-----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, WB0Rd98ey41/PKAiEYjAxvh/QMSGYh9AsQjqDLpVEBSFHJIblJzSx9CRd22S1lNR Aj969zedO4mROd72hR76ZQ== /in/edgar/work/20000914/0001071955-00-000071/0001071955-00-000071.txt : 20000922 0001071955-00-000071.hdr.sgml : 20000922 ACCESSION NUMBER: 0001071955-00-000071 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20000914 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: US SEARCH CORP COM CENTRAL INDEX KEY: 0001083087 STANDARD INDUSTRIAL CLASSIFICATION: [7389 ] IRS NUMBER: 954504143 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-59585 FILM NUMBER: 723243 BUSINESS ADDRESS: STREET 1: 9107 WILSHIRE BLVD STREET 2: SUITE 700 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 BUSINESS PHONE: 3105537000 MAIL ADDRESS: STREET 1: 9107 WILSHIRE BLVD STREET 2: SUITE 700 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PEQUOT CAPITAL MANAGEMENT INC/CT/ CENTRAL INDEX KEY: 0001071955 STANDARD INDUSTRIAL CLASSIFICATION: [ ] FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 500 NYALA FARMS ROAD CITY: WESTPORT STATE: CT ZIP: 06880 BUSINESS PHONE: 2033192246 SC 13D 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. # ) US Search.Com Inc. (Name of Issuer) Common Shares, $.001 par value (Title of Class of Securities) 903381101] (CUSIP Number) Pequot Capital Management, Inc., 500 Nyala Farm Road Westport, CT 06880 Attn: David J. Malat 203/429-2200 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) September 7, 2000 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Section 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. Check the following box if a fee is being paid with this statement __. (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. The information required in the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP NO. 903381101 SCHEDULE 13D - -------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Pequot Capital Management, Inc. 06-1524885 - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF MEMBER OF A GROUP* (a) (b) - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS* 00 - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REUIRED PURSUANT TO ITEMS 2(d) OR 2(e) - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION CONNECTICUT - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 10,276,172 ------------------------------------------------------------ NUMBER OF SHARES BENEFICIALLY 8. SHARED VOTING POWER OWNED BY EACH 0 REPORTING ------------------------------------------------------------ PERSON WITH 9. SOLE DISPOSITIVE POWER 10,276,172 ----------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 10,276,172 - ------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 34.9% - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* IA - -------------------------------------------------------------------------------- Item 1. Security and Issuer This Statement relates to the Common Stock, $.001 par value (the "Shares"), of US Search.Com Inc. (the "Company"), a Delaware corporation. The Company's Principal executive office is located at 5401 Beethoven Street, Los Angeles, California 90066. Item 2. Identity and Background This statement is being filed on behalf of Pequot Capital Management, Inc., a Connecticut corporation (the "Reporting Person"). The principal business of the Reporting Person, an investment adviser registered under the Investment Advisers Act of 1940, is to act as investment adviser to certain managed accounts. The executive officers of the Reporting Person are Messrs. Arthur J. Samberg, Daniel C. Benton and Kevin E. O'Brien, the directors of the Reporting Person are Messrs. Samberg, Benton and O'Brien, and the controlling shareholders are Messrs. Samberg and Benton (collectively, the "Executive Officers, Directors and Controlling Persons"). The business address of the Reporting Person and the Executive Officers, Directors and Controlling Persons is 500 Nyala Farm Road, Westport, CT 06880. Neither of the Reporting Person nor the Executive Officers, Directors and Controlling Persons have, during the last five years, been convicted in criminal proceeding (excluding traffic violations or similar misdemeanors). Neither of the Reporting Person nor the Executive Officers, Directors and Controlling Persons have, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction which resulted in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to federal or state securities laws or finding any violation with respect to such laws. Each of the Executive Officers, Directors and the Controlling Persons are citizens of the United States. Item 3. Source and Amount of Funds or Other Consideration As of the date hereof, under Rule 13d-3 under the Securities Exchange Act of 1934, the Reporting Person is deemed to be the beneficial owner of 10,276,172 of the Company's Shares ("Shares") in the accounts for which the Reporting Person exercises investment discretion (the "Accounts"). On September 7, 2000, the Accounts purchased 100,000 shares of the Company's Series A Preferred Stock ("Series A Preferred") at a purchase price of $100 per share and a warrant for 75,000 Series A Preferred (the "Warrant") in a private placement for a total purchase price of $10,000,000. The Series A Preferred are convertible into 5,872,098 Shares and the Warrant is convertible into 4,404,074 Shares. The funds for the purchase of the Shares held by the Accounts were obtained from the contributions of their various partners/shareholders. Such funds may also include the proceeds of margin loans entered into in the ordinary course of business with Morgan Stanley Dean Witter & Co. Item 4. Purpose of Transaction The holding of the Shares described herein is conducted in the ordinary course of the Reporting Person's investment activities. The Reporting Person reserves the right to purchase additional Shares or dispose of the Shares in the open market or in privately negotiated transactions or in any other lawful manner in the future. An employee of the Reporting Person currently serves on the Board of Directors of the Company. The Reporting Person reserves the right to take whatever further action with respect to the Accounts' holdings in the Company as the Reporting Person deems to be in the best interest of such Accounts. Item 5. Interest in Securities of the Issuer As of the date hereof, the Reporting Person beneficially owns in the aggregate 10,276,172 Shares. These Shares represent approximately 34.9% of the 29,433,017 Shares that the Reporting Person believes to be outstanding if the Warrant and the Series A Preferred were converted into Shares. In addition, two employees of the Reporting Person were elected to serve on the Board of Directors of the Company. The Reporting Power has the sole power to vote, direct the vote, dispose and direct the disposition of all of the Shares. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer Securities Acquisition On September 7, 2000, the Reporting Person entered into a Purchase Agreement (the "Purchase Agreement") with the Company pursuant to which the Reporting Person purchased 100,000 shares of Series A Preferred and a Warrant for up to 75,000 shares of Series A Preferred, exercisable immediately. Each such Series A Preferred is convertible into approximately 59 Shares. The Reporting Person has agreed to purchase a further 100,000 shares of Series A Preferred subject to certain business and other closing conditions being met by the Company within twelve months from the date of the Purchase Agreement. As a result of its current beneficial ownership of the 175,000 shares of Series A Preferred, the Reporting Person is the beneficial owner of 34.9% of the voting securities of the Company on a fully diluted basis. The Reporting Person has also entered into an executory Stock Purchase Agreement, dated as of September 7, 2000 (the "Stock Purchase Agreement"), with The Kushner-Locke Company ("Kushner Locke"). Pursuant to this Stock Purchase Agreement the Reporting Person will purchase 3,500,000 Shares. The purchase will close on receipt of pre-merger notification clearance under the Hart Scott Rodino Act of 1976. On such closing, the Reporting Person will beneficially own 46.8% of the voting securities of the Company on a fully diluted basis. In connection with the Stock Purchase Agreement, and subject to a Right of First Refusal Agreement, dated as of September 7, 2000, between the Reporting Person And Kushner Locke, the Reporting Person obtained the right of first refusal with respect to future sales of certain additional Shares currently owned by Kushner-Locke. Assuming that all the above purchases by the Reporting Person occur, but excluding any rights of first refusal, any pre-emptive rights, the effect of dividends and the issuance of further stock by the Company, the Reporting Person may beneficially own 275,000 shares of Series A Preferred and 3,500,000 Shares, or up to 55.7% of the voting securities of the Company on a fully diluted basis. Directors and Voting Rights Under the Amended Certificate of Designations of the Company pursuant to which the Series A Preferred was authorized, filed September 5, 2000, seven directors shall constitute the Board of Directors of the Company (the "Board"). Of this number, the Reporting Person has the right to designate two directors to the Board, and in certain material events of non-compliance by the Company, the Reporting Person has the right to elect a sufficient number of additional directors to constitute a majority of the Board. This right shall terminate at such time as the event of non compliance has been cured as determined by a majority of the Board, including the approval of all directors designated by the Reporting Person. In addition, the Reporting Person has certain preemptive rights on future equity issuances, subject to certain exceptions. Pursuant to a Stockholders Agreement, dated as of September 7, 2000, between the Company, the Reporting Person and Kushner Locke, the Reporting Person and Kushner Locke have agreed that of the seven members of the Board and subject to certain conditions, two directors shall be nominated by the Reporting Person, one director shall be nominated by Kushner Locke, one director be the Chief Executive Officer of the Company and three directors shall be independent and nominated by mutual consent of the Reporting Person and any other directors who are not appointed by Kushner Locke. The Reporting Person and Kushner Locke have further agreed to vote their securities to carry out the foregoing arrangements. Registration Rights Pursuant to an Investors' Rights Agreement, dated as of September 7, 2000, between the Reporting Person and the Company, the Reporting Person was granted certain registration rights with respect the Series A Preferred Stock and Shares beneficially owned by the Reporting Person. From September 7, 2001, the Reporting Person is entitled to two demand registration rights on a Form S-1, provided that the shares to be registered have an aggregate offering price to the public in excess of $5 million; and unlimited number of demand registration rights on a Form S-3, provided that the shares to be registered have an aggregate offering price to the public of not less than $2 million. These rights are subject to the Company's right to defer the timing of a demand registration, and an underwriters' right to cut back shares in an underwritten offering. In addition to these demand rights, the Reporting Person has unlimited piggyback registration rights, subject to an underwriters' right to cut back shares in an underwritten offering. Other than the agreements set forth above, there are no arrangements, contracts, understandings, or relationships between the Reporting Person or, to the best of its knowledge, any executive officer or director of the Reporting Person, and any other person with respect to any securities of the Company, including any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities of the Company, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Item 7. Material to be Filed as Exhibits Please see the attached Exhibits 1, 2, 3, 4, 5 and 6. After a reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. September 14, 2000 Pequot Capital Management, Inc. By:/s/ David J. Malat David J. Malat, Chief Accounting Officer EX-1 2 0002.txt STOCK PURCHASE AGREEMENT EXECUTION COPY PURCHASE AGREEMENT among US SEARCH.COM INC., a Delaware corporation and THE PURCHASERS LISTED ON SCHEDULE I HERETO Dated September 7, 2000 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "Agreement") is made as of September 7, 2000, by and between US SEARCH.com Inc., a Delaware corporation (the "Company"), and Pequot Private Equity Fund II, L.P., a Delaware limited partnership (the "Purchaser"). NOW, THEREFORE, the parties hereto hereby agree as follows. ARTICLE I. DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: "Affiliate" shall mean, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person and, in the case of a person who is an individual, shall include (i) members of such specified person's immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act) and (ii) trusts, the trustee and all beneficiaries of which are such specified person or members of such person's immediate family as determined in accordance with the foregoing clause (i). For the purposes of this definition, "control," when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. "Agreement" shall have the meaning set forth in the Preamble. "Applicable Law" shall mean, with respect to any person, any law, statute, rule, regulation, order, writ, injunction, judgment or decree of any Governmental Authority to which such person or any of its subsidiaries is bound or to which any of their respective properties is subject. "Benefit Plan" shall have the meaning set forth in Section 3.9. "Certificate of Designations" shall have the meaning set forth in Section 2.1. "Charter" with respect to any corporation shall mean the certificate of incorporation or articles of incorporation of such corporation. "Closing" shall mean the First Closing or Second Closing, as the case may be. "Closing Date" shall mean the First Closing Date or Second Closing Date, as the case may be. "Code" shall mean have the meaning set forth in Section 3.9. "Commission" shall mean the United States Securities and Exchange Commission. "Commitment" shall have the meaning set forth in Section 3.14. "Common Stock" shall mean the common stock, par value $.001 per share, of the Company. "Company" shall have the meaning set forth in the Preamble. "Consumer Business" shall mean all of the activities generating revenue for the Company, excluding revenue attributable to (i) sales to registered business users (unless the registered business user was an unregistered customer prior to September 7, 2000) and (ii) the business of the Company that has been identified in the Company business plan as the "Trust Advocacy Business." "Consumer Profitability" shall mean for the three consecutive months immediately prior to the determination date and for four of the six months immediately prior to the determination date, that the Gross Margin of the Consumer Business, reduced by revenue sharing agreements, consumer advertising and promotion expense, consumer selling expense and consumer bad debt expense (calculated in the manner set forth in the Consumer Profitability Analysis attached hereto as Schedule I), is greater than $0.01. "Gross Margin" shall mean gross income net of return allowances, minus labor costs, telephone expense, data and fulfillment costs and costs of services-other, all attributable to the Consumer Business and all as more specifically set forth in Exhibit E attached hereto, which sets forth an example of the calculation of Consumer Profitability as of June 30, 2000. "Documents" shall mean (i) this Agreement, (ii) the Certificate of Designation, (iii) the Stockholders Agreement, (iv) the Investors' Rights Agreement, (v) the Warrant, (vi) the KL Purchase Agreement and (vii) the Right of First Refusal Agreement. "Employee" shall have the meaning set forth in Section 3.9. "Environmental Claim" shall have the meaning set forth in Section 3.13. "Environmental Laws" shall have the meaning set forth in Section 3.13. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" shall mean with respect to any person (within the meaning of section 3(9) of ERISA) any other person that would be regarded together with such person as a single employer under section 414(b), (c), (m) or (o) of the Code. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, which are in effect from time to time, consistently applied. "Governmental Authority" shall mean any foreign, Federal, state or local court or governmental or regulatory authority. "Holder" shall mean any person that is the beneficial owner of Shares, or shares of Common Stock issued upon conversion of Shares, as a result of the sale, assignment or other transfer of Shares originally issued to the Purchaser or issuable or issued upon the conversion or exercise of any such Shares. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and applicable rules and regulations and any similar state acts. "Indebtedness" shall mean, with respect to any person, the aggregate amount of, without duplication, the following: (i) all obligations for borrowed money; (ii) all obligations evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations to pay the deferred purchase price of property or services, except trade payables, accrued commissions and other similar accrued current liabilities in respect of such obligations, if such liabilities are not overdue and arise in the ordinary course of business or are being contested in good faith by appropriate proceedings and as to which adequate reserves have been made on the books of the Company; (iv) all capitalized lease obligations; (v) all obligations or liabilities of any other person or persons secured by a Lien on any asset owned by such person or persons whether or not such obligation or liability is assumed; (vi) all obligations of such person or persons, contingent or otherwise, in respect of any letters of credit or bankers' acceptances; and (vii) all guarantees; provided, however, that the term Indebtedness shall not included Taxes and other governmental charges which are not yet due and owing, or are being contested in good faith by appropriate proceedings and as to which adequate reserves have been made on the books of the Company. "Indemnified Party" shall have the meaning set forth in Section 8.1. "Indemnifying Party" shall have the meaning set forth in Section 8.1. "Investors' Rights Agreement" shall mean the Investors' Rights Agreement to be entered into by and among the Company, the Purchaser and KL concurrently with the First Closing, substantially in the form attached as Exhibit A hereto. "KL Purchase Agreement" shall mean that certain stock purchase agreement, dated as of the date hereof, by and among the Kushner-Locke Company ("KL") and the Purchaser, whereby the Purchaser or its Affiliates shall purchase 3,500,000 shares of Common Stock from KL at a price per share equal to 65% of the applicable Conversion Price (as defined in the Certificate of Designations) but no less than $1.20, such transaction to close simultaneously with the First Closing. "Lien" shall mean any pledge, lien, claim, restriction, charge or encumbrance of any kind. "Material Adverse Effect" shall mean a material adverse effect (i) on the business, operations, prospects, properties, earnings, assets, liabilities or condition (financial or other) of the Company and its Subsidiary, taken as a whole, or (ii) on the ability of the Company or its Subsidiary to perform its obligations hereunder or under any of the other Documents. "Materials of Environmental Concern" shall have the meaning set forth in Section 3.13. "Multiemployer Plan" shall have the meaning set forth in Section 3.9. "New Investor" shall have the meaning set forth in Section 5.9. "Notices" shall have the meaning set forth in Section 8.2. "PBGC" shall have the meaning set forth in Section 3.9. "Permitted Liens" means: (i) liens for Taxes and other governmental charges and assessments arising in the ordinary course of business which are not yet due and payable, (ii) liens of landlords and liens of carriers, warehousemen, mechanics and materialmen and other like liens arising in the ordinary course of business for sums not yet due and payable and (iii) other liens or imperfections on property which are not material in amount, do not interfere with, and are not violated by, the consummation of the transactions contemplated by this Agreement, and do not impair the marketability of, or materially detract from the value of or materially impair the existing use of, the property affected by such lien or imperfection. "Permitted Transferee" shall mean: (i) any officer, director, partner or member of, or person controlling, the Purchaser or (ii) any other person that is (x) an Affiliate of a general partner, investment manager or investment advisor of the Purchaser, (y) an Affiliate of the Purchaser or a Permitted Transferee of an Affiliate of the Purchaser, or (z) an investment fund, investment account or investment entity whose investment manager, investment advisor or general partner thereof is a Purchaser or a Permitted Transferee of the Purchaser. "person" shall mean any individual, partnership, corporation, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or agency or political subdivision thereof, or other entity. "Preferred Stock" shall mean the preferred stock, par value $.001 per share, of the Company. "Purchase Agreement" shall mean this Agreement. "Purchaser" shall have the meaning set forth in the Preamble. "Recapitalization" shall have the meaning set forth in Section 5.19. "Right of First Refusal Agreement" shall mean that certain Right of First Refusal Agreement dated as of September 7, 2000 by and between the Purchaser and KL. "SEC Documents" shall have the meaning set forth in Section 3.7. "Securities" shall mean the Shares and the Common Stock. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder. "Series A Preferred Stock" shall mean the Series A Convertible Preferred Stock of the Company as described in the Certificate of Designations. "Shares" shall mean the shares of Series A Preferred Stock to be issued and sold by the Company to the Purchaser under Section 2.1(b) hereof and issuable upon exercise of the Warrants. "Stockholders Agreement" shall mean that certain stockholders agreement dated September 7, 2000 by and among the Company, the Purchaser and KL, whereby the parties thereto agree to vote to their shares of Common Stock or Series A Preferred Stock, as the case may be, and use their respective best efforts to effect certain actions and rights contemplated in the Certificate of Designations. "subsidiary" shall mean, with respect to any person, (a) a corporation a majority of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such person, by a subsidiary of such person, or by such person and one or more subsidiaries of such person, (b) a partnership in which such person or a subsidiary of such person is, at the date of determination, a general partner of such partnership, or (c) any other person (other than a corporation) in which such person, a subsidiary of such person or such person and one or more subsidiaries of such person, directly or indirectly, at the date of determination thereof, has (i) at least a majority ownership interest, (ii) the power to elect or direct the election of the directors or other governing body of such person, or (iii) the power to direct or cause the direction of the affairs or management of such person. For purposes of this definition, a person is deemed to own any capital stock or other ownership interest if such person has the right to acquire such capital stock or other ownership interest, whether through the exercise of any purchase option, conversion privilege or similar right. "Subsidiary" shall mean a subsidiary of the Company. "Taxes" shall mean all foreign, Federal, State and local taxes, including any interest, penalties or additions to tax that may become payable in respect thereof, imposed by any Governmental Authority, which taxes shall include, without limiting the generality of the foregoing, all income taxes, payroll and employee withholding taxes, unemployment insurance, social security, sales and use taxes, excise taxes, franchise taxes, gross receipts taxes, occupation taxes, real and personal property taxes, stamp taxes, transfer taxes, workmen's compensation taxes and other obligations of the same or a similar nature, whether arising before, on or after the Closing Date. "Tax Returns" shall mean all returns, declarations, statements, schedules, forms, reports, information returns or other documents (including any related or supporting information), and any amendments thereto, filed or required to be filed with any Governmental Authority in connection with the determination, assessment, collection or administration of any Taxes. "Trust Advocacy Business" shall mean any activity involving the provision of information online between the parties (whether consumer or business) to a transaction for the purpose of enabling the consummation of such transaction. "WARN Act" shall mean the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any applicable state or local law with regard to "plant closings" or "mass layoffs" as such terms are defined in the WARN Act or applicable state or local law. "Warrant" shall mean that certain Warrant dated September 7, 2000 by the Company issued to the Purchaser to purchase up to seventy-five thousand (75,000) shares of Series A Preferred Stock. ARTICLE II. SALE AND PURCHASE Section 2.1 Sale and Issuance of Shares. (a) On or before the First Closing, the Company shall adopt and file with the Secretary of State of Delaware the Amended Certificate of Designations relating to the Series A Preferred Stock (the "Certificate of Designations"), substantially in the form attached as Exhibit B hereto. (b) On the First Closing Date, and upon the terms and subject to the conditions set forth in this Agreement, the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase and accept from the Company, for the purchase price set forth on the Purchaser's signature page attached hereto, payable in immediately available funds (i) one hundred thousand (100,000) shares of Series A Preferred Stock as are indicated on the Purchaser's signature page attached hereto and (ii) the Warrants to purchase up to seventy-five thousand (75,000) shares of Series A Preferred Stock pursuant to the Warrant executed and delivered herewith. (c) On the Second Closing Date, if any, and upon the terms and subject to the conditions set forth in this Agreement, the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase and accept from the Company such number of shares of Series A Preferred Stock as are indicated on a schedule to be provided by the Purchaser and agreed to by the Company but, in any event, to provide for the purchase and sale of one hundred thousand (100,000) shares of Series A Preferred Stock for ten million dollars ($10,000,000). Section 2.2 Closings. (a) The first closing of the purchase and sale of the Series A Preferred Stock (the "First Closing") shall take place at 9:00 a.m., local time, on September 7, 2000, or such other date as promptly thereafter as of which all of the conditions relating to the First Closing set forth in Article VII hereof shall have been satisfied or duly waived or at such other time and date as the parties hereto shall agree in writing (the "First Closing Date"), at the offices of Latham & Watkins, 885 Third Avenue, Suite 1000, New York, NY 10022-4802 or at such other place as the parties hereto shall agree in writing. (b) If necessary, a second closing of the purchase and sale of the Series A Preferred Stock (the "Second Closing") shall take place at such date and time to be agreed upon by the parties hereto as promptly as practicable after as of which all of the conditions set forth in Article VII hereof shall have been satisfied or duly waived as the parties hereto shall agree in writing (the "Second Closing Date"), at the offices of Latham & Watkins, 885 Third Avenue, Suite 1000, New York, NY 10022-4802 or at such other place as the parties hereto shall agree in writing. On each Closing Date (i) the Purchaser shall deposit into a bank account designated by the Company on such Closing Date, by wire transfer of immediately available funds, an amount equal to the aggregate purchase price of the Shares being purchased from the Company pursuant to Section 2.1(b) or (c), as the case may be, and (ii) the Company shall deliver to the Purchaser, against payment of the purchase price therefor, certificates representing the Shares, being purchased by Purchaser pursuant to Section 2.1(b) or (c). The Shares shall be in definitive form and registered in the name of the Purchaser or its nominee or designee and in such denominations (including fractional shares) as the Purchaser shall request not later than one business day prior to the Closing Date. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Purchaser as follows: Section 3.1 Organization and Standing . The Company is duly incorporated, validly existing and in good standing as a domestic corporation under the laws of the State of Delaware and has all requisite corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted and as proposed to be conducted. The Company is duly qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of its business makes such qualification necessary, except where the failure to so qualify or be in good standing could not, individually or in the aggregate, or together with such failure of its Subsidiary referred to in Section 3.3(b) below reasonably be expected to have a Material Adverse Effect. Section 3.2 Capital Stock . Immediately following the First Closing, the authorized capital stock of the Company will consist solely of (a) forty million (40,000,000) shares of Common Stock, of which (i) seventeen million nine hundred thirty eight thousand two hundred forty four (17,938,244) shares will be issued and outstanding and (ii) thirteen million sixty three thousand fifty eight (13,063,058) shares will be reserved for issuance upon the conversion of the Series A Preferred Stock (including the Series A Preferred Stock issuable upon exercise of the Warrants and as dividends as provided in the Certificate of Designations but excluding shares of Common Stock issuable upon conversion of the Series A Preferred Stock to be issued at the Second Closing) and (b) one million (1,000,000) shares of Preferred Stock, of which (i) one hundred thousand (100,000) shares of Series A Preferred Stock will be issued and outstanding and (ii) two hundred fifty thousand (250,000) shares of Series A Preferred Stock will be reserved for issuance at the Second Closing, in connection with the exercise of the Warrants and as dividends as provided in the Certificate of Designations. Immediately following the First Closing, each share of capital stock of the Company that is issued and outstanding will be duly authorized, validly issued, fully paid and nonassessable. Any shares of Series A Preferred Stock issued in the Second Closing, in connection with the exercise of the Warrants, or as a dividend on any outstanding shares of Series A Preferred Stock, are duly authorized, and, when issued and paid for in connection with the Second Closing, will be validly issued, fully paid and nonassessable. Upon conversion of any shares of Series A Preferred Stock in accordance with their terms, all of the Common Stock issued upon such conversion will be duly authorized, validly issued, fully paid and nonassessable (giving effect to and assuming, with respect to the shares of Series A Preferred Stock issuable in connection with the Second Closing only, the Recapitalization). Schedule 3.2(a) sets forth a true and complete table of (i) the capitalization of the Company immediately prior to the First Closing, (ii) a pro forma capitalization of the Company immediately following the transactions contemplated by the Documents and (iii) assuming the exercise of all of the Warrants. Except as set forth on Schedule 3.2(b) or as contemplated by this Agreement, at the date hereof there are, and immediately following the First Closing there will be (a) no outstanding options, warrants, agreements, conversion rights, preemptive rights or other rights to subscribe for, purchase or acquire any issued or unissued shares of capital stock of the Company and (b) no restrictions upon the voting or transfer of any shares of capital stock of the Company pursuant to its Charter, Amended and Restated Bylaws or other governing documents or any agreement or other instruments to which it is a party or by which it is bound. The holders of the Series A Preferred Stock will, upon issuance thereof, have the rights set forth in the Certificate of Designation. Section 3.3 Subsidiary. (a) Schedule 3.3 sets forth the one Subsidiary, including the percentage of the fully diluted capital stock of such Subsidiary owned, directly or indirectly, by the Company. (b) The Subsidiary is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own its properties and assets and to conduct its business as now conducted and as proposed to be conducted. The Subsidiary is duly qualified to do business as a foreign corporation in every jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to so qualify could not, individually or in the aggregate, or together with such failure of the Company referred to in Section 3.1 above, reasonably be expected to have a Material Adverse Effect. (c) The outstanding shares of capital stock of the Subsidiary has been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth on Schedule 3.3, (i) all of the shares of the Subsidiary are owned of record and beneficially, directly or indirectly, by the Company, free and clear of all Liens and (ii) there are no outstanding options, warrants, agreements, conversion rights, preemptive rights or other rights to subscribe for, purchase or otherwise acquire any issued or unissued shares of capital stock of the Subsidiary. Section 3.4 Authorization; Enforceability . The Company has the corporate power to execute, deliver and perform its obligations under each of the Documents and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each of the Documents and to consummate the transactions contemplated hereby and thereby except, with respect to the Second Closing. No other corporate proceedings on the part of the Company are necessary therefor. The Company has duly executed and delivered this Agreement. This Agreement constitutes, and each of the other Documents, when executed and delivered by the Company and, assuming due execution by the other parties hereto and thereto, will constitute legal, valid and binding obligations of the Company enforceable against it in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). Section 3.5 No Violation; Consents. (a) The execution, delivery and performance by the Company of each of the Documents and the consummation of the transactions contemplated hereby and thereby does not and will not contravene any Applicable Law. The execution, delivery and performance by the Company of each of the Documents and the consummation of the transactions contemplated hereby and thereby (i) will not (after giving effect to all amendments or waivers obtained on or prior to the First Closing Date) (x) violate, result in a breach of or constitute (with due notice or lapse of time or both) a default under any contract, lease, loan agreement, Benefit Plan, mortgage, security agreement, trust indenture or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them is bound or to which any of their properties or assets is subject or (y) result in the creation or imposition of any Lien (other than a Permitted Lien) upon any of the properties or assets of any of them, or (z) permit or cause the acceleration of the maturity of any debt or obligation of the Company or its Subsidiary in an amount exceeding, in the aggregate, $500,000, and (ii) will not violate any provision of the Charter or the Amended and Restated Bylaws of the Company or its Subsidiary. (b) Except as set forth on Schedule 3.5(b), no consent, authorization or order of, or filing or registration with, any Governmental Authority or other person is required to be obtained or made by the Company or its Subsidiary for the execution, delivery and performance of any of the Documents, or the consummation of any of the transactions contemplated hereby or thereby, except (i) for those consents or authorizations required for the First Closing that will have been obtained or made on or prior to the First Closing Date, (ii) for those consents or authorizations required for the Second Closing, if any, that will have been obtained or made on or prior to the Second Closing Date or (iii) where the failure to obtain such consents, authorizations or orders, or make such filings or registrations, could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 3.6 Litigation . Except as set forth on Schedule 3.6, there are no pending or, to the best knowledge of the Company, threatened claims, actions, suits, labor disputes, grievances, administrative or arbitration or other proceedings or, to the best knowledge of the Company, investigations against the Company, its Subsidiary or their respective assets or properties before or by any Governmental Authority or before any arbitrator that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. None of the transactions contemplated by any of the Documents is restrained or enjoined (either temporarily, preliminarily or permanently), and no material adverse conditions have been imposed thereon by any Governmental Authority or arbitrator. None of the Company, its Subsidiary or any of their respective assets or properties, is subject to any order, writ, judgment, award, injunction or decree of any Governmental Authority or arbitrator, that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 3.7 SEC Documents; Financial Statements. (a) Since June 24, 1999, (i) the Company has filed all forms, reports and documents with the Commission (including all exhibits thereto) required under the Securities Act or the Exchange Act or the rules and regulations promulgated thereunder (collectively, the "SEC Documents"), each of which complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act as in effect on the dates so filed and (ii) no event of which the Company has knowledge has occurred which the Company reasonably believes requires the filing of a Form 8-K with the Commission and which has not been filedNone of the SEC Documents (as of their respective filing dates) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company has heretofore made available to the Purchasers copies of each of the SEC Documents (other than exhibits or schedules to the SEC Documents). (b) The financial statements contained in the SEC Documents: (i) comply as to form in all material respects with the published rules and regulations of the Commission applicable thereto; (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered, except as may be indicated in the notes to such financial statements and (in the case of unaudited statements) as permitted by Form 10-Q of the Commission, and except that unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end audit adjustments (which will not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect); and (iii) fairly present the consolidated financial position of the Company as of the respective dates thereof and the consolidated results of operations and cash flows of the Company for the periods covered thereby. (c) The unaudited financial statements dated as of July 31, 2000, which have been furnished to the Purchaser: (i) were prepared in accordance with GAAP applied on a consistent basis with prior periods, except as indicated in the notes, if any, to such financial statements (which are subject to normal and recurring year-end audit adjustments (which will not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect)) and (ii) fairly present the consolidated financial position of the Company and its Subsidiary as of the date thereof and the consolidated results of operations of the Company and its Subsidiary for the period covered therein. (d) No representation or warranty of the Company contained in any document, certificate or written statement furnished or made available to the Purchasers by or at the direction of the Company for use in connection with the transactions contemplated by this Agreement, contains any untrue statement of a material fact or omits to state any material fact (known to the Company, in the case of information not furnished by them) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. There are no facts known to the Company (other than matters of a nature affecting the general economy) that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and that have not been disclosed in the SEC Documents, this Agreement or in such other documents, certificates and statements furnished to the Purchasers for use in connection with the transactions contemplated by this Agreement. (e) As of December 31, 1999, the Company had no assets or liabilities that would have been required to reflect in consolidated financial statements of the Company prepared in accordance with GAAP, including notes thereto, that are not reflected in the financial statements contained in the SEC Documents. Section 3.8 Change in Condition. (a) Since December 31, 1999, there has been no material adverse change in the business, operations, properties, prospects or condition (financial or other) of the Company or its Subsidiary, whether or not arising in the ordinary course of business. (b) To the best knowledge of the Company, there is no event, condition, circumstance or development which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 3.9 Employee Benefit Plans and Labor Matters. (a) For purposes of this Agreement: (i) "Benefit Plan" means any employee benefit plan, arrangement, policy or commitment, including, without limitation, any employment, consulting, severance or deferred compensation agreement, executive compensation, bonus, incentive, pension, profit-sharing, savings, retirement, stock option, stock purchase or severance pay plan, any such date and time to be agreed upon by the parties hereto as promptly as practicable after life, health, disability or accidental death and dismemberment insurance plan, any holiday and vacation practice or any other employee benefit plan, within the meaning of section 3(3) of ERISA, whether formal or informal, written or oral and whether legally binding or not, that is maintained, administered or contributed to or was maintained, administered or contributed to at any time by the Company or any of its ERISA Affiliates for the benefit of any employee, former employee, consultant, officer or director of the Company or any ERISA Affiliate; (ii) "Code" means the Internal Revenue Code of 1986, as amended; (iii) "Employee" means any individual employed by the Company or any of its ERISA Affiliates; (iv) "IRS" means the United States Internal Revenue Service; and (v) "PBGC" means the Pension Benefit Guaranty Corporation. (b) Schedule 3.9(b) lists all Benefit Plans. With respect to each such plan, the Company has delivered or made available to the Purchasers correct and complete copies of (i) all plan texts and agreements and related trust or other funding arrangements (including all amendments thereto); (ii) all summary plan descriptions and material employee communications; (iii) the annual report and actuarial report (including all schedules thereto) if required under ERISA or other applicable law, for the last three most recently completed plan years; (iv) the most recent annual audited financial statement; (v) if the plan is intended to qualify under Code section 401(a) or 403(a), the most recent determination letter, if any, received from the IRS; and (vi) all material communications with any Governmental Authority (including, without limitation, the PBGC and the IRS). (c) There are no Benefit Plans that (i) are subject to any liability under Code section 412, ERISA section 302 or Title IV of ERISA and no condition exists that presents a material risk to the Company or any ERISA Affiliate of incurring such liability; (ii) are intended to qualify under Code section 401(a) or 403(a); or (iii) provide benefits to current or former Employees beyond their retirement or other termination of service (other than coverage mandated by Code section 4980B and Part 6 of Title I of ERISA), or are self-insured "multiple employer welfare arrangements," as such term is defined in section 3(40) of ERISA. (d) Except as set forth on Schedule 3.9(d), each Benefit Plan conforms in all material respects to, and its administration is in all material respects in compliance with, its terms and all Applicable Law, including but not limited to ERISA and the Code. (e) The consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former Employee or officer of the Company or any ERISA Affiliate to severance pay, unemployment compensation or any similar payment; or (ii) accelerate the time of payment or vesting of any right or privilege, or increase the amount of any compensation due to, any current or former Employee or officer. (f) No Benefit Plan is a "multiple employer plan" or a "multiemployer plan" within the meaning of the Code or ERISA. (g) In the six years preceding the date hereof, (i) no Benefit Plan that is or was subject to Title IV of ERISA has been terminated; (ii) no reportable event within the meaning of section 4043 of ERISA has occurred; (iii) no filing of a notice of intent to terminate such a Benefit Plan has been made; (iv) the PBGC has not initiated any proceeding to terminate any such Benefit Plan and no condition exists that presents a material risk that such proceeding will be initiated; and (v) no prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) has occurred. (h) Except as set forth on Schedule 3.9(h), neither the Company nor any of its Subsidiaries has any existing arrangement with any of its Employees providing for an excise tax gross up in respect of any excise taxes imposed by section 4999 of the Code. (i) Except as set forth on Schedule 3.9(i), none of the Company, any Subsidiary or any ERISA Affiliate has any commitment or formal plan, whether legally binding or not, to create any additional employee benefit plan or modify or change any existing Benefit Plan that would affect any Employee or former Employee. (j) Except as set forth on Schedule 3.9(j), (i) no amounts payable under the Benefit Plans will fail to be deductible for federal income tax purposes by virtue of section 162(a)(1), 162(m) or 280G of the Code and (ii) all contributions (including all employer contributions and employee salary reduction contributions) required to be made to any Benefit Plan by applicable law or regulation or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Benefit Plan, have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, have been fully reflected on the financial statements. Each Benefit Plan that is an employee welfare benefit plan under Section 3(1) of ERISA is either (i) funded through an insurance company contract and is not a "welfare benefit fund" with the meaning of Section 419 of the Code or (ii) unfunded. (k) Except as set forth on Schedule 3.9(k): (i) there is no labor strike, dispute, slowdown, stoppage or lockout actually pending, or to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries and during the past five years there has not been any such action; (ii) to the knowledge of the Company and any of its Subsidiaries, there are no union claims to represent the employees of the Company or any of its Subsidiaries; (iii) the Company is not a party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company; (iv) the employees of the Company are not represented by any labor organization and the Company does not have any knowledge of any current union organizing activities among the employees of the Company, nor does any question concerning representation exist concerning such employees; (v) true, correct and complete copies of all written personnel policies, rules and procedures applicable to employees of the Company have heretofore been delivered to the Purchaser; (vi) the Company is, and has at all times been, in material compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, and are not engaged in any unfair labor practices as defined in the National Labor Relations Act or other applicable law, ordinance or regulation; (vii) there is no unfair labor practice charge or complaint against the Company pending or, to the knowledge of the Company, threatened before the National Labor Relations Board or any similar state or foreign agency; (viii) there is no grievance or arbitration proceeding arising out of any collective bargaining agreement or other grievance procedure relating to the Company; (ix) to the knowledge of the Company, no charges with respect to or relating to the Company are pending before the Equal Employment Opportunity Commission or any other agency responsible for the prevention of unlawful employment practices; (x) to the knowledge of the Company, no federal, state, local or foreign agency responsible for the enforcement of labor or employment laws intends to conduct an investigation with respect to or relating to the Company and no such investigation is in progress; and (xi) there are no complaints, controversies, lawsuits or other proceedings pending or, to the knowledge of the Company, any applicant for employment or classes of the foregoing alleging breach of any express or implied contract or employment, any law or regulation governing employment or the termination thereof or other discriminatory, wrongful or tortious conduct in connection with the employment relationship. Except as set forth in Schedule 3.9(k)(xi), there are no employment contracts or severance agreements with any employees of the Company. The execution of this Agreement and the consummation of the transactions contemplated hereby shall not result in a breach or other violation of any collective bargaining agreement to which the Company is a party. (xii) Since the enactment of the WARN Act, the Company has not effectuated (i) a "plant closing" (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of the Company, or (ii) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of the Company; nor has the Company been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local law. Except as set forth in Schedule 3.9(k)(xii), none of the employees of the Company has suffered an "employment loss" (as defined in the WARN Act) with regard to their employment with the Company since March 1, 1995. Section 3.10 Properties . Except as otherwise stated in the SEC Documents filed and publicly available prior to the date hereof, the Company and its Subsidiary have good and marketable title, free and clear of all liens, encumbrances or claims of which the Company has knowledge to all of its real and personal property, except where such liens, encumbrances and equities could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and, except as otherwise stated in the SEC Documents filed and publicly available prior to the date hereof, the Company and its Subsidiary have valid and enforceable leases to all of the real and personal property described in the SEC Documents as under lease to it except where such invalidity or unenforceability of such leasehold interests could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 3.11 Compliance with Law . The operations of the Company have been conducted in accordance with all Applicable Laws, including, without limitation, all Applicable Laws relating to consumer protection, currency exchange, employment (including, without limitation, equal opportunity and wage and hour), safety and health, environmental protection, conservation, wetlands, architectural barriers to the handicapped, fire, zoning and building, occupation safety, pension and securities, except for violations or failures so to comply, if any, that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as disclosed in the SEC Documents filed and publicly available prior to the date hereof, the Company has not received notice of any violation of or noncompliance with any Applicable Laws except for notices of violations or failures so to comply, if any, that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as disclosed in Schedule 3.11, there are no proposed or pending federal privacy laws or regulations, nor, to the knowledge of the Company, any proposed or pending state privacy laws or regulations, which if enacted in the form drafted as of the First Closing or the Second Closing, as the case may be, would prevent the Company from pursuing their current line of business or the Trust Advocacy Business, except in such instances which would not individually or in the aggregate have a Material Adverse Effect. Section 3.12 Tax Matters . Except as set forth in Schedule 3.12: (a) The Company and its Subsidiary have duly and properly filed, or will duly and properly file, on a timely basis, all material Tax Returns which were or will be required to be filed by them for all periods ending on or before any Closing Date. All such Tax Returns of the Company and its Subsidiary were (or will be) true, correct and complete in all material respects when filed. The Company and its Subsidiary have paid all material Taxes required to be paid by them for periods ending on or before any Closing Date, or with respect to any period that ends after any Closing Date, the portion of such period up to and including any Closing Date, other than those Taxes being contested in good faith or those Taxes currently payable without penalty or interest, in each case for which an adequate reserve or accrual has been established in the Financial Statements in accordance with GAAP. (b) All material Taxes that the Company and its Subsidiary are or were required by law to withhold or collect through any Closing Date have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Authority. There are no Liens with respect to Taxes upon any of the properties or assets, real or personal, tangible or intangible, of the Company and its Subsidiary except for statutory liens for Taxes not yet due or delinquent. (c) Neither the Company nor its Subsidiary is currently the beneficiary of any waivers or extensions with respect to any Tax Returns, no Tax Returns of the Company are currently under audit or examination by any Governmental Authority and to the best knowledge of the Company and its Subsidiary, no such audit or examination is threatened. No issue was raised in any audit or examination of Tax Returns by any Governmental Authority that, if raised with respect to any period not so audited or examined, could be expected to result in a proposed deficiency. (d) Neither the Company nor its Subsidiary is party to, bound by or has an obligation under, any Tax allocation, Tax indemnity, or Tax sharing agreement or similar contract arrangement. Neither the Company nor its Subsidiary (i) has been a member of an affiliated group filing a consolidated Tax Return (other than a group the common parent of which was the Company) or (ii) has any liability for the Taxes of any person (other than the Company and its Subsidiaries) under Treasury Regulation 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, agreement to indemnify or otherwise. Neither the Company nor its Subsidiary has any obligation by contract, agreement, arrangement or otherwise to permit any person, other than the Company and its Subsidiary, to use the benefit of a refund, credit or offset of Tax of any of the Company and its Subsidiary. (e) Neither the Company nor its Subsidiary has been a United States real property holding corporation within the meaning of section 897(c)(2) of the Code during the period specified in section 897(c)(1)(A)(ii) of the Code. (f) Neither the Company nor its Subsidiary has filed (or will file prior to any Closing) a consent under section 341(f) of the Code. Section 3.13 Environmental Matters. (a) The Company and its Subsidiary are in compliance in all material respects with all applicable federal, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment, including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata, and natural resources (together "Environmental Laws" and including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic or hazardous substances or wastes, petroleum and petroleum products, asbestos or asbestos-containing materials, polychlorinated biphenyls, lead or lead-based paints or materials, or radon ("Materials of Environmental Concern")), or otherwise relating to the manufacture, generation, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern, or the preservation of the environment or mitigation of adverse effects thereon and each law and regulation with regard to record keeping, notification, disclosure, and reporting requirements respecting Materials of Environmental Concern. Each of the Company and its Subsidiary possess all permits and other governmental authorizations required under all applicable Environmental Laws, and is in compliance in all material respects with the terms and conditions thereof. All permits and other governmental authorizations currently held by the Company and its Subsidiary pursuant to the Environmental Laws are identified in Schedule 3.13(a). (b) Neither the Company nor its Subsidiary has received any communication (written or oral), whether from a Governmental Authority, citizens group, employee or otherwise, that alleges that the Company or its Subsidiary are not in full compliance with any Environmental Laws and, to the best knowledge of the Company, there are no circumstances that may prevent or interfere with such full compliance in the future. (c) There is no claim, action, written or oral notice or cause of action pending or, to the best knowledge of the Company, any investigation or notice of violation threatened (together, "Environmental Claim") by any person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned or operated by the Company or its Subsidiary or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law, that in either case is pending or threatened against the Company or its Subsidiary or against any person or entity whose liability for any Environmental Claim the Company or its Subsidiary has retained or assumed either contractually or by operation of law. (d) To the best knowledge of the Company, there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that could form the basis of any Environmental Claim against the Company or its Subsidiary or, to the Company's or its Subsidiary's best knowledge after due inquiry, against any person or entity whose liability for any Environmental Claim the Company or its Subsidiary has retained or assumed either contractually or by operation of law. (e) Without in any way limiting the generality of the foregoing, (i) there are no on-site or off-site locations where the Company or its Subsidiary has (previously or currently) stored, disposed or arranged for the disposal of Materials of Environmental Concern, (ii) there are no underground storage tanks located on any property owned, leased, operated or controlled by the Company or its Subsidiary, (iii) there is no asbestos contained in or forming part of any building, building component, structure or office space owned, leased, operated or controlled by the Company or its Subsidiary, and (iv) there are no PCBs or PCB-containing items are used or stored at any property owned, leased, operated or controlled by the Company or its Subsidiary. (f) The Company and its Subsidiary has provided to the Purchasers all assessments, reports, data, results of investigations or audits, and other information that is in the possession of or reasonably available to the Company or its Subsidiary regarding environmental matters pertaining to or the environmental condition of the business of the Company or its Subsidiary, or the compliance (or noncompliance) by the Company or its Subsidiary with any Environmental Laws. (g) Neither the Company nor its Subsidiary is required by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the effectiveness of any transactions contemplated hereby, (i) to perform a site assessment for Materials of Environmental Concern, (ii) to remove or remediate Materials of Environmental Concern, (iii) to give notice to or receive approval from any Governmental Authority, or (iv) to record or deliver to any person or entity any disclosure document or statement pertaining to environmental matters. Section 3.14 Enforceability of Contracts; Material Contracts . Except as set forth on Schedule 3.14, there are no other contracts material, individually or in the aggregate, to the business, operations, properties, prospects or financial condition of the Company or its Subsidiary (collectively, the "Commitments"). To the Company's best knowledge, neither the Company nor its Subsidiary is in default in respect of any Commitment, and no event has occurred which, with due notice or lapse of time or both, would constitute such a default, except for any such defaults that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Company, after due inquiry, no other party to any of the Commitments is in default in respect thereof, and no event has occurred which, with due notice or lapse of time or both, would constitute such a default, except for any such defaults that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 3.15 Accuracy of Information . None of the representations, warranties or statements of the Company contained in this Agreement or in the exhibits hereto contains any untrue statement of a material fact or, taken as a whole together with the SEC Documents, omits to state any material fact necessary in order to make any of such representations, warranties or statements not misleading. Section 3.16 Brokers . Neither the Company nor its Subsidiary or their respective agents and representatives have incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees, agents' commissions, investment banking fees, or other similar payment in connection with this Agreement. Section 3.17 Outstanding Indebtedness; Liens. (a) Schedule 3.17(a) sets forth and identifies in reasonable detail all individual items of outstanding short-term and long-term Indebtedness of the Company and its Subsidiary in excess of $25,000 incurred or otherwise not listed on the most recent financial statement received by the Purchasers, including all notes issued by the Company or its Subsidiary to finance the acquisition of real or personal property, prior to and after giving effect to the transactions contemplated by this Agreement. (b) Except as set forth on Schedule 3.17(b), there are no Liens outstanding on the date hereof and there will be no Liens outstanding as of the Closing on any property or asset of the Company or its Subsidiary. Section 3.18 Related-Party Transactions. (a) Except as set forth in the Company's filings under the Exchange Act, (i) no employee, officer, stockholder, director or consultant of the Company or member of his or her immediate family (defined as parents, spouse, siblings or lineal descendents) is indebted to the Company, and the Company is not indebted (or committed to make any loans or extend or guarantee any credit) to any of them; (ii) to the knowledge of the Company, no employee, officer, stockholder, director or consultant of the Company has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except stock ownership by employees, officers, stockholders or directors of the Company and members of their immediate families in publicly traded companies; and (iii) no officer, stockholder or director or any member of their immediate families is, directly or indirectly, interested in any contract (other than the Documents) with the Company. (b) Except for the Documents or as set forth on Schedule 3.18(b), the Company has not entered into any side letters, agreements or other arrangements with any existing or prospective stockholder. Section 3.19 Offering Exemption . Assuming the truth and accuracy of the Purchaser's representations and warranties contained in Section 4, the offer and sale of the Series A Preferred Stock as contemplated hereby and the issuance and delivery to the Purchaser of the Shares and the shares of Common Stock issuable upon the conversion of the Shares are exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and under applicable state securities and "blue sky" laws, as currently in effect. Section 3.20 Company Status . The Company is not (i) a "public utility holder company" or a "holding company" as defined in the Public Utility Holding Company Act of 1935, as amended, (ii) a "public utility" as defined in the Federal Power Act, as amended, or (iii) an "investment company" as defined in the Investment Company Act of 1940, as amended. Section 3.21 Insurance . Schedule 3.21 sets forth copies of certificates of all insurance coverage carried by the Company, identifying the carrier and the amount of coverage. Section 3.22 Proprietary Rights. (a) Except as set forth on Schedule 3.22(a): (i) the Company is the sole owner, free and clear of any lien or encumbrance, of, or has a valid license, without the payment of any royalty except with respect to off-the-shelf software and otherwise on commercially reasonable terms, to all U.S. and foreign trademarks, service marks, logos, designs, trade names, internet domain names and corporate names, patents, registered designs, copyrights, computer software and databases, whether or not registered, web sites and web pages and related items (and all intellectual property and proprietary rights incorporated therein) and all other trade secrets, research and development, formulae, know-how, proprietary and intellectual property rights and information, including all grants, registration and applications relating thereto (collectively, the "Proprietary Rights") necessary or advisable for the conduct of its business as now conducted or as presently proposed to be conducted (such Proprietary Rights owned by or licensed to the Company collectively, the "Company Rights"); (ii) the Company has taken, and will take all actions which are necessary or advisable in order to protect the Company Rights, and to acquire Proprietary Rights, consistent with prudent commercial practices in the relevant industry; (iii) the Company's rights in the Company Rights are valid and enforceable; (iv) the Company has received no demand, claim, notice or inquiry from any Person in respect of the Company Rights which challenges, threatens to challenge or inquires as to whether there is any basis to challenge, the validity of, or the rights of the Company in, any such Company Rights, and the Company knows of no basis for any such challenge; (v) the Company is not in violation or infringement of, and has not violated or infringed, any Proprietary Rights of any other Person; (vi) to the knowledge of the Company, no Person is infringing any Company Rights; and (vii) except on an arm's-length basis for value and other commercially reasonable terms, the Company has not granted any license with respect to any Company Rights to any Person. (b) Schedule 3.22(b) contains a complete and accurate description of the Company Rights material, individually or in the aggregate, to the operation of the Company's business and all of the material licenses and other agreements relating thereto. (c) Except as set forth on Schedule 3.22(c), as of the First Closing, all of the Company's employees at or above the level of vice president, and all employees involved in the invention, creation and development of Proprietary Rights, have executed a proprietary rights and inventions agreement in the form attached to Schedule 3.22(c) hereof. Section 3.23 Profitability Analysis. The Consumer Profitability Analysis does not contain any untrue material statements or elements nor does it omit a statement or element necessary in order to make the analysis contained therein, in the light of the circumstances, not misleading, except that the basis, assumptions, projections, expressions of opinion and predictions made in connection with such Consumer profitability were made in good faith and the Company believes that there is a reasonable basis thereof. It is understood that the Consumer Profitability Analysis is not a guarantee of future results. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS The Purchaser hereby represents and warrants to the Company as follows: Section 4.1 Authorization; Enforceability; No Violations. (a) The Purchaser is duly organized and validly existing in good standing as a partnership under the laws of the State of Delaware and has all requisite limited partnership power and authority to own its properties and assets and to carry on its business as it is now being conducted. The Purchaser has the partnership power to execute, deliver and perform the terms and provisions of the Documents and has taken all necessary partnership action to authorize the execution, delivery and performance by it of such Documents and to consummate the transactions contemplated hereby and thereby. No other partnership proceedings on the part of such Purchaser is necessary therefor. (b) The Purchaser has duly executed and delivered this Agreement and, at the First Closing, will have duly executed and delivered the other Documents to which it is a party. This Agreement constitutes, and the other Documents to which the Purchaser is a party, when executed and delivered by the Purchaser, and, assuming the due execution by the other parties hereto and thereto, will constitute the legal, valid and binding obligations of the Purchaser, enforceable against it in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). Section 4.2 Consents . No consent, authorization or order of, or filing or registration with, any Governmental Authority or other person is required to be obtained or made by the Purchaser for the execution, delivery and performance by the Purchaser of this Agreement or any of the other Documents or the consummation by the Purchaser of any of the transactions contemplated hereby or thereby other than (a) those required for the First Closing that will have been made or obtained on or prior to the First Closing Date and (b) those required for the Second Closing that will have been made or obtained on or prior to the Second Closing Date, as the case may be. Section 4.3 Private Placement. (a) The Purchaser understands that (i) the offering and sale of the Securities by the Company to the Purchaser is intended to be exempt from registration under the Securities Act pursuant to section 4(2) thereof, and (ii) there is no existing public or other market for the Securities. (b) The Securities to be acquired by the Purchaser pursuant to this Agreement are being acquired for its own account and without a view to making a distribution thereof in violation of the Securities Act, without prejudice, however, to its right to sell or otherwise dispose of all or any part of such Securities in compliance with the provisions of the Securities Act and applicable state securities or "blue sky" laws. (c) The Purchaser has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Securities and the Purchaser is capable of bearing the economic risks of such investment, including a complete loss of its investment in the Securities. (d) The Purchaser is an "accredited investor," as such term is defined in Regulation D under the Securities Act. (e) The Purchaser acknowledges that the Company and, for purposes of the opinions to be delivered to the Purchaser pursuant to Section 7.2(k) hereof, Latham & Watkins will rely, in part, on the accuracy and truth of its representations in this Section 4.3, and the Purchaser hereby consents to such reliance. (f) The Purchaser has had the opportunity to ask questions of, and receive answers from, representatives of the Company concerning the Company and the terms and conditions of this transaction, as well as to obtain any information requested by the Purchaser. Any questions raised by the Purchaser concerning the transaction have been answered to the satisfaction of the Purchaser. The Purchaser's decision to enter into the transactions contemplated hereby is based in part on the answers to such questions as the Purchaser has raised concerning the transaction and on the Purchaser's own evaluation of the risks and merits of the purchase and the Company's proposed business activities. ARTICLE V. COVENANTS OF THE COMPANY Section 5.1 Operation of Business. (a) From the date hereof until the Second Closing Date (or the earlier termination of this Agreement pursuant to Section 8.4), except as contemplated hereby or as consented to in writing by the Purchaser, the Company shall, and shall cause its Subsidiary to: (i) operate its business in the normal course and use its reasonable best efforts to preserve its present business organization intact and its present relationships with persons having material business dealings with it; and (ii) continue to maintain, in all material respects, its assets and properties and keep its books in accordance with present practices in a condition suitable for its current use. (b) From the date hereof until the Second Closing Date (or the earlier termination of this Agreement pursuant to Section 8.4), except as provided for herein, or contemplated hereby, and except as consented to or approved by the Purchaser, the Company shall not, and shall not permit its Subsidiary to take any action that would reasonably be expected to cause any of the representations and warranties made by the Company in this Agreement not to remain true and correct as if made at and as of each Closing Date. Section 5.2 Access to Books and Records . Upon reasonable notice, the Company shall afford, and shall cause its Subsidiary to afford, to the Purchaser and the Purchaser's accountants, counsel and representatives full access during normal business hours throughout the period prior to the Second Closing Date (or the earlier termination of this Agreement pursuant to Section 8.4) to all the Company's and its Subsidiary's properties, books, contracts, commitments and records (including, but not limited to, tax returns) and, during such period, shall furnish promptly to the Purchaser (a) a copy of each report, schedule and other document filed or received by the Company or its Subsidiary pursuant to the requirements of federal or state securities laws, and (b) all other information concerning the Company's and the Subsidiary's business, properties and personnel as the Purchaser may reasonably request, provided that no investigation or receipt of information pursuant to this Section 5.2 shall affect any representation or warranty of the Company or the conditions to the obligations of the Purchaser, and except as such information may be obtained by Purchaser from the SEC Documents. Section 5.3 Agreement to Take Necessary and Desirable Actions . The Company shall execute and deliver the Documents and such other documents, certificates, agreements and other writings and take such other actions as may be necessary, desirable or reasonably requested by the Purchaser in order to consummate or implement as expeditiously as practicable the transactions contemplated hereby. Section 5.4 Compliance with Conditions; Best Efforts . The Company shall use its best efforts to cause all of the obligations imposed upon it in this Agreement to be duly complied with and to cause all conditions precedent to the obligations of the Company and the Purchaser to be satisfied. Upon the terms and subject to the conditions of this Agreement, the Company shall use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable consistent with applicable law to consummate and make effective in the most expeditious manner practicable the transactions contemplated hereby. Section 5.5 Consents and Approvals . The Company shall (a) use its best efforts to obtain all necessary consents, waivers, authorizations and approvals of all Governmental Authorities and of all other persons, firms or corporations required in connection with the execution, delivery and performance by them of this Agreement, any other Document or any of the transactions contemplated hereby or thereby, and (b) diligently assist and cooperate with the Purchaser in preparing and filing all documents required to be submitted by the Purchaser to any Governmental Authority in connection with such transactions and in obtaining any governmental consents, waivers, authorizations or approvals which may be required to be obtained by the Purchaser in connection with such transactions (which assistance and cooperation shall include, without limitation, timely furnishing to the Purchaser all information concerning the Company and its Subsidiary that counsel to the Purchaser reasonably determines is required to be included in such documents or would be helpful in obtaining any such required consent, waiver, authorization or approval). Section 5.6 Tax Treatment of Preferred Stock . The Company covenants and agrees not to take any action inconsistent with the Series A Preferred Stock being considered common stock for U.S. Federal income tax purposes. Section 5.7 HSR Act Filings . As promptly as practicable after the date hereof but in any event no later than 10 days thereafter, the Company shall file all reports and documents as may be necessary to comply with the HSR Act. The Company shall cooperate with and assist the Purchaser and take such action as may be reasonably required and as permitted under law in connection with such filings (including cooperating with additional requests for information, documents and interviews of officers and personnel by either of the antitrust enforcement agencies). Section 5.8 RESERVED. Section 5.9 Use of Proceeds . The Company shall use the proceeds from the sale of Shares hereunder for continued product development, growth of its sales organization, working capital, acquisition of technology assets as appropriate and other general corporate purposes. Section 5.10 New Option Plan; Awards . At its next regularly scheduled annual meeting or at such earlier time as determined by a majority of the Board of Directors, the Company shall use reasonable efforts to have its holders of Securities approve (i) amendments to each of the Amended and Restated 1998 Stock Incentive Plan (the "1998 Plan") and the 2000 Stock Incentive Plan (the "2000 Plan") that authorize the issuance of an additional 6,500,000 and 1,000,000 shares of Common Stock under the 1998 Plan and 2000 Plan, respectively, and (ii) certain other changes necessary to authorize the awards of new options and the inclusion of competition option claw backs. The Company shall recommend to the Board of Directors and use reasonable efforts to facilitate the granting of such awards by the Board of Directors (or the Compensation Committee thereof) to the persons listed on Schedule 5.10 in such forms as shall be approved by the Board of Directors. Any additional awards under the 1998 Plan and 2000 Plan shall be approved by the Board of Directors, subject to the approval of the members thereof nominated by the Purchaser. Section 5.11 Director and Officer Insurance; "Key Man" Life Insurance . The Company has provided and will maintain, and the Purchaser have received copies of current and effective liability insurance policies, which provide coverage for the directors and officers of the Company with respect to any liabilities reasonably incurred in connection with their services for or on behalf of the Company. The Company will maintain "key man" life insurance on the life of Brent N. Cohen in the amount of five million dollars ($5,000,000), such policy shall be owned by the Company and shall name the Company as beneficiary and loss payee and shall not be cancelable by the Company without prior approval of the Board of Directors, including the approval of the members thereof nominated by the Purchaser. Section 5.12 Company Insurance . Within sixty (60) days after the Closing Date the Company shall procure and maintain insurance in such amounts (to the extent available in the public market), including (as applicable) self-insurance, retainage and deductible arrangements, and of such a character as is reasonable for companies engaged in the same or similar business similarly situated. Section 5.13 Agreements with Employees . The Company shall require the execution of a proprietary information and assignment of inventions agreement ("Proprietary Rights Agreement"), in the form attached as Exhibit C hereto by all of the Company's employees at or above the level of vice president, and other employees involved in the invention, creation or development of Proprietary Rights, proprietary information and assignment of inventions agreement. Section 5.14 Maintenance of Existence . The Company shall maintain in full force and effect its corporate existence, rights, governmental approvals and franchises and all licenses and other rights to use patents, processes, trademarks, trade names or copyrights owned or possessed by it and deemed by it to be material to the conduct of its business. Section 5.15 Books and Records . The books of account and other financial and corporate records of the Company shall be maintained in accordance with good business and accounting practices. Section 5.16 Reservation of Common Stock . From and after the Closing Date, the Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issue or delivery upon conversion of the Series A Preferred Stock, the maximum number of shares of Common Stock that may be issuable or deliverable upon such conversion. Such shares of Common Stock are or will be duly authorized and, when issued or delivered in accordance with the Certificate of Designation and against payment therefor, shall be validly issued, fully paid and non-assessable. The Company shall issue such shares of Common Stock in accordance with the terms of the Certificate of Designation and otherwise comply with the terms hereof and thereof. Section 5.17 Compliance with Law . The operations of the Company will continue to be conducted in accordance with all Applicable Laws, including, without limitation, all Applicable Laws relating to consumer protection, currency exchange, employment (including, without limitation, equal opportunity and wage and hour), safety and health, environmental protection, conservation, wetlands, architectural barriers to the handicapped, fire, zoning and building, occupation safety, pension and securities, except for violations or failures so to comply, if any, that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 5.18 Board Meetings . A meeting of the Company's Board of Directors shall be held at least once per month, unless otherwise agreed by a majority of directors who are not employees of the Company. Section 5.19 Recapitalization . The Company will use reasonable efforts to present to its stockholders at or prior to the next Annual Meeting of Stockholders a proposal to amend the Certificate of Incorporation of the Company to increase the authorized number of shares of Common Stock of the Company to a number sufficient to allow fully (i) the conversion of all authorized shares of Series A Preferred Stock, which may be issued in connection with the Second Closing (including all dividends which may accumulate with respect thereto), and (ii) the issuance of all shares of Common Stock pursuant to then existing option plans of the Company (the "Recapitalization"). ARTICLE VI. COVENANTS OF THE PURCHASER Section 6.1 Agreement to Take Necessary and Desirable Actions . The Purchaser agrees to execute and deliver each of the Documents and such other documents, certificates, agreements and other writings and to take such other actions as may be necessary, desirable or reasonably requested by the Company in order to consummate or implement as expeditiously as practicable the transactions contemplated hereby. Section 6.2 Compliance with Conditions; Commercially Reasonable Efforts . The Purchaser will use its commercially reasonable efforts to cause all of the obligations imposed upon it in this Agreement to be duly complied with, and to cause all conditions precedent to the obligations of the Company and the Purchaser to be satisfied. Upon the terms and subject to the conditions of this Agreement, the Purchaser shall use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable consistent with Applicable Law to consummate and make effective in the most expeditious manner practicable the transactions contemplated hereby. Section 6.3 HSR Act Filings . As promptly as practicable after the date hereof but in any event no later than ten (10) days thereafter, the Purchaser shall file all reports and documents as may be necessary to comply with the HSR Act. The Purchaser shall cooperate with and assist the Company and take such action as may be reasonably required and as permitted under law in connection with such filings (including cooperating with additional requests for information, documents and interviews of officers and personnel by either of the antitrust enforcement agencies). Section 6.4 Confidential Information . The Purchaser acknowledges that the information being provided under Section 5.2 may be material non-public information and the Purchaser hereby covenants and agrees to keep, and cause its representatives to keep, confidential any information identified by the Company as confidential, in a writing delivered to the Purchaser unless (a) such information becomes generally available to the public (other than as a result of a breach of this provision by the Purchaser), (b) such information was available to the Purchaser on a non-confidential basis from a source (other than the Company or its representatives) that, to the Purchaser's knowledge, is not and was not prohibited from disclosing such information to the Purchaser by a contractual, legal or fiduciary obligation or (c) the Purchaser is required by law to disclose such information; provided, that in an event specified in clause (c), the Purchaser shall provide the Company with prompt prior written notice of such required disclosure, the Purchaser shall disclose only that portion of the confidential information that the Purchaser is advised by counsel is legally required, and the Purchaser shall exercise reasonable efforts to obtain assurance that confidential treatment will be accorded such information. The Purchaser agrees that it will comply, and will cause its representatives to comply, with all U.S. securities laws applicable to the receipt of material non-public information and restrictions on trading in securities when in possession of such information. The Purchaser agrees not to use any confidential information in violation of any law. Section 6.5 Purchaser Voting . If necessary, when stockholder approval is sought, the Purchaser hereby agrees to vote its Shares in favor of the New Option Plan. ARTICLE VII. CONDITIONS PRECEDENT TO CLOSING Section 7.1 Conditions to the Company's Obligations . The obligations of the Company hereunder required to be performed on each Closing Date with respect to the Purchaser shall be subject, at its election, to the satisfaction or waiver (which waiver, if so requested by the Purchaser, shall be made in writing), at or prior to the Closing occurring on such Closing Date, of the following conditions: (a) The representations and warranties of the Purchaser contained in this Agreement shall be true and correct in all material respects on and as of such Closing Date, except with respect to the Second Closing at which time such representations and warranties may be amended by the Purchaser as set forth in a schedule to be provided by the Purchaser. (b) The Purchaser shall have performed in all material respects all obligations and agreements, and complied in all material respects with all covenants, contained in this Agreement, to be performed and complied with by the Purchaser such at or prior to such Closing Date. (c) All governmental and regulatory approvals and clearances and all third-party consents necessary for the consummation of the transactions contemplated at such Closing shall have been obtained and shall be in full force and effect, excluding, in the case of the First Closing only, expiration of the applicable waiting period under the HSR Act with respect to Shares to be purchased at the Second Closing, and the Company shall be reasonably satisfied that the consummation of such transactions does not and will not contravene any Applicable Law, except to the extent any contravention or contraventions, individually or in the aggregate, could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 7.2 Conditions to The Purchaser's Obligations . The obligations of the Purchaser hereunder required to be performed at each Closing shall be subject, at its election, to the satisfaction or waiver (which waiver, if so requested by the Company, shall be made in writing), at or prior to the Closing, or in the case of the conditions specified in Section 7.2(o) below, prior to the Second Closing, of the following conditions: (a) The representations and warranties of the Company made herein shall be true and correct in all material respects (disregarding, for purposes of such determination of materiality, all qualifications in such representations and warranties regarding "material") as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations and warranties made herein that by their terms speak as of the date of this Agreement or some other date shall be true and correct only as of such date). (b) The Company shall have performed in all material respects all obligations and agreements, and complied in all material respects with all covenants, contained in this Agreement, to be performed and complied with by it at or prior to such Closing Date. (c) Effective immediately prior to the First Closing, Donald Kushner and Peter Locke will resign as Co-Chairmen of the Company and Donald Kushner shall resign as a director of the Company. Effective immediately after the First Closing, the Company's Board of Directors shall consist of not more than seven (7) directors, who shall be Lawrence D. Lenihan, Jr., Richard R. Heitzmann, Alan C. Mendelson, Harry B. Chandler, Peter Locke, Brent N. Cohen and Nicholas Rockefeller. (d) All documents, instruments, agreements and arrangements relating to the transactions contemplated by the Documents shall be satisfactory to the Purchaser, shall have been executed and delivered by the parties thereto and no party to any of the foregoing (other than the Purchaser) shall have breached any of its material obligations thereunder. (e) (i) Since December 31, 1999, no change, occurrence or development shall have occurred, been threatened or become known to the Purchaser that could reasonably be expected to have a Material Adverse Effect on the business, operations, prospects, properties or condition (financial or other) of the Company and its Subsidiary, taken as a whole, which, in the reasonable judgment of the Purchaser, is or may be materially adverse to the Company and its Subsidiary, taken as a whole, and (ii) the Purchaser shall not have become aware of any information or other matter relating to the Company (x) of which the Company (but not the Purchaser) had knowledge on or prior to the date of this Agreement, (y) that, in the Purchaser's reasonable judgement, is inconsistent with any information or other matter relating to the Company disclosed to the Purchaser by the Company or any of its representatives prior to the date of this Agreement, and (z) would have been viewed by the Purchaser, in its reasonable judgment, as having materially and adversely altered the total mix of information made available to the Purchaser prior to the date of this Agreement. For purposes of this Section 7.2(e), the Company shall be deemed to have "knowledge" of a particular fact or other matter if (I) any individual who is serving, or who has at any time served, as a director, officer or management-level employee of the Company is actually aware of such fact or other matter; or (II) a prudent individual serving as a director, officer or management-level employee of the Company could be expected to discover or otherwise become aware of such fact or other matter in the diligent exercise of his or her duties in such capacity. (f) Since December 31, 1999, the business of the Company shall have been operated in compliance with all Applicable Laws, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. (g) There shall be no litigation, proceeding or other action seeking an injunction or other restraining order, damages or other relief from a Governmental Authority or other Person pending or threatened which, in the reasonable judgment of such Purchaser, would materially adversely affect the consummation of the transactions contemplated by the Documents on the terms contemplated hereby and thereby and there shall be no litigation, proceeding or other action (including, without limitation, relating to environmental matters or the Benefit Plans) pending or threatened against the Company or its Subsidiary which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (h) The procurement and maintenance of "key man" life insurance on the life of Brent Cohen in the amount of Five Million Dollars ($5,000,000). (i) All governmental and regulatory approvals and clearances and all third-party consents necessary for the consummation of all of the transactions contemplated at such Closing shall have been obtained and shall be in full force and effect, excluding, in the case of the First Closing only, expiration of the applicable waiting period under the HSR Act with respect to Shares to be purchased at the Second Closing, and the Purchaser shall be reasonably satisfied that the consummation of such transactions does not and will not contravene any Applicable Law, except to the extent any contravention or contraventions, individually or in the aggregate, could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (j) The Company shall have delivered to the Purchaser a certificate, executed by it or on its behalf by a duly authorized representative, dated as of such Closing Date, certifying that each of the conditions (other than any condition the fulfillment of which is subject to the reasonable satisfaction of such Purchaser) specified in this Section 7.2 has been satisfied. (k) Latham & Watkins, counsel to the Company, and Richards, Layton & Finger, special Delaware counsel to the Company, each shall have delivered to the Purchaser an opinion, dated as of such applicable Closing Date, addressed to the Purchaser, substantially in the form attached hereto as Exhibit D-1 and Exhibit D-2, respectively. (l) Each of the Company, the Purchaser and KL shall have executed and delivered each of the Documents, as applicable. (m) The Company shall have filed the Certificate of Designations in compliance with Section 2.1(a). (n) The Board of Directors shall have approved, subject to stockholder approval at the next annual meeting, the amendments to the 1998 Plan and the 2000 Plan described in Section 5.10 hereof. (o) The Company shall have amended its bylaws to conform with the Certificate of Designations. (p) In addition, in the case of the Second Closing only, (i) The Purchaser shall have purchased the 3,500,000 shares of Common Stock pursuant to the KL Purchase Agreement. (ii) The Consumer Business shall have achieved Consumer Profitability. (iii) The First Closing shall have occurred. (iv) Since the First Closing, no events described in Sections 7.2(e), 7.2(f) and 7.2(g) above shall have occurred. (v) The New Option Plan shall have been approved pursuant to Section 5.10. (vi) The proposed Recapitalization shall have been approved by the stockholders of the Company and the Certificate of Incorporation of the Company shall have been amended to give effect to the Recapitalization. ARTICLE VIII. MISCELLANEOUS Section 8.1 Survival; Indemnification. (a) All representations, warranties, covenants and agreements (except covenants and agreements which are expressly required to be performed and are performed in full on or before a Closing Date) contained in this Agreement shall be deemed made at each Closing as if made at such time and shall survive such Closing for two years, except that (i) with respect to claims asserted pursuant to this Section 8.1 before the expiration of the applicable representation or warranty, such claims shall survive until the date they are finally liquidated or otherwise resolved, (ii) Sections 3.9, 3.12 and 3.13 shall survive until the end of the applicable statute of limitations, and (iii) Section 3.2 and this Section 8.1 shall survive indefinitely. All statements as to factual matters contained in any certificate executed and delivered by the parties pursuant hereto shall be deemed to be representations, warranties and covenants by such party hereunder. No claim may be commenced under this Section 8.1 (or otherwise) following expiration of the applicable period of survival, and upon such expiration the Indemnifying Party shall be released from all liability with respect to claims under each such section not theretofore made by the Indemnified Party. No right of indemnity against any claim of a third party shall arise from any representation, warranty or covenant of an Indemnifying Party herein contained, unless such third-party claim is filed or lodged against the Indemnified Party on or prior to the expiration of the applicable period of survival provided above, and all other conditions hereunder are satisfied. A claim shall be made or commenced hereunder by the Indemnified Party delivering to the Indemnifying Party a written notice specifying in reasonable detail the nature of the claim, the amount claimed (if known or reasonably estimable), and the factual basis for the claim. (b) (i) The Company agrees to indemnify and hold harmless the Purchaser and its partners, Affiliates, officers, directors, employees and duly authorized agents and each of their affiliates and each other person controlling the Purchaser or any of their Affiliates within the meaning of either section 15 of the Securities Act or section 20 of the Exchange Act and any partner of any of them from and against all losses, claims, damages or liabilities resulting from any claim, lawsuit or other proceeding by any person to which any party indemnified under this clause may become subject which is related to or arises out of (A) the transactions contemplated by this Agreement and the other Documents, whether or not consummated, (B) any breach of, or failure to perform any of the representations, warranties, covenants or agreements made in any of the Documents by the Company or (C) any action or omission of the Company or its Subsidiary in connection with the transactions contemplated hereby or by the other Documents, and will reimburse each of the Purchasers and any other party indemnified under this clause for all reasonable out-of-pocket expenses (including reasonable counsel fees and disbursements) incurred by the Purchaser or any such other party indemnified under this clause and further agrees that the indemnification and reimbursements commitments herein shall apply whether or not the Purchaser or any such other party indemnified under this clause is a formal party to any such lawsuits, claims or other proceedings. The foregoing provisions are expressly intended to cover reimbursement of legal and other expenses incurred in a deposition or other discovery proceeding. (ii) Notwithstanding the foregoing clause (i), the Company shall not be liable to any party otherwise entitled to indemnification pursuant thereto: (A) in respect of any loss, claim, damage, liability or expense to the extent the same is determined, in final judgment by a court having jurisdiction, to have resulted from the gross negligence or willful misconduct of such party or (B) for any settlement effected by such party without the written consent of the Company, which consent shall not be unreasonably withheld or delayed. (c) If a person entitled to indemnity hereunder (an "Indemnified Party") asserts that any party hereto (the "Indemnifying Party") has become obligated to the Indemnified Party pursuant to Section 8.1(b), or if any suit, action, investigation, claim or proceeding is begun, made or instituted as a result of which the Indemnifying Party may become obligated to the Indemnified Party hereunder, the Indemnified Party agrees to notify the Indemnifying Party promptly and to cooperate with the Indemnifying Party, at the Indemnifying Party's expense, to the extent reasonably necessary for the resolution of such claim or in the defense of such suit, action or proceeding, including making available any information, documents and things in the possession of the Indemnified Party which are reasonably necessary therefor. Notwithstanding the foregoing notice requirement, the right to indemnification hereunder shall not be affected by any failure to give, or delay in giving, notice unless, and only to the extent that, the rights and remedies of the Indemnifying Party shall have been materially prejudiced as a result of such failure or delay. (d) In fulfilling its obligations under this Section 8.1, after providing each Indemnified Party with a written acknowledgment of any liability under this Section 8.1 as between such Indemnified Party and the Indemnifying Party, the Indemnifying Party shall have the right to investigate, defend, settle or otherwise handle, with the aforesaid cooperation, any claim, suit, action or proceeding brought by a third party in such manner as the Indemnifying Party may in its sole discretion deem appropriate; provided, however, that (i) counsel retained by the Indemnifying Party is reasonably satisfactory to the Indemnified Party and (ii) the Indemnifying Party will not consent to any settlement imposing any obligations on any other party hereto, unless such party has consented in writing to such settlement. Notwithstanding anything to the contrary contained herein, the Indemnifying Party may retain one firm of counsel to represent all Indemnified Parties in such claim, action or proceeding; provided, however, that in the event that the defendants in, or targets of, any such claim, action or proceeding include more than one Indemnified Party, and any Indemnified Party shall have reasonably concluded, based on the opinion of its own counsel, that there may be one or more legal defenses available to it which are in conflict with those available to any other Indemnified Party, then such Indemnified Party may employ separate counsel to represent or defend it or any other person entitled to indemnification and reimbursement hereunder with respect to any such claim, action or proceeding in which it or such other person may become involved or is named as defendant and the Indemnifying Party shall pay the reasonable fees and disbursement of such counsel. Notwithstanding the Indemnifying Party's election to assume the defense or investigation of such claim, action or proceeding, the Indemnified Party shall have the right to employ separate counsel at the expense of the Indemnifying Party and to direct the defense or investigation of such claim, action or proceeding if (A) in the written opinion of counsel to the Indemnified Party, use of counsel of the Indemnifying Party's choice could reasonably be expected to give rise to a conflict of interest, or (B) the Indemnifying Party shall not have employed counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party within a reasonable time (as determined in the light of the facts and circumstances surrounding such event), but in no event shall such time exceed twenty (20) Business Days, after notice of the assertion of any such claim or institution of any such action or proceeding. In all other situations, the Indemnified Party shall have the right to participate in the defense or investigation of such claim, action or proceeding if the Indemnifying Party shall authorize the Indemnified Party to employ separate counsel at the Indemnifying Party's expense or if the fees and expenses of counsel for the Indemnified Party shall be borne by the Indemnified Party. (e) If for any reason (other than the gross negligence or willful misconduct referred to in subclause (b)(ii) above) the foregoing indemnification by the Company is unavailable to any Indemnified Party or is insufficient to hold it harmless as and to the extent contemplated by subclauses (b), (c) and (d) above, then the Company shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative benefits received by the Company and its Affiliates, on the one hand, and the Purchasers and any other applicable Indemnified Party, as the case may be, on the other hand, as well as any other relevant equitable considerations. Section 8.2 Notices . All notices, demands, requests, consents, approvals or other communications (collectively, "Notices") required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be personally served, delivered by a reputable air courier service with tracking capability, with charges prepaid, or transmitted by hand delivery or facsimile, addressed as set forth below, or to such other address as such party shall have specified most recently by written notice. Notice shall be deemed given on the date of service or transmission if personally served or transmitted by facsimile. Notice otherwise sent as provided herein shall be deemed given on the next business day following delivery of such notice to a reputable air courier service. If to the Company, to it at: US SEARCH.com Inc. 5401 Beethoven Street Los Angeles, CA 90066 Attention: Karol Pollock, General Counsel Facsimile: (310) 578-5549 with a copy (which shall not constitute notice) to: Latham & Watkins 633 W. Fifth Street Los Angeles, CA 90071 Attn: Pamela B. Kelly, Esq. Facsimile: (213) 891-8763 If to the Purchaser: Pequot Private Equity Fund II, L.P. 500 Nyala Farm Road West Port, CT 06880 Attention: David J. Malat, Chief Accounting Officer and Carol Holley, Vice President Facsimile: (203) 429-2400 with a copy (which shall not constitute notice) to: Dewey Ballantine LLP 1301 Avenue of the Americas New York, NY 10019 Attn: Ann Gill, Esq. Facsimile: (212) 259-6333 Section 8.3 Governing Law . This Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, including without limitation, sections 5-1401 and 5-1402 of the New York General Obligations Law and New York Civil Practice Laws and Rules 327(b), and each party hereto submits to the non-exclusive jurisdiction of the state and federal courts within the County of New York in the State of New York. Section 8.4 Termination . This Agreement may be terminated (i) by mutual agreement of the parties at any time prior to the Second Closing Date, or (ii) if the Second Closing shall not have occurred on or prior to September 7, 2001, by the Company or the Purchaser (but only with respect to such Purchaser's obligations hereunder), unless the failure of such occurrence shall be due to the failure of the party seeking to terminate the Agreement to perform or observe any material covenant or agreement, or an event which shall cause a material breach of any representation or warranty of such party set forth herein to occur on or prior to the Second Closing Date, set forth herein required to be performed or observed by such party on or before the date of Closing or (iii) by the Company or the Purchaser (in each case if not in breach of any of its material obligations, representations or warranties hereunder) in the event of a breach or failure by the other party that is material in the context of the transactions contemplated hereby of any representation, warranty, covenant or agreement by such party contained herein that has not been or cannot be cured or otherwise corrected within ten (10) Business Days after written notice of such failure or event has been given. Termination pursuant to the foregoing clauses (i) or (ii) notwithstanding, Sections 8.1 and 8.10 hereof shall remain in effect. Section 8.5 Entire Agreement . This Agreement (including all agreements entered into pursuant hereto and all certificates and instruments delivered pursuant hereto and thereto) constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations, understandings, negotiations and discussions between the parties or their Affiliates, whether oral or written, with respect to the subject matter hereof, including, without limitation, the Letter Agreements. Section 8.6 Modifications and Amendments . No amendment, modification or termination of this Agreement shall be binding upon any other party unless executed in writing by the parties hereto intending to be bound thereby. Section 8.7 Waivers and Extensions . Any party to this Agreement may waive any right, breach or default which such party has the right to waive, provided that such waiver will not be effective against the waiving party unless it is in writing, is signed by such party, and specifically refers to this Agreement. Waivers may be made in advance or after the right waived has arisen or the breach or default waived has occurred. Any waiver may be conditional. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained. No waiver or extension of time for performance of any obligations or acts shall be deemed a waiver or extension of the time for performance of any other obligations or acts. Section 8.8 Titles and Headings . Titles and headings of sections of this Agreement are for convenience only and shall not affect the construction of any provision of this Agreement. Section 8.9 Exhibits and Schedules . Each of the annexes, exhibits and schedules referred to herein and attached hereto is an integral part of this Agreement and is incorporated herein by reference. Section 8.10 Expenses; Brokers . Provided that the First Closing shall have occurred, the Company shall pay or cause to be paid, all reasonable and documented out-of-pocket fees and expenses incurred by the Purchaser and their respective Affiliates for each Closing, and in connection with the transactions contemplated by this Agreement, the other Documents and all matters related thereto (including, without limitation, HSR Act filing fees arising from a transaction contemplated by any Document, and reasonable fees and disbursements of counsel and consultants). Notwithstanding the foregoing, the Company shall pay the filing fees (and other related costs and expenses) relating to the HSR Act filing filed in connection with KL's sale of Common Stock to the Purchaser. Each of the parties represents to the others that neither it nor any of its Affiliates has used a broker or other intermediary, in connection with the transactions contemplated by this Agreement for whose fees or expenses any other party will be liable and respectively agrees to indemnify and hold the others harmless from and against any and all claims, liabilities or obligations with respect to any such fees or expenses asserted by any person on the basis of any act or statement alleged to have been made by such party or any of its Affiliates. Section 8.11 Press Releases and Public Announcements . All press releases and similar public announcements relating to the transactions contemplated by the Documents shall be made only if mutually agreed upon by the Company and the Purchaser, except to the extent that such disclosure is, in the opinion of counsel, required by law or by stock exchange regulation; provided that any such required disclosure shall only be made, to the extent consistent with law, after consultation with the Purchaser. Section 8.12 Assignment; No Third Party Beneficiaries . This Agreement and the rights, duties and obligations hereunder may not be assigned or delegated by either the Company or the Purchaser without the prior written consent of the other parties hereto; provided that the Purchaser may assign or delegate its rights, duties and obligations hereunder to a Permitted Transferee or to such other person as may be reasonably satisfactory to the Company. Except as provided in the preceding sentence, any assignment or delegation of rights, duties or obligations hereunder made without the prior written consent of the other parties hereto shall be void and of no effect. This Agreement and the provisions hereof shall be binding upon and shall inure to the benefit of each of the parties and their respective successors and permitted assigns. This Agreement is not intended to confer any rights or benefits on any persons that are not party hereto other than as expressly set forth in Sections 8.1 and 8.12. Section 8.13 Severability . This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable. Section 8.14 Counterparts; Facsimile . This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. All documents and closing deliveries for the transactions contemplated by this Agreement and the other Documents may be delivered by a party at the Closing via facsimile; provided, that, the originally executed signature pages and original documents are delivered to the appropriate parties within two (2) business days following the Closing. Section 8.15 Further Assurances . Each party hereto, upon the request of any other party hereto, shall do all such further acts and execute, acknowledge and deliver all such further instruments and documents as may be necessary or desirable to carry out the transactions contemplated by this Agreement, including, in the case of the Company, such acts, instruments and documents as may be necessary or desirable to convey and transfer to each Purchaser the Shares to be purchased by it hereunder. Section 8.16 Remedies Cumulative . The remedies provided herein shall be cumulative and shall not preclude the assertion by any party hereto of any other rights or the seeking of any remedies against the other party hereto. * * * IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. US SEARCH.COM INC. a Delaware corporation By: /s/ BRENT N. COHEN Name: Brent N. Cohen Title: Chief Executive Officer PEQUOT PRIVATE EQUITY FUND II, L.P. By: Pequot Capital Management, Inc. its Investment Manager By: /s/ KEVIN E. O'BRIEN Name: Kevin E. O'Brien Title: General Counsel Address for Notice: 500 Nyala Farm Road Westport, CT 06880 Attn: David J. Malat, Chief Accounting Officer and Carol Holley, Vice President Telephone: (203) 429-2200 Telecopy: (203) 429-2400 with a copy (which shall not constitute notice) to: Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Attn: Ann Gill, Esq. Telephone: (212) 259-6870 Telecopy: (212) 259-6333 Nominee (if different than name of Purchaser): Shares to be Purchased at First Closing (out of total 100,000) Price Per Purchase Share Price 100,000 shares of Series A Preferred Stock $100 $10,000,000 Shares to be Purchased at Second Closing (out of total 100,000) Price Per Purchase Share Price 100,000 shares of Series A Preferred Stock $100 $10,000,000 Schedule I SCHEDULE I CONSUMER PROFITABILITY ANALYSIS Exhibit A - 1 EXHIBIT A FORM OF INVESTORS' RIGHTS AGREEMENT EXHIBIT B CERTIFICATE OF DESIGNATIONS EX-2 3 0003.txt THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. Warrant No.: 1 Number of Shares: 75,000 Date of Issuance: September 7, 2000 (subject to adjustment) US SEARCH.COM INC. Warrant US SEARCH.com Inc., a Delaware corporation (the "Company"), for value received, hereby certifies that Pequot Private Equity Fund II, L.P., or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 6 below), up to 75,000 shares of Series A Convertible Preferred Stock, par value $.001 per share, of the Company ("Series A Preferred"), at a purchase price of $100.00 per share. The shares purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Stock" and the "Purchase Price," respectively. 1. Exercise. (A) Manner of Exercise. This Warrant may be exercised by the Registered Holder, in whole or in part, at any time after the date hereof and on or before the Expiration Date by surrendering this Warrant, with the purchase form appended hereto as Exhibit A-1 (the "Purchase Form") duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the aggregate Purchase Price payable in respect of the number of shares of Warrant Stock specified in such Purchase Form. The Purchase Price may be paid by cash or certified or official bank check payable to the Company, wire transfer or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder. (B) Effective Time of Exercise. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant, the accompanying Purchase Form and the aggregate Purchase Price shall have been surrendered to the Company as provided in Section 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise shall be deemed for the purposes hereof to have become the holder or holders of record of the Warrant Stock represented by such certificates issuable upon such exercise, notwithstanding that the stock transfer records of the Company may be closed or that certificates representing the Warrant Stock shall not then be actually delivered to the Registered Holder. (C) Net Issue Exercise. (i) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the Registered Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election in which event the Company shall issue to such Registered Holder a number of shares of Warrant Stock computed using the following formula: X = Y (A - B) A Where X = The number of shares of Warrant Stock to be issued to the Registered Holder. Y = The number of shares of Warrant Stock purchasable under this Warrant (at the date of such calculation). A = The Fair Market Value of one share of Warrant Stock (at the date of such calculation). B = The Purchase Price (as adjusted to the date of such calculation). (ii) For purposes of this Section 1(c), the "Fair Market Value" of one share of Warrant Stock on the date of calculation shall be at the highest price per share which the Company could obtain on the date of calculation from a willing buyer (not a current employee or director) for shares of Warrant Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors, unless the Company is at such time subject to an acquisition as described in Section 7(b) below, in which case the Fair Market Value of one share of Warrant Stock shall be deemed to be the value received by the holder of one share of Series A Preferred pursuant to such acquisition. (D) Delivery to Registered Holder. As soon as practicable after the exercise of this Warrant, in whole or in part, pursuant to Section 1(a) or 1(c) hereof, and in any event within ten (10) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates representing the number of shares of Warrant Stock to which such Registered Holder shall be entitled and cash in lieu of fractional shares issuable upon exercise, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) or 1(c) above. 2. Adjustments. (A) Stock Splits and Dividends. If outstanding shares of the Company's Series A Preferred shall be subdivided into a greater number of shares or a dividend or other distribution in Series A Preferred shall be paid in respect of Series A Preferred, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend or other distribution be proportionately reduced. If outstanding shares of Series A Preferred shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (B) Reclassification, Etc. In case there occurs any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) or any similar corporate reorganization on or after the date hereof, but before the Expiration Date, then and in each such case the Registered Holder, upon the exercise hereof at any time after the consummation of such reclassification, change, or reorganization shall be entitled to receive, in lieu of the stock or other securities and property otherwise receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such Registered Holder would have been entitled upon such consummation if such Registered Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment pursuant to the provisions of this Section 2. (C) Effect of Conversion of Warrant Stock. In the event that at any time on or after the date hereof, but before the Expiration Date, all of the then outstanding shares of Series A Preferred are converted into shares of the Company's common stock, par value $.001 ("Common Stock"), and this Warrant has not been exercised as provided in Section 1 of this Warrant, this Warrant shall no longer represent the right to purchase Series A Preferred and shall instead thereupon represent the right to purchase for the Purchase Price, in respect of each share (or portion thereof) of Series A Preferred covered hereby immediately prior to such conversion, the number of shares (or portion thereof) of Common Stock into which such shares of Series A Preferred were convertible immediately prior to such conversion. The number of shares of Common Stock purchasable under this Warrant, as determined by the foregoing sentence, shall be subject to adjustment pursuant to any subsequent stock split, combination, dividend, recapitalization or similar event with respect to Common Stock. To the extent that the Series A Preferred converts to Common Stock, such that there are no outstanding shares of Series A Preferred, all references to Warrant Stock or Series A Preferred herein shall be deemed to be a reference to Common Stock. (D) Adjustment Certificate. When any adjustment is required to be made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment. 3. Transfers. (A) Unregistered Security. Each holder of this Warrant acknowledges that this Warrant, the Warrant Stock and the Common Stock issuable upon conversion of the Warrant Stock have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon exercise of this Warrant, or any Common Stock issued upon conversion of the Warrant Stock in the absence of (i) an effective registration statement under the Act as to this Warrant, such Warrant Stock or such Common Stock and registration or qualification of this Warrant, such Warrant Stock or such Common Stock under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock or such other securities shall bear a legend substantially to the foregoing effect. (B) Transferability. This Warrant and the rights of the Registered Holder may not be sold, transferred or otherwise disposed of, in whole or in part, except to any Permitted Transferee of the Registered Holder, subject to compliance with Section 3(a) hereof provided, however, that this Warrant may not be transferred in part. Any such transfer shall be effective upon surrender of the Warrant with a properly executed assignment (in the form of Exhibit B-1 hereto) and funds sufficient to pay any transfer tax, at the principal office of the Company. "Permitted Transferee" shall mean (i) the Company, (ii) any subsidiary of the Company and (iii) any Affiliate of the Registered Holder. "Affiliate" shall mean (i) with respect to any individual, (A) a spouse or descendant of such individual, (B) any trust or family partnership whose beneficiaries shall solely be such individual and/or such individual's spouse and/or any person related by blood or adoption to such individual or such individual's spouse, and (C) the estate of such individual, (ii) with respect to any Person which is not an individual, any other Person that, directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, such Person and/or one or more Affiliates thereof. For the purposes of this Section 3(b), the term "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, includes, without limitation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Person" shall mean and includes an individual, a corporation, a partnership, a limited liability company, a joint venture, a trust, an unincorporated organization and a government or any department or agency thereof, or any entity similar to any of the foregoing. (C) Warrant Register. The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 4. Representations, Warranties and Covenants of the Registered Holder . This Warrant has been issued by the company in reliance upon the following representations, warranties and covenants of the Registered Holder: (a) The Registered Holder is experienced in evaluating start-up companies such as the Company, and has either individually or through its current officers such knowledge and experience in financial and business matters that the Registered Holder is capable of evaluating the merits and risks of the Registered Holder's prospective investment in the Company, and has the ability to bear the economic risks of the investment. The Registered Holder either (i) has a preexisting personal or business relationship with the Company or its principals or (ii) has substantial knowledge and experience in financial and business matters, has specific experience making investment decisions of a similar nature, and is capable, without the use of a financial advisor, of utilizing and analyzing the information made available in connection with the issuance of the Warrant and of evaluating the merits and risks of an investment in the Warrant Shares and protecting the Registered Holder's own interests in connection with this transaction. The Registered Holder is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act. (b) The Registered Holder is acquiring this Warrant, and upon exercise of this Warrant, will acquire Warrant Stock, for investment for such Registered Holder's own account and not with the view to, or for resale in connection with, any distribution thereof in violation of law. The Registered Holder understands that this Warrant (and the Warrant Stock issuable upon exercise of this Warrant) have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. The Registered Holder further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any third person with respect to any portion of this Warrant (or any Warrant Stock issuable upon exercise of this Warrant). The Registered Holder understands and acknowledges that this Warrant will not, and any issuance of Warrant Stock upon exercise of this Warrant may not, be registered under the Securities Act on the ground that the issuance of securities hereunder is exempt from the registration requirements of the Securities Act. 5. No Impairment . The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 6. Termination . This Warrant (and the right to purchase shares of Series A Preferred upon exercise hereof) shall terminate on the earlier to occur of (a) the date the Registered Holder purchases all of the Warrant Stock issuable upon exercise of this Warrant and (b) at 5:00 p.m., Los Angeles time on September 7, 2005 (in each case, the "Expiration Date"). 7. Notices of Certain Transactions . In case: (a) the Company shall take a record of the holders of its Series A Preferred (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion is to take place, and the time, if any is to be fixed, as of which the holders of record of Series A Preferred (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 8. Reservation of Stock . The Company will at all times reserve and keep available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 9. Exchange of Warrant . Subject to the terms hereof, upon the surrender by the Registered Holder of this Warrant, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of the Registered Holder, at the Company's expense, a new Warrant of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling for the number of shares of Series A Preferred called for on the face of this Warrant or if partially exercised, such lesser number of shares that shall be issuable upon exercise of the Warrant. 10. Replacement of Warrant . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company to indemnify it against any claim that may be made against it on account of the alleged loss, theft, destruction or the issuance of a new Warrant, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 11. Mailing of Notices . Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder. 12. No Rights as Stockholder . Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company, either at law or in equity. 13. No Fractional Shares . No fractional shares of Series A Preferred will be issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the Fair Market Value of one share of Series A Preferred on the date of exercise, as determined in good faith by the Company's Board of Directors. 14. Amendment or Waiver . Any term of this Warrant may be amended or waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. 15. Headings . The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 16. Governing Law . This Warrant shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. (Signature Page Follows) IN WITNESS WHEREOF, the undersigned has caused this Warrant to be duly executed, all as of the day and year first above written. US SEARCH.COM INC. By: /s/ BRENT N. COHEN Name: Brent N. Cohen Title: Chief Executive Officer Address: 5401 Beethoven Street Los Angeles, CA 90066 Fax Number: (310) 882-7898 EXHIBIT A-1 EXHIBIT A-1 PURCHASE FORM To: US SEARCH.com Inc. Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant No. 1, hereby irrevocably elects to purchase _______ shares of the Series A Convertible Preferred Stock covered by such Warrant and herewith makes payment of $_________, representing the aggregate purchase price for such shares at the price per share provided for in such Warrant. The undersigned acknowledges that s/he has reviewed the representations and warranties contained in Section 4 of the Warrant and by its signature below hereby makes such representations and warranties to the Company as of the date hereof. Signature: Name (print): Title (if applic.): Company (if applic.): ____ Check here if a filing is required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any similar state legislation. EXHIBIT B-1 ASSIGNMENT FORM FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Series A Convertible Preferred Stock, par value $.001 per share, of US SEARCH.com Inc., a Delaware corporation, covered thereby set forth below, unto: Name of Assignee Address/Fax Number No. of Shares Dated:_________________ Signature: Witness: EX-3 4 0004.txt INVESTORS' RIGHTS AGREEMENT US SEARCH.COM INC. INVESTORS' RIGHTS AGREEMENT THIS INVESTORS' RIGHTS AGREEMENT (this "Agreement") is entered into as of September 7, 2000, by and among US SEARCH.COM INC., a Delaware corporation (the "Company"), the investor listed on Exhibit A hereto (the "Pequot Holder") and the holders listed on Exhibit B hereto (the "KL Holders"). RECITALS WHEREAS, the Pequot Holder is purchasing shares of the Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock") pursuant to that certain Series A Preferred Stock Purchase Agreement (the "Purchase Agreement") of even date herewith; (the "Financing"). WHEREAS, the KL Holders hold shares of the Company's common stock, par value $.001 per share (the "Common Stock"). WHEREAS, the obligations in the Purchase Agreement are conditioned upon the execution and delivery of this Agreement; and WHEREAS, in connection with the consummation of the Financing, the parties desire to enter into this Agreement in order to grant registration and other rights to the Pequot Holder and KL Holders as set forth below. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree hereto as follows: SECTION 1. GENERAL. 1.1 Definitions. 1.1 Definitions Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement. As used in this Agreement the following terms shall have the following respective meanings: "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "First Closing" shall have the meaning set forth in the Purchase Agreement. "Form S-3" shall mean such form under the Securities Act as in effect on the date hereof or any successor or similar registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. "Holder" shall mean the Pequot Holder and the KL Holders owning of record Registrable Securities or any assignee of record of such Registrable Securities in accordance with Section 2.10 hereof. A person who holds any security, upon the exercise of which or conversion of which such person shall be entitled to receive a Registrable Security shall for all purposes of this Agreement be deemed to be the Holder of such Registrable Securities. "Preemptive Rights" shall mean the rights of holders of Series A Preferred Stock to purchase securities pursuant to Section 8 of the Certificate of Designation relating to the Series A Preferred Stock. "Register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. "Registrable Securities" shall mean (a) shares of Common Stock or any other security received or receivable upon conversion of the Shares or of the Series A Preferred Stock issuable upon exercise of the Warrants (as defined in the Purchase Agreement); (b) all shares of Common Stock, or Common Stock issued as or issuable upon the conversion or exercise of any warrant, right or any other convertible security which is purchased from the Company by the Pequot Holder on or after the First Closing; (c) shares of Common Stock held by the KL Holders; (d) any securities acquired by the Pequot Holder pursuant to the exercise of their Preemptive Rights; (e) any security received or receivable as a dividend, stock split or other distribution with respect to any Shares; (f) any security received in exchange for or in replacement of any Registrable Securities; (g) any security issued or issuable with respect to any Registrable Securities as a result of a change or reclassification of Registrable Securities or any capital reorganization of the Company; (h) shares of Common Stock held by the Pequot Holder and (i) any security received or receivable by a holder in respect of Registrable Securities as a result of a merger or consolidation of the Company. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public either pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferor's rights under Section 2 of this Agreement are not assigned. "Registrable Securities then outstanding" shall be the number of shares determined by calculating the total number of shares of the Company's Common Stock that are Registrable Securities and either (a) are then issued and outstanding or (b) are issuable pursuant to then exercisable or convertible Shares. "Registration Expenses" shall mean all expenses incurred in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of a single special counsel for the Pequot Holder and ten thousand dollars ($10,000) of a single special counsel for the KL Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SEC" or "Commission" shall mean the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended. "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale. "Shares" shall mean the Company's Series A Preferred Stock issued pursuant to the Purchase Agreement and held by the Pequot Holder listed on Exhibit A hereto and its permitted assigns. "Special Registration Statement" shall mean a registration statement relating to any employee benefit plan or with respect to any corporate reorganization or other transaction under Rule 145 of the Securities Act. SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFERSECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER. 2.1 Restrictions on Transfer2.1 Restrictions on Transfer. Subject to the provisions set forth in Section 3, (a) Each Holder agrees not to make any disposition of all or any portion of the Registrable Securities unless and until: (i) There is then in effect a registration statement or such Holder sells such securities in compliance with Rule 144 under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (ii) (A) Such Holder shall have notified the Company in writing of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (B) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144. (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder which is (A) a partnership to its partners or former partners in accordance with partnership interests or to its Affiliates, (B) a corporation to its shareholders in accordance with their interest in the corporation, or (C) a limited liability company to its members or former members in accordance with their interest in the limited liability company, or provided that in each case the transferee will be subject to the terms of this Agreement to the same extent as if he were an original Holder hereunder, or by a Holder to another Holder or other person which is a party to this Agreement. (b) Each certificate representing Shares or Registrable Securities held by the Pequot Holder and KL Holders shall (unless otherwise permitted by the provisions of the Agreement) (a) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. and (b) so long as such Shares or Registrable Securities held by the Pequot Holder and the KL Holders are subject to the terms of this Agreement, bear a legend reading substantially as follows. THE SECURITIES REPRESENTED BY THIS CERTIFICATE (AND ALL TRANSFERS THEREOF) ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE INVESTORS' RIGHTS AGREEMENT, DATED AS OF SEPTEMBER 7, 2000, AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. NO TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH THEREIN. ANY ATTEMPTED TRANSFER OF THESE SHARES IN VIOLATION OF SUCH INVESTOR RIGHTS AGREEMENT SHALL BE NULL AND VOID AND HAVE NO FORCE OR EFFECT. (c) The Company shall be obligated to reissue promptly unlegended certificates at the request of any holder thereof if the holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend, or if the securities are to be sold pursuant to a registration statement or Rule 144 under the Securities Act. The Company shall be obligated to reissue promptly, in the name of a transferee of securities referred to in Section 2.1(a)(iii), legended certificates at the request of any transferor or transferee thereof. (d) Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 2.2 Demand Registration2.2 Demand Registration. (a) (i) At any time, and from time to time, the Holders of more than fifty percent (50%) of Registrable Securities then outstanding and owned by the Pequot Holder (the "Pequot Initiating Holder") shall have the right, by written notice, delivered to the Company to require the Company to register Registrable Securities having an aggregate offering price (before deducting of underwriting discounts and commissions) to the public in excess of $5,000,000 (a "Qualified Public Offering") and (ii) at any time, and from time to time, the Holders of more than fifty percent (50%) of Registrable Securities then outstanding and owned by the KL Holders (the "KL Initiating Holders") shall have the right, by written notice, delivered to the Company to require the Company to register Registrable Securities in a Qualified Public Offering, then the Company shall, within thirty (30) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.2, effect, as expeditiously as reasonably possible, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered. (b) If the Pequot Initiating Holder or the KL Initiating Holders, as the case may be, intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.2 or any request pursuant to Section 2.4 and the Company shall include such information in the written notice referred to in Section 2.2(a) or Section 2.4(a), as applicable. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Pequot Initiating Holder or the KL Initiating Holders, as the case may be (which underwriter or underwriters shall be reasonably acceptable to the Company) but in no event shall any indemnity and/or contribution provisions therein provide that the indemnity and/or contribution of the Holders of the Registrable Securities exceed the net proceeds of the offering received by such Holders. Notwithstanding any other provision of this Section 2.2 or Section 2.4, if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities) then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated, first to the Holders of Registrable Securities on a pro rata basis based on the respective numbers of Registrable Securities which such Holders have requested to be registered, and second, to any remaining selling stockholders. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. Notwithstanding the above, the KL Holders shall only be included in one such registration under this Section 2.2 when initiated by the Pequot Holder. (c) The Company shall not be required to effect a registration pursuant to this Section 2.2: (i) with respect to the Pequot Holder, prior to the first anniversary of the First Closing and with respect to the KL Holders, prior to eighteen (18) months following the First Closing; (ii) with respect to the Pequot Holder, after the Company has effected two (2) registrations pursuant to this Section 2.2, and such registrations have been declared or ordered effective with respect to the Registrable Securities owned by the Pequot Holder; (iii) with respect to the KL Holders, after the Company has effected one (1) registration pursuant to this Section 2.2, and such registrations have been declared or ordered effective with respect to the Registrable Securities owned by the KL Holders; (iv) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.2, a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period; or (v) if the Holders propose to dispose of shares of Registrable Securities that may be registered on Form S-3 pursuant to a request made pursuant to Section 2.4 below. 2.3 Piggyback Registration2.3 Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least fifteen (15) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding Special Registration Statements) and shall afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. The KL Holders shall have only one (1) such piggyback registration participation right under either Section 2.2 or Section 2.3. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) Underwriting. If the registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company but in no event shall any indemnity and/or contribution provisions therein provided that the indemnity and/or contribution of the Holders of the Registrable Securities exceed the net proceeds from the offering received by such Holders. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders, and with respect to the KL Holders, only so long as all selling Holders, other than the Pequot Holder, are excluded from such registration; and third, to any shareholder of the Company (other than a Holder) on a pro rata basis. Such reduction (i) shall not reduce the securities being offered by the Company for its own account to be included in the registration and underwriting, and (ii) for all Holders may be reduced to zero, if necessary. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership or corporation, the partners, retired partners, its Affiliates and shareholders of such Holder, as the case may be, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing person shall be deemed to be a single "Holder," and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder," as defined in this sentence. (b) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it for its own account under this Section 2.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.5 hereof. 2.4 Form S-3 Registration2.4 Form S-3 Registration. In case the Company shall receive from the Pequot Holder of Registrable Securities a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by the Pequot Holder, (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of the Pequot Holder's Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4: (i) if Form S-3 is not available to the Company or for such offering by the Pequot Holder, or (ii) if the Pequot Holder propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than two million dollars ($2,000,000), or (iii) if within thirty (30) days of receipt of a written request from the Pequot Holder pursuant to this Section 2.4, the Company gives notice to the Pequot Holder of the Company's intention to make a public offering of Common Stock within ninety (90) days, other than pursuant to a Special Registration Statement, or (iv) if the Company shall furnish to the Pequot Holder a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Pequot Holder or Holders under this Section 2.4; provided, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period, or (v) if the Company has already effected two (2) registrations on Form S-3 for the Pequot Holder pursuant to this Section 2.4 in any twelve (12) month period, or (vi) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Pequot Holder. Registrations effected pursuant to this Section 2.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 2.2 or 2.3, respectively. 2.5 Expenses of Registration2.5 Expenses of Registration. Except as specifically provided in this Section 2.5, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.2 or any registration under Section 2.3 or Section 2.4 herein, except underwriters' commissions and discounts, shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been subsequently withdrawn by the Holders unless (a) the withdrawal is based upon material adverse information concerning the Company of which the Holders were not aware at the time of such request; (b) or in the case of a registration pursuant to Section 2.2 hereof, the Holders of Registrable Securities who initiated the demand for such registration agree to forfeit their right to one requested registration pursuant to Section 2.2, in which event such right shall be forfeited by all such Holders), unless (a) or (c) of this Section 2.5 applies or (c) the Company has requested a delay in effecting the registration for ninety (90) days and, as a result of such delay, directly or indirectly, the securities could not be sold in the price range originally anticipated. If the Holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to clause (a) or (c) above, then the Holders shall not forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand registration. 2.6 Obligations of the Company2.6 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to thirty (30) days or, if earlier, until the Holder or Holders have completed the distribution related thereto. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in paragraph (a) above. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering but in no event shall any indemnity and/or contribution provisions therein provide that the indemnity and/or contribution of the Holders of Registrable Securities exceed the net proceeds from the offering received by such Holders. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. The Company will use reasonable efforts to amend or supplement such prospectus in order to cause such prospectus not to include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Use its commercially reasonable efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters. 2.7 Termination of Registration Rights2.7 Termination of Registration Rights. All registration rights granted under this Section 2 shall terminate and be of no further force and effect on the fifth anniversary after the First Closing. In addition, a Holder's registration rights shall expire if (a) such Holder holds less than 1% of the Company's outstanding Common Stock (treating all shares of convertible Preferred Stock on an as converted basis) and (b) all Registrable Securities held by and issuable to such Holder may be sold under Rule 144 during any ninety (90) day period without volume limitations. 2.8 Delay of Registration; Furnishing Information2.8 Delay of Registration; Furnishing Information. (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. (b) The Company shall have no obligation with respect to any registration requested pursuant to Section 2.2 or Section 2.4 if, due to the operation of subsection 2.2(b), the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in Section 2.2 or Section 2.4, whichever is applicable. 2.9 Indemnification2.9 Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to each such Holder, partner, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 2.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld or delayed, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. (b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer or controlling person may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 2.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld or delayed; provided further, that in no event shall any indemnity and contribution under this Section 2.9 exceed in the aggregate the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if and to the extent materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.9. (d) If the indemnification provided for in this Section 2.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any indemnification and contribution by a Holder under this Section 2.9 exceed in the aggregate the net proceeds from the offering received by such Holder. (e) The obligations of the Company and Holders under this Section 2.9 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this agreement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 2.10 Assignment of Registration Rights2.10 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned (a "Permitted Transfer") by a Holder to a transferee or assignee of Registrable Securities which (a) is a subsidiary, parent, general partner, limited partner, retired partner, member or an Affiliate of a Holder or (b) acquires at least one million (1,000,000) shares of Registrable Securities (as adjusted for stock splits and combinations); provided, however, (i) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall, if not already a party to this Agreement, agree in writing to be subject to all restrictions set forth in this Agreement. 2.11 Amendment of Registration Rights2.11 Amendment of Registration Rights. Any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders holding at least a majority of the Registrable Securities then held by the Pequot Holder and the Holders holding at least a majority of the Registrable Securities then held by the KL Holders. Any amendment or waiver effected in accordance with this Section 2.11 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Section 2, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder. 2.12 Limitation on Subsequent Registration Rights2.12 Limitation on Subsequent Registration Rights. Other than as provided in Section 5.11, after the date of this Agreement, the Company shall not, without the prior written consent of the Holders holding at least a majority of the Registrable Securities then held by the Pequot Holder and the Holders holding at least a majority of the Registrable Securities then held by the KL Holders then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder registration rights pari passu or senior to those granted to the Holders hereunder. 2.13 "Market Stand-Off" Agreement; Agreement to Furnish Information2.13 Stand-Off Agreement; Agreement to Furnish Information. Each Holder hereby agrees that such Holder shall not publicly sell, publicly transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a public sale, any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed ninety (90) days following the effective date of a registration statement of the Company filed under the Securities Act; provided that, all officers and directors of the Company and holders of at least one percent (1%) of the Company's voting securities and all other persons with registration rights (whether or not pursuant to this Agreement) are bound by and enter into similar agreements and no such agreement is waived. Each Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Company's securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 2.13 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. Each Holder agrees that any transferee of any shares of Registrable Securities shall be bound by this Section 2.13. 2.14 Restrictions on Public Sale by the Company and Others2.14 Restrictions on Public Sale by the Company and Others . The Company agrees not to make any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for its equity securities, including a sale under Regulation D under the Securities Act or under any other exemption of the Securities Act (except as part of the underwritten registration referred to herein or pursuant to registration on Forms S-8 or S-4 or any successor form), during the seven (7) days prior to and the 90 days after the effective date of any underwritten demand registration pursuant to Section 2.2 or any underwritten piggyback registration pursuant to Section 2.3 or a Form S-3 Registration pursuant to Section 2.4 unless the managing underwriter(s) for such demand or piggyback registration agrees otherwise, and the parties hereto agree that the Company will not be required to effect any such registration or sale notwithstanding the other provisions of this Agreement. The Company also agrees to use reasonable efforts to cause each holder of at least 1% (on a fully-diluted basis) of its equity securities (other than Registrable Securities) or any securities convertible into or exchangeable or exerciseable for its equity securities (other than Registrable Securities), purchased from the Company at any time on or after the date of this Agreement (other than in a registered public offering), to agree not to make any public sale or distribution of those securities, including a sale pursuant to Rule 144 (except as part of the underwritten registration, if permitted), during the seven (7) days prior to and the one hundred eighty (180) days after the effective date of the registration unless the managing underwriter(s) agrees otherwise. 2.15 Rule 144 Reporting2.14 Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon reasonable request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. 2.16 S-3 Eligibility. The Company shall use its best efforts to maintain its eligibility to use Form S-3 under the Securities Act. SECTION 3. MISCELLANEOUSSECTION 3. MISCELLANEOUS. 3.1 Governing Law3.1 Governing Law. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of New York, without giving effect to principles of conflicts of law. 3.2 Survival3.2 Survival. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 3.3 Successors and Assigns3.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities subject to Section 2.10 from time to time; provided, however, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. 3.4 Entire Agreement3.4 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, the Purchase Agreement and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 3.5 Severability3.5 Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 3.6 Amendment and Waiver3.6 Amendment and Waiver. (a) Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and the Holders holding at least a majority of the Registrable Securities then held by the Pequot Holder and the Holders holding at least a majority of the Registrable Securities then held by the KL Holders. (b) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of the Holders holding at least a majority of the Registrable Securities then held by the Pequot Holder and the Holders holding at least a majority of the Registrable Securities then held by the KL Holders. (c) For the purposes of determining the number of Holders entitled to vote or exercise any rights hereunder, the Company shall be entitled to rely solely on the list of record holders of its stock as maintained by or on behalf of the Company. 3.7 Delays or Omissions3.7 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative. 3.8 Notices3.8 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or Exhibit A hereto or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 3.9 Attorneys' Fees3.9 Attorneys' Fees. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 3.10 Titles and Subtitles3.10 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 3.11 Counterparts3.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. [THIS SPACE INTENTIONALLY LEFT BLANK] INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE In Witness Whereof, the parties hereto have executed this Investors' Rights Agreement as of the date set forth in the first paragraph hereof. PEQUOT HOLDERS: COMPANY: PEQUOT PRIVATE EQUITY FUND II, L.P. US SEARCH.COM INC. By: Pequot Capital Management, Inc. Its: Investment Manager By: /s/ BRENT N. COHEN By: /s/ KEVIN E. O'BRIEN Name: Brent N. Cohen Name: Kevin E. O'Brien Title: Chief Executive Officer Title: General Counsel KL HOLDERS: THE KUSHNER-LOCKE COMPANY By: /s/ DONALD KUSHNER Name: Title: INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE EXHIBIT A SCHEDULE OF PEQUOT HOLDERS Aggregate Name and Address Shares Purchase Price PEQUOT PRIVATE EQUITY FUND II, L.P. 500 Nyala Farm Road West Port, CT 06880 Attn: David J. Malat, Chief Accounting Officer and 100,000 shares @ Carol Holley, Vice President $100 per Facsimile: (203) 429-2900 _______ share Total: $10,000,000 EXHIBIT B KL HOLDERS The Kushner-Locke Company 11601 Wilshire Blvd., 21st Floor Los Angeles, California 90025 Donald Kushner c/o The Kushner-Locke Company 11601 Wilshire Blvd., 21st Floor Los Angeles, California 90025 Peter Locke c/o The Kushner-Locke Company 11601 Wilshire Blvd., 21st Floor Los Angeles, California 90025 EX-4 5 0005.txt STOCKHOLDERS AGREEMENT STOCKHOLDERS AGREEMENT This Stockholders Agreement (this "Agreement") is made as of the 7th day of September, 2000, by and among US Search.com, Inc., a Delaware corporation (the "Company"), The Kushner-Locke Company, a California corporation (together with any of its affiliates who currently own shares of Common Stock of the Company, "KL"), Pequot Private Equity Fund II, L.P., a Delaware limited partnership and (together with its Affiliates (as defined herein) the "Purchasers"). WITNESSETH WHEREAS, the Purchasers have entered into a Stock Purchase Agreement (the "USS Stock Purchase Agreement") with the Company dated September 7, 2000, pursuant to which the Purchasers are making a significant equity contribution to the Company by, among other things, purchasing 100,000 shares of the Company's Series A Convertible Preferred Stock (the "Series A Preferred"), and may in the future acquire up to an additional 175,000 shares of the Series A Preferred; WHEREAS, the Purchasers have also entered into that certain Stock Purchase Agreement (the "KL Purchase Agreement") and that Right of First Refusal Agreement (the "KL Right of First Refusal Agreement") with KL, both of which are dated as of September 7, 2000, whereby, among other things, KL has agreed to sell to the Purchasers 3,500,000 shares of voting Common Stock, par value $.001 per share, of the Company (the "Common Stock"). WHEREAS, the Certificate of Designations contemplated by the USS Stock Purchase Agreement (the "Certificate of Designations") grants the right to the Purchasers to collectively nominate two persons for election to the Board of Directors of the Company, and the Purchasers seek reasonable assurance that such nominees will be appointed and elected to the Board of Directors of the Company after nomination by the Purchasers. WHEREAS, the parties hereto wish to set forth additional agreements among them relating to the size and composition of the Board of Directors of the Company, as well as certain amendments to the Company's certificate of incorporation (the "Certificate of Incorporation"), exclusive of the Certificate of Designations (the "Charter") and bylaws (the "Bylaws"). WHEREAS, KL owns and has voting power over a substantial number of additional shares of Common Stock. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and undertakings of the parties, and intending to be legally bound hereby, the parties hereby agree as follows: 1. DEFINITIONS. For the purposes of this Agreement, the terms listed below shall be defined as follows: (a) "Affiliate" means, with respect to any person, any person that, directly or indirectly, controls, is controlled by or is under common control with such person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. Without limiting the foregoing, the ownership by any person of 50% or more of the outstanding voting securities of any other person shall be deemed to be "control" for the purposes of this Agreement. (b) "Board" means the Board of Directors of the Company. (c) "Permitted Transferee" means any Affiliate of the Purchasers or KL who receives Voting Shares by way of purchase, transfer or assignment from the Purchasers or KL. (d) "Stockholder" means any Person that owns any capital stock of the Company and is a party to this Agreement, including, without limitation, KL, the Purchasers and any of their respective transferees who become parties to this Agreement. (e) "Voting Shares" means with respect to any party, any Common Stock, any Series A Preferred and any other shares of capital stock or other equity security owned by such party at the applicable time; or with respect to which such party has the power or authority to vote. Capitalized terms used and not otherwise defined in this Agreement shall have the meanings assigned to them in the USS Stock Purchase Agreement. 2. ELECTION OF DIRECTORS AND BOARD REPRESENTATION. (a) Pursuant to the Bylaws of the Corporation, the number of directors comprising the Board is fixed by resolution of the Board at seven (7) and the affirmative vote required for action by the Board is fixed at a majority of the members of the Board. The Stockholders shall vote their respective Voting Shares and take all other actions reasonably necessary to maintain the number of members of the Board at seven (7) and maintain the aforementioned majority voting provision. (b) During the term of this Agreement, all of the Voting Shares held by a Stockholder, whether now owned or hereafter acquired, shall be voted to elect directors in accordance with, and in order to give effect to, the following and each Stockholder shall take all actions reasonably necessary to cause itself or, as the case may be, its nominee on the Board, subject to applicable law, to give effect to the following: One (1) member of the Board shall be nominated for election by KL to fill one seat on the Board (the "KL Board Member"); provided, that KL's right to nominate one director pursuant to this Section 2(b)(i) and Section 4 of this Agreement shall continue so long as KL and its Permitted Transferees collectively are the beneficial owners of at least Ten Percent (10%) of all outstanding shares of capital stock of the Company entitled to vote for the election of directors to the Board of the Company (as adjusted for stock splits, stock combinations and similar events). The Stockholders will, at all times, take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to result in the KL Board Member being removed only upon being designated for removal by KL, and KL will have the authority to nominate for election to the Board the individual designated by it to replace the KL Board Member so removed. If the KL Board Member dies, resigns, is removed, or otherwise ceases to serve as a member of the Board, KL shall promptly nominate for election a successor in accordance with this subparagraph and notify the Board of its selection, and the Stockholders will, at all times, take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to result in the vacancy being promptly filled by such person. So long as KL is entitled to nominate a director for election to the Board as provided above, it shall be entitled to have a non-director representative attend meetings of the Board as an observer, such observer having no right to vote on matters considered by the Board or otherwise to participate in discussions and proceedings during Board meetings; provided, that such observer shall have entered into an appropriate confidentiality agreement with the Company. To the extent that the Purchasers and their Permitted Transferees no longer hold shares of Series A Preferred Stock, the Purchasers shall collectively be entitled to nominate two (2) nominees for election to the Board (the "Purchasers' Board Members"), subject to the termination provisions set forth below. The rights of the Purchasers to nominate two (2) directors for election to the Board pursuant to this Section 2(b)(ii) and Section 4 of this Agreement, or such greater number of nominees as specified pursuant to Section 5 of this Agreement, shall continue so long as the Purchasers and/or any of their Permitted Transferees collectively are the beneficial owners of at least Thirty-Five Percent (35%) of the Common Stock issued upon conversion of such Series A Preferred (as adjusted for stock splits, stock combinations and similar events). The number of directors nominated for election by the Purchasers shall be reduced to one (1) so long as the percentage referred to in the previous sentence is equal to or greater than Ten Percent (10%) but below Thirty-Five Percent (35%). At such time as the percentage referred to in the previous sentence is less than Ten Percent (10%), the Purchasers shall not be entitled to nominate any director for election to the Board. The Stockholders will, at all times, take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to result in the Purchasers' Board Members being removed only upon being designated for removal by the Purchasers, and Purchasers will have the authority to nominate for election to the Board the individual designated by the Purchasers to replace the Purchasers' Board Member so removed. If, for any reason, a vacancy exists in the Purchasers' Board Members by reason of death, resignation, retirement, disqualification, removal or otherwise, the Purchasers shall promptly nominate for election a successor in accordance with this subparagraph and notify the Board of its selection, and Stockholders will, at all times, take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to result in the vacancy being promptly filled by such person. Brent Cohen is, as of the date hereof, a member of the Board. Following the execution of this Agreement, subject to the following sentences of this Section 2(b)(iii) and until such time as Mr. Cohen is no longer the Chief Executive Officer of the Company, the Stockholders shall vote their Voting Shares and shall take all other actions reasonably necessary to nominate and elect him to the Board. If Brent Cohen dies, resigns, is removed, or otherwise ceases to serve as a member of the Board, the Stockholders will, at all times, take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to result in the person who shall then or thereafter be the Chief Executive Officer of the Company being nominated for election to the Board by unanimous agreement of all members of the Board who are not employees of the Company and the Purchasers' Board Members, and thereafter the Stockholders will take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to cause such one (1) member of the Board to be elected by majority vote of all outstanding voting securities of the Company (Brent Cohen and such successor or successors, the "CEO Member"). The Stockholders will, at all times, take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to result in the CEO Member being nominated and elected to the Board. The Stockholders will, at all times, take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to result in three (3) persons serving as members of the Board (the "Independent Board Members"), each of which shall be nominated for election to the Board by mutual consent of the Purchasers' Board Members, on the one hand, and a majority of all other Board members except any KL Board Member (the "Other Directors"), on the other hand; to the extent that any seat on the Board is not filled because of a failure of such parties to agree upon an Independent Board Member such seat shall, subject to applicable law, remain unfilled. Once an Independent Board Member is agreed upon by the Purchasers' Board Members and the Other Directors, all the Stockholders will, at all times, take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to result in such nominee being elected to the Board. The Stockholders will, at all times, take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to result in the Independent Board Members being removed only with the approval of the Purchaser Designees and a majority of the Other Directors. If an Independent Board Member dies, resigns, is removed or otherwise ceases to serve as a member of the Board, the Stockholders will, at all times, take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to result in such Independent Board Member being replaced with someone who is acceptable to the Purchaser Board Members, on the one hand, and a majority of the Other Directors, on the other hand. So long as the Purchasers are entitled to designate a nominee to the Board pursuant to the terms hereof or pursuant to the Certificate of Designations the Stockholders will, at all times, take all actions and, to the extent permitted by applicable law, direct their nominees on the Board to take such actions as required to cause any Chairman elected or appointed by the Board to be approved by a majority of the Board and by the Purchasers' Board Members and, at the option of the Purchasers' Board Members, at least one (1) of the Purchasers' Board Members to be nominated for election to the Board's compensation committee and, subject to applicable laws and to any applicable rules or regulations of the exchange upon which the Company's capital stock may be listed, to the Board's audit committee, if at any time either of such committees shall be established, as well as to any other committee of the Board fulfilling any of the duties and discharging any of the responsibilities of an audit committee or a compensation committee. (c) Each Stockholder agrees (A) to be present in person or by proxy at any annual or special meeting of Stockholders to elect directors, for purposes of establishing a quorum, (B) to vote his, her or its Voting Shares for, or to give his, her or its written consent, to the extent permitted by applicable law and the Certificate of Incorporation and Bylaws then in effect, to the election of the Purchasers' Board Members, the KL Board Members, the CEO Member and the Independent Board Members, and (C) to vote his, her or its Voting Shares for, or to give his, her or its written consent, to the extent permitted by applicable law and the Certificate of Incorporation and Bylaws then in effect, to the removal of any director designated for removal in accordance with the provisions of subsections (i) through (iv) above. 3. CERTAIN RESIGNATIONS OR REMOVALS. In furtherance of the right provided in Section 2 of the indicated person or persons to cause the removal from office of a director which it or they were entitled to and did nominate for office, to the extent a meeting of stockholders is called for the purpose of removing such director, or, to the extent permitted by applicable law or under the Certificate of Incorporation and Bylaws then in effect, the stockholders act by written consent, KL and the Purchasers shall vote all of their respective Voting Shares entitled to vote in favor of removal at such meeting or, to the extent permitted by applicable law or under the Certificate of Incorporation and Bylaws then in effect, pursuant to such consents. Notwithstanding the foregoing, KL and the Purchasers agree that neither of them will vote to remove any director nominated pursuant to Section 2 under any other circumstances, and they further agree that they will not vote to remove the directors nominated by either of them except in accordance with a request from the KL or, as the case may be, the Purchasers for the removal of the applicable nominee on the Board. 4. FILLING VACANCIES. In the event of the death, disability, legal incapacity, resignation or removal of any director nominated for election pursuant to Section 2 hereof, to the extent a special meeting is called for the purpose of filling the vacancy created thereby, or, to the extent permitted by applicable law or under the Certificate of Incorporation and Bylaws then in effect, the stockholders act by written consent, to fill the vacancy created by such death, disability, legal incapacity, resignation or removal, KL and the Purchasers shall, provided that such director was nominated for election in accordance with Section 2, vote all of their respective Voting Shares entitled to vote in favor of the election of the replacement director nominated in accordance with Section 2. 5. PURCHASERS' RIGHTS UPON EVENT OF DEFAULT. (a) KL agrees with the Purchasers that upon and following an Event of Non-Compliance, as defined in the Certificate of Designations, KL will, at all times, take all actions and, to the extent permitted by applicable law, direct its nominees on the Board to take all actions required to (i) cause the Purchasers to have the benefit of the rights set forth in Section 10 of the Certificate of Designations and (ii) cause the fulfillment of the obligations and the performance of the covenants set forth in Section 10 of the Certificate of Designations. (b) Without limiting the generality of the foregoing paragraph (a), KL shall thereafter take all actions, including appearing in person or by proxy at any annual or special meeting of stockholders for the purpose of obtaining a quorum and shall vote its Voting Shares, either in person or by proxy, at any such meeting of stockholders to cause the performance of, and compliance with, Section 10 of the Certificate of Designations. 6. FURTHER COVENANT TO VOTE. Each Stockholder shall appear in person or by proxy at any annual or special meeting of stockholders for the purpose of obtaining a quorum and shall vote their respective Voting Shares entitled to vote upon any other matter submitted to a vote of the stockholders of the Company in a manner so as to be consistent and not in conflict with, and to implement, the terms of this Agreement, the USS Stock Purchase Agreement and any other instruments or agreements arising thereunder; provided, however, that subject to the obligations set forth in this Agreement, nothing herein shall otherwise obligate a Stockholder to vote its Voting Shares in favor of any proposal, resolution or other proposed shareholder or director action. 7. NO CONFLICTING AGREEMENTS; AMENDMENT TO CERTIFICATE OF INCORPORATION. No Stockholder shall enter into any agreements or arrangements of any kind with any person with respect to its respective Voting Shares which would prohibit it voting its respective Voting Shares from time to time as provided herein (whether or not such agreements and arrangements are with other stockholders of the Company that are not parties to this Agreement). Each Stockholder agrees that to the extent that any provision of the Certificate of Incorporation or Bylaws of the Company are inconsistent with the agreements and provisions of this Agreement and the Certificate of Designations, the Stockholders will take all actions permitted by applicable law and by the Certificate of Incorporation and Bylaws to give effect to the following: (i) directors may only be removed on the basis set forth herein and in the Certificate of Designations; and (ii) the Certificate of Incorporation may only be amended in accordance with the provisions of Section 9 of the Certificate of Designations. Each of the Stockholders further agrees to take all such actions, including without limitation, the voting of their respective Voting Shares, to cause the shareholders of the Company to approve, at their next meeting, one or more amendments to the Certificate of Incorporation to remove the differences referred to in clauses (i) and (ii) above and to authorize such additional shares of Common Stock as are required to permit the conversion or exercise, as the case may be, of the Series A Preferred to be received by the Purchasers upon the Second Closing under the USS Stock Purchase Agreement. KL and the Purchasers shall, as promptly as practicable and subject to applicable law, amend the Bylaws to the extent necessary for them to be consistent with the provisions of this Agreement and the Certificate of Designations. 8. GENERAL VOTING OBLIGATIONS. At any time when the Board or the shareholders of the Company consider a proposal (including a proposal to amend the Company's Charter and Bylaws), each Stockholder agrees that it will not vote its Voting Shares in favor of any such proposal (including any such proposed amendment to the Company's Charter and Bylaws) which would be inconsistent with the provisions of this Agreement, the Certificate of Designations, the USS Stock Purchase Agreement, the KL Purchase Agreement, the KL Right of First Refusal Agreement and any other agreements or instruments contemplated thereby or arising thereunder, to the extent permitted by applicable law, and will direct its nominees (if any) on the Board to act in accordance with the foregoing. 9. OWNERSHIP. (a) Following the First Closing, KL is the beneficial owner of approximately 6,108,080 shares of Common Stock (approximately 25.9% of the common stock of the Company) (the "KL Shares") with the right to vote each of the KL Shares. KL represents and warrants to the Purchasers that (i) it owns the KL Shares and has not, prior to or on the date of this Agreement, executed or delivered any proxy or entered into any other agreement which would prevent it from voting the KL Shares as provided herein, and (ii) it has full power and capacity to execute, deliver and perform this Agreement on its own behalf, which Agreement has been duly executed and delivered by, and evidences the valid and binding obligation of, KL enforceable in accordance with its terms. (b) Following the First Closing, the Purchasers are the beneficial owner of 100,000 shares of Series A Preferred (the "Purchasers' Shares") with the right to vote each of the Purchasers' Shares. The Purchasers represent and warrant to KL that (i) following the First Closing, they own the Purchasers, Shares (assuming the accuracy of the relevant representations of the Company in the USS Stock Purchase Agreement) and they have not, prior to or on the date of this Agreement, executed or delivered any proxy or entered into any other agreement which would prevent either of them from voting the Purchasers' Shares as provided herein, and (ii) they have full power and capacity to execute and deliver and perform this Agreement on each of their own behalf, which Agreement has been duly executed and delivered by, and evidences the valid and binding obligation of, each of the Purchasers enforceable in accordance with its terms. 10. TERMINATION. This Agreement shall terminate as to each Stockholder when such party no longer holds or has voting power over any shares of the voting securities or any other voting equity of the Company, and as to the Company when all Stockholders no longer hold or have voting power over any voting securities or any other equity of the Company. 11. CERTAIN TRANSFEREES SUBJECT TO AGREEMENT. In the event of any transfer of (i) the KL Shares to an Affiliate of KL or (ii) the Purchasers' Shares to an Affiliate of a Purchaser, the resulting transferee shall hold such shares so acquired with all rights conferred by, and subject to all of the restrictions imposed by, this Agreement applicable to the transferor of such shares. Any transferee of any (i) KL Shares who is an Affiliate of KL or (ii) Purchasers' Shares who is an Affiliate of a Purchaser shall, as a condition of the consummation of such transfer, agree to be subject to the terms of this Agreement (if not already a party hereto). Except as provided otherwise in the foregoing sentence, in this Section 11 and in the KL Right of First Refusal Agreement, nothing in this Agreement shall prevent KL or the Purchasers at any time from selling, assigning or otherwise transferring their respective shares of capital stock or other equity interests of the Company free and clear of the rights and obligations of this Agreement. 12. NOTICE OF NOMINEES. Purchasers and their Permitted Transferees, on the one hand, and KL and its Permitted Transferees, on the other hand, shall each be a "nominator" and shall have the right to nominate for election to the Board a director or directors, as the case may be, in accordance with Sections 2 and 4 hereof. Any notice to the Company of a nominee shall be submitted for and on behalf of all parties being collectively a nominator. Should the Company receive (i) a nominee notice from one or more but not all parties being collectively a nominator; (ii) more than one nominee notices specifying more than one nominee; or (iii) any objection from one of more parties being collectively a nominator to any nominee submitted to the Company on behalf of all parties being collectively a nominator, then the Company shall promptly notify all parties being collectively a nominator of the nature of the nominations/objections received and the Company shall not be obligated to take further action regarding the nominator's rights to elect a director until the Company shall receive a notice signed by all parties being collectively a nominator specifying their nominee. 13. MISCELLANEOUS. (a) SECTION 218(C). This Agreement is intended to qualify as an agreement of the type contemplated by Section 218 of the Delaware General Corporation Law, as amended. (b) NO INCONSISTENT AGREEMENTS. This Agreement, with regard to the subjects hereof, constitutes the full and entire understanding and agreement between the parties and supersedes any agreement between the parties. (c) SUCCESSORS AND ASSIGNS. Except as specifically provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the Affiliates and transferees of KL and the Purchasers, respectively, including their respective Permitted Transferees. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. (d) AMENDMENTS AND WAIVERS. Any term hereof may be amended or waived only with the written consent of each of the parties. (e) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient on the date of receipt, when delivered personally or by overnight courier or sent by telegram or fax, or sent as certified or registered mail, with postage prepaid, and addressed to the party to be notified or, with respect to any Purchaser, to the attention of David Malat, the Chief Accounting Officer of Pequot Capital Management, Inc. and Carol Holley, the Vice President of Pequot Capital Management, Inc., at such party's address or fax number as set forth on the signature page, or as subsequently modified by written notice. (f) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties hereto agree to take all actions permitted by applicable law to give effect to this Agreement, to render this Agreement enforceable and to carry out the intent of the covenants and agreements set forth herein. (g) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. (h) COUNTERPARTS. This Agreement may be executed in any number of counterparts (and by facsimile), each of which shall be deemed an original and all of which together shall constitute one instrument. (i) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. [The remainder of the page is intentionally left blank.] IN WITNESS WHEREOF, the parties named below have signed this Stockholders Agreement as of the date first above written. PEQUOT PRIVATE EQUITY FUND II, L.P. BY: PEQUOT CAPITAL MANAGEMENT, INC., its Investment Manager By: Name: Kevin E. O'Brien Title: General Counsel Facsimile: (203) 429-2420 Address: 500 Nyala Farm Road Westport, CT 06880 US SEARCH.COM, INC. By: Name: Brent N. Cohen Title: Chief Executive Officer Facsimile: (310) 882-7898 Address: 5401 Beethoven Street Los Angeles, CA 90066 THE KUSHNER-LOCKE COMPANY By: Name: Donald Kushner Title: Co-Chief Executive Officer Facsimile: (310) 481-2101 Address: 11601 Wilshire Boulevard 21st Floor Los Angeles, California 90025 EX-5 6 0006.txt KUSHNER LOCKE STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement") is made as of the 7th day of September, 2000, by and between The Kushner-Locke Company (the "Seller"), a California corporation and Pequot Private Equity Fund II, L.P., a limited partnership organized under the laws of Delaware (together with any of its Affiliate, the "Purchasers" and each a "Purchaser"). The Purchasers collectively and the Seller individually shall sometimes be referred to respectively as a "party". Whereas, the Seller and US SEARCH.com Inc., a Delaware corporation ("the Company"), have entered into that certain Stock Purchase Agreement, dated September 7, 2000 (the "USS Stock Purchase Agreement"). Whereas, the Seller desires to sell, and the Purchasers desire to purchase, stock of the Company as herein described, on the terms and conditions hereinafter set forth. Now, therefore, it is agreed between the parties as follows: 1. Purchase and Sale of Stock. The Purchasers hereby agree to purchase from the Seller, and the Seller hereby agrees to sell to the Purchasers, an aggregate of Three Million Five Hundred Thousand (3,500,000) shares of common stock, par value $.001, of the Company (the "Common Stock"), at a price equal to $1.20 per share, for an aggregate purchase price of $4,200,000 (the "Purchase Price"). The number of shares of Common Stock to be purchased by any Purchaser is set forth opposite such Purchaser's name on the signature page of this Agreement. The closing hereunder, including payment for and delivery of the Common Stock (together with stock assignments separate from certificate, duly endorsed in blank) shall occur at the offices of Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, NY 10019 following the execution of this Agreement, and satisfaction of the conditions described in Section 9 of this Agreement, (the "Closing"), or at such other time and place as the parties may mutually agree. 2. Limitations on Transfer. The Purchasers shall not assign, hypothecate, donate, encumber or otherwise dispose of any interest in the Common Stock except in compliance with the provisions herein and applicable securities laws. 3. Restrictive Legends. All certificates representing the Common Stock shall have endorsed thereon legends in substantially the following forms (in addition to any other legend which may be required by other agreements between the parties hereto): (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." (b) Any legend required by federal or state securities laws. 4. Investment Representations. Each Purchaser understands that the Common Stock has not been registered under the Securities Act of 1933, as amended (the "Securities Act"). Each Purchaser also understands that the Common Stock is being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon the Purchasers' representations contained in this Agreement. Each Purchaser hereby represents and warrants as follows: (a) Purchasers Bear Economic Risk. Each Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that such Purchaser is capable of evaluating the merits and risks of such Purchaser's investment in the Company and has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement. Each Purchaser acknowledges that it will be required to hold the Common Stock indefinitely, until the Common Stock is registered pursuant to the Securities Act, or an exemption from registration is available. Each Purchaser understands that the Company has no present intention of registering the Common Stock. Each Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow such Purchaser to transfer all or any portion of the Common Stock under the circumstances, in the amounts or at the times such Purchaser might propose. (b) Acquisition for Own Account. Each Purchaser is acquiring the Common Stock for such Purchaser's own account for investment only, and not with a view towards its distribution, subject to the condition that the disposition of such Purchaser's property is at all times within its control, subject to compliance with applicable law. (c) Purchasers Can Protect their Interest. By reason of each Purchaser's business or financial experience, such Purchaser has the capacity to protect such Purchaser's own interests in connection with the transaction contemplated in this Agreement. Further, each Purchaser is aware of no publication of any public advertisement in connection with the transaction contemplated in the Agreement prior to the date hereof. (d) Accredited Investor. Each Purchaser represents that it is an accredited investor within the meaning of Rule 501 under the Securities Act. (e) Company Information. Each Purchaser has had an opportunity to discuss the Company's business, management and financial affairs with directors, officers and management of the Company. Each Purchaser has also had the opportunity to ask questions of and receive answers from, the Company and its management regarding the terms and conditions of this investment. (f) Affiliate. Each Purchaser acknowledges that Seller has advised it that Seller is an "affiliate" (within the meaning of the Securities Act) of the Company. (g) Rule 144. Each Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability of certain current public information about the Company and the resale occurring following the required holding period under Rule 144. (h) Due Diligence Investigation. Each Purchaser and such Purchaser's representatives have been solely responsible for such Purchaser's own "due diligence" investigation in connection the purchase of the Common Stock, for its own analysis of the merits and risks of this investment, and for such Purchaser's own analysis of the fairness and desirability of the terms of the investment; provided, however, that the foregoing, does not limit or modify the representations and warranties of the Seller set forth herein or the right of such Purchaser to rely thereon. In taking any action or performing any role relative to the arranging of the proposed investment, each Purchaser has acted solely in such Purchaser's own interest, and neither such Purchaser nor any of such Purchaser's agents or employees has acted as an agent of the Seller. 5. Representation and Warranties of the Seller. In connection with this Agreement, the Seller hereby represents and warrants to each Purchaser as follows: (a) Authorization. The Seller has the power, capacity and authority to enter into, execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations under this Agreement. The execution and delivery by the Seller of this Agreement, and the consummation by the Seller of the transactions contemplated hereby, have been duly authorized by all necessary action on the part of the Seller. (b) No Conflicts. The execution, delivery and performance of this Agreement by the Seller will not (i) conflict with or violate the articles of incorporation or bylaws of the Seller, (ii) violate any law by which the Seller is bound, and (iii) result in a breach or violation of, or constitute a default under, any material contract to which the Seller is a party. (c) Binding Obligations. This Agreement constitutes the legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally, and by general equitable principles. (d) Title to Common Stock. The Seller is the record owner of the Common Stock and owns such Common Stock beneficially, free and clear of any liens, claims, rights, pledges, charges, third party rights, security interests, restrictions or other encumbrances (other than any of the foregoing that are identified on Schedule 5(d) hereto, all of which will be released prior to the Closing and restrictions arising under applicable securities laws) and at the Closing will have the absolute and unrestricted right, power, authority and capacity to sell, assign and transfer the Common Stock to the Purchasers. (e) Consents. With the exception of any consent required under the HSR Act (as defined in Section 8(c)(2) of this Agreement) or the termination of any applicable waiting period thereunder, no consent, approval or authorization of any governmental authority or of any third party is required in connection with the execution and delivery of this Agreement or the consummation of any of the transactions contemplated hereby. The consent to the transactions contemplated in this Agreement that is required by the Seller from [___________] under the Credit, Security, Guaranty and Pledge Agreement (the "Credit Agreement"), dated as of June 19, 1996, as amended, among the Seller, the Guarantors named therein, the lenders named therein and The Chase Manhattan Bank, N.A. (formerly Chemical Bank) as Agent (as defined therein) and as Fronting Bank (as defined therein) for the lenders is in effect as of the date hereof, the Seller has provided the Purchasers with evidence thereof prior to the date hereof, such consent will remain in effect at the Closing, and any additional consents, releases or other instruments required to prevent an Event of Default (as defined in the Credit Agreement) under the Credit Agreement will be obtained and be in effect prior to and upon the Closing. (f) Advertisement. Seller has not made, whether on its own or through an intermediary, any public advertisement in connection with the transactions contemplated in this Agreement, nor is Seller aware of any public advertisement by other parties in connection herewith. (g) No Brokers or Finders. No person has, or as a result of the transactions contemplated herein will have, any right or valid claim against the Company or any Purchaser for any commission, fee or other compensation as a finder or broker, or in any similar capacity. 6. Representations and Warranties of Seller relating to the Company. Seller hereby represents and warrants to each Purchaser, with respect to the Company, as follows, in each case solely and only to the extent that Seller has actual knowledge (without independent investigation or verification) relating to each of the following: SEC Documents; Financial Statements. (1) Since June 24, 1999, the Company has filed all forms, reports and documents with the Securities and Exchange Commission (the "Commission") (including all exhibits thereto) required under the Securities Act or the Exchange Act of 1934, as amended or the rules and regulations promulgated thereunder (collectively, the "SEC Documents"), each of which complied in all material respects with all applicable requirements of the Securities Act and of the Exchange Act of 1934, as amended and in effect on the dates so filed. None of the SEC Documents (as of their respective filing dates) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (2) The financial statements contained in the SEC Documents: (i) comply as to form in all material respects with the published rules and regulations of the Commission applicable thereto; (ii) were prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods covered, except as may be indicated in the notes to such financial statements and (in the case of unaudited statements) as permitted by Form 10-Q of the Commission, and except that unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end audit adjustments; and (iii) fairly present the consolidated financial position of the Company as of the respective dates thereof and the consolidated results of operations and cash flows of the Company for the periods covered thereby. (3) No representation or warranty of the Company contained in any document, certificate or written statement furnished or made available to such Purchaser by or at the direction of the Company for use in connection with the transactions contemplated by this Agreement and the USS Stock Purchase Agreement contains any untrue statement of a material fact or omits to state any material fact (known to the Company, in the case of information not furnished by them) necessary in order to make the statements contained herein, therein or in the USS Stock Purchase Agreement not misleading in light of the circumstances in which the same were made. There are no facts known to the Seller or any affiliates of the Seller (other than matters of a general economic nature) as to which they have concluded would be expected to have a material adverse effect upon the business operations, assets or condition (financial or other) of the Company and its subsidiaries, taken as a whole (a "Material Adverse Effect"), and that have not been disclosed in the SEC Documents, this Agreement, the USS Stock Purchase Agreement or in such other documents, certificates and statements furnished to such Purchaser for use in connection with the transactions contemplated by this Agreement. 7. Additional Representations and Warranties of each Purchaser. In connection with this Agreement, each Purchaser represents and warrants to the Seller as follows: (a) Authorization. Each Purchaser has the requisite power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations under this Agreement. The execution and delivery by each Purchaser of this Agreement, and the consummation by such Purchaser of the transactions contemplated hereby, have been duly authorized by all necessary partnership action by such Purchaser. (b) Binding Obligations. This Agreement constitutes the legal, valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally, and by general equitable principles. (c) Organization and Good Standing. Pequot Private Equity Fund II, L.P. has been duly organized and is existing as a limited partnership in good standing under the laws of Delaware and each Affiliate of Pequot Private Equity Fund II, L.P. that is a party to this Agreement is an entity validly existing and in good standing under the laws of its jurisdiction of incorporation. (d) No Brokers or Finders. No person has, or as a result of the transactions contemplated herein will have, any right or valid claim against the Company or Seller for any commission, fee or other compensation as a finder or broker, or in any similar capacity 8. Covenants. (a) No Sale; Pledge. The Seller hereby covenants and agrees with each Purchaser that, subject to its fiduciary obligations, during the period between the date of this Agreement and the Closing, it shall not sell, transfer, assign or otherwise dispose of the Common Stock nor shall it pledge or encumber the Common Stock, nor shall it grant any other rights with respect to the Common Stock. (b) No Solicitation. The Seller shall not, nor shall it authorize or permit any of its officers, directors, employees, representatives or agents to, directly or indirectly solicit, initiate or encourage any actions or inquiries that may reasonably be expected to lead to the making of a proposal for the transfer of the Common Stock other than as contemplated in this Agreement. The Seller will immediately cease and cause to be terminated any activities, discussions or negotiations conducted prior to the date of this Agreement with any parties other than a Purchaser with respect to any of the foregoing. (c) Reasonable Commercial Efforts; Additional Actions. (1) Upon the terms and subject to the conditions of this Agreement, each of the parties hereto shall cooperate and shall use its reasonable commercial efforts to take, or cause to be taken, all action, and to do or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including using its reasonable best efforts to effect promptly and prosecute diligently (including responding to all reasonable requests for supplemental information) all approvals, filings and/or notices required under any applicable laws for the consummation of the transactions contemplated by this Agreement. (2) Without limiting any of the foregoing, Seller will cooperate and diligently assist each Purchaser and the Company and, if required, each Purchaser and the Company will cooperate and diligently assist the Seller, with all filings and reports with the Federal Trade Commission, the United States Department of Justice and any other authority in order to comply with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and all applicable rules and regulations and any similar state acts (collectively, the "HSR Act"). Seller and each Purchaser shall promptly furnish all materials thereafter required by any authority having jurisdiction over such filings, and shall take all reasonable actions and shall file and use all reasonable efforts to have declared effective or approved all documents and notifications with any such authorities, as may be required under the HSR Act or other federal or state antitrust laws for the consummation of the transactions contemplated by this Agreement and by the USS Stock Purchase Agreement. The Seller and each Purchaser shall promptly notify each other upon receipt of any communication or response from the Federal Trade Commission, the United States Department of Justice and any other authority having jurisdiction over the HSR Act of any determination or finding with respect to the filings under the HSR Act that are contemplated hereunder. (3) The Seller and each Purchaser acknowledge that pursuant to the USS Purchase Agreement, the Company shall pay all filing and similar fees related to compliance with the HSR Act in connection with the transactions contemplated by this Agreement and by the USS Stock Purchase Agreement. (d) Changes in Representation and Warranties. Between the date of this Agreement and the Closing, the Seller shall not knowingly enter into any transaction, take any action, or by inaction permit an event to occur, which would result in any of the representations, warranties or covenants of the Seller herein contained not being true and correct at and as of the Closing in any respect which would reasonably be expected to have a Material Adverse Effect or a material adverse effect on the Seller's ability to perform its obligations hereunder or under any of the Documents (as defined in the USS Stock Purchase Agreement) to which Seller is a party. (e) Notification of Certain Matters. The Seller shall give notice to each Purchaser, and each Purchaser shall give notice to the Seller, promptly upon becoming aware of (i) any occurrence, or failure to occur, of any event, which occurrence or failure to occur has caused or could reasonably be expected to cause any representation or warranty in this Agreement to be untrue or inaccurate in any material respect at any time after the date hereof and prior to the Closing and (ii) any material failure on its part to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any such notice shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. (f) Consents. The Seller shall take all actions advisable or required to ensure that the transactions contemplated in this Agreement do not and will not give rise to an Event of Default under the Credit Agreement. 9. Conditions to Closing. The obligation of each party to this Agreement to effect the Closing shall be subject to the fulfillment by the other party of the following additional conditions or the waiver of the fulfillment of such conditions by the party entitled to benefit therefrom: (i) the other party shall have performed in all material respects the covenants and obligations required to be performed under this Agreement at or prior to the Closing; (ii) the waiting period (and any extensions thereof) applicable to the consummation of the transactions contemplated by this Agreement and by the USS Stock Purchase Agreement under the HSR Act shall have expired or been terminated; (iii) the First Closing under, and as defined in, the USS Stock Purchase Agreement shall have occurred; (iv) the representations and warranties of the other party contained in this Agreement shall be true and correct in all material respects at and as of the Closing as if made on and as of such date (except to the extent any such representation and warranty by its terms relates to a prior date); (v) the Seller shall have performed in all respects all obligations and agreements, and complied in all respects with all covenants, contained in this Agreement, to be performed and complied with by it at or prior to the Closing; (vi) the Seller and the Purchasers shall have executed the Escrow Agreement in the form attached hereto as Exhibit A, the Stockholders Agreement, the Right of First Refusal Agreement; (vii) a letter in the form attached hereto as Exhibit B, addressed to U.S. Trust Company of California, N.A. and dated as of September 7, 2000, shall have been executed by the Seller, U.S. Trust Company of California, N.A. and certain other parties identified therein; (viii) Paul Hastings Janofsky & Walker LLP shall have delivered to the Purchasers two (2) opinions, one of which shall be dated as of the First Closing and the other dated as of the Closing, addressed to the Purchasers in form and substance satisfactory to the Purchasers; (ix) all governmental, regulatory and third-party consents or clearances necessary for the consummation of all of the transactions contemplated by the Documents to which Seller is a party shall have been obtained and shall be in full force and effect; and (x) the Seller shall have provided each Purchaser with a copy of a resolution duly adopted by the Board of Directors of Seller, certified as such by the Seller's Secretary, authorizing the execution of this Agreement and any other agreements arising in connection herewith and the Closing hereunder. The Closing shall occur no later than two (2) business days following the satisfaction of the foregoing conditions unless the parties hereto shall agree that the Closing shall occur at another time. 10. Miscellaneous. (a) Definitions. Capitalized terms used and not otherwise defined in this Agreement shall have the meanings assigned to them in the USS Stock Purchase Agreement. (b) Successors and Assigns. This Agreement shall inure to the benefit of the successors and assigns of the Seller and, subject to the restrictions on transfer herein set forth, be binding upon each Purchaser and such Purchaser's successors, and assigns. (c) Attorneys' Fees. Should any party to this agreement institute any legal action against the other party to enforce provisions hereof (including any claim for breaches of representations and warranties), the prevailing party in such action shall be entitled to receive from the losing party, in addition to any other relief to which the prevailing party may be entitled, all reasonable attorneys' fees and court costs. (d) Expenses. The Seller and each Purchaser shall each pay their own expenses incident to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby. (e) Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The parties agree that any action brought by either party to interpret or enforce any provision of this Agreement shall be brought in, and each party agrees to, and does hereby, submit to the jurisdiction and venue of, the appropriate state or federal court in New York City. (f) Jurisdiction, Venue, Service of Process. (1) Each party hereto hereby expressly consents to personal jurisdiction and venue in all federal and state courts sitting in New York City and all federal and state courts sitting in New York City in connection with any suit, action or proceeding relating to any provision of, or based on any matter arising out of or in connection with, this Agreement , any instrument or document referred to herein or related hereto. each party hereto hereby expressly agrees that any process or notice of motion or other application to any of the foregoing courts or a judge of such courts may be served upon the sole shareholder within or without such courts jurisdiction by registered or certified mail. (2) Each party hereto hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding relating to any provision of, or based on any matter arising out of or in connection with, this Agreement , any instrument or document referred to herein or related hereto, brought in any federal or state court sitting in New York City and hereby further irrevocably waives any claim that such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. (3) Notwithstanding the foregoing, any party hereto and their successors and assigns may sue any other party hereto and their successors and assigns in any jurisdiction where such other party or any of its or their assets may be found and may service legal process upon such other party in any other manner permitted by law. (g) Indemnification. (1) The Purchasers hereby agree to indemnify, defend and hold harmless the Seller and its officers, directors, agents, affiliates and shareholders from and against, any and all liability, damage, loss, cost or expense incurred on account of or arising out of any breach of any of the Purchasers' representations, warranties, covenants and agreements contained in this Agreement. (2) The Seller hereby agrees to indemnify, defend and hold harmless the Purchasers and their respective officers, directors, agents, affiliates and shareholders from and against, any and all liability, damage, loss, cost or expense incurred on account of or arising out of any breach of any of the Seller's representations, warranties, covenants and agreements contained in this Agreement. (h) Further Execution. The parties agree to take all such further action(s) as may reasonably be necessary to carry out and consummate this Agreement as soon as practicable, and to take whatever steps may be necessary to obtain any governmental approval in connection with or otherwise qualify the issuance of the securities that are the subject of this Agreement. (i) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and merges all prior agreements or understandings, whether written or oral. This Agreement may not be amended, modified or revoked, in whole or in part, except by an agreement in writing signed by each of the parties hereto. (j) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (k) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument, which agreement shall be enforceable against the parties actually executing such counterpart. Facsimile execution and delivery of this Agreement shall be legal, valid and binding execution and delivery for all purposes. (l) Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified or supplemented, whether before or after the closing hereof, only by a written agreement signed by each of the parties hereto. (m) Specific Performance. In addition to any other remedies which the Purchasers (or any of them) may have at law or in equity, the Seller hereby acknowledges that the Seller, its subsidiaries and the Common Stock are unique, and that the harm to the Purchasers (or any of them) resulting from breaches by the Seller of its obligations hereunder cannot be adequately compensated by damages. Accordingly, the Seller agrees that the Purchasers (or any of them) shall have the right to have all obligations, under-takings, agreements, covenants and other provisions of this Agreement specifically performed by the Seller, and the Purchasers (or any of them) shall have the right to obtain an order or decree of such specific performance in any of the courts of the United States of America, any state or other political subdivision thereof or any other applicable jurisdiction. (n) Notices. Any notice, response or other communication required or permitted hereunder shall be effectively given, in the case of a communication to a Purchaser, to the attention of both David Malat, the Chief Accounting Officer of each Purchaser's Investment Manager and to Carol Holley, the Vice President of each Purchaser's Investment Manager, or to such other person or persons as shall have been designated in writing to Kushner-Locke by a Purchaser, and, in the case of a communication to Kushner-Locke, to the attention of Donald Kushner and Peter Locke. Such notice, response or other communication shall be by personal delivery to the applicable party's address, as indicated below that party's signature to this Agreement, by facsimile transmission to the number to shown below the applicable party's signature to this Agreement, or by Federal Express or similar service for overnight delivery to the party's address, as indicated below that party's signature to this Agreement. In the event of personal delivery, such communication shall be deemed effectively given as of the date upon which it shall have been delivered to both David Malat, the Chief Accounting Officer of each Purchaser's Investment Manager and to Carol Holley, the Vice President of each Purchaser's Investment Manager, or to such other person or persons as shall have been designated in writing to Kushner-Locke by a Purchaser. In the event of any other personal delivery and of delivery by facsimile delivery, such communications shall be deemed effectively given as of the date of such personal or facsimile delivery. In the event of personal delivery by Federal Express or similar service for overnight delivery, such communication shall be deemed effectively given upon receipt. Any party to this Agreement may designate by ten (10) days' advance written notice to the other party hereto by registered or certified mail with postage and fees prepaid, addressed to the attention of Donald Kushner and Peter Locke at the address shown below or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto. (o) Termination of Agreement and of Representations and Warranties of Seller Relating to the Company. This Agreement may be terminated at any time by either party (the "Terminating Party") if the conditions described in Section 9 hereof have not been satisfied on or before sixty (60) days following the date hereof, unless the failure to satisfy such conditions and to consummate the Closing is the result of a breach of this Agreement by the Terminating Party or any affiliate of such party, in which case the Terminating Party shall not be authorized to terminate this Agreement. The Representations and Warranties of Seller Relating to the Company shall terminate upon the Closing of this Agreement. In Witness Whereof, the parties hereto have executed this Stock Purchase Agreement as of the day and year first above written. Number of shares of Common Stock to be Purchased THE KUSHNER-LOCKE COMPANY By: Name: Donald Kushner Title: Co-Chief Executive Officer Address: 11601 Wilshire Boulevard 21st Floor Los Angeles, California 90025 Facsimile: (310) 481-2101 PEQUOT PRIVATE EQUITY FUND II, L.P. By: PEQUOT CAPITAL MANAGEMENT, INC., its Investment Manager By: Name: Kevin E. O'Brien Title: General Counsel Address: 500 Nyala Farm Road Westport, CT 06880 3,500,000 Facsimile: (203) 429-2420 EX-6 7 0007.txt THE RIGHTS OF FIRST REFUSAL AGREEMENT RIGHT OF FIRST REFUSAL AGREEMENT THIS RIGHT OF FIRST REFUSAL AGREEMENT (this "Agreement") is made as of the 7th day of September, 2000, by and between The Kushner-Locke Company, a California corporation ("Kushner-Locke"), Pequot Private Equity Fund II, L.P., a limited partnership organized under the laws of Delaware ("Purchaser" and, together with any of its Affiliates (as defined in the USS Purchase Agreement) Pequot"). WHEREAS, at the date hereof Kushner-Locke is the record and beneficial owner of [_____] shares of common stock, par value $.001 per share, of US Search.com, Inc. (the "Stock"). WHEREAS, Kushner-Locke and Pequot have entered into that Stock Purchase Agreement, dated as of September 7, 2000 (the "KL Purchase Agreement"), whereby Kushner-Locke will sell to Pequot 3,500,000 shares of Stock. WHEREAS, Pequot and US Search.com Inc. have entered into that Stock Purchase Agreement, dated as of September 7, 2000 (the "USS Purchase Agreement"), whereby US Search.com Inc. (the "Company"), a Delaware corporation, sold 100,000 shares of Series A Convertible Preferred Stock of the Company and certain other instruments to Pequot. WHEREAS, after the above referenced sale of Stock, Kushner-Locke will remain the beneficial owner of additional shares of Stock (the "Remaining Shares"). WHEREAS, Kushner-Locke and Pequot have agreed that Pequot should have a right of first refusal with respect to the Remaining Shares subject to the terms and conditions set forth below. NOW THEREFORE, IT IS AGREED between the parties as follows: 1. Right of First Refusal. Kushner-Locke shall not sell, assign or in any manner transfer any of the Remaining Shares or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this Agreement: (A) If Kushner-Locke desires to sell or otherwise transfer any portion of the Remaining Shares, then Kushner-Locke shall first give written notice thereof (the "Notice") to Pequot by transmission through both facsimile and email; provided, that, while receipt of such notice shall be deemed to occur on the day of its transmission, Kushner-Locke shall be required to send written notice to Pequot by overnight delivery on the day of transmission. In the case of a privately negotiated sale or transfer, the Notice shall state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. In the case of a public market sale, the Notice shall state the number of shares to be sold and the closing price of the US SEARCH.com shares quoted on the NASDAQ National Market System (the "US Search Closing Price") on the date of the notice. (B) In the event of a proposed sale of the Remaining Shares by Kushner-Locke in the public market, for three (3) business days following Pequot's receipt of the Notice, Pequot shall have the option, to be exercised by notice in writing (the "Response") received by Kushner-Locke on or before the third business day following Pequot's receipt of the Notice, to purchase all or any portion of the shares specified in the Notice; provided, that the per share price for such a purchase by Pequot shall be the US Search Closing Price for the day on which Pequot delivers the Response and the other terms for such purchase shall be as set forth in the Notice; provided, further that Kushner-Locke shall have the option not to proceed with the transaction contemplated in the Notice by delivery of a notice in writing (a "Cancellation") to Pequot notifying Pequot of such cancellation (i) in the event that the US Search Closing Price on the day Kushner-Locke delivers such Cancellation to Pequot is less than 92% of the proposed per share consideration set forth in the Notice and such Cancellation is delivered to Pequot prior to Pequot's delivery of a Response, or (ii) on or before 6:00 p.m., local time in New York, NY on the day on which Pequot delivers a Response in the event that the US Search Closing Price for the day of the Response is less than 87% of the per share consideration set forth in the Notice. In all cases, the parties understand and agree that if Kushner-Locke so elects not to complete the transaction contemplated in the Notice, Kushner-Locke shall be considered not to have delivered a Notice and the procedures set forth in this Section 1(b) shall again be applicable. Subject to the foregoing, in the event Pequot elects to purchase all of the Stock or any lesser portion of the Stock, it shall give written notice to Kushner-Locke of its election, received within the specified time limitations, and settlement for said shares shall be made as provided below in paragraph (d). (C) In the event of a privately negotiated sale or transfer between Kushner-Locke and a third party (a "Private Transaction"), for five (5) business days following Pequot's receipt of the Notice, Pequot shall have the option, to be exercised by a Response received by Kushner-Locke on or before the fifth business day following Pequot's receipt of the Notice, to purchase all (but not less than all) of the shares specified in the Notice at the price and upon the terms specified in the Notice. In the event Pequot elects to purchase all of the shares specified in the Notice, it shall give written notice to Kushner-Locke of its election, received within the specified time limitations, and settlement for said shares shall be made as provided below in paragraph (d). (D) The transfer of the shares to Pequot pursuant to Sections 1(b) or 1(c) of this Agreement shall be effected through an agreement that is substantially identical to the terms of the form of purchase agreement that Kushner-Locke would have used for the transfer, but with the inclusion therein of terms that are substantially identical to Sections 4 and 5 of the KL Purchase Agreement. Settlement of such transfer shall be made in cash within three (3) business days after receipt of notice by Kushner-Locke from Pequot; provided that if the terms of payment set forth in the Notice were other than cash against delivery, Pequot shall pay for said shares on the same terms and conditions set forth in the Notice. Notwithstanding the foregoing, if it is necessary for Pequot to comply with the HSR Act (as defined in the KL Purchase Agreement) in connection with such transfer, the foregoing deadline for settlement of the transfer shall be extended to the third business day following fulfillment of such compliance, the provisions of Section 8(c)(2) of the KL Purchase Agreement shall be included in the agreement referred to in the preceding sentence and the provisions of Section 8.10 of the USS Purchase Agreement shall govern. (E) For purposes of this Agreement the "Sale Period" for a public market sale by Kushner-Locke shall be that period which begins on the fourth (4th) business day following Pequot's receipt of the Notice and ends at the close of the nineteenth (19th) business day following Pequot's receipt of the Notice. The "Sale Period" for a privately negotiated sale or transfer shall be that period which begins on the sixth (6th) business day following Pequot's receipt of the Notice and ends at the close of business on the forty-sixth (46th) business day following Pequot's receipt of the Notice. In the event Pequot does not elect to acquire all of the shares specified in the Notice, Kushner-Locke may, within the Sale Period following the expiration of the option rights granted to Pequot, transfer the shares specified in the Notice which were not acquired by Pequot, and as to a Private Transaction, on terms and conditions no less favorable to Kushner-Locke than as specified in the Notice. (F) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this Section 1: (1) Kushner-Locke's bona fide pledge or mortgage of any portion or all of the Stock pursuant to the Credit Agreement (as defined in the Stock Purchase Agreement of even date herewith) with The Chase Manhattan Bank, N.A. or pursuant to a similar agreement with another commercial lending institution. (2) Any transfer of all or any portion of the Stock pursuant to a foreclosure on or sale of such Stock by the secured party under any bona fide pledge or mortgage permitted under subsection (1) above, it being understood that all rights of Pequot under this Agreement shall terminate with respect to, and not be enforceable against, any transferee (other than Kushner-Locke or any of its Affiliates) pursuant to such foreclosure or sale. (3) Kushner-Locke's transfer of all or any portion of the Stock to Pequot or to any other Affiliate of Pequot. (4) Kushner-Locke's transfer of any portion or all of the Stock to a person who, at the time of such transfer, is an officer or director of Pequot. (5) Kushner-Locke's transfer of all or any portion of the Stock pursuant to and in accordance with the terms of any merger, consolidation or sale of all of the shares of Kushner-Locke, or pursuant to a sale of all or substantially all of the assets of Kushner-Locke. In the event of any transfer or assignment specified in subsection (5) above, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this Agreement, there shall be no further transfer of such stock except in accord with this Agreement, and prior to the completion of any such transfer, the applicable transferee shall execute a written agreement agreeing and acknowledging that he, she or it shall comply with terms of this Agreement in connection with any subsequent transfer. (G) The provisions of this Section 1 may be waived with respect to any transfer by express written consent of Pequot. 2. Termination. This Agreement shall terminate and be of no further force or effect immediately when (i) Pequot owns less than ten percent (10%) of the Series A Convertible Preferred Stock, or the Stock underlying such Series A Convertible Stock, originally purchased on the First Closing or (ii) Pequot owns less than ten percent (10%) of all the issued and outstanding shares of capital stock of the Company (including all shares of capital stock issuable upon conversion or exercise of any outstanding rights, warrants or other convertible securities of the Company), whichever shall occur later. 3. Miscellaneous. (a) Notices. Any notice, response or other communication required or permitted hereunder shall be given, in the case of a communication to a Pequot, to the attention of David Malat, the Chief Accounting Officer of Purchaser's Investment Manager and to Carol Holley, the Vice President of Purchaser's Investment Manager, or to such other person or persons as shall have been designated in writing to Kushner-Locke by Pequot, in the case of a communication to Kushner-Locke, to the attention of Donald Kushner and Peter Locke. Except as otherwise set forth in this Agreement, such notice, response or other communication shall be by personal delivery to the applicable party's address, as indicated below that party's signature to this Agreement, with written notice of receipt, by facsimile transmission to the number shown below the applicable party's signature to this Agreement, by email transmission to dmalat@pequotcap.com, in the case of Mr. Malat and to carol@pequotcap.com, in the case of Ms. Holley, or by Federal Express or similar service for overnight delivery to the party's address, as indicated below that party's signature to this Agreement. In the event of any other method of delivery, such communications shall be deemed effectively given as of the date of receipt. Any party to this Agreement may designate a new address for receipt of communication or new persons to whose attention communications shall be addressed by providing ten (10) days' advance written notice of such change to the other party hereto by registered or certified mail with postage and fees prepaid, addressed to the attention of Donald Kushner and Peter Locke at the address shown below or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto. (b) Defined Terms. All capitalized terms used and not otherwise defined in this Agreement shall have the meanings assigned to them in the USS Purchase Agreement. (c) Successors and Assigns. This Agreement may not be assigned by either party hereto. (d) Attorneys' Fees. Should any party to this agreement institute any legal action against the other party to enforce provisions hereof (including any claim for breaches of representations and warranties), the prevailing party in such action shall be entitled to receive from the losing party, in addition to any other relief to which the prevailing party may be entitled all expenses incurred by the prevailing party in connection with the enforcement of this Agreement. (e) Expenses. Kushner-Locke and Pequot shall each pay their own expenses incident to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby. (f) Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The parties agree that any action brought by either party to interpret or enforce any provision of this Agreement shall be brought in, and each party agrees to, and does hereby, submit to the jurisdiction and venue of, the appropriate state or federal court in the City of New York. (g) Jurisdiction, Venue, Service of Process. (1) each party hereto hereby expressly consents to personal jurisdiction and venue in all federal and state courts sitting in the city of New York, and all federal and state courts sitting in the county of New York, NY, in connection with any suit, action or proceeding relating to any provision of, or based on any matter arising out of or in connection with, this Agreement, any instrument or document referred to herein or related hereto. Each party hereto hereby expressly agrees that any process or notice of motion or other application to any of the foregoing courts or a judge of such courts may be served upon the sole shareholder within or without such courts jurisdiction by registered or certified mail. (2) each party hereto hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding relating to any provision of, or based on any matter arising out of or in connection with, this Agreement, any instrument or document referred to herein or related hereto, brought in any federal or state court sitting in the county of New York and hereby further irrevocably waives any claim that such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. (3) each party hereto hereby irrevocably waives any right to a trial by jury in any suit, action or proceeding relating to any provision of, or based on any matter arising out of or in connection with, this Agreement, any instrument or document referred to herein or related hereto. (h) Equitable Relief. The parties hereto acknowledge and agree that a breach of the provisions of this Agreement cannot be reasonably or adequately compensated in damages in an action at law and that a party's breach will cause irreparable injury and damage to the other parties hereto. The parties hereto further agree that they shall be entitled, in addition to any other remedies they may have under this Agreement or otherwise, to temporary, preliminary and/or permanent injunctive and other equitable relief to prevent or curtail any breach of this Agreement, without proof of actual damages that have been or may be caused to the party requesting such remedy by such breach or threatened breach; provided, however, that no specification in this Agreement of a specific legal or equitable remedy shall be construed as a waiver or prohibition against the pursuing of other legal or equitable remedies in the event of a breach. (i) Further Execution. The parties agree to take all such further action(s) as may reasonably be necessary to carry out and consummate this Agreement as soon as practicable, and to take whatever steps may be necessary to obtain any governmental approval in connection with or otherwise qualify the issuance of the securities that are the subject of this Agreement. (j) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and merges all prior agreements or understandings, whether written or oral. This Agreement may not be amended, modified or revoked, in whole or in part, except by an agreement in writing signed by each of the parties hereto. (k) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (l) Counterparts; Facsimile Execution. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which, when taken together, shall constitute one instrument. Facsimile execution and delivery of this Agreement shall be legal, valid and binding execution and delivery for all purposes. In Witness Whereof, the parties hereto have executed this Right of First Refusal Agreement as of the day and year first above written. THE KUSHNER-LOCKE COMPANY By: Name: Donald Kushner Title: Co-Chief Executive Officer Address: 11601 Wilshire Boulevard 21st Floor Los Angeles, California 90025 Facsimile: (310) 481-2101 PEQUOT PRIVATE EQUITY FUND II, L.P. By: PEQUOT CAPITAL MANAGEMENT, INC., its Investment Manager By: Name: Kevin E. O'Brien, Title: General Counsel Address: 500 Nyala Farm Road Westport, CT 06880 Facsimile: (203) 429-2420 -----END PRIVACY-ENHANCED MESSAGE-----