e10vk

Consolidated Leverage Ratio (Line I.A ÷ Line I.B.8):

Maximum permitted:

2.00 to 1.00

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FCMI4QIf5ZiAYlz7av6tc59h9QARDEmnHPayopLjO+FxOFwZiQjG2pdEgphKmz0x yv3rm7pxUC2+h0Ramx9KWA== 0000950133-08-001082.txt : 20080317 0000950133-08-001082.hdr.sgml : 20080317 20080314190603 ACCESSION NUMBER: 0000950133-08-001082 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080317 DATE AS OF CHANGE: 20080314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERSECTIONS INC CENTRAL INDEX KEY: 0001095277 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-50580 FILM NUMBER: 08690826 BUSINESS ADDRESS: STREET 1: 14930 BOGLE DRIVE CITY: CHANTILLY STATE: VA ZIP: 20151 BUSINESS PHONE: 7034886100 MAIL ADDRESS: STREET 1: 14930 BOGLE DRIVE CITY: CHANTILLY STATE: VA ZIP: 20150 10-K 1 w51111e10vk.htm FORM 10-K e10vk

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2007
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 005-50580

INTERSECTIONS INC.

(Exact name of registrant as specified in the charter)


Delaware		54-1956515
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
14901 Bogle Drive, Chantilly, Virginia (Address of principal executive office)		20151 (Zip Code)

(703) 488-6100

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Exchange on Which Registered

Common Stock, $.01 par value		The NASDAQ Stock Market

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

As of June 30, 2007, the aggregate market value of the common stock held by nonaffiliates of the registrant was approximately $80 million based on the last sales price quoted on the Nasdaq NMS.

As of February 29, 2008, the registrant had 18,176,137 shares of common stock, $0.01 par value per share, issued and 17,109,721 shares outstanding, with 1,066,416 shares of treasury stock.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this report, to the extent not set forth herein, is incorporated herein by reference from Registrant’s definitive proxy statement to be filed within 120 days of December 31, 2007, pursuant to Regulation 14A under the Securities Exchange Act of 1934, for its 2008 annual meeting of stockholders to be held on May 21, 2007.

INTERSECTIONS INC.

TABLE OF CONTENTS


		Page

PART I
ITEM 1.	BUSINESS		4
ITEM 1A.	RISK FACTORS		14
ITEM 1B.	UNRESOLVED STAFF COMMENTS		24
ITEM 2.	PROPERTIES		24
ITEM 3.	LEGAL PROCEEDINGS		24
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		25

PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		27
ITEM 6.	SELECTED FINANCIAL DATA		29
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		31
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		51
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		52
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		52
ITEM 9A.	CONTROLS AND PROCEDURES		52
ITEM 9B.	OTHER INFORMATION		53

PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		54
ITEM 11.	EXECUTIVE COMPENSATION		54
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		54
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE		54
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		54

PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES		54
EX-2.3
EX-10.21.2
EX-10.21.3
EX-10.24
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are subject to the safe harbor provisions of this legislation. We may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “will,” or “may,” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements.

These forward looking statements reflect current views about our plan, strategies and prospects, which are based upon the information currently available and on current assumptions. Even though we believe our expectations regarding future events are based on reasonable assumptions, forward-looking statements are not guarantees of future performance. Important factors could cause actual results to differ materially from our expectations contained in our forward-looking statements. These factors include, but are not limited to:


	•	our ability to replace subscribers we lose in the ordinary course of business;

	•	our ability to maintain our relationships with the three credit reporting agencies and other key providers;

	•	our ability to maintain our relationships with our key clients and obtain new clients;

	•	our ability to compete successfully with our competitors;

	•	our ability to introduce new products and services with broad appeal;

	•	our ability to protect and maintain our computer and telephone infrastructure;

	•	our ability to maintain the security of our data;

	•	changes in federal, state and foreign laws and regulations;

	•	our use of our cash and investments;

	•	our cash needs;

	•	implementation of our corporate strategy; and

	•	our financial performance.

There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include those that we discuss under the caption “Risk Factors.” You should read these factors and other cautionary statements as being applicable to all related forward-looking statements wherever they appear. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. We have no intention and undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. See “Item 1A, Risk Factors” for further discussion.

PART I


ITEM 1.	*BUSINESS*

We are a leading provider of branded and fully customized identity management solutions. By integrating our technology solutions with our comprehensive services, we safeguard more than seven million customers, who are primarily received through marketing partnerships and consumer-direct marketing of our Identity Guard^® brand. We also provide consumer-oriented insurance and membership products through marketing partnerships with the major mortgage services in the United States as well as other financial institutions through our subsidiary, Intersections Insurance Services, Inc. Additionally, through our majority-owned subsidiary Screening International LLC, we provide pre-employment background screening services domestically and internationally in partnership with Control Risks Group Limited of the United Kingdom.

We offer consumers a variety of consumer protection services and other consumer products and services primarily on a subscription basis. These services help consumers protect themselves against identity theft or fraud and understand and monitor their credit profiles and other personal information. Through our subsidiary Intersections Insurance Services, Inc., we offer a portfolio of services which include consumer discounts on healthcare, home, and auto related expenses, access to professional financial and legal information, and life, accidental death and disability insurance products. Our consumer services are offered through relationships with clients, including many of the largest financial institutions in the United States and Canada and clients in other industries. We also offer our services directly to consumers.

Through our majority owned subsidiary Screening International, LLC, we provide personnel and vendor background screening services to businesses worldwide. Screening International was formed in May 2006, with Control Risks Group, Ltd., a company based in the UK. Screening International has offices in Winchester, Virginia, London, United Kingdom, and Singapore. Screening International’s clients include leading US, UK and global companies in such areas as manufacturing, healthcare, telecommunications and financial services. Screening International provides a variety of risk management tools for the purpose of personnel and vendor background screening, including criminal background checks, driving records, employment verification and reference checks, drug testing and credit history checks. We acquired American Background Information Services, Inc. in November 2004. In May 2006, we created Screening International by combining American Background Information Services, Inc. with Control Risks Group’s background screening division. We own 55% of Screening International, and have the right to designate a majority of the five-member board of directors, and Control Risks Group owns 45%. Our agreement with Control Risks Group provides that in the event of a change of control of either party, the other party shall have the option to purchase the acquired party’s equity interests in Screening International at an appraised price. We and Control Risks Group have agreed to cooperate to meet any future financing needs of Screening International, including agreeing to guarantee third party loans and making additional capital contributions on a pro rata basis, if necessary, subject to certain capital call and minority protection provisions. In 2007, we and Control Risks Group made capital contributions to Screening International of $2.0 million. Control Risks Group also agreed to provide certain support and marketing assistance and services and license certain trademarks to Screening International, and we agreed to provide certain management services to the company.

Through our wholly owned subsidiary, Captira Analytical, LLC, we provide software and automated service solutions for the bail bond industry, including office automation tools, accounting, reporting, employee background screening and underwriting decisioning tools. Captira Analytical was formed in August 2007, through our acquisition of substantially all of the assets of Hide N’ Seek, LLC.

Through our wholly owned subsidiary, Net Enforcers, Inc., we provide corporate identity theft protection services, including online brand monitoring, online auction monitoring and enforcement, intellectual property monitoring and other services. We acquired Net Enforcers, Inc. in November 2007.

segment includes the personnel and vendor background screening services provided by Screening International. Our Other segment includes the bail bonds industry management software solutions offered by Captira Analytical and the corporate identity theft protection services offered by Net Enforcers.

We were incorporated in Delaware in 1999. Through our predecessor companies, we have been offering consumer protection services since 1996. Intersections Insurance Services, through its predecessor companies, has been offering consumer products and services since 1982. Our principal executive offices are located at 14901 Bogle Drive, Chantilly, Virginia 20151 and our telephone number is (703) 488-6100. Our web site address is www.intersections.com. We make available on this web site under “Investors,” free of charge, our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, Forms 3, 4 and 5 filed via Edgar by our directors and executive officers and various other SEC filings, including amendments to these reports, as soon as reasonably practicable after we electronically file or furnish such reports to the SEC.

We also make available on our web site our Corporate Governance Guidelines and Principles, Code of Business Conduct and Ethics, and Statement of Policy with Respect to Related Person Transactions, and the charters of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. This information is also available by written request to Investor Relations at our executive office address listed above. The information on our web site, or on the site of our third-party service provider, is not incorporated by reference into this report. Our web site address is included here only as an inactive technical reference.

Consumer Products and Services

Our Services and Subscribers

We offer consumers their credit reports, and daily, monthly and quarterly monitoring of their credit files, at one or all three of the major credit reporting agencies, Equifax, Experian and TransUnion. We also offer reports and monitoring services based on additional information sources, including public records and new financial account applications, along with services that help subscribers detect unauthorized use of their account information. In addition, we offer credit scores and credit score analysis tools, credit education, identity theft recovery services, and identity theft cost reimbursement. Our products and services also include consumer discounts on healthcare, home, and auto related expenses, access to professional financial and legal information, and life, accidental death and disability insurance, provided through our subsidiary, Intersections Insurance Services.

Our products and services are offered to consumers principally on a monthly subscription basis. Subscription fees are generally billed directly to the subscriber’s credit card, mortgage bill or demand deposit account. The prices to subscribers of various configurations of our products and services range generally from $4.99 to $25.00 per month. As a means of allowing customers to become familiar with our services, we sometimes offer free trial or guaranteed refund periods.

A substantial number of our subscribers cancel their subscriptions each year. Because there is an investment cost to acquire a new subscriber and produce initial fulfillment materials, subscribers typically must be retained for a number of months in order to cover these costs. Not all subscribers are retained for a sufficient period of time to achieve positive cash flow returns on these investment costs.

We also offer data security breach services to organizations responding to compromises of sensitive personal information. We help these clients notify the affected individuals, and we provide the affected individuals with identity theft recovery and credit monitoring services offered by our clients at no charge to the affected individuals. We generally are paid fees by the clients for the services we provide their customers.

Our Marketing

Our products and services are marketed to customers of our clients, and often are branded and tailored to meet our clients’ specifications. Our clients principally are credit card, direct deposit or mortgage issuing financial institutions, including many of the largest financial institutions in the United States and Canada. With certain of our financial institution clients, we have broadened our marketing efforts to access demand deposit accounts and selling at the point of personal contact in branches. Our financial institution clients currently account for the majority of our existing subscriber base. We also are continuing to augment our client base through relationships with insurance

companies, mortgage companies, brokerage companies, associations, travel companies, retail companies, web and technology companies and other service providers with significant market presence and brand loyalty.

With our clients, our services are marketed to potential subscribers through a variety of marketing channels, including direct mail, outbound telemarketing, inbound telemarketing, inbound customer service and account activation calls, email, mass media and the internet. Our marketing arrangements with our clients sometimes call for us to fund and manage marketing activity. The mix between our company-funded and client-funded marketing programs varies from year to year based upon our and our clients’ strategies. In 2007, we substantially increased our own investment in marketing with one of our clients. We expect to continue our own investment in marketing with one or more clients in 2008.

In 2007, we continued our expansion efforts to market our consumer products and services directly to consumers. We conduct our consumer direct marketing primarily through the internet. We also may market through other channels, including direct mail, outbound telemarketing, inbound telemarketing, email and mass media.

Our Clients

Our client arrangements are distinguished from one another by the allocation between us and the client of the economic risk and reward of the marketing campaigns. The general characteristics of each arrangement are described below, although the arrangements with particular clients may contain unique characteristics:


	•	Direct marketing arrangements: Under direct marketing arrangements, we bear most of the new subscriber marketing costs and pay our client a commission for revenue derived from subscribers. These arrangements generally result in negative cash flow over the first several months after a program is launched due to the upfront nature of the marketing investments. In some arrangements we pay the client a service fee for access to the client’s customers or billing of the subscribers by the client.

	•	Indirect marketing arrangements: Under indirect marketing arrangements, our client bears the marketing expense and pays us a service fee or percentage of the revenue. Because the subscriber acquisition cost is borne by our client under these arrangements, our revenue per subscriber is typically lower than that under direct marketing arrangements. Indirect marketing arrangements generally provide positive cash flow earlier than direct arrangements and the ability to obtain subscribers and utilize marketing channels that the clients otherwise may not make available.

	•	Shared marketing arrangements: Under shared marketing arrangements, marketing expenses are shared by us and the client in various proportions, and we may pay a commission to or receive a service fee from the client. Revenue generally is split in proportion to the investment made by our client and us.

The classification of a client relationship as direct, indirect or shared is based on whether we or the client pay the marketing expenses. Our accounting policies for revenue recognition, however, are not based on the classification of a client arrangement as direct, indirect or shared. We look to the specific client arrangement to determine the appropriate revenue recognition policy, as discussed in detail in Note 2 to our consolidated financial statements.

Revenue from subscribers obtained through our largest clients in 2006 and 2007, as a percentage of our total revenue, was: Bank of America (including MBNA, which was acquired by Bank of America in 2006) — 13% and 33%; Citibank — 14% and 11%; Discover — 15% and 13%; Capital One (directly, and, for subscribers acquired prior to January 1, 2005, through our relationship with Equifax) — 13% and 10%; American Express — 7% and 0%.

Operations

Our operations platform for our consumer products and services, which consists principally of customer service, information processing and technology, is designed to serve the needs of both our clients and our subscribers. Our services are tailored to meet our clients’ requirements for branding and presentation, service levels, accuracy and security. We believe our operations offer a significant competitive advantage for us in our ability to produce high quality services in both online and offline environments while delivering high levels of both customer and client service and data security.

Customer Service

We have designed our customer service for our consumer products and services to achieve customer satisfaction by responding quickly to subscriber requests with value-added responses and solutions. In addition, we work to gain customer satisfaction through our policy of selective recruiting, hiring, training, retaining and management of customer service representatives who are focused exclusively on identity theft protection and credit management services. We also effectively manage numerous providers of outsourced call center and other services in order to achieve client and customer satisfaction. Prior to working with subscribers, service representatives are required to complete a training program that focuses on the fundamentals of the credit industry, regulation, credit reporting and our products and services. This classroom training is then followed by a closely monitored on-the-job training program with assigned mentors and call simulations. Service representatives then continue to be monitored and receive feedback based on the standards of our quality assurance program. In addition to call quality, we are bound by client-driven metrics specified by our client agreements.

We maintain in-house customer care centers in Chantilly, Virginia, Arlington Heights, Illinois, and Rio Rancho, New Mexico. Additionally, we utilize the services of outsourced vendors with capacity for additional customer service representatives trained to handle billing inquiries, subscription questions and account retention.

Information Processing

Our in-house information processing capabilities for our consumer products and services are designed to provide prompt, high quality, secure and cost-effective delivery of subscribers’ personal data. Proprietary software creates consumer friendly presentation, tracks delivery at the page level and stores the consolidated credit data for member servicing. For the purpose of ensuring accuracy and security of subscribers’ personal data, credit reports are electronically inspected upon receipt and again before final delivery. Operational auditing of fulfillment events is also conducted regularly. We have fulfillment centers in Chantilly, Virginia, Manassas, Virginia, and Arlington Heights, Illinois. We believe that these centers provide additional capacity to handle projected growth, provide contingency backup and efficiently respond to volume spikes.

We also make our services available to most subscribers via the internet. Upon enrollment, each subscriber is provided a personal identification number that enables immediate activation and access. We deliver these services through client-branded web sites and our own branded web sites.

Information Technology

We continue to make significant investments in technology to enable continued growth in our subscriber base. This also allows us to provide flexible solutions for our subscribers and clients with a secure and reliable platform. Our customer resource management platform, which is the basis for our service delivery, integrates certain industry and application specific software. Since inception, we have contracted a portion of our credit data processing to Digital Matrix Systems, Inc. A portion of our web development is contracted to nVault, Inc.

We employ a range of information technology solutions, physical controls, procedures and processes to safeguard the security of data, and regularly evaluate those solutions against the latest available technology and security literature. We use respected third parties to review and test our security, we continue to be audited by our clients, and we have obtained a TruSecure Web Certification from Cybertrust, which is now part of Verizon Business.

We have undertaken several projects for the purpose of ensuring that the infrastructure expands with client and subscriber needs. We have a dedicated disaster recovery computing capability in Rio Rancho, New Mexico for the back office operations, a primary online data center in the Virginia area and a secondary hosted data center in Canada. Our back office and online environments are designed with high volume processing in mind and are constructed to optimize performance, reliability, and scalability.

Data and Analytics Providers

Under our agreements with Equifax, Experian and TransUnion, we purchase data for use in providing our services to consumers. The Experian and TransUnion contracts may be terminated by them on 30 days and 60 days notice, respectively. Our agreement with Equifax expires in November 2010. Each of these credit reporting agencies is a competitor of ours in providing credit information directly to consumers.

We have entered into contracts with several additional providers of data and analytics for use in our identity theft and fraud protection services, including new data sources, advanced tools and analytical capabilities, more timely notification of activities and more useable content. We expect those third party data and analytics sources to be of increasing significance to our business in the future to the extent we are successful in marketing our new services. Our other consumer products and services are delivered by third party providers, including insurance companies, discount service providers and software distributors.

Competition

The markets for our Consumer Products and Services segment are highly competitive. A number of divisions or subsidiaries of large, well-capitalized firms with strong brand names operate in the industry. We compete with these firms to provide our services to our clients’ customers and our direct subscribers. We compete for these clients on the basis of our reputation in the market, ability to offer client-branded solutions, flexible service configurations, high quality standards and price.

We believe that our principal competitors for our Consumer Products and Services segment include: Equifax; Experian and its subsidiary, Consumerinfo.com; TransUnion and its subsidiary, Truelink; First Advantage, through its affiliate CREDCO; Affinion; and Vertrue. A number of additional competitors in providing identity theft protection services to consumers, including LifeLock and TrustedID, have entered the market recently, and more may enter the market. We believe that these competitors primarily market their services directly to the consumer through the Web, except for Affinion and CREDCO, which we believe primarily market offline and compete with us for financial institution clients. We believe that certain of our competitors, including Equifax, Experian and TransUnion, are and will continue to make efforts to compete with us in marketing offline and providing branded solutions for financial institution clients.

Background Screening

Our Services

Through our majority owned subsidiary, Screening International, we provide a variety of risk management tools for the purpose of personnel and vendor background screening, including criminal background checks, driving records, employment verification and reference checks, drug testing and credit history checks. Our background screening services integrate data from various automated sources throughout the world, additional manual research findings from employees and subcontractors, and internal business logic provided both by Screening International and by our clients into reports that assist in decision making. Our background screening services are generally sold to corporate clients under contractual arrangements with individual per unit prices for specific service specifications. Due to substantial difference in both service specifications and associated data acquisition costs, prices for our background screening services vary significantly among clients and geographies.

Our Marketing

of the services offered, the cost of performing these services and competitive factors. Control Risks Group provides marketing assistance and services, and licenses certain trademarks to Screening International under which our services are branded in certain geographic areas.

Our Clients

Our clients include leading US, UK and global companies in such areas as manufacturing, healthcare, telecommunications and financial services. Our clients are primarily located in the United States and the United Kingdom. Several of our clients have operations in other countries, and use our services in connection with those operations. We have other clients in various countries, and expect the number of these clients to increase as we develop our global background screening business. Because we currently service the majority of our clients through our operations in the US and the UK, we consider those two locations to be the sources of our business for purposes of allocating revenue on a geographic basis. We have several clients that contribute greater than 10% of this segment’s revenue. The loss of one of these clients could have a material adverse impact on this segment’s financial results. Revenue through our largest client in 2006 and 2007 was 19% and 16% of the segment’s revenue. None of these clients constitutes 10% or more of our consolidated revenue.

Operations

Our operations platforms for the background screening segment, which consist of both operational staff and information technology, are designed to meet the unique service specifications of our clients while facilitating providing common client needs such as access to information gateways and enforcement of data security standards. Our background screening services have primary operations centers in Winchester, Virginia, and London, UK. As part of our global marketing and operations strategy for this segment, we opened an office in Singapore in 2007 which operates on a limited basis. We are in the process of adding additional operating capacity for our background screening services to handle anticipated future business volumes. These centers may be wholly owned facilities or operated through subcontractor relationships and may be located throughout the world.

Information Technology

For our background screening services, we manage in-house information technology platforms in both Winchester, VA and London, UK. In addition, in certain cases, we leverage external technology platforms operated by subcontractors who conduct all or part of certain background screening services on our behalf. We are investing in software systems and infrastructure that further expand both our capabilities to meet global client demands. We are scaling our infrastructure as well, including increases in network capacity linking our offices, to support our business growth. We employ a range of information technology solutions, physical controls, procedures and processes to safeguard the security of data, and regularly evaluate those solutions against the latest available technology and security literature.

Data and Analytics Providers

Our background screening services rely on multiple sources of data globally. Those data sources include commercial providers of public record data, credit reporting agencies, state and local government agencies, and data collectors in various locations. We use subcontractors to collect certain data that is not generally available in an automated format. Our data provider agreements are generally non-exclusive and may be cancelled by either party within time periods as short as thirty days. Certain providers of data for our background screening services may also be competitors of ours in providing background screening services to corporate clients. We continually evaluate our data provider relationships based upon a combination of cost, quality and coverage attributes and may make changes in our portfolio of data providers from time to time.

Competition

Our Background Screening segment operates in a variety of highly competitive local and global markets with differing characteristics. In the United States, the employment background screening market is well established but remains highly fragmented and competitive. We believe that our competitors include national employment

background screening providers such as First Advantage Corporation, ChoicePoint, Axiom, and HireRight, regional and local background screening providers, and smaller, independent private investigations firms. Outside the United States, the screening market is less developed but growing rapidly. In these global markets, we believe that our services compete with a smaller universe of companies that have committed to developing an international delivery capability, as well as smaller local background screening providers and private investigative firms.

Other

Our Services

Through our wholly owned subsidiary, Captira Analytical, we provide automated service solutions for the bail bonds industry. These services include accounting, reporting, and decision making tools which allow bail bondsmen, general agents and sureties to run their offices more efficiently, to exercise greater operational and financial control over their businesses, and to make better underwriting. We believe Captira Analytical’s services are the only fully integrated suite of bail bonds management applications of comparable scope available in the marketplace today. Captira Analytical’s services are sold to retail bail bondsman on a “per seat” license basis plus additional one-time or transaction related charges for various optional services. As Captira Analytical’s business model is relatively new, pricing and service configurations are subject to change at any time.

Through our wholly owned subsidiary, Net Enforcers, we provide corporate identity theft protection services, including online brand monitoring, online auction monitoring and enforcement, intellectual property monitoring and other services. NetEnforcers’ services include the use of sophisticated technology to search the internet in search of potential property right infringements, value added analysis and recommendation from our trained staff of analysts, and manual or automated enforcement activities as directed by our clients. Net Enforcers’ services are typically priced as monthly subscriptions for a defined set of monitoring and analysis services, as well as per transaction charges for enforcement related services. Prices for our services vary based upon the specific configuration of services purchased by each client and range from several hundred dollars per month to thousands of dollars per month.

Our Marketing

Captira Analytical primarily markets its services through an internal sales force both directly to bail bondsmen and indirectly via bail bonds industry intermediaries such as trade associations, general agents, sureties and insurance companies. Captira Analytical has secured exclusive endorsements from the largest trade association in the bail bonds industry as well as several large general agents and sureties. Captira Analytical is actively working with these industry intermediaries to roll out their services to affiliated retail bail bondsmen.

Net Enforcers primarily uses an internal sales forces to market its services to corporate brand owners or law firms working on behalf of corporate brand owners. We believe Net Enforcers’ offers a broader range of corporate identity protection services than our competitors due to our emphasis on analysis and enforcement activities in addition to data collection on potential brand infringements.

Our Clients

Captira Analytical’s clients are bail bonds industry participants including insurance companies, sureties, general agents and retail bail bondsmen. Captira Analytical is at an early stage in its commercial operations and their operating results do not significantly impact consolidated financial results.

Net Enforcers’ clients are typically corporate brand owners or law firms working on behalf of corporate brand owners. Generally, client contracts have terms of one year with automatic annual renewals. We have one client that contributes greater than 10% of this segment’s revenue. The loss of this client could have a material adverse impact on this segment’s financial results. Revenue from this client in 2007 was approximately 39% of the segment’s revenue. This client does not constitute 10% or more of our consolidated revenue.

Operations, Information Technology & Customer Service

Captira Analytical has custom developed its technology and operational processes based upon an in depth understanding of the operational activities of the bail bonds industry. Captira Analytical’s primary offices are located in Albany, NY. Captira Analytical has additional sales and customer support personnel located throughout the country. Captira Analytical outsources hosting and management of its operational technology platforms to a domestic third party data center provider. Services are generally delivered to clients on a remote basis over the internet via secure connections. On site support is sometimes provided to clients, particularly during initial data migration and account setup. Captira Analytical continues to invest in its operational and technology platforms to improve functionality, scalability and the security of its offerings.

Among the functionality offered by Captira Analytical to its customers is the ability to retrieve reports for use in evaluating bail bonds applications. To provide these reports, Captira Analytical utilizes a combination of publicly available information extracted from websites and commercial providers of public record data, credit reporting agencies, state and local government agencies, and data collectors in various locations.

Net Enforcers has developed its operational and technology platforms through years of experience detecting and taking action to remediate online brand abuse. Net Enforcers uses sophisticated web crawling technology to detect and log potential brand infringements on behalf of clients. Some of these technologies are licensed from third parties. These logs are typically shared with clients via an online portal, and may be augmented at the client’s request with value added analysis and/or enforcement activities. Net Enforcers’ enforcement activities have been designed through years of experience to interact effectively and under the appropriate control of external parties such as the corporate brand owners, third party law firms, online auction sites, and others. Net Enforcers primary offices are in Gainesville, FL and Phoenix, AZ.

Data and Analysis Providers

Captira Analytical utilizes a combination of publicly available information extracted from websites and commercial providers of public record data, credit reporting agencies, state and local government agencies, and data collectors in various locations.

Net Enforcers primarily utilizes publicly available information extracted from websites in their service offerings.

Competition

We believe that Captira Analytical is the only provider of an integrated suite of bail bonds industry office automation and decisioning tools of comparable scope. Captira Analytical competes in part with providers of a limited suite of bail bonds industry tools such as Creative Software Solutions, Bailbooks and others.

Net Enforcers has a number of competitors that offer brand protection services similar in whole or part to Net Enforcers own offerings. These competitors include Mark Monitor, Cyveillance, Name Protect and Op Sec. In addition, Net Enforcers at times competes for business against both internal and external legal counsel for corporate brand owners.

Government Regulation

Our business is subject to a variety of laws and regulations, some of which are summarized below. Should we fail to comply with these laws or regulations, we could be subject to a variety of criminal and civil enforcement actions, lawsuits and sanctions, any of which could have a material adverse effect on our company. Changes in these laws or regulations, or new laws or regulations, could affect our business.

Credit Reporting Laws

Our services involve the use of consumer credit reports governed by the federal Fair Credit Reporting Act and similar state laws governing the use of consumer credit information. The Fair Credit Reporting Act establishes a set of requirements that “consumer reporting agencies” must follow in conducting their business. A “consumer

reporting agency” generally means any person who for monetary fees regularly engages in assembling consumer credit information for the purpose of furnishing consumer reports to third parties. Each of the major credit reporting agencies is a “consumer reporting agency” under the Fair Credit Reporting Act. Except for our Background Screening segment, and certain of our bail bonds industry services in our Other Services segment, we are not a “consumer reporting agency” within the meaning of the Fair Credit Reporting Act. Certain provisions of the Fair Credit Reporting Act, however, apply to users of consumer reports and others, such as ourselves. In addition, we are required by our contracts with Equifax, Experian and TransUnion, to comply with certain requirements of the Fair Credit Reporting Act. Some states have adopted laws and regulations governing the use of consumer credit information. Many of those laws are similar in effect to the Fair Credit Reporting Act, although some state laws have different provisions.

The Fair Credit Reporting Act provides consumers the ability to receive one free consumer credit report per year from each major consumer credit reporting agency, and requires each major consumer credit reporting agency to provide the consumer a credit score along with his or her credit report for a reasonable fee as determined by the Federal Trade Commission. Laws in several states, including Colorado, Georgia, Illinois, Maine, Maryland, Massachusetts, New Jersey and Vermont, require consumer reporting agencies to provide each consumer one credit report per year (or two credit reports, in the case of Georgia) upon request without charge. The Fair Credit Reporting Act and state laws give consumers other rights with respect to the protection of their credit files at the credit reporting agencies. For example, the Fair Credit Reporting Act gives consumers the right to place “fraud alerts” at the credit reporting agencies, and the laws in approximately 40 states give consumers the right to place “freezes” to block access to their credit files. We are not required to comply with these requirements because we are not a consumer reporting agency. These laws do apply to the three major credit reporting agencies from which we purchase data for our services. The rights of consumers to obtain free annual credit reports credit scores from consumer reporting agencies, and place fraud alerts and credit freezes directly with them, could cause consumers to perceive that the value of our services is reduced or replaced by those benefits, which could have a material adverse effect on our business.

The major credit reporting agencies that are obligated to provide free credit reports are required to maintain a centralized source through which consumers may request their free credit reports. The Federal Trade Commission has promulgated rules which allow the credit reporting agencies to advertise their paid products on the centralized source. The Federal Trade Commission’s rules restrict the manner of such advertising, and also prohibit the credit reporting agencies from using for marketing purposes the consumer information gathered through the centralized source. Nevertheless, advertising by the credit reporting agencies through the centralized source may compete with the marketing of our services.

Privacy

Generally, the Gramm-Leach-Bliley Act governs information about consumers received or obtained by “financial institutions.” The Gramm-Leach-Bliley Act, together with implementing regulations adopted by the Federal Trade Commission and other federal agencies, require, among other things, that financial institutions issue privacy policies to consumer customers and comply with various restrictions on use and disclosure of “nonpublic personal information.” The Gramm-Leach-Bliley Act and implementing regulations also restrict the use, disclosure and safeguarding of nonpublic personal information by non-financial institutions that receive such information from financial institutions. Some of our business, including use of nonpublic personal information we receive in connection with our services, is subject to the Gramm-Leach-Bliley Act and implementing regulations.

In addition, some states have or may adopt laws applicable to the privacy of consumer information and data security for such information, including laws that require notification of consumers in the event of unauthorized access to private information. Numerous states have adopted and may continue to adopt laws concerning the protection and usage of personal information, such as Social Security numbers, that may negatively impact our business and operations primarily by imposing usage limitations. Various states, as well as the federal government, may adopt such laws and other laws and regulations that may impede or increase the costs of the use of private consumer information in our business. Such restrictions also could impede the ability of third party data and analytics providers to provide us data for use in our new consumer services.

Marketing Laws and Regulations

We market our consumer products and services through a variety of marketing channels, including direct mail, outbound telemarketing, inbound telemarketing, inbound customer service and account activation calls, email, mass media and the internet. These channels are subject to both federal and state laws and regulations. Federal and state laws and regulations may limit our ability to market to new subscribers or offer additional services to existing subscribers.

Telemarketing of our services is subject to federal and state telemarketing regulation. Federal statutes and regulations adopted by the Federal Trade Commission and Federal Communications Commission impose various restrictions on the conduct of telemarketing. The Federal Trade Commission also has enacted the national Do Not Call Registry, which enables consumers to elect to prohibit telemarketers from calling them. We may not be able to reach potential subscribers because they are placed on the national Do Not Call Registry. Many states have adopted, and others are considering adopting, statutes or regulations that specifically affect telemarketing activities. Although we do not control the telemarketing firms that we engage to market our programs, in some cases we are responsible for compliance with these federal and state laws and regulations. In addition, the Federal Trade Commission and virtually all state attorneys general have authority to prevent marketing activities that constitute unfair or deceptive acts or practices.

Federal laws govern email communications. Some of these laws may affect our use of email to market to or communicate with subscribers or potential subscribers.

Insurance Laws

Some of the services provided by Intersections Insurance Services include insurance components governed by insurance laws. Insurance generally is regulated by each of the fifty states of the United States and the District of Columbia. Some insurance laws require licensing, and impose other extensive restrictions. The applicability of some insurance laws to various services and activities may vary by state, and may be uncertain within a state, which may result in unanticipated costs or restrictions on our business.

Canadian Laws

Various Canadian federal and provincial laws govern our consumer products and services in Canada, including provincial credit reporting laws similar in scope to the Fair Credit Reporting Act in the United States and privacy laws. Many of these laws vary by province within Canada.

Laws and Regulations Particularly Affecting Our Background Screening and Other Segments

Our background screening and bail bonds industry services depend on information about individuals from private and public sources. In the United States, these services are governed by the federal Fair Credit Reporting Act, various state consumer reporting laws, the federal Drivers’ Privacy Protection Act, and other federal and state laws. Our background screening services also are subject to the European Data Privacy Directive, and other privacy laws in Europe and other countries where we obtain data or provide background screening reports. We or our clients also must comply with laws that govern the data that may be used in making employment decisions. As we expand our background screening services around the world, we will be required to analyze and comply with a variety of laws in other countries and jurisdictions, which may significantly increase the costs of our business and may result in unanticipated restrictions on our planned activities.

Net Enforcers’ services depend in part on federal and state laws governing intellectual property ownership and enforcement, and may be governed by laws on the rights of third parties to conduct investigations and act on behalf of intellectual property owners. Net Enforcers’ services also depend in part on the private rules adopted by internet auction and portal sites in order to comply with the safe harbor requirements of intellectual property laws and other legal requirements. Changes in these laws or rules or how they are interpreted or implemented may adversely affect the ability of Net Enforcers to provide its services.

Intellectual Property

We consider certain of our processes, systems, methodologies, databases, tangible and intangible materials and software and trademarks to be proprietary. We rely on a combination of trade secret, patent, copyright, trademark and other laws, license agreements and non-disclosure, non-competition and other contractual provisions and technical measures to protect our proprietary and intellectual property rights. Various tools available for use on our website utilize software under license from several third parties. We do not believe that these software licenses are material to our business, and believe that they may be replaced on similar terms with software licensed from other third parties or developed by us or on our behalf, including by vendors currently under contract with us. When we market our services in client-branded programs, we rely on licenses from our clients to use their trademarks.

Financial Information About Segments and Geographic Areas

See Note 18 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for financial information about our segments and geographic areas.

Employees

As of December 31, 2007, we had approximately 1,022 employees, including at our majority-owned subsidiary Screening International. Our future performance depends significantly on the continued service of our key personnel. None of our employees are covered by collective bargaining arrangements. We believe our employee relations are good.


ITEM 1A.	*RISK FACTORS*

We believe the following risk factors, as well as the other information contained in this Annual Report on Form 10-K, are material to an understanding of our company. Any of the following risks as well as other risks and uncertainties discussed in this Annual Report on Form 10-K could have a material adverse effect on our business, financial condition, results of operations or prospects and cause the value of our stock to decline. Additional risks and uncertainties that we are unaware of, or that are currently deemed immaterial, also may become important factors that affect us.

Risks Related to our Business

We must replace the subscribers we lose in the ordinary course of business and, if we fail to do so, our revenue and subscriber base will decline.

A substantial number of subscribers to our consumer products and services cancel their subscriptions each year. Cancellations may occur due to numerous factors, including:


	•	changing subscriber preferences;

	•	competitive price pressures;

	•	general economic conditions;

	•	subscriber dissatisfaction;

	•	cancellation of subscribers due to credit card declines; and

	•	credit or charge card holder turnover.

The number of cancellations to our consumer products and services within the first 90 days as a percentage of new subscribers was 29.3% in 2005, 24.5% in 2006 and 25.2% in 2007. We analyze subscriber cancellations during the first 90 days because we believe this time period affords the subscriber the opportunity to evaluate the service. The number of cancellations after the first 90 days, as a percentage of the number of subscribers at the beginning of the year plus the net of new subscribers and cancellations within the first 90 days, was 25.6% in 2005, 27.7% in 2006, and 31.6% in 2007.

If we fail to replace subscribers to our consumer products and services we lose in the ordinary course of business, our revenue may decline, causing a material adverse impact on the results of our operations. There can be no assurance that we can successfully replace the large number of subscribers that cancel each year.

We historically have depended upon a few clients to derive a significant portion of our revenue.

Revenue from subscribers obtained through our largest clients — Bank of America (including MBNA, which was acquired by Bank of America in 2006), Citibank, Discover, Capital One (directly, and, for subscribers acquired prior to January 1, 2005, through our relationship with Equifax), and American Express — as a percentage of our total revenue was 62.2% in 2006 and 67.3% in 2007. The loss of any of our key clients could have a material adverse effect on our results of operations. For example, in February, 2008, our client Discover terminated its indirect agreement with us, effective September 1, 2008. Upon termination of that agreement, we will cease providing services to Discover customers governed by that agreement. In 2007, Discover customers governed by that agreement accounted for approximately 10% of the revenues of Intersections.

If one or more of our agreements with clients were to be terminated or expire, or one or more of our clients were to reduce or change (or threaten to reduce or change) the marketing of our services, we would lose access to prospective subscribers and could lose sources of revenue and profit.

Many of our key client relationships are governed by agreements that may be terminated without cause by our clients upon notice of as few as 60 days without penalty. Under many of these agreements, our clients may cease, reduce or change their marketing of our services in their discretion, which might cause us to lose access to prospective subscribers and significantly reduce our revenue and operating profit. In addition, certain of our largest clients have used the short term nature of our agreements as a means to re-negotiate lower prices with us over the last few months, which has materially impacted our gross margin and operating profit. We cannot assure you that this will not continue in the future.

Our typical contracts for direct marketing arrangements, and some indirect and shared marketing arrangements, provide that after termination of the contract we may continue to provide our services to existing subscribers, for periods ranging from two years to indefinite, under the economic arrangements at the time of termination. Under certain of our agreements, however, including most indirect marketing arrangements and some shared marketing arrangements, the clients may require us to cease providing services under existing subscriptions after time periods ranging from immediately after termination of the contract to three years after termination. For example, in February, 2008, our client Discover terminated its indirect agreement with us, effective September 1, 2008. Upon termination of that agreement, we will cease providing services to Discover customers governed by that agreement. In 2007, Discover customers governed by that agreement accounted for approximately 10% of the revenues of Intersections. In addition, upon termination or expiration of a client contract, we may enter into a transition agreement with the client that modifies the original terms of the agreement.

We are substantially dependent upon our consumer products and services for a significant portion of our revenue, and market demand for these services could decrease.

Approximately 88% in 2006 and 89% of our revenue in 2007 was derived from our consumer products and services, with the balance coming from our background screening and other services. We expect to remain dependent on revenue from our consumer products and services for the foreseeable future. Any significant downturn in the demand for these services would materially decrease our revenue.

If we lose our ability to purchase data from any of the three major credit reporting agencies, each of which is a competitor of ours, demand for our services could decrease.

We rely on the three major credit reporting agencies, Equifax, Experian and TransUnion, to provide us with essential data for our consumer identity theft protection and credit management services. Our agreement with Equifax expires in November 2010. Our agreements with Experian and TransUnion may be terminated by them on 30 days and 60 days notice, respectively. Each of the three major credit reporting agencies owns its consumer credit

data and is a competitor of ours in providing credit information directly to consumers, and may decide that it is in their competitive interests to stop supplying data to us. Any interruption, deterioration or termination of our relationship with one or more of the three credit reporting agencies would be disruptive to our business and could cause us to lose subscribers.

We may incur substantial marketing expenses as we enter new businesses, develop new products or increase our direct marketing arrangements, which could cause our operating income to decline on a quarterly basis and our stock price to drop.

We are committing significant resources to our strategic effort to market our services to the broader direct-to-consumer marketplace. As a result, our marketing expenses for 2006 and 2007 were significantly higher than for 2005, and we anticipate this increased spending to continue in 2008. In addition, if we were to increase our direct marketing arrangements with new or existing clients, where we bear most of the new subscriber marketing costs and pay our client a commission for revenue derived from subscribers, this would generally result in higher marketing costs and negative cash flow over the first several months after a program is launched. These upfront costs resulted in a reduction in our operating income and earnings per share for 2007. This could cause our stock price to decline. In addition, we can not assure you that our investment in the direct-to-consumer business or other new businesses or products or any increase in direct marketing arrangements will be successful in increasing our subscribers or generating future revenue or profits on our projected timeframes or at all, which could have a material adverse effect on our results of operations and financial condition.

If we experience system failures or interruptions in our telecommunications or information technology infrastructure, our revenue could decrease and our reputation could be harmed.

Our operations depend upon our ability to protect our telecommunications and information technology systems against damage or system interruptions from natural disasters, technical failures and other events beyond our control. We receive credit data electronically, and this delivery method is susceptible to damage, delay or inaccuracy. A significant portion of our business involves telephonic customer service as well as mailings, both of which depend upon the data generated from our computer systems. Unanticipated problems with our telecommunications and information technology systems may result in a significant system outage or data loss, which could interrupt our operations. Our infrastructure may also be vulnerable to computer viruses, hackers or other disruptions entering our systems from the credit reporting agencies, our clients and subscribers or other authorized or unauthorized sources.

We and our clients outsource telemarketing to third parties who may take actions that lead to negative publicity and consumer dissatisfaction.

We and our clients solicit some of our subscribers through outbound telemarketing that we outsource to third-party contractors. In outbound telemarketing, the third-party contractors make the initial contact with potential subscribers. We attempt to control the level and quality of the services provided by these third parties through a combination of contractual provisions, monitoring, on-site visits and records audits. In arrangements where we bear the marketing cost, which represented 44% of new subscribers acquired in 2006, approximately 57% of new subscribers were obtained through outbound telemarketing by our vendors. In arrangements where the clients bear the marketing cost, which represented 56% of new subscribers acquired in 2007, approximately 57% of new subscribers were obtained through outbound telemarketing by outsourced vendors. Any quality problems could result in negative publicity and customer dissatisfaction, which could cause us to lose clients and subscribers and decrease our revenue.

We may lose subscribers and customers and significant revenue if our existing products and services become obsolete, or if we fail to introduce new products and services with broad appeal or fail to do so in a timely or cost-effective manner.

Our growth depends upon developing and successfully introducing new products and services that generate client and consumer interest, including new data sources, advanced tools and analytical capabilities, more timely notification of activities and more useable content. We have made or may make significant investments in these new products and services, including development costs and prepayment of royalties and fees to third party providers.

Although we have a limited history of developing and introducing products and services outside the areas of identity theft protection and consumer credit management, we are currently developing or introducing new products and services in the area of small business credit information and fraud detection. If we fail to develop, introduce or expand successfully our products and services, our business and prospects will be materially adversely affected.

We may lose subscribers and significant revenue if our subscribers cease to maintain the accounts through which they are billed for our products and services, or our clients change their billing or credit practices or policies.

Most of our subscribers are billed for our products and services through accounts with our clients, such as mortgage and credit card accounts. Market factors such as a high degree of mortgage refinancing may result in cancellation of those accounts, which will result in a loss of subscribers. Client decisions, such as changes in their credit card billing practices or policies, may result in our inability to bill for our products and services, which also may result in a loss of subscribers. These subscriber losses may have a material adverse impact on our revenue.

We may not be able to develop and maintain relationships with third party providers, and failures by those third parties could harm our business and prospects.

Our fraud protection and small business services are substantially dependent on third party data and analytics providers, as well as third party call center and customer service providers. Our failure to develop and maintain these third party relationships could harm our ability to provide those services. Our other consumer products and services are substantially dependent on third party providers, including insurance companies and software distributors. Our other services are dependent on other third party providers, including third party data sources, technology providers and outsourced service centers. Failure of any of the third party providers on which we depend to perform under our agreements with them, or to provide effective and competent services, could cause us to have liability to others or otherwise harm our business and prospects.

Our senior secured credit agreement provides our lenders with a first-priority lien against substantially all of our assets and contains financial covenants and other restrictions on our actions, and it could therefore limit our operational flexibility or otherwise adversely affect our financial condition.

We may fail to comply with the covenants in our credit agreement as a result of, among other things, changes in our results of operations or general economic changes. These covenants may restrict our ability to engage in transactions that would otherwise be in our best interests. Failure to comply with any of the covenants under our credit agreement could result in a default under the facility, which could cause the lenders to accelerate the timing of payments and exercise their lien on substantially all of our assets, which would have a material adverse effect on our business, operations, financial condition and liquidity. In addition, because our credit agreement bears interest at variable interest rates, increases in interest rates would increase our cost of borrowing, resulting in a decline in our net income and cash flow, which could cause the price of our common stock to decline.

We may be unable to meet our future capital requirements to grow our business, which could adversely impact our financial condition and growth strategy.

We may need to raise additional funds in the future in order to operate and expand our business. There can be no assurance that additional funds will be available on terms favorable to us, or at all. Our inability to obtain additional financing could have a material adverse effect on our financial condition.

We depend on key members of our management and marketing personnel.

If one or more of these individuals, particularly our chairman and chief executive officer, were unable or unwilling to continue in their present positions, our business could be materially adversely affected. In addition, we do not maintain key person life insurance on our senior management. We also believe that our future success will depend, in part, on our ability to attract, retain and motivate skilled managerial, marketing and other personnel.

We are subject to legal claims, including a consumer class action litigation, that could require us to pay damages and/or change our business practices.

Because we operate in a highly regulated industry and must comply with various foreign, federal, state and local laws, we may be subject to claims and legal proceedings in the ordinary course of our businesses and our clients’ businesses. These legal actions might include lawsuits styled as class actions and alleging violations of various federal and state consumer and privacy protection laws, such as the pending action alleging that the Credit Inform credit monitoring service marketed by Capital One and provided by us violates certain procedural requirements under the federal Credit Repair Organizations Act and the Pennsylvania Credit Services Act. We cannot predict the outcome of this action or any other future actions or proceedings, and the cost of defending these claims might be material. If we are found liable in any actions or proceedings, we might have to pay substantial damages and change the way we conduct our business, any of which might have a material adverse effect on our profitability and business prospects.

If we determine in the future that we are required to establish reserves or we incur liabilities for any litigation that has been or may be brought against us, our results of operations, cash flow and financial condition could be materially and adversely affected.

We have not established reserves for any of the legal proceedings in which we are currently involved and we are unable to estimate at this time the amount of charges, if any, that may be required to provide reserves for these matters in the future. We may determine in the future that a reserve or a charge for all or a portion of any of our legal proceedings is required, including charges related to legal fees. In addition, we may be required to record an additional charge if we incur liabilities in excess of reserves that we have previously recorded. Such charges, particularly in the event we may be found liable in a large class-action lawsuit, could be significant and could materially and adversely affect our results of operations, cash flow and financial condition and result in a significant reduction in the value of our shares of common stock.

We may not be able to consummate acquisitions that are accretive or which improve our financial condition.

A principal component of our strategy going forward is to selectively acquire assets or complementary businesses in order to increase cash flow and earnings. This depends upon a number of factors, including our ability to identify acceptable acquisition candidates, consummate acquisitions on favorable terms, successfully integrate acquired assets and obtain financing to support our growth, and many other factors beyond our control. We may encounter delays or other problems or incur substantial expenses in connection with seeking acquisitions that could negatively impact our operating results.

In connection with any acquisitions or investments, we could issue stock that would dilute our stockholders, incur substantial debt, assume known, contingent and unknown liabilities and/or reduce our cash reserves. For example, in connection with the Net Enforcers acquisition, we financed the purchase price with a $14 million revolving loan borrowing under our amended credit facility, which requires monthly payments of interest, and assumed responsibility for all of Net Enforcers liabilities, subject to the terms of the customary indemnification and escrow provisions in the merger agreement. Also, as part of the formation of Screening International, we agreed to cooperate with Control Risks Group to meet any future financing needs of Screening International, including agreeing to guarantee third party loans and making additional capital contributions on a pro rata basis, if necessary. In 2007, we and Control Risks Group made capital contributions of $2.0 million as part of our ongoing ownership commitment. Acquisitions may also require material infrequent charges and could result in adverse tax consequences, impairment of goodwill, substantial depreciation and amortization, increased interest expense, deferred compensation charges, and the amortization of amounts related to deferred compensation and identifiable purchased intangible assets, any of which could negatively impact our results of operations in one or more future periods.

We may not realize planned benefits of our acquisitions.

We recently completed the acquisitions of Captira Analytical and Net Enforcers. In connection with these and other acquisitions, we may experience unforeseen operating difficulties as we integrate the acquired assets and businesses into our existing operations. These difficulties may require significant management attention and financial resources that would otherwise be available for the ongoing development or expansion of existing operations. Any acquisition or business combination by us involves risks, including:


	•	unexpected losses of key employees, customers and suppliers of the acquired operations;

	•	difficulties in integrating the financial, technological and management standards, processes, procedures and controls of the acquired businesses with those of our existing operations;

	•	challenges in managing the increased scope, geographic diversity and complexity of our operations;

	•	establishing the internal controls and procedures that we are required to maintain under the Sarbanes-Oxley Act of 2002;

	•	mitigating contingent or assumed liabilities or unexpected costs; and

	•	risks of entering new markets, such as the United Kingdom, or markets in which we have limited prior experience, such as the bail bond industry.

We may not realize planned benefits of our membership agreement or other customer portfolio acquisitions.

In February 2008, we entered into and closed an acquisition of substantially all of the membership agreements between our client Citibank and consumer customers relating to a membership program we were providing pursuant to one of our agreements with Citibank. The aggregate purchase paid by the Company in connection with the closing of the acquisition, which was based on the estimated number of acquired membership agreements as of the closing, was $30.8 million. The purchase price may be adjusted, based on the final calculation of the number of membership agreements actually acquired, and, up to an amount of $750 thousand based on the loss of customers, known as attrition, above certain levels during the first 180 days after the closing. We paid for the acquisition through a combination of existing cash and funding under our credit agreement with Bank of America. Although we received certain representations, warranties and covenants from Citibank, we have no guarantee that attrition of customers will not exceed expected levels for reasons that do not require Citibank to indemnify us. If attrition exceeds our expectations, the revenue expected from these membership agreements otherwise is less than we expected, or our costs of servicing these customers are higher than we expected, we may lose some or all of the investment we made in acquiring the membership agreements. We may continue to acquire membership agreements or other customer portfolio rights under agreements with our clients or third parties, and if attrition exceeds our expectations, the revenue expected from these acquisitions otherwise is less than we expected, or our costs of servicing these customers are higher than we expected, we may lose some or all of the investments we make in these acquisitions.

Screening International is subject to additional risks due to its international scope.

We have very limited experience in conducting and managing a business internationally, and our ability to sell products and services internationally will be reliant upon certain key relationships of our partner, Control Risks Group, which we may not be able to continue. We are also subject to currency risk relating to the overseas sales of the company. We cannot assure you that we will be successful in overcoming these risks, and if we fail to do so, these risks could have a negative effect on our business, financial condition and results of operations, and cause our stock price to decline.

In addition, our background screening business is and will be subject to a wide range of extensive local and international laws and regulations, which may materially increase our costs, impair our ability to provide our services, or expose us to legal claims or liability. Our background screening business depends on information about individuals from private and public sources. In the United States, these services are governed by the federal Fair Credit Reporting Act, various state consumer reporting laws, the federal Drivers’ Privacy Protection Act, and other

federal and state laws. Our background screening business also is subject to the European Data Privacy Directive, and other privacy laws within the European Economic Area and other countries where Screening International obtains data or provides background screening reports. We or our clients also must comply with laws that govern the data that may be used in making employment decisions. As our background screening business expands around the world, we will be required to analyze and comply with a variety of laws in other countries and jurisdictions, which may significantly increase the costs of our business and may result in unanticipated restrictions on our planned activities that may have a material impact on our ability to carry on or expand our business as planned. In addition, any determination that we have violated any of these laws may result in liability for fines, damages, or other penalties, including the loss of the ability to carry on business, which may have a material adverse impact on our business.

Screening International, and any other business combination where we do not own 100% of the business, could be hindered if we fail to maintain a satisfactory working relationship with our partners.

There are special risks associated with business combination arrangements. While we own a majority interest in Screening International, we may not have the majority interest in, or control of, future business combinations that we may enter into. Any business combination partners, including Control Risks Group, may at times have economic, business or legal interests or goals that are inconsistent with our interests or goals or those of the business combination. The agreement with Control Risks Group restricts our ability to control Screening International and requires Control Risks Group and us to cooperate and mutually agree to significant matters in order to implement and expand upon Screening International’s business strategy and to finance and manage its operations. We are also subject to exclusivity provisions pursuant to the agreement. There is also risk that Control Risks Group or future partners may be unable to meet their economic or other obligations and that we may be required to fulfill those obligations alone. A change in control of us or Control Risks Group could affect our relationship with each other and will trigger buy-out rights for the other party, which could have the effect of preventing or delaying a change of control transaction that our stockholders may favor. Finally, the risk of disagreement or deadlock is inherent in jointly controlled entities, and there is the risk that decisions against our interests could be made and that we may not realize the expected benefits from our business combination, including economies of scale and opportunities to realize potential synergies and cost savings.

Fluctuations of foreign currency values may adversely affect our reported revenue, results of operations and financial condition

We transact business in other parts of the world, including Canada, the United Kingdom and Singapore, where subsidiaries of Screening International are located. We also sell our consumer products and services in Canada. The fluctuations of these foreign currencies relative to the U.S. Dollar may adversely affect our reported revenue, results of operations and financial condition, and there can be no guarantee that our strategies to reduce these risks will be successful.

Our stock price fluctuates and may continue to fluctuate significantly over a short period of time.

In the past, our stock price has declined in response to period-to-period fluctuations in our revenue, expenses and operating results. In certain periods where our historical operating results have been below the expectations of analysts and investors, the price of our common stock has decreased significantly following earnings announcements. In addition, our stock price may continue to fluctuate significantly in the future as a result of a number of factors, many of which are beyond our control, including:


	•	the timing and rate of subscription cancellations and additions;

	•	the loss of a key client or a change by a key client in the marketing of our products and services;

	•	our ability to introduce new and improve existing products and services on a timely basis;

	•	the introduction of competing products and services by our competitors;

	•	the demand for consumer subscription services generally;


	•	the ability of third parties to market and support our services; and

	•	general economic conditions.

Insiders have substantial control over us and could delay or prevent a change in corporate control, which may harm the market price of our common stock.

Our directors, executive officers and principal stockholders, together with their affiliates, own, in the aggregate, approximately 54% of our outstanding common stock. These stockholders may have interests that conflict with the other public stockholders. If acting together, they have the ability to control the management and affairs of our company and determine the outcome of matters submitted to our stockholders for approval, including the election and removal of directors and any sale of the company. Accordingly, this concentration of ownership may harm the market price of our common stock by delaying, discouraging or preventing a change in control transaction.

Risks Related to our Industry

Our failure to protect private data could damage our reputation and cause us to expend capital and resources to protect against future security breaches or other unauthorized access.

We collect, distribute and protect sensitive private data in delivering our services. We are subject to the risk that unauthorized users might access that data or human error might cause the wrongful dissemination of that data. If we experience a security breach or other unauthorized access to information, the integrity of our services may be affected. We continue to incur significant costs to protect against security breaches or other mishaps and to minimize problems if a data breach was to occur. Moreover, any public perception that we mishandle private information could adversely affect our ability to attract and retain clients and subscribers and could subject us to legal claims and liability. In addition, unauthorized third parties might alter information in our databases, which would adversely affect both our ability to market our services and the credibility of our information.

We are subject to government regulation and increasing public scrutiny, which could impede our ability to market and provide our services and have a material adverse effect on our business.

Our business and activities, or the information we use in our business and activities, are subject to regulation by foreign, federal, state and local authorities, including the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act and similar foreign laws. In addition, certain of the services provided by Intersections Insurance Services include insurance components governed by insurance laws. Insurance generally is regulated by each of the fifty states of the United States and the District of Columbia. Some insurance laws require licensing, and impose other extensive restrictions. The applicability of some insurance laws to various services and activities may vary by state and may be uncertain within a state, which may result in conflicting rules and or unanticipated costs or restrictions on our business. In addition, as we expand our background screening business to other parts of the world, we will become subject to the laws and regulations of those countries, certain of which may conflict with the laws and regulations of other countries where we operate.

We incur significant costs to operate our business and monitor our compliance with these laws, regulations and rules. Any changes to the existing applicable laws, regulations or rules, or any determination that other laws, regulations or rules are applicable to us, could increase our costs or impede our ability to provide our services to our customers, which might have a material adverse effect on our business and results of operations. In addition, any of these laws, regulations or rules are subject to revision, and we cannot predict the impact of such changes on our business. Further, any determination that we have violated any of these laws, regulations or rules may result in liability for fines, damages, or other penalties, including suspension or loss of required licenses, which may have a material adverse impact on our business.

Marketing laws and regulations may materially limit our or our clients’ ability to offer our products and services to consumers.

Laws requiring the free issuance of credit reports by credit reporting agencies, and other services that must be provided by credit reporting agencies under the law, could impede our ability to obtain new subscribers or maintain existing subscribers and could have a material adverse effect on our revenue.

The Fair Credit Reporting Act provides consumers the ability to receive one free consumer credit report per year from each major consumer credit reporting agency, and requires each major consumer credit reporting agency to provide the consumer a credit score along with his or her credit report for a reasonable fee as determined by the Federal Trade Commission. Laws in several states, including Colorado, Georgia, Illinois, Maine, Maryland, Massachusetts, New Jersey and Vermont, require consumer reporting agencies to provide each consumer one credit report per year (or two credit reports, in the case of Georgia) upon request without charge. We are not required to comply with these requirements because we are not a consumer reporting agency in connection with our consumer products and services. These laws do apply to the three major credit reporting agencies from which we purchase data for our services. In addition, the Fair Credit Reporting Act and state laws give consumers other rights with respect to the protection of their credit files at the credit reporting agencies. For example, the Fair Credit Reporting Act gives consumers the right to place “fraud alerts” at the credit reporting agencies, and the laws in approximately 40 states give consumers the right to place “freezes” to block access to their credit files. The rights of consumers to obtain free annual credit reports credit scores from consumer reporting agencies, and place fraud alerts and credit freezes directly with them, could cause consumers to perceive that the value of our services is reduced or replaced by those benefits, which could have a material adverse effect on our business.

A significant downturn in the charge or credit card or mortgage industries or a trend in those industries to reduce or eliminate marketing programs could harm our business.

We depend upon clients in the charge and credit card and mortgage industries. Services marketed through our charge and credit card issuer clients account for a substantial percentage of our revenue. We also have relied on mortgage issuers and other mortgage companies to market our products. Therefore, a significant downturn, such as what we have witnessed over the past nine months, in those industries could harm our business. The reduction or elimination of marketing programs within our charge and credit card issuer or mortgage company clients could materially adversely affect our ability to acquire new subscribers and to expand the range of services offered to current subscribers. In addition, increases in credit card declines or credit card account or mortgage cancellations could result in the increased cancellation of our services that depend on those credit card accounts or mortgages as payment vehicles. These cancellations, and the accompanying loss of revenue, could have a materially adverse impact on our business.

Competition could reduce our market share or decrease our revenue.

We operate in highly competitive businesses. Our competitors may provide products and services comparable or superior to those provided by us, or at lower prices, adapt more quickly to evolving industry trends or changing market requirements, increase their emphasis on products and services similar to ours, enter the markets in which we operate or introduce competing products and services. Any of these factors could reduce our market share or decrease our revenue. Many of our competitors have greater financial and other resources than we do.

Several of our competitors offer products and services that are similar to, or that directly compete with, our products and services. Competition for new subscribers for our consumer products and services is also intense. Even after developing a client relationship, we compete within the client organization with other consumer products and services for appropriately targeted customers because client organizations typically have only limited capacity to market third-party products and services like ours. We also compete directly with the credit reporting agencies that control the credit file data that we use to provide our services. Although we believe that the major credit reporting agencies generally do not provide client branded services that meet our clients’ specifications and needs, we have no assurance they will not do so in the future. In addition, our background screening business competes with a variety of companies that might provide a broader range of screening services and have a more established track record and brand name than we do.


ITEM 1B.	*UNRESOLVED STAFF COMMENTS*

None.


ITEM 2.	*PROPERTIES*

The following is a summary of our material leased facilities:


	Approx.			Lease
Location	Square Feet		Segment	Expiration

Chantilly, VA		71,566	Consumer Products and Services		2009
Rio Rancho, NM		28,000	Consumer Products and Services		2013
Manassas, VA		11,500	Consumer Products and Services		2008
Arlington Heights, IL		2,670	Consumer Products and Services		2008
Winchester, VA		22,594	Background Screening		2010
Hammersmith, West London, UK		13,000	Background Screening		2008
Albany, NY		7,730	Other		2011
Phoenix, AZ		3,347	Other		2008
Gainesville, FL		2,700	Other		2008

We also own a 14,000 square foot facility located in Arlington Heights, Illinois, which is used by our Consumer Products and Services segment for office space, an inbound call center and fulfillment center.

We believe that our facilities will support our future business requirements or that we will be able to lease additional space, if needed, on reasonable terms. Certain properties are utilized by all of our segments and in such cases the property is reported in the segment with highest usage.


ITEM 3.	*LEGAL PROCEEDINGS*

On December 23, 2005, an action captioned Mary Gay v. Credit Inform, Capital One Services, Inc. and Intersections, Inc., was commenced in the U.S. District Court for the Eastern District of Pennsylvania, alleging that the Credit Inform credit monitoring service marketed by Capital One and provided by us violates certain procedural requirements under the federal Credit Repair Organizations Act (“CROA”) and the Pennsylvania Credit Services Act (“PA CSA”). The plaintiff contends that Capital One and we are “credit repair organizations” under the CROA and “credit services organizations” under the PA CSA. The plaintiff seeks certification of a class on behalf of all individuals who purchased such services from defendants within the five-year period prior to the filing of the complaint. The plaintiff seeks an unspecified amount of damages, including all fees paid by the class members for the services, attorneys’ fees and costs. We responded with a motion seeking to dismiss the action and enforce a provision in the terms of use for the product which require disputes to be resolved in arbitration and without class actions. The plaintiff has voluntarily dismissed Capital One from the case. By order of June 12, 2006, the district court granted our motion, stayed the action and ordered the plaintiff to arbitrate her claims on an individual basis. The order of the district court was appealed by the plaintiff to the U.S. Court of Appeals for the Third Circuit. On December 17, 2007, the plaintiff’s appeal was denied by the Third Circuit Court of Appeals. On January 29, 2008, the plaintiff’s motion for rehearing was denied, and on February 6, 2008, the Third Circuit Court of Appeals entered an order and judgment upholding the ruling by the district court to stay the action and compel arbitration on an individual basis.

On February 29, 2008, we received written notice from our client Discover that, effective September 1, 2008, it was terminating the Agreement for Services Administration between us and Discover dated March 11, 2002, as amended (the “Services Agreement”), including the Omnibus Amendment dated December 22, 2005 (the “Omnibus Amendment”). On the same date, we filed a complaint for declaratory judgment in the Circuit Court for Fairfax County, Virginia. The complaint seeks a declaration that, if Discover uses for its own purposes credit report authorizations given by customers to Intersections or Discover, it will be in breach of the Services Agreement and Omnibus Amendment to the Services Agreement. Intersections contends that Discover or its new credit monitoring service provider must obtain new authorizations from the customers in order to provide credit

monitoring services to them. In the complaint, Intersections alleges that reliance on the credit report authorizations by Discover or its new provider would be a breach of the Services Agreement and Omnibus Amendment thereto, and thus seeks a declaratory judgment to prevent Discover from committing a breach of the parties’ contract.


ITEM 4.	*SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*

None

Executive Officers of the Registrant

Our executive officers are as follows:


Name	Age		Position

Michael R. Stanfield		57	Chairman, Chief Executive Officer and Director
Madalyn C. Behneman		44	Senior Vice President and Principal Financial Officer
John G. Scanlon		40	Chief Operating Officer, Business Services
Neal B. Dittersdorf		48	Chief Legal Officer and Chief Administrative Officer
George (Chip) K. Tsantes		48	Executive Vice President and Chief Technology Officer
Steven A. Schwartz		47	Executive Vice President, Consumer Products
Christopher W. Shenefelt		49	Executive Vice President, Operations

Michael R. Stanfield co-founded CreditComm, the predecessor to Intersections, in May 1996 and has been Chairman, Chief Executive Officer and a Director since that time. Mr. Stanfield joined Loeb Partners Corporation, an affiliate of Loeb Holding Corporation, in November 1993 and served as a Managing Director at the time of his resignation in August 1999. Mr. Stanfield has been involved in management information services and direct marketing through investments and management since 1982, and has served as a director of CCC Information Services Inc. and BWIA West Indies Airways. Prior to beginning his operational career, Mr. Stanfield was an investment banker with Loeb, Rhoades & Co. and Wertheim & Co. He holds a B.B.A. in Business Administration from Emory University and an M.B.A. from Columbia University.

Madalyn C. Behneman served as our Vice President of Finance and Accounting from June 2005 until February 2006, when she was appointed Senior Vice President and Principal Financial Officer. Prior to joining Intersections, Ms. Behneman was employed by NII Holdings, Inc. as the Director of External Financial Reporting from June 2004 until June 2005. Ms. Behneman previously held various finance and accounting positions at other companies, including Director of Financial Reporting, with MCI, Inc. from April 1989 until June 2004. Ms. Behneman was employed on the audit staff of Ernst & Young and is a CPA. She earned her Bachelor of Science degree in Accounting from Virginia Tech.

John G. Scanlon who joined Intersections in November 13, 2006, was promoted to Executive Vice President in January 2007 and in December 2007 was appointed Chief Operating Officer, Business Services. Mr. Scanlon joined Intersections in November of 2006 from National Auto Inspections, LLC where he was President and Chief Operating Officer for this venture capital backed startup company. Mr. Scanlon previously served as a senior executive at Capital One Financial Corporation from 2000 to 2006 where he held general management responsibility for the company’s direct banking business and previously led a large portion of the Information Technology organization. Mr. Scanlon holds a B.S. in Business Administration from Georgetown University, and a Masters of Management degree from the J.L. Kellogg Graduate School of Management at Northwestern University.

Neal B. Dittersdorf served as our Senior Vice President and General Counsel from February 2003 until June 2004, when he was appointed Chief Legal Officer. In December 2007 he was appointed Chief Administrative Officer. From January 2002 to January 2003, Mr. Dittersdorf was of counsel at the law firm of Venable, Baetjer, Howard & Civiletti LLP. He holds a B.A. from Brandeis University and a J.D. from the New York University School of Law.

George (Chip) K. Tsantes was hired as Intersections’ Chief Technology Officer in January of 2005. Prior to joining Intersections, Mr. Tsantes was a Partner in Accenture’s Capital Markets Group, part of the global firm’s Financial Services practice and a member of its FSI Technology leadership. He was an employee or Partner with Accenture from August 1986 to January 2005. He holds a B.A from Virginia Wesleyan College and an M.B.A. from Old Dominion University.

Steven A. Schwartz was named Executive Vice President, Endorsed Credit and Security Sales in October 2006, after serving as Senior Vice President of the Client Services division since joining Intersections in July 2003. In December 2007 he was appointed Executive Vice President, Consumer Products. From April 2001 to April 2003, Mr. Schwartz served as Senior Vice President at The Motley Fool. Mr. Schwartz holds a B.S. from Syracuse University and an M.B.A. from Rutgers University.

Christopher W. Shenefelt was named Executive Vice President, Operations in December 2007, after serving as Senior Vice President, Operations from November 2003. Mr. Shenefelt has been at Intersections for more than five years. Prior to joining Intersections, Mr. Shenefelt held executive and technical management positions at AES, Winstar Communications and SAIC. Mr. Shenefelt holds a B.S.E.E from Michigan Technological University, an M.S.E.E. from the University of Central Florida and an M.B.A. from George Washington University

PART II


ITEM 5.	*MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES*

The Company’s common stock trades on The NASDAQ Global Market under the symbol “INTX.” As of February 29, 2008, the common stock was held by approximately 22 stockholders of record and an estimated 993 additional stockholders whose shares were held for them in street name or nominee accounts. Set forth below are the high and low closing sale prices per share of our common stock as reported on the Nasdaq Composite Tape.


	Sales Price
	per Share
	High		Low

2006 Quarter ended:
March 31, 2006	$	11.63	$	8.29
June 30, 2006	$	11.87	$	9.31
September 30, 2006	$	11.19	$	8.75
December 31, 2006	$	11.05	$	8.84


	Sales Price
	per Share
	High		Low

2007 Quarter ended:
March 31, 2007	$	10.10	$	9.76
June 30, 2007	$	10.07	$	9.89
September 30, 2007	$	10.32	$	9.94
December 31, 2007	$	8.35	$	8.01

We never have paid or declared any cash dividends on our common stock and have no plans to do so in the foreseeable future. We are prohibited from paying dividends under our credit agreement. We currently intend to retain future earnings, if any, to finance the growth and development of our business. Future dividends, if any, will depend on, among other things, our results of operations, capital requirements and such other factors as our board of directors may, in its discretion, consider relevant.

The following table contains information for shares repurchased during the three months ended December 31, 2007:


					Total Number		Approximate Dollar
					of Shares		Value of Shares
	Total				Purchased as		that May Yet Be
	Number		Average		Part of Publicly		Purchased Under
	of Shares		Price Paid		Announced Plans		the Plans or
Fiscal Period	Purchased		per Share(1)		or Programs		Programs(2)

September 30, 2007							$	10,966,683
October 1, 2007 through October 31, 2007		—		—		—	$	10,966,683
November 1, 2007 through November 30, 2007		48,694	$	8.97		48,694	$	10,534,414
December 1, 2007 through December 31, 2007		1,300	$	9.48		1,300	$	10,522,045

TOTAL		49,994	$	9.03		49,994	$	10,522,045


(1)		Average price per share excludes commissions.

(2)		For the three months ended December 31, 2007, the aggregate cost of shares of common stock repurchased, including commissions, was approximately $445 thousand.

The following graph shows the cumulative total return as of December 31, 2007 of a $100 investment made on April 30, 2004 in our common stock (with dividends, if any, reinvested), as compared with similar investments based on the value of the NASDAQ Composite and the S&P Diversified Commercial & Professional Services. The peer group was determined by our inclusion in the NASDAQ as a publicly traded company and the S&P Diversified Commercial & Professional Services index covers companies that primarily provide commercial, industrial and professional services to businesses and governments not classified elsewhere. The stock performance shown below is not necessarily indicative of future performance.

Comparison of 44 Month Cummulative total Return*

*$100 invested on 04/30/04 in stock or index-including reinvestment of dividends. Fiscal year ending December 31


ITEM 6.	*SELECTED FINANCIAL DATA*

SELECTED CONSOLIDATED FINANCIAL DATA

This section presents our historical financial data. The selected consolidated financial data is qualified by reference to and should be read carefully in conjunction with the consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere of this Form 10-K. The selected consolidated financial data in this section is not intended to replace the financial statements.


	Year Ended December 31,
	2003			2004			2005			2006			2007
				(In thousands, except per share data)

Statement of Operations Data(1):
Revenue	$	147,306		$	152,916		$	165,171		$	201,051		$	271,723
Operating expenses:
Marketing		20,325			19,328			19,646			25,173			36,285
Commission		55,206			46,719			26,687			25,786			52,624
Cost of revenue		35,669			40,093			57,351			75,188			101,815
General and administrative		18,312			23,330			34,518			49,978			59,386
Depreciation and amortization		2,233			3,991			6,457			10,018			12,427
Impairment of software development costs(2)		—			—			1,515			—			—

Total operating expenses		131,745			133,461			146,174			186,143			262,537

Operating income		15,561			19,455			18,997			14,908			9,186
Interest (expense) income		(1,008	)		56			1,183			780			(581	)
Other income		12			31			37			173			1,139

Income before income taxes and minority interest		14,565			19,542			20,217			15,861			9,744
Income tax benefit (expense)		4,811	(3)		(8,597	)(4)		(7,747	)		(6,328	)		4,329
Minority interest in net income (loss) of subsidiary		35			—			—			(97	)		1,451

Net income	$	19,411		$	10,945		$	12,470		$	9,436		$	6,866

Net income per share:
Basic	$	3.92		$	0.85		$	0.73		$	0.56		$	0.40

Diluted	$	1.36		$	0.64		$	0.70		$	0.54		$	0.39

Weighted average shares outstanding:
Basic		4,954			12,929			17,002			16,770			17.096

Diluted		14,965			17,517			17,815			17,606			17,479

Balance Sheet Data:
Cash and cash equivalents	$	14,411		$	12,027		$	17,555		$	15,580		$	19,780
Deferred subscription solicitation costs		9,768			9,185			8,818			11,786			21,912
Working capital		10,344			55,984			52,493			26,858			30,365
Total assets		49,900			109,111			123,187			179,467			206,268
Long-term obligations		972			1,764			2,797			13,304			23,046
Total stockholders’ (deficit) equity	$	5,485		$	87,127		$	92,944		$	104,576		$	114,848
Statement of Cash Flow Data:
Cash (outflows) inflows from:
Operating activities	$	11,193		$	21,808		$	17,597		$	17,897		$	4,589
Investing activities		(5,297	)		(68,320	)		(3,225	)		(33,596	)		(10,731	)
Financing activities		(944	)		44,128			(8,844	)		13,583			10,348


	Year Ended December 31,
	2003			2004			2005			2006			2007
	(Dollars in thousands)

Other Data:
Subscribers at beginning of period		1,562,537			2,274,605			2,885,223			3,659,975			4,625,831
New subscribers — indirect		1,491,282			1,609,469			2,180,964			2,459,032			2,270,211
New subscribers — direct(5)		793,365			805,217			700,297			1,168,002			1,825,205
Cancelled subscribers within first 90 days of subscription		(662,058	)		(586,680	)		(845,522	)		(887,629	)		(1,030,678	)
Cancelled subscribers after first 90 days of subscription		(910,521	)		(1,217,388	)		(1,260,987	)		(1,773,549	)		(2,431,234	)

Subscribers at end of period		2,274,605			2,885,223			3,659,975			4,625,831			5,259,335

Total revenue	$	147,306		$	152,916		$	165,171		$	201,051		$	271,723
Revenue from transactional sales		(18,450	)		(3,093	)		(16,263	)		(31,702	)		(35,349	)
Revenue from lost/stolen credit card registry		(93	)		(85	)		(77	)		(81	)		(46	)

Subscription revenue	$	128,763		$	149,738		$	148,831		$	169,268		$	236,328

Marketing and commissions	$	75,531		$	66,047		$	46,333		$	50,959		$	88,909
Commissions paid on transactional sales		(10,475	)		(759	)		(105	)		(30	)		(13	)
Commissions paid on lost/stolen credit card registry		(12	)		(9	)		(36	)		(31	)		(38	)

Marketing and commissions associated with subscription revenue	$	65,044		$	65,279		$	46,192		$	50,898		$	88,858


(1)		Our financial results include American Background Information Services for the period November 12, 2004 through May 30, 2006, and Screening International, which combined American Background Information Services with Control Risks Group background screening business, for the period May 31, 2006 through December 31, 2007. Our financial results also include Intersections Insurance Services, which we acquired on July 3, 2006. In addition, our financial results include Captira Analytical, LLC beginning August 2007 and Net Enforcers, Inc. beginning December 2007.

(2)		During the year ended December 31, 2005, we re-assessed the development effort related to our small business product. As a result, we recognized an impairment loss of approximately $1.4 million related to software development costs. In addition, we agreed with a client to change certain processes that required new software resulting in an additional impairment loss of approximately $150 thousand.

(3)		For periods prior to 2003, we did not record a tax benefit from net operating losses but instead recorded an off-setting valuation allowance. The valuation allowance was required because it was more likely than not that some or all of the net deferred tax assets would not be realized. Based on positive and anticipated projected income it was determined during the third quarter of 2003 that the valuation allowance was no longer necessary and we recognized a $6.5 million tax benefit.

(4)		Income tax expense in 2004 reflects a write-off based on the reduction of approximately $912,000 in deferred tax assets related to the conversion, at the time of the Company’s initial public offering, of a senior secured convertible note obligation. The write-off was made in connection with FASB Statement No. 109, Accounting for Income Taxes, which requires an analysis of deferred tax items at year-end, and in accordance with Emerging Issues Task Force 94-10, Accounting by a Company for the Income Tax Effects of Transactions


		among or with Its Shareholders Under FASB Statement No. 109. As a result of the reduction, the company’s federal tax rate for 2004 was approximately 44%, as opposed to 39% without the reduction.


(5)		We classify subscribers from shared marketing arrangements with direct marketing arrangements.


ITEM 7.	*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*

The following discussion and analysis of our financial condition and results of operations should be read together with “Selected Consolidated Financial Data,” and our financial statements and accompanying notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under “Risk Factors” “Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K.

Overview

We have three reportable segments. Our Consumer Products and Services segment includes our consumer protection and other consumer products and services. Our Background Screening segment includes the personnel and vendor background screening services provided by Screening International. Our Other segment includes management software solutions for the bail bonds industry provided by Captira Analytical, LLC and corporate identity theft protection services offered by Net Enforcers, Inc. The components of our Other segment were acquired in the latter part of 2007.

Consumer Products and Services

We offer consumers a variety of consumer protection services and other consumer products and services primarily on a subscription basis. Our services help consumers protect themselves against identity theft or fraud and understand and monitor their credit profiles and other personal information. Through our subsidiary Intersections Insurance Services, we offer a portfolio of services to include consumer discounts on healthcare, home, and auto related expenses, access to professional financial and legal information, and life, accidental death and disability insurance products. Our consumer services are offered through relationships with clients, including many of the largest financial institutions in the United States and Canada, and clients in other industries. We also offer our services directly to consumers.

We also offer data security breach services to organizations responding to compromises of sensitive personal information. We help these clients notify the affected individuals and we provide the affected individuals with identity theft recovery and credit monitoring services offered by our clients at no charge to the affected individuals. We generally are paid fees by the clients for the services we provide their customers.

Our products and services are marketed to customers of our clients, and often are branded and tailored to meet our clients’ specifications. Our clients are principally credit card, direct deposit or mortgage issuing financial institutions, including many of the largest financial institutions in the United States and Canada. With certain of our financial institution clients, we have broadened our marketing efforts to access demand deposit accounts and selling at the point of personal contact in branches. Our financial institution clients currently account for the majority of our existing subscriber base. We also are continuing to augment our client base through relationships with insurance companies, mortgage companies, brokerage companies, associations, travel companies, retail companies, web and technology companies and other service providers with significant market presence and brand loyalty.

With our clients, our services are marketed to potential subscribers through a variety of marketing channels, including direct mail, outbound telemarketing, inbound telemarketing, inbound customer service and account activation calls, email, mass media and the internet. Our marketing arrangements with our clients sometimes call for us to fund and manage marketing activity. The mix between our company-funded and client-funded marketing programs varies from year to year based upon our and our clients’ strategies. In 2007, we substantially increased our own investment in marketing with one or more clients, and anticipate this increased investment continuing over the next 12 months.

In 2007 we expanded our efforts to market our consumer products and services directly to consumers. We conduct our consumer direct marketing primarily through the internet. We also may market through other channels, including direct mail, outbound telemarketing, inbound telemarketing, email and mass media. We expect to continue making an investment in marketing direct to consumers in 2008.


	•	Direct marketing arrangements: Under direct marketing arrangements, we bear most of the new subscriber marketing costs and pay our client a commission for revenue derived from subscribers. These arrangements generally result in negative cash flow over the first several months after a program is launched due to the upfront nature of the marketing investments. In some arrangements we pay the client a service fee for access to the client’s customers or billing of the subscribers by the client.

	•	Indirect marketing arrangements: Under indirect marketing arrangements, our client bears the marketing expense and pays us a service fee or percentage of the revenue. Because the subscriber acquisition cost is borne by our client under these arrangements, our revenue per subscriber is typically lower than that under direct marketing arrangements. Indirect marketing arrangements generally provide positive cash flow earlier than direct arrangements and the ability to obtain subscribers and utilize marketing channels that the clients otherwise may not make available.

	•	Shared marketing arrangements: Under shared marketing arrangements, marketing expenses are shared by us and the client in various proportions, and we may pay a commission to or receive a service fee from the client. Revenue generally is split in proportion to the investment made by our client and us.

As shown in the following table, the number of subscribers from our indirect, direct and shared marketing arrangements, have increased over the past three fiscal years:


	As of December 31,
	2005		2006		2007

Indirect marketing arrangements		2,470,883		3,182,728		3,301,429
Direct and shared marketing arrangements		1,189,092		1,443,103		1,957,906

Total subscribers		3,659,975		4,625,831		5,259,335

Subscribers in our Consumer Products and Services segment from indirect marketing arrangements were 67.5% as of December 31, 2005 and 68.8% of total subscribers as of December 31, 2006. Through our increased direct marketing efforts in 2007, our subscribers from indirect marketing arrangements has decreased to 62.8% as of December 31, 2007.

The number of cancellations within the first 90 days as a percentage of new subscribers was 29.3% in 2005, 24.5% in 2006 and 25.2% in 2007. The number of cancellations within the first 90 days of subscription, as a percentage of new subscribers was higher during the year ended December 31, 2007 compared to the same period last year. We analyze subscriber cancellations during the first 90 days because we believe this time period affords

the subscriber the opportunity to evaluate the service. The number of cancellations after the first 90 days, which are measured as a percentage of the number of subscribers at the beginning of the year plus new subscribers during the year less cancellations within the first 90 days, was 25.6% in 2005, 27.7% in 2006 and 31.6% in 2007. The total number of cancellations during the year as a percentage of the beginning of the year subscribers plus new subscriber additions, was 36.5% in 2005 and 2006 and 39.7% in 2007. Conversely, our retention rates, calculated by taking subscribers at the end of the year divided by subscribers at the beginning of the year plus additions for the year, decreased from 63.5% in 2005 and 2006 to 60.3% in 2007. The retention rate decreased in 2007 primarily due to a significant increase in the rate of credit card declines in the fourth quarter of 2006 at one of our clients due to changes to the manner in which the client administers third-party products. We cancelled service to these affected subscribers in 2007, which had an impact on our retention rate for the year ended December 31, 2007.

Revenue from subscribers obtained through our largest clients in 2005, 2006 and 2007 as a percentage of total revenue, and the principal contract arrangements with those clients, were as follows:

Percentage of Revenue for the
Years Ended December 31,


Client	Relationship	2005			2006			2007

American Express	Shared Marketing		22	%		7	%		—
Discover	Direct Marketing		7	%		5	%		3	%
Discover	Indirect Marketing		9	%		11	%		10	%
Capital One (direct and through Equifax agreement)	Indirect Marketing		12	%		13	%		10	%
Citibank	Direct Marketing		6	%		6	%		5	%
Citibank	Indirect Marketing		6	%		8	%		6	%
Bank of America (includes MBNA)	Shared/Direct Marketing		11	%		13	%		33	%

Our relationship with American Express Travel Related Services, or American Express, was a shared marketing arrangement under an agreement that expired on December 31, 2005. Under a Services Transition Agreement with American Express, we provided our current consumer services through May 31, 2006, to subscribers who paid for the service through their Amex credit cards. We were compensated for those services through April 30, 2006, based on the commission structure in effect under the existing agreement with American Express, and from May 1, 2006, to May 31, 2006, based on a service fee per subscriber. We have not serviced those subscribers since May 31, 2006. The Services Transition Agreement also provided that we maintain the perpetual and unrestricted right to provide our services to all subscribers who are currently paying for the consumer services through payment vehicles other than American Express credit cards, and to all subscribers who are receiving our combined personal and business credit information services regardless of how those subscribers are billed. We have not been required to pay any commission on those subscribers since January 1, 2006. We will have the right to offer our other products and services to those subscribers, and the Services Transition Agreement prohibits either party from knowingly soliciting subscribers retained by the other party under the agreement. As a result of the Services Transition Agreement, since May 31, 2006, we ceased servicing approximately 95% of our subscribers obtained through American Express, which accounts for approximately 95% of the revenue generated through the American Express relationship. American Express also reimbursed us in the amount of one million dollars ($1,000,000) for certain marketing expenses incurred in 2005.

In November 2001, we entered into a master services agreement with Equifax under which we provided various services. We recently amended the master agreement to continue the term to November 26, 2010. Even if the master agreement is not terminated, however, either party may terminate the receipt of particular services from the other party on 60 days’ prior notice. With the exception of services to Capital One customers acquired prior to January 1, 2005, we are not providing any services under that agreement. Prior to January 1, 2005, we provided our identity theft protection and credit management services under the master agreement with Equifax to customers of Capital One Bank, or Capital One, which marketed those services to consumers under an agreement between Capital One and Equifax. On September 1, 2004, we entered into a marketing and services agreement with Capital One under which, effective January 1, 2005, our services are marketed by Capital One to its customers. The services marketed to Capital One customers under this agreement are substantially all of the services previously marketed through the master agreement between us and Equifax, in addition to other services. Through our agreement with Equifax, however, we continue to provide our services to the customers of Capital One who enrolled for the services prior to January 1, 2005.

Some of our top 5 revenue producing clients have re-negotiated pricing with us over the last few months. Although some of these efforts resulted in lower prices for some products, we expect that increasing volumes and changing of the sales mix to higher priced products will provide continued growth with these clients.

Background Screening

Through our majority owned subsidiary, Screening International, LLC, we provide a variety of risk management tools for the purpose of personnel and vendor background screening services, including criminal background checks, driving records, employment verification and reference checks, drug testing and credit history checks to businesses worldwide. Our background screening services integrate data from various automated sources throughout the world, additional manual research findings from employees and subcontractors, and internal business logic provided by both Screening International and by our clients into reports that assist in decision making. Our background screening services are generally sold to corporate clients under contractual arrangements with individual per unit prices for specific service specifications. Due to substantial difference in both service specifications and associated data acquisition costs, prices for our background screening services vary significantly among clients and geographies.

We generally market our background screening services to businesses through an internal sales force. Our services are offered to businesses on a local or global basis. Prices for our services vary based upon complexity of the services offered, the cost of performing these services and competitive factors. Control Risks Group provides marketing assistance and services, and licenses certain trademarks to Screening International under which our services are branded in certain geographic areas.

Other

bondsmen, general agents and sureties to run their offices more efficiently, to exercise greater operational and financial control over their businesses, and to make better underwriting. We believe Captira Analytical’s services are the only fully integrated suite of bail bonds management applications of comparable scope available in the marketplace today. Captira Analytical’s services are sold to retail bail bondsman on a “per seat” license basis plus additional one-time or transaction related charges for various optional services. As Captira Analytical’s business model is relatively new, pricing and service configurations are subject to change at any time.

Through our wholly owned subsidiary, Net Enforcers, we provide corporate identity theft protection services, including online brand monitoring, online auction monitoring and enforcement, intellectual property monitoring and other services. Net Enforcers’ services include the use of sophisticated technology to search the internet in search of potential property right infringements, value added analysis and recommendation from our trained staff of analysts, and manual or automated enforcement activities as directed by our clients. Net Enforcers’ services are typically priced as monthly subscriptions for a defined set of monitoring and analysis services, as well as per transaction charges for enforcement related services. Prices for our services vary based upon the specific configuration of services purchased by each client and range from several hundred dollars per month to thousands of dollars per month.

The pro forma impact of Captira, Hide N’Seek or Net Enforcers on our historical operating results is not material.

Critical Accounting Policies

In preparing our consolidated financial statements, we make estimates and assumptions that can have a significant impact on our financial position and results of operations. The application of our critical accounting policies requires an evaluation of a number of complex criteria and significant accounting judgments by us. In applying those policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions. We have identified the following policies as critical to our business operations and the understanding of our results of operations. For additional information, see Note 2 to our consolidated financial statements.

Revenue Recognition

We recognize revenue on 1) identity theft, credit management and background services, 2) accidental death insurance and other membership products and 3) other monthly subscription products.

Our products and services are offered to consumers principally on a monthly subscription basis. Subscription fees are generally billed directly to the subscriber’s credit card, mortgage bill or demand deposit accounts. The prices to subscribers of various configurations of our products and services range generally from $4.99 to $25.00 per month. As a means of allowing customers to become familiar with our services, we sometimes offer free trial or guaranteed refund periods.

Identity Theft, Credit Management and Background Services

c) the seller’s price to the buyer is fixed as sales are generally based on contract or list prices and payments from large financial institutions are collected within 30 days with no significant write-offs, and d) collectibility is reasonably assured as individual customers pay by credit card which has limited our risk of non-collection. Revenue for monthly subscriptions is recognized in the month the subscription fee is earned. For subscriptions with refund provisions whereby only the prorated subscription fee is refunded upon cancellation by the subscriber, deferred subscription fees are recorded when billed and amortized as subscription fee revenue on a straight-line basis over the subscription period, generally one year. We generate revenue from one-time credit reports and background screenings which are recognized when the report is provided to the customer electronically, which is generally at the time of completion.

Revenue for annual subscription fees must be deferred if the subscriber has the right to cancel the service. Annual subscriptions include subscribers with full refund provisions at any time during the subscription period and pro-rata refund provisions. Revenue related to annual subscription with full refund provisions is recognized on the expiration of these refund provisions. Revenue related to annual subscribers with pro-rata provisions is recognized based on a pro rata share of revenue earned. An allowance for discretionary subscription refunds is established based on our actual cancellation experience.

We also provide services for which certain financial institution clients are the primary obligors directly to their customers. Revenue from these arrangements is recognized when earned, which is at the time we provide the service, generally on a monthly basis. In addition, we generate revenue from the sale of one-time credit reports and background screens, which is generally at the time of completion.

The amount of revenue recorded by us is determined in accordance with Financial Accounting Standards Board’s (“FASB”) Emerging Issues Task Force (“EITF”) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, which addresses whether a company should report revenue based on the gross amount billed to a customer or the net amount retained by us (amount billed less commissions or fees paid). We generally record revenue on a gross basis in the amount that we bill the subscriber when our arrangements with financial institution clients provide for us to serve as the primary obligor in the transaction, we have latitude in establishing price and we bear the risk of physical loss of inventory and credit risk for the amount billed to the subscriber. We generally record revenue in the amount that we bill our financial institution clients, and not the amount billed to their customers, when our financial institution client is the primary obligor, establishes price to the customer and bears the credit risk.

Accidental Death Insurance and other Membership Products

We recognize revenue from our services in accordance with SAB No. 101, as amended by SAB No. 104. Consistent with the requirements of SAB No.’s 101 and 104, revenue is recognized when: a) persuasive evidence of arrangement exists as we maintain paper and electronic confirmations with individual purchases, b) delivery has occurred at the completion of a product trial period, c) the seller’s price to the buyer is fixed as the price of the product is agreed to by the customer as a condition of the sales transaction which established the sales arrangement, and d) collectibility is reasonably assured as evidenced by our collection of revenue through the monthly mortgage payments of our customers or through checking account debits to our customers’ accounts. Revenues from insurance contracts are recognized when earned. Marketing of our insurance products generally involves a trial period during which time the product is made available at no cost to the customer. No revenues are recognized until applicable trial periods are completed.

The amount of revenue recorded by us is determined in accordance with FASB’s EITF 99-19. For insurance products we generally record revenue on a net basis as we perform as an agent or broker for the insurance products without assuming the risks of ownership of the insurance products. For membership products, we generally record revenue on a gross basis as we serve as the primary obligor in the transactions, have latitude in establishing price and bear credit risk for the amount billed to the subscriber.

We participate in agency relationships with insurance carriers that underwrite insurance products offered by us. Accordingly, insurance premiums collected from customers and remitted to insurance carriers are excluded from our revenues and operating expenses. Insurance premiums collected but not remitted to insurance carriers as of

December 31, 2006 and 2007 totaled $1.8 million and $1.3 million, respectively, and is included in accrued expenses and other current liabilities in our consolidated financial statements.

Other Monthly Subscription Products

We generate revenue from other types of subscription based products provided from our Other segment. We recognize revenue from providing management service solutions, offered by Captira Analytical, on a monthly subscription basis and online brand protection and brand monitoring, offered by Net Enforcers, on a monthly subscription basis.

Deferred Subscription Solicitation and Commission Costs

Deferred subscription solicitation and commission costs include direct-response marketing costs and deferred commissions.

Our deferred subscription solicitation costs consist of subscription acquisition costs, including telemarketing, web-based marketing expenses and direct mail such as printing and postage. Telemarketing, web-based marketing and direct mail expenses are direct response advertising costs, which are accounted for in accordance with American Institute of Certified Public Accountants Statement of Position (“SOP”) 93-7, Reporting on Advertising Costs (“SOP 93-7”). The recoverability of amounts capitalized as deferred subscription solicitation costs are evaluated at each balance sheet date, in accordance with SOP 93-7, by comparing the carrying amounts of such assets on a cost pool basis to the probable remaining future benefit expected to result directly from such advertising costs. Probable remaining future benefit is estimated based upon historical subscriber patterns, and represents net revenues less costs to earn those revenues. In estimating probable future benefit (on a per subscriber basis) we deduct our contractual cost to service that subscriber from the known sales price. We then apply the future benefit (on a per subscriber basis) to the number of subscribers expected to be retained in the future to arrive at the total probable future benefit. In estimating the number of subscribers we will retain (i.e., factoring in expected cancellations), we utilize historical subscriber patterns maintained by us that show attrition rates by client, product and marketing channel. The total probable future benefit is then compared to the costs of a given marketing campaign (i.e., cost pools), and if the probable future benefit exceeds the cost pool, the amount is considered to be recoverable. If direct response advertising costs were to exceed the estimated probable remaining future benefit, an adjustment would be made to the deferred subscription costs to the extent of any shortfall.

We amortize deferred subscription solicitation costs on a cost pool basis over the period during which the future benefits are expected to be received, but no more than 12 months.

In accordance with SAB No. 101, as amended by SAB No. 104, commissions that relate to annual subscriptions with full refund provisions and monthly subscriptions are expensed in the month incurred, unless we are entitled to a refund of the commissions. If annual subscriptions are cancelled prior to their initial terms, we are generally entitled to a full refund of the previously paid commission for those annual subscriptions with a full refund provision and a pro-rata refund, equal to the unused portion of their subscription, for those annual subscriptions with a pro-rata refund provision. Commissions that relate to annual subscriptions with full commission refund provisions are deferred until the earlier of expiration of the refund privileges or cancellation. Once the refund privileges have expired, the commission costs are recognized ratably in the same pattern that the related revenue is recognized. Commissions that relate to annual subscriptions with pro-rata refund provisions are deferred and charged to operations as the corresponding revenue is recognized. If a subscription is cancelled, upon receipt of the refunded commission from our client, we record a reduction to the deferred commission.

We have prepaid commission agreements with some of our clients. Under these agreements, we pay a commission on new subscribers in lieu of ongoing commission payments. We amortize these prepaid commissions, on an accelerated basis, over a period of time not to exceed three years, which is the average expected life of customers. The prepaid commissions are shown in prepaid expenses and other current assets on our consolidated balance sheet. Amortization is included in commissions expense on our consolidated statement of operations.

Software Development Costs

We develop software for internal use and capitalize software development costs incurred during the application development stage in accordance with SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use and EITF 00-2, Accounting for Web Site Development Cost. Costs incurred prior to and after the application development stage are charged to expense. When the software is ready for its intended use, capitalization ceases and such costs are amortized on a straight-line basis over the estimated useful life, which is generally three to five years.

In accordance with SOP 98-1, the Company regularly reviews its capitalized software projects for impairment in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. We did not have any impairments in the year ended December 31, 2007.

Goodwill and Other Intangibles

We record as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired. The determination of fair value of the identifiable net assets acquired was determined based upon a third party valuation and evaluation of other information.

Statements of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. The first step tests for impairment, while the second step, if necessary, measures the impairment. We have elected to perform our annual analysis as of October 31 of each fiscal year. As of October 31, 2007, no indicators of impairment have been identified.

Intangible assets subject to amortization include trademarks, customer marketing and technology related asses. Such intangible assets, excluding customer related, are amortized on a straight-line basis over their estimated useful lives, which are generally three to ten years. Customer related intangible assets are amortized on either a straight-line or accelerated basis, dependent upon the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up.

The goodwill and intangibles balances as of December 31, 2007 pertain to the acquisitions of American Background Information Services on November 12, 2004, Screening International on May 31, 2006, Intersections Insurance Services on July 3, 2006, Captira Analytical on August 7, 2007 and Net Enforcers on November 30, 2007.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB issued Staff Position No. FAS 157-2, Effective Dates of FASB Statement No. 157, which defers the effective date of SFAS No. 157 for all nonrecurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008. We are currently in the process of evaluating the impact, if any, that SFAS No. 157 will have on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115. SFAS No. 159 permits an entity, at specified election dates, to choose to measure certain financial instruments and other items at fair value. The objective of SFAS No. 159 is to provide entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently, without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for accounting periods beginning after November 15, 2007. We are in the process of evaluating the impact, if any, that SFAS No. 159 will have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations. SFAS No. 141R replaces SFAS No. 141 on accounting for business combinations, specifically the cost-allocation process. SFAS No. 141R requires an acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date, at their fair values as of that date. In addition, an acquirer is required to recognize assets or liabilities arising from contractual contingencies as of the acquisition date, at their acquisition date fair values. Acquisition related costs that were previously allocated to the assets acquired and liabilities assumed under SFAS No. 141 should be recognized separately from the acquisition under SFAS No. 141R. The provisions of SFAS No. 141R are effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. We are in the process of evaluating the impact, if any, that SFAS No. 141R will have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The presentation of a noncontrolling interest has been modified for both the income statement and balance sheet, as well as expanded disclosure requirements that clearly identify and distinguish between the interests of the parent’s owners and the interest of the noncontrolling owners of a subsidiary. The provisions of SFAS No. 160 are effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. We are in the process of evaluating the impact, if any, that SFAS No. 160 will have on our consolidated financial statements.

Results of Operations

The following table sets forth, for the periods indicated, certain items on our consolidated statement of operations as a percentage of revenue:


	Year Ended December 31,
	2005			2006			2007

Revenue		100.0	%		100.0	%		100.0	%
Operating expenses:
Marketing		11.9			12.5			13.3
Commission		16.2			12.8			19.3
Cost of revenue		34.7			37.4			37.5
General and administrative		20.9			24.9			21.9
Depreciation and amortization		3.9			5.0			4.6
Impairment of software development		0.9			—			—

Total operating expenses		88.5			92.6			96.6

Operating income		11.5			7.4			3.4
Interest income, net		0.7			0.4			(0.2	)
Other income, net		—			0.1			0.4

Income before taxes and minority interest		12.2			7.9			3.6
Income tax (expense) benefit		(4.7	)		(3.2	)		(1.6	)
Minority interest in net loss of subsidiary		—			—			0.5

Net income		7.5	%		4.7	%		2.5	%

We have three reportable segments. Our Consumer Products and Services segment includes our consumer protection and other consumer products and services. Our Background Screening segment includes the personnel and vendor background screening services provided by Screening International. Our Other segment includes management software solutions for the bail bonds industry provided by Captira Analytical and corporate identity theft protection services provided by Net Enforcers.

Years Ended December 31, 2006 and 2007 (in thousands):

The consolidated results of operations are as follows:.


	Consumer
	Products and		Background
	Services		Screening			Other			Consolidated

Year Ended December 31, 2006
Revenue	$	176,942	$	24,109		$	—		$	201,051
Operating expenses:
Marketing		25,173		—			—			25,173
Commission		25,786		—			—			25,786
Cost of revenue		62,544		12,644			—			75,188
General and administrative		41,023		8,955			—			49,978
Depreciation and amortization		9,004		1,014			—			10,018

Total operating expenses		163,530		22,613			—			186,143

Operating income	$	13,412	$	1,496		$	—		$	14,908

Year Ended December 31, 2007
Revenue	$	241,968	$	29,508		$	247		$	271,723
Operating expenses:
Marketing		36,285		—			—			36,285
Commission		52,624		—			—			52,624
Cost of revenue		83,891		17,738			186			101,815
General and administrative		44,028		14,542			816			59,386
Depreciation and amortization		10,745		1,405			277			12,427

Total operating expenses		227,573		33,685			1,279			262,537

Operating income	$	14,395	$	(4,177	)	$	(1,032	)	$	9,186

Consumer Products and Services Segment


	Years Ended December 31,
	2006		2007		Difference		%

Revenue	$	176,942	$	241,968	$	65,026		36.8	%
Operating expenses:
Marketing		25,173		36,285		11,112		44.1	%
Commissions		25,786		52,624		26,838		104.1	%
Cost of revenue		62,544		83,891		21,347		34.1	%
General and administrative		41,023		44,028		3,005		7.3	%
Depreciation and amortization		9,004		10,745		1,741		19.3	%

Total operating expenses		163,530		227,573		64,043		39.2	%

Operating income	$	13,412	$	14,395	$	983		7.3	%

Revenue. The increase in Consumer Products and Services is primarily the result of an increase in our subscriber base to 5.3 million subscribers for the year ended December 31, 2007 from 4.6 million for the year ended December 31, 2006, an increase of 13.7% as well as an increase the proportion of revenue from direct marketing arrangements. The growth in our subscriber base has been accomplished primarily through direct marketing efforts from a new client arrangement in 2007 and additional subscribers through continued indirect marketing efforts.

Revenue from direct marketing arrangements, in which we recognize the gross amount billed to the customer, has increased to 68.2% for the year ended December 31, 2007 from 59.3% in the year ended December 31, 2006.

On February 29, 2008, we received written notice from our client Discover that effective, September 1, 2008, it was terminating the Agreement for Services Administration between us and Discover dated March 11, 2002, as amended (the “Services Agreement”), including the Omnibus Amendment dated December 22, 2005 (the “Omnibus Amendment”). On the same date, we filed a complaint for declaratory judgment in the Circuit Court for Fairfax County, Virginia. The complaint seeks a declaration that, if Discover uses for its own purposes credit report authorizations given by customers to Intersections or Discover, it will be in breach of the Services Agreement and Omnibus Amendment to the Services Agreement. Intersections contends that Discover or its new credit monitoring service provider must obtain new authorizations from the customers in order to provide credit monitoring services to them. In the complaint, Intersections alleges that, under the Omnibus Amendment to the Services Agreement, the authorizations given by customers to Intersections or Discover were obtained solely on behalf of Intersections, for the sole purpose of enabling Intersections to provide its credit monitoring services. Intersections further alleges that Discover has stated that its new credit monitoring provider will rely on the authorizations given to Intersections and not obtain new authorizations. Intersections alleges that reliance on the credit report authorizations by Discover or its new provider would be a breach of the Services Agreement and Omnibus Amendment thereto, and thus seeks a declaratory judgment to prevent Discover from committing a breach of the parties’ contract. In 2007, Discover customers governed by the Services Agreement accounted for approximately 10% of the consolidated revenues.

The table below shows the percentage of subscribers generated from indirect marketing arrangements.


	Years Ended December 31,
	2006			2007

Percentage of subscribers from indirect marketing arrangements to total subscribers		68.8	%		62.8	%
Percentage of new subscribers acquired from indirect marketing arrangements to total new subscribers acquired		67.8	%		55.3	%
Percentage of revenue from indirect marketing arrangements to total subscription revenue		40.7	%		31.8	%

Marketing Expenses. Marketing expenses consist of subscriber acquisition costs, including telemarketing, web-based marketing and direct mail expenses such as printing and postage. Marketing expenses increased 44.1% to $36.3 million for the year ended December 31, 2007 from $25.2 million for the year ended December 31, 2006. The increase in marketing is primarily a result of increased investment in direct marketing arrangements, as well as increased marketing costs related to additional insurance and membership costs as a result of the acquisition of Intersections Insurance Services in 2006. Amortization of deferred subscription solicitation costs related to marketing for the years ended December 31, 2007 and 2006 were $33.8 million and $19.2 million, respectively. Subscription solicitation costs related to marketing costs expensed as incurred for the years ended December 31, 2007 and 2006 were $2.5 million and $6.0 million, respectively.

As a percentage of revenue, marketing expenses increased to 15.0% for the year ended December 31, 2007 from 14.2% for the year ended December 31, 2006 primarily as the result of an increased investment in marketing for direct marketing arrangements.

Commission Expenses. Commission expenses consist of commissions paid to clients. Commission expenses increased 104.1% to $52.6 million for the year ended December 31, 2007 from $25.8 million for the year ended December 31, 2006. The increase is related to an increase in sales and subscribers from our direct subscription business and a new client arrangement in 2007.

As a percentage of revenue, commission expenses increased to 21.8% for year ended December 31, 2007 from 14.6% for year ended December 31, 2006 primarily due to increased proportion of revenue from direct marketing arrangements.

Cost of Revenue. Cost of revenue consists of the costs of operating our customer service and information processing centers, data costs, and billing costs for subscribers and one-time transactional sales. Cost of revenue

increased 34.1% to $83.9 million for the year ended December 31, 2007 from $62.5 million for the year ended December 31, 2006. The increase in Consumer Products and Services is primarily the result of $19.5 million in increased data costs, higher cost of revenue for initial fulfillment and customer service costs for new subscribers, which are incurred prior to the commencement of related revenue due to the trial periods, as well as a 13.7% growth in our customer base.

As a percentage of revenue, cost of revenue was 34.7% for the year ended December 31, 2007 compared to 35.3% for the year ended December 31, 2006.

General and Administrative Expenses. General and administrative expenses consist of personnel and facilities expenses associated with our executive, sales, marketing, information technology, finance, program and account management functions. General and administrative expenses increased 7.3% to $44.0 million for the year ended December 31, 2007 from $41.0 million for the year ended December 31, 2006. The increase in Consumer Products and Services is primarily attributable to additional payroll and administrative expenses associated with the acquisition of Intersections Insurance Services of approximately $2.3 million as well as a $1.6 million increase in share based payment expenses and a $557 thousand increase in consulting and professional fees. The increase is partially offset by a decline in severance costs.

Total share based compensation expense for the years ended December 31, 2007 and 2006 was $2.7 million and $1.1 million, respectively.

As a percentage of revenue, general and administrative expenses decreased to 18.2% for the year ended December 31, 2007 from 23.2% for the year ended December 31, 2006.

Depreciation and Amortization. Depreciation and amortization expenses consist primarily of depreciation expenses related to our fixed assets and capitalized software, and the amortization of our intangible assets. Amortization increased $1.9 million to $3.3 million for the year ended December 31, 2007 from $1.4 million for the year ended December 31, 2006 primarily attributable to the increase in intangible assets as the result of the acquisition of Intersections Insurance Services and the modification to the amortization method for customer related intangible assets in 2007. We expect amortization to increase due to the acquisition of membership agreements from Citibank on January 31, 2008.

As a percentage of revenue, depreciation and amortization expenses decreased to 4.4% for the year ended December 31, 2007 from 5.1% for the year ended December 31, 2006.

Operating Income. Operating income in the year ended December 31, 2007 for the Consumer Products and Services segment was $14.4 million. This compares with $13.4 million in the year ended December 31, 2006. Operating income in the year ended December 31, 2007 includes a net impact of $1.1 million in settlement payments from ongoing partner relationships in the normal course of business.

Background Screening Segment


	Years Ended December 31,
	2006		2007			Difference			%

Revenue	$	24,109	$	29,508		$	5,399			22.4	%
Operating expenses:
Cost of revenue		12,644		17,738			5,094			40.3	%
General and administrative		8,955		14,542			5,587			62.4	%
Depreciation and amortization		1,014		1,405			391			38.6	%

Total operating expenses		22,613		33,685			11,072			49.0	%

Operating (loss) income	$	1,496	$	(4,177	)	$	(5,673	)		379.2	%

Revenue. Revenue for Background Screening increased 22.4% to $29.5 million for the year ended December 31, 2007 from $24.1 million for the year ended December 31, 2006. The increase in revenue is primarily attributable to increased revenue in the UK operations. The incremental revenue from the UK operations is

approximately $4.5 million as the client base remained constant. The UK operation successfully expanded services outside its traditional UK market as we try to capture a larger portion of the emerging global market for background screening. Domestic revenue increased 4.5% or $810 thousand, primarily the result of new clients from our small business marketing efforts. The company’s strategic focus for 2007 was to upgrade, deploy and migrate key clients to the unified operating platform to lay the foundation for future growth at the expense of top-line growth.

Cost of Revenue. Cost of revenue consists of the costs to fulfill background screens and is composed of direct labor costs, consultant costs, database fees and access fees. Cost of revenue increased 40.3% to $17.7 million for the year ended December 31, 2007 from $12.6 million for the year ended December 31, 2006. Cost of revenue increases are primarily attributable to the UK operations of $4.8 million, specifically direct labor costs in the UK. As a percentage of revenue, labor costs increased from 46.5%, or $2.8 million, in the year ended December 31, 2006 to 58.7%, or $6.2 million, in the year ended December 31, 2007. Cost of revenue for the domestic entity increased $256 thousand as a result of increased case volume in the year ended December 31, 2007.

As a percentage of revenue, cost of revenue was 60.1% for the year ended December 31, 2007 compared to 52.4% for the year ended December 31, 2006.

General and Administrative Expenses. General and administrative expenses consist of personnel and facilities expenses associated with our sales, marketing, information technology, finance, and account management functions. General and administrative expenses increased 62.4% to $14.5 million for the year ended December 31, 2007 from $9.0 million for the year ended December 31, 2006. The increase in Background Screening is primarily a result of the acquisition of the UK operations of $3.1 million. There was an overall increase in salaries and benefits of approximately $1.9 million related to our global operations, increased professional fees of $332 thousand for global compliance and $132 thousand increase in expenses other than salaries to initiate the Singapore operations center.

In the first quarter of 2008, we paid approximately $250 thousand of severance related costs.

As a percentage of revenue, general and administrative expenses increased to 49.3% for the year ended December 31, 2007 from 37.1% for the year ended December 31, 2006.

Depreciation and Amortization. Depreciation and amortization expenses consist primarily of depreciation expenses related to our fixed assets and capitalized software, and the amortization of our intangible assets. Depreciation and amortization increased 38.6% to $1.4 million for the year ended December 31, 2007 from $1.0 million for the year ended December 31, 2006. The increase is primarily attributable to the increase in intangible asset amortization from the formation of Screening International.

As a percentage of revenue, depreciation and amortization expenses increased to 4.8% for the year ended December 31, 2007 from 4.2% for the year ended December 31, 2006.

Other Segment


	Years Ended December 31,
	2006		2007

Revenue	$	—	$	247
Operating expenses:
Cost of revenue		—		186
General and administrative		—		816
Depreciation and amortization		—		277

Total operating expenses		—		1,279

Operating loss	$	—	$	(1,032	)

On August 7, 2007, our wholly owned subsidiary, Captira Analytical LLC, acquired substantially all of the assets of Hide N’ Seek, LLC, an Idaho limited liability company, for $3.1 million, which included

approximately $105 thousand in acquisition costs. The purchase price consists of approximately $833 thousand in cash and the right to earn an additional amount of approximately $2.5 million in cash if the company achieves certain cash flow milestones in the future. In addition, Captira agreed to assume approximately $637 thousand in operating liabilities of the seller and we agreed to cancel and forgive $1.5 million in loans from Intersections to the seller and $67 thousand of accrued interest.

Captira has successfully completed development of an initial commercial version of their applications and is in the early stages of market development and adoption of their service offerings by the bail bonds industry. As such, Captira has few clients and revenues are immaterial. However, Captira still incurs substantial monthly overhead expenses for management functions, business development and sales, customer support, technology operations and other functions despite the lack of a large customer base. From the time of acquisition through the end of 2007, these expenses averaged $144 thousand per month.

On November 30, 2007, we completed the acquisition of Net Enforcers, Inc. (“Net Enforcers”), a Florida S corporation, which is a leading provider of corporate identity theft protection services. The preliminary purchase price paid in connection with the acquisition of Net Enforcers was approximately $14.3 million in cash. Additional cash earnout payments of up to $3.5 million may also be made based on specific financial statement metrics and net revenue targets during the first five years following the acquisition.

Net Enforcers’ results became a part of our consolidated financial results as of December 31, 2007. Net Enforcers did not contribute materially to our consolidated revenue, cost of revenue, general and administrative expense or depreciation and amortization for 2007. Net Enforcers contributed approximately 88.4% of Other segment revenue in 2007 and was essentially breakeven on an after tax basis.

Interest Income

Interest income decreased 51.7% to $799 thousand for the year ended December 31, 2007 from $1.7 million for the year ended December 31, 2006. This is primarily attributable to the reduction in short term investments in 2007.

Interest Expense

Interest expense increased 57.6% to $1.4 million for the year ended December 31, 2007 from $875 thousand for the year ended December 31, 2006. This is primarily attributable to a full year of interest expense on our outstanding long term debt, as well as an additional draw on the revolving credit facility in November 2007.

In February 2008, we entered into an interest rate swap to effectively fix our variable rate term loan and a portion of the revolving credit facility under our Credit Agreement.

Other Income

Other income increased to $1.1 million for the year ended December 31, 2007 from $173 thousand for the year ended December 31, 2006. This is primarily attributable to a transaction gain from a settlement with an ongoing marketing partner.

Income Taxes

Our consolidated effective tax rate for the year ended December 31, 2007 was 44.5% as compared to 39.9% in the year ended December 31, 2006. The increase is primarily a result of losses outside of the United States, which are subject to tax at rates different than the statutory income tax rate.

Years Ended December 31, 2005 and 2006 (in thousands):

The consolidated result of operations are as follows:


	Consumer
	Products and		Background
	Services		Screening		Other		Consolidated

Year Ended December 31, 2005
Revenue	$	151,326	$	13,845	$	—	$	165,171
Operating expenses:
Marketing		19,646		—		—		19,646
Commission		26,687		—		—		26,687
Cost of revenue		50,814		6,537		—		57,351
General and administrative		28,838		5,680		—		34,518
Impairment of software development costs		1,515		—		—		1,515
Depreciation and amortization		5,798		659		—		6,457

Total operating expenses		133,298		12,876		—		146,174

Operating income	$	18,028	$	969	$	—	$	18,997

Year Ended December 31, 2006
Revenue	$	176,942	$	24,109	$	—	$	201,051
Operating expenses:
Marketing		25,173		—		—		25,173
Commission		25,786		—		—		25,786
Cost of revenue		62,544		12,644		—		75,188
General and administrative		41,023		8,955		—		49,978
Depreciation and amortization		9,004		1,014		—		10,018

Total operating expenses		163,530		22,613		—		186,143

Operating income (loss)	$	13,412	$	1,496	$	—	$	14,908

Consumer Products and Services Segment


	Years Ended December 31,
	2005		2006		Difference			%

Revenue	$	151,326	$	176,942	$	25,616			16.9	%
Operating expenses:
Marketing		19,646		25,173		5,527			28.1	%
Commissions		26,687		25,786		(901	)		(3.4	)%
Cost of revenue		50,814		62,544		11,730			23.1	%
General and administrative		28,838		41,023		12,185			42.3	%
Impairment of software development costs		1,515		—		(1,515	)		100.0	%
Depreciation and amortization		5,798		9,004		3,206			55.3	%

Total operating expenses		133,298		163,530		30,232			22.7	%

Operating income	$	18,028	$	13,412	$	(4,616	)		(25.6	)%

Revenue. Revenue increased 16.9% to $176.9 million for the year ended December 31, 2006 from $151.3 million for the year ended December 31, 2005. The increase in Consumer Products and Services is primarily the result of an increase in our subscriber base to 4.6 million subscribers for the year ended December 31, 2006 from 3.7 million for the year ended December 31, 2005, an increase of 26.4%. The growth in our subscriber

base has been accomplished primarily through continued marketing efforts with new and existing clients, as well as increased revenue from additional insurance and other consumer products and services as a result of the acquisition of Intersections Insurance Services. This increase was partially offset by a decline in revenue as a result of the loss of American Express as a client in May of 2006.

Our relationship with American Express (Amex), was a shared marketing arrangement under an agreement that expired on December 31, 2005. On December 21, 2005 we entered into a Services Transition Agreement with American Express. As a result of the Services Transition Agreement, after May 31, 2006, we ceased servicing approximately 95% of our subscribers obtained through American Express, which accounted for approximately 95% of the revenue generated through American Express relationship. In order to maintain and continue to grow our revenue, we have offset this loss of revenue from existing and new client relationships and other products and services.

In addition, during the fourth quarter of 2006, we experienced a significant increase in the rate of credit card declines at one of our clients due to changes to the manner in which the client administers third-party products. This increase in decline rates occurred simultaneously with a system conversion implemented at the client, and was originally believed to be the result of conversion errors. As a result, we continued providing service to these customers throughout the fourth quarter and into the beginning of 2007, while working with the client to investigate and address the causes of the increased decline rates. We estimate the lost revenue impact to fourth quarter 2006 to be $1.4 million as a result of this increase in credit card decline rates. In the first quarter of 2007, we successfully collected approximately $490 thousand in revenue by re-billing the impacted customers. We cancelled service to approximately 250 to 300 thousand subscribers from this client, and have made adjustments to our going forward assumptions on credit card decline rates associated with this client.

The table below shows the percentage of subscribers generated from indirect marketing arrangements.


	Year Ended
	December 31,
	2005			2006

Percentage of subscribers from indirect marketing arrangements to total subscribers		67.5	%		68.8	%
Percentage of new subscribers acquired from indirect marketing arrangements to total new subscribers acquired		75.1	%		67.8	%
Percentage of revenue from indirect marketing arrangements to total subscription revenue		33.8	%		40.7	%

Marketing Expenses. Marketing expenses consist of subscriber acquisition costs, including telemarketing, web-based marketing and direct mail expenses such as printing and postage. Marketing expenses increased 28.1% to $25.2 million for the year ended December 31, 2006 from $19.6 million for the year ended December 31, 2005. This increase is primarily a result of an increase in the cost of marketing directly to the consumer, as well as increased marketing costs related to additional insurance and membership costs as the result of the acquisition of Intersections Insurance Serivces. Amortization of deferred subscription solicitation costs related to marketing for the years ended December 31, 2006 and 2005 were $19.2 million and $19.3 million, respectively. Subscription solicitation costs related to marketing costs expensed as incurred for the years ended December 31, 2006 and 2005 were $6.0 million and $401 thousand, respectively.

As a percentage of revenue, marketing expenses increased to 14.2% for the year ended December 31, 2006 from 13.0% for year ended December 31, 2005 primarily as the result of an increase in direct to consumer marketing.

During 2006, we saw a shift back to more direct marketing due to the acquisition of Intersections Insurance Services, the increase in our commitment to consumer direct and the relationship with a major new financial institution client. In 2006, our marketing expense was $25.2 million and we expect it to be about 50% higher in 2007.

The Services Transition Agreement with American Express signed December 21, 2005 provided for a payment to us of $1.0 million for certain expenses related to marketing costs we incurred through May 2006 and transition costs. We had $675 thousand of deferred marketing expenses as of December 31, 2005 which was offset by the

$1.0 million payment between January 1, 2006 and May 31, 2006. The remaining balance of $325 thousand was recorded to other income in May 2006.

Commission Expenses. Commission expenses consist of commissions paid to clients. Commission expenses decreased 3.4% to $25.8 million for the year ended December 31, 2006 from $26.7 million for the year ended December 31, 2005. The decrease is related to the loss of American Express partially offset by the additional commissions related to insurance and marketing products as the result of the acquisition of Intersections Insurance Services.

As a percentage of revenue, commission expenses decreased to 14.6% for year ended December 31, 2006 from 17.6% for year ended December 31, 2005 primarily as the result of the loss of American Express.

Cost of Revenue. Cost of revenue consists of the costs of operating our customer service and information processing centers, data costs, costs to provide background screening and billing costs for subscribers and one-time transactional sales. Cost of revenue increased 23.1% to $62.5 million for the year ended December 31, 2006 from $50.8 million for the year ended December 31, 2005.

The increase in Consumer Products and Services is primarily the result of a 26.4% increase in our subscriber base. The growth in our subscriber base has been accomplished primarily through continued marketing efforts with new and existing clients and the addition of insurance and other products and services to our client based business as a result of the acquisition of Intersections Insurance Services.

As a percentage of revenue, cost of revenue was 35.3% for the year ended December 31, 2006 compared to 33.6% for the year ended December 31, 2005.

Contributing to the increase in Consumer Products and Services were increases in payroll, stock based compensation, severance and professional services, costs related to additional insurance and membership products to our client based business as a result of the acquisition of Intersections Insurance Services, as well as various overhead expenses as a result of our growth and being a public company. During the year ended December 31, 2006 we terminated several executives, which resulted in severance expense of approximately $1.6 million, of which $418 thousand was paid in 2006. In addition, we recorded $1.1 million for stock based compensation expense and $300 thousand related to outside organizational consulting services.

In addition we incurred approximately $200 thousand for termination fees in connection with our terminating a letter of intent to acquire a company.

As a percentage of revenue, general and administrative expenses increased to 23.2% for the year ended December 31, 2006 from 19.1% for the year ended December 31, 2005.

Depreciation and Amortization. Depreciation and amortization expenses consist primarily of depreciation expenses related to our fixed assets and capitalized software, and the amortization of our intangible assets. Depreciation and amortization increased 55.3% to $9.0 million in 2006 from $5.8 million in 2005 primarily as a result of capital expenditures totaling $10.6 million and $8.3 million in 2005 and 2006, as we continue to expand our infrastructure to meet our growth.

As a percentage of revenue, depreciation and amortization expenses increased to 5.1% in 2006 from 3.8% in 2005. Amortization of intangible assets increased $1.0 million due to assets acquired in 2006.

Capital expenditures for the Consumer Products and Services business are expected to reduce as we move forward, which will improve profitability.

Impairment of Software Development Costs. During the year ended December 31, 2005, we re-assessed the development effort related to our small business product in an effort to launch the product sooner and with less additional investment. Consequently, we decided to adopt an alternative approach resulting in the recognition of an

impairment loss of approximately $1.4 million related to software development costs. In addition, we entered into a new agreement with a client that required an investment in new software resulting in an additional impairment loss of approximately $150 thousand in the first quarter of 2005.

Background Screening Segment


	Years Ended December 31,
	2005		2006		Difference		%

Revenue	$	13,845	$	24,109	$	10,264		74.1	%
Operating expenses:
Cost of revenue		6,537		12,644		6,107		93.4	%
General and administrative		5,680		8,955		3,275		57.7	%
Depreciation and amortization		659		1,014		355		53.9	%

Total operating expenses		12,876		22,613		9,737		75.6	%

Operating income	$	969	$	1,496	$	527		54.4	%

Revenue. Revenue increased 74.1% to $24.1 million for the year ended December 31, 2006 from $13.8 million for the year ended December 31, 2005. The increase is primarily attributable to the acquisition of the UK operations in May 2006 of approximately $6.0 million. In addition, domestic revenue increased $4.3 million or 31.0% due to new client arrangements and increased volume with existing clients.

Cost of Revenue. Cost of revenue increased 93.4% to $12.6 million for the year ended December 31, 2006 from $6.5 million for the year ended December 31, 2005. The increase is primarily attributable to the acquisition of the UK operations in May 2006 of $3.9 million and domestic cost of revenue increase of $2.2 million from increased cash volume in the year ended December 31, 2006.

As a percentage of revenue, cost of revenue was 52.4% for the year ended December 31, 2006 compared to 47.2% for the year ended December 31, 2005.

General and Administrative Expenses. General and administrative expenses increased 58.7% to $9.0 million for the year ended December 31, 2006 from $5.7 million for the year ended December 31, 2005. The increase in Background Screening is primarily a result of the acquisition of the UK operations in May 2006 of $2.0 million and increased payroll expenses of $799 thousand.

As a percentage of revenue, general and administrative expenses decreased to 37.1% for the year ended December 31, 2006 from 41.0% for the year ended December 31, 2005.

Depreciation and Amortization. Depreciation and amortization expenses increased 53.9% to $1.0 million for the year ended December 31, 2006 from $659 thousand for the year ended December 31, 2005.

As a percentage of revenue, depreciation and amortization expenses decreased to 4.2% for the year ended December 31, 2006 from 4.8% for the year ended December 31, 2005.

Income Taxes

Our consolidated effective tax rate for the year ended December 31, 2006 was 39.9% as compared to 38.3% in the year ended December 31, 2005. The increase is primarily a result of losses outside of the United States, which are subject to tax at rates different than the statutory income tax rate.

Liquidity and Capital Resources

Cash and cash equivalents were $19.8 million as of December 31, 2007 compared to $15.6 million as of December 31, 2006. Cash includes $1.9 million within our 55% owned subsidiary Screening International, and is not directly accessible by us. Our cash and cash equivalents are highly liquid investments and consist primarily of short-term U.S. Treasury securities with original maturity dates of less than 90 days. During the year ended

December 31, 2007 we sold $10.5 million of short-term investments primarily to fund business operations, which include an increased investment in marketing.

Accounts receivable balance as of December 31, 2007 was $25.5 million, including approximately $3.7 million related to Screening International, compared to $22.4 million, including approximately $3.5 million related to Screening International, as of December 31, 2006. Our accounts receivable balance consists of credit card transactions that have been approved but not yet deposited into our account, several large balances with some of the top financial institutions and accounts receivable associated with background screening clients. The likelihood of non-payment has historically been remote with respect to clients billed under indirect marketing arrangements, however, we do provide for an allowance for doubtful accounts with respect to background screening clients and for a refund allowance against transactions that may be refunded in subsequent months. This allowance is based on historical results.

Our liquidity is impacted by our ability to generate cash from operations and working capital management. We had a working capital surplus of $30.4 million as of December 31, 2007 compared to $26.9 million as of December 31, 2006.

Net cash provided by operations was $4.6 million for the year ended December 31, 2007 compared to $17.9 million for the year ended December 31, 2006. The $13.3 million decrease in net cash provided by operations was primarily the result of increased marketing expenditures.

Net cash used in investing activities was $11.5 million for the year ended December 31, 2007 compared to $33.6 million for the year ended December 31, 2006. Cash used in investing activities for the year ended December 31, 2007 was primarily attributable to the acquisitions of Net Enforcers and Captira, partially offset by $10.5 million provided by the sale of short-term investments.

Net cash provided by financing activities was $11.1 million for the year ended December 31, 2007 compared to $13.6 million used for the year ended December 31, 2006. We used cash for financing activities for the year ended December 31, 2007 of $3.3 million was primarily the result of notes payable repayments on our outstanding credit facility.

In the year ended December 31, 2007, we and Control Risk Group made capital contributions to Screening International of $2.0 million as part of our ongoing ownership commitment. We anticipate making additional capital contributions to this entity in 2008.

On July 3, 2006, we entered into a $40 million credit agreement with Bank of America, N.A. (the “Credit Agreement”). The Credit Agreement consists of a revolving credit facility in the amount of $25 million and a term loan facility in the amount of $15 million. Pursuant to the terms of the Credit Agreement, we agreed that the proceeds of the term loan facility were to be used solely to pay a portion of the purchase price of the acquisition by Intersections of Intersections Insurance Services and related costs and expenses of such acquisition. We borrowed the full $15 million under the term loan facility. The Credit Agreement provides that the term loan and all loans under the revolving credit facility will generally bear interest at a rate per annum equal to LIBOR plus an applicable rate per annum ranging from 1.000% to 1.750%. As of December 31, 2007, the outstanding interest rate was 6.22% and principal balance under the Credit Agreement was $11.7 million.

On November 29, 2007, we amended our Credit Agreement’s financial covenants to remove the requirement that we maintain compliance with a minimum consolidated tangible net worth covenant. In addition, on November 30, 2007, we borrowed $14 million on the revolving loan to finance the acquisition of Net Enforcers, Inc.

The Credit Agreement contains certain customary covenants including, limits or restrictions on the incurrence of liens; the making of investments; the incurrence of certain indenture mergers, dissolutions, liquidation, or consolidations; acquisitions (other than certain permitted acquisitions); sales of substantially all of our or any co-borrowers’ assets; the declaration of certain dividends or distributions; transactions with affiliates (other than co-borrowers under the credit agreement) other than on fair and reasonable terms; and the creation or acquisition of any direct or indirect subsidiary of the Company that is not a domestic subsidiary unless such subsidiary becomes a guarantor. We are also required to maintain compliance with certain financial covenants which include our consolidated leverage ratios, consolidated fixed charge coverage ratios as well as customary covenants,

representations and warranties, funding conditions and events of default. We are currently in compliance with all such covenants.

Effective January 31, 2008, we amended our Credit Agreement in order to increase the term loan facility to $28 million. In addition, pursuant to the amendment the Company’s subsidiaries Captira Analytical and Net Enforcers were added as co-borrowers under the Credit Agreement.

The amendment provides that the maturity date for the revolving credit facility and the term loan facility under the Credit Agreement will be December 31, 2011. The amendment also amends certain financial covenants which we are required to maintain compliance with under the Credit Agreement, including minimum consolidated EBIDTA and consolidated leverage ratio covenants, provides new mandatory term loan prepayments based on excess cash flow and the sale or issuance of equity interests, provides a new amortization schedule for the term loan, and revises the acquisition covenant to reduce permitted costs of acquisitions. The amendment requires us to deliver to Bank of America certain information schedules relating to Net Enforcers and Captira within 30 days following the date of the amendment, and it requires the Company to take certain additional post-closing actions to perfect the security interest in the collateral.

On February 1, 2008, we borrowed an additional $16.6 million under the term loan facility. The Credit Agreement consists of a revolving credit facility in the amount of $25 million and a term loan facility in the amount of $28 million, and is secured by substantially all of our assets and a pledge by us of stock and membership interests we hold in certain subsidiaries.

Our short-term capital needs consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility leases, capital equipment leases and software licenses. We expect cash flow generated by operations and existing cash balances will provide sufficient resources to meet our short-term obligations. Long-term capital requirements will consist of capital expenditures required to sustain our growth and contractual obligations with respect to facility leases, capital equipment leases, software licenses and service agreements. We anticipate that continued cash generated from operations as well as existing cash balances will provide sufficient resources to meet our long-term obligations.

For the year ended December 30, 2007, the aggregate cost of shares of common stock repurchased, including commissions, was approximately $916 thousand, respectively, leaving an authorized amount for repurchases of $10.5 million. For the year ended December 31, 2007, we repurchased approximately 102 thousand shares of common stock under our repurchase program. The average price per share, excluding commissions, was $9.06. See Item 5 of Part II of this filing for further information on this repurchase program.

The following table sets forth information regarding our contractual obligations at December 31, 2007 (in thousands):


	Year Ending December 31,
	Total		2008		2009		2010		2011		2012		Thereafter

Contractual Obligations at December 31, 2007
Capital leases(1)	$	1,754	$	1,077	$	498	$	179	$	—	$	—	$	—
Operating leases		5508		2,382		1,311		770		375		340		330
Long term debt(2)		25,693		3,346		3,347		3,333		15,667		—		—
Software license & other arrangements(3)		9,784		6,784		3,000		—		—		—		—

	$	42,739	$	13,589	$	8,156	$	4,282	$	16,042	$	340	$	330


(1)		Includes interest expenses

(2)		Effective as of January 31, 2008, we amended our Credit Agreement in order to increase the term loan facility to $28 million. The amendment provides that the maturity date for the revolving credit facility and the term loan facility under the Credit Agreement will be December 31, 2011. The amendment also amends certain financial covenants which we are required to maintain compliance with under the Credit Agreement, including minimum consolidated EBIDTA and consolidated leverage ratio covenants, provides new mandatory term loan prepayments based on excess cash flow and the sale or issuance of equity interests, provides a new amortization schedule for the term loan and revises the acquisition covenant to reduce permitted costs of acquisitions. This does not include interest expense.

(3)		Other arrangements include payments related to agreements to a service provider under which we receive data and other information for use in our new fraud protection services. Under these arrangements we pay royalties based on usage of the data or analytics, and make certain minimum royalty payments in exchange for defined limited exclusivity rights. In 2008 the Company is obligated to pay a) an additional $6.0 million of minimum royalties in which any further minimum royalty payments by us are either paid at our sole discretion or are subject to termination by us under certain contingent conditions, b) an increasing adjustment based on the greater of the cumulative change in the Consumer Price Index over the prior 60 months or 2% and c) $432 thousand to our related party under these contracts through December 31, 2008. The amounts in the table represent only the noncanceable portion of each respective arrangement. In general, contracts can be terminated with 90 day notice.

As part of the acquisition of Net Enforcers, additional consideration of $3.5 million in cash is if Net Enforcers achieves certain financial statement metrics and revenue targets in the future. Based on the limited time of ownership, we are unable to determine the probability of these payments.


ITEM 7A.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

Interest Rate

We had cash and cash equivalents totaling $19.8 million and $15.6 million at December 31, 2007 and 2006, respectively. Our cash and cash equivalents are highly liquid investments and consist primarily of short term U.S. Treasury securities with original maturity dates of less than 90 days. We do not enter into investments for trading or speculative purposes. Due to the short term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, will reduce future investment income.

Market risks related to our operations result primarily from changes in interest rates. Our interest rate exposure is related to long-term debt obligations. A significant portion of our interest expense is based upon changes in the benchmark interest rate (LIBOR). Based upon our outstanding long term debt subject to variable interest rates as of December 31, 2007 of $25.7 million, a 60 basis point movement in the LIBOR rate would result in a change in annual pretax interest expense of approximately $152 thousand based on our current level of borrowing.

In February 2008, we entered into an interest rate swap to effectively fix our variable rate term loan and a portion of the revolving credit facility under our Credit Agreement.

Foreign Currency

We have a foreign majority-owned subsidiary, Screening International, and therefore, are subject to foreign currency rate exposure. Screening International’s wholly-owned subsidiary, Control Risks Screening Limited, is located in the United Kingdom, conducts international business and prepares financial statements per UK statutory requirements in British pounds. Control Risks Screening’s financial statements are translated to US dollars for US GAAP reporting. As a result, our financial results are affected by fluctuations in the foreign currency exchange rates. The impact of the transaction gains and losses on the income statement was a loss of $61 thousand for the year ended December 31, 2007. We have determined that the impact of the conversion has an insignificant effect on our consolidated financial position results of operations and cash flows and we believe that a near term 10%

appreciation or depreciation of the US dollar will continue to have an insignificant effect on our consolidated financial position, results of operations and cash flows.

We have international sales in Canada and, therefore, are subject to foreign currency rate exposure. We collect fees from subscriptions in Canadian currency and pay a portion of the related expenses in Canadian currency, which mitigates our exposure to currency exchange rate risk. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions. We have determined that the impact of the depreciation of the U.S. dollar had an insignificant effect on our financial position, results of operations and cash flows and we believe that a near term 10% appreciation or depreciation of the U.S. dollar will continue to have an insignificant effect on our financial position, results of operations and cash flows.

We have commenced startup operations in Singapore and therefore, are subject to foreign currency rate exposure. Due to the limited nature of operations to date, we believe that we do not have any material exposure to changes in the foreign currency.

We do not maintain any derivative instruments to mitigate the exposure to translation and transaction risk; however, this does not preclude our adoption of specific hedging strategies in the future. We will assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis. The foreign exchange transaction gains and losses are included in our results of operations, and were not material for all periods presented.

Fair Value

We do not have material exposure to market risk with respect to investments, as our investments consist primarily of short term U.S. Treasury securities. We do not use derivative financial instruments for speculative or trading purposes; however, this does not preclude our adoption of specific hedging strategies in the future.

In February 2008, we entered into an interest rate swap to effectively fix our variable rate term loan and a portion of the revolving credit facility under our Credit Agreement.


ITEM 8.	*FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*

The information required by this item is set forth beginning on page F-1 of this Annual Report on Form 10-K.


ITEM 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*

None


ITEM 9A.	*CONTROLS AND PROCEDURES*

Disclosure Controls and Procedures

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Our officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our chief executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

Internal Control over Financial Reporting

Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes self-monitoring mechanisms and actions taken to correct deficiencies as they are identified. Because of the inherent limitations in any internal control, no matter how well designed, misstatements may occur and not be prevented or detected. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline.

Management conducted an evaluation of the effectiveness of the Company’s system of internal control over financial reporting as of December 31, 2007 based on the framework set forth in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management concluded that, as of December 31, 2007, the Company’s internal control over financial reporting is effective based on the specified criteria.

During the year ended December 31, 2007, we completed our acquisitions of Captira Analytical, LLC and Net Enforcers, Inc. As part of the post-closing integration, we are engaged in the process of assessing the internal controls and processes of Captira Analytical and Net Enforcers under COSO framework and, where Captira Analytical’s and Net Enforcers’ controls are different from those of the Company, we are revising their controls to make them consistent with the Company’s controls. We believe this process will be completed in 2008. Management has excluded the internal controls of Captira Analytical and Net Enforcers from its annual assessment of the effectiveness of the company’s internal control over financial reporting (Section 404) for 2007. This exclusion is in accordance with the Securities and Exchange Commission guidance that an assessment of a recently acquired business may be omitted from management’s report on internal control over financial reporting in the year of acquisition. The Company has not identified any material weaknesses in the internal controls of these entities.

Attestation Report of Registered Public Accounting Firm

The information required by this item is set forth beginning on page F-3 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B.	*OTHER INFORMATION*

None.

PART III


ITEM 10.	*DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE*

The information required by Item 10 as to executive officers of the Company is disclosed in Part I under the caption “Executive Officers of the Registrant.” The other information required by Item 10 as to the directors of the Company is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A.


ITEM 11.	*EXECUTIVE COMPENSATION*

The information required by Item 11 is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A.


ITEM 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*

The information required by Item 12 regarding security ownership of certain beneficial owners and executive officers and directors is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A.


ITEM 13.	*CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND INDEPENDENCE*

The information required by Item 13 is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A.


ITEM 14.	*PRINCIPAL ACCOUNTING FEES AND SERVICES*

The information required by Item 14 is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A.


ITEM 15.	*EXHIBITS AND FINANCIAL STATEMENT SCHEDULES*


(a)	1. and 2. Financial Statements and Financial Statement Schedules

The consolidated financial statements and financial statement schedules of Intersections Inc. required by Part II, Item 8, are included in Part IV of this report. See Index to Consolidated Financial Statements and Financial Statement Schedules beginning on page F-1.


3.	Exhibits


Exhibit
Number			Description

	2	.1	Merger Agreement, by and among the Registrant, CMSI Merger Inc., Chartered Marketing Services, Inc., and Chartered Holdings, LLC and other shareholders of Chartered Marketing Services, Inc., dated as of June 9, 2006 (Incorporated by reference to Exhibit 2.1, filed with the Form 8-K dated July 7, 2006)
	2	.2	Letter Agreement by and among the Registrant, Chartered Marketing Services, Inc. and Michael J. Kennealy, dated as of June 30, 2006 (Incorporated by reference to Exhibit 2.2, filed with the Form 8-K dated July 7, 2006)
	2	.3*	Membership Purchase Agreement dated January 31, 2008 between Registrant and Citibank (South Dakota), N.A.
	2	.4	Asset Purchase Agreement dated August 7, 2007 among Registrant, Captira Analytical, LLC, Hide N’Seek, LLC and certain members of Hide N’Seek, LLC (Incorporated by reference to Exhibit 2.1 filed with the Form 8-k dated August 7, 2007).
	3	.1	Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1, filed with the Registrant’s Registration Statement on Form S-1 (File No. 333-111194) (the “Form S-1”))
	3	.2	Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1, filed with the Form 8-K dated October 14, 2007)
	10	.1	Amended and Restated Marketing and Services Agreement dated April 20, 2007, by and between the Registrant, on the one hand, and Capital One Bank and Capital One Services Inc., on the other hand (Incorporated by reference to Exhibit 10.1, filed with the Registrant’s Form 8-K dated April 20, 2007).
	10	.2.1†	Consumer Credit Information Service Agreement, dated as of March 12, 1997, by and between CreditComm Services LLC and American Express Travel Related Services Company, Inc., as amended. (Incorporated by reference to Exhibit 10.2, filed with the Form S-1)
	10	.2.2	Services Transition Agreement, dated as of December 21, 2005, between the Registrant and American Express Travel Related Services (Incorporated by reference to Exhibit 10.1, filed with Form 8-K dated December 29, 2005).
	10	.3†	Agreement, dated as of April 29, 2001, between the Registrant and Discover Financial Services, Inc. (Incorporated by reference to Exhibit 10.3, filed with the Form S-1)
	10	.4†	Agreement for Services Administration, dated as of March 11, 2002, between the Registrant and Discover Bank (Incorporated by reference to Exhibit 10.4, filed with the Form S-1)
	10	.5†	Program Provider Agreement, dated as of August 1, 2002, among the Registrant, Citibank (South Dakota), N.A., Citibank USA N.A. and Citicorp Credit Services, Inc. (Incorporated by reference to Exhibit 10.5, filed with the Form S-1)
	10	.6.1†	Agreement -- Consumer Disclosure Services, dated as of April 7, 1997, by and between CreditComm Services LLC, Equifax Credit Information Services, Inc. and Digital Matrix Systems, as amended by the First Addendum dated March 30, 2001 and the Second Addendum dated November 27, 2001. (Incorporated by reference to Exhibit 10.6, filed with the Form S-1)
	10	.6.2	Amendment, effective as of January 24, 2006, of Agreement -- Consumer Disclosure Service, between the Registrant and Equifax Credit Information Services, Inc. (Incorporated by reference to Exhibit 10.3, filed with the Form 8-K dated January 30, 2006).
	10	.7.1	Agreement for Credit Monitoring Batch Processing Services, dated as of November 27, 2001, among the Registrant, CreditComm Services LLC and Equifax Services, Inc. (Incorporated by reference to Exhibit 10.7, filed with the Form S-1)
	10	.7.2	Amendment, effective as of January 24, 2006, of Agreement for Credit Monitoring Batch Processing Services, between the Registrant and Equifax Consumer Services, Inc. (Incorporated by reference to Exhibit 10.2, filed with the Form 8-K dated January 30, 2006).
	10	.8.1	Master Agreement for Marketing, Operational and Cooperative Services, dated as of November 27, 2001, among the Registrant, CreditComm Services LLC and Equifax Consumer Services, Inc., as amended, together with Addendum Number Two, dated May 31, 2002. (Incorporated by reference to Exhibit 10.8, filed with the Form S-1)


Exhibit
Number			Description

	10	.8.2	Amendment, effective as of January 24, 2006, of Master Agreement for Marketing, Operational and Cooperative Services, between the Registrant and Equifax Consumer Services, Inc. (Incorporated by reference to Exhibit 10.1, filed with the Form 8-K dated January 30, 2006).
	10	.9†	CapitalOne Project Agreement pursuant to Addendum Number Two to Master Agreement for Marketing, Operational and Cooperative Services, dated May 31, 2002. (Incorporated by reference to Exhibit 10.9, filed with the Form S-1)
	10	.10†	CapitalOne Project Agreement Two pursuant to Addendum Number Two to Master Agreement for Marketing, Operational and Cooperative Services, dated December 23, 2002. (Incorporated by reference to Exhibit 10.10, filed with the Form S-1)
	10	.11†	CapitalOne Project Agreement Three pursuant to Addendum Number Three to Master Agreement for Marketing, Operational and Cooperative Services, dated November 22, 2002. (Incorporated by reference to Exhibit 10.11, filed with the Form S-1)
	10	.12.1†	Consumer Review Service Reseller Service Agreement between the Registrant and Experian Information Solutions, Inc. (Incorporated by reference to Exhibit 10.12, filed with the Form S-1)
	10	.12.2†	Amendment, dated November 15, 2006, to the Pricing Schedule to the Consumer Review Services Reseller Agreement, dated July 1, 2003 between the Registrant and Experian Information Solutions, Inc. (Incorporated by reference to Exhibit 10.12.2 filed with the Form 10-K for the year ended December 31, 2006).
	10	.13†	Agreement, effective as of December 1, 2003, between Citibank (South Dakota), N.A., Citibank USA, N.A. and Citicorp Credit Services, Inc. and the Registrant. (Incorporated by reference to Exhibit 10.13, filed with the Form S-1)
	10	.14†	Service Agreement for Consumer Resale, dated as of August 31, 1999 by and between CreditComm Services LLC and TransUnion Corporation. (Incorporated by reference to Exhibit 10.14, filed with the Form S-1)
	10	.15.1	Master Agreement dated March 8, 2007 by and between Digital Matrix Systems, Inc. and the Registrant. (Incorporated by reference to Exhibit 10.3 filed with the Form 10-Q for the quarter ended March 31, 2007).
	10	.15.2	Data Services Agreement For Credit Bureau Simulator, effective as of September 1, 2004, between Digital Matrix Systems, Inc. and the Registrant. (Incorporated by reference to Exhibit 10.1, filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005)
	10	.15.3	Professional Services Agreement, dated November 11, 2005, between Digital Matrix Systems, Inc. and the Registrant. (Incorporated by reference to Exhibit 10.15.4 filed with the Form 10-K for the year ended December 31, 2006).
	10	.15.4	Disaster Recovery Site Agreement, by and among the Registrant and Digital Matrix Systems, dated as of March 16, 2006 (Incorporated by reference to Exhibit 10.1, filed with the Form 10-Q dated May 5, 2006)
	10	.16	Employment Agreement between the Registrant and Michael R. Stanfield (Incorporated by reference to Exhibit 10.1, filed with the Form S-1)
	10	.17	Severance and Release Agreement, by and between the Registrant and Kenneth D. Schwarz, dated as of January 5, 2007 (Incorporated by reference to Exhibit 10.1, filed with the Form 8-K dated January 5, 2007)
	10	.18	Employment Agreement between the Registrant and Neal Dittersdorf. (Incorporated by reference to Exhibit 10.19, filed with the Form S-1)
	10	.19	Data Services Agreement for Credit Browser, dated as of December 17, 2004, by and between Digital Matrix Systems, Inc. and the Registrant (Incorporated by reference to Exhibit 10.21, filed with the 2004 10-K)
	10	.20	Employment Agreement, dated as of January 13, 2005, by and between the Registrant and George K. Tsantes (Incorporated by reference to Exhibit 10.22, filed with the 2004 10-K).
	10	.21.1	Credit Agreement, by and among the Registrant, certain Subsidiaries thereof, Bank of America, N.A., and L/C Issuer, dated as of July 3, 2006 (Incorporated by reference to Exhibit 10.1, filed with the Form 8-K dated July 7, 2006)


Exhibit
Number			Description

	10	.21.2*	Amendment dated November 29, 2007 to Credit Agreement dated as of July 3, 2006 by and among Registrant, certain Subsidiaries thereof, Bank of America, N.A. and L/C Issuer.
	10	.21.3*	Amendment effective as of January 31, 2008 to Credit Agreement dated as of July 3, 2006 by and among Registrant, certain Subsidiaries thereof, Bank of America, N.A. and L/C Issuer.
	10	.22	Joint Venture Agreement, between the Registrant, Control Risk Group Limited, Control Risk Group Holdings Limited, and Screening International LLC, dated as of May 15, 2006 (Incorporated by reference to Exhibit 10.1, filed with the Form 10-Q dated August 8, 2006)
	10	.23	Employment Agreement by and between the Registrant and John G. Scanlon (Incorporated by reference to Exhibit 10.2, filed with the Form 8-K dated January 5, 2007)
	10	.24*	Stock Purchase Agreement dated November 9, 2007 among Registrant, Net Enforcers, Inc. and Joseph C. Loomis.
	14	.1	Code of Ethics of the Registrant (Incorporated by reference to Exhibit 14.1, filed with the 2004 10-K).
	21	.1*	Subsidiaries of the Registrant.
	23	.1*	Consent of Deloitte & Touche LLP
	31	.1*	Certification of Michael R. Stanfield, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2*	Certification of Madalyn Behneman, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1*	Certification of Michael R. Stanfield, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32	.2*	Certification of Madalyn Behneman, Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith.

†		Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and Exchange Commission.

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE INTERSECTIONS INC.


Reports of Independent Registered Public Accounting Firm			F-2
Consolidated Financial Statements of Intersections Inc.:
Consolidated Balance Sheets			F-4
Consolidated Statements of Operations			F-5
Consolidated Statements of Changes in Stockholders’ Equity			F-6
Consolidated Statements of Cash Flows			F-7
Notes to Consolidated Financial Statements			F-8
Schedule II — Valuation and Qualifying Accounts			F-37

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Intersections Inc.
Chantilly, Virginia

We have audited the accompanying consolidated balance sheets of Intersections Inc. and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index to the Financial Statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, such consolidated financial statements present fairly, in all material respects, the financial position of Intersections Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2008 expressed an unqualified opinion on the Company’s internal control over financial reporting.

DELOITTE & TOUCHE LLP

McLean, Virginia

March 14, 2008

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Intersections Inc.
Chantilly, Virginia

We have audited the internal control over financial reporting of Intersections Inc. and subsidiaries (the “Company”) as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Captira Analytical, LLC and Net Enforcers, Inc., which were acquired on August 7, 2007 and November 30, 2007, respectively, and whose financial statements constitute 9.0 percent of total assets and 0.1 percent of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2007. Accordingly, our audit did not include the internal control over financial reporting at Captira Analytical, LLC and Net Enforcers, Inc. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2007 of the Company and our report dated March 14, 2008 expressed an unqualified opinion on those financial statements and the financial statement schedule.

DELOITTE & TOUCHE LLP

McLean, Virginia

March 14, 2008

F-3

INTERSECTIONS INC.

CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2007
(In thousands)


	December 31,
	2006			2007

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,580		$	19,780
Short-term investments		10,453			—
Accounts receivable, net of allowance of doubtful accounts of $38 and $37		22,369			25,471
Prepaid expenses and other current assets		5,241			6,217
Income tax receivable		2,113			4,329
Note receivable		750			—
Deferred subscription solicitation costs		11,786			21,912

Total current assets		68,292			77,709

PROPERTY AND EQUIPMENT — net		21,699			18,817
GOODWILL		66,663			76,506
INTANGIBLE ASSETS — net		12,388			16,855
OTHER ASSETS		10,425			16,381

TOTAL ASSETS	$	179,467		$	206,268


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Note payable — current portion	$	3,333		$	3,346
Note payable to Control Risks Group Ltd.		—			900
Capital leases — current portion		1,176			1,001
Accounts payable		5,193			10,647
Accrued expenses and other current liabilities		15,690			15,187
Accrued payroll and employee benefits		7,073			4,945
Commissions payable		1,194			2,413
Deferred revenue		5,292			2,886
Deferred tax liability — current portion		2,483			6,019

Total current liabilities		41,434			47,344

NOTE PAYABLE — less current portion		11,667			22,347
OBLIGATIONS UNDER CAPITAL LEASES — less current portion		1,637			699
OTHER LONG-TERM LIABILITIES		551			2,071
DEFERRED TAX LIABILITY — less current portion		8,152			8,935

TOTAL LIABILITIES		63,441			81,396

MINORITY INTEREST		11,450			10,024
STOCKHOLDERS’ EQUITY:
Common stock ($0.01 par); shares authorized: 50,000; shares issued 17,836 shares (2006) and 18,172 shares (2007); 16,871 shares outstanding (2006) and 17,105 (2007)		178			182
Additional paid-in capital		95,462			99,706
Treasury stock, 965 and 1,067 shares at cost in 2006 and 2007		(8,600	)		(9,516	)
Retained earnings		17,447			24,357
Accumulated other comprehensive income		89			119

Total stockholders’ equity		104,576			114,848

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	179,467		$	206,268

See notes to consolidated financial statements.

F-4

INTERSECTIONS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2005, 2006 and 2007


	2005			2006			2007
	(In thousands, except per share amounts)

REVENUE	$	165,171		$	201,051		$	271,723
OPERATING EXPENSES:
Marketing		19,646			25,173			36,285
Commission		26,687			25,786			52,624
Cost of revenue		57,351			75,188			101,815
General and administrative		34,518			49,978			59,386
Depreciation and amortization		6,457			10,018			12,427
Impairment of software development costs		1,515			—			—

Total operating expenses		146,174			186,143			262,537

INCOME FROM OPERATIONS		18,997			14,908			9,186
Interest income		1,265			1,655			799
Interest expense		(82	)		(875	)		(1,380	)
Other income — net		37			173			1,139

INCOME BEFORE INCOME TAXES AND MINORITY INTEREST		20,217			15,861			9,744
INCOME TAX EXPENSE		(7,747	)		(6,328	)		(4,329	)
MINORITY INTEREST IN NET (INCOME) LOSS OF SUBSIDIARY		—			(97	)		1,451

NET INCOME	$	12,470		$	9,436		$	6,866

NET INCOME PER SHARE — basic	$	0.73		$	0.56		$	0.40

NET INCOME PER SHARE — diluted	$	0.70		$	0.54		$	0.39

Weighted average common shares outstanding — basic		17,002			16,770			17,096
Weighted average common shares outstanding — diluted		17,815			17,606			17,479

See notes to consolidated financial statements.

F-5

INTERSECTIONS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years Ended December 31, 2005, 2006 and 2007


												Accumulated
	Common				Additional		Treasury					Other
	Stock				Paid-in		Stock					Comprehensive		Retained
	Shares		Amount		Capital		Shares		Amount			Income		Earnings			Total
	(In thousands)

BALANCE, JANUARY 1, 2005		17,325	$	173	$	91,413		—	$	—		$	—	$	(4,459	)	$	87,127
Issuance of common stock upon exercise of stock options & warrants		285		3		1,140		—		—			—		—			1,143
Amortization of deferred compensation		—		—		20		—		—			—		—			20
Repurchase of Company stock		—		—		—		965		(8,600	)		—		—			(8,600	)
Tax benefit of stock options exercised		—		—		784		—		—			—		—			784
Net income		—		—		—		—		—			—		12,470			12,470

BALANCE, DECEMBER 31, 2005		17,610	$	176	$	93,357		965	$	(8,600	)	$	—	$	8,011		$	92,944

Issuance of common stock upon exercise of stock options & warrants		226	$	2	$	470		—	$	—		$	—	$	—		$	472
Amortization of deferred compensation		—		—		10		—		—			—		—			10
Stock based compensation		—		—		1,111		—		—			—		—			1,111
Tax benefit of stock options exercised		—		—		514		—		—			—		—			514
Net income		—		—		—		—		—			—		9,436			9,436
Foreign currency translation adjustments		—		—		—		—		—			89		—			89

Comprehensive Income		—		—		—		—		—			—		—			9,525

BALANCE, DECEMBER 31, 2006		17,836	$	178	$	95,462		965	$	(8,600	)	$	89	$	17,447		$	104,576

Issuance of common stock upon exercise of stock options & warrants		336	$	4	$	1,031		—	$	—		$	—	$	—		$	1,035
Stock based compensation		—		—		2,715		—		—			—		—			2,715
Tax benefit of stock options exercised		—		—		498		—		—			—		—			498
Adoption of FIN No. 48		—		—		—		—		—			—		44			44
Repurchase of Company stock		—		—		—		102		(916	)		—		—			(916	)
Net income		—		—		—		—		—			—		6,866			6,866
Foreign currency translation adjustments		—		—		—		—		—			30		—			30

Comprehensive Income		—		—		—		—		—			—		—			6,896

BALANCE, DECEMBER 31, 2007		18,172	$	182	$	99,706		1,067	$	(9,516	)	$	119	$	24,357		$	114,848

See notes to consolidated financial statements.

F-6

INTERSECTIONS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2005, 2006 and 2007


	2005			2006			2007
	(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	12,470		$	9,436		$	6,866
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,457			10,113			12,556
Amortization of gain from sale leaseback		—			(95	)		(94	)
Loss on disposal of fixed assets		15			54			60
Excess tax benefit from share based compensation		784			—			—
Amortization of debt issuance cost		—			31			75
Provision for doubtful accounts		19			33			(2	)
Deferred income tax		2,418			2,142			4,417
Shared based compensation		20			1,121			2,715
Amortization of deferred subscription solicitation costs		21,714			21,175			35,012
Impairment of software development costs		1,515			—			—
Minority interest in net income (loss) of Screening International, LLC		—			97			(1,451	)
Foreign currency transaction losses, net		—			—			61
Changes in assets and liabilities, net of businesses acquired:
Accounts receivable		(4,795	)		(3,998	)		(2,663	)
Prepaid expenses and other current assets		(294	)		129			(1,018	)
Income tax receivable		—			(2,341	)		(2,740	)
Deferred subscription solicitation costs		(21,347	)		(20,583	)		(46,718	)
Other assets		(5,807	)		(4,085	)		(4,375	)
Accounts payable		183			(2,154	)		4,806
Accrued expenses and other current liabilities		1,969			3,921			(836	)
Accrued payroll and employee benefits		888			2,932			(2,151	)
Commissions payable		34			(771	)		1,220
Current tax payable		1,116			(1,115	)		—
Deferred revenue		197			1,403			(2,640	)
Other long-term liabilities		41			452			1,489

Net cash provided by operating activities	$	17,597		$	17,897		$	4,589

NET CASH USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment	$	(10,552	)	$	(8,331	)	$	(6,075	)
Cash received in the acquisition of Screening International, LLC		—			1,710			—
Cash paid in the acquisition of Intersections Insurances Services Inc.		—			(50,609	)		(5	)
Cash paid in the acquisition of Hide N’ Seek, LLC, net of cash received		—			—			(1,686	)
Cash paid in the acquisition of Net Enforcers, Inc., net of cash received		—			—			(14,168	)
Proceeds from sale-leaseback		1,243			—			—
Sale of short-term investments		6,084			23,634			10,453

Net cash used in investing activities	$	(3,225	)	$	(33,596	)	$	(11,481	)

CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Cash proceeds from stock options exercised		1,143			471			1,035
Excess tax benefit of stock options exercised		—			514			498
Proceeds from debt issuance		—			15,000			14,900
Debt issuance costs		—			(261	)		—
Note receivable		—			(750	)		—
Repurchase of common stock		(8,600	)		—			(916	)
Repayments on note payable		—			—			(3,382	)
Capital lease payments		(1,387	)		(1,391	)		(1,037	)

Net cash (used in) provided by financing activities	$	(8,844	)	$	13,583		$	11,098

EFFECT OF EXCHANGE RATE ON CASH		—			141			(6	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		5,528			(1,975	)		4,200
CASH AND CASH EQUIVALENTS — Beginning of period		12,027			17,555			15,580

CASH AND CASH EQUIVALENTS — End of period	$	17,555		$	15,580		$	19,780

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	117		$	655		$	1,084

Cash paid for taxes	$	3,437		$	5,384		$	3,078

NONCASH FINANCING AND INVESTING ACTIVITIES:
Equipment obtained under capital lease	$	1,596		$	—		$	—

Equipment financed	$	203		$	—		$	—

Equipment accrued but not paid	$	248		$	185		$	363

Equipment under sale lease back	$	1,243		$	—		$	—

See notes to consolidated financial statements.

F-7

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2005, 2006 and 2007


1.	Organization and Business

We offer consumers a variety of consumer protection services and other consumer products and services primarily on a subscription basis. Our services help consumers protect themselves against identity theft or fraud and understand and monitor their credit profiles and other personal information. Through our acquisition of Intersections Insurance Services Inc. (“IISI”), formerly known as Chartered Marketing Services, Inc., in July of 2006, we expanded our portfolio of services to include consumer discounts on healthcare, home and auto related expenses, access to professional financial and legal information, and life, accidental death and disability insurance products. Our consumer services are offered through relationships with clients, including many of the largest financial institutions in the United States and Canada, and clients in other industries. In addition, we also offer our services directly to consumers.

Through our majority owned subsidiary Screening International, LLC (“SI”), we provide personnel and vendor background screening services to businesses worldwide. SI was formed in May 2006, with Control Risks Group, Ltd., (“CRG”), a company based in the UK. SI has offices in Winchester, Virginia, London, in the UK, and Singapore. SI’s clients include leading United States, UK and global companies in such areas as manufacturing, healthcare, telecommunications and financial services. SI provides a variety of risk management tools for the purpose of personnel and vendor background screening, including criminal background checks, driving records, employment verification and reference checks, drug testing and credit history checks.

We acquired American Background Information Services, Inc. (“ABI”), in November 2004. In May 2006, we created SI with CRG by combining ABI with CRG’s background screening division. We own 55% of SI, and have the right to designate a majority of the five-member board of directors. CRG owns 45% of SI. We and CRG have agreed to cooperate to meet any future financing needs of SI, including guaranteeing third party loans and making additional capital contributions on a pro rata basis, if necessary, subject to certain capital call and minority protection provisions.

We have three reportable segments. Our Consumer Products and Services segment includes our consumer protection and other consumer products and services. This segment also includes the data security breach services we provide to assist organizations in responding to compromises of sensitive personal information. We help these clients notify the affected individuals, and we provide the affected individuals with identity theft recovery and credit monitoring services offered by our clients at no charge to the affected individual. Our Background Screening segment includes the personnel and vendor background screening services provided by SI. Our Other segment includes the newly acquired Captira Analytical, LLC (“Captira”), which provides software and automated service solutions for the bail bonds industry and Net Enforcers, Inc (“Net Enforcers”), which provides corporate identity theft protection services.


2.	Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America. Our financial results include ABI for the period January 1, 2005 through May 30, 2006, and SI, which combined ABI with CRG’s background screening business, for the period May 31, 2006 through December 31, 2007. We own 55% of SI. Our financial results also include IISI, which we acquired on July 3, 2006. In addition, our financial results for the year ended December 31, 2007 include Captira, which we acquired from Hide N’Seek, LLC on August 7, 2007 and Net Enforcers which we acquired on November 30, 2007. In the opinion of management, all adjustments consisting of only normal recurring adjustments necessary for a fair presentation of the financial position of the Company, the results of its operations and cash flows have been made. All significant intercompany transactions have been eliminated.

F-8

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

We consider all highly liquid investments, including those with an original maturity of three months or less, to be cash equivalents. Cash and cash equivalents consist primarily of interest-bearing accounts.

Short-Term Investments

Our investments consist of short-term U.S. Treasury securities with original maturities greater than 90 days but no greater than six months. These investments are categorized as held to maturity and are carried at amortized cost because we have both the intent and the ability to hold these investments until they mature. Discounts are accreted into earnings over the life of the investment. Interest income is recognized when earned. Our short-term investments were sold during 2007 to fund business operations, which include an increased investment in marketing.

Foreign Currency Translation

We account for foreign currency translation and transaction gains and losses in accordance with Statements of Financial Accounting Standards (“SFAS”) No. 52, Foreign Currency Translation. We translate the assets and liabilities of our foreign subsidiary at the exchange rates in effect at the end of the period and the results of operations at the average rate throughout the period. The translation adjustments are recorded directly as a separate component of shareholders equity, while transaction gains and losses are included in net income.

Our financial results for the year ended December 31, 2007 includes a net impact of $1.1 million related to a foreign currency transaction gain.

Accounts Receivable and Note Receivable

Accounts receivable represents trade receivables as well as in-process credit card billings. We provide an allowance for doubtful accounts on trade receivables based upon factors related to historical trends, a specific review of outstanding invoices and other information. We also record a provision for estimated sales refunds and allowances related to sales in the same period that the related revenues are recorded. These estimates are based on historical refunds and other known factors.

In December 2006, we entered into a note receivable with Captira in the amount of $750 thousand. In addition, we increased the note receivable by $750 thousand in 2007. In conjunction with the acquisition of Captira, we forgave the outstanding note balance of $1.5 million in the year ended December 31, 2007, including $67 thousand of interest, as discussed in Note 3.

F-9

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property and Equipment

Property and equipment, including property and equipment under finance leases, are recorded at cost and are depreciated on a straight-line basis over the following estimated useful lives:


		Life
		(In years)

Machinery and equipment		3-5
Software		3-5
Furniture and fixtures		5
Leasehold improvements		Shorter of lease term or useful life
Building		30

Goodwill and Intangible Assets

We record as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired in accordance with SFAS No. 141, Business Combinations. The determination of fair value of the identifiable net assets acquired was determined based upon a third party valuation and evaluation of other information.

SFAS No. 142, Goodwill and Other Intangible Assets, prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. The first step tests for impairment, while the second step, if necessary, measures the impairment. We have elected to perform our annual analysis as of October 31 of each fiscal year. As of October 31, 2007, no indicators of impairment have been identified.

Intangible assets subject to amortization include trademarks, customer marketing and technology related assets. Such intangible assets are amortized on a straight-line or accelerated basis over their estimated useful lives, which are generally three to ten years.

Impairment of Long-Lived Assets

We review long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying value of the asset. We had no such impairments in the years ended December 31, 2005, 2006 or 2007.

Fair Value of Financial Instruments

The carrying value of our financial instruments, which include cash, short-term investments, accounts receivable, accounts payable and other accrued expenses, approximate fair value due to their short maturities. The carrying value of our notes receivable, notes payable and capital leases approximates fair value due to similar rates being offered to us from competing financial institutions.

Revenue Recognition

We recognize revenue on 1) identity theft, credit management and background services, 2) accidental death insurance and other membership products and 3) other monthly subscription products.

Our products and services are offered to consumers principally on a monthly subscription basis. Subscription fees are generally billed directly to the subscriber’s credit card, mortgage bill or demand deposit accounts. The prices to subscribers of various configurations of our products and services range generally from $4.99 to $25.00 per

F-10

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

month. As a means of allowing customers to become familiar with our services, we sometimes offer free trial or guaranteed refund periods. No revenues are recognized until applicable trial periods are completed.

Identity Theft, Credit Management and Background Services

We recognize revenue from our services in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements as amended by SAB No. 104 Revenue Recognition. Consistent with the requirements of SAB No.’s 101 and 104, revenue is recognized when: a) persuasive evidence of arrangement exists as we maintain signed contracts with all of our large financial institution customers and paper and electronic confirmations with individual purchases, b) delivery has occurred once the product is transmitted over the internet, c) the seller’s price to the buyer is fixed as sales are generally based on contract or list prices and payments from large financial institutions are collected within 30 days with no significant write-offs, and d) collectibility is reasonably assured as individual customers pay by credit card which has limited our risk of non-collection. Revenue for monthly subscriptions is recognized in the month the subscription fee is earned. For subscriptions with refund provisions whereby only the prorated subscription fee is refunded upon cancellation by the subscriber, deferred subscription fees are recorded when billed and amortized as subscription fee revenue on a straight-line basis over the subscription period, generally one year. We generate revenue from one-time credit reports and background screenings which are recognized when the report is provided to the customer electronically, which is generally at the time of completion.

Accidental Death Insurance and other Membership Products

F-11

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

period during which time the product is made available at no cost to the customer. No revenues are recognized until applicable trial periods are completed.

Other Monthly Subscription Products

Deferred Subscription Solicitation and Commission Costs

Deferred subscription solicitation and commission costs include direct-response marketing costs and deferred commissions.

We expense advertising costs as incurred except for direct-response marketing costs. Direct-response marketing costs include telemarketing, web-based marketing and direct mail costs related directly to subscription solicitation. In accordance with American Institute of Certified Public Accountants Statement of Position (“SOP”) 93-7, Reporting on Advertising Costs, direct-response advertising costs are deferred and charged to operations on a cost pool basis as the corresponding revenues from subscription fees are recognized, but not for more than one year.

The recoverability of the amounts capitalized as deferred subscription solicitation and commission costs are evaluated at each balance sheet date, in accordance with SOP 93-7, by comparing the carrying amounts of such assets on a cost pool basis to the probable remaining future benefit expected to result directly from such advertising. Probable remaining future benefit is estimated based upon historical customer patterns, and represents net revenues less costs to earn those revenues.

In accordance with SAB No. 101, as amended by SAB No. 104, commissions that relate to annual subscriptions with full refund provisions and monthly subscriptions are expensed when incurred, unless we are entitled to a refund of the commissions. If annual subscriptions are cancelled prior to their initial terms, we are generally entitled to a full refund of the previously paid commission for those annual subscriptions with a full refund provision and a pro-rata refund, equal to the unused portion of the subscription, for those annual subscriptions with a pro-rata refund provision. Commissions that relate to annual subscriptions with full commission refund provisions are deferred until the earlier of expiration of the refund privileges or cancellation. Once the refund privileges have expired, the commission costs are recognized ratably in the same pattern that the related revenue is recognized. Commissions that relate to annual subscriptions with pro-rata refund provisions are deferred and charged to operations as the corresponding revenue is recognized. If a subscription is cancelled, upon receipt of the refunded commission from our client, we record a reduction to the deferred commission.

Deferred subscription solicitation costs included in the accompanying balance sheet as of December 31, 2006 and 2007, were $11.8 million and $21.9 million, respectively. Amortization of deferred subscription solicitation and commission costs, which are included in either marketing or commissions expense in our consolidated statement of operations, for the years ended December 31, 2005, 2006, and 2007 was $21.7 million, $21.2 million, and

F-12

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$35.0 million, respectively. Subscription solicitation costs expensed as incurred related to marketing costs, which are included in marketing expenses in our consolidated statement of operations, as they did not meet the criteria for deferral in accordance with SOP 93-7, for the years ended December 31, 2005, 2006, and 2007 were $401 thousand, $6.0 million, and $2.5 million, respectively.

Deferred Debt Issuance Costs

Deferred debt issue costs are stated at cost, less accumulated amortization, and are included in other assets. Amortization of debt issuance costs is over the life of the loan under the effective interest method.

Software Development Costs

We develop software for our internal use and capitalize these software development costs incurred during the application development stage in accordance with SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (“SOP”) and EITF 00-2, Accounting for Web Site Development Costs. Costs incurred prior to and after the application development stage are charged to expense. When the software is ready for its intended use, capitalization ceases and such costs are amortized on a straight-line basis over the estimated life, which is generally three to five years.

In accordance with SOP 98-1, we regularly review our capitalized software projects for impairment in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. As such, in the first quarter of 2005, we re-assessed the development effort related to our small business product in an effort to launch the product sooner and with less additional investment. Consequently, we decided to adopt an alternative approach resulting in the recognition of an impairment loss of approximately $1.4 million related to software development costs. In addition, we entered into a new agreement with a client that required an investment in new software resulting in an additional impairment loss of approximately $150 thousand in the first quarter of 2005. We had no impairments during 2006 or 2007.

Income Taxes

We account for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized.

We believe that our tax positions comply with applicable tax law. As a matter of course, we may be audited by various taxing authorities and these audits may result in proposed assessments where the ultimate resolution may result in us owing additional taxes. In June 2006, the FASB issued Financial Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, Accounting for Income Taxes. This interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN No. 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than

F-13

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

fifty percent likelihood of being realized upon ultimate settlement. We adopted the provisions of FIN No. 48 on January 1, 2007. Refer to Note 11 for further discussion of income taxes and the impact of adopting FIN No. 48.

Stock-Based Compensation

We currently have three equity incentive plans, the 1999 and 2004 Stock Option Plans and the 2006 Stock Incentive Plan which provide us with the opportunity to compensate selected employees with stock options, restricted stock and restricted stock units. A stock option entitles the recipient to purchase shares of common stock from us at the specified exercise price. Restricted stock and restricted stock units (“RSUs”) entitle the recipient to obtain stock or stock units, $.01 par value, which vest over a set period of time. RSUs are granted at no cost to the employee. Employees do not need to pay an exercise price to obtain the underlying common stock. All grants or awards made under the Plans are governed by written agreements between us and the participants.

Prior to January 1, 2006, the Company accounted for its share-based compensation plans as prescribed by Accounting Principles Board, (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, (“APB No. 25”). The Company recorded no compensation cost in its statement of operations prior to fiscal 2006 for its fixed stock option grants as the exercise price equaled the fair market value of the underlying stock on the grant date.

On January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), Share-Based Payment, (“SFAS No. 123R”). SFAS No. 123R replaces SFAS No. 123 and supersedes APB No. 25 and subsequently issued stock option related guidance. The Company elected to use the modified-prospective method of implementation. Under this transition method, share-based compensation expense for the year ended December 31, 2006 included compensation expense for all share-based awards granted subsequent to December 31, 2005 based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R, and compensation expense for all share-based awards granted prior to but unvested as of December 31, 2006 based on the grant-date fair value estimated in accordance with original provisions of SFAS No. 123.

In November 2005, the FASB issued FASB Staff Position No. FAS 123R-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.” We elected to adopt the alternative transition method provided in the FASB Staff Position for calculating the tax effects of stock-based compensation. The alternative transition method includes simplified methods to determine the beginning balance of the additional paid-in capital (APIC) pool related to the tax effects of stock-based compensation, and to determine the subsequent impact on the APIC pool and the statement of cash flow of the tax effects of stock-based awards that were fully vested and outstanding upon the adoption of SFAS No. 123R.

The Company uses the Black-Scholes option-pricing model to value all options and the straight-line method to amortize this fair value as compensation cost over the requisite service period. Total share-based compensation expense included in general and administrative expenses in the accompanying consolidated statements of operations for the years ended December 31, 2006 and 2007 was $1.1 million and $2.7 million, respectively. The Company recognized no compensation expense in accordance with APB No. 25 for the year ended December 31, 2005. In accordance with the modified-prospective transition method of SFAS No. 123R, the Company has not restated prior periods.

As a result of adopting SFAS No. 123R on January 1, 2006, our earnings before income tax expense and net earnings for the year ended December 31, 2006 were $177 thousand and $106 thousand lower, respectively, than if we had continued to account for share-based compensation under APB No. 25. The impact to our earnings before income tax expense and net earnings for the year ended December 31, 2007 were $894 thousand and $518 thousand, respectively, than if we had continued to account for share-based compensation under APB No. 25. The related impact in 2006 and 2007 to basic and diluted earnings per share is $0.01 for the year ended December 31, 2006 and $0.03 for the year ended December 31, 2007.

Prior to the adoption of SFAS No. 123R, the Company reported the benefit of tax deductions in excess of recognized stock compensation expense, or excess tax benefits, resulting from the exercise of stock options as

F-14

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

operating cash inflows in its consolidated statements of cash flows. In accordance with SFAS No. 123R, the Company revised its statement of cash flows presentation prospectively to include these excess tax benefits from the exercise of stock options as financing cash inflows rather than operating cash inflows. Accordingly, for the years ended December 31, 2007 and 2006, the Company reported $498 thousand and $514 thousand, respectively, of excess tax benefits as a financing cash inflow.

Through December 31, 2005, we accounted for grants of stock option using the intrinsic value method in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees and have provided the pro forma disclosures of net income and net income per share for the year ended December 31, 2005 in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of FASB Statement No. 123, using the fair value method. Under APB Opinion No. 25, compensation expense is based on the difference, if any, on the date of the grant between the fair value of our stock and the exercise price of the option and is recognized ratably over the vesting period of that option. We accounted for equity instruments issued to non-employees in accordance with SFAS No. 123 and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.

The following table reflects the impact on net income and earnings per common share as if we had applied the fair value based method of recognizing share-based compensation costs as presented by SFAS No. 123 for the year ended of December 31, 2005:


	2005

Net income:
As reported	$	12,470
Deduct: total stock-based employee compensation expense determined under the fair value method, net of tax		(4,975	)

Pro forma	$	7,495

Net income per basic share:
As reported	$	0.73
Pro forma	$	0.44
Net income per diluted share:
As reported	$	0.70
Pro forma	$	0.42

Under SFAS No. 123R, we have elected to continue using the Black-Scholes option pricing model to determine fair value of our awards on date of grant. We will reconsider the use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated under this model.

The following weighted-average assumptions were used for option grants during the years ended December 31, 2005, 2006 and 2007:

Expected Dividend Yield. The Black-Scholes valuation model requires an expected dividend yield as an input. We have not issued dividends in the past nor do we expect to issue dividends in the future. As such, the dividend yield used in our valuations for the years ended December 31, 2005, 2006 and 2007 were zero.

Expected Volatility. The expected volatility of the options granted was estimated based upon the average volatility of comparable public companies, as described in SAB No. 107. Due to the fact that we have only been a public company for approximately four years, we believe that there is not a substantive share price history to calculate accurate volatility and have elected to use the average volatility of companies similar to us

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INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in size or industry. At the point when we have enough public history, we will reconsider the utilization of our own stock price volatility.

Risk-free Interest Rate. The yield on actively traded non-inflation indexed U.S. Treasury notes was used to extrapolate an average risk-free interest rate based on the expected term of the underlying grants.

Expected Term. The expected term of options granted during the year ended December 31, 2007 was determined under the simplified calculation provided in SAB No. 107, as amended by SAB No. 110 ((vesting term + original contractual term)/2). For the majority of grants valued during the years ended December 31, 2006 and 2007, the options had graded vesting over 4 years (25% of the options in each grant vest annually) and the contractual term was 10 years. Prior to 2006, we estimated the expected term to be 4 years.

The fair value of each option granted has been estimated as of the date of grant using the Black-Scholes option pricing model with the following assumptions:


	2005			2006			2007

Expected dividend yield		0	%		0	%		0	%
Expected volatility		52	%		44	%		38	%
Weighted average risk free interest rate		3.62	%		4.73	%		4.19	%
Weighed average expected life of options		4 years			6.2 years			6.2 years

Net Income Per Common Share

Basic and diluted income per share are determined in accordance with the provisions of SFAS No. 128, Earnings Per Share. Basic income per common share is computed using the weighted average number of shares of common stock outstanding for the period. Diluted income per share is computed using the weighted average number of shares of common stock, adjusted for the dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method or the if-converted method, includes convertible debt, preferred stock, options and warrants.

For the years ended December 31, 2005, 2006 and 2007, options to purchase 2.9 million, 3.1 million, and 3.2 million shares of common stock, respectively, have been excluded from the computation of diluted earnings per share as their effect would be anti-dilutive. These shares could dilute earnings per share in the future.

A reconciliation of basic income per common share to diluted income per common share is as follows (in thousands, except per share data):


	2005		2006		2007

Net income available to common shareholders — basic and diluted	$	12,470	$	9,436	$	6,866

Weighted average common shares outstanding — basic		17,002		16,770		17,096
Dilutive effect of common stock equivalents		813		836		383

Weighted average common shares outstanding — diluted		17,815		17,606		17,479

Income per common share:
Basic	$	0.73	$	0.56	$	0.40
Diluted	$	0.70	$	0.54	$	0.39

F-16

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Treasury Stock

During 2005, we began holding repurchased shares of our common stock as treasury stock. In 2007, we continued to repurchase shares of our common stock. We account for treasury stock under the cost method and include treasury stock as a component of stockholder’s equity.

Segment Reporting

SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, defines how operating segments are determined and requires disclosures about products, services, major customers and geographic areas. We have three reportable segments. Our Consumer Products and Services segment includes our consumer protection and other consumer products and services provided by Intersections and Intersections Insurance Services. Our Background Screening segment includes the personnel and vendor background screening services provided by SI. Our Other segment includes software management solutions for the bail bond industry provided by Captira and corporate brand protection provided by Net Enforcers.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB issued Staff Position No. FAS 157-2, Effective Dates of FASB Statement No. 157, which defers the effective date of SFAS No. 157 for all nonrecurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008. We are in the process of evaluating the impact, if any, SFAS No. 157 will have on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115. SFAS No. 159 permits an entity, at specified election dates, to choose to measure certain financial instruments and other items at fair value. The objective of SFAS No. 159 is to provide entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently, without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for accounting periods beginning after November 15, 2007. We are in the process of evaluating the impact, if any, SFAS No. 159 will have on our consolidated financial statements.

F-17

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

disclosure requirements that clearly identify and distinguish between the interests of the parent’s owners and the interest of the noncontrolling owners of a subsidiary. The provisions of SFAS No. 160 are effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. We are in the process of evaluating the impact, if any, that SFAS No. 160 will have on our consolidated financial statements.


3.	Business Acquisitions

Net Enforcers

On November 30, 2007, we acquired all of the outstanding shares of Net Enforcers, Inc., a Florida S corporation, for approximately $14.3 million in cash. Additional consideration up to approximately $3.5 million in cash is due if such company achieves certain financial statement metrics and revenue targets in the future. This transaction was accounted for as a business combination in accordance with the provisions of SFAS No. 141. Therefore, once the contingency is resolved and considered distributable, we will record the fair value of the consideration issued as additional purchase price.

The estimated determination of the purchase price allocation was based on the fair values of the acquired assets and liabilities assumed including acquired intangible assets. The estimated determination was made by management through various means, including obtaining a third party valuation of identifiable intangible assets acquired and an evaluation of the fair value of other assets and liabilities acquired. Due to the proximity of the closing date of the acquisition to our reporting date, the assignment of amounts to some assets acquired and liabilities assumed was not complete. The provisional measurement was prepared on the basis of all information then available. Within the twelve month allocation period, we expect the goodwill and intangible asset amounts to change.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):


Current assets			$	576
Intangible assets:
Trade name (indefinite)	$	1,114
Customer relationships (estimated useful life of 9 years)		2,632
Non-compete agreement (estimated useful life of 5 years)		560
Existing developed technology assets (estimated useful life of 4 years)		1,803

Total intangible assets				6,109
Goodwill				8,437
Other current liabilities				(829	)

Net assets acquired			$	14,293

The $8.4 million of goodwill was assigned to the Other segment. The total amount is expected to be deductible for income tax purposes. Net Enforcers is a leading provider of corporate identity theft protection services, including online brand monitoring, online auction monitoring and enforcement, intellectual property monitoring and other services. Through a combination of proprietary technology and specialized business processes, Net Enforcers helps corporate brand owners prevent illegal trademark and copyright abuse, counterfeit product and service sales, grey market sales, channel policy violations, and other business risks of the online world. Net Enforcers complements our industry leading, consumer-focused identity theft protection services with offerings of corporate identity theft protection services.

The pro forma impact of Net Enforcers on our historical operating results is not material.

F-18

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Captira Analytical

On August 7, 2007, our wholly owned subsidiary, Captira Analytical LLC, acquired substantially all of the assets of Hide N’ Seek, LLC (“Seller”), an Idaho limited liability company, for $3.1 million, which included approximately $105 thousand in acquisition costs. Additional consideration up to approximately $2.5 million in cash is due if the Company achieves certain cash flow milestones in the future. This transaction was accounted for as a business combination in accordance with the provisions of SFAS No. 141. Therefore, once the contingency is resolved and considered distributable, we will record the fair value of the consideration issued as additional purchase price.

The estimated purchase price consists of the following (in thousands):


Cash paid	$	833
Assumption of operating liabilities		637
Forgiveness of loans and accrued interest from Intersections		1,567
Transaction costs		105

	$	3,142

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):


Current assets			$	13
Property, plant and equipment				174
Intangible assets:
Trade name (estimated useful life of 4 years)	$	407
Existing developed technology assets (estimated useful life of 4 years)		1,297

Total intangible assets				1,704
Goodwill				1,251

Net assets acquired			$	3,142

The $1.3 million of goodwill was assigned to the Other segment. The total amount is expected to be deductible for income tax purposes. Captira provides software and automated service solutions for the bail bonds industry, including office automation, bond inventory and client tracking, and public records and reports for the purpose of evaluating bond applications.

The acquisition of Captira continues our diversification into related business lines in which our skills and expertise in data sourcing, secure management of personal confidential information, and commercialization of data-oriented products are key success factors. Captira’s services complement our security focused product offerings in our other business lines and leverages our industry relationships to create a differentiated set of services to the bail bonds industry.

The pro forma impact of Captira or Hide N’Seek on the Company’s historical operating results is not material.

F-19

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intersections Insurance Services

On July 3, 2006, we acquired all of the outstanding shares of IISI, formerly Chartered Marketing Services, Inc. for $54.3 million in cash, which included $364 thousand in acquisition costs. $15 million of the purchase price was financed through borrowings on a new term loan with the balance financed through cash on hand and short term investments. Of the total cash consideration, approximately $5.5 million was distributed to an escrow account and may be used for indemnification claims as set forth in the escrow agreement. In the year ended December 31, 2007, we filed a claim for $4.2 million related to various federal and state tax matters pursuant to the escrow agreement. All funds remaining in the account will be distributed to the former IISI shareholders in accordance with the acquisition agreement on September 16, 2008. In order to fund the purchase of IISI we sold $27.8 million of short-term investments. There was no gain or loss recognized on the sales of these investments. The results of IISI’s operations have been included in the consolidated financial statements since the date of acquisition. IISI is a marketer of various insurance products and services. As a result of the acquisition, we have diversified our client and product portfolios. In addition, IISI provides us access to new market segments, particularly with large mortgage servicers.

The final determination of the purchase price allocation was based on the fair values of the acquired assets and liabilities assumed including acquired intangible assets. The determination was made by management through various means, including obtaining a third party valuation of identifiable intangible assets acquired and an evaluation of the fair value of other assets and liabilities acquired.

The following table summarizes the final fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):


Current assets			$	11,047
Property, plant and equipment				1,368
Other assets				135
Intangible assets:
Registered trademarks (estimated useful life of 3 years)	$	1,886
Existing subscriber base (estimated useful life of 10 years)		7,641
Carrier and network provider agreements (estimated useful life of 5 years)		731
Existing developed technology assets (estimated useful life of 5 years)		1,499

Total intangible assets				11,757
Goodwill				43,235

Total assets				67,542
Deferred tax and current liabilities				(8,073	)
Deferred tax and long term liabilities				(5,192	)

Total liabilities				(13,265	)

Net assets acquired			$	54,277

The $43.2 million of goodwill was assigned to the Consumer Products and Services segment. Of that total amount, approximately $27.1 million is expected to be deductible for income tax purposes.

In connection with the IISI acquisition, we commenced integration activities which have resulted in involuntary terminations. The liability for involuntary termination benefits covers approximately 15 employees, primarily in general and administrative functions. In 2006 we recorded $2.6 million of severance and severance-related costs in the above allocation of the cost of the acquisition in accordance with the Emerging Issues Task Force Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. We expect to pay the remaining balance of severance and severance-related costs of during 2008.

F-20

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the obligations recognized in connection with the IISI acquisition and the activity to date (in thousands):


	Year Ended December 31,
	2006			2007

Beginning balance	$	2,332		$	2,016
Payments		(316	)		(2,000	)
Other increases (decreases)		—			248

Ending balance	$	2,016		$	264

The following table summarizes unaudited pro forma financial information assuming the IISI acquisition had occurred on January 1, 2005. This unaudited pro forma financial information does not necessarily represent what would have occurred if the transaction had taken place on the dates presented and should not be taken as representative of our future consolidated results of operations or financial position:


	Year Ended December 31,
	2005		2006
	(In thousands, except
	share data)
	(Unaudited)

Revenue	$	211,988	$	222,404
Net Income	$	15,515	$	10,608
Basic earning per share	$	0.91	$	0.63
Diluted earnings per share	$	0.87	$	0.60

Screening International, LLC

As described in Note 1, in May 2006 we created SI for the purpose of combining our wholly-owned subsidiary ABI and CRG’s U.K. background screening business, Control Risks Screening Limited (“CRS”). SI provides global pre-employment background screening services. As a result of the transaction, we have expanded our background screening business worldwide.

We initially contributed all of the outstanding shares of our wholly-owned subsidiary, ABI, to SI, in exchange for a 55% ownership interest in SI. The background screening operations and assets of CRG were transferred to its wholly-owned subsidiary, CRS, and at closing CRG initially contributed all of the outstanding shares of CRS to SI, in exchange for a 45% ownership interest. In addition, we and CRG have agreed to cooperate to meet any future financing needs of SI, including seeking third party financing, agreeing to guarantee third party loans and making additional capital contributions on a pro rata basis, if necessary, subject to certain capital call and minority protection provisions.

In the year ended December 31, 2007, we and CRG loaned SI a total of $2.0 million as part of its ownership commitment. The note is an on demand loan with interest of 8% per annum.

The final determination of the purchase price allocation was based on the fair values of the acquired assets and liabilities assumed including acquired intangible assets. This determination was made by management through various means, including obtaining a third party valuation of identifiable intangible assets acquired and an evaluation of the fair value of other assets and liabilities acquired. The purchase price of the acquisition is $11.8 million, which included $529 thousand in acquisition costs.

F-21

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The final allocation of purchase price, including acquisition costs is as follows (in thousands):


Current assets	$	4,126
Property and equipment		378
Goodwill		6,842
Intangible assets		663
Deferred tax liability		(199	)

Total consideration	$	11,810

In accordance with SFAS No. 141, we recorded goodwill in the amount of $6.8 million for the excess of the purchase price, including estimated acquisition costs, over the net assets acquired. Intangibles assets were recorded at an estimated value of $302 thousand for customer related intangible assets and $361 thousand for marketing related intangible assets. Customer intangible assets will be amortized over a period of seven years and marketing intangible assets will be amortized over a period of ten years.

The $6.8 million of goodwill was assigned to the Background Screening segment. The goodwill is not deductible for tax purposes.


4.	Prepaid Expenses and Other Current Assets.

The components of our prepaid expenses and other current assets are as follows:


	December 31,		December 31,
	2006		2007
	(In thousands)

Prepaid services	$	1,400	$	1,167
Prepaid contracts		989		1,825
Other		2,852		3,225

	$	5,241	$	6,217


5.	Deferred Subscription Solicitation Costs

Deferred subscription solicitation costs included in the accompanying balance sheet as of December 31, 2006 and 2007, were $11.8 million and $21.9 million, respectively. Amortization of deferred subscription solicitation costs for the years ended December 31, 2005, 2006 and 2007 was $21.7 million, $21.2 million and $35.0 million, respectively and is included as a component of marketing and commissions expense on our statement of consolidated operations. Subscription solicitation costs expensed as incurred related to marketing costs as they did not meet the criteria for deferral in accordance with SOP 93-7, which are included in marketing expenses on our consolidated statement of operations, for the years ended December 31, 2005, 2006 and 2007 were $401 thousand, $6.0 million and $2.5 million, respectively.

On December 21, 2005, we signed a Services Transition Agreement with American Express. Pursuant to the Services Transition Agreement, we provided our current consumer services through May 31, 2006, to subscribers who pay for the service through their Amex credit cards. We were compensated for those services through April 30, 2006, based on the commission structure in effect under the existing agreement with American Express, and from May 1, 2006, to May 31, 2006, based on a service fee per subscriber. We did not service those subscribers after May 31, 2006. The Services Transition Agreement provided for a payment to the Company of $1.0 million for the reimbursement of certain marketing costs previously incurred by us and transition costs to be incurred by us through May 31, 2006. We recorded $675 thousand of this $1 million reimbursement as we amortized the deferred solicitation costs through May 31, 2006 as a reduction to marketing expenses. The remaining balance of $325 thousand was recorded to other income in May 2006.

F-22

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


6.	Property and Equipment

Property and equipment consist of the following as of:


	December 31,			December 31,
	2006			2007
	(In thousands)

Machinery and equipment	$	18,920		$	20,893
Software		19,420			24,434
Software development-in-progress		2,913			1,685
Furniture and fixtures		1,767			2,101
Leasehold improvements		3,793			3,862
Building		725			725
Land		25			25

		47,563			53,725
Less: accumulated depreciation		(25,864	)		(34,908	)

Property and equipment — net	$	21,699		$	18,817

Leased property held under capital leases and included in property and equipment consists of the following as of:


	December 31,			December 31,
	2006			2007
	(In thousands)

Leased property consisting of machinery and equipment	$	5,056		$	5,125
Less: accumulated depreciation		(2,742	)		(3,843	)

	$	2,314		$	1,282

Depreciation of fixed assets and software for the years ended December 31, 2005, 2006 and 2007 were $6.1 million, $8.6 million and $9.1 million, respectively.


7.	Goodwill and Intangibles

Changes in the carrying amount of goodwill are as follows (in thousands):


	Consumer
	Products		Background
	and Services		Screening		Other		Total

Balance, December 31, 2005	$	—	$	16,741	$	—	$	16,741
Acquired during the year		43,080		6,842		—		49,922

Balance, December 31, 2006	$	43,080	$	23,583	$	—	$	66,663

Adjusted during the year		155		—		—		155
Acquired during the year		—		—		9,688		9,688

Balance, December 31, 2007	$	43,235	$	23,583	$	9,688	$	76,506

F-23

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intangibles consisted of the following (in thousands):


	December 31, 2006							December 31, 2007
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount

Amortizable intangible assets:
Customer related	$	9,652	$	(1,133	)	$	8,519	$	12,284	$	(3,069	)	$	9,215
Marketing related		2,978		(458	)		2,520		4,499		(1,394	)		3,105
Technology related		1,499		(150	)		1,349		4,599		(615	)		3,984
Non-Compete agreement		—		—			—		560		(9	)		551

Total amortizable intangible assets	$	14,129	$	(1,741	)	$	12,388	$	21,942	$	(5,087	)	$	16,855

Intangible assets are generally amortized over a period of three to ten years. For the years ended December 31, 2005, 2006 and 2007, we had an aggregate amortization expense of $338 thousand, $1.4 million and $3.3 million, respectively, which were included in depreciation and amortization expense on the consolidated statements of operations. We estimate that we will have the following amortization expense for the future periods indicated below (in thousands).


For the years ending December 31,
2008	$	4,050
2009		3,271
2010		2,426
2011		1,921
2012		1,331
Thereafter		3,856

	$	16,855


8.	Other Assets.

The components of our other assets are as follows:


	December 31,		December 31,
	2006		2007
	(In thousands)

Prepaid royalty payments	$	9,705	$	14,207
Prepaid contracts		512		496
Escrow receivable		—		1,030
Other		208		648

	$	10,425	$	16,381

In February and March, 2005, respectively, we entered into agreements with two providers under which we receive data and other information for use in the new consumer services that were introduced in the first quarter of 2006. Under these arrangements, we pay non-refundable royalties based on usage of the data or analytics, and make certain minimum royalty payments in exchange for defined limited exclusivity rights. Prepaid royalties will be applied against future royalties incurred and the minimum royalty payments.

F-24

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


9.	Accrued Expenses and Other Current Liabilities.

The components of our accrued expenses and other liabilities are as follows:


	December 31,		December 31,
	2006		2007
	(In thousands)

Accrued marketing	$	—	$	894
Accrued cost of sales, including credit bureau costs		7,201		6,083
Accrued general and administrative expense and professional fees		4,481		3,883
Transition costs		2,016		264
Insurance premiums		1,830		1,341
Other		162		2,722

	$	15,690	$	15,187


10.	Accrued Payroll and Employee Benefits.

The components of our accrued payroll and employee benefits are as follows:


	December 31,		December 31,
	2006		2007
	(In thousands)

Accrued payroll	$	699	$	3,559
Accrued severance		1,142		104
Accrued benefits		—		1,282
Other		5,232		—

	$	7,073	$	4,945


11.	Income Taxes

The components of income tax provision for each of the three years in the period ended December 31, 2007 are as follows:


	2005			2006			2007
	(In thousands)

Current:
Federal	$	(4,715	)	$	(3,184	)	$	(67	)
State		(614	)		(1,002	)		23
Foreign		—			28			—

Total current income tax expense		(5,329	)		(4,158	)		(44	)

Deferred:
Federal		(2,237	)		(1,962	)		(5,025	)
State		(181	)		(264	)		(411	)
Foreign		—			56			1,151

Total deferred income tax expense		(2,418	)		(2,170	)		(4,285	)

Total income tax expense	$	(7,747	)	$	(6,328	)	$	(4,329	)

F-25

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred tax assets and liabilities as of December 31, 2006 and 2007, consist of the following:


	2006			2007
	(In thousands)

Deferred tax assets:
Reserves and accrued expenses	$	2,129			1,515
NOL carryforwards		28			1,100

Total deferred tax assets		2,157			2,615

Deferred tax liabilities:
Prepaid expenses		(4,640	)		(9,194	)
Property, plant, and equipment		(2,885	)		(2,961	)
Intangible assets		(5,267	)		(5,414	)

Total deferred tax liabilities		(12,792	)		(17,569	)

Net deferred tax liability	$	(10,635	)		(14,954	)

We have income tax net operating loss carryforwards related to our international operations of approximately $3.7 million, which have an indefinite life. In addition, the company has immaterial net operating loss carryforwards in certain state tax jurisdictions. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely that not that all of the deferred tax asset will be realized.

We do not provide for deferred taxes on the excess of the financial reporting over the tax basis in our investments in foreign subsidiaries that are essentially permanent in duration. That excess totaled $966 thousand as of December 31, 2007. The determination of the additional deferred taxes that have not been provided is not practicable.

The reconciliation of income tax from the statutory rate is as follows (in thousands):


	December 31,
	2005			2006			2007

Tax provision at statutory rate	$	(7,076	)	$	(5,551	)	$	(3,413	)
State income tax, net of federal benefit		(529	)		(934	)		(428	)
Effect of tax rates different than statutory		—			—			(191	)
Nondeductible executive compensation		—			—			(129	)
Other		(142	)		(157	)		(168	)

Net tax provision	$	(7,747	)	$	(6,328	)	$	(4,329	)

In connection with our adoption of FIN No. 48, as further amended by FIN No. 48-1, Definition for Settlement in FASB Interpretation No. 48, as of January 1, 2007, we recorded an increase to the liability for unrecognized tax benefits and a net increase to retained earnings of $44 thousand. The increase to retained earnings includes the effect of previously unrecognized tax benefits related to research and development tax credits.

The following table summarizes the activity related to our unrecognized tax benefits for the year ended December 31, 2007 (in thousands):


Balance at January 1, 2007	$	719
Increases related to current year tax positions		94

Balance at December 31, 2007	$	813

F-26

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Included in the unrecognized tax benefits of $813 thousand at December 31, 2007 was $317 thousand of tax benefits that, if recognized, would reduce our annual effective tax rate and $496 thousand would be recognized as an adjustment to additional paid in capital.

We have elected to include income tax penalties related to uncertain tax positions as part of our income tax expense in the consolidated financial statements, the accrual for estimated penalties on January 1, 2007, date of adoption, of $45 thousand was included as a component of other long-term liabilities. No additional penalties were accrued in the 12 months ended December 31, 2007.

We have elected to include interest expense related to uncertain tax positions as part of interest expense in the consolidated financial statements. The accrual for estimated interest expense of $170 thousand, of which $80 thousand was recognized upon adoption on January 1, 2007, is included as a component of other long-term liabilities.

The company is subject to taxation in the U.S. and various states and foreign jurisdictions. As of December 31, 2007, we were subject to examination in the U.S. federal tax jurisdiction for the 2000-2006 tax years, various state jurisdictions for the 1999-2006 tax years, and in the U.K. tax jurisdiction for the 2006 tax year. Our income tax returns for the year ended 2005 are currently under examination.

We do not expect our unrecognized tax benefits to change significantly over the next 12 months.


12.	Related Party Transactions

Digital Matrix Systems, Inc. — The chief executive officer and president of Digital Matrix Systems, Inc. (“DMS”) serves as a board member of the Company.

In November 2001, we entered into a contract with DMS that provides for services that assist us in monitoring credit on a daily and quarterly basis for $20 thousand per month. In December 2004, we entered into a contract with DMS that provides for certain on-line credit analysis services. In January 2007, we amended those agreements into a single Software Services Schedule. In connection with these agreements, we paid monthly installments totaling $894 thousand, $960 thousand and $865 thousand for the years ended December 31, 2005, 2006 and 2007, respectively. These amounts are included within cost of revenue in the accompanying consolidated statements of operations.

Intersections Inc. and DMS entered into a professional services agreement under which DMS will provide additional development and consulting services pursuant to work orders that are agreed upon by the parties from time to time. The agreement has an effective date of January 2, 2008. The initial term of the agreement is two years, with successive automatic renewal terms of two years, but is terminable without cause by either party upon 90 days notice to the other party. As of December 31, 2007, nothing had been performed under this agreement. We are obligated to make future payments of $432 thousand under these contracts through 2008. As of December 31, 2006 and 2007, we owed $142 thousand to DMS.

RCS International, Inc. A family member of our executive vice president of operations is the president of RCS International, Inc. (“RCS”). We have entered into a contact with a vendor, RCS, to assist us in our Canadian fulfillment operations. For the year ended December 31, 2007, we paid $1.6 million and as of December 31, 2007, we owed $80 thousand to RCS.

Lazard Freres & Co, LLC. The managing director at Lazard Freres & Co (“Lazard”) serves as a board member of the Company. On May 30, 2007, we retained Lazard to act as investment banker to the Company in connection with possible strategic alternatives. The term of the retention is through January 30, 2008 and may be terminated by either party at any time. For the year ended December 31, 2007, we paid $100 thousand to Lazard for these services and as of December 31, 2007, we did not owe a balance to Lazard.

F-27

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


13.	Commitments and Contingencies

Leases

We have entered into long-term operating lease agreements for office space and capital leases for certain equipment. The minimum fixed commitments related to all noncancellable leases are as follows:


	Operating		Capital
Twelve Months Ending December 31,	Leases		Leases
	(In thousands)

2008	$	2,382	$	1,077
2009		1,311		498
2010		770		179
2011		375		—
2012		340		—
thereafter		330		—

Total minimum lease payments	$	5,508		1,754

Less: amount representing interest				(546	)

Present value of minimum lease payments				1,700
Less: current obligation				(1,001	)

Long term obligations under capital lease			$	699

Rental expenses included in general and administrative expenses were $1.7 million, $2.1 million and $2.6 million for the years ended December 31, 2005, 2006 and 2007, respectively.

In October 2005, we entered into an Equipment Lease Agreement with a financial institution. The facility can be drawn upon for the purchase of qualifying assets. The term and interest rate for this facility will be set at the time the Company draws upon this facility. In December 2005, we drew down $1.2 million based on assets purchased during 2005 with a term of three years and an interest rate of 5.86%. The agreement for the draw provided for a sale of our equipment with a recorded value of $1.0 million to the financial institution and the subsequent lease of that equipment by us for $1.2 million. The lease was classified as a capital lease pursuant to SFAS No. 13. Accordingly, we recorded the lease liability at the fair market value of the underlying assets, which was $1.0 million, resulting in the recognition of a deferred gain of $200 thousand which will be amortized in proportion to the amortization of the leased assets.

During the year ended December 31, 2005, the Company entered into certain capital leases for equipment aggregating $2.6 million. There were no such capital leases during the years ended December 31, 2006 and 2007.

Other

We have entered into various software licenses, marketing and operational commitments totaling $6.6 million for December 31, 2007. These arrangements include payments related to agreements to a service provider under which we receive data and other information for use in our new fraud protection services. Under these arrangements we pay royalties based on usage of the data or analytics, and make certain minimum royalty payments in exchange for defined limited exclusivity rights. Included in these commitments for December 31, 2008, the Company is obligated to pay $5.9 million of minimum royalties in 2008. Any further minimum royalty payments by us are either paid at our sole discretion or are subject to termination by us under certain contingent conditions.

F-28

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Contingencies

On December 23, 2005, an action captioned Mary Gay v. Credit Inform, Capital One Services, Inc. and Intersections, Inc., was commenced in the U.S. District Court for the Eastern District of Pennsylvania, alleging that the Credit Inform credit monitoring service marketed by Capital One and provided by us violates certain procedural requirements under the federal Credit Repair Organizations Act (“CROA”) and the Pennsylvania Credit Services Act (“PA CSA”). The plaintiff contends that we and Capital One are “credit repair organizations” under the CROA and “credit services organizations” under the PA CSA. The plaintiff seeks certification of a class on behalf of all individuals who purchased such services from defendants within the five-year period prior to the filing of the complaint. The plaintiff seeks an unspecified amount of damages, including all fees paid by the class members for the services, attorneys’ fees and costs. We responded with a motion seeking to dismiss the action and enforce a provision in the terms of use for the product which require disputes to be resolved in arbitration and without class actions. The plaintiff has voluntarily dismissed Capital One from the case. By order of June 12, 2006, the district court granted our motion, stayed the action and ordered the plaintiff to arbitrate her claims on an individual basis. The order of the district court was appealed by the plaintiff to the U.S. Court of Appeals for the Third Circuit. On December 17, 2007, the plaintiff’s appeal was denied by the Third Circuit Court of Appeals. On January 29, 2008, the plaintiff’s motion for rehearing was denied, and on February 6, 2008, the Third Circuit Court of Appeals entered an order and judgment upholding the ruling by the district court to stay the action and compel arbitration on an individual basis.


14.	Long-Term Debt

On July 3, 2006 we negotiated bank financing in the amount of $40 million. Under terms of the financing agreements, we were granted a $25 million line of credit with interest at 1.00-1.75% percent over LIBOR and a term loan of $15 million. The term loan is payable in monthly installments of $278 thousand, plus interest. Substantially all the Company’s assets are pledged as collateral to these loans. The proceeds from the term loan were used in the purchase of IISI.

In addition, SI has an outstanding demand loan of $900 thousand with CRG at an average interest rate of 8.0%. Other notes outstanding of $26 thousand will be due in 2009.

Aggregate maturities during the subsequent years are as follows (in thousands):


As of December 31,
2008	$	3,346
2009		3,347
2010		3,333
2011		15,667

	$	25,693
Demand loan		900

Total	$	26,593

On November 29, 2007, we amended our Credit Agreement financial debt covenants to remove the requirement that we maintain compliance with a minimum consolidated tangible net worth covenant. In addition, on November 30, 2007, we borrowed $14 million on the revolving loan to finance the acquisition of Net Enforcers, Inc. The balance of the revolving loan is due upon maturity in 2011.

As of December 31, 2007, the outstanding interest rate on both loans was 6.22% and principal balance of the term loan under the Credit Agreement was $11.7 million.

F-29

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The credit agreement contains certain customary covenants including, limits or restrictions on the incurrence of liens; the making of investments; the incurrence of certain indebtedness; mergers, dissolutions, liquidation, or consolidations; acquisitions (other than certain permitted acquisitions); sales of substantially all of our or any co-borrowers’ assets; the declaration of certain dividends or distributions; transactions with affiliates (other than co-borrowers under the credit agreement) other than on fair and reasonable terms; and the creation or acquisition of any direct or indirect subsidiary of the company that is not a domestic subsidiary unless such subsidiary becomes a guarantor. We are also required to maintain compliance with certain financial covenants which include our consolidated leverage ratios, consolidated fixed charge coverage ratios as well as customary covenants, representations and warranties, funding conditions and events of default. We are currently in compliance with all such covenants.


15.	Stockholders’ Equity

Share Repurchase

On April 25, 2005, we announced that our Board of Directors had authorized a share repurchase program under which we can repurchase up to $20 million of our outstanding shares of common stock from time to time, depending on market conditions, share price and other factors. The repurchases may be made on the open market, in block trades, through privately negotiated transactions or otherwise, and the program may be suspended or discontinued at any time. During 2005, we repurchased 965 thousand shares of our common stock at an aggregate investment of approximately $8.6 million. We did not repurchase shares during the year ended December 31, 2006. During 2007, we repurchased 102 thousand shares of our common stock at an aggregate investment of approximately $916 thousand.

Stock Based Compensation

On August 24, 1999, the Board of Directors and stockholders approved the 1999 Stock Option Plan (the “1999 Plan”). The number of shares of common stock that may be issued under the 1999 Plan may not exceed 4.2 million shares pursuant to an amendment to the plan executed in November 2001. As of December 31, 2007, we have 1.5 million shares remaining to issue. We do not intend to issue further options under the 1999 Plan. Individual awards under the 1999 Plan may take the form of incentive stock options and nonqualified stock options.

On March 12, 2004 and May 5, 2004, the Board of Directors and stockholders, respectively, approved the 2004 Stock Option Plan (the “2004 Plan”) to be effective immediately prior to the consummation of the initial public offering. The 2004 Plan provides for the authorization to issue 2.8 million shares of common stock. As of December 31, 2007, we have 419 thousand shares remaining to issue. Individual awards under the 2004 Plan may take the form of incentive stock options and nonqualified stock options. Option awards are generally granted with an exercise price equal to the market price of our stock at the date of grant; those option awards generally vest over four years of continuous service and have ten year contractual terms.

On March 8, 2006 and May 24, 2006, the Board of Directors and stockholders, respectively, approved the 2006 Stock Incentive Plan (the “2006 Plan”). The 2006 Plan provides for the authorization to issue 2.5 million shares of common stock. As of December 31, 2007, we have 1.8 million shares remaining to issue. Individual awards under the 2006 Plan may take the form of incentive stock options, nonqualified stock options, restricted stock awards and/or restricted stock units. To date, only restricted stock units have been granted under the 2006 Plan. These awards generally vest over three and four years of continuous service.

The compensation committee administers the Plans, selects the individuals who will receive awards and establishes the terms and conditions of those awards. Shares of common stock subject to awards that have expired, terminated, or been canceled or forfeited are available for issuance or use in connection with future awards.

The 1999 Plan will remain in effect until August 24, 2009, the 2004 Plan will remain in effect until May 5, 2014 and the 2006 Plan will remain in effect until March 7, 2016, unless terminated by the Board of Directors.

F-30

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Options

On December 19, 2005, Intersections Inc. announced that its Board of Directors has approved the acceleration of the vesting of certain unvested stock options previously awarded under our 2004 Stock Option Plan. All other terms and conditions applicable to such options, including the exercise prices, remain unchanged.

As a result of this action, options to purchase up to approximately 799 thousand shares of common stock, which would otherwise have vested over the next three years, became exercisable effective December 31, 2005. All of these options have exercise prices ranging from $13.00 to $17.82 per share. Based upon the closing stock price for our common stock of $8.64 per share on December 16, 2005, all of these options were “under water” or “out-of-the-money”. Of the accelerated options, approximately 532 thousand options are held by executive officers and approximately 23 thousand options are held by non-employee directors. Outstanding options to purchase approximately 203 thousand shares of Intersections’ common stock, with per share exercise prices ranging from $8.11 to $10.85, were not accelerated and remain subject to time-based vesting.

The following table summarizes the Company’s stock option activity:


	2005					2006					2007							Weighted
				Weighted					Weighted					Weighted				Average
				Average					Average					Average				Remaining
	Number of			Exercise		Number of			Exercise		Number of			Exercise		Aggregate		Contractual
	Shares			Price		Shares			Price		Shares			Price		Intrinsic Value		Term
																		(In years)

Outstanding, beginning of year		3,502,511		$	12.08		3,987,117		$	12.61		3,944,566		$	13.10
Granted		976,000			13.07		295,000			10.80		863,000			9.88
Canceled		(242,296	)		14.09		(155,859	)		14.18		(719,241	)		14.69
Exercised		(249,098	)		4.59		(181,692	)		2.59		(249,051	)		5.63

Outstanding, end of year		3,987,117		$	12.61		3,944,556		$	12.88		3,839,274		$	12.22	$	2,127		5.79

Exercisable at end of the year		3,788,421		$	12.84		3,624,056		$	13.10		2,865,688		$	12.97	$	2,127		4.61

The weighted average grant date fair value of options granted during the years December 31, 2005, 2006 and 2007 was $5.73, $5.41 and $5.97 respectively.

For options exercised, intrinsic value is calculated as the difference between the market price on the date of exercise and the exercise price. The total intrinsic value of options exercised during the years ended December 31, 2005, 2006 and 2007 was $2.2 million, $1.3 million and $1.1 million, respectively.

Total stock based compensation expense recognized for stock options, which was included in general and administrative expense on our consolidated statement of operations, for the years ended December 31, 2006 and 2007 was $177 thousand and $894 thousand, respectively. There was no stock based compensation expense recorded for the year ended December 31, 2005.

During the year ended December 31, 2006, we extended the contractual life of 37,500 fully vested share options held by one employee. Under SFAS No. 123(R), there was no additional compensation expense recognized.

As of December 31, 2007, there was $3.6 million of total unrecognized compensation cost related to nonvested stock option arrangements granted under the Plans as a result of a termination agreement. That cost is expected to be recognized over a weighted-average period of 3.2 years.

F-31

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes information about employee stock options outstanding at December 31, 2007:


	Options Outstanding						Options Exercisable
			Weighted Average		Weighted				Weighted
			Remaining		Average Exercise				Average
Exercise Price	Shares		Contractual Term		Price		Shares		Exercise Price
			(In years)

$0 — $5.00		243,742		1.65	$	.45		243,742	$	.45
$5.01 — $10.00		1,410,935		7.17		9.10		584,426		7.98
$10.01 — $15.00		1,220,797		5.63		12.46		1,073,721		12.70
$15.01 — $20.00		679,396		6.38		17.04		679,396		17.04
Greater than $20.00		284,404		1.88		25.23		284,403		25.23

		3,839,274		5.79	$	12.22		2,865,688	$	12.97

Restricted Stock Units

The following table summarizes our restricted stock unit activity:


				Weighted-
				Average
				Remaining		Aggregate
	Number of			Contractual		Fair
	RSUs			Life		Value
	(In thousands)			(In years)		(In thousands)

Outstanding at December 31, 2005		—			—	$	—
Granted		574,000			2.2		5,418
Canceled		(110,000	)		—		(1,037	)
Vested		(5,000	)		—		(47	)

Outstanding at December 31, 2006		459,000			2.2	$	4,334

Granted		336,000			2.3		3,326
Canceled		(55,728	)		—		(534	)
Forfeited		(77,000	)		—		(726	)
Vested		(93,760	)		—		(884	)

Outstanding at December 31, 2007		568,512			2.3	$	5,516

As of December 31, 2007, there was $3.7 million of total unrecognized compensation cost related to unvested restricted stock units compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 2.3 years.

Total stock based compensation recognized for restricted stock units in our consolidated statement of income for the years ended December 31, 2006 and 2007 was $934 thousand and $1.8 million. There was no compensation expense related to restricted stock units in 2005.

Non-Employee Options and Warrants — In December 2002, we granted options to purchase 33,296 shares of our common stock with an exercise price of $8.11 per share to external consultants. We are recognizing compensation expense for the fair value of these options of approximately $78,000 over a four year vesting period which commenced in 2003. We recognized compensation expense related to non-employee options of $20 thousand and $10 thousand for the years ended December 31, 2005 and 2006, respectively.

F-32

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


16.	Employee Benefit Plan

In February 1998, we adopted a 401(k) profit-sharing plan (the “401(k) Plan”) that covers substantially all full-time employees. Employees are eligible to participate upon completion of one month of service and may contribute up to 25% of their annual compensation, not to exceed the maximum contribution provided by statutory limitations. The 401(k) Plan provides for matching $0.50 per dollar on the first 6% of the employee’s contribution. Eligible employees vest in employer contributions 20% per year and are fully vested in five years. Expenses under the 401(k) Plan for the years ended December 31, 2005, 2006 and 2007 were $213 thousand, $479 thousand and $712 thousand, respectively.


17.	Major Clients

As discussed in Notes 1 and 2, we market credit monitoring service to consumers through our relationships with our financial institution clients. Revenue from subscribers obtained through our largest financial institution clients, as a percentage of total revenue, is as follows:


	2005			2006			2007

American Express		22	%		7	%		—
Capital One		12	%		13	%		10	%
Citibank		12	%		14	%		11	%
Discover		16	%		15	%		13	%
Bank of America (includes MBNA)		11	%		13	%		33	%

We believe that once a subscriber is obtained through our arrangements with our financial institution clients, the decision to continue the service is made by the subscriber; however, a decision to limit our access to its customers or the termination of an agreement by one of the financial institution clients could have an adverse effect on our financial condition and results of operations. Accounts receivable related to these customers totaled $13.7 million and $15.4 million at December 31, 2006 and 2007, respectively. As discussed in Note 5, we entered into a Services Transition Agreement with American Express signed in December 2005.

On February 29, 2008, we filed a complaint for declaratory judgment in the Circuit Court for Fairfax County, Virginia. The complaint seeks a declaration that, if Discover uses for its own purposes credit report authorizations given by customers to Intersections or Discover, it will be in breach of the Services Agreement and Omnibus Amendment to the Services Agreement. Intersections contends that Discover or its new credit monitoring service provider must obtain new authorizations from the customers in order to provide credit monitoring services to them. In the complaint, Intersections alleges that, under the Omnibus Amendment to the Services Agreement, the authorizations given by customers to Intersections or Discover were obtained solely on behalf of Intersections, for the sole purpose of enabling Intersections to provide its credit monitoring services. Intersections further alleges that Discover has stated that its new credit monitoring provider will rely on the authorizations given to Intersections and not obtain new authorizations. Intersections alleges that reliance on the credit report authorizations by Discover or its new provider would be a breach of the Services Agreement and Omnibus Amendment thereto, and thus seeks a declaratory judgment to prevent Discover from committing a breach of the parties’ contract.


18.	Segment and Geographic Information

We operate in three primary business segments: Consumer Products and Services, Background Screening, and Other. These segments are organized based on the differences in the products and services. Products and services provided by the Consumer Products and Services segment include daily, monthly or quarterly monitoring of subscribers’ credit files at one or all three major credit reporting agencies (Equifax, Experian and TransUnion), credit reports from one or all three major credit reporting agencies, credit score analysis tools, credit education, an identity theft recovery unit, security breach services and identity theft cost coverage.

F-33

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Background Screening segment includes products and services related to pre-employment background screening, including criminal background checks, driving records, employment verification and reference checks, drug testing and credit history checks. The Other segment consists of newly acquired Captira and Net Enforcers. This segment provides software and automated service solutions to the bail bonds industry and corporate brand protection. The following table sets forth segment information for the years ended December 31, 2005, 2006, and 2007.


	Consumer Products		Background
	and Services		Screening			Other			Consolidated
	(In thousands)

Year Ended December 31, 2005
Revenue	$	151,326	$	13,845		$	—		$	165,171
Depreciation and amortization		5,798		659			—			6,457
Income before income taxes and minority interest		19,246		971			—			20,217

Year Ended December 31, 2006
Revenue	$	176,942	$	24,109		$	—		$	201,051
Depreciation and amortization		9,004		1,014			—			10,018
Income before income taxes and minority interest		14,500		1,361			—			15,861

Year Ended December 31, 2007
Revenue	$	241,968	$	29,508		$	247		$	271,723
Depreciation and amortization		10,745		1,405			277			12,427
Income (loss) before income taxes and minority interest		15,022		(4,247	)		(1,031	)		9,744

As of December 31, 2006
Property, plant and equipment, net	$	19,697	$	2,002		$	—		$	21,699

Identifiable assets	$	144,170	$	35,297		$	—		$	179,467

As of December 31, 2007
Property, plant and equipment, net	$	16,534	$	2,145		$	138		$	18,817

Identifiable assets	$	192,343	$	12,869		$	1,056		$	206,268

Information concerning the revenues and total assets of principal geographic areas is as follows:


	United States		United Kingdom		Other			Consolidated
	(In thousands)

Revenue
Year ended December 31, 2005	$	165,171	$	—	$	—		$	165,171
Year ended December 31, 2006		195,061		5,990		—			201,051
Year ended December 31, 2007		261,130		10,584		9			271,723
Total assets
Year ended December 31, 2006	$	168,937	$	10,530	$	—		$	179,467
Year ended December 31, 2007		196,419		9,976		(127	)		206,268

F-34

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


19.	Quarterly Financial Data (Unaudited)


	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
	(In thousands)

Year ended December 31, 2006:
Revenue	$	45,688	$	45,369	$	55,261	$	54,733
Income from operations		5,200		3,859		4,722		1,127
Income before income taxes and minority interest		5,644		4,708		4,618		891
Net income	$	3,413	$	2,749	$	2,636	$	638
Year ended December 31, 2007:
Revenue	$	58,201	$	65,105	$	71,403	$	77,014
Income from operations		552		1,811		2,847		3,976
Income before income taxes and minority interest		456		1,733		2,696		4,859
Net income	$	484	$	1,335	$	1,724	$	3,323


20.	Subsequent Events

Amendment to Existing Credit Agreement

Effective as of January 31, 2008, we amended our Credit Agreement in order to increase the term loan facility to $28 million. In addition, pursuant to the amendment, the Company’s subsidiaries Captira Analytical, LLC and Net Enforcers Inc. were added as co-borrowers under the Credit Agreement.

Interest Rate Swap

On February 21, 2008, we entered into an interest rate swap to effectively fix our variable rate term loan and a portion of the revolving credit facility under our Credit Agreement.

Membership Purchase Agreement

Effective January 31, 2008, the Company entered into a Membership Purchase Agreement with Citibank. Under the Membership Purchase Agreement, we acquired substantially all of the membership agreements between Citibank and consumer customers relating to the membership program Citibank offers, and we provide, under the name Citi^® Credit Monitoring Service. An immaterial number of membership agreements were retained by Citibank, which the Company expects to be terminated or transferred by Citibank to another Company service.

F-35

INTERSECTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The aggregate purchase price paid, which was based on the estimated number of acquired membership agreements as of the closing date, was $30.8 million. The majority of the purchase price was funded from the amended credit facility with Bank of America. The purchase price may be increased or decreased to the extent that the number of acquired membership agreements as of the closing date are finally determined to be greater than or less than, respectively, the estimated amount. In addition, we retained a portion of the purchase price otherwise payable at closing in an amount equal to $750 thousand as security for the attrition of acquired membership agreements in excess of specified levels that occurs during the 180 days following the closing.

The Membership Purchase Agreement contains representations and warranties of Citibank regarding authority to enter into the transaction, title to assets, compliance with laws, litigation, and the acquired membership agreements, among others, and representations and warranties of the Company regarding authority to enter into the transaction, compliance with laws and litigation, among others. The Membership Purchase Agreement also contains certain customary covenants, including covenants regarding access to information. In addition, each party has agreed to indemnify the other party with respect to certain matters, including breaches of its own representations, warranties and covenants, subject to certain limitations.

The aggregate purchase paid in connection with the closing was funded from a combination of existing cash of the Company and borrowings under the amended Credit Agreement.

F-36

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS


			Additions
	Balance at		Charged to		Deductions		Balance at
	Beginning of		Costs and		from		End of
Description	Period		Expenses		Allowance		Period

Year Ended December 31, 2007
Allowance for doubtful accounts	$	38,392	$	6,248	$	7,944	$	36,696
Year Ended December 31, 2006
Allowance for doubtful accounts	$	106,638	$	34,300	$	102,546	$	38,392
Year Ended December 31, 2005
Allowance for doubtful accounts	$	63,597	$	145,447	$	102,406	$	106,638

F-37

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INTERSECTIONS INC.

(Registrant)


	By:	/s/ Michael R. Stanfield

Name: Michael R. Stanfield


	Title:	Chief Executive Officer

Date: March 14, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.


Signature	Title	Date


/s/ Michael R. Stanfield Michael R. Stanfield	Chairman, Chief Executive Officer and Director (Principal Executive Officer)	March 14, 2008

/s/ Madalyn C. Behneman Madalyn C. Behneman	Senior Vice President (Principal Financial and Accounting Officer)	March 14, 2008

/s/ Thomas G. Amato Thomas G. Amato	Director	March 14, 2008

/s/ James L. Kempner James L. Kempner	Director	March 14, 2008

/s/ Thomas L. Kempner Thomas L. Kempner	Director	March 14, 2008

/s/ David A. McGough David A. McGough	Director	March 14, 2008

/s/ Norman N. Mintz Norman N. Mintz	Director	March 14, 2008

/s/ Steven F. Piaker Steven F. Piaker	Director	March 14, 2008

/s/ William J. Wilson William J. Wilson	Director	March 14, 2008

EX-2.3 2 w51111exv2w3.htm EX-2.3 exv2w3

Exhibit 2.3

MEMBERSHIP PURCHASE AGREEMENT

by and between

INTERSECTIONS INC.

and

CITIBANK (SOUTH DAKOTA), N. A.

CITI CREDIT MONITORING SERVICE
CUSTOMER PORTFOLIO

JANUARY 31, 2008

TABLE OF CONTENTS


			Page
ARTICLE I DEFINITIONS				1
	1.1	Certain Definitions		1
	1.2	Other Capitalized Terms		4

ARTICLE II TRANSFER OF ASSETS AND LIABILITIES				5
	2.1	Assets to be Sold		5
	2.2	Liabilities to be Assumed		5
	2.3	Liabilities Not Assumed		5
	2.4	Consideration		6
	2.5	Post-Closing Statement		6
	2.6	Attrition Payment		8
	2.7	Allocation of Purchase Price		10

ARTICLE III CLOSING				10
	3.1	Closing		10

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER				10
	4.1	Authority to Execute and Perform Agreement		10
	4.2	Title to the Assets		11
	4.3	Brokers		11
	4.4	Compliance with Laws		11
	4.5	Litigation		12
	4.6	Membership Contracts		12
	4.7	Bulk Transfer Laws		13
	4.8	NO OTHER REPRESENTATIONS		13
	4.9	CONDITION OF ASSETS		13

ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER				14
	5.1	Due Incorporation and Authority		14
	5.2	Authority to Execute and Perform Agreement		14
	5.3	Brokers		15
	5.4	Compliance with Laws		15
	5.5	Litigation		15
	5.6	Exclusivity of Representations		15
	5.7	INDEPENDENT INVESTIGATION		15

ARTICLE VI COVENANTS AND AGREEMENTS				16
	6.1	Confidentiality		16
	6.2	Publicity		16
	6.3	Seller Marks		16
	6.4	Access to Information and Cooperation		17
	6.5	Preservation of Records		17
	6.6	Compliance with Program Exhibit		17

-i-


			Page
	6.7	Billing		17
	6.8	Further Assurances		17

ARTICLE VII SURVIVAL; INDEMNIFICATION				18
	7.1	Survival of Representations and Warranties		18
	7.2	Indemnification		18
	7.3	Limitations on Indemnification		19
	7.4	Third Party Indemnification Procedures		20

ARTICLE VIII MISCELLANEOUS				21
	8.1	Consent to Jurisdiction and Service of Process		21
	8.2	Expenses		22
	8.3	Notices		22
	8.4	Entire Agreement; No Third-Party Beneficiaries		23
	8.5	Waivers and Amendments		24
	8.6	Governing Law		24
	8.7	Binding Effect; Assignment		24
	8.8	Usage		24
	8.9	Schedules		24
	8.10	Articles and Sections		25
	8.11	Headings		25
	8.12	Interpretation		25
	8.13	Severability of Provisions		25
	8.14	Enforcement of Agreement		25
	8.15	Counterparts		25


Schedule 1.1		Knowledge of the Seller
Schedule 4.1		Consents and Approvals
Schedule 5.2(b)(ii)		Buyer’s Material Consents
Schedule 5.2(b)(iii)		Buyer’s Conflicts

Schedule A		Closing Date Statement
Schedule B		Eligible Membership Contracts
Schedule C		Wire Instructions
Schedule D		Attrition Statement
Schedule E		Additional Definitions
Schedule F		Form of Post-Closing Statement

-ii-

MEMBERSHIP PURCHASE AGREEMENT

MEMBERSHIP PURCHASE AGREEMENT, dated as of January 31, 2008 (this “Agreement”), by and between Intersections Inc., a Delaware corporation (the “Buyer”), and Citibank (South Dakota), N.A., a national banking association (the “Seller”).

WHEREAS, the Buyer wishes to purchase from the Seller, and the Seller wishes to sell to the Buyer, certain assets of the Seller substantially comprised of the Seller’s Membership Contracts (as defined below), subject to the Assumed Liabilities (as defined below), upon the terms and subject to the conditions of this Agreement (the “Contemplated Transactions”); and

WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the Contemplated Transactions and also to prescribe certain conditions to the Contemplated Transactions.

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements entered into herein, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

DEFINITIONS

1.1 Certain Definitions. As used in this Agreement, the following terms have the following meanings:

“Affiliate” means, as to a specified Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the specified Person.

“Ancillary Agreements” means the Program Provider Agreement and the Transition Services Agreement.

“Base Period Attrition Rate” has the meaning set forth on Schedule E.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law or executive order to close.

“Buyer Indemnified Parties” means the Buyer and its Affiliates, and each of their respective shareholders, partners, officers, directors, employees, agents, representatives, successors and permitted assigns.

“Claim” means any action, cause of action, suit, claim, complaint, demand, litigation or other similar proceeding.

“Closing Date Statement” means the statement, attached hereto as Schedule A, that contains an estimate of the number of Eligible Membership Contracts as of the Closing and computation of the Estimated Purchase Price as of the date hereof, based on data that was current no more than five (5) Business Days prior to the Closing, prepared in good faith by the Seller.

“Code” means the Internal Revenue Code of 1986, as amended (including any successor thereto).

“Eligible Membership Contract” means a Membership Contract which meets the criteria set forth on Schedule B (subject to the cure period set forth in Schedule B).

“Estimated Purchase Price” means $30,801,600.00, the estimated Purchase Price for the Assets prepared in good faith by the Seller as set forth on the Closing Date Statement.

“Governmental Body” means any court, administrative agency, commission, self regulatory organization, tribunal, arbitrator, bureau, board, department, official, or other authority or instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision, and shall include any stock exchange and the National Association of Securities Dealers.

“Indemnification Cap” has the meaning set forth on Schedule E.

“Knowledge of the Seller” means the actual knowledge of the Persons set forth in Schedule 1.1.

“Law” means any applicable law, statute, regulation or other requirement of any Governmental Body.

“Lien” means any lien, pledge, mortgage, charge, security interest, levy, adverse claim to title or other encumbrance of any kind.

“Member” means any Person who has subscribed for and, as of the date hereof, is enrolled in the Program and who is a party to any Membership Contract.

“Membership Contract” means an agreement relating to the Program to which the Seller and a Person who has subscribed for and, as of the Closing, is enrolled in the Program are parties (and which agreement has not been cancelled as of the date hereof), excluding, however, any agreements relating to the Program with Persons whose program fees are billed to any private label (oil company related) credit cards.

“Order” means any applicable order, judgment, injunction, award, decree or writ, whether preliminary or final.

“Per Account Value” has the meaning set forth on Schedule E.

“Permitted Liens” means (i) Liens relating to purchase money security interests entered into in the ordinary course of business, (ii) mechanics’, materialmen’s, workmen’s, repairmen’s, warehousemen’s, carrier’s and other similar Liens (including such Liens created by operation of Law), (iii) Liens for Taxes (and assessments and other governmental charges) not yet due and payable or due but not delinquent or that are being contested in good faith by appropriate proceedings, and (iv) Liens in respect of pledges or deposits under workers’ compensation Laws or similar legislation, unemployment insurance or other types of social security.

“Person” means any individual, corporation, partnership, limited liability company, limited liability partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Body or other entity.

“Predecessor Agreement” means that certain agreement among Citibank (South Dakota), N.A., Citibank USA, N.A., Citicorp Credit Services, Inc. and the Buyer, dated December 1, 2003 (as amended, restated or otherwise modified).

“Program” means the membership program the Seller offers under the name “Citi^® Credit Monitoring Service” pursuant to the Predecessor Agreement.

“Program Provider Agreement” means that certain Program Provider Agreement related to the Membership Contracts entered into by the Seller, Citicorp Credit Services, Inc. (USA) and the Buyer on the date hereof.

“Seller Indemnified Parties” means the Seller and its Affiliates, shareholders, partners, officers, directors, employees, agents, representatives, successors and permitted assigns.

“Seller Membership Contract Activities” means any and all actions (and/or omissions) of the Seller or any Affiliate thereof, or of any other Person on the Seller’s or such Affiliate’s behalf, in each case on or prior to the Closing, in connection with the Membership Contracts, including the Seller’s, such Affiliate’s or such other Person’s offering, marketing and selling the Program, billing Members under the Membership Contracts, providing benefits of the Program (including insurance benefits), and handling personal and confidential information of Members; excluding, however, any actions and/or omissions for which the Seller is or is entitled to be indemnified for by the Buyer under the Predecessor Agreement, it being understood and agreed by the Buyer and the Seller that each party shall retain and be bound by its respective rights and obligations set forth in the Predecessor Agreement.

“Tax” or “Taxes” means any and all federal, state, provincial, local, foreign and other taxes, levies, fees, imposts, duties, and similar governmental charges (including any interest, fines, assessments, penalties or additions to tax imposed in connection therewith or with respect thereto) including, without limitation (x) taxes imposed on, or measured by, income, franchise, profits or gross receipts, and (y) ad valorem, value added, capital gains, sales, goods and services, use, real or personal property, capital stock, license, branch, payroll, estimated withholding, employment,

social security (or similar), unemployment, compensation, utility, severance, production, excise, stamp, occupation, premium, windfall profits, transfer and gains taxes, and customs duties.

“Tax Returns” means any and all reports, returns, declarations, claims for refund, elections, disclosures, estimates, information reports or returns or statements required to be supplied to a taxing authority in connection with Taxes, including any schedule or attachment thereto or amendment thereof.

“Threshold Amount” has the meaning set forth on Schedule E.

“Transfer Taxes” means all sales, use, value added, transfer, stamp, registration, documentary, excise, real property transfer or gains or similar Taxes incurred as a result of the transactions contemplated in this Agreement.

“Transition Services Agreement” means that certain Transition Services Agreement related to the Contemplated Transactions entered into by the Buyer and the Seller on the date hereof.

1.2 Other Capitalized Terms. The following capitalized terms are defined in the following Sections of this Agreement:


Term		Section
Accountant		2.5(c)
Actual Attrition		2.6(b)(iii)
Agreement		Preamble
Allocation Schedule		2.7
Approved Materials		4.6(c)
Assets		2.1
Assumed Liabilities		2.2
Attrition Difference		2.6(b)(vi)
Attrition Payment		2.6(c)
Attrition Statement		2.6(b)
Base Period Attrition Rate		2.6(b)(iv)
Buyer		Preamble
Buyer Account		2.5(d)
Closing		2.4(a)
Contemplated Transactions		Recitals
Disagreement		2.5(b)
Eligible Membership Contracts As Of Closing		2.6(b)(i)
Eligible Membership Contracts Remaining		2.6(b)(ii)
Excluded Liabilities		2.3
Expected Attrition		2.6(b)(v)
Final Post-Closing Statement		2.5(c)
Final Settlement Date		2.5(d)
Hard Decline Contract		Schedule B
Holdback Amount Form Documents		2.6(a)


Term		Section
Indemnified Party		7.4(a)
Indemnifying Party		7.4(a)
Losses		7.2(a)
Notice of Disagreement		2.5(b)
Permit		4.4(b)
Post-Closing Statement		2.5(a)
Purchase Price		2.4(b)
Review Period		2.5(b)
Seller		Preamble
Seller Account		2.4(c)
Seller Marks		6.4
Target Contract Number		4.6(e)
Total Attrition Value		2.6(b)(viii)

ARTICLE II

TRANSFER OF ASSETS AND LIABILITIES

2.1 Assets to be Sold.

(a) The Seller hereby sells, transfers, conveys, assigns and delivers to the Buyer, and the Buyer hereby purchases from the Seller, free and clear of any Liens, all of the Seller’s right, title and interest in and to the Membership Contracts, including any right to payment from a Member billed after the date hereof thereunder (sometimes collectively referred to herein as the “Assets”).

(b) The Buyer hereby irrevocably accepts the sale, transfer, conveyance, assignment and delivery of all of the Seller’s right, title and interest in and to the Assets.

2.2 Liabilities to be Assumed. Subject to the terms and conditions of this Agreement, in partial consideration of the transfer to the Buyer of the Assets, as of the Closing the Buyer hereby assumes (and the Seller and its Affiliates shall no longer have any responsibilities for) all liabilities and obligations under the Membership Contracts to the extent they arise from events, circumstances or acts occurring after the date hereof, except for any such liability or obligation to the extent that it is an Excluded Liability (collectively, the “Assumed Liabilities”). The Buyer hereby agrees, as of the Closing, to assume the Assumed Liabilities and to release the Seller from any and all further liability or obligation with respect to the Assumed Liabilities (except as otherwise set forth in this Agreement or in the Ancillary Agreements).

2.3 Liabilities Not Assumed. The Buyer shall not assume any liabilities or obligations of the Seller that are not Assumed Liabilities, including any liability or obligation to the extent arising or resulting from:

(a) any Seller Membership Contract Activities; and/or

(b) Claims (which are not otherwise covered by clause (a) above) for refunds, credits or chargebacks under any Membership Contract with respect to amounts paid under such Membership Contract prior to the Closing to the extent that any such refund, credit or chargeback is credited by the Buyer to the Member in respect of a period of not more than three (3) months prior to the date hereof; excluding, however, any Claims resulting from actions and/or omissions for which the Seller is or is entitled to be indemnified for by the Buyer under the Predecessor Agreement;

all of the above, collectively, the “Excluded Liabilities.”

2.4 Consideration.

(a) At the closing provided for in Article III (the “Closing”), upon the terms and subject to the conditions of this Agreement, the Seller shall sell, transfer, convey, assign and deliver to the Buyer, and the Buyer shall purchase from the Seller, free and clear of any Liens, the Assets referred to in Section 2.1.

(b) The aggregate purchase price (the “Purchase Price”) shall be equal to the Per Account Value multiplied by the number of Eligible Membership Contracts as of the Closing, plus $1,250,000, and such Purchase Price shall be payable as set forth below in Section 2.4(c).

(c) At the Closing, the Buyer shall deliver to and pay to the Seller the Estimated Purchase Price, less the Holdback Amount, in cash by wire transfer of immediately available funds to the account designated by the Seller on Schedule C attached hereto (the “Seller Account”).

2.5 Post-Closing Statement.

(a) No later than forty-five (45) calendar days after the date hereof, the Buyer shall deliver to the Seller a post-closing statement (the “Post-Closing Statement”) in the form attached hereto as Schedule F, which shall set forth the actual number of Eligible Membership Contracts as of the date hereof and a calculation of the actual Purchase Price as of the date hereof, and which shall be prepared by the Buyer in good faith and in a manner otherwise consistent with the provisions of this Agreement (including by calculating the number of Eligible Membership Contracts as of the date hereof in the manner and in accordance with the methodology set forth on Schedule B), and shall be accompanied by such other information and methods of calculation as may be reasonably necessary for the Seller to evaluate the accuracy thereof. The Seller shall cooperate in good faith with the Buyer in the preparation of the Post-Closing Statement. The Seller shall provide the Buyer and its representatives, including its independent accountants, with reasonable access to the books, records, facilities and personnel of the Seller so that the Buyer and its representatives may prepare the Post-Closing Statement.

(b) During the fifteen (15) calendar day period after delivery of the Post-Closing Statement to the Seller (the “Review Period”), (i) the Buyer shall provide the Seller and its representatives, with reasonable access to the books, records and personnel of the Buyer so that Seller and its representatives may evaluate the Post-Closing Statement and (ii) the Seller may dispute any portion of the Post-Closing Statement by giving written notice (a “Notice of Disagreement”) to the Buyer setting forth in reasonable detail the basis for such dispute and the amount so disputed (hereinafter called a “Disagreement”). The Seller may not amend its Notice of Disagreement, including on the basis of facts subsequently discovered as a result of the Buyer’s review of the Notice of Disagreement. The failure by the Seller to deliver a Notice of Disagreement during the Review Period shall constitute an irrevocable acceptance by the Seller of the Post-Closing Statement in the form delivered by the Buyer. If the Seller delivers a Notice of Disagreement during the Review Period, the parties shall promptly commence good faith negotiations with a view to resolving such Disagreement.

(c) If the parties are not able to resolve any Disagreement within ten (10) calendar days after the delivery by the Seller of the Notice of Disagreement, such Disagreement shall be referred to a nationally or regionally recognized accounting firm of outstanding reputation as is mutually agreed to by the Buyer and the Seller (the “Accountant”) for a resolution by it in accordance with this Agreement (which agreement as to the Accountant shall not be unreasonably withheld, delayed or conditioned by the Buyer or the Seller). The determination of the Accountant shall be final, binding and conclusive, shall not be subject to appeal and shall be deemed to have been accepted by the Seller and the Buyer, subject only to gross negligence or manifest error, and the amount so determined shall be used to complete the Final Post-Closing Statement. The Accountant shall render its determination and report to the Seller and the Buyer in writing specifying the reasons for its determination in reasonable detail as soon as practicable, but not later than thirty (30) calendar days after referral of the Disagreement to the Accountant. The costs and expenses of such Accountant shall be borne by the non-prevailing party. The parties shall cooperate with each other and the Accountant with respect to the resolution of any Disagreement, such cooperation to include access to such party’s books, records, facilities and personnel as may reasonably be necessary solely in connection with such Disagreement. This provision shall constitute the exclusive remedy of the parties with respect to determination of the Final Post-Closing Statement. The “Final Post-Closing Statement” shall be (i) the Post-Closing Statement if no Notice of Disagreement is delivered to the Buyer during the Review Period or (ii) the Post-Closing Statement, as adjusted by (A) the written agreement of the Buyer and the Seller or (B) the Accountant in accordance with this Section 2.5(c).

(d) Notwithstanding anything herein to the contrary, if the Estimated Purchase Price exceeds the Purchase Price in the Final Post-Closing Statement, the Seller shall pay, within five (5) Business Days after the Final Post-Closing Statement has been determined (the “Final Settlement Date”), the difference to the Buyer by wire transfer of immediately available funds to the account designated by the Buyer on Schedule C attached hereto (the “Buyer Account”). Notwithstanding

anything herein to the contrary, if the Estimated Purchase Price is less than the Purchase Price in the Final Post-Closing Statement, the Buyer shall pay, within five (5) Business Days after the Final Settlement Date, the deficiency to the Seller by wire transfer of immediately available funds to the Seller Account.

2.6 Attrition Payment.

(a) At Closing, pursuant to Section 2.4(c), the Buyer shall deduct from the Estimated Purchase Price and retain an amount equal to $750,000 (the “Holdback Amount”) as security for any liability of the Seller to the Buyer in connection with any Attrition Payment which may be due to the Buyer as provided for in this Section 2.6. Notwithstanding anything to the contrary in this Agreement, the Seller makes no representation or warranty to the Buyer regarding the attrition of the Membership Contracts. Except for any right to indemnification that the Buyer has pursuant to Section 7.2(a), (i) the Attrition Payment provided for by this Section 2.6 shall be the sole and exclusive remedy under this Section 2.6 of the Buyer Indemnified Parties relating to any attrition of Membership Contracts that occurs after the Closing, and (ii) the maximum liability of the Seller to the Buyer pursuant to this Section 2.6 in respect of the attrition of Membership Contracts shall be the Holdback Amount ($750,000).

(b) Following the Closing, a statement of attrition with respect to the group of Eligible Membership Contracts that were reflected on the Final Post-Closing Statement (the “Attrition Statement”), a form of which is attached hereto as Schedule D, shall be prepared by the Buyer and delivered to the Seller by the Buyer no later than 200 days after the date hereof. The Attrition Statement shall be prepared by the Buyer in accordance with the following:

(i) The amount set forth on line (i) of the Attrition Statement shall be equal to the number of Eligible Membership Contracts set forth on the Final Post-Closing Statement (including any adjustments made in accordance with Section 2.5(b) or (c) of this Agreement). This amount shall be referred to as the “Eligible Membership Contracts As Of Closing”.

(ii) The amount set forth on line (ii) of the Attrition Statement shall be equal to the number of Eligible Membership Contracts as of Closing which, as of one hundred eighty (180) days after Closing, have not been cancelled, not renewed or otherwise terminated or under which a consumer has not ceased to purchase the products or services, or otherwise participate in the services, offered, sold, marketed and/or otherwise provided under such Membership Contracts. This amount shall be referred to as the “Eligible Membership Contracts Remaining”.

(iii) The amount set forth on line (iii) of the Attrition Statement shall be equal to Eligible Membership Contracts As Of Closing less Eligible Membership Contracts Remaining (line (i) less line (ii)). This amount shall be referred to as the “Actual Attrition”.

(iv) The amount set forth on line (iv) of the Attrition Statement shall be equal to the Base Period Attrition Rate. The Seller has provided the Buyer with documentation supporting the Base Period Attrition Rate, and, notwithstanding anything to the contrary in this Agreement, the Buyer agrees that the Base Period Attrition Rate is not subject to dispute pursuant to any provision of this Agreement.

(v) The amount set forth on line (v) of the Attrition Statement shall be equal to the Eligible Membership Contracts As Of Closing multiplied by the Base Period Attrition Rate (line (i) multiplied by line (iv)). This amount shall be referred to as the “Expected Attrition”.

(vi) The amount set forth on line (vi) of the Attrition Statement shall be equal to the Actual Attrition less the Expected Attrition (line (iii) less line (v)). This amount shall be referred to as the “Attrition Difference”.

(vii) The amount set forth on line (vii) of the Attrition Statement shall be equal to the Per Account Value.

(viii) The amount set forth on line (viii) of the Attrition Statement shall be equal to the Attrition Difference multiplied by the Per Account Value (line (vi) multiplied by line (vii)). This amount shall be referred to as the “Total Attrition Value”.

(c) Upon delivery of the Attrition Statement by the Buyer to the Seller, the Holdback Amount shall be allocated and disbursed as follows:

(i) If the Total Attrition Value is less than or equal to $0, there shall be no Attrition Payment, and the entire Holdback Amount shall be paid to the Seller by the Buyer upon the delivery of the Attrition Statement.

(ii) If the Total Attrition Value is greater than $0 but less than $750,000, an amount equal to the Total Attrition Value shall be retained by the Buyer (such amount, the “Attrition Payment”) from the Holdback Amount, and concurrently therewith an amount equal to the Holdback Amount less the Attrition Payment shall be paid to the Seller by the Buyer upon the delivery of the Attrition Statement.

(iii) If the Total Attrition Value is equal to or greater than $750,000, the Attrition Payment shall be equal to $750,000, and the Buyer shall retain the entire Holdback Amount.

(iv) Any amount of the Holdback Amount that is to be paid to the Seller in accordance with this Section 2.6(c) shall be paid by the Buyer in cash by wire transfer of immediately available funds to an account designated in writing by the Seller.

(d) During the ten (10) Business Day period after delivery of the Attrition Statement to the Seller, the Seller may dispute any portion of the Attrition Statement. Any such dispute shall be subject to, and the Attrition Statement shall be finalized in accordance with, the same limitations, restrictions, procedures (including with regard to Seller’s reasonable access) and resolution mechanisms as are set forth in Sections 2.5(b) and (c) of this Agreement. In the event of any such dispute, any additional amount of Holdback Amount due to the Seller from the Buyer shall be paid by the Buyer within ten (10) Business Days following the date the Attrition Statement is finalized pursuant to this Section 2.6(d).

(e) The Buyer and the Seller agree that during the period that the Seller is providing customer retention efforts pursuant to the terms of the Transition Services Agreement, the Seller shall use substantially the same customer retention efforts with respect to the Membership Contracts as were used by the Seller during the six (6) month period prior to the Closing.

2.7 Allocation of Purchase Price. Within ninety (90) calendar days after the later of the determination of the Final Post-Closing Statement and the determination of the Attrition Statement, the Buyer shall prepare and deliver to the Seller a schedule (an “Allocation Schedule”) allocating the sum of the Purchase Price and the Assumed Liabilities among the Assets, in such amounts reasonably determined by the Buyer to be consistent with Section 1060 of the Code, and the regulations thereunder. If the Seller does not agree to the Allocation within thirty (30) days after receiving the Allocation Schedule, the Buyer and the Seller shall not be bound by the Allocation Schedule. If within thirty (30) days after receiving it, the Seller agrees to the Allocation Schedule, neither party will take any position inconsistent with such Allocation Schedule unless such position is required by Law.

ARTICLE III

CLOSING

3.1 Closing. The Closing of the sale and purchase of the Assets contemplated hereby shall be the delivery of this Agreement in counterparts by the Buyer and the Seller.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE SELLER

The Seller represents and warrants to the Buyer as of the Closing as follows:

4.1 Authority to Execute and Perform Agreement.

(a) The Seller is a national banking association, duly organized and validly existing under the laws of the United States of America and has had at all

applicable times and has all requisite corporate power and authority required to enter into, execute and deliver this Agreement, and to perform fully its obligations hereunder, and to engage or have engaged in the Seller Membership Contract Activities. This Agreement has been duly executed and delivered by the Seller and, assuming due execution and delivery hereof by the other parties hereto, this Agreement will be valid and binding obligations of the Seller enforceable against it in accordance with its terms.

(b) The Seller has the full legal right and power and all authority and approvals required to enter into, execute and deliver this Agreement, and to perform fully its obligations hereunder. The execution and delivery by the Seller of this Agreement, the consummation of the transactions contemplated hereby, and the performance by the Seller of this Agreement in accordance with its terms and conditions will not:

(i) violate any provision of the charter (or comparable instruments) of the Seller;

(ii) require the Seller to obtain any material (whether individually or in the aggregate) consents, approvals, authorizations or actions of, or make any material (whether individually or in the aggregate) filings with or, except as set forth on Schedule 4.1, give any material (whether individually or in the aggregate) notices to, any Governmental Bodies or any other Person;

(iii) violate, conflict with or result in the breach of any of the terms and conditions of, result in a material modification of the effect of, otherwise cause the termination of or give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both constitute) a default under, any Membership Contract or any other agreement to which the Seller is a party or by or to which the Seller or the Assets is bound or subject; or

(iv) violate any Laws or Orders of any Governmental Bodies applicable to the Seller.

4.2 Title to the Assets. The Seller has good title to all of the Assets, free and clear of any Liens, except Permitted Liens.

4.3 Brokers. No broker, finder or investment banker is entitled to any brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated hereby.

4.4 Compliance with Laws.

(a) Neither the Seller nor any of its subsidiaries is in violation of any Orders, or any Laws, of any Governmental Bodies, which violations would materially impair or delay the ability of the Seller to consummate the transactions contemplated hereby. The Seller Membership Contract Activities have been conducted in all material respects by or on behalf of the Seller in compliance with all

applicable Laws and agreements to which the Seller is a party or by or to which the Seller or any of the Assets is bound or subject.

(b) The Seller has all material Permits required by any Law or any Governmental Body for its ownership of the Assets and the conduct of the Seller Membership Contract Activities. Each of such Permits is in full force and effect and the Seller is in compliance with the terms and requirements thereof in all material respects, and no such Permit is subject to any conditions or limitations other than those applicable to permits of that kind generally. For purposes of this Agreement, “Permits” means all federal, state, local or foreign permits, grants, easements, consents, approvals, authorizations, exemptions, licenses, franchises, insurance brokerage licenses, certificates, orders of, and/or any other authorization required by any Governmental Body, any other Person, or the Laws of any state in which Seller does business.

4.5 Litigation.

(a) As of the Closing, there are no actions, suits, proceedings or investigations pending or, to the Knowledge of the Seller, threatened against or adversely affecting (i) the Assets, (ii) any material Seller Membership Contract Activities or (iii) the Seller or any of its Affiliates, to the extent that any such action, suit, proceeding or investigation against the Sellers or any of its Affiliates would be reasonably likely to prevent, delay or impair the transactions contemplated hereby.

(b) Without limiting the foregoing, there are no pending or, to the Knowledge of the Seller, threatened federal or state civil or criminal law enforcement or regulatory agency investigations, civil investigative demands, subpoenas or access letters relating to the Assets.

(c) Without limiting the foregoing, there are no pending or, to the Knowledge of the Seller, threatened lawsuits or consent decrees or judgments, or any other judgments or orders issued by a state or federal regulatory agency or state or federal court against Seller relating to the Assets or the Seller Membership Contract Activities that would have a material adverse effect on the Assets.

4.6 Membership Contracts.

(a) Each Membership Contract constitutes a legal, valid and binding agreement of the Seller (assuming such Membership Contract is legal, valid and binding on the counterparty thereto) and, to the Knowledge of the Seller, each other party thereto, enforceable in accordance with its terms, and no such Membership Contract has been cancelled by the Seller or the counterparty thereto. There is no event of default or event or condition that, after notice or lapse of time or both, would constitute a violation, breach or event of default under any Membership Contract on the part of the Seller.

(b) None of the Membership Contracts automatically terminates upon consummation of the transactions contemplated hereby.

(c) The Seller has used only materials approved by the Buyer pursuant to the terms of the Predecessor Agreement (the “Approved Materials”) as the basis to enter into the Membership Contracts.

(d) None of the Membership Contracts contain terms or conditions that materially deviate from the Approved Materials.

(e) Each Member has consented to, and provided authorization for, the Buyer to pull or otherwise access such Member’s credit files and reports, and such consent and authorization is in full force and effect and complies with the Predecessor Agreement in all material respects.

(f) Each Member has consented to, and provided authorization for, the Seller to bill such Member on a monthly basis under the relevant Membership Contract, and such consent and authorization is in full force and effect.

(g) No Membership Contract is a Membership Contract that would have ordinarily been cancelled by the Seller as of 11:59 p.m. Eastern Time as of the date hereof in the ordinary course of the Seller’s business.

4.7 Bulk Transfer Laws. No bulk transfer laws are applicable to the transactions contemplated by this Agreement.

4.8 NO OTHER REPRESENTATIONS. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES OF THE SELLER SPECIFICALLY CONTAINED IN ARTICLE IV, NEITHER THE SELLER NOR ANY OTHER PERSON MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE TRANSACTION CONTEMPLATED HEREBY. IN ADDITION, NEITHER THE SELLER NOR ANY OTHER PERSON MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO ANY INFORMATION, DOCUMENTS OR MATERIAL MADE AVAILABLE TO THE BUYER, IN CONNECTION WITH ANY MANAGEMENT PRESENTATIONS, OR IN CONNECTION WITH ANY OTHER MATTER (INCLUDING, WITHOUT LIMITATION, THE PROVISION OF ANY BUSINESS OR FINANCIAL ESTIMATES AND PROJECTIONS AND OTHER FORECASTS AND PLANS (INCLUDING THE REASONABLENESS OF THE ASSUMPTIONS UNDERLYING SUCH ESTIMATES AND PROJECTIONS AND FORECASTS)), EXCEPT AS OTHERWISE SET FORTH HEREIN.

4.9 CONDITION OF ASSETS. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE IV, THE ASSETS ARE BEING SOLD “AS IS,” AND THE SELLER MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, WHATSOEVER, EXPRESS OR IMPLIED, RELATING TO THE ASSETS, INCLUDING ANY REPRESENTATION OR WARRANTY AS TO (I) THE FUTURE

SALES OR PROFITABILITY OF THE BUSINESS TO BE CONDUCTED BY THE BUYER USING THE ASSETS, (II) THE MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, OF ANY OF THE ASSETS, OR (III) REPRESENTATIONS OR WARRANTIES ARISING BY STATUTE OR OTHERWISE IN LAW, FROM A COURSE OF DEALING OR USAGE OF TRADE. ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED BY THE SELLER.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE BUYER

The Buyer represents and warrants to the Seller as of the Closing as follows:

5.1 Due Incorporation and Authority. The Buyer is a corporation validly existing and in good standing under the laws of Delaware. The Buyer has the requisite corporate power and authority to own and lease its properties and to carry on its business as now conducted, except where the failure to have such power and authority could not be expected to materially impair or delay the ability of the Buyer to consummate the transactions contemplated hereby.

5.2 Authority to Execute and Perform Agreement.

(a) The Buyer has the full legal right and power and all authority and approvals required to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder. This Agreement has been duly executed and delivered by the Buyer and, assuming due execution and delivery hereof by the other parties hereto, this Agreement constitutes valid and binding obligations of the Buyer enforceable against the Buyer in accordance with its terms.

(b) The execution and delivery by the Buyer of this Agreement, the consummation of the transactions contemplated hereby, and the performance by the Buyer of this Agreement in accordance with its terms and conditions will not:

(i) violate any provision of the certificate of incorporation or by-laws (or comparable instruments) of the Buyer;

(ii) except as set forth on Schedule 5.2(b)(ii) attached hereto, require the Buyer to obtain any material consents, approvals, authorizations or actions of, or make any material filings with or give any material notices to, any Governmental Bodies or any other Person; provided, that each such approval set forth on Schedule 5.2(b)(ii) has been obtained by the Buyer as of the Closing;

(iii) except as set forth on Schedule 5.2(b)(iii) attached hereto, violate, conflict with or result in the breach of any of the terms and conditions of,

result in a material modification of the effect of, otherwise cause the termination of or give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both constitute) a default under, any contract, agreement, lease or license to which the Buyer is a party or by or to which the Buyer or any of its properties is or may be bound or subject; provided, that each such approval set forth on Schedule 5.2(b)(iii) has been obtained by the Buyer as of the Closing; or

(iv) violate any Laws or Orders of any Governmental Bodies applicable to the Buyer.

5.3 Brokers. No broker, finder or investment banker is entitled to any brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated hereby based on arrangements made by or on behalf of the Buyer.

5.4 Compliance with Laws. Neither the Buyer nor any of its subsidiaries is in violation of any Orders, or any Laws, of any Governmental Bodies, which violations would materially impair or delay the ability of the Buyer to consummate the transactions contemplated hereby.

5.5 Litigation. As of the Closing, there are no actions, suits, proceedings or investigations pending or, to the knowledge of the Buyer, threatened against the Buyer or any of its Affiliates, that would be reasonably likely to prevent, delay or impair the transactions contemplated hereby.

5.6 Exclusivity of Representations. The representations and warranties made by the Buyer in this Agreement are in lieu of and are exclusive of all other representations and warranties, including any implied warranties.

5.7 INDEPENDENT INVESTIGATION. THE BUYER HEREBY ACKNOWLEDGES AND AFFIRMS (A) THAT IT HAS CONDUCTED AND COMPLETED ITS OWN INVESTIGATION, ANALYSIS AND EVALUATION OF THE ASSETS, MADE ALL SUCH REVIEWS AND INSPECTIONS OF THE ASSETS AS IT DEEMED NECESSARY OR APPROPRIATE, HAD THE OPPORTUNITY TO REQUEST ALL INFORMATION IT DEEMED RELEVANT TO THE FOREGOING FROM THE SELLER AND RECEIVED RESPONSES IT DEEMED ADEQUATE AND SUFFICIENT TO ALL SUCH REQUESTS FOR INFORMATION, AND (B) THAT IN MAKING ITS DECISION TO ENTER INTO THIS AGREEMENT AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY IT HAS RELIED SOLELY ON (I) ITS OWN INVESTIGATION, ANALYSIS AND EVALUATION OF THE ASSETS AND (II) THE REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER CONTAINED IN THIS AGREEMENT.

ARTICLE VI

COVENANTS AND AGREEMENTS

6.1 Confidentiality. In connection with the transaction contemplated hereby, the Seller has prior to the date hereof communicated and furnished certain non-public information, both written and oral (including but not limited to books and records, documents, analyses, financial information, and business operations and strategy and information relating to the terms, conditions and price of the transactions contemplated hereby), whether or not designated confidential, to the Buyer, all of which the Buyer agrees for a period of two (2) years, it will not use or disclose to any other Person for any purpose without the prior written consent of the Seller, except to the directors, officers, employees, advisors and representatives of the advisors of the Buyer for whom such non-public information is necessary to assist the Buyer in the conduct of its business and except for any such information (a) that is or becomes publicly available, other than as a result of a disclosure by the Buyer in violation of this Agreement, (b) which must be disclosed by the Buyer under applicable Laws or by order of any Governmental Body, or (c) which the Buyer reasonably believes is required to be disclosed in connection with the defense of a lawsuit against the Seller or any of its Affiliates; provided, however, that none of the foregoing prohibitions set forth in this Section 6.1 shall apply to any information necessary for the Buyer to use or disclose in the ordinary conduct of its business. In the event that disclosure of such non-public information is required by applicable Law, the Buyer shall promptly notify the Seller of any such requirement and the Seller shall be permitted to seek confidential treatment for such information.

6.2 Publicity. Except as may be required by applicable law or the rules of any securities exchange or market on which shares of the Buyer or any Affiliate of the Seller are traded, the parties agree that no publicity release or announcement concerning this Agreement or the transactions contemplated hereby shall be made without advance approval thereof by both the Seller and the Buyer (which approval shall not be unreasonably withheld, delayed or conditioned); provided, however, that if any announcement (including filing the Agreement with the Securities and Exchange Commission) is required by law or the rules of any securities exchange or market to be made by any party hereto, prior to making such announcement such party will deliver a draft of such announcement to the other party hereto and shall give the other party reasonable opportunity to comment thereon.

6.3 Seller Marks. The Buyer acknowledges and agrees that, except as specifically set forth in the Program Provider Agreement, the Transition Services Agreement and the Predecessor Agreement, the Buyer has not acquired hereunder any rights in and to any of (i) the Seller’s or its Affiliates’ marks, including without limitation “CITI,” any mark comprised of or containing CITI, the logo CITI & Arc Design, and the term CITIGROUP, or (ii) the logo Umbrella Device, or, in each case, any marks or Internet domain name registrations or applications incorporating such terms or logos (the “Seller Marks”) and the Buyer shall not hereunder have any right, title or interest in and to, or right to use, the Seller Marks or any marks, or Internet domain names confusingly

similar thereto. The Buyer covenants that, except as specifically set forth in the Program Provider Agreement, the Transition Services Agreement, the Predecessor Agreement, any other agreements between the parties hereto or as permitted by Law, it will not hereafter adopt or use, or authorize others to adopt or use, any trade names, trademarks, service marks, Internet domain names or logos consisting of or incorporating CITI, the logo CITI & Arc Design or the terms CITIGROUP or CITIBANK or any trade names, trademarks, service marks, Internet domain names or logos confusingly similar thereto.

6.4 Access to Information and Cooperation. Each party hereto shall provide the other and its professional advisors with reasonable access to its books and records if reasonably required in connection with any litigation, investigation, Tax audit, discovery or similar proceeding, or in the preparation of Tax Returns. If any party hereto shall request the assistance (including testimony) of employees of the other party hereto in connection with any litigation, investigation, Tax audit, discovery, Claim or similar proceeding, such other party shall make such employees reasonably available for a reasonable period of time. The requesting party shall reimburse the complying party for any out-of-pocket costs incurred in connection with complying with this Section 6.4 and such requesting party and any other recipient of any materials pursuant to this Section 6.4 shall enter into a confidentiality agreement reasonably acceptable to the disclosing party with respect to any materials made available pursuant to this Section 6.4.

6.5 Preservation of Records. The Buyer, at its own expense, shall preserve and keep records held by it solely relating to the Assets for a period of seven (7) years from the date hereof, during which time the Buyer shall make such records reasonably available to the Seller as the Seller reasonably requires. The Buyer may destroy such records after that time, unless the Seller elects to take possession of such records at its own expense by giving notice to the Buyer of such election within one hundred and eighty (180) days prior to the seventh anniversary of the date hereof.

6.6 Compliance with Program Exhibit. During the term of the Program Provider Agreement, the Seller shall comply with Paragraph VI of the Program Exhibit (as defined in the Program Provider Agreement).

6.7 Billing. The Seller shall provide the membership files regarding the Members to the Buyer in accordance with the Transition Services Agreement, and such membership files will include any credit card numbers associated with the applicable Member’s file.

6.8 Further Assurances. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its commercially reasonable efforts to take or cause to be taken all action and to do or cause to be done all things reasonably necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. If at any time after the date hereof any further action is necessary to carry out the purposes of this Agreement, the proper officers and directors of each party hereto shall take all such necessary action.

ARTICLE VII

SURVIVAL; INDEMNIFICATION

7.1 Survival of Representations and Warranties. Except for the representations and warranties set forth in Sections 4.1 (Authority to Execute and Perform Agreement), 4.2 (Title to the Assets) and 5.1 (Due Incorporation and Authority) (which shall survive the Closing and continue forever), all of the representations and warranties contained in this Agreement shall survive the Closing and continue until eighteen (18) months after the Closing. Except in the event an “Indemnified Party” (as defined below) makes a written claim for indemnification against an “Indemnifying Party” (as defined below) prior to such expiration, no Claim may be instituted to enforce, or seek damages or other remedies with respect to the breach of, any representation or warranty after the expiration of the period of survival for such representation or warranty as described above.

7.2 Indemnification.

(a) The Seller shall indemnify and hold harmless the Buyer, its Affiliates, and their respective officers, directors, agents, successors and assigns from and against any and all liabilities, losses, damages of any kind, claims, costs, expenses, fines, fees, deficiencies, interest, awards, judgments, amounts paid in settlement and penalties (including attorneys’, consultants’ and experts’ fees and expenses and other costs of defending, investigating or settling claims) actually suffered or incurred by them (including in connection with any action brought or otherwise initiated by any of them) (hereinafter, “Losses”) arising out of or resulting from:

(i) any inaccuracy in or breach of any representation or warranty of the Seller contained in this Agreement as of the Closing;

(ii) any breach of any covenant or agreement made by the Seller in this Agreement; or

(iii) any Excluded Liability.

(b) The Buyer shall indemnify and hold harmless the Seller and its Affiliates, and their respective officers, directors, agents, successors and assigns successors and assigns from and against any and all Losses arising out of or resulting from:

(i) any inaccuracy in or breach of any representation or warranty of the Buyer contained in this Agreement as of the Closing;

(ii) any breach of any covenant or agreement made by the Buyer in this Agreement; or

(iii) any Assumed Liability.

7.3 Limitations on Indemnification.

(a) Notwithstanding the foregoing, the Seller shall not be required to indemnify the Buyer Indemnified Parties in respect of any Losses for which indemnity is claimed under Section 7.2(a)(i) above, unless and until the aggregate of all such Losses exceeds the Threshold Amount, in which event the Buyer Indemnified Parties shall be entitled to claim indemnity for the aggregate amount of such Losses, including the Threshold Amount;

(b) Notwithstanding anything herein to the contrary, the maximum amount of Losses that the Buyer Indemnified Parties will be entitled to recover for which indemnity is claimed under Section 7.2(a)(i) shall be equal to the Indemnification Cap;

(c) The Seller shall not be liable for any punitive, special, exemplary or consequential damages, including consequential damages for lost revenues, income or profits under Section 7.2(a), except to the extent any settlement agreement, award or Order includes any such damages in connection with any third party claim; provided, however, the foregoing limitation on punitive, special, exemplary and consequential damages shall not include or apply to the diminution in value of, or lost revenues, income or profits or other appropriate measures directly relating to, the Eligible Membership Contracts;

(d) Notwithstanding anything herein to the contrary, if at the Closing, the Buyer (comprised of, for purposes of this Section 7.3(d), the actual knowledge of the following persons: John Scanlon and Steven A. Schwartz, each of whom the Buyer warrants has read this Agreement) has actual knowledge that one or more of the representations or warranties made by the Seller is breached as of the date made, then the Buyer Indemnified Parties shall have no right or remedy after the Closing with respect to such breach;

(e) The Buyer shall not be liable for any punitive, special, exemplary or consequential damages, including consequential damages for lost revenues, income or profits under Section 7.2(b), except to the extent any settlement agreement, award or Order includes any such damages in connection with any third party claim;

(f) Notwithstanding anything herein to the contrary, no Loss otherwise payable by the Seller shall be deemed a “Loss” within the meaning of this Article VII to the extent any adjustment to the Purchase Price pursuant to Section 2.5 (Post-Closing Statement) or any Attrition Payment pursuant to Section 2.6 (Attrition Payment) covers any such otherwise payable Loss;

(g) No claim for indemnification shall be enforced against an indemnifying party to the extent any insurance proceeds (or any other indemnification proceeds) actually are received by the indemnified party with respect to any Loss otherwise payable by the indemnifying party, and any indemnification payment in

respect of any Losses for which indemnity is claimed under Section 7.2 shall be net of any Tax benefit actually realized by the indemnified party in connection with the indemnified party’s deduction of such liability, in each case net of any and all direct or indirect costs, fees and expenses of collection or otherwise associated therewith;

provided, however, that the foregoing limitations on the Seller’s obligations to indemnify the Buyer Indemnified Parties set forth in Section 7.3(a) and 7.3(b) shall in no event apply to: (i) any inaccuracies in or breaches of Section 4.1 (Authority to Execute and Perform Agreement) or Section 4.2 (Title to the Assets), or (ii) any fraud, willful misconduct or intentional misrepresentations by the Seller; provided further, however, that the foregoing limitations on the Seller’s obligations to indemnify the Buyer Indemnified Parties set forth in Section 7.3(c), and the foregoing limitations on the Buyer’s obligations to indemnify the Seller Indemnified Parties set forth in Section 7.3(e), shall in no event apply to any fraud, willful misconduct or intentional misrepresentations by the Seller and the Buyer, respectively.

(h) Exclusive Remedy. Following the Closing, the remedies provided by Article VII subject to the limitations set forth herein, and subject to Section 8.14, shall be the sole and exclusive remedies of the Buyer Indemnified Parties and the Seller Indemnified Parties for the recovery of Losses resulting from, relating to or arising out of this Agreement (except in the case of fraud, willful misconduct or intentional misrepresentations by the other party).

(i) Manner of Payment. Any indemnification of the Buyer Indemnified Parties or the Seller Indemnified Parties pursuant to this Section ý7.3 shall be effected by wire transfer of immediately available funds from the Seller or the Buyer, as the case may be, to an account designated in writing by the applicable Buyer Indemnified Party or Seller Indemnified Party, as the case may be, within five days after the final determination thereof.

7.4 Third Party Indemnification Procedures.

(a) The obligations and liabilities of any Person required to provide indemnification under this Article VII (each, an “Indemnifying Party”) with respect to Losses arising from claims of any third party which are subject to the indemnification provided for in this Article VII (“Third Party Claims”) shall be governed by and contingent upon the terms and conditions set forth in this Section 7.4. If any Person entitled to indemnification pursuant to Section 7.2(a) or 7.2(b) (an “Indemnified Party”) shall receive notice of any Third Party Claim, the Indemnified Party shall give the Indemnifying Party notice of such Third Party Claim within ten (10) days of the receipt by the Indemnified Party of such notice; provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of its respective obligations under this Article VII except to the extent that the Indemnifying Party is materially prejudiced by such failure. The notice of claim shall describe in reasonable detail the facts known to the Indemnified Party giving rise to such indemnification claim, and the amount or good faith estimate of the amount arising therefrom.

(b) The Indemnifying Party shall be entitled to assume and control the defense of a Third Party Claim at its expense and through counsel of its choice (such counsel to be reasonably acceptable to the Indemnified Party) if it gives notice of its intention to do so to the Indemnified Party within thirty (30) days after the receipt of such notice from the Indemnified Party; provided, however, if there exists or is reasonably likely to exist a conflict of interest that would make it inappropriate for the same counsel to represent both the Indemnified Party and the Indemnifying Party, then the Indemnified Party shall be entitled to retain its own counsel, in each jurisdiction for which counsel is required, at the expense of the Indemnifying Party. In the event that the Indemnifying Party exercises the right to undertake any such defense against any such Third Party Claim as provided above, the Indemnifying Party shall conduct the defense of the Third Party Claim actively and diligently and the Indemnified Party shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party at the Indemnifying Party’s expense, all witnesses, pertinent records, materials and information in the Indemnified Party’s possession or under the Indemnified Party’s control relating thereto as is reasonably required by the Indemnifying Party. Similarly, in the event the Indemnified Party is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnified Party in such defense and make available to the Indemnified Party, at the Indemnifying Party’s expense, all such witnesses, records, materials and information in the Indemnifying Party’s possession or under the Indemnifying Party’s control relating thereto as is reasonably required by the Indemnified Party. No such Third Party Claim may be settled by any party conducting the defense against such claim without the prior written consent of the other party, which consent shall not be unreasonably withheld, delayed or conditioned.

ARTICLE VIII

MISCELLANEOUS

8.1 Consent to Jurisdiction and Service of Process.

(a) Any claim arising out of or relating to this Agreement or the transactions contemplated hereby shall be instituted in and each party hereby irrevocably submits to the exclusive jurisdiction of any federal court in Delaware, and each party agrees not to assert, by way of motion, as a defense or otherwise, in any such Claim, that it is not subject personally to the jurisdiction of such court, that the Claim is brought in an inconvenient forum, that the venue of the Claim is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Each party further irrevocably submits to the jurisdiction of such court in any such Claim.

(b) Any and all service of process and any other notice in any such Claim shall be effective against any party hereto if given personally or by registered or certified mail, return receipt requested, or by any other means of mail that requires a signed receipt, postage prepaid, mailed to such party as herein provided. Nothing herein contained shall be deemed to affect the right of any party hereto to serve process in any

manner permitted by law or to commence legal proceedings or otherwise proceed against any other party in any other jurisdiction.

(c) Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS, AGREEMENTS AND CERTIFICATIONS IN THIS SECTION.

8.2 Expenses. Other than Transfer Taxes, if any, which shall be borne 50% by the Buyer and 50% by the Seller, or as otherwise set forth herein, each party shall bear its expenses incurred in connection with this Agreement and the transactions contemplated hereby, including all fees and expenses of its agents, representatives, counsel and accountants.

8.3 Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, sent by overnight delivery via a national courier service or by facsimile to the respective parties as follows:

(a) if to the Buyer, to:

Intersections Inc.
14901 Bogle Drive, Suite 300
Chantilly, Virginia 20151
Facsimile No.: (703) 488-6180
Attn: Chief Legal Officer

with a copy to:

Venable LLP
8010 Towers Crescent Drive, Suite 300
Vienna, Virginia 22182
Facsimile No.: (703) 821-8949
Attn: Joseph C. Schmelter, Esq.

(b) if to the Seller, to:

Citibank (South Dakota), N.A.
701 East 60th Street, North
Sioux Falls, South Dakota 57104
Attn: General Counsel
Facsimile: (605) 330-6745

with a copy to:

Citicorp Credit Services, Inc. (USA)
6460 Las Colinas Blvd.
Irving, Texas 75039
Attn: Citi Cards Legal Department
Fax: (469) 220-9858

with a copy to:

Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Mark A. Underberg
Telephone: (212) 373-3000
Facsimile: (212) 757-3990

with a copy to:

Citigroup Inc.
153 East 53rd Street, 25th Floor
New York, New York 10022
Attention: M&A Legal
Telephone: (212) 793-1598
Facsimile: (212) 793-7648

Each such notice or other communication shall be effective (i) if delivered in person, when such delivery is made at the address specified in this Section 8.3, (ii) if delivered by overnight courier, the next Business Day after such notice or other communication is sent to the address specified in this Section 8.3, or (iii) if delivered by facsimile, when a legible copy of such facsimile is transmitted to the facsimile number specified in this Section 8.3 and the appropriate confirmation is received. Any party may, by notice given in accordance with this Section 8.3, designate another address or Person for receipt of notices hereunder.

8.4 Entire Agreement; No Third-Party Beneficiaries. This Agreement, together with the Ancillary Agreements and the Predecessor Agreement, contain the entire agreement among the parties with respect to the sale and purchase of the Assets and supersede all prior agreements, written or oral, with respect thereto, including that

certain confidentiality letter agreement dated July 27, 2007 between the Buyer and the Seller, except for paragraph 5 thereof, which shall survive the Closing. This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

8.5 Waivers and Amendments. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the Buyer and the Seller or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege.

8.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely within the State of Delaware, without regard to the principles of conflicts of law thereof.

8.7 Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and legal representatives. This Agreement is not assignable without the prior written consent of the Buyer and the Seller; provided, however, that either party may assign (a) its rights to receive payment under this Agreement, following written notice to the other party, to (i) one or more Affiliates, and (ii) any lender providing financing to the Buyer for the Contemplated Transactions, and (b) its rights and obligations under this Agreement, following written notice to the other party, to any Person acquiring a material portion of the assets, business or securities of such assigning Person, whether by merger, consolidation, sale of assets or securities or otherwise; and provided, further, that no such assignment under clause (a) or (b) above will relieve the assignor of its obligations under this Agreement; and provided, further, that any assignee acquiring a material portion of such assets, business or securities under clause (c) above shall assume (by operation of law or by contract) all of such assignor’s obligations hereunder.

8.8 Usage. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. All terms defined in this Agreement in their singular or plural forms have correlative meanings when used herein in their plural or singular forms, respectively. Unless otherwise expressly provided, the words “include,” “includes” and “including” do not limit the preceding words or terms and shall be deemed to be followed by the words “without limitation.”

8.9 Schedules. The Schedules are a part of this Agreement as if fully set forth herein. All references herein to Sections and Schedules shall be deemed references to such parts of this Agreement, unless otherwise indicated.

8.10 Articles and Sections. All references herein to Articles and Sections shall be deemed references to such parts of this Agreement, unless otherwise indicated.

8.11 Headings. The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement.

8.12 Interpretation. The parties acknowledge and agree that: (a) each party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (b) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement; and (c) the terms and provisions of this Agreement shall be construed fairly as to all parties hereto, regardless of which party was generally responsible for the preparation of this Agreement.

8.13 Severability of Provisions. If any provision or any portion of any provision of this Agreement shall be held invalid or unenforceable, the remaining portion of such provision and the remaining provisions of this Agreement shall not be affected thereby. If the application of any provision or any portion of any provision of this Agreement to any Person or circumstance shall be held invalid or unenforceable, the application of such provision or portion of such provision to Persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby.

8.14 Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was 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 hereof, this being in addition to any other remedy to which they are entitled at law or in equity.

8.15 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto.

[Remainder of this page intentionally left blank]

IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.


	BUYER: INTERSECTIONS INC.
	By:
		Name:
		Title:

	SELLER: CITIBANK (SOUTH DAKOTA), N.A.
	By:
		Name:
		Title:

EX-10.21.2 3 w51111exv10w21w2.htm EX-10.21.2 exv10w21w2

Exhibit 10.21.2

AMENDMENT NO. 1 TO CREDIT AGREEMENT

This Amendment No. 1 to Credit Agreement (this “Agreement”) dated as of November 29, 2007 is made by and among INTERSECTIONS INC., a Delaware corporation (the “Company”), the Subsidiaries of the Company party hereto (together with the Company, the “Borrowers” and each a “Borrower”), BANK OF AMERICA, N.A., a national banking association organized and existing under the laws of the United States (“Bank of America”), in its capacity as administrative agent for the Lenders (as defined in the Credit Agreement (as defined below)) (in such capacity, the “Administrative Agent”), and each of the Lenders signatory hereto.

W I T N E S S E T H:

WHEREAS, the Borrowers, the Administrative Agent and the Lenders have entered into that certain Credit Agreement dated as of July 3, 2006 (as hereby amended and as from time to time hereafter further amended, modified, supplemented, restated, or amended and restated, the “Credit Agreement”; capitalized terms used in this Agreement not otherwise defined herein shall have the respective meanings given thereto in the Credit Agreement), pursuant to which the Lenders have made available to the Borrowers various credit facilities; and

WHEREAS, the Borrowers have advised the Administrative Agent and the Lenders that they desire to amend certain provisions of the Credit Agreement as set forth below and the Administrative Agent and the Lenders signatory hereto are willing to effect such amendment on the terms and conditions contained in this Agreement;

NOW, THEREFORE, in consideration of the premises and further valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Amendments to Credit Agreement. Subject to the terms and conditions set forth herein, the Credit Agreement is hereby amended as follows:

(a) Section 1.01 is amended by deleting the definition of “Consolidated Tangible Net Worth” therefrom.

(b) Section 6.12(a) is deleted in its entirety and replaced with the following:

“[Reserved]”

2. Effectiveness; Conditions Precedent. The effectiveness of this Agreement and the amendments to the Credit Agreement herein provided are subject to the satisfaction of the following conditions precedent:

(a) the Administrative Agent shall have received one or more counterparts of this Agreement, duly executed by each Borrower, the Administrative Agent and the Required Lenders;

(b) all fees and expenses payable to the Administrative Agent and the Lenders (including the fees and expenses of counsel to the Administrative Agent) estimated to date shall have been paid in full (without prejudice to final settling of accounts for such fees and expenses).

3. Representations and Warranties. In order to induce the Administrative Agent and the Lenders to enter into this Agreement, the Borrower represents and warrants to the Administrative Agent and the Lenders as follows:

(a) The representations and warranties made by each Loan Party in Article V of the Credit Agreement and in each of the other Loan Documents to which such Loan Party is a party are true and correct on and as of the date hereof, except to the extent that such representations and warranties expressly relate to an earlier date;

(b) Since the date of the most recent financial reports of the Company and its Subsidiaries delivered pursuant to Section 6.01 of the Credit Agreement, no act, event, condition or circumstance has occurred or arisen which, singly or in the aggregate with one or more other acts, events, occurrences or conditions (whenever occurring or arising), has had or could reasonably be expected to have a Material Adverse Effect;

(c) This Agreement has been duly authorized, executed and delivered by the Borrowers and constitutes a legal, valid and binding obligation of such parties, except as may be limited by general principles of equity or by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally; and

(d) After giving effect to this Agreement, no Default or Event of Default has occurred and is continuing.

4. Entire Agreement. This Agreement, together with all the Loan Documents (collectively, the “Relevant Documents”), sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relating to such subject matter. No promise, condition, representation or warranty, express or implied, not set forth in the Relevant Documents shall bind any party hereto, and no such party has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as otherwise expressly stated in the Relevant Documents, no representations, warranties or commitments, express or implied, have been made by any party to the other in relation to the subject matter hereof or thereof. This Section 4, however, is subject to (i) that certain consent and waiver letter dated December 11, 2006 from Bank of America, N.A., as Lender, to the Borrower and (ii) that certain consent letter dated November 2, 2007 from Bank of America, N.A., as Lender, to the Borrower. None of the terms or conditions of this Agreement may be changed, modified, waived

or canceled orally or otherwise, except in writing and in accordance with Section 10.01 of the Credit Agreement.

5. Full Force and Effect of Agreement. Except as hereby specifically amended, modified or supplemented, the Credit Agreement and all other Loan Documents are hereby confirmed and ratified in all respects and shall be and remain in full force and effect according to their respective terms, subject to (i) that certain consent and waiver letter dated December 11, 2006 from Bank of America, N.A., as Lender, to the Borrower and (ii) that certain consent letter dated November 2, 2007 from Bank of America, N.A., as Lender, to the Borrower.

6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument.

7. Governing Law. This Agreement shall in all respects be governed by, and construed in accordance with, the laws of the Commonwealth of Virginia applicable to contracts executed and to be performed entirely within such Commonwealth, and shall be further subject to the provisions of Section 10.13 of the Credit Agreement.

8. Enforceability. Should any one or more of the provisions of this Agreement be determined to be illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto.

9. References. All references in any of the Loan Documents to the “Credit Agreement” shall mean the Credit Agreement, as amended hereby.

10. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Administrative Agent and each of the Lenders, and their respective successors, legal representatives, and assignees to the extent such assignees are permitted assignees as provided in Section 10.06 of the Credit Agreement.

[Signature pages follow.]

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written.


		BORROWERS:

		INTERSECTIONS INC.

		By:
		Name:

		Title:


		CREDITCOM SERVICES, LLC

		By:
		Name:

		Title:


		INTERSECTIONS HEALTH SERVICES, INC.

		By:
		Name:

		Title:


		CHARTER MARKETING SERVICES, INC.

		By:
		Name:

		Title:

Signature Page 1 of 3


		ADMINISTRATIVE AGENT:

		BANK OF AMERICA, N.A., as Administrative Agent

		By:
		Name:

		Title:

Signature Page 2 of 3


		LENDERS:

		BANK OF AMERICA, N.A.

		By:
		Name:

		Title:

Signature Page 3 of 3

EXHIBIT C

FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date: ,


To:		Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement, dated as of July 3, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement”; the terms defined therein being used herein as therein defined), among Intersections Inc., a Delaware corporation (the “Company”), each Subsidiary of the Company from time to time party thereto (collectively with the Company, the “Borrowers”), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent and L/C Issuer.

The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the of the Company, and that, as such, he/she is authorized to execute and deliver this Certificate to the Administrative Agent on the behalf of the Borrowers, and that:

[Use following paragraph 1 for fiscal year-end financial statements]

1. Attached hereto as Schedule 1 are the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of the Company ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section.

[Use following paragraph 1 for fiscal quarter-end financial statements]

1. Attached hereto as Schedule 1 are the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of the Company ended as of the above date. Such financial statements fairly present the financial condition, results of operations and cash flows of the Company and its Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes.

2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Company and its Subsidiaries during the accounting period covered by the attached financial statements.

3. A review of the activities of the Company and its Subsidiaries during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Loan Parties have performed and observed all its Obligations under the Loan Documents, and

Exhibit C
Form of Compliance Certificate

[select one:]

[to the best knowledge of the undersigned during such fiscal period, the Loan Parties performed and observed each covenant and condition of the Loan Documents applicable to it, and no Default has occurred and is continuing.]

—or—

[the following covenants or conditions have not been performed or observed and the following is a list of each such Default and its nature and status:]

4. The representations and warranties of the Borrowers contained in Article V of the Agreement, and any representations and warranties of any Loan Party that are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this Compliance Certificate, the representations and warranties contained in subsections (a) and (b) of Section 5.05 of the Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 of the Agreement, including the statements in connection with which this Compliance Certificate is delivered.

5. The financial covenant analyses and information set forth on Schedule 2 attached hereto are true and accurate on and as of the date of this Certificate.

IN WITNESS WHEREOF, the undersigned has executed this Certificate as of , .


		INTERSECTIONS INC.

		By:
		Name:

		Title:

Exhibit C
Form of Compliance Certificate

SCHEDULE 1
to the Compliance Certificate

Financial Statements

(see attached)

Exhibit C
Form of Compliance Certificate
Schedule 1

For the Quarter/Year ended (“Statement Date”)

SCHEDULE 2
to the Compliance Certificate
($ in 000’s)

I. Section 6.12(b) — Consolidated Leverage Ratio.


A. Consolidated Total Funded Debt at Statement Date:		$

B. Consolidated EBITDA for the 12 month period ending on above date (“Subject Period”), as adjusted pursuant to Sections 1.07(a) and (b):

1. consolidated net income:		$

2. income from discontinued operations and extraordinary items:		$

3. loss from discontinued operations and extraordinary items:		$

4. income taxes:		$

5. interest expense:		$

6. depreciation, depletion, amortization, impairment of goodwill, write-down of intangibles, and the amortization and expensing of non-cash stock-based compensation:		$

7. Screening adjustment		$

8. Consolidated EBITDA (Lines I.B.1. - 2. + 3. + 4. + 5. + 6. - 7.):		$

C. Consolidated Leverage Ratio (Line I.A ÷ Line I.B.8):		to 1.00

*Maximum permitted:*		*2.50 to 1.00*

III. Section 6.12(c) – Consolidated Fixed Charge Coverage Ratio.


A. Consolidated Cash Flow for Subject Period, as adjusted pursuant to Sections 1.07(a) and (b):

1. net income, after income tax:		$

2. income from discontinued operations and extraordinary items:		$

3. loss from discontinued operations and extraordinary items:		$

Exhibit C
Form of Compliance Certificate
Schedule 2


4. depreciation, amortization and other non-cash charges:		$

5. interest expense on all obligations:		$

6. dividends, withdrawals and other distributions (to include stock buybacks):		$

7. unfinanced capital expenditures:		$

8. Screening adjustment:		$

9. Consolidated Cash Flow (Lines II.A.1. – 2. + 3. + 4. + 5. – 6. – 7. – 8.):		$

B. Consolidated Fixed Charges for Subject Period:

1. Current portion (scheduled principal) of long term debt as of the above date:		$

2. Current portion (scheduled principal) of capitalized lease obligations as of the above date:		$

3. interest expense on all obligations during the Subject Period:		$

4. Ordinary Dividends paid during the Subject Period:		$

5. Consolidated Fixed Charges (Lines II.B.1. + 2. + 3. + 4.):		$

C. Consolidated Fixed Charge Coverage Ratio:

((Lines II.A.9. ÷ II.B.5.)		to 1.00

*Minimum permitted:*		*1.25 to 1.00*

Exhibit C
Form of Compliance Certificate
Schedule 2

EX-10.21.3 4 w51111exv10w21w3.htm EX-10.21.3 exv10w21w3

Exhibit 10.21.3

AMENDMENT NO. 2 TO CREDIT AGREEMENT

This Amendment No. 2 to Credit Agreement (this “Agreement”) dated as of January 31, 2008 is made by and among INTERSECTIONS INC., a Delaware corporation (the “Company”), the Subsidiaries of the Company party hereto (together with the Company, the “Borrowers” and each a “Borrower”), BANK OF AMERICA, N.A., a national banking association organized and existing under the laws of the United States (“Bank of America”), in its capacity as administrative agent for the Lenders (as defined in the Credit Agreement (as defined below)) (in such capacity, the “Administrative Agent”), and each of the Lenders signatory hereto.

W I T N E S S E T H:

WHEREAS, the Borrowers, the Administrative Agent and the Lenders have entered into that certain Credit Agreement dated as of July 3, 2006 (as heretofore amended, as hereby amended and as from time to time hereafter further amended, modified, supplemented, restated, or amended and restated, the “Credit Agreement”; capitalized terms used in this Agreement not otherwise defined herein shall have the respective meanings given thereto in the Credit Agreement), pursuant to which the Lenders have made available to the Borrowers a term loan facility and a revolving credit facility, including a subfacility for letters of credit; and

WHEREAS, pursuant to Section 2.01(a) of the Credit Agreement, the Lenders made a term loan to the Borrowers on the Closing Date in a principal amount of $15,000,000 (the “Initial Term Loan”); and

WHEREAS, the Company has entered into that certain Membership Purchase Agreement (“Purchase Agreement”) with Citibank (South Dakota), N.A. (the “Seller”) dated as of January 31, 2008, whereby the Company is purchasing certain assets of the Seller related to its credit monitoring product (the “Purchase Transaction”; the Purchase Agreement, together with all other instruments, documents and agreements entered into in connection with the Purchase Transaction are collectively referred to herein as the “Purchase Transaction Documents”); and

WHEREAS, in order to finance, in part, the Purchase Transaction, the Borrowers have requested that the Lenders make an additional term loan advance to the Borrowers on the date hereof in a principal amount of $16,611,111.14 pursuant to Section 2.01(a) (as amended hereby) (the "Additional Term Loan”); and the Lenders are willing to make the Additional Term Loan on and subject to the terms and conditions set forth in this Agreement; and

WHEREAS, in order the accommodate the Borrowers, the Lenders are willing to amend the Credit Agreement, among the other amendments contained herein, to provide for the Additional Term Loan, and the Lenders are willing to effect such amendments on the terms and conditions contained in this Agreement;

NOW, THEREFORE, in consideration of the premises and further valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Amendments to Credit Agreement. Subject to the terms and conditions set forth herein, the Credit Agreement is hereby amended as follows:

(a) Section 1.01 is amended as follows:

(i) Each of the following definitions shall be added in its appropriate alphabetical order:

“Additional Term Loan” shall have the meaning set forth in the recitals to the Second Amendment.

“Excess Cash Flow” means, for any fiscal year of the Company and its Subsidiaries on a consolidated basis, the excess (if any) of (a) Consolidated EBITDA for such fiscal year over (b) the sum (for such fiscal year) of (i) Consolidated Interest Charges actually paid in cash by the Borrower and its Subsidiaries, (ii) scheduled principal repayments, to the extent actually made, of Term Loans pursuant to Section 2.07(b) and other Indebtedness of the Borrower permitted by Section 7.03(e), (iii) all income taxes actually paid in cash by the Company and its Subsidiaries, and (iv) capital expenditures actually made by the Company and its Subsidiaries in such fiscal year.

“Initial Term Loan” shall have the meaning set forth in the recitals to the Second Amendment.

“Second Amendment” means that certain Amendment No. 2 to Credit Agreement dated January 31, 2008 among the Borrowers, the Administrative Agent and the Lenders party thereto.

“Second Amendment Date” means January 31, 2008.

(ii) The definition of “Borrowing” is replaced with the following definition:

“Borrowing” means any of (i) the advance of a Term Loan on the Closing Date or Second Amendment Date, as applicable, pursuant to Section 2.01, or (ii) a Revolving Borrowing, as the context may require.

(iii) The definition of “Term Loan” is replaced with the following definition:

“Term Loan” means, prior to the Second Amendment Date, the Initial Term Loan, and on and after the Second Amendment Date, the Initial Term Loan and the Additional Term Loan, collectively.

(iv) The definition of “Term Loan Facility” is replaced with the following definition

“Term Loan Facility” means the term loan facility described in Section 2.01 providing for advances of the Term Loan to the Borrowers by the Term Loan Lenders.

(v) The definition of “Revolving Credit Maturity Date” is replaced with the following definition:

“Revolving Credit Maturity Date” means December 31, 2011.

(vi) The definition of “Term Loan Maturity Date” is replaced with the following definition:

“Term Loan Maturity Date” means (a) December 31, 2011 or (b) such earlier date upon which the Outstanding Amounts under the Term Loan Facility, including all accrued and unpaid interest, are paid or required to be prepaid in full in accordance with the terms hereof.

(b) Sections 1.07(a) and (b) are amended by replacing the reference to “Section 6.12(b) and (c)“in such Sections with a reference to “Sections 6.12(a), (b) and (c).”

“2.01 Term Loan. (a) Subject to the terms and conditions of this Agreement, each Term Loan Lender severally agrees to make an advance to the Borrowers of its Applicable Term Loan Percentage of (i) the Initial Term Loan on the Closing Date and (ii) the Additional Term Loan on the Second Amendment Date. The principal amount of the Term Loan outstanding hereunder from time to time shall bear interest and the Term Loan shall be repayable as herein provided. No amount of the Term Loan repaid or prepaid by the Borrowers may be reborrowed hereunder, and other than the advance of the Initial Term Loan on the Closing Date or the Additional Term Loan on the Second Amendment Date, there shall be no other advances under the Term Loan Facility.

(b) Each Term Loan Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make the amounts its Applicable Term Loan Percentage of the Term Loan available by wire transfer to the Administrative Agent not later than 1:00 P.M. (i) on the Closing Date, with respect to the Initial Term Loan and (ii) on the Second Amendment Date, with respect to the Additional Term Loan. Such wire transfers shall be directed to the Administrative Agent at the Administrative Agent’s Office and shall be in the form of same day funds in Dollars. The amount so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, including the satisfaction of all applicable conditions in Sections 4.01 and 4.02 and, with respect to the Additional Term Loan, the conditions precedent set forth in the Second Amendment, be made available to the Borrowers by delivery of the

proceeds thereof as shall be directed by a Responsible Officer of the Company and reasonably acceptable to the Administrative Agent.”

(d) Section 2.05(b) is amended by replacing the cross reference to “Section 2.07(b)” in the first clause of the first sentence of subsection (b) thereof with a cross reference to “Sections 2.05(d) or 2.07(b)”.

(e) Section 2.05 is amended by adding new subsection (d) thereto to read as follows:

“(d) Other Mandatory Term Loan Prepayments.

(i) Within five (5) Business Days after financial statements have been delivered pursuant to Section 6.01(a) (beginning with the financial statements delivered for the fiscal year ended December 31, 2008) and the related Compliance Certificate has been delivered pursuant to Section 6.02(b), if the Consolidated Leverage Ratio is greater than 1.00 to 1.00, the Borrowers shall prepay an aggregate principal amount of Loans equal to the excess (if any) of (A) 25% of Excess Cash Flow for the fiscal year covered by such financial statements over (B) the aggregate principal amount of Term Loans prepaid pursuant to Section 2.05(b) (such prepayments to be applied as set forth in clause (iii) below).

(ii) Upon the sale or issuance by any Loan Party or any of its Subsidiaries of any of its Equity Interests, the Borrowers shall prepay an aggregate principal amount of Loans equal to 100% of all Net Cash Proceeds received therefrom immediately upon receipt thereof by such Loan Party or such Subsidiary (such prepayments to be applied as set forth in clause (iii) below).

(iii) Each prepayment of Loans pursuant to the foregoing provisions of this Section 2.05(d) shall be applied, first to principal installments of the Term Loan in inverse order of maturity and second to amounts outstanding under the Revolving Credit Facility.”

(f) Section 2.07(b) is amended by replacing the amortization table contained therein with the following:


Date	Amount
Monthly, beginning on February 29, 2008 and continuing on the last Business Day of each month thereafter until the Term Loan Maturity Date	$	583,333.33

Term Loan Maturity Date	The remaining Outstanding Amount of the Term Loan

(g) Section 6.12(a) is amended by replacing such Section with the following:

“(a) Minimum Consolidated EBITDA. Consolidated EBITDA shall not be less than (i) $6,000,000 for the fiscal quarter of the Borrowers ending December 31, 2007, (ii) $6,300,000 for the fiscal quarter of the Borrower ending March 31, 2008, and (iii) $8,000,000 for each of the fiscal quarters of the Borrowers ending June 30, 2008 and September 30, 2008.”

(h) Section 6.12(b) is amended by replacing such Section with the following:

“(b) Consolidated Leverage Ratio. Beginning with the Company’s fiscal year ended December 31, 2008, maintain a Consolidated Leverage Ratio not to exceed 2.00 to 1.00. The Consolidated Leverage Ratio will be calculated at the end of each reporting period, beginning with the Company’s fiscal year ended December 31, 2008, for which this Agreement requires the Company to deliver financial statements, using the results of the twelve-month period ending with that reporting period.”

(i) Section 7.07 is amended by replacing such Section with the following:

“7.07 Acquisitions. Enter into any agreement, contract, binding commitment or other arrangement providing for any Acquisition, or take any action to solicit the tender of securities or proxies in respect thereof in order to effect any Acquisition, unless (a) the Person to be (or whose assets are to be) acquired does not oppose such Acquisition and the line or lines of business of the Person to be acquired are substantially the same as one or more line or lines of business conducted by Borrowers and their Subsidiaries, or substantially related or incidental thereto, (b) no Default or Event of Default shall have occurred and be continuing either immediately prior to or immediately after giving effect to such Acquisition and prior to effecting any such transaction, Borrowers shall have furnished to Agent (i) pro forma historical financial statements as of the end of the most recently completed fiscal year of the Company and most recent interim fiscal quarter, if applicable, giving effect to such Acquisition and (ii) a Compliance Certificate prepared on a historical pro forma basis as of the most recent date for which financial statements have been furnished pursuant to Section 4.01(a) or Section 6.01(a) or (b) giving effect to such Acquisition, which certificate shall demonstrate that no Default or Event of Default would exist immediately after giving effect thereto, (c) the Person acquired shall be a wholly-owned Subsidiary, or be merged into a Borrower or any wholly-owned Subsidiary, immediately upon consummation of the Acquisition (or if assets are being acquired, the acquirer shall be any Borrower or any wholly-owned Subsidiary), and (d) after giving effect to such Acquisition, the aggregate Costs of Acquisition incurred during the fiscal year in which such Acquisition is made shall not exceed $25,000,000 (not more than $7,500,000 of which shall be in cash).”

(j) The existing Exhibit B-1 to the Credit Agreement is replaced with the Exhibit B-1 attached hereto.

(k) The existing Exhibit C to the Credit Agreement is replaced with the Exhibit C attached hereto.

2. Effectiveness; Conditions Precedent. This Agreement and the amendments to the Credit Agreement herein provided shall become effective as of January 31, 2008 upon satisfaction of the following conditions precedent:

(a) the Administrative Agent shall have received each of the following documents or instruments in form and substance reasonably acceptable to the Administrative Agent:

(i) counterparts of this Agreement, duly executed by the Borrowers, the Administrative Agent and the Lenders, together with all schedules and exhibits thereto duly completed;

(ii) a Term Loan Note executed by each Borrower in favor of each Term Loan Lender;

(iii) a Revolving Loan Note executed by Captira and NEI in favor of each Revolving Lender;

(iv) a Designated Co-Borrower Request and Assumption Agreement duly executed by Captira Analytical, LLC, a Delaware limited liability company and a wholly-owned Subsidiary of the Company (“Captira”), and the Company;

(v) a Designated Co-Borrower Request and Assumption Agreement duly executed by Net Enforcer’s, Inc., a Florida corporation and wholly-owned Subsidiary of the Company (“NEI”), and the Company;

(vi) a Security Joinder Agreement (as defined in the Security Agreement) executed by Captira as required by the terms thereof and of the Credit Agreement;

(vii) a Security Joinder Agreement (as defined in the Security Agreement) executed by NEI as required by the terms thereof and of the Credit Agreement;

(viii) a Pledge Agreement Supplement (as defined in the Pledge Agreement) with respect to the Company’s ownership interests in Captira and NEI, together with all stock certificates and accompanying stock powers duly executed in blank with respect to such ownership interest in NEI;

(ix) such certificates of resolutions or other action, incumbency certificates and/or other certificates of a Responsible Officer of each Loan Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party;

(x) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and that each Loan Party is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;

(xi) favorable opinions of counsel to the Loan Parties acceptable to the Administrative Agent addressed to the Administrative Agent and each Lender, as to the matters set forth concerning the Loan Parties and the Loan Documents in form and substance satisfactory to the Administrative Agent;

(xii) evidence that the Administrative Agent, for the benefit of the Lenders, holds a perfected, first priority Lien in the Collateral (subject to no other Liens except Permitted Liens);

(xiii) certificate of a Responsible Officer of the Company certifying that (a) contemporaneously with and immediately upon the effectiveness of this Agreement, the Purchase Transaction has been consummated in accordance with the Purchase Transaction Documents without amendment or waiver of any of the material terms or conditions thereof except as shall have been disclosed to and approved by the Administrative Agent and (b) attached to such certificate are duly executed copies of the Transaction Documents;

(xiv) such other documents, instruments, opinions, certifications, undertakings, further assurances and other matters as the such other assurances, certificates, documents, consents or opinions as the Administrative Agent, the L/C Issuer, or the Required Lenders reasonably may require;

(b) the Borrowers shall deliver to the Administrative Agent evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect; and

(c) all fees and expenses payable to the Administrative Agent and the Lenders (including the fees and expenses of counsel to the Administrative Agent) estimated to date shall have been paid in full (without prejudice to final settling of accounts for such fees and expenses).

3. Effectiveness; Conditions Subsequent. The continued effectiveness of this Agreement and the amendments herein provided shall be subject to the satisfaction of the following conditions subsequent within 30 days of the date hereof:

(a) the Administrative Agent shall have received from Captira and NEI fully completed schedules to their respective Security Joinder Agreement referred to in Section 2(a)(vi) and (vii) hereof, respectively, in each case in form and substance satisfactory to the Administrative Agent; and

(b) the Loan Parties shall deliver all Perfection Documents (as defined in the Security Agreement), take all Perfection Action (as defined in the Security Agreement), and do or cause to be done all things required by the Pledge Agreement with respect to Pledged Interests, in each case as the Administrative Agent shall request (in accordance with the terms of the Loan Documents).

For the avoidance of doubt, any failure by the Company or its Subsidiaries to satisfy any condition subsequent set forth in this Section 3, and such failure has not otherwise been waived or consented to by the Administrative Agent (including an extension of time for satisfaction of any such conditions subsequent), shall constitute an Event of Default.

4. Representations and Warranties. In order to induce the Administrative Agent and the Lenders to enter into this Agreement, the Borrower represents and warrants to the Administrative Agent and the Lenders as follows:

(c) The Persons constituting Borrowers after giving effect to the effectiveness hereof (and assuming satisfaction of the conditions subsequent set forth in Section 3 of this Agreement) are all Persons required to be Designated Co-Borrowers under Section 6.13 of the Credit Agreement.

(d) This Agreement has been duly authorized, executed and delivered by the Borrowers and constitutes a legal, valid and binding obligation of such parties, except as may be limited by general principles of equity or by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally; and

(e) After giving effect to this Agreement, no Default or Event of Default has occurred and is continuing.

5. Entire Agreement. This Agreement, together with all the Loan Documents, that certain consent and waiver letter dated August 25,2006 from Bank of America, N.A., as Lender, to the Company, and that certain consent letter dated November 2, 2007 from Bank of America, N.A., as Lender, to the Company (collectively, the “Relevant Documents”), sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relating to such subject matter. No promise, condition, representation or warranty, express or implied, not set forth in the Relevant Documents shall bind any party hereto, and no such party has relied on any such

promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as otherwise expressly stated in the Relevant Documents, no representations, warranties or commitments, express or implied, have been made by any party to the other in relation to the subject matter hereof or thereof. None of the terms or conditions of this Agreement may be changed, modified, waived or canceled orally or otherwise, except in writing and in accordance with Section 10.01 of the Credit Agreement.

6. Full Force and Effect of Agreement. Except as hereby specifically amended, modified or supplemented, the Credit Agreement and all other Loan Documents are hereby confirmed and ratified in all respects and shall be and remain in full force and effect according to their respective terms, as modified by (i) that certain consent and waiver letter dated August 25,2006 from Bank of America, N.A., as Lender, to the Company and (ii) that certain consent letter dated November 2, 2007 from Bank of America, N.A., as Lender, to the Company.

7. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument.

8. Governing Law. This Agreement shall in all respects be governed by, and construed in accordance with, the laws of the Commonwealth of Virginia applicable to contracts executed and to be performed entirely within such Commonwealth, and shall be further subject to the provisions of Section 10.13 of the Credit Agreement.

9. Enforceability. Should any one or more of the provisions of this Agreement be determined to be illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto.

10. References. All references in any of the Loan Documents to the “Credit Agreement” shall mean the Credit Agreement, as amended hereby.

11. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Administrative Agent and each of the Lenders, and their respective successors, legal representatives, and assignees to the extent such assignees are permitted assignees as provided in Section 10.06 of the Credit Agreement.

[Signature pages follow.]

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written.


		BORROWERS:

		INTERSECTIONS INC.

		By:

		Name:

		Title:


		CREDITCOMM SERVICES LLC

		By:

		Name:

		Title:


		INTERSECTIONS HEALTH SERVICES, INC.

		By:

		Name:

		Title:


		INTERSECTIONS INSURANCE SERVICES INC.

		By:

		Name:

		Title:


		CAPTIRA ANALYTICAL, LLC

		By:

		Name:

		Title:

AMENDMENT NO. 2 TO CREDIT AGREEMENT
Signature Page


		NET ENFORCERS, INC.

		By:

		Name:

		Title:

AMENDMENT NO. 2 TO CREDIT AGREEMENT
Signature Page


		ADMINISTRATIVE AGENT:

		BANK OF AMERICA, N.A., as Administrative Agent

		By:

		Name:

		Title:

AMENDMENT NO. 2 TO CREDIT AGREEMENT
Signature Page


		LENDERS:

		BANK OF AMERICA, N.A.

		By:

		Name:

		Title:

AMENDMENT NO. 2 TO CREDIT AGREEMENT
Signature Page

EXHIBIT B-1

FORM OF TERM LOAN NOTE

January 31, 2008

FOR VALUE RECEIVED, the undersigned (the “Borrowers”) hereby, jointly and severally, promise to pay to or registered assigns (the “Lender”), in accordance with the provisions of the Agreement (as hereinafter defined), the principal amount of each Term Loan from time to time made by the Lender to the Borrowers under that certain Credit Agreement, dated as of July 3, 2006 (as amended by Amendment No. 1 to Credit Agreement dated November 29, 2007, Amendment No. 2 to Credit Agreement dated as of the date hereof, as further amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement”; the terms defined therein being used herein as therein defined), among the Borrowers, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent and L/C Issuer.

The Borrowers, jointly and severally, promise to pay interest on the unpaid principal amount of each Term Loan from the date of such Term Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All payments of principal and interest shall be made to the Administrative Agent for the account of the Lender in Dollars in immediately available funds at the Administrative Agent’s Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.

This Term Loan Note is one of the Term Loan Notes referred to in the Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Term Loan Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. Term Loans made by the Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business. The Lender may also attach schedules to this Term Loan Note and endorse thereon the date, amount and maturity of its Term Loans and payments with respect thereto.

Each Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Term Loan Note.

THIS TERM LOAN NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.


		INTERSECTIONS INC.
		By:

		Name:

		Title:


		CREDITCOMM SERVICES LLC

		By:

		Name:

		Title:


		INTERSECTIONS HEALTH SERVICES, INC.

		By:

		Name:

		Title:


		INTERSECTIONS INSURANCE SERVICES INC.

		By:

		Name:

		Title:


		CAPTIRA ANALYTICAL, LLC

		By:

		Name:

		Title:


		NET ENFORCERS, INC.

		By:

		Name:

		Title:

TERM LOANS AND PAYMENTS WITH RESPECT THERETO


		Amount of
		Principal or	Outstanding
	Amount of	Interest Paid	Principal Balance
Date	Loan Made	This Date	This Date	Notation Made By

EXHIBIT C

FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date: , _____

To: Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

[Use following paragraph 1 for fiscal year-end financial statements]

[Use following paragraph 1 for fiscal quarter-end financial statements]

Exhibit C
Form of Compliance Certificate

[select one:]

—or—

[the following covenants or conditions have not been performed or observed and the following is a list of each such Default and its nature and status:]

5. The financial covenant analyses and information set forth on Schedule 2 attached hereto are true and accurate on and as of the date of this Certificate.

IN WITNESS WHEREOF, the undersigned has executed this Certificate as of , ___.


		INTERSECTIONS INC.

		By:

		Name:

		Title:

Exhibit C
Form of Compliance Certificate

SCHEDULE 1
to the Compliance Certificate

Financial Statements

(see attached)

Exhibit C
Form of Compliance Certificate
Schedule 1

For the Quarter/Year ended (“Statement Date”)

SCHEDULE 2
to the Compliance Certificate
($ in 000’s)

I.		Section 6.12(a) — Minimum Consolidated EBITDA.

		(For each Fiscal Quarter of the Company ended on each of December 31, 2007, March 31, 2008, June 30, 2008 and September 30, 2008)


		A. Consolidated EBITDA for the quarter ending on the above date (calculated pursuant to Item II. B. below):				$


*Minimum Permitted*
*Fiscal Quarter Ended:*	*Amount:*
December 31, 2007	$	6,000,000
March 31, 2008	$	6,300,000
June 30, 2008 and September 30, 2008	$	8,000,000

II.		Section 6.12(b) — Consolidated Leverage Ratio.

		(For each fiscal period of the Company ending on or after December 31, 2008)

Consolidated Total Funded Debt at Statement Date:

™

Consolidated EBITDA for the 12 month period ending on above date (“Subject Period”), as adjusted pursuant to Sections 1.07(a) and (b):


1.	consolidated net income:	$


2.	income from discontinued operations and extraordinary items:	$


3.	loss from discontinued operations and extraordinary items:	$


4.	income taxes:	$


5.	interest expense:	$


6.	depreciation, depletion, amortization, impairment of goodwill, write-down of intangibles, and the amortization and expensing of non-cash stock-based compensation:	$

Exhibit C
Form of Compliance Certificate
Schedule 2


7.	Screening adjustment	$


8.	Consolidated EBITDA (Lines I.B.1. — 2. + 3. + 4. + 5. + 6. — 7.):	$

III.

Section 6.12(c) — Consolidated Fixed Charge Coverage Ratio.


		A.		Consolidated Cash Flow for Subject Period, as adjusted pursuant to Sections 1.07(a) and (b):


	1.	net income, after income tax:	$


	2.	income from discontinued operations and extraordinary items:	$


	3.	loss from discontinued operations and extraordinary items:	$


	4.	depreciation, amortization and other non-cash charges:	$


	5.	interest expense on all obligations:	$


	6.	dividends, withdrawals and other distributions (to include stock buybacks):	$


	7.	unfinanced capital expenditures:	$


	8.	Screening adjustment:	$


	9.	Consolidated Cash Flow
		(Lines II.A.1. — 2. + 3. + 4. + 5. — 6. — 7. — 8.):	$


B.	Consolidated Fixed Charges for Subject Period:

	1.	Current portion (scheduled principal) of long term debt as of the above date:	$


	2.	Current portion (scheduled principal) of capitalized lease obligations as of the above date:	$


	3.	interest expense on all obligations during the Subject Period:	$


	4.	Ordinary Dividends paid during the Subject Period:	$


	5.	Consolidated Fixed Charges (Lines II.B.1. + 2. + 3. + 4.):	$

Exhibit C
Form of Compliance Certificate
Schedule 2


C.	Consolidated Fixed Charge Coverage Ratio:

	((Lines II.A.9. ÷ II.B.5.)	to 1.00

	*Minimum permitted:*	*1.25 to 1.00*

Exhibit C
Form of Compliance Certificate
Schedule 2

EX-10.24 5 w51111exv10w24.htm EX-10.24 exv10w24

Exhibit 10.24

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT, dated as of November 9, 2007, is by and among INTERSECTIONS INC., a Delaware corporation (“Purchaser”), NET ENFORCERS, INC., a Florida corporation (the “Company”), and JOSEPH C. LOOMIS, a Florida resident (“Seller”). Certain capitalized terms used but not defined in the text hereof shall have the meanings ascribed to them in Section 11.1 hereof.

RECITALS

A. Seller owns all of the issued and outstanding capital stock of the Company.

B. Purchaser desires to purchase and acquire from Seller, and Seller desires to sell and transfer to Purchaser, all of the shares of Company Stock which are issued and outstanding immediately prior to the Closing for the consideration set forth herein, and upon the terms and subject to the conditions set forth in this Agreement and the related documents to be executed and delivered in connection herewith (the “Acquisition”).

NOW, THEREFORE, in consideration of the covenants, representations and warranties set forth herein, intending to be legally bound hereby, the parties agree as follows:

ARTICLE 1
THE ACQUISITION

1.1 The Acquisition. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Purchaser shall purchase and acquire from Seller, and Seller shall sell and transfer to Purchaser, all shares of Company Stock issued and outstanding immediately prior to the Closing for and in exchange of the Purchase Price. Immediately following the Closing, Purchaser shall own all of the issued and outstanding equity and any other ownership interests of the Company.

1.2 Closing. Unless this Agreement is earlier terminated pursuant to Section 9.1, the closing of the Acquisition (the “Closing”), will take place within three (3) Business Days following satisfaction or waiver of the conditions set forth in Article 7, at the offices of Venable LLP, 8010 Towers Crescent Drive, Suite 300, Vienna, Virginia 22182, unless another place or time is agreed to by the parties (the “Closing Date”).

1.3 Purchase Price; Closing Deliverables.

(a) On the terms and subject to the conditions set forth in this Agreement, Purchaser agrees to deliver the amounts set forth in this Section 1.3(a) (collectively, the “Purchase Price”). The Purchase Price shall be subject to adjustment after Closing in accordance with Section 1.4. The Purchase Price shall be payable as follows:

(i) Fourteen Million Dollars ($14,000,000) in cash (less any and all amounts paid pursuant to Section 1.3(a)(ii)) (the “Closing Payment”) shall be paid to Seller at Closing by wire transfer of immediately available funds to such bank account or accounts as per

written instructions of Seller, given to Purchaser at least three (3) days prior to the Closing (with such Closing Payment subject to adjustment at the Closing in accordance with Section 1.4(b));

(ii) An aggregate amount equal to any Company Expenses, including any and all amounts contemplated by the release described in Section 7.3(h), and any Company Debt outstanding as of the Closing Date, shall be paid to each of the payees with respect to such Company Expenses and the holders of such Company Debt at Closing by wire transfer of immediately available funds to such bank account or accounts as per written instructions of such payees and holders, which wire instructions (and payoff letters with respect to such Company Debt) shall be given to Purchaser at least three (3) days prior to the Closing, and Purchaser shall reduce the amount of the Closing Payment to be paid to Seller by the sum of such aggregate amount paid; and

(iii) In the event that the terms and conditions of Section 1.5 are satisfied, up to an additional Three Million Five Hundred Thousand Dollars ($3,500,000) (the “Earnout”) shall be paid to Seller in one payment or separate payments after the Closing, pursuant to the terms and conditions of Sections 1.5 and 1.6 hereof.

(b) Additionally, at the Closing Purchaser shall deliver to Seller the documents and instruments specified in Section 7.2, and shall deliver or cause to be delivered to Seller such additional documents as may reasonably be requested by Seller in order to carry out the intentions and purposes of this Agreement.

(c) At the Closing Seller and the Company shall deliver or cause to be delivered to Purchaser the documents and instruments specified in Section 7.3, and shall deliver or cause to be delivered to Purchaser such additional documents as may reasonably be requested by Purchaser in order to carry out the intentions and purposes of this Agreement.

1.4 Potential Purchase Price Adjustments.

(a) As used herein, (1) “Closing Cash Balances” means an amount equal to the value of all of the Company’s unrestricted cash and cash equivalents as of the close of business on the Closing Date; (2) “Closing Debt” means the Company’s Debt as of the Closing of business on the Closing Date (other than Debt paid at Closing pursuant to Section 1.3(a)(ii)); (3) “Closing Working Capital Amount” means an amount equal to the value of all of the Company’s inventory, accounts receivable, prepaid expenses and all other current assets of the Company (exclusive of Closing Cash Balances) less the current liabilities of the Company (including accounts payable, accrued Taxes, accrued expenses and prepaid revenues, including those certain prepaid revenues described on Schedule 1.4(a)(2), and including Company Expenses, other than Company Expenses paid at Closing pursuant to Section 1.3(a)(ii)), in each case as of the close of business on the Closing Date; and (4) “Closing Assets” means an amount equal to the value of all of the Assets less an amount equal to all of the Company’s Liabilities (including Company Expenses, other than Company Expenses paid at Closing pursuant to Section 1.3(a)(ii)), in each case as of the close of business on the Closing Date; as each such capitalized and underscored term in the foregoing clauses (1) through (4) is determined from and set forth with (i) the balance sheet of the Company as of the close of business on the Closing Date, as finalized pursuant to Section 1.4(c) or Section 1.4(d) (the “Closing Balance Sheet”), or

(ii) the Company’s good faith estimate of the Closing Balance Sheet, delivered pursuant to Section 1.4(b) (the “Estimated Closing Balance Sheet”), as applicable.

(b) Not less than three (3) Business Days prior to the scheduled Closing Date, the Company will prepare and furnish to Purchaser a schedule describing all outstanding Company Expenses and Company Debt (and the payees and holders thereof), which amounts shall be paid pursuant to Section 1.3(a)(ii), and the Estimated Closing Balance Sheet, which will be prepared in accordance with GAAP and on an accrual basis, will be in reasonable detail and accompanied by such other financial information and methods of calculation as may be reasonably necessary for Purchaser to evaluate the accuracy thereof, and will include estimated calculations of Closing Cash Balances, Closing Debt, Closing Working Capital Amount and Closing Assets. The Closing Payment will be (x) reduced at Closing by the sum of (A) any shortfall between the Closing Cash Balances shown on the Estimated Closing Balance Sheet and a target of $150,000, plus (B) Closing Debt shown on the Estimated Closing Balance Sheet, plus (C) any shortfall between the Closing Working Capital Amount shown on the Estimated Closing Balance Sheet and a target of $0, plus (D) any shortfall between the Closing Assets shown on the Estimated Closing Balance Sheet and a target of $200,000 (such sum, the “Closing Payment Adjustment”) and then (x) in the event that the Closing Working Capital Amount shown on the Estimated Closing Balance Sheet is greater than a target of $0, increased by the excess of such Closing Working Capital Amount over a target of $0 (such adjustment, the “Closing Payment Working Capital Adjustment”).

(c) Within ninety (90) days after the Closing, Purchaser will prepare and furnish to Seller a draft Closing Balance Sheet, which will be in reasonable detail and accompanied by such other financial information and methods of calculation as may be reasonably necessary for Seller to evaluate the accuracy thereof. Purchaser’s draft Closing Balance Sheet will set forth Purchaser’s calculation of Closing Cash Balances, Closing Debt, Closing Working Capital Amount and Closing Assets and, if applicable, Purchaser’s calculation of the Purchase Price adjustment required by Section 1.4(e). Seller will have a period of thirty (30) days after receipt of Purchaser’s draft Closing Balance Sheet to notify Purchaser in writing of its election to accept or reject Purchaser’s draft Closing Balance Sheet and any Purchase Price adjustment resulting therefrom (and in the case of a rejection, there must be included in such notice the reasons for rejection in reasonable detail and Seller’s calculations thereof). In the event no written notice is received by Purchaser during such 30-day period (or earlier upon a written notice from Seller agreeing thereto), Purchaser’s draft Closing Balance Sheet and the accompanying calculation of Closing Cash Balances, Closing Debt, Closing Working Capital Amount, Closing Assets, and any Purchase Price adjustment resulting therefrom, will be deemed accepted by Seller and final and binding on the parties hereto.

(d) In the event Seller timely rejects Purchaser’s draft Closing Balance Sheet and any Purchase Price adjustment resulting therefrom, Purchaser and Seller will promptly (and in any event within 20 days following the date upon which Purchaser receives written notice from Seller that Seller rejects Purchaser’s draft Closing Balance Sheet) attempt to make a joint determination of the Closing Balance Sheet and any Purchase Price adjustment resulting therefrom. If the parties are unable to agree upon the final determination of the Closing Balance Sheet within such 20-day period, then Purchaser and Seller will submit the issues in dispute to an independent certified public accountant jointly chosen by Seller and Purchaser, which will act as the

arbitrator of the issues in dispute (the “Arbitrator”). In making its determination, the Arbitrator will consider only those items or amounts in Purchaser’s draft Closing Balance Sheet and its calculations of Closing Cash Balances, Closing Debt, Closing Working Capital Amount, Closing Assets and the Purchase Price adjustment required by Section 1.4(e) as to which Seller has disagreed. The determination of the Arbitrator shall be set forth in a written notice delivered to Purchaser and Seller by Arbitrator and will be binding and conclusive on the parties; provided, however, that in no event will the Arbitrator’s calculation of the Purchase Price adjustment required by Section 1.4(e) be more in favor of Purchaser than the amount thereof shown in Purchaser’s draft Closing Balance Sheet and its calculations of Closing Cash Balances, Closing Debt, Closing Working Capital Amount, Closing Assets and the Purchase Price adjustment nor more in favor of Seller than the amount thereof shown in Seller’s calculation thereof delivered pursuant to Section 1.4(c). Purchaser and Seller will each bear 50% of the fees and expenses of the Arbitrator for such determination.

(e) (i) The “Post-Closing Adjustment Amount” shall be equal to the sum of (A) any shortfall between the Closing Cash Balances shown on the Closing Balance Sheet and a target of $150,000, plus (B) Closing Debt shown on the Closing Balance Sheet, plus (C) any shortfall between the Closing Working Capital Amount shown on the Closing Balance Sheet and a target of $0, plus (D) any shortfall between the Closing Assets shown on the Closing Balance Sheet and a target of $200,000, and the “Post-Closing Working Capital Adjustment Amount” shall be equal to the amount (if any), by which the Closing Working Capital Amount shown on the Closing Balance Sheet is greater than a target of $0.

(ii) If the Post-Closing Adjustment Amount is greater than the Closing Payment Adjustment, then the Purchase Price shall be reduced on a dollar-for-dollar basis by the amount of such difference, and if the Closing Payment Adjustment is greater than the Post-Closing Adjustment Amount, then the Purchase Price shall be increased on a dollar-for-dollar basis by the amount of such difference. In addition, if the Post-Closing Working Capital Adjustment Amount is greater than the Closing Payment Working Capital Adjustment, then the Purchase Price shall be increased on a dollar-for-dollar basis by the amount of such difference, and if the Closing Payment Working Capital Adjustment is greater than the Post-Closing Working Capital Adjustment Amount, then the Purchase Price shall be reduced on a dollar-for-dollar basis by the amount of such difference.

(iii) The amount of any aggregate negative Purchase Price adjustment (determined pursuant to subsection (ii) above) will be paid by Seller to the Purchaser (and Seller shall be responsible for such payment), and the amount of any positive Purchase Price adjustment (determined pursuant to subsection (ii) above) will be paid by Purchaser to Seller, in either case within three (3) Business Days after the final determination thereof.

1.5 Earnout.

(a) Subject to the terms and conditions of this Section 1.5 and Section 1.6, in the event that the terms and conditions of this Section 1.5 are satisfied, the Earnout shall be paid to Seller in one payment or separate payments (as described herein) based on the Company Business Unit’s Revenue and EBITDA Margins during the Earnout Periods following the Closing. For purposes hereof, (1) “Revenue” means the Company Business Unit’s net revenue measured for a particular Earnout Period of twelve (12) consecutive calendar months ending on or prior to the Earnout Termination Date and as adjusted pursuant to Schedule 1.5(a), (2) “EBITDA” means the Company Business Unit’s net income, plus interest expense, plus tax expense, plus depreciation, plus amortization expense measured for a particular Earnout Period and as adjusted pursuant to Schedule 1.5(a), (3) “EBITDA Margin” means the Company Business Unit’s EBITDA divided by the Company Business Unit’s Revenue, in each case for a particular Earnout Period, (4) “Earnout Period” means each period of twelve (12) full consecutive calendar months that begins after the Closing Date and ends on or before the Earnout Termination Date (the parties hereto acknowledge that there shall be forty-nine (49) such periods between the Closing Date and the Earnout Termination Date), (5) “Earnout Termination Date” means the last day of the sixtieth (60^th) full calendar month beginning after the Closing Date and (6) “Corporate Overhead Charges” shall mean the charges for general corporate oversight, advice, guidance and assistance provided by Purchaser or any of its Affiliates to the Company Business Unit after the Closing, but shall not include charges for specific services purchased by the Company Business Unit from Purchaser or any such Affiliate or other Person. (For example, Corporate Overhead Charges shall include charges for general human resources advice provided by Purchaser or any of its Affiliates to the Company Business Unit, but shall not include charges for payroll processing if the Company Business Unit procures these services through Purchaser.) Each of Revenue and EBITDA will be determined in accordance with GAAP. In determining EBITDA for a particular Earnout Period, Corporate Overhead Charges allocated to the Company Business Unit shall not exceed 2.5% of Revenue for such Earnout Period.

(b) Subject to Section 1.6:

(1) Seller shall be entitled to an Earnout payment of Five Hundred Thousand Dollars ($500,000) the first time that Revenue for any Earnout Period exceeds Seven Million Five Hundred Thousand Dollars ($7,500,000) and EBITDA Margin for such Earnout Period exceeds 25%;

(2) Seller shall be entitled to an additional Earnout payment of Five Hundred Thousand Dollars ($500,000) the first time that Revenue for any Earnout Period exceeds Ten Million Dollars ($10,000,000) and EBITDA Margin for such Earnout Period exceeds 27.5%;

(3) Seller shall be entitled to an additional Earnout payment of Six Hundred Twenty-Five Thousand Dollars ($625,000) the first time that Revenue for any Earnout Period exceeds Fifteen Million Dollars ($15,000,000) and EBITDA Margin for such Earnout Period exceeds 30%;

(4) Seller shall be entitled to an additional Earnout payment of Eight Hundred Seventy-Five Thousand Dollars ($875,000) the first time that Revenue for any Earnout Period exceeds Twenty Million Dollars ($20,000,000) and EBITDA Margin for such Earnout Period exceeds 35%; and

(5) Seller shall be entitled to an additional Earnout payment of One Million Dollars ($1,000,000) the first time that Revenue for any Earnout Period exceeds Twenty-Five Million Dollars ($25,000,000) and EBITDA Margin for such Earnout Period exceeds 40%.

More than one Earnout payment may be paid to Seller for a particular Earnout Period if the conditions for more than one (1) Earnout payment set forth herein have been met for such Earnout Period.

(c) Unless Purchaser has already paid to Seller the entire Earnout, Purchaser will prepare and furnish to Seller in writing within sixty (60) days following the end of such Earnout Period Purchaser’s calculation of Revenue, EBITDA Margin and the amount of any Earnout payment for such Earnout Period to which Seller is entitled pursuant to Section 1.5(b) (each such writing, an “Earnout Proposal”). Each Earnout Proposal will be in reasonable detail and accompanied by such other financial information and methods of calculation as may be reasonably necessary for Seller to evaluate the accuracy thereof. Seller will have a period of thirty (30) days after receipt of Purchaser’s Earnout Proposal to notify Purchaser in writing of its election to accept or reject Purchaser’s Earnout Proposal (and in the case of a rejection, there must be included in such notice the reasons for rejection in reasonable detail and Seller’s calculations thereof). In the event no written notice is received by Purchaser during such 30-day period (or earlier upon a written notice from Seller agreeing thereto), Purchaser’s Earnout Proposal will be deemed accepted by Seller and final and binding on the parties hereto. The procedures and timeframes established pursuant to Section 1.4(d) shall apply in the event that Seller timely rejects Purchaser’s Earnout Proposal.

(d) Subject to Section 1.6, the amount of any Earnout payment finally determined pursuant to Section 1.5(c) will be paid by Purchaser to Seller within three (3) Business Days after such determination.

1.6 Holdback Amount. Notwithstanding anything herein to the contrary, Purchaser shall retain, in accordance with the terms of this Section 1.6, from any amounts otherwise payable under Section 1.5 as part of the Earnout, an amount (the “Holdback Amount”) equal to One Million Five Hundred Thousand Dollars ($1,500,000), and, until such date as Purchaser has so retained such amount in full (such date, the “Funded Holdback Date”), no payments with respect to the Earnout shall be made to Seller. Following the Funded Holdback Date, Purchaser shall pay to Seller, in accordance with Section 1.5, any additional amounts otherwise payable under Section 1.5 as part of the Earnout to the extent that such additional amounts exceed the Holdback Amount. The Holdback Amount shall serve as security for, and be available to satisfy, any payment obligations of Seller under Section 1.4(e) and/or Section 6.11 and/or any indemnification obligations of Seller under Article 8 of this Agreement. Any remaining Holdback Amount less amounts deducted from the Holdback Amount in connection with any payment under Section 1.4(e) and/or Section 1.6 and/or indemnity claims pursuant to Article 8 of

this Agreement and less the aggregate amount of any then-outstanding indemnity claims), if any, shall be paid by Purchaser to Seller on the date thirty (30) days following the third anniversary of the Tax Return Filing Date.

ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company and Seller hereby represent and warrant to Purchaser as follows:

2.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Florida and has full corporate power and authority to conduct the Business as now conducted and to own, use, license and lease the Assets. The Company is duly qualified, licensed or admitted to do business and is in good standing as a foreign corporation in each jurisdiction in which the ownership, use, licensing or leasing of the Assets, or the conduct or nature of the Business, makes such qualification, licensing or admission necessary, except for such failures to be so duly qualified, licensed or admitted and in good standing that would not reasonably be expected to have a Material Adverse Effect. Schedule 2.1 attached hereto sets forth each jurisdiction where the Company is so qualified, licensed or admitted to do business as a foreign corporation.

2.2 Authority; Binding Agreements. The Company has full corporate power and authority to execute and deliver this Agreement and the other agreements which are attached (or forms of which are attached) as exhibits hereto (the “Ancillary Agreements”) to which the Company is or will become a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by the Company of this Agreement and the Ancillary Agreements to which the Company is or will become a party, the consummation by the Company of the transactions contemplated hereby and thereby, and the performance by the Company of its obligations hereunder and thereunder, have been duly and validly authorized by all necessary corporate action of the Company, and no other corporate action on the part of the Company is required to authorize the execution, delivery and performance of this Agreement and the Ancillary Agreements to which the Company is or will become a party, or the consummation by the Company of the transactions contemplated hereby and thereby. This Agreement and the Ancillary Agreements to which the Company is or will become a party have been or will be, as applicable, duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof (and, in the case of the Ancillary Agreements to which Purchaser is a party, thereof) by, and enforceability against, Purchaser, each constitutes or will upon execution and delivery constitute, as applicable, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors’ rights generally and by general principles of equity.

2.3 Capital Stock.

(a) The authorized capital stock of the Company consists of One Hundred (100) shares of stock (the “Company Stock”), all of which shares of Company Stock are issued and outstanding. All of the issued and outstanding shares of Company Stock are validly issued, fully paid and non-assessable, have not been issued in violation of any federal or state securities Laws, and are owned beneficially and of record by Seller.

(b) No Company Stock has been issued subject to a repurchase option or buy-back agreement on the part of the Company.

(c) There are no outstanding Company Options or other Equity Equivalents or any agreements, arrangements or understandings to which the Company is a party (written or oral) to issue any Company Options or other Equity Equivalents. There is no stock plan of the Company or Seller or any of their respective Affiliates pursuant to which Company Options or other Equity Equivalents are issued and outstanding or are available for issuance.

(d) There are no preemptive rights or agreements, arrangements or understandings to issue preemptive rights with respect to the issuance or sale of Company Stock created by statute, the articles of incorporation or bylaws of the Company, or any agreement or other arrangement to which the Company is a party (written or oral) or to which it is bound, and there are no agreements, arrangements or understandings to which the Company is a party (written or oral) pursuant to which the Company has the right to elect to satisfy any Liability by issuing Company Stock or Equity Equivalents. No shares of Company Stock have been issued in violation of any preemptive or similar rights, including rights of first refusal or first offer.

(e) The Company is not a party or subject to any agreement, arrangement or understanding, and there is no agreement, arrangement or understanding between or among any Persons which affects, restricts or relates to voting, giving of written consents, dividend rights or transferability of shares with respect to Company Stock, including any voting trust agreement or proxy.

2.4 No Subsidiaries. The Company has no (and prior to the Closing will have no) Subsidiaries and does not (and prior to the Closing will not) otherwise hold any equity, membership, partnership, joint venture or other ownership interest or Investment Assets in any Person.

2.5 Directors, Officers and Employees. The names of each director and officer of the Company on the date hereof, and his or her position with the Company are listed in Schedule 2.5 attached hereto. No claims for indemnification by any current or former director, officer or other employee of the Company are currently outstanding, and no basis exists for any such claim for indemnification.

2.6 No Conflicts; Approvals. The execution and delivery by the Company of this Agreement and the Ancillary Agreements to which the Company is or will be a party does not and will not upon execution and delivery, and the performance by the Company of its obligations under this Agreement and the Ancillary Agreements to which the Company is or will be a party and the consummation of the transactions contemplated hereby and thereby do not and will not:

(a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the articles of incorporation or bylaws of the Company;

(b) subject to obtaining or making the Approvals disclosed in Schedule 2.6(c), if any, result in a violation or breach of, or a conflict with, any Law or Order applicable to the Company or any of the Assets; or

(c) except as disclosed in Schedule 2.6(c) attached hereto, (i) result in a violation or breach of or conflict with, (ii) constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, (iii) require the Company to obtain or make any Approval to any Person as a result or under the terms of, (iv) result in or give to any Person any right of termination, cancellation, acceleration or modification in or with respect to, (v) result in or give to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments or performance under, (vi) result in the creation or imposition of (or the obligation to create or impose) any Lien upon the Company or any of the Assets under or (vii) result in the loss of any benefit under, any of the terms, conditions or provisions of any Contract or License to which the Company is a party or by which any of the Assets are bound.

Subject to obtaining or making the Approvals disclosed in Schedule 2.6(c), no Approval is required to be obtained from or made with any Governmental or Regulatory Authority by the Company in connection with the execution and delivery by the Company of this Agreement and the Ancillary Agreements to which the Company is or will be a party, and the performance by the Company of its obligations under this Agreement and the Ancillary Agreements to which the Company is or will be a party and the consummation of the transactions contemplated hereby and thereby.

2.7 Company Financial Statements. Schedule 2.7 attached hereto sets forth (a) the unaudited balance sheet of the Company as of September 30, 2007 and profit and loss statements for the period from January through September, 2007, and (b) the unaudited balance sheet of the Company as of December 31, 2006, and December 31, 2005, and the profit and loss statements for each of the fiscal years then ended (collectively, the “Company Financials”). The Company Financials are complete and correct in all material respects, are in accordance with the Books and Records of the Company and present fairly, in all material respects, the financial condition and operating results of the Company as of the dates and during the periods indicated therein.

2.8 Books and Records; Organizational Documents. Except as disclosed in Schedule 2.8 attached hereto, copies of the minute books and stock record books of the Company (a) have been provided or made available to Purchaser or its counsel prior to the execution of this Agreement, and (b) are complete and correct. Except as disclosed in Schedule 2.8, such minute books contain a true and complete record of actions taken at meetings and by all written consents in lieu of meetings of the directors, stockholders and committees of the board of directors of the Company from the date of the incorporation through the date hereof.

2.9 Absence of Changes. Since December 31, 2006, except as set forth in Schedule 2.9, there has not been any event which has had or is reasonably expected to have any Material

Adverse Effect. Without limiting the generality of the foregoing sentence, and except as set forth on Schedule 2.9, since December 31, 2006:

(a) The Company has not entered into any Contract or License (other than with Purchaser or its Affiliates), commitment or transaction or incurred any Liabilities outside of the ordinary course of business;

(b) The Company has not entered into any strategic alliance, joint development or joint marketing Contract;

(c) there has not been any amendment or other modification (or agreement to do so) or violation of the terms of, any of the Contracts set forth or described in Schedule 2.18(a);

(d) The Company has not entered into any transaction with any officer, director, stockholder, Affiliate or Associate of the Company, other than pursuant to any Contract disclosed to Purchaser pursuant to Schedule 2.20(a) or other than pursuant to any Contract of employment listed pursuant to Schedule 2.l8(a);

(e) The Company has not entered into or amended any Contract or License pursuant to which any other Person is granted production, marketing, distribution, licensing or similar rights of any type or scope with respect to any products or services of the Company or Company Intellectual Property, other than as contemplated by the Contracts and Licenses disclosed in Schedule 2.18(a);

(f) no Action or Proceeding has been commenced or, to the knowledge of Seller and/or the Company, has been threatened, by or against the Company;

(g) The Company has not declared or set aside or paid any dividends on or made any other distributions (whether in cash, stock or property) in respect of any Company Stock or Equity Equivalents, or effected or approved any split, combination or reclassification of any Company Stock or Equity Equivalents, or issued or authorized the issuance of any other securities in respect of, in lieu of or in substitution for shares of Company Stock or Equity Equivalents, or repurchased, redeemed or otherwise acquired, directly or indirectly, any shares of Company Stock or Equity Equivalents;

(h) (1) The Company has not issued, granted, delivered, sold or authorized or proposed to issue, grant, deliver or sell, or purchased or proposed to purchase, any shares of Company Stock or Equity Equivalents, (2) the Company has not modified or amended the rights of any holder of any outstanding shares of Company Stock or Equity Equivalents, and (3) there have not been any agreements, arrangements, plans or understandings obligating the Company to make any such modification or amendment;

(i) there has not been any amendment to the Company’s articles of incorporation or bylaws;

(j) there has not been any transfer (by way of a Contract, License or otherwise) to any Person of rights to any Company Intellectual Property, and the Company has

used all commercially reasonable to secure all Company Intellectual Property from unauthorized disclosure or removal from the Company premises by the Company personnel or contractors or any other persons or entities;

(k) The Company has not made or agreed to make any disposition or sale of, waiver of rights to, license or lease of, or incurrence of any Lien on, any of the Assets, other than dispositions of inventory, or nonexclusive licenses of assets or properties in the ordinary course of business of the Company;

(l) The Company has not made or agreed to make any purchase of any assets or properties of any Person other than (i) acquisitions of inventory, or licenses of assets or properties, in the ordinary course of business of the Company, and (ii) other acquisitions in an amount not exceeding Twenty-Five Thousand Dollars ($25,000) in the case of any individual item or Fifty Thousand Dollars ($50,000) in the aggregate;

(m) The Company has not made or agreed to make any capital expenditures or commitments for additions to property, plant or equipment of the Company constituting capital assets in the aggregate in an amount exceeding Fifty Thousand Dollars ($50,000);

(n) The Company has not made or agreed to make any write-off or write-down, any determination to write off or write-down, or revalue, any of the Assets, or change any reserves or Liabilities associated therewith, in the aggregate in an amount exceeding Twenty-Five Thousand Dollars ($25,000);

(o) The Company has not made or agreed to make payment, discharge or satisfaction, in an amount in excess of Five Thousand Dollars ($5,000), in any one case, or Twenty-Five Thousand Dollars ($25,000) in the aggregate, of any claim, Liability or obligation (whether absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of Liabilities reflected or reserved against in Company Financials and other than Liabilities incurred in the ordinary course of business since December 31, 2006;

(p) The Company has not failed to pay or otherwise satisfy any Liabilities presently due and payable of the Company;

(q) The Company has not incurred any Debt or guaranteed any Debt of any other Person, and has not issued or sold any debt securities of the Company or guaranteed any debt securities of others;

(r) The Company has not granted any severance or termination pay to any director, officer, employee or consultant of the Company;

(s) The Company has not (i) granted or approved any increase in salary, rate of commissions, rate of consulting fees or any other compensation of any current or former officer, director, stockholder, employee, independent contractor or consultant of the Company, or (ii) paid or agreed or made any commitment to pay any discretionary or stay bonus;

(t) The Company has not paid or approved the payment of any consideration of any nature whatsoever (other than salary, commissions or consulting fees and customary benefits paid to any current or former officer, director, stockholder, employee or consultant of the Company in the ordinary course of business) to any current or former officer, director, stockholder, employee, independent contractor or consultant of the Company;

(u) The Company has not adopted, entered into, amended, modified or terminated (partially or completely) any Plan;

(v) The Company has not made any change in accounting policies, principles, methods, practices or procedures (including for bad debts, allocation of corporate expenses, contingent liabilities or otherwise, respecting capitalization or expense of research and development expenditures, depreciation or amortization rates or timing of recognition of income and expense);

(w) The Company has not commenced or terminated, or made any material change in, any line of business;

(x) there has been no physical damage, destruction or other casualty loss (whether or not covered by insurance) affecting any of the real or personal property or Equipment of the Company in the aggregate in an amount exceeding Fifty Thousand Dollars ($50,000); and

(y) neither the Company, its Affiliates nor Seller has entered into or approved any contract, arrangement or understanding to do, engage in or cause or having the effect of any of the foregoing by the Company, including with respect to any Business Combination not otherwise restricted by the foregoing paragraphs.

2.10 No Undisclosed Liabilities. Except as reflected or reserved against in Company Financials or as disclosed in Schedule 2.10, there are no Liabilities of the Company or affecting any of the Assets or the Business.

2.11 Taxes. Except as set forth on Schedule 2.11:

(a) The Company (and any predecessor of the Company) has been a validly electing S corporation within the meaning of Sections 1361 and 1362 of the Code since January 1, 2005, and will be an S corporation up to and including the Closing Date.

(b) The Company has properly prepared and timely filed all Tax Returns required to be filed. All such Tax Returns are true, correct and complete in all material respects. All Taxes owed by the Company (whether or not shown on any Tax Return) have been paid except for Taxes not yet due. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return. The Company has not received any notice of Tax deficiency or additional assessment from any Governmental or Regulatory Authority with respect to Liabilities for Taxes payable by the Company that has not been fully paid or finally settled. No claim has ever been made by any Governmental or Regulatory Authority in any jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction. There are no Liens with respect to Taxes on any of the Assets.

(c) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to or on behalf of any employee, independent contractor, creditor, stockholder or other third party (including any nonresident alien or foreign corporation pursuant to Sections 1441 and 1442 of the Internal Revenue Code or similar provisions under any foreign Tax laws), and all Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed.

(d) No reasonable basis exists for, and no shareholder, director or officer (or employee responsible for Tax matters) of the Company has knowledge of any intention or threat by, any Governmental or Regulatory Authority to assess any additional Taxes for any period for which Tax Returns have been filed. There are no disputes pending in respect of, or claims asserted by a Governmental or Regulatory Authority for Taxes for which the Company or Seller may be liable, nor are there any pending, or, to the knowledge of Seller and/or the Company, threatened (whether orally or in writing), audits, investigations or outstanding matters under discussion with any Governmental or Regulatory Authority with respect to the Taxes for which the Company or Seller may be liable.

(e) Schedule 2.11(e) lists all federal, state, local, and foreign income or franchise Tax Returns and material Tax elections filed with respect to the Company filed since January 1, 2004, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. The Company has delivered or made available to Purchaser true, correct and complete copies of all of the Company’s federal income Tax Returns filed since January 1, 2004 and all Tax opinions and examination reports received, and statements of Tax deficiencies assessed against or agreed to, by or on behalf of the Company. The Company has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Internal Revenue Code. The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

(f) The Company is not a party to or bound by (and will not prior to the Closing become a party to or bound by) any Tax indemnity, Tax allocation, Tax sharing or gain recognition agreement (whether written, unwritten or arising under operation of federal Law as a result of being a member of a group filing consolidated Tax Returns (other than a group the common parent of which is or was the Company), under operation of state Laws as a result of being a member of a unitary group, or under comparable Laws of other states or foreign jurisdictions). The Company has not been, and will not be, required to include any item of income in, or exclude any item of deduction from, taxable income for any Tax period (or portion thereof) ending on or after the Closing Date as a result of (A) any change in method of accounting for a Tax period ending on or prior to the Closing Date under Section 481 of the Internal Revenue Code (or any corresponding or similar provision of state, local or foreign income Tax Law); (B) any “closing agreement” as described in Section 7121 of the Internal Revenue Code (or any corresponding or similar provision of state, local or foreign income Tax Law); (C) any deferred inter-Company gain or any excess loss account described in the Treasury Regulations under Section 1502 of the Internal Revenue Code (or any corresponding or similar provision of state, local or foreign income Tax Law); (D) any installment sale or open transaction disposition made on or prior to the Closing Date; (E)any prepaid amount received on or prior to

the Closing Date; or (F) the application of Section 263A of the Internal Revenue Code (or any corresponding or similar provision of state, local or foreign income Tax Law) with respect to a Tax period ending on or prior to the Closing Date.

(g) The Company (A) has never been a member of an “affiliated group” (within the meaning of Section 1504(a) of the Internal Revenue Code) filing a consolidated federal income Tax Return, and (B) has no Liability for the Taxes of any Person other than the Company (i) under Treasury Regulation §1.1502-6 (or any similar provision of state, local or foreign Law), (ii) as a transferee or successor, (iii) by Contract, or (iv) otherwise.

(h) The Company has not made any payments, is not obligated to make any payments, and is not a party to any Contract, agreement or arrangement covering any current or former employee or consultant of the Company that under certain circumstances could require it to make or give rise to any payments that are not fully deductible as a result of the provisions set forth in Section 280G of the Internal Revenue Code or the Treasury Regulations thereunder (or any corresponding provisions of state, local or foreign Tax Law) or would result in an excise Tax to the recipient of any such payment under Section 4999 of the Internal Revenue Code. The Company has no liability for the Taxes of any other person either as a transferee under Section 6901 of the Internal Revenue Code, or any similar provision of state, local or foreign law, as a successor, or by contract or otherwise.

(i) None of the Company’s Liabilities is an obligation to make a payment that is not deductible under Section 280G of the Internal Revenue Code.

(j) The unpaid Taxes of the Company (A) did not, as of the most recent fiscal month end, exceed the reserve for Tax Liabilities (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the most recent balance sheet (rather than in any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing its Tax Returns.

(k) The Company is not party to or bound by any written ruling or agreement, or to the knowledge of Seller and/or the Company any other agreement, with any Governmental or Regulatory Authority which would have continuing effect in any Tax period of the Company for which a Tax Return has not yet been filed.

(l) The Company has timely disclosed any “reportable transaction” required to be disclosed under Section 6011 of the Internal Revenue Code on a federal Tax Return with respect to any taxable year ending on or before the Closing Date. Except for these “reportable transaction” disclosures, the Company has not, directly or indirectly, engaged in a “reportable transaction” within the meaning of Section 6011 of the Internal Revenue Code and the Treasury Regulations thereunder on or before the Closing Date.

(m) The Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Internal Revenue Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, and the Company has not participated in an international boycott within the meaning of Section 999 of the Internal

Revenue Code. The Company does not and has not had a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country.

(n) The Company is not party to any joint venture, partnership, or other arrangement or contract that would be treated as a partnership for federal income Tax purposes.

(o) The amount of built-in gain that the Company would recognize under Section 1374 of the Internal Revenue Code upon a sale of all of its assets for fair market value on or before the Closing Date would not exceed Three Hundred Fifty Thousand Dollars ($350,000).

2.12 Legal Proceedings. Except as set forth in Schedule 2.12:

(a) there are no Actions or Proceedings pending or, to the knowledge of Seller and/or the Company, threatened, against or adversely affecting the Company or any of the Assets or the Business;

(b) there are no Orders outstanding against or adversely affecting the Company or any of the Assets or the Business; and

(c) there are no facts or circumstances known to Seller and/or the Company that would reasonably be expected to give rise to any Action or Proceeding against or adversely affecting the Company or any of the Assets or the Business.

Schedule 2.12 sets forth all Actions or Proceedings against or affecting, or, to the knowledge of Seller and/or the Company, threatened against or adversely affecting the Company or any of the Assets or the Business during the three-year period prior to the date of this Agreement.

2.13 Compliance with Laws and Orders.

(a) The operation of the Business as currently conducted does not violate any Law or Order applicable to the Company or any of the Assets, nor does it constitute unfair competition or deceptive or unfair trade practices, or the so-called unauthorized practice of law, under any Law. Neither the Company nor any of its directors, officers, Affiliates, agents or employees has violated or is currently in default or violation under, any Law or Order applicable to the Company or any of the Assets, including any Law with respect to unfair competition, unfair trade practices, or the so-called unauthorized practice of law.

(b) The Company has all Permits required by any Law or any Governmental or Regulatory Authority for the conduct of the Company’s business as presently conducted. Each of such Permits is in full force and effect and the Company is in compliance with the terms and requirements thereof, and no such Permit is subject to any conditions or limitations other than those applicable to permits of that kind generally. All Permits of the Company are listed on Schedule 2.13 (the “Company’s Permits”) and the Company has made available to Purchaser a true and correct copy of each such Permit. No loss or expiration of any Permit is pending or, to the knowledge of Seller and/or the Company, threatened (including as a result of the transactions contemplated hereby) other than expiration in accordance with the terms thereof, which terms do

not expire as a result of the consummation of the transactions contemplated hereby and which terms, except as set forth on Schedule 2.13, do not expire within ninety (90) days from the date hereof.

2.14 Plans; ERISA.

(a) All of the Plans of the Company and its ERISA Affiliates are listed on Schedule 2.14(a). Copies of all such Plans and written descriptions of any oral Plans have been made available to Purchaser, along with annual reports (Forms 5500) required for any Plan for the last three (3) years. To the extent applicable, each Plan has been maintained and administered in accordance with its terms and all applicable Laws, including but not limited to the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder (“ERISA”) and the Internal Revenue Code. Any Plan intended to be qualified under Section 401(a) of the Internal Revenue Code or tax-exempt under Section 501(a) of the Internal Revenue Code is so qualified or tax-exempt and is subject to a current opinion or determination letter from the Internal Revenue Service regarding such qualification or tax exemption, which has been made available to Purchaser. No Plan is covered by Title IV of ERISA or Section 412 of the Internal Revenue Code. Neither the Company nor any of its ERISA Affiliates has been a contributing employer to any multiemployer plan as defined under Section 4001 of ERISA. Neither the Company nor any officer or director of the Company has incurred any Liability or penalty under Section 4971 through 4980E of the Internal Revenue Code or Title 1 of ERISA. No ERISA Affiliate or officer of any ERISA Affiliate has incurred any such liability or penalty. None of the Plans promises or provides retiree medical or other retiree welfare benefits to any person except as required by applicable Law, including but not limited to, Sections 601 to 608 of ERISA and Section 4980B of the Internal Revenue Code. No Action or Proceeding (excluding claims for benefits incurred in the ordinary course of Plan activities) has been brought, or to the knowledge of Seller and/or the Company, is threatened, against or with respect to any such Plan. All contributions, reserves or premium payments required to be made or accrued as of the date hereof to the Plans have been made or accrued. All reports, returns, forms and notices required to be filed with any Government or Regulatory Authority or furnished to participants or beneficiaries with respect to the Plans, by the Internal Revenue Code, ERISA or any other applicable Law, have been so filed and furnished. Except as disclosed on Schedule 2.14(a), neither the Company nor any of its ERISA Affiliates is under a legal or contractual obligation to continue any of the Plans and may terminate any or all of the Plans at any time in accordance with the terms of the Plans and applicable Law without incurring any Liability.

(b) Except as provided in Schedule 2.14(b), neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment or increased benefit (including severance, unemployment compensation, bonus or otherwise) becoming due to any current or former director, officer, employee or consultant of the Company or any ERISA Affiliate under any Plan or otherwise, (ii) result in a payment or benefit becoming due to any director, officer or employee of the Company or any ERISA Affiliate under any Plan or otherwise which will be characterized as a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code (but without regard to clause (b)(2)(A)(ii) thereof), (iii) increase any benefits otherwise payable under any Plan, or (iv) result in the acceleration of the time of payment or vesting of any such benefits.

(c) To the extent applicable, the Company and its ERISA Affiliates have complied with the continuation health care coverage requirements of Section 4980B of the Internal Revenue Code and Sections 601 through 608 of ERISA with respect to “qualifying events,” as defined in the Internal Revenue Code and ERISA, which occur on or before the Closing with respect to any current or former employees of the Company and its ERISA Affiliates and their respective “qualified beneficiaries,” as defined in the Internal Revenue Code and ERISA, and with the requirements of the Health Insurance Portability and Accountability Act and other applicable health insurance requirements in Section 4980D of the Internal Revenue Code and Sections 701 through 734 of ERISA.

(d) Any Plan which is a “nonqualified deferred compensation plan” as defined in Internal Revenue Code Section 409A has been operated in good faith compliance with Internal Revenue Code Section 409A.

2.15 Real Property.

(a) Schedule 2.15(a) contains a true and correct list of (i) each parcel of real property leased, utilized and/or operated by the Company (as lessor, lessee or otherwise) (the “Leased Real Property”) and (ii) all Liens relating to or affecting any parcel of real property referred to in clause (i) to which the Company is a party. True and correct copies of the documents under which the Leased Real Property is leased, subleased (to or by the Company or otherwise), utilized, and/or operated (the “Lease Documents”) have been made available to Purchaser, and such Lease Documents are unmodified and in full force and effect. The Company does not own any real property other than the Company owned leasehold improvements, if any, on Leased Real Property.

(b) Subject to the terms of the Lease Documents, the Company has a valid and subsisting leasehold estate in and the right to quiet enjoyment of each of the Leased Real Properties for the full term of the leases (including renewal periods) relating thereto. Each Lease Document referred to in Section 2.15(a) is a legal, valid and binding agreement, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors’ rights generally and by general principles of equity, and except as set forth in Schedule 2.15(b), there is no, and neither the Company nor any of its Affiliates has received notice of any, default (or any condition or event which, after notice or lapse of time or both, would constitute a default) thereunder. The Company does not owe brokerage commissions or finders fees with respect to any such Leased Real Property.

(c) Except as disclosed in Schedule 2.15(c), all improvements on the Leased Real Property comply with and are operated in accordance with applicable Laws (including Environmental Laws) and all applicable Liens, Approvals, Contracts, covenants and restrictions. All such improvements are in good operating condition, in a state of good maintenance and repair, ordinary wear and tear excepted, and are adequate for the purposes for which they are presently being used and there are no condemnation or appropriation proceedings pending or, to the knowledge of Seller and/or the Company, threatened against any of such real property or the improvements thereon.

2.16 Assets. Except as set forth on Schedule 2.16, the Company is in possession of and has good and marketable title to, or has valid leasehold interests in or valid rights under contract to use, all Assets (including all tangible personal property presently used in the conduct of the Business), including all tangible personal property reflected on Company Financials and all tangible personal property acquired since the date of Company Financials, other than property disposed of since such date in the ordinary course of business. Except as disclosed in Schedule 2.16, all such Assets (including all tangible personal property presently used in the conduct of the Business, including plant, property and equipment) are owned by the Company free and clear of all Liens and are adequate for the conduct by the Company of the Business as presently conducted, and are in good working order and condition, ordinary wear and tear excepted, and their use complies with all applicable Laws.

2.17 Intellectual Property.

(a) Schedule 2.17(a) lists (i) all Company Registered Intellectual Property, (ii) all other material Company Intellectual Property, and (iii) all other Intellectual Property that is necessary or material to the conduct of the Business in the ordinary course as currently conducted by the Company or contemplated to be conducted (“Other Material IP”). Schedule 2.17(a) lists any Actions or Proceedings that have occurred and/or are pending as of the date hereof before any Governmental or Regulatory Authority (including the United States Patent and Trademark Office (the “PTO”), the Copyright Office, the Federal Trade Commission, or equivalent authorities anywhere in the world) related to any of Company Registered Intellectual Property or the other material Company Intellectual Property.

(b) The Company has all requisite right, title and interest in or valid and enforceable rights under Contracts or Licenses to use all Intellectual Property that is materially necessary for the Company to conduct the Business in the ordinary course, including the Other Material IP. The Company owns exclusively all right, title and interest in and to the Company Intellectual Property including that listed in Schedule 2.17(a) in its own name and free and clear of any Liens except as disclosed in Schedule 2.17(a).

(c) Without limitation of the foregoing, except for third party licensed software listed on Schedule 2.17(c) hereto (“Commercially Available Programs”), the Company is the sole and exclusive owner of, in its own name and free and clear of any Liens except as disclosed in Schedule 2.17(a), all the software, software systems and databases used, or held or being developed for use in connection with the conduct of the Business, including the search application and solution currently referred to as “GOBBLER” and the Internet monitoring and intellectual property enforcement system known currently as “HALE” and all prior versions, components, modules and work in progress thereof, including all source and object code, program files, graphical user interfaces, non-graphical interfaces, APIs, portals, web sites, look and feel, content, software libraries, and all prior, current, or future versions and copies thereof as well as all work-in-progress, modules, prototypes, notes, analysis, compilations, studies, samples, parts, test units, files, records, summaries, and other material prepared by or for the Company with respect thereto, as well as all software user/administrator documentation and manuals, technical data and specifications, process or method descriptions, flow charts or diagrams, test plans, schedules, support/maintenance procedures, programming tools (including any tools needed for maintenance), annotations, algorithms, software design and architecture,

any system level documentation detailing how programs or processes fit together, definitions or descriptions of all modules, including any flow charts, and any other information related thereto or necessary for the Company (or its agents) to operate, support, and modify such software, databases and software systems, including GOBBLER and HALE, in the future (in whatever medium or form) (all of said software, databases and software systems collectively, including Gobbler and HALE, the “Company Software and Systems”).

(d) Seller, employees of the Company, customers of the Company, and Affiliates or Subsidiaries of the Company do not have any claim of ownership or co-ownership of the Company Software and Systems or any portion thereof.

(e) To the extent that any Company Intellectual Property has been conceived, developed, created or reduced to practice in whole or in part by any Person other than the Company or the Company’s employees within the scope of their employment with the Company, the Company obtained ownership of, and is the exclusive owner of, all such Intellectual Property by operation of law or by valid assignment of any such rights.

(f) The Company has not transferred ownership of or granted any License of or other right to use or authorized the retention of any rights to use any Intellectual Property that is or was Company Intellectual Property to any other Person. Moreover, neither Seller, the Company nor any of their respective past or present Affiliates or Subsidiaries has assigned or transferred or disposed of any interest in the Intellectual Property in the Company Software and Systems.

(g) Company Intellectual Property, the Other Material IP, together with the licensed software and other Intellectual Property identified in Schedule 2.17(g), constitutes all the material Intellectual Property used or held or being developed for use in and/or materially necessary to the conduct of the Business as currently conducted, including the design, development, distribution, marketing, manufacture, use, import, license, and sale of the products, technology and services of the Company and the infrastructure, networks, and systems necessary to conduct same.

(h) Schedule 2.17(h) lists all Contracts, Licenses and agreements between the Company or a past or present Affiliate or Subsidiary and any other Person (true and complete copies or, if none, reasonably complete and accurate written descriptions of which, together with all amendments and supplements thereto and all waivers of any terms thereof, have been made available to Purchaser prior to the execution of this Agreement), including the names of the parties thereto and the dates thereof and a description of whether such Contacts, Licenses and agreements are written or oral, wherein or whereby the Company or such Affiliate or Subsidiary has agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any obligation or Liability, or provide a right of rescission, with respect to the infringement or misappropriation by the Company or such other Person of the Intellectual Property of any Person other than the Company.

(i) Except as disclosed in Schedule 2.17(i), the Company Software and Systems and the operation of the Business as currently conducted, including the design, development, use, import, manufacture and sale of the products, technology or services

(including products, technology or services currently under development) of the Company, do not (i) infringe or misappropriate the Intellectual Property of any Person, (ii) violate any material term or provision of any License or Contract concerning such Intellectual Property (including any provision required by or imposed pursuant to 35 U.S.C. §§200-212 in any License or Contract to which the Company is a party requiring that products be manufactured substantially in the United States), (iii) violate the rights of privacy or publicity of any Person, or (iv) constitute unfair competition or an unfair trade practice under any Law, and neither Seller nor the Company has received notice from any Person claiming that any aspect of the Company Software and Systems or such operation or any act, product, technology or service (including products, technology or services currently under development) of the Company infringes or misappropriates the Intellectual Property of any Person or constitutes unfair competition or trade practices under any Law, including notice of infringement of or notice of availability of a license under a third-party patent or other Intellectual Property rights from a potential licensor of such rights.

(j) Each item of Company Registered Intellectual Property which has actually been registered is valid and subsisting, and all necessary registration, maintenance, renewal fees, annuity fees and Taxes due or payable as of the Closing in connection with such Registered Intellectual Property have been paid and all necessary documents and certificates in connection with such Registered Intellectual Property and due as of the Closing have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property. Schedule 2.17(j) lists all actions that must be taken by the Company within ninety (90) days from the date hereof, including the payment of any registration, maintenance, renewal fees, annuity fees and Taxes or the filing of any documents, applications or certificates for the purposes of maintaining, perfecting or preserving or renewing any Company Registered Intellectual Property. In each case in which the Company has acquired ownership of any Registered Intellectual Property from any Person, the Company has obtained a valid and enforceable assignment sufficient to irrevocably transfer all rights in such Registered Intellectual Property (including the right to seek past and future damages with respect to such Registered Intellectual Property) to the Company and, to the maximum extent provided for by and required to protect the Company’s ownership rights in and to such Registered Intellectual Property in accordance with applicable Laws, the Company has recorded each such assignment of Registered Intellectual Property with the relevant Governmental or Regulatory Authority, including the PTO or the U.S. Copyright Office.

(k) There are no Contracts or Licenses between the Company and any other Person with respect to Company Intellectual Property, Other Material IP or Company Software and Systems under which there is any dispute (or, to Seller’s or the Company’s knowledge, facts that may reasonably lead to a dispute) regarding the scope of such Contract or License, or performance under such Contract or License, including with respect to any payments to be made or received by the Company thereunder.

(l) To the knowledge of Seller and/or the Company, no Person is infringing, violating, or misappropriating any Company Intellectual Property.

(m) Seller and the Company have taken commercially reasonable steps to protect the rights in confidential information and trade secrets of the Company or provided by any other Person to the Company subject to a duty of confidentiality.

(n) No Company Intellectual Property is subject to any Contract, Order, Action or Proceeding that restricts, or that is reasonably expected to restrict in any manner, the use, transfer or licensing of any Company Intellectual Property by the Company or that may affect the validity, use or enforceability of such Company Intellectual Property.

(o) The Company does not believe, nor has it received any complaint or allegation, that any (i) product, technology, service or publication of the Company, (ii) material published or distributed by the Company, or (iii) conduct or statement of the Company constitutes obscene or indecent material, a defamatory statement or material, false advertising or otherwise materially violates any Law.

(p) Neither this Agreement nor any transactions to be accomplished pursuant to this Agreement will result in Purchaser’s granting any rights or licenses with respect to any Company Intellectual Property or the Intellectual Property of Purchaser to any Person pursuant to any Contract to which the Company or a past or present Affiliate or Subsidiary is a party or by which any of the Assets are bound. The Company does not have and Purchaser will not assume as a result of the Closing any obligation to pay any royalties with respect to any Intellectual Property to any third party after Closing.

(q) Schedule 2.17(q) sets forth a list of all software and other Intellectual Property that the Company or any of its Affiliates or Subsidiaries has licensed from any third party which is used by the Company in or necessary for the Company to conduct the Business (including with respect to the Company Software and Systems, and any of the Company’s solutions that are in development as of the Closing), including the Contract or License pursuant to which the rights are granted. The Company has all rights necessary to the use of such software and other Intellectual Property. The Seller is not in breach of the third party Contracts or Licenses referenced above and the other parties thereto have not claimed breach or send notice of termination.

(r) The products and services of the Company comply in all material respects with the feature specifications and performance standards set forth in the product/tool/solution data sheets or customer contracts of the Company. There are no material outstanding claims (or facts known to Seller and/or the Company that are likely to lead to a material claim) for breach of warranties by the Company in connection with the foregoing. All material product or service performance comparisons heretofore furnished by the Company to customers or Purchaser are accurate in all material respects as of the dates so furnished (except that, in the case of performance comparisons made as of a specified earlier date, such comparisons shall be accurate as of such specified earlier date, and, in the case of performance comparisons superseded by a subsequent performance comparison furnished to the customer before the customer’s acquisition of a product or service covered by the superseded comparison, the superseding comparison shall be accurate in all material respects and the superseded comparison shall be disregarded).

(s) Seller and the Company have taken all reasonably necessary steps to preserve sole and exclusive ownership of material Company Intellectual Property, except (i) where the failure to do so could not reasonably be expected to have a Material Adverse Effect or (ii) except as set forth in Schedule 2.17(s). Seller and the Company have secured valid written assignments from all current and former consultants and third parties who contributed to the conception, creation, development or reduction to practice of material Company Intellectual Property.

(t) The Company Software and Systems do not constitute a published work under the United States Copyright Act, and the corresponding source code or any other confidential information relating to or embodied in the Company Software and Systems has not been disclosed to any third party. Except as set forth on Schedule 2.17(t), the Company Software and Systems do not contain, embed or include any open source software or library or any code subject to the terms of a public licensing regime such as the GPL.

2.18 Contracts.

(a) Schedule 2.18(a) contains a true and complete list of each of the Contracts (true and complete copies or, if none, reasonably complete and accurate written descriptions of which, together with all amendments and supplements thereto and all waivers of any terms thereof, have been made available to Purchaser prior to the execution of this Agreement), including the names of the parties thereto and the dates thereof and a description of whether such Contacts are written or oral, to which the Company is a party or by which any of the Assets are bound, including:

(i) employment and consulting agreements related to services provided in the Business;

(ii) licenses, licensing arrangements and other contracts providing in whole or in part for the use of, or limiting the use of, any Company Intellectual Property and the licensed software and other Intellectual Property identified in Schedule 2.17(q), or otherwise relating to the Company Software and Systems;

(iii) brokerage or finder’s agreements relating to the transactions contemplated hereby;

(iv) outstanding orders, statements of work and other contracts for the purchase or sale of materials, supplies, products or services that are provided in connection with the Business, including licenses and agreements for any inbound information technology or software data or other similar licenses or agreements;

(v) any lease agreements providing for the leasing of personal property contained in the Assets;

(vi) joint venture, partnership and similar contracts involving a sharing of profits or expenses with respect to the Business;

(vii) asset purchase agreements and other acquisition or divestiture agreements, regarding the sale, lease or disposal of any Assets;

(viii) any contracts or agreements under which the Company receives any product or service used or relied upon in connection with the products or services provided by the Company, or otherwise in connection with the Business, including hosting, licensed software, databases or other data suppliers, investigative services, web or other electronic searches, legal services, accounting services, and other outsourced services;

(ix) the Lease Documents;

(x) memorandums of understanding, letters of intent or similar agreements with potential or prospective customers;

(xi) settlement agreements;

(xii) contracts, licenses or other agreements relating to Debt;

(xiii) contracts or other agreements with any law firms or other legal service providers; and

(xiv) contracts, licenses or other agreements providing for the payment of commissions or referral fees.

(b) Each Contract to which the Company is a party or by which any of the Assets are bound is in full force and effect and constitutes a legal, valid and binding agreement, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors’ rights generally and by general principles of equity. Except as disclosed in Schedule 2.18(b), there is no event of default or event or condition that, after notice or lapse of time or both, would constitute a violation, breach or event of default under any Contract on the part of the Company or, to the knowledge of Seller and/or the Company, any other party thereto.

(c) Except as disclosed in Schedule 2.18(c), the Company is not a party to or bound by any Contract that (i) automatically terminates or allows termination by the other party thereto upon consummation of the transactions contemplated by this Agreement or (ii) contains any covenant or other provision which limits the Company’s ability to compete with any Person in any line of business or in any area or territory or which contains any covenant that otherwise purports to restrict the business activity of the Company or limits its ability to engage in any line of business.

(d) The Company is not a party to any Government Contract.

(e) Schedule 2.18(e) lists all Government Bids and, with respect to each such Government Bid, (i) the prospective customer agency and title; (ii) the date of proposal submission; (iii) the expected award date, if known; (iv) the estimated period of performance, if known; and (v) the estimated value based on the proposal, if any. The Company has delivered to

Purchaser true, correct and complete copies of all Government Bids and all documentation and correspondence related thereto. Except for the Government Bids listed on Schedule 2.18(e), the Company has never made or submitted any Government Bids.

(f) The Company and each Affiliate thereof has fully complied with all terms and conditions of each Government Bid to which it is a party, has performed all obligations required to be performed by it thereunder, and has complied with all statutory and regulatory requirements applicable to each of the Government Bids. The representations, certifications and warranties, if any, made by the Company and each Affiliate thereof with respect to the Government Bids were accurate in all respects as of their effective date, and the Company and each Affiliate thereof has fully complied with any and all such certifications. With respect to the Government Bids, no Governmental or Regulatory Authority or any other Person has notified the Company or any Affiliate thereof, either orally or in writing, of any actual or alleged violation or breach of any statute, regulation, representation, certification, disclosure obligation, contract term, condition, clause, provision or specification that could reasonably be expected to have an adverse effect on the Business.

(g) Neither the Company, nor any Affiliate thereof, nor any of their respective directors, officers or employees, has ever been, nor is currently, suspended, debarred or proposed for suspension or debarment from bidding on any Government Contract, declared ineligible, or otherwise excluded from participation in the award of any Government Contract or for any reason been listed on the List of Parties Excluded from Federal Procurement and Non-procurement programs. No circumstances exist that would warrant the institution of suspension or debarment proceedings against the Company, any Affiliate thereof, or their respective directors, officers or employees.

2.19 Insurance. Schedule 2.19 contains a true and complete list of all insurance policies (by policy number, insurer, expiration date and type, amount and scope of coverage) relating to the Company or any of the Assets, copies of which have been provided or made available to Purchaser. In the three (3) year period ending on the date hereof, neither Seller nor the Company has received any notice from, or on behalf of, any insurance carrier relating to or involving any adverse change or any change other than in the ordinary course of business, in the conditions of insurance, any refusal to issue an insurance policy or non-renewal of a policy, or requiring or suggesting alteration of any of the Assets, purchase of additional equipment or modification of any of the Company’s methods of doing business. The insurance coverage provided by the policies listed in Schedule 2.19 will not terminate or lapse by reason of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements. Each policy listed in Schedule 2.19 is valid and binding and in full force and effect, all premiums due thereunder have been paid and neither the Company nor the Person to whom such policy has been issued has received any notice of cancellation or termination in respect of any such policy or is in default thereunder, and to the knowledge of Seller and/or the Company there exists no reason or state of facts that is reasonably likely to lead to the cancellation of such policies or of any threatened termination of, or premium increase with respect to, any of such policies. The insurance policies listed in Schedule 2.19 (i) in light of the Business, operations and Assets are in amounts and have coverages that are reasonable and customary for Persons engaged in similar businesses and operations and having similar Assets and (ii) are in amounts and have coverages

as required by any Contract to which the Company is a party or by which any of the Assets are bound. Schedule 2.19 contains a list of all claims in excess of Ten Thousand Dollars ($10,000) made under any insurance policies covering the Company in the last two years. Neither Seller nor the Company has received notice that any insurer under any policy listed in Schedule 2.19 is denying, disputing or questioning liability with respect to a claim thereunder or defending under a reservation of rights clause.

2.20 Affiliate Transactions.

(a) Except as disclosed in Schedule 2.20(a), (i) there are no Contracts or Liabilities between the Company, on the one hand, and any current or former officer, director, stockholder, Affiliate or Associate of the Company, on the other hand; (ii) the Company does not provide or cause to be provided any Assets, services or facilities to any such current or former officer, director, stockholder, Affiliate or Associate; (iii) no such current or former officer, director, stockholder, Affiliate or Associate provides or causes to be provided any Assets, services or facilities to the Company; and (iv) the Company does not beneficially own, directly or indirectly, any Investment Assets of any such current or former officer, director, stockholder, Affiliate or Associate.

(b) Except as disclosed in Schedule 2.20(b), each of the Contracts and Liabilities listed in Schedule 2.20(a) was entered into or incurred, as the case may be, on terms no less favorable to the Company (in the reasonable judgment of the Company) than terms generally available to the Company on an arm’s-length basis.

2.21 Employees; Labor Relations.

(a) Neither the Company nor any of its Affiliates is a party to any collective bargaining agreement or other Contract with any group of employees, labor organization or other representative of any of the employees of the Company or any of its Affiliates and, to the knowledge of Seller and/or the Company, there are no activities or proceedings of any labor union or other party to organize or represent such employees. There has not occurred nor, to knowledge of Seller and/or the Company, been threatened any strike, slow-down, picketing, work-stoppage, or other similar labor activity with respect to any such employees. The Company and each of its Affiliates is in compliance with all Laws relating to employment or the workplace, including provisions relating to wages, hours, overtime, classification of employees as exempt or non-exempt under the Fair Labor Standards Act, collective bargaining, safety and health, work authorization, equal employment opportunity, immigration and the withholding of income Taxes, unemployment compensation, worker’s compensation, employee privacy and right to know and social security contributions. There are no unresolved labor controversies (including unresolved grievances and age or other discrimination claims) or litigation, if any, between the Company or any of its Affiliates and Persons employed by or providing services to the Company. Neither the Company or Seller has received notice of, nor, to the knowledge of the Company and/or the Seller, are there, any investigations by any government agencies of the Company or any of its Affiliates concerning such matters.

(b) Except as set forth on Schedule 2.21(b)(i) (and notwithstanding anything set forth on Schedule 2.21(b)(ii)), each Person who is an employee of the Company or any of its

Affiliates is employed at will. No employee of the Company or any of its Affiliates is represented by a union. Each Person who is or was, or has been treated as, an independent contractor of the Company or any of its Affiliates for any purpose, including for purposes of tax withholding and reporting and eligibility for the Plans, has been properly classified by the Company and its Affiliates as an independent contractor under applicable employment-related Laws and all Laws concerning the status of independent contractors applicable to the Company. Schedule 2.21(b)(ii) sets forth, individually and by category, the name of each Person employed by or providing services to the Company, together with such Person’s position or function, annual base salary or wage and any incentive, severance or bonus arrangements with respect to such Person. To the knowledge of the Company and/or Seller, no person listed on Schedule 2.21(b)(ii) shall have any continuing employment obligation or other obligation to provide services to any Person other than the Company, including to Seller or any Affiliate of Seller, following the Closing. No current employee of the Company has made any threat, or otherwise revealed to the Company and/or Seller an intent, to terminate such employee’s relationship with the Company for any reason, including because of the consummation of the transactions contemplated by this Agreement. Except as set forth on Schedule 2.22(b)(ii), the Company is not a party to any agreement for the provision of labor from any outside agency. There have been no claims against the Company by employees of such outside agencies, if any, with regard to employees assigned to work for the Company, and no claims by any Governmental or Regulatory Authority with regard to such employees.

(c) To the knowledge of the Company and/or Seller, no officer, employee or consultant of the Company is obligated under any Contract or other agreement or subject to any Order or Law that would interfere with the Business as currently conducted. To the knowledge of the Company and/or Seller, neither the execution nor delivery of this Agreement, nor the carrying on of the Business as presently conducted nor any activity of such officers, employees or consultants in connection with the carrying on of the Business as presently conducted, will conflict with or result in a breach of the terms, conditions or provisions of, constitute a default under, or trigger a condition precedent to any rights under any Contract or other agreement under which any of such officers, employees or consultants is now bound.

(d) The Company has not received any written (or, to the knowledge of Seller and/or the Company, oral) notice from any employee or managerial personnel that would reasonably lead a person to believe that such employee intends to terminate his or her employment with the Company after the Closing Date or is not willing to continue his or her employment with he Company after the Closing Date on terms substantially comparable to his or her existing terms of employment at the Company.

2.22 Environmental Matters.

(a) To the knowledge of Seller and/or the Company, no Hazardous Material is present in, on, under or adjacent to any property that the Company has at any time owned, operated, occupied, leased or used (including both the land and improvements thereon), and no reasonable likelihood exists that any Hazardous Material will come to be present in, on, or under any properties owned, operated, occupied, leased or used at any time (including both land and improvements thereon) by the Company. The Company has not transported, stored, used, manufactured, disposed of, sold, released or exposed its employees or any other Person to any

Hazardous Material, or arranged for the disposal, discharge, storage or release of any Hazardous Material, or currently engages in any of the foregoing activities, in violation of any applicable Environmental Law or other Law.

(b) No Approvals are required to be obtained by the Company under any Environmental Laws, and the Company has been and is in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws or contained in any regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder.

(c) No Action or Proceeding is pending, or to the knowledge of Seller and/or the Company, threatened concerning any Environmental Law, Hazardous Material or any Hazardous Materials activity of the Company. The Company is not aware of any fact or circumstance that could involve the Company in any environmental litigation or impose upon the Company any environmental Liability.

2.23 Substantial Customers and Suppliers. Schedule 2.23 lists the twenty (20) largest customers of the Company on the basis of revenues collected or accrued for the twelve- (12-) month period ending June 30, 2007. Schedule 2.23 lists the twenty (20) largest suppliers of the Company on the basis of cost of goods or services purchased for twelve- (12-) month period ending June 30, 2007. Except as disclosed in Schedule 2.23, (i) no such customer or supplier has ceased its business relationship with the Company or materially reduced its purchases from or sales or provision of services to the Company since December 31, 2006, (ii) neither Seller nor the Company has received notice (written or oral) from any such customer or supplier of its intent to cease its business relationship with the Company, or to materially reduce its purchases from or sales or provision of services to the Company, after the date hereof and (iii) no such customer or supplier has threatened to cease its business relationship with the Company, or to materially reduce its purchases from or sales or provision of services to the Company, after the date hereof. Except as disclosed in Schedule 2.23, neither the Company nor Seller has received notice that any such customer or supplier is threatened with bankruptcy or insolvency.

2.24 Accounts and Notes Receivable. Except as set forth in Schedule 2.24, each of the accounts receivable and notes receivable of the Company reflected on Company Financials, and each of the accounts receivable and notes receivable arising subsequent to June 30, 2007, (a) arose from bona fide sales transactions in the ordinary course of business, consistent with past practice, and are payable on ordinary trade terms, (b) is a legal, valid and binding obligation of its debtor enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors’ rights generally and by general principles of equity, (c) is not subject to any valid set-off or counterclaim, (d) has been collected or is fully collectible before the date that is ninety (90) days after the date of Closing, each net of reserves shown on the June 30, 2007 balance sheet of the Company constituting a part of Company Financials, in amounts not less than the aggregate amounts thereof carried on the Books and Records of the Company, and (e) does not represent obligations for goods sold on consignment, on approval or on a sale-or-return basis or subject to any other repurchase or return arrangement other than customers’ rights to inspect goods upon receipt and reject nonconforming goods.

2.25 Other Negotiations; Brokers; Third-Party Expenses. Except as disclosed in Schedule 2.25, neither Seller nor the Company, nor any of their respective officers, directors, managers, employees, agents, stockholders, members or Affiliates (nor any investment banker, financial advisor, attorney, accountant or other Person retained by or acting for or on behalf of Seller, the Company or any such Person) (a) has entered into any Contract that conflicts with any of the transactions contemplated by this Agreement or (b) has entered into any Contract or arrangement with any Person regarding any transaction involving the Company which is likely to result in Purchaser, the Company or any officer, director, employee, agent or Affiliate of any of them being subject to any claim for Liability to said Person as a result of entering into this Agreement or consummating the transactions contemplated hereby. Except as set forth in Schedule 2.25, no broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or similar fee or commission in connection with this Agreement and the transactions contemplated hereby based on arrangements made by or on behalf of Seller or the Company.

2.26 Banks and Brokerage Accounts. Schedule 2.26 sets forth (a) a true and complete list of the names and locations of all banks, trust companies, securities brokers and other financial institutions at which the Company has an account or safe deposit box or maintains a banking, custodial, trading or other similar relationship, (b) a true and complete list and description of each such account, box and relationship, indicating in each case the account number and the names of the respective officers, employees, agents or other similar representatives of the Company having signatory power with respect thereto and (c) a list of each Investment Asset, the name of the record and beneficial owner thereof, the location of the certificates, if any, therefor, and any stock or bond powers or other authority for transfer granted with respect thereto.

2.27 Warranty Obligations. The Company has not entered into any warranties, indemnification obligations, guarantees or written warranty policies in respect of any of the Company’s products and services (the “Warranty Obligations”) other than those normal and customary in the conduct of the Business. Except as set forth on Schedule 2.27, the Company is not subject to any dispute or, to the knowledge of Seller and/or the Company, threatened dispute relating to such Warranty Obligations.

2.28 Foreign Corrupt Practices Act. Neither the Company nor, to the knowledge of Seller and/or the Company, any agent, employee or other Person acting on behalf of the Company has, directly or indirectly, used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds, violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other similar unlawful payment.

2.29 Takeover Statutes. No Takeover Statute applicable to the Company is applicable to the Acquisition or the other transactions contemplated hereby or by the Ancillary Agreements.

2.30 Customer Services.

(a) Schedule 2.30(a) describes, as of the Closing Date, each of the types, and the only types, of letters, written communications and/or notices that the Company, in whole or in part, in any capacity, prepares, drafts, completes, fill-ins and/or sends, or causes or arranges to be prepared, drafted, completed, filled-in and/or sent, on behalf, or for the benefit, of its customers in connection with the operation of the Business as it is then currently and proposed to be conducted (the “Letters and Notices”).

(b) Schedule 2.30(b) describes in detail the four (4) different processes utilized by the Company as of the Closing Date in connection with the operation of the Business as it is then currently and proposed to be conducted in connection with preparing, drafting, completing, filling-in and/or sending, or causing or arranging the preparation, drafting, completion, filling-in and/or sending, of the Letters and Notices contemplated by Section 2.30(a) (each such process, a “Process”). As of the Closing Date, the Company shall have in place and be utilizing exclusively in connection with the operation of the Business as it is then currently and proposed to be conducted the Processes with respect to its customers set forth on Schedule 2.30(b).

2.31 Disclosure; Delivered Information. No representation or warranty made by Seller or the Company contained in this Agreement, and no statement contained in or as any schedule hereto delivered by Seller or the Company or in any certificate, list or other writing attached hereto delivered by Seller or the Company or delivered by Seller or the Company pursuant to Article 7 hereof, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein, in the light of the circumstances under which they were made, not misleading. Seller has delivered to Purchaser all such financial, operating, technical and product data and other information, materials and Books and Records as Purchaser from time to time has requested (as so delivered, the “Delivered Information”), and Seller has not failed to provide to Purchaser any other financial, operating, technical or product data or other information, materials or Books and Records which is material or otherwise necessary in order to make any of the Delivered Information (or any representation or warranty made by Seller or the Company contained in this Agreement, or any statement contained in or as any schedule hereto delivered by Seller or the Company or in any certificate, list or other writing delivered by Seller or the Company or delivered by Seller or the Company pursuant to Article 7) not misleading. Notwithstanding anything herein to the contrary, all financial, operating, technical or product data or other information, materials or Books and Records delivered by Seller or the Company to Purchaser at any time during the period beginning on October 27, 2007 and ending on the date of this Agreement had been delivered to Purchaser prior to such period.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Purchaser as follows:

3.1 Ownership of Company Stock. Seller owns of record and beneficially all of the issued and outstanding shares of Company Stock. Such shares are, and when delivered by Seller to Purchaser pursuant to this Agreement will be, duly authorized, validly issued, fully paid, non-assessable and free and clear of any and all Liens. There are no limitations or restrictions on Seller’s right to transfer such shares of Company Stock to Purchaser pursuant to this Agreement, and Seller is not a party to any option, warrant, purchase right, proxy, power of attorney, voting trust or other Contract or commitment with respect to the voting or dividend rights or the sale, acquisition, issuance, redemption, registration, transfer or other disposition of any capital stock of the Company (other than this Agreement).

3.2 Binding Agreements. This Agreement and the Ancillary Agreements to which Seller is or will become a party, assuming the due authorization, execution and delivery hereof (and, in the case of the Ancillary Agreements to which Purchaser is a party, thereof) by, and enforceability against, Purchaser, constitutes or will upon execution and delivery constitute, as applicable, the legal, valid and binding obligation of Seller enforceable against him in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors’ rights generally and by general principles of equity.

3.3 No Conflicts; Approvals. The execution and delivery by Seller of this Agreement and the Ancillary Agreements to which it is a party does not and will not upon execution and delivery, and the performance by Seller of his obligations under this Agreement and the Ancillary Agreements to which he is a party and the consummation of the transactions contemplated hereby and thereby do not and will not:

(a) conflict with or result in a violation or breach of any Law or Order applicable to Seller, the Assets or the Company Stock; or

(b) except as disclosed on Schedule 3.3(b) hereof, (i) conflict with or result in a violation or breach of, (ii) constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, (iii) require Seller to obtain or make any Approval to any Person as a result or under the terms of, (iv) result in or give to any Person any right of termination, cancellation, acceleration or modification in or with respect to, (v) result in or give to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments or performance under, (vi) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of Seller’s assets or properties, including the Company Stock, under or (vii) result in the loss of any benefit under, any of the terms, conditions or provisions of any Contract to which Seller is a party or by which any of the Assets or the Company Stock are bound.

No Approval is required to be obtained from or made with, or filed with or delivered to, any Governmental or Regulatory Authority by Seller in connection with the execution and delivery by Seller of this Agreement and the Ancillary Agreements to which Seller is or will be a party, and the performance by Seller of his obligations under this Agreement and the Ancillary Agreements to which Seller is or will be a party and the consummation of the transactions contemplated hereby and thereby.

3.4 Legal Proceedings. Except as set forth in Schedule 3.4:

(a) there are no Actions or Proceedings pending or, to the knowledge of Seller and/or the Company, threatened, against or adversely affecting Seller or any of his assets or properties, including the Company Stock;

(b) there are no Orders outstanding against Seller; and

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to Seller and the Company as follows:

4.1 Organization. Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. Purchaser has full corporate power and authority to conduct its business as now conducted and as currently proposed to be conducted and to own, use and lease its assets and properties.

4.2 Authority; Binding Agreements. Purchaser has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Purchaser of this Agreement and the Ancillary Agreements to which it is a party and the consummation by Purchaser of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action of Purchaser, and no other corporate action on the part of Purchaser is required to authorize the execution, delivery and performance of this Agreement and the Ancillary Agreements to which it is a party and the consummation by Purchaser of the transactions contemplated hereby and thereby. This Agreement and the Ancillary Agreements to which Purchaser is or will become a party have been or will be, as applicable, duly and validly executed and delivered by Purchaser and, assuming the due authorization, execution and delivery hereof (and in the case of the Ancillary Agreements to which Seller and/or the Company is a party, thereof) by, and enforceability against, Seller and/or the Company, each constitutes or will upon execution and delivery constitute, as applicable, a legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors’ rights generally and by general principles of equity.

4.3 No Conflicts; Approvals. The execution and delivery by Purchaser of this Agreement and the Ancillary Agreements to which it is a party does not and will not upon execution and delivery, and the performance by Purchaser of its obligations under this Agreement and the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby do not and will not:

(a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the certificate of incorporation or bylaws of Purchaser;

(b) subject to obtaining or making the Approvals disclosed in Schedule 4.3(c), if any, result in a violation or breach of, or a conflict with, any Law or Order applicable to Purchaser or any of its assets or properties; or

(c) except as disclosed in Schedule 4.3(c) attached hereto, (i) result in a violation or breach of or conflict with, (ii) constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, (iii) require Purchaser to obtain or make any Approval to any Person as a result or under the terms of, (iv) result in or give to any Person any right of termination, cancellation, acceleration or modification in or with respect to, (v) result in or give to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments or performance under, (vi) result in the creation or imposition of (or the obligation to create or impose) any Lien upon Purchaser or any of its assets or properties under or (vii) result in the loss of any benefit under, any of the terms, conditions or provisions of any Contract or License to which Purchaser is a party or by which any of its assets or properties are bound.

No Approval is required to be obtained from or made with, or filed with or delivered to, any Governmental or Regulatory Authority by Purchaser in connection with the execution and delivery by Purchaser of this Agreement and the Ancillary Agreements to which Purchaser is or will be a party, and the performance by Purchaser of its obligations under this Agreement and the Ancillary Agreements to which Purchaser is or will be a party and the consummation by Purchaser of the transactions contemplated hereby and thereby.

4.4 Other Negotiations; Brokers; Third-Party Expenses. Neither Purchaser nor any of its officers, directors, employees, agents, Subsidiaries or Affiliates (nor any investment banker, financial advisor, attorney, accountant or other Person retained by or acting for or on behalf of Purchaser) (a) has entered into any Contract that conflicts with any of the transactions contemplated by this Agreement or (b) has entered into any Contract or arrangement with any Person regarding any transaction involving Purchaser which is likely to result in the Company, Seller or any officer, director, employee, agent or Affiliate of any of them being subject to any claim for Liability to said Person as a result of entering into this Agreement or consummating the transactions contemplated hereby. No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or similar fee or commission in connection with this Agreement and the transactions contemplated hereby based on arrangements made by or on behalf of Purchaser.

4.5 Ability to Pay Purchase Price At Closing. At Closing, Purchaser shall have sufficient cash on hand or availability under an existing credit facility to consummate the transactions contemplated by this Agreement.

4.6 Independent Review. Prior to the execution of this Agreement Purchaser has had the opportunity to conduct its own independent review and analysis of the Business and of the Company, its financial condition, cash flow and prospects. In entering this Agreement, except for the representations and warranties contained in this Agreement, Purchaser has relied solely

upon its own investigation and analysis as it relates to the Company. Except for the representations and warranties contained in this Agreement (including the schedules hereto), Seller makes no other representation or warranty to Purchaser, express or implied, and Seller hereby disclaims any such representation or warranty, whether by Seller or any of its agents, brokers or representatives of any other person, notwithstanding the delivery or disclosure to Purchaser or any of its respective officers, directors, employees, agents or representatives or any other person of any document or other information by or on behalf of Seller or any of his respective officers, directors, employees, agents or representatives or any other person. Notwithstanding anything herein to the contrary, this Section 4.6 is not applicable in the event of fraud or intentional misrepresentation.

ARTICLE 5
CONDUCT PRIOR TO THE CLOSING

5.1 Conduct of Business. During the period from the date of this Agreement and continuing until the earlier of (a) the termination of this Agreement pursuant to the provisions of Section 9.1 or (b) the Closing, the Company agrees (unless the Company is otherwise required to take such action pursuant to this Agreement or Purchaser shall otherwise give its prior consent in writing), and Seller agrees to cause the Company, to carry on the Business in the usual, regular and ordinary course consistent with past practice, to pay its Liabilities and Taxes and to pay or perform its other obligations when due (other than Liabilities, Taxes and other obligations, if any, contested in good faith and for which adequate reserves have been established), and to use commercially reasonable efforts to preserve substantially intact its present business organization, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, independent contractors and other Persons having business dealings with it, all with the express purpose and intent of preserving substantially unimpaired its goodwill and ongoing businesses at and after the Closing. Except as expressly contemplated by this Agreement, the Company shall not, without the prior written consent of Purchaser, take or agree in writing or otherwise to take, any action that would result in the occurrence of any of the changes described in Section 2.9 or any other action that would make any of its representations or warranties contained in this Agreement untrue or incorrect when made in any material respect; provided, however, that Seller may cause the Company to pay dividends on Company Stock if he reasonably believes that after giving effect to any such payment, Closing Cash Balances will nevertheless exceed $150,000, Closing Debt will nevertheless equal $0, Closing Working Capital Amount will nevertheless exceed $0, and Closing Assets will nevertheless exceed $200,000; provided, further, however, that the Company prior to Closing shall assign and transfer to Seller, without consideration, pursuant to documentation reasonably acceptable to Purchaser, the Assets listed on Schedule 5.1. Neither Seller nor the Company shall, without the prior written consent of Purchaser, take or agree in writing or otherwise to take, any action intended to, or that would, prevent Seller or the Company from performing (or cause Seller or the Company not to perform) its agreements and covenants hereunder or intended to, or that would, cause any condition to Purchaser’s closing obligations in Section 7.1 or Section 7.3 not to be satisfied.

5.2 No Solicitation. Until the earlier of the Closing or the date of termination of this Agreement pursuant to the provisions of Section 9.1, neither the Company nor Seller nor any of their respective Subsidiaries or Affiliates will take, nor will the Company or Seller permit any of their representatives to take, any of the following actions with any Person other than Purchaser and its designees: (a) solicit, encourage or initiate any proposals or offers from, or participate in or conduct discussions with or engage in negotiations with, any Person relating to any offer or proposal, oral, written or otherwise, formal or informal, with respect to any possible Business Combination with the Company (a “Competing Proposed Transaction”), (b) provide information with respect to the Company to any Person, other than Purchaser, relating to (or which the Company or Seller believes would be used for the purpose of formulating an offer or proposal with respect to), or otherwise assist, cooperate with, facilitate or encourage any effort or attempt by any such Person with regard to, any possible Business Combination with the Company, (c) agree to, enter into a Contract with any Person, other than Purchaser, providing for, or approve a Business Combination with the Company or (d) authorize or permit any of the Company’s or Seller’s representatives to take any such action. Seller will notify Purchaser immediately after receipt by the Company or Seller (or any of their officers, directors, managers, employees, agents, advisors or other representatives) of any proposal for or inquiry respecting any Competing Proposed Transaction, or any request for nonpublic information in connection with such proposal or inquiry or for access to the Assets, Books and Records of the Company by any Person or entity that informs or has informed the Company or Seller that it is considering making or has made such a proposal or inquiry. Such notice to Purchaser shall indicate in reasonable detail the terms and conditions of such proposal or inquiry; provided, however, that such notice shall not be required to indicate the identity of the Person making such proposal or inquiry. Each of the Company and Seller and their respective Affiliates (and their respective officers, directors, employees, agents, advisors or other representatives) immediately shall cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to a Competing Proposed Transaction. Each of the Company and Seller agrees not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which it or any of its Subsidiaries is a party. Each of Seller, the Company and Purchaser acknowledge that this Section 5.2 is a significant inducement for Purchaser to enter into this Agreement and the absence of such provision would have resulted in either (i) a material reduction in the consideration to be paid to Seller in the Acquisition or (ii) a failure to induce Purchaser to enter into this Agreement.

ARTICLE 6
ADDITIONAL AGREEMENTS

6.1 Access to Information. Between the date of this Agreement and the earlier of the Closing or the termination of this Agreement, upon reasonable notice, the Company shall (a) give Purchaser and its officers, appropriate employees, accountants, and counsel full access, upon reasonable prior notice during normal business hours, to all buildings, offices, and other facilities and to all Books and Records of the Company, whether located on the premises of the Company or at another location; (b) furnish Purchaser such financial, operating, technical and product data and other information with respect to the Business and Assets as Purchaser from time to time may reasonably request, including financial statements and schedules; (c) subject to Purchaser and the Company agreeing to the topic and notice of any interviews (which such agreement shall not be unreasonably withheld, delayed or conditioned), allow Purchaser the

opportunity to interview (1) the customers listed on Schedule 7.3(e)(ii) and (2) such other customers, suppliers, prime contractors (when the Company is a subcontractor on a Contract), employees and other personnel and Affiliates of the Company as the Purchaser may request with the Company’s prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned), and instruct such Persons to cooperate with Purchaser in Purchaser’s investigation of the Business; provided, however, that Purchaser agrees not to disparage the Company or the Business in any such interviews and otherwise acts in good faith in connection with such interviews; and (d) assist and cooperate with Purchaser in the development of cooperation plans for implementation by Purchaser and the Company following the Closing; provided, however, that no investigation made prior to the date of this Agreement or made pursuant to this Section 6.1 shall affect or be deemed to modify any representation or warranty made by Seller or the Company, or any rights to indemnification of the Purchaser Indemnified Parties, herein.

6.2 Covenant Not to Compete.

(a) For a period commencing upon the Closing and ending on the later of (x) the third anniversary of the Closing and (y) the date the final payment of the Earnout is made, Seller shall not anywhere in the United States, directly or indirectly, without the prior written consent of Purchaser: (i) engage or participate, directly or indirectly, either as principal, agent, employee, employer, consultant, stockholder, director, officer, partner or in any other individual or representative capacity whatsoever, in the conduct or management of, or own any stock or other proprietary interest in, any business or enterprise that conducts business or operations which are the same as or substantially similar to the Business unless Seller or any such Affiliate shall have obtained the prior written consent thereto of Purchaser; provided, however, that Seller may purchase or otherwise acquire up to (but not more than) three percent (3%) of any class of the securities of any Person (but may not otherwise participate in the activities of such Person) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended, or (ii) solicit, hire or employ, or cause any other Person to solicit, hire or employ any employee or contractor then retained or employed by the Company or Purchaser or retained or employed by the Company or Purchaser within the one-year period immediately prior to such solicitation, hiring or employment.

(b) Each of the covenants in this Section 6.2 is severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that any specific covenant or the scope, time or territorial restrictions thereof are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and this Agreement shall thereby be reformed.

6.3 Confidentiality.

(a) Purchaser. The parties acknowledge and agree that, from and after the date hereof until the Closing, if the transactions contemplated hereby are consummated, and for one (1) year following the termination of this Agreement pursuant to the provisions of Section 9.1, that certain Non-disclosure Agreement between Purchaser and the Company, dated April 6,

2007 (the “Non-disclosure Agreement”), shall be incorporated herein by reference and shall apply fully to any and all “Confidential Information” (as defined therein) exchanged by the parties in connection therewith.

(b) Company and Seller. Each of the Company and Seller acknowledges and agrees that it has had in the past, currently has, and in the future may possibly have, access to (i) certain information of the Business that has not been disclosed to the public and which constitutes confidential and proprietary business information (the “Confidential Information of the Company”), and (ii) certain information of Purchaser that has not been disclosed to the public and which constitutes confidential and proprietary business information (the “Confidential Information of Purchaser”), including but not limited to, in each case, client and customer lists, software, data, formulae, processes, inventions, trade secrets, marketing information and plans, business strategies and other information about products and services offered or developed or planned to be offered or developed. Notwithstanding the foregoing, Confidential Information of the Company and Confidential Information of Purchaser does not include any information (A) that is or becomes publicly available, other than as a result of a disclosure by Seller or any of its Affiliates in violation of this Agreement, (B) which must be disclosed by Seller or any of its Affiliates under applicable Laws or by order of any Governmental or Regulatory Authority, or (C) which Seller reasonably believes is required to be disclosed in connection with the defense of a lawsuit against Seller or any of its Affiliates. In the event Seller or any of its Affiliates is requested or required (including by oral questions, interrogatories, requests for information or documents in a legal proceeding, subpoena, civil investigative or other similar process) to disclose any Confidential Information of the Company or Confidential Information of Purchaser as described in subpart (B) or subpart (C) of the immediately preceding sentence, Seller shall provide Purchaser with prompt written notice of any such request or requirement so that Purchaser may seek a protective order or other appropriate remedy, at Purchaser’s sole expense, and/or waive compliance with the provisions of this Agreement. If, in the absence of a protective order or other remedy or the receipt of a waiver from Purchaser, Seller or any of its respective Affiliates is nonetheless, on the advice of counsel, legally compelled to disclose Confidential Information of the Company or Confidential Information of Purchaser to any tribunal or else stand liable for contempt or suffer other censure or penalty, Seller or such Affiliate may, without liability hereunder, disclose to such tribunal only that portion of the Confidential Information of the Company or Confidential Information of Purchaser, as the case may be, which such counsel advises Seller is legally required to be disclosed, provided that Seller exercises commercially reasonable efforts to preserve the confidentiality of such information, including by cooperating with Purchaser to obtain an appropriate protective order, at Purchaser’s sole expense, or other reliable assurance that confidential treatment will be accorded such information by such tribunal. Seller agrees that, on behalf of itself and each of its Affiliates, without prior written consent of Purchaser, (I) from and after the date hereof if the transactions contemplated hereby are consummated, neither it nor its Affiliates shall in any manner directly or indirectly disclose any Confidential Information of the Company to any Person, except to authorized representatives of Seller and to counsel and other advisors in connection with the consummation of the transactions contemplated hereby (provided, however, that such advisors, other than counsel, agree to the confidentiality provisions of this Section 6.3(b)), or use any Confidential Information of the Company for any purpose or reason except in connection with the consummation of the transactions contemplated hereby; and (II) from and after the date hereof, neither Seller nor any of its respective Affiliates shall in any manner

directly or indirectly disclose to any Person or use any Confidential Information of Purchaser for any purpose or reason.

6.4 Expenses. Other than fees and expenses incurred by Seller and the Company related to the transactions contemplated herein and paid by the Company prior to the Closing Date, all fees and expenses incurred by Seller and by the Company in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, including all legal, accounting, financial advisory, consulting, success and all other fees and expenses of third parties (collectively, the “Company Expenses”), shall be the obligation of Seller. All fees and expenses incurred by Purchaser in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, including all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties, shall be the obligation of Purchaser.

6.5 Public Disclosure. Promptly after execution of this Agreement, Purchaser shall issue a press release relating to this Agreement. No disclosure (whether or not in response to any inquiry) of the existence of any subject matter of, or the terms and conditions of, this Agreement shall be made by Seller or, prior to the Closing, by the Company unless approved by Purchaser prior to release.

6.6 FIRPTA Compliance. On or prior to the Closing, the Company shall deliver to Purchaser a properly executed statement in a form reasonably acceptable to Purchaser for purposes of Treasury Regulation Section 1.1445-2(c)(3).

6.7 Notification of Certain Matters. The Company and Seller shall give prompt notice to Purchaser, and Purchaser shall give prompt notice to the Company and Seller, of (a) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of the Company or Seller or Purchaser, as the case may be, contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing (except for those representations and warranties that are by their terms qualified by a standard of materiality, with respect to which notice shall be given of the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any such representation or warranty of the Company or Seller or Purchaser, as the case may be, contained in this Agreement to be untrue or inaccurate in any respect at or prior to the Closing) and (b) any failure of the Company or Seller or Purchaser, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it in any material respect hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.7 shall not limit or otherwise affect any remedies available to the party receiving such notice.

6.8 Additional Documents and Further Assurances; Cooperation.

(a) Each party hereto, at the request of the other party hereto, shall use commercially reasonable efforts to execute and deliver such other instruments and do and perform such other acts and things (including all action reasonably necessary to seek and obtain and/or make any and all Approvals of any Governmental or Regulatory Authority or other Person required in connection with the Acquisition; provided, however, that neither party shall be obligated to consent to any divestitures or operational limitations or activities in connection

therewith and no party shall be obligated to make a payment of money as a condition to obtaining any such Approval, other than customary filing fees and other commercially reasonable payments) as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby.

(b) Each party agrees to use commercially reasonable efforts to cause the conditions set forth in Article 7 to be satisfied, where the satisfaction of such conditions depends on action or forbearance from action by such party.

(c) The Seller and the Company shall cause the Company to be operating the Business, as of the Closing Date, in a manner that is consistent with, and shall not take any action that would result (or would be reasonably likely to result) in the Business being operated (before or after Closing) in manner that is inconsistent with, the representations and warranties set forth in Section 2.30.

6.9 Resignation of Directors. The Company and Seller shall obtain and deliver to Purchaser at the Closing the resignation of each director and officer of the Company.

6.10 Delivery of Stock Ledger and Minute Book of the Company. Seller shall deliver the Company’s stock ledgers and minute books to Purchaser at the Closing.

6.11 Certain Tax Matters. The following provisions shall govern the allocation of responsibility as between Purchaser and Seller for certain tax matters following the Closing:

(a) Section 338(h)(10) Election. At Purchaser’s option, Seller shall join with Purchaser in making timely, effective and irrevocable elections under Section 338(h)(10) of the Internal Revenue Code and any corresponding elections under state, local or foreign Tax Law that have substantially the same effect as the election under Section 338(h)(10) of the Internal Revenue Code (collectively, a “Section 338(h)(10) Election”) with respect to the purchase of the issued and outstanding Company Stock. Purchaser and Seller agree to cooperate in all respects for the purposes of effectuating a timely and effective Section 338(h)(10) Election, including the execution and filing of any forms or Tax Returns. If the Section 338(h)(10) Election is made, Seller shall include any income, gain, loss, deduction or other Tax item resulting from the 338(h)(10) Election in his Tax Returns, to the extent required by Law. Seller shall indemnify the Company against any Taxes incurred and/or paid (by the Company) by reason of the Section 338(h)(10) Election that would not have been incurred with a stock purchase but for the Section 338(h)(10) Election, including any Taxes imposed under Internal Revenue Code Section 1374 (the “Corporate Tax Liability Amount”). The Corporate Tax Liability Amount shall be initially paid by Purchaser but it shall be the obligation of Seller, and shall be satisfied by Seller pursuant to the last sentence of this Section 6.11(a). In determining Seller’s indemnity obligation pursuant to the prior sentences, (i) any income, deduction, gain, loss, credit or other Tax items resulting to Purchaser from any source other than the Company, the Acquisition or the Section 338(h)(10) Election, and (ii) any personal Tax attributes of Purchaser (including, but not limited to, any net operating loss carryovers, capital loss carryovers, Tax credit carryovers, or passive loss carryovers) originating from any source other than the Company, shall be ignored. If the Section 338(h)(10) Election is made, Purchaser shall be entitled and required to set off against the Holdback Amount any Corporate Tax Liability Amount reported on the initial Tax Return with

respect to such Corporate Tax Liability Amount within thirty (30) Business Days after the later of the date that the Section 338(h)(10) Election is filed or the date when such initial Tax Return with respect to such Corporate Tax Liability Amount is filed (the “Tax Return Filing Date”) and, to the extent that the Holdback Amount is less than the reported Corporate Tax Liability Amount as of the time of such set-off against the Holdback Amount, Seller shall reimburse Purchaser for the amount by which the reported Corporate Tax Liability Amount exceeds the Holdback Amount no later than fifteen (15) Business Days after written notice from Purchaser that such Corporate Tax Liability Amount exceeds the Holdback Amount.

(b) Tax Indemnification. Except as otherwise provided herein, Seller shall indemnify the Company and Purchaser and hold them harmless from and against any loss, claim, liability, expense, or other damage attributable to (i) all Taxes (or the non-payment thereof) of the Company or for which the Company is liable for all taxable periods ending on or before the Closing Date and the portion though the end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date (“Pre-Closing Tax Period”), including any Corporate Tax Liability Amount in excess of any Corporate Tax Liability Amount set off against the Holdback Amount pursuant to this Agreement, (ii) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company (or any predecessor of any of the foregoing) is or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation §1.1502-6 or any analogous or similar Law, and (iii) any and all Taxes of any Person (other than the Company) imposed on the Company as a transferee or successor, by Contract or pursuant to any Law, which Taxes relate to an event or transaction occurring before the Closing; provided however, that in the case of clauses (i), (ii) and (iii) above, Seller shall not be liable to the extent that such Taxes are paid before the Closing and do not exceed the amount, if any, reserved for such Taxes (excluding any reserve for deferred Taxes established to reflect timing differences between book and income Tax income) on the Closing Balance Sheet as finalized (rather than in any notes thereto) and taken into account in determining any adjustment to the Purchase Price pursuant to Section 1.4 or Section 1.6. Seller shall reimburse Purchaser for any Taxes of the Company that are the responsibility of Seller pursuant to this Section 6.11(b) within fifteen (15) Business Days after written demand therefor and payment of such Taxes by Purchaser or the Company. In the case of any claim for Tax indemnification for Taxes determined to be payable by the Company or a successor thereto, the indemnity obligation under this Section 6.11 shall be interpreted as running from Seller to the Company and, if it cannot be so characterized, it shall be considered to be a Purchase Price adjustment under this Agreement.

(c) Straddle Period. In the case of any taxable period that includes (but does not end on) the Closing Date (a “Straddle Period”), the amount of any Taxes shall be determined based on an interim closing of the books as of the close of business on the Closing Date (and for such purpose, the taxable period of any partnership or other pass-through entity in which the Company holds a beneficial interest shall be deemed to terminate at such time) but excluding any transaction occurring outside the ordinary course of business after the Closing.

(d) Responsibility for Filing Certain Tax Returns. Purchaser shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company that are filed after the Closing Date for Pre-Closing Tax Periods and Straddle Periods, other than income Tax Returns with respect to periods for which a consolidated, unitary or combined income Tax Return of Seller will include the operations of the Company. All such Tax Returns shall use the

same Tax accounting methods and Tax elections as used by the Company for the immediately preceding taxable period, except as otherwise required by Law or agreed by Purchaser and Seller. Purchaser shall submit to Seller a draft of each such Tax Return at least thirty (30) days (in the case of any income Tax Return) or ten (10) days (in the case of any sales Tax Return) prior to the due date (taking into account any extensions thereof), together with Purchaser’s calculation of the Tax for the Pre-Closing Tax Period and the details supporting such calculation. Such draft Tax Return and calculation shall be subject to Seller’s review and approval, which review and approval shall not be unreasonably withheld, delayed or conditioned. Seller shall have fifteen (15) days (in the case of an income Tax Return) or 5 days (in the case of a sales Tax Return) after receipt of such draft Tax Return and calculation (with supporting details) to notify Purchaser of any disagreement with such draft Tax Return and/or calculation. If Seller timely notifies Purchaser of any such disagreement, Purchaser and Seller shall proceed in good faith to attempt to resolve such disagreement. If they do not resolve such disagreement by the due date (including extensions) for the filing of such Tax Return, Purchaser shall cause the Tax Return to be filed, and the Arbitrator shall be retained to resolve such disagreement. The principles of Section 1.4(d) with respect to the effect of the Arbitrator’s determination and the payment of the fees and expenses of the Arbitrator shall apply. If a Tax Return prepared in accordance with the Arbitrator’s determination would differ from the Tax Return as filed, Purchaser either shall cause the Company to file an amended Tax Return consistent with such determination or shall indemnify Seller from any Losses it may incur if such amended Tax Return is not filed.

(e) Cooperation on Tax Matters.

(i) Purchaser, the Company and Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns for all periods that begin before the Closing and any audit, litigation or other Action or Proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such audit, litigation or other Action or Proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Purchaser, the Company and Seller agree (A) to retain all Books and Records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing until the expiration of the statute of limitations (and, to the extent notified by Purchaser or Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other party reasonable written notice prior to transferring, destroying or discarding any such Books and Records and, if the other party so requests, Purchaser, the Company or Seller, as the case may be, shall allow the other party to take possession of such Books and Records.

(ii) Purchaser and Seller further agree, upon request, to use their best efforts to obtain any certificate or other document from any Governmental or Regulatory Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed with respect to the Company or the transaction contemplated hereby.

(iii) Purchaser and Seller further agree, upon request, to provide the other party with all information that either party may be required to report pursuant to

Section 6043 of the Internal Revenue Code and all Treasury Department Regulations promulgated thereunder.

(f) Tax Sharing Agreements. All Tax sharing agreements or similar agreements with respect to or involving the Company and Seller or any of its Affiliates shall be terminated as of the Closing Date and, after the Closing Date, the Company shall not be bound thereby or have any Liability or be entitled to any benefit thereunder.

(g) Certain Other Taxes. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with the transactions contemplated by this Agreement, shall be paid by Seller, and Seller will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other such Taxes and fees, and, if required by applicable Law, each of Purchaser, Seller and the Company will, and will cause its Affiliates to, join in the execution of any such Tax Returns and other documentation.

(h) Allocation of Purchase Price. If the Section 338(h)(10) Election is made, Purchaser and the Seller shall cooperate as provided herein in determining the allocation (for all purposes, including Tax and financial accounting purposes) of the Purchase Price and the liabilities of the Company among the assets of the Company. Purchaser shall initially determine such allocation for purposes of the Form 8883 to be attached to the final S corporation federal income Tax Return (Form 1120-S). Purchaser shall notify the Seller in writing of the allocation so determined within sixty (60) days after the Closing. The Seller shall be deemed to have accepted such determination unless the Seller notifies Purchaser in writing of the Seller’s proposed allocation within fifteen (15) days after receipt of Purchaser’s proposed allocation. If the Seller provides such notice to Purchaser, the parties shall proceed in good faith to determine mutually the matters in dispute. If they are unable to do so within fifteen (15) days, the matter shall be referred to an appraisal firm chosen by, and mutually and reasonably acceptable to, both Purchaser and the Seller (the “Appraiser”). The decision of the Appraiser shall be binding on all parties. Purchaser and Seller will each bear 50% of the fees and expenses of the Appraiser. Neither Purchaser nor the Seller shall take any position for Tax or other purposes that is inconsistent with the final allocation determined hereunder unless such position is required by a final non-appealable judgment which has been rendered in any Action or Proceeding governing such position.

(i) Tax Elections and Returns. Seller shall not, without the prior written consent of Purchaser, permit the Company to make any Tax election other than in the ordinary course of business and consistent with past practice, change any Tax election, adopt any Tax accounting method other than in the ordinary course of business and consistent with past practice, change any Tax accounting method, file any Tax Return (other than any estimated Tax Returns, payroll Tax Returns or sales Tax Returns), enter into any closing agreement, settle any Tax claim or assessment, or consent to any Tax claim or assessment.

(j) S Corporation Status. The Company and Seller shall not revoke the Company’s election to be taxed as an S Corporation, and the Company and Seller shall not take

or allow any action that could result in the termination of the Company’s status as an S Corporation.

6.12 General Release. Effective as of the Closing, Seller voluntarily, knowingly and irrevocably releases and forever discharges the Company, Purchaser and their respective officers, directors, employees and Affiliates from any and all actions, agreements, amounts, claims, damages, expenses, liabilities and obligations of every kind, nature or description, known or unknown, arising or existing prior to the Closing against the Company, except for (a) any rights of Seller under this Agreement and any other agreements contemplated by this Agreement to be executed at or prior to Closing, including employment and consulting agreements, and (b) any claim for compensation or employee benefits accrued but not paid prior to the Closing Date.

6.13 Operations of the Company Business Unit Post Closing.

(a) Purchaser acknowledges that a significant amount of the consideration for this transaction comes through the form of an Earnout potentially payable to Seller. As such, at any time that Seller has the ability to earn an Earnout payment, Purchaser shall, subject to the good faith business judgment of Purchaser’s board of directors and/or management, make commercially reasonable efforts in the then current circumstances to cause the Company Business Unit to act in a manner reasonably intended to enhance the profitability of the Company Business Unit and make good faith efforts to cause the Company Business Unit:

(i) for so long as Seller remains an officer of the Company, the Company Business Unit or Purchaser, to regularly consult with and consider in good faith the recommendations and requests of Seller regarding management of then current projects proposed to be undertaken by the Company Business Unit; and

(ii) for so long as Seller remains an officer of the Company, the Company Business Unit or Purchaser, to consult with and consider in good faith the recommendations and requests of Seller regarding the budget for the Company Business Unit.

(b) Purchaser shall use commercially reasonable efforts to maintain a financial reporting system that will separately account for Revenue, EBITDA, EBITDA Margins and Corporate Overhead Charges.

(c) The agreements provided for in this Section 6.13 shall survive the Closing for a period until the earlier of (i) the Earnout Termination Date or (ii) the earliest date after which the Seller shall no longer be able, or otherwise eligible, to become entitled to any Earnout payments or additional Earnout payments under Section 1.6(b).

ARTICLE 7
CONDITIONS TO CLOSING

7.1 Conditions to Obligations of Each Party to Effect the Acquisition. The respective obligations of each party to this Agreement to effect the Acquisition shall be subject to the satisfaction at or prior to the Closing of the following conditions:

(a) Governmental and Regulatory Approvals. Approvals from any Governmental or Regulatory Authority (if any) necessary for consummation of the transactions contemplated hereby shall have been obtained.

(b) No Injunctions or Regulatory Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other Order issued by any court of competent jurisdiction or other Governmental or Regulatory Authority or other legal or regulatory restraint or prohibition preventing the consummation of the Acquisition shall be in effect; nor shall there be any Law or Order enacted, entered, enforced or deemed applicable to the Acquisition or the other transactions contemplated by the terms of this Agreement that would (i) prohibit the consummation of the Acquisition, (ii) prohibit or restrict Purchaser from exercising full voting rights with respect to its shares of capital stock of the Company or (iii) permit consummation of the Acquisition only if certain divestitures were made or if Purchaser were to agree to limitations on its or its Subsidiaries’ business activities or operations.

7.2 Additional Conditions to Obligations of Seller. The obligations of Seller to consummate the Acquisition and the other transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by Seller:

(a) Representations and Warranties. The representations and warranties of Purchaser contained in this Agreement shall be accurate in all material respects (except for those representations and warranties that are by their terms qualified by a standard of materiality, which representations and warranties shall be true and correct in all respects) as of the date of this Agreement and as of the Closing as if made on and as of the Closing (other than any such representations and warranties which by their express terms are made solely as of a specified earlier date, which shall be accurate as of such specified earlier date).

(b) Performance. Purchaser shall have performed and complied with in all material respects each agreement, covenant and obligation required by this Agreement to be so performed or complied with by Purchaser at or before the Closing.

(c) Closing Certificate. Purchaser shall have delivered to Seller a certificate, dated the date of the Closing and executed by a duly authorized officer, to the effect that each of the conditions specified in Sections 7.2(a) and (b) above is satisfied in all respects.

7.3 Additional Conditions to the Obligations of Purchaser. The obligations of Purchaser to consummate the Acquisition and the other transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by Purchaser:

(a) Representations and Warranties. The representations and warranties of Seller and the Company contained in this Agreement shall be accurate in all material respects (except for those representations and warranties that are by their terms qualified by a standard of materiality, which representations and warranties shall be true and correct in all respects) as of the date of this Agreement and as of the Closing as if made on and as of the Closing (other than

representations and warranties which by their express terms are made as of a specified earlier date, which shall be accurate as of such specified earlier date).

(b) Performance. Seller and the Company shall have performed and complied with in all material respects each agreement, covenant or obligation required by this Agreement to be so performed or complied with by Seller or the Company, as the case may be, at or before the Closing.

(c) Closing Certificate. Seller and the Company shall have delivered to Purchaser a certificate, dated the date of the Closing, to the effect that each of the conditions specified in Sections 7.3(a), (b), (e), (f), (g) and (h) is satisfied in all respects.

(d) Legal Opinion. Purchaser shall have received a legal opinion in form and substance satisfactory to Purchaser in its sole discretion from Taylor Hodkin Kopelowitz & Ostrow, P.A., counsel to Seller and the Company (or such other law firm as may be satisfactory to Purchaser in its sole discretion), addressing each of the matters set forth in the form attached hereto as Exhibit A.

(e) Approvals; Customer Interviews; Contract Amendments.

(i) Approvals, if any, from any Person necessary for consummation of the transactions contemplated hereby shall have been obtained, including any Approvals required to be disclosed in Schedule 2.6(c), and copies thereof (in form and substance satisfactory to Purchaser in its sole discretion) delivered to Purchaser.

(ii) Purchaser shall have completed to its satisfaction, in its sole discretion, interviews (including conversations regarding the Acquisition) with the customers of the Company listed on Schedule 7.3(e)(ii); provided however, that such interviews shall have occurred prior to the date seven (7) days following the date hereof or, in the event such interviews cannot be conducted prior to such date and so long as Purchaser is in good faith attempting to conduct such interviews, as soon as practicable after such date.

(iii) Each of the Contracts set forth on Schedule 7.3(e)(iii) shall have been amended by the parties as set forth on Exhibit B hereof.

(iv) The Company and Keats McFarland & Wilson LLP (“KMW”) shall have entered into the service agreement set forth on Exhibit C attached hereto, and the Company shall have entered into or otherwise have in effect an agreement with Venable Campillo Logan & Meaney (“VCLM”), satisfactory to Purchaser in its sole discretion, under which VCLM shall provide the services set forth on, and in accordance with, Schedule 2.30(b).

(v) Each of the parties listed on Schedule 7.3(e)(v) shall have entered into an engagement letter with KMW in the form of Exhibit D.

(vi) The representations and warranties of Seller and the Company contained in Section 2.30 shall be accurate in all respects as of the Closing as if made on and as of the Closing.

(f) Material Adverse Effect. There shall have not have occurred any Material Adverse Effect since the date hereof.

(g) Termination of Financing Statements, Release of Liens. All Liens on the Assets shall have been terminated and Seller and the Company shall have filed or caused the filing of UCC termination statements under applicable Laws with respect to such Liens, and the Company shall have satisfied the indebtedness of the Company secured by such Liens, delivered payoff letters with respect to such indebtedness (pursuant to Section 1.3(a)(ii)), and terminated the agreements pursuant to which such indebtedness was secured, all pursuant to documentation delivered to Purchaser and satisfactory to Purchaser in its sole discretion.

(h) Release. (i) Seller shall have obtained and delivered to Purchaser a release from Adam Cohen, to the effect that Mr. Cohen has no further interest (whether equity or otherwise) in, or claim against, the Company, and otherwise in the form attached hereto as Exhibit E, and such release shall be in full force and effect, and (ii) since the date hereof, no material “Claim” (as defined in such Exhibit E) of Purchaser or the Company against Mr. Cohen or any of “Mr. Cohen’s Affiliates” (as defined in such Exhibit E) shall have arisen.

(i) Consent of Bank of America. Purchaser shall have obtained from Bank of America, N.A., in form and substance satisfactory to Purchaser in its sole discretion, its consent to finance the Acquisition under that certain Credit Agreement by and among Purchaser, certain subsidiaries thereof, Bank of America, N.A., and L/C Issuer, dated as of July 3, 2006.

(j) Ancillary Agreements.

(1) Seller shall have executed and delivered to Purchaser the employment agreement between Seller and the Company (or Purchaser), in the form attached hereto as Exhibit F (the “Employment Agreement”); and

(2) Each of Seller and Adam Cohen shall have executed and delivered to Purchaser an Intellectual Property Assignment Agreement, in the forms attached hereto as Exhibit G-1 and Exhibit G-2, and such Intellectual Property Assignment Agreements shall be in full force and effect.

(k) Employee Matters. The Company shall have taken the actions with respect to its employees, contractors and Plans set forth on Schedule 7.3(k).

(l) Stock Certificates. Seller shall have delivered to Purchaser the certificate or certificates representing all of the issued and outstanding Company Stock, duly endorsed in blank, or accompanied by a duly executed blank stock power.

(m) Financial Information. Seller shall have delivered to Purchaser a complete copy of the Company’s quick books application, updated to a date reasonably acceptable to Purchaser.

(n) Lease Agreement. That certain Office Lease with respect to Vintage Pointe Office Condominiums Units 260 & 270, 2633 E. Indian School Road, Phoenix, AZ dated

October 24, 2007 between the Company and SGATP, LLC shall have been amended and restated by the parties thereto as set forth on Exhibit H.

(o) Assignments. Each inventor with respect to any and all patent applications set forth on Schedule 2.17(a) shall have executed and delivered to Purchaser a recordable assignment of each such patent application, in form and substance acceptable to Purchaser in its sole discretion.

ARTICLE 8
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION

8.1 Survival of Representations and Warranties and Covenants; No Contribution. Except for the representations and warranties set forth in Sections 2.2, 2.3, 2.16, 2.17(i), (k), (l), (o), and (r), 2.30, 3.1, 3.2 and 4.2 (which shall survive the Closing and also continue forever), and Sections 2.11 and 2.14 and the remaining provisions of Section 2.17 (which shall survive the Closing and also continue until the applicable statute of limitations has expired), all of the representations and warranties contained in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Closing and continue until the first anniversary of the Closing Date. Except in the event an “Indemnified Party” (as defined below) makes a written claim for indemnification against an “Indemnifying Party” (as defined below) prior to such expiration, no Action or Proceeding may be instituted to enforce, or seek damages or other remedies with respect to the breach of, any representation or warranty after the expiration of the period of survival for such representation or warranty as described above. Seller shall not have any right to seek contribution from the Company with respect to all or any part of Seller’s indemnification obligations under this Article 8.

8.2 Indemnification.

(a) Seller and the Company shall, jointly and severally, before the Closing, and Seller shall, after the Closing, indemnify and hold harmless Purchaser, its Affiliates (including, after the Closing, the Company), and their respective officers, directors, agents, successors and assigns (“Purchaser Indemnified Parties”) from and against any and all Liabilities, losses, damages of any kind, claims, costs, expenses, fines, fees, deficiencies, interest, awards, judgments, amounts paid in settlement and penalties (including attorneys’, consultants’ and experts’ fees and expenses and other costs of defending, investigating or settling claims) actually suffered or incurred by them (including in connection with any action brought or otherwise initiated by any of them) (hereinafter, “Loss(es)”) arising out of or resulting from:

(i) any inaccuracy in or breach of any representation or warranty of Seller or the Company, as of the date of this Agreement and as if such representation or warranty were made on and as of the Closing Date, contained in this Agreement or in the Ancillary Agreements or any other instrument delivered pursuant to this Agreement;

(ii) any breach of any covenant or agreement made by Seller or the Company in this Agreement or in the Ancillary Agreements or any other instrument delivered

pursuant to this Agreement, other than any covenant or agreement to be performed by the Company after the Closing;

(iii) Seller’s indemnification obligations under Section 6.11;

(iv) any Company Expenses required to be paid by Seller pursuant to Section 6.4 and any Company Debt;

(v) the matters set forth on Schedule 8.2(a)(v); or

(vi) any violation, in connection with the operation of the Business, of any employment-related Law or Order applicable to the Company, the Business or any of the Assets.

(b) Purchaser shall indemnify and hold harmless Seller and his Affiliates, successors and assigns (“Seller Indemnified Parties”) from and against any and all Losses arising out of or resulting from:

(i) any inaccuracy in or breach of any representation or warranty of Purchaser, as of the date of this Agreement and as if such representation or warranty were made on and as of the Closing Date, contained in this Agreement or in the Ancillary Agreements or any other instrument delivered pursuant to this Agreement; or

(ii) any breach of any covenant or agreement made by Purchaser in this Agreement or in the Ancillary Agreements or any other instrument delivered pursuant to this Agreement.

8.3 Third Party Claim Indemnification Procedures.

(a) The obligations and Liabilities of any Person required to provide indemnification under this Article 8 (each, an “Indemnifying Party”) with respect to Losses arising from claims of any third party which are subject to the indemnification provided for in this Article 8 (“Third Party Claims”) shall be governed by and contingent upon the terms and conditions set forth in this Section 8.3. If any Person entitled to indemnification pursuant to Section 8.2(a) or 8.2(b) (an “Indemnified Party”) shall receive notice of any Third Party Claim, the Indemnified Party shall give the Indemnifying Party notice of such Third Party Claim within ten (10) days of the receipt by the Indemnified Party of such notice; provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of its respective obligations under this Article 8 except to the extent that the Indemnifying Party is materially prejudiced by such failure. The notice of claim shall describe in reasonable detail the facts known to the Indemnified Party giving rise to such indemnification claim, and the amount or good faith estimate of the amount arising therefrom.

would make it inappropriate for the same counsel to represent both the Indemnified Party and the Indemnifying Party, then the Indemnified Party shall be entitled to retain its own counsel, in each jurisdiction for which counsel is required, at the expense of the Indemnifying Party. In the event that the Indemnifying Party exercises the right to undertake any such defense against any such Third Party Claim as provided above, the Indemnifying Party shall conduct the defense of the Third Party Claim actively and diligently and the Indemnified Party shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party at the Indemnifying Party’s expense, all witnesses, pertinent records, materials and information in the Indemnified Party’s possession or under the Indemnified Party’s control relating thereto as is reasonably required by the Indemnifying Party. Similarly, in the event the Indemnified Party is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnified Party in such defense and make available to the Indemnified Party, at the Indemnifying Party’s expense, all such witnesses, records, materials and information in the Indemnifying Party’s possession or under the Indemnifying Party’s control relating thereto as is reasonably required by the Indemnified Party. No such Third Party Claim may be settled by any party conducting the defense against such claim without the prior written consent of the other party, which consent shall not be unreasonably withheld, delayed or conditioned.

8.4 Right to Set-Off. The Earnout and the Holdback Amount shall be available to Purchaser to satisfy any payment obligations of Seller under Section 1.4(e) hereof or indemnification obligations of Seller under this Article 8. The rights of Purchaser under this Section 8.4 shall be in addition to and not in limitation of any other rights and remedies to which Purchaser is or may be entitled under this Agreement or any of the Ancillary Agreements, or at law or in equity, including injunctive relief. Seller agrees that Purchaser may set-off against any portion of the Earnout to be delivered to Seller pursuant to Section 1.5 and/or the Holdback Amount the full amount of any Losses required to be paid by such Seller pursuant to this Article 8 or pursuant to Section 1.4(e) hereof. If the amount of the Earnout and/or the Holdback Amount that is set-off against in accordance with the preceding sentence is less than any Losses, written notice of a request for additional payment in cash to satisfy any such Losses shall be made by Purchaser.

8.5 Indemnification Basket. Notwithstanding anything to the contrary contained in this Agreement, no obligation of any Indemnifying Party hereunder with respect to any indemnifiable Loss otherwise payable by such Indemnifying Party under Section 8.1(a)(i) or Section 8.1(b)(i), as the case may be, shall be payable until such time as all indemnifiable Losses payable by such Indemnifying Party shall exceed Seventy-Five Thousand Dollars ($75,000) (the “Indemnification Basket”), at which time such Indemnifying Party shall be liable for Seventy-Five Thousand Dollars ($75,000) and all Losses above the Indemnification Basket that such Indemnifying Party is required to indemnify; provided, however, that the limitations set forth in this Section 8.5 shall not apply to indemnification claims arising from any inaccuracy or breach of any representation or warranty of the Company, Seller or Purchaser contained in Sections 2.2, 2.3, 2.11, 2.14, 2.16, 2.17(i), (k), (l), (o), and (r), 2.30, 3.1, 3.2 and 4.2.

ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER

9.1 Termination. This Agreement may be terminated and the Acquisition abandoned at any time prior to the Closing:

(a) by mutual agreement of Seller and Purchaser;

(b) by Purchaser or Seller if: (i) the Closing has not occurred before 5:00 p.m. (Eastern Time) on December 31, 2007 (provided, however, that the right to terminate this Agreement under this Section 9.1(b)(i) shall not be available to any party whose failure, or the failure of any of such party’s Affiliates, to fulfill any material obligation hereunder has been the cause of, or resulted in the failure of the Closing to occur on or before such date); (ii) there shall be a final nonappealable Order in effect preventing consummation of the Acquisition; or (iii) there shall be any Law or Order enacted, promulgated or issued by any Governmental or Regulatory Authority that would make consummation of the Acquisition illegal.

(c) by Purchaser if there shall be any Law or Order enacted, promulgated or issued or deemed applicable to the Acquisition, by any Governmental or Regulatory Authority, which would: (i) prohibit Purchaser’s ownership or operation of all or any portion of the Business or Assets or (ii) compel Purchaser to dispose of or hold separate all or any portion of the Assets as a result of the Acquisition;

(d) by Purchaser if it is not in breach of its representations, warranties, covenants and agreements under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Seller or the Company and as a result of such breach any of the conditions set forth in Section 7.1 or Section 7.3, as the case may be, would not be satisfied prior to the date specified in Section 9.1(b)(i); and

(e) by Seller if it is not in breach of its representations, warranties, covenants and agreements under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Purchaser and as a result of such breach any of the conditions set forth in Section 7.1 or Section 7.2, as the case may be, would not be satisfied as of the date specified in Section 9.1(b)(i).

(f) by Seller if it is not in breach of its representations, warranties, covenants and agreements under this Agreement and, as of the date that is Ten (10) Business Days following the satisfaction (and written notice thereof by Seller to Purchaser) of each of the conditions set forth in Sections 7.1 and 7.3 (other than Section 7.3(i)), Purchaser does not have sufficient cash on hand or availability under an existing credit facility to consummate the transactions contemplated by this Agreement.

9.2 Effect of Termination. In the event of a valid termination of this Agreement as provided in Section 9.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Purchaser, the Company or Seller, or their respective officers, directors or stockholders or Affiliates or Associates; provided, however, that each party shall remain liable for any breaches of this Agreement in accordance with its terms prior to its

termination; and provided further that, the provisions of Section 6.3 (except for the obligations of Seller and its Affiliates under Sections 6.3(b) with respect to Confidential Information of the Company), 6.4, 6.5 and 9.2, Article 10 (exclusive of Section 10.3) and the applicable definitions set forth in Article 11 shall remain in full force and effect and survive any termination of this Agreement.

9.3 Amendment. This Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto.

ARTICLE 10
MISCELLANEOUS PROVISIONS

10.1 Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission against facsimile confirmation or mailed by a nationally recognized overnight courier prepaid, to the parties at the following addresses or facsimile numbers:

If to Purchaser or the Company (after the Closing) to:

Intersections Inc.
14901 Bogle Drive, Suite 300
Chantilly, Virginia 20151
Facsimile No.: (703) 488-6180
Attn: Chief Legal Officer

with a copy (which shall not constitute notice) to:

Venable LLP
8010 Towers Crescent Drive, Suite 300
Vienna, Virginia 22182
Facsimile No.: (703) 821-8949
Attn: Joseph C. Schmelter, Esq.

If to the Company (prior to Closing) or Seller:

Net Enforcers, Inc.
4939 W Ray Road, Suite 4-154
Chandler, AZ 85226
Facsimile No.: (954) 827-2381
Attn: Joseph C. Loomis

with a copy (which shall not constitute notice) to:

Seidman, Prewitt, DiBello & Lopez, P.A.
5900 Broken Sound Parkway NW
Boca Raton, Florida 33487

Facsimile No.: (305) 668-8892
Attn: Neil Seidman, Esq.

All such notices, requests and other communications will (a) if delivered personally to the address as provided in this Section 10.1, be deemed given upon delivery, (b) if delivered by facsimile transmission to the facsimile number as provided for in this Section 10.1, be deemed given upon facsimile confirmation, and (c) if delivered by overnight courier to the address as provided in this Section 10.1, be deemed given on the earlier of the first Business Day following the date sent by such overnight courier or upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section 10.1). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice in the manner provided herein specifying such change to the other party hereto.

10.2 Entire Agreement. This Agreement and the Exhibits and Schedules hereto, including the Non-disclosure Agreement to the extent incorporated herein by reference pursuant to Section 6.3(a) hereof, constitute the entire Agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof (including the Letter of Intent dated August 20, 2007 between the Company and Purchaser).

10.3 Further Assurances; Post-Closing Cooperation. At any time or from time to time after the Closing, each party shall execute and deliver to the other parties such other documents and instruments, provide such materials and information and take such other actions as the other party may reasonably request to consummate the transactions contemplated by this Agreement and otherwise to cause the other party to fulfill its obligations under this Agreement and the transactions contemplated hereby. Each party agrees to cooperate in causing the conditions to its obligations to consummate the Acquisition to be satisfied.

10.4 Waiver. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative.

10.5 Third-Party Beneficiaries. Except as expressly provided herein, the terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights, and this Agreement does not confer any such rights, upon any other Person other than any Person entitled to indemnity under Article 8.

10.6 No Assignment; Binding Effect. Neither this Agreement nor any right, interest or obligation hereunder may be assigned (by operation of law or otherwise) by any party without the prior written consent of the other party, and any attempt to do so will be void; provided,

however, that Purchaser may assign all or a portion of its rights and obligations under this Agreement, following written notice to Seller, to (a) one or more Affiliates, or (b) any lender providing financing to Purchaser or the Company (as applicable) or any of their Affiliates and any such lender may exercise all of the rights and remedies of Purchaser hereunder; and provided, further, that no such assignment will relieve Purchaser of its obligations under this Agreement. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and permitted assigns.

10.7 Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

10.8 Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

10.9 Governing Law; Consent to Jurisdiction.

(a) This Agreement, any Ancillary Agreements and any other closing documents shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles or rules regarding conflicts of laws.

(b) Each party hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement or for recognition and enforcement of any judgment in respect hereof brought by another party hereto or its successors or assigns shall be brought and determined by either a state court or federal court sitting in the Commonwealth of Virginia and each party hereto hereby irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the jurisdiction of the aforesaid courts. Each party hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counter claim or otherwise, in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to serve process in accordance with this Section 10.9, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (c) to the fullest extent permitted by applicable Law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper and (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.

10.10 WAIVER OF TRIAL BY JURY. IN ANY ACTION OR PROCEEDING ARISING HEREFROM, THE PARTIES HERETO CONSENT TO TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION OR PROCEEDING.

10.11 Construction. The parties hereto agree that this Agreement is the product of negotiation between sophisticated parties and individuals, all of whom were represented by counsel, and each of whom had an opportunity to participate in and did participate in, the drafting of each provision hereof. Accordingly, ambiguities in this Agreement, if any, shall not be construed strictly or in favor of or against any party hereto, but rather shall be given a fair and reasonable construction without regard to the rule of contra proferentem.

10.12 Counterparts; Facsimiles. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. The exchange of copies of this Agreement and of signature pages by facsimile or electronic data file transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes (and such signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for all purposes).

10.13 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Notwithstanding Section 10.9, it is 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 hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. Nothing in Article 8 shall be construed or interpreted to limit this Section 10.13.

ARTICLE 11
DEFINITIONS

11.1 Definitions. As used in this Agreement, the following defined terms shall have the meanings indicated below:

“Acquisition” shall have the meaning set forth in Recital B of this Agreement.

“Actions or Proceedings” means any action, suit, complaint, subpoena, petition, investigation, proceeding, arbitration, mediation, litigation or Governmental or Regulatory Authority investigation, audit, document request or other proceeding, whether civil or criminal, in law or in equity, or before any arbitrator or Governmental or Regulatory Authority.

“Affiliate” means, as applied to any Person, any other Person directly or indirectly controlling, controlled by or under common control with, that Person. For the purposes of this definition, “control” (including with correlative meanings, the terms “controlling”, “controlled by”, and “under common control with”) as applied to any Person, means the possession, directly

or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through ownership of voting securities or by contract or otherwise.

“Agreement” means this Stock Purchase Agreement, including (unless the context otherwise requires) the Exhibits, the Schedules and the certificates and instruments delivered in connection herewith, or incorporated by reference, as the same may be amended or supplemented from time to time in accordance with the terms hereof.

“Ancillary Agreements” shall have the meaning set forth in Section 2.2.

“Appraiser” shall have the meaning set forth in Section 6.11(h).

“Approval” means any approval, authorization, consent, novation, Permit, qualification or registration, or any waiver of any of the foregoing, required to be obtained from or made with, or any notice, statement or other communication required to be filed with or delivered to, any Governmental or Regulatory Authority or any other Person.

“Arbitrator” shall have the meaning set forth in Section 1.4(d).

“Assets” shall mean all assets and properties of the Company of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, used, owned, licensed or leased by the Company, including cash, cash equivalents, Investment Assets, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and Intellectual Property.

“Associate” means, with respect to any Person, any corporation or other business organization of which such Person is an officer or partner or is the beneficial owner, directly or indirectly, of ten percent (10%) or more of any class of equity securities, any trust or estate in which such Person has a substantial beneficial interest or as to which such Person serves as a trustee or in a similar capacity and any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person.

“Books and Records” means all files, documents, instruments, papers, books and records relating to the Business, including financial statements, internal reports, Tax Returns and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute books, stock certificates and books, stock transfer ledgers, Contracts, Licenses, customer lists, computer files and programs (including data processing files and records), retrieval programs, operating data and plans and environmental studies and plans.

“Business” means the business of the Company as such business is presently conducted and has been conducted in the past.

“Business Combination” means, with respect to any Person, (a) any merger, consolidation, share exchange, reorganization or other business combination transaction to which such Person is a party, (b) any sale, or other disposition of all or substantially all of the capital stock or other equity interests of such Person, (c) any tender offer (including a self tender),

exchange offer, recapitalization, restructuring, liquidation, dissolution or similar or extraordinary transaction, (d) any sale, dividend or other disposition of all or a substantial portion of the assets of such Person (including by way of exclusive license or joint venture formation) other than sales of inventory and the granting of licenses in the ordinary course of such Person’s business, or (e) the entering into of any agreement or understanding, the granting of any rights or options, or the acquiescence of such Person, to do any of the foregoing.

“Business Day” means a day other than Saturday, Sunday or any day on which banks located in the Commonwealth of Virginia are authorized or obligated to close.

“Closing” shall have the meaning set forth in Section 1.2.

“Closing Assets” shall have the meaning set forth in Section 1.4(a).

“Closing Balance Sheet” shall have the meaning set forth in Section 1.4(a).

“Closing Cash Balances” shall have the meaning set forth in Section 1.4(a).

“Closing” shall have the meaning set forth in Section 1.2.

“Closing Date” shall have the meaning set forth in Section 1.2.

“Closing Payment” shall have the meaning set forth in Section 1.3(a).

“Closing Payment Adjustment” shall have the meaning set forth in Section 1.4(b).

“Closing Payment Working Capital Adjustment” shall have the meaning set forth in Section 1.4(b).

“Closing Working Capital Amount” shall have the meaning set forth in Section 1.4(a).

“Commercially Available Programs” shall have the meaning set forth in Section 2.17(c).

“Company” shall have the meaning set forth in the Preamble of this Agreement.

“Company Business Unit” shall mean the Company and, in the event Company is merged with or into or otherwise consolidated with Purchaser or any of its Affiliates and Company is not the survivor of such merger or consolidation, or the assets and properties of the Company are otherwise assigned and transferred to Purchaser or any of its Affiliates, then the business unit of Purchaser or its Affiliates which after such merger, consolidation or asset transfer consists solely of such business, assets, employees and operations as comprised Company’s business, assets, employees and operations immediately prior to such merger, consolidation or asset transfer.

“Company Expenses” shall have the meaning set forth in Section 6.4.

“Company Financials” shall have the meaning set forth in Section 2.7.

“Company Intellectual Property” shall mean any and all Intellectual Property that is owned by or in the name of the Company or to which the Company is entitled to an assignment, including the copyrights and other Intellectual Property in and to the Company Software and Systems, all rights to the name “Net Enforcers” and all derivatives thereof, and all trade names and trade name rights, service marks and service mark rights (whether or not registered), service names and service name rights associated therewith, including Company Registered Intellectual Property.

“Company Registered Intellectual Property” means all Registered Intellectual Property owned by or in the name of the Company or any of its Subsidiaries, or to which any of them is entitled to an assignment, including the provisional patent applications set forth in Schedule 2.17(a).

“Company Options” means any Option to purchase or otherwise acquire Company Stock.

“Company Software and Systems” shall have the meaning set forth in Section 2.17(c).

“Company Stock” shall have the meaning set forth in Section 2.3(a).

“Company’s Permits” shall have the meaning set forth in Section 2.13(b).

“Competing Proposed Transaction” shall have the meaning set forth in Section 5.2.

“Confidential Information of Purchaser” shall have the meaning set forth in Section 6.3(b).

“Confidential Information of the Company” shall have the meaning set forth in Section 6.3(b).

“Contract” means any note, bond, mortgage, contract, license, lease, sublease, covenant, commitment, statement of work, power of attorney, proxy, indenture, or other written or oral agreement or arrangement, including any Government Contract.

“Corporate Overhead Charges” shall have the meaning set forth in Section 1.5(a).

“Debt” means all of the Company’s indebtedness and other liabilities, excluding accounts payable arising in the ordinary course of business, and including without duplication: (A) all liabilities for money borrowed and indebtedness evidenced by notes, debentures, bonds or other similar instruments; (B) all obligations issued or assumed as the deferred purchase price of property, all conditional sale obligations, all obligations under any title retention agreement, and all obligations in respect of earnout payments or contingent payments related to the acquisition of assets or businesses; (C) all obligations for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (A) and (B) above) entered into in the ordinary course of business to the extent such letters of credit are not

drawn upon); (D) all obligations to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet under GAAP, and the amount of such obligations will be the capitalized amount thereof determined in accordance with GAAP; (E) the amount of any dividends declared but not yet paid; (F) all obligations of the type referred to in this definition of Debt of other Persons for which the Company is responsible or liable as obligor, guarantor, or otherwise; (G) all obligations of the type referred to in this definition of Debt of other Persons secured by any Lien on any property or asset of the Company (whether or not such obligation is assumed by the Company); and (H) all penalty payments, premiums, charges, yield maintenance amounts and other expenses relating to the prepayment of any obligations of the types referred to in this definition of Debt.

“Delivered Information” shall have the meaning set forth in Section 2.31.

“Earnout” shall have the meaning set forth in Section 1.3(a).

“Earnout Period” shall have the meaning set forth in Section 1.5(a).

“Earnout Proposal” shall have the meaning set forth in Section 1.5(c).

“Earnout Termination Date” shall have the meaning set forth in Section 1.5(a).

“EBITDA” shall have the meaning set forth in Section 1.5(a).

“EBITDA Margin” shall have the meaning set forth in Section 1.5(a).

“Employment Agreement” shall have the meaning set forth in Section 7.3(j).

“Environmental Law” means any federal, state, local or foreign environmental, health and safety or other Law relating to Hazardous Materials, including the Comprehensive, Environmental Response Compensation and Liability Act, the Clean Air Act, the Federal Water Pollution Control Act, the Solid Waste Disposal Act, the Federal Insecticide, Fungicide and Rodenticide Act.

“Equipment” means (i) all furniture, fixtures, vehicles, furnishings, molds, toolings, parts, tools, dials, jigs, patterns, office equipment, machine tools and other items of equipment owned or leased by the Company that are used presently or are used on the Closing Date by the Company in the conduct of the Business; (ii) all computers, computer support equipment and software, telephone and communication systems and security systems owned or leased by the Company that are presently used or used on the Closing Date by the Company in the conduct of the Business; (iii) all other furniture, supplies, maintenance equipment and other incidental tangible personal property owned or leased the Company that are presently used or are used on the Closing Date by the Company in the conduct of the Business; and (iv) all other items of tangible personal property owned or leased by the Company that are presently used or used on the Closing Date by the Company in the conduct of the Business.

“Equity Equivalents” means securities (including Options to purchase any shares of Company capital stock) which, by their terms, are or may be exercisable, convertible or exchangeable for or into common stock, preferred stock or other securities at the election of the holder thereof.

“ERISA” shall have the meaning set forth in Section 2.14(a).

“ERISA Affiliate” means any corporation or unincorporated trade or business which is treated as a single employer with the Company under Internal Revenue Code Section 414(b), (c), (m) or (o) or any member of the same controlled group of businesses as the Company within the meaning of ERISA Section 4001(a)(14).

“Estimated Closing Balance Sheet” shall have the meaning set forth in Section 1.4(a).

“Funded Holdback Date” shall have the meaning set forth in Section 1.6.

“GAAP” means generally accepted accounting principles in the United States, as in effect from time to time.

“Government Bid” means any proposal or offer, solicited or unsolicited, made by the Company prior to the Closing Date which, if accepted, would result in a Government Contract.

“Government Contract” means any Contract to which the Company is a party with any Governmental or Regulatory Authority or any Contract to which the Company is a party that is a subcontract (at any tier) with another Person that holds either a prime contract with any Governmental or Regulatory Authority or a subcontract (at any tier) under such a prime contract.

“Governmental or Regulatory Authority” means any court, tribunal, arbitrator, authority, agency, bureau, board, commission, department, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision, and shall include any stock exchange, quotation service and the National Association of Securities Dealers.

“Hazardous Material” means (a) any chemical, material, substance or waste including, containing or constituting petroleum or petroleum products, solvents (including chlorinated solvents), nuclear or radioactive materials, asbestos in any form that is or could become friable, radon, lead-based paint, urea formaldehyde foam insulation or polychlorinated biphenyls, (b) any chemicals, materials, substances or wastes which are now defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants” or words of similar import under any Environmental Law; or (c) any other chemical, material, substance or waste which is regulated by any Governmental or Regulatory Authority or which could constitute a nuisance.

“Holdback Amount” shall have the meaning set forth in Section 1.6.

“Indemnification Basket” shall have the meaning set forth in Section 8.5.

“Indemnified Party” shall have the meaning set forth in Section 8.3(a).

“Indemnifying Party” shall have the meaning set forth in Section 8.3(a).

“Intellectual Property” means all trademarks and trademark rights (whether or not registered), trade names and trade name rights, service marks and service mark rights (whether or not registered), service names and service name rights, patents and patent rights, utility models and utility model rights, copyrights (statutory or registered), mask work rights, moral rights, trade dress, rights of publicity, trade secrets, inventions (whether patentable or not), invention disclosures, improvements, processes, formulae, industrial models, algorithms, designs, specifications, technology, methodologies, techniques, software and systems used in the past, currently, or contemplated by the Company (including all source code and object code and associated documentation and manuals), firmware, development tools, flow charts, annotations, all Web addresses, sites and domain names, all data bases and data collections and all rights therein, any right to enforce confidential treatment of information, whether or not subject to statutory registration, and all related technical information, manufacturing, engineering and technical drawings, know-how and all pending applications for, registrations of any of the foregoing, and the sole and exclusive right to file for and apply for patents, utility models, trademarks, service marks, domain names, and copyrights, and the sole and exclusive right to sue for past, present, or future infringement, if any, in connection with any of the foregoing, and all documents, disks, records, files and other media on which any of the foregoing is stored.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

“Investment Assets” means all debentures, notes and other evidences of Debt, stocks, securities (including rights to purchase and securities convertible into or exchangeable for other securities), interests in joint ventures and general and limited partnerships, mortgage loans and other investment or portfolio assets.

“KMW” shall have the meaning set forth in Section 7.3(e).

“Law” or “Laws” means any law, statute, order, decree, consent decree, judgment, rule, regulation, ordinance or other pronouncement having the effect of law whether in the United States, any foreign country, or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Authority.

“Lease Documents” shall have the meaning set forth in Section 2.15(a).

“Leased Real Property” shall have the meaning set forth in Section 2.15(a).

“Letters and Notices” shall have the meaning set forth in Section 2.30(a).

“Liabilities” means all Debt, obligations and other liabilities of a Person, whether absolute, accrued, contingent (or based upon any contingency), known or unknown, fixed or otherwise, or whether due or to become due.

“License” means any Contract that grants a Person the right to use or otherwise enjoy the benefits of any Intellectual Property (including any covenants not to sue with respect to any Intellectual Property).

“Liens” means any mortgage, pledge, security interest, lien, easement, covenant, restriction, levy, charge, adverse claim or restriction or other encumbrance of any kind, or any conditional sale Contract, title retention Contract or other Contract to give any of the foregoing, except for any restrictions on transfer generally arising under any applicable federal or state securities Law.

“Loss(es)” shall have the meaning set forth in Section 8.2(a).

“Material Adverse Effect” means any event, fact, circumstance or condition that, individually or in the aggregate with any other such events, facts, circumstances or conditions, has had or would be reasonably expected to have, a material adverse effect on the Business or the operations, prospects, financial condition or results of operations of the Company; provided, however, that any effect relating to economic conditions (which effect does not disproportionately affect the Company) that are generally applicable to the capital, financial, banking or currency markets shall be excluded from the definition of “Material Adverse Effect” and from the determination of whether such a Material Adverse Effect has occurred.

“Non-disclosure Agreement” shall have the meaning set forth in Section 6.3(a).

“Option” with respect to any Person means any security, right, subscription, warrant, option, “phantom” stock right or other Contract that gives the right to (a) purchase or otherwise receive or be issued any shares of capital stock or other equity interests of such Person or any security of any kind convertible into or exchangeable or exercisable for any shares of capital stock or other equity interests of such Person or (b) receive any benefits or rights similar to any rights enjoyed by or accruing to the holder of shares of capital stock or other equity interests of such Person, including any rights to participate in the equity, income or election of directors of such Person.

“Order” means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).

“Other Material IP” shall have the meaning set forth in Section 2.17(a).

“Permits” means all federal, state, local or foreign permits, grants, easements, consents, approvals, authorizations, exemptions, licenses, franchises, insurance brokerage licenses, certificates, orders of, and/or any other authorization required by any Governmental or Regulatory Authority, any other Person, or the Laws of any state in which the Company does business.

“Person” means any natural person, corporation, general partnership, limited partnership, limited liability company or partnership, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority.

“Plan” means (a) each of the “employee benefit plans” (as such term is defined in Section 3(3) of ERISA) of which any of the Company or any ERISA Affiliate is a sponsor or participating employer or as to which the Company or any of its ERISA Affiliates makes contributions or is required to make contributions or has any Liability, and (b) any employment, severance or other agreement, plan, arrangement or policy of the Company or any of its ERISA Affiliates (whether written or oral) providing for health, life, vision or dental insurance coverage (including self-insured arrangements), workers’ compensation, disability benefits, supplemental unemployment benefits, vacation benefits or retirement benefits, fringe benefits, or for profit sharing, deferred compensation, bonuses, severance, change in control payments, retention benefits, commissions, stock options, stock appreciation rights, phantom stock, restricted stock, restricted stock units or other forms of equity or incentive compensation or post-retirement insurance, compensation or benefits.

“Post-Closing Adjustment Amount” shall have the meaning set forth in Section 1.4(e).

“Post-Closing Working Capital Adjustment Amount” shall have the meaning set forth in Section 1.4(e).

“Pre-Closing Tax Period” shall have the meaning set forth in Section 6.11(b).

“Process” shall have the meaning set forth in Section 2.30(b).

“Proprietary Rights Agreement” shall have the meaning set forth in Section 7.3(j).

“PTO” shall have the meaning set forth in Section 2.17(a).

“Purchase Price” shall have the meaning set forth in Section 1.3.

“Purchaser” shall have the meaning set forth in the Preamble of this Agreement.

“Purchaser Indemnified Parties” shall have the meaning set forth in Section 8.2(a).

“Registered Intellectual Property” shall mean all United States, international and foreign: (a) patents and patent applications (including provisional applications); (b) registered trademarks and service marks, applications to register trademarks and service marks, intent-to-use applications, or other registrations or applications to trademarks or service marks; (c) registered copyrights and applications for copyright registration; (d) any mask work registrations and applications to register mask works; (e) registered domain names and applications to register domain names, and (f) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any Governmental or Regulatory Authority.

“Revenue” shall have the meaning set forth in Section 1.5(a).

“Section 338(h)(10) Election” shall have the meaning set forth in Section 6.11(a).

“Seller” shall have the meaning set forth in the Preamble of this Agreement.

“Seller Indemnified Parties” shall have the meaning set forth in Section 8.2(b).

“Straddle Period” shall have the meaning set forth in Section 6.11(c).

“Subsidiary” means any Person in which the Company or Purchaser, as the context requires, directly or indirectly through Subsidiaries or otherwise, beneficially owns at least fifty percent (50%) of either the equity interest in, or the voting control of, such Person, whether or not existing on the date hereof.

“Takeover Statute” means a “fair price,” “moratorium,” “business combination,” “control share acquisition” or other similar anti-takeover statute or regulation enacted under state or federal laws in the United States.

“Tax” or “Taxes” means (a) any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Internal Revenue Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not, and (b) any Liability for the payment of any amounts of the type described in clause (a) as a result of being a member of an affiliated, consolidated, combined or unitary group for any taxable period.

“Tax Liability Amount” shall have the meaning set forth in Section 6.11(a).

“Tax Return Filing Date” shall have the meaning set forth in Section 6.11(a).

“Tax Returns” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Third-Party Claims” shall have the meaning set forth in Section 8.3(a).

“Treasury Regulations” means the federal income Tax regulations promulgated under the Internal Revenue Code, as amended from time to time, and including corresponding provisions of succeeding regulations.

“VCLM” shall have the meaning set forth in Section 7.3(e).

“Warranty Obligations” shall have the meaning set forth in Section 2.27.

11.2 Construction.

(a) Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender and the neuter, (ii) words using the singular or plural number also include the plural or singular number, respectively, (iii) the terms “hereof,” “herein,”

“hereby” and derivative or similar words refer to this entire Agreement as a whole and not to any particular Article, Section or other subdivision, (iv) the terms “Article” or “Section” or other subdivision refer to the specified Article, Section or other subdivision of the body of this Agreement, (v) the phrases “ordinary course of business” and “ordinary course of business consistent with past practice” refer to the Business and practice of the Company, (vi) the words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation,” and (vii) when a reference is made in this Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement unless otherwise indicated. All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP. When used herein, the terms “party” or “parties” refer to Purchaser, on the one hand, and the Company (prior to the Closing) and Seller, on the other, and the terms “third party” or “third parties” refers to Persons other than Purchaser, Seller or the Company.

(b) When used herein, the phrase “knowledge of” Seller and/or the Company or “known to” Seller and/or the Company, means in any such case the actual knowledge of Seller and the officers and directors of the Company after reasonable investigation.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, Purchaser, Seller and the Company, have signed or caused this Agreement to be signed by their duly authorized representatives, all as of the date first written above.


	INTERSECTIONS INC.
	By:
		Name:
		Title:


	NET ENFORCERS, INC.
	By:
		Name:
		Title:



		Joseph C. Loomis

[Signature Page – Stock Purchase Agreement]

Exhibit _______


LIST OF EXHIBITS TO STOCK PURCHASE AGREEMENT

Exhibit A		Legal Opinion
Exhibit B		Contract Amendments
Exhibit C		KMW Service Agreement
Exhibit D		Form of Engagement Letter with KMW
Exhibit E		Form of Cohen Release
Exhibit F		Employment Agreement between Seller and Company (or Purchaser)
Exhibit G-1		Form of Intellectual Property Assignment Agreement
Exhibit G-2		Form of Intellectual Property Assignment Agreement
Exhibit H		Amendment and Restatement of Office Lease

LIST OF SCHEDULES TO THE STOCK PURCHASE AGREEMENT

Schedule 1.4(a)(2)		Prepaid Revenues
Schedule 1.5(a)		Revenue and EBITDA Adjustments
Schedule 2.1		Foreign Qualifications
Schedule 2.5		Directors and Officers
Schedule 2.6(c)		No Conflicts; Approvals
Schedule 2.7		Company Financial Statements
Schedule 2.8		Books and Records; Organizational Documents
Schedule 2.9		Absence of Changes
Schedule 2.10		Liabilities
Schedule 2.11		Taxes
Schedule 2.11(e)		Taxes
Schedule 2.12		Legal Proceedings
Schedule 2.13		Company Permits
Schedule 2.14(a)		Plans; ERISA
Schedule 2.14(b)		Plans; ERISA
Schedule 2.15(a)		Real Property
Schedule 2.15(b)		Real Property
Schedule 2.15(c)		Real Property
Schedule 2.16		Assets
Schedule 2.17(a)		Intellectual Property
Schedule 2.17(c)		Intellectual Property
Schedule 2.17(g)		Intellectual Property
Schedule 2.17(h)		Intellectual Property
Schedule 2.17(i)		Intellectual Property
Schedule 2.17(j)		Intellectual Property
Schedule 2.17(q)		Intellectual Property
Schedule 2.17(s)		Intellectual Property
Schedule 2.17(t)		Intellectual Property
Schedule 2.18(a)		Contracts
Schedule 2.18(b)		Contracts
Schedule 2.18(c)		Contracts


Schedule 2.18(e)		Contracts
Schedule 2.19		Insurance
Schedule 2.20(a)		Affiliate Transactions
Schedule 2.20(b)		Affiliate Transactions
Schedule 2.21(b)(i)		Employees; Labor Relations
Schedule 2.21(b)(ii)		Employees; Labor Relations
Schedule 2.23		Substantial Customers and Suppliers
Schedule 2.24		Accounts and Notes Receivable
Schedule 2.25		Other Negotiations; Brokers; Third-Party Expenses
Schedule 2.26		Banks and Brokerage Accounts
Schedule 2.27		Warranty Obligations
Schedule 2.30(a)		Customer Services
Schedule 2.30(b)		Customer Services
Schedule 3.3(b)		No Conflicts; Approvals
Schedule 3.4		Legal Proceedings
Schedule 4.3(c)		No Conflicts; Approvals
Schedule 5.1		Conduct of Business
Schedule 7.3(e)(ii)		Approvals; Customer Interviews, Contract Amendments
Schedule 7.3(e)(iii)		Approvals; Customer Interviews, Contract Amendments
Schedule 7.3(e)(v)		Approvals; Customer Interviews, Contract Amendments
Schedule 7.3(k)		Employee Matters
Schedule 8.2(a)(v)		Indemnification

(The schedules and exhibits to the Stock Purchase Agreement have been omitted. Intersections Inc. will furnish copies of such schedules and exhibits supplementally to the Commission upon request.)

EX-21.1 6 w51111exv21w1.htm EX-21.1 exv21w1

EXHIBIT 21.1

Subsidiaries of Registrant


Name		State of Organization
CreditComm Services LLC		Delaware
Intersections Health Services, Inc.		Delaware
Intersections Services, Inc.		Canada
Intersections Insurance Services, Inc.		Illinois
Screening International, LLC*		Delaware
American Background Information Services, Inc.		Virginia
Control Risks Screening, Ltd.		United Kingdom
Control Risks Screening (S) Pte Ltd.		Singapore
Captira Analytical, LLC		Delaware
Net Enforcers, Inc.		Florida

EX-23.1 7 w51111exv23w1.htm EX-23.1 exv23w1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-120228 and 333-133394 on Forms S-8 of our reports dated March 13, 2008, relating to the financial statements and financial statement schedule of Intersections Inc., and the effectiveness of Intersection Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Intersections Inc. for the year ended December 31, 2007.

McLean, Virginia
March 13, 2008

EX-31.1 8 w51111exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

CERTIFICATION

I, Michael R. Stanfield, certify that:

1. I have reviewed this annual report on Form 10-K of Intersections Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Michael R. Stanfield

Chief Executive Officer

Date: March 14, 2008

EX-31.2 9 w51111exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

CERTIFICATION

I, Madalyn C. Behneman, certify that:

1. I have reviewed this annual report on Form 10-K of Intersections Inc.;

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Madalyn C. Behneman

Principal Financial Officer

Date: March 14, 2008

EX-32.1 10 w51111exv32w1.htm EX-32.1 exv32w1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael R. Stanfield, Chief Executive Officer of Intersections Inc. (the “Company”), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, do hereby certify as follows:

1. The annual report on Form 10-K of the Company for the period ended December 31, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, I have executed this Certification this 14th day of March 2008.

By: Michael R. Stanfield

Name: Michael R. Stanfield


	Title:	Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Intersections Inc. and will be retained by Intersections Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 11 w51111exv32w2.htm EX-32.2 exv32w2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Madalyn C. Behneman, Principal Financial Officer of Intersections Inc. (the “Company”), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, do hereby certify as follows:

1. The annual report on Form 10-K of the Company for the period ended December 31, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, I have executed this Certification this 14th day of March 2008.

By: Madalyn C. Behneman

Name: Madalyn C. Behneman


	Title:	Principal Financial Officer

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