UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE TO
(Amendment No. 4)
Tender Offer Statement Under Section 14(d)(1) or
13(e)(1)
of the Securities Exchange Act of 1934
REWARDS
NETWORK INC.
(Name of Subject
Company (issuer))
EGI
ACQUISITION, L.L.C.
a wholly owned
subsidiary of
EGI
ACQUISITION PARENT, L.L.C.
(Names of Filing
Persons (offerors))
KMJZ
Investments, L.L.C.
Chai Trust
Company, LLC
(Names of Filing
Persons (other person(s)))
COMMON
STOCK, PAR VALUE $0.02 PER SHARE
(Title of Class of
Securities)
893767103
(CUSIP Number of Class of
Securities)
Jonathan D.
Wasserman, Esq.
EGI
Acquisition Parent, L.L.C.
Two North
Riverside Plaza, Suite 600
Chicago, Illinois 60606
(312) 454-1800
(Name, Address and Telephone
Number of Persons Authorized to Receive Notices
and Communications on Behalf of Filing Persons)
Copy to:
Peter C.
Krupp
Skadden,
Arps, Slate, Meagher & Flom LLP
155 North
Wacker Drive
Chicago, Illinois
60606
(312)
407-0700
CALCULATION
OF FILING FEE
Transaction Valuation*
|
|
Amount of Filing Fee**
|
$104,251,276.25
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|
$7,433.12
|
*
Estimated for purposes of calculating the amount of the filing fee only.
The calculation assumes the purchase of all outstanding shares of common stock,
par value $0.02 per share (the Shares), of Rewards Network Inc., a Delaware
corporation, other than Shares owned by EGI Acquisition, L.L.C. (Purchaser)
and EGI Acquisition Parent, L.L.C. (Parent), at a purchase price of $13.75
per Share, net to the seller in cash. As of November 5, 2010, there were
8,815,599 Shares outstanding, of which 1,254,901 Shares are owned by Parent and
Purchaser. As a result, this calculation assumes the purchase of 7,560,698
Shares. The transaction value also includes
the offer price of $13.75 multiplied by 21,213, the estimated number of options
to purchase Shares that are currently outstanding and exercisable for Shares
with exercise prices of less than $13.75.
**
The amount of the filing fee is calculated in accordance with Rule 0-11
of the Securities Exchange Act of 1934, as amended, and Fee Rate Advisory No. 2
for fiscal year 2011 issued by the Securities Exchange Commission on September 29,
2010. Such fee equals 0.0000713% of the
transaction value.
x
Check
the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and
identify the filing with which the offsetting fee was previously paid. Identify
the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: 7,433.12
|
|
Filing Party: EGI Acquisition Parent, L.L.C.
|
Form or Registration No.: Schedule
TO-T
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|
Date Filed: November 8, 2010
|
¨
Check
the box if the filing relates solely to preliminary communications made before
the commencement of a tender offer.
Check the appropriate
boxes to designate any transactions to which the statement relates:
x
third-party tender offer
subject to Rule 14d-1.
¨
issuer tender offer subject to
Rule 13e-4.
x
going-private transaction
subject to Rule 13e-3.
¨
amendment to Schedule 13D
under Rule 13d-2.
Check the following box if the filing is a final
amendment reporting the results of the tender offer:
o
This Amendment No. 4
amends and supplements the combined Tender Offer Statement and Rule 13e-3
Transaction Statement filed under cover of Schedule TO (as amended and
supplemented, the
Schedule TO
)
filed by EGI Acquisition Parent, L.L.C., a Delaware limited liability company (
Parent
), and EGI Acquisition, L.L.C., a Delaware limited
liability company and wholly-owned subsidiary of Parent
(Purchaser
). Parent is controlled by KMJZ Investments,
L.L.C., a Delaware limited liability company (
KMJZ
),
as Parents non-member manager. KMJZ is
controlled by Chai Trust Company, LLC, an Illinois limited liability company (
Chai Trust
), by virtue of Chai Trust being the trustee of
each of the various trusts established for the benefit of members of the family
of Samuel Zell that directly own KMJZ.
The Schedule TO relates to the offer by Purchaser to purchase all the
outstanding shares of common stock, par value $0.02 per share (the
Shares
), of Rewards Network Inc., a Delaware corporation (
Rewards
), other than Shares owned by Parent and Purchaser,
at a purchase price of $13.75 per Share, net to the seller in cash, without
interest and less any applicable withholding taxes, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated November 8,
2010 (the
Offer to Purchase
), a copy of which
is attached to the Schedule TO as Exhibit (a)(1)(i), and the related
Letter of Transmittal, a copy of which is attached to the Schedule TO as Exhibit (a)(1)(ii) (which,
as amended or supplemented from time to time, together constitute the
Offer
). All capitalized terms used in this Amendment No. 4
without definition have the meaning ascribed to such terms in the Schedule TO.
The following amendments and
supplements to the Items of the Schedule TO are hereby made.
Items 1 through 9, 11, 12 and
13.
1.
Items 1, 4, 11 and 13 of the Schedule TO are hereby amended and
supplemented by adding the following:
On December 6, 2010, Purchaser
announced that it had extended the expiration of the Offer to 12:00 midnight,
New York City time, on Monday, December 13, 2010.
2.
The section entitled Special FactorsSection 4. Position of the
Offeror Group Regarding Fairness of the Offer and the Merger beginning on page 19
of the Offer to Purchase is hereby amended and supplemented by adding the
following at the end of such section:
Report of Conway MacKenzie, Inc.
on the Orderly Liquidation Appraisal of Rewards
At the request, and on behalf, of the
lenders party to the Debt Financing, EGI obtained a third-party appraisal of
the orderly liquidation value of Rewards (the
Orderly
Liquidation Appraisal
). The lenders party to the Debt Financing
requested the Orderly Liquidation Appraisal in order to confirm that the
orderly liquidation value of Rewards, as of September 30, 2010 (the
Valuation Date
), was not less than 40% of the gross book
value of the dining credit portfolio of Rewards. EGI engaged Conway MacKenzie, Inc. (
CM
) to provide the Orderly Liquidation Appraisal and CM
provided a report containing the Orderly Liquidation Appraisal on November 5,
2010 (the
CM Report
). The CM Report was not obtained until after
the execution of the Merger Agreement, was not reviewed or considered by the
Offeror Group in its analysis of Rewards, the transaction, the structure of the
transaction, the consideration to be paid in the transaction, the fairness of
the consideration or the fairness of the transaction to holders of Shares
unaffiliated with Rewards. CM did not
prepare the CM Report for the purpose of recommending a fair or appropriate
offer price for the Shares.
The full text of the CM Report, which sets
forth, among other things, the procedures followed, assumptions made, matters
considered and qualifications and limitations on the review undertaken by CM in
connection with the CM Report, is filed as Exhibit (c)(1) to the
combined Tender Offer Statement and Rule 13e-3 Transaction Statement under
cover of Schedule TO filed with the SEC in connection with the Offer, and is
incorporated herein by reference.
Portions of
2
the CM Report and exhibits thereto have been
omitted pursuant to a request for confidential treatment filed with the SEC.
The omissions have been indicated by asterisks (*****), and the omitted text
has been filed separately with the SEC.
The description of the CM Report set forth herein is qualified in its
entirety by reference to the CM Report.
Neither the
Orderly Liquidation Appraisal nor the CM Report are to be construed as a
fairness opinion as to the fairness of an actual or proposed transaction, a
solvency opinion or an investment recommendation, but instead, are the
expression of CMs determination of the liquidation value of Rewards as of the
Valuation Date. For various reasons, the
price at which Rewards might be sold in a specific transaction between specific
parties on a specific date might be significantly different from the
liquidation value expressed in the CM Report.
Accordingly, the analysis performed by CM does not constitute, and
should not be viewed as, a recommendation with respect to any matter pertaining
to the Offer, including whether any holder of Shares should tender Shares in
the Offer or take any other action in connection with the Offer or the Merger.
CMs
Findings.
The Orderly Liquidation Appraisal contained in the
CM Report indicated that the gross proceeds from an orderly liquidation of
Rewards on the Valuation Date was in the range of $57.3 million to $69.5
million, which is approximately 76% to 92% of $75.3 million, the gross book
value of the dining credit portfolio of Rewards as of such date. Such orderly liquidation value equates to
approximately $6.50 to $7.88 per Share, based on 8,815,599 Shares issued and
outstanding as of the date of the Offer to Purchase, as compared to the Offer
Price of $13.75 per Share. For purposes of the CM Report, CM defined orderly
liquidation value as the price at which asset or assets are sold or converted
to cash over a reasonable period of time to maximize proceeds received. CMs
analysis was based on certain assumptions and estimates with regard to Rewards
prospective performance, the general industry and economic environment,
financial considerations, and expected customer reactions. CMs analysis, among other things (i) assumed
that as of the Valuation Date, Rewards and its assets would cease to operate as
configured as a going concern; (ii) was based on the past and present
financial condition of Rewards and its assets as of the Valuation Date; (iii) assumed
that Rewards had no undisclosed real or contingent assets or liabilities, no
unusual obligations or substantial commitments, other than in the ordinary
course of business, and had no litigation pending or threatened that would have
a material effect on CMs analysis; and (iv) assumed that all information
furnished by Rewards is complete, accurate and reflects Rewards managements
good faith efforts to describe the status and prospects of Rewards at the
Valuation Date from an operating and a financial point of view.
CMs Primary
Bases of Information.
The principal sources of information used in
performing CMs analysis including the following, among other data deemed
pertinent by CM:
·
certain publicly available historical business and
financial information relating to Rewards filed with the SEC and listed on
Rewards website at www.rewardsnetwork.com;
·
certain reports of the Audit Committee of the Board of
Directors of Rewards and other financial materials prepared for the Board of
Directors of Rewards;
·
previous Rewards net orderly liquidation scenarios;
·
the Rewards Projections;
·
historical vintage reports;
·
certain other internal historical financial information
of Rewards made available by Rewards;
3
·
Rewards Dining Credits Program Agreement and other
contracts made available to CM by Rewards;
·
documents relating to Rewards company headcount and
compensation;
·
market research reports prepared by the National
Restaurant Association, IBISWorld, and Barrington Research; and
·
United States Congressional Budget Office Economic
Outlook Report, dated September 28, 2010.
Procedures
Utilized by CM.
In general, CM utilized the following
procedures when performing its analysis:
·
analysis of conditions in, and the economic outlook for,
the restaurant industry;
·
analysis of the general economic outlook as of the
Valuation Date;
·
interviews of certain senior officers of Rewards
concerning the history, current state, and future operations of Rewards in the
event of a liquidation;
·
analysis of Rewards historical operating and financial
results;
·
analysis of three orderly liquidation scenarios including
sales, expenses, profitability and capital expenditures based on Rewards
historical operating results, industry expectations and management
representations, which formed the basis for the discounted cash flow analyses
conducted by CM; and
·
analysis of other facts and data considered pertinent to
the valuation to arrive at CMs conclusion of the orderly liquidation value of
Rewards.
Valuation
Methods Used by CM.
CM arrived at an indication of value after
contemplating three commonly-accepted valuation methodologies referred to as
the Market Approach, Cost Approach and Income Approach. All three valuation methods considered in CMs
calculation of the orderly liquidation value of Rewards and the applicability
of each method to CMs valuation are discussed below.
The Market Approach
. The Market
Approach is a general way of determining a value indication of a business,
business ownership interest or security by using one or more methods that
compare the subject to similar businesses, business ownership interests, or
securities that have been sold.
Specifically, the Market Approach attempts to compare the subject
company to guideline companies in the same or similar lines of business that
either have (1) securities that are publicly traded; or (2) involvement
in a transaction. CM considered, but did
not employ either form of the Market Approach due to the absence of comparable
guideline public companies undergoing liquidation and the lack of recent and
relevant guideline transactions in the customer rewards and loyalty industry.
The Cost Approach
. The Cost
Approach assesses value based upon the principles of substitution and price
equilibrium. The economic value
calculated using this approach is viewed as the expected costs to acquire an
equally desirable substitute of the subject assets and is based on the premise
that no party involved in an arms-length transaction would be willing to pay
more to use the property than the cost to replace the asset. CM considered, but
did not employ the Cost Approach, due to the absence of reasonably similar
substitute assets in the marketplace.
The Income Approach
. The Income
Approach is a general way of determining a value indication of a business,
business ownership interest or security by using one or more
4
methods through which
anticipated benefits are converted into value through the employment of a
capitalization or discount rate. CM used the discounted cash flow method in the
Income Approach, which estimates the value of a company based on expected
future benefits discounted to present value at a rate of return that weights
expected returns with inherent business risk, to calculate the orderly
liquidation value of Rewards.
Under the premise of an
orderly liquidation, CM performed a discounted cash flow analysis to calculate
the estimated present value of projected net cash flows over a twelve-month
projection period, from October 2010 through September 2011. CM determined the orderly liquidation period
of twelve months based on the premise that the orderly liquidation would cease
when the costs of generating additional dining credits and marketing services
revenues would exceed the cash flow benefits derived therefrom. CM used a discount rate of 4.59%, which is
similar to Rewards borrowing rate, as the net proceeds from an orderly
liquidation would be first applied to repay outstanding debt incurred in the
contemplated transaction. CM assumed
that an orderly liquidation would raise the potential risk of merchant breaches
of Rewards contracts and, to account for such risk, factored into the analysis
breach rates at high, moderate and non-breach levels. CMs analysis indicated the following orderly
liquidation values of Rewards:
Scenario
|
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Orderly Liquidation Value
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(in millions)
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No Contract Breach
|
|
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Gross
Proceeds
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$
|
69.5
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|
Discounted
Proceeds
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$
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68.3
|
|
|
|
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Moderate Contract Breach
|
|
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|
Gross
Proceeds
|
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$
|
60.4
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Discounted
Proceeds
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$
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59.6
|
|
|
|
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Significant Contract Breach
|
|
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|
Gross
Proceeds
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$
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57.3
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Discounted
Proceeds
|
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$
|
56.5
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Miscellaneous.
EGI selected CM to
provide the Orderly Liquidation Appraisal based on CMs qualifications,
experience and reputation. CM is a
nationally recognized financial services firm that is regularly engaged in the
valuation of businesses and securities in connection with mergers,
acquisitions, restructurings and similar corporate finance transactions.
Under the terms of CMs
engagement to provide the Orderly Liquidation Appraisal, EGI estimates it will
pay CM approximately $32,000 in professional fees. In addition, EGI agreed to reimburse CM for
its out-of-pocket expenses in connection with the engagement.
A copy of the CM Report, as filed with the
SEC, will be made available for inspection and copying at the principal
executive offices of EGI during its regular business hours at Two North
Riverside Plaza, Suite 600, Chicago, Illinois 60606 by any interested
holder of Shares or representative who has been so designated in writing.
5
3.
The eleventh bullet point and corresponding sub-bullet points in the
third paragraph of the section entitled Special FactorsSection 4.
Position of the Offeror Group Regarding Fairness of the Offer and the Merger
beginning on page 19 of the Offer to Purchase are hereby deleted.
4.
The fourth paragraph of the section entitled Special FactorsSection 6.
Effects of the Offer, beginning on page 23 of the Offer to Purchase, is
hereby amended and restated in its entirety as follows:
As a result of the Offer, the direct and
indirect interest of Parent in Rewards net book value and net earnings will
increase to the extent of the number of Shares acquired under the Offer. If the
Offer is completed, following consummation of the Merger, Parents indirect
interest in such items will increase to 100%, and Parent and its subsidiaries
will be entitled to all benefits resulting from that interest, including all
income generated by Rewards operations and any future increase in Rewards
value. Similarly, Parent will also bear the risk of losses generated by Rewards
operations and any decrease in the value of Rewards after the Merger.
Accordingly, former stockholders will not have the opportunity to participate
in the earnings and growth of Rewards after the Merger and will not have any
right to vote on corporate matters. Similarly, former stockholders will
not face the risk of losses generated by Rewards operations or decline in the
value of Rewards after the Merger. Upon completion of the Merger, Parent,
Purchaser and KMJZs beneficial interest in Rewards net book value and net
earnings would increase from approximately 14.2% as of the date hereof to
100%. Based on Rewards net book value as of September 30, 2010,
this increase would result in Parent, Purchaser and KMJZs beneficial interest
in Rewards net book value increasing from approximately $12.8 million to
approximately $90.0 million. Assuming this increase in Rewards net earnings
had been effective for the year ended December 31, 2009 and the nine
months ended September 30, 2010, this increase would have resulted in
Parent, Purchaser and KMJZs beneficial interest in Rewards net earnings for
year ended December 31, 2009 and the nine months ended September 30,
2010 increasing from approximately $0.8 million to approximately $5.3
million and from approximately $0.6 million to approximately $4.1 million, respectively. Upon
completion of the Merger, Chai Trusts beneficial interest in Rewards net book
value and net earnings would increase from approximately 26.4% as of the date
hereof to 100%. Based on Rewards net book value as of September 30,
2010, this increase would result in Chai Trusts beneficial interest in Rewards
net book value increasing from approximately $23.7 million to
approximately $90.0 million. Assuming this increase in Rewards net
earnings had been effective for the year ended December 31, 2009 and the
nine months ended September 30, 2010, this increase would have resulted in
Chai Trusts beneficial interest in Rewards net earnings for year ended
December 31, 2009 and the nine months ended September 30, 2010
increasing from approximately $1.4 million to approximately $5.3 million and
from approximately $1.1 million to approximately $4.1 million,
respectively.
5.
The second sentence in the first paragraph of the section entitled Special
FactorsSection 8. Summary of the Merger Agreement; Other
AgreementsMerger Agreement, on page 24 of the Offer to Purchase, is
hereby deleted.
6.
Item 12 of the Schedule TO is hereby amended and supplemented by adding
the following:
Exhibit No.
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Description
|
|
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(a)(5)(C)
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Press Release issued by Equity Group Investments,
L.L.C., dated December 6, 2010.
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(c)(1)
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Report of Conway MacKenzie, dated
November 5, 2010.
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6
SIGNATURES
After due inquiry and to the
best of my knowledge and belief, I certify that the information set forth
in this statement is true, complete and correct.
Dated: December 6, 2010
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EGI ACQUISITION, L.L.C.
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By:
|
/s/
Philip G. Tinkler
|
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Name:
Philip G. Tinkler
|
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Title:
Vice President and Treasurer
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EGI ACQUISITION PARENT, L.L.C.
|
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|
|
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By:
|
/s/
Philip G. Tinkler
|
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Name:
Philip G. Tinkler
|
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Title:
Vice President and Treasurer
|
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KMJZ INVESTMENTS, L.L.C.
|
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|
|
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By:
|
/s/
Philip G. Tinkler
|
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|
Name:
Philip G. Tinkler
|
|
|
Title:
Vice President and Treasurer
|
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CHAI TRUST COMPANY, LLC
|
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By:
|
/s/
Philip G. Tinkler
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Name:
Philip G. Tinkler
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Title:
Chief Financial Officer
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7
EXHIBIT INDEX
Exhibit No.
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Description
|
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(a)(1)(i)
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Offer to Purchase, dated
November 8, 2010.*
|
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(a)(1)(ii)
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Letter of Transmittal.*
|
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(a)(1)(iii)
|
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Notice of Guaranteed
Delivery.*
|
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(a)(1)(iv)
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Letter to Brokers, Dealers,
Banks, Trust Companies and Other Nominees.*
|
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(a)(1)(v)
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Letter to Clients for use by
Brokers, Dealers, Banks, Trust Companies and Other Nominees.*
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(a)(1)(vi)
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Advertisement published in
The New York Times on November 8, 2010.*
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(a)(1)(vii)
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Press Release issued by
Rewards Network Inc. on October 28, 2010 (incorporated by reference to Exhibit 99.2
to the Form 8-K filed by Rewards Network Inc. on October 28, 2010).
|
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(a)(5)(A)
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Complaint captioned
Discovery Partners v. Ronald L. Blake, et. al., Case No. 10CH48639,
filed in the Circuit Court of Cook County, Illinois, on
November 10, 2010 (incorporated by reference to
Exhibit (a)(9) to the Schedule 14D-9/A filed by Rewards Network
Inc. on November 12, 2010).
|
|
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(a)(5)(B)
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Memorandum of Understanding,
dated as of November 30, 2010 (incorporated by reference to
Exhibit (a)(10) to the Schedule 14D-9/A filed by Rewards Network
Inc. on November 30, 2010).
|
|
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(a)(5)(C)
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Press Release issued by
Equity Group Investments, L.L.C., dated December 6, 2010.
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(b)(1)
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Equity Commitment Letter,
dated October 28, 2010, among EGI Acquisition Parent, L.L.C., Kellie
Zell Irrevocable Trust, Matthew Zell Irrevocable Trust and JoAnn Zell Gillis
Irrevocable Trust (incorporated by reference to Exhibit 3 to the
Schedule 13D/A filed on October 28, 2010).
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(b)(2)
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Amended and Restated
Commitment Letter, dated October 27, 2010, among EGI Acquisition,
L.L.C., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, The
PrivateBank and Trust Company and Bank Leumi (incorporated by reference to
Exhibit 2 to the Schedule 13D/A filed on October 28, 2010).
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(b)(4)
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Limited Guarantee, dated as
of October 28, 2010, by EGI-Fund (08-10) Investors, L.L.C. in favor of
Rewards Network Inc. (incorporated by reference to Exhibit 99.1 to the
Form 8-K filed by Rewards Network Inc. on October 28, 2010).
|
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(c)(1)
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Report of Conway MacKenzie,
dated November 5, 2010.
|
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(d)(1)
|
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Agreement and Plan of
Merger, dated as of October 28, 2010, by and among Rewards Network Inc.,
EGI Acquisition Parent, L.L.C. and EGI Acquisition, L.L.C. (incorporated
|
8
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|
by reference to
Exhibit 2.1 to the Form 8-K filed by Rewards Network Inc. on
October 28, 2010).
|
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(d)(2)
|
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Tender and Support
Agreement, dated as of October 28, 2010, by and among EGI Acquisition
Parent, L.L.C., EGI Acquisition, L.L.C., Rewards Network Inc., EGI-Fund (00)
Investors, L.L.C., EGI-Fund (05-07) Investors, L.L.C., EGI-Fund (08-10)
Investors, L.L.C. and Samstock, L.L.C. (incorporated by reference to
Exhibit 10.1 to the Form 8-K filed by Rewards Network Inc. on
October 28, 2010).
|
* Previously filed with the Schedule TO.
9
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