments thereof, hereby
revoking all proxies heretofore given with respect to such stock, upon the
following proposals more fully described in the notice of and joint proxy
statement-prospectus for the meeting (receipt of which is hereby acknowledged).
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2.
(To be Signed on Reverse Side)
EXACTIS.COM, INC.
717 17th STREET,
SUITE 500
BOULDER, COLORADO 80202
See Reverse
<PAGE>
2
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR (1) and (2).
1. PROPOSAL TO ADOPT THE MERGER AGREEMENT.
FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE AMENDMENTS TO THE EXACTIS.COM, INC. 1999 EQUITY
INCENTIVE PLAN.
FOR AGAINST ABSTAIN
3. In their discretion upon such other matters as may properly come before
the meeting.
I will attend the meeting. I will not attend the meeting.
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee, or guardian, please give
full title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
______________________________ Date___________________
Signature
______________________________ Date___________________
Signature if held jointly
Votes must be indicated in Black or Blue ink.
Please return promptly in the enclosed postage-paid envelope.
