-----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, I6R1vF/huXTEl/uNJfjFyz05O4zVxQUOWb/GAFWBL7aSDltWqmXGmOEci4Pu6KZp rvMFNZCreI9G7aGPIQeEfg== 0000927016-99-002796.txt : 19990806 0000927016-99-002796.hdr.sgml : 19990806 ACCESSION NUMBER: 0000927016-99-002796 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 19990805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BE FREE INC CENTRAL INDEX KEY: 0001084866 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043303188 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-84535 FILM NUMBER: 99678174 BUSINESS ADDRESS: STREET 1: 154 CRANE MEADOW RD SUITE 100 CITY: MARLBOROUGH STATE: MA ZIP: 01752 BUSINESS PHONE: 5083578888 MAIL ADDRESS: STREET 1: BE FREE INC STREET 2: 154 CRANE MEADOW ROAD CITY: MARLBOROUGH STATE: MA ZIP: 01752 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on August 5, 1999 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION --------------- REGISTRATION STATEMENT ON FORM S-1 UNDER THE SECURITIES ACT OF 1933 --------------- BE FREE, INC. (Exact name of registrant as specified in its charter) Delaware 7374 04-3303188 (State or other (Primary Standard Industrial (I.R.S. Employer jurisdiction Classification Code Number) Identification Number) of incorporation or organization) 154 Crane Meadow Road Marlborough, Massachusetts 01752 (508) 357-8888 (Address, including zip code, telephone number, including area code, of registrant's principal executive offices) Gordon B. Hoffstein President and Chief Executive Officer BE FREE, INC. 154 Crane Meadow Road Marlborough, Massachusetts 01752 (508) 357-8888 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- Copies to: JAY E. BOTHWICK, ESQ. MARK H. BURNETT, ESQ. DAVID A. WESTENBERG, ESQ. JOCELYN M. AREL, ESQ. HALE AND DORR LLP TESTA, HURWITZ & THIBEAULT, LLP 60 State Street 125 High Street Boston, Massachusetts 02109 Boston, Massachusetts 02110 Telephone: (617) 526-6000 Telephone: (617) 248-7000 Telecopy: (617) 526-5000 Telecopy: (617) 248-7100 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [X] --------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Proposed Maximum Title of Each Class of Aggregate Amount of Securities to be Registered Offering Price(1) Registration Fee - -------------------------------------------------------------------------------- Common Stock, $.01 par value per share.............................. $59,800,000 $16,625 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +We will amend and complete the information in this prospectus. Although we + +are permitted by U.S. federal securities laws to offer these securities using + +this prospectus, we may not sell them or accept your offer to buy them until + +the documentation filed with the SEC relating to these securities has been + +declared effective by the SEC. This prospectus is not an offer to sell these + +securities or our solicitation of your offer to buy these securities in any + +jurisdiction where that would not be permitted or legal. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION-AUGUST 5, 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Prospectus , 1999 [Be Free logo appears here] Shares of Common Stock - -------------------------------------------------------------------------------- The Company: The Offering: . We are a leading . We are offering shares of our common provider of services stock. that enable electronic commerce merchants and . The underwriters have an option to purchase up Internet portals to to an additional shares from us to market their products cover over-allotments. and services in tens of thousands of locations . This is our initial public offering. We on the Internet and to anticipate that the initial public offering pay for these price will be between $ and $ per promotions based on share. resulting sales or traffic. . We plan to use the proceeds from this offfering for working capital and other general corporate purposes. Proposed Symbol & Market: . BFRE/NASDAQ . Closing: , 1999. -----------------------------------------------
Per Share Total ----------------------------------------- Public offering price: $ $ Underwriting fees: Proceeds to Be Free: -----------------------------------------
This investment involves risk. See "Risk Factors" beginning on page 6. - -------------------------------------------------------------------------------- Neither the SEC nor any state securities commission has determined whether this prospectus is truthful or complete. Nor have they made, nor will they make, any determination as to whether anyone should buy these securities. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- Donaldson, Lufkin & Jenrette Hambrecht & Quist Dain Rauscher Wessels a division of Dain Rauscher Incorporated The undersigned is facilitating Internet distribution DLJdirect Inc. [Be Free logo] [Inside Front Cover Artwork] Graphic of two Web site pages that contain promotions of Be Free's e-merchant customers. [Be Free logo] Graphic of a promotion featured on the Web site of a marketing affiliate. This graphic is being viewed by a crowd of miniature people and is connected by arrows flowing through a graphic of Be Free's Data Interchange to a graphic of an e-merchant customer's Web site. These three graphics together represent the exchange of information between Be Free, its customers and their marketing affiliates, and illustrate how performance marketing works in the Internet. TABLE OF CONTENTS
Page Prospectus Summary........................................................ 1 Risk Factors.............................................................. 6 Use of Proceeds........................................................... 18 Dividend Policy........................................................... 18 Capitalization............................................................ 19 Dilution.................................................................. 20 Selected Consolidated Financial Data...................................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 23 Business.................................................................. 31
Page Management................................................................. 44 Transactions with Related Parties.......................................... 50 Principal Stockholders..................................................... 53 Description of Capital Stock............................................... 55 Shares Eligible for Future Sale............................................ 59 Underwriting............................................................... 61 Legal Matters.............................................................. 63 Experts.................................................................... 64 Where You Can Find More Information........................................ 64 Index to Financial Statements.............................................. F-1
i PROSPECTUS SUMMARY This summary may not contain all of the information that is important to you. You should read the entire prospectus, including the financial statements and related notes, before making an investment decision. As used in this prospectus, the terms "we," "us," "our" and similar terms refer to Be Free, Inc. and not to its management or stockholders. Unless otherwise indicated, all information in this prospectus: . reflects a for reverse stock split effected on , 1999; . assumes that the underwriters will not exercise their over-allotment option; . gives effect to the conversion of all outstanding shares of preferred stock into shares of common stock upon completion of this offering; and . assumes the effectiveness of our amended and restated certificate of incorporation. Be Free Our Business We are a leading provider of services that enable electronic commerce merchants and Internet portals to market their products and services in tens of thousands of locations on the Internet and to pay for these promotions based on performance. Our e-merchant and portal customers use our services to establish and manage performance marketing relationships directly with these third party locations. We enable the third party marketing partners to integrate our customers' promotions into their Web sites and e-mail messages that contain content that is relevant to the products or services being promoted. Our customers pay their marketing partners only for those promotions that generate sales or traffic. In this way, our customers create their own performance marketing sales channels. We provide a cost-effective solution for establishing, managing and rewarding these channels. We enable our customers to increase their sales and traffic and decrease their cost of customer acquisition. Our services are critical to online performance marketing because they: . provide the data interchange that integrates our customers' catalog, transactional and fulfillment systems with tens of thousands of Web sites and e-mail messages created by their marketing partners; . enable our customers to generate and manage a variety of promotional links for each of their products or services; . enable each of our customer's marketing partners to select those promotional links that are relevant to the content on its Web site or within its e-mail messages and integrate those links within that content; 1 . track the effectiveness of each individual promotion by recording each time a user views it on a marketing partner's site, clicks on it and is directed to our customer's site, and makes a purchase on that customer's site; and . collect, store and analyze viewing, click-through and sales data to improve the effectiveness of online marketing and to reduce the cost of customer acquisition. Using our services, our customers pay only for those individual promotions that succeed. Our e-merchant customers typically pay their marketing partners only for the sales they generate. Our portal customers typically pay their marketing partners only for the traffic they send to the portal. Our fees are also typically based on the level of sales or traffic generated for our customers through their performance marketing channels. As a result, our economic interests are closely aligned with the economic interests of our customers and their marketing partners. Our performance marketing services to date have focused on enabling our customers to establish and manage affiliate sales channels. These channels comprise third-party Web site publishers that include on their sites promotional links to their affiliated e-merchants and portals. We also provide performance marketing services which enhance more traditional online marketing, such as the serving of ad banners, by tracking their effectiveness through to a sale. Recently, we expanded our performance marketing services to enable the inclusion of promotions in e-mail messages sent by businesses and individuals. The promotions we tracked for our customers were shown more than 300 million times in June 1999 through the more than one million performance marketing relationships our customers have established. Jupiter Communications, an Internet research firm, estimates that e-merchants with an affiliate sales channel generate on average 17% of their online sales from that channel. We believe that affiliate sales channels and other online performance marketing channels will constitute an increasingly significant revenue source for our customers. Our Market Opportunity The Internet has experienced rapid growth both in terms of the number of users online and in the amount and dispersion of content available to them online. The Internet has also emerged as a significant sales channel for goods and services to consumers, with total U.S. online consumer spending projected to increase from $7.8 billion in 1998 to $108.0 billion in 2003. E-merchants and portals use online promotions to reach a global audience for their products and services, drive traffic to their Web sites, attract customers and facilitate transactions. Initially, these online promotions took the form of banner advertisements. Under this model an advertiser pays fees based on the number of times its ad is displayed and typically evaluates the performance of that ad based on the rate at which viewers click on it and are directed to the advertiser's Web site. As a result of decreases in these click-through rates and a need to reach a broader audience viewing more widely dispersed content, e-merchants and portals sought to pay for their marketing programs based on the sales or traffic they generated. These affiliate sales channels have emerged as the first widely introduced type of these performance marketing programs. 2 E-merchants and portals face several challenges in establishing and managing performance marketing programs. These challenges include developing technologies to exchange data with thousands of marketing partners that operate disparate systems, generating and placing promotions and managing relationships with large numbers of marketing partners. In addition, marketing partners want to minimize the time and expense associated with enrolling in a performance marketing program and creating and changing promotions for a particular e- merchant or portal. We believe these challenges provide a significant opportunity for our comprehensive solutions that are designed to help e- merchants and portals establish and manage performance marketing channels and to help marketing partners enhance their revenue. Our Strategy Our objective is to be the leading provider of online performance marketing solutions. We are focusing on the following strategic initiatives to achieve this objective: . continue our technology leadership and expertise to enhance and extend our comprehensive solutions for performance marketing programs; . rapidly expand our targeted customer base, both in the U.S. and selected markets abroad; . continue to provide customer branded and controlled solutions; . increase the size and effectiveness of our customers' sales channels; and . expand our services to existing customers. Our History We were incorporated in 1996 in Delaware under the name Freedom of Information, Inc. and changed our name to Be Free, Inc. in March 1999. In August 1998 we combined with two affiliated companies under common control and management. One affiliated company was incorporated in 1985 in Pennsylvania and the other was incorporated in 1996 in Delaware. All of our financial statements and data in this prospectus are presented on a consolidated basis for all three entities. Our principal executive office is located at 154 Crane Meadow Road, Marlborough, Massachusetts 01752, and our telephone number is (508) 357-8888. Our corporate Web sites are located at www.befree.com and www.affiliaterecruiters.com. The information contained on our Web sites is not a part of this prospectus. ---------------- Be Free, BFAST, BFIT, B-INTOUCH and e-nabled are our servicemarks. This prospectus also contains other trademarks, servicemarks and tradenames that are the property of their respective owners. 3 The Offering Common stock offered by Be Free.... shares Common stock to be outstanding after this offering............... shares Use of proceeds.................... Working capital and other general corporate purposes Proposed Nasdaq National Market symbol............................ BFRE
The common stock outstanding after the offering is based on the number of shares outstanding as of , 1999, and excludes: . shares issuable upon the exercise of outstanding options with a weighted average exercise price of $ per share; . shares available for issuance and grant under our 1998 Stock Incentive Plan, net of outstanding options; and . shares issuable upon the exercise of outstanding warrants at a weighted average exercise price of $ per share. 4 Summary Consolidated Financial Information (In thousands, except per share data) The financial data set forth below should be read with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes, all included elsewhere in this prospectus. Unaudited pro forma basic and diluted net loss per share have been calculated assuming the conversion of all outstanding shares of preferred stock into shares of common stock, as if the shares had converted immediately upon issuance. Accordingly, accretion of preferred stock to redemption value has not been included in the calculation of unaudited pro forma basic and diluted net loss per share.
Six Months Ended June Year Ended December 31, 30, ------------------------- -------------- 1996 1997 1998 1998 1999 Statement of Operations Data: Revenue: Performance marketing services..... $ -- $ 216 $ 1,319 $ 617 $ 1,396 Other.............................. 196 60 8 3 -- ------- ------- ------- ----- ------- Total revenue..................... 196 276 1,327 620 1,396 Total operating expenses............ 1,461 1,211 4,794 825 7,603 ------- ------- ------- ----- ------- Operating loss...................... (1,265) (935) (3,467) (205) (6,207) Interest expense, net............... (26) (99) (224) (61) (168) ------- ------- ------- ----- ------- Net loss............................ (1,291) (1,034) (3,691) (266) (6,375) Accretion of preferred stock to redemption value................... -- -- (56) -- (590) ------- ------- ------- ----- ------- Net loss attributable to common stockholders....................... $(1,291) $(1,034) $(3,747) $(266) $(6,965) ======= ======= ======= ===== ======= Basic and diluted net loss per share.............................. $ $ $ $ $ Shares used in computing basic and diluted net loss per share......... Unaudited pro forma basic and diluted net loss per share......... $ $ Shares used in computing unaudited pro forma basic and diluted net loss per share.....................
The pro forma as adjusted balance sheet data as of June 30, 1999 give effect to the conversion of all outstanding shares of preferred stock into shares of common stock and have been adjusted to give effect to the sale of shares of common stock offered hereby at the assumed initial public offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses.
As of June 30, 1999 --------------------- Pro Forma Actual As Adjusted Balance Sheet Data: Cash, cash equivalents and marketable securities......... $ 24,325 $ Working capital.......................................... 21,032 Total assets............................................. 30,183 Long-term debt, net of current portion................... 6,018 6,018 Convertible preferred.................................... 35,350 -- Total stockholders' equity (deficit)..................... (16,494)
5 RISK FACTORS You should consider carefully the following risks, together with all other information included in this prospectus before you decide to buy our common stock. Please keep these risks in mind when reading this prospectus, including any forward-looking statements appearing in this prospectus. If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer materially. As a result, the trading price of our common stock may decline, and you could lose all or part of the money you paid to buy our common stock. Risks Related to Our Business Our limited operating history makes the evaluation of our business and prospects difficult We introduced our first performance marketing services and recorded our first revenue from these services in the third quarter of 1997. Accordingly, we have a limited operating history of running our current business. Our current business has never achieved profitability and our business model and profit potential are unproven. Before buying our common stock, you should consider the risks and difficulties frequently encountered by early stage companies in new and rapidly evolving markets, particularly those companies whose business depends on the Internet. We cannot assure you that our business strategy will be successful or that we will address these risks and difficulties successfully. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for detailed information on our limited operating history. We have a history of losses and expect future losses Our accumulated deficit as of June 30, 1999 was $12.5 million. Our current business has never achieved profitability and we expect to continue to incur losses for the foreseeable future in light of the level of our planned operating and capital expenditures. To support our current and future lines of business, we plan to invest in our technology and infrastructure, including an expansion of our existing data center and the opening of new data centers. We also intend to increase our expenditures relating to sales and marketing and product development activities. The timing of our investments and expansion could cause material fluctuations in our results of operations. We also plan to purchase additional capital equipment, which will result in additional depreciation expense. Our losses may increase in the future and we may not be able to achieve or sustain profitability. We will need to generate significant additional revenue to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future. If our revenue grows more slowly than we anticipate, or if our operating expenses exceed our expectations and cannot be adjusted accordingly, our business, results of operations and financial condition would be materially and adversely affected. We also expect to experience negative operating cash flow for the foreseeable future as we fund our operating losses and capital expenditures. See "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more detailed information. The acceptance and effectiveness of Internet advertising and marketing are not yet fully established and it is uncertain whether they will receive widespread customer acceptance Our future success depends in part on a significant increase in the use of the Internet as an advertising and marketing medium. The Internet advertising and marketing market is new and rapidly 6 evolving, and it cannot yet be compared with traditional advertising media or marketing programs to gauge its effectiveness. As a result, demand for and market acceptance of Internet advertising and marketing solutions are uncertain. Many of our current and potential customers have little or no experience with Internet advertising and marketing and have allocated only a limited portion of their advertising and marketing budgets to Internet activities. The adoption of Internet advertising and marketing, particularly by entities that have historically relied upon more traditional methods, requires the acceptance of a new way of advertising and marketing. These customers may find Internet advertising and marketing to be less effective for meeting their business needs than other methods of advertising and marketing. Furthermore, there are software programs that limit or prevent advertising from being delivered to a user's computer. Widespread adoption of this software by Web users would significantly undermine the commercial viability of Internet advertising and marketing. In addition, performance marketing on the Internet requires the collection and maintenance of sensitive marketing and consumer data by companies like us. Customers may refuse to allow this data collection and choose alternative forms of Internet advertising and marketing. If these markets fail to develop or develop more slowly than we expect, our business, financial condition and results of operations would be materially and adversely affected. Our business model is unproven and may not be successful We do not know whether our business model and strategy will be successful. If the assumptions underlying our business model are not valid or we are unable to implement our business plan, achieve the predicted level of market penetration or obtain the desired level of pricing of our services for sustained periods, our business results will be materially and adversely affected. Substantially all of our revenue is derived from a new business model. Our revenue depends on whether the online marketing that we facilitate generates sales or traffic for our customers. In contrast, others earn fees based merely on placing online advertisements for customers. If our performance marketing business model proves to be unsuccessful, our business results will be materially and adversely affected. We have a small number of customers from which we derive a significant portion of our revenue and the loss of these customers would adversely affect our financial condition and results of operations We derive a substantial portion of our revenue from a small number of e- merchants and other Web-based businesses. Our largest customer, barnesandnoble.com, represented 78%, 73% and 40% of our revenue in 1997, 1998 and the first six months of 1999, respectively. GeoCities, a subsidiary of Yahoo, Inc., which became a customer in 1999, accounted for 15% of our revenue in the first six months of 1999. Our business, results of operations and financial condition would be materially and adversely affected by the loss of either of these customers, any significant reduction in net revenue generated from these customers or any system or other disruptions related to these customers or their significant marketing partners. Our contracts with barnesandnoble.com and GeoCities expire in January 2001 and January 2002, respectively. GeoCities has the right to terminate its contract prior to the expiration of its term by giving us notice and paying a penalty. Both contracts provide that either party may terminate upon a material breach under certain circumstances. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note B to Notes to Consolidated Financial Statements included elsewhere in this prospectus for detailed information on our customer concentration. 7 System disruptions and failures could cause data loss and customer dissatisfaction or financial loss The continuing and uninterrupted performance of the computer systems used by us, our customers and their marketing partners is critical to our success. Customers may become dissatisfied by any system failure that interrupts our ability to provide our services to them. These failures could affect our ability to deliver and track promotions quickly and accurately to the targeted audience and deliver reports to our customers and their marketing partners. Sustained or repeated system failures would reduce the attractiveness of our services significantly. Our operations depend on our ability to protect our computer systems against damage from fire, power loss, water damage, telecommunications failures, vandalism and similar unexpected adverse events. In addition, interruptions in our services could result from the failure of telecommunications providers to provide the necessary data communications capacity in the time required. Our critical computer hardware and software is housed at Exodus Communications, Inc., a third party provider of Internet hosting and communication services located in the Harborside, New Jersey area. Any system failure by us or Exodus, or any of the above factors affecting the Harborside, New Jersey area specifically, would have a material adverse effect on our business. Further, despite our efforts to implement network security measures, our systems are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering. We do not carry enough business interruption insurance to compensate for any significant losses that may occur as a result of any of these events. We have experienced systems outages in the past, during which we were unable to route transactions to our customers from their marketing partners or provide reports. During these outages our customers may have lost sales and some of their marketing partners may have failed to earn commissions. We may experience such outages in the future. The expansion of our existing data center and the opening of additional data centers may not eliminate systems outages or prevent the loss of sales when system outages occur. Our business, results of operations and financial condition could be materially and adversely affected by any damage or failure that interrupts or delays our operations. See "Business--Technology Infrastructure." We operate in highly competitive markets and may not be able to compete effectively We compete in markets that are new, intensely competitive, highly fragmented and rapidly changing. We do not currently compete against established companies across the range of services we provide. We do, however, compete against larger companies with respect to a portion of the services we provide and compete more broadly against similar sized, private companies. We face competition in the overall performance marketing solutions market as well as the affiliate network and banner advertising delivery segments of the Internet advertising and marketing markets. In addition, we have recently entered the online e-mail referral services market and expect to face competition in this market as well. We have experienced and expect to continue to experience increased competition from current and potential competitors. We believe our principal competitors are Commission Junction, LinkShare and Microsoft's LinkExchange. Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements than we can. In addition, our current and potential competitors may bundle their products with other software or hardware, including operating systems and Internet browsers, in a manner that may discourage users from purchasing products offered by us. Also, many current and potential competitors have greater name recognition and significantly greater financial, 8 technical, marketing and other resources than we do. Increased competition could result in price reductions, fewer customer orders, reduced gross margins and loss of market share. A breach of our security measures and release of confidential data could cause financial loss A fundamental requirement for online commerce is the secure transmission of confidential information over public networks. Third parties may attempt to breach our security. If they are successful, they could obtain our customers' or their marketing partners' confidential information, including marketing data, sales data, passwords, financial account, performance and contact information. We may be liable for any breach in our security and any breach could harm our reputation, reduce demand for our services or cause customers to terminate their relationships with us. We rely on encryption technology licensed from third parties. Our systems are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays or loss or theft of data. We may be required to expend significant capital and other resources to license encryption technology and additional technologies to protect against security breaches or to alleviate problems caused by any breach. Our failure to prevent security breaches may have a material adverse effect on our business and operating results. We may be exposed to potential liabilities if we supply inaccurate information to our customers Our services depend on complex software that we have internally developed or licensed from third parties. Software often contains defects, particularly when first introduced or when new versions are released, which can adversely affect performance or result in inaccurate data. We may not discover software defects that affect our new or current services or enhancements until after they are deployed. In addition, our services depend on our customers and their marketing partners supplying us with data regarding contacts, performance and sales. They may provide us with erroneous or incomplete data. Software defects or inaccurate data may cause incorrect recording, reporting or display of information to our customers or their marketing partners, which could provide an inaccurate basis for payment of fees or the extension, termination or alteration of our customer relationships. To be competitive, we must continue to develop new services, and our failure to do so may adversely affect future revenue growth Our market is characterized by rapid technological change, frequent new service introductions, changes in customer requirements and evolving industry standards. The introduction of services embodying new technologies and the emergence of new industry standards could render our existing services obsolete. Our future success will depend upon our ability to develop and introduce a variety of new services and service enhancements to address the increasingly sophisticated needs of our customers. We have experienced delays in releasing new services and service enhancements and may experience similar delays in the future. Material delays in introducing new services and enhancements may cause customers to forego purchasing or renewing our services and purchase those of our competitors. We face risks associated with potential government regulation, both foreign and domestic, related to e-commerce Laws and regulations directly applicable to Internet communications, commerce and marketing are becoming more prevalent. The United States Congress has enacted Internet laws regarding 9 children's privacy, copyrights and taxation. Other laws and regulations may be adopted covering issues such as user privacy, pricing, content, taxation and quality of products and services. Such legislation could hinder the growth in use of the Web generally and decrease the acceptance of the Web as a medium of communications, commerce and marketing. The governments of states and foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our activities. The laws governing the Internet remain largely unsettled, even in areas where legislation has been enacted. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet and Internet advertising and marketing services. In addition, the growth and development of the market for Internet commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business over the Internet. Our business, results of operations and financial condition could be adversely affected by the adoption or modification of laws or regulations relating to the Internet. The Internet generates privacy concerns which could result in market perceptions or legislation which could harm our business, result in reduced sales of our services, or both We develop and maintain data related to communications, consumer behavior and marketing profiles. When a user first views or clicks on a customer's promotion managed by our system, our software creates an anonymous profile for that user and we add and change profile attributes based upon that user's behavior on our customer's Web site and its marketing partners' Web sites. Privacy concerns may cause visitors to avoid Web sites that track behavioral information and even the perception of security and privacy concerns, whether or not valid, may indirectly inhibit market acceptance of our services. In addition, legislative or regulatory requirements may heighten these concerns if businesses must notify users that the data captured after visiting Web sites may be used to direct product promotions and advertising to that user. For example, the European Union recently enacted its own privacy regulations that may result in limits on the collection and use of some user information. The United States and other countries may adopt similar legislation or regulatory requirements. If privacy legislation is enacted or consumer privacy concerns are not adequately addressed, our business, results of operations and financial condition could be harmed. We may not be able to protect and enforce our intellectual property rights and may be infringing upon third-party intellectual property rights Our success and ability to compete depend to a significant degree on the protection of our proprietary rights. We seek to protect our proprietary rights through a combination of patent, copyright, trade secret and trademark law and assignment of invention and confidentiality agreements. The unauthorized reproduction or other misappropriation of our proprietary rights could enable third parties to benefit from our technology without paying us for it. If this occurs, our business could be materially adversely affected. In December 1998, we were granted U.S. Patent No. 5,848,396 covering the development of profiles based on viewing history and targeting advertisements based upon such profiles. We have also filed applications to register various servicemarks. We cannot assure you that any of our servicemark registrations will be approved. We cannot assure you that our patent or any future patents or servicemark registrations we receive will not be successfully challenged by others or invalidated. In addition, we cannot assure you that we do not infringe any intellectual property rights of third parties or that we will be able to prevent 10 misappropriation of our technologies, particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States. We may be unable to manage effectively the rapid growth in our operations We have experienced rapid growth and expansion in our operations that have placed a significant strain on our managerial, operational and financial resources. Many members of our management have only recently joined us. We have grown from 12 employees as of June 30, 1998 to 118 employees as of June 30, 1999 and expect the number of employees to increase in the future. To compete successfully, we must: . continue to improve our financial and management controls; . enhance our reporting systems and procedures; . continue to scale our performance marketing systems; . expand, train and manage our work force; and . integrate new customers effectively. We cannot be certain that our systems, procedures or controls will be adequate to support our expanding operations, or that management will be able to respond effectively to our growth. Our future results of operations also depend on the expansion of our sales, marketing and customer support departments. We may be adversely affected if we fail to attract and retain key personnel Our success depends upon the continued services of our key technical, sales and senior management personnel, including our President and Chief Executive Officer, Gordon B. Hoffstein. Any officer or employee can terminate his or her relationship with us at any time. Our future success will also depend on our ability to attract, train, retain and motivate highly qualified technical, marketing, sales and management personnel. Competition for these personnel is intense, and we may not be able to attract and retain them. The loss of the services of one or more of our key employees or our failure to attract additional qualified personnel could have a material adverse effect on our business, results of operations and financial condition. Our failure or the failure of third parties to be year 2000 compliant could negatively impact our business Beginning in the year 2000, the date fields coded in some computer systems and software products will need to accept four-digit entries in order to distinguish between 21st century and 20th century dates. There is significant uncertainty regarding the potential effects of this issue. To address these concerns, we have reviewed internally developed software included in our systems. We are also working with our external suppliers and service providers to determine if third-party systems and applications will be able to interoperate with our hardware and software infrastructure in the year 2000. Based on these efforts, we believe we have no significant Year 2000 issues within our systems or services. We have not had any independent verification of our Year 2000 readiness or assessment of potential costs associated with Year 2000 risks. We also have not procured any Year 2000 specific insurance or made any contingency plans to address Year 2000 risks. Further, we have not deferred 11 any of our ongoing development efforts to address Year 2000 issues, and do not anticipate any material payments to vendors to remediate Year 2000 problems. However, unanticipated costs associated with any Year 2000 compliance may exceed our present expectations and have a material adverse effect on our business, results of operations and financial condition. We depend on the uninterrupted availability of the Internet infrastructure to conduct our business. We also rely on the continued operations of our customers, in particular their e-commerce sites where commercial transactions are performed, and our customers' marketing partners, in particular the Web sites and e-mail systems that host and distribute promotions, for our revenue. We are thus dependent upon the success of the Year 2000 compliance efforts of the service providers that support the Internet, our customers and their marketing partners. Interruptions in the Internet infrastructure affecting us, our customers or their marketing partners, or the failure of the Year 2000 compliance efforts of one or more of our customers or their marketing partners, could have a material adverse effect on our business, results of operations and financial condition. Further, the marketing initiatives pursued by our prospective customers could be affected by Year 2000 issues as companies expend significant resources to correct their current systems for the year 2000. These expenditures may result in reduced funds available for Internet advertising. This could materially and adversely affect our business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Compliance." We depend on hardware and software vendors for essential products We buy and lease hardware, including our servers and storage arrays from Sun Microsystems. We also license software, including our servers' operating systems, Web server technology, database technology, graphical user interface technology and encryption technology, primarily from Sun Microsystems, Oracle Corporation and PowerSoft. The market is evolving and we may need to purchase or lease additional hardware or license additional software to remain competitive. We may not be able to purchase or lease this hardware or license this software on a timely basis, commercially reasonable terms or at all. In addition, we may not successfully integrate any additional hardware or software. These third-party dependencies may expose us to increased risks. These risks include the integration of new technology, the diversion of resources from the development of our own proprietary technology and our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs. Our inability to obtain any of these leases or licenses could delay product and service development until equivalent technology can be identified, licensed and integrated. Any such delays in services could cause our business and operating results to suffer. We may be liable for information displayed on our customers' Web sites or within their marketing partners' Web sites or e-mail messages We may face potential liability for defamation, negligence, copyright, patent or trademark infringement and other claims based on the nature and content of the materials displayed on our customers' sites and on their marketing partners' sites and e-mail messages. We may also suffer a loss of customers or reputational harm based on such information. We do not and cannot screen all of the content generated by our customers and their partners, and we could be exposed to liability 12 with respect to this content. Furthermore, some foreign governments have enforced laws and regulations related to content distributed over the Internet that are more strict than those currently in place in the United States. Our insurance may not cover claims of these types or may not be adequate to indemnify us for all liability that may be imposed. There is a risk that a single claim or multiple claims, if successfully asserted against us, could exceed the total of our coverage limits. There is also a risk that a single claim or multiple claims asserted against us may not qualify for coverage under our insurance policies as a result of coverage exclusions that are contained within these policies. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our reputation and our business and operating results, or could result in the imposition of criminal penalties. We expect our operating results to fluctuate and the price of our common stock could fall if quarterly results are lower than the expectations of securities analysts Our revenue and operating results may vary significantly from quarter to quarter. If our quarterly results fall below the expectations of securities analysts, the price of our common stock could fall. A number of factors are likely to cause variations in our operating results, including: . the continued acceptance of online commerce; . demand for and the timing of sales of our services; . changes in the rapidly evolving market for Internet performance marketing services; . delays in introducing new services; . the timing of when we initially integrate our services with our new customers' systems and how long it takes them to generate significant regular online sales or traffic; . possible seasonality of the online sales of our e-merchant customers, most of whom sell goods and service at the retail level; and . increased expenses, whether related to capital expenditures, sales and marketing, product development or administration. Accordingly, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful. You should not rely on the results of one quarter as an indication of our future performance. We may be unable to fund our debt service, operating and capital requirements satisfactorily We expect the net proceeds from this offering, our current cash and cash equivalents and borrowings to meet our debt service, operating and capital requirements for at least the next 12 months. After that, we may need to raise additional funds. We cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. If we issue equity securities, stockholders may experience additional dilution or the holders of the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. If we cannot raise funds when needed, on acceptable terms, we may not be able to develop or enhance our services, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. This could seriously harm our business, results of operations and financial condition. 13 We plan to devote substantial resources to expand our existing data center and open additional data centers in 1999 and 2000. In addition, we expect to make significant investments in sales and marketing and the development of new services as part of our business strategy. The failure to generate sufficient cash from operations or to raise sufficient funds to finance this growth could require us to delay or abandon some or all of our plans or otherwise forego market opportunities. This could make it difficult for us to respond to competitive pressures. We face many challenges in connection with our planned international expansion We intend to expand our international operations and international sales and marketing efforts. To date, we have limited experience in developing localized versions of our services and in marketing, selling and distributing our services internationally. We have agreed to establish performance marketing programs for an existing customer in Europe and may establish additional programs in additional European countries and Japan. Our success in these markets will depend on the success of our customers in these countries. International operations are subject to other inherent risks, including: . the impact of recessions in economies outside the United States; . changes in regulatory requirements; . potentially adverse tax consequences; . difficulties and costs of staffing and managing foreign operations; . political and economic instability; . fluctuations in currency exchange rates; and . seasonal reductions in business activity during the summer months in Europe and some other parts of the world. These risks may materially and adversely affect our business, results of operations or financial condition. Management may invest or spend the proceeds of this offering in ways with which you may not agree Our board of directors and management will have significant flexibility in applying the net proceeds of this offering. As of the date of this prospectus, we do not have plans for using most of the proceeds from this offering other than for working capital and general corporate purposes, which may include the prepayment of certain existing indebtedness. Risks Related to the Internet Industry We depend on the continued viability of the Internet infrastructure Our success depends upon the development and maintenance of a viable Internet infrastructure. The current Internet infrastructure may be unable to support an increased number of users. The timely development of products such as high-speed modems and communications equipment will be necessary to continue reliable Internet access. Furthermore, the Internet has experienced outages and 14 delays as a result of damage to portions of its infrastructure. Outages and delays, including those resulting from Year 2000 problems, could adversely affect Web sites, e-mail and the level of traffic on the Web sites of our customers and their marketing partners. We also depend upon Internet access providers that provide consumers with access to our services. In the past, users have occasionally experienced difficulties due to system failures unrelated to our systems. Any disruption in the Internet access provided by third-party providers or any failure of third-party providers to handle higher volumes of user traffic could have a material adverse effect on our business, results of operations and financial condition. Finally, the effectiveness of the Internet may decline due to delays in the development or adoption of new standards and protocols designed to support increased levels of activity. If new standards or protocols are developed, we may be required to incur substantial expenditures to adapt our products. The demand for our services could be negatively affected by a reduced growth of e-commerce Our future success is dependent on an increase in the use of the Internet for business transactions with consumers. The electronic commerce market is new and rapidly evolving and the extent of consumer acceptance of the Internet is uncertain. If a sufficiently broad base of consumers do not accept the use of the Internet for transacting business, our business, results of operations and financial condition could be materially and adversely affected. Technical change may render our services obsolete The Internet and marketing on the Internet are characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions and changing customer demands. Our future success will depend on our ability to provide sophisticated technological services to customers who lack the expertise, technology, resources or capital to perform the services themselves. Technological developments that decrease these barriers to entry may adversely affect the market for our services. In addition, the establishment of technological developments or industry standards that make delivery of Internet advertising and marketing solutions difficult or obsolete may adversely affect our business, results of operation and financial condition. Projections included in this prospectus relating to the growth of e-commerce and the Internet are based on assumptions that could turn out to be incorrect and actual results could be materially different from the projections This prospectus contains various third-party data and projections, including those relating to revenue generated by electronic commerce, the number of Internet users and the amount of Internet advertising. These data and projections have been included in studies prepared by independent market research firms, and the projections are based on surveys, financial reports and models used by these firms. Actual results or circumstances may be materially different from the projections. This could reduce our revenue and harm our operating results. These data and projections are inherently imprecise and investors are cautioned not to place undue reliance on them. Risks Related to the Securities Markets Our stock price may be volatile Prior to this offering, investors could not buy or sell our common stock publicly. An active public market for our common stock may not develop or be sustained after the offering. We will 15 negotiate the initial public offering price with the representatives of the underwriters based on several factors. The market price of the common stock after this offering may vary from the initial public offering price. Fluctuations in market price and volume are particularly common among securities of Internet and other technology companies. The market price of our common stock may fluctuate significantly in response to the following factors, some of which are beyond our control: . variations in quarterly operating results; . changes in market valuations of Internet and other technology companies; . our announcements of significant contracts, acquisitions, strategic partnership, joint ventures or capital commitments; . failure to complete significant sales; . additions or departures of key personnel; . future sales of common stock; and . changes in financial estimates by securities analysts. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its stock. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources. Substantial sales of our common stock could cause our stock price to decline Sales of a substantial number of shares of common stock after this offering could adversely affect the market price of the common stock. On completion of this offering, we will have shares of common stock outstanding and shares subject to outstanding options. The shares sold in this offering will be freely tradable without restriction or further registration under the federal securities laws unless purchased by our "affiliates" as that term is defined in Rule 144. The remaining shares, or %, of common stock outstanding on completion of the offering will be "restricted securities" as that term is defined in Rule 144. Our directors, executive officers and other stockholders who collectively beneficially own approximately % of our outstanding stock have entered into lock-up agreements that limit their ability to sell common stock. These stockholders have agreed not to sell or otherwise dispose of any shares of common stock for a period of 180 days after the date of this prospectus without the prior written approval of Donaldson, Lufkin & Jenrette Securities Corporation. When the lock-up agreements expire, most of the restricted securities will become eligible for sale. Our existing stockholders will be able to control all matters requiring stockholder approval and could delay or prevent someone from acquiring or merging with us on terms favored by a majority of our independent stockholders On completion of this offering, our executive officers and directors and their affiliates will beneficially own approximately % of our outstanding common stock. As a result, these stockholders will be able to exercise control over the company's operations and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay or prevent a third party from acquiring or merging with us. 16 Anti-takeover provisions in our charter documents and Delaware law could prevent or delay a change in control of our company Some provisions of our certificate of incorporation and by-laws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable, which could reduce the market price of our common stock. Such provisions include: . authorizing the issuance of blank check preferred stock or additional shares of common stock; . providing for a classified board of directors with staggered, three-year terms; . providing that directors may only be removed for cause by a two-thirds vote of stockholders; . limiting the persons who may call special meetings of stockholders; . prohibiting stockholder action by written consent; and . establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings. Delaware law may also discourage, delay or prevent a third party from acquiring or merging with us. Investors will experience immediate dilution The initial public offering price is expected to be substantially higher than the book value per share of the outstanding common stock immediately after this offering. Accordingly, if you purchase common stock in the offering, you will incur immediate dilution of approximately $ in the book value per share of the common stock from the price you pay for the common stock. The forward-looking statements we make in this prospectus might prove inaccurate. As a result, our actual results, levels of activity, performance or achievements may differ materially from those expressed in the forward-looking statements Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus constitute forward- looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "might," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or other comparable terminology. These statements involve known and unknown risks and uncertainties that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. These factors include, among other things, the risk factors discussed above. We cannot guarantee any future results, levels of activity, performance or achievements. Moreover, neither we nor anyone else assumes responsibility for the accuracy and completeness of these statements. We do not intend to update any of the forward-looking statements after the date of this prospectus. 17 USE OF PROCEEDS We estimate that the net proceeds from our sale of shares of common stock at an initial public offering price of $ per share to be $ (approximately $ if the underwriters' over-allotment option is exercised in full), after deducting estimated underwriting discounts and offering expenses payable by us. Our primary purposes for this offering are to increase our equity capital, create a public market for our common stock and facilitate our future access to public equity markets. We intend to use our net proceeds of this offering for working capital and other general corporate purposes, including expansion of our existing data center and the addition of new data centers. We also intend to increase our expenditures relating to sales and marketing and product development activities. As of June 30, 1999, we had outstanding the following principal amounts under certain credit arrangements that we may repay, in whole or in part, with a portion of the proceeds of this offering: . $5,000,000 with an interest rate of 12% per annum under a subordinated debt agreement, to be repaid in equal monthly installments of principal beginning December 1999 and ending November 2001; and . $1,824,228 with an interest rate of 6.8% per annum under a revolving capital equipment line of credit with each borrowing under the line to be repaid in equal monthly installments of principal over four years from the date of that borrowing. These borrowings were used to provide working capital and to acquire computer equipment, furniture and fixtures. We have not identified specific uses for a substantial portion of our net proceeds of this offering, and we will have discretion over their use and investment. Pending use of the net proceeds, we intend to invest these proceeds in short-term, investment grade, interest-bearing securities. DIVIDEND POLICY We currently intend to retain future earnings, if any, to finance our growth. We have not paid any cash dividends since January 1, 1996 and do not anticipate paying cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, restrictions in financing agreements and plans for expansion. Under the terms of our existing subordinated debt agreement, we are prohibited from paying any cash dividends without the prior consent of our lenders. 18 CAPITALIZATION The following table sets forth our capitalization as of June 30, 1999 on an actual basis and pro forma as adjusted basis. This information should be read in conjunction with our consolidated financial statements and related notes, all included elsewhere in this prospectus. The pro forma as adjusted basis: . gives effect to the automatic conversion of all outstanding shares of preferred stock into shares of common stock upon the closing of this offering; and . reflects our receipt and application of the estimated net proceeds from the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share after deducting the estimated underwriting discounts and offering expenses payable by us. Shares of common stock reflected by this table exclude: . shares issuable upon the exercise of outstanding options with a weighted average exercise price of $ per share; . shares available for issuance and grant under our 1998 Stock Incentive Plan, net of outstanding options; and . shares issuable upon the exercise of outstanding warrants at a weighted average exercise price of $ per share.
As of June 30, 1999 ----------------------- Pro Forma As Actual Adjusted Cash, cash equivalents and marketable securities....... $24,324,816 $ =========== ========== Current portion of long-term debt...................... $ 1,932,355 $1,932,355 =========== ========== Long-term debt, net of current portion................. $ 6,018,464 $6,018,464 Series A Convertible Participating Preferred Stock; $.01 par value; 11,300,000 shares authorized, actual: 10,600,000 shares issued and outstanding, actual; none authorized, issued and outstanding, pro forma as adjusted.............................................. 9,899,507 -- Series A Convertible Participating Preferred Stock Warrants: 700,000 warrants, exercise price $1.00...... 540,000 -- Series B Convertible Participating Preferred Stock; $.01 par value; 13,196,522 shares authorized, actual: 13,196,522 shares issued and outstanding, actual; none authorized, issued and outstanding, pro forma as adjusted.............................................. 25,450,975 -- Stockholders' equity (deficit): Common stock, $0.01 par value; 55,000,000 shares authorized, actual; shares authorized, pro forma as adjusted: shares issued, actual; shares issued pro forma as adjusted......................... Additional paid-in capital............................ Unearned compensation................................. (3,522,819) Shareholders notes receivable......................... (309,659) Accumulated deficit................................... (12,484,321) Treasury stock, at cost ( shares, actual and pro forma as adjusted)................................... (1,593,239) ----------- ---------- Total stockholders' equity (deficit)................... (16,494,073) ----------- ---------- Total capitalization................................... $25,414,873 $ =========== ==========
19 DILUTION The pro forma net tangible book value of our common stock as of June 30, 1999 was $19,396,409, or $ per share, after giving effect to the automatic conversion of all outstanding shares of preferred stock into shares of common stock upon the closing of this offering. After giving effect to the sale of common stock pursuant to this offering at an assumed initial public offering price of $ per share, assuming the underwriters' option to purchase additional shares in this offering is not exercised, and after deducting estimated underwriting discounts and offering expenses, the adjusted pro forma net tangible book value as of June 30, 1999 would have been $ or $ per share. Pro forma net tangible book value per share before the offering has been determined by dividing pro forma net tangible book value (total tangible assets less total liabilities) by the pro forma number of shares of common stock outstanding as of June 30, 1999. This offering will result in an increase in pro forma net tangible book value per share of $ to existing stockholders and dilution in pro forma net tangible book value per share of $ to new investors who purchase shares in this offering. Dilution is determined by subtracting pro forma net tangible book value per share from the assumed initial public offering price of $ per share. The following table illustrates this dilution: Assumed initial public offering price per share..................... $ Pro forma net tangible book value per share as of June 30, 1999.... $ Increase attributable to sale of common stock in this offering..... --- Pro forma net tangible book value per share after this offering..... ---- Dilution of net tangible book value per share to new investors...... $ ====
If the underwriters exercise their option to purchase additional shares in this offering, the pro forma net tangible book value per share after the offering would be $ per share, the increase in net tangible book value per share to existing stockholders would be $ per share and the dilution to new investors would be $ per share. The following table summarizes, on a pro forma basis as of June 30, 1999, the differences between the total consideration paid and the average price per share paid by the existing stockholders and the new investors with respect to the number of shares of common stock purchased from us based upon an assumed initial public offering price of $ per share:
Shares Total Purchased Consideration Average Price -------------- -------------- Per Share Number Percent Amount Percent Existing stockholders............... % % $ New investors....................... --- --- --- --- Total............................. 100% 100% === === === ===
These tables assume no exercise of stock options or warrants outstanding as of , 1999. At , 1999, there were shares of common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $ per share. Upon completion of this offering, there will be outstanding warrants to purchase shares of common stock at a weighted-average exercise price of $ per share. To the extent that outstanding options or warrants are exercised in the future, there will be further dilution to new investors. 20 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus. The consolidated statement of operations data for the fiscal years ended December 31, 1996, 1997 and 1998 and the consolidated balance sheet data as of December 31, 1997 and 1998 are derived from our consolidated financial statements audited by PricewaterhouseCoopers LLP, independent accountants. The consolidated statement of operations data for the six-month periods ended June 30, 1998 and 1999 and the consolidated balance sheet data as of June 30, 1999 are derived from our unaudited consolidated financial statements included elsewhere in this Prospectus. The consolidated statement of operations data for the years ended December 31, 1994 and 1995 and the consolidated balance sheet data as of December 31, 1994, 1995 and 1996 are derived from our unaudited consolidated financial statements not included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and, in our opinion, include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of our results of operations and financial position for these periods. These historical results are not necessarily indicative of results to be expected for any future period. In the third quarter of 1997 we began providing performance marketing services. Prior to that time, we provided customers certain software development services which are reflected as other revenue. Unaudited pro forma basic and diluted net loss per share have been calculated assuming the conversion of all outstanding shares of preferred stock into shares of common stock, as if the shares had converted immediately upon issuance. Accordingly, accretion of preferred stock to redemption value has not been included in the calculation of unaudited pro forma basic and diluted net loss per share. 21 Selected Consolidated Financial Data (In thousands, except per share data)
Six Months Year Ended December 31, Ended June 30, ------------------------------------ --------------- 1994 1995 1996 1997 1998 1998 1999 Statement of Operations Data: Revenue: Performance marketing services............... $-- $-- $ -- $ 216 $ 1,319 $ 617 $ 1,396 Other................... 662 463 196 60 8 3 -- ---- ---- ------- ------- ------- ----- ------- Total revenue.......... 662 463 196 276 1,327 620 1,396 Operating expenses: Cost of revenue......... -- -- -- 273 424 156 238 Sales and marketing..... 83 49 398 180 1,454 146 4,496 Development and engineering............ 210 274 505 426 729 292 1,482 General and administrative......... 192 125 558 332 875 231 854 Equity related compensation........... -- -- -- -- 1,312 -- 533 ---- ---- ------- ------- ------- ----- ------- Total operating expenses.............. 485 448 1,461 1,211 4,794 825 7,603 Operating income (loss).. 177 15 (1,265) (935) (3,467) (205) (6,207) Interest income (expense), net.......... 30 (5) (26) (99) (224) (61) (168) ---- ---- ------- ------- ------- ----- ------- Net income (loss)........ 207 10 (1,291) (1,034) (3,691) (266) (6,375) Accretion of preferred stock to redemption value................... -- -- -- -- (56) -- (590) ---- ---- ------- ------- ------- ----- ------- Net income (loss) attributable to common stockholders............ $207 $ 10 $(1,291) $(1,034) $(3,747) $(266) $(6,965) ==== ==== ======= ======= ======= ===== ======= Basic and diluted net income (loss) per share. $ $ $ $ $ $ $ Shares used in computing basic and diluted net income (loss) per share. Unaudited pro forma basic and diluted net loss per share................... $ $ Shares used in computing pro forma basic and diluted net loss per share................... As of December 31, As of ------------------------------------ June 30, 1994 1995 1996 1997 1998 1999 Balance Sheet Data: Cash, cash equivalents and marketable securities.............. $ 30 $ 90 $ 25 $ 76 $ 4,327 $24,325 Working capital (deficit)............... 156 169 (443) (502) 3,422 21,032 Total assets............. 257 294 140 254 5,971 30,183 Long-term debt, net of current portion......... 48 62 751 333 4,949 6,018 Convertible preferred.... -- -- -- -- 9,815 35,350 Total stockholders' equity (deficit)........ 158 168 (1,104) (1,897) (10,526) (16,494)
22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This prospectus contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in the forward-looking statements. Overview We are a leading provider of services that enable e-merchants and Internet portals to promote their products and services in tens of thousands of locations on the Internet and to pay for these promotions based on performance. Our solutions-BFAST affiliate marketing services, B-INTOUCH e-mail referral services and BFIT advertising services-are designed to increase our customers' online sales or traffic and to decrease their cost of customer acquisition. Be Free was originally incorporated in January 1996 as Freedom of Information, Inc. We changed our name to Be Free in March 1999. In August 1998, we combined with two affiliated companies under common control and management in a share exchange and these affiliated companies became our subsidiaries. Initially we provided customized software development and support services for automating marketing programs. In 1996 we began to change our focus to performance marketing solutions, although we continued to provide customized software and support services on a limited basis through the third quarter of 1998. The financial statements and data for us and these two affiliated companies, including the description of our financial condition and results of operations, are set forth on a consolidated basis for all periods presented. To date, we have generated our performance marketing services revenue primarily from our BFAST affiliate marketing services. In general, we enter into a standard service agreement that requires our BFAST customers to pay us a one-time integration fee and monthly performance fees, subject to minimum monthly or annual fees, for the use of our data interchange. For our e-merchant customers, the performance fees are generally based on either a percentage of the sales generated or on the number of transactions or orders generated by their marketing partners. For our portal customers, the performance fees are generally based on the volume of click-throughs generated by their marketing partners. In addition to the core BFAST service, we also offer related service options, such as affiliate commission payment services, which customers may select on an item-by-item basis for set fees. We also generate revenue through our other performance marketing services-BFIT, a service that tracks the effectiveness of customers' banner ads, launched in the second quarter of 1998, and B-INTOUCH, an e-mail referral service, launched in the third quarter of 1999. Our BFIT customers pay us based on the number of impressions served. Our B-INTOUCH customers typically pay us based on the sales or traffic generated by these promotions. We are seeking to develop additional performance marketing services. We have incurred significant net losses and negative cash flows from operations since the commencement of our performance marketing business, and as of June 30, 1999, had an accumulated deficit of approximately $12.5 million. We had net losses of approximately $3.7 million in 1998 and $6.4 million in the first six months of 1999. These losses have been funded primarily through the issuance of preferred stock. We intend to continue to invest in our technology and infrastructure, including investment in our existing data center and new data centers. We intend to increase our 23 expenditures relating to sales and marketing and product development activities. As a result, we believe that we will continue to incur operating losses and negative cash flow from operations for the foreseeable future and that the rate at which such losses will be incurred may increase from current levels. Results of Operations The following table sets forth consolidated statement of operations data as a percentage of total revenue for the periods indicated. The historical results are not necessarily indicative of results to be expected for any future period.
Six Months Year Ended Ended December 31, June 30, ------------------ ----------- 1996 1997 1998 1998 1999 Revenue: Performance marketing services............ -- % 78 % 99 % 100 % 100 % Other..................................... 100 22 1 -- -- ---- ---- ---- --- ---- Total revenue........................... 100 100 100 100 100 Operating expenses: Cost of revenue........................... -- 99 32 25 17 Sales and marketing....................... 203 65 109 24 322 Development and engineering............... 258 154 55 47 106 General and administrative................ 284 120 66 37 61 Equity related compensation............... -- -- 99 -- 38 ---- ---- ---- --- ---- Total operating expenses................ 745 438 361 133 544 Operating loss.............................. (645) (338) (261) (33) (444) Interest expense (net)...................... (13) (36) (17) (10) (12) ---- ---- ---- --- ---- Net loss.................................... (658)% (374)% (278)% (43)% (456)% ==== ==== ==== === ====
Revenue To date, performance marketing services revenue has included BFAST integration fees and monthly service fees as well as BFIT monthly service fees. Integration fees are recognized when a customer begins accepting applications from potential marketing partners for their affiliate sales channel. BFAST and BFIT service fees are recognized monthly. Other revenue reflects customized software development and support services. We no longer offered these services after September 30, 1998. Revenue from performance marketing services was first recognized in 1997 and increased to $1.3 million in 1998 from $216,000 in 1997 as a result of increases in our BFAST customer base and the introduction of BFIT. Other revenue declined to $60,000 in 1997 from $196,000 in 1996 as a result of the continued reduction of customized software development and support services. Other revenue declined to $8,000 in 1998 when the final support contract for customized software expired. Revenue from performance marketing services increased to $1.4 million for the six months ended June 30, 1999, from $617,000 for the six months ended June 30, 1998, as a result of increases in our BFAST customer base and as the level of transactions tracked by our services grew on average for each customer. Other revenue declined to zero for the six months ended June 30, 1999 from $3,000 for the six months ended June 30, 1998 when the last support contract for customized software expired. 24 Cost of Revenue Cost of revenue consists of expenses related to the operation of our data interchange. These expenses primarily include depreciation for systems and storage equipment, costs for a third-party data center facility and costs for Internet connectivity to our customers and their marketing partners. Cost of revenue was $273,000 in 1997 as a result of the introduction of BFAST. Cost of revenue increased to $424,000 in 1998 as we expanded our server and storage equipment and moved this equipment to a third-party facility. However, cost of revenue decreased to 32% of total revenue in 1998 from 99% of total revenue in 1997, primarily from the increased utilization of our server and storage equipment resulting from an increased customer base and usage of our services. Cost of revenue increased to $238,000 for the six months ended June 30, 1999, from $156,000 for the six months ended June 30, 1998, as a result of increased depreciation and amortization reflecting higher equipment levels. As a percentage of total revenue, cost of revenue decreased to 17% of total revenue from 25% of total revenue over these periods as a result of higher utilization of our server and storage equipment. In order to maintain targeted service levels, we will be required to add equipment in advance of anticipated future growth and this growth may not materialize as expected. Cost of revenue as a percentage of total revenue may increase in the future as we add additional equipment to support anticipated future growth. Sales and Marketing Expenses Sales and marketing expenses consist of payroll and related costs for our sales, customer service, marketing and business development groups. Also included are the costs for marketing programs to promote our services to our current and prospective customers, as well as programs to recruit marketing partners for our current customers. Sales and marketing expenses decreased to $180,000 in 1997 from $398,000 in 1996 primarily as a result of approximately $250,000 in marketing-related license fees incurred in 1996. Sales and marketing expenses increased to $1.5 million in 1998 as the result of the establishment of direct sales and internal telesales groups and the use of third party public relations services. Sales and marketing expenses increased to $4.5 million for the six months ended June 30, 1999, from $146,000 for the six months ended June 30, 1998, as a result of the continued increase in our direct sales and internal telesales forces, as well as an increase in our general marketing efforts and the establishment of a recruitment program to assist customers in attracting marketing partners. We expect that sales and marketing expenses will continue to increase in amount in future periods to support expected growth. Development and Engineering Expenses Development and engineering expenses primarily include payroll and related costs for our product development and engineering groups and depreciation related to equipment used for development purposes. The product development group designs and develops the underlying 25 technologies for our BFAST, B-INTOUCH and BFIT services and the engineering group develops and manages the infrastructure necessary to support our services. Prior to 1998, development and engineering expenses also included the expenses related to customized software development and support services. Development and engineering expenses decreased to $426,000 in 1997 from $505,000 in 1996 primarily as a result of certain engineering start-up expenses that were incurred in 1996 with the initial development of our performance marketing technologies. Development and engineering expenses increased to $729,000 in 1998 as a result of an increase in product development and engineering personnel. Development and engineering expenses increased to $1.5 million for the six months ended June 30, 1999, from $292,000 for the six months ended June 30, 1998, primarily as a result of further personnel growth and additional depreciation and amortization charges related to the purchase of additional development and engineering hardware and software. General and Administrative Expenses General and administrative expenses principally consist of payroll and related costs and professional fees related to our general management, finance and human resource functions. Facility and related costs are allocated to sales and marketing, development and engineering and general and administrative expenses based upon the relative number of employees in each area. General and administrative expenses decreased to $332,000 in 1997 from $558,000 in 1996 primarily as a result of a higher level of professional fees incurred in 1996 in connection with a contemplated financing. General and administrative expenses increased to $875,000 in 1998 as a result of increased professional fees related to financing efforts and increased personnel and related costs resulting from the addition of a new executive management team. General and administrative expenses increased to $854,000 for the six months ended June 30, 1999, from $231,000 for the six months ended June 30, 1998, as a result of increased personnel and related costs. Equity Related Compensation Expenses Equity related compensation expenses are non-cash charges representing the difference between the exercise price of options to purchase common stock granted to our employees and the price paid for restricted stock sold to our employees and the fair value of these shares as of the date of grant, as subsequently determined for financial reporting purposes. These expenses also include the fair value of options granted to our consultants as of the date of grant, as subsequently determined for financial reporting purposes. These fair values were determined in accordance with Accounting Principles Board Opinion 25 and Statement of Financial Accounting Standards 123. We did not incur any equity related compensation expenses in 1996 or in 1997. Equity related compensation expenses were $1.3 million in 1998 and $533,000 for the six months ended June 30, 1999.We expect to recognize additional equity related compensation expenses of at least $250,000 per quarter through the end of 2002 as a result of the issuance of stock and stock options to employees and others with exercise 26 prices per share subsequently determined to be below the fair market values per share of our common stock for financial reporting purposes at the dates of grant. The stock compensation is being expensed over the vesting period of the applicable stock awards or options. Interest Expense (net) Interest expense (net) is comprised of interest expense on our borrowings, partially offset by interest income earned on our cash balances. As a result of increased borrowings used to finance the growth of our business, interest expense (net) increased from $26,000 in 1996 to $99,000 in 1997 and to $224,000 in 1998. Interest expense (net) increased from $61,000 for the six months ended June 30, 1998 to $168,000 for the six months ended June 30, 1999. Consolidated Quarterly Results of Operations The following table sets forth unaudited consolidated quarterly statement of operations data for the eight quarters ended June 30, 1999. This unaudited consolidated quarterly information has been derived from our unaudited consolidated financial statements and, in the opinion of management, have been prepared on a basis consistent with the financial statements contained elsewhere in this prospectus and includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the information for the periods covered when read in conjunction with our financial statements and related notes. The operating results for any quarter are not necessarily indicative of the operating results for any future period.
Quarter Ended ------------------------------------------------------------------------- Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31 Mar. 31, Jun. 30, 1997 1997 1998 1998 1998 1998 1999 1999 (in thousands) Revenue: Performance marketing services............. $ 48 $ 169 $ 237 $383 $ 313 $ 386 $ 533 $ 863 Other................. 19 11 -- -- 8 -- -- -- ----- ----- ----- ---- ------- ------- ------- ------- Total revenue....... 67 180 237 383 321 386 533 863 Operating expenses: Cost of revenue....... 84 96 89 67 70 198 101 137 Sales and marketing... 36 33 125 147 267 915 1,734 2,762 Development and engineering.......... 72 94 116 177 106 330 562 920 General and administrative....... 168 154 47 59 327 442 351 503 Equity related compensation......... -- -- -- -- 1,252 60 216 317 ----- ----- ----- ---- ------- ------- ------- ------- Total operating expenses........... 360 377 377 450 2,022 1,945 2,964 4,639 Operating loss.......... (293) (197) (140) (67) (1,701) (1,559) (2,431) (3,776) Interest income (expense), net......... (26) (32) (33) (28) (25) (138) (216) 48 ----- ----- ----- ---- ------- ------- ------- ------- Net loss................ $(319) $(229) $(173) $(95) $(1,726) $(1,697) $(2,647) $(3,728) ===== ===== ===== ==== ======= ======= ======= =======
Our quarterly operating results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, including: . the continued acceptance of online commerce; . demand for and the timing of sales of our services; . changes in the rapidly evolving market for Internet performance marketing services; 27 . delays in introducing new services; . the timing of when we initially integrate our services with our new customers' systems and how long it takes them to generate significant regular online sales or traffic; . possible seasonality of the online sales of our e-merchant customers, most of whom sell goods and service at the retail level; and . increased expenses, whether related to capital expenditures, sales and marketing, product development or administration. Liquidity and Capital Resources We have financed our operations to date primarily through the private sale of equity securities and borrowings. Net proceeds from financing activities from January 1, 1998 through June 30, 1999 included: . approximately $10.4 million received upon the sale of Series A preferred stock and common stock purchase warrants in August and September 1998; . approximately $24.9 million received upon the sale of Series B preferred stock in March 1999; and . approximately $8.0 million in borrowings under various credit facilities and capital lease agreements. Cash used in operating activities was $2.4 million and $4.7 million in 1998 and 1999, respectively. Cash used in operating activities during 1998, resulted from net losses and deposits of $384,000 required primarily for our new offices and related expenditures. These amounts were partially offset by an increase of $345,000 of accounts payable and accrued expenses. In the six months ended June 30, 1999, cash used in operating activities resulted from net losses and from an increase of $534,000 in prepaid expenses primarily relating to sales commissions paid for revenue to be recognized in future periods and payments under annual hardware and software maintenance contracts. These amounts were partially offset during the first six months ended June 30, 1999 by an increase of $1.1 million in deferred revenue for payments received from certain customers for future services, and by an increase of $779,000 of accounts payable and accrued expenses. Through June 30, 1999, our investing activities for our business have consisted primarily of capital expenditures totaling $610,000 and $598,000 in 1998 and the six months ended June 30, 1999, respectively. These capital expenditures were incurred primarily to acquire computer hardware and software for our operations and our internal use. We expect that as our customer base and employee base grow, we will require additional computer hardware and software and our related capital expenditures will increase significantly. We currently have no material commitments to make future capital expenditures. At June 30, 1999 we had $24.3 million in cash, cash equivalents and marketable securities and $21.0 million in working capital. In addition we have agreements for a $5.0 million line of credit that bears interest at 12% per annum and a $2.0 million equipment line of credit that bears interest at 6.8% per annum. The $5.0 million line of credit provides for principal payments in equal monthly installments commencing in December 1999 and ending November 2001. The $2.0 million equipment line of credit provides for principal payments in monthly installments over a period of 28 four years from the date of each borrowing. At June 30, 1999 we had borrowed substantially all of the amounts available under these lines of credit. During the first six months ended June 30, 1999, we prepaid $305,000 of indebtedness. We believe that the net proceeds of this offering, together with cash on hand, cash equivalents and borrowings, will be sufficient to meet our debt service, operating and capital requirements for at least the next 12 months. After that, we may need to raise additional funds. We may seek to raise such additional funds through additional borrowings, public or private equity financings or from other sources. There can be no assurance that additional financing will be available at all or, if available, will be on terms acceptable to us. We have not entered into any financial derivative instruments that expose us to material market risk. Year 2000 Compliance Many currently installed computer systems and software products are coded to accept only two-digit entries in the date code field. In order to distinguish 21st century dates from 20th century dates, the date code field needs to be expanded to 4 digits. As a result, many companies' software and computer systems may need to be upgraded or replaced in order to function properly with dates after December 31, 1999. The use of software and computer systems that are not Year 2000 compliant could result in system failures or miscalculations resulting in disruptions of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in normal business activities. Our services rely on technology-such as Oracle-based databases, Sun Microsystems servers, proprietary programming and high-capacity Internet connections through Exodus Communications- that is relatively new and, therefore, was developed at a time when the Year 2000 issue was visible. We believe this also applies to the servers and their operating systems commonly used by our customers and with respect to which we must integrate our technology. Based solely on the foregoing and written statements of our critical vendors regarding their Year 2000 compliance status, we have no reason to believe that the hardware and software used in the provision of our services are not currently Year 2000 compliant. We have not reviewed our non- information technology systems for Year 2000 issues relating to embedded microprocessors. Failure of our current service offerings to operate properly with regard to the Year 2000 and thereafter could require us to incur significant unanticipated expenses to remedy any problems or replace affected vendors and could have a material adverse effect on our business, operating results and financial condition. We depend on the uninterrupted availability of the Internet infrastructure to conduct our business. We also rely on the continued operations of our customers, in particular their e-commerce sites where commercial transactions are performed, and our customers' marketing partners, in particular the affiliate sites and e-mail systems that host and distribute promotions, for our revenue. We are thus dependent upon the success of the Year 2000 compliance efforts of the service providers that support the Internet and the Year 2000 compliance efforts of our customers. We have not contacted our customers to inquire of their Year 2000 compliance status. Interruptions in the Internet infrastructure affecting us, our customers or their marketing partners, or the failure of the Year 2000 compliance efforts of one or more of our customers or their marketing partners, could have a material adverse effect on our business, results of operations and financial condition. Further, the marketing initiatives pursued by our prospective customers could be affected by Year 2000 issues as companies 29 expend significant resources to correct their current systems for the year 2000. These expenditures may result in reduced funds available for Internet advertising. This could materially and adversely affect our business, results of operations and financial condition. Because our internal information systems, such as our payroll and accounting systems, utilize relatively new equipment and mostly new standard software applications, we believe that such internal information systems are currently Year 2000 compliant, or will be timely made Year 2000 compliant with commercially available patches or upgrades in the ordinary course of business. We do not separately account for Year 2000 related expenses but estimate that the expenses we have incurred to date to address Year 2000 issues have not been material and we do not expect to incur material expenses in connection with any required future remediation efforts. At this time, we anticipate that the worst case scenario related to Year 2000 issues would involve a major shutdown of the Internet, which would result in a total loss of revenue to us, or the significant online business interruption of one or more of our larger customers, which could result in a severe loss of revenue, until it were resolved. The most reasonably likely worst case scenario would be that we would have a problem with our data interchange with our customers that would reduce the flow of tracking information or cause such information to be incorrect. This could result in substantial delays or inaccuracies in reporting information to our customers, billing our customer, paying marketing partner commissions and preparing our financial statements. We have not developed a Year 2000 contingency plan. We expect to develop such a plan prior to December 31, 1999 to the extent that we discover Year 2000 issues that we can address with such a plan. The information set forth above and elsewhere in this prospectus relating to Year 2000 issues constitute "Year 2000 Readiness Disclosures," as such term is defined by the Year 2000 Information and Readiness Disclosure Act of 1998, enacted October 19, 1998 (Public Law 105-271, 112 State. 2386). Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. To date, we have not engaged in derivative and hedging activities, and accordingly do not believe that the adoption of the SFAS No. 133 will have a material impact on our financial reporting and related disclosures. We will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral of the effective date of FASB Statement No. 133," in fiscal year 2000. 30 BUSINESS We are a leading provider of services that enable e-merchants and Internet portals to market their products and services in tens of thousands of locations on the Internet and to pay for these promotions based on performance. Our e- merchant and portal customers use our services to establish and manage performance marketing relationships directly with these third party locations. We enable the third party marketing partners to integrate our customers' promotions into their Web sites and e-mail messages that contain content that is relevant to the products or services being promoted. Our e-merchant customers typically pay fees to their marketing partners based on the sales they generate. Our portal customers typically pay fees to their marketing partners based on the traffic sent to the portal. We are typically paid fees based upon the level of sales or traffic generated for our customers from these pay-for-performance efforts. We provide a cost-effective solution for establishing, managing and rewarding these performance marketing sales channels. We enable our customers to increase their sales and traffic and decrease their cost of customer acquisition. Industry Background The Internet has emerged as a significant communications and commerce medium. Nua Internet Surveys estimates that the number of Internet users worldwide has increased from 26 million in December 1995 to 179 million in June 1999 and expects this growth to continue with the number of online users reaching 350 million by 2005. In addition, as users gain online experience, they tend to increase the amount of time they spend on the Internet and spend their time online conducting a greater variety of activities. Expansion and Dispersion of Content; Evolution of Internet User Habits The content available to Internet users has increased dramatically and become more widely dispersed. Increased ease and lower cost of Web publishing has permitted smaller businesses, organizations and individuals to create and host their own Web sites. The NEC Research Institute estimated that the number of pages available on the Web grew from 320 million pages in December 1997 to approximately 800 million pages in February 1999. More experienced Internet users tend to rely increasingly on their own lists or bookmarks of Web sites, rather than on search engines and directories to access content that is of specific interest to them. While visits to high traffic Web sites such as portals have grown in absolute numbers, they represent a limited amount of all online traffic. Neilsen//NetRatings reports that the top ten portals made up 20% of the average monthly page views as measured in their home Internet user sample in June 1999. Growth of E-commerce The Internet has emerged as a significant sales channel for goods and services to consumers. The Internet provides a cost-effective means for e- merchants to reach a global audience, and provides consumers with increased information, broad selection and greater convenience. 31 In November 1998, Forrester Research projected that total online U.S. consumer spending will grow to $108 billion in 2003, accounting for about 6% of the $1.8 trillion in expected overall consumer spending that year:
1998 1999 2000 2001 2002 2003 Total U.S. online consumer spending (billions)........................... $ 7.8 $ 18.1 $ 33.0 $ 52.2 $ 76.3 $108.0 U.S. households online (millions)..... 28.6 33.5 38.3 43.5 48.6 52.8 U.S. households shopping online (millions)........................... 8.7 13.1 17.7 23.1 30.3 40.3 Average online expenditures per U.S. household............................ $ 899 $1,385 $1,864 $2,259 $2,518 $2,678
Experienced Internet users are more likely to purchase goods or services online than new Internet users. Forrester Research also reported in September 1998 that 15% of users with less than 18 months of Internet experience purchase online, but that percentage increases to 39% for users with more than 42 months of experience. The Evolution of Internet Marketing In response to increasing demand for online products and services, and as the Internet and electronic commerce expand, e-merchants and portals are increasingly adopting online promotions to reach a global audience for their products and services, drive traffic to their Web sites, attract customers and facilitate transactions. Initially, Internet advertising took the form of banner ads, similar to advertising billboards, typically placed on portals and other high-traffic Web sites. Advertising networks then emerged to allow banner ads to be placed across multiple sites that did not have sufficient traffic individually to appeal to larger advertisers. In order to allow different advertisements to appear on the same space on a Web page, portals and advertising networks require banner ads of specific size and format, generally in a rectangular shape. Under this model, advertisers generally pay a fee each time an ad is displayed on a cost-per-thousand-impressions basis. These pay-for-display campaigns are typically evaluated based on the number of times a user clicks on the banner ad and is directed to the e-merchant site. E-merchants face an increasingly difficult and expensive task in converting viewers of banner ads into shoppers and eventually buyers. Banner ad click- through rates have decreased significantly from 2.11%, as reported by I/Pro in October 1996, to 0.37%, as reported by Nielsen//NetRatings for the week ended June 30, 1999. Forrester Research reported in September 1998 that 38% of people online for more than 42 months have indicated that they have never clicked on a banner ad and that they are less likely to click on a banner ad than users online less than six months. We believe that decreasing click-through rates result from the lack of integration and relevance of the banner ads with the content of the site where they are displayed. E-merchants also face an increasing challenge in reaching their audience. More experienced Internet users who are more likely to buy online spend a smaller percentage of their time on portals, and instead focus on content sites that match their interests. With millions of sites displaying hundreds of millions of pages of content, e-merchants must identify and form partnerships with an increasing number of Web sites that might appeal to their buying audience. The decreased effectiveness of banner ads together with the e- merchant's desire to expand promotional reach have led to the development of online promotions targeted to specific Web sites with relevant content and consumers, with the marketing partners rewarded according to the actual results they generate. 32 The Emergence of Affiliate Sales Channels By the end of 1996, a few leading e-merchants began to develop new sales channels consisting of affiliated third-party Web site publishers hosting a variety of promotions for the e-merchant's goods and services. In establishing these new affiliate sales channels, e-merchants generally paid commissions to the Web site publishers based on the sales generated by the ads or promotions. These affiliate sales channels were the first widely introduced type of performance marketing program. These affiliate sales channels had benefits for both the e-merchants and their affiliated Web site publishers. E-merchants could pay for their marketing based upon the performance of the promotions, making it more cost-effective to partner with a broader array of third parties than under pay-for-display methods. Web site publishers could generate revenue from their Web pages at little or no cost and use ad space that might otherwise go unsold, since there was no limit to the number of promotions they could run. The Web site publishers could choose the location and type of promotions, leading to better merchandising and increased effectiveness of the promotions which would benefit both the e-merchant and the Web site publisher. Initially, e-merchants built their own systems for developing, managing and tracking affiliate sales channels. Most of these internally developed systems track activity only on the e-merchant's site. Using internal techniques for tracking users to point of sale, the e-merchant could then determine the sales generated by promotions hosted by each partner and pay commissions accordingly. The Challenges of Internally Developing and Managing Affiliate Sales Channels E-merchants face many challenges in building an affiliate sales channel or other performance marketing program on a broad scale. Tracking individual transactions through to point of sale requires that e-merchants and their marketing partners exchange data, usually by creating special links that are specific to the marketing partner and the product or service to which the marketing partner is linking. Recording orders, order cancellations, sales and returns requires that these systems be integrated with both the e-merchant's transactional and fulfillment systems, which are often separate. Following this integration, the process of transmitting data between disparate systems must be monitored for success and accuracy. Developing the necessary technology, which may involve tracking promotions viewed millions of times on thousands of separate affiliate sites, is time consuming and expensive. An e-merchant faces additional expense to acquire and maintain the equipment needed to track, store and analyze this data once collected. E-merchants also face challenges in managing their relationships, often with tens of thousands of marketing partners, including: . creating a wide variety of promotional links for each of its various products or services; . generating, placing and replacing the promotions selected by individual marketing partners within the context of that marketing partner's site or e-mail messages; . measuring and managing the productivity and effectiveness of marketing partners; 33 . analyzing and reporting on the data collected from thousands of sources to permit better merchandising by both the e-merchant and the marketing partner; . communicating with and making payments to thousands of marketing partners; and . enhancing their systems to reflect changes in business models and payment methods to influence the behavior of marketing partners. Marketing partners also face challenges in realizing the potential benefits offered by performance marketing programs. They want to minimize the time and expense associated with enrolling in a performance marketing program and creating and changing promotions for a particular e-merchant. In addition, marketing partners are looking for easy, cost-effective solutions for the delivery, targeting and tracking of the promotional efforts that they run to enhance their revenue. The Be Free Solution We provide a comprehensive solution specifically designed to enable our e- merchant and portal customers to increase sales and decrease the cost of customer acquisition by establishing and managing their own performance marketing channels. We have developed, and continue to enhance, a broad set of technologies and services that provide a data interchange between disparate systems utilized by our customers and their thousands of performance marketing partners. Through this data interchange, we compile, store and analyze data about our customers and their marketing partners. Merchant Connection We integrate our systems with each customer's often disparate catalog, transactional and fulfillment systems. Through this connection, we receive and store information about available products and services and the customer's Web site. This information enables our customer's marketing partners to generate and place a variety of promotions for each of our customer's products or services. We also receive order, order cancellation, sales and return data from our customer. Our data interchange also tracks each time a user views and clicks on a specific promotion run by any one of our customers' thousands of marketing partners. We link individual viewings and clicks to unique transactions with our customers. Promotions we tracked for our customers were shown more than 300 million times in June 1999 through more than one million performance marketing relationships our customers have established. This combination of customer and marketing partner data is stored at our central processing facilities and allows us to measure the sales or traffic performance of each specific promotion. Management Solutions We have significant resources and expertise dedicated to the successful implementation, development, management and control of online performance marketing programs. These solutions include: . Establishment of sales channels. We provide online, automated application and approval processes for Web site publishers joining a customer's sales channel. We also help customers identify and recruit potential affiliates. 34 . Customer control of sales channel. All of our services are designed to enable a customer to maximize the efficiency of a broadly distributed sales channel. Each of our customers selects its marketing partners and determines the terms of its relationships with these marketing partners. We brand reports, communications and payments with our customer's name. . Development and placement of promotions. We store and deliver promotions for our customers on our systems. Our customers' marketing partners can access our systems, choose among these promotions, and incorporate them into their Web sites or e-mail messages through simple procedures. . Replacement of promotions. Since all promotions are routed through our systems before being directed to a customer's Web site, changes in that customer's Web site only require programming changes on our systems rather than the replacement of promotions by all of its marketing partners. . Data collection and reporting. We collect and store data both from our customers and their marketing partners, tracking specific promotions through sales and returns. We provide extensive analyses online, both to our customers and to their marketing partners. Analyses can be configured to examine the performance of the entire sales channel, a specific promotion or a specific marketing partner. . Communication and payment services. We can generate e-mail communications and payments to widely dispersed marketing partners on behalf of customers. Communications can be automatically generated and broadcast based upon e-merchant selected criteria. . Merchandising assistance. Our reporting and communication services permit both our customers and their marketing partners to make and implement more effective merchandising decisions. Our best practices group monitors industry and competitive trends, as well as results achieved by customers generally, and shares this expertise with customers and their marketing partners. E-merchants can use our system to identify promotions or sites that are leading to high sales or return rates, manage product demand, and rank marketing partners by effectiveness. Our solutions enable customers to pay their online marketing partners based upon performance. Our customers also pay us for our services based upon the level of activity generated from these promotional activities, typically as a percentage of the resulting sales or traffic. As a result, our economic interest is aligned with the economic interest of our customers and their marketing partners. Strategy Our objective is to be the leading provider of online performance marketing solutions. To achieve this objective we are focused on the following strategic initiatives: Leverage Technology Leadership to Provide Comprehensive Solutions We intend to continue our focus on performance marketing solutions. We plan to both enhance our existing, as well as develop new, performance marketing technologies, expertise and services. 35 We have made significant investments in technology and personnel to develop a comprehensive set of online services specifically designed for the development of performance marketing programs, including affiliate sales channels. We believe that customers will continue to seek cost-effective solutions to establish and manage performance marketing programs. Rapidly Expand Our Targeted Customer Base We seek continued expansion of our customer base nationally and internationally, primarily through our direct sales force. Because our revenue is tied to our customers' performance, we are currently targeting large e- merchants and portals in the U.S. as customers. We have recently begun to expand our sales efforts to the emerging online markets in Europe. Continue to Provide Customer Branded and Controlled Solutions We enable each customer to extend its merchandising techniques to its marketing partners, with which they contract directly. Services we provide to our customers' marketing partners, including analyses, communications and payments, are customer branded. We believe customers will find our merchant branded solutions more appealing and will invest more heavily in the development and growth of these sales channels and in performance marketing solutions provided by us. Increase the Size of Our Customers' Sales Channels We will continue to identify and recruit potential affiliates on behalf of our customers. Increasing our customers' marketing reach and revenue increases our revenue. We have launched an online affiliate recruiters program, located at www.affiliaterecruiters.com, that allows Web site publishers to promote our customers' affiliate sales channels. We are extending our Web site outreach for customers by entering into strategic partnerships with companies that provide Web site creation tools and hosting services. In addition, we are continuing to develop relationships with syndicated content providers that permit them to incorporate links to our customers in syndicated content. Increase Our Services to Existing Customers We intend to continue to develop additional services to support new online performance marketing programs and new revenue sources for our customers and us, such as our recently developed e-mail referral services, B-INTOUCH. We are working with ad serving companies to utilize our technology to track the banner ads they deliver to point of sale on our customer sites. Increase the Effectiveness of Our Customers' Sales Channels We intend to continue and enhance services designed to help our customers increase their sales. Our best practices research and consulting group helps our customers generate better response rates by providing industry analysis, benchmarks and merchandising expertise. We assist our customers' marketing partners to increase their traffic through various tools and techniques, such as search engine registration. We are also developing technologies to build and analyze anonymous, individual user profiles based on browsing, clicking and buying behavior, and to target promotions to a given user based on these profiles. 36 Expand Internationally We intend to be an early entrant and a leader in the development of performance marketing programs outside the U.S. We have expanded our services to Europe with our initial integration with Bertelsmann's online subsidiary, BOL International. We have developed German, French and Dutch interfaces for marketing partners in Europe. We will continue to develop foreign language interfaces and may establish physical operations in Europe. We may also expand our services to Japan. We will begin to target other large customers in Europe during 2000. Services Our data interchange provides the communications link, technologies and services for performance marketing generally and Web-based affiliate sales channels in particular. Our customers adopt a core transactional service and may then select from a number of additional services. Our core services enable the collection and tracking of data that resides on our systems in Oracle databases. Reports analyzing the data are accessible to our customers and their marketing partners from desktop computers using standard Internet protocols and standard Web browser protocols. Specifically, our systems provide: Workflow Automation . Automated sign-up of potential marketing partners through an online application; . Definition and selection of marketing partners, compensation rules and methods; . Rapid review and approval of marketing partner applications by customers; . Generation of individualized messages from our customers to selected marketing partners; and . Payment of fees due to marketing partners. Serving and Tracking Promotions, Routing of Users . Tracking of selected links each time a link is displayed or delivery of dynamic, rotating promotions and tracking of display of these promotions each time a dynamic link is displayed; . Directing users clicking on any promotions to the correct location on our customer's site; and . Collection of order, order cancellation, sales and return information from our customer's systems and matching that information with marketing partner data collected by our systems. Reporting and Decision Support . Online generation of daily customer-specific reports, including detail on orders and order cancellations, sales and returns, traffic, promotional success and payments due to marketing partners. A complete decision support system allows our customers to filter and sort these reports and to export this data for use in a spreadsheet or word processing program; 37 . Modification of the available promotions and addition of new promotions instantly; and . Online generation of daily marketing partner reports including detail on orders and order cancellations, sales and returns, traffic, promotions used and success of each promotion, products purchased by the site's audience and commissions due to the marketing partner. Marketing partners may download these reports for use in a spreadsheet or word processing program. Our services, any one or more of which may be selected, are offered as follows: BFAST Affiliate Marketing Service BFAST allows our customers to build and maintain their own, branded affiliate sales channels. Our customers use BFAST to create and build these sales channels and to evaluate their affiliates using more than 80 online analyses. BFAST enables customers to create and offer promotions, including individual product links, search links, product category links, coupons and other incentives appearing in a variety of formats including text, graphics, search boxes, regularly updated "top 10" lists and streaming video. Each affiliated Web site publisher can select the promotions that are most likely to appeal to its audience and use BFAST to generate the code it needs to add those promotions to its site. These affiliates can check the performance of each promotional initiative they implement with daily reporting. We also provide optional services to help recruit affiliates for our customers' affiliate sales channels and provide merchandising advice directly to affiliates. Our affiliate outreach services include recruitment by affiliate recruiters, direct mail to Web site managers who have requested this information, sponsorship of newsletters, and banner advertising. We also offer affiliate application review and approval services, where we accept affiliate applications on behalf of our customers based upon their established criteria. We can provide customer-branded support by telephone and e-mail to affiliated Web site publishers to assist with applications, link generation, merchandising and analysis. We can also provide performance analysis and promotional and merchandising recommendations for the largest 250 sites in our customers' affiliate sales channels. We have a best practices group that has developed expertise by monitoring industry and customer specific trends and provides strategic advice designed to improve the performance of these sales channels. In general, we enter into a standard service agreement that requires our BFAST customer to pay us a one-time integration fee and monthly performance fees, subject to minimum monthly or annual fees, for use of our data interchange. For our e-merchant customers, the performance fees are generally based on either a percentage of the sales generated or a fee based on the number of transactions or orders. For our portal customers, the performance fees are generally based on the volume of click-throughs generated by their marketing partners' Web sites. We currently derive most of our revenue from BFAST services. B-INTOUCH E-mail Referral Services Our recently introduced B-INTOUCH services allow our customers to partner with individuals and corporations that send e-mail messages. B-INTOUCH lets an approved sender of e-mail messages include our customers' promotions in e-mail messages and receive fees for the sales or 38 traffic that result from these promotions. B-INTOUCH offers a simple user interface for link placement and reporting, designed for the less technologically sophisticated e-mail user. B-INTOUCH pricing is based on the volume of sales or traffic that results from a customer's e-mail referral program. BFIT Advertising Services BFIT is an enhanced banner ad delivery service that tracks our customers' banner advertising through to point of sale and determines the performance for a specific banner placed in a specific location. This may include ad trafficking services through which we place and manage our customers' advertising campaigns on their behalf. By integrating our BFIT and BFAST services, our customers marketing partners can dedicate space on their Web sites within which a customer may determine the promotional initiative displayed and modify it at any time or upon the occurrence of specified criteria. BFIT is priced based on the number of impressions served. Customers Our principal customers are large e-merchants and high-traffic portal sites that use the Internet as a central or sole business channel. We have successfully targeted as customers leading e-merchants and portals in a wide variety of markets. The following is a partial list of e-merchants and portals that have contracted for our services: American Greetings Furniture.com Ameritech Lycos Babbages, Etc. Micro Warehouse BabyCenter MotherNature.com barnesandnoble.com Multiple Zones International Bertelsmann (bol.com) Network Solutions CNET OneCore Compaq Pets.com Digital Chef priceline.com eBags.com Reel.com egghead.com SEND.com Enews.com The SABRE Group (Travelocity.com) eToys(R) toysmart.com Franklin Covey Value America Fogdog Sports Yahoo! Our customers typically enter into a written agreement with us that runs for one year from program launch and renews automatically for successive one-year periods unless either party gives notice not to extend. We generally provide representations concerning our system performance and discount our fees if we fail to meet specified performance levels. We also agree to provide customers certain indemnities for infringement of third party intellectual property rights. Our customers agree to provide certain information regarding merchandise or services they make available over the Internet and transactional information. For 1997 and 1998 and six months ended June 30, 1999, barnesandnoble.com accounted for more than 10% of our revenue. For the six months ended June 30, 1999, GeoCities, a subsidiary of Yahoo!, 39 accounted for more than 10% of our revenue. Our contracts with barnesandnoble.com and GeoCities expire in January 2001 and January 2002, respectively. GeoCities has the right to terminate its contract prior to the expiration of its term by giving notice and paying a penalty. Both contracts provide that either party may terminate upon a material breach under certain circumstances. In addition, in 1997, Duquesne Light and Power, to whom we provided customized software development and support, accounted for more than 10% of our revenue. Sales and Marketing We have a direct sales force that targets large e-merchants and portals. The direct sales force is assigned to different geographical regions and is supported by sales engineers. We maintain direct sales personnel in seven major metropolitan areas throughout the United States. We also have a telesales group, located in our Marlborough, Massachusetts headquarters, that targets mid-sized e-merchants. In order to achieve broader distribution of our services, we engage marketing partners that are authorized to resell our services. These resellers typically receive a percentage of our revenue derived from the e-merchant accounts they generate during specified periods. We target potential customers through our public relations program, our Web sites, conferences, trade shows and customer referrals. While we have primarily focused on marketing efforts in the United States, we intend to extend these efforts into Europe and may extend these efforts into Japan. Customer Service We provide comprehensive integration, training, consulting and support services. We provide our customers with individualized customer services designed to increase the performance of their marketing channels and their overall satisfaction with our services. We assign dedicated, knowledgeable customer development managers to each customer. Our best practices consulting team gathers and analyzes data from industry sources, our database and customer initiatives to provide our customers with industry-wide performance results against which they can measure their own success. This team formulates strategies for how our customers might more effectively promote their products or services. We present our best practices solutions through seminars, customer bulletins, case studies and one-on-one dialogues with customers. We provide integration services, both by telephone and in person, to new customers. We work with new customers to create a reliable, automated data transfer between their systems and our systems. We teach our customers to use our technology effectively and efficiently. We provide business training to customers, which helps them better understand the business decisions that they face in launching their affiliate sales channel and other performance marketing programs. We also offer regular refresher and update training. Our customer development managers assist our individual customers in managing their affiliate sales channel and other performance marketing programs, developing and interpreting their analyses, and testing new promotional methods. These customer development managers also convey emerging customer strategies, communicate customer feature requests, manage data requests and provide ongoing project management services for special customer initiatives. 40 Technology Infrastructure Our technologies are designed to provide the following advantages: Performance, Scalability, Availability and Reliability Our system infrastructure has been designed as a layered architecture to yield significant benefits to our customers in performance, scalability, availability and reliability. Our products run on multiple high-speed servers that are connected by high-capacity connections and are organized into multiple tiers. Each tier functions to address specific data storage and data traffic considerations to enhance reporting and real-time transactional performance. We have recently upgraded this system by adding additional servers or storage devices to each tier. Scalability is a term used to describe the ability of an application to handle greater traffic when additional servers are added to a system. Scalability is particularly important for growth-stage Internet applications where demand can grow rapidly and unpredictably. Our servers are connected not only within a given tier but also between tiers. This multi-tiered server design enables us to add, extend, duplicate or exchange the specific servers requiring the enhancement within the system as needed, without recompiling the rest of the system or interrupting services. The multi-tiered server design better enables us to provide our customers with highly-available and reliable uninterrupted service. Each tier is comprised of multiple connected servers performing similar tasks, each of which has its own power supply. If a server fails, that server's tasks are automatically reassigned to another running computer. In addition, identical data is also stored in various locations. This redundant design enhances the ability of the system to tolerate the failure of an individual server or failures in system storage without the loss of data or the ability of the computers to give our customers' real-time operating capability. The connections from the network data center into the multi-tiered servers are also designed to provide customers with reliable, uninterrupted service. We regularly test and maintain the multiple connections between our servers, and regularly test the connections between the network data center and the Internet. Our engineering and hosting center personnel monitor traffic patterns and congestion points and reroute traffic flows in an effort to reduce end-user response times. We provide monitoring and support services required to maintain transaction availability 24 hours a day, 365 days a year. Although our systems are designed to enhance reliability, system and communication failures have caused both delays and cessation of services. We recently experienced an 11-hour systems outage during which we were unable to redirect Internet users to our customers from their marketing partners or provide reports. We have taken and are taking additional steps to decrease the likelihood of future outages. These steps include installing additional server and storage hardware, and adding an additional level of redundancy to all tiers of our system architecture. Our development team is modifying our software to make it more functional upon hardware failure. Even with these improvements, there can be no assurance that our services will not be interrupted in the future. Flexibility Our system infrastructure uses platform systems with UNIX, a non-proprietary open operating system, and is also compatible with Microsoft's proprietary operating system, Windows NT. We 41 currently use servers manufactured by Sun Microsystems. While we are not dependent on any single server hardware system or vendor, any change could be costly and time consuming. Internet Access Our systems are developed entirely for use over the Internet. Our customers are able to access marketing, sales and merchandising data from our Oracle- based databases using their desktop computers and their standard Internet connection. Our reporting systems use standard Internet and Web protocols. Central Operations Facility Our network data center is designed to optimize performance and maintain reliability. Our network data center is housed at Exodus Communications in Harborside, New Jersey. This center has multiple, physically distinct, high- capacity connections to the Internet designed to reduce the likelihood that outages within the network will materially impact customer use. The center also has duplicate systems for power, climate-control, fire protection, seismic reinforcement and continuous security surveillance. The facility utilizes manual and automated intrusion detection techniques to monitor the security of the center and its hardware. We regularly use outside security professionals to evaluate our physical and electronic security measures. We currently plan to open a data center in Europe before December 31, 1999. Development Development of new services begins with our product marketing group. Based upon customer, competitive and market analyses, our product marketing group determines functions and specifications for future services and enhancements to current services. Our development group develops new services and enhances existing services based on specifications provided by the product marketing group. Our development group is divided into strategic and tactical teams. Our strategic team develops new performance marketing services and new generations of current services. Our tactical development team focuses on extending existing functions or developing additional functions within any given release. We have developed a managed release process to assist customers in the adoption of new releases. This process includes testing and evaluating revisions, updating online and paper documentation to include new features, training customer support personnel and notifying and training customers. Our development group consists of 16 full-time employees as of June 30, 1999. For the year ended December 31, 1998 and the six months ended June 30, 1999, we spent $304,100 and $719,800, respectively, on research and development activities. Competition The market for online performance marketing solutions is new, rapidly evolving and highly competitive. We do not currently compete against established companies across the range of services we provide. We do, however, compete against larger companies with respect to a portion of the 42 services we provide and compete more broadly against similar sized, private companies. We expect to face future competition across a broad range of our services from larger companies currently providing products or services that compete only with respect to a portion of the services we provide. For the provision of e-merchant branded affiliate sales channel solutions, we compete against internally-developed performance marketing solutions and against enterprise software solution providers. We also compete against multi- merchant, shared affiliate program providers, including Commission Junction, Linkshare and Microsoft's LinkExchange. Finally, we compete with ad server companies that provide banner ad services that might be considered an alternative marketing solution. We believe that the principal competitive factors in our market are: . the provision of comprehensive, reliable services; . the ability to offer a customer ownership of and control over a significant sales channel; . the provision of extensive online reports and analyses; and . price. We seek to compete against internally developed efforts and enterprise software solutions by providing more comprehensive, cost-effective services that are more easily managed. We seek to compete against multi-merchant, shared affiliate program providers on the basis of our technology, by permitting our customers greater control over their affiliate sales channel and providing individualized customer service. We seek to compete against ad serving companies by offering broader services and the ability to track promotional efforts through to the point of sale. Employees As of June 30, 1999, we had a total of 118 employees, 74 of whom were in sales and marketing, 30 in development and engineering and 14 in finance and administration. Sales and marketing employees include salespeople, sales administration personnel, customer service personnel, product marketing and marketing communications personnel. From time to time we also employ independent contractors to supplement our development staff. Our employees are not represented by a labor union and we have never experienced a work stoppage. We believe our relations with our employees are good. Facilities Our headquarters are located in Marlborough, Massachusetts, where we occupy approximately 23,000 square feet under a lease that expires in March 2004. Our development and engineering departments are located in Pittsburgh, Pennsylvania, where we occupy approximately 12,000 square feet of office space under a lease that expires in January 2004. In the future, we may lease additional space as needed. Legal Proceedings From time to time, we may be involved in litigation incidental to the conduct of our business. We are not currently a party to any legal proceedings. 43 MANAGEMENT Directors and Executive Officers Our executive officers and directors, and their respective ages and positions as of June 30, 1999, are set forth below:
Name Age Position Gordon B. Hoffstein..... 47 President, Chief Executive Officer and Director Samuel P. Gerace, Jr.... 36 Executive Vice President, Research & Technology and Director Thomas A. Gerace........ 28 Executive Vice President, Business Development Stephen M. Joseph....... 40 Chief Financial Officer and Treasurer Ellen M. Brezniak....... 40 Vice President, Product Marketing W. Blair Heavey......... 37 Vice President, Sales Steven D. Pike.......... 46 Vice President, Client Services Patricia L. Travaline... 43 Vice President, Marketing Communications Ted R. 47 Director Dintersmith(1)(2)...... W. Michael Humphreys(2). 47 Director Daniel J. Nova(1)(2).... 37 Director Jeffrey Rayport(1)...... 39 Director
- --------------------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. Gordon B. Hoffstein has been our Chief Executive Officer and a director since August 1998. From October 1991 to April 1997, he was a co-founder and the Chief Executive Officer of PCs Compleat, Inc., a direct marketer of PCs and related products now known as CompUSA Direct. From February 1991 to June 1991, he was Chief Executive Officer of Edsun Laboratories, a semiconductor designer. He was a co-founder and the Chief Executive Officer of Microamerica, Inc., a distributor of computer hardware and software products, from November 1979 to May 1990. He currently serves as a director of various private companies. Mr. Hoffstein earned a B.S. from the University of Massachusetts and an M.B.A. from Babson College. Samuel P. Gerace, Jr. has been our Executive Vice President, Research & Technology and a director since August 1998. He was a founder of and has been involved in managing our business since the inception of one of our affiliated companies in September 1985. Mr. Gerace holds an A.B. from Harvard College. Samuel P. Gerace, Jr. is the brother of Thomas A. Gerace. Thomas A. Gerace has been our Executive Vice President, Business Development since August 1998. He was a founder of and has been involved in managing our business since inception. Previously, he served as a research analyst for Harvard Business School. During his time at Harvard Business School, he also served as a consultant for the Technology for Effective Cooperation Network, a non-profit organization, and Welty-Leger Corporation, a distribution and warehouse software provider. Mr. Gerace received an A.B. from Harvard College. Thomas A. Gerace is the brother of Samuel P. Gerace, Jr. Stephen M. Joseph has been our Chief Financial Officer since August 1998. From October 1991 to December 1997, he served as Chief Financial Officer of PCs Compleat, Inc. From March 1991 to 44 June 1991, he was Chief Financial Officer of Edsun Laboratories. Prior to that time, he held various financial positions in private companies and Ingersoll- Rand Company, a machinery and equipment manufacturer. Mr. Joseph earned a B.S. from Bentley College. W. Blair Heavey has been our Vice President, Sales since October 1998. From April 1995 until joining us, he held sales positions at Open Market, Inc., an Internet software developer, including Director of Sales and Director, Strategic Channel Sales. From March 1989 until March 1995, he held several sales and marketing positions at Hewlett-Packard Corporation, a manufacturer of measurement, computation and communications systems and equipment. Mr. Heavey received a B.A. from Boston College and an M.B.A. from Babson College. Ellen M. Brezniak has been our Vice President, Product Marketing since November 1998. From October 1996 until joining us, she was Vice President, Business-To-Business Operating Unit at Open Market, Inc. From March 1994 until September 1996, she was Director, Product Marketing and Planning with Progress Software Corporation, a supplier of application development and management technology. Prior to that time, she held various marketing positions at Cognos, Inc., which offers application development software and EIS tools, and software database companies such as Sybase, Inc. and Oracle Corporation. Ms. Brezniak holds a B.S. from Rensselaer Polytechnic Institute. Patricia L. Travaline has been our Vice President, Marketing Communications since October 1998. From January 1992 to February 1998, she served in positions at PCs Compleat, Inc. including Director of Marketing Communications and Director, Extended Services Development. From December 1985 to September 1991, she held positions at the public relations firm of Sharon Merrill Associates, including Vice President, Investor Relations. Ms. Travaline earned a B.A. from the University of Denver and an M.B.A. from Simmons College. Steven D. Pike has been our Vice President, Client Services since April 1999. From July 1998 until joining us, he served as Vice President, Customer Services at Internet Commerce Services, Inc., a commerce service provider. From September 1995 to June 1998, he held the position of Director of Technical Services at Open Market, Inc. From January 1995 to September 1995, he held the position of Manager, Product & Program Management at Progress Software Corporation and from September 1992 to January 1995 he was Manager, Product Support and Business Management at Bay Networks, a manufacturer of data networking products. Mr. Pike holds a B.S. from Franklin Pierce College. Ted R. Dintersmith has been a director since August 1998. Since February 1996, he has been a General Partner of Charles River Partnership VIII, a private venture capital firm. Prior to his association with Charles River, he was a General Partner of Aegis Management Corporation, a venture capital firm. Mr. Dintersmith is a director of Flycast Communications Corporation, an Internet advertising company. Mr. Dintersmith holds a B.A. degree in Physics and English from the College of William and Mary and a Ph.D. in Engineering from Stanford University. W. Michael Humphreys has been a director since August 1998. Mr. Humphreys has been a partner of Matrix Partners, a private venture capital firm, since 1979. He received a B.S. from the University of Oregon and an M.B.A. from Harvard Business School. 45 Daniel J. Nova has been a director since March 1999. Since August 1996, Mr. Nova has served as a general partner of Highland Capital Partners, a venture capital firm. Previously, he was a general partner of CMG@Ventures from January 1995 to August 1996 and a Senior Associate at Summit Partners from June 1991 to January 1995. Mr. Nova is a director of eToys, Inc., an online retailer of toys, Lycos, Inc., an online portal, MapQuest.com, Inc., an online mapping company, and Ask Jeeves, Inc., an Internet question answering service company. Mr. Nova received a B.S. in Computer Science and Marketing with honors from Boston College and an M.B.A. from Harvard Business School. Jeffrey Rayport has been a director since December 1998. He has been a faculty member at Harvard Business School in the Service Management Unit since 1991. He is currently on leave from Harvard and is working at Monitor Company, a management consulting firm, as the founder and executive director of Monitor Marketplace Center, an e-commerce research and media unit established in 1998. Dr. Rayport is a director of Global Sports, Inc., a sporting goods company. Dr. Rayport earned an A.B., A.M. and Ph.D. from Harvard University and an M. Phil. from the University of Cambridge (U.K.). Our board of directors is divided into three classes, with the members of each class serving for a staggered three-year term. Our board currently consists of two Class I directors, two Class II directors and two Class III directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The term of the Class I directors ( ) expires at the annual meeting of stockholders to be held in 2000. The term of the Class II directors ( ) expires at the annual meeting of stockholders to be held in 2001. The term of the Class III directors ( ) expires at the annual meeting of stockholders to be held in 2002. Each officer serves at the discretion of our board of directors and holds office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Messrs. Dintersmith, S. Gerace, Humphreys and Nova were elected to the board of directors pursuant to an agreement among us and some of our stockholders. The agreement obligating the stockholders to vote in favor of them as directors will terminate upon the closing of this offering. Committees of the Board of Directors Our board of directors has established a compensation committee and an audit committee. The compensation committee makes recommendations concerning salaries and incentive compensation for our employees and consultants and administers our employee incentive plans. The current members of the compensation committee are Messrs. Dintersmith, Humphreys and Nova. The audit committee reviews the results and scope of the audit and other services provided by our independent public accountants. The current members of the audit committee are Messrs. Dintersmith, Nova and Rayport. Director Compensation We have no present plans to pay cash compensation to directors but intend to reimburse directors for certain out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors or committees of the board. We have granted Mr. Rayport an option under the 46 1998 Stock Incentive Plan to purchase 75,000 shares of common stock that vests over four years. In addition, we may issue additional options to directors under our 1998 Stock Incentive Plan, which options would vest and become exercisable over time. Compensation Committee Interlocks and Insider Participation Prior to the appointment of the compensation committee in July 1999, Be Free's full board of directors (which includes executive officers Gordon B. Hoffstein and Samuel P. Gerace, Jr.) and Thomas A. Gerace (who previously was a director and Chief Executive Officer of Be Free) were responsible for the functions of a compensation committee. During 1998, none of our executive officers served as a member of the compensation committee, or a committee serving an equivalent function, of any entity whose executive officers served as a director of Be Free or otherwise had compensation committee responsibilities. Executive Compensation The following table sets forth the total compensation paid or accrued for the year ended December 31, 1998 to our chief executive officer and to Mr. Thomas A. Gerace, an Executive Vice President, Business Development, who served as our Chief Executive Officer from January 1998 through August 1998. No other executive officers received compensation in excess of $100,000 in 1998. Summary Compensation Table
Annual Compensation --------------- Name and Principal Position Salary Bonus Gordon B. Hoffstein(1)......................................... $49,573 $16,589 President and Chief Executive Officer Thomas A. Gerace(2)............................................ $77,916 -- Executive Vice President, Business Development
- --------------------- (1) Mr. Hoffstein's current annual salary is $175,000. (2) Mr. Thomas Gerace was Chief Executive Officer until August, 1998. His current annual salary is $120,000. We have never granted any stock options to Mr. Hoffstein or Mr. Thomas A. Gerace. Mr. Hoffstein purchased shares of restricted stock for a purchase price of $ per share under the 1998 Stock Incentive Plan on December 31, 1998. See "Transactions with Related Parties." Employment Agreements On August 28, 1998 we entered into employment agreements with Samuel P. Gerace, Jr. and Thomas A. Gerace that provide for an annual base salary of not less than $110,000 and annual merit bonuses as may be determined by the board of directors. These agreements contain customary noncompetition and nonsolicitation provisions, and have an initial term of two years with a one year renewal subject to the parties' agreement. 47 Change of Control Arrangements Shares subject to options or restricted stock awards granted under our 1998 Stock Incentive Plan generally vest over four years, with 25% of the shares vesting after one year and the remaining shares vesting in equal monthly installments over the next 36 months. This plan provides accelerated vesting of 25% of the shares subject to each option upon a change of control, and full acceleration upon the termination of employment after a change of control in certain instances. In general terms, change of control would occur where any person acquires ownership of more than 50% of our voting shares or upon any merger or acquisition where our stockholders before the transaction hold less than a majority of the voting stock of the surviving entity outstanding after the transaction. We have issued shares of restricted stock to Gordon Hoffstein that provide for accelerated vesting of 50% of these shares of restricted stock upon a change in control, and full acceleration upon the termination of employment after a change of control in certain instances. 1998 Stock Incentive Plan Our 1998 Stock Incentive Plan was adopted by our board of directors and stockholders in November 1998. The plan authorizes the issuance of up to shares of our common stock. As of June 30, 1999, shares of restricted stock and options to purchase an aggregate of shares of common stock at a weighted average restricted stock purchase price of $ per share and a weighted average exercise price of $ per share were outstanding under the plan. The stock incentive plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code and nonstatutory stock options. Our officers, employees, directors, consultants and advisors are eligible to receive awards under the stock incentive plan. Under present law, however, incentive stock options may only be granted to employees. No employee may receive any award for more than shares in any calendar year. Optionees receive the right to purchase a specified number of shares of common stock at a specified option price and subject to such other terms and conditions as are specified in connection with the option grant. We may grant options at an exercise price less than, equal to or greater than the fair market value of our common stock on the date of grant. Under present law, incentive stock options and options intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code may not be granted at an exercise price less than the fair market value of the common stock on the date of grant or less than 110% of the fair market value in the case of incentive stock options granted to optionees holding more than 10% of the voting power of the company. The stock incentive plan permits our board of directors to determine how optionees may pay the exercise price of their options, including by cash, check or in connection with a "cashless exercise" through a broker, by surrender to us of shares of common stock, by delivery to us of a promissory note, or by any combination of the permitted forms of payment. As of June 30, 1999, approximately 124 persons were eligible to receive awards under the stock incentive plan, including eight executive officers and four non-employee directors. Our board of directors administers the stock incentive plan. Our board of directors has the authority to adopt, amend and repeal the administrative rules, guidelines and practices relating to the plan and to interpret its provisions. It may delegate authority under the stock incentive plan to one or 48 more executive officers or committees of the board of directors. Our board of directors has authorized the compensation committee to administer the stock incentive plan, including the granting of options to our executive officers. Subject to any applicable limitations contained in the stock incentive plan, our board of directors, our compensation committee or any other committee to whom our board of directors delegates authority, as the case may be, selects the recipients of awards and determines: . the number of shares of common stock covered by options and the dates upon which such options become exercisable; . the exercise price of options; and . the duration of options. In the event of a merger, liquidation or other acquisition event, our board of directors is authorized to take one or more of the following actions: . provide that outstanding options be assumed or substituted for by the acquirer; . in the event of an acquisition in which the holders of common stock would receive a cash payment for each share surrendered, provide for a cash payment to each option holder equal to the amount by which the amount paid to common stock holders exceeds the option's exercise price, multiplied by the total number of shares of common stock subject to the option; . provide that any or all outstanding options become fully exercisable as of a specified time prior to the event; and . provide that all unexercised options terminate immediately prior to the event unless exercised before such time. No award may be granted under the stock incentive plan after November 2008, but the vesting and effectiveness of awards previously granted may extend beyond that date. Our board of directors may at any time amend, suspend or terminate the stock incentive plan. 401(k) Plan We have adopted an employee savings and retirement plan qualified under Section 401 of the Internal Revenue Code and covering employees who are at least 21 years of age and who have completed three months of service. Employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit and have the amount of such reduction contributed to the 401(k) plan. Although not required, we may make matching or additional contributions to the 401(k) plan in amounts to be determined annually by our board of directors. To date we have not made any such contributions. 49 TRANSACTIONS WITH RELATED PARTIES Preferred Stock and Related Transactions Sale of Preferred Stock. We sold preferred stock pursuant to the following transactions: . On August 28, 1998, we sold an aggregate of 10,500,000 shares of Series A preferred stock at a price of $1.00 per share and issued warrants to purchase shares of common stock at an exercise price of $ per share. . On September 29, 1998, we sold 100,000 shares of Series A preferred stock at a price of $1.00 per share and issued a warrant to purchase shares of common stock at an exercise price of $ and warrants to purchase up to 700,000 shares of Series A preferred stock at an exercise price of $1.00 per share; and . On March 31, 1999, we sold an aggregate of 13,196,522 shares of Series B preferred stock at a price of $1.89443 per share. The following directors, executive officers, holders of more than 5% of a class of voting securities and members of such person's immediate family purchased these shares or received these warrants to purchase common stock or Series A preferred stock. Upon consummation of the offering, each share of Series A preferred stock will be converted into shares of common stock and each share of Series B preferred stock will be converted into shares of common stock.
Warrants to Shares of Warrants to Purchase Shares of Series A Purchase Series A Series B Preferred Common Preferred Preferred Purchaser(1) Stock Stock Stock Stock Gordon B. Hoffstein(2).............. 500,000 -- -- Charles River Partnership(2)(3)..... 5,000,000 -- 2,322,598 Highland Capital(2)(4).............. -- -- -- 5,070,139 Matrix Partners(2)(5)............... 5,000,000 -- 2,322,598
- --------------------- (1) See Notes to Table of Beneficial Ownership in "Principal Stockholders" for information relating of the beneficial ownership of such shares. (2) A holder of more than 5% of Be Free's Common Stock. (3) Of the securities listed, Charles River Partnership VIII owns 4,909,475 shares of Series A preferred stock, warrants to purchase shares of common stock and 2,280,547 shares of Series B preferred stock, and Charles River VIII-A owns 90,525 shares of Series A preferred stock, warrants to purchase shares of common stock and 42,051 shares of Series B preferred stock. Mr. Dintersmith, a director of Be Free, is a general partner of Charles River Partnership VIII, the general partner of Charles River Partnership VIII, L.P. and an officer of Charles River VII Friends, Inc., the manager of Charles River VIII-A, LLC. (4) Of the securities listed, Highland Capital Partners IV owns 4,867,333 shares of Series B preferred stock and Highland Entrepreneurs' Fund IV owns 202,806 shares of Series B preferred stock. Mr. Nova, a director of Be Free, is a General Partner of Highland Capital Partners, the general partner of Highland Capital Partners IV, LP and Highland Entrepreneurs' Fund IV, LP. (5) Of the securities listed above, Matrix Partners V, L.P. owns 4,500,000 shares of Series A preferred stock, warrants to purchase shares of common stock and 2,090,338 shares of Series B preferred stock, and Matrix V Entrepreneurs Fund, L.P. owns 500,000 shares of Series A Preferred Stock, warrants to purchase shares of common stock and 232,260 shares of Series B preferred stock. Mr. Humphreys, a director of Be Free, is a general partner of Matrix V Management Co., LLC, the general partner of both Matrix Partners V, L.P. and Matrix V Entrepreneurs' Fund. 50 In connection with the sale of Series A preferred stock, the following transactions also occurred which involved executive officers, directors and/or holders of more than 5% of a class of voting securities (or persons or entities related to the foregoing): Contribution Transactions. Samuel P. Gerace, Jr., a director and executive officer, Thomas A. Gerace, an executive officer, their father Samuel P. Gerace, Sr. and a limited partnership for the benefit of members of the Gerace family, contributed to us shares of affiliated companies under common control and management, in exchange for shares of our common stock, as follows:
Shares Contributor Received Samuel P. Gerace, Jr............................................. Samuel P. Gerace, Sr............................................. Gerace Family L.P................................................ Thomas A. Gerace.................................................
Redemption of Shares of Freedom of Information. On August 28, 1998, Be Free redeemed for a price of $ per share a portion of the outstanding common stock, including the following shares of its common stock from executive officers of Be Free (or related persons or entities), as well as other stockholders of Be Free:
Number of Purchases Seller Shares Price Samuel P. Gerace, Jr.................................... $1,002,202 Samuel P. Gerace, Sr.................................... 189,047 Gerace Family L.P....................................... 3,703,528 Thomas A. Gerace........................................ 1,002,202
Be Free paid the purchase price for the redeemed shares by issuing a promissory note, which was paid in full on August 28, 1998 with a portion of the proceeds from the sale of the Series A preferred stock. Transfer Agreement. On August 28, 1998, the following executive officers (or related persons or entities) of Be Free transferred shares of common stock to a group of employees and advisors, including shares to Kristin L. Gerace (sister of Samuel P. Gerace, Jr. and Thomas A. Gerace) and shares to Jeffrey Rayport (one of our directors), in consideration for services rendered to us.
Number of Shares Transferor Transferred Gerace Family L.P............................................. Samuel P. Gerace, Jr.......................................... Thomas A. Gerace.............................................. Samuel P. Gerace, Sr..........................................
Upon the consummation of this offering, all outstanding shares of Series A preferred stock, Series B preferred stock and warrants to purchase Series A preferred stock will automatically convert into shares or warrants to purchase shares of common stock on a one-for- basis. 51 Restricted Stock Awards On December 30, 1998 Gordon B. Hoffstein, President and Chief Executive Officer, and Stephen M. Joseph, Chief Financial Officer, purchased restricted stock under the 1998 Stock Incentive Plan. Mr. Hoffstein purchased shares of common stock and Mr. Joseph purchased shares of common stock each at a purchase price of $ per share. See "Compensation Committee Interlocks and Insider Participation." Mr. Joseph paid for such restricted stock awards by providing a cash payment for 25% of the award and by executing a promissory note in favor of Be Free for the remaining 75% of the award. The note is due on June 30, 2003 and accrues interest at 7% per annum. The terms of the note provide that interest accrues beginning on January 1, 1999, and payments of interest commence on July 15, 1999. As of June 30, 1999, $78,360 in principal was outstanding with respect to Mr. Joseph's promissory note. Other On August 28, 1998 Be Free entered into employment agreements with Samuel P. Gerace, Jr. and Thomas A. Gerace that provide for an annual base salary of not less than $110,000 and annual merit bonuses as may be determined by the board of directors. These agreements contain customary noncompetition, confidentiality and nonsolicitation provisions, and have an initial term of two years with a one year renewal subject to the parties' agreement. Be Free is a party to indemnification agreements with Ted R. Dintersmith, Samuel P. Gerace, Jr., W. Michael Humphreys and Daniel J. Nova pursuant to which it has agreed to indemnify these directors to the fullest extent possible under Delaware Law from liabilities arising out of their respective service as a director of Be Free. All future transactions between us and our officers, directors, principal stockholders and their affiliates will be approved by a majority of the board of directors, including a majority of the disinterested directors, and will be on terms no less favorable to us than could be obtained from unaffiliated third parties. 52 PRINCIPAL STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of our common stock as of June 30, 1999 and as adjusted to reflect the sale of the shares of common stock in this offering, by: . each person we know to own beneficially more than 5% of our common stock; . each of our directors; . the Named Executive Officers; and . all directors and executive officers as a group. Unless otherwise indicated, each person named in the table has sole voting power and investment power, or shares such power with his or her spouse, with respect to all shares of capital stock listed as owned by such person. The address of each of our executive officers and directors is c/o Be Free, Inc., 154 Crane Meadow Road, Marlborough, Massachusetts 01752. The number of shares beneficially owned by each stockholder is determined under rules promulgated by the Securities and Exchange Commission. The information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and any shares as to which the individual has the right to acquire beneficial ownership within 60 days after June 30, 1999 through the exercise of any stock option or other right. The inclusion herein of such shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of such shares. Percentage of beneficial ownership is based on shares of common stock (on an as converted basis) outstanding as of June 30, 1999 and shares of common stock outstanding after completion of this offering, assuming no exercise of the over-allotment option.
Percent of Ownership ------------------------- Voting Shares Prior to After Name of Beneficial Owner Beneficially Owned the Offering the Offering Five Percent Stockholders: Charles River Partnership VIII, LP (1)(5)........................... 20.85% Matrix Partners V, LP (2)(6)...... 20.85% Highland Capital Partners IV, LP (3)(7)........................... 12.25% Directors and Named Executive Officers: Thomas A. Gerace.................. 8.23% Samuel P. Gerace, Jr.............. 8.23% Gordon B. Hoffstein (4)........... 9.05% Ted R. Dintersmith (5)............ 20.85% W. Michael Humphreys (6).......... 20.85% Daniel Nova (7)................... 12.25% Jeffrey Rayport................... * All directors and executive officers as a group (12 persons). 77.97%
- --------------------- * Less than 1% (1) Includes shares owned by Charles River VIII-A, LLC, an affiliate of Charles River Partnership VIII, LP, shares issuable upon exercise of a warrant in the name of Charles River VIII-A, LLC and shares 53 issuable upon exercise of a warrant in the name of Charles River Partnership VIII, LP. The address of Charles River Partnership VIII, LP is 1000 Winter Street, Suite 3300, Waltham, MA 02451. (2) Includes shares owned by Matrix V Entrepreneurs' Fund IV, LP, an affiliate of Matrix Partners V, LP, shares issuable upon exercise of a warrant in the name of Matrix V Entrepreneurs' Fund IV, LP and shares issuable upon exercise of a warrant in the name of Matrix Partners V, LP. Matrix Partners V, LP is located at 1000 Winter Street, Suite 4500, Waltham, MA 02451. (3) Includes shares owned by Highland Entrepreneurs' Fund IV, LP, an affiliate of Highland Capital Partners IV, LP. Highland Capital Partners IV, LP is located at Two International Place, Boston, MA 02110. (4) Includes shares issuable upon exercise of a warrant. (5) Mr. Dintersmith, a member of the board of directors, is a general partner of Charles River VIII GP, the general partner of Charles River Partnership VIII, LP, and an officer of Charles River VII Friends, Inc., the manager of Charles River VIII-A, LLC, and may be deemed to have beneficial ownership of shares. Mr. Dintersmith has shared voting power with respect to such shares and disclaims beneficial ownership of any such shares, except to the extent of his pecuniary interest in such shares. (6) Mr. Humphreys, a member of the board of directors, is a general partner of Matrix V Management Co., LLC, the general partner of both Matrix Partners V, L.P. and Matrix V Entrepreneurs' Fund and may be deemed to have beneficial ownership of shares. Mr. Humphreys has shared voting and investment power over such shares and disclaims beneficial ownership of any such shares, except to the extent of his pecuniary interest therein. (7) Mr. Nova, a member of the board of directors, is a general partner of Highland Capital Partners, the general partner of Highland Capital Partners IV, LP and Highland Entrepreneurs' Fund IV, LP and may be deemed to have beneficial ownership of shares. Mr. Nova has shared voting and investment power over such shares and disclaims beneficial ownership of any such shares, except to the extent of his pecuniary interest therein. 54 DESCRIPTION OF CAPITAL STOCK General Be Free's amended and restated certificate of incorporation, the filing of which will occur at the closing of this offering, authorizes the issuance of up to million shares of common stock, par value $0.01 per share, and million shares of preferred stock, par value $0.01 per share, the rights and preferences of which may be established from time to time by Be Free's board of directors. As of July , 1999, giving effect to the conversion of all preferred stock into common stock, shares of common stock were outstanding. As of July , 1999, Be Free had stockholders. Common Stock Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to receive proportionately our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock are, and the shares offered by us in this offering will be, when issued and paid for, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate and issue in the future. Preferred Stock Under the terms of our certificate of incorporation, our board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of our outstanding voting stock. We have no present plans to issue any shares of preferred stock. 55 Warrants As of July , 1999, Be Free had outstanding warrants to purchase shares of common stock at an exercise price of $ and, giving effect to the conversion of all preferred stock into common stock, additional warrants to purchase shares at an exercise price of $ . The warrants have a net exercise provision under which the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares, based on the fair market value of Be Free's stock at the time of the exercise of the warrant, after deducting the aggregate exercise price. Of the warrants to purchase shares of common stock, warrants to purchase shares of common stock will expire on September 29, 2008 and the balance will expire on August 28, 2008. The additional warrants to purchase shares of common stock will expire on the fifth anniversary of the initial public offering of the common stock of Be Free. Registration Rights Pursuant to a Registration Rights Agreement, dated as of March 31, 1999, the holders of approximately shares of common stock, warrants to purchase shares of common stock and options to purchase shares of common stock have the right to register those shares under the Securities Act of 1933. Subject to limitations in the Rights Agreement, some of the holders, whose shares total at least 33 1/3% of all shares of common stock then-held by the holders, or any lesser percentage with a price to the public reasonably expected to exceed $5,000,000, may require, at any time 180 days after this offering, that Be Free register such shares for public resale; furthermore, the holders of shares with sale proceeds of at least $1,000,000 may require Be Free to register all or a portion of their registrable securities on Form S-3 after this offering. Be Free shall not be required to effect more than two such demand registrations. In addition, if Be Free registers any of its common stock for its own account or for the account of other security holders, the parties to the Rights Agreement are entitled to include their shares of common stock in the registration, subject to the ability of the underwriters to limit the number of shares included in the offering. Pursuant to a Stock Purchase and Shareholders Agreement dated as of August 28, 1998, the holders of approximately shares of common stock and warrants to purchase shares, have the right to demand that Be Free register those shares under the Securities Act of 1933. All of these shares and warrants, other than shares of common stock and warrants to purchase shares, are also entitled to be registered under the Rights Agreement subject to limitations in the Stock Purchase Agreement, at any time 180 days after this offering, any of these holders holding 33 1/3% of the common stock then-held by the such holders may require Be Free to register at least 33 1/3% of the shares on Form S-1. In addition, at any time after the closing of this offering, any of these holders may require Be Free to register any such shares with proceeds of at least $1,000,000 on Form S-3. Be Free shall not be required to effect more than two such demand registrations. In addition, if Be Free registers any of its common stock for its own account or for the account of other securityholders, the holders of approximately shares of common stock, of which all but shares are entitled to be registered under the Rights Agreement, are entitled to include their shares of common stock in the registration, subject to the ability of the underwriters to limit the number of shares included in the offering. Finally, pursuant to a Stock Purchase Agreement dated as of September 29, 1998, if Be Free registers any of its common stock for its own account or for the account of other securityholders, a 56 holder of shares of common stock and warrants to purchase shares has the right to include those shares in the registration, subject to the ability of the underwriters to limit the number of shares issued in the offering. All of these shares are entitled to be registered under the Registration Rights Agreement. Be Free will bear all fees, costs and expenses of such registrations, other than underwriting discounts and commissions. Upon the effectiveness of any registration statement filed to register our common stock, such shares would become freely tradable, without any restrictions imposed by the Securities Act. Delaware Law and Our Charter and By-Law Provisions We are subject to the provisions of Section 203 of the General Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A business combination includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an interested stockholder is a person who, together with affiliates and associates, owns, or within the prior three years did own, 15% or more of the corporation's voting stock. Our certificate of incorporation divides our board of directors into three classes with staggered three-year terms. In addition, our certificate of incorporation provides that directors may be removed only for cause by the affirmative vote of the holders of two-thirds of our shares of capital stock entitled to vote. Under our certificate of incorporation, any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may only be filled by vote of a majority of our directors then in office. The classification of our board of directors and the limitations on the removal of directors and filling of vacancies could make it more difficult for a third party to acquire, or discourage a third party from acquiring, control of the company. Our certificate of incorporation also provides that any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting and may not be taken by written action in lieu of a meeting. Our certificate of incorporation further provides that special meetings of the stockholders may only be called by our Chairman of the Board, President or board of directors. Under our by-laws, in order for any matter to be considered properly brought before a meeting, a stockholder must comply with advance notice requirements. These provisions could have the effect of delaying until the next stockholders' meeting stockholder actions which are favored by the holders of a majority of our outstanding voting securities. These provisions may also discourage a third party from making a tender offer for our common stock, because even if it acquired a majority of our outstanding voting securities, the third party would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders' meeting, and not by written consent. The General Corporation Law of Delaware provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, unless a corporation's certificate of incorporation or by-laws, as the case 57 may be, requires a greater percentage. Our certificate of incorporation and by-laws require the affirmative vote of the holders of at least 75% of the shares of our capital stock issued and outstanding and entitled to vote to amend or repeal any of the provisions described in the prior two paragraphs. Our amended and restated certificate of incorporation contains provisions permitted under the General Corporation Law of Delaware relating to the liability of directors. The provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in circumstances involving wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions that involve intentional misconduct or a knowing violation of law. Further, our amended and restated certificate of incorporation contains provisions to indemnify our directors and officers to the fullest extent permitted by the General Corporation Law of Delaware. We believe that these provisions will assist us in attracting and retaining qualified individuals to serve as directors. Transfer Agent and Registrar The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust. 58 SHARES ELIGIBLE FOR FUTURE SALE Immediately prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect the market price of our common stock. Upon completion of this offering, we will have outstanding an aggregate of shares of common stock, assuming the issuance of shares of common stock offered hereby and no exercise of options after , 1999. Of these shares, the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by Affiliates of Be Free as that term is defined in Rule 144 under the Securities Act (whose sales would be subject to certain limitations and restrictions described below). The remaining shares of common stock held by existing stockholders were issued and sold by us in reliance on exemptions from the registration requirements of the Securities Act. Of these shares, shares will be subject to lock-up agreements described below on the effective date of this offering. Upon expiration of the lock-up agreements 180 days after the effective date of this offering, shares will become eligible for sale pursuant to Rule 144(k), and the remaining shares will become eligible for sale subject in most cases to the limitations of either Rule 144 or Rule 701. In addition, holders of stock options could exercise such options and sell certain of the shares issued upon exercise as described below.
Number of Shares Date After the date of this prospectus After 180 days from the date of this prospectus (subject, in some cases, to volume limitations) At various times after 180 days from the date of this prospectus
As of , 1999 there were a total of shares of common stock subject to outstanding options under our 1998 Stock Incentive Plan, approximately of which were vested and exercisable. However, all of these shares are subject to lock-up agreements. All options held by officers and directors of Be Free are subject to 180 day lock-up agreements described below. Immediately after the completion of this offering, we intend to file registration statements on Form S-8 under the Securities Act to register all of the shares of common stock issued or reserved for future issuance under the 1998 Stock Incentive Plan. Based on the options outstanding as of , 1999, within 180 days after the effective date of this offering, a total of approximately shares of common stock subject to outstanding options will be vested and exercisable. After the effective dates of the registration statements on Form S-8, shares purchased upon exercise of options granted pursuant to the 1998 Stock Incentive Plan generally would be available for resale in the public market. All officers and directors and substantially all of our existing stockholders agreed not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this offering. Donaldson, Lufkin & Jenrette Securities Corporation, however, may in its sole discretion, at any time without notice, release all or any portion of the shares subject to lock- up agreements. 59 Rule 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell in broker's transactions or to market makers, within any three-month period, a number of shares that does not exceed the greater of: . 1% of the number of shares of common stock then outstanding (which will equal approximately shares immediately after this offering); or . the average weekly trading volume in the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. Sales under Rule 144 are generally subject to the availability of current public information about Be Free. Rule 144(k) Under Rule 144(k), a person who is not deemed to have been an affiliate of Be Free at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without having to comply with the manner of sale, public information, volume limitation or notice filing provisions of Rule 144. Therefore, unless otherwise restricted, 144(k) shares may be sold immediately upon the completion of this offering. Rule 701 In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period and notice filing requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice filing provisions of Rule 144. The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, along with the shares acquired upon exercise of such options (including exercises after the date of this prospectus). Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than affiliates (as defined in Rule 144) subject only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its one year minimum holding period requirements. 60 UNDERWRITING Subject to the terms and conditions contained in an underwriting agreement, dated , 1999, the underwriters named below, who are represented by Donaldson, Lufkin & Jenrette Securities Corporation, Hambrecht & Quist LLC and Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, have severally agreed to purchase from us the number of shares opposite their names below:
Number of Underwriters Shares Donaldson, Lufkin & Jenrette Securities Corporation..................... Hambrecht & Quist LLC................................................... Dain Rauscher Wessels................................................... ------- Total................................................................. =======
The underwriting agreement provides that the obligations of the several underwriters to purchase and accept delivery of the shares included in this offering are subject to approval of certain legal matters and to certain other conditions. The underwriters are obligated to purchase and accept delivery of all the shares, other than those shares covered by the over-allotment option described below, if they purchase any of the shares. The underwriters propose to offer initially some of the shares directly to the public at the initial public offering price on the cover page of this prospectus and some of the shares to certain dealers at the initial public offering price less a concession not in excess of $ per share. The underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share on sales to other dealers. After the initial offering of the shares to the public, the representatives may change the public offering price and such concessions. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. The following table shows the underwriting fees to be paid to the underwriters by us in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of our common stock.
No Full Exercise Exercise Per share..................................................... $ $ Total.........................................................
We will pay the offering expenses, estimated to be $ million. DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation and a member of the selling group, is facilitating the distribution of the shares sold in the offering over the Internet. The underwriters have agreed to allocate a limited number of shares to DLJdirect Inc. for sale to its brokerage account holders. 61 We have granted to the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to additional shares at the initial public offering price minus the underwriting fees. The underwriters may exercise this option solely to cover over-allotments, if any, made in connection with this offering. To the extent that the underwriters exercise this option, each underwriter will become obligated, subject to certain conditions, to purchase a number of additional shares approximately proportionate to that underwriter's initial purchase commitments. We have agreed to indemnify the underwriters against certain civil liabilities, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect of any of those liabilities. We, our executive officers and directors, and certain of our stockholders have agreed, for a period of 180 days from the date of this prospectus, not to, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation: . offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock; or . enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common stock, regardless of whether any of these transactions is to be settled by the delivery of common stock, or such other securities, in cash or otherwise. However, we may: . grant stock options under the 1998 Stock Incentive Plan; and . issue shares of our stock upon the exercise of options, warrants or rights or the conversion of currently outstanding securities. In addition, during this period, we have agreed not to file any registration statement with respect to, and each of our executive officers, directors and certain stockholders have agreed not to make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. At the request of Be Free, the underwriters have reserved at the initial public offering price up to additional shares of common stock for sale to directors, employees and associates of Be Free. There can be no assurance that any of the served shares will be so purchased. The number of shares available for sale to the general public in the offering will be reduced by the number of reserved shares sold. Any reserved shares not so purchased will be offered to the general public on the same basis as the other shares offered hereby. Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares of our common stock included in this offering in any 62 jurisdiction where action for that purpose is required. The shares included in this offering may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisement in connection with the offer and sale of any of these shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of such jurisdiction. Persons who receive this prospectus are advised to inform themselves about and to observe any restrictions relating to the offering of our common stock and the distribution of this prospectus. This prospectus is not an offer to sell or a solicitation of an offer to buy any shares of our common stock included in this offering in any jurisdiction where that would not be permitted or legal. In connection with this offering, certain underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may overallot this offering, creating a syndicate short position. In addition, the underwriters may bid for and purchase shares of our common stock in the open market to cover syndicate short positions or to stabilize the price of our common stock. These activities may stabilize or maintain the market price of our common stock above independent market levels. The underwriters are not required to engage in these activities and may end any of these activities at any time. Prior to this offering, there has been no established public market for our common stock. The initial public offering price for the shares of our common stock offered by this prospectus will be determined by negotiation between us and the representatives of the underwriters. The factors to be considered in determining the initial public offering price include: . our history and the prospects for the industry in which we compete; . our past and present operations; . our historical results of operations; . our prospects for future earnings; . the recent market prices of securities of generally comparable companies; and . the general conditions of the securities market at the time of the offering. We have applied for quotation of our common stock on the Nasdaq National Market under the symbol BFRE. LEGAL MATTERS The validity of the shares of common stock offered by us hereby will be passed upon for us by Hale and Dorr LLP, Boston, Massachusetts. Legal matters will be passed upon for the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. 63 EXPERTS The consolidated financial statements as of December 31, 1997 and 1998 and for each of the three years in the period ended December 31, 1998 included in this prospectus and the registration statement relating to this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement on Form S-1 with the SEC for the stock we are offering by this prospectus. This prospectus does not include all of the information contained in the registration statement. You should refer to the registration statement and its exhibits for additional information. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document. When we complete this offering, we will also be required to file annual, quarterly and special reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SEC's Web site at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. Our SEC filings are also available at the office of the Nasdaq National Market. For further information on obtaining copies of our public filings at the Nasdaq National Market, you should call (212) 656-5060. 64 BE FREE, INC. CONSOLIDATED FINANCIAL STATEMENTS CONTENTS
Page Report of Independent Accountants........................................ F-2 Consolidated Balance Sheets as of December 31, 1997 and 1998 and as of June 30, 1999 (unaudited) and pro forma as of June 30, 1999 (unaudited). F-3 Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998, and for the six months ended June 30, 1998 and 1999 (unaudited)............................................................. F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1996, 1997 and 1998 and for the six months ended June 30, 1999 (unaudited).................................................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and for the six months ended June 30, 1998 and 1999 (unaudited)............................................................. F-6 Notes to Consolidated Financial Statements............................... F-7
All share and per share data included in these consolidated financial statements and related notes do not reflect the contemplated reverse stock split of our common stock. F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Be Free, Inc. and Subsidiaries: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows present fairly, in all material respects, the financial position of Be Free, Inc. and its subsidiaries (the "Company") at December 31, 1997 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts July 2, 1999 F-2 BE FREE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
Pro Forma December 31, (Note B) ------------------------- June 30, June 30, 1997 1998 1999 1999 ASSETS (Unaudited) Current assets: Cash and cash equiva- lents.................. $ 75,843 $ 4,327,090 $ 21,374,504 $21,374,504 Marketable securities... -- -- 2,950,312 2,950,312 Accounts receivable, net of allowance for doubtful accounts of $0, $14,000, $27,700 and $27,700 at December 31, 1997, 1998, June 30, 1999, and June 30, 1999 pro forma, respectively.... 80,390 118,955 647,916 647,916 Prepaid expenses........ -- 144,517 826,856 826,856 Other current assets.... 343 23,222 -- -- ----------- ------------ ------------ ----------- Total current assets. 156,576 4,613,784 25,799,588 25,799,588 Property and equipment, net (Note D)........... 96,902 961,702 3,869,859 3,869,859 Deposits................ 550 384,991 423,932 423,932 Other assets............ -- 10,359 89,231 89,231 ----------- ------------ ------------ ----------- Total assets......... $ 254,028 $ 5,970,836 $ 30,182,610 $30,182,610 =========== ============ ============ =========== LIABILITIES, CONVERTIBLE PARTICIPATING PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable........ 431,756 533,524 583,013 583,013 Accrued expenses........ 106,360 349,725 1,078,798 1,078,798 Deferred revenue........ -- 121,667 1,173,571 1,173,571 Current portion of long-term debt......... 120,226 187,139 1,932,355 1,932,355 ----------- ------------ ------------ ----------- Total current liabil- ities............... 658,342 1,192,055 4,767,737 4,767,737 Notes payable to related parties................ 1,159,938 -- -- -- Long-term debt, net of current portion........ 333,040 4,949,198 6,018,464 6,018,464 ----------- ------------ ------------ ----------- Total liabilities.... 2,151,320 6,141,253 10,786,201 10,786,201 Commitments and contin- gencies (Note G) Series A Convertible Participating Preferred Stock; $0.01 par value; 11,300,000 shares authorized, 10,600,000 shares issued and outstanding at December 31, 1998, and June 30,1999; none issued and outstanding on a pro forma basis (liquidation preference $10,600,000 at December 31, 1998 and June 30, 1999), net of issuance costs of $152,592............... -- 9,815,447 9,899,507 -- Series A Convertible Participating Preferred Stock Warrants......... -- 540,000 540,000 -- Series B Convertible Participating Preferred Stock; $0.01 par value; 13,196,522 shares au- thorized, issued, and outstanding at June 30, 1999; none issued and outstanding on a pro forma basis (liquida- tion preference $25,503,465 at June 30, 1999), net of issuance costs of $55,253....... -- -- 25,450,975 -- Stockholders' equity (deficit) (Note H): Common stock, $0.01 par value; 55,000,000 shares authorized; 17,613,013 shares issued and outstanding at December 31, 1997; 19,500,000 shares issued at December 31, 1998 and June 30, 1999; 43,296,522 issued on a pro forma basis.................. 176,130 195,000 195,000 432,965 Additional paid-in cap- ital................... 345,678 31,356 1,220,965 36,873,482 Unearned compensation... -- (2,177,843) (3,522,819) (3,522,819) Stockholders' notes re- ceivable............... -- (779,558) (309,659) (309,659) Accumulated deficit..... (2,419,100) (6,109,624) (12,484,321) (12,484,321) ----------- ------------ ------------ ----------- (1,897,292) (8,840,669) (14,900,834) 20,989,648 Treasury stock, at cost (1,685,195 shares at December 31, 1998; 1,922,157 shares at June 30, 1999 and on a pro forma basis)....... -- (1,685,195) (1,593,239) (1,593,239) ----------- ------------ ------------ ----------- Total stockholders' equity (deficit).... (1,897,292) (10,525,864) (16,494,073) 19,396,409 ----------- ------------ ------------ ----------- Total liabilities, convertible participating preferred stock and stockholders' equity (deficit)... $ 254,028 $ 5,970,836 $ 30,182,610 $30,182,610 =========== ============ ============ ===========
The accompanying notes are an integral part of the financial statements. F-3 BE FREE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June Year Ended December 31, 30, ------------------------------------- ----------------------- 1996 1997 1998 1998 1999 (Unaudited) Revenue: Performance marketing services............. $ -- $ 216,286 $ 1,319,183 $ 617,413 $ 1,396,149 Other................. 196,069 60,424 7,580 2,697 -- ----------- ----------- ----------- ---------- ----------- Total revenue....... 196,069 276,710 1,326,763 620,110 1,396,149 ----------- ----------- ----------- ---------- ----------- Operating expenses: Cost of revenue....... -- 272,585 423,811 155,711 238,033 Sales and marketing... 397,819 180,108 1,453,706 146,310 4,496,110 Development and engineering.......... 505,509 426,329 728,538 292,143 1,481,817 General and administrative....... 557,760 332,376 875,153 230,785 854,160 Equity related compensation......... -- -- 1,312,236 -- 532,534 ----------- ----------- ----------- ---------- ----------- Total operating expenses........... 1,461,088 1,211,398 4,793,444 824,949 7,602,654 ----------- ----------- ----------- ---------- ----------- Operating loss...... (1,265,019) (934,688) (3,466,681) (204,839) (6,206,505) Interest income....... 1,324 6,293 34,577 6,139 276,946 Interest expense...... (27,566) (105,215) (258,420) (67,014) (445,138) ----------- ----------- ----------- ---------- ----------- Net loss................ (1,291,261) (1,033,610) (3,690,524) (265,714) (6,374,697) Accretion of preferred stock to redemption value.................. -- -- (56,039) -- (590,401) ----------- ----------- ----------- ---------- ----------- Net loss attributable to common stockholders.... $(1,291,261) $(1,033,610) $(3,746,563) $ (265,714) $(6,965,098) =========== =========== =========== ========== =========== Basic and diluted net loss per share......... $ (0.07) $ (0.04) $ (0.23) $ (0.02) $ (0.55) Shares used in computing basic and diluted net loss per share......... 19,543,204 27,138,512 16,018,258 17,613,013 12,695,148 Unaudited pro forma basic and diluted net loss per share......... $ (0.19) $ (0.21) Shares used in computing pro forma basic and diluted net loss per share.................. 19,639,628 29,878,553
The accompanying notes are an integral part of the financial statements. F-4 BE FREE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) for the years ended December 31, 1996, 1997 and 1998 and for the six months ended June 30, 1999 (unaudited)
Common Stock Treasury Stock --------------------- Retained ------------------------ $0.01 Additional Stockholders' Earnings Par Paid-in Unearned Notes (Accumulated Shares Value Capital Compensation Receivable Deficit) Shares Value Balance at January 1, 1996........... 3,522,601 $ 35,226 $ 15,774 $ -- $ -- $ 116,578 -- $ -- Issuance of Common Stock.... 24,658,215 246,582 (15,774) -- -- (210,807) -- -- Net loss........ -- -- -- -- -- (1,291,261) -- -- ----------- -------- ---------- ------------ Balance at December 31, 1996. 28,180,816 281,808 -- -- -- (1,385,490) Contribution of capital by stockholders.... -- -- 250,000 -- -- -- -- -- Acquisition and retirement of treasury stock.. (10,567,803) (105,678) 95,678 -- -- -- -- -- Net loss........ -- -- -- -- -- (1,033,610) -- -- ----------- -------- ---------- ------------ Balance at December 31, 1997. 17,613,013 176,130 345,678 -- -- (2,419,100) -- -- Stock issuance in connection with warrant exercise........ 1,886,987 18,870 356,130 -- -- -- -- -- Acquisition of treasury stock.. -- -- -- -- -- -- (6,176,881) (6,176,881) Issuance of restricted stock to employees by controlling stockholders.... -- -- 1,029,600 (152,909) -- -- -- -- Issuance of warrants to purchase Common Stock in connection with Series A Convertible Participating Preferred Stock financing....... -- -- 688,000 -- -- -- -- -- Exercise of call option on Common Stock........... -- -- -- -- -- -- (705,364) (705,364) Forfeiture of unvested shares of restricted stock........... -- -- (86,550) 86,550 -- -- -- -- Issuance of restricted stock........... -- -- (2,702,466) (1,715,026) (779,558) -- 5,197,050 5,197,050 Unearned compensation related to option grants.......... -- -- 457,003 (457,003) -- -- -- -- Amortization of unearned compensation.... -- -- -- 60,545 -- -- -- -- Net loss........ -- -- -- -- -- (3,690,524) -- -- Accretion to redemption value of Series A Preferred Stock. -- -- (56,039) -- -- -- -- -- ----------- -------- ---------- ------------ ---------- ------------ ---------- ------------ Balance at December 31, 1998. 19,500,000 195,000 31,356 (2,177,843) (779,558) (6,109,624) (1,685,195) (1,685,195) Acquisition of treasury stock.. -- -- (130,890) 130,890 58,044 -- (386,962) (58,044) Acceleration of vesting of restricted stock........... -- -- 112,320 -- -- -- -- -- Issuance of restricted stock........... -- -- -- (97,500) (52,500) -- 150,000 150,000 Repayment of receivable from stockholder..... -- -- -- -- 464,355 -- -- -- Unearned compensation related to option grants... -- -- 1,798,580 (1,798,580) -- -- -- -- Amortization of unearned compensation.... -- -- -- 420,214 -- -- -- -- Net loss........ -- -- -- -- -- (6,374,697) -- -- Series B Preferred Stock dividend........ -- -- (503,578) -- -- -- -- -- Accretion to redemption value of Series A and B Preferred Stock........... -- -- (86,823) -- -- -- -- -- ----------- -------- ---------- ------------ ---------- ------------ ---------- ------------ Balance at June 30, 1999 (unaudited)....... 19,500,000 $195,000 $1,220,965 $ (3,522,819) $ (309,659) $(12,484,321) (1,922,157) $ (1,593,239) =========== ======== ========== ============ ========== ============ ========== ============ Total Balance at January 1, 1996........... $ 167,578 Issuance of Common Stock.... 20,001 Net loss........ (1,291,261) ------------- Balance at December 31, 1996. (1,103,682) Contribution of capital by stockholders.... 250,000 Acquisition and retirement of treasury stock.. (10,000) Net loss........ (1,033,610) ------------- Balance at December 31, 1997. (1,897,292) Stock issuance in connection with warrant exercise........ 375,000 Acquisition of treasury stock.. (6,176,881) Issuance of restricted stock to employees by controlling stockholders.... 876,691 Issuance of warrants to purchase Common Stock in connection with Series A Convertible Participating Preferred Stock financing....... 688,000 Exercise of call option on Common Stock........... (705,364) Forfeiture of unvested shares of restricted stock........... -- Issuance of restricted stock........... -- Unearned compensation related to option grants.......... -- Amortization of unearned compensation.... 60,545 Net loss........ (3,690,524) Accretion to redemption value of Series A Preferred Stock. (56,039) ------------- Balance at December 31, 1998. (10,525,864) Acquisition of treasury stock.. -- Acceleration of vesting of restricted stock........... 112,320 Issuance of restricted stock........... -- Repayment of receivable from stockholder..... 464,355 Unearned compensation related to option grants... -- Amortization of unearned compensation.... 420,214 Net loss........ (6,374,697) Series B Preferred Stock dividend........ (503,578) Accretion to redemption value of Series A and B Preferred Stock........... (86,823) ------------- Balance at June 30, 1999 (unaudited)....... $(16,494,073) =============
The accompanying notes are an integral part of the financial statements. F-5 BE FREE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended Year Ended December 31, June 30, ------------------------------------- ---------------------- 1996 1997 1998 1998 1999 (Unaudited) Cash flows for operating activities: Net loss............... $(1,291,261) $(1,033,610) $(3,690,524) $(265,714) $(6,374,697) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization......... 42,067 56,999 285,794 45,139 482,387 Compensation charge and amortization of unearned compensation......... -- -- 1,312,236 -- 532,534 Loss on disposal on fixed assets......... -- 3,304 -- -- -- Acquisition of fixed assets in exchange for services......... -- -- (202,688) (202,688) -- Provisions for doubtful accounts.... -- -- 14,000 -- 13,700 Changes in operating assets and liabilities: Accounts receivable... 118,072 (54,717) (52,565) (156,201) (542,661) Prepaid expenses...... -- -- (75,991) -- (533,625) Deposits.............. -- -- (384,441) (2,231) (38,941) Accounts payable...... 329,044 94,570 101,768 186,848 49,489 Accrued expenses...... 25,261 46,085 243,365 (23,095) 729,073 Deferred revenue...... 24,508 (24,508) 121,667 466,667 1,051,904 Other, net............ (123) (343) (33,238) (1,534) (55,650) ----------- ----------- ----------- --------- ----------- Net cash provided by (used in) operating activities............. (752,432) (912,220) (2,360,617) 47,191 (4,686,487) ----------- ----------- ----------- --------- ----------- Cash flows for investing activities: Purchases of property and equipment......... (71,232) (67,726) (610,064) (32,235) (597,636) Purchases of marketable securities............ -- -- -- -- (2,932,150) ----------- ----------- ----------- --------- ----------- Net cash used in investing activities... (71,232) (67,726) (610,064) (32,235) (3,529,786) ----------- ----------- ----------- --------- ----------- Cash flows from financing activities: Proceeds from issuance of Series A Convertible Participating Preferred Stock, net of issuance costs..... -- -- 9,759,408 -- -- Issuance of warrants for Common Stock in connection with Series A Preferred Stock..... -- -- 688,000 -- -- Proceeds from issuance of Series B Convertible Participating Preferred Stock, net of issuance costs..... -- -- -- -- 24,944,635 Proceeds from issuance of Common Stock....... 20,001 250,000 -- -- -- Acquisition of common stock and treasury shares................ -- (10,000) (6,882,245) -- -- Payments on notes payable to related parties............... -- -- (1,159,938) (3,880) -- Proceeds from notes receivable from stockholders.......... -- -- -- -- 464,355 Proceeds from sales/leaseback....... -- -- -- -- 240,818 Proceeds from long-term debt.................. 738,795 791,080 5,000,000 -- -- Payments on long-term debt.................. -- -- (183,297) (61,588) (386,121) ----------- ----------- ----------- --------- ----------- Net cash provided by (used in) financing activities............. 758,796 1,031,080 7,221,928 (65,468) 25,263,687 ----------- ----------- ----------- --------- ----------- Net increase (decrease) in cash and cash equivalents............ (64,868) 51,134 4,251,247 (50,512) 17,047,414 Cash and cash equivalents at beginning of period.... 89,577 24,709 75,843 75,843 4,327,090 ----------- ----------- ----------- --------- ----------- Cash and cash equivalents at end of period................. $ 24,709 $ 75,843 $ 4,327,090 $ 25,331 $21,374,504 =========== =========== =========== ========= =========== Supplemental disclosure of cash flow information: Cash paid during the period for interest... $ 22,823 $ 53,819 $ 284,561 $ 121,589 $ 305,139 Supplemental disclosures of noncash transactions: Notes receivable for Common Stock sold..... -- -- $ 779,558 -- $ 52,500 Elimination of note receivable for restricted stock...... -- -- -- -- $ 58,044 Issuance of warrants in connection with subordinated debt agreement............. -- -- $ 540,000 -- -- Purchases of property and equipment under capital lease obligations and equipment financing... -- -- $ 285,000 -- $ 2,675,386
The accompanying notes are an integral part of the financial statements. F-6 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) A. The Company and Basis of Presentation: Be Free, Inc. (the "Company") is a provider of services that enable electronic commerce merchants and Internet portals to promote their products and services on the Internet. As such, the Company is subject to a number of risks similar to other companies in the Internet industry, including rapid technological change, uncertainty of market acceptance of services, competition from substitute services and larger companies, protection of proprietary technology and dependence on key individuals. The Company has a single operating segment, performance marketing services. The Company has no organizational structure dictated by product lines, geography or customer type. Revenue has been primarily derived from services provided through the Company's BFAST technology, which have been provided to domestic companies to date. The Company was incorporated on January 25, 1996 as "Freedom of Information, Inc." On March 31, 1999, the Company changed its name to Be Free, Inc. Prior to August 28, 1998, the Company and two affiliated companies, PCX Information Systems, Inc. ("PCX") and FOI, Inc. ("FOI"), were under common ownership and management by members of the same immediate family. On August 28, 1998, stockholders of the affiliated companies exchanged their shares of capital stock of the affiliated companies for shares of the Company's common stock which resulted in the affiliated companies becoming wholly owned subsidiaries of the Company (Note H). This combination was accounted for at historical cost due to the common control of the entities. B. Summary of Significant Accounting Policies: Cash and Cash Equivalents The Company considers all highly liquid investments with remaining maturities of three months or less at the time of acquisition to be cash equivalents. Cash equivalents, which consist of money market accounts and commercial paper, are stated at cost, which approximates market value. Marketable Securities The Company's marketable securities are comprised entirely of commercial paper which are classified as available for sale at the date of purchase. Marketable securities with remaining maturities of less than twelve months from the balance sheet date are classified as short-term. Marketable securities with remaining maturities of more than twelve months from the balance sheet date are classified as long-term. These securities are carried at amortized cost, which approximates fair value. Concentrations of Credit Risk Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, marketable securities and accounts receivable. At F-7 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) December 31, 1998, June 30, 1999, substantially all of the Company's cash was invested in money market accounts and commercial paper at one and four financial institutions, respectively, which the Company believes to be of high credit quality. The Company had one customer in 1996 totaling 74% of revenue, two customers in 1997 totaling 78% and 12% of revenue, respectively, one customer in 1998 totaling 73% of revenue and two customers in the six-month period ended June 30, 1999 totaling 40% and 15% of revenue, respectively. The Company had two customers that accounted for 40% and 11%, respectively, of accounts receivable at December 31, 1998. Property and Equipment Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are five years for furniture and office equipment and three to five years for computer equipment and software. Leasehold improvements are depreciated over the shorter of related lease terms or the estimated useful lives. The cost of maintenance and repairs is charged to expense as incurred. When assets are retired or disposed, the assets and related accumulated depreciation are eliminated from accounts and any related gains or losses are reflected in income or loss for the period. Revenue Recognition The Company derives revenue primarily from providing performance marketing services to customers. Customer contracts generally provide for fees on a per transaction basis with a monthly or annual minimum. Revenue under service contracts is recognized monthly over the contract period up to the contractual monthly or annual minimum payments. Revenue from transactions in excess of minimums are recognized when the service is provided. The Company also charges a one time integration fee for certain services. Revenue for integration fees is recognized when the integration is complete and the service is available to the customer up to the cost of providing such service. Revenue for integration fees in excess of the cost are deferred and recognized ratably over the initial term of the service contract. Costs related to performing integration services are expensed as incurred. Other revenue consists of customized software development and support services which were recognized when the services were provided. Revenue under arrangements where multiple services are sold together under one contract is allocated to each element based on the relative fair value of each element, with fair value being determined using the price charged when the element is sold separately. Cost of Revenue Cost of Revenue represents direct expenses relating to delivering performance marketing services to customers. Expenses included primarily represent depreciation for servers and storage equipment, costs for a third- party data center facility and costs for Internet connectivity. F-8 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) Development and Engineering Development and Engineering costs are expensed as incurred and include labor and related costs for product development and maintenance and support of system infrastructure. On January 1, 1999, the Company adopted American Institute of Certified Public Accountants Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). Accordingly, the Company capitalizes costs associated with the design and implementation of its operating systems, including internally and externally developed software. To date, internal costs eligible for capitalization under SOP 98-1 have been immaterial. During the years ended December 31, 1996, 1997 and 1998, certain engineering and development personnel performed software development services for third parties. The cost of those services were approximately $221,000, $40,000 and $0 for the years ended December 31, 1996, 1997 and 1998, respectively. Advertising Costs Advertising costs are expensed as incurred. Advertising expense of approximately $265,100, $3,100, $34,900, $2,200 and $927,100 were charged to sales and marketing expenses for the years ended December 31, 1996, 1997, 1998 and the six-month period ended June 30, 1998 and 1999, respectively. Income Taxes The Company provides for income taxes using the liability method whereby deferred tax liabilities and assets are recognized based on temporary differences between the amounts presented in the financial statements and the tax bases of assets and liabilities using current statutory tax rates. A valuation allowance is established against net deferred tax assets, if based on the weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Accounting for Stock-Based Compensation Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," encourages but does not require companies to record compensation cost for stock-based employee compensation at fair value. The Company has chosen to account for stock-based compensation granted to employees using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options granted to employees is measured as the excess, if any, of the fair value of the Company's stock at the date of the grant over the amount that must be paid to acquire the stock. Stock-based compensation issued to nonemployees is measured and recorded using the fair value method prescribed in SFAS No. 123. F-9 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) Treasury Stock The Company has delivered treasury shares upon issuance of restricted stock and may deliver treasury shares upon the exercise of stock options. The difference between the cost of the treasury shares, on a first-in, first-out basis, and the exercise price of the options or purchase price of restricted stock is reflected in additional paid in capital. Repurchase of treasury stock is accounted for by using the cost method of accounting. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates include accrued expenses and the valuation allowance for deferred tax assets. Actual results could differ from those estimates. Recent Accounting Pronouncements In June 1998, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company, to date, has not engaged in derivative and hedging activities, and accordingly does not believe that the adoption of SFAS No. 133 will have a material impact on the financial reporting and related disclosures of the Company. The Company will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral of the effective date of FASB Statement No. 133," in fiscal year 2000. Interim Financial Information The consolidated financial statements of the Company as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 are unaudited. All adjustments (consisting only of normal recurring adjustments) have been made, which in the opinion of management, are necessary for a fair presentation. Results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999 or for any other future period. Pro Forma Balance Sheet (Unaudited) Upon the closing of the Company's initial public offering, all of the outstanding shares of Series A and B convertible participating preferred stock will automatically convert to an equivalent number F-10 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) of shares (approximately 23,796,522 shares) of the Company's common stock assuming an offering price of greater than $3.98 per share. Upon the closing of the Company's initial public offering, warrants for the purchase of 700,000 shares of preferred stock will become exercisable for an equivalent number of shares of common stock. The unaudited pro forma presentation of the balance sheet has been prepared assuming the conversion of the convertible preferred stock into common stock at June 30, 1999. C. Net Loss Per Share and Pro Forma Loss Per Share: Basic loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the weighted average number of common shares outstanding during the period, plus the effect of any dilutive potential common shares. Dilutive potential common shares consist of stock options, preferred stock and warrants. Potential common shares were excluded from the calculation of net loss per share for the periods presented since their inclusion would be antidilutive. During the year ended December 31, 1996, there were no dilutive potential common shares. During the year ended December 31, 1997, there were no options to purchase common shares, no shares of preferred stock convertible into shares of common stock and 1,886,987 warrants to purchase shares of common stock. During the year ended December 31, 1998, there were 1,402,407 options to purchase common stock, 10,600,000 shares of preferred stock convertible into common stock and warrants to purchase 4,198,000 shares of common stock. During the six-month period ended June 30, 1999, there were 2,638,791 options to purchase common stock, 23,796,522 shares of preferred stock convertible into common stock and warrants to purchase 4,198,000 shares of common stock. Pro forma basic and diluted loss per share have been calculated assuming the conversion of all outstanding shares of preferred stock into common stock, as if the shares had converted immediately upon their issuance. Accordingly, net loss has not been adjusted for the accrued dividends for preferred stock in the calculation of pro forma loss per share. F-11 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) The following is a calculation of pro forma net loss per share (unaudited):
For the Six Months Year Ended Ended December 31, June 30, 1998 1999 Pro forma net loss: Net loss attributable to common stockholders....... $(3,746,563) $(6,965,098) Accretion of preferred stock to redemption value... 56,039 590,401 ----------- ----------- Pro forma net loss................................. $(3,690,524) $(6,374,697) =========== =========== Shares used in computing pro forma basic and diluted net loss per share: Weighted average number of common shares outstanding....................................... 16,018,258 12,695,148 Weighted average impact of assumed conversion of preferred stock on issuance....................... 3,621,370 17,183,405 ----------- ----------- Shares used in computing pro forma basic and diluted net loss per share........................ 19,639,628 29,878,553 =========== =========== Basic and diluted pro forma net loss per common share............................................. $ (0.19) $ (0.21) =========== ===========
D. Property and Equipment: Property and equipment consist of the following:
December 31, --------------------- June 30, 1997 1998 1999 Furniture and office equipment............... $ 1,803 $ 27,778 $ 402,589 Computer equipment and software.............. 213,906 1,285,683 3,994,002 Leasehold improvements....................... -- -- 189,892 --------- ---------- ---------- 215,709 1,313,461 4,586,483 Accumulated depreciation..................... (118,807) (351,759) (716,624) --------- ---------- ---------- Property and equipment, net.................. $ 96,902 $ 961,702 $3,869,859 ========= ========== ==========
At December 31, 1998, cost and accumulated depreciation relating to computer equipment under a long-term financing arrangement totaled $285,000 and $47,500, respectively. At June 30, 1999, cost and accumulated depreciation relating to furniture and office equipment under long-term financing arrangements totaled $416,593 and $36,855, respectively. At June 30, 1999, cost and accumulated depreciation relating to computer equipment and software under long-term financing arrangements totaled $2,676,312 and $190,188, respectively. At June 30, 1999, cost and accumulated depreciation relating to leasehold improvements totaled $108,299 and $4,961, respectively. Depreciation expense totaled $42,067, $56,999 and $232,952 for the years ended December 31, 1996, 1997 and 1998, respectively, and for the six months ended June 30, 1998 and 1999 was $45,139 and $364,865, respectively. F-12 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) E. Accrued Expenses: Accrued expenses include the following:
December 31, ----------------- June 30, 1997 1998 1999 Accrued interest............................. $ 56,140 $ 50,000 $ 50,000 Professional fees............................ 42,500 135,395 420,683 Commissions.................................. -- -- 175,780 Salaries and benefits........................ -- 27,876 208,924 Rent......................................... -- 67,644 42,143 Other........................................ 7,720 68,810 181,268 -------- -------- ---------- Accrued expenses........................... $106,360 $349,725 $1,078,798 ======== ======== ==========
F. Long-Term Debt: The following table summarizes the Company's long-term borrowings:
December 31, --------------------- June 30, 1997 1998 1999 Subordinated debt, net............... $ -- $4,490,000 $ 4,580,000 Obligations under capital leases and equipment financing................. -- 332,510 3,370,819 Term loans........................... 453,266 313,827 -- --------- ---------- ----------- 453,266 5,136,337 7,950,819 Less current portion................. (120,226) (187,139) (1,932,355) --------- ---------- ----------- Long-term debt..................... $ 333,040 $4,949,198 $ 6,018,464 ========= ========== ===========
The Company entered into term loans during 1996 and 1997 that accrued interest based on the lender's published prime rate, which was 9% and 8.5% at December 31, 1997 and 1998, respectively. These loans were paid in full in March 1999. On August 25, 1998, the Company entered a software and support financing arrangement with a lender totaling $376,368. Borrowings under this arrangement have an implied interest rate of 13%. The repayment period for borrowings outstanding under this arrangement concludes in September 2001. On September 29, 1998, the Company entered into a subordinated debt agreement totaling $5,000,000 which bears interest at 12% per annum. The Company borrowed the full amount available under this agreement on October 23, 1998. The repayment period on this agreement F-13 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) concludes in November 2001. In connection with the subordinated debt financing, the Company also granted warrants to purchase 700,000 shares of the Company's Series A Preferred Stock at $1.00 per share. The fair value of the warrants, estimated to be approximately $540,000 at issuance, has been recorded as a discount on the carrying value of the debt to be amortized to interest expense over the term of the debt. The value of the warrants was estimated assuming a weighted average risk free interest rate of 4.51%, an expected life from date of grant of four years, a volatility of 100% and no expected dividends. The amount of expense recognized for the year ended December 31, 1998 and the six- month period ended June 30, 1999 totaled $30,000 and $90,000, respectively. On September 29, 1998, the Company established a capital equipment line of credit totaling $2,000,000 which is available through September 29, 1999 and is collateralized by the asset purchases made under the line. At December 31, 1998, no amounts had been borrowed under this line. At June 30, 1999, the Company borrowed $1,824,228 under this line which bears interest at 6.8%. Purchases under this line are financed as capital leases with terms of four years. During 1999, the Company entered into a sale/leaseback agreement with a vendor for $240,818 in fixed assets. There was no gain or loss on the transaction and the equipment has been accounted for as a capital lease. The weighted average interest rate of outstanding long-term debt at December 31, 1997, 1998 and June 30, 1999 was 9%, 11.9% and 11.0%, respectively. Principal payments on long-term debt are as follows:
Long-Term Debt Year ended December 31, Payments 1999.......................................................... $ 367,139 2000.......................................................... 2,563,314 2001.......................................................... 2,582,551 2002.......................................................... 57,143 2003.......................................................... 57,143 2004 and thereafter........................................... 19,047 ---------- Total minimum debt payments................................. $5,646,337 ==========
G. Commitments and Contingencies: The Company leases facilities and computer equipment under operating lease agreements that expire on various dates through January 31, 2004. The Company pays all insurance and pro-rated portions of certain operating expenses for certain leases. Rent expense was $72,687, $113,025 and $307,575 for the years ended December 31, 1996, 1997 and 1998, respectively, and $101,905 and $207,298 for the six months ended June 30, 1998 and 1999, respectively. F-14 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) The future minimum lease payments at December 31, 1998 are as follows:
Operating Year ended December 31, Leases 1999.......................................................... $ 449,944 2000.......................................................... 605,377 2001.......................................................... 662,361 2002.......................................................... 694,545 2003.......................................................... 706,421 2004 and thereafter........................................... 142,202 ---------- Total minimum lease payments................................ $3,260,850 ==========
H. Capital Structure: The authorized capital stock of the Company consists of (i) 55,000,000 shares of voting common stock ("Common Stock") authorized for issuance with a par value of $0.01 and (ii) 24,496,522 shares of preferred stock with a par value of $0.01, of which 11,300,000 shares are designated as Series A Convertible Participating Preferred Stock ("Series A Preferred Stock") and 13,196,522 shares are designated as Series B Convertible Participating Preferred Stock ("Series B Preferred Stock"). Common Stock Prior to August 28, 1998, the Company and its affiliated companies, FOI, Inc. and PCX were under common control and management by immediate members of one family. On August 28, 1998, stockholders of the affiliated companies exchanged their shares of capital stock of the affiliated companies for shares of the Company's Common Stock which resulted in the affiliated companies becoming wholly owned subsidiaries of the Company. The financial statements for the Company, FOI and PCX are presented on a consolidated basis for all periods presented. On August 28, 1998, the holders of warrants to purchase shares of Common Stock exercised their warrants for 1,886,987 shares of Common Stock. Of these shares, 705,364 shares were subject to a call option at the discretion of the Company for $1.00 per share. On October 27, 1998, the Company exercised its call option in full for $705,364. On August 28, 1998, the Company repurchased 6,176,881 shares of Common Stock from founders and employees of the Company in exchange for notes payable issued by the Company for $6,176,881. These notes were paid in full on August 31, 1998. On August 28, 1998, certain controlling stockholders of the Company transferred 2,145,000 shares of Common Stock to employees in consideration of past performance and as an incentive for continuing employment with the Company. The stock was transferred subject to certain vesting F-15 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) restrictions and for no cash consideration. The fair value of these restricted stock awards at the date of transfer totaled $1,029,600, which the Company is recognizing as compensation expense over the defined vesting period. Upon the transfer of these shares, the Company recorded a charge of $876,691 representing fully vested shares. In addition, the Company recorded unearned compensation related to unvested shares totaling $152,909. The Company recorded amortization of the unearned compensation totaling $12,694 and $11,900 for the year ended December 31, 1998 and for the six months ended June 30, 1999, respectively. On August 28, 1998, the Company's Board of Directors authorized a 35,226.01- for-1 Common Stock split effected in the form of a stock dividend. Stockholders' equity (deficit) has been restated for all periods presented to give retroactive recognition to the split in prior periods by reclassifying from additional paid-in capital to Common Stock the par value of the additional shares arising from the split. In addition, all references in the consolidated financial statements to the number of Common Stock shares and per share amounts have been adjusted to reflect this split. Preferred Stock On August 28, 1998, the Company issued 10,500,000 shares of Series A Preferred Stock for cash proceeds of $10,355,408, net of issuance costs of $144,592. On September 29, 1998, the Company issued 100,000 shares of Series A Preferred Stock for cash proceeds of $92,000, net of issuance costs of $8,000. Each share of Series A Preferred Stock is convertible, at the option of the holder, into one share of Common Stock, adjusted for certain events. The Series A Preferred Stock automatically converts to Common Stock upon the closing of a public offering raising an amount greater than $10,000,000 at a price per share of at least $3.98. In addition, the Company can elect to convert the Series A Preferred Stock to Common Stock if less than 25% of the original shares are outstanding. The Company has reserved 11,300,000 shares of Common Stock for the conversion of Series A Preferred Stock. The holders of the Series A Preferred Stock are entitled to voting rights equal to the number of shares of Common Stock into which the Series A Preferred Stock could be converted at the time. Two of the holders of Series A Preferred Stock have the right to elect one member each to the Board of Directors. On or after March 31, 2004, the Company shall, at the written election of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, (i) redeem on the date specified by such holders one-third of all the shares of Series A Preferred Stock outstanding on the date of such election and (ii) redeem on the first anniversary of such date up to an additional one-third of the shares of the Series A Preferred Stock outstanding on such date (and not previously called for redemption) and (iii) redeem on the second anniversary of such date all remaining shares of Series A Preferred Stock outstanding on such date (and not previously called for redemption). The F-16 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) redemption price is equal to the sum of the original purchase price (adjusted appropriately for any stock dividend, stock split or similar event affecting the Series A Preferred Stock) plus the amount of any declared but unpaid dividends. In the event of liquidation of the Company, the holders of the Series A Preferred Stock are entitled to be paid a liquidation amount equal to $1.00 (adjusted appropriately for any stock dividend, stock split or similar event affecting the Series A Preferred Stock) plus any declared but unpaid dividends. In addition, after the liquidation preferences of the Series A and Series B Preferred Stock have been paid, the holders of Series A Preferred Stock are entitled to share in the remaining proceeds, if any, as if their shares had been converted into shares of Common Stock. In connection with the issuance of Series A Preferred Stock, the Company issued warrants to the holders of the Series A Preferred Stock, for the purchase of up to 3,498,000 shares of Common Stock at $1.50 per share. Of these warrants, 3,465,000 are exercisable from the date of issuance through August 28, 2008 and 33,000 are exercisable from the date of issuance through September 29, 2008. The fair value of these warrants at the date of issue was $688,000. This amount has been recorded as a reduction of Series A Preferred Stock and an increase to paid-in-capital. The value of the warrants was estimated assuming a weighted average risk free interest rate of 4.51%, an expected life from date of grant of four years, a volatility of 100% and no expected dividends. On March 31, 1999, the Company issued 13,196,522 shares of Series B Preferred Stock for cash proceeds of $24,944,635, net of issuance costs of $55,253. Each share of Series B Preferred Stock is convertible, at the option of the holder, into one share of Common Stock, adjusted for certain events. The Series B Preferred Stock automatically converts to Common Stock upon the closing of a public offering raising an amount greater than $10,000,000 at a price per share of at least $3.98. In addition, the Company can elect to convert the Series B Preferred Stock to Common Stock if less than 25% of the original shares of Series B Preferred Stock are outstanding. The Company has and will continue to reserve a sufficient number of its Common Stock to satisfy the conversion rights of the holders of the Series B Preferred Stock. The holders of the Series B Preferred Stock are entitled to receive cumulative dividends at a rate of 8% per annum. The holders of the Series B Preferred Stock are entitled to voting rights equal to the number of shares of Common Stock into which the Series B Preferred Stock could be converted at the time. One of the holders of Series B Preferred Stock has the right to elect one member to the Board of Directors. On or after March 31, 2004, the Company shall, at the written election of the holders of at least majority of the then outstanding shares of Series B Preferred Stock, (i) redeem on the date specified by such holders one-third of all the shares of Series B Preferred Stock outstanding on the date of such election (the "Election Date") and (ii) redeem on March 31, 2005 one-third of the shares of the Series B Preferred Stock outstanding on the Election Date (and not previously called for redemption) F-17 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) and (iii) redeem on March 31, 2006 all remaining shares of Series B Preferred Stock outstanding on such date (and not previously called for redemption). The redemption price is equal to the sum of the original purchase price (adjusted appropriately for any stock dividend, stock split or similar event affecting the Series B Preferred Stock) plus the amount of any declared or accrued but unpaid dividends. In the event of liquidation of the Company, the holders of the Series B Preferred Stock are entitled to be paid a liquidation amount equal to $1.89 (adjusted appropriately for any stock dividend, stock split or similar event affecting the Series B Preferred Stock) per share plus any declared or accrued but unpaid dividends. In addition, after the liquidation preference of the Series A and B Preferred Stock has been paid, the holders of Series B Preferred Stock are entitled to share in the remaining proceeds, if any, as if their shares had been converted into Common Stock. I. Stock Options and Restricted Stock Awards: On November 19, 1998, the Company adopted its 1998 Stock Incentive Plan (the "Option Plan"). The Option Plan is administered by the Company's Board of Directors (the "Board"), and allows for the granting of awards in the form of incentive stock options to employees and nonqualified options and restricted stock to officers, employees, consultants, directors and advisors. The exercise prices for awards and options granted were determined by the Board of Directors of the Company to be equal to the fair value of the Common Stock on the date of grant. In reaching this determination at the time of each such grant, the Board considered a broad range of factors including the illiquid nature of an investment in the Common Stock, the Company's historical financial performance and financial position and the Company's future prospects and opportunity for liquidity events. The option plan allows for the Company to grant up to 9,534,506 options for common shares and restricted stock. Stock options may not be exercised after ten years from the date of grant. Options and restricted stock awards normally vest over 48 months as follows: 25% after 12 months from the date of grant, thereafter, an additional 2.0833% of shares vest at the end of each month until all shares are fully vested. In the event of a change of control of the Company (as defined by the Option Plan), the vesting for each option and restricted stock award will automatically be accelerated with respect to 25% of the shares subject to such options or restricted stock awards. During the year ended December 31, 1998, the Company granted incentive stock options for the purchase of 1,402,407 shares with an exercise price of $0.15 per share. During 1998, the Company sold 5,197,050 shares of restricted stock to certain employees for $0.15 per share. There were 17,550 stock option cancellations during the year ended December 31, 1998. During the six months ended June 30, 1999, the Company granted incentive stock options for the purchase of 1,184,934 shares and nonqualified stock options for the purchase of 75,000 shares at a weighted average exercise price of $0.71. There were 6,000 stock option cancellations during the F-18 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) six months ended June 30, 1999. During the six months ended June 30, 1999, the Company issued 150,000 shares of restricted stock for $0.35 per share in exchange for a note receivable totaling $52,500. The following table summarized information about stock options outstanding at June 30, 1999:
Weighted Average Remaining Exercise Contractual Shares Price Shares Life (Years) Exercisable $0.15 1,384,857 9.3 -- $0.35 427,106 9.5 75,000 $0.60 219,914 9.7 -- $0.95 541,914 9.9 -- $1.40 65,000 10.0 -- --------- 2,638,791 9.5 -- =========
No options were exercisable at December 31, 1998. The weighted average remaining contractual life of the options at December 31, 1998 was 9.8 years. During the year ended December 31, 1998 and the six months ended June 30, 1999 the Company recorded deferred compensation for restricted stock and options granted to employees below fair value of $2,172,029 and $1,896,080, respectively. The Company is recognizing the compensation expense over the vesting period. The Company recorded equity compensation expense including amortization expense relating to deferred compensation of $1,312,236 and $532,534 for the year ended December 31, 1998 and the six months ended June 30, 1999, respectively. On April 30, 1999, the Company also accelerated the vesting with respect to 77,393 shares of restricted stock held by a former employee. The Company has recorded a charge of $112,320 in connection with this acceleration. Had compensation cost for the stock option grants been calculated based on the fair value at the date of grant for options granted in 1998 consistent with SFAS 123, the Company's net loss for the year ended December 31, 1998 would have been increased to the pro forma amounts indicated below: Net loss--as reported....................................... $(3,690,524) Net loss--pro forma under SFAS 123.......................... $(3,704,181)
The following table presents the significant assumptions used to estimate the fair values of the options: Weighted average risk free interest rate......................... 4.85% Expected life from the date of grant............................. 7 years Volatility....................................................... None Expected dividends............................................... None
F-19 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) The weighted average fair value of options on the date of grant for the options granted in 1998 was $0.37. The pro forma effects of applying SFAS 123 are not indicative of future impacts. Additional grants in future years are anticipated. J. Income Taxes: Deferred income taxes include the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Company's deferred tax assets (liabilities) are as follows:
December 31, ---------------------- June 30, Net deferred tax assets 1997 1998 1999 Temporary differences................ $ 656,576 $ 692,802 $ 1,179,906 Net operating losses................. 261,896 1,473,754 3,545,513 --------- ----------- ----------- Total net deferred tax asset......... 918,472 2,166,556 4,725,419 Valuation allowance.................. (918,472) (2,166,556) (4,725,419) --------- ----------- ----------- Net deferred taxes................. $ -- $ -- $ -- ========= =========== ===========
A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Accordingly, a valuation allowance has been established for the full amount of the deferred tax asset due to the uncertainty of realization. The Company had net operating loss carryforwards of approximately $650,000, $3,660,000 and $8,804,000 at December 31, 1997, 1998 and June 30, 1999, respectively. These net operating loss carryforwards begin to expire in 2010. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company's ownership may have limited, or may limit in the future, the amount of net operating loss carryforwards which could be utilized annually to offset future taxable income and income tax liabilities. The amount of any annual limitation is determined based upon the Company's value prior to an ownership change. K. Employee Benefit Plan: In January 1999, the Company established a savings plan for its employees which it designed to be qualified under Section 401(k) of the Internal Revenue Code. Eligible employees are permitted to contribute to the 401(k) plan through payroll deduction within statutory and plan limits. The Company may make contributions to the 401(k) plan in its discretion. No Company contributions have been made to the savings plan to date. F-20 BE FREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (the information presented relating to the six months ended June 30, 1998 and 1999 is unaudited) L. Related Party Transactions: The Company had amounts due from related parties totaling $343, $813,139 and $398,890 at December 31, 1997, 1998 and June 30, 1999, respectively. Amounts due from related parties at December 31, 1997 related to employee advances. Amounts due from related parties at December 31, 1998 was composed of $779,558 related to notes receivable from stockholders for restricted stock and $33,581 related to employee advances. The notes receivable from stockholders for restricted stock are due in June 2003 and accrue interest monthly at 7% per annum. The terms of the notes provide that interest accrues beginning January 1, 1999 and payments of interest commence on July 15, 1999. Amounts due from related parties at June 30, 1999 was composed of $309,659 related to notes receivable from stockholders executed in connection with the issuance of restricted stock and $89,231 related to employee advances. F-21 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the various expenses, all of which will be borne by the Registrant, in connection with the sale and distribution of the securities being registered, other than the underwriting discounts. All amounts shown are estimates except for the Securities and Exchange Commission registration fee and the NASD filing fee. SEC registration fee............................................ $ 16,625 NASD filing fee................................................. 6,480 Nasdaq National Market listing fee.............................. * Blue Sky fees and expenses...................................... * Transfer Agent and Registrar fees............................... * Accounting fees and expenses.................................... * Legal fees and expenses......................................... * Printing and mailing expenses................................... * Miscellaneous................................................... * -------- Total......................................................... $ * ========
- --------------------- * to be filed by amendment Item 14. Indemnification of Directors and Officers Article Seventh of the Registrant's Amended and Restated Certificate of Incorporation provides that no director of the Registrant shall be personally liable for any monetary damages for any breach of fiduciary duty as a director, except to the extent that the Delaware General Corporation Law prohibits the elimination or limitation of liability of directors for breach of fiduciary duty. Article Eighth of the Registrant's Amended and Restated Certificate of Incorporation provides that a director or officer of the Registrant (a) shall be indemnified by the Registrant against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any litigation or other legal proceeding (other than an action by or in the right of the Registrant) brought against him by virtue of his position as a director or officer of the Registrant if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Registrant, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful and (b) shall be indemnified by the Registrant against all expenses (including attorneys' fees) and amounts paid in settlement incurred in connection with any action by or in the right of the Registrant brought against him by virtue of his position as a director or officer of the Registrant if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Registrant, except that no indemnification shall be made with respect to any matter as to which such person shall have been adjudged to be liable to the Registrant, unless a court determines that, despite such adjudication but in view of all of the circumstances, he is entitled to indemnification of such expenses. Notwithstanding the foregoing, to the extent that a director or officer has been successful, on the merits or otherwise, including, without II-1 limitation, the dismissal of an action without prejudice, he is required to be indemnified by the Registrant against all expenses (including attorneys' fees) incurred in connection therewith. Expenses shall be advanced to a director or officer at his request, provided that he undertakes to repay the amount advanced if it is ultimately determined that he is not entitled to indemnification for such expenses. Indemnification is required to be made unless the Registrant determines that the applicable standard of conduct required for indemnification has not been met. In the event of a determination by the Registrant that the director or officer did not meet the applicable standard of conduct required for indemnification, or if the Registrant fails to make an indemnification payment within 60 days after such payment is claimed by such person, such person is permitted to petition the court to make an independent determination as to whether such person is entitled to indemnification. As a condition precedent to the right of indemnification, the director or officer must give the Registrant notice of the action for which indemnity is sought and the Registrant has the right to participate in such action or assume the defense thereof. Article Eighth of the Registrant's Amended and Restated Certificate of Incorporation further provides that the indemnification provided therein is not exclusive, and provides that in the event that the Delaware General Corporation Law is amended to expand the indemnification permitted to directors or officers the Registrant must indemnify those persons to the fullest extent permitted by such law as so amended. Section 145 of the Delaware General Corporation Law provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation and other persons serving at the request of the corporation in related capacities against amounts paid and expenses incurred in connection with an action or proceeding to which he is or is threatened to be made a party by reason of such position, if such person shall have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal proceeding, if such person had no reasonable cause to believe his conduct was unlawful; provided that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to any matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the adjudicating court determines that such indemnification is proper under the circumstances. Under Section of the Underwriting Agreement, the underwriters are obligated, under circumstances, to indemnify directors and officers of the Registrant against liabilities, including liabilities under the Securities Act. Reference is made to the form of Underwriting Agreement to be filed as Exhibit 1 hereto. The Registrant carries Directors and Officers liability insurance. Through an agreement dated as of March 31, 1999 with Daniel J. Nova, and agreements with Ted R. Dintersmith, W. Michael Humphreys and Samuel P. Gerace, Jr. dated as of August 28, 1999 the Registrant has agreed to indemnify each director against litigation risks and expenses arising out of his service to the Registrant. Finally, Ted Dintersmith, a director of the Registrant, is indemnified by Charles River Partnership VIII for actions he takes on its behalf. II-2 Item 15. Recent Sales of Unregistered Securities Set forth is information regarding shares of common stock and preferred stock issued, and warrants issued and options granted by the Company since January 1, 1996 (without giving effect to the Company's -for- reverse stock split to be effected prior to the closing of this offering). Further included is the consideration, if any, received by the Company for such shares, warrants and options and information relating to the section of the Securities Act of 1933, as amended (the "Securities Act"), or rule of the Securities and Exchange Commission under which exemption was claimed. On August 28, 1998, we issued 399 shares of Freedom of Information, Inc. ("FOI") (the immediate predecessor of Be Free) common stock and $6,176,881 in promissory notes (the "Redemption Notes") of FOI in consideration for the exchange of all of the shares of Be Free, Inc. (an unrelated corporation, "Old Be Free") and PCX Systems, Inc. by shareholders of such entities. On August 28, 1998 we issued a total of 10,500,000 shares of Series A Preferred Stock to five private investors (including three venture capitalist firms, a bank and an individual investor) for an aggregate capital contribution of $10,500,000 and warrants to purchase a total of shares of common stock at a purchase price of $ per share. On September 29, 1998, we issued 100,000 shares of Series A Convertible Preferred Stock to Comdisco, Inc. for an aggregate capital contribution of $100,000 and a warrant to purchase shares of common stock at a purchase price of $ per share. On September 29, 1998, we issued to Comdisco two warrants, one to purchase 100,000 shares of Series A Preferred Stock at a purchase price of $1.00 and the other to purchase up to 600,000 shares of Series A Convertible Preferred Stock at a purchase price of $1.00 per share. We issued these warrants as partial consideration for certain financing transactions between Comdisco and the Company. On March 31, 1999, we issued a total of 13,196,522 shares of Series B Convertible Preferred Stock to sixteen private investors for an aggregate capital contribution of $24,999,888.06. At various times since November 1998, we issued shares of restricted common stock, at a purchase price of $ , and options to purchase shares of common stock to employees, consultants, advisors and a director pursuant to our 1998 Stock Incentive Plan. No underwriters were involved in the foregoing sale of securities. Such sales were made in reliance upon an exemption from the registration provisions of the Securities Act set forth in Section 4(2) thereof relative to sales by an issuer not involving any public offering or the rules and regulations thereunder, or, in the case of restricted common stock or options to purchase common stock, Rule 701 under the Securities Act. All foregoing securities are deemed restricted securities for the purpose of the Securities Act. II-3 Item 16. Exhibits and Financial Statement Schedules (a) Exhibits
Exhibit No. Description ------- ----------- 1 Form of Underwriting Agreement. *3.1 Restated Certificate of Incorporation of the Registrant, as amended and as currently in effect. *3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed on or immediately subsequent to the date of the closing of the Offering contemplated by this Registration Statement. 3.3 By-Laws of the Registrant, as amended to date *3.4 Amended and Restated By-Laws of the Registrant to be effective on the date of the closing of the Offering. *4 Specimen certificate for shares of Common Stock, $.01 par value per share, of the Registrant. 5 Form of Opinion of Hale and Dorr LLP. 10.1 1998 Stock Incentive Plan 10.2 Stock Purchase and Shareholders Agreement, as amended, dated as of August 28, 1998 10.3 Form of Warrant dated as of August 28, 1998 10.4 Stock Purchase Agreement, as amended, dated as of September 29, 1998 10.5 Warrant Certificate for the purchase of shares of common stock issued to Comdisco, Inc. 10.6 Warrant Certificate A-1 for the purchase of shares of Series A Preferred Stock issued to Comdisco, Inc. 10.7 Warrant Certificate A-2 for the purchase of shares of Series A Preferred Stock issued to Comdisco, Inc. 10.8 Subordinated Loan and Security Agreement dated as of September 29, 1998 10.9 Registration Rights Agreement dated as of March 31, 1999 10.10 Employment Agreement with Samuel P. Gerace, Jr., dated August 28, 1998 10.11 Employment Agreement with Thomas A. Gerace dated August 28, 1998 10.12 Lease dated as of November 9, 1998 with Southwestern Pennsylvania Corporation 10.13 Lease dated October 20, 1998 with LSOF Pooled Equity L.P. +10.14 License and Services Agreement, effective January 13, 1999, with GeoCites +10.15 BFAST Service Order Form, as amended, with barnesandnoble.com, Inc. dated January 31, 1998 10.16 Director Indemnification Agreement dated as of March 31, 1999 with Dan Nova 10.17 Form of Indemnification Agreement dated August 28, 1998 21 List of Subsidiaries 23.1 Consent of Independent Accountants. 23.2 Consent of Hale and Dorr LLP (included in Exhibit 5). 24 Power of Attorney (see page II-5) 27 Financial Data Schedule
- --------------------- * To be filed by amendment + Confidential Treatment Requested II-4 Item 17. Undertakings Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Boston, Massachusetts, on this 5th day of August, 1999. Be Free, Inc. /s/ Gordon B. Hoffstein By:__________________________________ Gordon B. Hoffstein President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Gordon B. Hoffstein, Stephen M. Joseph, Thomas A. Gerace and Samuel P. Gerace, Jr. each of them, their true and lawful attorneys and agents, with full power of substitution, each with power to act alone, to sign and execute on behalf of the undersigned any amendment or amendments to this Registration Statement on Form S-1, and any subsequent Registration Statement for the same offering which may be filed under Rule 462(b), and to perform any acts necessary to enable Be Free, Inc. to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, and each of the undersigned does hereby ratify and confirm that said attorneys and agents, or their or his or her substitutes, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, Registration Statement has been signed by the following persons in the capacities and on the dates indicated: Signature Title Date /s/ Gordon B. Hoffstein President and Chief August 5, 1999 Executive Officer - ----------------------------------- (Principal Executive Gordon B. Hoffstein Officer) and Director /s/ Samuel P. Gerace, Jr. Executive Vice August 5, 1999 President, Research & - ----------------------------------- Technology and Samuel P. Gerace, Jr. Director /s/ Stephen M. Joseph Chief Financial August 5, 1999 Officer, Secretary and - ----------------------------------- Treasurer (Principal Stephen M. Joseph Financial and Accounting Officer) /s/ Ted R. Dintersmith Director August 5, 1999 - ----------------------------------- Ted R. Dintersmith /s/ W. Michael Humphreys Director August 5, 1999 - ----------------------------------- W. Michael Humphreys /s/ Jeffrey Rayport Director August 5, 1999 - ----------------------------------- Jeffrey Rayport Director - -----------------------------------
Daniel Nova II-6 [Inside Back Cover] [Be Free logo] This page contains the logos of several of Be Free's e-merchant and portal customers. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- , 1999 [Be Free logo appears here] Shares of Common Stock ---------------------- PROSPECTUS ---------------------- Donaldson, Lufkin & Jenrette Hambrecht & Quist Dain Rauscher Wessels a division of Dain Rauscher Incorporated ---------------------- DLJdirect Inc. - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of the company have not changed since the date hereof. - -------------------------------------------------------------------------------- Until , 1999 (25 days after the date of this prospectus), all dealers that affect transactions in these securities may be required to deliver a prospectus when acting as an underwriter in this offering and when selling previously unsold allotments or subscriptions. - -------------------------------------------------------------------------------- Exhibit Index
Exhibit No. Description ------- ----------- 1 Form of Underwriting Agreement. *3.1 Restated Certificate of Incorporation of the Registrant, as amended and as currently in effect. *3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed on or immediately subsequent to the date of the closing of the Offering contemplated by this Registration Statement. 3.3 By-Laws of the Registrant, as amended to date *3.4 Amended and Restated By-Laws of the Registrant to be effective on the date of the closing of the Offering. *4 Specimen certificate for shares of Common Stock, $.01 par value per share, of the Registrant. 5 Form of Opinion of Hale and Dorr LLP. 10.1 1998 Stock Incentive Plan 10.2 Stock Purchase and Shareholders Agreement, as amended, dated as of August 28, 1998 10.3 Form of Warrant dated as of August 28, 1998 10.4 Stock Purchase Agreement, as amended, dated as of September 29, 1998 10.5 Warrant Certificate for the purchase of shares of common stock issued to Comdisco, Inc. 10.6 Warrant Certificate A-1 for the purchase of shares of Series A Preferred Stock issued to Comdisco, Inc. 10.7 Warrant Certificate A-2 for the purchase of shares of Series A Preferred Stock issued to Comdisco, Inc. 10.8 Subordinated Loan and Security Agreement dated as of September 29, 1998 10.9 Registration Rights Agreement dated as of March 31, 1999 10.10 Employment Agreement with Samuel P. Gerace, Jr., dated August 28, 1998 10.11 Employment Agreement with Thomas A. Gerace dated August 28, 1998 10.12 Lease dated as of November 9, 1998 with Southwestern Pennsylvania Corporation 10.13 Lease dated October 20, 1998 with LSOF Pooled Equity L.P. +10.14 License and Services Agreement, effective January 13, 1999, with GeoCites +10.15 BFAST Service Order Form, as amended, with barnesandnoble.com, Inc. dated January 31, 1998 10.16 Director Indemnification Agreement dated as of March 31, 1999 with Dan Nova 10.17 Form of Indemnification Agreement dated August 28, 1998 21 List of Subsidiaries 23.1 Consent of Independent Accountants. 23.2 Consent of Hale and Dorr LLP (included in Exhibit 5). 24 Power of Attorney (see page II-5) 27 Financial Data Schedule
- --------------------- * To be filed by amendment + Confidential Treatment Requested EX-3.3 2 BY-LAWS OF THE REGISTRANT EXHIBIT 3.3 BY-LAWS OF FREEDOM OF INFORMATION, INC. Section 1. LAW, CERTIFICATE OF INCORPORATION AND BY-LAWS 1.1. These by-laws are subject to the certificate of incorporation of the corporation. In these by-laws, references to law, the certificate of incorporation and by-laws mean the law, the provisions of the certificate of incorporation and the by-laws as from time to time in effect. Section 2. STOCKHOLDERS 2.1. Annual Meeting. The annual meeting of stockholders shall be held at 10:00 a.m. on the 2nd Tuesday in the month of May in each year, unless that day be a legal holiday at the place where the meeting is to be held, in which case the meeting shall be held at the same hour on the next succeeding day not a legal holiday, or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect a board of directors and transact such other business as may be required by law or these by-laws or as may properly come before the meeting. 2.2. Special Meetings. A special meeting of the stockholders may be called at any time by the chairman of the board, if any, the president or the board of directors. A special meeting of the stockholders shall be called by the secretary, or in the case of the death, absence, incapacity or refusal of the secretary, by an assistant secretary or some other officer, upon application of a majority of the directors. Any such application shall state the purpose or purposes of the proposed meeting. Any such call shall state the place, date, hour, and purposes of the meeting. 2.3. Place of Meeting. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such place within or without the State of Delaware as may be determined from time to time by the chairman of the board, if any, the president or the board of directors. Any adjourned session of any meeting of the stockholders shall be held at the place designated in the vote of adjournment. 2.4. Notice of Meetings. Except as otherwise provided by law, a written notice of each meeting of stockholders stating the place, day and hour thereof and, in the case of a special meeting, the purposes for which the meeting is called, shall be given not less then ten nor more than sixty days before the meeting, to each stockholder entitled to vote thereat, and to each stockholder who, by law, by the certificate of incorporation or by these by-laws, is entitled to notice, by leaving such notice with him or at his residence or usual place of business, or by depositing it in the United States mail, postage prepaid, and addressed to such stockholder at his address as it appears in the records of the corporation. Such notice shall be given by the secretary, or by an officer or person designated by the board of directors, or in the case of a special meeting by the officer calling the meeting. As to any adjourned session of any meeting of stockholders, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment was taken except that if the adjournment is for more than thirty days or if after the adjournment a new record date is set for the adjourned session, notice of any such adjourned session of the meeting shall be given in the manner heretofore described. No notice of any meeting of stockholders or any adjourned session thereof need be given to a stockholder if a written waiver of notice, executed before or after the meeting or such adjourned session by such stockholder, is filed with the records of the meeting or if the stockholder attends such meeting without objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders or any adjourned session thereof need be specified in any written waiver of notice. 2.5. Quorum of Stockholders. At any meeting of the stockholders a quorum as to any matter shall consist of a majority of the votes entitled to be cast on the matter, except where a larger quorum is required by law, by the certificate of incorporation or by these by-laws. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. If a quorum is present at an original meeting, a quorum need not be present at an adjourned session of that meeting. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of any corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 2.6. Action by Vote. When a quorum is present at any meeting, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 2.7. Action without Meetings. Unless otherwise provided in the certificate of incorporation, any action required or permitted to be taken by stockholders for or in connection with any corporate action may be taken without a meeting, without -2- prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in Delaware by hand or certified or registered mail, return receipt requested, to its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Each such written consent shall bear the date of signature of each stockholder who signs the consent. No written consent shall be effective to take the corporate action referred to therein unless written consents signed by a number of stockholders sufficient to take such action are delivered to the corporation in the manner specified in this paragraph within sixty days of the earliest dated consent so delivered. If action is taken by consent of stockholders and in accordance with the foregoing, there shall be filed with the records of the meetings of stockholders the writing or writings comprising such consent. If action is taken by less than unanimous consent of stockholders, prompt notice of the taking of such action without a meeting shall be given to those who have not consented in writing and a certificate signed and attested to by the secretary that such notice was given shall be filed with the records of the meetings of stockholders. In the event that the action which is consented to is such as would have required the filing of a certificate under any provision of the General Corporation Law of the State of Delaware, if such action had been voted upon by the stockholders at a meeting thereof, the certificate filed under such provision shall state, in lieu of any statement required by such provision concerning a vote of stockholders, that written consent has been given under Section 228 of said General Corporation Law and that written notice has been given as provided in such Section 228. 2.8. Proxy Representation. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The authorization of a proxy may but need not be limited to specified action, provided, however, that if a proxy limits its -3- authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjournment thereof. 2.9. Inspectors. The directors or the person presiding at the meeting may, but need not, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. 2.10. List of Stockholders. The secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in his name. The stock ledger shall be the only evidence as to who are stockholders entitled to examine such list or to vote in person or by proxy at such meeting. Section 3. BOARD OF DIRECTORS 3.1. Number. The number of directors which shall constitute the whole board shall not be less than one director nor more than twelve directors in number. Thereafter, within the foregoing limits, the stockholders at the annual meeting shall determine the number of directors and shall elect the number of directors as determined. Within the foregoing limits, the number of directors may be increased at any time or from time to time by the stockholders or by the directors by vote of a majority of the directors then in office. The number of directors may be decreased to any number permitted by the foregoing at any time either by the stockholders or by the directors by vote of a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation or removal of one or more directors. Directors need not be stockholders. 3.2. Tenure. Except as otherwise provided by law, by the certificate of incorporation or by these by-laws, each director shall hold office until the next annual meeting and until his successor is elected and qualified, or until he sooner dies, resigns, is removed or becomes disqualified. -4- 3.3. Powers. The business and affairs of the corporation shall be managed by or under the direction of the board of directors who shall have and may exercise all the powers of the corporation and do all such lawful acts and things as are not by law, the certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders. 3.4. Vacancies. Vacancies and any newly created directorships resulting from any increase in the number of directors may be filled by vote of the stockholders at a meeting called for the purpose, or by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have resigned, shall have power to fill such vacancy or vacancies, the vote or action by writing thereon to take effect when such resignation or resignations shall become effective. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to any requirements of law or of the certificate of incorporation or of these by-laws as to the number of directors required for a quorum or for any vote or other actions. 3.5. Committees. The board of directors may, by vote of a majority of the whole board, (a) designate, change the membership of or terminate the existence of any committee or committees, each committee to consist of one or more of the directors; (b) designate one or more directors as alternate members of any such committee who may replace any absent or disqualified member at any meeting of the committee; and (c) determine the extent to which each such committee shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to all papers which require it and the power and authority to declare dividends or to authorize the issuance of stock; excepting, however, such powers which by law, by the certificate of incorporation or by these by-laws they are prohibited from so delegating. In the absence or disqualification of any member of such committee and his alternate, if any, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Except as the board of directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the board or such rules, its business shall be conducted as nearly as may be in the same mariner as is provided by these by-laws for the conduct of business by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors upon request. -5- 3.6. Regular Meetings. Regular meetings of the board of directors may be held without call or notice at such places within or without the State of Delaware and at such times as the board may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of stockholders. 3.7. Special Meetings. Special meetings of the board of directors may be held at any time and at any place within or without the State of Delaware designated in the notice of the meeting, when called by the chairman of the board, if any, the president, or by one-third or more in number of the directors, reasonable notice thereof being given to each director by the secretary or by the chairman of the board, if any, the president or any one of the directors calling the meeting. 3.8. Notice. It shall be reasonable and sufficient notice to a director to send notice by mail at least forty-eight hours or by telegram at least twenty- four hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 3.9. Quorum. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, at any meeting of the directors a majority of the directors then in office shall constitute a quorum; a quorum shall not in any case be less than one-third of the total number of directors constituting the whole board. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 3.10. Action by Vote. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the board of directors. 3.11. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the board of directors or a committee thereof may be taken without a meeting if all the members of the board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the records of the meetings of the board or of such committee. Such consent shall be treated for all purposes as the act of the board or of such committee, as the case may be. -6- 3.12. Participation in Meetings by Conference Telephone. Members of the board of directors, or any committee designated by such board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other or by any other means permitted by law. Such participation shall constitute presence in person at such meeting. 3.13. Compensation. In the discretion of the board of directors, each director may be paid such fees for his services as director and be reimbursed for his reasonable expenses incurred in the performance of his duties as director as the board of directors from time to time may determine. Nothing contained in this section shall be construed to preclude any director from serving the corporation in any other capacity and receiving reasonable compensation therefor. 3.14. Interested Directors and Officers. (a) No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the corporation's directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. -7- Section 4. OFFICERS AND AGENTS 4.1. Enumeration; Qualification. The officers of the corporation shall be a president, a treasurer, a secretary and such other officers, if any, as the board of directors from time to time may in its discretion elect or appoint including without limitation a chairman of the board, one or more vice presidents and a controller. The corporation may also have such agents, if any, as the board of directors from time to time may in its discretion choose. Any officer may be but none need be a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the board of directors to secure the faithful performance of his duties to the corporation by giving bond in such amount and with sureties or otherwise as the board of directors may determine. 4.2. Powers. Subject to law, to the certificate of incorporation and to the other provisions of these by-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the board of directors may from time to time designate. 4.3. Election. The officers may be elected by the board of directors at their first meeting following the annual meeting of the stockholders or at any other time. At any time or from time to time the directors may delegate to any officer their power to elect or appoint any other officer or any agents. 4.4. Tenure. Each officer shall hold office until the first meeting of the board of directors following the next annual meeting of the stockholders and until his respective successor is chosen and qualified unless a shorter period shall have been specified by the terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Each agent shall retain his authority at the pleasure of the directors, or the officer by whom he was appointed or by the officer who then holds agent appointive power. 4.5. Chairman of the Board of Directors, President and Vice President. The chairman of the board, if any, shall have such duties and powers as shall be designated from time to time by the board of directors. Unless the board of directors otherwise specifies, the chairman of the board, or if there is none the chief executive officer, shall preside, or designate the person who shall preside, at all meetings of the stockholders and of the board of directors. Unless the board of directors otherwise specifies, the president shall be the chief executive officer and shall have direct charge of all business operations of the corporation and, subject to the control of the directors, shall have general charge and supervision of the business of the corporation. -8- Any vice presidents shall have such duties and powers as shall be set forth in these by-laws or as shall be designated from time to time by the board of directors or by the president. 4.6. Treasurer and Assistant Treasurers. Unless the board of directors otherwise specifies, the treasurer shall be the chief financial officer of the corporation and shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be designated from time to time by the board of directors or by the president. If no controller is elected, the treasurer shall, unless the board of directors otherwise specifies, also have the duties and powers of the controller. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the treasurer. 4.7. Controller and Assistant Controllers. If a controller is elected, he shall, unless the board of directors otherwise specifies, be the chief accounting officer of the corporation and be in charge of its books of account and accounting records, and of its accounting procedures. He shall have such other duties and powers as may be designated from time to time by the board of directors, the president or the treasurer. Any assistant controller shall have such duties and powers as shall be designated from time to time by the board of directors, the president, the treasurer or the controller. 4.8. Secretary and Assistant Secretaries. The secretary shall record all proceedings of the stockholders, of the board of directors and of committees of the board of directors in a book or series of books to be kept therefor and shall file therein all actions by written consent of stockholders or directors. In the absence of the secretary from any meeting, an assistant secretary, or if there be none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Unless a transfer agent has been appointed the secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the name of each stockholder. He shall have such other duties and powers as may from time to time be designated by the board of directors or the president. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the secretary. Section 5. RESIGNATIONS AND REMOVALS 5.1. Any director or officer may resign at any time by delivering his resignation in writing to the chairman of the board, if any, the president, or the secretary or to a meeting of the board of directors. Such resignation shall be effective -9- upon receipt unless specified to be effective at some other time, and without in either case the necessity of its being accepted unless the resignation shall so state. A director (including persons elected by directors to fill vacancies in the board) may be removed from office with or without cause by the vote of the holders of a majority of the shares issued and outstanding and entitled to vote in the election of directors. The board of directors may at any time remove any officer either with or without cause. The board of directors may at any time terminate or modify the authority of any agent. No director or officer resigning and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no director or officer removed shall have any right to any compensation as such director or officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless, in the case of a resignation, the directors, or, in the case of removal, the body acting on the removal, shall in their or its discretion provide for compensation. Section 6. VACANCIES 6.1. If the office of the president or the treasurer or the secretary becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office. If the office of any other officer becomes vacant, any person or body empowered to elect or appoint that officer may choose a successor. Each such successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the secretary until his successor is chosen and qualified or in each case until he sooner dies, resigns, is removed or becomes disqualified. Any vacancy of a directorship shall be filled as specified in Section 3.4 of these by-laws. Section 7. CAPITAL STOCK 7.1. Stock Certificates. Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the certificate of incorporation and the by-laws, be prescribed from time to time by the board of directors. Such certificate shall be signed by the chairman or vice chairman of the board, if any, or the president or a vice president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary. Any of or all the signatures on the certificate may be a facsimile. In case an officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the time of its issue. 7.2. Loss of Certificates. In the case of the alleged theft, loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place -10- thereof, upon such terms, including receipt of a bond sufficient to indemnify the corporation against any claim on account thereof, as the board of directors may prescribe. Section 8. TRANSFER OF SHARES OF STOCK 8.1. Transfer on Books. Subject to the restrictions, if any, stated or noted on the stock certificate, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the board of directors or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the certificate of incorporation or by these by-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may lawfully be made thereon, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation. It shall be the duty of each stockholder to notify the corporation of his post office address. 8.2. Record Date and Closing Transfer Books. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no such record date is fixed by the board of directors, the record date for determining the stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the -11- record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no such record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by the General Corporation Law of the State of Delaware, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware by hand or certified or registered mail, return receipt requested, to its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. If no record date has been fixed by the board of directors and prior action by the board of directors is required by the General Corporation Law of the State of Delaware, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such payment, exercise or other action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. Section 9. CORPORATE SEAL 9.1. Subject to alteration by the directors, the seal of the corporation shall consist of a flat-faced circular die with the word "Delaware" and the name of the corporation cut or engraved thereon, together with such other words, dates or images as may be approved from time to time by the directors. Section 10. EXECUTION OF PAPERS 10.1. Except as the board of directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts or other obligations made, accepted or endorsed by the corporation shall be signed by the chairman of the board, if any, the president, a vice president or the treasurer. -12- Section 11. FISCAL YEAR 11.1. The fiscal year of the corporation shall end on the 31st of December. Section 12. AMENDMENTS 12.1. These by-laws may be adopted, amended or repealed by vote of a majority of the directors then in office or by vote of a majority of the stock outstanding and entitled to vote. Any by-law, whether adopted, amended or repealed by the stockholders or directors, may be amended or reinstated by the stockholders or the directors. -13- EX-5 3 OPINION OF HALE AND DORR Exhibit 5 [date] Be Free, Inc. 154 Crane Meadow Road Marlborough, Massachusetts 01752 Re: Registration Statement on Form S-1 Ladies and Gentlemen: This opinion is furnished to you in connection with a Registration Statement on Form S-1 (File No. 333-________) (the "Registration Statement") filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), for the registration of an aggregate of _______________ shares of Common Stock, $0.01 par value per share, of Be Free, Inc., a Delaware corporation (the "Company"), of which up to __________ shares (including _________ shares issuable upon exercise of an over- allotment option granted by the Company (the "Over-Allotment")) will be issued and sold by the Company (the "Shares"). The Shares are to be sold by the Company pursuant to an underwriting agreement (the "Underwriting Agreement") to be entered into by and among the Company, Donaldson, Lufkin & Jenrette, Hambrecht & Quist and Dain Rauscher Wessels, as representatives of the several underwriters named in the Underwriting Agreement, the form of which has been filed as Exhibit 1 to the Registration Statement. We are acting as counsel for the Company in connection with the sale by the Company. We have examined signed copies of the Registration Statement as filed with the Commission. We have also examined and relied upon the Underwriting Agreement, minutes of meetings of the stockholders and the Board of Directors of the Company as provided to us by the Company, stock record books of the Company as provided to us by the Company, the Certificate of Incorporation and By-Laws of the Company, each as restated and/or amended to date, and such other documents as we have deemed necessary for purposes of rendering the opinions hereinafter set forth. In our examination of the foregoing documents, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, the authenticity of the originals of such latter documents and the legal competence of all signatories to such documents. Be Free, Inc. __________, 1999 Page 2 We assume that the appropriate action will be taken, prior to the offer and sale of the Shares in accordance with the Underwriting Agreement, to register and qualify the Shares for sale under all applicable state securities or "blue sky" laws. We express no opinion herein as to the laws of any state or jurisdiction other than the state laws of the Commonwealth of Massachusetts, the Delaware General Corporation Law statute and the federal laws of the United States of America. To the extent that any other laws govern the matters as to which we are opining herein, we have assumed that such laws are identical to the state laws of the Commonwealth of Massachusetts, and we are expressing no opinion herein as to whether such assumption is reasonable or correct. Based upon and subject to the foregoing, we are of the opinion that the Shares to be issued and sold by the Company have been duly authorized for issuance and, when such Shares are issued and paid for in accordance with the terms and conditions of the Underwriting Agreement, such Shares will be validly issued, fully paid and nonassessable. It is understood that this opinion is to be used only in connection with the offer and sale of the Shares while the Registration Statement is in effect. Please note that we are opining only as to the matters expressly set forth herein, and no opinion should be inferred as to any other matters. This opinion is based upon currently existing statutes, rules, regulations and judicial decisions, and we disclaim any obligation to advise you of any change in any of these sources of law or subsequent legal or factual developments which might affect any matters or opinions set forth herein. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our name therein and in the related Prospectus under the caption "Legal Matters." In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission. Very truly yours, HALE AND DORR LLP EX-10.1 4 1998 STOCK INCENTIVE PLAN EXHIBIT 10.1 BE FREE, INC. 1998 STOCK INCENTIVE PLAN 1. Purpose The purpose of this 1998 Stock Incentive Plan (the "Plan") of Be Free, Inc., a Delaware corporation (the "Company"), is to advance the interests of the Company's stockholders by enhancing the Company's ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives and thereby better aligning the interests of such persons with those of the Company's stockholders. Except where the context otherwise requires, the term "Company" shall include any of the Company's present or future subsidiary corporations of as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code"). 2. Eligibility All of the Company's employees, officers, directors, consultants and advisors (and any individuals who have accepted an offer for employment) are eligible to be granted options, restricted stock awards, or other stock-based awards (each, an "Award") under the Plan. Each person who has been granted an Award under the Plan shall be deemed a "Participant". 3. Administration, Delegation (a) Administration by Board of Directors. The Plan will be administered by the Board of Directors of the Company (the "Board"). The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board's sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith. (b) Delegation to Executive Officers. To the extent permitted by applicable law, the Board may delegate to one or more executive officers of the Company the power to make Awards and exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the maximum number of shares subject to Awards and the maximum number of shares for any one Participant to be made by such executive officers. (c) Appointment of Committees. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a "Committee"). All references in the Plan to the "Board" shall mean the Board or a Committee of the Board or the executive officer referred to in Section 3(b) to the extent that the Board's powers or authority under the Plan have been delegated to such Committee or executive officer. 4. Stock Available for Awards (a) Number of Shares. Subject to adjustment under Section 8, Awards may be made under the Plan for up to 7,739,251 shares of common stock, $.01 par value per share, of the Company (the "Common Stock"). If any Award expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any limitation required under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. (b) Per-Participant Limit. Subject to adjustment under Section 8, for Awards granted after the Common Stock is registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares of Common Stock with respect to which an Award may be granted to any Participant under the Plan shall be 4,000,000 per calendar year. The per-Participant limit described in this Section 4(b) shall be construed and applied consistently with Section 162(m) of the Code. 5. Stock Options (a) General. The Board may grant options to purchase Common Stock (each, an "Option") and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. An Option which is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock Option". (b) Incentive Stock Options. An Option that the Board intends to be an "incentive stock option" as defined in Section 422 of the Code (an "Incentive Stock Option") shall only be granted to employees of the Company and shall be subject to -2- and shall be construed consistently with the requirements of Section 422 of the Code. The Company shall have no liability to a Participant, or any other party, if an Option (or any part thereof) which is intended to be an Incentive Stock Option is not an Incentive Stock Option. (c) Exercise Price. The Board shall establish the exercise price at the time each Option is granted and specify it in the applicable option agreement. (d) Duration of Options. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement. (e) Exercise of Option. Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised. (f) Payment Upon Exercise. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows: (1) in cash or by check, payable to the order of the Company; (2) except as the Board may, in its sole discretion, otherwise provide in an option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price; (3) when the Common Stock is registered under the Exchange Act, by delivery of shares of Common Stock owned by the Participant valued at their fair market value as determined by (or in a manner approved by) the Board in good faith ("Fair Market Value"), which Common Stock was owned by the Participant at least six months prior to such delivery; (4) to the extent permitted by the Board, in its sole discretion by (i) delivery of a promissory note of the Participant to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or (5) by any combination of the above permitted forms of payment. -3- 6. Restricted Stock (a) Grants. The Board may grant Awards entitling recipients to acquire shares of Common Stock, subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award (each, a "Restricted Stock Award"). (b) Terms and Conditions. The Board shall determine the terms and conditions of any such Restricted Stock Award, including the conditions for repurchase (or forfeiture) and the issue price, if any. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant's death (the "Designated Beneficiary"). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant's estate. 7. Other Stock-Based Awards The Board shall have the right to grant other Awards based upon the Common Stock having such terms and conditions as the Board may determine, including the grant of shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of stock appreciation rights. 8. Adjustments for Changes in Common Stock and Certain Other Events (a) Changes in Capitalization. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a normal cash dividend, (i) the number and class of securities available under this Plan, (ii) the per-Participant limit set forth in Section 4(b), (iii) the number and class of securities and exercise price per share subject to each outstanding Option, (iv) the repurchase price per share subject to each outstanding Restricted Stock Award, and (v) the terms of each other outstanding Award shall be appropriately adjusted by the Company (or substituted Awards may be made, if applicable) to the extent the Board shall determine, in good faith, that such an adjustment (or substitution) is necessary and appropriate. If this Section 8(a) -4- applies and Section 8(c) also applies to any event, Section 8(c) shall be applicable to such event, and this Section 8(a) shall not be applicable. (b) Liquidation or Dissolution. In the event of a proposed liquidation or dissolution of the Company, the Board shall upon written notice to the Participants provide that all then unexercised Options will (i) become exercisable in full as of a specified time at least 10 business days prior to the effective date of such liquidation or dissolution and (ii) terminate effective upon such liquidation or dissolution, except to the extent exercised before such effective date. The Board may specify the effect of a liquidation or dissolution on any Restricted Stock Award or other Award granted under the Plan at the time of the grant of such Award. (c) Acquisition and Change in Control Events (1) Definitions (a) An "Acquisition Event" shall mean: (i) any merger or consolidation of the Company with or into another entity as a result of which the Common Stock is converted into or exchanged for the right to receive cash, securities or other property; or (ii) any exchange of shares of the Company for cash, securities or other property pursuant to a statutory share exchange transaction. (b) A "Change in Control Event" shall mean: (i) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); -5- provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control Event: (A) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (C) any acquisition by any corporation pursuant to a Business Combination (as defined below) which complies with clauses (x) and (y) of subsection (iii) of this definition; or (ii) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (x) who was a member of the Board on the date of the initial adoption of this Plan by the Board or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (y) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (iii) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other -6- disposition of all or substantially all of the assets of the Company (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then- outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination). (2) Effect on Options, Restricted Stock Awards and Other Awards (a) Upon the occurrence of an Acquisition Event (regardless of whether such event also constitutes a Change in Control Event), or the execution by the Company of any agreement with respect to an Acquisition Event (regardless of whether -7- such event will result in a Change in Control Event), the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof); provided that if such Acquisition Event also constitutes a Change in Control Event, the ability to exercise each Option shall be as provided in the instrument evidencing any Option or any other agreement between a Participant and the Company. For purposes hereof, an Option shall be considered to be assumed if, following consummation of the Acquisition Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Acquisition Event, the consideration (whether cash, securities or other property) received as a result of the Acquisition Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Acquisition Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Acquisition Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair market value to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Acquisition Event. Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Board shall, upon written notice to the Participants, provide that all then unexercised Options will become exercisable in full as of a specified time prior to the Acquisition Event and will terminate immediately prior to the consummation of such Acquisition Event, except to the extent exercised by the Participants before the consummation of such Acquisition Event; provided, however, that in the event of an Acquisition Event under -8- the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Acquisition Event (the "Acquisition Price"), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Acquisition Event and that each Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options. (b) Upon the occurrence of an Acquisition Event, subject to the effect of a Change in Control Event as set forth in the following paragraph, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company's successor and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Acquisition Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award. Upon the occurrence of a Change in Control Event (regardless of whether such event also constitutes an Acquisition Event), the vesting schedule of each Restricted Stock Award shall be adjusted as provided in the instrument evidencing any Restricted Stock Award. (c) The Board shall specify the effect of an Acquisition Event and any Change in Control Event on any other Award granted under the Plan at the time of the grant of such Award. 9. General Provisions Applicable to Awards (a) Transferability of Awards. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees. -9- (b) Documentation. Each Award shall be evidenced by a written instrument in such form as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan. (c) Board Discretion. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly. (d) Termination of Status. The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, the Participant's legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award. (e) Withholding. Each Participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax liability. Except as the Board may otherwise provide in an Award, when the Common Stock is registered under the Exchange Act, Participants may satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant. (f) Amendment of Award. The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant. (g) Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company's counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or -10- agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations. (h) Acceleration. The Board may at any time provide that any Options shall become immediately exercisable in full or in part, that any Restricted Stock Awards shall be free of restrictions in full or in part or that any other Awards may become exercisable in full or in part or free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be. 10. Miscellaneous (a) No Right To Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award. (b) No Rights As Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares. Notwithstanding the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to such Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend. (c) Effective Date and Term of Plan. The Plan shall become effective on the date on which it is adopted by the Board. No Awards shall be granted under the Plan after the completion of ten years from the earlier of (i) the date on which the Plan was adopted by the Board or (ii) the date the Plan was approved by the Company's stockholders, but Awards previously granted may extend beyond that date. (d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or any portion thereof at any time. -11- (e) Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without regard to any applicable conflicts of law. -12- EX-10.2 5 STOCK PURCHASE AND SHAREHOLDERS AGREEMENT EXHIBIT 10.2 COMPOSITE COPY FREEDOM OF INFORMATION, INC. ----------------------------------------------------------- STOCK PURCHASE AND SHAREHOLDERS AGREEMENT ----------------------------------------------------------- As of August 28, 1998 FREEDOM OF INFORMATION, INC. Stock Purchase and Shareholders Agreement As of August 28, 1998
Page ------ SECTION 1. TERMS OF PURCHASE 2 1.1 Description of Securities ................................... 2 1.2 Sale and Purchase ........................................... 2 1.3 Delivery of Warrants ........................................ 2 1.4 Redemption Transaction; Use of Proceeds ..................... 3 1.5 Closing ..................................................... 3 SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND REDEEMING STOCKHOLDERS 3 2.1 Organization and Corporate Power ............................ 3 2.2 Authorization and Non-Contravention ......................... 4 2.3 Capitalization .............................................. 4 2.4 Subsidiaries; Investments ................................... 6 2.5 Financial Statements and Matters ............................ 6 2.6 Absence of Undisclosed Liabilities .......................... 6 2.7 Absence of Certain Developments ............................. 6 2.8 Ordinary Course ............................................. 7 2.9 Title to Properties ......................................... 7 2.10 Tax Matters ................................................. 8 2.11 Certain Contracts and Arrangements .......................... 8 2.12 Intellectual Property Rights; Employee Restrictions ......... 10 2.13 Litigation ................................................. 11 2.14 Employee Benefit Plans ...................................... 11 2.15 Labor Laws .................................................. 12 2.16 List of Certain Employees and Suppliers ..................... 12 2.17 Hazardous Waste, Etc. ....................................... 12 2.18 Business; Compliance with Laws .............................. 12 2.19 Investment Banking; Brokerage ............................... 12 2.20 Insurance ................................................... 13 2.21 Transactions with Affiliates ................................ 13 2.22 Disclosure .................................................. 13 2.23 Sole Representations and Warranties ......................... 13 SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS ................... 13 SECTION 3. CONDITIONS OF PURCHASE ............................................ 14 3.1 Satisfaction of Conditions .................................. 15
(i) 3.2 Director Election ........................................... 15 3.3 Opinion of Counsel .......................................... 15 3.4 Authorization ............................................... 15 3.5 All Proceedings Satisfactory ................................ 15 3.6 Investors' Fees ............................................. 15 3.7 No Violation or Injunction .................................. 16 3.8 Consents and Waivers ........................................ 16 3.9 Non-Disclosure and Non-Competition Agreements ............... 16 3.10 Founder Employment Agreements ............................... 16 3.11 Pro Forma Combined Balance Sheet ............................ 16 SECTION 3A CONDITIONS OF SALE ............................................... 16 (a) Satisfaction of Conditions .................................. 17 (b) Payment of Purchase Price ................................... 17 (c) Director of Election ........................................ 17 (d) All Proceedings Satisfactory ................................ 17 (e) No Violation or Injunction .................................. 17 SECTION 4. COVENANTS ........................................................ 17 4.1 Financial Statement and Budgetary Information; Inspection ... 17 4.2 Indemnification ............................................. 18 4.3 Board of Directors .......................................... 18 4.4 Key Person Insurance ........................................ 18 4.5 Stock Awards ................................................ 18 4.6 Non-Disclosure and Non-Competition Agreements ............... 18 SECTION 5. RIGHTS TO PURCHASE ............................................... 19 5.1 Right to Participate in Certain Sales of Additional Securities .................................................. 19 5.2 Right of First Refusal ...................................... 20 5.3 Co-Sale Rights .............................................. 23 5.4 Company Repurchase Option ................................... 24 5.5 Legends ..................................................... 24 SECTION 6. REGISTRATION RIGHTS .............................................. 24 6.1 Optional Registrations ...................................... 24 6.2 Required Registrations ...................................... 25 6.3 Registrable Securities ...................................... 28 6.4 Further Obligations of the Company .......................... 28 6.5 Indemnification; Contribution ............................... 30 6.6 Rule 144 and Rule 144A Requirements ......................... 33 6.7 Transfer of Registration Rights ............................. 33 SECTION 7. ELECTION OF DIRECTORS ............................................ 34 7.1 Board Composition ........................................... 34
(ii) SECTION 8. GENERAL 34 8.1 Release from Guarantees ..................................... 34 8.2 Compliance with Registration Requirements of the Securities Act ....................................... 35 8.3 Amendments, Waivers and Consents ............................ 35 8.4 Survival of Representations; Warranties and Covenants; Assignability of Rights ..................................... 35 8.5 Legend on Securities ........................................ 36 8.6 Governing Law ............................................... 37 8.7 Section Headings and Gender ................................. 37 8.8 Counterparts ................................................ 37 8.9 Notices and Demands ......................................... 37 8.10 Remedies; Severability ...................................... 38 8.11 Integration ................................................. 39 EXHIBITS A. Redeeming Stockholders B. Investors C. Preferred Stock Terms D. Form of Warrant Agreement E. Form of Contribution Agreement F. Form of Redemption Note G. Form of Director Indemnification Agreement H. Opinion of Counsel I.1. Form of Employee Confidential Information, Inventions and Writings Agreement I.2. Form of Employer Confidential Information, Inventions and Writings and Non-Competition Agreement J. Form of Employment Agreement
(iii) STOCK PURCHASE AND SHAREHOLDERS AGREEMENT STOCK PURCHASE AND SHAREHOLDERS AGREEMENT (this "Agreement") made as of this 28th day of August, 1998, by and among Freedom of Information, Inc., a corporation duly organized and existing under the laws of the State of Delaware ("FOI" or the "Company"), Samuel P. Gerace, Jr. and Thomas A. Gerace collectively the "Founders" and each individually a "Founder"), those individuals (including the Founders) and the partnership identified as Redeeming Stockholders in Exhibit A hereto (each individually a "Redeeming Stockholder" ---------------- and collectively the "Redeeming Stockholders"), Gordon B. Hoffstein and the investment partnerships named in Exhibit B hereto (collectively and with any --------- successor or successors in interest the "Investors," and each individually an "Investor" and collectively with the Redeeming Stockholders, the "Participants"). WHEREAS, on August 28, 1998, the shareholders of Be Free, Inc., a Delaware corporation ("Be Free") and PCX Information Systems, Inc., a Pennsylvania corporation ("PCXIS"), contributed all of the common shares of the respective entities held by such shareholders to FOI (the "Contribution Transaction") in consideration of the issuance of shares of common stock, $.01 par value per share of FOI (the "Common Stock") in the amounts set out in Exhibit A hereto, --------- and promissory notes (the "Redemption Notes") of FOI in the amounts set out in Exhibit A; - --------- WHEREAS, as a result of the Contribution Transaction, each of Be Free, Inc. and PCXIS is now a wholly-owned subsidiary of FOI (Be Free and PCXIS are collectively referred to as the "Subsidiaries" and each individually a "Subsidiary."); WHEREAS, the Company has authorized the issuance and sale to the Investors of an aggregate of 10,500,000 shares of Series A Convertible Participating Preferred Stock, par value $.01 per share ("Convertible Preferred Stock"), having the rights and preferences set forth in Exhibit C; --------- WHEREAS, the Company intends to use a portion of the proceeds from the sale of the Convertible Preferred Stock to pay the amounts outstanding under the Redemption Notes; WHEREAS, each of the Founders has agreed to grant to the Company a right to repurchase the Common Stock held by such Founder under certain circumstances; WHEREAS, each of the Redeeming Stockholders has agreed to make the representations and warranties and furnish the indemnification provided for herein; 1 WHEREAS, the Investors have agreed to purchase an aggregate of 10,500,000 shares of Convertible Preferred Stock at the Closing; WHEREAS, the Company has agreed to deliver to the Investors warrants to purchase an aggregate of 3,465,000 shares of Common Stock with an exercise price of $1.50 per share (the "Warrants") in connection with the purchase of the Convertible Preferred Stock hereunder; and WHEREAS, the parties hereto desire to set forth the terms of their ongoing relationship in connection with the Company. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: SECTION 1. TERMS OF PURCHASE ----------------- 1.1 Description of Securities. The Convertible Preferred Stock shall have ------------------------- the rights, preferences and other terms set forth in Exhibit C. For purposes of --------- this Agreement, the shares of Convertible Preferred Stock to be acquired by the Investors from the Company hereunder are referred to as the "Convertible Preferred Shares," and the shares of Common Stock issuable on conversion thereof are referred to as the "Conversion Shares" (and such term, when used in reference to a number or percentage of shares of Convertible Preferred Shares shall mean such shares held on the date hereof). 1.2 Sale and Purchase. Upon the terms and subject to the conditions ----------------- herein, and in reliance on the representations and warranties set forth in Section 2, each Investor hereby purchases from the Company, and the Company hereby issues and sells to each of the Investors, at the Closing (as defined in Section 1.3), (i) the number of shares of Convertible Preferred Stock set forth opposite the name of such Investor in Exhibit C for the purchase price of $1.00 --------- per share, or an aggregate of 10,500,000 shares of Convertible Preferred Stock for an aggregate purchase price of $10,500,000, and the Company hereby grants the Investors the rights set forth herein. Payments hereunder shall be made by wire transfer. 1.3 Delivery of Warrants. On the terms and subject to the conditions -------------------- herein set forth, the Company hereby agrees to deliver to each Investor, at the Closing, simultaneously with the delivery of the Convertible Preferred Stock, warrant agreements (the "Warrant Agreements") to purchase the number of shares of Common Stock set forth opposite the name of such Investor on Exhibit B in the --------- form and subject to the terms and conditions contained in Exhibit D hereto. --------- 2 1.4 Redemption Transactions: Use of Proceeds. Prior to the date hereof, ---------------------------------------- the Company has issued the Redemption Notes in exchange for certain shares of common stock in the Subsidiaries held by the Redeeming Stockholders pursuant to the contribution agreement substantially in the form of Exhibit E hereto (the --------- "Contribution Agreement" and each individually a "Contribution Agreement") in exchange for the Redemption Notes in the aggregate amount of $6,176,881 substantially in the form of Exhibit F hereto. The Company will use a portion of --------- the proceeds from the sale of the Convertible Preferred Stock at the Closing (as defined below) to prepay the principal amount of, and all accrued interest on the Redemption Notes. The Company will use $1,250,905 million of the proceeds to pay the outstanding principal amount of, and any accrued and unpaid interest of the promissory notes listed on Schedule 1.4. The remainder of the proceeds from the Closing will be used to fund the Company's working capital needs. 1.5 Closing. The closing of the purchases and sales of Convertible ------- Preferred Shares contemplated by Section 1.2 (the "Closing") shall take place on the date hereof (the "Closing Date"). At the Closing, the Company shall deliver or cause to be delivered stock certificates representing the Convertible Preferred Shares to the respective Investors, free and clear of all liens created by the Company other than as set forth herein, and bearing the legends set forth herein, against payment of the purchase price therefor and the Warrant Agreements representing the Warrants. SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND REDEEMING ----------------------------------------------------------- STOCKHOLDERS ------------ In order to induce the Investors to enter into this Agreement, (a) the Company and each of the Founders severally to the extent set forth in Section 8.4 represent and warrant to each of the Investors the following Sections 2.1 through 2.22 (other than Sections 2.3, 2.4(a), 2.12(a) and 2.12(b)) and (b) the Company and the Redeeming Stockholders severally to the extent set forth in Section 8.4 represent and warrant to each of the Investors Sections 2.3, 2.4(a), 2.12(a) and 2.12(b), subject to the matters set forth in the schedule of exceptions attached hereto (the "Disclosure Schedule"). 2.1 Organization and Corporate Power. The Company is a corporation duly -------------------------------- organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified to do business as a foreign corporation in each of the Commonwealth of Massachusetts and the State of Pennsylvania. The Company has all required corporate power and authority to carry on its business as presently conducted, to enter into and perform this Agreement and the agreements contemplated hereby to which it is a party and to carry out the transactions contemplated hereby and thereby, including the issuance of the Convertible Preferred Shares. The copies of (i) the Certificate of Incorporation and By-laws of FOI, (ii) the Certificate of Incorporation and By-laws of Be Free, and (iii) the Articles of Incorporation and By-laws of PCXIS, as 3 amended to date, which have been furnished to the Investors by the Company, are correct and complete at the date hereof (collectively, the "Certificates of Incorporation" and the "By-laws," respectively). Neither the Company nor any of the Subsidiaries is in violation of any material term of its Certificate of Incorporation or By-laws. 2.2 Authorization and Non-Contravention. The execution, delivery and ----------------------------------- performance by the Company of this Agreement and all other agreements, documents and instruments to be executed and delivered by the Company as contemplated hereby and the issuance and delivery of (i) the Convertible Preferred Shares, (ii) upon the conversion of the Convertible Preferred Shares, the Conversion Shares, and (iii) the Warrants have been duly authorized by all necessary corporate and other action of the Company. This Agreement and all documents executed by the Company pursuant hereto are valid and binding obligations of the Company, enforceable in accordance with their terms. Except as set forth on the Disclosure Schedule, the execution, delivery and performance by the Company of this Agreement and all other agreements, documents and instruments to be executed and delivered by the Company as contemplated hereby and the issuance and delivery of (i) the Convertible Preferred Shares, (ii) upon the conversion of the Convertible Preferred Shares, the Conversion Shares, and (iii) the Warrants do not and will not, in such a way as to result in a material adverse effect on the Company's assets, liabilities, condition (financial or otherwise), business or results of operations, on a consolidated basis (a "Material Adverse Effect"): (A) violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both) under any contract or obligation to which the Company is a party or by which it or its assets are bound or cause the creation of any encumbrance upon any of the assets of the Company; (B) violate or result in a violation of, or constitute a default under, any provision of any law regulation or rule, or any order of, or any restriction imposed by, any court or governmental agency applicable to the Company; or (C) accelerate any obligation under, or give rise to a right of termination of, any agreement, permit, license or authorization to which the Company is a party or by which the Company is bound. The execution, delivery and performance by the Company of this Agreement and all other agreements, documents and instruments to be executed and delivered by the Company as contemplated hereby and the issuance and delivery of (i) the Convertible Preferred Shares, (ii) upon the conversion of the Convertible Preferred Shares, the Conversion Shares and (iii) the Warrants, do not and will not: (A) violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both) of any provision of the Certificates of Incorporation or By-laws of the Company or (B) except as set forth on the Disclosure Schedule, require from the Company any notice to, declaration or filing with, or consent or approval of any governmental authority or third party. 2.3 Capitalization. As of the Closing and after giving effect to the -------------- transactions contemplated hereby, the authorized capital stock of the Company will consist of 45,000,000 shares of Common Stock, of which 13,323,119 shares will be issued and outstanding (after giving effect to the transaction contemplated by section 1.4), 15,000,000 4 shares of Preferred Stock, of which 10,600,000 shares will be designated as Series A Convertible Participating Preferred Stock, of which 10,500,000 shares will be issued and outstanding, and 4,400,000 shares of Preferred Stock will be undesignated. In addition, the Company has authorized and reserved for issuance upon conversion of the Convertible Preferred Shares, 10,500,000 shares of Common Stock (subject to adjustment for stock splits, stock dividends and the like). Except for the Company's agreement to issue the Conversion Shares, upon exercise of the Warrants, 3,465,000 shares of Common Stock (subject to adjustment for stock splits, stock dividends and the like), up to 733,000 shares of Common Stock issuable pursuant to warrants proposed to be granted to lenders of the Company and 7,739,251 shares of Common Stock reserved for issuance under the Company's 1998 Incentive Stock Plan (subject to adjustment for stock splits, stock dividends and the like, less any shares already issued under such plan) (referred to herein as the "Stock Option Pool") and except as disclosed in the Disclosure Schedule, the Company has not issued or agreed to issue and is not obligated to issue any outstanding warrants, options or other rights to purchase or acquire any shares of its capital stock, nor any outstanding securities convertible into such shares or any warrants, options or other rights to acquire any such convertible securities. As of the Closing, and after giving effect to the transactions contemplated hereby and assuming the accuracy of the Investors' representations and warranties set forth in Section 2A hereof, all of the outstanding shares of capital stock of the Company (including without limitation the Convertible Preferred Shares) will have been duly and validly authorized and issued and will be fully paid and nonassessable and will have been offered, issued, sold and delivered in compliance with applicable federal and state securities laws and not subject to any preemptive rights. Assuming the accuracy of the Investors' representations and warranties set forth in Section 2A hereof, the Conversion Shares issuable upon conversion of the Convertible Preferred Shares and the shares of Common Stock issuable upon exercise of the Warrants, assuming payment of the exercise price therefor in accordance with the terms of the Warrant Agreement, will upon issuance be duly and validly authorized and issued, fully paid and nonassessable and not subject to any preemptive rights and will be issued in compliance with federal and state securities laws. The relative rights, preferences and other provisions relating to the Convertible Preferred Shares are as set forth in Exhibit C hereto. There are no preemptive --------- rights, rights of first refusal, put or call rights or obligations or anti- dilution rights with respect to the issuance, sale or redemption of the Company's capital stock, other than as described in the Disclosure Schedule and rights to which the Investors are entitled as set forth in this Agreement and the Company's Certificate of Incorporation. Except as set forth herein or in the Disclosure Schedule, there are no rights to have the Company's capital stock registered for sale to the public under the laws of any jurisdiction, no agreements relating to the voting of the Company's voting securities, and no restrictions on the transfer of the Company's capital stock. After giving effect to the transactions contemplated hereby, the outstanding shares of the Company's capital stock are held beneficially and of record by the persons identified in Schedule 2.3 in the amounts indicated thereon. - ------------ 5 2.4 Subsidiaries; Investments. ------------------------- (a) Subsidiaries. A complete and current list of all of the ------------ Subsidiaries of FOI, the outstanding equity interests of each Subsidiary and the stockholders, members or partners of each Subsidiary are set forth in Section 2.4 of the Disclosure Schedule. All of the outstanding equity interests of each Subsidiary are duly authorized, validly issued, fully paid and nonassessable. (b) Investments. Except as set forth in Section 2.4 of the Disclosure ----------- Schedule, none of FOI or any of the Subsidiaries owns nor has any direct or indirect interest in or control over any corporation, partnership, joint venture or other entity of any kind, except for passive investments of less than 2% in publicly-traded companies. The term "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. 2.5 Financial Statements and Matters. FOI has previously furnished to the -------------------------------- Holders copies of unaudited financial statements of each of its Subsidiaries for the fiscal year ended December 31, 1997 together with copies of its unaudited financial statements for June 30, 1998. Such financial statements referred to in this Section 2.5 were prepared in conformity with generally accepted accounting principles applied on a consistent basis, in all material respects are complete, correct and consistent with the books and records of such Subsidiaries and fairly present, in all material respects, the financial position of each such Subsidiary as of the dates thereof and the results of operations and cash flows of each such Subsidiary for the periods shown therein (subject to the absence of footnotes and normal year-end adjustments). 2.6 Absence of Undisclosed Liabilities. Except as and to the extent ---------------------------------- reflected or reserved against in the unaudited pro forma combined balance sheet of the Company at July 31, 1998 furnished at or prior to the Closing pursuant to Section 3.12 (the "Base Balance Sheet"), disclosed in the Disclosure Schedule or as incurred in the ordinary course of business since the date of the Base Balance Sheet, the Company does not have and is not subject to any material liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, other than liabilities incurred in connection with this Agreement and the transactions contemplated hereby that would be required to be described on such Base Balance Sheet or the notes thereto if it was an audited pro forma balance sheet. 2.7 Absence of Certain Developments. Since the date of the Base Balance ------------------------------- Sheet, except as set forth in the Disclosure Schedule, there has not been any: (i) material adverse change in the financial condition of the Company or in the assets, liabilities, condition (financial or other), business or results of operations of the Company, (ii) declaration, setting aside or payment of any dividend or other distribution with respect to, or any direct or indirect redemption or acquisition of, any of the capital stock of the 6 Company, (iii) waiver of any valuable right of the Company or cancellation of any debt or claim held by the Company in excess of $100,000 in the aggregate, (iv) loss, destruction or damage to any property which is material to the assets, liabilities, condition (financial or other), properties, business, results of operations or prospects of the Company, whether or not insured, (v) acquisition or disposition of any material assets or other material transaction by the Company other than in the ordinary course of business, (vi) material transaction or agreement involving the Company and any officer, director, employee or shareholder of the Company, (vii) material increase, direct or indirect, in the compensation paid or payable to any officer, director, employee or agent of the Company or any establishment or creation of any employment or severance agreement or employee benefit plan, (viii) material loss of personnel of the Company, material change in the terms and conditions of the employment of the Company's key personnel or any labor trouble involving the Company, (ix) termination of the employment of any senior executive personnel, (x) material arrangements relating to any royalty, dividend or similar payment based on the sales volume of the Company, whether as part of the terms of the Company's capital stock or by any separate agreement, (xi) material agreement with respect to the endorsement of the Company's products, (xii) loss or any development that would result in a loss of any significant customer, account or employee of the Company, (xiii) incurrence of indebtedness in excess of $100,000 in the aggregate or any material lien, (xiv) material transaction not occurring in the ordinary course of business, or (xv) any agreement with respect to any of the foregoing actions. 2.8 Ordinary Course. Since the date of the Base Balance Sheet, except for --------------- transactions contemplated hereby and by the Contribution Transaction, the Company has conducted its business only in the ordinary course. 2.9 Title to Properties. Section 2.9 of the Disclosure Schedule sets forth ------------------- the addresses and uses of all real property that the Company owns, leases or subleases. The Company has good, valid and (if applicable) marketable title to all of its assets (other than leased assets) free and clear of all liens, claims or encumbrances of any nature except, with respect to all such properties and assets, (a) mortgages or security interests shown on the Base Balance Sheet as securing specified liabilities or obligations, with respect to which no default (or event that, with notice or lapse of time or both, would constitute a default) exists, (b) mortgages or security interests incurred in connection with the purchase of property of assets after the date of the Base Balance Sheet (such mortgages and security interests being limited to the property or assets so acquired and with written consent of each of the Investors), with respect to which no default (or event that, with notice of lapse of time or both, would constitute a default) exists, (c) liens for current taxes not yet due, (d) liens, claims or encumbrances disclosed on the Disclosure Schedule and (e) with respect to real property, (i) minor imperfections of title, if any, none of which is substantial in amount, materially detracts from the value or impairs the use of the property subject thereto, or impairs the operations of the Company, and (ii) zoning laws and other land use restrictions that do not impair the present or anticipated 7 use of the property subject thereto. All equipment included in such properties which is necessary to the business of the Company is in good condition and repair (ordinary wear and tear excepted) and all leases of real or personal property to which the Company is a party are fully effective and afford the Company peaceful and undisturbed possession of the subject matter of the lease. The Company is not in violation of any zoning, building or safety ordinance, regulation or requirement or other law or regulation applicable to the operation of its owned or leased properties, which violation would have a Material Adverse Effect, nor has it received any notice of any such violation. There are no defaults by the Company or to the knowledge of the Company, by any other party, which might curtail in any material respect the present use of the Company's property. Except as otherwise disclosed on Schedule 2.9, the performance by the Company of this Agreement will not result in the termination of, or in any material increase of any amounts payable under, any of its leases. 2.10 Tax Matters. The Company has filed all federal, state, local and ----------- foreign income, excise and franchise tax returns, real estate and personal property tax returns, sales and use tax returns and other tax returns required to be filed by it where the failure to file such returns would have a Material Adverse Effect and has paid all taxes owing by it, except taxes which have not yet accrued or otherwise become due, for which adequate provision has been made in the pertinent financial statements referred to in Section 2.5 above or which will not have a Material Adverse Effect. All taxes and other assessments and levies which the Company is required to withhold or collect have been withheld and collected and have been paid over to the proper governmental authorities except where the failure to withhold or collect and pay over would not have a Material Adverse Effect. With regard to the federal income tax returns of the Company, the Company has never received notice of any audit or of any proposed deficiencies from the Internal Revenue Service. There are in effect no waivers of applicable statutes of limitations with respect to any taxes owed by the Company for any year. Neither the Internal Revenue Service nor any other taxing authority is now asserting or, to the knowledge of the Company, threatening to assert against the Company any deficiency or claim for additional taxes or interest thereon or penalties in connection therewith. 2.11 Certain Contracts and Arrangements. Except as set forth in the ---------------------------------- Disclosure Schedule (with true and correct copies made available to legal counsel to the Investors), the Company is not a party or subject to or bound by: (a) any plan or contract providing for collective bargaining or the like, or any contract or agreement with any labor union; (b) any contract containing covenants directly or explicitly limiting the freedom of the Company to compete in any line of business or with any person or entity; 8 (c) any license agreement (i) in which the Company is the licensor that provides for the license or escrow of the Company's source code or (ii) in which the Company is a licensee that applies to software not commercially available; (d) any contract or agreement (other than license agreements) obligating the Company to sell or purchase assets or services with a sale or purchase price in excess of $50,000 in the aggregate; (e) any material joint venture, partnership, manufacturing, development or supply agreement; (f) any endorsement or any other advertising, promotional or marketing agreement providing for payments by the Company in excess of $50,000 in the aggregate which cannot be terminated on 90 days' or less notice without the payment of penalties; (g) any employment or severance contracts with officers, directors or employees of the Company or agreements with shareholders of the Company or persons or organizations related to or affiliated with any such shareholders; (h) any stock redemption or purchase agreements or other agreements affecting or relating to the capital stock of the Company, including without limitation any agreement with any shareholder of the Company which includes without limitation, anti-dilution rights, registration rights, voting arrangements, operating covenants or similar provisions; (i) any pension, profit sharing, retirement or stock options plans; (j) any royalty, dividend or similar arrangement based on the sales volume of the Company; (k) any acquisition, merger or similar agreement; (l) any contract with a governmental body under which the Company may have an obligation for renegotiation; or (m) any agreement with any shareholder of the Company or any affiliate of any shareholder. All of the Company's contracts and commitments are in full force and effect and neither the Company, nor, to the knowledge of the Company, any other party is in default thereunder (nor, to the knowledge of the Company, has any event occurred which with notice, lapse of time or both would constitute a default thereunder), except to the extent that any such failure to be in full force and effect or default would not have a Material Adverse Effect, and the Company has not received notice of any alleged 9 default under any such contract, agreement, understanding or commitment which has not been cured. 2.12 Intellectual Property Rights; Employee Restrictions. Except as set --------------------------------------------------- forth in Schedule 2.12: ------------- (a) The Company owns, or has the right to use all Intellectual Property Rights (as hereinafter defined) material to the conduct of its business as presently conducted, including, without limitation, the trade names "Be Free," and the exclusive right to the domain name "befree.com." (b) The business of the Company as presently conducted does not violate any agreements which the Company has with any third party or, to the knowledge of the Company, materially infringe any trademark, copyright, trade secret or patent or other Intellectual Property Rights of any third party. (c) No claim is pending or, to the knowledge of the Company, threatened against the Company nor has the Company received any notice or claim from any person asserting that any of the Company's present or contemplated activities infringe or may infringe any Intellectual Property Rights of such person, and the Company is not aware of any infringement by any other person of any rights of the Company under any Intellectual Property Rights that would have a Material Adverse Effect. (d) The Company has taken all commercially reasonable steps required to establish and preserve its ownership of all of the Intellectual Property Rights, except where the failure to do so would not have a Material Adverse Effect; each current and former employee of the Company, and each of the Company's consultants and independent contractors involved in development of any of the Intellectual Property Rights, has executed an agreement regarding confidentiality, proprietary information and assignment of inventions and copyrights to the Company, and, to the knowledge of the Company, none of such employees, consultants or independent contractors is in violation of any agreement or in breach of any agreement or arrangement with former or present employers relating to proprietary information or assignment of inventions. As used herein, the term "Intellectual Property Rights" shall mean all intellectual property rights, including, without limitation, all of the registered rights set forth on Section 2.12 of the Disclosure Schedule and all patents, patent applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, copyright applications, computer programs, domain names and other computer software, inventions, designs, samples, specifications, schematics, know-how, trade secrets, proprietary processes and formulae, including production technology and processes, all source and object code, algorithms, promotional materials, customer lists, supplier and dealer lists and marketing research, and all documentation 10 and media constituting, describing or relating to the foregoing, including without limitation, manuals, memoranda and records. Section 2.12 of the Disclosure Schedule contains a list of all Intellectual Property Rights registered in the name of the Company and Section 2.12 of the Disclosure Schedule sets forth certain Intellectual Property Rights of which the Company is the licensor or a licensee, excluding any commercially or freely available software of which the Company is the licensee. 2.13 Litigation. There is no litigation or governmental proceeding or ---------- investigation pending or, to the knowledge of the Company, threatened against (i) the Company or affecting any of its properties or assets or (ii) any officer, director or key employee of the Company in his or her capacity as an officer, director or employee of the Company, in each case, which litigation, proceeding or investigation is reasonably likely to have a Material Adverse Effect, or which may call into question the validity or hinder the enforceability of this Agreement or any other agreements or transactions contemplated hereby; nor to the knowledge of the Company has there occurred any event nor does there exist any condition on the basis of which any such litigation, proceeding or investigation might be properly instituted or commenced. 2.14 Employee Benefit Plans. The Company does not maintain or contribute ---------------------- to any employee benefit plan, stock option, bonus or incentive plan, severance pay policy or agreement, deferred compensation agreement, or any similar plan or agreement (an "Employee Benefit Plan") other than the Employee Benefit Plans in the Disclosure Schedule. The terms and operation of each Employee Benefit Plan maintained by the Company comply in all material respects with all applicable laws and regulations relating to such Employee Benefit Plans. There are no material unfunded obligations of the Company under any retirement, pension, profit-sharing, deferred compensation plan or similar program. The Company is not required to make any payments or contributions to any Employee Benefit Plan pursuant to any collective bargaining agreement or, to the knowledge of the Company, any applicable labor relations law. The Company has never maintained or contributed to any Employee Benefit Plan providing or promising any health or other nonpension benefits to terminated employees. 2.15 Labor Laws. The Company employs 14 employees and generally enjoys ---------- good employer-employee relationships. The Company is not delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for it as of the date hereof or amounts required to be reimbursed to such employees. Except as disclosed in the Disclosure Schedule, the Company is in compliance in all material respects with all applicable laws and regulations respecting labor, employment, fair employment practices, terms and conditions of employment, and wages and hours. There are no charges of employment discrimination or unfair labor practices or strikes, slowdowns, stoppages of work or any other concerted interference with normal operations existing, pending or, to the knowledge of the Company, threatened against or involving the Company. 11 2.16 List of Certain Employees and Suppliers. Section 2.16 of the --------------------------------------- Disclosure Schedule contains a list of all managers, employees and consultants of the Company who, individually, have received compensation from the Company for the calendar year ended December 31, 1997 in excess of $75,000. In each case such Schedule includes the current job title and aggregate annual compensation of each such individual. To the knowledge of the Company, no key employee of the Company has announced or made known publicly any plan or intention to terminate his employment with the Company and no supplier has notified the Company that it has any plan or intention to terminate or reduce its business with the Company or to materially and adversely modify its relationship with the Company. 2.17 Hazardous Waste, Etc. No hazardous wastes, substances or materials or -------------------- oil or petroleum products have been generated, transported, used, disposed, stored or treated by the Company and to the knowledge of the Company no hazardous wastes, substances or materials, or oil or petroleum products have been released, discharged, disposed, transported, placed or otherwise caused to enter the soil or water in, under or upon any real property owned, leased or operated by the Company, in each case in violation of applicable environmental laws and which would have a Material Adverse Effect. 2.18 Business; Compliance with Laws. The Company has all necessary ------------------------------ franchises, permits, licenses and other rights and privileges necessary to permit it to own its property and to conduct its business as it is presently conducted except where the failure to have would not have a Material Adverse Effect. To the Company's knowledge, the Company is currently and has heretofore been in compliance in all material respects with all federal, state and local laws and regulations. 2.19 Investment Banking: Brokerage. There are no claims for investment ----------------------------- banking fees, brokerage commissions, finder's fees or similar compensation (exclusive of professional fees to lawyers and accountants) in connection with the transactions contemplated by this Agreement payable by the Company or based on any arrangement or agreement made by or on behalf of the Company. 2.20 Insurance. The Company maintains insurance policies of such types --------- and in such amounts with respect to its business and properties as are disclosed on the Disclosure Schedule. There is no material default or event which could give rise to a material default under any such policy. 2.21 Transactions with Affiliates. Except as disclosed on the Disclosure ---------------------------- Schedule, effective as of the Closing Date there will be no loans, leases, contracts or other transactions between the Company and any officer, director or five percent (5%) shareholder of the Company or any family member or affiliate of the foregoing persons. 12 2.22 Disclosure. The representations and warranties made or contained in ---------- this Agreement and the schedules hereto when taken together, do not and shall not contain any untrue statement of a material fact and do not and shall not omit to state a material fact required to be stated therein or necessary in order to make such representations and warranties not misleading in light of the circumstances in which they were made or delivered. 2.23 Sole Representations and Warranties. The representations and ----------------------------------- warranties set forth in this Section 2 constitute the only representations and warranties of the Company and the Redeeming Stockholders made in connection with this Agreement. SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS ----------------------------------------------- (a) Each Investor represents to the Company that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment contemplated by this Agreement and making an informed investment decision with respect thereto. Each Investor represents that it is an "accredited investor" as such term is defined in Rule 501 under the Securities Act of 1933, as amended (the "Securities Act"). Each Investor represents to the Company that it is purchasing the Convertible Preferred Shares and the Warrants for its own account, for investment only and not with a view to, or any present intention of, effecting a distribution of such securities or any part thereof or any securities issued upon conversion thereof except pursuant to a registration or an available exemption under applicable law. Such Investor acknowledges and agrees that its respective Convertible Preferred Shares, Conversion Shares, the Warrants and the Shares of Common Stock issuable upon exercise of the Warrants have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and cannot be disposed of unless they are subsequently registered under the Securities Act and any applicable state laws or exemption from such registration is available. (b) Each Investor has full right, authority and power under its governing partnership agreement to enter into this Agreement and each agreement, document and instrument to be executed and delivered by or on behalf of such Investor pursuant to or as contemplated by this Agreement and to carry out the transactions contemplated hereby and thereby, and the execution, delivery and performance by such Investor of this Agreement and each such other agreement, document and instrument have been duly authorized by all necessary action under such Investor's governing partnership agreement or otherwise. This Agreement and each agreement, document and instrument executed and delivered by each Investor pursuant to or as contemplated by this Agreement constitute, or when executed and delivered will constitute, valid and binding obligations of each of the Investors enforceable in accordance with their respective terms. The execution, delivery and performance by each Investor of this Agreement and each such other agreement, document and instrument, and the performance of the 13 transactions contemplated hereby and thereby do not and will not: (A) violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both) under its partnership agreement or any contract or obligation to which any Investor is a party or by which it or its assets are bound, or cause the creation of any encumbrance upon any of the assets of any Investor; (B) violate or result in a violation of, or constitute a default under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or other governmental agency applicable to such Investor; (C) require from such Investor any notice to, declaration or filing with, or consent or approval of any governmental authority or other third party; or (D) accelerate any obligation under, or give rise to a right of termination of, any agreement, permit, license or authorization to which any Investor is a party or by which such Investor is bound. (c) Each Investor represents that there are no claims for investment banking fees, brokerage commissions, finder's fees or similar compensation (exclusive of professional fees to lawyers and accountants) in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of such Investor. (d) Each Investor represents that it has had during the course of the transaction and prior to its purchase of the Convertible Preferred Shares, the opportunity to request information from and ask questions of the Company and its officers, employees and agents, concerning the Company, its assets, business and operations and to receive information and answers to such requests and questions. SECTION 3. CONDITIONS OF PURCHASE ---------------------- Each Investor's obligation to purchase and pay for the Convertible Preferred Shares to be purchased by it shall be subject to compliance by the Company with its agreements herein contained and to the fulfillment to the Investors' satisfaction, or the waiver by the Investors, on or before and at the Closing Date of the following conditions: 3.1 Satisfaction of Conditions. The representations and warranties of the -------------------------- Company and the Redeeming Stockholders contained in this Agreement shall be true and correct on and as of the Closing Date; each of the conditions specified in this Section 3 shall have been satisfied or waived in writing by the Investors; and, on the Closing Date, certificates to such effect executed by each of the Redeeming Stockholders, personally and by the Company shall have been delivered to the Investors. 3.2 Director Election. Michael Humphreys and Ted Dintersmith as the ----------------- nominees of the Investors, shall have been elected as directors of the Company in accordance with the provisions of Section 7 hereof (together with any subsequent 14 nominees of the Investors, the "Investors' Nominees") and the Company shall have entered into a Director Indemnification Agreement with each of the Investors' Nominees in the form attached hereto as Exhibit G. --------- 3.3 Opinion of Counsel. The Investors shall have received from Ropes & ------------------ Gray an opinion dated as of the Closing Date substantially in the form attached hereto as Exhibit H. 3.4 Authorization. The Board of Directors of FOI shall have duly adopted ------------- resolutions in the form reasonably satisfactory to the Investors and shall have taken all action necessary for the purpose of authorizing the Company to consummate the transactions contemplated hereby in accordance with the terms hereof and to cause the Certificate of Incorporation establishing the Convertible Preferred Shares substantially in the form attached hereto as Exhibit C to become effective; and the Investors shall have received a - --------- certificate of the Secretary of the Company setting forth a copy of the resolutions authorizing the foregoing and the Certificate of Incorporation and By-laws of FOI and such other matters as may be reasonably requested by the Investors. 3.5 All Proceedings Satisfactory. All corporate and other proceedings ---------------------------- taken by the Company prior to or at the Closing in connection with the transactions contemplated by this Agreement, and all documents and evidences incident thereto, shall be reasonably satisfactory in form and substance to the Investors. 3.6 Investors' Fees. The Company shall have paid on behalf of the --------------- Investors all reasonable legal fees and related expenses incurred by the Investors in connection with the transactions contemplated by this Agreement for the Closing Date not to exceed $25,000. 3.7 No Violation or Injunction. The consummation of the transactions -------------------------- contemplated by this Agreement shall not be in violation of any law or regulation, and shall not be subject to any injunction, stay or restraining order. 3.8 Consents and Waivers. The Company shall have obtained all consents or -------------------- waivers necessary to execute this Agreement and the other agreements and documents contemplated herein and to carry out the transactions contemplated hereby and thereby and shall have delivered evidence thereof to the Investors. All corporate and other action and governmental filings necessary to effectuate the terms of this Agreement and other agreements and instruments executed and delivered by the Company in connection herewith shall have been made or taken. 3.9 Non-Disclosure and Non-Competition Agreements. The Company's employees --------------------------------------------- listed in Section 3.9 of the Disclosure Schedule shall have entered into Employee Confidential Information, Inventions and Writings and Non-Competition Agreements substantially in the form attached as Exhibit I.2 hereto. ----------- 15 3.10 Founder Employment Agreements. Each of the Founders shall have ----------------------------- executed and delivered an Employment Agreement in substantially the form attached hereto as Exhibit J. --------- 3.11 Pro Forma Combined Balance Sheet. The Company shall have furnished to -------------------------------- the Investors Base Balance Sheet, which shall be reasonably satisfactory in form and substance to the Investors. SECTION 3A CONDITIONS OF SALE ------------------ The Company's obligation to issue the Convertible Preferred Shares and the Warrants to the Investors shall be subject to compliance by each of the Investors with its agreements herein contained and to the fulfillment to the Company's satisfaction, or the waiver by the Company, on or before and at the Closing Date of the following conditions: (a) Satisfaction of Conditions. The representations and warranties of -------------------------- the Investors contained in this Agreement shall be true and correct on and as of the Closing Date; each of the conditions specified in this Section 3A shall have been satisfied or waived in writing by the Company; and, on the Closing Date, certificates to such effect executed by each of the Investors shall have been delivered to the Company. (b) Payment of Purchase Price. The aggregate purchase price shall have ------------------------- been paid by the Investors to the Company, in accordance with Section 1.2. (c) Director Election. Samuel P. Gerace, Jr. as the nominee of the ----------------- Founders shall have been elected as a director of the Company in accordance with the provisions of Section 7 hereof. (d) All Proceedings Satisfactory. All corporate and other proceedings ---------------------------- taken by the Investors prior to or at the Closing in connection with the transactions contemplated by this Agreement, and all documents and evidences incident thereto, shall be reasonably satisfactory in form and substance to the Company. (e) No Violation or Injunction. The consummation of the transactions -------------------------- contemplated by this Agreement shall not be in violation of any law or regulation, and shall not be subject to any injunction, stay or restraining order. SECTION 4. COVENANTS --------- The Company agrees for the benefit of the Investors that it shall comply, except as may be waived to in writing by two-thirds in interest of the holders of the Convertible 16 Preferred Stock (other than with respect to the right of the Redeeming Stockholders to nominate members of the Board of Directors), with the following covenants, provided that the covenants set forth in Section 4 (other than in Section 4.2) shall terminate at the earlier of (i) as of the closing of the Company's first Qualified Public Offering and (ii) such earlier date as may be agreed to in writing by two-thirds in interest of the holders of Convertible Preferred Stock. A "Qualified Public Offering" shall have the meaning provided in the Terms of Preferred Stock attached hereto as Exhibit C. --------- 4.1 Financial Statement and Budgetary Information; Inspection. So long as --------------------------------------------------------- the Investors hold an aggregate number of Convertible Preferred Shares and Conversion Shares equal to at least 20% of the number of Convertible Preferred Shares (subject to adjustments for stock splits, stock dividends and the like), the Investors shall have the rights, and the Company shall have the obligations, set forth in this Section 4.1. The Company will deliver to each of the Investors and any person acquiring Convertible Preferred Shares from an Investor which holds an aggregate number of shares of Convertible Preferred Stock and Conversion Shares equal to at least 5% of the number of Convertible Preferred Stock Shares (subject to adjustments for stock splits, stock dividends and the like), internally prepared unaudited summary monthly financial statements, quarterly financial statements for the first three fiscal quarters of the fiscal year and audited annual financial statements, as well as annual budgets and operating plans. The summary monthly and quarterly financial information, (in the case of quarterly financial information) set forth in comparative form to the corresponding budget and operating plan, will be provided within 30 days after the end of each month and 45 days after each of the first three fiscal quarters, respectively. The annual budget and operating plan will be presented at a Board of Directors' meeting at least one month prior to the end of the fiscal year of the Company preceding the year covered. An annual audit by an accounting firm of national recognition selected by the Board of Directors will be provided within 90 days after each fiscal year-end of the Company. The Company will provide annual financial information set forth in comparative form to the corresponding annual budget and operating plan within 90 days after each fiscal year-end of the Company. 4.2 Indemnification. For so long as any of the Convertible Preferred --------------- Shares remain outstanding, the Certificate of Incorporation or By-laws of the Company will at all times during which any nominee of any of the Investors serves as director of the Company provide for indemnification of the directors and limitations on the liability of the directors to the fullest extent permitted under applicable state law. 4.3 Board of Directors. As of the Closing, the Board of Directors of the ------------------ Company shall consist of up to six members (collectively the "Board of Directors" or the "Directors" and each individually a "Director") including Samuel P. Gerace, Jr., Ted. R. Dintersmith and W. Michael Humphreys. The Company shall cause meetings of its Board of Directors to be held at such times during each year as decided by the CEO or Board of Directors. The Company shall pay all reasonable out-of-pocket expenses 17 incurred by the Investors' Nominees in connection with attending meetings or other functions of the Company's Board of Directors or any committees thereof and shall pay the Investors' Nominees fees in an amount equal to any cash fees that are paid to the other non-management Directors of the Company. 4.4 Key Person Insurance. Within 120 days after the date hereof, the -------------------- Company will use commercially reasonable efforts to purchase and maintain in its or any subsidiary's name "key person" term life insurance policies of one million dollars ($1,000,000) each on the lives of each of the Founders, with the Company named as beneficiary. The Company hereby agrees that such policy shall not be assigned, borrowed against or pledged. 4.5 Stock Awards. The Company will establish a pool for stock options, ------------ stock grants or other equity participation such that there will be a total of 7,739,251 shares of Common Stock available to employees of the Company subject to increase with approval of each of the Founders and each of the Investors (the "Stock Option Pool"). All securities granted pursuant to or under the Stock Option Pool will vest over a four (4) year period. 4.6 Non-Disclosure and Non-Competition Agreements. On the date of hire of --------------------------------------------- any future employee or upon any future grant to an existing employee under the Plan, the Company and such employee will enter into (i) an Employee Confidential Information, Inventions and Writings Agreement substantially in the form of Exhibit I.1. hereto if such employee is a non- clerical employee (other than an - ----------- engineering or executive employee) or (ii) an Employee Confidential Information, Inventions and Writings and Non-Competition Agreement substantially in the form of Exhibit I.2. hereto if such employee is an engineering or executive employee, ----------- unless in each case such employee is already a party to such agreement. SECTION 5. RIGHTS TO PURCHASE ------------------ Notwithstanding anything herein to the contrary, the following provisions of this Section 5 shall terminate immediately prior to the closing of a Qualified Public Offering and shall not apply with respect to any Qualified Public Offering. 5.1 Right to Participate in Certain Sales of Additional Securities. With -------------------------------------------------------------- respect to the Investors, so long as the Investors continue to hold an aggregate number of Convertible Preferred Shares and Conversion Shares equal to at least 50% of the Convertible Preferred Shares (subject to adjustments for stock splits, stock dividends and the like), and with respect to the Redeeming Stockholders, so long as such Redeeming Stockholders continue to hold in the aggregate at least 50% of the Common Stock held at the date hereof (subject to adjustments for stock splits, stock dividends and the like) the Company agrees that it will not sell or issue any shares of capital stock of the Company, or other securities convertible into or exchangeable for capital stock of the Company, or options, warrants or rights carrying any rights to purchase capital stock of the Company 18 unless the Company first submits a written offer to each of the Investors and each Redeeming Stockholder identifying the terms of the proposed sale (including price, number or aggregate principal amount of securities and all other material terms) (the "Offer"), and offers to each such Investor and each Redeeming Stockholder the opportunity to purchase its Pro Rata Share (as hereinafter defined) of such securities (subject to increase for over-allotment if some Investors or Redeeming Stockholder do not fully exercise their rights) on terms and conditions, including price, not less favorable to the Investors and the Redeeming Stockholders than those on which the Company proposes to sell such securities to a third party or parties. For the purposes of this Agreement, each Investor's or Redeeming Stockholder's "Pro Rata Share" of such securities shall be based upon the ratio which (A) the number of shares of Common Stock (which shall include shares of Common Stock issuable upon exercise or conversion of securities then outstanding) owned by it or him, as the case may be, bears to (B) the total of all the issued and outstanding shares of Common Stock (which shall include shares of Common Stock issuable upon exercise or conversion of securities then outstanding). The Company's offer shall remain open and irrevocable for a period of 7 days, and Investors and Redeeming Stockholders who elect to purchase, by written notice to the Company, within such period shall have the first right to take up and purchase any shares or other securities which other Investors and Redeeming Stockholders do not elect to purchase, based on the relative holdings of the electing purchasers. The closing of any such Offer shall occur no sooner than 30 days after the delivery of such Offer. Any securities so offered which are not purchased pursuant to such offer may be sold by the Company but only on the terms and conditions set forth in the initial offer to the Investors and Redeeming Stockholders, at any time within 120 days following the termination of the above-referenced 30-day period but may not be sold to any other person or on terms and conditions, including price, that are more favorable to the purchaser than those set forth in such offer or after such 120-day period without renewed compliance with this Section 5.1. Notwithstanding the foregoing, the Company may (i) issue shares of Common Stock pursuant to the Warrant Agreements and pursuant to Warrants and stock options existing on the date hereof as set forth in Section 5.1 of the Disclosure Schedule; (ii) issue shares of Common Stock and options (and the Common Stock to be issued upon exercise thereof) included in the Stock Option Pool or otherwise approved by the Board of Directors of the Company; (iii) issue warrants to purchase up to 733,000 shares of Common Stock pursuant to warrants to be issued in connection with the placement by the Company of subordinated indebtedness and the shares of Common Stock issued upon exercise of such warrants; (iv) up to 100,000 shares of Convertible Preferred Stock to be issued in connection with the placement by the Company of subordinated indebtedness and shares of Common Stock issuable upon conversion thereof; and (v) issue Conversion Shares upon the conversion of the Convertible Preferred Shares, and the other provisions of this Section 5.1 shall not apply with respect to such issuances. 19 5.2 Right of First Refusal. In the event that any Participant proposes to ---------------------- Transfer (as defined below) all or any portion of its or his shares of capital stock of the Company or any security convertible into capital stock of the Company to any proposed Transferee (other than to a Permitted Transferee (as defined below)), such Participant may Transfer such shares only pursuant to and in accordance with the following provisions of this Section 5.2: (a) Transfer Notice. A Participant shall not make or suffer any --------------- Transfer of all or any of its or his shares of capital stock of the Company or any security convertible into capital stock of the Company, whether now owned or hereafter acquired, except in accordance with the terms of this Agreement, and any purported Transfer not made in compliance with this Agreement shall be void and of no force and effect. If any Participant, including any of its Transferees permitted pursuant to this Section 5.2, proposes to make or suffers any Transfer of all or any portion of its shares of capital stock of the Company or any security convertible into capital stock of the Company pursuant to a bona fide third party offer, such Participant shall so inform the Company by notice in writing (the "Transfer Notice") stating the number or amount of shares that are the subject of such proposed Transfer (the "Offered Securities"), the name and address of the proposed Transferee and all other terms and conditions of such proposed Transfer, including any consideration proposed to be received for the Offered Securities, the terms of any financing in relation to the Transfer, and, if the proposed Transfer is to be wholly or partly for consideration other than cash or an indebtedness of any person, the amount of the cash consideration, if any, and a description of all non-monetary consideration. By giving the Transfer Notice, the Participant shall be deemed to have granted to the Company an option to purchase the Offered Securities if such Transfer is pursuant to a bona fide third party offer, at the same consideration and on the same payment terms as are set forth in the Transfer Notice (except that any portion of the consideration set forth in the Transfer Notice which is not cash or indebtedness of the Transferee shall be payable in cash in an amount equivalent to the fair market value of such consideration). (b) Manner of Exercise. The Company shall give notice of exercise or ------------------ nonexercise to the Participant within 15 days following the receipt of a Transfer Notice given by such Participant pursuant to Section 5.2(a). The failure of the Company to submit any such notice within the applicable period shall constitute an election on its part not to purchase any of the Offered Securities to which the Transfer Notice pertained. (c) Requirement to Purchase All Offered Securities. Notwithstanding ---------------------------------------------- any other provision of this Section 5.2, in no event shall any Participant be required to sell any of the Offered Securities to the Company unless, within the period provided, the Participant has been notified that all the Offered Securities will be purchased by the Company. If the Company does not elect to purchase all the Offered Securities, then the 20 Company shall not have any right or obligation to purchase any of the Offered Securities. (d) Closing. The Closing (herein so called) of the purchase and sale ------- of shares of Common Stock that are being purchased and sold under this Section 5.2 shall take place at the Company's principal executive offices on the 10th day following the date of delivery of the notice of acceptance by the Company pursuant to Section 5.2(b) herein (or if such date is a Saturday, Sunday or legal holiday in the state where such offices are located, the first day thereafter that is not a Saturday, Sunday or legal holiday) at 10:00 a.m., local time. At the Closing, the parties shall take all action necessary to convey such shares of Common Stock to be Transferred (as herein defined) in accordance with this Agreement, free of all liens and encumbrances, all as reasonably determined by the Company. (e) Failure to Exercise. If the Company does not elect to purchase all ------------------- of the Offered Securities within the period provided, then all of such Offered Securities may be disposed of by the Participant to the prospective Transferee named in the Transfer Notice, for the price and on the terms and conditions set forth in the Transfer Notice, at any time within 120 days after the expiration of the period provided for in the notice of the Company to be delivered pursuant to Section 5.2(d) herein, provided that each Transferee shall, prior to the Transfer of the Offered Securities to such Transferee, execute and deliver to the Company a valid and binding agreement, satisfactory to the Company, to become a Participant subject to the provisions of this Section 5.2 on the same terms as the Participant from whom he acquired the Offered Securities. Each party hereto who becomes a Participant agrees to grant to the Company full access to all relevant records of such Participant to determine to its reasonable satisfaction the terms of any Transfer pursuant to this Section 5.2 to any Transferee named in the Transfer Notice. Any shares of Common Stock not so disposed of within such 120 day period shall remain subject to all of the provisions of this Agreement. (f) Definition of "Transfer". For purposes of this Section 5.2, ------------------------ "Transfer" means any direct or indirect offer, transfer, donation, sale, assignment, conveyance, encumbrance, mortgage, gift, pledge, hypothecation or other disposal or attempted disposal of all or any portion of a security or of any rights connected thereto or interests therein, whether voluntary or involuntary, and, including but not limited to, any Transfer by operation of law, by court order, by judicial process or by foreclosure, levy or attachment; "Transferred" means the accomplishment of a Transfer; and "Transferee" means the recipient of a Transfer. (g) Permitted Transferees. Notwithstanding the foregoing, a --------------------- Participant may Transfer all or any of its or his shares of Common Stock without complying with this Section 5.2; (i) in the case of Redeeming Stockholder by way of gift or distribution to his parents, spouse or domestic partner or to the siblings or lineal descendants or ancestors of such Redeeming Stockholder or his spouse or domestic partner, or to any 21 trust for the exclusive benefit of, or any entity whose beneficial owners are exclusively, any one or more of the foregoing; provided that any such Transferee shall agree in writing with the Company and the Investors as a condition to such Transfer, to be bound by the provisions of Sections 5.2, 5.5, 6 and 7.1 of this Agreement to the same extent as if such Transferee were the Redeeming Stockholder and in the case of such a Transfer by a Founder, by the provisions of Section 5.3, (ii) in the case of a Redeeming Stockholder by will or the laws of descent and distribution; provided that such shares of Common Stock shall thereafter remain subject to the provisions of Sections 5.2, 5.5, and 6 and 7.1 of this Agreement to the same extent they would be if held by the Redeeming Stockholder; (iii) in the case of any Participant, by any Transfer, disposition, assignment, sale or hypothecation of shares of Common Stock pursuant to a merger or consolidation of the Company with any other entity in which all of the shareholders of the Company are participating on ratable basis (based upon the number and class of shares held); or (iv) in the case of any Participant, to any entity or entities the principal business of which is investing, reinvesting or trading in securities or to a series of accounts or entities with respect to which the decision to purchase has been made by one or more entities registered under the Investment Advisors Act of 1940 or which would have been required to be so registered but for an exemption thereunder, (any person who acquires shares of Common Stock in a Transfer permitted by this Section 5(i), (ii), (iii) or (iv) is referred to as a "Permitted Transferee") who agrees to be bound by the provisions of this Section 5.2, Section 7.1, or (v) to the Company pursuant to Section 5.4. 5.3 Co-Sale Rights. -------------- (a) No Founder shall sell, assign, transfer or otherwise dispose of any or all of the Shares owned by him to a third party (other than a Founder) unless Founder shall first give written notice (the "Notice of Proposed Transfer") of such sale, assignment, transfer or other disposition (the "Sale Transaction") to each of the Investors; provided, however, that the foregoing shall not apply to (i) any transfer to a Permitted Transferee, (ii) any transfer to the Company pursuant to Section 5.4 or (iii) any transfer to the Company pursuant to Section 5.2 or to any other stockholder of the Company pursuant to any contractual rights of first refusal similar to those rights in favor of the Company in Section 5.2. The Notice of Proposed Transfer shall describe in reasonable detail the proposed Sale Transaction including without limitation, the identity of the proposed transferee (the "Purchaser") if known to the Founder, the number of shares of Common Stock to be sold, assigned, transferred or otherwise disposed, the nature of such Sale Transaction and the consideration to be paid and shall offer (the "Offer") to the Investors the opportunity to participate pro rata in such transaction. Accordingly each Investor shall have the right of co-sale to require, as a condition to such sale or disposition, that the Purchaser purchase from such Investor at the same price per share and on the same terms and conditions as involved in such sale or disposition by the Founder the same percentage of Convertible Preferred Shares and Conversion Shares owned (and deemed to be owned hereunder) by such Investor as such proposed sale or 22 disposition of the shares of Common Stock represents with respect to all the shares of Common Stock then owned by the Founder. (b) Each Investor wishing to participate in any such sale or disposition shall notify the Company and the Founder wishing to dispose of his shares of Common Stock of such intention as soon as practicable after receipt of the Offer contained in the Notice of Proposed Transfer and in any event within 30 days of receipt of said Offer. In the event that an Investor elects to participate in such sale or disposition, such Investor shall individually communicate such election to the Company and the Founder wishing to dispose of his Shares of Common Stock, which communication shall be irrevocable and delivered by hand or mailed to the Company and the Founder at the address set forth in, or furnished in accordance with, Section 8.8 hereof. In the event that none of the Investors exercise their right of participation in accordance with this Section 5.3, the Founder may sell his shares of Common Stock on the terms set forth in the Notice of Proposed Transfer during the 120 day period commencing 30 days after the date on which the Notice of Proposed transfer was given by such Founder. If such shares of Common Stock are not sold within such 120 day period, the Founder shall send a Notice of Proposed Transfer to the Investors in accordance with this Section 5.3 with respect to any proposed transfer whether to the same or a different Purchaser. 5.4 Company Repurchase Option. ------------------------- (a) Voluntary Termination by a Founder. Each Founder agrees and ---------------------------------- covenants with the Company that if, prior to August 28, 1999 there has been a voluntary termination by such Founder of his employment with the Company other than by death or disability or for "Good Reason" as defined in such Founder's Employment Agreement with the Company dated as of August 27, 1998, then the Company may elect, upon written notice to such Founder given within 30 days following such event setting forth, a date (the "Option Exercise Date") no more than thirty days following the date of such notice, to purchase from the terminating Founder 250,000 shares of Common Stock (as adjusted for stock splits, stock dividends and the like) with respect to each such Founder for an aggregate purchase price of $ 1.00. 5.5 Legends. Each Founder agrees that he will furnish to the Company ------- certificates representing all shares of Common Stock owned by him and agrees that the Company will imprint on such certificates the following legend: ANY DESCRIPTION OF ANY INTEREST IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A CERTAIN AGREEMENT BETWEEN THE RECORDHOLDER HEREOF AND THE CORPORATION, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF THIS CERTIFICATE WITHIN 5 BUSINESS DAYS OF RECEIPT BY THE CORPORATION OF A WRITTEN REQUEST THEREFOR. 23 Each Founder shall be entitled to receive from the Company, upon request and without expense, new certificates not bearing the legend set forth in this Section 5.5 at such time as the provisions of such legend are no longer applicable. SECTION 6. REGISTRATION RIGHTS ------------------- 6.1 Optional Registrations. If at any time or times after the date hereof, ---------------------- the Company shall seek to register any shares of its capital stock or securities convertible into capital stock under the Securities Act to be sold for cash (whether in connection with a public offering of securities by the Company (a "primary offering"), a public offering of securities by shareholders of the Company (a "secondary offering"), or both), the Company will promptly give written notice thereof to each Participant (the Participants are referred to in this Section 6 as the "Piggy Back Holders") holding Registrable Securities as hereinafter defined in Section 6.3 below. If within 30 days after their receipt of such notice one or more Piggy Back Holders request the inclusion of some or all of the Registrable Securities owned by them in such registration, the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which such Piggy Back Holders may request in a writing delivered to the Company within 30 days after their receipt of the notice given by the Company. In the case of the registration of shares of capital stock by the Company in connection with any underwritten public offering (or in connection with a registration of shares pursuant to Section 6.2(a)), if the Company is advised in writing in good faith by the underwriter(s) that the amount to be sold by holders other than the Company (or by holders requesting registration pursuant to Section 6.2(a)) is greater than the amount which can be offered without adversely affecting the offering, the Company shall not be required to register Registrable Securities of the Piggy Back Holders in excess of the amount, if any, of shares of the capital stock which the principal underwriter of such underwritten offering shall reasonably and in good faith agree to include in such offering in excess of any amount to be registered for the Company, or any amount to be registered for an investor with respect to which a demand has been made pursuant to 6.2(a). If any limitation of the number of shares of Registrable Securities to be registered by the Piggy Back Holders is required pursuant to this Section 6.1, the Company may reduce the amount offered for the accounts of such holders (including Piggy Back Holders of Registrable Securities) pursuant to a contractual, incidental "piggy back" right to include such securities in a registration statement to a number deemed satisfactory by the principal underwriter provided that no reduction shall be made in the amount of Registrable Securities offered for the accounts of the Piggy Back Holders of Registrable Securities unless such reduction is imposed pro rata with respect to all securities whose holders have a contractual, incidental "piggy back" right to include such securities in the registration statement as to which inclusion has been requested pursuant to such right; provided, however, that there is first excluded from such registration statement - -------- ------- all shares of Common Stock sought to be included therein by any holder not having any such contractual, incidental registration rights. The provisions of this Section will not apply to a registration effected solely to implement (x) an employee benefit plan, or (y) a 24 transaction to which Rule 145 or any other similar rule of the Securities and Exchange Commission (the "SEC"or the "Commission") under the Securities Act is applicable. 6.2 Required Registrations. ---------------------- (a) Demand Registration on Form S-1. At any time after the earlier of ------------------------------- June 30, 2001 or 180 days after the effective date of the Company's first registration statement under the Securities Act for an offering with proceeds of at least two million, five hundred thousand dollars ($2,500,000), an Investor, or Investors (the Investors are referred to in this Section 6 as "Holders") holding at least 33% of the Registrable Securities held by the Holders may request that the Company register under the Securities Act not less than 33% of the Registrable Securities held by the Holders on Form S-1 (or any successor form). (b) Form S-3. After the first public offering of its securities -------- registered under the Securities Act, the Company shall use its reasonable best efforts to qualify and remain qualified to register securities on Form S-3 (or any successor form) under the Securities Act. Any Holder or Holders shall have the right to request registrations for an offering with proceeds of at least one million dollars ($1,000,000) on Form S-3 (or any successor form) for the Registrable Securities held by such requesting Holder, including registrations for the sale of such Registrable Securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act (a "Shelf Registration Statement"). Such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by such Holder or Holders. (c) Registration Requirements. Following a request pursuant to Section ------------------------- 6.2(a) or (b) above, the Company will notify all of the Piggy Back Holder and Holders who would be entitled to notice of a proposed registration under Section 6.1 above of its receipt of such notification from such Holder or Holders. Upon the written request of any such Piggy Back Holder or Holder delivered to the Company within 20 days after receipt from the Company of such notification, the Company will either (i) elect to make a primary offering, in which case the rights of such Piggy Back Holders shall be as set forth in Section 6.1 above (in which case the registration shall not count as one of the Holders' permitted demand registrations under Section 6.2(e)), or (ii) use its reasonable best efforts to cause registration of such of the Registrable Securities as may be requested by any Holders. (d) The Company may require each Piggy Back Holder and Holder of Registrable Securities to be sold under such registration statement, at the Company's expense, to furnish the Company with such information and undertakings as it may reasonably request regarding such Holder and the distribution of such securities as the Company may from time to time reasonably request in writing. If any Registrable Securities are to be distributed by means of any underwriting, all Holders and Piggy 25 Back Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriters for such underwriting. (e) Number of Required Registrations. The Company will not be -------------------------------- obligated pursuant to demands by Holders under this Section 6.2 to effect more than two registration statements on Forms S-1, S-2, or S-3. (f) Postponement. The Company may postpone the filing of any ------------ registration statement required hereunder for a reasonable period of time, not to exceed 120 days during any twelve-month period (not more than 60 of such days to be consecutive), if the Company has been advised by legal counsel that such filing would require a special audit or the disclosure of a material impending transaction or other matter and the Company's Board of Directors determines reasonably and in good faith that such disclosure would have a Material Adverse Effect. The Company shall not be required to cause a registration statement requested pursuant to this Section 6.2 to become effective prior to 180 days following the effective date of a registration statement initiated by the Company, if the request for registration has been received by the Company subsequent to the giving of written notice by the Company, made in good faith, to the Holders that the Company is commencing to prepare a Company-initiated registration statement (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 or any other similar rule of the SEC under the Securities Act is applicable); provided, however, that the Company shall use its reasonable best efforts to achieve such effectiveness promptly. (g) Suspension. In the case of a registration for the sale of ---------- Registrable Securities pursuant to a Shelf Registration Statement, upon receipt of any notice (a "Suspension Notice") from the Company of the happening of any event which makes any statement made in the Shelf Registration Statement or related prospectus untrue or which requires the making of any changes in such Shelf Registration Statement or prospectus so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading, each holder of Registrable Securities registered under such Shelf Registration Statement shall forthwith discontinue disposition of such Registrable Securities pursuant to such Shelf Registration Statement until such holder's receipt of the copies of the supplemented or amended prospectus or until it is advised in writing (the "Advice") by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus; provided, however, that the Company shall not -------- ------- give a Suspension Notice until after the Shelf Registration Statement has been declared effective. In the event that the Company shall give any Suspension Notice, the Company shall use its best efforts and take such actions as are reasonably necessary to render the Advice and end the Suspension Period (as hereinafter defined) as promptly as practicable. For purposes of 26 this Section 6.2, the "Suspension Period" shall be defined as the period from the date on which any holder receives a Suspension Notice to the date on which any holder receives either the Advice or copies of the supplemented or amended prospectus. (h) Each Participant agrees, if so reasonably required by the managing underwriter in an initial public offering of the Company's Common Stock or in a registration pursuant to this Section 6, not to effect any public sale or distribution of Registrable Securities or sales of such Registrable Securities pursuant to Rule 144 or Rule 144A under the Securities Act, during the seven (7) days prior to and the 180 days after any firm commitment underwritten registration in an initial public offering or a registration pursuant to this Section 6 has become effective (except as part of such underwritten registration) or, if the managing underwriter advises the Company that, in its opinion, no such public sale or distribution should be effected for a period of not more than 180 days or such shorter period as may be agreed to by such managing underwriter) after such underwritten registration and the Company gives notice to such effect to the Participants of such advice, each such Participant shall not effect any public sale or distribution of Registrable Securities or sales of such Registrable Securities pursuant to Rule 144 or Rule 144A under the Securities Act during such period after such underwritten registration, except as part of such underwritten registration, whether or not such Participant participates in such registration. 6.3 Registrable Securities. For the purposes of this Section 6, the term ---------------------- "Registrable Securities" shall mean (a) with respect to the Holders, the Conversion Shares and any shares of Common Stock issuable upon exercise of the Warrants, including any shares issued by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization; provided, however, that if a Holder owns -------- ------- Convertible Preferred Shares, the Holder may exercise its registration rights hereunder by converting the shares to be sold publicly into Common Stock as of the closing of the relevant offering and shall not be required to cause such Convertible Preferred Shares to be converted to Common Stock until and unless such Closing occurs, it being understood that the Company shall at the request of the relevant Holder effect the reconversion of Common Stock to Convertible Preferred Stock if such a conversion occurs notwithstanding the foregoing and a public offering does not close and (b) with respect to the Piggy Back Holders other than the Holders, shares of Common Stock held by them, including any shares issued by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization; and provided, however, that for purposes of clauses (a) and (b) -------- ------- any Common Stock that is sold in a registered sale pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 thereunder, or that may be sold without restriction as to volume or otherwise pursuant to Rule 144 under the Securities Act (as confirmed by an unqualified opinion of legal counsel to the Company), shall not be deemed Registrable Securities. 27 6.4 Further Obligations of the Company. Whenever the Company is required ---------------------------------- hereunder to register any Registrable Securities, it agrees that it shall also do the following: (a) Pay all expenses of such registrations and offerings (exclusive of underwriting discounts and commissions) and the reasonable fees and expenses of not more than one independent counsel for the Holders or Piggy Back Holders, as the case may be, satisfactory to the Holders or Piggy Back Holders, as the case may be, in connection with any registrations pursuant to Section 6.2, up to two registrations on Form S-1 or Form S-3 in the aggregate, provided that the Investors shall pay all such expenses in connection with any other demand registrations; provided, however, that the Company shall not be required to pay -------- ------- more than $10,000 in fees and expenses of counsel to the Holders or Piggy Back Holders in connection with any single registration pursuant to this Section 6. (b) Use its reasonable best efforts (with due regard to management of the ongoing business of the Company and the allocation of managerial resources) diligently to prepare and file with the SEC a registration statement and such amendments and supplements to said registration statement and the prospectus used in connection therewith as may be necessary to keep said registration statement effective for at least 120 days or such earlier date as the distribution of the Securities covered thereby has been completed, and to comply with the provisions of the Securities Act with respect to the sale of securities covered by said registration statement for the period necessary to complete the proposed public offering; (c) Furnish to each selling Holder such copies of each preliminary and final prospectus and such other documents as such Holder may reasonably request to facilitate the public offering of its Registrable Securities; (d) Enter into any reasonable underwriting agreement required by the proposed underwriter (which underwriter shall be selected by the selling Holders with the consent of the Company in connection with any registration requested pursuant to Section 6.2(b)), if any, in such form and containing such terms as are customary; (e) Use its reasonable best efforts (with due regard to management of the ongoing business of the Company and the allocation of managerial resources) to register or qualify the securities covered by said registration statement under the securities or "blue sky" laws of such jurisdictions as any selling Holder may reasonably request, provided that the Company shall not be required to register or qualify the securities in any jurisdictions which require it to qualify to do business therein; (f) Immediately notify each selling Holder, at any time when a prospectus relating to his Registrable Securities is required to be delivered under the Securities Act, of the happening of any event as a result of which such prospectus 28 contains an untrue statement of a material fact or omits any material fact necessary to make the statements therein not misleading, and, at the request of any such selling Holder, prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (g) Cause all such Registrable Securities to be listed on each securities exchange or quotation system on which similar securities issued by the Company are then listed or quoted; (h) Otherwise use its best efforts to comply with the securities laws of the United States and other applicable jurisdictions and all applicable rules and regulations of the SEC and comparable governmental agencies in other applicable jurisdictions and make generally available to its holders, in each case as soon as practicable, but not later than 45 days after the close of the period covered thereby, an earnings statement of the Company which will satisfy the provisions of Section 11(a) of the Securities Act; (i) Use its reasonable efforts to obtain and furnish to each selling Holder, immediately prior to the effectiveness of the registration statement (and, in the case of an underwritten offering, at the time of delivery of any Registrable Securities sold pursuant thereto), a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the Holders of a majority of the Registrable Securities being sold may reasonably request; and (j) Otherwise cooperate with the underwriter or underwriters, the Commission and other regulatory agencies and take all actions and execute and deliver or cause to be executed and delivered all documents necessary to effect the registration of any Registrable Securities under this Section 6. 6.5 Indemnification: Contribution. ----------------------------- (a) Incident to any registration statement referred to in this Section 6, the Company (in such capacity, an "Indemnifying Party") will indemnify and hold harmless each underwriter, each Holder and, each Piggy Back Holder who offers or sells any such Registrable Securities in connection with such registration statement (including its partners (including partners of partners and stockholders of any such partners), and directors, officers, employees and agents of any of them (a "Selling Holder"), and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934 (the "Exchange Act") (a "Controlling Person")) (each in such capacity, an "Indemnified Party"), from and against any and all losses, claims, damages, expenses and liabilities, joint or several (including any 29 reasonable investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, as the same are incurred, to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities arise out of or are based on (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement (including any related preliminary or definitive prospectus, or any amendment or supplement to such registration statement or prospectus), (ii) any omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading, or (iii) any violation by the Company of the Securities Act, any state securities or "blue sky" laws or any rule or regulation thereunder in connection with such registration; provided, however, that (i) the Company shall -------- ------- not be liable in respect of any settlement effected without its consent (which consent shall not be unreasonably withheld) and (ii) the Company will not be liable to the extent that such loss, claim, damage, expense or liability arises from and is based on (i) an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information furnished in writing to the Company by such underwriter, Selling Holder or Controlling Person expressly for use in such registration statement, or (ii) such Selling Holder or Controlling Person being subject to an obligation to deliver a definitive prospectus and fails to do so. With respect to such untrue statement or omission or alleged untrue statement or omission in the information furnished in writing to the Company by such Selling Holder expressly for use in such registration statement, such Selling Holder (each such Selling Holder in such capacity, an "Indemnifying Party") will indemnify and hold harmless each underwriter, the Company (including its directors, officers, employees and agents), each other Selling Holder (including its partners (including partners of partners and stockholders of such partners) and directors, officers, employees and agents of any of them, and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) (each in such capacity, an "Indemnifying Party"), from and against any and all losses, claims, damages, expenses and liabilities, joint or several, to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise to the same extent provided in the immediately preceding sentence. In no event, however, shall the liability of a Selling Holder for indemnification under this Section 6.5(a) exceed the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement which is being sold by such Selling Holder or (ii) the proceeds received by such Selling Holder from its sale of Registrable Securities under such registration statement. (b) If the indemnification provided for in Section 6.5(a) above for any reason is held by a court of competent jurisdiction to be unavailable to an Indemnified Party in respect of any losses, claims, damages, expenses or liabilities referred to therein, then each indemnifying party under this Section 6.5, in lieu of indemnifying such 30 Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the other Selling Holders and the underwriters from the offering of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the other Selling Holders and the underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, the Selling Holders and the underwriters shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company and the Selling Holders and the underwriting discount received by the underwriters, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the Registrable Securities. The relative fault of the Company, the Selling Holders and the underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Selling Holders or the underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 6.5(b) were determined by pro rata or per capita allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. In no event, however, shall a Selling Holder be required to contribute any amount under this Section 6.5(b) in excess of the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total Registrable Securities sold under such registration statement which are being sold by such Selling Holder or (ii) the proceeds received by such Selling Holder from its sale of Registrable Securities under such registration statement. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation. (c) The amount paid by an Indemnifying Party or payable to an Indemnified Party as a result of the losses, claims, damages and liabilities referred to in this Section 6 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim, payable as the same are incurred. The indemnification and contribution provided for in this Section 6.5 will remain in full force and effect regardless of any investigation made by or on behalf of 31 the indemnified parties or any officer, director, employee, agent or controlling person of the Indemnified Parties. (d) Promptly after receipt by an Indemnified Party of notice of the commencement of any action or proceeding involving a claim referred to in this Section 6.5, such Indemnified Party will, if a claim in respect thereof is to be made against an Indemnifying Party, give written notice to the latter of the commencement of such action, provided, however, that the failure of any -------- ------- Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligation under the preceding subdivisions of this Section 6.5, except to the extent that the Indemnifying Party is actually prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, provided the Indemnifying Party provides the Indemnified Party reasonable assurances that the Indemnifying Party has the ability to satisfy any judgment which may be entered against the Indemnified Party, and unless in such Indemnified Party's reasonable judgment a conflict of interest between such Indemnified Party and Indemnifying Party may exist in respect of such action; the Indemnifying Party shall be entitled to participate in and to assume the defense thereof, jointly with any other Indemnifying Party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No Indemnifying Party shall consent to any settlement without the consent of the Indemnified Party 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 that could have been brought against it in such action. 6.6 Rule 144 and Rule 144A Requirements. In the event that the Company ----------------------------------- becomes subject to Section 13 or Section 15(d) of the Exchange Act, the Company shall use its best efforts to take all action as may be required as a condition to the availability of Rule 144 or Rule 144A under the Securities Act (or any successor or similar exemptive rules hereafter in effect). The Company shall furnish to any Holder, within 15 days of a written request, a written statement executed by the Company as to the steps it has taken to comply with the current public information requirement of Rule 144 or Rule 144A or such successor rules. 6.7 Transfer of Registration Rights. The registration rights and related ------------------------------- obligations under this Section 6 of the Holders and Piggy Back Holders with respect to their Registrable Securities may be assigned in connection with any transaction or series of related transactions involving the Transfer to one or more transferees of at least 500,000 shares of capital stock of the Company, other than pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 thereunder (subject to adjustments for stock splits, stock dividends and the like and aggregating all 32 contemporaneous transfers by Holders and Piggy Back Holder), and upon any such transfer such transferee shall be deemed to be included within the definition of a "Holder" in the case of a transferee of any Participant or a transferee thereof and "Piggy Back Holder" in the case of any Participant or transferee thereof for purposes of this Section 6 with the rights set forth herein, subject to such transferee agreeing to be bound by the provisions hereof. The relevant Holder or Piggy Back Holder as the case may be, shall notify the Company at the time of such transfer. SECTION 7. ELECTION OF DIRECTORS --------------------- 7.1 Board Composition. From the date hereof until the earliest of (i) the ----------------- closing of a Qualified Public Offering, (ii) the date on which no shares of Convertible Preferred Stock are outstanding, (iii) the date which is ten (10) years after the date hereof, (iv) the date on which the Investors cease to own in the aggregate at least 1,050,000 Convertible Preferred Shares and/or Conversion Shares (subject to adjustment for stock splits, stock dividends and the like) as to the Investors' rights hereunder or (v) until the date on which the Redeeming Stockholders cease to own in the aggregate at least 1,050,000 shares of Common Stock as to the rights of the Redeeming Stockholders hereunder, each Investor and each Redeeming Stockholder agree to vote his or her shares of the Company's capital stock having voting power (and any other shares over which it exercises voting control) and to take such other actions as are necessary so as to cause the Board of Directors of the Company to include and consist of (i) the CEO or any successor chief executive officer, (ii) one nominee selected by Matrix Partners, (iii) one nominee selected by Charles River Ventures, (iv) Samuel P. Gerace, Jr. or his successor as selected by agreement among Redeeming Stockholders (or their successors in interest), (v) two members unaffiliated with the Company, with relevant business experience, and from outside the Company's general area of business (one nominated by the Redeeming Stockholders and one nominated by the Company's management team, both of who are reasonably acceptable to the Investors) and (vi) one nominee selected by Highland Capital Partners so long as Highland Capital Partners or its affiliates own at least 507,019 shares of Common Stock (or securities of the Company convertible into such number of shares of Common Stock) (subject to adjustment for stock splits, stock dividends and the like). Further, each Investor and Redeeming Stockholder agrees to vote all shares of the Company's capital stock having voting power (and any other shares over which it exercises voting control) in such manner as shall be necessary or appropriate to ensure that any vacancy on the Board of Directors of the Company with respect to the directors subject to nomination as provided herein shall be filled in accordance with the provisions of this Section 7. No director may be removed from the Board of Directors except by the entity or group which nominated such Director. SECTION 8. GENERAL ------- 8.1 Release from Guarantees. After the Closing, the Company shall use its ----------------------- reasonable best efforts to have the persons listed on Schedule 8.1 released from the 33 personal guarantees specified on Schedule 8.1 of indebtedness of the Company. In the event that the Company cannot obtain a release for any such guarantee within the 30 day period following the Closing, the Company shall pay off or otherwise refinance or retire the indebtedness related to such guarantee within 30 days following the expiration of such 30 day period. 8.2 Compliance with Registration Requirements of the Securities Act. The --------------------------------------------------------------- Investors agree not to transfer, offer, sell or otherwise dispose of any of the Convertible Preferred Stock, the Conversion Shares, the Warrants, and the shares of Common Stock issuable upon exercise of the Warrants held by them, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act in compliance with applicable state securities laws. In addition, if the Investors transfer any of the Convertible Preferred Stock, the Conversion Shares, the Warrants, or the shares of Common Stock issuable upon exercise of the Warrants in an exempt transaction, the Investors agree to require, as a condition to such transfer, that such transferee agree, in writing, to be bound to this Section 8.1 as if such transferee were the transferring Investor. 8.3 Amendments. Waivers and Consents. For the purposes of this Agreement -------------------------------- and all agreements executed pursuant hereto, no course of dealing between or among any of the parties hereto and no delay on the part of any party hereto in exercising any rights hereunder or thereunder shall operate as a waiver of the rights hereof and thereof. No provision hereof may be waived otherwise than by a written instrument signed by the party or parties so waiving such covenant or other provision. No amendment to this Agreement may be made without the written consent of the Company and a majority in interest of the holders of the then outstanding shares of Convertible Preferred Stock; provided that no provision binding upon any Redeeming Stockholder (or his or its transferee) shall be amended without the consent of such Redeeming Stockholder (or such transferee). Any actions required to be taken or consents, approvals, votes or waivers required or contemplated to be given by the Investors shall require a vote of two-thirds in interest of the holders of the then outstanding shares of Convertible Preferred Stock and shall bind all parties as applicable. 8.4 Survival of Representations: Warranties and Covenants: Assignability -------------------------------------------------------------------- of Rights. - --------- (a) All covenants, agreements, representations and warranties of the Company, each of the Founders and each of the Redeeming Stockholders and the Investors made herein and in the schedules hereto (i) are material, shall be deemed to have been relied upon by the party or parties to whom they are made and shall subject to Sections 8.4(b), 8.4(c), 8.4(d) and 8.4(e) survive the Closing regardless of any investigation or knowledge on the part of such party or its representatives and (ii) shall bind the parties' successors and assigns (including without limitation any successor to 34 the Company by way of acquisition, merger or otherwise but, except as otherwise expressly provided in this agreement, excluding any transferee of shares of capital stock), whether so expressed or not, and, except as otherwise provided in this Agreement and (iii) in the case of such covenants and agreements shall inure to the benefit of the parties' successors and assigns and to their transferees of Securities, whether so expressed or not, subject to the provisions of Sections 5.2 and 6.7; (b) No claim may be made or suit instituted in respect of (i) any breach of any representation or warranty set forth in Section 2 (other than Sections 2.3, 2.4(a), 2.12(a), 2.12(b)) after February 28, 1999, (ii) any breach of any representation or warranty set forth in Section 2.12(a) and 2.12(b) after August 28, 1999 , and (iii) any breach of any representation or warranty set forth in Section 2.3 or 2.4(a) after the initial public offering of the Common Stock or the sale of the Company or August 28, 2003. (c) Neither the Company nor any Redeeming Stockholder shall have any liability to any Investors with respect to a breach of any representation or warranty set forth in Section 2 until the cumulative total of all losses incurred for breaches of representations and warranties of Section 2 by the Investors exceed $50,000, whereupon the Investors shall be entitled to recovery only to the extent such losses exceed $50,000. (d) The aggregate liability of any Redeeming Stockholder for breaches of representations and warranties set forth in Sections 2.3, 2.4(a), 2.12(a) and 2.12(b) shall not exceed the proceeds received by such Redeeming Stockholder from the payment of its or his Redemption Note (less, all other amounts paid in respect of breaches of representations and warranties of other provisions of Section 2) and shall be pro rata (based on the respective amounts of proceeds received from the payment of its or his Redemption Notes). The aggregate liability of any Redeeming Stockholder for breaches of representations and warranties set forth in Section 2 (other than Sections 2.3, 2.4(a), 2.12(a) and 2.12(b)) shall not exceed 20% of the proceeds received by such Redeeming Stockholder pursuant to its or his Redemption Note and shall be pro rata (based on the respective amounts of proceeds received from the payment of its or his Redemption Notes). The Investors sole and exclusive remedy with respect to any and all claims relating to breaches of representations and warranties shall be pursuant to Section 8.4. In furtherance of the foregoing, the Investors hereby waives to the fullest extent permitted under applicable law, and agrees not to assert in any action or proceeding of any kind, any and all rights, claims and causes of action it may now or hereafter have against any Redeeming Stockholder for breaches of representations and warranties set forth in Section 2 other than claims for asserted as permitted by and in accordance with the provisions set forth in this Section 8.4 (including, without limitation, any such rights, claims or causes of action arising under or based upon common law); provided however, that nothing herein shall limit any right the Investors may have with respect to claims based on fraud. 35 8.5 Legend on Securities. The Company and the Investors acknowledge and -------------------- agree that the following legend shall be typed on each certificate evidencing any of the securities issued hereunder held at any time by an Investor: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A STOCK PURCHASE AND SHAREHOLDERS AGREEMENT DATED AS OF AUGUST 28, 1998. A COMPLETE AND CORRECT COPY OF THIS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE. 8.6 Governing Law. This Agreement shall be deemed to be a contract made ------------- under, and shall be construed in accordance with, the laws of The Commonwealth of Massachusetts, without giving effect to conflict of laws principles thereof. 8.7 Section Headings and Gender. The descriptive headings in this --------------------------- Agreement have been inserted for convenience only and shall not be deemed to limit or otherwise affect the construction of any provision thereof or hereof. The use in this Agreement of the masculine pronoun in reference to a party hereto shall be deemed to include the feminine or neuter, and vice versa, as the context may require. 8.8 Counterparts. This Agreement may be executed simultaneously in any ------------ number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute but one and the same document. 8.9 Notices and Demands. Any notice or demand which is required or ------------------- provided to be given under this Agreement shall be deemed to have been sufficiently given and received for all purposes when delivered by hand, telecopy, telex or other method of facsimile, or five days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or two days after being sent by overnight delivery providing receipt of delivery, to the following addresses: 36 (i) If to the Company, to: Freedom of Information, Inc. 124 Mt. Auburn Street Suite 200N Cambridge, MA 02138 with a copy to: Ropes & Gray One International Place Boston, MA 02110 Attention: Ann L. Milner, Esq. (ii) If to the Founders: Thomas A. Gerace 248 Franklin Street Unit 1 Cambridge, MA 02139 Samuel P. Gerace, Jr. 210 Grant Street Suite 200 Pittsburgh, PA 15219-2105 (iii) If to an Investor at its mailing address as shown on Exhibit B hereto --------- with a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, MA 02109 Attention: Richard E. Floor, Esquire Facsimile:(617) 570-8150 or to such other address as may have been furnished in the same manner by any party to the others. 8.10 Remedies; Severability. It is specifically understood and agreed that ---------------------- any breach of the provisions of this Agreement by any person subject hereto will result in irreparable injury to the other parties hereto, that the remedy at law alone will be an inadequate remedy for such breach, and that, in addition to any other remedies which they may have, such other parties may enforce their respective rights by actions for 37 specific performance (to the extent permitted by law). The Company may refuse to recognize any unauthorized transferee as one of its shareholders for any purpose, including, without limitation, for purposes of dividend and voting rights, until the relevant party or parties have complied with all applicable provisions of this Agreement. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement. 8.11 Integration. This Agreement, including the exhibits, documents and ----------- instruments referred to herein or therein, constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, including, without limitation, the letter of intent between the parties hereto in respect of the transactions contemplated herein. [Remainder of page intentionally left blank] 38 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. COMPANY: ------- FREEDOM OF INFORMATION, INC. By: /s/ Thomas A. Gerace ---------------------------- Name: Thomas A. Gerace Title: President FOUNDERS: -------- /s/ Samuel P. Gerace, Jr. ------------------------- Samuel P. Gerace, Jr. /s/ Thomas A. Gerace ------------------------- Thomas A. Gerace REDEEMING STOCKHOLDERS /s/ Samuel P. Gerace, Sr. ------------------------- Samuel P. Gerace, Sr. /s/ Paul F. Jacobson -------------------- Paul F. Jacobson /s/ Josh M. Holden ------------------ Josh M. Holden /s/ Kevin Ingram ---------------- Kevin Ingram /s/ Thomas J. Paul ----------------------- Thomas J. Paul THE GERACE FAMILY LIMITED PARTNERSHIP By: /s/ Samuel P. Gerace, Sr. ------------------------- a General Partner Name: Samuel P. Gerace, Sr. INVESTORS: --------- MATRIX PARTNERS V, L.P. By: Matrix V Management Co., L.L.C., its General Partner By: /s/ W. Michael Humphreys ------------------------ W. Michael Humphreys Managing Member CHARLES RIVER PARTNERSHIP VIII, A LIMITED PARTNERSHIP By: Charles River VIII GP Limited Partnership, its General Partner By: /s/ Ted R. Dintersmith ----------------------- Ted R. Dintersmith General Partner CHARLES RIVER VIII-A LLC By: Charles River Friends VII, Inc., its Manager By: /s/ Ted R. Dintersmith ---------------------- Ted R. Dintersmith Vice President /s/ Gordon B. Hoffstein ----------------------- Gordon B. Hoffstein EX-10.3 6 FORM OF WARRANT Exhibit 10.3 THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE STOCK PURCHASE AND SHAREHOLDERS AGREEMENT REFERRED TO HEREIN. WITHOUT LIMITATION OF THE FOREGOING, THE WARRANT REPRESENTED BY THIS CERTIFICATE, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION, OR AN EXEMPTION FROM REGISTRATION, UNDER SUCH ACTS. No. 1 WARRANT CERTIFICATE ------------------- THIS WARRANT CERTIFICATE (the "Warrant Certificate"), dated as of August 28, 1998, certifies that for value received Matrix Partners V, L.P. or its assigns (the "Holder") is the owner of a Warrant to purchase 1,650,000 shares of the Common Stock, par value $.01 per share (the "Common Stock"), of Freedom of Information, Inc., a Delaware corporation (the "Company"). W I T N E S S E T H: ------------------- WHEREAS, pursuant to a Stock Purchase and Shareholders Agreement, dated as of August 28, 1998, by and between the Company, the Holder and certain other parties (the "Investment Agreement"), the Holder has purchased 5,000,000 shares of the Company's Series A Convertible Preferred Participating Stock, $.01 par value per share (the "Convertible Preferred Stock"); and WHEREAS, in consideration of the activities of the Holder in connection with the issuance of the above-referenced Convertible Preferred Stock and pursuant to the Investment Agreement, the Company has authorized the issuance to the Holder of the warrant (the "Warrant") of the Company represented by this Warrant Certificate, which Warrant entitles the Holder to purchase, upon the terms and conditions hereinafter set forth, shares of Common Stock. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby certify as follows: 1. Grant of Warrant. This Warrant Certificate entitles the Holder to ---------------- purchase up to 1,650,000 shares of Common Stock at a price per share equal to the Exercise Price per share (as defined in Section 2(a) hereof). 2. Exercise of Warrant; Exercise Price. ----------------------------------- (a) Exercise Price. This Warrant Certificate shall entitle the -------------- Holder, subject to the provisions of Sections 2 and 3 herein, to purchase from the Company the number of shares of Common Stock provided for in Section 1, at the stated purchase price of One Dollar and Fifty Cents ($1.50) per share (the "Exercise Price"), which shall be payable in full in cash at the time of exercise of this Warrant Certificate. (b) Right to Exercise the Warrant. This Warrant Certificate may be ----------------------------- exercised in full or in part, at any time during the period from the date hereof through the date which is ten (10) years after the date hereof (the "Exercise Period"). (c) Method of Exercise; Payment. The Holder may exercise this Warrant --------------------------- Certificate by executing the Form of Election attached hereto as Exhibit A and delivering it to the Company and tendering the requisite aggregate Exercise Price for the number of shares of Common Stock subject to this Warrant Certificate to the Company on any business day during normal business hours (the date of receipt of such Form of Election and aggregate Exercise Price by the Company is hereinafter referred to as the "Exercise Date") provided, that in lieu of tendering the requisite aggregate Exercise Price in cash, the Holder may elect to exercise this Warrant Certificate on a net basis whereupon (i) the number of shares of Common Stock issued upon such exercise shall be reduced by that number of shares which have an aggregate fair market value equal to the requisite aggregate Exercise Price and (ii) the Exercise Price shall be deemed to have been paid and satisfied by the tender of such shares to the Company. In addition, the Holder may pay the Exercise Price of the Warrant by surrendering to the Company shares of the Company's Convertible Preferred Stock having an aggregate Fair Market Value (as hereinafter defined) equal to the Exercise Price of the Warrant being exercised, or if the Company has effected an underwritten public offering of its Common Stock, the Holder may pay the Exercise Price of the Warrant by surrendering to the Company shares of the Company's Common Stock having an aggregate fair market value (based on the Current Market Price per share (as defined in Section 2(e) hereinafter)) equal to the Exercise Price of the Warrant being exercised. The "Fair Market Value" per share of the Convertible Preferred Stock shall be determined on an as converted basis which shall be equal to the higher of (i) the Current Market Price (as defined in Section 2(e) hereinafter) of the Common Stock and (ii) the conversion value of one dollar ($1.00) per share. (d) Issuance of Shares of Common Stock. As soon as practicable after ---------------------------------- the Exercise Date the Company shall (provided that it has received the Form of Election duly executed, accompanied by payment of the Exercise Price pursuant to Section 2(a) hereof for each of the shares of Common Stock to be purchased) promptly cause certificates for the number of shares of Common Stock to be issued in respect of this Warrant Certificate to be delivered to or upon the order of the Holder, registered in such name as may be designated by such holder; provided that if the Common Stock is to be registered in the name of any entity or person other than the Holder, the Company may require evidence of compliance by the Holder with all applicable securities laws, including, without limitation, an opinion of Holder's counsel reasonably acceptable to the Company and the payment by the Holder of any necessary transfer taxes in connection with the issuance of such Common Stock. -2- (e) Current Market Price. As used herein, "Current Market Price" per -------------------- share of Common Stock as of any date shall mean the numerical average of the fair market value per share of Common Stock over a period of 20 days ending on the date immediately preceding such date. The fair market value per share of Common Stock for any day shall mean the average of the closing prices of the Company's Common Stock sold on all securities exchanges on which the Common Stock may at the time be listed or as quoted on the Nasdaq National Market, or, if there have been no sales on any such exchange or any such quotation on any day, the average of the highest bid and lowest asked prices on all such exchanges or such system at the end of such day, or, if any day the Common Stock is not so listed, the average of the representative bid and asked prices quoted in the Nasdaq system as of 4:00 p.m., Boston time, or, if on any day that Common Stock is not quoted in the Nasdaq system, the average of the highest bid and lowest asked price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization. If at any time the Common Stock is not listed on any securities exchange or quoted in the Nasdaq system or the over-the-counter market, the current fair market value of Common Stock shall be the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors of the Company. 3. Reservation and Availability of Common Stock; Adjustments --------------------------------------------------------- (a) Reservation of Common Stock. The Company covenants and agrees --------------------------- that it will cause to be kept available out of its authorized and unissued Common Stock, or its authorized and issued Common Stock held in its treasury, the number of shares of Common Stock that will be sufficient to permit the exercise in full of this Warrant Certificate. (b) Common Stock to be Duly Authorized and Issued, Fully Paid and Non- ------------------------------------------------------------------ Assessable. The Company covenants and agrees that it will take all such action - ---------- as may be necessary to ensure that all shares of Common Stock delivered upon exercise of the Warrant and payment of the requisite aggregate Exercise Price thereof shall, at the time of delivery of the certificates for such shares, be duly and validly authorized and issued and fully paid and non-assessable shares. (c) Common Stock Record Date. Each person or entity in whose name any ------------------------ certificate for shares of Common Stock is issued upon the exercise of this Warrant Certificate in accordance with its terms shall for all purposes be deemed to have become the holder of record of the shares of Common Stock represented thereby on, and such certificate shall be dated, the date upon which the Form of Election was received by the Company and payment of the aggregate Exercise Price was received by the Company -3- pursuant to Section 2(a) hereof. Prior to the exercise of this Warrant Certificate, the Holder shall not be entitled to any rights of a stockholder of the Company with respect to the shares of Common Stock for which this Warrant Certificate shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. (d) Adjustments to Exercise Price. The Exercise Price for this ----------------------------- Warrant Certificate in effect from time to time shall be subject to adjustment as follows: (i) Adjustment for Common Stock Dividends, Subdivisions and ------------------------------------------------------- Combinations. Upon the issuance of additional shares of Common Stock as a - ------------ dividend or other distribution on outstanding Common Stock, the subdivision of outstanding shares of Common Stock into a greater number of shares of Common Stock, or the combination of outstanding shares of Common Stock into a smaller number of shares of the Common Stock, the Exercise Price shall, simultaneously with the happening of such dividend, distribution, subdivision or combination, be adjusted by multiplying the then effective Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. An adjustment made pursuant to this Section 3(d)(i) shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of stockholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. (ii) Adjustment of Number of Shares. Upon each adjustment to the ------------------------------ Exercise Price pursuant to Section 3(d)(i) hereof, the number of shares of Common Stock purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of shares purchasable immediately prior to such adjustment by a fraction, the numerator of which shall be the Exercise Price immediately prior to such adjustment and the denominator of which shall be the Exercise Price immediately thereafter. (e) Other Adjustments. In the event the Company shall make or issue, ----------------- or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then and in each such event lawful and adequate provision shall be made so that the holders of Warrants shall receive upon exercise thereof in addition to the number of shares of Common Stock receivable thereupon, the number of securities of the Company which such holders would have received had such Warrants been exercised on the date of such event and had such holders thereafter, during the period from the date of -4- such event to and including the date of exercise, retained such securities receivable by such holders as aforesaid during such period, giving application to all adjustments called for during such period under this Section 3 as applied to such distributed securities. If the Common Stock issuable upon the exercise of the Warrants shall be changed into the same or different number of shares of any class or classes of stock, whether by reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 3), then and in each such event the holder of each Warrant shall have the right thereafter to exercise such Warrant for the purchase of the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock for which such Warrants might have been exercised immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein. (f) Mergers and Other Reorganizations. If at any time or from time to --------------------------------- time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 3) or a merger or consolidation of the Company with or into another Company, then, as a part of and as a condition to the effectiveness of such reorganization, merger, consolidation, lawful and adequate provision shall be made so that the Holder of this Warrant shall thereafter be entitled to receive upon exercise the number of shares of stock or other securities or property of the Company or of the successor Company resulting from such merger or consolidation, to which a holder of Common Stock deliverable upon exercise would have been entitled on such capital reorganization, merger or consolidation if this warrant had been exercised immediately prior thereto. In any such case, appropriate provisions shall be made with respect to the rights of the Holder of this Warrant after the reorganization, merger or consolidation to the end that the provisions of this Section 3 (including without limitation provisions for adjustment of the Exercise Price and the number of shares purchasable upon exercise) shall thereafter be applicable, as nearly as may be, with respect to any shares of stock, securities or assets to be deliverable thereafter upon the exercise. 4. Holder Representations, Warranties and Covenants ------------------------------------------------ The Holder represents and warrants to and covenants with the Company, as follows: (a) Representations. The Holder understands the risks of investing in --------------- computer software companies such as the Company and can afford a loss of its entire investment. The Holder is acquiring the Warrant for investment and not with the view to, -5- or for resale in connection with any distribution thereof. The Holder understands that the Warrant and the shares of Common Stock issuable upon exercise of the Warrant are subject to restrictions on transfer under the Investment Agreement referred to herein. The Holder understands that the Warrant and the shares of Common Stock issuable upon exercise thereof have not been registered under the Securities Act of 1933 as amended (the "Securities Act"), or any applicable state securities ("blue sky") laws, by reason of specified exemptions from the registration provisions of the Securities Act and such laws. The Holder acknowledges that the Warrant and the shares of Common Stock issuable upon exercise thereof must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Holder has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act, which permits the resale of shares purchased in a private placement subject to the satisfaction of certain conditions and that such Rule may not be available for resale of the shares. The Holder has had an opportunity to discuss the Company's business, management and financial affairs with its management and has had the opportunity to review the Company's facilities. The Holder has its principal place of business in the Commonwealth of Massachusetts. (b) Restrictions on Transferability. Neither the Warrant, nor the ------------------------------- shares of Common Stock received upon exercise thereof, shall be transferable, except upon the conditions specified in and in accordance with the terms of the Investment Agreement or this Section 4 hereof. (c) Restrictive Legend. Each certificate representing shares of the ------------------ Company's Common Stock issuable upon exercise of the Warrant, or any other securities issued in respect of the Common Stock issued upon exercise of the Warrant, upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with a legend in substantially the following form (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, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS. -6- THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A STOCK PURCHASE AND SHAREHOLDERS AGREEMENT DATED AS OF AUGUST 28, 1998, INCLUDING THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF THIS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WELL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE. 5. Miscellaneous ------------- (a) Notices. Notices or demands relating to this Warrant Certificate ------- shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed as follows, or telexed, telecopied, or delivered by nationally-recognized overnight or other courier: If to the Holder: Matrix Partners, L.P. 1000 Winter Street, Suite 4500 Waltham, MA 02154 Attention: W. Michael Humphreys Facsimile: (781) 890-2288 with a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, MA 02109 Attention: Richard E. Floor, P.C. Facsimile: (617) 523-1231 If to the Company: Freedom of Information, Inc. 124 Mt. Auburn Street Suite 200N Cambridge, MA 02138 Attention: Facsimile: with a copy to: Ropes & Gray 1 International Place Boston, MA 02110 Attention: Ann L. Milner, Esq. Facsimile: (617) 951-7050 -7- (b) Successors. All the covenants and provisions of this Warrant ---------- Certificate by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors and assigns hereunder; provided that this Warrant Certificate may be assigned by the Holder only in compliance with the conditions specified in and in accordance with all of the terms of this Warrant Certificate. (c) Governing Law. This Warrant Certificate and the Warrant, and all ------------- questions relating to the interpretation, construction and enforceability of this Warrant Certificate and the Warrant, shall be governed in all respects by the substantive laws of the Commonwealth of Massachusetts. (d) Amendments and Waivers. Except as otherwise provided herein, the ---------------------- provisions of this Warrant Certificate may not be amended, modified or supplemented, other than by a written instrument executed by the Company and the Holder. (e) Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Holder shall be enforceable to the fullest extent permitted by law. [Remainder of page intentionally left blank] -8- IN WITNESS WHEREOF, the parties hereto have caused this Warrant Certificate to be duly executed and delivered, as of the day and year first above written. COMPANY: ------- FREEDOM OF INFORMATION, INC. By: /s/ Thomas A. Gerace ---------------------------- Name: Thomas A. Gerace Title: President -9- HOLDER: ------ MATRIX PARTNERS V, L.P. By: Matrix V Management Co., L.L.C. its General Partner By: /s/ W. Michael Humphreys ------------------------------- Name: W. Michael Humphreys Title: Managing Member -10- EXHIBIT A --------- FORM OF ELECTION TO PURCHASE (To be executed if Holder desires to exercise the Warrant Certificate) To FREEDOM OF INFORMATION, INC. The undersigned hereby irrevocably elects to exercise the Warrant represented by the Warrant Certificate to purchase _________ shares of Common Stock issuable upon the exercise of such Warrant and requests that certificates for such shares be issued in the name of: _____________________________________________ (Please print name and address) _____________________________________________ Please insert tax payor identification number: ___________ Dated: August ___, 199_. HOLDER: ------ By: ------------------------------------- Name: Title: -11- Schedule of other issued warrants: No. 1 for 1,650,000 shares issued to Matrix Partners V, L.P. dated as of August 28, 1998 No. 2 for 1,620,000 shares issued to Charles River Partnership VIII, LP dated as of August 28, 1998 No. 3 for 29,873 issued to Charles River VIII-A, LLC dated as of August 28, 1998 No. 4 for 165,000 issued to Gordon B. Hoffstein dated as of August 28, 1998 -12- EX-10.4 7 STOCK PURCHASE AGREEMENT DATED 9/29/1998 EXHIBIT 10.4 COMPOSITE COPY STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT (this "Agreement") made as of this 29th day of September, 1998, by and among Freedom of Information, Inc., a corporation duly organized and existing under the laws of the State of Delaware ("FOI" or the "Company") and Comdisco, Inc., a Delaware corporation (the "Investor"). WHEREAS, the Company has authorized the issuance and sale to the Investor of an aggregate of 100,000 shares of Series A Convertible Participating Preferred Stock, par value $.01 per share ("Convertible Preferred Stock"), having the rights and preferences set forth in the Company's Amended and Restated Certificate of Designation for Series Convertible Participating Preferred Stock dated as of September 29, 1998, a copy of which is attached hereto as Exhibit A; --------- WHEREAS, the Investor has agreed to purchase an aggregate of 100,000 shares of Convertible Preferred Stock at the Closing; WHEREAS, the Company has authorized the issuance to the Investor of a warrant (the Common Stock Warrant") to purchase 33,000 shares of common stock of the Company, $.01 par value per share (the "Common Stock") with an exercise price of $1.50 per share in connection with the purchase of the Convertible Preferred Stock hereunder; WHEREAS, the Company has authorized the issuance to the Investor as of the date hereof of a warrant to purchase up to 600,000 shares of Convertible Preferred Stock and a warrant to purchase 100,000 shares of Convertible Preferred Stock in connection with certain other transactions between the Company and the Investor (collectively the "Series A Warrants", and together with the Common Stock Warrant, the "Warrants"); and WHEREAS, the parties hereto desire to set forth the terms of their ongoing relationship in connection with the Company. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: SECTION 1. TERMS OF PURCHASE 1.1 Description of Securities. The Convertible Preferred Stock shall ------------------------- have the rights, preferences and other terms set forth in Exhibit A. For --------- purposes of this Agreement, the shares of Convertible Preferred Stock to be acquired by the Investor from the Company hereunder are referred to as the "Convertible Preferred Shares," the shares of Common Stock issuable on conversion thereof are referred to as the "Conversion Shares" and the Convertible Preferred Shares, the Conversion Shares, the Common Stock Warrant, the shares of Common Stock issuable upon exercise of the Common Stock Warrant, the Series A Warrants, the shares of Convertible Preferred Stock issuable -1- upon exercise of the Series A Warrants and the shares of Common Stock issuable upon conversion of such shares of Convertible Preferred Stock are referred to as the "Securities". 1.2 Sale and Purchase. Upon the terms and subject to the conditions ----------------- herein, and in reliance on the representations and warranties set forth in Section 2, the Investor hereby purchases from the Company, and the Company hereby issues and sells to the Investor, at the Closing (as defined in Section 1.4), 100,000 shares of Convertible Preferred Stock for the purchase price of $1.00 per share, or an aggregate purchase price of $100,000. Payment hereunder shall be made by wire transfer. 1.3 Delivery of Warrants. On the terms and subject to the conditions -------------------- herein set forth, the Company hereby agrees to deliver to the Investor, at the Closing, simultaneously with the delivery of the Convertible Preferred Shares, (a) a warrant certificate in substantially the form of Exhibit B (the "Common --------- Stock Warrant Certificate") representing the Common Stock Warrant and (b) a warrant certificates in substantially the form of Exhibit C and Exhibit D --------- --------- (collectively, the "Series A Common Stock Warrant Certificates" and, together with the Common Stock Warrant Certificate, the "Warrant Certificates") representing the Series A Warrants. 1.4 Closing. The closing of the purchase and sale of Convertible ------- Preferred Shares contemplated by Section 1.2 (the "Closing") shall take place on the date hereof (the "Closing Date"). At the Closing, the Company shall deliver or cause to be delivered to the Investor stock certificates representing the Convertible Preferred Shares, free and clear of all liens created by the Company other than as set forth herein, and bearing the legends set forth herein, against payment of the purchase price therefor and the Warrant Certificates. SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY In order to induce the Investor to enter into this Agreement, the Company hereby represents and warrants to the Investor as follows subject to the matters set forth in the schedule of exceptions attached hereto (the "Disclosure Schedule"). As used in this Agreement, (i) the term "August Transactions", means the transactions consummated pursuant to or contemplated by the Stock Purchase and Shareholders Agreement dated as of August 28, 1998 (the "August Stock Purchase Agreement") among the Company, Samuel P. Gerace, Jr., Thomas A. Gerace, and the other parties named therein or pursuant to or contemplated by the Contribution Agreement (as defined in the Stock Purchase Agreement) and (ii) the term "August Transactions Documents" means the August Stock Purchase Agreement, the Contribution Agreement, the Stock Transfer Agreement dated as of August 28, 1998 among each of the stockholders of FOI listed on Schedule I thereto and each subscriber listed on Schedule II thereto and all other agreements, documents and instruments executed and delivered in connection with any such agreement. 2.1 Organization and Corporate Power. The Company is a corporation duly -------------------------------- organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified to do business as a foreign corporation in each of the Commonwealth of Massachusetts and the State of -2- Pennsylvania. The Company has all required corporate power and authority to carry on its business as presently conducted, to enter into and perform this Agreement to which it is a party and to carry out the transactions contemplated hereby. The copies of the Certificate of Incorporation and By-laws of the Company which have been furnished to the Investor by the Company are complete and correct at the date hereof. 2.2 Authorization and Non-Contravention. The execution, delivery and ----------------------------------- performance by the Company of this Agreement and the Warrant Certificates to be executed and delivered by the Company as contemplated hereby and the issuance and delivery of the Securities have been duly authorized by all necessary or other action on the part of the Company. This Agreement and all documents executed by the Company pursuant hereto are valid and binding obligations of the Company, enforceable in accordance with their terms. The execution, delivery and performance by the Company of this Agreement and all other agreements, documents and instruments to be executed and delivered by the Company as contemplated hereby and the issuance and delivery of the Securities and will not: (A) violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both) of any provision of the certificate of incorporation or by-law of the Company, (B) violate or result in a violation of, or constitute a default under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or other governmental agency applicable to the Company or (C) except as set forth on Schedule 2.2, require from the Company any notice to, declaration or filing with, or consent or approval of any governmental authority or third party. 2.3 Capitalization. As of the Closing and after giving effect to the -------------- transactions contemplated hereby, the authorized capital stock of the Company will consist of 45,000,000 shares of Common Stock, of which 13,323,119 shares will be issued and outstanding (after giving effect to the transaction contemplated by section 1.4), 15,000,000 shares of Preferred Stock, of which 11,300,000 shares will be designated as Series A Convertible Participating Preferred Stock, of which 10,600,000 shares will be issued and outstanding, and 3,700,000 shares of Preferred Stock will be undesignated. In addition, the Company has authorized and reserved for issuance upon conversion of the Convertible Preferred Shares, 100,000 shares of Common Stock (subject to adjustment for stock splits, stock dividends and the like). Except for (i) the Company's agreement to issue the shares of Common Stock issuable upon conversion of shares of Convertible Preferred Stock, (ii) 3,465,000 shares of Common Stock issuable upon exercise of warrants issued in connection with the August Transactions, (iii) shares of Common Stock issuable pursuant to shares of Convertible Preferred Stock issued in connection with the August Transactions, (iv) shares of Convertible Preferred Stock issuable upon exercise of the Series A Warrants and the Common Stock issuable upon conversion of such shares of Convertible Preferred Stock and the Company Stock Warrant, (v) shares of Common Stock issuable upon exercise of the Common Stock Warrant, and (vi) 7,739,251 shares of Common Stock reserved for issuance under the Company's 1998 Incentive Stock Plan (referred to herein as the "Stock Option Pool"), in each case subject to adjustment for stock splits, stock dividends and the like and except as disclosed in the Disclosure Schedule, the Company has not issued or agreed to issue and is not obligated to issue any outstanding warrants, options or other rights to purchase or acquire any shares of its capital stock, nor any outstanding securities convertible -3- into such shares or any warrants, options or other rights to acquire any such convertible securities. As of the Closing, and after giving effect to the transactions contemplated hereby and assuming the accuracy of the Investors' representations and warranties set forth in Section 3 hereof and the August Transaction Documents, all of the outstanding shares of capital stock of the Company (including without limitation the Convertible Preferred Shares) will have been duly and validly authorized and issued and will be fully paid and nonassessable and will have been offered, issued, sold and delivered in compliance with applicable federal and state securities laws and not subject to any preemptive rights that have not been waived. Assuming the accuracy of the Investor's representations and warranties set forth in Section 3 hereof, the Conversion Shares issuable upon conversion of the Convertible Preferred Shares and the shares of Common Stock issuable upon exercise of the Common Stock Warrant, assuming payment of the exercise price therefor in accordance with the terms of the Common Stock Warrant Certificate, will upon issuance be duly and validly authorized and issued, fully paid and nonassessable and not subject to any preemptive rights and will be issued in compliance with federal and state securities laws. The relative rights, preferences and other provisions relating to the Convertible Preferred Shares are as set forth in Exhibit A hereto. There --------- are no preemptive rights, rights of first refusal, put or call rights or obligations or anti-dilution rights with respect to the issuance, sale or redemption of the Company's capital stock, other than as described in the Disclosure Schedule, rights to which the Investor is entitled as set forth in this Agreement, as set forth in the Company's Certificate of Incorporation or as set forth in any of the August Transaction Documents. Except as set forth herein, in the Disclosure Schedule or as set forth in any of the August Transaction Documents, there are no rights to have the Company's capital stock registered for sale to the public under the laws of any jurisdiction, no agreements relating to the voting of the Company's voting securities, and no restrictions on the transfer of the Company's capital stock. After giving effect to the transactions contemplated hereby, the outstanding shares of the Company's capital stock are held beneficially and of record by the persons identified in Schedule 2.3 in the amounts indicated thereon. - ------------ 2.4 Subsidiaries; Investments. ------------------------- (a) Subsidiaries. A complete and current list of all of the ------------ subsidiaries of FOI, the outstanding equity interests of each such subsidiary and the stockholders, members or partners of each such subsidiary are set forth in Section 2.4 of the Disclosure Schedule. All of the outstanding equity interests of each such subsidiary are duly authorized, validly issued, fully paid and nonassessable. (b) Investments. Except as set forth in Section 2.4 of the ------------ Disclosure Schedule, none of FOI or any of its subsidiaries owns nor has any direct or indirect interest in or control over any corporation, partnership, joint venture or other entity of any kind, except for passive investments of less than 2% in publicly-traded companies. The term "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise. -4- 2.5 Financial Statements and Matters. FOI has previously furnished to the -------------------------------- Investor copies of unaudited financial statements of the Company and each of its subsidiaries for the fiscal year ended December 31, 1997 together with copies of its unaudited financial statements for June 30, 1998. Such financial statements referred to in this Section 2.5 were prepared in conformity with generally accepted accounting principles applied on a consistent basis, in all material respects are complete, correct and consistent with the books and records of the Company and each such subsidiary and fairly present, in all material respects, the financial position of each such subsidiary as of the dates thereof and the results of operations the Company and each such subsidiary for the periods shown therein (subject to the absence of footnotes and normal year-end adjustments). 2.6 Absence of Undisclosed Liabilities. Except as and to the extent ---------------------------------- reflected or reserved against in the unaudited pro forma combined balance sheet of the Company at July 31, 1998 furnished to the Investor (the "Base Balance Sheet"), disclosed in the Disclosure Schedule, incurred in connection with the August Transactions, or incurred in the ordinary course of business since the date of the Base Balance Sheet, the Company does not have and is not subject to any material liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, other than liabilities incurred in connection with this Agreement and the transactions contemplated hereby that would be required to be described on such Base Balance Sheet or the notes thereto if it was an audited pro forma balance sheet. 2.7 Absence of Certain Developments. Since the date of the Base Balance ------------------------------- Sheet, other than as set forth in the Disclosure Schedule and other than in connection with the August Transactions and other than in connection with transactions and agreements entered into with the Investor, there has not been any: (i) material adverse change in the financial condition of the Company or in the assets, liabilities, condition (financial or other), business or results of operations of the Company, (ii) declaration, setting aside or payment of any dividend or other distribution with respect to, or any direct or indirect redemption or acquisition of, any of the capital stock of the Company, (iii) waiver of any valuable right of the Company or cancellation of any debt or claim held by the Company in excess of $100,000 in the aggregate, (iv) loss, destruction or damage to any property which is material to the assets, liabilities, condition (financial or other), properties, business, results of operations or prospects of the Company, whether or not insured, (v) acquisition or disposition of any material assets or other material transaction by the Company other than in the ordinary course of business, (vi) material transaction or agreement involving the Company and any officer, director, employee or shareholder of the Company, (vii) material increase, direct or indirect, in the compensation paid or payable to any officer, director, employee or agent of the Company or any establishment or creation of any employment or severance agreement or employee benefit plan, (viii) material loss of personnel of the Company, material change in the terms and conditions of the employment of the Company's key personnel or any labor trouble involving the Company, (ix) termination of the employment of any senior executive personnel, (x) material arrangements relating to any royalty, dividend or similar payment based on the sales volume of the Company, whether as part of the terms of the Company's capital stock or by any separate agreement, (xi) material agreement with respect to the endorsement of the Company's products, (xii) loss or any development that would result in a loss of any significant customer, account or employee of the Company, -5- (xiii) incurrence of indebtedness in excess of $100,000 in the aggregate or any material lien, (xiv) material transaction not occurring in the ordinary course of business, or (xv) any agreement with respect to any of the foregoing actions. 2.8 Ordinary Course. Since the date of the Base Balance Sheet, except for --------------- transactions contemplated hereby and the August Transactions, the Company has conducted its business only in the ordinary course. 2.9 Title to Properties. Section 2.9 of the Disclosure Schedule sets ------------------- forth the addresses and uses of all real property that the Company owns, leases or subleases. The Company has good, valid and (if applicable) marketable title to all of its assets (other than leased assets) free and clear of all liens, claims or encumbrances of any nature except, with respect to all such properties and assets, (a) security interests in favor of the Investor in connection with certain transactions entered into between the Company and the Investor (b) mortgages or security interests shown on the Base Balance Sheet as securing specified liabilities or obligations, with respect to which no default (or event that, with notice or lapse of time or both, would constitute a default) exists, (c) mortgages or security interests incurred in connection with the purchase of property of assets after the date of the Base Balance Sheet (such mortgages and security interests being limited to the property or assets so acquired and with written consent of each of the Investors), with respect to which no default (or event that, with notice of lapse of time or both, would constitute a default) exists, (d) liens for current taxes not yet due, (e) liens, claims or encumbrances disclosed on the Disclosure Schedule and (f) with respect to real property, (i) minor imperfections of title, if any, none of which is substantial in amount, materially detracts from the value or impairs the use of the property subject thereto, or impairs the operations of the Company, and (ii) zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto. All equipment included in such properties which is necessary to the business of the Company is in good condition and repair (ordinary wear and tear excepted) and all leases of real or personal property to which the Company is a party are fully effective and afford the Company peaceful and undisturbed possession of the subject matter of the lease. The Company is not in violation of any zoning, building or safety ordinance, regulation or requirement or other law or regulation applicable to the operation of its owned or leased properties, which violation would have a material adverse effect on the Company's assets, liabilities, condition (financial or otherwise) business or results of operation, on a consolidated basis (a "Material Adverse Effect"), nor has it received any notice of any such violation. There are no defaults by the Company or to the knowledge of the Company, by any other party, which might curtail in any material respect the present use of the Company's property. Except as otherwise disclosed on Schedule 2.9, the performance by the Company of this Agreement will not result in the termination of, or in any material increase of any amounts payable under, any of its leases. 2.10 Tax Matters. The Company has filed all federal, state, local and ----------- foreign income, excise and franchise tax returns, real estate and personal property tax returns, sales and use tax returns and other tax returns required to be filed by it where the failure to file such returns would have a Material Adverse Effect and has paid all taxes owing by it, except taxes which have not yet accrued or otherwise become due, for which adequate provision has been made in the pertinent -6- financial statements referred to in Section 2.5 above or which will not have a Material Adverse Effect. All taxes and other assessments and levies which the Company is required to withhold or collect have been withheld and collected and have been paid over to the proper governmental authorities except where the failure to withhold or collect and pay over would not have a Material Adverse Effect. With regard to the federal income tax returns of the Company, the Company has never received notice of any audit or of any proposed deficiencies from the Internal Revenue Service. There are in effect no waivers of applicable statutes of limitations with respect to any taxes owed by the Company for any year. Neither the Internal Revenue Service nor any other taxing authority is now asserting or, to the knowledge of the Company, threatening to assert against the Company any deficiency or claim for additional taxes or interest thereon or penalties in connection therewith. 2.11 Certain Contracts and Arrangements. Other than as set forth in the ---------------------------------- Disclosure Schedule (with true and correct copies made available to legal counsel to the Investors) and other than the August Transaction Documents, the Company is not a party or subject to or bound by: (a) any plan or contract providing for collective bargaining or the like, or any contract or agreement with any labor union; (b) any contract containing covenants directly or explicitly limiting the freedom of the Company to compete in any line of business or with any person or entity; (c) any license agreement (i) in which the Company is the licensor that provides for the license or escrow of the Company's source code or (ii) in which the Company is a licensee that applies to software not commercially available; (d) any contract or agreement (other than license agreements) obligating the Company to sell or purchase assets or services with a sale or purchase price in excess of $50,000 in the aggregate; (e) any material joint venture, partnership, manufacturing, development or supply agreement; (f) any endorsement or any other advertising, promotional or marketing agreement providing for payments by the Company in excess of $50,000 in the aggregate which cannot be terminated on 90 days' or less notice without the payment of penalties; (g) any employment or severance contracts with officers, directors or employees of the Company or agreements with shareholders of the Company or persons or organizations related to or affiliated with any such shareholders; (h) any stock redemption or purchase agreements or other agreements affecting or relating to the capital stock of the Company, including without limitation any agreement with any -7- shareholder of the Company which includes without limitation, anti-dilution rights, registration rights, voting arrangements, operating covenants or similar provisions; (i) any pension, profit sharing, retirement or stock options plans; (j) any royalty, dividend or similar arrangement based on the sales volume of the Company; (k) any acquisition, merger or similar agreement; (l) any contract with a governmental body under which the Company may have an obligation for renegotiation; or (m) any agreement with any shareholder of the Company or any affiliate of any shareholder. All of the Company's contracts and commitments are in full force and effect and neither the Company, nor, to the knowledge of the Company, any other patty is in default thereunder (nor, to the knowledge of the Company, has any event occurred which with notice, lapse of time or both would constitute a default thereunder), except to the extent that any such failure to be in full force and effect or default would not have a Material Adverse Effect, and the Company has not received notice of any alleged default under any such contract, agreement, understanding or commitment which has not been cured. 2.12 Intellectual Property Rights; Employee Restrictions. Except as set --------------------------------------------------- forth in Schedule 2.12: ------------- (a) The Company or one of its subsidiaries owns, or has the right to use all Intellectual Property Rights (as hereinafter defined) material to the conduct of its business as presently conducted, including, without limitation, the trade names "Be Free," and the exclusive right to the domain name "befree.com." (b) The business of the Company as presently conducted does not violate any agreements which the Company has with any third party or, to the knowledge of the Company, materially infringe any trademark, copyright, trade secret or patent or other Intellectual Property Rights of any third party. (c) No claim is pending or, to the knowledge of the Company, threatened against the Company nor has the Company received any notice or claim from any person asserting that any of the Company's present or contemplated activities infringe or may infringe any Intellectual Property Rights of such person, and the Company is not aware of any infringement by any other person of any rights of the Company under any Intellectual Property Rights that would have a Material Adverse Effect. -8- (d) The Company has taken all commercially reasonable steps required to establish and preserve its ownership of all of the Intellectual Property Rights, except where the failure to do so would not have a Material Adverse Effect; each current and former employee of the Company, and each of the Company's consultants and independent contractors involved in development of any of the Intellectual Property Rights, has executed an agreement regarding confidentiality, proprietary information and assignment of inventions and copyrights to the Company, and, to the knowledge of the Company, none of such employees, consultants or independent contractors is in violation of any agreement or in breach of any agreement or arrangement with former or present employers relating to proprietary information or assignment of inventions. As used herein, the term "Intellectual Property Rights" shall mean all intellectual property rights, including, without limitation, all of the registered rights set forth on Section 2.12 of the Disclosure Schedule and all patents, patent applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, copyright applications, computer programs, domain names and other computer software, inventions, designs, samples, specifications, schematics, know-how, trade secrets, proprietary processes and formulae, including production technology and processes, all source and object code, algorithms, promotional materials, customer lists, supplier and dealer lists and marketing research, and all documentation and media constituting, describing or relating to the foregoing, including without limitation, manuals, memoranda and records. Section 2.12 of the Disclosure Schedule contains a list of all Intellectual Property Rights registered in the name of the Company and Section 2.12 of the Disclosure Schedule sets forth certain Intellectual Property Rights of which the Company is the licensor or a licensee, excluding any commercially or freely available software of which the Company is the licensee. 2.13 Litigation. There is no litigation or governmental proceeding or ---------- investigation pending or, to the knowledge of the Company, threatened against (i) the Company or affecting any of its properties or assets or (ii) any officer, director or key employee of the Company in his or her capacity as an officer, director or employee of the Company, in each case, which litigation, proceeding or investigation is reasonably likely to have a Material Adverse Effect, or which may call into question the validity or hinder the enforceability of this Agreement or any other agreements or transactions contemplated hereby; nor to the knowledge of the Company has there occurred any event nor does there exist any condition on the basis of which any such litigation, proceeding or investigation might be properly instituted or commenced. 2.14 Employee Benefit Plans. The Company does not maintain or ---------------------- contribute to any employee benefit plan, stock option, bonus or incentive plan, severance pay policy or agreement, deferred compensation agreement, or any similar plan or agreement (an "Employee Benefit Plan") other than the Employee Benefit Plans in the Disclosure Schedule. The terms and operation of each Employee Benefit Plan maintained by the Company comply in all material respects with all applicable laws and regulations relating to such Employee Benefit Plans. There are no material unfunded obligations of the Company under any retirement, pension, profit-sharing, deferred compensation plan or similar program. The Company is not required to make any payments or -9- contributions to any Employee Benefit Plan pursuant to any collective bargaining agreement or, to the knowledge of the Company, any applicable labor relations law. The Company has never maintained or contributed to any Employee Benefit Plan providing or promising any health or other nonpension benefits to terminated employees. 2.15 Labor Laws. The Company employs 14 employees and generally enjoys ---------- good employer-employee relationships. The Company is not delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for it as of the date hereof or amounts required to be reimbursed to such employees. Except as disclosed in the Disclosure Schedule, the Company is in compliance in all material respects with all applicable laws and regulations respecting labor, employment, fair employment practices, terms and conditions of employment, and wages and hours. There are no charges of employment discrimination or unfair labor practices or strikes, slowdowns, stoppages of work or any other concerted interference with normal operations existing, pending or, to the knowledge of the Company, threatened against or involving the Company. 2.16 List of Certain Employees and Suppliers. Section 2.16 of the --------------------------------------- Disclosure Schedule contains a list of all managers, employees and consultants of the Company who, individually, have received compensation from the Company for the calendar year ended December 31, 1997 in excess of $75,000. In each case such Schedule includes the job title and aggregate annual compensation of each such individual as of August 28, 1998. To the knowledge of the Company, no key employee of the Company has announced or made known publicly any plan or intention to terminate his employment with the Company and no supplier has notified the Company that it has any plan or intention to terminate or reduce its business with the Company or to materially and adversely modify its relationship with the Company. 2.17 Hazardous Waste, Etc. No hazardous wastes, substances or materials -------------------- or oil or petroleum products have been generated, transported, used, disposed, stored or treated by the Company and to the knowledge of the Company no hazardous wastes, substances or materials, or oil or petroleum products have been released, discharged, disposed, transported, placed or otherwise caused to enter the soil or water in, under or upon any real property owned, leased or operated by the Company, in each case in violation of applicable environmental laws and which would have a Material Adverse Effect. 2.18 Business; Compliance with Laws. The Company has all necessary ------------------------------ franchises, permits, licenses and other rights and privileges necessary to permit it to own its property and to conduct its business as it is presently conducted except where the failure to have would not have a Material Adverse Effect. To the Company's knowledge, the Company is currently and has heretofore been in compliance n all material respects with all federal, state and local laws and regulations. 2.19 Investment Banking; Brokerage. There are no claims for investment ----------------------------- banking fees, brokerage Commissions, finder's fees or similar compensation (exclusive of professional fees to -10- lawyers and accountants) in connection with the transactions contemplated by this Agreement payable by the Company or based on any arrangement or agreement made by or on behalf of the Company. 2.20 Insurance. The Company insurance policies of such types and in such --------- amounts with respect to its business and properties as are disclosed on the Disclosure Schedule. There is no material default or event which could give rise to a material default under any such policy. 2.21 Transactions with Affiliates. Except as disclosed on the Disclosure ---------------------------- Schedule, effective as of the Closing Date there are no loans, leases, contracts or other transactions between the Company and any officer, director or five percent (5%) shareholder of the Company or any family member or affiliate of the foregoing persons other than the August Transaction Documents and transactions contemplated thereby. 2.22 Disclosure. The representations and warranties made or contained in ---------- this Agreement and the schedules hereto when taken together, do not and shall not contain any untrue statement of a material fact and do not and shall not omit to state a material fact required to be stated therein or necessary in order to make such representations and warranties not misleading in light of the circumstances in which they were made or delivered. 2.23 Sole Representations and Warranties. The representations and ------------------------------------ warranties set forth in this Section 2 constitute the only representations and warranties of the Company made in connection with this Agreement. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR In order to induce the Company to enter into this Agreement, the Investor hereby represents and warrants to the Company as follows: 3.1 Sophistication. The Investor has such knowledge and experience in -------------- financial and business matters that it is capable of evaluating the merits and risks of the investment contemplated by this Agreement and making an informed investment decision with respect thereto. The Investor is an "accredited investor" as such term is defined in Rule 501 under the Securities Act of 1933, as amended (the "Securities Act"). The Investor is purchasing the Securities for its own account, for investment only and not with a view to, or any present intention of, effecting a distribution of such Securities or any part thereof or any securities issued upon exercise or conversion thereof except pursuant to a registration or an available exemption under applicable law. The Investor acknowledges and agrees that the Securities have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and cannot be disposed of unless they are subsequently registered under the Securities Act and any applicable state laws or exemption from such registration is available. 3.2 Authorization and Non-Contravention. The Investor has full right, ----------------------------------- authority and power under its certificate of incorporation and by-laws to enter into this Agreement and each agreement, -11- document and instrument to be executed and delivered by or on behalf of the Investor pursuant to or as contemplated by this Agreement and to carry out the transactions contemplated hereby and thereby, and the execution, delivery and performance by the Investor of this Agreement and each such other agreement, document and instrument have been duly authorized by all necessary corporate or other action of the Investor. This Agreement and each agreement, document and instrument executed and delivered by the Investor pursuant to or as contemplated by this Agreement constitute, or when executed and delivered will constitute, valid and binding obligations of the Investor enforceable in accordance with their respective terms. The execution, delivery and performance by the Investor of this Agreement and each such other agreement, document and instrument, and the performance of the transactions contemplated hereby and thereby do not and will not: (A) violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both) any provision of its charter or by- laws; (B) violate or result in a violation of, or constitute a default under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or other governmental agency applicable to the Investor; or (C) require from the Investor any notice to, declaration or filing with, or consent or approval of any governmental authority or other third party. 3.3 Investment Banking Fees. The Investor represents that there are no ------------------------ claims for investment banking fees, brokerage commissions, finder's fees or similar compensation (exclusive of professional fees to lawyers and accountants) in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of such Investor. 3.4 Opportunity for Questions, Etc. The Investor represents that it has ------------------------------ had during the course of the transaction and prior to its purchase of the Convertible Preferred Shares and the Warrants, the opportunity to request information from and ask questions of the Company and its officers, employees and agents, concerning the Company, its assets, business and operations and to receive information and answers to such requests and questions. SECTION 4. CONDITIONS OF PURCHASE The Investor's obligation to purchase and pay for the Convertible Preferred Shares to be purchased by it shall be subject to compliance by the Company with its agreements herein contained and to the fulfillment to the Investor's satisfaction, or the waiver by the Investor, on or before and at the Closing Date of the following conditions: 4.1 Satisfaction of Conditions. The representations and warranties of the -------------------------- Company contained in this Agreement shall be true and correct on and as of the Closing Date and each of the conditions specified in this Section 4 shall have been satisfied or waived in writing by the Investor. 4.2 All Proceedings Satisfactory. All corporate and other proceedings ---------------------------- taken by the Company prior to or at the Closing in connection with the transactions contemplated by this Agreement, and all documents and evidences incident thereto, shall be reasonably satisfactory in form and substance to the Investor. -12- 4.3 Authorization. The Board of Directors of FOI shall have duly adopted ------------- resolutions in the form reasonably satisfactory to the Investor and shall have taken all action necessary for the purpose of authorizing the Company to consummate the transactions contemplated hereby in accordance with the terms hereof and to cause the Amended and Restated Certificate of Designation with respect to the Convertible Preferred Stock substantially in the form attached hereto as Exhibit A to become effective; and the Investor shall have received a --------- certificate of the Secretary of the Company setting forth a copy of the resolutions authorizing the foregoing and the Certificate of Incorporation and By-laws of FOI and such other matters as may be reasonably requested by the Investor. 4.4 No Violation or Injunction. The consummation of the transactions -------------------------- contemplated by this Agreement shall not be in violation of any law or regulation, and shall not be subject to any injunction, stay or restraining order. 4.5 Consents and Waivers. The Company shall have obtained all consents or -------------------- waivers necessary to execute this Agreement and the other agreements and documents contemplated herein and to carry out the transactions contemplated hereby and thereby and shall have delivered evidence thereof to the Investor. All corporate and other action and governmental filings necessary to effectuate the terms of this Agreement and other agreements and instruments executed and delivered by the Company in connection herewith shall have been made or taken. 4.6 Non-Disclosure and Non-Competition Agreements. The Company's --------------------------------------------- employees listed in Section 4.6 of the Disclosure Schedule shall have entered into Employee Confidential Information, Inventions and Writings and Non- Competition Agreements substantially in the form attached as Exhibit I.2 hereto. 4.7 Founder Employment Agreements. Each of Samuel P. Gerace, Jr. and ----------------------------- Thomas A. Gerace (collectively, the "Founders") shall have executed and delivered an Employment Agreement in substantially the form attached as Exhibit ------- J to the August Stock Purchase Agreement. - - 4.8 Pro Forma Combined Balance Sheet. The Company shall have furnished to --------------------------------- the Investor the Base Balance Sheet, which shall be reasonably satisfactory in form and substance to the Investors. SECTION 5. CONDITIONS OF SALE The Company's obligation to issue the Convertible Preferred Shares and the Warrants to the Investor shall be subject to compliance by the Investor with its agreements herein contained and to the fulfillment to the Company's satisfaction, or the waiver by the Company, on or before and at the Closing Date of the following conditions: -13- 5.1 Satisfaction of Conditions. The representations and warranties of the -------------------------- Investor contained in this Agreement shall be true and correct on and as of the Closing Date and each of the conditions specified in this Section 5 shall have been satisfied or waived in writing by the Company. 5.2 Payment of Purchase Price. The aggregate purchase price shall have ------------------------- been paid by the Investor to the Company in accordance with Section 1.2. 5.3 All Proceedings Satisfactory. All corporate and other proceedings ---------------------------- taken by the Investor prior to or at the Closing in connection with the transactions contemplated by this Agreement, and all documents and evidences incident thereto, shall be reasonably satisfactory in form and substance to the Company. 5.4 No Violation or Injunction. The consummation of the transactions --------------------------- contemplated by this Agreement shall not be in violation of any law or regulation, and shall not be subject to any injunction, stay or restraining order. SECTION 6. COVENANTS --------- The Company agrees for the benefit of the Investor that it shall comply, except as may be waived to in writing by two-thirds in interest of the holders of the Convertible Preferred Stock with the following covenants, provided that the covenants set forth in Section 7 shall terminate at the earlier of (i) as of the closing of the Company's first Qualified Public Offering and (ii) such earlier date as may be agreed to in writing by two-thirds in interest of the holders of Convertible Preferred Stock. A "Qualified Public Offering" shall have the meaning provided in the Terms of Preferred Stock attached hereto as Exhibit A. - --------- 6.1 Financial Statements and Budgetary Information; Inspection. So long ----------------------------------------------------------- as the Investor holds an aggregate number of Convertible Preferred Shares and Conversion Shares equal to at least 20% of the number of Convertible Preferred Shares (subject to adjustments for stock splits, stock dividends and the like), the Investor shall have the rights, and the Company shall have the obligations, set forth in this Section 6.1. The Company will deliver to the Investor and any person acquiring Convertible Preferred Shares from an Investor which holds an aggregate number of shares of Convertible Preferred Stock and Conversion Shares equal to at least 5% of the number of shares of Convertible Preferred Stock (subject to adjustments for stock splits, stock dividends and the like), internally prepared unaudited summary monthly financial statements, quarterly financial statements for the first three fiscal quarters of the fiscal year and audited annual financial statements, as well as annual budgets and operating plans. The summary monthly and quarterly financial information, (in the case of quarterly financial information) set forth in comparative form to the corresponding budget and operating plan, will be provided within 30 days after the end of each month and 45 days after each of the first three fiscal quarters, respectively. The annual budget and operating plan will be presented at a Board of Directors' meeting at least one month prior to the end of the fiscal year of the Company preceding the year covered. An annual audit by an accounting firm of national recognition selected by the Board of Directors will be provided within 90 days after each fiscal -14- year-end of the Company. The Company will provide annual financial information set forth in comparative form to the corresponding annual budget and operating plan within 90 days after each fiscal year-end of the Company. 6.2 Key Person Insurance. Within 120 days after the date hereof, the -------------------- Company will use commercially reasonable efforts to purchase and maintain in its or any subsidiary's name "key person" term life insurance policies of one million dollars ($1,000,000) each on the lives of each of the Founders, with the Company named as beneficiary. The Company hereby agrees that such policy shall not be assigned, borrowed against or pledged. 6.3 Stock Awards. The Company will establish a pool for stock options, ------------ stock grants or other equity participation such that there will be a total of 7,739,251 shares of Common Stock available to employees of the Company subject to increase with approval of each of the Founders and each of the Investors (the "Stock Option Pool"). All securities granted pursuant to or under the Stock Option Pool will vest over a four (4) year period. 6.4 Non-Disclosure and Non-Competition Agreements. On the date of hire of --------------------------------------------- any future employee or upon any future grant to an existing employee under the Plan, the Company and such employee will enter into (i) an Employee Confidential Information, Inventions and Writings Agreement substantially in the form of Exhibit I.1. attached to the August Stock Purchase Agreement if such employee is - ----------- a non-clerical employee (other than an engineering or executive employee) or (ii) an Employee Confidential Information, Inventions and Writings and Non- Competition Agreement substantially in the form of Exhibit I.2 attached to the ----------- August Stock Purchase Agreement if such employee is an engineering or executive employee, unless in each case such employee is already a party to such agreement. SECTION 7. RIGHTS TO PURCHASE Notwithstanding anything herein to the contrary, the following provisions of this Section 7 shall terminate immediately prior to the closing of a Qualified Public Offering and shall not apply with respect to any Qualified Public Offering. 7.1 Right to Participate in Certain Sales of Additional Securities. So -------------------------------------------------------------- long as the Investor continues to hold an aggregate number of Convertible Preferred Shares and Conversion Shares equal to at least 50% of the Convertible Preferred Shares purchased hereunder (subject to adjustments for stock splits, stock dividends and the like), the Company agrees that it will not sell or issue any shares of capital stock of the Company or other securities convertible into or exchangeable for capital stock of the Company, or options, warrants or rights carrying any rights to purchase capital stock of the Company unless the Company first submits a written offer to the Investor identifying the terms of the proposed sale (including price, number or aggregate principal amount of securities and all other material terms) (the "Offer"), and offers to the Investor the opportunity to purchase its Pro Rata Share (as hereinafter defined) of such securities on terms and conditions, including price, not less favorable to the Investor than those on which the Company proposes to sell such securities to a third -15- party or parties. For the purposes of this Agreement, the Investor's "Pro Rata Share" of such securities shall be based upon the ratio which (A) the number of shares of Common Stock (which shall include shares of Common Stock issuable upon exercise or conversion of securities then outstanding) owned by it or him, as the case may be, bears to (B) the total of all the issued and outstanding shares of Common Stock (which shall include shares of Common Stock issuable upon exercise or conversion of securities then outstanding). The Company's offer shall remain open and irrevocable for a period of 7 days. The closing of any such Offer shall occur no sooner than 30 days after the delivery of such Offer. Any securities so offered which are not purchased pursuant to such offer may be sold by the Company but only on the terms and conditions set forth in the initial offer to the Investor, at any time within 120 days following the termination of the above-referenced 30-day period but may not be sold to any other person or on terms and conditions, including price, that are more favorable to the purchaser than those set forth in such offer or after such 120- day period without renewed compliance with this Section 7.1. Notwithstanding the foregoing, the Company may issue (i) shares of Convertible Preferred Stock pursuant to the Series A Warrants and shares of Common Stock upon conversion of such shares of Convertible Preferred Stock, (ii) Common Stock pursuant to the Common Stock Warrant and pursuant to warrants and stock Options existing on the date hereof as set forth in Section 7.1 of the Disclosure Schedule, (iii) shares of Common Stock and options (and the Common Stock to be issued upon exercise thereof) included in the Stock Option Pool or otherwise approved by the Board of Directors of the Company, (iv) shares of Common Stock pursuant to warrants issued in connection with August Transactions; and (v) the Conversion Shares and shares of Common Stock upon the conversion of shares of Convertible Preferred Stock, and the other provisions of this Section 7.1 shall not apply with respect to such issuances. 7.2 Right of First Refusal. In the event that the Investor proposes to ---------------------- Transfer (as defined below) all or any portion of its shares of capital stock of the Company or any security convertible or exercisable into capital stock of the Company to any proposed Transferee (other than to a Permitted Transferee (as defined below)), the Investor may Transfer such shares or security only pursuant to and in accordance with the following provisions of this Section 7.2: (a) Transfer Notice. The Investor shall not make or suffer any --------------- Transfer of all or any of its shares of capital stock of the Company or any security convertible or exercisable into capital stock of the Company, whether now owned or hereafter acquired, except in accordance with the terms of this Agreement, and any purported Transfer not made in compliance with this Agreement shall be void and of no force and effect, If the Investor, including any of its Transferees Permitted pursuant to this Section 7.2(a), proposes to make or suffers any Transfer of all or any portion of its shares of capital stock of the Company or any security convertible or exercisable into capital stock of the Company pursuant to a bona fide third party offer, the Investor shall so inform the Company by notice in writing (the "Transfer Notice") stating the number or amount of shares or other securities that are the subject of such proposed Transfer (the "Offered Securities"), the name and address of the proposed Transferee and all other terms and conditions of such proposed Transfer, including any consideration proposed to be received for the Offered Securities, the terms of any -16- financing in relation to the Transfer, and, if the proposed Transfer is to be wholly or partly for consideration other than cash or an indebtedness of any person, the amount of the cash consideration, if any, and a description of all non-monetary consideration. By giving the Transfer Notice, the Transferee shall be deemed to have granted to the Company an option to purchase the Offered Securities if such Transfer is pursuant to a bona fide third party offer, at the same consideration and on the same payment terms as are set forth in the Transfer Notice (except that any portion of the consideration set forth in the Transfer Notice which is not cash or indebtedness of the Transferee shall be payable in cash in an amount equivalent to the fair market value of such consideration). (b) Manner of Exercise. The Company shall give notice of exercise or ------------------ nonexercise to the Investor within 15 days following the receipt of a Transfer Notice given by the Investor pursuant to Section 7.2(a). The failure of the Company to submit any such notice within the applicable period shall constitute an election on its part not to purchase any of the Offered Securities to which the Transfer Notice pertained. (c) Requirement to Purchase All Offered Securities. Notwithstanding ---------------------------------------------- any other provision of this Section 7.2, in no event shall the Investor be required to sell any of the Offered Securities to the Company unless, within the period provided, the Investor has been notified that all the Offered Securities will be purchased by the Company. If the Company does not elect to purchase all the Offered Securities, then the Company shall not have any right or obligation to purchase any of the Offered Securities. (d) Closing. The Closing (herein so called) of the purchase and sale ------- of securities that are being purchased and sold under this Section 7.2 shall take place at the Company's principal executive offices on the 10th day following the date of delivery of the notice of acceptance by the Company pursuant to Section 7.2(b) herein (or if such date is a Saturday, Sunday or legal holiday in the state where such offices are located, the first day thereafter that is not a Saturday, Sunday or legal holiday) at 10:00 a.m., local time. At the Closing, the parties shall take all action necessary to convey such Offered Securities to be Transferred (as herein defined) in accordance with this Agreement, free of all liens and encumbrances, all as reasonably determined by the Company. (e) Failure to Exercise. If the Company does not elect to purchase ------------------- all of the Offered Securities within the period provided, then, subject to the other terms and provisions of this Agreement, all of such Offered Securities may be disposed of by the Investor to the prospective Transferee named in the Transfer Notice, for the price and on the terms and conditions set forth in the Transfer Notice, at any time within 120 days after the expiration of the period provided for in the notice of the Company to be delivered pursuant to Section 7.2(b) herein, provided that each Transferee shall, prior to the Transfer of the Offered Securities to such Transferee, execute and deliver to the Company a valid and binding agreement, satisfactory to the Company, to become subject to the provisions of this Section 7.2 on the same terms as the Investor. Each party who is or becomes subject to this Section 7.2 agrees to grant to the Company full access to all of relevant records of such party to determine to the Company's reasonable satisfaction the terms of any Transfer pursuant to this Section 7.2 to any Transferee named in the Transfer Notice. Any shares of Common -17- Stock not so disposed of within such 120 day period shall remain subject to all of the provisions of this Agreement. (f) Definition of "Transfer". For purposes of this Section 7.2, ----------------------- "Transfer" means any direct or indirect offer, transfer, donation, sale, assignment, conveyance, encumbrance, mortgage, gift, pledge, hypothecation or other disposal or attempted disposal of all or any portion of a security or of any rights connected thereto or interests therein, whether voluntary or involuntary, and, including but not limited to, any Transfer by operation of law, by court order, by judicial process or by foreclosure, levy or attachment; "Transferred" means the accomplishment of a Transfer; and "Transferee" means the recipient of a Transfer. (g) Permitted Transferees. Notwithstanding the foregoing, the --------------------- Investor may Transfer all or any of its Securities without complying with this Section 7.2 but subject to the other terms and provisions of this Agreement, by any Transfer of (i) shares of Common Stock pursuant to a merger or consolidation of the Company with any other entity in which all of the shareholders of the Company are participating on ratable basis (based upon the number and class of shares held), (ii) Securities to any affiliate of Investor, or (iii) Securities to any financial institution who is not a competitor of the Company (any person who acquires shares of Common Stock in a Transfer permitted by this Section 7.2(g) is referred to as a "Permitted Transferee"), in each case who agrees to be bound by the provisions of this Section 7.2. SECTION 8. REGISTRATION RIGHTS ------------------- 8.1 Optional Registrations. If at any time or times after the date ---------------------- hereof, the Company shall seek to register any shares of its capital stock or securities convertible into capital stock under the Securities Act to be sold for cash (whether in connection with a public offering of securities by the Company (a "primary offering"), a public offering of securities by shareholders of the Company (a "secondary offering"), or both), the Company will promptly give written notice thereof to the Investor if the Investor holds Registrable Securities as hereinafter defined in Section 8.2 below. If within 30 days after their receipt of such notice the Investor requests the inclusion of some or all of the Registrable Securities owned by it in such registration, the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Investor may request in a writing delivered to the Company within 30 days after their receipt of the notice given by the Company. In the case of the registration of shares of capital stock by the Company in connection with any underwritten public offering, if the Company is advised in writing in good faith by the underwriter(s) that the amount to be sold by holders other than the Company is greater than the amount which can be offered without adversely affecting the offering, the Company shall not be required to register Registrable Securities of the Investor in excess of the amount, if any, of Registrable Securities which the principal underwriter of such underwritten offering shall reasonably and in good faith agree to include in such offering. If any limitation of the number of shares of Registrable Securities to be registered by the Investor is required pursuant to this Section 8.1, the Company may reduce the amount offered for the account of the Investor to a number deemed satisfactory by the principal underwriter provided that no reduction shall be made in the amount of -18- Registrable Securities offered for the account of the Investor unless such reduction is imposed pro rata with respect to all securities whose holders have a contractual, incidental "piggy back" right to include such securities in the registration statement as to which inclusion has been requested pursuant to such right; provided, however, that there is first excluded from such registration -------- ------- statement all shares of Common Stock sought to be included therein by any holder not having any such contractual, incidental registration rights. The provisions of this Section will not apply to a registration effected solely to implement (x) an employee benefit plan, or (y) a transaction to which Rule 145 or any other similar rule of the Securities and Exchange Commission (the "SEC"or the "Commission") under the Securities Act is applicable. The Company may require the Investor and each holder of Registrable Securities to be sold under such registration statement, at the Company's expense, to furnish the Company with such information and undertakings as it may reasonably request regarding such Investor or holder and the distribution of such securities as the Company may from time to time reasonably request in writing. If any Registrable Securities are to be distributed by means of any underwriting, the Investor and all holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriters for such underwriting. 8.2 Registrable Securities. For the purposes of this Section 9, the term ---------------------- "Registrable Securities" shall mean the Conversion Shares, shares of Common Stock issuable upon conversion of the Convertible Preferred Stock issuable upon exercise of the Series A Warrants, and shares of Common Stock issuable upon exercise of the Common Stock Warrant, including any shares issued by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization; provided, -------- however, that if the Investor owns Convertible Preferred Stock, it may exercise - ------- its registration rights hereunder by converting the shares to be sold publicly into Common Stock as of the closing of the relevant offering and shall not be required to cause such Convertible Preferred Stock to be converted to Common Stock until and unless such Closing occurs, it being understood that the Company shall at the request of the Investor effect the reconversion of Common Stock to Convertible Preferred Stock if such a conversion occurs notwithstanding the foregoing and a public offering does not close; and provided, however ,that -------- ------- purposes of clauses (a) and (b) any Common Stock that is sold in a registered sale pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 thereunder, or that may be sold without restriction as to volume or otherwise pursuant to Rule 144 under the Securities Act (as confirmed by an unqualified opinion of legal counsel to the Company), shall not be deemed Registrable Securities. 8.3 Further Obligations of the Company. Whenever the Company is required ---------------------------------- hereunder to register any Registrable Securities, it agrees that it shall also do the following: (a) Pay all expenses of such registrations and offerings (exclusive of underwriting discounts and commissions) and the reasonable fees and expenses of one independent counsel for the Investor, as the case may be, satisfactory to the Piggy Back Holders, as the case may be; provided, however, that the Company -------- ------- shall not be required to pay more than $5,000 in fees and -19- expenses of counsel to the Investor in connection with any single registration pursuant to this Section 9. (b) Furnish to the Investor such copies of each preliminary and final prospectus and such other documents as the Investor may reasonably request to facilitate the public offering of its Registrable Securities; (c) Enter into any reasonable underwriting agreement required by the proposed underwriter in such form and containing such terms as are customary; (d) Use its reasonable best efforts (with due regard to management of the ongoing business of the Company and the allocation of managerial resources) to register or qualify the securities covered by said registration statement under the securities or "blue sky" laws of such jurisdictions as the Investor may reasonably request, provided that the Company shall not be required to register or qualify the securities in any jurisdictions which require it to qualify to do business therein; (e) Immediately notify the Investor, at any time when a prospectus relating to its Registrable Securities is required to be delivered under the Securities Act, of the happening of any event as a result of which such prospectus contains an untrue statement of a material fact or omits any material fact necessary to make the statements therein not misleading, and, at the request of the Investor, prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (f) Cause all such Registrable Securities to be listed on each securities exchange or quotation system on which similar securities issued by the Company are then listed or quoted; (g) Otherwise use its best efforts to comply with the securities laws of the United States and other applicable jurisdictions and all applicable rules and regulations of the SEC and comparable governmental agencies in other applicable jurisdictions and make generally available to its holders, in each case as soon as practicable, but not later than 45 days after the close of the period covered thereby, an earnings statement of the Company which will satisfy the provisions of Section 11(a) of the Securities Act; (h) Use its reasonable efforts to obtain and furnish to the Investor, immediately prior to the effectiveness of the registration statement (and, in the case of an underwritten offering, at the time of delivery of any Registrable Securities sold pursuant thereto), a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the holders of a majority of the securities being sold may reasonably request; and -20- (i) Otherwise cooperate with the underwriter or underwriters, the Commission and other regulatory agencies and take all actions and execute and deliver or cause to be executed and delivered all documents necessary to effect the registration of any Registrable Securities under this Section 8. 8.4 Indemnification; Contribution. ----------------------------- (a) Incident to any registration statement referred to in this Section 8, the Company (in such capacity, an "Indemnifying Party") will indemnify and hold harmless each underwriter, the Investor if it offers or sells any such Registrable Securities in connection with such registration statement (including its partners (including partners of partners and stockholders of any such partners), and directors, officers, employees and agents of any of them (a "Selling Holder"), and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934 (the "Exchange Act") (a "Controlling Person")) (each in such capacity, an "Indemnified Party"), from and against any and all losses, claims, damages, expenses and liabilities, joint or several (including any reasonable investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, as the same are incurred, to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities arise out of or are based on (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement (including any related preliminary or definitive prospectus, or any amendment or supplement to such registration statement or prospectus), (ii) any omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading, or (iii) any violation by the Company of the Securities Act, any state securities or "blue sky" laws or any rule or regulation thereunder in connection with such registration; provided, however, that (i) the Company shall -------- ------- not be liable in respect of any settlement effected without its consent (which consent shall not be unreasonably withheld) and (ii) the Company will not be liable to the extent that such loss, claim, damage, expense or liability arises from and is based on (i) an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information furnished in writing to the Company by such underwriter, Selling Holder or Controlling Person expressly for use in such registration statement, or (ii) such Selling Holder or Controlling Person being subject to an obligation to deliver a definitive prospectus and fails to do so. With respect to such untrue statement or omission or alleged untrue statement or omission in the information furnished in writing to the Company by such Selling Holder expressly for use in such registration statement, such Selling Holder (each such Selling Holder in such capacity, an "Indemnifying Party") will indemnify and hold harmless each underwriter, the Company (including its directors, officers, employees and agents), each other selling stockholder (including its partners (including partners of partners and stockholders of such partners) and directors, officers, employees and agents of any of them, and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) (each in such capacity, an "Indemnifying Party"), from and against any and all losses, claims, damages, expenses and liabilities, joint or several, to which they, or any of them, may become subject under the -21- Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise to the same extent provided in the immediately preceding sentence. In no event, however, shall the liability of a Selling Holder for indemnification under this Section 8.4(a) exceed the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement which is being sold by such Selling Holder or (ii) the proceeds received by such Selling Holder from its sale of Registrable Securities under such registration statement. (b) If the indemnification provided for in Section 8.4(a) above for any reason is held by a court of competent jurisdiction to be unavailable to an Indemnified Party in respect of any losses, claims, damages, expenses or liabilities referred to therein, then each indemnifying party under this Section 8.4, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the other selling stockholders and the underwriters from the offering of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the other selling stockholders and the underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, the Selling Holders, the other selling stockholders and the underwriters shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company, the Selling Holders, the other selling stockholders and the underwriting discount received by the underwriters, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the Registrable Securities. The relative fault of the Company, the Selling Holders, the other selling stockholders and the underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to State a material fact relates to information supplied by the Company, the Selling Holders, the other selling stockholders or the underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 8.4(b) were determined by pro rata or per capita allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. In no event, however, shall a Selling Holder be required to contribute any amount under this Section 8.4(b) in excess of the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total Registrable Securities sold under such registration statement which are being sold by such Selling Holder or (ii) the proceeds received by such Selling Holder from its sale of Registrable Securities under such registration statement. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation. -22- (c) The amount paid by an Indemnifying Party or payable to an Indemnified Party as a result of the losses, claims, damages and liabilities referred to in this Section 8 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim, payable as the same are incurred. The indemnification and contribution provided for in this Section 8.4 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified parties or any officer, director, employee, agent or controlling person of the Indemnified Parties. (d) Promptly after receipt by an Indemnified Party of notice of the commencement of any action or proceeding involving a claim referred to in this Section 8.4, such Indemnified Party will, if a claim in respect thereof is to be made against an Indemnifying Party, give written notice to the latter of the commencement of such action, provided, however, that the failure of any -------- ------- Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligation under the preceding subdivisions of this Section 8.4, except to the extent that the Indemnifying Party is actually prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, provided the Indemnifying Party provides the Indemnified Party reasonable assurances that the Indemnifying Party has the ability to satisfy any judgment which may be entered against the Indemnified Party, and unless in such Indemnified Party's reasonable judgment a conflict of interest between such Indemnified Party and Indemnifying Party may exist in respect of such action; the Indemnifying Party shall be entitled to participate in and to assume the defense thereof, jointly with any other Indemnifying Party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No Indemnifying Party shall consent to any settlement without the consent of the Indemnified Party 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 that could have been brought against it in such action. 8.5 Rule 144 and Rule 144A Requirements. In the event that the Company ----------------------------------- becomes subject to Section 13 or Section 15(d) of the Exchange Act, the Company shall use its best efforts to take all action as may be required as a condition to the availability of Rule 144 or Rule 144A under the Securities Act (or any successor or similar exemptive rules hereafter in effect). The Company shall furnish to the Investor, within 15 days of a written request, a written statement executed by the Company as to the steps it has taken to comply with the current public information requirement of Rule 144 or Rule 144A or such successor rules. 8.6 Lock-up. The Investor agrees, if so reasonably required by the ------- managing underwriter in a public offering or registration of the Common Stock, not to effect any public sale or distribution of securities of the Company or sale of such securities pursuant to Rule 144 or Rule 144A under the Securities Act, during the seven days prior to and the 180 days (or such shorter period as may be -23- agreed to by such managing underwriter) after the effective day of such public offering or registration. 8.7 Transfer of Registration Rights. The registration rights and related ------------------------------- obligations under this Section 8 of the Investor with respect to its Registrable Securities may be assigned in connection with any transaction or series of related transactions involving the Transfer to one or more transferees of at least 500,000 shares of capital stock of the Company, other than pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 thereunder (subject to adjustments for stock splits, stock dividends and the like and aggregating all contemporaneous transfers by the Investor), and upon any such transfer such transferee shall be deemed to be included within the definition of Investor for purposes of this Section 8 with the rights set forth herein, subject to such transferee agreeing to be bound by the provisions hereof. The Investor shall notify the Company at the time of such transfer. SECTION 9. GENERAL ------- 9.1 Compliance with Registration Requirements of the Securities Act. The --------------------------------------------------------------- Investor agrees not to Transfer any of the Securities, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with applicable state securities laws and, in the case of an exempt transaction, only if the Investor agrees to require, as a condition to such transfer, that such transferee agree, in writing, to be bound to this Section 9.1 as if such transferee were the transferring Investor. 9.2 Amendments, Waivers and Consents. For the purposes of this Agreement -------------------------------- and all agreements executed pursuant hereto, no course of dealing between or among any of the parties hereto and no delay on the part of any party hereto in exercising any rights hereunder or thereunder shall operate as a waiver of the rights hereof and thereof. No provision hereof may be waived otherwise than by a written instrument signed by the party or parties so waiving such covenant or other provision. No amendment to this Agreement may be made without the written consent of the Company and the Investor. 9.3 Legend on Securities. The Company and the Investor acknowledge and -------------------- agree that the following legend shall be typed on each certificate evidencing any of the securities issued hereunder held at any time by an Investor: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS. -24- THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A STOCK PURCHASE AGREEMENT DATED AS OF SEPTEMBER 29, 1998. A COMPLETE AND CORRECT COPY OF THIS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE. 9.4 Governing Law. This Agreement shall be deemed to be a contract made ------------- under, and shall be construed in accordance with, the laws of The Commonwealth of Massachusetts, without giving effect to conflict of laws principles thereof. 9.5 Section Headings and Gender. The descriptive headings in this --------------------------- Agreement have been inserted for convenience only and shall not be deemed to limit or otherwise affect the construction of any provision thereof or hereof. The use in this Agreement of the masculine pronoun in reference to a party hereto shall be deemed to include the feminine or neuter, and vice versa, as the context may require. 9.6 Counterparts. This Agreement may be executed simultaneously in any ------------ number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute but one and the same document. 9.7 Notices and Demands. Any notice or demand which is required or ------------------- provided to be given under this Agreement shall be deemed to have been sufficiently given and received for all purposes when delivered by hand, telecopy, telex or other method of facsimile, or five days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or two days after being sent by overnight delivery providing receipt of delivery, to the following addresses: (i) If to the Company, to: Freedom of Information, Inc. 124 Mt. Auburn Street Suite 200N Cambridge, MA 02138 with a copy to: Ropes & Gray One International Place Boston, MA 02110 Attention: Ann L. Milner, Esq. -25- (ii) If to the Investor, to it at: Comdisco, Inc. 6111 North River Road Rosemont, IL 60018 Attention: Venture Group with a copy to: Comdisco, Inc. 6111 North River Road Rosemont, IL 60018 Attention: General Counsel or to such other address as may have been furnished in the same manner by any party to the others. 9.8 Remedies; Severability. It is specifically understood and agreed that ---------------------- any breach of the provisions of this Agreement by any person subject hereto will result in irreparable injury to the other parties hereto, that the remedy at law alone will be an inadequate remedy for such breach, and that, in addition to any other remedies which they may have, such other parties may enforce their respective rights by actions for specific performance (to the extent permitted by law). The Company may refuse to recognize any unauthorized transferee as one of its shareholders for any purpose, including, without limitation, for purposes of dividend and voting rights, until the relevant party or parties have complied with all applicable provisions of this Agreement. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement. 9.9 Integration. This Agreement, including the exhibits, documents and ----------- instruments referred to herein or therein, constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, including, without limitation, the letter of intent between the parties hereto in respect of the transactions contemplated herein. [Remainder of page intentionally left blank] -26- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. FREEDOM OF INFORMATION, INC. By: /s/ Stephen M. Joseph --------------------- Name: Stephen M. Joseph Title: CFO COMDISCO, INC By: /s/ James P. Labe ----------------- Name: James P. Labe Title: President September 28, 1998 -27- EX-10.5 8 COMDISCO WARRANT CERTIFICATE EXHIBIT 10.5 THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE STOCK PURCHASE AND SHAREHOLDERS AGREEMENT REFERRED TO HEREIN. WITHOUT LIMITATION OF THE FOREGOING, THE WARRANT REPRESENTED BY THIS CERTIFICATE, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION, OR AN EXEMPTION FROM REGISTRATION, UNDER SUCH ACTS. No. 5 WARRANT CERTIFICATE ------------------- THIS WARRANT CERTIFICATE (the "Warrant Certificate"), dated as of September 29, 1998, certifies that for value received Comdisco, Inc., or its assigns (the "Holder") is the owner of a Warrant to purchase 33,000 shares of the Common Stock, par value $.01 per share (the "Common Stock"), of Freedom of Information, Inc., a Delaware corporation (the "Company"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to a Stock Purchase Agreement dated as of September 29, 1998, by and between the Company and the Holder and certain other parties (the "Investment Agreement"), the Holder has purchased 100,000 shares of the Company's Series A Convertible Preferred Participating Stock, $.01 par value per share (the "Convertible Preferred Stock"); and WHEREAS, in consideration of the activities of the Holder in connection with the issuance of the above-referenced Convertible Preferred Stock and pursuant to the Investment Agreement, the Company has authorized the issuance to the Holder of the warrant (the "Warrant") of the Company represented by this Warrant Certificate, which Warrant entitles the Holder to purchase, upon the terms and conditions hereinafter set forth, shares of Common Stock. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby certify as follows: 1. Grant of Warrant. This Warrant Certificate entitles the Holder to ---------------- purchase up to 33,000 shares of Common Stock at a price per share equal to the Exercise Price per share (as defined in Section 2(a) hereof). 2. Exercise of Warrant; Exercise Price. ----------------------------------- (a) Exercise Price. This Warrant Certificate shall entitle the -------------- Holder, subject to the provisions of Sections 2 and 3 herein, to purchase from the Company the number of shares of Common Stock provided for in Section 1, at the stated purchase price of One Dollar and Fifty Cents ($1.50) per share (the "Exercise Price"), which shall be payable in full in cash at the time of exercise of this Warrant Certificate. (b) Right to Exercise the Warrant. This Warrant Certificate may be ----------------------------- exercised, in full or in part, at any time during the period from the date hereof through the date which is ten (10) years after the date hereof (the "Exercise Period"). (c) Method of Exercise; Payment. The Holder may exercise this Warrant --------------------------- Certificate by executing the Form of Election attached hereto as Exhibit A and delivering it to the Company and tendering the requisite aggregate Exercise Price for the number of shares of Common Stock subject to this Warrant Certificate to the Company on any business day during normal business hours (the date of receipt of such Form of Election and aggregate Exercise Price by the Company is hereinafter referred to as the "Exercise Date") provided, that in lieu of tendering the requisite aggregate Exercise Price in cash, the Holder may elect to exercise this Warrant Certificate on a net basis whereupon (i) the number of shares of Common Stock issued upon such exercise shall be reduced by that number of shares which have an aggregate fair market value equal to the requisite aggregate Exercise Price and (ii) the Exercise Price shall be deemed to have been paid and satisfied by the tender of such shares to the Company. In addition, the Holder may pay the Exercise Price of the Warrant by surrendering to the Company shares of the Company's Convertible Preferred Stock having an aggregate Fair Market Value (as hereinafter defined) equal to the Exercise Price of the Warrant being exercised, or if the Company has effected an underwritten public offering of its Common Stock, the Holder may pay the Exercise Price of the Warrant by surrendering to the Company shares of the Company's Common Stock having an aggregate fair market value (based on the Current Market Price per share (as defined in Section 2(e) hereinafter)) equal to the Exercise Price of the Warrant being exercised. The "Fair Market Value" per share of the Convertible Preferred Stock shall be determined on an as converted basis which shall be equal to the higher of (i) the Current Market Price (as defined in Section 2(e) hereinafter) of the Common Stock and (ii) the conversion value of one dollar ($1.00) per share. (d) Issuance of Shares of Common Stock. As soon as practicable after ---------------------------------- the Exercise Date the Company shall (provided that it has received the Form of Election duly executed, accompanied by payment of the Exercise Price pursuant to Section 2(a) hereof for each of the shares of Common Stock to be purchased) promptly cause certificates for the number of shares of Common Stock to be issued in respect of this Warrant Certificate to be delivered to or upon the order of the Holder, registered in such name as may be designated by such holder; provided that if the Common Stock is to be registered in the name of any entity or person other than the Holder, the Company may require evidence of compliance by the Holder with all applicable securities laws, including, without limitation, an opinion of Holder's counsel reasonably acceptable to the Company and the payment by the Holder of any necessary transfer taxes in connection with the issuance of such Common Stock. (e) Current Market Price. As used herein, "Current Market Price" per -------------------- share of Common Stock as of any date shall mean the numerical average of the fair market value per share of Common Stock over a period of 20 days ending on the date immediately preceding such date. The fair market value per share of Common Stock for any day shall mean the average of the closing prices of the Company's Common Stock sold on all securities exchanges on which the Common Stock may at the time be listed or as quoted on the Nasdaq National Market, or, if there have been no sales on any such exchange or any such quotation on any day, the average 2 of the highest bid and lowest asked prices on all such exchanges or such system at the end of such day, or, if any day the Common Stock is not so listed, the average of the representative bid and asked prices quoted in the Nasdaq system as of 4:00 p.m., Boston time, or, if on any day that Common Stock is not quoted in the Nasdaq system, the average of the highest bid and lowest asked price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization. If at any time the Common Stock is not listed on any securities exchange or quoted in the Nasdaq system or the over-the-counter market, the current fair market value of Common Stock shall be the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors of the Company. 3. Reservation and Availability of Common Stock; Adjustments --------------------------------------------------------- (a) Reservation of Common Stock. The Company covenants and agrees --------------------------- that it will cause to be kept available out of its authorized and unissued Common Stock, or its authorized and issued Common Stock held in its treasury, the number of shares of Common Stock that will be sufficient to permit the exercise in full of this Warrant Certificate. (b) Common Stock to be Duly Authorized and Issued, Fully Paid and Non- ------------------------------------------------------------------ Assessable. The Company covenants and agrees that it will take all such action - ---------- as may be necessary to ensure that all shares of Common Stock delivered upon exercise of the Warrant and payment of the requisite aggregate Exercise Price thereof shall, at the time of delivery of the certificates for such shares, be duly and validly authorized and issued and fully paid and non-assessable shares. (c) Common Stock Record Date. Each person or entity in whose name any ------------------------ certificate for shares of Common Stock is issued upon the exercise of this Warrant Certificate in accordance with its terms shall for all purposes be deemed to have become the holder of record of the shares of Common Stock represented thereby on, and such certificate shall be dated, the date upon which the Form of Election was received by the Company and payment of the aggregate Exercise Price was received by the Company pursuant to Section 2(a) hereof. Prior to the exercise of this Warrant Certificate, the Holder shall not be entitled to any rights of a stockholder of the Company with respect to the shares of Common Stock for which this Warrant Certificate shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. (d) Adjustments to Exercise Price. The Exercise Price for this ----------------------------- Warrant Certificate in effect from time to time shall be subject to adjustment as follows: (i) Adjustment for Common Stock Dividends, Subdivisions and ------------------------------------------------------- Combinations. Upon the issuance of additional shares of Common Stock as a - ------------ dividend or other distribution on outstanding Common Stock, the subdivision of outstanding shares of Common Stock into a greater number of shares of Common Stock, or the combination of outstanding shares of Common Stock into a smaller number of shares of the Common Stock, the Exercise 3 Price shall, simultaneously with the happening of such dividend, distribution, subdivision or combination, be adjusted by multiplying the then effective Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. An adjustment made pursuant to this Section 3(d)(i) shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of stockholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. (ii) Adjustment of Number of Shares. Upon each adjustment to the ------------------------------ Exercise Price pursuant to Section 3(d)(i) hereof, the number of shares of Common Stock purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of shares purchasable immediately prior to such adjustment by a fraction, the numerator of which shall be the Exercise Price immediately prior to such adjustment and the denominator of which shall be the Exercise Price immediately thereafter. (e) Other Adjustments. In the event the Company shall make or issue, ----------------- or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then and in each such event lawful and adequate provision shall be made so that the holders of Warrants shall receive upon exercise thereof in addition to the number of shares of Common Stock receivable thereupon, the number of securities of the Company which such holders would have received had such Warrants been exercised on the date of such event and had such holders thereafter, during the period from the date of such event to and including the date of exercise, retained such securities receivable by such holders as aforesaid during such period, giving application to all adjustments called for during such period under this Section 3 as applied to such distributed securities. If the Common Stock issuable upon the exercise of the Warrants shall be changed into the same or different number of shares of any class or classes of stock, whether by reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 3), then and in each such event the holder of each Warrant shall have the right thereafter to exercise such Warrant for the purchase of the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock for which such Warrants might have been exercised immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein. (f) Mergers and Other Reorganizations. If at any time or from time to --------------------------------- time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 3) or a merger or consolidation of the Company with or into another Company, then, as a part of and as a condition to the effectiveness of such reorganization, merger, consolidation, lawful and adequate provision shall be made so that the Holder of this Warrant shall thereafter be entitled 4 to receive upon exercise the number of shares of stock or other securities or property of the Company or of the successor Company resulting from such merger or consolidation, to which a holder of Common Stock deliverable upon exercise would have been entitled on such capital reorganization, merger or consolidation if this warrant had been exercised immediately prior thereto. In any such case, appropriate provisions shall be made with respect to the rights of the Holder of this Warrant after the reorganization, merger or consolidation to the end that the provisions of this Section 3 (including without limitation provisions for adjustment of the Exercise Price and the number of shares purchasable upon exercise) shall thereafter be applicable, as nearly as may be, with respect to any shares of stock, securities or assets to be deliverable thereafter upon the exercise. 4. Holder Representations, Warranties and Covenants ------------------------------------------------ The Holder represents and warrants to and covenants with the Company, as follows: (a) Representations. The Holder understands the risks of investing in --------------- computer software companies such as the Company and can afford a loss of its entire investment. The Holder is acquiring the Warrant for investment and not with the view to, or for resale in connection with any distribution thereof. The Holder understands that the Warrant and the shares of Common Stock issuable upon exercise of the Warrant are subject to restrictions on transfer under the Investment Agreement referred to herein. The Holder understands that the Warrant and the shares of Common Stock issuable upon exercise thereof have not been registered under the Securities Act, of 1933 as amended (the "Securities Act") or any applicable state securities ("blue sky") laws, by reason of specified exemptions from the registration provisions of the Securities Act and such laws. The Holder acknowledges that the Warrant and the shares of Common Stock issuable upon exercise thereof must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Holder has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act, which permits the resale of shares purchased in a private placement subject to the satisfaction of certain conditions and that such Rule may not be available for resale of the shares. The Holder has had an opportunity to discuss the Company's business, management and financial affairs with its management and has had the opportunity to review the Company's facilities. The Holder has its principal place of business in the State of Illinois. (b) Restrictions on Transferability. Neither the Warrant, nor the ------------------------------- shares of Common Stock received upon exercise thereof, shall be transferable, except upon the conditions specified in and in accordance with the terms of the Investment Agreement or this Section 4 hereof. (c) Restrictive Legend. Each certificate representing shares of the ------------------ Company's Common Stock issuable upon exercise of the Warrant, or any other securities issued in respect of the Common Stock issued upon exercise of the Warrant, upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with a legend in substantially the following form (in addition to any legend required under applicable state securities laws): 5 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A STOCK PURCHASE AGREEMENT DATED AS OF SEPTEMBER 29, 1998, INCLUDING THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF THIS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE. 5. Representations, Warranties and Covenants of the Company. The -------------------------------------------------------- Company represents and warrants to the Holder as of the date of issuance of this Agreement as follows: (a) Reservation of Preferred Stock. The Common Stock issuable upon ------------------------------ exercise of the Warrant has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Certificate, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the -------- ------- Common Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to the Holder true, correct and complete copies of its charter and by-laws, as amended. The issuance of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issuance tax in respect hereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Holder. (b) Due Authority. The execution and delivery by the Company of this ------------- Warrant Certificate and the performance of all obligations of the Company hereunder have been duly authorized by all necessary corporate action on the part of the Company, and the execution, delivery and performance of this Warrant Certificate do not contravene the Company's charter or by-laws or any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, 6 mortgage, contract or other instrument to which it is a party or by which it is bound, and this Warrant Certificate constitutes legal, valid and binding agreement of the Company, enforceable in accordance with its terms. (c) Consents and Approvals. No consent or approval of, giving of ---------------------- notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Certificate, except for the filing of notices pursuant to Regulation D under the Securities Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. After giving effect to the transactions ----------------- contemplated hereby and by the Stock Purchase Agreement between the Company and Comdisco, Inc. dated the date hereof, the authorized capital stock of the Company will consist of 45,000,000 shares of Common Stock, of which 13,323,119 shares will be issued and outstanding, 15,000,000 shares of Preferred Stock, of which 11,300,000 shares will be designated as Series A Convertible Participating Preferred Stock, of which 10,600,000 shares will be issued and outstanding, and 3,700,000 shares of Preferred Stock will be undesignated. (e) Other Commitments to Register Securities. Except as set forth in ---------------------------------------- this Warrant Certificate or as set forth or described in the Stock Purchase Agreement or the exhibits thereto, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (f) Exempt Transaction. Subject to the accuracy of the Holder's ------------------ representations in Section 4 hereof, the issuance of the Common Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. (g) Compliance with Rule 144. At the written request of the Holder, ------------------------ if the Holder proposes to sell Common Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Holder, within ten days after receipt of such request, a written statement with respect to the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. 7 6. Miscellaneous ------------- (a) Notices. Notices or demands relating to this Warrant Certificate ------- shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed as follows, or telexed, telecopied, or delivered by nationally-recognized overnight or other courier: If to the Holder: Comdisco, Inc. Legal Department 611 North River Road Rosemont, Illinois 60018 Attention: General Counsel Facsimile: (847) 518-5088 with a copy to: Comdisco, Inc./Comdisco Ventrues 611 North River Road Rosemont, Illinois 60018 Attention: Venture Group Facsimile: (847-518-5465 If to the Company: Freedom of Information, Inc. 124 Mt. Auburn Street Suite 200N Cambridge, MA 02138 Attention: President Facsimile: (617) 497-5734 with a copy to: Ropes & Gray One International Place Boston, MA 02110 Attention: Ann L. Milner, Esq. Facsimile: (617) 951-7050 (b) Successors. All the covenants and provisions of this Warrant ---------- Certificate by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors and assigns hereunder; provided that this Warrant Certificate may be assigned by the Holder only in compliance with the conditions specified in and in accordance with all of the terms of this Warrant Certificate. (c) Governing Law. This Warrant Certificate and the Warrant, and all ------------- questions relating to the interpretation, construction and enforceability of this Warrant Certificate and the Warrant, shall be governed in all respects by the substantive laws of the Commonwealth of Massachusetts. 8 (d) Amendments and Waivers. Except as otherwise provided herein, the ---------------------- provisions of this Warrant Certificate may not be amended, modified or supplemented, other than by a written instrument executed by the Company and the Holder. (e) Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Holder shall be enforceable to the fullest extent permitted by law. [Remainder of page intentionally left blank] 9 IN WITNESS WHEREOF, the parties hereto have caused this Warrant Certificate to be duly executed and delivered, as of the day and year first above written. COMPANY: ------- FREEDOM OF INFORMATION, INC. By: /s/ Stephen M. Joseph ---------------------------- Name: Stephen M. Joseph Title: Chief Financial Officer 10 HOLDER: ------ COMDISCO, INC. By: /s/ James P. Labe ------------------------------ Name: James P. Labe Title: President Comdisco Ventures Division 11 EXHIBIT A --------- FORM OF ELECTION TO PURCHASE (To be executed if Holder desires to exercise the Warrant Certificate) To FREEDOM OF INFORMATION, INC. The undersigned hereby irrevocably elects to exercise the Warrant represented by the Warrant Certificate to purchase ______________ shares of Common Stock issuable upon the exercise of such Warrant and requests that certificates for such shares be issued in the name of: -------------------------------------------------------------- (Please print name and address) -------------------------------------------------------------- Please insert tax payor identification number: ---------------------------- Dated: --------------- HOLDER: ------ By: ------------------------------- Name: Title: 12 EX-10.6 9 WARRANT CERTIFICATE A-1 Exhibit 10.6 THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE, THE SHARES WHICH MAY BE ACQUIRED UPON THE EXERCISE HEREOF AND THE SHARES WHICH MAY BE ACQUIRED UPON CONVERSION THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR, TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT. SUCH WARRANTS AND SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT CERTIFICATE. THE ISSUER OF SUCH SECURITIES (THE "COMPANY") MAY REQUIRE AS A CONDITION TO ANY SALE, ASSIGNMENT OR TRANSFER THAT THE HOLDER OR TRANSFEREE OF SUCH WARRANT OR SHARES FURNISH TO THE COMPANY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY (WHICH MAY BE IN-HOUSE COUNSEL TO THE, HOLDER) THAT SUCH SALE, ASSIGNMENT OR TRANSFER DOES NOT REQUIRE REGISTRATION UNDER THE, SECURITIES ACT OF 1933. FREEDOM OF INFORMATION, INC. WARRANT CERTIFICATE FOR THE PURCHASE OF SHARES OF SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK ----------------------------- NO. A-1 THIS WARRANT CERTIFICATE (the "Warrant Certificate"), dated as of September 29, 1998, certifies that for value received Comdisco, Inc., a Delaware corporation, or its permitted assigns (the "Holder") is the owner of a Warrant to purchase 100,000 shares of Series A Convertible Participating Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), of Freedom of Information, Inc., a Delaware corporation (the "Company"), provided for herein. W I T N E S E T H: ----------------- WHEREAS, the Company has entered into a Master Lease Agreement dated as of September 29, 1998, Equipment Schedule No. VL-1 and VL-2 dated as of September 29, 1998 and related Summary Equipment Schedules (collectively, the "Leases") with the Holder; and WHEREAS, in consideration of the Holder entering into the Leases, the Company has authorized the issuance to the Holder of the warrant (the "Warrant") of the Company represented by this Warrant Certificate, which Warrant entitles the Holder to purchase, upon the terms and conditions hereinafter set forth, shares of Series A Preferred Stock. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby certify as follows: 1. Grant of Warrant. This Warrant Certificate entitles the Holder to purchase ---------------- 100,000 shares of Series A Preferred Stock at a price per share equal to the Exercise Price (as defined in Section 2(a) hereof). 2. Certain Defined Terms; Exercise of Warrant; Exercise Price. ---------------------------------------------------------- (a) Certain Defined Terms. As used herein, the following terms shall have --------------------- the meanings specified: (i) "Common Stock" shall mean the Company's common stock, dollar, or ------------ par value per share. (ii) "Exercise Period" shall mean the period commencing on the date hereof and ending on the earliest to occur of the 10th anniversary of the date hereof or the fifth anniversary of the date on which a registration statement relating to the sale of the Company's Common Stock in an underwritten initial public offering registered under the Securities Act is declared effective by the Securities and Exchange Commission. (iii) "Exercise Price" shall mean $1.00 per share. -------------- (iv) "Securities Act" shall mean the Securities Act of 1933, as -------------- amended (the "Securities Act"). (b) Exercise Price. This Warrant Certificate shall entitle the Holder, -------------- subject to the provisions of Sections 2 and 3 herein, to purchase from the Company the number of shares of Series A Preferred Stock provided for in Section 1, at the Exercise Price for each such share, which shall be payable in full in cash at the time of exercise of this Warrant Certificate. (c) Right to Exercise the Warrant. This Warrant Certificate may be ----------------------------- exercised in full or in part, at any time during the Exercise Period. (d) Method of Exercise; Payment. The Holder may exercise this Warrant --------------------------- Certificate by executing the Form of Election attached hereto as Exhibit A and delivering it to the Company and tendering the requisite aggregate Exercise Price for the number of shares of Series A Preferred Stock subject to this Warrant Certificate to the Company on any business day during normal business hours (the date of receipt of such Form of Election and aggregate Exercise Price by the Company is hereinafter referred to as the "Exercise Date") provided, that in lieu of tendering the requisite aggregate Exercise -2- Price in cash, the Holder may elect to exercise this Warrant Certificate on a net basis whereupon the Company will issue shares of Series A Preferred Stock in accordance with the following formula: A = B(C-D) ------ C Where: A = the number of shares of Series A Preferred Stock to be issued to the Holder. B = the number of shares of Series A Preferred Stock requested to be exercised under this Warrant Certificate. C = the fair market value of one share of Series A Preferred Stock. D = the Exercise Price. For purposes of the above calculation, current fair market value of the Series A Preferred Stock shall be determined as follows: (i) if the Common Stock is then admitted to trading on a national securities exchange or traded in the NASDAQ National Market System, current fair market value of a share of the Series A Preferred Stock shall be the product of (x) the average of the closing prices of the Common Stock over the 20-day period ending on the date the current fair market value of the securities is being determined or, if there have been no sales on any such exchange or any such quotation on any day, the average of the highest bid and lowest asked prices on all such exchanges or such system at the end of such day, or, if any day the Common Stock is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ system as of 4:00 p.m., Boston time, or, if on any day that Common Stock is not quoted in the NASDAQ system, the average of the highest bid and lowest asked price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization and (y) the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible at the time of such exercise; or (ii) If at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ system or the over-the-counter market, the current fair market value of the Series A Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors of the Company and (y) the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible at the time of each exercise. -3- Upon partial exercise of the Warrant, the Company shall promptly issue an amended Warrant Certificate representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein. (e) Issuance of Shares of Series A Preferred Stock. As soon as ---------------------------------------------- practicable after the Exercise Date the Company shall (provided that it has received the Form of Election duly executed, accompanied by payment of the Exercise Price pursuant to Section 2(b) hereof for each of the shares of Common Stock to be purchased) promptly cause certificates for the number of shares of Common Stock to be issued in respect of this Warrant Certificate to be delivered to or upon the order of the Holder, registered in such name as may be designated by such holder; provided that if the Common Stock is to be registered in the name of any entity or person other than the Holder, the Company may require evidence of compliance by the Holder with all applicable securities laws, including, without limitation, an opinion of Holder's counsel reasonably acceptable to the Company and the payment by the Holder of any necessary transfer taxes in connection with the issuance of such Common Stock. 3. Reservation and Availability of Series A Preferred Stock; Adjustments --------------------------------------------------------------------- (a) Reservation of Series A Preferred Stock. The Company covenants and --------------------------------------- agrees that it will cause to be kept available out of its authorized and unissued Series A Preferred Stock, or its authorized and issued Series A Preferred Stock held in its treasury, the number of shares of Series A Preferred Stock that will be sufficient to permit the exercise in full of this Warrant Certificate. (b) Series A Preferred Stock to be Duly Authorized and Issued, Fully Paid --------------------------------------------------------------------- and Non-Assessable. The Company covenants and agrees that it will ------------------ take all such action as may be necessary to ensure that all shares of Series A Preferred Stock delivered upon exercise of the Warrant and payment of the requisite aggregate Exercise Price thereof shall, at the time of delivery of the certificates for such shares, be duly and validly authorized and issued and fully paid and non-assessable shares. (c) Series A Record Date. Each person or entity in whose name any -------------------- certificate for shares of Series A Preferred Stock is issued upon the exercise of this Warrant Certificate in accordance with its terms shall for all purposes be deemed to have become the holder of record of the shares of Series A Preferred Stock represented thereby on, and such certificate shall be dated, the date upon which the Form of Election was received by the Company and payment of the aggregate Exercise Price was received by the Company pursuant to Section 2(b) hereof. Prior to the exercise of this Warrant -4- Certificate, the Holder shall not be entitled to any rights of a stockholder of the Company with respect to the shares of Series A Preferred Stock for which this Warrant Certificate shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. (d) Adjustments to Exercise Price. The Exercise Price for this Warrant ----------------------------- Certificate in effect from time to time shall be subject to adjustment as follows: (1) Adjustment for Series A Preferred Stock Dividends, -------------------------------------------------- Subdivision and Combinations. Upon the issuance of ---------------------------- additional shares of Series A Preferred Stock as a dividend or other distribution on outstanding Series A Preferred Stock, the subdivision of outstanding, shares of Series A Preferred Stock into a greater number of shares of Series A Preferred Stock, or the combination of outstanding shares of Series A Preferred Stock into a smaller number of shares of the Series A Preferred Stock, the Exercise Price shall, simultaneously with the happening of such dividend, distribution, subdivision or combination, be adjusted by multiplying the then effective Exercise Price by a fraction, the numerator of which shall be the number of shares of Series A Preferred Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Series A Preferred Stock outstanding immediately after such event. An adjustment made pursuant to this Section 3(d)(i) shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of stockholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. (2) Adjustment of Number of Shares. Upon each adjustment to the ------------------------------ Exercise Price pursuant to Section 3(d)(i) hereof, the number of shares of Series A Preferred Stock purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of shares purchasable immediately prior to such adjustment by a fraction, the numerator of which shall be the Exercise Price immediately prior to such adjustment and the denominator of which shall be the Exercise Price immediately thereafter. -5- (e) Other Adjustments. In the event the Company shall make or issue, or ----------------- fix a record date for the determination of holders of Series A Preferred Stock entitled to receive, a dividend or other distribution payable in securities of the Company other than shares of Series A Preferred Stock, then and in each such event lawful and adequate provision shall be made so that the holders of Warrants shall receive upon exercise thereof in addition to the number of shares of Series A Preferred Stock receivable thereupon, the number of securities of the Company which such holders would have received had such Warrants been exercised on the date of such event and had such holders thereafter, during the period from the date of such event to and including the date of exercise, retained such securities receivable by such holders as aforesaid during such period, giving application to such all adjustments called for during such period under this Section 3 as applied to such distributed securities. If the Series A Preferred Stock issuable upon the exercise of the Warrants shall be changed into the same or different number of shares of any class or classes of stock, whether by reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 3), then and in each such event the holder of each Warrant shall have the right thereafter to exercise such Warrant for the purchase of the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Series A Preferred Stock for which such Warrants might have been exercised immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein. (f) Mergers and Other Reorganizations. If at any time or from time to --------------------------------- time there shall be a capital reorganization of the Series A Preferred Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 3) or a merger or consolidation of the Company with or into another company, then, as a part of and as a condition to the effectiveness of such reorganization, merger, consolidation, lawful and adequate provision shall be made so that the Holder of this Warrant shall thereafter be entitled to receive upon exercise the number of shares of stock or other securities or property of the Company or of the successor Company resulting from such memo or consolidation, to which a holder of Series A Preferred Stock deliverable upon exercise would have been entitled on such capital reorganization, merger or consolidation if this warrant had been exercised immediately prior thereto. In any such case, appropriate provisions (as determined in good faith by the Company's Board of -6- Directors) shall be made with respect to the rights of the Holder of this Warrant after the reorganization, merger or consolidation to the end that the provisions of this Section 3 (including without limitation provisions for adjustment of the Exercise Price and the number of shares purchasable upon exercise) shall thereafter be applicable, as nearly as may be, with respect to any shares of stock, securities or assets to be deliverable thereafter upon the exercise. (g) Right to Purchase Additional Stock. If the Holder's total cost of ---------------------------------- equipment leased pursuant to the Leases exceeds $2,000,000, Holder shall have the right to purchase from the Company at the Exercise Price (adjusted as set forth herein) an additional number of shares of Series A Preferred Stock, which number shall be determined by (i) multiplying the amount by which the Holder's total equipment cost that was financed by the Holder exceeds $2,000,000 by 5%, and (ii) dividing the product thereof by the Exercise Price. (h) Antidilution Rights. Additional antidilution rights applicable to the ------------------- Series A Preferred Stock purchasable hereunder are as set forth in the Company's Certificate of Incorporation, as amended from time to time, a current true and correct copy of which is attached hereto as Exhibit B. The Company shall promptly provide the Holder with any restatement, amendment, modification or waiver of the Certificate of Incorporation. The Company shall provide Holder with prior written notice of any issuance of its stock or other equity security (other than equity securities issued pursuant to an employee stock option or similar plan) to occur after the date hereof, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as may be reasonably requested and is necessary to determine if a dilutive event has occurred. 4. Holder Representations, Warranties and Covenants ------------------------------------------------ The Holder represents and warrants to and covenants with the Company, as follows: (a) Representations. The Holder understands the risks of investing in --------------- computer software companies such as the Company and can afford a loss of its entire investment. The Holder is acquiring the Warrant for investment and not with the view to, or for resale in connection with any distribution thereof. The Holder understands that the Warrant, the shares of Series A Preferred Stock issuable upon exercise of the Warrant and the shares of common stock of the Company issuable upon conversion of such shares of Series A -7- Preferred Stock are subject to restrictions on transfer referred to herein. The Holder understands that the Warrant, the shares of Series A Preferred Stock issuable upon exercise thereof and the shares of common stock of the Company issuable upon conversion of such shares of Series A Preferred Stock have not been registered under the Securities Act or any applicable state securities ("blue sky") laws, by reason of specified exemptions from the registration provisions of the Securities Act and such laws. The Holder acknowledges that the Warrant, the shares of Series A Preferred Stock issuable upon exercise thereof and the shares of common stock of the Company issuable upon conversion of such shares of Series A Preferred Stock must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Holder has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act, which permits the resale of shares purchased in a private placement subject to the satisfaction of certain conditions and that such Rule may not be available for resale of the shares of Series A Preferred Stock issuable upon exercise of the Warrant or the shares of Common Stock issuable upon conversion of such shares of Series A Preferred Stock. The Holder has had an opportunity to discuss the Company's business, management and financial affairs with its management and has had the opportunity to review the Company's facilities. The Holder is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act. The Holder has its principal place of business in State of Illinois. (b) Restrictions on Transferability. None of the Warrant, the shares of ------------------------------- Series A Preferred Stock received upon exercise thereof nor the shares of Common Stock received upon conversion of such shares of Series A Preferred Stock shall be transferable, except to an affiliate of the Holder or to another financial institution (other than a competitor of the Company) upon the conditions specified in and in accordance with the terms of the Stock Purchase Agreement dated as of September 29, 1998 between the Company and the Holder (the "Investment Agreement") and this Section. (c) Restrictive Legend. Each certificate representing shares of the ------------------ Company's Series A Preferred Stock issuable upon exercise of the Warrant, or any other securities issued in respect of the Series A Preferred Stock issued upon exercise of the Warrant, upon any conversion of such shares or upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with a legend in substantially the following form (in addition to any legend required under applicable state securities laws): -8- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A STOCK PURCHASE AGREEMENT DATED AS OF SEPTEMBER 29, 1998, INCLUDING THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF SUCH AGREEMENT AND SUCH INSTRUMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE. 5. No Fractional Shares of Scrip. No fractional shares or scrip representing ----------------------------- fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. Representations, Warranties and Covenants of the Company. The Company -------------------------------------------------------- represents and warrants to the Holder as of the date of issuance of this Agreement as follows: (a) Reservation of Preferred Stock. The Series A Preferred Stock issuable ------------------------------ upon exercise of the Warrant has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Certificate, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Series A Preferred -------- ------- Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to the Holder true, correct and complete copies of its charter and by-laws, as amended. The issuance of certificates for shares of Series A Preferred Stock upon exercise of this Warrant shall be made without charge to the Holder for any issuance tax in respect hereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Series A Preferred Stock. The Company shall not be required to pay any tax which may be payable in -9- respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Holder. (b) Due Authority. The execution and delivery by the Company of this ------------- Warrant Certificate and the performance of all obligations of the Company hereunder have been duly authorized by all necessary corporate action on the part of the Company, and the execution, delivery and performance of this Warrant Certificate do not contravene the Company's charter or by-laws or any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and this Warrant Certificate constitutes legal, valid and binding agreement of the Company, enforceable in accordance with its terms. (c) Consents and Approvals. No consent or approval of, giving of notice ---------------------- to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Certificate, except for the filing of notices pursuant to Regulation D under the Securities Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. After giving effect to the transactions ----------------- contemplated hereby and by the Stock Purchase Agreement between the Company and Comdisco, Inc. dated the date hereof, the authorized capital stock of the Company will consist of 45,000,000 shares of Common Stock, of which 13,323,119 shares will be issued and outstanding, 15,000,000 shares of Preferred Stock, of which 11,300,000 shares will be designated as Series A Convertible Participating Preferred Stock, of which 10,600,000 shares will be issued and outstanding, and 3,700,000 shares of Preferred Stock will be undesignated. In addition, the Company has authorized and reserved for issuance upon exercise of the Warrant, 100,000 shares of Series A Preferred Stock (subject to adjustment for stock splits, stock dividends and the like) and upon conversion of the Series A Preferred Stock, 100,000 shares of Common Stock (subject to adjustment for stock splits, stock dividends and the like). (e) Other Commitments to Register Securities. Except as set forth in this ---------------------------------------- Warrant Certificate or as set forth or described in the Stock Purchase Agreement or the exhibits thereto, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to -10- register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (f) Exempt Transaction. Subject to the accuracy of the Holder's ------------------ representations in Section 4 hereof, the issuance of the Series A Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. (g) Compliance with Rule 144. At the written request of the Holder, if ------------------------ the Holder proposes to sell Series A Preferred Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Holder, within ten days after receipt of such request, a written statement with respect to the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. (h) Notices. In each case of an adjustment or readjustment of the ------- Conversion Price (as defined in the Company's Certificate of Incorporation), the Company will furnish to the Holder a certificate, prepared by the chief financial officer of the Company, showing such adjustment or readjustment, and stating in detail the facts upon which such adjustment or readjustment is based. (i) Notices of Record Date. In the event (i) the Company establishes a ---------------------- record date to determine the holders of any class of securities who are entitled to receive any dividend or other distribution, or (ii) there occurs any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company, and any transfer of all or substantially all of the assets of the Company to any other corporation, or any other entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to the Holder at least twenty (20) days prior to the record date or the expected effective date, as the case may be, specified therein, a notice specifying (a) the date of such record date for the purpose of such dividend or distribution and a description of such dividend or distribution, (b) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (c) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be -11- entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up. (j) Satisfaction of Obligations. The Company will satisfy its obligations --------------------------- to Holder under this Warrant in accordance with the terms of the Company's Certificate of Incorporation, as amended and in effect from time to time. 7. Miscellaneous. ------------- (a) Notices. Notices or demands relating to this Warrant Certificate ------- shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed as follows, or telexed, telecopied, or delivered by nationally recognized overnight or other courier: If to the Holder: Comdisco, Inc. Legal Department 6111 North River Road Rosemont, Illinois 60018 Attention: General Counsel Facsimile: (847) 518-5088 with a copy to: Comdisco, Inc./Comdisco Ventures 6111 North River Road Rosemont, Illinois 60018 Attention: Venture Group Facsimile: (847) 518-5465 If to the Company: Freedom of Information, Inc. 124 Mt. Auburn Street Suite 200N Cambridge, MA 02138 Attention: President Facsimile: (617) 497-5734 with a copy to: Ropes & Gray One International Place Boston, MA 02110 Attention: Ann L. Milner, Esq. Facsimile: (617) 951-7050 -12- (b) Successors. All the covenants and provisions of this Warrant ---------- Certificate by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors and assigns hereunder; provided that this Warrant Certificate may be assigned by the Holder only in compliance with the conditions specified in and in accordance with all of the terms of this Warrant Certificate. (c) Governing Law. This Warrant Certificate and the Warrant, and all ------------- questions relating to the interpretation, construction and enforceability of this Warrant Certificate and the Warrant, shall be governed in all respects by the substantive laws of The Commonwealth of Massachusetts. (d) Amendments and Waivers. Except as otherwise provided herein, the ---------------------- provisions of this Warrant Certificate may not be amended, modified or supplemented, other than by a written instrument executed by the Company and the Holder. (e) Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remainincy provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Holder shall be enforceable to the fullest extent permitted by law. (f) Survival. The representations, warranties, covenants and conditions -------- of the respective parties contained herein or made pursuant to this Warrant Certificate shall survive the execution and delivery of this Warrant Certificate. (g) Remedies. In the event of any default hereunder, the non-defaulting -------- party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where the Holder will not have an adequate remedy at law and where damages will be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Holder or any other person entitled to the benefit of this warrant certificate requiring, specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Warrant Certificate. [Remainder of page intentionally left blank] -13- IN WITNESS WHEREOF, the parties hereto have caused this Warrant Certificate to be duly executed and delivered, as of the day and year first above written. COMPANY: ------- FREEDOM OF INFORMATION, INC. By: /s/Stephen M. Joseph ------------------------ Name: Stephen M. Joseph Title: CFO -14- HOLDER: ------ COMDISCO, INC. By: /s/James P. Labe --------------------------------- Name: James P. Labe Title: President Comdisco Ventures Division -15- EXHIBIT A --------- FORM OF ELECTION TO PURCHASE (To be executed if Holder desires to exercise the Warrant Certificate) To FREEDOM OF INFORMATION, INC. The undersigned hereby irrevocably elects to exercise the Warrant represented by the Warrant Certificate to purchase shares of Series A Convertible Participating Preferred Stock issuable upon the exercise of such Warrant and requests that certificates for such shares be issued in the name of: __________________________________________________ (Please print name and address) __________________________________________________ Please insert tax payor identification number: _________________ Dated: HOLDER: ------ By: _________________________________ Name: Title: -16- EX-10.7 10 WARRANT CERTIFICATE A-2 EXHIBIT 10.7 THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE, THE SHARES WHICH MAY BE ACQUIRED UPON THE EXERCISE HEREOF AND THE SHARES WHICH MAY BE ACQUIRED UPON CONVERSION THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT. SUCH WARRANTS AND SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT CERTIFICATE. THE ISSUER OF SUCH SECURITIES (THE "COMPANY") MAY REQUIRE AS A CONDITION TO ANY SALE, ASSIGNMENT OR TRANSFER THAT THE HOLDER OR TRANSFEREE OF SUCH WARRANT OR SHARES FURNISH TO THE COMPANY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY (WHICH MAY BE IN-HOUSE COUNSEL TO THE HOLDER) THAT SUCH SALE, ASSIGNMENT OR TRANSFER DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OF 1933. FREEDOM OF INFORMATION, INC. WARRANT CERTIFICATE FOR THE PURCHASE OF SHARES OF SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK ----------------------------- NO. A-2 THIS WARRANT CERTIFICATE (the "Warrant Certificate"), dated as of September 29, 1998, certifies that for value received Comdisco, Inc., a Delaware corporation, or its permitted assigns (the "Holder") is the owner of a Warrant to purchase the number of shares of Series A Convertible Participating Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), of Freedom of Information, Inc., a Delaware corporation (the "Company"), provided for herein. W I T N E S S E T H: - - - - --- - - - - WHEREAS, the Company has entered into a Subordinated Loan and Security Agreement dated as of September 29, 1998 with the Holder (the "Subordinated Loan Agreement"); and WHEREAS, in consideration of the Holder entering into the Subordinated Loan Agreement, the Company has authorized the issuance to the Holder of the warrant (the "Warrant") of the Company represented by this Warrant Certificate, which Warrant entitles the Holder to purchase, upon the terms and conditions hereinafter set forth, shares of Series A Preferred Stock. 1 NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby certify as follows: 1. Grant of Warrant. This Warrant Certificate entitles the Holder to purchase up to the number of shares of Series A Preferred Stock equal to the Maximum Number of Shares (as defined in Section 2(a) hereof) at a price per share equal to the Exercise Price (as defined in Section 2(a) hereof). 2. Certain Defined Terms; Exercise of Warrant; Exercise Price. ---------------------------------------------------------- (a) Certain Defined Terms. As used herein, the following terms shall have --------------------- the meanings specified: (i) "Advance" shall have the meaning specified in Subordinated Loan ------- Agreement. (ii) "Common Stock" shall mean the Company's common stock, dollar, or ------------ par value per share. (iii)"Exercise Period" shall mean the period (a) commencing (i) if an --------------- Advance is made to the Company under the Subordinated Loan Agreement within the six month period following the date hereof, the date such Advance is made and (ii) otherwise on the date immediately following the date on which a Qualified Equity Offering is consummated, and (b) ending on the earliest to occur of the 10th anniversary of the date hereof or the fifth anniversary of the date on which a registration statement relating to the sale of the Company's Common Stock in an underwritten initial public offering registered under the Securities Act is declared effective by the Securities and Exchange Commission. (iv) "Exercise Price" shall mean: (i) if an Advance is made to the -------------- Company under the Subordinated Loan Agreement within the six month period following the date hereof, the First Round Price and (ii) otherwise, the amount equal to the average of the First Round Price and the Next Round Price, provided, however, that if there has been no Next Round prior to the 30 day period ending on the last day of the Exercise Period, the Exercise Price during such 30 day period shall be the First Round Price. (v) "First Round Price" shall mean $1.00. ----------------- (vi) "Maximum Number of Shares" shall mean the number of shares ------------------------ (rounded to the nearest whole number) equal to 600,000 divided by the Exercise Price. (vii)"Next Round" shall mean the first to occur of (i) the ---------- consummation of first Qualified Equity Financing by the Company after the date hereof or -2- (ii) the sale, conveyance, disposal, or encumbrance of all or substantially all of the Company's property or business or the Company's merger into or consolidation with any other corporation, other than a merger of the Company with a wholly-owned subsidiary, a merger in which the Company is the surviving entity, and a merger effected exclusively for the purpose of changing the domicile of the Company. (viii) "Next Round Price" shall mean (i) in the case of Qualified Equity ---------------- Offering, the price per share attributable to the Company's securities sold in the Next Round and (ii) in the case of any other Next Round, the price per share attributable to a share of the Series A Preferred Stock in such Next Round. (ix) "Qualified Equity Offering" shall mean an equity financing by the ------------------------- Company, including an initial public offering of the Common Stock in which the net proceeds received by the Company exceeds $10,000,000. (x) "Securities Act" shall mean the Securities Act of 1933, as -------------- amended (the "Securities Act"). (b) Exercise Price. This Warrant Certificate shall entitle the Holder, -------------- subject to the provisions of Sections 2 and 3 herein, to purchase from the Company the number of shares of Series A Preferred Stock provided for in Section 1, at the Exercise Price for each such share, which shall be payable in full in cash at the time of exercise of this Warrant Certificate. (c) Right to Exercise the Warrant. This Warrant Certificate may be ----------------------------- exercised in full or in part, at any time during the Exercise Period. (d) Method of Exercise; Payment. The Holder may exercise this Warrant --------------------------- Certificate by executing the Form of Election attached hereto as Exhibit A and delivering it to the Company and tendering the requisite aggregate Exercise Price for the number of shares of Series A Preferred Stock subject to this Warrant Certificate to the Company on any business day during normal business hours (the date of receipt of such Form of Election and aggregate Exercise Price by the Company is hereinafter referred to as the "Exercise Date") provided, that in lieu of tendering the requisite aggregate Exercise Price in cash, the Holder may elect to exercise this Warrant Certificate on a net basis whereupon the Company will issue shares of Series A Preferred Stock in accordance with the following formula: A = B(C-D) ----- C Where: A= the number of shares of Series A Preferred Stock to be issued to the Holder. B= the number of shares of Series A Preferred Stock requested to be exercised under this Warrant Certificate. -3- C= the fair market value of one share of Series A Preferred Stock. D= the Exercise Price. For purposes of the above calculation, current fair market value of the Series A Preferred Stock shall be determined as follows: (i) if the Common Stock is then admitted to trading on a national securities exchange or traded in the NASDAQ National Market System, current fair market value of a share of the Series A Preferred Stock shall be the product of (x) the average of the closing prices of the Common Stock over the 20-day period ending on the date the current fair market value of the securities is being determined or, if there have been no sales on any such exchange or any such quotation on any day, the average of the highest bid and lowest asked prices on all such exchanges or such system at the end of such day, or, if any day the Common Stock is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ system as of 4:00 p.m., Boston time, or, if on any day that Common Stock is not quoted in the NASDAQ system, the average of the highest bid and lowest asked price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization and (y) the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible at the time of such exercise; or (ii) If at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ system or the over-the-counter market, the current fair market value of the Series A Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors of the Company and (y) the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible at the time of each exercise. Upon partial exercise of the Warrant, the Company shall promptly issue an amended Warrant Certificate representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein. (e) Issuance of Shares of Series A Preferred Stock. As soon as ---------------------------------------------- practicable after the Exercise Date the Company shall (provided that it has received the Form of Election duly executed, accompanied by payment of the Exercise Price pursuant to Section 2(b) hereof for each of the shares of Common Stock to be purchased) promptly cause certificates for the number of shares of Common Stock to be issued in respect of this Warrant Certificate to be delivered to or upon the order of the Holder, registered in such name as may be designated by such holder; provided that if the Common Stock is to be registered in the name of any entity or person other than the Holder, the Company may require evidence of compliance by the Holder with all applicable securities laws, including, without limitation, an opinion of Holder's counsel reasonably acceptable to the Company -4- and the payment by the Holder of any necessary transfer taxes in connection with the issuance of such Common Stock. 3. Reservation and Availability of Series A Preferred Stock; Adjustments --------------------------------------------------------------------- (a) Reservation of Series A Preferred Stock. The Company covenants and --------------------------------------- agrees that it will cause to be kept available out of its authorized and unissued Series A Preferred Stock, or its authorized and issued Series A Preferred Stock held in its treasury, the number of shares of Series A Preferred Stock that will be sufficient to permit the exercise in full of this Warrant Certificate. (b) Series A Preferred Stock to be Duly Authorized and Issued, Fully Paid --------------------------------------------------------------------- and Non-Assessable. The Company covenants and agrees that it will ------------------ take all such action as may be necessary to ensure that all shares of Series A Preferred Stock delivered upon exercise of the Warrant and payment of the requisite aggregate Exercise Price thereof shall, at the time of delivery of the certificates for such shares, be duly and validly authorized and issued and fully paid and non-assessable shares. (c) Series A Record Date. Each person or entity in whose name any -------------------- certificate for shares of Series A Preferred Stock is issued upon the exercise of this Warrant Certificate in accordance with its terms shall for all purposes be deemed to have become the holder of record of the shares of Series A Preferred Stock represented thereby on, and such certificate shall be dated, the date upon which the Form of Election was received by the Company and payment of the aggregate Exercise Price was received by the Company pursuant to Section 2(b) hereof. Prior to the exercise of this Warrant Certificate, the Holder shall not be entitled to any rights of a stockholder of the Company with respect to the shares of Series A Preferred Stock for which this Warrant Certificate shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. (d) Adjustments to Exercise Price. The Exercise Price for this Warrant --------------------- Certificate in effect from time to time shall be subject to adjustment as follows: (1) Adjustment for Series A Preferred Stock Dividends, -------------------------------------------------- Subdivisions and Combinations. Upon the issuance of ----------------------------- additional shares of Series A Preferred Stock as a dividend or other distribution on outstanding Series A Preferred Stock, the subdivision of outstanding shares of Series A Preferred Stock into a greater number of shares of Series A Preferred Stock, or the combination of outstanding shares of Series A Preferred Stock into a smaller number of shares of the Series A Preferred Stock, the Exercise Price shall, simultaneously with the happening of such dividend, -5- distribution, subdivision or combination, be adjusted by multiplying the then effective Exercise Price by a fraction, the numerator of which shall be the number of shares of Series A Preferred Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Series A Preferred Stock outstanding immediately after such event. An adjustment made pursuant to this Section 3(d)(i) shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of stockholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. (2) Adjustment of Number of Shares. Upon each adjustment to the ------------------------------ Exercise Price pursuant to Section 3(d)(i) hereof, the number of shares of Series A Preferred Stock purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of shares purchasable immediately prior to such adjustment by a fraction, the numerator of which shall be the Exercise Price immediately prior to such adjustment and the denominator of which shall be the Exercise Price immediately thereafter. (e) Other Adjustments. In the event the Company shall make or issue, or ----------------- fix a record date for the determination of holders of Series A Preferred Stock entitled to receive, a dividend or other distribution payable in securities of the Company other than shares of Series A Preferred Stock, then and in each such event lawful and adequate provision shall be made so that the holders of Warrants shall receive upon exercise thereof in addition to the number of shares of Series A Preferred Stock receivable thereupon, the number of securities of the Company which such holders would have received had such Warrants been exercised on the date of such event and had such holders thereafter, during the period from the date of such event to and including the date of exercise, retained such securities receivable by such holders as aforesaid during such period, giving application to all adjustments called for during such period under this Section 3 as applied to such distributed securities. If the Series A Preferred Stock issuable upon the exercise of the Warrants shall be changed into the same or different number of shares of any class or classes of stock, whether by reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 3), then and in each such event the holder of each Warrant shall have the right thereafter to exercise such Warrant for the purchase of the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Series A Preferred Stock for which such -6- Warrants might have been exercised immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein. (f) Mergers and Other Reorganizations. If at any time or from time to time --------------------------------- there shall be a capital reorganization of the Series A Preferred Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 3) or a merger or consolidation of the Company with or into another company, then, as a part of and as a condition to the effectiveness of such reorganization, merger, consolidation, lawful and adequate provision shall be made so that the Holder of this Warrant shall thereafter be entitled to receive upon exercise the number of shares of stock or other securities or property of the Company or of the successor Company resulting from such merger or consolidation, to which a holder of Series A Preferred Stock deliverable upon exercise would have been entitled on such capital reorganization, merger or consolidation if this warrant had been exercised immediately prior thereto. In any such case, appropriate provisions (as determined in good faith by the Company's Board of Directors) shall be made with respect to the rights of the Holder of this Warrant after the reorganization, merger or consolidation to the end that the provisions of this Section 3 (including without limitation provisions for adjustment of the Exercise Price and the number of shares purchasable upon exercise) shall thereafter be applicable, as nearly as may be, with respect to any shares of stock, securities or assets to be deliverable thereafter upon the exercise. (g) Right to Purchase Additional Stock. If the Company has not paid any ---------------------------------- Subordinated Promissory Note(s) entered into pursuant to the Subordinated Loan Agreement in its entirety within thirty (30) days after the Maturity Date (as defined in the applicable Subordinated Promissory Note(s)), then for each additional month, or portion thereof, thereafter that the outstanding principal is not paid, Holder shall have the right to purchase from the Company, at the Exercise Price (adjusted as set forth herein), an additional number of shares of Series A Preferred Stock, which number shall be determined by (i) multiplying the outstanding principal amount which is due but unpaid on the applicable Subordinated Promissory Note by 1% and (ii) dividing the product thereof by the Exercise Price. (h) Antidilution Rights. Additional antidilution rights applicable to the ------------------- Series A Preferred Stock purchasable hereunder are as set forth in the Company's Certificate of Incorporation, as amended from time to time, a current true and correct copy of which is attached hereto as Exhibit B. The Company shall promptly provide the Holder with any restatement, amendment, modification or waiver of the Certificate of Incorporation. The Company shall provide Holder with prior written notice of any issuance of its stock or other equity security (other than equity securities issued pursuant to an employee stock option or similar plan) to occur after the date hereof, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as may be reasonably requested and is necessary to determine if a dilutive event has occurred. Holder Representations, Warranties and Covenants - ------------------------------------------------ The Holder represents and warrants to and covenants with the Company, as follows: -7- (f) Representations. The Holder understands the risks of investing in --------------- computer software companies such as the Company and can afford a loss of its entire investment. The Holder is acquiring the Warrant for investment and not with the view to, or for resale in connection with any distribution thereof. The Holder understands that the Warrant, the shares of Series A Preferred Stock issuable upon exercise of the Warrant and the shares of common stock of the Company issuable upon conversion of such shares of Series A Preferred Stock are subject to restrictions on transfer referred to herein. The Holder understands that the Warrant, the shares of Series A Preferred Stock issuable upon exercise thereof and the shares of common stock of the Company issuable upon conversion of such shares of Series A Preferred Stock have not been registered under the Securities Act or any applicable state securities ("blue sky") laws, by reason of specified exemptions from the registration provisions of the Securities Act and such laws. The Holder acknowledges that the Warrant, the shares of Series A Preferred Stock issuable upon exercise thereof and the shares of common stock of the Company issuable upon conversion of such shares of Series A Preferred Stock must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Holder has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act, which permits the resale of shares purchased in a private placement subject to the satisfaction of certain conditions and that such Rule may not be available for resale of the shares of Series A Preferred Stock issuable upon exercise of the Warrant or the shares of Common Stock issuable upon conversion of such shares of Series A Preferred Stock. The Holder has had an opportunity to discuss the Company's business, management and financial affairs with its management and has had the opportunity to review the Company's facilities. The Holder is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act. The Holder has its principal place of business in State of Illinois. (g) Restrictions on Transferability. None of the Warrant, the shares of ------------------------------- Series A Preferred Stock received upon exercise thereof or the shares of Common Stock received upon conversion of such shares of Series A Preferred Stock shall be transferable, except to an affiliate of the Holder or to another financial institution (other than a competitor of the Company) upon the conditions specified in and in accordance with the terms of the Stock Purchase Agreement dated as of September 29, 1998 between the Company and the Holder (the "Investment Agreement") and this Section. (h) Restrictive Legend. Each certificate representing shares of the ------------------ Company's Series A Preferred Stock issuable upon exercise of the Warrant, or any other securities issued in respect of the Series A Preferred Stock issued upon exercise of the Warrant, upon any conversion of such shares or upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with a legend in substantially the following form (in addition to any legend required under applicable state securities laws): -8- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A STOCK PURCHASE AGREEMENT DATED AS OF SEPTEMBER 29, 1998, INCLUDING THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF SUCH AGREEMENT AND SUCH INSTRUMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE. 4. No Fractional Shares of Scrip. No fractional shares or scrip representing ----------------------------- fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 5. Representations, Warranties and Covenants of the Company. The Company -------------------------------------------------------- represents and warrants to the Holder as of the date of issuance of this Agreement as follows: (a) Reservation of Preferred Stock. The Series A Preferred Stock issuable ------------------------------ upon exercise of the Warrant has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Certificate, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Series A Preferred Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to the Holder true, correct and complete copies of its charter and by-laws, as amended. The issuance of certificates for shares of Series A Preferred Stock upon exercise of this Warrant shall be made without charge to the Holder for any issuance tax in respect hereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Series A Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Holder. (b) Due Authority. The execution and delivery by the Company of this ------------- Warrant Certificate and the performance of all obligations of the Company hereunder -9- have been duly authorized by all necessary corporate action on the part of the Company, and the execution, delivery and performance of this Warrant Certificate do not contravene the Company's charter or by-laws or any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and this Warrant Certificate constitutes legal, valid and binding agreement of the Company, enforceable in accordance with its terms. (c) Consents and Approvals. No consent or approval of, giving of notice ---------------------- to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Certificate, except for the filing of notices pursuant to Regulation D under the Securities Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. After giving effect to the transactions ----------------- contemplated hereby and by the Stock Purchase Agreement between the Company and Comdisco, Inc. dated the date hereof, the authorized capital stock of the Company will consist of 45,000,000 shares of Common Stock, of which 13,323,119 shares will be issued and outstanding, 15,000,000 shares of Preferred Stock, of which 11,300,000 shares will be designated as Series A Convertible Participating Preferred Stock, of which 10,600,000 shares will be issued and outstanding, and 3,700,000 shares of Preferred Stock will be undesignated. In addition, the Company has authorized and reserved for issuance upon exercise of the Warrant, up to 600,000 shares of Series A Preferred Stock (subject to adjustment for stock splits, stock dividends and the like) and upon conversion of the Series A Preferred Stock, up to 600,000 shares of Common Stock (subject to adjustment for stock splits, stock dividends and the like). (e) Other Commitments to Register Securities. Except as set forth in this ---------------------------------------- Warrant Certificate or as set forth or described in the Stock Purchase Agreement or the exhibits thereto, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (f) Exempt Transaction. Subject to the accuracy of the Holder's ------------------ representations in Section 4 hereof, the issuance of the Series A Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. -10- (g) Compliance with Rule 144. At the written request of the Holder, if ------------------------ the Holder proposes to sell Series A Preferred Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Holder, within ten days after receipt of such request, a written statement with respect to the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. (h) Notices. In each case of an adjustment or readjustment of the ------- Conversion Price (as defined in the Company's Certificate of Incorporation), the Company will furnish to the Holder a certificate, prepared by the chief financial officer of the Company, showing such adjustment or readjustment, and stating in detail the facts upon which such adjustment or readjustment is based. (i) Notices of Record Date. In the event (i) the Company establishes a ---------------------- record date to determine the holders of any class of securities who are entitled to receive any dividend or other distribution, or (ii) there occurs any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company, and any transfer of all or substantially all of the assets of the Company to any other corporation, or any other entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to the Holder at least twenty (20) days prior to the record date or the expected effective date, as the case may be, specified therein, a notice specifying (a) the date of such record date for the purpose of such dividend or distribution and a description of such dividend or distribution, (b) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (c) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up. (j) Satisfaction of Obligations. The Company will satisfy its obligations --------------------------- to Holder under this Warrant in accordance with the terms of the Company's Certificate of Incorporation, as amended and in effect from time to time. 6. Miscellaneous. ------------- (a) Notices. Notices or demands relating to this Warrant Certificate ------- shall be sufficiently given or made if sent by first-class mail, postage prepaid, -11- addressed as follows, or telexed, telecopied, or delivered by nationally-recognized overnight or other courier: If to the Holder: Comdisco, Inc. Legal Department 6111 North River Road Rosemont, Illinois 60018 Attention: General Counsel Facsimile: (847) 518-5088 with a copy to: Comdisco, Inc./Comdisco Ventures 6111 North River Road Rosemont, Illinois 60018 Attention: Venture Group Facsimile: (847) 518-5465 If to the Company: Freedom of Information, Inc. 124 Mt. Auburn Street Suite 200N Cambridge, MA 02138 Attention: President Facsimile: (617) 497-5734 with a copy to: Ropes & Gray One International Place Boston, MA 02110 Attention: Ann L. Milner, Esq. Facsimile: (617) 951-7050 (b) Successors. All the covenants and provisions of this Warrant ---------- Certificate by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors and assigns hereunder; provided that this Warrant Certificate may be assigned by the Holder only in compliance with the conditions specified in and in accordance with all of the terms of this Warrant Certificate. (c) Governing Law. This Warrant Certificate and the Warrant, and all ------------- questions relating to the interpretation, construction and enforceability of this Warrant Certificate and the Warrant, shall be governed in all respects by the substantive laws of The Commonwealth of Massachusetts. (d) Amendments and Waivers. Except as otherwise provided herein, the ---------------------- provisions of this Warrant Certificate may not be amended, modified or supplemented, other than by a written instrument executed by the Company and the Holder. -12- (e) Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Holder shall be enforceable to the fullest extent permitted by law. (f) Survival. The representations, warranties, covenants and conditions -------- of the respective parties contained herein or made pursuant to this Warrant Certificate shall survive the execution and delivery of this Warrant Certificate. (g) Remedies. In the event of any default hereunder, the non-defaulting -------- party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where the Holder will not have an adequate remedy at law and where damages will be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Holder or any other person entitled to the benefit of this Warrant Certificate requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Warrant Certificate. [Remainder of page intentionally left blank] -13- IN WITNESS WHEREOF, the parties hereto have caused this Warrant Certificate to be duly executed and delivered, as of the day and year first above written. COMPANY: ------- FREEDOM OF INFORMATION, INC. By: /s/ Stephen M. Joseph ----------------------- Name: Stephen M. Joseph Title: CFO -14- HOLDER: ------ COMDISCO, INC. By: /s/ James P. Labe ----------------------- Name: James P. Labe Title: President Comdisco Ventures Division -15- EXHIBIT A --------- FORM OF ELECTION TO PURCHASE (To be executed if Holder desires to exercise the Warrant Certificate) To FREEDOM OF INFORMATION, INC. The undersigned hereby irrevocably elects to exercise the Warrant represented by the Warrant Certificate to purchase ______________ shares of Series A Convertible Participating Preferred Stock issuable upon the exercise of such Warrant and requests that certificates for such shares be issued in the name of: - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- Please insert tax payor identification number: ____________________________ Dated: HOLDER: ------ By: ------------------------ Name: Title: -16- EX-10.8 11 SUBORDINATED LOAN EXHIBIT 10.8 SUBORDINATED LOAN AND SECURITY AGREEMENT THIS AGREEMENT (the "Agreement"), dated as of September 29, 1998, is entered into by and between Freedom of Information, Inc., a Delaware corporation, with its chief executive office, and principal place of business located at 124 Mt. Auburn Street, Suite 200N, Cambridge, Massachusetts 02138 (the "Borrower") and Comdisco, Inc., a Delaware corporation, with its principal place of business located at 6111 North River Road, Rosemont, Illinois 60018 (the "Lender" or sometimes, "Comdisco"). In consideration of the mutual agreements contained herein, the parties hereto agree as follows: RECITALS WHEREAS, Borrower has requested Lender to make available to Borrower a loan in the aggregate principal amount of FIVE MILLION and 00/100 DOLLARS ($5,000,000.00) available in increments of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) each (as the same may from time to time be amended, modified, supplemented or revised, the "Loan"), which would be evidenced by Subordinated Promissory Note(s) executed by Borrower substantially in the form of Exhibit A hereto (as the same may from time to time be amended, modified, supplemented or restated the "Note(s)"). WHEREAS, Lender is willing to make the Loan on the terms and conditions set forth in this Agreement, and WHEREAS, Lender and Borrower agree any Loan hereunder shall be subordinate to Senior Debt (as defined herein) to the extent set forth in the Subordination Agreement (as defined herein). AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, Borrower and Lender hereby agree as follows: SECTION 1. DEFINITIONS Unless otherwise defined herein, the following capitalized terms shall have the following meanings (such meanings being equally applicable to both the singular and plural form of the terms defined); 1.1 "ACCOUNT" means any "account," as such term is defined in Section 9106 of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to Borrower (including, without limitation, under any trade name, style or division thereof) whether arising out of goods sold or services rendered by Borrower or from any other transaction, whether or not the same involves the sale of goods or services by Borrower (including, without limitation, any such obligation which may be characterized as an account or contract right under the UCC) and all of Borrower's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of Borrower's rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become due to Borrower under all purchase orders and contracts for the sale of goods or the performance of services or both by Borrower (whether or not yet earned by performance on the part of Borrower or in connection with any other transaction), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any person with respect to any of the foregoing. 1.2 "ACCOUNT DEBTOR" means any "account debtor," as such term is defined in Section 9105(1)(a) of the UCC. 1.3 "ADVANCE" means each installment made by the Lender to Borrower pursuant to the Loan to be evidenced by the Note(s) secured by the Collateral. 1.4 "ADVANCE DATE" means the funding date of any Advance of the Loan. 1.5. "ADVANCE REQUEST" means the request by Borrower for an Advance under the Loan, each to be substantially in the form of Exhibit C attached hereto, as submitted by Borrower to Lender from time to time. 1.6 "CHATTEL PAPER" means any "chattel paper," as such term is defined in Section 9105(1)(b) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.7 "CLOSING DATE" means the date hereof. 1.8 "COLLATERAL" shall have the meaning assigned to such term in Section 3 of this Agreement. 1.9 "CONTRACTS" means all contracts, undertakings, franchise agreements or other agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which Borrower may now or hereafter have any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof. 1.10 "COPYRIGHTS" means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (i) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof or of any other country; (ii) registrations, applications and recordings in the United States Copyright Office or in any similar office or agency of the United States, any state thereof or any other country; (iii) any continuations, renewals or extensions thereof; and (iv) any registrations to be issued in any pending applications. 1.11 "COPYRIGHT LICENSE" means any written agreement granting any right to use any Copyright or Copyright registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.12 "DOCUMENTS" means any "documents," as such term is defined in Section 9105(1)(f) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.13 "EQUIPMENT" means any "equipment," as such term is defined in Section 9109(2) of the UCC, now or hereafter owned or acquired by Borrower and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. 1.14 "EXCLUDED AGREEMENTS" means (i) any Warrant Agreement(s) executed hereunder, and any other warrants (including without limitation, the warrant agreement dated as of September 29, 1998) to acquire, or agreements governing the rights of the holders of, any equity security of Borrower, (ii) any stock of the Borrower issued or purchased pursuant to the Warrant Agreement, and (iii) the Master Lease Agreement dated as of between Borrower, as lessee, and Lender, as lessor, including, without limitation, any Equipment Schedules and Summary Equipment Schedules to the Master Lease Agreement executed or delivered by Borrower pursuant thereto and any other modifications or amendments thereof, whereby Borrower (as lessee) leases equipment, software, or goods from Lender (as lessor) to Borrower (as lessee). 1.15 "FACILITY FEE" means one percent (1.00%) of the principal amount of the Loan due at the Closing Date. 1.16 "FIXTURES" means any "fixtures," as such term is defined in Section 9313(1)(a) of the UCC, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, now or hereafter attached or affixed to or constituting a part of, or located in or upon, real property wherever located, together with all right, title and interest of Borrower in and to all extensions, improvements, betterments, renewals, substitutes, and replacements of, and all additions and appurtenances to any of the foregoing property, and all conversions of the security constituted thereby, immediately upon any acquisition or release thereof or any such conversion, as the case may be. 1.17 "GENERAL INTANGIBLES" means any "general intangibles," as such term is defined in Section 9106 of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all right, title and interest which Borrower may now or hereafter have in or under any contract, all customer lists, Copyrights, Trademarks, Patents, rights to Intellectual Property, interests in partnerships, joint ventures and other business associations, Licenses, permits, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, recipes, experience, processes, models, drawings, materials and records, goodwill (including, without limitation, the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License), claims in or under insurance policies, including unearned premiums, uncertificated securities, cash and other forms of money or currency, deposit accounts (including as defined in Section 9105(e) of the UCC), rights to sue for past, present and future infringement of Copyrights, Trademarks and Patents, rights to receive tax refunds and other payments and rights of indemnification. 1.18 "INSTRUMENTS" means any "instrument," as such term is defined in Section 9105(1)(i) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.19 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents, Licenses, trade secrets, source codes, customer lists, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, skill, expertise, experience, processes, models, drawings, materials and records. 1.20 "INVENTORY " means any "inventory," as such term is defined in Section 9109(4) of the UCC, wherever located, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest, and, in any event, shall include, without limitation, all inventory, goods and other personal property which are held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrower's business, or the processing, packaging, promotion, delivery or shipping of the same, and all furnished goods whether or not such inventory is listed on any schedules, assignments or reports furnished to Lender from time to time and whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of Borrower or is held by Borrower or by others for Borrower's account, including, without limitation, all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all inventory which may be located on premises of Borrower or of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other persons. 1.21 "LICENSE" means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any renewals or extensions thereof. 1.22 "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction. 1.23 "LOAN DOCUMENTS" shall mean and include this Agreement, the Note(s), and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated, provided, that the Loan Documents shall not include any of the Excluded Agreements. 1.24 "MATERIAL ADVERSE EFFECT" means a material adverse effect upon: (i) the business, operations, properties, assets or conditions (financial or otherwise) of Borrower on a consolidated basis; or (ii) the ability of Borrower to perform, or of Lender to enforce, the Secured Obligations. 1.25 "MATURITY DATE" means, with respect to any Advance, the date thirty- six (36) months from the Advance Date. 1.26 "PATENT LICENSE" means any written agreement granting any right with respect to any invention on which a Patent is in existence now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.27 "PATENTS" means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) letters patent of, or rights corresponding thereto in, the United States or any other county, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto in the United States or any other country, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country; (b) all reissues, continuations, continuations-in-part or extensions thereof; (c) all petty patents, divisionals, and patents of addition; and (d) all patents to issue in any such applications. 1.28 "PERMITTED LIENS" means any and all of the following: (i) liens in favor of Lender, (ii) liens related to, or arising in connection with, Senior Debt. 1.29 "PROCEEDS" means "proceeds," as such term is defined in Section 9306(1) of the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or currency or other proceeds payable to Borrower from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority), (d) any claim of Borrower against third parties (i) for past, present or future infringement of any Copyright, Patent or Patent License or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. 1.30 "RECEIVABLES" shall mean and include all of the Borrowers accounts, instruments, documents, chattel paper and general intangibles whether secured or unsecured, whether now existing or hereafter created or arising, and whether or not specifically sold or assigned to Lender hereunder. 1.31 "SECURED OBLIGATIONS" shall mean and include all principal, interest, fees, costs, or other liabilities or obligations for monetary amounts owed by Borrower to Lender, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, and all covenants and duties regarding such amounts, of any kind of nature, present or future, arising under this Agreement, the Note(s), or any of the other Loan Documents, whether or not evidenced by any Note(s), Agreement or other instrument, as the same may from time to time be amended, modified, supplemented or restated, provided, that the Secured Obligations shall not include any indebtedness or obligations of Borrower arising under or in connection with the Excluded Agreements. 1.32 "SENIOR CREDITOR" means a bank, insurance company, pension fund, or other institutional lender to be determined, or a syndication of such institutional lenders that provides Senior Debt financing to Borrower, or any governmental or quasi-governmental agency which provides debt financing to Borrower; provided, that Senior Creditor shall not include any officer, director, shareholder, venture capital investor, or insider of Borrower, or any affiliate of the foregoing persons, except upon the express written consent of Lender. 1.33 "SENIOR DEBT" means any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees charges, expenses, costs, professional fees and expenses, and reimbursement obligations and any other obligations) at any time owing by Borrower to any Senior Creditor under any Senior Loan Documents whether now owing or incurred in the future, including, but not limited to such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership or reorganization by or against Borrower. 1.34 "SENIOR LOAN DOCUMENTS" means any loan agreement between Borrower and Senior Creditor and any other agreement, security agreement, document, promissory note, UCC financing statement, or instrument executed by Borrower in favor of a Senior Creditor pursuant to or in connection with the Senior Debt or the loan agreement, whether now or in the future existing as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced. 1.35 "SUBORDINATION AGREEMENT" means the Subordination Agreement of even date herewith, entered into between Borrower and Lender for the benefit of Senior Creditor. 1.36 "TRADEMARK LICENSE" means any written agreement granting any right to use any Trademark or Trademark registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.37 "TRADEMARKS" means any of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) any and all trademarks, tradenames, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof and (b) any reissues, extensions or renewals thereof. 1.38 "UCC" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Illinois. Unless otherwise defined herein, terms that are defined in the UCC and used herein shall have the meanings given to them in the UCC. 1.39 "WARRANT AGREEMENT(S)" shall mean those agreements entered into in connection with the Loan, substantially in the form attached hereto as Exhibit B pursuant to which Borrower granted Lender the right to purchase that number of shares of Series A Preferred Stock of Borrower as more particularly set forth therein. SECTION 2. THE LOAN 2.1 The Loan shall be available in increments of Two Hundred Fifty Thousand Dollars ($250,000.00). The outstanding principal amount of each Advance of the Loan, together with interest thereon precomputed at the rate of twelve (12.0%) percent per annum, shall be due and payable in twelve (12) monthly installments of interest only, payable on the first day of each month, followed by twenty-four (24) equal monthly installments of principal and interest, payable on the first day of each month, to and including the Maturity Date of such Advance (each, a "Payment Date"). If any payment under the Note(s) shall be payable on a day other than a business day, then such payment shall be due and payable on the next succeeding business day. 2.2 Borrower shall have the option to prepay the Loan, in whole or in part, as of any Payment Date after the Advance Date by paying to Lender such principal amount being prepaid together with all accrued and unpaid interest with respect to such principal amount, as of the date of such prepayment. Notwithstanding the foregoing, in the event the Loan is prepaid within the twelve (12) months from the date hereof, except as otherwise provided in Section 6.7, Borrower shall pay Lender an additional fee equal to one (1.00%) percent of the outstanding principal amount of the Loan. 2.3 (a) Notwithstanding any provision in this Agreement, the Note(s), or any other Loan Document, it is not the parties' intent to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law which a court of competent jurisdiction shall deem applicable hereto (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the "Maximum Rate"). If the Borrower actually pays Lender an amount of interest, chargeable on the total aggregate principal Secured Obligations of Borrower under this Agreement and the Note(s) (as said rate is calculated over a period of time from the date of this Agreement through the end of time that any principal is outstanding on the Note(s)), which amount of interest exceeds interest calculated at the Maximum Rate on said principal chargeable over said period of time, then such excess interest actually paid by Borrower shall be applied first, to the payment of principal outstanding on the Note(s); second, after all principal is repaid, to the payment of Lender's out of pocket costs, expenses, and professional fees which are owed by Borrower to Lender under this Agreement or the Loan Documents; and third, after all principal, costs, expenses, and professional fees owed by Borrower to Lender are repaid, the excess (if any) shall be refunded to Borrower, and the effective rate of interest will be automatically reduced to the Maximum Rate. (b) In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 2.1. (c) Upon and during the continuation of an Event of Default as set forth in Section 8.1 hereunder, all Secured Obligations, including principal, interest, compounded interest, and professional fees, shall bear interest at a rate per annum equal to the rate set forth in Section 2.1. plus five percent (5%) per annum ("Default Rate"). SECTION 3. SECURITY INTEREST As security for the prompt, complete and indefeasible payment when due (whether at stated payment dates or otherwise) of all the Secured Obligations and in order to induce Lender to make the Loan upon the terms and subject to the conditions of the Note(s), Borrower hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender for security purposes only, and hereby grants to Lender a security interest in, all of Borrower's right, title and interest in, to and under each of the following (all of which being hereinafter collectively called the "Collateral"): (a) All Receivables; (b) All Equipment; (c) All Fixtures; (d) All General Intangibles (excluding Intellectual Property); (e) All Inventory; (f) All other goods and personal property of Borrower whether tangible or intangible (excluding Intellectual Property) and whether now or hereafter owned or existing, or acquired by, Borrower and wherever located; and (g) To the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing. Provided, however, that the Collateral shall not include (i) any contract, - -------- ------- license or other instrument that validly prohibits the creation by the Company of a security interest therein (or in any rights or property obtained by the Company under such contract, license or instrument) or (ii) any rights or property to the extent that any valid and enforceable law or regulation applicable to such rights or property prohibits the creation of a security interest therein. SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER The Borrower represents, warrants and agrees that; 4.1 Borrower owns all right title and interest in and to the Collateral, free of all liens, security interests, encumbrances and claims whatsoever, except for Permitted Liens. 4.2 Borrower has the full power and authority to, and does hereby grant and convey to the Lender, a perfected security interest in the Collateral as security for the Secured Obligations, free of all liens, security interests, encumbrances and claims, other than Permitted Liens and shall execute such Uniform Commercial Code financing statements in connection herewith as the Lender may reasonably request. Except as set forth herein or disclosed on Schedule 4.2, no other lien, security interest, adverse claim or encumbrance has been created by Borrower or is known by Borrower to exist with respect to any Collateral. 4.3 Borrower is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified would have a Material Adverse Effect. 4.4 Borrower's execution, delivery and performance of the Note(s), this Agreement, all financing statements, all other Loan Documents required to be delivered or executed in connection herewith, and the Warrant Agreement(s) have been duly authorized by all necessary corporate action of Borrower, the individual or individuals executing the Loan Documents and the Warrant Agreement(s) were duly authorized to do so; and the Loan Documents and the Warrant Agreement(s) constitute legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization or other similar laws generally affecting the enforcement of the rights of creditors. 4.5 The execution, delivery and performance of Agreement, the other Loan Documents and the Warrant Agreement(s) do not and will not violate any provisions of Borrower's [Articles/Certificate of Incorporation], bylaws or any contract, agreement, law, regulation, order, injunction, judgment, decree or writ to which the Borrower is subject, or result in the creation or imposition of any lien, security interest or other encumbrance upon the Collateral, other than those created by this Agreement. 4.6 The execution, delivery and performance of this Agreement, the other Loan Documents and the Warrant Agreement(s) do not require the consent or approval of any other person or entity including, without limitation, any regulatory authority or governmental body of the United States or any state thereof or any political subdivision of the United States or any state thereof. 4.7 No event which has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. 4.8 No fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute a default under the Loan Agreement between Borrower and Senior Creditor. 4.9 Borrower has filed and will file all tax returns, federal, state and local, which it is required to file and has duly paid or fully reserved for all taxes or installments thereof (including any interest or penalties) as and when due, which have or may become due pursuant to such returns or pursuant to any assessment received by Borrower for the three (3) years preceding the Closing Date, if any (including any taxes being contested in good faith and by appropriate proceedings). SECTION 5. INSURANCE 5.1 So long as there are any Secured Obligations outstanding, Borrower shall cause to be carried and maintained comprehensive general liability insurance against risks customarily insured against in Borrower's line of business. Such risks shall include, without limitation, the risks of death, bodily injury and property damage. So long as there are any Secured Obligations outstanding, Borrower shall also cause to be carried and maintained insurance upon the Collateral and Borrower's business, covering casualty, hazard and such other property risks customarily insured against in Borrower's line of business. Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU 438 or equivalent) naming Lender as loss payee or additional insured, as appropriate, after any Senior Lender. Borrower shall use commercially reasonable efforts to cause all policies evidencing such insurance to provide for at least thirty (30) days prior written notice by the underwriter or insurance company to Lender in the event of cancellation or expiration. Such policies shall be issued by such insurers and in such amounts as are normal and customary in Borrower's business and reasonably acceptable to Lender. 5.2 Borrower shall and does hereby indemnify and hold Lender, its agents and shareholders harmless from and against any and all claims, costs, expenses, damages and liabilities (including, without limitation, such claims, costs, expenses, damages and liabilities based on liability in tort, including without limitation, strict liability in tort), including reasonable attorneys' fees, arising out of the disposition or utilization of the Collateral, other than claims arising at or caused by Lender's gross negligence or willful misconduct. SECTION 6. COVENANTS OF BORROWER Borrower covenants and agrees as follows at all times while any of the Secured Obligations remain outstanding: 6.1 Borrower shall furnish to Lender the financial statements listed hereinafter, each prepared in accordance with generally accepted accounting principles consistently applied (the "Financial Statements"): (a) as soon as practicable (and in any event within thirty (30) days) after the end of each month, unaudited interim summary financial statements as of the end of such month (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that could reasonably be expected to have a Material Adverse Effect, all certified by Borrower's Chief Executive Officer or Chief Financial Officer to be true and correct; (b) as soon as practicable (and in any event within ninety (90) days) after the end of each fiscal year, unqualified audited financial statements as of the end of such year (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows, and setting forth in comparative form the corresponding figures for the preceding fiscal year, certified by a firm of independent certified public accountants selected by Borrower and reasonably acceptable to Lender, accompanied by any management report from such accountants; (c) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which Borrower has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; and (d) promptly, any additional information, financial or otherwise (including, but not limited, to tax returns and names of principal creditors) as Lender reasonably believes necessary to evaluate Borrower's continuing ability to meet its financial obligations. 6.2 Borrower shall permit any authorized representative of Lender and its attorneys and accountants on reasonable notice to inspect, examine and make copies and abstracts of the books of account and records of Borrower at reasonable times during normal business hours. In addition, such representative of Lender and its attorneys and accountants shall have the right to meet with management and officers of the Company to discuss such books of account and records. 6.3 Borrower will from time to time execute, deliver and file, alone or with Lender, any financing statements, security agreements or other documents; procure any instruments or documents as may be requested by Lender; and take all further action that may be necessary or desirable, or that Lender may request, to confirm, perfect, preserve and protect the security interests intended to be granted hereby, and in addition, and for such purposes only, Borrower hereby authorizes Lender to execute and deliver on behalf of Borrower and to file such financing statements, security agreement and other documents without the signature of Borrower either in Lender's name or in the name of Borrower as agent and attorney-in-fact for Borrower. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. 6.4 Borrower shall protect and defend Borrower's title as well as the interest of the Lender against all persons claiming any interest adverse to Borrower or Lender (other than Senior Creditors) and shall at all times keep the Collateral free and clear from any legal process, liens or encumbrances whatsoever (except any placed thereon by Lender and other than Permitted Liens) and shall give Lender immediate written notice thereof. 6.5 Without Lender's prior written consent, Borrower shall not other than in the ordinary course of business (a) grant any material extension of the time of payment of any of the Receivables, (b) to any material extent, compromise, compound or settle the same for less than the full amount thereof, (c) release, wholly or partly, any Person liable for the payment thereof, or allow any credit or discount whatsoever thereon. 6.6 Borrower shall maintain and protect its properties, assets and facilities, including without limitation, its Equipment and Fixtures, in good order and working repair and condition (taking into consideration ordinary wear and tear) and from time to time make or cause to be made all necessary and proper repairs, renewals and replacements thereto and shall competently manage and care for its property in accordance with prudent industry practices. 6.7 Borrower shall not merge with and into any other entity; or sell or convey all or substantially all of its assets or stock to any other person or entity without notifying Lender a minimum of thirty (30) days prior to the closing date and requesting Lender's consent to the assignment of all of Borrower's Secured Obligations hereunder to the successor entity in form and substance satisfactory to Lender. In the event Lender does not consent to such assignment the parties agree Borrower shall prepay the Loan in accordance with Section 2.2 hereof, without payment of any prepayment penalty. 6.8 Borrower shall not, without the prior written consent of Lender, such consent not to be unreasonably withheld, declare or pay any cash dividend or make a distribution on any class of stock, other than pursuant to employee repurchase plans upon an employee's death or termination of employment or transfer, sell, lease, lend or in any other manner convey any equitable, beneficial or legal interest in any material portion of the assets of Borrower (except inventory sold in the normal course of business); provided, however, that the Borrower may declare and pay cash distributions in redemption of its capital stock in an aggregate amount of $705,364.00 prior to December 31, 1998 provided that no proceeds of the Loan shall be used to redeem the capital stock and in no event shall capital stock of Charles River or Matrix Partners be redeemed. 6.9 Upon the request of Lender, Borrower shall, during business hours, make the Inventory and Equipment available to Lender for inspection at the place where it is normally located and shall make Borrower's log and maintenance records pertaining to the Inventory and Equipment available to Lender for inspection. Borrower shall take all action necessary to maintain such logs and maintenance records in a correct and complete fashion. 6.10 Borrower covenants and agrees to pay when due, all taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower or the Collateral or upon Borrower's ownership, possession, use, operation or disposition thereof or upon Borrower's rents, receipts or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns in respect of the Collateral. Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for which Borrower maintains adequate reserves therefor. 6.11 Borrower shall not relocate any item of the Collateral (other than sale of inventory in the ordinary course of business) except: (i) with the prior written consent of the Lender not to be unreasonably withheld; and (ii) if such relocation shall be within the continental United States. If permitted to relocate Collateral pursuant to the foregoing sentence, unless otherwise agreed in writing by Lender, Borrower shall first (a) cause to be filed and/or delivered to the Lender all Uniform Commercial Code financing statements, certificates or other documents or instruments necessary to continue in effect the perfected security interest of the Lender in the Collateral, and (b) have given the Lender no less than thirty (30) days prior written notice of such relocation. Notwithstanding the foregoing, Borrower shall be permitted to relocate Collateral to other offices of Borrower without prior written consent, provided notice is given as set forth in clause (b) above. 6.12 Borrower shall not sell, transfer, assign, hypothecate or otherwise encumber its Intellectual Property (other than to (i) a Senior Creditor or (ii) other than in the ordinary course of business, provided, however, Borrower shall provide written notice of such transfer under clause (ii) hereof) without Lender's prior written consent. SECTION 7. CONDITIONS PRECEDENT TO LOAN The obligation of Lender to fund the Loan on each Advance Date, and satisfaction by Borrower or waiver by Lender, in Lender's sole discretion, of the following conditions: 7.1 (a) The Advance Date for any installment shall occur on or before September 29, 1999. 7.2 DOCUMENT DELIVERY. Borrower, on or prior to the Closing Date, shall have delivered to Lender the following: (a) executed originals of the Agreement, the Warrant Agreement and any documents reasonably required by Lender to effectuate the liens of Lender, with respect to all Collateral; (b) certified copy of resolutions of Borrower's board of directors evidencing approval of the borrowing and other transactions evidenced by the Loan Documents and the Warrant Agreement(s); (c) certified copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower; (d) certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect; (e) payment of the Facility Fee; (f) such other documents as Lender may reasonably request; and (g) Lender shall have invested a minimum of One Hundred Thousand Dollars in Borrower's Series A Preferred Stock financing. 7.3 ADVANCE REQUEST. Borrower shall: (a) deliver to Lender, at least forty-eight (48) hours prior to the Advance Date, written notice in the form of an Advance Request, or as otherwise specified by Lender from time to time, specifying the date and amount of such Advance. (b) deliver executed original Note(s) as set forth in Section 2, as applicable. (c) such other documents as Lender may reasonably request. 7.4 PERFECTION OF SECURITY INTERESTS. Borrower shall have taken or caused to be taken such actions requested by Lender to grant Lender a priority perfected security interest in the Collateral, subject only to Permitted Liens. Such actions shall include, without limitation, the delivery to Lender of all appropriate financing statements, executed by Borrower, as to the Collateral granted by Borrower for all jurisdictions as may be reasonably necessary or desirable to perfect the security interest of Lender in such Collateral 7.5 ABSENCE OF EVENTS OF DEFAULTS. As of the Closing Date or the Advance Date, no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default under this Agreement or any of the Loan Documents and no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute a default under the Senior Loan Documents between Borrower and Senior Creditor. 7.6 MATERIAL ADVERSE EFFECT. As of the Closing Date or the Advance Date, no event which has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. SECTION 8. DEFAULT The occurrence of any one or more of the following events (herein called "Events of Default") shall constitute a default hereunder and under the Note(s) and other Loan Documents: 8.1 Borrower defaults in the payment of any principal, interest or other Secured Obligation involving the payment of money under this Agreement, the Note(s) or any of the other Loan Documents, and such default continues for more than five (5) days after the due date thereof; or 8.2 Borrower defaults in the performance of any other covenant or Secured Obligation of Borrower hereunder or under the Note(s) or any of the other Loan Documents, and such default continues for more than twenty (20) days after Lender has given notice of such default to Borrower. 8.3 Any representation or warranty made herein by Borrower shall prove to have been false or misleading in any material respect; or 8.4 Borrower shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a voluntary petition in bankruptcy, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower or of all or any substantial part (33-1/3% or more) of the properties of Borrower; or Borrower or its directors or majority shareholders shall take any action initiating the dissolution or liquidation of Borrower; or 8.5 Sixty (60) days shall have expired after the commencement of an action by or against Borrower seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, without such action being dismissed or all orders or proceedings thereunder affecting the operations or the business of Borrower being stayed; or a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or Borrower shall file any answer admitting or not contesting the material allegations of a petition filed against Borrower in any such proceedings; or the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings; or 8.6 Sixty (60) days shall have expired after the appointment, without the consent or acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower without such appointment being vacated; or 8.7 The default by Borrower under any Excluded Agreement(s) (provided, however, for purposes of this Section 8.7, the term Excluded Agreements shall not include any Warrant Agreement(s) executed herewith or in connection with the Master Lease Agreement between Borrower, as Lessee and Lender, as Lessor) or any other agreement or instrument described in clauses (i) or (ii) in Section 1.14 of the definition of Excluded Agreements, any other promissory note or agreement for borrowed money, or any other agreement between Borrower and Lender; or 8.8 The occurrence of any default under any lease or other agreement or obligation of Borrower involving an amount in excess of $100,000.00 or having a Material Adverse Effect; or the entry of any judgment against Borrower involving an award in excess of $100,000.00 that would have a Material Adverse Effect, that has not been bonded or stayed on appeal within thirty (30) days; or 8.9 The occurrence of any material default under the Senior Loan Documents. SECTION 9. REMEDIES Upon the occurrence of any one or more Events of Default, Lender, at its option, may declare the Note and all of the other Secured Obligations to be accelerated and immediately due and payable (provided, that upon the occurrence -------- of an Event of Default of the type described in Sections 8.4 or 8.5, the Note(s) and all of the other Secured Obligations shall automatically be accelerated and made due and payable without any further act), whereupon the unpaid principal of and accrued interest on such Note(s) and all other outstanding Secured Obligations shall become immediately due and payable, and shall thereafter bear interest at the Default Rate set forth in, and calculated according to, Section 2.3 (c) of this Agreement. Lender may exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise available to it under applicable law, including the right to release, hold or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral. Upon the happening and during the continuance of any Event of Default, Lender may then, or at any time thereafter and from time to time, apply, collect, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as Lender may elect, and any such sale may be made either at public or private sale at its place of business or elsewhere. Borrower agrees that any such public or private sale may occur upon five (5) calendar days' prior written notice to Borrower. Lender may require Borrower to assemble the Collateral and make it available to Lender at a place designated by Lender which is reasonably convenient to Lender and Borrower. The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by Lender in the following order of priorities: First, to Lender in an amount sufficient to pay in full Lender's reasonable costs and professionals' and advisors' fees and expenses; Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations in such order and priority as Lender may choose in its sole discretion; and Finally, upon payment in full of all of the Secured Obligations, to Borrower or its representatives or as a court of competent jurisdiction may direct. Lender shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under Section 9207 of the UCC. Lender's rights and remedies hereunder are subject to the terms of the Subordination Agreement. SECTION 10. MISCELLANEOUS 10.1 CONTINUATION OF SECURITY INTEREST. This is a continuing Agreement and the grant of a security interest hereunder shall remain in full force and effect and all the rights, powers and remedies of Lender hereunder shall continue to exist until the Secured Obligations are paid in full as the same become due and payable and until Lender has executed a written termination statement (which Lender shall execute within a reasonable time after full payment of the Secured Obligations hereunder), reassigning to Borrower, without recourse, the Collateral and all rights conveyed hereby and returning possession of the Collateral to Borrower. The rights, powers and remedies of Lender hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Lender. 10.2 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 10.3 NOTICE. Except as otherwise provided herein, all notices and service of process required, contemplated, or permitted hereunder or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given or delivered upon the earlier of: (i) the first business day after hand delivery or deposit with an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows: (a) IF TO LENDER: ------------ COMDISCO, INC. Legal Department Attention: General Counsel 6111 North River Road Rosemont, IL 60018 Facsimile: (847) 518-5088 WITH A COPY TO: -------------- COMDISCO, INC./COMDISCO VENTURES 6111 North River Road Rosemont, IL 60018 Facsimile: (847) 518-5465 (b) IF TO BORROWER: -------------- FREEDOM OF INFORMATION, INC. Attention: Chief Financial Officer 124 Mt. Auburn Street, Suite 200N Cambridge, Massachusetts 02138 Facsimile: (781) 996-2298 Phone: (781) 996-2282 WITH A COPY TO: ROPES AND GRAY Attention: Ann L. Milner One International Place Boston, Massachusetts 02110 Facsimile: (617) 951-7050 Phone: (617) 951-7000 or to such other address as each party may designate for itself by like notice. 10.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Note(s), and the other Loan Documents, and the Warrant Agreement(s) constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof, and supersede and replace in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof or thereof (including, without limitation, Lender's proposal letter dated August 10, 1998), all of which are merged herein and therein. None of the terms of this Agreement, the Note(s), any of the other Loan Documents or Warrant Agreement(s) may be amended except by an instrument executed by each of the parties hereto. 10.5 HEADINGS. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof. 10.6 NO WAIVER. The powers conferred upon Lender by this Agreement are solely to protect its interest in the Collateral and shall not impose any duty upon Lender to exercise any such powers. No omission, or delay, by Lender at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which Lender is entitled, nor shall it in any way affect the right of Lender to enforce such provisions thereafter. 10.7 SURVIVAL. All agreements, representations and warranties contained in this Agreement, the Note(s), the other Loan Documents and the Warrant Agreement(s) or in any document delivered pursuant hereto or thereto shall be for the benefit of Lender and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement. 10.8 SUCCESSOR AND ASSIGNS. The provisions of this Agreement and the other Loan Documents shall inure to the benefit of and be binding on Borrower and its permitted assigns (if any). Borrower shall not assign its obligations under this Agreement, the Note(s), any of the other Loan Documents or the Warrant Agreement(s), without Lender's express written consent, and any such attempted assignment shall be void and of no effect. Lender may assign, transfer, or endorse its rights hereunder and under the other Loan Documents or Warrant Agreement(s) to an affiliate of Lender or to another financial institution without prior notice to Borrower, and all of such rights shall inure to the benefit of Lender's successors and assigns, provided such transfer or assignment is in compliance with the terms of the Loan Documents and the Warrant Agreement(s). Notwithstanding the foregoing, Lender shall not assign, transfer or endorse its rights hereunder or under the other Loan Documents or Warrant Agreement to a competitor of Borrower. 10.9 FURTHER INDEMNIFICATION. Borrower agrees to pay, and to save Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Collateral. 10.10 GOVERNING LAW. This Agreement, the Note(s), the other Loan Documents and the Warrant Agreement(s) have been negotiated and delivered to Lender in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. Payment to Lender by Borrower of the Secured Obligations is due in the State of Illinois. This Agreement, the Note(s) and the other Loan Documents (but not the Warrant Agreement(s) which shall be governed by, construed and enforced in accordance with the laws of the State of Delaware) shall be governed by and construed and enforced in accordance with, the laws of the State of Illinois, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 10.11 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings arising in or under or related to this Agreement, the Note(s), any of the other Loan Documents or Warrant Agreement(s) may be brought in any state or federal court of competent jurisdiction located in the State of Illinois. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in Cook County, State of Illinois; (b) waives any objection as to jurisdiction or venue in Cook County, State of Illinois; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement, the Note(s), the other Loan Documents or Warrant Agreement(s). Service of process on any party hereto in any action arising out of or relating to this agreement shall be effective if given in accordance with the requirements for notice set forth in Section 10.3, above and shall be deemed effective and received as set forth in Section 10.3, above. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction. 10.12 MUTUAL WAIVER OF JURY TRIAL. Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER OR ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver extends to all such Claims, including, without limitation, Claims which involve persons or entities other than Borrower and Lender; Claims which arise out of or are in any way connected to the relationship between Borrower and Lender; and any Claims for damages, breach of contract arising out of this Agreement, any other Loan Document or any of the Excluded Agreements, specific performance, or any equitable or legal relief of any kind. 10.13 CONFIDENTIALITY. Lender acknowledges that certain items of Collateral, including, but not limited to trade secrets, source codes, customer lists and certain other items of Intellectual Property, and any Financial Statements provided pursuant to Section 6 hereof, and any other information provided by or behalf of the Borrower to the Lender, constitute proprietary and confidential information of the Borrower (the "Confidential Information"). Accordingly, Lender agrees that any Confidential Information it may obtain in the course of acquiring, perfecting or foreclosing on the Collateral or otherwise provided under this Agreement, shall be received in the strictest confidence and will not be disclosed to any other person or entity in any manner whatsoever, in whole or in part, without the prior written consent of the Borrower, unless and until Lender has acquired indefeasible title thereto. 10.14 COUNTERPARTS. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered this Agreement as of the day and year first above written. BORROWER: FREEDOM OF INFORMATION, INC. Signature: /s/ Stephen M. Joseph ------------------------------ Print Name: Stephen M. Joseph ------------------------------ Title: CFO ------------------------------ ACCEPTED IN ROSEMONT, ILLINOIS: - ------------------------------ LENDER: COMDISCO, INC. Signature: /s/ James P. Labe ------------------------------ Print Name: James P. Labe ------------------------------ Title: President, Comdisco Ventures ------------------------------ Division ------------------------------ September 28, 1998 EX-10.9 12 RIGHTS AGREEMENT DATED 3/31/1999 EXHIBIT 10.9 REGISTRATION RIGHTS AGREEMENT AGREEMENT, made as of the 31st day of March, 1999 by and between Be Free, Inc., (f/k/a Freedom of Information, Inc.), a Delaware corporation (the "Company") and those persons identified on the signature pages hereto as an "Investor" (each an "Investor" and collectively, the "Investors"). WHEREAS, the Investors are entering into a Series B Convertible Preferred Stock Purchase Agreement of even date with the Company (the "Purchase Agreement"), pursuant to which the Investors are acquiring shares of Series B Convertible Participating Preferred Stock (the "Preferred Stock"); and WHEREAS, the execution of this Agreement by the Company is a condition precedent to the obligations of the Investors to perform their obligations under the Purchase Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Act" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Commission" means the Securities and Exchange Commission, or any other Federal agency at the time administering the Act. "Company" means Be Free, Inc., a Delaware corporation, and its successors and assigns. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Holder" means the person who is then the record owner of Registrable Securities which have not been sold to the public. "Registrable Securities" means (i) all shares of Common Stock now owned or hereafter acquired by an Investor, including any shares of Preferred Stock which are to be (but have not yet been) converted into Common Stock in connection with the consummation of a registration hereunder; and (ii) any Common Stock issued in respect of the shares described in clause (i) upon any stock split, stock dividend, recapitalization or other similar event. The term "register" means to register under the Act and applicable state securities laws for the purpose of effecting a public sale of securities. 2. Requested Registrations (a) Demand. At any time after the earlier of June 30, 2001 or 180 days after the effective date of the Company's first registration statement under the Securities Act for an offering with proceeds of at least Two Million Five Hundred Thousand Dollars ($2,500,000) (an "Initial Public Offering"), one or more Investors may request in writing that the Company effect the registration of Registrable Securities representing at least thirty-three and one-third percent (33 1/3%) of the Registrable Securities held by the Investors (or any lesser percentage if the reasonably anticipated aggregate price to the public of the Registrable Securities to be included in such registration would exceed $5,000,000). (b) Form S-3. After an Initial Public Offering, the Company shall use its reasonable best efforts to qualify and remain qualified to register securities on Form S-3 (or any successor form) under the Act. Any Holder or Holders shall have the right to request registrations for an offering with proceeds of at least One Million Dollars ($1,000,000) on Form S-3 (or any successor form) for the Registrable Securities held by such requesting Holder, including registrations for the sale of such Registrable Securities on a delayed or continuous basis pursuant to Rule 415 under the Act. Such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by such Holder or Holders. (c) In the case of a requested registration under this Section 2, the Company will: (i) promptly give written notice of the proposed registration to all other Holders; and (ii) as soon as practicable, use its best efforts to cause such Registrable Securities specified in such a request (together with such portion of the Registrable Securities of any Holder or Holders joining in such request pursuant to Section 3 as are specified in a written request given within ten (10) days after receipt of such written notice from the Company) to be registered as soon as practicable so as to permit the sale thereof and in connection therewith prepare and file a registration statement on Form S-1 under the Securities Act (or on such other form as may be appropriate) to effect such registration and seek to have such registration statement become effective as promptly as practicable; provided, however, that such request shall (i) specify the -2- number of Registrable Securities intended to be offered and sold, (ii) express the present intention of the Holders to offer or cause the offering of such Registrable Securities for distribution, (iii) describe the nature or method of the proposed offer and sale thereof, and (iv) contain the undertaking of the Holders to provide all such information and materials and take all such action as may be reasonably required in order to permit the Company to comply with all applicable requirements of the Commission and to obtain any desired acceleration of the effective date of such registration statement. Upon any registration becoming effective pursuant to this Section 2(a), the Company shall use reasonable efforts to keep such registration statement current for a period of 90 days. (d) Limit on Requested Registrations. The obligation of the Company to register any Registrable Securities on demand by the Investors under Section 2 hereof shall continue only until the Company has effected two (2) demand registrations on behalf of the Holders pursuant to this Section 2(a) and 2(b); provided, however, no registration initiated hereunder shall count as a registration initiated hereunder unless and until it shall have been consummated. (e) Selection of Underwriter. The underwriter of any underwriting requested under this Section 2 that is not on Form S-1 shall be selected by the Holders, holding a majority of the Registrable Securities included therein; provided that such underwriter must be reasonably acceptable to the Company with the Company specifying in writing the reasons for any rejection of an underwriter selected by the Holders. The Company shall select the underwriter for any registration effected on Form S-1. 3. "Piggy Back" Registrations. (a) The rights contained in this Section 3 shall be in addition to the rights provided in Section 2 hereof. If the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders exercising their registration rights (subject to the provisions of Section 2), other than a registration relating solely to employee benefit plans or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of shares or pursuant to Form S-4, the Company will: (i) Promptly give to each Holder of Registrable Securities written notice thereof (which shall include the number of shares the Company or other security holder proposes to register and, if known, the name of the proposed underwriter); and (ii) Use its best efforts to include in such registration all the Registrable Securities specified in a written request or requests, made by any Holder within ten (10) days after the date of delivery of the written notice from the Company described in -3- clause (i) above. If in the good faith judgment of the managing underwriter of such public offering, the inclusion of all or any portion of the shares held by the Holders originally included in a request for registration would reduce the number of shares to be offered by the Company (or by another holder of shares that initiated the offering by exercising rights to demand such registration) or interfere with the successful marketing of the securities offered by the Company (or by such other holder that initiated the offering (the "Initiating Holder")), the number of shares otherwise to be included by the Holders in the underwritten public offering may be reduced pro rata or excluded altogether; provided, however, that (A) in any such offering by the Company, the shares to be included by the Holders may be excluded altogether but must be treated in the same manner as all other selling security holders, and (B) in any such offering initiated by an Initiating Holder, the shares otherwise to be included by the Holders (other than the Initiating Holder) shall be allocated pro rata based on the number of Registrable Securities each such Holder owns to the number of shares of Common Stock (and shares convertible into Common Stock) owned by all other holders having contractual piggyback registration rights and requesting inclusion in such registration, and can be excluded altogether but shall be treated in the same manner as all selling security holders (other than the Initiating Holder). (b) The Company shall select the underwriter for an offering made pursuant to this Section 3. 4. Expenses. The Company shall pay all out-of-pocket costs in connection with any registration pursuant to this Agreement. The costs and expenses of any such registration shall include, without limitation, the fees and expenses of the Company's counsel and its accountants and all other out-of-pocket costs and expenses of the Company incident to the preparation, printing and filing under the Securities Act of the registration statement and all amendments and supplements thereto and the cost of furnishing copies of each preliminary prospectus, each final prospectus and each amendment or supplement thereto to underwriters, dealers and other purchasers of the securities so registered, the costs and expenses incurred in connection with the qualification of such securities so registered under the "blue sky" laws of various jurisdictions, the fees and expenses of the Company's transfer agent, the reasonable fees and expenses of one counsel for the Investors, expenses of all marketing and promotional efforts requested by the managing underwriter and all other costs and expenses of complying with the foregoing provisions hereof with respect to such registration. The Holders shall bear underwriting discounts, selling commissions and transfer taxes with respect to the shares sold by them pursuant to the registration. 5. Registration Procedures. In the case of each registration effected by the Company pursuant to this Agreement, the Company will keep each Holder of Registrable Securities included in such registration advised in writing as to the initiation of each -4- registration and as to the completion thereof. At its expense, the Company will do the following for the benefit of such Holders: (a) Keep such registration effective for a period of 90 days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs, and amend or supplement such registration statement and the prospectus contained therein from time to time to the extent necessary to comply with the Act and applicable state securities laws. If at any time the Commission should institute or threaten to institute any proceedings for the purpose of issuing, or should issue a stop order suspending the effectiveness of any such registration statement, the Company will promptly notify the Holder and will use reasonable efforts to prevent the issuance of any such stop order or to obtain the withdrawal thereof as soon as possible; (b) Use its best efforts to register or qualify the Registrable Securities covered by such registration under the applicable securities or "blue sky" laws of such jurisdictions as the selling shareholders may reasonably request; provided, that the Company shall not be obligated to qualify to do business in any jurisdiction where it is not then so qualified or otherwise required to be so qualified or to take any action which would subject it to the service of process in suits other than those arising out of such registration; (c) Furnish such number of prospectuses and other documents incident thereto as a Holder or the underwriter from time to time may reasonably request; (d) In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 2 hereof, the Company will enter into any underwriting agreement reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains customary underwriting provisions and is entered into by the Holder and provided further that, if the underwriter so requests, the underwriting agreement will contain customary contribution provisions on the part of the Company; (e) To the extent then permitted under applicable professional guidelines and standards, use its best efforts to obtain a comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by comfort letters and an opinion from the Company's counsel in customary form and covering such matters of the type customarily covered in a public issuance of securities, in each case addressed to the Holders, and provide copies thereof to the Holders; and (f) Permit the counsel to the Holders whose expenses are being paid pursuant to Section 4 hereof to inspect and copy such corporate documents as he may reasonably request. 6. Indemnification. -5- (a) The Company will, and hereby does, indemnify and hold harmless each Holder, each of its officers, directors and partners, and each person controlling such Holder within the meaning of the Act, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls such underwriter within the meaning of the Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any 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 any violation by the Company of the Act or the Exchange Act or securities act of any state or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors and partners, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, whether or not resulting in any liability; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is (x) based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon information furnished in writing to the Company by the Holders or any underwriter or any controlling person of the Holders or any such underwriter specifically for use therein, or (y) made in any preliminary prospectus, if the prospectus contained in the registration statement as declared effective or in the form filed by the Company with the Commission pursuant to Rule 424 under the Securities Act shall have corrected such statement or omission, ample copies of such prospectus (together with a statement that such corrected prospectus must be used in lieu of all prior prospectuses) shall have been provided by the Company to the Holders or underwriter, and a copy of such prospectus shall not have been sent or otherwise delivered to such person by the Holders or underwriter at or prior to the confirmation of such sale to such person. (b) By requesting registration under this Agreement each Holder shall agree in the same manner and to the same extent as set forth in the preceding paragraph, to indemnify and to hold harmless the Company and its directors and officers and each person, if any, who controls the Company within the meaning of the Securities Act and any underwriter (as defined in the Securities Act) of any shares offered by the Holders, against any such claim, loss, damage, liability or expense, joint or several, to which any of such persons may be subject under the Securities Act or otherwise, and to reimburse any of such persons for any legal or other expenses reasonably incurred by them in connection with investigating or defending against any such claim, loss, damage, liability or expense, but only to the extent it arises out of or is based upon an untrue statement or alleged untrue statement -6- or omission or alleged omission of a material fact in any registration statement under which the Holders' registered under the Securities Act pursuant to this Agreement, any prospectus contained therein, or any amendment or supplement thereto, which was based upon and made in conformity with information furnished in writing to the Company by the Holders or such underwriter expressly for use therein; provided however, that the obligations of each Holder hereunder shall be limited to an amount equal to the lesser of (i) net proceeds received by such Holder upon the sales of the securities and (ii) such Holder's pro rata share of such claim, loss, damage, liability or expense. (c) Each party entitled to indemnification under this Section 6 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought. The failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations under this Section 6, except and to the extent the Indemnifying Party has been prejudiced as a consequence thereof and in no event shall such failure relieve the underlying party from any other liability which it may have to such indemnified party. The Indemnifying Party will be entitled to participate in, and to the extent that it may elect by written notice delivered to the Indemnified Party promptly after receiving the aforesaid notice from such Indemnified Party, at its expense to assume, the defense of any such claim or any litigation resulting therefrom (including control over any settlement thereof), with counsel reasonably satisfactory to such Indemnified Party, provided that the Indemnified Party may participate in such defense at its expense, notwithstanding the assumption of such defense by the Indemnifying Party, and provided, further, that if the defendants in any such action shall include both the Indemnified Party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be legal defenses available to it and/or other Indemnified Parties which are different from or additional to those available to the Indemnifying Party, the Indemnified Party or Parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such Indemnified Party or Parties and the fees and expenses of such counsel shall be paid by the Indemnifying Party. 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. Each Indemnified Party shall (i) furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom and (ii) shall reasonably assist the Indemnifying Party in any such defense, provided that the Indemnified Party shall not be required to expend its funds in connection with such assistance. -7- (d) No Holder shall be required to participate in a registration pursuant to which it would be required to execute an underwriting agreement in connection with a registration effected under Section 2 or 3 which imposes indemnification or contribution obligations on such Holder more onerous than those imposed hereunder; provided, however, that the Company shall not be deemed to breach the provisions of Section 2 or 3 if a Holder is not permitted to participate in a registration on account of his refusal to execute an underwriting agreement on the basis of this subsection (d). 7. Lock-up Agreement. If requested by the underwriter in any registered public offering by the Company, each Holder agrees not to sell or otherwise transfer any Registrable Securities for such period of time after the date of such offering as may be requested by the underwriter, but in no event to exceed 180 days from the close of the initial registered public offering and 90 days from the close of any subsequent registered public offering, provided that all executive officers and directors of the Company enter into similar agreements. 8. Information by Holder. Each Holder of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement or otherwise required by applicable state or federal securities laws. 9. Limitations on Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the holders of a majority in interest of the Preferred Stock or Conversion Shares, enter into any agreement with any holder or prospective holder of any securities of the Company which would give any such holder or prospective holder (a) the right to require the Company, upon any registration of any of its securities, to include, among the securities which the Company is then registering, securities owned by such holder, unless under the terms of such agreement, Holders of Registrable Shares shall be entitled to include Registrable Shares in such registration statement on terms no less favorable to the Holder of Registrable Shares than those provided to such holder or prospective holder hereunder; or (b) the right to require the Company to initiate any registration of any securities of the Company prior to January 1, 2002 or 360 days after the effective date of the Company's Initial Public Offering. 10. Exception to Registration. The Company shall not be required to effect a registration under this Agreement if (i) in the written opinion of counsel for the Company, which counsel and the opinion so rendered shall be reasonably acceptable to the Holders of Registrable Securities, such Holders may sell without registration under the Act all Registrable Securities for which they requested registration under the provisions of the Act, or (ii) the Company shall have obtained from the Commission a "no-action" letter to that effect; provided that this Section 10 shall not apply to sales made under Rule 144(k) or any -8- successor rule promulgated by the Commission until after the effective date of the Company's initial registration of shares under the Act. Notwithstanding the foregoing, in no event shall the provisions of this Section 10 be construed to preclude a Holder of Registrable Securities from exercising rights under Section 3 for a period of three years after the effective date of the Company's initial registration of shares under the Act. 11. Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of restricted securities (as that term is used in Rule 144 under the Act) to the public without registration, the Company agrees to: (a) make and keep public information available as those terms are understood and defined in Rule 144 under the Act, at all times from and after ninety days following the effective date of the first registration under the Act filed by the Company for an offering of its securities to the general public; (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (c) so long as an Investor owns any restricted securities, furnish to the Investor forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Act and 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 so filed by the Company as an Investor may reasonably request in availing itself of any rule or regulation of the Commission allowing an Investor to sell any such securities without registration. 12. Damages. The Company recognizes and agrees that the Holders of Registrable Securities shall not have an adequate remedy if the Company fails to comply with the provisions of this Agreement, and that damages will not be readily ascertainable, and the Company expressly agrees that in the event of such failure any Holder of Registrable Securities shall be entitled to seek specific performance of the Company's obligations hereunder and that the Company will not oppose an application seeking such specific performance. 13. Miscellaneous. (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective -9- successors and assigns of the parties hereto (including without limitation transferees of Registrable Securities as set forth in this Section 13(a)), whether so expressed or not. The registration rights herein may be assigned (i) in connection with any transaction or series of related transactions involving the transfer or assignment to one or more transferees of at least 500,000 shares of capital stock of the Company, other than pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 thereunder (subject to adjustments for stock splits, stock dividends and the like and aggregating all contemporaneous transfers by Holders), or (ii) to any of the limited partners of a Holder that is a partnership, and upon any such transfer such transferee shall be deemed to be included within the definition of a "Holder". (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed by certified or registered mail, return receipt requested, postage prepaid, or telecopied or sent by other facsimile method addressed as follows: If to the Company, or an Investor, at the address of such party set forth on Schedule I hereto or the most recent address as is shown on the stock records of the Company; and If to any subsequent Holder of Registrable Securities, to it at such address as may have been furnished to the Company in writing by such Holder; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a Holder of Registrable Securities) or to the Holders of Registrable Securities (in the case of the Company) in accordance with the provisions of this paragraph. (c) This Agreement shall be governed by and construed in accordance with the laws of the state of incorporation of Company, without giving effect to the conflicts of laws principles thereof. (d) This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and the holders of a majority in interest of the then outstanding shares held by the Investors. (e) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -10- (f) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -11- IN WITNESS WHEREOF, this Agreement has been executed by duly authorized representation of each of the signatories hereto as of the date and year first above written. BE FREE, INC. By: /s/ Stephen M. Joseph ------------------------------------- Name: Stephen M. Joseph Title: CFO INVESTORS HIGHLAND CAPITAL PARTNERS IV LIMITED PARTNERSHIP By: Highland Management Partners IV, LLC, Its General Partner By: /s/ illegible ------------------------------------- Member HIGHLAND ENTREPRENEURS' FUND IV LIMITED PARTNERSHIP By: HIGHLAND ENTREPRENEURS' FUND IV, LLC, Its General Partner By: /s/ illegible ------------------------------------- Member -12- COMDISCO, INC By: /s/ James Labe ------------------------------------- Name: James Labe, President Title: Comdisco Venture Division THOMSON U.S. INC. By: /s/ James R. Schurr ------------------------------------- Name: James R. Schurr Title: Vice President /s/ Josh M. Holden ------------------------------------- Josh M. Holden, individually /s/Stephen Maysonave ------------------------------------- Stephen Maysonave, individually /s/Daniel Rimer ------------------------------------- Daniel Rimer, individually /s/ David Cowan ------------------------------------- David Cowan, individually /s/ Thomas Paul ------------------------------------- Thomas Paul, individually -13- MATRIX PARTNERS V, L.P. By: Matrix V Management Co, L.L.C., its General Partner By: /s/ W. Michael Humphreys -------------------------------- W. Michael Humphreys Managing Member CHARLES RIVER PARTNERSHIP VIII, A LIMITED PARTNERSHIP By: Charles River VIII GP Limited Partnership, its General Partner By: /s/ Ted R. Dintersmith ------------------------------------- Ted R. Dintersmith General Partner CHARLES RIVER VIII-A LLC By: Charles River Friends VII, Inc., its Manager By: /s/ Ted R. Dintersmith ------------------------------------- Ted R. Dintersmith Vice President MATRIX V ENTREPRENEURS FUND, L.P. By: Matrix V Management Co, L.L.C., its General Partner By: /s/ W. Michael Humphreys --------------------------------- W. Michael Humphreys Managing Member DBV INVESTMENTS, L.P. By: DRT Capital, LLC, its General Partner By: /s/ John Phelan --------------------------------- John Phelan, Manager /s/ Manuel Henriquez --------------------------------- Manuel Henriquez /s/ James Labe --------------------------------- Two Loons Trust EX-10.10 13 AGREEMENT WITH SAMUEL P. GERACE EXHIBIT 10.10 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 28, 1998 (the "Effective Date"), by and between FREEDOM OF INFORMATION, INC., a Delaware corporation with its headquarters currently located in Pittsburgh, Pennsylvania (the "Employer"), and Samuel P. Gerace, Jr. (the "Executive"). W I T N E S S E T H - - - - - - - - - - WHEREAS, the Executive is a founder of the Company; and WHEREAS, reference is made to that certain Stock Purchase and Shareholders Agreement (the "Stock Purchase Agreement"), dated as of August 28, 1998, by and among the Company, the Executive, Thomas A. Gerace and the other parties thereto pursuant to which among other things (a) the Company will sell shares of Series A Convertible Participating Preferred Stock, par value $.01 per share, to certain Investors and (b) the Executive will redeem 1,002,202 shares of Common Stock for $1,002,202; and WHEREAS, the parties hereto desire to assure that the Executive's employment with the Company continue, and the Executive's knowledge and experience continue to be available, after the effective date of the Stock Purchase Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 1. Employment. The Employer agrees to employ the Executive and the ---------- Executive agrees to be employed by the Employer on the terms and conditions set forth in this Agreement. 2. Capacity. The Executive shall serve the Employer as Executive Vice -------- President. The Executive shall also serve the Employer in such other or additional executive offices as the Executive may be requested to serve by the Board of Directors of the Employer (the "Board of Directors") or the Chief Executive Officer. In such capacity or capacities, the Executive shall perform such services and duties in connection with the business, affairs and operations of the Employer as may be assigned or delegated to the Executive from time to time by or under the authority of the Board of Directors or the Chief Executive Officer. 3. Term. Subject to the provisions of Section 6, the term of employment ---- pursuant to this Agreement (the "Term") shall be two (2) years from the Effective Date and shall be renewed automatically for periods of one (1) year commencing at the second anniversary of the Effective Date and on each subsequent anniversary thereafter, if agreed by the Executive and the Employer. 4. Compensation and Benefits. The regular compensation and benefits ------------------------- payable to the Executive under this Agreement shall be as follows: (a) Salary and Bonus. For all services rendered by the Executive ---------------- under this Agreement, the Employer shall pay the Executive a salary (the "Salary") at the annual rate of One Hundred and Ten Thousand Dollars ($110,000), subject to increase from time to time in the discretion of the Board of Directors or the Compensation Committee of the Board of Directors (the "Compensation Committee"). The Salary shall be payable in periodic installments in accordance with the Employer's usual practice for its senior executives. Beginning on January 1, 1999, the Executive shall be eligible for a merit bonus in the amount of $25,000 or such other greater or lesser amount as may be determined by the Board of Directors or the Compensation Committee of the Board of Directors. In determining the amount of such bonus, the Board of Directors shall consider, among other things, the Executive's performance during the relevant year. (b) Regular Benefits. The Executive shall also be entitled to ---------------- participate in any employee benefit plans, medical insurance plans, life insurance plans, disability income plans, retirement plans, vacation plans, expense reimbursement plans and other benefit plans which the Employer may from time to time have in effect for all or most of its senior executives. Such participation shall be subject to the terms of the applicable plan documents, generally applicable policies of the Employer, applicable law and the discretion of the Board of Directors, the Compensation Committee or any administrative or other committee provided for in or contemplated by any such plan. Nothing contained in this Agreement shall be construed to create any obligation on the part of the Employer to establish any such plan or to maintain the effectiveness of any such plan which may be in effect from time to time. (c) Reimbursement of Relocation Expense. The Employer shall reimburse ----------------------------------- the Executive for all reasonable and customary actual out-of-pocket expenses relating to temporary living and the relocation of the Executive and the Executive's family to the Boston area. (d) Vacation. The Executive shall initially be entitled to three -------- weeks of vacation per annum plus one additional vacation day in each year of employment with the Company after the date hereof (not to exceed an aggregate of 4 weeks per annum), such vacation to be taken at such times as is determined by Executive. (e) Taxation of Payments and Benefits. The Employer shall undertake --------------------------------- to make deductions, withholdings and tax reports with respect to payments and benefits under this Agreement to the extent that it reasonably and in good faith believes that it is required to make such deductions, withholdings and tax reports. Payments under this Agreement shall be in amounts net of any such deductions or withholdings. Nothing in this Agreement shall be construed to require the Employer to make any payments to compensate the Executive for any adverse tax effect associated with any payments or benefits or for any deduction or withholding from any payment or benefit. 2 (f) Exclusivity of Compensation. The Executive shall not be entitled --------------------------- to any payments or benefits other than those provided under this Agreement. 5. Extent of Service. During the Executive's employment under this ----------------- Agreement, the Executive shall, subject to the direction and supervision of the Board of Directors or the Chief Executive Officer, devote the Executive's full business time, business judgment, skill and knowledge to the advancement of the Employer's interests and to the discharge of the Executive's duties and responsibilities under this Agreement. The Executive shall not engage in any other business activity, except as may be approved by the Board of Directors; provided that nothing in this Agreement shall be construed as preventing the Executive from: (a) investing the Executive's assets in any company or other entity in a manner not prohibited by Section 7(d) and in such form or manner as shall not require any material activities on the Executive's part in connection with the operations or affairs of the companies or other entities in which such investments are made; or (b) engaging in religious, charitable or other community or non-profit activities that do not impair the Executive's ability to fulfill the Executive's duties and responsibilities under this Agreement; or (c) investing in and participating in the management of The Gerace Family Limited Partnership in a manner not prohibited by Section 7(d). 6. Termination and Termination Benefits. Notwithstanding the provisions ------------------------------------ of Section 3, the Executive's employment under this Agreement shall terminate under the following circumstances set forth in this Section 6. (a) Termination by the Employer for Cause. The Executive's employment ------------------------------------- under this Agreement may be terminated for cause without further liability on the part of the Employer effective 30 days following a vote of the Board of Directors and written notice to the Executive. Only the following shall constitute "cause" for such termination: (i) intentional and material dishonest statements or acts of the Executive with respect to the Employer or any subsidiary of the Employer; (ii) the conviction of the Executive for (A) a felony or (B) any misdemeanor involving fraud; (iii) gross neglect of Executive's duties and responsibilities hereunder confirmed after written notice thereof given to the Executive by the Board of Directors, willful misconduct of the Executive with respect to the Employer or any subsidiary of the Employer; or 3 (iv) material breach by the Executive of any of the Executive's obligations under this Agreement. (b) Termination by the Executive. The Executive's employment under ---------------------------- this Agreement may be terminated by the Executive by written notice to the Board of Directors at least thirty (30) days prior to such termination. (c) Termination by the Employer Without Cause. Subject to the payment ----------------------------------------- of Termination Benefits pursuant to Section 6(d), the Executive's employment under this Agreement may be terminated by the Employer without cause upon thirty (30) days written notice to the Executive by a vote of the Board of Directors. (d) Constructive Termination. The Executive, upon giving thirty (30) ------------------------ days' written notice to the Company, may terminate his employment with Good Reason. For purposes of this Agreement, the term "Good Reason" shall mean the occurrence of any of the events or conditions described in (i) or (ii) hereof that occur without the Executive's express written consent and thus, constitute a constructive termination: (i) a material adverse change in the Executive's status, title, position, scope of authority or responsibilities (including reporting responsibilities) or working conditions; the assignment to the Executive of any duties or responsibilities which, are materially inconsistent with such status, title, position, authorities or responsibilities; or any removal of the Executive from or failure to reappoint or reelect him to any of such positions, except in connection with the prior termination of his employment by the Company for Cause pursuant to this Agreement, as a result of his death or disability or by the Executive other than for Good Reason; (ii) any material breach by the Company of any provision of this Agreement, including without implication of limitation a reduction by the Company in the Executive's compensation or a material adverse change in the level of benefits as set forth in Section 4 hereof. (e) Certain Termination Benefits. Unless otherwise specifically ---------------------------- provided in this Agreement or otherwise required by law, all compensation and benefits payable to the Executive under this Agreement shall terminate on the date of termination of the Executive's employment under this Agreement. Notwithstanding the foregoing, in the event of termination of the Executive's employment with the Employer pursuant to Sections 6(c) and (d) above, the Employer shall provide to the Executive the following termination benefits ("Termination Benefits"): (i) continuation of the Executive's Salary at the rate then in effect pursuant to Section 4(a); and 4 (ii) continuation of group health plan benefits to the extent authorized by and consistent with 29 U.S.C. (S) 1161 et seq. (commonly known as "COBRA"), with the cost of the regular premium for such benefits shared in the same relative proportion by the Employer and the Executive as in effect on the date of termination. The Termination Benefits set forth in (i) and (ii) above shall continue effective until the later of (A) the expiration of the Tenn or (B) three (3) months after the date of termination; The Employer's liability for Salary continuation pursuant to Section 6(e)(i) shall be reduced by the amount of any severance pay paid to the Executive pursuant to any severance pay plan or stay bonus plan of the Employer. Notwithstanding the foregoing, nothing in this Section 6(e) shall be construed to affect the Executive's right to receive COBRA continuation entirely at the Executive's own cost to the extent that the Executive may continue to be entitled to COBRA continuation after the Executive's right to cost sharing under Section 6(e)(ii) ceases. (f) Disability. If the Executive shall be disabled so as to be unable ---------- to perform the essential functions of the Executive's then existing position or positions under this Agreement with or without reasonable accommodation for 180 consecutive days, the Chief Executive Officer or the Board of Directors may remove the Executive from any responsibilities and/or reassign the Executive to another position with the Employer for the remainder of the Term or during the period of such disability. Notwithstanding any such removal or reassignment, the Executive shall continue to receive the Executive's full Salary (less any disability pay or sick pay benefits to which the Executive may be entitled under the Employer's policies) and benefits under Section 4 of this Agreement (except to the extent that the Executive may be ineligible for one or more such benefits under applicable plan terms) for a period of time equal to the greater of (i) six (6) months; or (ii) the remainder of the Term. If any question shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of the Executive's then existing position or positions with or without reasonable accommodation, the Executive may, and at the request of the Employer shall, submit to the Employer a certification in reasonable detail by a physician selected by the Employer to whom the Executive or the Executive's guardian has no reasonable objection as to whether the Executive is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. The Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and the Executive shall fail to submit such certification, the Employer's determination of such issue shall be binding on the Executive. Nothing in this Section 6(e) shall be construed to waive the Executive's rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S. C. (S)2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. (S) 12101 et seq. 5 7. Noncompetition and Nonsolicitation; Cooperation. ------------------------------------------------ (a) Noncompetition and Nonsolicitation. For eighteen (18) months ---------------------------------- after the termination of Executive's employment pursuant to Section 6(a) or Section 6(b) or provided the Employer pays or has paid the Termination Benefit to the Executive if the Executive's employment is terminated pursuant to Sections 6(c), 6(d) or 6(f), the Executive (i) will not, directly or indirectly, whether as owner, partner, shareholder, consultant, agent, employee, co-venturer or otherwise, engage, participate, assist or invest in any Competing Business (as hereinafter defined); (ii) will refrain from directly or indirectly, recruiting or otherwise soliciting, inducing or influencing any person to leave employment with the Employer (other than terminations of employment of subordinate employees undertaken in the course of the Executive's employment with the Employer); and (iii) will refrain from soliciting or encouraging any customer or supplier to terminate or otherwise modify adversely its business relationship with the Employer. The Executive understands that the restrictions set forth in this Section 7(d) are intended to protect the Employer's interest in its Confidential Information and established employee, customer and supplier relationships and goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose. For purposes of this Agreement, the term "Competing Business" shall mean a business which is competitive with any business which the Employer or any of its subsidiaries is conducting or proposing to conduct at the time of Employee's termination. Notwithstanding the foregoing, the Executive may own up to one percent (1 %) of the outstanding stock of a publicly held corporation which constitutes or is affiliated with a Competing Business. (b) Litigation and Regulatory Cooperation. During and after the ------------------------------------- Executive's employment, the Executive shall cooperate fully with the Employer in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Employer which relate to events or occurrences that transpired while the Executive was employed by the Employer. The Executive's full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Employer at mutually convenient times. During and after the Executive's employment, the Executive also shall cooperate fully with the Employer in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Employer. The Employer shall reimburse the Executive for all reasonable out-of-pocket expenses incurred in connection with the Executive's performance of obligations pursuant to this Section 7(b). (c) Injunction. The Executive agrees that it would be difficult to ---------- measure any damages caused to the Employer which might result from any breach by the Executive of the promises set forth in this Section 7, and that in any event money 6 damages would be an inadequate remedy for any such breach. Accordingly, subject to Section 8 of this Agreement, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of this Agreement, the Employer shall be entitled, *in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Employer. 8. Consent to Jurisdiction. To the extent that any court action is ----------------------- permitted consistent with or to enforce Section 8 of this Agreement, the parties hereby consent to the jurisdiction of the Superior Court of the Commonwealth of Pennsylvania and the United States District Court for the District of Pennsylvania. Accordingly, with respect to any such court action, the Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process. 9. Integration. This Agreement constitutes the entire agreement between ----------- the parties with respect to the subject matter hereof and supersedes all prior agreements between the parties with respect to any related subject matter. 10. Assignment; Successors and Assigns, etc. Neither the Employer nor the --------------------------------------- Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; provided that the Employer may assign its rights under this Agreement without the consent of the Executive in the event that the Employer shall effect a reorganization, consolidate with or merge into any other corporation, partnership, organization or other entity, or transfer all or substantially all of its properties or assets to any other corporation, partnership, organization or other entity. This Agreement shall inure to the benefit of and be binding upon the Employer successors and permitted assigns of the Employee. This Agreement shall enure to the benefit of the executors, administrators and heirs of the Executive. 11. Enforceability. If any portion or provision of this Agreement -------------- (including, without limitation, any portion or provision of any Section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 12. Waiver. No waiver of any provision hereof shall be effective unless ------ made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 7 13. Notices. Any notices, requests, demands and other communications ------- provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Employer or, in the case of the Employer, at its main offices, attention of the Chief Executive Officer, and shall be effective on the date of delivery in person or by courier or three (3) days after the date mailed. 14. Amendment. This Agreement may be amended or modified only by a --------- written instrument signed by the Executive and by a duly authorized representative of the Employer. 15. Governing Law. This is a Pennsylvania contract and shall be construed ------------- under and be governed in all respects by the laws of the Commonwealth of Pennsylvania, without giving effect to the conflict of laws principles of such Commonwealth. With respect to any disputes concerning federal law, such disputes shall be determined in accordance with the law as it would be interpreted and applied by the United States Court of Appeals for the Third circuit. 16. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Employer, by its duly authorized officer, and by the Executive, as of the Effective Date. FREEDOM OF INFORMATION, INC. By: Thomas A. Gerace ---------------- Name: Thomas A. Gerace Title: President EXECUTIVE /s/ Samuel P. Gerace, Jr. ------------------------- Samuel P. Gerace, Jr. 8 EX-10.11 14 AGREEMENT WITH THOMAS A. GERACE EXHIBIT 10.11 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 28, 1998 (the "Effective Date"), by and between FREEDOM OF INFORMATION, INC., a Delaware corporation with its headquarters currently located in Pittsburgh, Pennsylvania (the "Employer"), and Thomas A. Gerace (the "Executive"). W I T N E S S E T H - - - - - - - - - - WHEREAS, the Executive is a founder of the Company; and WHEREAS, reference is made to that certain Stock Purchase and Shareholders Agreement (the "Stock Purchase Agreement"), dated as of August 28, 1998, by and among the Company, the Executive, Samuel P. Gerace, Jr. and the other parties thereto pursuant to which among other things (a) the Company will sell shares of Series A Convertible Participating Preferred Stock, par value $.01 per share, to certain Investors and (b) the Executive will redeem 1,002,202 shares of Common Stock for $1,002,202; and WHEREAS, the parties hereto desire to assure that the Executive's employment with the Company continue, and the Executive's knowledge and experience continue to be available, after the effective date of the Stock Purchase Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 1. Employment. The Employer agrees to employ the Executive and the Executive agrees to be employed by the Employer on the terms and conditions set forth in this Agreement. 2. Capacity. The Executive shall serve the Employer as Executive Vice President. The Executive shall also serve the Employer in such other or additional executive offices as the Executive may be requested to serve by the Board of Directors of the Employer (the "Board of Directors") or the Chief Executive Officer. In such capacity or capacities, the Executive shall perform such services and duties in connection with the business, affairs and operations of the Employer as may be assigned or delegated to the Executive from time to time by or under the authority of the Board of Directors or the Chief Executive Officer. 3. Term. Subject to the provisions of Section 6, the term of employment pursuant to this Agreement (the "Term") shall be two (2) years from the Effective Date and shall be renewed automatically for periods of one (1) year commencing at the second anniversary of the Effective Date and on each subsequent anniversary thereafter, if agreed by the Executive and the Employer. 4. Compensation and Benefits. The regular compensation and benefits ------------------------- payable to the Executive under this Agreement shall be as follows: (a) Salary and Bonus. For all services rendered by the Executive ---------------- under this Agreement, the Employer shall pay the Executive a salary (the "Salary") at the annual rate of One Hundred and Ten Thousand Dollars ($110,000), subject to increase from time to time in the discretion of the Board of Directors or the Compensation Committee of the Board of Directors (the "Compensation Committee"). The Salary shall be payable in periodic installments in accordance with the Employer's usual practice for its senior executives. Beginning on January 1, 1999, the Executive shall be eligible for a merit bonus in the amount of $25,000 or such other greater or lesser amount as may be determined by the Board of Directors or the Compensation Committee of the Board of Directors. In determining the amount of such bonus, the Board of Directors shall consider, among other things, the Executive's performance during the relevant year. (b) Regular Benefits. The Executive shall also be entitled to ---------------- participate in any employee benefit plans, medical insurance plans, life insurance plans, disability income plans, retirement plans, vacation plans, expense reimbursement plans and other benefit plans which the Employer may from time to time have in effect for all or most of its senior executives. Such participation shall be subject to the terms of the applicable plan documents, generally applicable policies of the Employer, applicable law and the discretion of the Board of Directors, the Compensation Committee or any administrative or other committee provided for in or contemplated by any such plan. Nothing contained in this Agreement shall be construed to create any obligation on the part of the Employer to establish any such plan or to maintain the effectiveness of any such plan which may be in effect from time to time. (c) Reimbursement of Relocation Expense. The Employer shall reimburse ----------------------------------- the Executive for all reasonable and customary actual out-of-pocket expenses relating to temporary living and the relocation of the Executive and the Executive's family to the Boston area. (d) Vacation. The Executive shall initially be entitled to three -------- weeks of vacation per annum plus one additional vacation day in each year of employment with the Company after the date hereof (not to exceed an aggregate of 4 weeks per annum), such vacation to be taken at such times as is determined by Executive. (e) Taxation of Payments and Benefits. The Employer shall undertake --------------------------------- to make deductions, withholdings and tax reports with respect to payments and benefits under this Agreement to the extent that it reasonably and in good faith believes that it is required to make such deductions, withholdings and tax reports. Payments under this Agreement shall be in amounts net of any such deductions or withholdings. Nothing in this Agreement shall be construed to require the Employer to make any payments to compensate the Executive for any adverse tax effect associated with any payments or benefits or for any deduction or withholding from any payment or benefit. 2 (f) Exclusivity of Compensation. The Executive shall not be entitled --------------------------- to any payments or benefits other than those provided under this Agreement. 5. Extent of Service. During the Executive's employment under this ----------------- Agreement, the Executive shall, subject to the direction and supervision of the Board of Directors or the Chief Executive Officer, devote the Executive's full business time, business judgment, skill and knowledge to the advancement of the Employer's interests and to the discharge of the Executive's duties and responsibilities under this Agreement. The Executive shall not engage in any other business activity, except as may be approved by the Board of Directors; provided that nothing in this Agreement shall be construed as preventing the Executive from: (a) investing the Executive's assets in any company or other entity in a manner not prohibited by Section 7(d) and in such form or manner as shall not require any material activities on the Executive's part in connection with the operations or affairs of the companies or other entities in which such investments are made; or (b) engaging in religious, charitable or other community or non-profit activities that do not impair the Executive's ability to fulfill the Executive's duties and responsibilities under this Agreement; or (c) investing in and participating in the management of The Gerace Family Limited Partnership in a manner not prohibited by Section 7(d). 6. Termination and Termination Benefits. Notwithstanding the provisions ------------------------------------ of Section 3, the Executive's employment under this Agreement shall terminate under the following circumstances set forth in this Section 6. (a) Termination by the Employer for Cause. The Executive's employment ------------------------------------- under this Agreement may be terminated for cause without further liability on the part of the Employer effective 30 days following a vote of the Board of Directors and written notice to the Executive. Only the following shall constitute "cause" for such termination: (i) intentional and material dishonest statements or acts of the Executive with respect to the Employer or any subsidiary of the Employer; (ii) the conviction of the Executive for (A) a felony or (B) any misdemeanor involving fraud; (iii) gross neglect of Executive's duties and responsibilities hereunder confirmed after written notice thereof given to the Executive by the Board of Directors, willful misconduct of the Executive with respect to the Employer or any subsidiary of the Employer; or 3 (iv) material breach by the Executive of any of the Executive's obligations under this Agreement. (b) Termination by the Executive. The Executive's employment under ---------------------------- this Agreement may be terminated by the Executive by written notice to the Board of Directors at least thirty (30) days prior to such termination. (c) Termination by the Employer Without Cause. Subject to the payment ----------------------------------------- of Termination Benefits pursuant to Section 6(d), the Executive's employment under this Agreement may be terminated by the Employer without cause upon thirty (30) days written notice to the Executive by a vote of the Board of Directors. (d) Constructive Termination. The Executive, upon giving thirty (30) ------------------------ days' written notice to the Company, may terminate his employment with Good Reason. For purposes of this Agreement, the term "Good Reason" shall mean the occurrence of any of the events or conditions described in (i) or (ii) hereof that occur without the Executive's express written consent and thus, constitute a constructive termination: (i) a material adverse change in the Executive's status, title, position, scope of authority or responsibilities (including reporting responsibilities) or working conditions; the assignment to the Executive of any duties or responsibilities which, are materially inconsistent with such status, title, position, authorities or responsibilities; or any removal of the Executive from or failure to reappoint or reelect him to any of such positions, except in connection with the prior termination of his employment by the Company for Cause pursuant to this Agreement, as a result of his death or disability or by the Executive other than for Good Reason; (ii) any material breach by the Company of any provision of this Agreement, including without implication of limitation a reduction by the Company in the Executive's compensation or a material adverse change in the level of benefits as set forth in Section 4 hereof. (e) Certain Termination Benefits. Unless otherwise specifically ---------------------------- provided in this Agreement or otherwise required by law, all compensation and benefits payable to the Executive under this Agreement shall terminate on the date of termination of the Executive's employment under this Agreement. Notwithstanding the foregoing, in the event of termination of the Executive's employment with the Employer pursuant to Sections 6(c) and (d) above, the Employer shall provide to the Executive the following termination benefits ("Termination Benefits"): (i) continuation of the Executive's Salary at the rate then in effect pursuant to Section 4(a); and 4 (ii) continuation of group health plan benefits to the extent authorized by and consistent with 29 U.S.C. (S) 1161 et seq. (commonly known as "COBRA"), with the cost of the regular premium for such benefits shared in the same relative proportion by the Employer and the Executive as in effect on the date of termination. The Termination Benefits set forth in (i) and (ii) above shall continue effective until the later of (A) the expiration of the Tenn or (B) three (3) months after the date of termination; The Employer's liability for Salary continuation pursuant to Section 6(e)(i) shall be reduced by the amount of any severance pay paid to the Executive pursuant to any severance pay plan or stay bonus plan of the Employer. Notwithstanding the foregoing, nothing in this Section 6(e) shall be construed to affect the Executive's right to receive COBRA continuation entirely at the Executive's own cost to the extent that the Executive may continue to be entitled to COBRA continuation after the Executive's right to cost sharing under Section 6(e)(ii) ceases. (f) Disability. If the Executive shall be disabled so as to be unable ---------- to perform the essential functions of the Executive's then existing position or positions under this Agreement with or without reasonable accommodation for 180 consecutive days, the Chief Executive Officer or the Board of Directors may remove the Executive from any responsibilities and/or reassign the Executive to another position with the Employer for the remainder of the Term or during the period of such disability. Notwithstanding any such removal or reassignment, the Executive shall continue to receive the Executive's full Salary (less any disability pay or sick pay benefits to which the Executive may be entitled under the Employer's policies) and benefits under Section 4 of this Agreement (except to the extent that the Executive may be ineligible for one or more such benefits under applicable plan terms) for a period of time equal to the greater of (i) six (6) months; or (ii) the remainder of the Term. If any question shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of the Executive's then existing position or positions with or without reasonable accommodation, the Executive may, and at the request of the Employer shall, submit to the Employer a certification in reasonable detail by a physician selected by the Employer to whom the Executive or the Executive's guardian has no reasonable objection as to whether the Executive is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. The Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and the Executive shall fail to submit such certification, the Employer's determination of such issue shall be binding on the Executive. Nothing in this Section 6(e) shall be construed to waive the Executive's rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S. C. (S)2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. (S) 12101 et seq. 5 7. Noncompetition and Nonsolicitation; Cooperation. ------------------------------------------------ (a) Noncompetition and Nonsolicitation. For eighteen (18) months ---------------------------------- after the termination of Executive's employment pursuant to Section 6(a) or Section 6(b) or provided the Employer pays or has paid the Termination Benefit to the Executive if the Executive's employment is terminated pursuant to Sections 6(c), 6(d) or 6(f), the Executive (i) will not, directly or indirectly, whether as owner, partner, shareholder, consultant, agent, employee, co-venturer or otherwise, engage, participate, assist or invest in any Competing Business (as hereinafter defined); (ii) will refrain from directly or indirectly, recruiting or otherwise soliciting, inducing or influencing any person to leave employment with the Employer (other than terminations of employment of subordinate employees undertaken in the course of the Executive's employment with the Employer); and (iii) will refrain from soliciting or encouraging any customer or supplier to terminate or otherwise modify adversely its business relationship with the Employer. The Executive understands that the restrictions set forth in this Section 7(d) are intended to protect the Employer's interest in its Confidential Information and established employee, customer and supplier relationships and goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose. For purposes of this Agreement, the term "Competing Business" shall mean a business which is competitive with any business which the Employer or any of its subsidiaries is conducting or proposing to conduct at the time of Employee's termination. Notwithstanding the foregoing, the Executive may own up to one percent (1 %) of the outstanding stock of a publicly held corporation which constitutes or is affiliated with a Competing Business. (b) Litigation and Regulatory Cooperation. During and after the ------------------------------------- Executive's employment, the Executive shall cooperate fully with the Employer in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Employer which relate to events or occurrences that transpired while the Executive was employed by the Employer. The Executive's full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Employer at mutually convenient times. During and after the Executive's employment, the Executive also shall cooperate fully with the Employer in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Employer. The Employer shall reimburse the Executive for all reasonable out-of-pocket expenses incurred in connection with the Executive's performance of obligations pursuant to this Section 7(b). (c) Injunction. The Executive agrees that it would be difficult to ---------- measure any damages caused to the Employer which might result from any breach by the Executive of the promises set forth in this Section 7, and that in any event money 6 damages would be an inadequate remedy for any such breach. Accordingly, subject to Section 8 of this Agreement, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of this Agreement, the Employer shall be entitled, *in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Employer. 8. Consent to Jurisdiction. To the extent that any court action is ----------------------- permitted consistent with or to enforce Section 8 of this Agreement, the parties hereby consent to the jurisdiction of the Superior Court of the Commonwealth of Pennsylvania and the United States District Court for the District of Pennsylvania. Accordingly, with respect to any such court action, the Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process. 9. Integration. This Agreement constitutes the entire agreement between ----------- the parties with respect to the subject matter hereof and supersedes all prior agreements between the parties with respect to any related subject matter. 10. Assignment; Successors and Assigns, etc. Neither the Employer nor the --------------------------------------- Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; provided that the Employer may assign its rights under this Agreement without the consent of the Executive in the event that the Employer shall effect a reorganization, consolidate with or merge into any other corporation, partnership, organization or other entity, or transfer all or substantially all of its properties or assets to any other corporation, partnership, organization or other entity. This Agreement shall inure to the benefit of and be binding upon the Employer successors and permitted assigns of the Employee. This Agreement shall enure to the benefit of the executors, administrators and heirs of the Executive. 11. Enforceability. If any portion or provision of this Agreement -------------- (including, without limitation, any portion or provision of any Section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 12. Waiver. No waiver of any provision hereof shall be effective unless ------ made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 7 13. Notices. Any notices, requests, demands and other communications ------- provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Employer or, in the case of the Employer, at its main offices, attention of the Chief Executive Officer, and shall be effective on the date of delivery in person or by courier or three (3) days after the date mailed. 14. Amendment. This Agreement may be amended or modified only by a --------- written instrument signed by the Executive and by a duly authorized representative of the Employer. 15. Governing Law. This is a Pennsylvania contract and shall be construed ------------- under and be governed in all respects by the laws of the Commonwealth of Pennsylvania, without giving effect to the conflict of laws principles of such Commonwealth. With respect to any disputes concerning federal law, such disputes shall be determined in accordance with the law as it would be interpreted and applied by the United States Court of Appeals for the Third circuit. 16. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Employer, by its duly authorized officer, and by the Executive, as of the Effective Date. FREEDOM OF INFORMATION, INC. By: Samuel P. Gerace, Jr. --------------------- Name: Samuel P. Gerace, Jr. Title: President EXECUTIVE /s/ Thomas A. Gerace -------------------- Thomas A. Gerace 8 EX-10.12 15 LEASE DATED 11/09/1998 EXHIBIT 10.12 425 SIXTH AVENUE BUILDING LEASE SOUTHWESTERN PENNSYLVANIA CORPORATION (LANDLORD) BY GRUBB & ELLIS COMPANY, AGENT AND FREEDOM OF INFORMATION, INC. (TENANT) TABLE OF CONTENTS 1. Premises......................................................... 1 2. Definitions...................................................... 1 3. Term............................................................. 4 4. Completion of Improvements....................................... 4 5. Possession....................................................... 4 6. Rent............................................................. 4 7. Security Deposit................................................. 6 8. Real Estate Taxes................................................ 6 9. Operating Expenses............................................... 8 10. Use of Premises; Rules and Regulations........................... 10 11. TENANT'S Acceptance.............................................. 11 12. Alterations and Additions........................................ 11 13. BUILDING Services................................................ 13 14. Assignment & Subletting.......................................... 14 15. Inspection....................................................... 15 16. Repairs.......................................................... 15 17. Surrender of PREMISES............................................ 17 18. Indemnification and Liability.................................... 17 19. Fire or Other Casualty........................................... 17 20. Insurance........................................................ 18 -i- 21. Condemnation..................................................... 19 22. Subordination and Attornment..................................... 20 23. Estoppel Certificates............................................ 21 24. Default.......................................................... 21 25. Accelerated RENT................................................. 22 26. Remedies......................................................... 22 27. Waiver........................................................... 24 28. Confession of Judgment........................................... 25 29. TENANT'S Representations and Warranties.......................... 25 30. Quiet Enjoyment.................................................. 25 31. Unavoidable Delay................................................ 25 32. Brokers.......................................................... 25 33. Interest......................................................... 25 34. LANDLORD'S Exculpatory........................................... 26 35. Agents Exculpatory............................................... 26 36. Compliance....................................................... 26 37. TENANT'S Waiver.................................................. 27 38. Public Portions of BUILDING...................................... 27 39. Relocation - Intentionally Deleted............................... 27 40. Notices.......................................................... 27 41. Successors....................................................... 28 42. Governing Law.................................................... 28 -ii- 43. Separability..................................................... 28 44. Captions......................................................... 28 45. Gender........................................................... 28 46. Entire Agreement/Modifications................................... 28 47. Counterparts..................................................... 29 48. Lease Not An Offer............................................... 29 49. Renewal Option................................................... 29 50. Right of First Offer (Contiguous Space).......................... 29 51. Right of Contract................................................ 29 Exhibit 2.21 - Floor Plan Exhibit 4 - Description of Landlord's Work Exhibit 10.2 - Building Rules and Regulations -iii- LEASE AGREEMENT THIS LEASE is made and entered into as of the 9th day of November, 1998, by and between Southwestern Pennsylvania Corporation, a Pennsylvania corporation, having an office at 200 First Avenue, Pittsburgh, Pennsylvania 15222-1573 (hereinafter called "LANDLORD"/1/), by Grubb & Ellis Company, ("AGENT"), with offices located at 600 Six PPG Place, Pittsburgh, Pennsylvania 15222, and Freedom of Information, Inc. a Delaware Corporation having its principal office at 201 Boston Post Road West, Marlborough, Massachusetts 01752 (hereinafter called "TENANT"). WHEREAS, LANDLORD as owner of the LAND and BUILDING intends to use the BUILDING for charitable and public purposes by creating and operating a regional resource center that will engage in education, cultural and economic development activities for the benefit of the inhabitants of the Southwestern Pennsylvania region; and WHEREAS, TENANT is an organization that desires to participate as a tenant in the regional resource center, and LANDLORD desires TENANT to so participate, all under the terms and conditions set forth herein. NOW THEREFORE, intending to be legally bound, LANDLORD and TENANT agree as follows: 1. Premises LANDLORD hereby leases to TENANT, and TENANT hereby takes and hires from LANDLORD, the PREMISES. The parties hereby agree finally and conclusively that the "RENTABLE AREA" of the PREMISES shall be 12,187 square feet. 2. Definitions As used herein, the following terms shall be deemed to have the following meaning: 2.1. "AGENT" shall mean Grubb & Ellis Company. 2.2. "ANNUAL MINIMUM RENT" shall have the meaning ascribed to it in Section 6 of this LEASE. 2.3. "BASE YEAR" shall mean the period of twelve (12) consecutive months commencing on JANUARY 1, 1999 and ending on December 31 of the same calendar year. - ------------------------------- /1/ Words in BOLD CAPS are defined in Section 2 of this LEASE. 2.4. "BUILDING" shall mean the structure and all fixtures and equipment located at 425 Sixth Avenue in the City of Pittsburgh, Allegheny County, Commonwealth of Pennsylvania and currently known as the ALCOA Building. 2.5. "CLASSROOM" shall mean any part of the PREMISES used to conduct any degree or non-degree course which is regularly scheduled or repetitive (e.g., a series of lectures on Windows 95 or math is a course). A seminar of a non- recurring nature is not a course (e.g., a day-long meeting on entrepreneurship in Western Pennsylvania is not a course). 2.6. "COMMENCEMENT DATE" shall have the meaning ascribed to it in Section 3 of this LEASE. 2.7. "DEFAULT" shall have the meaning ascribed to it in Section 24 of this LEASE. 2.8. "DEFAULT RATE" shall mean the lesser of (i) the Prime Rate plus three percent (3%) or (ii) the greatest amount permitted under applicable law. 2.9. "EXPIRATION DATE" shall have the meaning ascribed to it in Section 3 of this LEASE. 2.10. "FIXTURES" shall mean any part of the TENANT'S PERSONALTY affixed to the BUILDING. 2.11. "HOLIDAYS" shall mean New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. 2.12. "LAND" shall mean the lot or lots owned by Landlord and upon which the BUILDING is located. 2.13. "LANDLORD" shall mean Southwestern Pennsylvania Corporation, a Pennsylvania corporation, having an office at 200 First Avenue, Pittsburgh, Pennsylvania 15222-1573. 2.14. "LEASE" shall mean this lease agreement between LANDLORD and TENANT. 2.15. "NORMAL BUSINESS HOURS" shall mean 8:00 A.M. to 6:00 P.M. Monday through Friday, and 8:00 A.M. to 1:00 P.M. on Saturdays (HOLIDAYS excepted). 2.16. "OPERATING EXPENSES" shall have the meaning ascribed to it in Section 9 of this LEASE. -2- 2.17. "PREMISES" shall mean Suite 2000 on the 20th floor in the BUILDING, including the RENTABLE AREA, subject to the terms of this LEASE. 2.18. "PRIME RATE" shall mean the interest rate per annum publicly announced by PNC Bank, N.A. (or any successor thereto) as its PRIME RATE, such interest rate to change effective as of the effective date of each change in such announced PRIME RATE. 2.19. "PROPERTY" shall mean the LAND and the BUILDING, including the PREMISES. 2.20. "RENT" shall have the meaning ascribed to it in Section 6 of this LEASE. 2.21. "RENTABLE AREA" shall mean 12,187 square feet of area in the PREMISES as shown on the floor plan attached hereto as Exhibit 2.21. 2.22. "TENANT" shall mean Freedom of Information, Inc. a Delaware Corporation, having an office at 201 Boston Post Road West, Marlborough, Massachusetts 01752. 2.23. "TENANT'S CASUALTY POLICY" shall mean the casualty policy purchased by TENANT as described in Section 20. 2.24. "TENANT'S INSURANCE" shall mean the insurance policies as set forth in Section 20. 2.25. "TENANT'S LIABILITY POLICY" shall mean the liability policy purchased by TENANT as described in Section 20.2. 2.26. "TENANT'S PERSONALTY" shall mean all of TENANT'S personal property located on the PREMISES including but not limited to signaling, telegraphic, telephonic, computer or cable television or other communications wiring, furniture, floor coverings, tiles, carpet, wallpaper, equipment, office dividers, trade fixtures, etc., and any improvements made by TENANT to the PREMISES. 2.27. "TENANT'S PROPORTIONATE SHARE" shall be .034 (3.4%) percent. 2.28. "TERM" shall have the meaning ascribed to it in Section 3 of this LEASE. 2.29. "TOTAL REAL ESTATE TAXES" shall have the meaning ascribed to it in Section 8 of this LEASE. -3- 2.30. "WORK" shall have the meaning ascribed to it in Section 4 of this LEASE. 3. Term The TERM of this LEASE shall commence on the earlier of (i) February 1, 1999, or (ii) the date when TENANT shall first occupy any portion of the PREMISES (the "COMMENCEMENT DATE") and shall expire at midnight on the last day of January, 2004 (the "EXPIRATION DATE"). 4. Completion of Improvements LANDLORD shall furnish to TENANT before the date or dates specified in Exhibit 4 the plans and specifications referred to in Exhibit 4 for such improvements. Such plans shall reflect work which is in compliance in all material respects with all applicable laws, regulations, rules, ordinances and codes. Unless otherwise agreed in writing, LANDLORD shall construct such improvements to the PREMISES substantially in accordance with such plans and specifications at LANDLORD'S expense. If after the COMMENCEMENT DATE or after TENANT takes possession of the PREMISES, TENANT does construction work on the PREMISES, TENANT shall comply in all respects with Section 12 hereof in connection therewith. The work to be performed pursuant to this Section is herein referred to as the "WORK." Title to all WORK and other alterations or improvements at any time made to the PREMISES by TENANT shall vest in the LANDLORD immediately upon the installation thereof. 5. Possession If LANDLORD fails to tender possession of the PREMISES on or before the scheduled date of commencement of the TERM, then all RENT shall abate until LANDLORD tenders possession, and TENANT hereby accepts such abatement in full settlement of any and all claims TENANT may have against LANDLORD arising from LANDLORD'S failure to tender possession at the commencement of the TERM. The TERM shall be extended as a result of such failure by LANDLORD to tender possession at the commencement of the TERM for a period equal to such delay in the commencement of the TERM. No formal tender of possession by LANDLORD, in writing or otherwise, shall be required. 6. Rent TENANT shall pay to LANDLORD at its offices above specified, or at such other place as LANDLORD may from time to time designate, as "ANNUAL MINIMUM RENT", the following sums in equal monthly installments, payable in advance and without demand, counterclaim or offset, beginning on the -4- COMMENCEMENT DATE and continuing on the first day of each calendar month thereafter until the EXPIRATION DATE:
- -------------------------------------------------------------------------------------------------- Time Period Monthly Rental Annual Rental - -------------------------------------------------------------------------------------------------- February 1999 - January 2000 $10,000 $120,000 - -------------------------------------------------------------------------------------------------- February 2000 - January 2001 12,920 155,040 - -------------------------------------------------------------------------------------------------- February 2001 - January 2002 16,250 195,000 - -------------------------------------------------------------------------------------------------- February 2002 - January 2003 16,760 201,120 - -------------------------------------------------------------------------------------------------- February 2003 - January 2004 17,265 207,180 - --------------------------------------------------------------------------------------------------
LANDLORD reserves the right, at its sole discretion, to reduce the amount of the ANNUAL MINIMUM RENT at any time. In the event that LANDLORD elects to reduce the amount of ANNUAL MINIMUM RENT, LANDLORD shall notify TENANT of the amount of the reduced ANNUAL MINIMUM RENT in writing. The reduced ANNUAL MINIMUM RENT shall begin on the first day of the next calendar month. In the event the TERM commences on a day other than the first day of a calendar month, TENANT shall pay to LANDLORD on or before the COMMENCEMENT DATE, a pro rata portion of the monthly installment of ANNUAL MINIMUM RENT to be based on the number of days remaining in such partial month from and after the COMMENCEMENT DATE. In the event that the TERM expires on a date other than the last day of a calendar month, TENANT shall pay to LANDLORD, on or before the first day of the calendar month in which the TERM expires, a pro rata portion of the monthly installment of ANNUAL MINIMUM RENT to be based on the number of days of such month within the TERM. TENANT hereby covenants and agrees to pay the ANNUAL MINIMUM RENT hereby reserved as and when due and all other sums of money, charges or other amounts required to be paid by TENANT to LANDLORD or to another person under this LEASE without setoff or deduction, all of which shall be deemed to be "additional rent". The ANNUAL MINIMUM RENT and all additional rent are hereinafter collectively referred to as the "RENT". Nonpayment for a period of ten (10) days after the due date thereof of additional RENT shall, at LANDLORD'S option, constitute a DEFAULT under this LEASE to the same extent, and shall entitle the LANDLORD to the same remedies, as a similar non-payment of ANNUAL MINIMUM RENT. In the event that TENANT shall fail to pay any RENT for a -5- period of ten (10) days after the date when due (irrespective of any grace period which may be permitted by this LEASE prior to the occurrence of a DEFAULT), TENANT shall be obligated to pay LANDLORD immediately a late charge in the amount of four percent (4%) of such overdue payment. TENANT'S covenant to pay RENT shall be independent of any other covenant set forth in this LEASE. 7. Security Deposit Immediately upon the execution of this LEASE, TENANT shall pay to LANDLORD the sum of Ten Thousand Dollars ($10,000.00) to be held as collateral security for the payment by TENANT of the RENT and for the faithful performance of all other covenants and agreements of TENANT hereunder. The amount of such deposit, without interest (unless otherwise required by law), shall be returned by LANDLORD to TENANT upon the expiration of the TERM, provided TENANT shall have made all such payments and performed all covenants and agreements on its part to be performed. Upon the occurrence of any DEFAULT not cured within the applicable cure period, if any, LANDLORD shall be entitled, at LANDLORD'S sole option and without prejudice to any of its other rights under this LEASE or otherwise, to apply so much or all of such deposit to any sums which may then be or may thereafter become payable to LANDLORD under or in connection with this LEASE, and thereafter TENANT shall promptly restore the resulting deficiency in such deposit to be held as aforesaid. TENANT hereby agrees not to look to the mortgagee, as mortgagee, mortgagee in possession, or any successor in title to the PROPERTY, for accountability for any security deposit required by the LANDLORD hereunder, unless said sums have actually been received by said party as security for the TENANT'S performance of this LEASE. 8. Real Estate Taxes 8.1. As and for additional RENT, TENANT shall pay to LANDLORD, without setoff or deduction, TENANT'S PROPORTIONATE SHARE of the "TOTAL REAL ESTATE TAXES" (as hereinafter defined) in excess of the TOTAL REAL ESTATE TAXES for the BASE YEAR. TENANT'S obligation hereunder shall be apportioned as between LANDLORD and TENANT for the portion of such TOTAL REAL ESTATE TAXES accruing within the TERM of this LEASE and prorated for any partial year. 8.2. "TOTAL REAL ESTATE TAXES" shall mean the sum of. (a) the real estate taxes attributable to the BUILDING plus (b) the real estate taxes attributable to the LAND. -6- 8.3. The "REAL ESTATE TAXES" shall mean all taxes and assessments, including, without limitation, special assessments, levied, assessed or imposed at any time by any governmental authority upon or against the LAND and/or the BUILDING, and also any tax or assessment levied, assessed or imposed at any time by any governmental authority in connection with the receipt of income or rents from said LAND and/or BUILDING to the extent that same shall be in lieu of (and/or in lieu of an increase in) all or a portion of any of the aforesaid taxes or assessments upon or against the LAND and BUILDING and all business privilege taxes and similar taxes imposed on the BUILDING, LAND or PROPERTY or the owner thereof. The "REAL ESTATE TAXES" shall also include any taxes not presently in effect which may hereafter be assessed and levied by any governmental body or other authority against the LAND, BUILDING or PREMISES. REAL ESTATE TAXES shall not include any inheritance, estate, succession, gift, franchise, corporation, income or profit tax or capital levy that is or may be imposed upon LANDLORD. 8.4. TENANT shall pay to LANDLORD TENANT'S PROPORTIONATE SHARE of TOTAL REAL ESTATE TAXES as follows: TENANT shall pay monthly, in advance, a sum equal to 1/12th of LANDLORD'S estimate of the amount by which TENANT'S PROPORTIONATE SHARE of TOTAL REAL ESTATE TAXES shall be in excess of the TOTAL REAL ESTATE TAXES for the BASE YEAR. From time to time, LANDLORD shall estimate the amount to be due from TENANT for TENANT'S PROPORTIONATE SHARE of TOTAL REAL ESTATE TAXES and TENANT shall pay 1/12th of such amount monthly in advance subject to adjustment. 8.5. LANDLORD shall furnish TENANT with a written statement of the actual TOTAL REAL ESTATE TAXES within 90 days after receipt of bills for all the REAL ESTATE TAXES in any calendar year. In the event such statement discloses that the additional rent paid by TENANT as TENANT'S PROPORTIONATE SHARE of TOTAL REAL ESTATE TAXES is less than the amount actually incurred, TENANT shall pay the additional amount to LANDLORD within twenty (20) days after receipt of such statement. In the event that such statement discloses that the additional rent paid by TENANT as TENANT'S PROPORTIONATE SHARE of TOTAL REAL ESTATE TAXES is greater than the amount actually incurred, LANDLORD shall give TENANT a credit against future additional rent to be paid by TENANT to LANDLORD. -7- 9. Operating Expenses 9.1. As and for additional rent, TENANT shall pay to LANDLORD TENANT'S PROPORTIONATE SHARE of the OPERATING EXPENSES (as hereinafter defined) in excess of the OPERATING EXPENSES for the BASE YEAR. If the first and/or last years of the TERM of this LEASE shall not be full calendar years, then TENANT'S obligation for OPERATING EXPENSES attributable to such years shall be prorated on the basis of the ratio between the number of days of such calendar years falling within the TERM and 365. 9.2. "OPERATING EXPENSES" shall mean any and all reasonable costs, expenses and disbursements of every kind and character (subject to the limitations set forth below) which LANDLORD shall incur, pay or become obligated to pay in connection with the ownership, operation, maintenance, repair, replacement and security of the PROPERTY, determined in accordance with LANDLORD'S general practices, including, but not limited to, the following: a. All supplies and materials used in the operation, maintenance, repair, replacement, and security of the PROPERTY. b. Cost of all utilities including without limitation gas, water, telephone, telegraph, power, heating, steam, cable, lighting, air conditioning and ventilating the PROPERTY. c. Cost of casualty, liability and other insurance applicable to the PROPERTY and LANDLORD'S personal property used in connection therewith. d. Cost of repairs, replacements, and general maintenance of the PROPERTY. e. Cost of service or maintenance contracts with independent contractors for the operation, maintenance, repair, replacement, or security of the PROPERTY. f. Cost of audit fees, legal fees, and other administrative expenses applicable to the ownership and operation of the PROPERTY. g. Cost of contractual management fees and other expenses directly related to the management of the PROPERTY and/or the maintenance of the accounting books and records, including without limitation, all on-site management and related payroll costs. -8- h. Cost of: janitorial services, trash, garbage, snow and ice removal; servicing, replacing, equipping and maintenance of all electrical, security and fire alarms, fire pumps, sprinkler systems and fire extinguishers and hose cabinets; and guard services, painting, window cleaning, landscaping and gardening. i. All sales, use and excise taxes on goods and services purchased or provided by LANDLORD, or any agent or contractor thereof, in connection with the management, operation, maintenance and/or repair of the PROPERTY. j. All license, permit and inspection fees. k. All Federal, state and local payroll taxes, unemployment taxes and Social Security taxes for personnel assigned to the BUILDING. l. Association dues and subscriptions, which shall be limited to the BUILDING Owners and Managers Association, Pittsburgh Downtown Partnership, and the like. m. Legal fees and costs of counsel retained by LANDLORD, arbitration costs and expenses, and charges for professional services rendered on behalf of LANDLORD or its managing agents incurred in connection with proceedings for the reduction of real estate taxes, labor relations or other matters if the same shall be intended to be for the general benefit of tenants in the BUILDING. n. Expense or amortization, at LANDLORD'S option, of capital improvements which are designed to reduce OPERATING EXPENSES or which may be required by governmental authorities, with interest at the PRIME RATE on the unamortized amount, based on the useful life, for tax purposes, of such capital improvements. o. Such other expenses as LANDLORD may deem necessary or proper, in its reasonable judgment, in connection with the operation and maintenance of a first-class office building. Specifically excluded from the definition of the "OPERATING EXPENSES" are interest and amortization payments on any mortgage or loan; expenses for repair or other work occasioned by fire or other casualty which is covered under a standard fire policy with extended coverage; lease commissions and attorney fees incurred in the leasing or procuring of new tenants; and cost of leasehold improvements to space within the BUILDING leased to other tenants. 9.3. If at any time during the TERM of this LEASE or during the BASE YEAR less than ninety-five percent (95%) of the RENTABLE AREA of the BUILDING is leased and occupied by tenants, then for purposes of this Section 9, -9- OPERATING EXPENSES shall be increased to the level OPERATING EXPENSES would be if the BUILDING were ninety-five percent (95%) leased and occupied during such year. 9.4. TENANT shall pay to LANDLORD TENANT'S PROPORTIONATE SHARE of OPERATING EXPENSES, as follows: TENANT shall pay monthly, in advance, a sum equal to 1/12th of LANDLORD'S estimate of the amount by which TENANT'S PROPORTIONATE SHARE of OPERATING EXPENSES shall be in excess of the OPERATING EXPENSES for the BASE YEAR. At the beginning of every calendar year, LANDLORD shall estimate the amount to be due from TENANT for TENANT'S PROPORTIONATE SHARE of OPERATING EXPENSES, and TENANT shall pay 1/12th of such amount monthly in advance subject to adjustment (provided that LANDLORD may adjust such estimate from time to time upon notice to TENANT). 9.5. Within one hundred and fifty (150) days after the expiration of each calendar year, LANDLORD shall furnish TENANT with a written statement of the actual OPERATING EXPENSES incurred for the preceding calendar year. In the event such statement discloses that the additional rent paid by TENANT as TENANT'S PROPORTIONATE SHARE of OPERATING EXPENSES is less than the amount actually incurred, TENANT shall pay such amount to LANDLORD within twenty (20) days after receipt of such statement. In the event that such statement discloses that the additional rent paid by TENANT as TENANT'S PROPORTIONATE SHARE of OPERATING EXPENSES is greater than the amount actually incurred, LANDLORD shall give TENANT a credit against future additional RENT to be paid by TENANT to LANDLORD. 10. Use of Premises; Rules and Regulations 10.1. Use. TENANT shall use and occupy the PREMISES for general business office use relating to TENANT'S business and for no other purpose. 10.2. Rules and Regulations. TENANT shall observe and comply with the Rules and Regulations attached hereto as Exhibit 10.2 and made a part hereof and with such amendments thereof and supplements thereto as LANDLORD may from time to time adopt. All Rules and Regulations now or hereafter in effect shall apply to TENANT and its employees, agents, licensees, invitees, sub-tenants, contractors and subcontractors. Any breach of the Rules and Regulations hereunder shall, after the expiration of any applicable grace period at LANDLORD'S option, constitute a DEFAULT to the same extent, and shall entitle LANDLORD to the same remedies, as any other DEFAULT. 10.3. Fire Rating. TENANT will not use any of TENANT'S PERSONALTY which may cause an overload or endangers the BUILDING'S electrical system or use -10- the PREMISES in any manner which may cause an increase in casualty insurance rates for normal office use. 11. TENANT'S Acceptance TENANT, by its taking possession of the PREMISES, shall be deemed to have acknowledged that it has inspected the PREMISES and any improvements made to the PREMISES, if any, and thereby shall accept the PREMISES as is and any such improvements in their then present condition and as suited for the use intended by TENANT. TENANT acknowledges that neither LANDLORD, nor any agent or representative of LANDLORD has made any representations or warranties regarding the PREMISES. 12. Alterations and Additions No alteration, addition or improvement to or installation in the PREMISES shall be made or permitted to be made by TENANT without the prior written consent of LANDLORD. LANDLORD may impose such reasonable conditions to its consent as it may elect, including without limitation, conditions that TENANT (a) obtain LANDLORD'S approval which shall not be unreasonably withheld or delayed of all plans and specifications; (b) obtain LANDLORD'S approval which shall not be unreasonably withheld or delayed of all contractors and subcontractors and their respective contracts; (c) obtain all permits, approvals, and certificates required by any governmental or quasi-governmental bodies and, upon completion, deliver to LANDLORD copies of such certificates of occupancy and other required permits and approvals; (d) carry, and cause all contractors and -subcontractors to carry, worker's compensation, general liability, personal and PROPERTY damage insurance; (e) agree at its sole cost to remove any such alteration, addition, improvement or installation on or before the expiration or sooner termination of the LEASE and to restore the PREMISES to its prior condition; (f) provide security satisfactory to LANDLORD in order to insure that the PREMISES shall be kept free from mechanics' or materialmen's liens and that the cost of all alterations or additions will be fully paid and (g) use or cause to be used union labor for all such work. All work to be performed by TENANT at the PREMISES shall be performed in a manner to insure the progress of work and the operation of the BUILDING without interruption on account of strikes, work stoppages or other causes. All contracts shall provide for a waiver of mechanic's liens by each contractor and subcontractor and shall obligate each contractor and subcontractor to provide insurance coverage satisfactory to LANDLORD. TENANT hereby agrees to defend, indemnify and hold LANDLORD harmless against all liabilities, damages, costs and expenses (including attorneys' fees) which LANDLORD may incur in connection with or as a result of, in whole or in part, any such contracts or subcontracts or any -11- acts or omissions of, or work or materials supplied by, such contractors or subcontractors, which obligation shall survive the termination of this LEASE. All work done by or caused to be done by TENANT may be monitored by LANDLORD at its discretion. TENANT acknowledges that any such monitoring by LANDLORD shall be for LANDLORDS sole benefit and shall not reduce or otherwise affect TENANT'S obligations hereunder. During periods when work is being performed, TENANT'S contractors or subcontractors shall regularly remove debris, keep the PREMISES and other areas of the PROPERTY clean to the satisfaction of LANDLORD, in its reasonable judgment, and comply with LANDLORD'S fire prevention, security, safety and sanitation regulations. All work done by TENANT shall be done in a good and workmanlike manner and in compliance with all laws and applicable legal requirements. TENANT shall cause a duly executed No-Lien Agreement to be filed with the Prothonotary of Allegheny County, Pennsylvania prior to the commencement of any work or the delivery of any materials to the PROPERTY. Any mechanics' lien filed against the PREMISES or the BUILDING for work done by or materials furnished to or on behalf of the TENANT shall be discharged by it at its expense within 30 days thereafter by making the required cash deposit into court, by filing of the bond permitted by law, by payment, by satisfaction or otherwise. Should TENANT fail to discharge any such lien within said 30 days, LANDLORD may, at its option, pay or otherwise discharge such lien, and TENANT shall pay LANDLORD on demand as additional RENT any sums paid by LANDLORD together with interest thereon at the DEFAULT RATE from the date of such payment and/or declare a default hereunder and pursue any or all of the remedies provided in this LEASE. Unless LANDLORD requires their removal as set forth hereinabove, all alterations, additions, improvements and installations which may be made to the PREMISES, including TENANT'S PERSONALTY which are FIXTURES, shall become the PROPERTY of LANDLORD upon installation and remain upon and be surrendered with the PREMISES. Notwithstanding the provisions of this Section, TENANT'S PERSONALTY, other than FIXTURES shall remain the PROPERTY of TENANT and may be removed by TENANT at any time during the TERM so long as TENANT is not in DEFAULT under this LEASE. TENANT agrees to repair immediately any damage to the PROPERTY caused by, or in connection with, the removal of any of TENANT'S PERSONALTY, alterations, improvements and installations, including, without limitation, repairing the floor and patching and painting the walls where required by LANDLORD, to LANDLORD'S reasonable satisfaction. -12- 13. BUILDING Services LANDLORD shall provide, within its standards on each item established by LANDLORD from time to time, the following BUILDING services and facilities and maintain such services and facilities: a. Air conditioning and heat during NORMAL BUSINESS HOURS, in such amounts as LANDLORD shall deem necessary and reasonable. LANDLORD will install a system to provide TENANT heating, ventilating, or air conditioning service (other than during periods when such heating, ventilating or air conditioning equipment is shut down for maintenance or renovation work being conducted in the BUILDING) on days or hours other than NORMAL BUSINESS HOURS, and LANDLORD shall furnish such additional service and TENANT agrees to pay LANDLORD'S actual cost (metered electric to be initially estimated not to exceed $10 per hour) for providing such additional service. LANDLORD'S charge as established from time to time for providing such service shall be billed and paid as additional rent. b. Electric current for BUILDING standard level of illumination using standard fixtures of LANDLORD'S choice and for ordinary business equipment and fixtures at 3.5 wafts per usable square foot. If TENANT desires to install any electrical equipment in addition to the aforesaid or an amount of equipment which is more than an ordinary executive office amount of such equipment, then the ANNUAL MINIMUM RENT shall be appropriately increased to reflect the additional electric consumption caused thereby as estimated from time to time by LANDLORD, provided, however, that nothing herein shall be construed to require LANDLORD to furnish such additional electrical current. LANDLORD shall be responsible for repair and maintenance of all light fixtures installed by LANDLORD and replacement of bulbs therein; TENANT shall be responsible for any maintenance, repair and replacement of improvements made by it. LANDLORD has determined that the electric fixtures shown on plans referenced on Exhibit 4 will not incur an additional charge. c. Maintenance and service of the public toilet rooms in the BUILDING. d. Elevator service. e. Janitor service consisting of the removal of trash, cleaning of space, dusting of furniture, five days per week, except HOLIDAYS, at times set by LANDLORD. f. Hot and cold water for lavatory and drinking purposes. g. BUILDING standard cleaning services five (5) days per week. -13- LANDLORD shall not be liable in damages or otherwise for delay or failure in furnishing any of the foregoing services or facilities, where such delay or failure is excusable pursuant to the provisions of Section 31 hereof. In no event shall such delay or failure, pursuant to Section 31, constitute an eviction of TENANT or termination of this LEASE. 14. Assignment & Subletting TENANT, for itself, its successors, legal representatives and assigns, expressly covenants that TENANT shall not, either voluntarily or by operation of law, assign, transfer, mortgage or otherwise encumber this LEASE or sublet the PREMISES or permit any part thereof to be used or occupied by anyone other than TENANT without the prior written consent of LANDLORD. In the event that TENANT is not an individual, for purposes of this Section 14, "assignment" shall include the transfer, sale or other alienation of fifty percent (50%) or more of the legal or equitable ownership of TENANT (whether through one or more transactions), a sale, transfer or other alienation, of a material part of the assets of TENANT or any merger, consolidation or other reorganization of TENANT. In the event of any assignment or sublease, TENANT shall promptly notify LANDLORD thereof in writing and provide a copy of such assignment or sublease to LANDLORD. In the event of any assignment or sublease, TENANT shall not be released from its obligations under this LEASE, notwithstanding any amendment, modification, supplement or extension thereafter made with respect to this LEASE by LANDLORD. No consent given by LANDLORD to any assignment or subletting shall be construed to be a consent to any further assignment of this LEASE or subletting of the PREMISES by TENANT or any other party, and LANDLORD'S right to withhold its consent with respect thereto is hereby expressly reserved. In the event TENANT or any of its permitted assignees or subtenants; should desire to assign this LEASE or sublet the PREMISES or any part hereof, TENANT shall give LANDLORD written notice at least thirty (30) days in advance of the date on which TENANT desires to make such assignment or sublease, which notice shall specify: (a) the name, address and business of the proposed assignee or sublessee, (b) the amount and location of the space in the PREMISES affected, (c) the proposed effective date and duration of the subletting or assignment, (d) a certified financial statement indicating the financial worthiness of the proposed assignee or subtenant, and (e) a copy of the proposed sublease or instrument of assignment which shall include the proposed RENT to be paid by said sublessee or assignee. LANDLORD shall have a period of thirty (30) days following receipt of such notice (and such additional information requested by LANDLORD) within which to notify TENANT in writing that LANDLORD elects either (i) to terminate this LEASE as to the space so affected as of the date so specified by TENANT, in which event TENANT will on that date be relieved of all further obligations to pay RENT as to such space (such reduction in RENT to be prorated based on the RENTABLE AREA of the remaining -14- portion of the PREMISES); or (ii) to permit TENANT to assign this LEASE or sublet such space, in which event if the proposed rental and other sums payable by such assignee or subtenant are greater than the RENT under this LEASE, then half such excess sums shall be deemed additional RENT owed by TENANT to LANDLORD under this LEASE, and half the amount of such excess, including any subsequent increases due to escalation or otherwise, and net of any subletting costs, expenses or construction shall be paid by TENANT to LANDLORD immediately upon receipt without demand set-off or deduction, in the same manner that TENANT pays the RENT; or (iii) to withhold LANDLORD'S consent in its reasonable discretion and to continue this LEASE in full force and effect as to the entire PREMISES. If LANDLORD should fail to notify TENANT in writing of such election within said thirty (30) day period, LANDLORD shall be deemed to have elected option (iii) above. The provisions of this Section shall be binding on all successive assignees and subtenants. TENANT shall not advertise space for assignment or subleasing, either directly or through a real estate agent or otherwise, without the prior written approval of LANDLORD. 15. Inspection LANDLORD and its employees, servants and agents shall have the right to enter the PREMISES at all reasonable times for the purpose of examining or inspecting the PREMISES to see that TENANT is complying with all of its obligations hereunder, showing the same to prospective purchasers, mortgagees, or TENANTS of the BUILDING, performing janitorial and cleaning services, and making such alterations, repairs, improvements or additions to the PREMISES or other portions of the PROPERTY as LANDLORD may deem necessary or desirable. LANDLORD shall be allowed to take all material into and upon the PREMISES that may be required therefor without the same constituting an eviction of TENANT in whole or in part. RENT shall in no way abate while said alterations, repairs, improvements or additions are being made by reason of loss or interruption of business of TENANT or otherwise. If representatives of TENANT shall not be present to open and permit entry into the PREMISES at any time when such entry by LANDLORD is necessary or permitted hereunder, LANDLORD may enter by means of a master key (or forcibly in the event of any emergency) without liability to TENANT and without such entry constituting an eviction of TENANT or termination of this LEASE. 16. Repairs 16.1. Subject to the other provisions of this LEASE, LANDLORD shall make, at its sole cost and expense, only those repairs necessary to maintain the BUILDING (exclusive of TENANT'S PERSONALTY), to include plumbing, heating, ventilating, -15- air conditioning and electrical systems, windows, floor slabs; provided, however, that LANDLORD shall not be obligated to make any such repairs until the expiration of a reasonable period of time after receipt of written notice from TENANT that such repair is needed. In no event shall LANDLORD be obligated under this Section to repair any damage caused by any act or omission of TENANT or its employees, agents, invitees, licensees, subtenants or contractors. 16.2. Except as LANDLORD is obligated for repairs as provided hereinabove, TENANT shall make, at its sole cost and expense, all repairs necessary to maintain the PREMISES and TENANT'S PERSONALTY. TENANT shall keep the PREMISES and TENANT'S PERSONALTY therein neat and in good, operable and orderly condition. All repairs by TENANT to TENANT'S PERSONALTY or otherwise required of TENANT hereunder shall be of first-class quality and be done in a good and workmanlike manner. If TENANT refuses or neglects to make such repairs, or fails to diligently prosecute the same to completion after written notice from LANDLORD of the need therefor, LANDLORD may (in addition to and not in lieu of any other rights and remedies) make such repairs at the expense of TENANT and such expense shall be collectible as additional rent upon demand without set-off or deduction; provided that any such repairs by LANDLORD shall not prejudice any other rights or remedies of LANDLORD and LANDLORD shall have no obligation to perform such repairs. 16.3. Unless caused by the gross negligence or willful misconduct of LANDLORD, LANDLORD shall not be liable by reason of any injury to or interference with TENANT'S business arising from the making of any repairs, alterations, additions or improvement in or to the PREMISES or any other portion of the PROPERTY or to any appurtenances or equipment therein. There shall be no abatement of rent because of such repairs, alterations, additions or improvements, except as expressly provided in Section 19 hereof. LANDLORD shall use its reasonable efforts to avoid interference with TENANT'S use of the PREMISES. 16.4. Unless caused by the gross negligence or willful misconduct of LANDLORD, LANDLORD shall not be liable to TENANT for any damage occasioned by plumbing, electrical, gas, water, steam or other utility pipes, systems or facilities or by the bursting, stopping, leaking or running of any tank, sprinkler, washstand, water closet or pipes in or about the PREMISES or any other portion of the PROPERTY, nor for any damage occasioned by water being upon or coming through or around the roof or any flashing, window, skylight, vent, door, or the like; nor for any damage arising out of any acts of negligence of other TENANTS or occupants of the BUILDING, occupants of adjacent property or the public. -16- 17. Surrender of PREMISES At the end of the TERM, TENANT shall surrender the PREMISES to LANDLORD, together with all alterations, additions and improvements thereto, in broom- clean condition and in good order and repair, except for damage for which TENANT is not obligated to make repairs under this LEASE. If not then in default as to the payment of any RENT, TENANT shall have the right at the end of the TERM to remove TENANT'S PERSONALTY, except for FIXTURES, to the extent permitted in, and subject to the terms and provisions of, Section 12 hereof. TENANT shall surrender the PREMISES to LANDLORD at the end of the TERM without notice of any kind, and TENANT waives all right to any such notice as may be in effect in Pennsylvania, including, without limitation, the notice to quit under the LANDLORD and TENANT Act of 1951, as amended. The provisions of this Section shall survive the expiration or sooner termination of this LEASE. 18. Indemnification and Liability TENANT shall indemnify, hold harmless and defend LANDLORD from and against any and all costs, expenses (including without limitation counsel fees and costs), liabilities, losses, damages, suits, actions, fines, penalties, claims or demands of any kind arising out of or in any way connected with, and LANDLORD shall not be liable to TENANT on account of, (i) any failure by TENANT to perform any of the agreements, terms, covenants or conditions of this LEASE required to be performed by TENANT or any misrepresentation by TENANT in this LEASE, (ii) any failure by TENANT to comply with any statutes, ordinances, regulations or orders or any governmental authority, including without limitation, those relating to the PREMISES or the activities of TENANT on the PREMISES, (iii) any negligent act or omission of TENANT or any of its servants, employees, agents, contractors, invitees or licensees or (iv) any accident, injury or damages to any person or PROPERTY occurring in, on or about the PREMISES, or any accident, injury or damages to any person or PROPERTY occurring in, on or about any other part of the PROPERTY if caused in material part by TENANT or any of its servants, employees, agents, contractors, invitees or licensees. This Section 18 shall survive the termination of this LEASE. 19. Fire or Other Casualty 19.1. If the PREMISES are damaged by the elements or fire or other casualty not due to TENANT'S negligence, LANDLORD shall repair the damage, but the RENT shall not be abated unless the PREMISES are rendered substantially untentable; if rendered untentantable only in part, the minimum RENT shall be abated in proportion to the part rendered untenantable. No repair shall be required to be performed by LANDLORD if such casualty shall occur within the last year of the TERM. If rendered wholly untenantable, the entire minimum RENT shall be -17- abated, provided, however, that in such event LANDLORD or TENANT shall the right, if such untenantable PREMISES cannot be restored within 120 days, to terminate this LEASE as of the date of the occurrence by written notice to the other within sixty (60) days after such occurrence, and in such case the RENT shall be adjusted as of the termination date, and LANDLORD need not repair or restore. 19.2. If the BUILDING shall, in LANDLORD'S opinion, be substantially damaged by the elements or fire or other casualty, LANDLORD shall have the right, by written notice to TENANT within sixty (60) days after said occurrence, to terminate this LEASE (unless terminated pursuant to Section 19.1) and in such event this LEASE shall end as of the date of such notice and the RENT shall be adjusted accordingly. 20. Insurance 20.1. TENANT'S CASUALTY POLICY. TENANT covenants and agrees to provide, at TENANT'S expense, on or before the COMMENCEMENT DATE, and to keep in force during the TERM, a fire and other casualty policy insuring the full replacement value of TENANT'S PERSONALTY against loss or damage by fire, theft, and all other risks or hazards as are insurable under "all risk" insurance policies; no more than $2,000 deductible shall be permitted. The casualty insurance shall be from an insurance company rated by Best as "A" or higher and licensed to do business in the Commonwealth of Pennsylvania. 20.2. TENANT'S LIABILITY POLICY. TENANT covenants and agrees to provide at TENANT'S expense on or before the COMMENCEMENT DATE, a commercial general liability insurance policy including without limitation blanket contractual liability for at least $2,000,000. No more than $2,000 deductible shall be permitted. Liability Insurance shall be from an insurance company rated by Best as "A" or higher and licensed to do business in the Commonwealth of Pennsylvania. 20.2.1. TENANT'S Business Interruption Insurance. TENANT covenants and agrees to provide at TENANT'S expense covering TENANT'S lost profits caused by damage to the PREMISES. Business Interruption Insurance shall be from an insurance company rated by Best as "A" or higher and licensed to do business in the Commonwealth of Pennsylvania. 20.3. LANDLORD as Additional Insured. TENANT'S INSURANCE shall name the LANDLORD as additional insured. TENANT shall provide LANDLORD with a Certificate of Insurance on ACCORD Form 27 before the COMMENCEMENT DATE and at least fifteen (15) days before the respective EXPIRATION DATE of any of TENANT'S INSURANCE covering all of TENANT'S INSURANCE. The Certificate shall name LANDLORD as additional insured for all of TENANT'S INSURANCE, shall contain an endorsement that TENANT'S INSURANCE may not -18- be cancelled except with thirty (30) days prior written notice to LANDLORD, and shall state the insurer has a copy of the LEASE and agrees to the provisions in the LEASE relating to TENANT'S INSURANCE. 20.4. Subrogation. TENANT'S CASUALTY POLICY must contain a waiver of subrogation against all other lessees in the BUILDING and must state that the policy is not invalidated should the TENANT (Insured) waive in writing prior to any loss any or all right of recovery against any party. 20.5. Waiver. 20.5.1. LANDLORD'S Waiver. LANDLORD hereby waives any right of recovery which LANDLORD may have against TENANT and TENANT'S agents or employees for loss or damage occurring to the BUILDING, to the extent the loss or damage is covered by LANDLORD'S insurance even though the loss or damage may result from the negligence of TENANT or TENANT'S agents or employees. 20.5.2. TENANT'S Waiver. TENANT hereby waives any right of recovery which TENANT or its insurer may have against LANDLORD and LANDLORD'S agents or employees for loss or damage occurring to the BUILDING to the extent the loss or damage is covered by TENANT'S INSURANCE even though the loss or damage may result from the negligence of LANDLORD or LANDLORD'S agents or employees. 20.6. Notice to LANDLORD. TENANT shall give LANDLORD notice in case of casualty or accidents on the PREMISES promptly after TENANT has knowledge. 20.7. LANDLORD'S Insurance. LANDLORD shall procure comprehensive general liability insurance and PROPERTY insurance in amounts determined by LANDLORD from time to time. Proof of LANDLORD'S insurance will be provided by LANDLORD within thirty (30) days' of any request by TENANT. 21. Condemnation In the event that all of the LAND and BUILDING are taken for any public or quasi-public use or purpose in eminent domain proceedings, or in the event all of the LAND and BUILDING are conveyed to a governmental authority or other entity having the power of eminent domain ("condemning authority") in lieu of such proceedings, this LEASE shall terminate upon the date when the possession shall be surrendered to said condemning authority. Any prepaid RENT attributable to periods after such termination date shall be refunded to TENANT. TENANT shall not be entitled to share in or receive any part of such condemnation award or payment in lieu thereof, the same being hereby assigned to LANDLORD by -19- TENANT; provided, however, that nothing herein shall preclude TENANT from separately claiming and receiving from the condemning authority, if legally payable, compensation for the taking of TENANT'S tangible property, for TENANT'S removal and relocation costs and/or for TENANT'S loss of business and/or business interruption, provided that such compensation does not reduce any compensation otherwise payable to LANDLORD. In the event eminent domain proceedings shall be instituted in order to take a portion of the BUILDING or the LAND, or if the grade of any street or alley adjacent to the LAND is changed so that, as a result of either such events, structural alteration or reconstruction of a portion of the BUILDING is necessary or desirable in LANDLORD'S reasonable judgment, LANDLORD may elect to terminate this LEASE by giving TENANT not less than ninety (90) days' notice of termination prior to a termination date specified in such notice, and any prepaid RENT attributable to periods after such termination date specified in such notice shall be refunded to TENANT. If LANDLORD does not so elect to terminate this LEASE, this LEASE shall be and remain in full force and effect for the balance of its TERM, except that RENT shall be proportionately abated to the extent of any portion of the PREMISES taken. TENANT shall not share in such condemnation award or payment in lieu thereof or in any award for damages resulting from any grade change or a taking not directly related to the PREMISES, the same being hereby assigned to LANDLORD by TENANT or otherwise reserved by LANDLORD. 22. Subordination and Attornment TENANT accepts this LEASE subject and subordinate in all respects to all mortgages, liens and other encumbrances which may now or hereafter be placed on or affect the PROPERTY or any part thereof, irrespective of any obligations which may be secured thereby. Such subordination shall be self-operative, and no further instrument of subordination shall be required by any mortgagee. However, in confirmation of such subordination, within ten (10) days after request by LANDLORD, TENANT shall execute and deliver promptly any certificates or other written assurances, designed to give effect to or provide evidence of the same which LANDLORD may request provided, however, such subordination and attornment shall be upon the express condition that the validity of this LEASE shall be recognized by the mortgagee or lien holder and that, notwithstanding any default by the LANDLORD with respect to said mortgage or other lien or encumbrance of, TENANT'S possession and right of use under the LEASE in and to the PREMISES shall not be destroyed by such mortgagee or lien holder unless and until TENANT shall breach any of the provisions hereof and this LEASE or TENANT'S right to possession hereunder shall have been terminated according to the provisions of this LEASE. TENANT hereby constitutes and appoints LANDLORD TENANT'S attorney in fact, the same being coupled with an interest, to execute and deliver any certificates and other assurances for and on behalf of TENANT consistent with the -20- foregoing. In the event of a sale in foreclosure of any mortgage to which this LEASE is subordinate, or a transfer in lieu of foreclosure, or a taking of possession of the PROPERTY by the mortgagee or other person acting for or through the mortgagee under any mortgage to which this LEASE is subordinate, then, and upon the happening of any such events, TENANT shall attorn to and recognize the purchaser as the party who, but for this LEASE, would be entitled to Possession of the PREMISES. 23. Estoppel Certificates TENANT shall, at any time and from time to time, within a period of ten (10) days following written request from LANDLORD, execute, acknowledge and deliver to LANDLORD a written statement certifying (a) that a true and correct copy of this LEASE is attached to such statement, (b) that this LEASE is in full force and effect and unmodified (or, if modified, stating the nature of such modification and attaching a copy thereof), (c) the date to which the RENT reserved hereunder has been paid, (d) that there are not, to TENANT'S knowledge, any uncured defaults on the part of LANDLORD hereunder, or specifying such default if any are claims, and (e) as to such other matter as LANDLORD or any prospective purchaser or mortgagee may reasonable request. Any such statement may be relied upon by LANDLORD and any prospective purchaser or mortgagee of all or any part of the PROPERTY. TENANT'S failure to deliver such statement within the said period shall be conclusive upon TENANT that this LEASE is in full force and effect and unmodified, and that there are no uncured defaults in LANDLORD'S performance hereunder. 24. Default The occurrence of any of the following shall, at LANDLORD'S option, constitute a material default and breach of this LEASE by TENANT (a "DEFAULT"); 24.1. A failure by TENANT to pay any RENT or other sums reserved herein, where such failure continues for ten (10) days after such sum is due; 24.2. Any removal or attempted removal of any of TENANT'S PERSONALTY other than in the normal and usual operation of TENANT'S business within the PREMISES; 24.3. The filing of any lien against the PROPERTY or any portion thereof or interest therein as a result of the act or omission of the TENANT which is not discharged or released within sixty (60) days thereafter; 24.4. A material change in the Mission of TENANT (asset forth on Exhibit 10.1 attached hereto) or loss of its 501(c)(3) status. -21- 24.5. Any material violation or breach by TENANT of any other covenant, term or condition of this LEASE which is not cured within thirty (30) days after written notice of such violation or breach; or 24.6. The making by TENANT of any assignment for the benefit of creditors; the adjudication that TENANT is bankrupt or insolvent; the filing by or against TENANT of a petition to have TENANT adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless in the case of a petition filed against TENANT, the same is dismissed within sixty (60) days after the filing thereof); the appointment of a trustee or receiver to take possession of substantially all of TENANT'S assets located in the PREMISES or of TENANT'S interest in this LEASE (unless possession is restored to TENANT within sixty (60) days after such appointment); or the attachment, execution or levy against, or other judicial seizure of substantially all of TENANT'S interest in this LEASE (unless the same is discharged within sixty (60) days after issuance thereof). 25. Accelerated RENT In the event of any DEFAULT, the ANNUAL MINIMUM RENT and all additional RENT reserved herein for the entire unexpired portion of the TERM shall, at LANDLORD'S option, thereupon immediately become due and payable. To the extent permitted by law, TENANT shall be obligated for such accelerated RENT regardless of which, if any, of the other remedies provided in this LEASE or provided by law LANDLORD elects to pursue. 26. Remedies In addition to any other remedies available at law or in equity for a DEFAULT by TENANT hereunder, LANDLORD may also exercise the following remedies. 26.1. Termination of LEASE. In the event of any DEFAULT, LANDLORD, at its option, may terminate this LEASE upon and by giving written notice of termination to TENANT, in which event the then unexpired TERM of this LEASE shall cease and expire and terminate on the date specified in such notice, without any right on the part of the TENANT to save the forfeiture by payment of any sum due or by performance of any term, provision, covenant, agreement or condition broken; and, this LEASE, as well as the right, title and interest of TENANT hereunder, shall then wholly cease and expire and terminate in the same manner and with the same force and effect (except as to TENANT'S liability) as if the date fixed in such notice were the date herein granted for expiration of the TERM of this LEASE, whereupon, TENANT shall immediately quit and surrender to LANDLORD the PREMISES and remove all occupants thereof. -22- 26.1.1. Damages Upon LEASE Termination. If the LANDLORD elects to terminate the LEASE, the LANDLORD will be entitled to recover as damages: 26.1.1.1. The sum of all ANNUAL MINIMUM RENT and all other RENT payable under the LEASE by TENANT up to the date TENANT quits and surrenders the PREMISES to LANDLORD, including any late fees and attorneys' fees which LANDLORD may have incurred in connection with such repossession; and 26.1.1.2. Reasonable costs and attorneys' fees incurred by LANDLORD in connection with proceedings to evict or eject TENANT for unlawful possession of the PREMISES after LEASE termination; and 26.1.1.3. Lost or unpaid RENT associated with TENANT'S unlawful occupancy of the PREMISES; and 26.1.1.4. Reasonable costs and fees associated with maintenance, repair and re-leasing the PREMISES, including, without limitation, advertisements, lease fees and commissions and leasehold improvement costs. 26.2. Without terminating this LEASE, LANDLORD may enter the PREMISES (with or without process of law and without thereby incurring any liability to TENANT and without such entry being constituted an eviction of TENANT or termination of this LEASE) and take possession of the PREMISES and TENANT'S PERSONALTY, and LANDLORD may (i) apply against the accelerated ANNUAL MINIMUM RENT and all other RENT becoming payable to LANDLORD and the expenses, including attorney's fees, which LANDLORD may have incurred in connection with such repossession, either the value of TENANT'S PERSONALTY or the proceeds, after selling expenses, from the sale of TENANT'S PERSONALTY, whichever LANDLORD chooses to do, and (ii) at any time, at its option, relet the PREMISES or any part thereof for the account of TENANT, for such terms, upon such conditions and at such rental as LANDLORD may elect. In the event of such reletting, (1) LANDLORD shall receive and collect the RENT therefrom and shall first apply such RENT against such expenses as LANDLORD may at any time or from time to time have reasonably incurred in recovering possession of the PREMISES, placing the same in good order and condition, altering or repairing the same for reletting, and such other expenses, commissions and charges, including attorney's fees, which LANDLORD may at any time or from time to time have reasonably paid or incurred in connection with such repossession and reletting, and then shall apply such RENT against other sums payable by TENANT to LANDLORD, and (2) LANDLORD may execute any lease in connection with such reletting in LANDLORD'S name or in TENANT'S name, as LANDLORD may see -23- fit, for a TERM which may be shorter, longer or the same as that the remainder of the TERM hereunder under terms and conditions determined solely by LANDLORD and any tenant of such reletting shall be under no obligation to see to the application by LANDLORD of any rent collected by LANDLORD, nor shall TENANT have any right to collect any RENT under such reletting. No re-entry by LANDLORD shall be deemed to be an acceptance of a surrender by TENANT of this LEASE or of the PREMISES. 26.2.1. TENANT shall pay for any and all reasonable legal fees and expenses and court costs incurred by LANDLORD in connection with any litigation or collection costs arising from any DEFAULT by TENANT and any reasonable costs and fees associated with maintenance, repair and re- leasing the PREMISES. 26.3. If TENANT shall not observe or perform any TERM or covenant on its part to be observed or performed under this LEASE, LANDLORD, after the expiration of any applicable cure period and without being under any obligation to do so and without thereby waiving any obligations of TENANT under this LEASE, may perform the same for the account and at the expense of TENANT. If LANDLORD makes any expenditures or incurs any obligations of the payment of money in connection therewith, including but not limited to, attorney's fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations incurred, with interest at the DEFAULT RATE and costs, shall be paid by TENANT. 26.4. LANDLORD agrees to try to mitigate its damages hereunder; however, nothing herein shall obligate LANDLORD to relet the PREMISES, or any part thereof, when other space in the BUILDING is then available for leasing. 27. Waiver The failure or delay on the part of LANDLORD to enforce or exercise at any time any of the provisions, rights or remedies in this LEASE shall in no way be construed to be a waiver thereof, nor in any way to affect the validity of this LEASE of any part hereof, or the right of LANDLORD to thereafter enforce each and every such provision, right or remedy. The exercise of any right or remedy by LANDLORD shall not impair LANDLORD'S standing to exercise any other right or remedy. No waiver of any breach of this LEASE shall be held to be a waiver of any other or subsequent breach. The receipt by LANDLORD of RENT at a time when the RENT is in DEFAULT under this LEASE shall not be construed as a waiver of such DEFAULT. The receipt by LANDLORD of a lesser amount than the RENT due shall not be construed to be other than a payment on account of the RENT then due, nor shall any statement on TENANT'S check or any letter accompanying TENANT'S check be deemed an accord and satisfaction, and LANDLORD may accept such -24- payment without prejudice to LANDLORD'S right to recover the balance of the RENT due or to pursue any other remedies provided in this LEASE. No act or thing done by LANDLORD or LANDLORD'S agents or employees during the TERM shall be deemed an acceptance of a surrender of the PREMISES, and no agreement to accept such a surrender shall be valid unless in writing and signed by LANDLORD. 28. Confession of Judgment. Intentionally Deleted 29. TENANT'S Representations and Warranties - Intentionally Deleted 30. Quiet Enjoyment. If and so long as TENANT pays the RENT and observes and performs all of the covenants, conditions and provisions on TENANT'S part to be observed and performed hereunder, TENANT shall and may peaceably and quietly have, hold and enjoy the PREMISES for the TERM, subject nevertheless to all of the provisions of this LEASE. 31. Unavoidable Delay In the event that LANDLORD shall be delayed or hindered in, or prevented from, the performance of any work, service or other act required under this LEASE to be performed respectively by LANDLORD OR TENANT and such delay or hindrance is due to strikes, lockouts, acts of God, governmental restrictions, enemy act, civil commotion, fire or other casualty, or other causes of a like nature beyond the control of LANDLORD or TENANT, respectively, then performance of such work, service, or other act by such party shall be excused for the period of such delay and the period for the performance of such work or other act shall be extended for a period equivalent to the period of such delay. In no event shall such delay constitute a termination of this LEASE. Provided, nothing herein shall permit TENANT to delay the timely payment of any RENT or sum due hereunder. 32. Brokers TENANT represents and warrants that in this transaction, it has dealt with no real estate broker other than AGENT, that no one has or will represent it in this transaction other than aforesaid and agrees to defend, indemnify and hold harmless LANDLORD from and against any and all claims by any other broker. LANDLORD is responsible for AGENT'S fees. 33. Interest TENANT shall pay as additional rent on demand interest on all sums payable by TENANT to LANDLORD hereunder, including without limitation, ANNUAL -25- MINIMUM RENT and additional rent, at the DEFAULT RATE, commencing upon the date such payment was due (regardless of any other remedies exercised by LANDLORD or any cure period provided for in Section 24 hereof). 34. LANDLORD'S Exculpatory Anything contained in this LEASE to the contrary notwithstanding, TENANT agrees that it shall look solely to the estate and property of LANDLORD in the LAND and BUILDING for the collection of any judgment (or other judicial process) requiring the payment of money by LANDLORD and no other property or assets of LANDLORD, nor any property of any officer, director or member of LANDLORD, shall become subject to levy, execution, attachment or other enforcement procedures for the satisfaction of TENANT'S remedies. In addition, TENANT covenants and agrees that no personal liability or responsibility is assumed by, nor shall at any time be asserted or enforceable against, any present or future officer, director or member of LANDLORD on account of any covenant, undertaking or obligation under or with respect to this LEASE, all such personal liability and responsibility, if any, being expressly waived and released. If the PROPERTY of which the PREMISES form a part is transferred or conveyed, LANDLORD shall be relieved of all covenants and obligations under this LEASE thereafter accruing and TENANT shall look to such transferee thereafter, subject to the other limitations contained in this Section. 35. Agents Exculpatory TENANT acknowledges that AGENT is executing this LEASE in its capacity as the authorized agent for the LANDLORD. TENANT shall look solely to the LANDLORD for any and all of LANDLORD'S obligations hereunder. 36. Compliance Notwithstanding anything to the contrary contained in the LEASE, LANDLORD and TENANT agree as follows: (i) Except as provided in Subsection (ii) below, LANDLORD shall, at its expense, comply with or cause to be complied with all insurance requirements and with all laws, statutes, ordinances and regulations of federal, state, county and municipal authorities (collectively, "LAWS") which shall impose any duty upon LANDLORD with respect to the PREMISES. (ii) Commencing on the Commencement Date, TENANT, at its expense, shall comply with all LAWS relating to the physical condition of the PREMISES (i) if required solely by reason of TENANT'S specific business, as opposed to LAWS relating to office use in general, or (ii) if required as a result of any alterations or improvements to the physical condition of the PREMISES made by TENANT. -26- (iii) Right to Contest. The party responsible for compliance pursuant to Subsection (a) or (ii) shall have the right to contest the validity of any LAW at the expense of the party responsible for compliance, unless such contest would result in any material liability or expense imposed upon the other party. 37. TENANT'S Waiver TENANT, for itself, and on behalf of any and all persons claiming through or under it, including creditors of all kinds, does hereby waive and surrender all right and privilege which they or any of them might have under or by reason of any present or future law, to redeem the PREMISES or to have a continuance of this LEASE for the TERM hereby demised after having been dispossessed or ejected therefrom by process of law or under the terms of this LEASE or after the termination of this LEASE as herein provided. TENANT waives the right to trial by jury in any summary proceeding that may hereafter be instituted against TENANT in any action that may be brought to recover RENT hereunder or in any other action by LANDLORD against TENANT related to this LEASE. 38. Public Portions of BUILDING LANDLORD shall have the right at any time, without thereby creating an actual or constructive eviction or incurring any liability to TENANT therefor, to change the size, arrangement or location of such portions of the BUILDING as are not contained within the PREMISES, including without limitation all entrances, passageways, doors and doorways, corridors, lobbies, stairs, toilets and other portions of the BUILDING. Nevertheless, in no event shall LANDLORD make any change which shall substantially interfere with access to the PREMISES without the consent of TENANT, which consent shall not be unreasonably withheld, delayed or conditioned. 39. Relocation - Intentionally Deleted 40. Notices Any notice or demand required to be given by the terms and provisions of this LEASE or by any law or governmental regulation either by LANDLORD to TENANT or by TENANT to LANDLORD shall be in writing, except as otherwise expressly provided herein. Unless otherwise required by such law or regulation, such notice or demand shall be deemed to have been serviced and given by LANDLORD and received by TENANT when LANDLORD shall have (a) deposited such notice or demand by certified or regular United States mail addressed to TENANT at the PREMISES or (b) delivered personally to an officer, partner, or agent of TENANT. Such notice or demand shall be given, and shall be deemed to have been served and given by TENANT and received by LANDLORD only when -27- TENANT shall have deposited such notice or demand by certified United States mail addressed to LANDLORD at the address first set forth above. Either party may, by notice as aforesaid, designate a different address or addresses for notice or demands to it. 41. Successors The respective rights and obligations provided in this LEASE shall bind and shall inure to the benefit of the parties hereto, their legal representatives, heirs, successors and permitted assigns; provided, however, that no rights shall inure to the benefit of any successor of TENANT unless LANDLORD'S written consent for the transfer to such successor has first been obtained, to the extent required by this LEASE. 42. Governing Law Lease shall be construed, governed and enforced in accordance with the laws of the Commonwealth of Pennsylvania (except the conflict of law provisions thereof). 43. Separability If any provision of this LEASE shall be held to be invalid, void or unenforceable, the remaining provisions hereof shall in no way be affected or impaired and such remaining provisions shall remain in full force and effect. 44. Captions The table of contents, titles of articles and sections, titles of exhibits and riders to this LEASE, are for convenience and reference only and are in no way to be construed as defining, limiting or modifying the scope or intent of the provisions of this LEASE. 45. Gender As used in this LEASE, the word "person" shall mean and include, where appropriate, an individual, corporation, partnership or other entity; the plural shall be submitted for the singular, and the singular for the plural, where appropriate; and words of any gender shall mean to include any other gender. 46. Entire Agreement/Modifications This LEASE, including the Exhibits, contains all the agreements, conditions, understandings, representations and warranties made between the parties hereto with respect to the subject matter hereof and may not be modified orally or in any manner -28- other than by an agreement in writing signed by both parties hereto or their respective successors in interest. 47. Counterparts This LEASE may be executed in counterparts. 48. Lease Not An Offer The submission of this LEASE to TENANT should not be construed as an offer, nor shall TENANT have any rights with respect thereto unless and until LANDLORD shall execute this LEASE and deliver the same to TENANT which rights may be revoked by LANDLORD at any time prior to receipt by LANDLORD of this LEASE duly executed by TENANT. 49. Renewal Option TENANT, if not in default, upon written notice to LANDLORD 180 days prior (but not more than one year prior) to the expiration of the term of this LEASE, may extend this LEASE five years under the same terms and conditions of this LEASE except that the rental shall be 95% of the prevailing market rate (or building rate, whichever is lower), and LANDLORD shall provide a remodeling allowance of $6.00 per square foot (directed by TENANT) for improvements to the PREMISES. 50. Right of First Offer (Contiguous Space) Upon request of TENANT, LANDLORD will describe the LEASE status of any space on contiguous floors (vacant or leased to others). At every time during the term of this LEASE that adjacent space becomes available (another tenant vacates or otherwise) upon expiration of its LEASE, LANDLORD will first offer the newly available space to TENANT to LEASE all or a reasonable portion of the space under the present rates and terms being offered to the market by LANDLORD. If TENANT declines, LANDLORD shall be permitted to LEASE to others with no further notice to or rights to TENANT. 51. Right of Contract At any time after the third lease year, TENANT upon 90 days prior written notice to LANDLORD, may reduce the PREMISES by either area A or B shown on Exhibit 21.1, with a pro-rate reduction in rent, and LANDLORD and TENANT shall split 50-50 any construction costs to demise the reduced PREMISES. -29- IN WITNESS WHEREOF and intending to be legally bound hereby, LANDLORD and TENANT have respectively executed this LEASE as of the day and year first above written. WITNESS LANDLORD: SOUTHWESTERN PENNSYLVANIA CORPORATION, BY GRUBB & ELLIS COMPANY, ITS AUTHORIZED AGENT /s/ illegible By: /s/ G. M. Kingsley III - ---------------------- ----------------------------------------- Title: Executive Vice President -------------------------------------- ATTEST: TENANT: FREEDOM OF INFORMATION, INC. /s/ James W. Lyle Jr. By: /s/ Rose Carberry - ---------------------- ------------------------------------------ Title: Director of Technical Communications --------------------------------------- (for Stephen Joseph, CFO) -30- EXHIBIT 4 DESCRIPTION OF LANDLORD'S WORK A. LANDLORD shall prepare detailed construction drawings for TENANT'S approval based upon preliminary plans to be developed no later than October 31, 1998. The drawings and specifications dated _______ 1998 shall include work at LANDLORD'S expense to include a glass entry doors on the elevator lobby, interior doors, glass side lights, a "kitchen unit" with cabinets, a "break room", and new carpet or carpet tiles. LANDLORD will also install a special 'air handler' system to provide overtime air conditioning of TENANT'S space. LANDLORD may bill TENANT no more than 50% of the cost, not to exceed $25,000 or amortize the amount over the LEASE TERM. B. If TENANT approves the drawings by November 20, 1998, then LANDLORD shall provide all construction required by the approved drawings and specifications for occupancy prior to February 1, 1999. -31- EXHIBIT 10.2 SOUTHWESTERN PENNSYLVANIA CORPORATION PITTSBURGH, PENNSYLVANIA RULES AND REGULATIONS 1. The sidewalks, walks, plaza entries, corridors, ramps, staircases, escalators and elevators shall not be obstructed or used by TENANT, or the employees, agents, servants, visitors or licensees of TENANT, for any purpose other than ingress and egress to and from the PREMISES. No bicycle or motorcycle shall be brought into the BUILDING. 2. No freight, furniture or bulky matter of any description will be received into the BUILDING or carried into the elevators except in such a manner, during such hours and using such elevators and passageways as may be approved by LANDLORD, and then only upon having been scheduled in advance. Any hand trucks, carryalls, or similar appliances used for the delivery or receipt of merchandise or equipment shall be equipped with rubber tires, side guards and such other safeguards as LANDLORD shall require. 3. LANDLORD shall have the right to prescribe the weight, position, and manner of installation of safes or other heavy equipment which shall, if considered necessary by LANDLORD, be installed in a manner which shall insure satisfactory weight distribution. All damage done to the BUILDING by reason of a safe or any other article of TENANT'S office equipment being on the PREMISES shall be repaired at the expense of TENANT. The time, routing, and manner or moving safes or other heavy equipment shall be subject to prior approval by the LANDLORD. 4. TENANT shall use no other method of heating or cooling than that supplied by LANDLORD. 5. TENANT, or the employees, agents, servants, visitors or licensees of TENANT, shall not at any time place, leave or discard any rubbish, paper, articles, or objects of any kind whatsoever outside the doors of the PREMISES or in the corridors or passageways of the BUILDING. No animals or birds shall be brought or kept in or about the BUILDING. 6. TENANT shall not place, or cause or allow to be placed, any sign or lettering whatsoever, in or about the PREMISES except in and at such places as may be consented to by LANDLORD in writing. -32- 7. Canvassing, soliciting or peddling in the BUILDING is prohibited and TENANT shall cooperate to prevent same. 8. Any person in the BUILDING will be subject to identification by employees and agents of LANDLORD. All persons in or entering the BUILDING shall be required to comply with the security policies of the BUILDING. If TENANT desires any additional security service for the PREMISES, TENANT shall have the right (with the advance written consent of LANDLORD) to obtain such additional service at TENANT'S sole cost and expense. TENANT shall keep doors to unattended areas locked and shall otherwise exercise reasonable precautions to protect property from theft, loss, or damage to any property of TENANT. 9. Only workmen employed by TENANT with LANDLORD'S approval, not reasonably withheld, or contracted with by LANDLORD for TENANT, may be employed for repairs, installations, alterations, painting, material moving, and other similar work that may be done in or on the PREMISES. 10. TENANT shall not bring or permit to be brought or kept in or on the PREMISES any inflammable, combustible, corrosive, caustic, poisonous, or explosive substance, or cause or permit any odors to permeate in or emanate from the PREMISES. 11. TENANT shall not do any cooking or conduct any restaurant, luncheonette, automat, or cafeteria for the sale or service of food or beverages to its employees or to others, or permit the delivery of any food or beverage to the PREMISES, except by such persons delivering the same as shall be approved by LANDLORD and only under regulations fixed by LANDLORD. 12. TENANT shall not mark, paint, drill into, or in any way deface any part of the BUILDING or the PREMISES. No boring, driving of nails or screws, cutting, or stringing of wires shall be permitted, except with the prior written consent of LANDLORD, which consent shall not be unreasonably withheld. TENANT shall not install any resilient tile or similar floor covering in the PREMISES except with the prior approval of LANDLORD, which approval shall not be unreasonably withheld or delayed. 13. No additional locks or bolts of any kind shall be placed on any door in the BUILDING or the PREMISES and no lock on any door therein shall be changed or altered in any respect without LANDLORD'S prior knowledge and written approval which shall not be unreasonably withheld or delayed. LANDLORD shall furnish two keys for main entry door or doors to the PREMISES, and shall, on TENANT'S request and at TENANT'S expense, provide additional duplicate keys. All keys shall be returned to LANDLORD upon the termination of this LEASE. LANDLORD may at all times keep a pass key to the PREMISES. All entrance doors to the PREMISES -33- shall be left closed at all times, and left locked when the PREMISES are not in use. Should LANDLORD specifically grant to TENANT the right to secure certain rooms or areas such that the LANDLORD is denied access thereto, LANDLORD shall have no further obligation to provide maintenance services for such space. 14. TENANT shall give immediate notice to LANDLORD in case of theft, unauthorized solicitation, or accident in the PREMISES or in the BUILDING or of defects therein or in any fixtures or equipment, or of any known emergency in the BUILDING. 15. TENANT shall not use the PREMISES or permit the PREMISES to be used for photographic, multilith or multigraph reproductions except in connection with its own business and not as a service for others except with LANDLORD'S prior written permission. 16. TENANT shall not use or permit any portion of the PREMISES to be used as an office for a public stenographer or typist, offset printing, the sale of liquor, a barber or manicure shop, an employment bureau, a doctor's or dentist's office, a dance or music studio, any type of school, or for any use other than those specifically granted in the LEASE. 17. TENANT shall not advertise for laborers giving the PREMISES as an address, nor pay such laborers at a location in the PREMISES. 18. The requirements of TENANT will be attended to only upon application at the office of LANDLORD in the BUILDING. Employees of LANDLORD shall not perform any work or do anything outside of their regular duties, unless under special instructions from the office of LANDLORD. 19. TENANT shall not place a load upon any floor of the PREMISES which exceeds the live load per square foot which such floor was designed to carry and which is allowed by law. Business machines and mechanical and electrical equipment belonging to TENANT which cause noise, vibration, electrical or magnetic interference, or any other nuisance that may be transmitted to the structure or other portions of the BUILDING or to the PREMISES to such a degree as to be reasonably objectionable to LANDLORD or which interfere with the use or enjoyment by other tenants of their premises or the public portions of the BUILDING, shall be placed and maintained by TENANT at TENANT'S expense in settings of cork, rubber, spring type, or other vibration eliminators sufficient to eliminate noise or vibration. 20. No awnings, draperies, shutters, or other interior window coverings that are visible from the exterior of the BUILDING or from the exterior of the PREMISES within the BUILDING may be installed by TENANT without LANDLORD'S approval, which shall not be unreasonably withheld or delayed. -34- 21. TENANT shall not place, install, or operate within the PREMISES or any other part of the BUILDING any engine, stove or machinery, or conduct mechanical operations therein, without the written consent of LANDLORD, which consent shall not be unreasonably withheld or delayed. 22. No portion of the PREMISES or any part of the BUILDING shall at any time be used or occupied as sleeping or lodging quarters. 23. For purposes of the LEASE, holidays shall be deemed to mean and Include the following: (a) New Year's Day; (b) Memorial Day; (c) Independence Day; (d) Labor Day; (e) Thanksgiving Day; (f) Christmas Day; and (g) any other holidays taken by TENANTs occupying at least one-half (1/2) of the Rentable Area of office space in the BUILDING. 24. TENANT shall at all times keep the PREMISES neat and orderly. 25. All requests for overtime air conditioning or heating must be submitted in writing to the BUILDING management office by not later than 2:00 P.M. on the business day before the day such services are requested to be provided. 26. LANDLORD reserves the right to rescind, and reasonably amend any rules or regulations, to add reasonable new rules or regulations, and to waive any rules or regulations with respect to any tenant or tenants. 27. TENANT shall not permit the restriction of air flow from heating, ventilation or air conditioning diffuser by objects such as papers, books, furniture, wall hangings, etc. 28. Smoking or carrying lighted cigars, pipes or cigarettes in the elevators of the BUILDING is prohibited. The owner has implemented a policy of non smoking in the BUILDING. Smoking is restricted to a designated smoking area in Annex II and the exterior of the BUILDING. 29. TENANT shall furnish a departmental coordinator, who will interface with the BUILDING management office. Upon occupancy of the BUILDING, the LANDLORD'S representative will provide a tenant manual for reference purposes. -35- EX-10.13 16 LEASE DATED 10/20/1998 WITH LSOF EXHIBIT 10.13 MARLBOROUGH CORPORATE CENTER OFFICE LEASE TABLE OF CONTENTS ARTICLE SECTION PAGE - ------- ------- ---- I. Basic Lease Provisions 1.1 Introduction 1.2 Basic Data II. Description of Premises And Appurtenant Rights 2.1 Location of Premises 2.2 Appurtenant Rights And Reservations III. Term 3.1 Term 3.2 Extension Term IV. Rent 4.1 Annual Base Rent 4.2 Additional Rent 4.3 Tenant Improvement Allowance V. Use of Premises 5.1 Permitted Use 5.2 Alterations VI. Assignment And Subletting 6.1 General 6.2 Notice 6.3 Tenant Remains Liable 6.4 General Conditions 6.5 Recapture 6.6 Profit 6.7 Permitted Transactions VII. Delivery of Premises And Responsibility For Repairs And Condition of Premises 7.1 Delivery of Possession of Premises 7.2 Landlord's Work 7.3 Schedule 7.4 Other Construction Provisions 7.5 Repairs to Be Made by Landlord 7.6 Tenant's Agreement 7.7 Floor Load - Heavy Machinery VIII. Services to Be Furnished by Landlord And Utility Charges 8.1 Landlord's Services 8.2 Payment of Utility Charges 8.3 Energy Conservation IX. Real Estate Taxes And Other Expenses 9.1 Tenant's Share of Real Estate Taxes 9.2 Tenant's Share of Operating Expenses X. Indemnity And Public Liability Insurance 10.1 Tenant's Indemnity 10.2 Public Liability Insurance 10.3 Tenant's Risk 10.4 Injury Caused by Third Parties 10.5 Fire And Hazard Insurance 10.6 Additional Insurance 10.7 Additional Restrictions XI. Landlord's Access to Premises 11.1 Landlord's Right of Access 11.2 Exhibition of Space to Prospective Tenants XII. Damage And Destruction 12.1 Notice 12.2 Destruction of Building or Premises XIII. Eminent Domain 13.1 General 13.2 Award XIV. Landlord's Remedies 14.1 Events of Default 14.2 Remedies 14.3 Tenant's Obligations/landlord's Rights 14.4 Landlord's Default XV. Miscellaneous Provisions 15.1 Extra Hazardous Use 15.2 Waiver 15.3 Covenant of Quiet Enjoyment 15.4 Notice to Mortgagee And Ground Lessor 15.5 Assignment of Leases And Rents 15.6 Mechanic's Liens 2 15.7 No Brokerage 15.8 Invalidity of Particular Provisions 15.9 Provisions Binding, Etc. 15.10 Recording 15.11 Notices 15.12 When Lease Becomes Binding 15.13 Paragraph Headings 15.14 Rights of Mortgagee 15.15 Status Report 15.16 Security Deposit; Tenant's Financial Condition 15.17 Additional Remedies of Landlord 15.18 Holding Over 15.19 Non-Subrogation 15.20 Relocation of Premises 15.21 Governing Law 15.22 Definition of Additional Rent 15.23 Landlord's Fees And Expenses 15.24 Parking 15.25 Authority 15.26 Confidentiality 15.27 Force Majeure 3 EXHIBITS A Description of Land B Base Building Description C Notice of Lease D Tenant's Work E Subordination, Nondisturbance F Landlord's Work G Cleaning Services H Plan of Premises 4 THIS INSTRUMENT IS AN INDENTURE OF LEASE in which the Landlord and the Tenant are the parties hereinafter named, and which relates to space in the building (the "Building") known as Marlborough Corporate Center located at 154 Crane Meadow Road in Marlborough, Massachusetts. The Building is located on a parcel of land (the "Land") which is more particularly described in EXHIBIT A annexed hereto. The parties to this instrument hereby agree with each other as follows: ARTICLE I BASIC LEASE PROVISIONS 1.1 INTRODUCTION. As further supplemented in the balance of this instrument and its Exhibits, the following sets forth the basic terms of this Lease and, where appropriate, constitutes definitions of certain terms used in this Lease. 1.2 BASIC DATA. Date: October 20, 1998 Landlord: LSOF Pooled Equity, L.P., a Delaware limited partnership Present Mailing Address c/o Hudson Advisors, L.L.C. of Landlord: Ten High Street, Suite 1120 Boston, MA 02110 Attn: Paul Barry, Asset Manager Tenant: Freedom of Information, Inc., a Delaware corporation Present Mailing Address 154 Crane Meadow Road of Tenant: Marlborough, Massachusetts Property: Collectively, the Building, the Land and any other building improvements hereafter located on the Land. Project: A three story brick and glass building with a gross buildable area of 160,018 square feet and a gross rentable area of 156,630 square feet calculated in accordance with the BOMA Standard. The building will be constructed by Landlord, at Landlord's sole cost in 5 accordance with the Base Building Description attached hereto as EXHIBIT B. Initial Term or Terms: Sixty-two (62) months Lease Commencement Date: The date on which Landlord delivers possession of the Premises to Tenant in accordance with Article III hereof which is estimated to be January 1, 1999. The Lease Commencement Date shall be memorialized by a supplemental agreement signed by the parties hereto. Rent Commencement Date: Sixty (60) days after the Lease Commencement Date, which date is estimated to be March 1, 1998. Annual Base Rent: Monthly: For each calendar month of the first twelve months of the Term hereof, monthly Annual Base Rent shall be paid in the amount of $37,771.50. The first month's payment of Annual Base Rent shall be payable upon execution of this Lease. Thereafter, as follows: Second Twelve Months: $37,771.50/per month Third Twelve Months: $39,708.50/per month Fourth Twelve Months: $41,645.50/per month Fifth Twelve Months: $41,645.50/per month Annual: For the first lease year of the Term hereof, the annual amount of Annual Base Rent shall be $453,258/per annum. Thereafter, as follows: Second Year: $453,258/per annum Third Year: $476,502/per annum Fourth Year: $499,746/per annum Fifth Year: $499,746/per annum Additional Rent: The Amounts set forth in Article IV, Section 4.2. Use: First class office uses and uses ancillary thereto only. 6 Description of Space: The portion of the Building located (herein the "Premises") on the 1st floor as shown on EXHIBIT H attached hereto consisting of 23,244 rentable square feet ("RSF") of floor area (the "Premises"). Tenant's Proportionate Share: 14.84%. Base Tax Amount: Taxes for the Base Tax Year. Base Operating Expenses: Operating Expenses for Calendar Year 1999. Delivery Date: Same as Lease Commencement Date Security Deposit: Upon execution of this Lease, Tenant shall pay to Landlord $232,440 as a Security Deposit. Landlord will hold said deposit in accordance with the terms and conditions set forth in Section 15.16 of this Lease. At the end of twelve (12) months so long as Tenant is not currently in default beyond any applicable cure or grace periods and Tenant has not been late in the payment more than twice during the preceding twelve (12) months, Landlord will refund to Tenant fifty percent (50%) of the Security Deposit. Brokers: Fallon, Hines & O'Connor and Neelon ARTICLE II DESCRIPTION OF PREMISES AND APPURTENANT RIGHTS 2.1 LOCATION OF PREMISES. Landlord hereby devises and leases to Tenant, and Tenant hereby accepts from Landlord, the Premises identified in the foregoing portions of this Lease. 2.2 APPURTENANT RIGHTS AND RESERVATIONS. Tenant shall have, as appurtenant to the Premises, the nonexclusive right to use and to permit its invitees to use in common with others, public or common lobbies, hallways, stairways, passenger and freight elevators and sanitary facilities in the Building, but such rights shall always be subject to reasonable rules and 7 regulations from time to time established by Landlord by suitable notice and to the right of Landlord to designate and change from time to time areas and facilities so to be used. Excepted and excluded from the Premises are the roof or ceiling, the floor and all perimeter walls of the Premises, except the inner surfaces thereof, but the entry doors to the Premises are not excluded from the Premises and are a part thereof for all purposes; and Tenant agrees that Landlord shall have the right to place in the Premises (but in such manner as to reduce to a minimum interference with Tenant's use of the Premises) utility lines, pipes and the like to serve premises other than the Premises, and to replace, maintain and repair such utility lines, pipes and the like, in, over and upon the Premises. During the hours of 8:00 A.M. to 6:00 P.M., Monday through Friday, and 8:00 A.M. to 1:00 P.M. on Saturdays, legal holidays in all cases excepted (hereinafter referred to as "Normal Building Operating Hours"), the Building shall be open and access to the Premises shall be freely available, subject to interruption due to causes beyond Landlord's reasonable control. During periods other than Normal Building Operating Hours, Landlord shall provide means of access to the Building by an electronic key card system, but access to the Premises during Normal Building Operating Hours and at other times shall always be subject to reasonable rules and regulations therefor from time to time established by Landlord by suitable notice. Tenant acknowledges that, in all events, Tenant is responsible for providing security to the Premises and its own personnel, and Tenant shall indemnify, defend with counsel of Landlord's selection, and save Landlord harmless from any claim for injury to person or damage to property asserted by any personnel, employee, guest, invitee or agent of Tenant which is suffered or occurs in or about the Premises, the Building or the Land by reason of the act of an intruder or any other person in or about the Premises. ARTICLE III TERM 3.1 TERM. The term of this Lease shall be sixty-two (62) months (the "Term") commencing on the earlier of (i) the date that Landlord delivers the Premises to Tenant with all the Landlord's Work (defined in Section 7.2 below) Substantially Complete (defined in Section 7.1 below), or (ii) the date on which Tenant begins use of the Premises for the operation of its business (the "Lease Commencement Date") which date is estimated to be January 1, 1999 (the "Estimated Commencement Date") and expiring on the date which is the end of the sixty- second (62/nd/) month after the Lease Commencement Date, which is estimated to be February 28, 2002 (the "Expiration Date") unless this Lease is sooner terminated pursuant to the provisions hereof or by law. Within seven 8 (7) days of the Lease Commencement Date, Tenant shall execute and deliver to Landlord for execution and recording by Landlord, a written instrument which sets forth the Lease Commencement Date and the Term (the "Notice of Lease") in the form attached hereto as EXHIBIT C. a. If, for any reason other than solely due to Tenant Delay (defined in Section 7.1 below) or Force Majeure (as defined in Section 15.27) the Premises have not been delivered to Tenant with the Landlord's Work Substantially Complete on or before thirty (30) days after the Estimated Commencement Date, Tenant shall receive an additional one (1) day of abatement in Annual Base Rent commencing as of the Rent Commencement Date for each day beyond the Estimated Commencement Date that the Premises is not so delivered. b. If, for any reason other than solely due to Tenant Delay or Force Majeure, the Premises have not been delivered to Tenant with all of Landlord's Work Substantially Complete on or before forty-five (45) days after the Estimated Commencement Date, Tenant shall have the right to terminate this Lease, by written notice to the Landlord given within seven (7) days of the expiration of the forty-five (45) day period. If Tenant does not issue such notice within the seven (7) day period and Landlord delivers the Premises with all the Landlord's Work Substantially Complete, Tenant's right to terminate under this subsection 3.1(b) shall terminate and be of no further force or effect. c. If, for any reason other than solely due to Tenant Delay, the Premises have not been delivered to Tenant with all of Landlord's Work therein Substantially Complete on or before sixty (60) days after the Estimated Commencement Date, Tenant shall have the right to terminate this Lease, by written notice to the Landlord given within seven (7) days of the expiration of the sixty (60) day period. If Tenant does not issue such notice within the seven (7) day period and Landlord delivers the Premises with all the Landlord's Work Substantially Complete, Tenant's right to terminate under this Section 3.1(c) shall terminate and be of no further force or effect. d. Any delay in the Estimated Commencement Date as a result of Tenant's Contractor shall be as set forth in Section 7.4(b) of this Lease. 3.2 EXTENSION TERM. This Lease is not subject to any extension terms. 9 ARTICLE IV RENT 4.1 ANNUAL BASE RENT. Tenant agrees to pay to Landlord at the present mailing address of Landlord, or as directed by Landlord, without notice, demand, off-set or deduction, on the Rent Commencement Date and thereafter, monthly, in advance, on the first day of each and every calendar month during the Lease Term, a sum equal to the monthly Annual Base Rent specified in Section 1.2 hereof. Annual Base Rent for any partial month shall be paid by Tenant at such rate on a pro rata basis, and if the Lease Term commences on a day other than the first day of a calendar month, the first payment which Tenant shall make shall be a payment equal to a proportionate part of such monthly Annual Base Rent for the partial month from the Rent Commencement Date to the first day of the succeeding calendar month, and the monthly Annual Base Rent for such succeeding calendar month. 4.2 ADDITIONAL RENT. Commencing as of the Rent Commencement Date, in addition to the Annual Base Rent, Tenant shall pay the following as additional rent under this Lease (collectively, "Additional Rent"): a. Operating Expenses. Commencing on the Rent Commencement Date, Tenant shall pay, as Additional Rent hereunder in equal monthly installments, Tenant's Proportionate Share of the amount by which Operating Expenses (as defined in Section 9.2) paid or incurred by Landlord in each calendar year during the term of this Lease following the Base Operating Year, exceeds the Base Operating Expenses, as more particularly set forth in Article IX. b. Taxes. Commencing on the Rent Commencement Date, Tenant shall pay as Additional Rent hereunder in equal monthly installments, Tenant's Proportionate Share of the amount by which Real Estate Taxes in any tax year or partial tax year during the term of the Lease exceeds the Base Tax amount, as more particularly set forth in Article IX. 4.3 TENANT IMPROVEMENT ALLOWANCE a. General. Landlord grants to Tenant a tenant improvement allowance of $15.00 per rentable square foot of the Premises (the "Allowance") to be applied by Landlord for construction of Landlord's Work. 10 b. Tenant's Funds. Tenant shall be obligated and agrees to pay to Landlord all costs of Landlord's Work in excess of the Allowance (the "Tenant's Buildout Share"). In the event that Landlord estimates the total cost of the Landlord's Work will exceed the Allowance, Tenant agrees to deposit with Landlord the difference between the Allowance and the cost of Tenant's Buildout Share. Tenant shall deposit Tenant's Buildout Share within fifteen (15) days of Landlord's notice to Tenant of the exhaustion of the Allowance. This money will be held in escrow by the Landlord and will be used by the Landlord for payment of Landlord's Work once the Allowance has been exhausted. c. Excess Allowance. If and to the extent that there remains any unexpended Allowance after completion of Landlord's Work on the Premises, any such Allowance shall be applied towards Tenant's Annual Base Rent first due and payable under this Lease until such excess has been exhausted. ARTICLE V USE OF PREMISES 5.1 PERMITTED USE. Tenant agrees that the Premises shall be used and occupied by Tenant only for the purpose specified as the use thereof in Section 1.2 of this Lease, and for no other purpose or purposes. Tenant further agrees to conform to the following provisions during the entire Lease Term. a. Tenant shall cause all freight (including furniture, fixtures and equipment used by Tenant in the occupancy of the Premises) to be delivered to or removed from the Building and the Premises in accordance with reasonable rules and regulations established by Landlord therefor and Landlord may require that such deliveries or removals be undertaken during periods other than Normal Building Operating Hours; b. Tenant shall not place on the exterior of exterior walls (including both interior and exterior surfaces of windows and doors) or on any part of the Building outside the Premises, any sign, symbol, advertisement or the like visible to public view outside of the Premises except for a sign on the door of the Premises of the type commonly and customarily found in first-class office buildings for the purpose of identifying and locating the Premises, which sign shall always be subject to the prior approval of Landlord. Landlord has established standards for such signs and Tenant agrees to conform to the same and to submit for 11 Landlord's prior approval a plan or sketch of the sign to be placed on such entry doors. Without limitation, lettering on windows and window displays are expressly prohibited. Landlord agrees, however, to maintain a tenant directory in the lobby of the Building in which will be placed Tenant's name and the location of the Premises in the Building; c. Tenant shall not perform any act or any practice which may injure the Premises, or any other part of the Building, or cause any offensive odors or loud noise, or constitute a nuisance or a menace to any other tenant or tenants or other persons in the Building, or be detrimental to the reputation or appearance of the Building; d. Tenant shall conduct Tenant's business in the Premises in such a manner that Tenant's invitees shall not collect, line up or linger in the lobby or corridors of the Building, but shall be entirely accommodated within the Premises; e. Tenant shall comply and shall cause all employees to comply with all rules and regulations from time to time reasonably established by Landlord by suitable notice. Landlord shall not, however, be responsible for the noncompliance with any such rules and regulations by any other tenant or occupant of the Building, but Landlord shall not discriminate against Tenant in the enforcement of such rules and regulations; f. Tenant shall not use the name of the Building directly or indirectly in connection with Tenant's business, except as a part of Tenant's address, and Landlord reserves the right to change the name of the Building at any time; g. Except for products normally found in business offices (which products shall be used and disposed of in accordance with applicable local, state and federal laws) Tenant shall not use, handle or store or dispose of any oil, hazardous or toxic materials or hazardous or toxic wastes in or about the Building. If the transportation, storage, use or disposal of hazardous or toxic materials anywhere on the Land in connection with Tenant's use of the Premises results in (1) contamination of the soil or surface or ground water or (2) loss or damage to person(s) or property, then Tenant agrees to respond in accordance with the following paragraph: 12 Tenant agrees (i) to notify Landlord immediately of any contamination, claim of contamination, loss or damage, (ii) after consultation and approval by Landlord, to clean up the contamination in full compliance with all applicable statutes, regulations and standards, and (iii) to indemnify, defend and hold Landlord harmless from and against any claims, suits, causes of action, costs and fees, including attorneys' fees, arising from or connected with any such contamination, claim of contamination, loss or damage. This provision shall survive the termination of this Lease. No consent or approval of Landlord shall in any way be construed as imposing upon Landlord any liability for the means, methods, or manner of removal, containment or other compliance with applicable law for and with respect to the foregoing; and h. Tenant agrees that, within the Premises, it shall be responsible for compliance with the Americans with Disabilities Act (42 U.S.C. (S) 12101 et. seq.) and the regulations and Accessibility Guidelines for Buildings and Facilities issued pursuant thereto (the "ADA"), but Landlord shall conduct all improvements in the Premises in compliance with the ADA as a part of Landlord's Work. 5.2 ALTERATIONS. After initial completion of any work to be done by Tenant, for which provision is made herein in EXHIBIT D attached hereto, Tenant shall not alter or add to the Premises, except in accordance with written consent from Landlord, which Landlord agrees not unreasonably to withhold as to nonstructural alterations or additions. All alterations made by Tenant shall be made in accordance with all applicable laws, in a good and first-class workmanlike manner and in accordance with the requirements of Landlord's insurers and Tenant's insurers. Any contractor or other person undertaking any alterations of the Premises on behalf of Tenant shall be covered by Comprehensive General Liability and Workmen's Compensation insurance with coverage limits reasonably acceptable to Landlord and evidence thereof shall be furnished to Landlord prior to the performance by such contractor or person of any work in respect of the Premises. All work performed by Tenant in the Premises shall remain therein (unless, at the time Tenant requests Landlord's approval thereof, Landlord directs Tenant to remove the same on termination) and, at termination, shall be surrendered as a part thereof, except for Tenant's usual fixtures, trade furniture and equipment, if movable, installed prior to or during the Lease Term at Tenant's cost, which fixtures, trade furniture and equipment Tenant may remove upon the termination of this Lease. Tenant agrees to repair any and all damage to the Premises resulting from such removal (including removal of Tenant's improvements directed by Landlord as provided above) or, if Landlord so elects, to pay Landlord for the reasonable cost of any such repairs forthwith after billing therefor. 13 ARTICLE VI ASSIGNMENT AND SUBLETTING 6.1 GENERAL. Notwithstanding any other provisions of this Lease, except as set forth below, Tenant covenants and agrees that it will not assign this Lease or sublet (which term, without limitation, shall include the granting of concessions, licenses, management arrangements and the like) the whole or any part of the Premises without, in each instance, having first received the express written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Any assignment of this Lease, or subletting of the whole or any part of the Premises (other than as permitted to a subsidiary or a controlling corporation or entity as set forth below) by Tenant without Landlord's express consent shall be invalid, void and of no force or effect. Notwithstanding anything to the contrary in this Lease, if Tenant assigns or sublets any portion of the Leased Premises, without Landlord's written authorization, then Landlord reserves the right to begin dealing directly with the subtenant without waiving any of the Landlord's rights under this lease against the original Tenant and without notice to the original Tenant. 6.2 NOTICE. At least thirty (30) days prior to any sublease of the Premises to another party or fifteen (15) days prior to any assignment of this Lease to a new entity, Tenant shall provide Landlord written notice of such proposed sublease or assignment containing the name and address of the proposed assignee/sublessee, information as to its reputation, information as to its financial condition, the intended use of the Premises, a copy of the proposed sublease or assignment, and any other reasonable information the Landlord may request before rendering a decision and any information provided shall be treated as Tenant's warranty in respect of the information submitted therewith to the best of Tenant's knowledge. Landlord will consider the following factors in making its decision regarding the proposed assignment/sublet. This list is illustrative and not intended to be a complete list of criteria the Landlord will consider: (i) demonstrated financial stability and credit worthiness; (ii) reputation of business; (iii) type of business; (iv) source of rent, including financial conditions and operating performance of proposed assignee/sublessee; (v) security provided to Landlord by Tenant and proposed assignee/sublessee of future performance; (vi) expected rent to be paid by proposed assignee/sublessee; and (vii) assurance sublessee's use will not cause Landlord to be in violation of any other leases which limit the business type or uses by other tenants in the building. 6.3 TENANT REMAINS LIABLE. In any case where Landlord shall consent to such assignment or subletting, the Tenant named herein shall remain fully liable for the obligations of Tenant hereunder, including, without limitation, 14 the obligation to pay the Annual Base Rent and other amounts provided under this Lease. 6.4 GENERAL CONDITIONS. It shall be a condition of the validity of any such assignment or subletting that the assignee or sublessee agrees directly with Landlord, in form reasonably satisfactory to Landlord, to be bound by all the obligations of Tenant hereunder, including, without limitation, the obligation to pay Annual Base Rent and other amounts provided for under this Lease and the covenant against further assignment and subletting, but such assignment or subletting shall not relieve the Tenant named herein of any of the obligations of Tenant hereunder, and Tenant shall remain fully liable therefor. In no event, however, shall Tenant assign this Lease or sublet the whole or any part of the Premises to a proposed assignee or sublessee which has been judicially declared bankrupt or insolvent according to law, or with respect to which an assignment has been made of property for the benefit of creditors, or with respect to which a receiver, guardian, conservator, trustee in involuntary bankruptcy or similar officer has been appointed to take charge of all or any substantial part of the proposed assignee's or sublessee's property by a court of competent jurisdiction or with respect to which a petition has been filed for reorganization under any provisions of the Bankruptcy Code now or hereafter enacted, or if a proposed assignee or sublessee has filed a petition for such reorganization, or for arrangements under any provisions of the Bankruptcy Code now or hereafter enacted and providing a plan for a debtor to settle, satisfy or extend the time for the payment of debts. Tenant shall, upon demand, reimburse Landlord legal for the fees and expenses incurred by Landlord in processing any request to assign this Lease or to sublet all or any portion of the Premises, whether or not Landlord agrees thereto, and if Tenant shall fail promptly so to reimburse Landlord, the same shall be a default in Tenant's monetary obligations under this Lease. 6.5 RECAPTURE. Without limiting Landlord's discretion to grant or withhold its consent to any proposed assignment or subletting, if Tenant requests Landlord's consent to assign this Lease or sublet all or any portion of the Premises, Landlord shall have the option, exercisable by written notice to Tenant given within fifteen ( 15) days after Landlord's receipt of such request, to terminate this Lease as of the date specified in such notice which shall be not less than fifteen (15) nor more than forty-five (45) days after the date of such notice for the entire Premises, in the case of an assignment or subletting of the whole, and for the portion of the Premises, in the case of a subletting of a portion. In the event of termination in respect of a portion of the Premises, the portion so eliminated shall be delivered to Landlord on the date specified in good order and condition in the manner provided in Section 4.2 at the end of the Lease Tenn and thereafter, to the extent necessary in Landlord's reasonable judgment, Landlord, at its own cost and expense, may have access to and may make modification to the Premises so as to make such portion a 15 self-contained rental unit with access to common areas, elevators and the like. Annual Base Rent and Tenant's Proportionate Share shall be adjusted according to the extent of the Premises for which the Lease is terminated. 6.6 PROFIT. Without limitation of the rights of Landlord hereunder in respect thereto, if there is any assignment of this Lease by Tenant for consideration or a subletting of the whole of the Premises by Tenant at a rent which exceeds the rent payable hereunder by Tenant, or if there is a subletting of a portion of the Premises by Tenant at a rent in excess of the subleased portion's pro rata share of the rent payable hereunder by Tenant, then Tenant shall pay to Landlord, as Additional Rent, forthwith upon Tenant's receipt of the consideration (or the cash equivalent thereof) therefor, in the case of an assignment, and in the case of a subletting, the full amount of any such excess rent after deductions for the cost of tenant improvements provided by Tenant, documented to the reasonable satisfaction of Landlord, brokerage commissions paid by the Tenant and attorneys' fees. The provisions of this paragraph shall apply to each and every assignment of the Lease and each and every subletting of all or a portion of the Premises, other than a Permitted Transaction pursuant to Section 6.7 hereof, in each case on the terms and conditions set forth herein. For the purposes of this Article VI, the term "Rent" shall mean all Annual Base Rent, Additional Rent or other payments and/or consideration payable by one party to another for the use and occupancy of all or a portion of the Premises. 6.7 PERMITTED TRANSACTIONS. The provisions of this Article VI shall not, however, be applicable to an assignment of this Lease or a sublease by Tenant to a subsidiary or an affiliate of Tenant or to an entity acquiring substantially all of the stock or assets of Tenant (a "Permitted Transaction") as long as the net worth of the assignee, sublessee or the Tenant, as the case may be, does not decrease as a result of such transaction. No such assignment or sublease shall relieve the Tenant herein named of any of its obligations hereunder, and Tenant shall remain fully liable therefor. In cases of Permitted Transactions, Tenant shall give Landlord fifteen (15) days' written notice of any assignment or sublease. Tenant shall provide Landlord written notice of such proposed sublease or assignment containing the name and address of the proposed assignee, information as to its reputation, information as to its financial condition, the name of the new entity to be created, if any such additional information as Landlord shall reasonably request. 16 ARTICLE VII DELIVERY OF PREMISES AND RESPONSIBILITY FOR REPAIRS AND CONDITION OF PREMISES 7.1 DELIVERY OF POSSESSION OF PREMISES. The Premises shall be treated as delivered hereunder upon the date on which Landlord's architect or engineer shall give Tenant notice that the Landlord's Work has reached Substantial Completion, but in no event sooner than January 1, 1999. The term "Substantial Completion" shall mean (i) completion of the Landlord's Work to such condition of completeness so as to obtain a certificate of use and occupancy (including a temporary certificate) from the City of Marlborough for the Premises in order that Tenant may occupy the Premises; (ii) the shell and core of the Building are complete and in substantial compliance with all applicable laws, statutes, codes, rules and regulations (collectively, "Laws") and all of the Building's heating, ventilating, air-conditioning ("HVAC"), plumbing, life safety, telephone, cable, if any, mechanical and electrical systems (collectively, "Building Systems") are operational to the extent necessary to service the Premises; (iii) Tenant has been provided with the number of parking spaces to which it is entitled under this Lease; and (iv) Tenant has executed and delivered a subordination, attornment and non- disturbance agreement in the form attached hereto as EXHIBIT E and has received an original executed by Landlord and each mortgagee of record, if applicable. The existence of "punchlist" items remaining outstanding which do not unreasonably interfere with general occupancy by Tenant shall not prevent Substantial Completion, but Landlord shall use diligent efforts to promptly complete such punchlist items without unreasonable interference with Tenant's business. To the extent that the date of the Substantial Completion of Landlord's Work is delayed beyond the Estimated Commencement Date by reason of (i) Tenant's failure to approve Construction Drawings (as defined below); or (ii) changes requested by Tenant in Landlord's Work following approval by Tenant of the Final Schematic Plan (which shall be defined as those design and development drawings provided by the Landlord's Architect, Planners Designers Architects, Inc. ("PDA")); or (iii) Tenant's failure to pay any amounts due from Tenant, if any, in excess of the Allowance, to fund Landlord's Work (collectively, "Tenant Delay"), the date of Substantial Completion shall be the Lease Commencement Date, however, the Rent Commencement Date will not be similarly changed or extended. 7.2 LANDLORD'S WORK. Landlord will construct, install or perform in the Premises those improvements and work agreed upon by Landlord and Tenant that is necessary for Tenant to occupy the Premises. Landlord's Work shall be 17 conducted in a first-class manner and in accordance with the provisions of this Article VII. Unless otherwise directed by Tenant in writing, Landlord's goal will be to negotiate a final set of construction documents with the contractor to enable construction of Landlord's Work within the aggregate Allowance of $15.00 per rentable square foot. The stages of the buildout, time periods during which the stages will occur and the respective obligations of Landlord and Tenant are set forth below in this Article VII. Landlord shall enter into an agreement with PDA through its affiliate, Dacon Corporation, for the following design services: (i) architectural; (ii) structural and engineering; (iii) civil engineering; (iv) mechanical engineering services, including HVAC, plumbing and fire protection; and (v) the final construction plans and outline specifications (the "Construction Drawings"). The final Construction Drawings shall be incorporated into this Lease as EXHIBIT F and shall be the final and determinative description of the Landlord's Work. Landlord shall perform Landlord's Work by entering into a cost plus a fee with guaranteed maximum price contract for completion of the Landlord's Work with Dacon Corporation ("Dacon") of Natick, Massachusetts, the general contractor for the Base Building and improvements to the Land. Tenant shall have no relationship with the contractor except to the extent of Tenant's obligations to participate in the finalization of the Final Schematic Plan of Landlord's Work, and Tenant's approval of the final Construction Drawings. 7.3 SCHEDULE. Design, approval by Tenant and completion of Landlord's Work shall be accomplished under the following phases and time periods: a. Preliminary. Tenant has previously approved Final Schematic Plans drafted by PDA. Landlord has contracted with PDA for the completion of the Construction Drawings that will become the final Landlord's Work. Landlord has provided Tenant with a form of a contract to be used between Landlord and the contractor chosen to complete Landlord's Work. b. October 16, 1998. Landlord will provide Tenant with Dacon's guaranteed maximum price ("Dacon's GMP") for the cost of completing Landlord's Work. Tenant will provide Landlord with its contractor's, ("Tenant's Contractor"), guaranteed maximum price. The contractor chosen by Tenant must be approved by Landlord in writing. (i) If Dacon's GMP is at or below the Allowance, the Landlord shall notify Tenant of Dacon's GMP but Landlord shall not be required to seek the permission of the Tenant before commencing Landlord's Work. 18 (ii) If Dacon's GMP is within $20,000 of the Allowance, Tenant may either (a) conduct value engineering so as to reduce the cost of Landlord's Work; or (b) agree to Dacon's GMP. (iii) If Dacon's GMP is $20,000 or more over the Allowance and Tenant's Contractor is able to complete the Landlord's Work for less than Dacon's GMP, then: (a) Landlord shall have the opportunity to negotiate with Dacon to reduce Dacon's GMP and if Dacon will not lower its GMP to match Tenant's Contractor's price, the Landlord shall negotiate and enter into a contract with Tenant's Contractor for the completion of Landlord's Work. Said contract with Tenant's Contractor will be in substantially the same form as provided to Tenant by Landlord. Tenant's Contractor must execute the contract with Landlord within five (5) business days of notice to the Tenant's Contractor that it has been chosen to complete the Landlord's Work. If Tenant's Contractor fails to execute the contract within five (5) business days, Landlord will enter into a contract with Dacon to complete the Landlord's Work. c. On or before October 30, 1998. Landlord will deliver the final Construction Drawings to the Tenant. Tenant shall have two (2) days to approve the Construction Drawings or to set forth its reasons for disapproval. If Tenant makes any changes to the Construction Drawings that are inconsistent with the Final Schematic Plans, this will constitute a Tenant Delay. 7.4 OTHER CONSTRUCTION PROVISIONS. a. Landlord shall permit Tenant access (at Tenant's sole risk) for purpose of installing equipment and furnishings in the Premises prior to Tenant's taking possession of the Premises if it can be done without interference with Landlord's Work in the Premises and/or in other portions of the Building and in harmony with Landlord's contractors and subcontractors, including, without limitation, in accordance with any labor agreements Landlord's contractors or subcontractors may be parties to. b. Tenant's Contractor Delay. 19 (i) If Tenant's Contractor shall be the contractor chosen to complete Landlord's Work and if, for any reason, due to the fault of Tenant's Contractor, but not Force Majeure, the Premises have not been delivered to Tenant with Landlord's Work Substantially Complete on or before ninety (90) days after the Estimated Commencement Date, Tenant shall have the right to terminate this Lease, by written notice to the Landlord given within seven (7) days of the expiration of the ninety (90) day period. If Tenant does not issue such notice within the seven (7) day period and Landlord delivers the Premises with all the Landlord's Work Substantially Complete, Tenant's right to terminate under this subsection 7.4(b)(i) shall terminate and be of no further force or effect. (ii) If, for any reason, due to the fault of Tenant's Contractor or Force Majeure, the Premises have not been delivered to Tenant with the Landlord's Work Substantially Complete on or before one hundred fifty (150) days after the Estimated Commencement Date, Tenant shall have the right to terminate this Lease by written notice to the Landlord given within seven (7) days of the expiration of the one hundred fifty (150) day period. If Tenant does not issue such notice with the seven (7) day period and Landlord delivers the Premises with all the Landlord's Work Substantially Complete, Tenant's right to terminate under this subsection 7.4(b)(ii) shall terminate and be of no further force or effect. 7.5 REPAIRS TO BE MADE BY LANDLORD. Except as otherwise provided in this Lease, Landlord agrees to keep in good order, condition and repair, the roof, the exterior walls and the common areas of the Building, insofar as any of the foregoing affects the Premises. Landlord shall in no event be responsible to Tenant for the condition of glass in and about the Premises or for the doors leading to the Premises, or for any condition in the Premises or the Building caused by any act or neglect of Tenant or any contractor, agent, employee or invitee of Tenant, or anyone claiming by, through or under Tenant. Landlord shall not be responsible to make any improvements or repairs to the Building or the Premises other than as expressed in this Section 7.5 unless expressly otherwise provided in this Lease. Landlord shall never be liable for any failure to make repairs which, under the provisions of this Section 7.5 or elsewhere in this Lease, Landlord has undertaken to make unless: (i) Tenant has given notice to Landlord of the need to make such repairs as a result of a condition in the Building or in the Premises requiring any repair for which Landlord is responsible; and (ii) Landlord has failed to commence to make 20 such repairs within a reasonable time after receipt of such notice if any repairs are, in fact, necessary. 7.6 TENANT'S AGREEMENT. Tenant agrees that Tenant will keep neat and clean and maintain in good order, condition and repair, the Premises and every part thereof throughout the Lease Term, excepting only those repairs for which Landlord is responsible under the terms of this Lease and damage by fire or other casualty or as a consequence of the exercise of the power of eminent domain, and shall surrender the Premises at the end of the term, in such condition. Without limitation, Tenant shall maintain and use the Premises in accordance with all applicable laws, ordinances, governmental rules and regulations, directions and orders of officers of governmental agencies having jurisdiction and in accordance with the requirements of Landlord's and/or Tenant's insurers, and shall, at Tenant's own expense, obtain and maintain in effect all permits, licenses and the like required by applicable law. Tenant shall not permit or commit any waste, and Tenant shall be responsible for the cost of repairs which may be made necessary by reason of damage to any areas in the Building, including the Premises, by Tenant, Tenant's contractors or Tenant's agents, employees or invitees, or anyone claiming by, through or under Tenant. Landlord may replace as needed any bulbs and ballasts in the Premises during the Lease Term at Tenant's cost and expense, or Landlord may require Tenant to replace the same, at Tenant's cost and expense. If repairs are required to be made by Tenant pursuant to the terms hereof, Landlord may demand that Tenant make the same forthwith, and if Tenant refuses or neglects to commence such repairs and complete the same with reasonable dispatch after such demand, Landlord may (but shall not be required to do so) make or cause such repairs to be made and shall not be responsible to Tenant for any loss or damage that may accrue to Tenant's stock or business by reason thereof unless caused by Landlord's negligence or willful misconduct. If Landlord makes or causes such repairs to be made, Tenant agrees that Tenant will forthwith, on demand, pay to Landlord the reasonable cost thereof, and if Tenant shall default in such payment, Landlord shall have the remedies provided for the nonpayment of rent or other charges payable hereunder. 7.7 FLOOR LOAD - HEAVY MACHINERY. Tenant shall not place a load upon any floor in the Premises exceeding the lesser of (a) the floor load per square foot of area which such floor was designed to carry as certified by Landlord's architect and (b) the floor load per square foot of area which is allowed by law. Landlord reserves the right to prescribe the weight and position of all business machines, equipment and mechanical equipment, including scales, which shall be placed so as to distribute the weight. Business machines, equipment and mechanical equipment shall be placed and maintained by Tenant at Tenant's expense in settings sufficient, in Landlord's judgment, to 21 absorb and prevent vibration, noise and annoyance. Tenant shall not move any safe, heavy machinery, heavy equipment, freight, bulky matter or fixtures into or out of the Building without Landlord's prior consent. If such safe, machinery, equipment, freight, bulky matter or fixtures requires special handling, Tenant agrees to employ only persons holding a Master Rigger's License to do said work, and that all work in connection therewith shall comply with applicable laws and regulations. Any such moving shall be at the sole risk and hazard of Tenant and Tenant will exonerate, indemnify and save Landlord harmless against and from any liability, loss, injury, claim or suit resulting directly or indirectly from such moving. Tenant shall schedule such moving at such times as Landlord shall reasonably require for the convenience of the normal operations of the Building. ARTICLE VIII SERVICES TO BE FURNISHED BY LANDLORD AND UTILITY CHARGES 8.1 LANDLORD'S SERVICES. Landlord covenants during the Lease Term: a. to provide heating and air-conditioning in the Premises during Normal Building Operating Hours during the normal heating and air-conditioning seasons; b. to furnish hot and cold water for ordinary toilet, lavatory and drinking purposes. If Tenant requires water for any other purpose, including without limitation, in connection with the business conducted in the Premises, Tenant shall pay the Landlord an appropriate charge stipulated by Landlord to reimburse Landlord for the cost of such water and related sewer use charge (including a charge to reimburse Landlord for the cost of metering Tenant's usage), provided that in no event shall such charge exceed the amount which Tenant would have had to pay to the public utility directly for the water requirements of Tenant in the Premises; c. to furnish non-exclusive passenger elevator service; d. to provide non-exclusive freight elevator service, subject to scheduling by Landlord; e. to furnish, through Landlord's employees or independent contractors, the services listed in EXHIBIT H, if any; f. to furnish, through Landlord's employees or independent contractors, additional Building operation services upon reasonable advance request 22 of Tenant at rates from time to time established by Landlord to be paid by Tenant provided the same may be reasonably and conveniently provided by Landlord. Tenant hereby agrees to pay to Landlord the cost of such services as Additional Rent upon demand by Landlord; and g. to provide, during those hours not considered Normal Building Operating Hours, heating and air-conditioning, only when specifically requested by the Tenant. Any cost of providing heating and air conditioning to the Premises shall be borne entirely by the Tenant (and, if applicable, others requesting such services). Tenant shall pay Landlord the charge incurred by Landlord for the cost of such heating and air-conditioning use. 8.2 PAYMENT OF UTILITY CHARGES. With respect to electricity for lighting and equipment in the Premises, if the same is separately metered, Tenant agrees to pay all bills therefor promptly to the utility company furnishing the same and, if requested by Landlord, provide Landlord with evidence of such payment. If such utility company shall have a lien on the Premises for nonpayment of such charges and Tenant shall fail at any time to make payment of same, without limitation of Landlord's rights on account of such failure, Tenant shall thereafter, if requested by Landlord, pay to Landlord, when monthly Annual Base Rent is next due and thereafter on Landlord's demand, an amount reasonably estimated by Landlord to be sufficient to discharge any such lien in the event of a further failure of Tenant to pay any such electric charges when due. Landlord shall hold the amounts from time-to-time deposited under this Section 8.2 as security for payment of such electric charges without interest to Tenant and may, without limitation of remedies on account of Tenant's failure to make any subsequent payment of electric charges, use such amounts for such payments. Such amount or such portion thereof as shall be unexpended at the expiration of this Lease shall, upon full performance of all Tenant's obligations hereunder, be repaid to Tenant without interest. 8.3 ENERGY CONSERVATION. Notwithstanding anything to the contrary in this Article VIII or elsewhere in this Lease, Landlord shall have the right to institute such policies, programs and measures as may be reasonably necessary or desirable, in Landlord's discretion, for the conservation and/or preservation of energy or energy related services, or as may be required to comply with any applicable codes, rules and regulations, whether mandatory or voluntary. 23 ARTICLE IX REAL ESTATE TAXES AND OTHER EXPENSES 9.1 TENANT'S SHARE OF REAL ESTATE TAXES. a. For the purposes of this Section: (i) The term "Tax Period" shall mean the period during which Taxes (as hereinafter defined) are required to be paid under applicable law. Thus, under the law presently in effect in the Commonwealth of Massachusetts, Tax Period means the period from July 1 of a calendar year to June 30 of the subsequent calendar year. Suitable adjustment in the determination of Tenant's obligation under this Section 9.1 shall be made in the computation for any Tax Period which is greater than or less than twelve (12) full calendar months. (ii) The term "Base Tax Year" shall refer to the Fiscal Year 2000 (i.e., July 1, 1999 to June 30, 2000). In calculating, the Base Tax Year, Landlord shall use the tax rate from Fiscal Year 2000 as provided by the Tax Collector of the City of Marlborough and shall apply such tax rate by the amount of the assessment for the Land and Building once it is fully assessed as determined by the Assessor for the City of Marlborough. (iii) The term "Taxes" shall mean all real estate taxes and assessments (which term, for purposes of this provision, shall include water and sewer use charges), special or otherwise, levied or assessed upon or with respect to the Building and the Land or any part thereof and ad valorem taxes for any personal property of Landlord used in connection therewith. Should the Commonwealth of Massachusetts, or any political subdivision thereof, or any other governmental authority having jurisdiction over the Building and the Land, (1) impose a tax, assessment, charge or fee, which Landlord shall be required to pay, by way of substitution for or as a supplement to such real estate taxes and ad valorem personal property taxes, or (2) impose an income or franchise tax or a tax on rents in substitution for or as a supplement to a tax levied against the Building or the Land or any part thereof and/or the personal property used in connection with the Building or the Land or any part thereof, all such taxes, assessments, fees or charges (hereinafter defined as "in lieu of taxes") shall be deemed to constitute Taxes hereunder. Taxes shall also include, in the year paid, all fees and costs reasonably incurred by Landlord in seeking to obtain a reduction of, or a limit on the increase in, any Taxes, regardless of whether any reduction or limitation is obtained. Except as hereinabove provided with regard to "in lieu of taxes", Taxes shall not include any inheritance, estate, succession, transfer, gift, franchise, net income or capital stock tax. 24 b. In the event that the Taxes imposed with respect to the Building and the Land shall be greater during any Tax Period than the Base Tax Amount: (i) Tenant shall pay to Landlord, as Additional Rent, Tenant's Proportionate Share of the amount by which the Taxes imposed with respect to the Building and the Land for such Tax Period exceed the Base Tax Amount, apportioned for any fraction of a Tax Period contained within the Term, and (ii) Landlord shall submit to Tenant a statement setting forth the amount of such Additional Rent, and within fifteen (15) days after the delivery of such statement (whether or not such statement shall be timely), Tenant shall pay to Landlord the payment required under subparagraph (i) above. So long as Taxes shall be payable in installments under applicable law, Landlord may submit such statements to Tenant in similar installments. The failure by Landlord to send any statement required by this subparagraph shall not be deemed to be a waiver of Landlord's right to receive such Additional Rent. c. Tenant's share of Taxes shall be equitably adjusted for and with respect to any portion of the Term which does not include an entire Tax Period. d. If Tenant is obligated to pay any Additional Rent as aforesaid with respect to any Tax Period or fraction thereof during the Term, then Tenant shall pay, as Additional Rent, on the first day of each month of the next ensuing Tax Period, estimated monthly tax escalation payments in an amount from time to time reasonably estimated by Landlord to be sufficient to provide Landlord, in the aggregate, a sum equal to Tenant's Proportionate Share of the Taxes in excess of the Base Tax Amount, ten (10) days, at least, before the day on which payments on account of Taxes by Landlord would become delinquent. Estimated monthly tax escalation payments for each ensuing Tax Period shall be made retroactively to the first day of the Tax Period in question. Following the close of each Tax Period for and with respect to which Tenant is obligated to pay any Additional Rent as aforesaid, Landlord shall submit the statement set forth in paragraph (b)(ii) of this Section 9.1 and in the event the total of the estimated monthly tax escalation payments theretofore made by Tenant to Landlord for such Tax Period does not equal Tenant's Proportionate Share of the Taxes in excess of the Base Tax Amount for such Tax Period, Tenant shall pay any deficiency to Landlord as shown by such statement within fifteen (15) days after the delivery of such statement (whether or not such statement shall be 25 timely). If the total of the estimated monthly tax escalation payments paid by Tenant during such Tax Period exceed the actual amount of Tenant's Proportionate Share of the Taxes in excess of the Base Tax Amount for said Tax Period, Landlord shall credit the amount of such overpayment against subsequent obligations of Tenant under this Lease (or refund such overpayment if the Term has ended and Tenant has no further obligations to Landlord under the Lease). e. When the applicable tax bill is not available prior to the end of the Term, then a tentative computation shall be made by Landlord on the basis of the Taxes for the next prior Tax Period, with a final adjustment to be made between Landlord and Tenant promptly after Landlord shall have received the applicable tax bill. f. Payments by Tenant to Landlord on account of Taxes shall not be considered as being held in trust, in escrow or the like, by Landlord; it being the express intent of Landlord and Tenant that Tenant shall in no event be entitled to receive interest upon, or any payments on account of earnings or profits derived from, such payments by Tenant to Landlord. Landlord shall have the same rights and remedies for the non- payment by Tenant of any amounts due on account of such Taxes as Landlord has hereunder for the failure of Tenant to pay the Annual Base Rent. 9.2 TENANT'S SHARE OF OPERATING EXPENSES. a. For the purposes of this Section: (i) The term "Operating Year" shall mean each successive fiscal year (as adopted by Landlord) in which any part of the Term of this Lease shall fall. (ii) The term "Operating Expenses" shall mean all expenses, costs and disbursements of every kind and nature, reasonably paid or incurred by Landlord in operating, owning, managing, leasing, repairing and maintaining the Building, the Land and their appurtenances including, but without limitation: premiums for fire, casualty, liability and such other insurance as Landlord may from time to time maintain; security expenses; compensation and all fringe benefits, workmen's compensation insurance premiums and payroll taxes paid by Landlord to, for or with respect to all persons engaged in operating, maintaining, managing or cleaning at or below the grade of building manager; fuel costs; steam, water, sewer, electric, gas, telephone, and other utility charges not otherwise billed to tenants by Landlord or the utility; expenses 26 incurred in connection with the central plant furnishing heating, ventilating (including maintaining and repairing ventilating fans and fan rooms); and air conditioning to the Building, costs of lighting, costs of repairing and maintaining fire protection systems; costs of building and cleaning supplies and equipment (including rental); cost of maintenance, cleaning and repairs; cost of snow plowing or removal, or both, and care of interior and exterior landscaping; payments to independent contractors under contracts for cleaning, operating, management, maintenance and/or repair (which payments may be to affiliates of Landlord provided such charges are at reasonable and customary market rates) and a management fee of four percent (4%) of gross Building rental revenue; all other expenses paid in connection with cleaning, operating, management, maintenance and repair, costs of any capital improvements required by law or intended to reduce Operating Expenses, regardless of whether said capital improvement actually reduces said Operating Expenses, completed after the original construction of the Building, amortized by Landlord over their useful life determined in accordance with generally accepted accounting practices, with interest on the unamortized amount at the rate of the greater of (i) 12% per annum or (ii) 2% per annum above the base rate of interest charged from time to time by BankBoston or any successor or substitute regional bank selected by Landlord (but in no event at a rate which is more than the highest lawful rate allowable in the Commonwealth of Massachusetts). Operating Expenses shall not, however, include the following: (a) Costs of alterations of any tenant's premises or brokerage or legal fees for a particular tenant and not for the benefit of the Building or any group of tenants therein; (b) Principal or interest payments on loans secured by mortgages or trust deeds on the Building and/or on the Land; (c) costs of correcting defects in the original construction of the Building; (d) costs of services provided to other tenants of the Building (for which a separate charge is made) and not to all tenants, generally; and (e) costs of items covered by insurance or condemnation awards. 27 If less than ninety-five percent (95%) of the Building's rentable area shall have been occupied by tenant(s) at any time during any Operating Year, Operating Expenses shall be determined for such Operating Year to be an amount equal to the like expense which would normally be expected to be incurred had such occupancy been ninety-five percent (95%) throughout such Operating Year. Notwithstanding anything to the contrary set forth herein, for any year (including, without limitation, the Base Operating Year) in which other than ninety-five percent (95%) of the rentable space in the Building is leased during the entire year, all "Variable Components," as that term is defined below, of Operating Expenses for such year shall be grossed-up, employing sound accounting and property management principles, to the amount such Variable Components would have been in the event the Building had been ninety-five percent (95%) leased and occupied during the entire year by tenants paying full rent and the adjusted amount of the Variable Components shall be used in determining Operating Expenses for such year. "Variable Components" shall be those components that vary based upon occupancy levels. b. After the expiration of each Operating Year, Landlord shall furnish Tenant with a statement setting forth the Operating Expenses for such Operating Year. Such statement shall be accompanied by a computation of the amount, if any, of the Additional Rent payable to Landlord pursuant to this Section. c. In the event the Operating Expenses during any Operating Year shall be greater than the Base Operating Expenses, Tenant shall pay to Landlord, as Additional Rent, an amount equal to Tenant's Proportionate Share of the excess of the Operating Expenses for such Operating Year over and above the Base Operating Expenses. d. Said Additional Rent shall, with respect to the Operating Years in which the Lease Commencement Date and end of the Term of this Lease fall, be adjusted to that proportion thereof as the portion of the Term of this Lease falling within such Operating Year bears to the full Operating Year. If Landlord shall change its fiscal year, appropriate adjustment shall be made for any Operating Year less than twelve months which may result. e. Any Additional Rent payable by Tenant under this Section 9.2 shall be paid within fifteen (15) days after Landlord has furnished Tenant with the statement described above. f. If with respect to any Operating Year or fraction thereof during the Term, Tenant is obligated to pay any Additional Rent as aforesaid, then 28 Tenant shall pay, as Additional Rent, on the first day of each month of the next ensuing Operating Year, estimated monthly operating escalation payments in an amount from time to time reasonably estimated by Landlord to be sufficient to cover, in the aggregate, a sum equal to Tenant's Proportionate Share of the Operating Expenses in excess of the Base Operating Expenses for the next ensuing Operating Year. Estimated monthly operating escalation payments for each ensuing Operating Year shall be made retroactively to the first day of the Operating Year in question. If the estimated monthly operating escalation payments theretofore made such Operating Year by Tenant exceed Tenant's Proportionate Share of the Operating Expenses in excess of the Base Operating Expenses for such Operating Year according to the statement furnished Tenant by Landlord pursuant to paragraph (b) of this Section 9.2, Landlord shall credit the amount of such overpayment against subsequent obligations of Tenant under this Lease (or refund such overpayment if the Term has ended and Tenant has no further obligation to Landlord under the Lease); but if Tenant's Proportionate Share of the Operating Expenses in excess of the Base Operating Expenses for said Operating Year is greater than the estimated monthly operating escalation payments theretofore made on account of such period, Tenant shall make suitable payment to Landlord within the time set forth in paragraph (e) of this Section 9.2. g. Tenant acknowledges that if Landlord is not furnishing any particular work or service, the cost of which, if performed by Landlord, would be included in Operating Expenses, to any tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed for purposes of determining Operating Expenses under this Section to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. h. Landlord shall maintain at all times during the term of this Lease, complete and accurate books of account and records prepared in accordance with generally accepted accounting principles with respect to Operating Expenses and Taxes and shall retain such books and records, as well as contracts, bills, vouchers and checks, and such other documents as are reasonably necessary to properly audit the Operating Expenses and Taxes. Upon reasonable notice from Tenant, Landlord shall make available for Tenant's inspection (or inspection performed by Tenant's accountant and/or consultants), Landlord's books and records relating to the Operating Expenses and Taxes for any year. If an audit, review or inspection by a Tenant or Tenant's accountant or consultant alleges an overbilling, Tenant may submit a claim for the overbilled 29 amount to Landlord detailing the nature of the overbilling, and Landlord shall have thirty (30) days to pay such amount or contest the claim by giving notice thereof to Tenant. If Landlord's statement is determined to be in error, Landlord shall reimburse Tenant within thirty (30) days following such determination for any overpayment of Operating Expenses or Taxes. The parties will cooperate to reach agreement or submit the dispute to arbitration in Boston, Massachusetts before a single arbitrator under the Commercial Rules of the American Arbitration Association who shall render a written decision with factual findings and conclusions which shall be final and binding upon and enforceable by the parties. Reference to arbitration in this Lease shall be limited solely to a dispute under this Section 9.2h. ARTICLE X INDEMNITY AND PUBLIC LIABILITY INSURANCE 10.1 TENANT'S INDEMNITY. To the maximum extent this agreement may be made effective according to law, Tenant agrees to indemnify and save harmless Landlord from and against all claims of whatever nature arising from any act, omission or negligence of Tenant, or Tenant's contractors, licensees, invitees, agents, servants or employees, or arising from any accident, injury or damage whatsoever (other than as a result of Landlord's negligence or willful misconduct) caused to any person, or to the property of any person, occurring after the commencement of construction work by Tenant, and until the end of the Lease Term and thereafter, so long as Tenant is in occupancy of any part of the Premises, within the Premises, or arising from any accident, injury or damage occurring outside of the Premises, where such accident, damage or injury results or is claimed to have resulted from an act or omission on the part of Tenant or Tenant's agents, employees, independent contractors or invitees. In case Landlord or any other party so indemnified shall be made a party to any litigation commenced by or against Tenant, then Tenant shall protect and hold them harmless and shall pay all costs, expenses and reasonable attorney's fees incurred or paid by them in connection with such litigation. This indemnity and hold harmless agreement shall include indemnity against all costs, expenses and liabilities incurred in or in connection with any such claim or proceeding brought thereon, and the defense thereof. Notwithstanding any other provisions of this Lease, the obligations of the Tenant pursuant to this Section, shall remain in full force and effect after the termination of this Lease until the expiration of the period stated in the applicable statute of limitations during which a claim, cause of action or prosecution relating to the matters herein described may be brought and the payment in full or the satisfaction of such claim, cause of action, or 30 prosecution and the payment of all expenses and charges incurred by the Landlord, or its officers, partners, employees, servants or agents, relating to the enforcement of the provisions herein specified. 10. PUBLIC LIABILITY INSURANCE. Tenant agrees to maintain in full force and effect from the date on which Tenant first enters the Premises for any reason, throughout the Lease Term, and thereafter so long as Tenant is in occupancy of the Premises, a policy of Comprehensive General Liability insurance in accordance with the broadest form of such coverage as is available from time to time in the jurisdiction in which the Premises are located. The minimum limits of liability of such insurance shall be $2 million per occurrence, Bodily Injury Liability (including death), and $500,000 pert occurrence, Property Damage Liability, or shall be for such higher limits, if directed by Landlord, as are customarily carried in that area in which the Building is located upon property similar to the Building reasonably or required by any lender of Landlord at any time during the Term or any Extended Term. Tenant further agrees that such insurance policy shall include Landlord as an additional named insured and shall contain a clause that the insurer will not cancel or change the insurance without first giving Landlord thirty (30 days' prior written notice. Furthermore, Tenant shall deliver to Landlord or its designated management company a copy of the policy or a certificate of insurance showing Landlord as named additional insured The policy shall also include, but shall not be limited to, the following extensions of coverage: a. Contractual Liability, covering Tenant's liability assumed under this Lease: b. Personal Injury Liability in the amount of $2 million annual aggregate, expressly deleting the exclusion relation to contractual assumptions of liability; c. Civil Assault and Battery Coverage. Tenant further agrees to maintain a Workers' Compensation and Employers' Liability Insurance Policy. The limit of liability as respects Employers' Liability coverage shall be no less than $100,00 per accident. Except for Workers' Compensation and Employers' Liability coverage, Tenant agrees that Landlord (and such other persons as are in privity of estate with Landlord as may be set out in notice from time to time) shall be named as additional insureds. Further, all policies shall be noncancelable and nonamendable with respect to Landlord and Landlord's said designees without thirty (30) days' prior written notice to Landlord. A Certificate of Insurance 31 evidencing the above agreements shall be delivered to Landlord upon the execution of this lease and, in each instance, as and when amended, extended, renewed or replaced. A duplicate original, true copy, certified in writing to be so shall be given to Landlord upon request. 10.3 TENANT'S RISK. To the maximum extent this agreement may be made effective according to law, Tenant agrees to use and occupy the Premises and to use such other portions of the Building as Tenant is herein given the right to use at Tenant's own risk; and Landlord shall have no responsibility or liability for any loss of or damage to fixtures or other personal property of Tenant for any reason whatsoever other than due to Landlord's negligence or willful misconduct. The provisions of this Section shall be applicable from and after the execution of this Lease and until the end of the Lease Term, and during such further period as Tenant may use or be in occupancy of any part of the Premises or of the Building. 10.4 INJURY CAUSED BY THIRD PARTIES. To the maximum extent this agreement may be made effective according to law, Tenant agrees that Landlord shall not be responsible or liable to Tenant, or to those claiming by, through or under Tenant, for any loss or damage that may be occasioned by or through the acts or omissions of persons occupying adjoining premises or any part of the premises adjacent to or connecting with the Premises or any part of the Building, or otherwise or for any loss or damage resulting to Tenant or those claiming by, through or under Tenant, or its or their property, from latent defects, the breaking, bursting, stopping or leaking of electric cables and wires, water, gas, sewer or steam pipes, and from roof leaks and the like unless caused by Landlord's negligence or willful misconduct. 10.5 FIRE AND HAZARD INSURANCE. The Landlord shall keep the Premises insured against loss or damage by fire, with the usual extended coverage endorsements and such other insurance as the then holder of any first mortgage which includes the Premises shall require, in amounts not less than eighty percent (80%) of the full replacement value thereof above foundation walls, with such deductibles as the Landlord deems advisable, but specifically excluding any property or improvements installed by or belonging to the Tenant. 10.6 ADDITIONAL INSURANCE. The Tenant also agrees that it shall continuously keep its fixtures, merchandise (if any), equipment and other personal property from time to time located in, on or about the Premises, and all leasehold improvements to the Premises constructed or installed by the Tenant insured by reputable, duly licensed insurance companies against loss or damage by fire with the usual extended coverage endorsements. Within a reasonable time after the Lease Commencement Date, no less often than annually thereafter, and at any other time upon the reasonable request of the Landlord, the Tenant 32 shall furnish to the Landlord evidence of such continuous insurance coverage reasonably satisfactory to the Landlord. It is understood and agreed that the Tenant assumes all risk of damage to its own property arising from any cause whatsoever, including, without limitation, loss by theft or otherwise, unless caused by Landlord's negligence or willful misconduct. 10.7 ADDITIONAL RESTRICTIONS. Tenant further agrees that it will not keep, use, sell or offer for sale in or about the Premises, any article which may be prohibited by Landlord's or Tenant's fire insurance policy then in effect covering the Premises and/or the Building or any of its contents. In the event that Tenants occupancy causes any increases of premium of the fire and/or casualty insurance policy covering the Building or any part thereof above the rate for an office building, Tenant shall pay the additional premium on the fire and/or casualty insurance policy by reason thereof. ARTICLE XI LANDLORD'S ACCESS TO PREMISES 11.1 LANDLORD'S RIGHT OF ACCESS. Landlord shall have the right, upon reasonable notice to Tenant, except in the event of an emergency, to enter the Premises at all reasonable business hours and after normal business hours for the purpose of inspecting or making repairs to the same, and Landlord shall also have the right to make access available upon reasonable notice to the Tenant, except in the event of an emergency, at all reasonable hours to prospective or existing mortgagees or purchasers of any part of the Building. 11.2 EXHIBITION OF SPACE TO PROSPECTIVE TENANTS. For a period of nine (9) months prior to the expiration of the Lease Term, Landlord may have reasonable access to the Premises at all reasonable hours for the purpose of exhibiting, the same to prospective tenants, and may post suitable notice on the Premises advertising the same for rent. ARTICLE XII DAMAGE AND DESTRUCTION 12.1 NOTICE. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or of defects therein or in any fixtures or equipment. However, such notices, or any occurrence giving rise thereto, shall not impose any duty on Landlord except as otherwise expressly provided herein. If the Premises or the Building, are damaged by fire or other insured casualty, Landlord will give Tenant notice of the number of days Landlord expects will be needed to repair such damage, as determined by Landlord, and the election 33 (if any) which Landlord has made according to this Article XII. Such notice will be given on or before the thirtieth (30th) day (the "Notice Date") after the fire or other insured casualty. 12.2 DESTRUCTION OF BUILDING OR PREMISES. If the Premises or the Building are damaged by fire or other insured casualty to an extent which may be repaired within one hundred twenty (120) days after the Notice Date, Landlord will repair the damage with reasonable diligence, and will use reasonable diligence to do so within one hundred twenty (120) days after the Notice Date. Landlord reserves the right to extend such date for completion of said repairs for one (1) thirty (30) day extension if the Landlord is diligently pursuing repairs to the Building or Premises and is unable to complete said repairs within one hundred twenty (120) days. If, at the expiration of the thirty (30) day extension Landlord has not completed the necessary repairs, then Landlord will advise Tenant in writing of the time needed to complete said repairs. Tenant shall have the option to terminate by giving written notice to Landlord, within seven (7) days of the end of the extension period, of its intention to terminate. If Tenant does not terminate in accordance with the process hereinbefore set forth, then Tenant shall have waived its right to terminate this Lease under this Section 12.2. In that event, this Lease will continue in full force and effect except that Rent will be abated on a pro rata basis based on the rentable area of the Premises of which use Tenant is deprived during the Repair Period from the date of the fire or other insured casualty until the date that the Landlord shall have substantially restored the Building and/or Premises (exclusive of any of Tenant's fixtures, furnishings, equipment and the like or work performed therein by Tenants) to substantially the condition in which the Building and/or Premises were in prior to such damage (the "Repair Period"). If the Premises or the Building are damaged by fire or other insured casualty to an extent which may not be repaired within one hundred twenty (120) days after the Notice Date but may be repaired within one hundred fifty (150) days after the Notice Date, then, at Landlord's option, Landlord will repair such damage with reasonable diligence, and in all events within one hundred fifty (150) days after the Notice Date. Landlord reserves the right to extend the date for completion of said repairs for one (1) thirty (30) day extension if the Landlord is diligently pursuing repairs to the Building or Premises and is unable to complete said repairs within one fifty (50) days. If, at the expiration of the thirty (30) day extension Landlord has not completed the necessary repairs, then Landlord will advise Tenant in writing of the time needed to complete said repairs. Tenant shall have the option to terminate by giving written notice to Landlord within seven (7) days of the end of the extension period of its intention to terminate. If Tenant does not terminate in accordance with the process hereinbefore set forth, then Tenant shall have waived its right to terminate this Lease under this Section 12.2. If Landlord elects to repair 34 such damage, Rent will be abated on a pro rata basis during the Repair Period based on the rentable area of the Premises of which Tenant is deprived during the Repair Period. If Landlord does not elect to repair such damage, this Lease will terminate on the Notice Date, and Rent will be abated on a pro rata basis based on the rentable area of the Premises of which use Tenant is deprived during the Repair Period from the date of the fire or other insured casualty until the Notice Date based on the usable area of the Premises of which use Tenant is deprived until the Notice Date. If the Premises or the Building are damaged by fire or other insured casualty to an extent which may not be repaired within one hundred fifty (150) days after the commencement of repair, as reasonably determined by Landlord, then (i) Landlord may cancel this Lease as of the date of such damage by written notice given to Tenant on or before the Notice Date, or (ii) Tenant may cancel this Lease by written notice given to Landlord within ten (10) days after Landlord's delivery of a notice that the repairs cannot be made within such one hundred fifty (150) day period. If neither Landlord nor Tenant so elects to cancel this Lease within the prescribed periods, Landlord will repair the Building and Premises with reasonable diligence and Rent will be abated on a pro rata basis during the Repair Period based on the rentable area of the Premises of which use Tenant is deprived during the Repair Period. So long as Landlord is making diligent efforts to make said repairs to the Building and/or Premises, Landlord may extend the date for completion of the necessary repairs for one (1) thirty (30) day extension period. If, at the expiration of the thirty (30) day extension Landlord has not completed the necessary repairs, then Landlord will advise Tenant in writing of the time needed to complete said repairs. Tenant shall have the option to terminate by giving written notice to Landlord within seven (7) days of the end of the extension period of its intention to terminate. If Tenant does not terminate in accordance with the process hereinbefore set forth, then Tenant shall have waived its right to terminate this Lease under this Section 12.2. If the Premises or the Building are damaged by any uninsured casualty, Landlord will have the option to repair such damage with reasonable diligence or cancel this Lease as of the date of such casualty by written notice to the Tenant on or before the Notice Date. If Landlord elects to repair such damage, Rent will be abated on a pro rata basis from the date of the uninsured casualty until the repair of such damage is completed based on the Rentable area of the Premises of which Tenant is deprived during such Repair Period. If, pursuant to the reasonable estimation of Tenant, the repairs elected to be performed by Landlord pursuant to this Section 12.2 of this Article XII will exceed one hundred fifty (150) days, then Tenant will have the right to terminate this Lease as of the Notice Date. If Tenant so elects to terminate this Lease, Rent will be abated on a pro rata basis from the uninsured casualty until the Notice Date based on the Rentable area of Premises of which use Tenant is deprived 35 until the Notice Date. If any such damage by fire or other casualty is the result of the willful conduct or negligence or failure to act of Tenant, its agents, contractors, employees or invitees, there will be no abatement of Rent as otherwise provided for in this Article XII. In the event Landlord, in its sole judgment, determines that restoration of the entire Building or Premises is not practical, Landlord will give notice to Tenant on or prior to the Notice Date of said casualty which notice shall specify Landlord's intent not to repair the Building or Premises and this Lease will terminate on the Notice Date, and Rent will be abated on a pro rata basis from the date of the fire or other insured casualty until the Notice Date based on the rentable area of the Premises of which use Tenant is deprived until the Notice Date. In no event shall Landlord be obligated in connection with the restoration of the Premises, as aforesaid, to expend an amount in excess of the proceeds of insurance recovered with respect thereto. In the event the Premises shall be damaged by fire or other casualty resulting from the act or neglect of Tenant, its agents, contractors, employees or invitees, and this Lease shall not be terminated by Landlord as a result of such damage, Tenant shall not be released from any of its obligations hereunder including, without limitation, its duty to pay the Annual Base Rent and the Additional Rent payable by Tenant under Article VIII hereof without abatement or reduction. ARTICLE XIII EMINENT DOMAIN 13.1 GENERAL. If all or substantially all of a portion ["substantially all" hereby defined to mean fifty-one percent (51 %) or more of the rentable area] of the Premises are taken by exercise of the power of eminent domain (or conveyed by Landlord in lieu of such exercise), this Lease will terminate on a date (the "Termination Date") which is the earlier of the date upon which the condemning authority takes possession of the Premises or the date on which title to the Premises is vested in the condemning authority, and from and after the Termination Date, Tenant's obligation to pay rent under this Lease will cease. If less than a substantial portion of the Premises is so taken, but such taking is of at least one third (1/3) of the rentable area of the Premises, Tenant will have the right to cancel this Lease by written notice to Landlord given within twenty (20) days after the Termination Date. If all or substantially all of the Project is so taken, Landlord may cancel this Lease by written notice to Tenant given within thirty (30) days after the termination date. In the event of any such taking, the entire award will be paid to Landlord and Tenant will have 36 no right or claim to any part of such award; provided, however, that Tenant will have a right to assert a claim against the condemning authority in a separate action for Tenant's relocation expenses and so long as Landlord's award is not reduced by such claim. The termination of this Lease pursuant to this Article XIII will not affect the rights of either Landlord or Tenant to such awards. In the event that less than all or substantially all of the Premises are taken by exercise of the power of eminent domain and, if 13.2 is applicable, Tenant shall not have exercised its right to terminate thereunder, and in the Landlord's sole determination it is practical to repair the remaining Premises for occupancy by Tenant, including parking areas necessary for occupancy by the Tenant as provided herein, Landlord shall notify Tenant within thirty (30) days of the Termination Date of the extent of the Premises to remain subject to this Lease and shall within one hundred fifty (150) days following said notice to Tenant complete any repairs or restoration determined necessary by Landlord. The Annual Base Rent and Additional Rent shall abate to the extent of reduction of the Premises due to the taking and during the time a portion, if any, of the remaining Premises are rendered untenantable, in such proportion as the portion rendered untenable bears to the total. If the taking agency takes only the right to possession of the Premises for a fixed period of time or for the duration of an emergency or other temporary condition (in any case, not to exceed six (6) months), then, notwithstanding anything above provided, this Lease shall continue in full force and effect and Annual Base Rent and Additional Rent shall be abated based on the extent and term the Premises or any part thereof shall be unavailable. 13.2 AWARD. Landlord shall have and hereby reserves and accepts, and Tenant hereby grants and assigns to Landlord, all rights to recover for damages to the Building, the Land, and the leasehold interest hereby created, and to compensation accrued or hereafter to accrue by reason of such taking, damage or destruction, as aforesaid, and by way of confirming the foregoing, Tenant hereby grants and assigns, and covenants with Landlord to grant and assign to Landlord all rights to such damages or compensation. Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for the value of any Tenant's usual trade fixtures installed in the Premises by Tenant at Tenant's expense and for relocation expenses, provided that such action shall not affect the amount of compensation otherwise recoverable by Landlord from the taking authority. 37 ARTICLE XIV LANDLORD'S REMEDIES 14.1 EVENTS OF DEFAULT. Any one of the following shall be deemed to be an "Event of Default": a. Failure on the part of Tenant to pay Annual Base Rent, Additional Rent or other charges for which provision is made herein on or before the date on which the same become due and payable and such failure continues for ten (10) days after Landlord has sent to Tenant notice of such default. However, if: (i) Landlord shall have sent to Tenant two (2) notices of such default, even though the same shall have been cured and this Lease not terminated; and (ii) during the twelve (12) month period in which said notice of default has been sent by Landlord to Tenant, Tenant thereafter shall default in any monetary payment - the same shall be deemed to be an Event of Default upon Landlord giving Tenant written notice thereof, without the ten (10) day grace period set forth above. b. With respect to a non-monetary default under this Lease, failure of Tenant to cure the same within thirty (30) days following notice from Landlord to Tenant of such default unless such default is not reasonably capable of being cured within such thirty (30) day period, in which event Tenant will not be in default so long as Tenant promptly commences to cure such failure and thereafter diligently prosecutes such cure to completion. Notwithstanding the thirty (30) day cure period provided in the preceding sentence, Tenant shall be obligated to commence forthwith and to complete as soon as possible the curing of such default; and if Tenant fails so to do, the same shall be deemed to be an Event of Default. However, if: (i) Landlord shall have sent to Tenant two (2) notices of such default, even though the same shall have been cured and this Lease not terminated; and (ii) during the twelve (12) month period in which said notice of default has been sent by Landlord to Tenant, Tenant thereafter shall default in such non-monetary matter - the same shall be deemed to be an Event of Default upon Landlord giving the Tenant written notice thereof, and Tenant shall have no grace period within which to cure the same. 38 c. The occurrence of any of the following events: (i) the estate hereby created being taken on execution or by attachment or trustee process or other process of law and not dismissed within sixty (60) days; (ii) the filing by Tenant being judicially declared bankrupt or insolvent according to law; (iii) an assignment being made of the property of Tenant for the benefit of creditors; (iv) a receiver, guardian, conservator, trustee in involuntary bankruptcy or other similar officer being appointed to take charge of all or any substantial part of Tenant's property by a court of competent jurisdiction; (v) a petition being filed by Tenant for the reorganization of Tenant or under any other chapter or provisions of the Bankruptcy Act now or hereafter enacted; or (vi) an involuntary petition under the Bankruptcy Act filed which shall not have been dismissed within sixty (60) days. d. Execution by Tenant of an instrument purporting to assign Tenant's interest under this Lease or sublet the whole or a portion of the Premises to a third party without Tenant having first obtained Landlord's prior express written consent to said assignment or subletting. 14.2 REMEDIES. Should any Event of Default occur then, notwithstanding any license of any former breach of covenant or waiver of the benefit thereof or consent in a former instance, Landlord lawfully, in addition to any remedies otherwise available to Landlord, immediately or at any time thereafter, and without demand or notice, may enter into and upon the Premises or any part thereof in the name of the whole and repossess the same as of Landlord's former estate, and expel Tenant and those claiming, by, through or under it and remove its or their effects (forcibly if necessary) without being deemed guilty of any manner of trespass, and without prejudice to any remedies which might otherwise be used for arrears of rent or preceding breach of covenant and/or Landlord may send notice to Tenant terminating the Term of this Lease; and upon the first to occur of: (i) entry as aforesaid; or (ii) the fifth (5th) day following the mailing of such notice of termination, the Term of this Lease shall terminate, but Tenant shall remain liable for all damages as provided for herein. 14.3 TENANT'S OBLIGATIONS/LANDLORD'S RIGHTS. Tenant covenants and agrees, notwithstanding any termination of this Lease as aforesaid or any entry or re- entry by Landlord, whether by summary proceedings, termination, or otherwise, to pay and be liable for on the days originally fixed herein for the payment thereof, amounts equal to the several installments of Annual Base Rent and other charges reserved as they would become due under the terms of this Lease if this Lease had not been terminated or if Landlord had not entered or re-entered, as aforesaid, and whether the Premises be relet or remain vacant, in whole or in part, or for a period less than the remainder of the Term, or for 39 the whole thereof; but in the event the Premises be relet by Landlord, Tenant shall be entitled to a credit in the net amount of rent received by Landlord in reletting, after deduction of all reasonable expenses incurred in reletting the Premises (including, without limitation, remodeling costs, brokerage fees, attorneys' fees and the like), and in collecting the rent in connection therewith. It is specifically understood and agreed that Landlord shall be entitled to take into account in connection with any reletting of the Premises all relevant factors which would be taken into account by a sophisticated developer in securing a replacement tenant for the Premises, such as, but not limited to, the first class quality of the Building and the financial responsibility of any such replacement tenant. Landlord agrees to use reasonable efforts to mitigate its damages in the Event of Default on the part of the Tenant. Landlord will not be required to place special emphasis on the Premises in any reletting program or to lease the Premises prior to leasing any other space in the Building. As an alternative, at the election of Landlord at any time, including after the Landlord has instituted reletting or the monthly collection of Tenant's installments of Annual Base Rent and other charges as provided under this Lease, Tenant will upon such termination pay to Landlord, as damages, such a sum as at the time of such termination represents the amount of the excess, if any, of the present value (calculated at the prime rate) of the total rent and other benefits which would have accrued to Landlord under this Lease for the remainder of the Lease Term if the lease terms had been fully complied with by Tenant over and above the then cash rental value (in advance) of the Premises for the balance of the Term. For purposes of this Article, if Landlord elects to require Tenant to pay damages in accordance with immediately preceding sentence, the total rent shall be computed by assuming that Tenant's Proportionate Share of Taxes in excess of the Base Tax Amount and Tenant's Proportionate Share of the Operating Expenses in excess of the Base Operating Expenses would be, for the balance of the unexpired term, the amount thereof (if any), respectively, for the immediately preceding Tax Period or fiscal year, as the case may be, payable by Tenant to Landlord. All calculations necessary to determine the amounts due from Tenant to Landlord shall be performed by Landlord and may be amended by Landlord for error or incompleteness. The computations shall relate to all periods of time, including prior periods in which Tenant shall not have made payments of Annual Base Rent and other charges as provided under this Lease and shall be binding upon Tenant in all respects absent manifest error. If this Lease shall be guaranteed on behalf of Tenant, all of the foregoing provisions of this Article with respect to insolvency, assignment for the benefit of creditors, bankruptcy of Tenant, etc., shall be deemed to read "Tenant or the guarantor hereof. In the event of any breach or threatened breach by Tenant of any of the agreements, terms, covenants or conditions contained in this Lease, Landlord 40 shall be entitled to enjoin such breach or threatened breach and shall have the right to invoke any right or remedy allowed at law or in equity or by statute or otherwise as though reentry, summary proceedings, and other remedies were not provided for in this Lease. Each right and remedy of Landlord provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease not now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Landlord of any one or more of the rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by Landlord of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise. If any payment of rent or any other payment payable hereunder by Tenant to Landlord shall not be paid when due, the same shall bear interest from the date when the same was payable until the date paid at the lesser of (a) eighteen percent (18%) per annum, compounded monthly, or (b) the highest lawful rate of interest which Landlord may charge to Tenant without violating any applicable law. Such interest shall constitute Additional Rent payable hereunder and be payable upon demand therefor by Landlord. Without limiting any of Landlord's rights and remedies hereunder, and in addition to all other amounts Tenant is otherwise obligated to pay, it is expressly agreed that Landlord shall be entitled to recover from Tenant all costs and reasonable expenses, including reasonable attorneys' fees incurred by Landlord in enforcing this Lease from and after Tenant's default. 14.4 LANDLORD'S DEFAULT. Landlord shall in no event be in default in the performance of any of Landlord's obligations hereunder unless and until Landlord shall have failed to perform such obligations within thirty (30) days, or such additional time as is reasonably required to correct any such default, after written notice by Tenant to Landlord properly specifying wherein Landlord has failed to perform any such obligation ARTICLE XV MISCELLANEOUS PROVISIONS 15.1 EXTRA HAZARDOUS USE. Tenant covenants and agrees that Tenant will not do or permit anything to be done in or upon the Premises, or bring in anything or keep anything therein which shall increase the rate of insurance on the Premises or on the Building above the standard rate applicable to premises being occupied for the use to which Tenant has agreed to devote the Premises; 41 and Tenant further agrees that in the event that Tenant shall do any of the foregoing, Tenant will promptly pay to Landlord, on demand, any such increase resulting therefrom which shall be due and payable as Additional Rent hereunder. 15.2 WAIVER. Failure on the part of Landlord or Tenant to complain of any action or nonaction on the part of the other, no matter how long the same may continue, shall never be a waiver by Tenant or Landlord, respectively, of any of their fights hereunder. Further, no waiver at any time of any of the provisions hereof by Landlord or Tenant shall be construed as a waiver of any of the other provisions hereof, and a waiver at any time of any of the provisions hereof shall not be construed as a waiver at any subsequent time of the same provisions. The consent or approval of Landlord or Tenant to or of any action by the other requiring such consent or approval shall not be construed to waive or render unnecessary Landlord's or Tenant's consent or approval to or of any subsequent similar act by the other. No payment by Tenant or acceptance by Landlord of a lesser amount than shall be due from Tenant to Landlord shall be treated otherwise than as a payment on account. The acceptance by Landlord of a check for a lesser amount with an endorsement or statement thereon, or upon any letter accompanying such check that such lesser amount is payment in full, shall be given no effect, and Landlord may accept such check without prejudice to any other rights or remedies which Landlord may have against Tenant. In no event shall Tenant ever be entitled to receive interest upon, or any payments on account of earnings or profits derived from any payments hereunder by Tenant to Landlord. 15.3 COVENANT OF QUIET ENJOYMENT. Tenant, subject to the terms and provisions of this Lease, upon payment of the Annual Base Rent and other charges due hereunder and the observing, keeping and performing of all of the terms and provisions of this Lease on Tenant's part to be observed, kept and performed, shall lawfully, peaceably and quietly have, hold, occupy and enjoy the Premises during the Term hereof, without hindrance or ejection by any persons lawfully claiming under Landlord to have title to the Premises superior to Tenant; the foregoing covenant of quiet enjoyment is in lieu of any other covenant, expressed or implied; and it is understood and agreed that this covenant and any and all other covenants of Landlord contained in this Lease shall be binding upon Landlord and Landlord's successors only with respect to breaches occurring during Landlord's and Landlord's successors' respective ownership of Landlord's interest hereunder. Further, Tenant specifically agrees to look solely to Landlord's then equity interest in the Building and Land at the time owned, or in which Landlord holds an interest as ground lessee, for recovery of any judgment from Landlord; it being specifically agreed that Landlord (original or successor), its employees, officers, directors, managers, 42 shareholders, equity holders, agents, managers and attorneys and their respective successors and assigns ("additional persons") shall never be personally liable for any such obligations or judgment, or for the payment of any monetary obligation to Tenant. The provision contained in the foregoing sentence is not intended to, and shall not limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest, or any action not involving the personal liability of Landlord (original or successor) and the additional persons to respond in monetary damages from Landlord's assets other than Landlord's equity interest aforesaid in the Building and Land. With respect to any services, including, without limitation, heat, air-conditioning or water to be furnished by Landlord to Tenant, or obligations to be performed by Landlord hereunder, Landlord shall in no event be liable for failure to furnish or perform the same when (and the date for performance of the same shall be postponed so long as Landlord is) prevented from doing so by strike, lockout, breakdown, accident, order or regulation of or by any governmental authority, or failure of supply, or inability by the exercise of reasonable diligence to obtain supplies, parts or employees necessary to furnish such services, or perform such obligations or because of war or other emergency, or for any cause beyond Landlord's reasonable control, or for any cause due to any act or neglect of Tenant or Tenant's servants, agents, employees, licensees, invitees or any person claiming by, through or under Tenant. In the event of an interruption of services to the Premises, if Tenant provides Landlord notice describing such interruption and if such interruption is (i) not due to any act or omission of Tenant or any agent, contractor, employee or invitee of Tenant; and (ii) of such substantial or serious nature that the Premises are rendered unusable by Tenant as a result thereof for more than five (5) business days after Landlord's receipt of such notice, the Annual Base Rent shall be equitably abated as of the fifth (5th) business day. In no event shall Landlord ever be liable to Tenant for any indirect, special or consequential damages suffered by Tenant from whatever cause. 15.4 NOTICE TO MORTGAGEE AND GROUND LESSOR. After receiving notice from any person, firm or other entity that it holds a mortgage which includes the Premises as part of the mortgaged premises, or that it is the ground lessor under a lease with Landlord, as ground lessee, which includes the Premises as part of the demised premises, no notice from Tenant to Landlord shall be effective unless and until a copy of the same is given to such holder or ground lessor, and the curing of any of Landlord's defaults by such holder or ground lessor shall be treated as performance by Landlord. For the purposes of this Section 15.4, Section 15.5 or Section 15.14, the term "mortgage" includes a mortgage on a leasehold interest of Landlord (but not one on Tenant's leasehold interest). 43 15.5 ASSIGNMENT OF LEASES AND RENTS. With reference to any assignment by Landlord of Landlord's interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment is made to the holder of a mortgage or ground lease on property which includes the Premises. Tenant agrees: a. that the execution thereof by Landlord, and the acceptance thereof by the holder of such mortgage, or the ground lessor, shall never be treated as an assumption by such holder or ground lessor of any of the obligations of Landlord hereunder, unless such holder or ground lessor shall, by notice sent to Tenant, specifically otherwise elect; and b. that, except as aforesaid, such holder or ground lessor shall be treated as having assumed Landlord's obligations hereunder only upon foreclosure of such holder's mortgage and the taking of possession of the Premises, or in the case of a ground lessor, the assumption of Landlord's position hereunder by such ground lessor. In no event shall the acquisition of title to the Building and the Land or a portion thereof on which the Building is located by a purchaser which, simultaneously therewith, leases the entire Building or such land back to the seller thereof, be treated as an assumption by operation of law or otherwise of Landlord's obligations hereunder, but Tenant shall look solely to such seller- lessee, and its successors from time to time in title, for performance of Landlord's obligations hereunder. In any such event, this Lease shall be subject and subordinate to the lease to such seller. For all purposes such seller-lessee, and its successors in title, shall be the landlord hereunder unless and until Landlord's position shall have been assumed by such purchaser-lessor. 15.6 MECHANIC'S LIENS. Tenant agrees immediately to discharge (either by payment or by the filing of the necessary bond, or otherwise) any mechanics', materialmen's or other lien against the Premises and/or Landlord's interest therein, which liens may arise out of any payment due for, or purported to be due for, any labor, services, materials, supplies or equipment alleged to have been furnished to or for Tenant in, upon or about the Premises. 15.7 NO BROKERAGE. Landlord and Tenant each warrants and represents that it has dealt with no other broker in connection with the consummation of this Lease, other than Neelon ("Tenant's Broker") and Fallon, Hines & O'Connor ("Landlord's Broker"), and in the event of any brokerage claims, other than by Neelon or Fallon, Hines & O'Connor, predicated upon prior dealing with Landlord or Tenant, the party breaching such warranties agrees to defend the same and indemnify and hold harmless the non-breaching party against any such claims and the costs and expenses, including attorneys' fees, arising 44 therefrom. Landlord shall pay the commission due to Tenant's broker and Landlord's broker. 15.8 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 15.9 PROVISIONS BINDING, ETC. Except as herein otherwise provided, the terms hereof shall be binding upon and shall inure to the benefit of the successors and assigns, respectively, of Landlord and Tenant and, if Tenant shall be an individual, upon and to his heirs, executors, administrators, successors and assigns. If two or more persons are named as Tenant herein, each of such persons shall be jointly and severally liable for the obligations of the Tenant hereunder, and Landlord may proceed against any one without first having commenced proceedings against any other of them. Each term and each provision of this Lease to be performed by Tenant shall be construed to be both a covenant and a condition. The reference contained to successors and assigns of Tenant is not intended to constitute a consent to assignment by Tenant, but has reference only to those instances in which Landlord may later give consent to a particular assignment as required by those provisions of Article V hereof. 15.10 RECORDING. Tenant agrees not to record the within Lease, but each party hereto agrees, on the request of the other, to execute a so-called memorandum of lease or short form lease in form recordable and complying with applicable law and reasonably satisfactory to Landlord's attorneys. In no event shall such document set forth the rent or other charges payable by Tenant under this Lease; and any such document shall expressly state that it is executed pursuant to the provisions contained in this Lease and is not intended to vary the terms and conditions of this Lease. 15.11 NOTICES. Whenever, by the terms of this Lease, notice shall or may be given either to Landlord or to Tenant, such notice shall be in writing and shall be delivered in hand or sent by registered or certified mail, postage prepaid or nationally recognized, receipted, overnight delivery service or facsimile transmission followed by an original writing delivered, mailed or sent as aforesaid: If intended for Landlord, addressed to Landlord at the address set forth in Section 1.2 of this Lease (or to such other address or addresses as may from time to time hereafter be designated by Landlord by like notice) and a copy to 45 Roche, Carens & DeGiacomo, P.C., 99 High Street, 20th Floor, Boston, Massachusetts 02110, Attention Frank M. Capezzera. If intended for Tenant, addressed to Tenant at the address set forth in Section 1.2 of this Lease (or to such other address or addresses as may from time to time hereafter be designated by Tenant by like notice) and a copy to Hale and Dorr, LLP, 60 State Street, Boston, MA 02109, Attn: Jeffrey A. Hermanson. All such notices shall be effective when delivered in hand, or when deposited in the United States mail within the continental United States provided that the same are received in the ordinary course at the address to which the same were sent. Any party or person entitled to notice may change the address therefor giving notice to all parties or persons as provided herein. 15.12 WHEN LEASE BECOMES BINDING. Employees or agents of Landlord have no authority to make or agree to make a lease or any other agreement or undertaking in connection herewith. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Premises, and this document shall become effective and binding only upon the execution and delivery hereof by both Landlord and Tenant. All negotiations, considerations, representations and understandings between Landlord and Tenant are incorporated herein and may be modified or altered only by written agreement between Landlord and Tenant, and no act or omission of any employee or agent of Landlord shall alter, change or modify any of the provisions hereof 15.13 PARAGRAPH HEADINGS. The paragraph headings throughout this instrument are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Lease. 15.14 RIGHTS OF MORTGAGEE. It is understood and agreed that the rights and interests of Tenant under this Lease shall be subject and subordinate to any mortgages or deeds of trust that may hereafter be placed upon the Building and/or the Land, and to any and all advances to be made thereunder, and to the interest thereon, and all renewals, modifications, replacements and extensions thereof, if the mortgagee or trustee named in said mortgages or deeds of trust shall elect by notice delivered to Tenant to subject and subordinate the rights and interest of Tenant under this Lease to the lien of its mortgage or deed of trust; it is further agreed that any mortgagee or trustee may elect to give the rights and interest of Tenant under this Lease priority over the lien of its mortgage or deed of trust. In the event of either such election, and upon notification by such mortgagee or trustee to Tenant to that effect, the rights and interest of Tenant under this Lease shall be deemed to be subordinate to, or to have priority over, as the case may be, the lien of said 46 mortgage or deed of trust, whether this Lease is dated prior to or subsequent to the date of said mortgage or deed of trust. Tenant shall execute and deliver whatever instruments may be required for such purposes, and in the event Tenant fails so to do within ten (10) days after demand in writing, Tenant does hereby make, constitute and irrevocably appoint Landlord as its attorney-in-fact coupled with an interest and given as security and in its name, place and stead so to do. In the event that any holder or prospective holder of any mortgage which includes the Premises as part of the mortgaged premises, shall request any modification of any of the provisions of this Lease, other than a provision directly related to the rents payable hereunder, the duration of the term hereof, or the size, use or location of the Premises, or Tenant's subletting and assignment rights, Tenant agrees that Tenant will enter into a written agreement in recordable form with Landlord or such holder or prospective holder which shall effect such modification and provide that such modification shall become effective and binding upon Tenant and shall have the same force and effect as an amendment to this Lease for all purposes. Tenant hereby appoints such holder as Tenant's attorney-in-fact as aforesaid to execute any such modification upon default of Tenant in complying with such holder's request. 15.15 STATUS REPORT. Recognizing that both parties may find it necessary to establish to third parties, such as accountants, banks, mortgagees or the like, the then current status of performance hereunder, either party, on the request of the other made from time to time, will promptly furnish to Landlord, or the holder of any mortgage encumbering the Premises, or to Tenant, as the case may be, a statement of the status of any matter pertaining to this Lease, including, without limitation, acknowledgments that (or the extent to which) each party is in compliance with its obligations under the terms of this Lease. 15.16 SECURITY DEPOSIT; TENANT'S FINANCIAL CONDITION. If, in Section 1.2 hereof, a security deposit is specified, Tenant agrees that the same will be paid upon execution and delivery of this Lease, and that Landlord shall hold the same, throughout the term of this Lease, as security for the performance by Tenant of all obligations on the part of Tenant to be kept and performed. Landlord shall have the right from time to time without prejudice to any other remedy Landlord may have on account thereof, to apply such deposit, or any part thereof, to Landlord's damages arising from any default on the part of Tenant. Tenant not then being in default, Landlord shall return the deposit, or so much thereof as shall not have theretofore been applied in accordance with the terms of this Section 15.16 to Tenant on the expiration or earlier termination of the Lease Term and surrender of possession of the Premises by Tenant to Landlord at such time. While Landlord holds such deposit, Landlord shall pay interest on the same and shall keep said deposit in a separate account. If Landlord conveys Landlord's interest under this Lease, the deposit or any part thereof, including the interest, not previously applied may 47 be turned over by Landlord to Landlord's grantee, and if so turned over, Tenant agrees to look solely to such grantee for proper application of the deposit in accordance with the terms of this Section 15.16 and the return thereof in accordance herewith. Neither the holder of a mortgage nor the lessor in a ground lease of property which includes the Premises shall ever be responsible to Tenant for the return or application of any such deposit, whether or not it succeeds to the position of Landlord hereunder, unless such deposit shall have been received in band by such holder or ground lessor. Tenant warrants and represents that all information furnished to Landlord or Landlord's representatives in connection with this Lease are true and correct and in respect of the financial condition of Tenant, properly reflect the same without material adverse change, as of the date hereof. Upon Landlord's demand, which may be made no more often than semi-annually, Tenant shall furnish to Landlord, at Tenant's sole cost and expense, then current financial statements of Tenant, audited (if audited statements have been recently prepared on behalf of Tenant, or otherwise certified as being true and correct by the chief financial officer of Tenant). 15.17 ADDITIONAL REMEDIES OF LANDLORD. Landlord shall have the right, but shall not be required to do so, to pay such sums or do any act which requires the expenditure of monies which may be necessary or appropriate by reason of the failure or neglect of Tenant to perform any of the provisions of this Lease, and in the event of the exercise of such right by Landlord, Tenant agrees to pay to Landlord forthwith upon demand all such sums; and if Tenant shall default in such payment within fifteen (15) days of such demand, Landlord shall have the same rights and remedies as Landlord has hereunder for the failure of Tenant to pay the Annual Base Rent. Except as otherwise set forth herein, any obligations of Tenant as set forth herein (including, without limitation, rental and other monetary obligations, repair obligations and obligations to indemnify Landlord), shall survive the expiration or earlier termination of this Lease, and Tenant shall immediately reimburse Landlord for any expense incurred by Landlord in curing Tenant's failure to satisfy any such obligation (notwithstanding the fact that such cure might be effected by Landlord following the expiration or earlier termination of this Lease). 15.18 HOLDING OVER. Any holding over by Tenant after the expiration of the Lease Term shall be treated as a tenancy at sufferance at one hundred fifty percent (150%) of the Annual Base Rent and Additional Rent herein provided to be paid during the last twelve (12) months of the Lease Term (prorated on a 48 daily basis) and shall otherwise be on the terms and conditions set forth in this Lease, as far as applicable. 15.19 NON-SUBROGATION. Insofar as, and to the extent that, the following provision may be effective without invalidating or making it impossible to secure insurance coverage obtainable from responsible insurance companies doing business in the locality in which the Premises are located (even though extra premium may result therefrom): Landlord and Tenant mutually agree that, with respect to any hazard which is covered by insurance then being carried by them, respectively, the one carrying such insurance and suffering such loss releases the other of and from any and all claims with respect to such loss; and they further mutually agree that their respective insurance companies shall have no right of subrogation against the other on account thereof. In the event that extra premium is payable by either party as a result of this provision, the other party shall reimburse the party paying such premium the amount of such extra premium. If, at the request of one party, this release and non- subrogation provision is waived, then the obligation of reimbursement shall cease for such period of time as such waiver shall be effective, but nothing contained in this Section 15.19 shall derogate from or otherwise affect releases elsewhere herein contained of either party for claims. 15.20 RELOCATION OF PREMISES. Tenant acknowledges that from time to time Landlord may desire to relocate Tenant to other portions of the Building in order to incorporate all or a portion of the Premises in portions of the Building to be leased to tenants other than Tenant. Tenant further acknowledges that restrictions on the right of Landlord to effect such a relocation would cause substantial damage to Landlord in the leasing of the Building. Accordingly, Tenant specifically acknowledges that Landlord shall have the right to substitute for the Premises demised under this Lease other space of approximately the same size in the Building provided that Landlord, at Landlord's sole cost and expense, shall place such other space in substantially the same condition as the Premises are then in and shall pay all moving costs including phone system, computer cabling and new letter head, if the address on the letter head changes with the relocation. In the event Landlord desires Tenant to make such relocation, Landlord shall give written notice thereof to Tenant at least forty-five (45) days prior to the date on which Tenant shall effect such relocation. Tenant agrees that upon notice from Landlord that the substitute premises have been substantially completed, Tenant shall relocate to the substitute premises furnished by Landlord and deliver occupancy of the Premises to Landlord within thirty (30) days thereof and shall enter into a suitable amendment of this Lease to reflect Tenant's occupancy of the substitute premises. 49 15.21 GOVERNING LAW. This Lease shall be governed exclusively by the provisions hereof and by the laws of the Commonwealth of Massachusetts as the same may from time to time exist. 15.22 DEFINITION OF ADDITIONAL RENT. Without limiting any other provision of this Lease, it is expressly understood and agreed that Tenant's participation in Taxes, Operating Expenses, and all other charges which Tenant is required to pay hereunder, together with all interest and penalties that may accrue thereon, shall be deemed to be Additional Rent, and in the event of non-payment thereof by Tenant, Landlord shall have all of the rights and remedies with respect thereto as would accrue to Landlord for non-payment of Annual Base Rent. 15.23 LANDLORD'S FEES AND EXPENSES. Unless prohibited by applicable law, Landlord and Tenant each agrees to pay to the amount of all reasonable legal fees and expenses incurred by Landlord or Tenant, as the case may be, arising out of or resulting from any act or omission by Landlord or Tenant with respect to this Lease or the Premises, including without limitation, any breach by Landlord or Tenant of its obligations hereunder. Further, if Tenant shall request Landlord's consent or joinder in any instrument pertaining to this Lease, Tenant agrees promptly to reimburse Landlord for the reasonable legal fees incurred by Landlord in processing such request, whether or not Landlord complies therewith; and if Tenant shall fail promptly so to reimburse Landlord, same shall be deemed to be a default in Tenant's monetary obligations under this Lease. With the exception of the initial Landlord's Work, whenever Tenant shall request approval (or this lease shall require preparation) by Landlord or the Landlord's architect of plans, drawings, specifications, or otherwise with respect to initial of the Premises, subsequent remodeling thereof, installation of signs including subsequent changes thereof, or the like, Tenant specifically agrees promptly to pay to Landlord's architect (or reimburse Landlord for the payment Landlord makes to said architect) for all charges involved in the review (and re-review, if necessary) and approval or disapproval thereof whether or not approval shall ultimately be given. 15.24 PARKING. Tenant, upon the commencement of its occupancy of the Premises, shall have the right to use for its designated employees, as appurtenant to the Premises, four (4) parking spaces for every 1,000 rentable square feet in the Premises in common with other tenants of the Building located in the parking area designated for use of tenants of the Building. Use of such spaces may not be sold, assigned, licensed or otherwise given to any person for any compensation or fee or otherwise. The use of such parking spaces by Tenant 50 in the Building may be regulated by rules and regulations issued by the Landlord from time to time. 15.25 AUTHORITY. If Tenant is an entity, Tenant shall, simultaneously with delivery of this Lease, deliver to Landlord a certified copy of a resolution of the said entity authorizing or ratifying the execution of this Lease and such other demonstration of existence, due authority and binding nature of Tenant's actions in executing and delivering this Lease as Landlord or its lender(s) may reasonably require. 15.26 CONFIDENTIALITY. Landlord and Tenant agree that the terms and conditions of this Lease were negotiated based on the unique positions as to bargaining power of the Landlord and the Tenant. Therefore, the parties agree that certain concessions granted to one another in this Lease were based on these unique positions, and that communication to parties other than employees, agents, lenders, investors, purchasers or underwriters (or as otherwise required by applicable law or required in connection with the issuance of any securities by Tenant) of each party may be detrimental and harmful to the Landlord's ability to rent additional space in the building occupied by the Tenant. Tenant hereby agrees, therefore, not to communicate to anyone other than its agents, employees, lenders, investors, purchasers or underwriters (or as otherwise required by applicable law or required in connection with the issuance of any securities by Tenant) the contents of this Lease, and any breach of the provisions of this paragraph by the Tenant shall be considered a default by the Tenant under the terms and conditions of this Lease. 15.27 FORCE MAJEURE. Subject to any provisions in this Lease expressly excluding force majeure as a justification for non-performance by Landlord, Landlord shall not be in default hereunder and Tenant shall not be excused from performing any of its obligations hereunder if Landlord is prevented from performing any of its obligations hereunder due to any accident, breakage, strike, shortage of materials, a Year 2000 problem, acts of God or other causes beyond Landlord's reasonable control. Tenant shall not be in default hereunder and Landlord shall not be excused from performing any of its obligations hereunder if Tenant is prevented from performing any of its obligations due to any accident, breakage, strike, shortage of materials, a Year 2000 problem, acts of God or other causes beyond Tenant's reasonable control (but specifically excluding financial inability to perform). This provision specifically does not apply to either party's obligation to pay money to the other including Tenant's obligation to pay rent under the terms of this Lease. A "Year 2000 problem" shall mean a date-handling problem relating to the Year 2000 date change that would cause a computer system, software or equipment to fail to correctly perform, process and handle date-related 51 information for the dates within and between the twentieth and twenty-first centuries and all other centuries. WITNESS the execution hereof, under seal, in any number of counterparts, each of which counterparts shall be deemed an original for all purposes, as of the day and year first above written. LANDLORD: LSOF POOLED EQUITY, LP BY: LSOF GenPar, Inc., a Texas Corporation, General Partner By: /s/Mary Etta Ford ----------------- Name: Mary Etta Ford Title: VP Duly Authorized. 52 Attest: ________________________ By: _________________________________ Name: Title: Duly Authorized. TENANT: FREEDOM OF INFORMATION, INC. ATTEST: _____________________ By: /s/ Stephen M. Joseph ----------------------- Name: Stephen M. Joseph Title: Treasurer Duly Authorized. ATTEST: ______________________ By: /s/ Gordon B. Hoffstein ----------------------- Name: Gordon B. Hoffstein Title: President Duly Authorized 53 STATE OF TEXAS COUNTY OF DALLAS, SS. 10/26, 1998 Then personally appeared, the above-named Mary Etta Ford, VP of LSOF Pooled Equity, LP known to me and acknowledged the foregoing instrument to be his free act and deed on behalf of LSOF Pooled Equity, LP, before me. /s/ Shanon Stencel ------------------------ Notary Public My Commission Expires: 01-26-02 54 STATE OF TEXAS COUNTY OF DALLAS, SS _______________, 1998 Then personally appeared, the above-named _____________________, ________ of LSOF Pooled Equity, LP known to me and acknowledged the foregoing instrument to be his free act and deed on behalf of LSOF Pooled Equity, LP, before me. __________________________________ Notary Public My Commission Expires: COMMONWEALTH OF MASSACHUSETTS SUFFOLK COUNTY, SS October 20, 1998 Then personally appeared, the above-named Stephen Joseph, Treasurer of Freedom of Information, Inc., known to me and acknowledged the foregoing instrument to be his free act and deed on behalf of Freedom of Information, Inc., before me. /s/ Jeffrey Hermanson --------------------- Notary Public My Commission Expires: 7/9/04 55 COMMONWEALTH OF MASSACHUSETTS __________ COUNTY, SS _______________, 1998 Then personally appeared, the above-named _______________________, ___________ of Freedom of Information, Inc., known to me and acknowledged the foregoing instrument to be his free act and deed on behalf of Freedom of Information, Inc., before me. ____________________________________ Notary Public My Commission Expires: 56 EXHIBIT A DESCRIPTION 5 08* 09' 35" W a distance of 512.54 feet to a point; thence running Southerly on a curve to the right having a radius of 1970 feet, an arc length of 369.98 feet to a point of nontangency; thence running S 18* 55' 13" W a distance of 131.49 feet to a pot on Lot 1 shown on said plan, the three (3) previous courses banding easterly on said Crane Hill Road and Crane Meadow Road; thence running N 70* 45' 40" W a distance of 638.35 feet to a point; thence running S 74* 06' 50" W a distance of 125.96 feet to a point; the previous two (2) courses banding southerly on said Lot 1; thence running S 07* 07' 16" W a distance of 313.80 feet to a point; thence running S 36* 35' 35" W a distance of 868.80 feet to a point; the previous two (2) courses banding westerly on Lot 1; thence running N 62* 16' 40" W a distance of 416.77 feet to the point of beginning, banding northerly on said Lot 1. Consisting of approximately 680,000 square feet or 15.61 acres. - -------------- * = Degrees EXHIBIT B MARLBOROUGH CORPORATE CENTER MARLBOROUGH, MASSACHUSETTS SITE WORK A prominent corporate address will be achieved by siting the Marlborough Corporate Center directly across from the new interchange to be built by the Massachusetts Highway Department. The interchange plans call for a new signalized interchange directly in front of the building, as shown on the site plans. The interchange is scheduled for completion by Fall 1999. 1. Parking: Four (4) spaces per 1,000 square feet of rentable space are being provided. An additional 160 spaces are planned for on-site and available if desired by the tenants. 2. Storm Drainage: All site drainage is desired to flow to the rear left of the site into a stormwater quality basin. 3. Sewer: The building will be tied to the Marlborough sewer system located in Crane Meadow Road. 4. Domestic Water and Fire Protection: All work will be done in accordance with NFPA #13 and LS.O. and is based on adequate water pressure. 5. Site Improvements: - 3" of paving in parking lot. - 640 parking spaces - 4 per 1,000 square feet of building. - Precast concrete curbs at all landscape islands. - Poured concrete plaza at building entrance. 6. Site Lighting: Site lighting for a 1/2 footcandle average, the Illuminating Engineers Standard, will be 400W metal halide, fixtures on 30' poles and fifteen (15) Light billiards at walkways. 7. Landscaping: The building site shall be landscaped in a manner typical of a first class office building. MARLBOROUGH CORPORATE CENTER MARLBOROUGH, MASSACHUSETTS BASE BUILDING DESCRIPTION 1. STRUCTURAL SYSTEM: Design load capabilities shall be as follows: first floor - slab on grade; second and third floor - 100 pounds per square foot live load. The floor to floor height Will be fourteen feet (14'-0") allowing for an approximately nine foot six inch (9'-6") CP finished ceiling height. Typical bay spacing is thirty feet by thirty feet (30'-0" x 30'-0"). 2. EXTERIOR MATERIALS: a. Exterior Walls: Brick veneer with brick feature strips and gypsum sheathing back-up on light gauge metal framing. All exterior wall insulations shall conform to a Thermal Resistance Rating (R-Value) of 19. b. Window System: Horizontal strip windows shall be Kawneer FASET SSG and shall consist of four inch (4") deep thermally broken, clear anodized aluminum with one inch (1") factory-scaled, gray-tinged insulating glass. Window height is to be six feet (6'-0"). The full-height glazed curtain wall systems shall be Kaneer 1600 SSG and shall consist of two inch by seven inch (2' x 7") clear anodized aluminum with one inch (1") factory sealed, gray tinted insulating glass. c. Entrances: Glazed entrance doors shall be Kawneer Medium Stile with clear anodized aluminum framing. The doors shall be fully equipped with push- pulls, ADA approved closures, thresholds, locks and cylinder. d. Roof: The roof shall consist of a Factory Mutual approved, .060 non- reinforced single-ply fully-adhered EDPM membrane with mechanically- fastened 2.5 inch polyisocyanurate insulation providing an "R" value of approximately 18.2. The roofing system manufacturer shall be Firestone. 3. INTERIOR MATERIALS: a. Interior Walls: The common area walls of the building will be finished with five-eighths inch (5/8") drywall. Drywall will be taped and sanded. The drywall will be finished with two (2) coats of paint in a color to be selected by the landlord's architect and a four inch (4") resilient base. MARLBOROUGH CORPORATE CENTER MARLBOROUGH, MASSACHUSETTS BASE BUILDING DESCRIPTION b. Doors and Hardware: All interior base building doors (bathrooms, electrical rooms, mechanical rooms, stairwell doors, etc.) will be three feet by seven feet (3' x 7'), solid core, maple veneered, set in eighteen (18) gauge welded metal frames. All necessary common area doors are included. All hardware will be bright chrome finish, standard duty, spherical type of lever action, as required by code. Temporary hollow metal doors shall be provided from main lobby into tenant spaces. c. Wall Finishes: The wall surfaces of all common areas, not otherwise indicated to receive wall covering, will be finished with two (2) coats of a latex based, flat wall paint, in a color selected by landlord's architect. Wall surfaces of main lobby to receive wall covering as selected by landlords architect. d. Floor Finishes: The following floor finishes will be provided in common areas: Floor Tile: (janitor's closet): "Standard Excelon" by Armstrong Architectural Building Products, a twelve inch by twelve inch by one-eighths inch (12" x 12" x 1/8") vinyl composition tile, in a color selected by landlord's architect. Bathroom Tile: "Ceramic Mosaics" by American Olean Tile Company, a 2 x 2 porcelain ceramic tile, in a color selected by landlord's architect. Base: Four inch (4") ceramic tile base. Lobby Area: The lobby area will be provided with Armstone granite tile, vinyl wall covering, clear scaled maple soffit trim and special lighting. Carpet: Stairways and lobby. Concrete: Exposed concrete with spray on hardener for loading, electric, elevator, mechanical and telephone rooms. e. Ceiling Finishes: The common area ceiling system will be a twenty-four inch by twenty-four inch by five-eighths inch (24" x 24" x 5/8") lay-in tile. Armstrong Cortega, or equal, in an intermediate duty white grid. MARLBOROUGH CORPORATE CENTER MARLBOROUGH, MASSACHUSETTS BASE BUILDING DESCRIPTION The main lobby ceiling system will be a twenty-four inch by twenty-four inch by five-eighths inch (24" x 24" x 5/8") beveled tegular tile. Armstrong Cirrus, or equal, in an intermediate duty white grid. 4. PLUMBING Two (2) tenant restroom cores will be provided on each floor. One (1) additional common area restroom core will be provided at the first floor of the main lobby. All bathrooms will be sized to comply with the Massachusetts State Building Code. The toilet fixtures will be wall hung and the lavatories will be drop-in style in a laminate top. All bathrooms will include ceramic the floors and wet wall, baked enamel, ceiling-hung toilet partitions, laminate countertops and full accessories. Handicapped facilities will also be included that meet the Massachusetts State Building Code. 5. FIRE PROTECTION The building will be fully sprinklered to NFPA #13 Standards for Ordinary Hazard Occupancy. The tenant area fire protection system will be exposed piping with upright heads. The system shall include, but not be limited to, providing the following: a. Complete wet pipe type, hydraulically designed sprinkler systems. b. External eight inch (8") fire water line with yard hydrants. c. Zone valves as required by code. d. Fire hose connections. e. Tests and test connections. f. Backflow prevention. 6. ELEVATORS Provide one (1) three-stop hydraulic, 125 FPM, passenger elevator with a 2,500 pound capacity at main lobby, equal to Dover Marquis 25. Clear inside dimension is to be approximately six feet eight inches wide by four feet three inches deep (6'-8"x 4' x 3"). Hoistway door opening is to be approximately three feet six inches by seven feet (3'-6" x 7'-0"). Interior cab finishes of main lobby elevator are to include No.8 stainless steel hand rail, frames and ceiling incorporating twelve inch (12") plastic laminate panel behind handrails and plastic laminate panels above and below handrail. MARLBOROUGH CORPORATE CENTER MARLBOROUGH, MASSACHUSETTS BASE BUILDING DESCRIPTION Provide two (2) three-stop hydraulic, 100 FPM combination freight/passenger elevator with a 4,000 pound capacity at employee/service entrances, equal to Dover Continental 45. Clear inside dimension is to be approximately five feet four inches wide by seven feet nine and one-half inches deep (5'- 4" x 7'-9-1/2"). Hoistway door opening is to be approximately four feet by seven feet (4'-0" x 7'-0"). Interior cab finishes of employee entrance / service elevators are to include No.8 stainless steel hand rail, painted frames and painted ceiling incorporating twelve inch (12") plastic laminate panel behind handrails and plastic laminate panels above and below handrail. 7. HEATING, VENTILATION AND AIR CONDITIONING (HVAC) One (1) 20-ton split cooling unit with roof-mounted condensing unit and air handler suspended in the boiler room shall handle the two level, open lobby area. The unit shall have 100% outside economizer and zoning for each level and shall consist of Vartrac zone damper and electric coil. Distribution shall consist of supply and return duct work to each level with fire damper at floors. Ceiling space shall be return plenum. Space distribution shall consist of two by two lay-in plaque diffuser and sidewall register to serve open, two-floor lobby area. Two (2) 75-ton roof-top packaged electric cooling, gas heating variable air volume units to serve the third level. The units shall have roof curbs, rectangular duct silencers in supplies and returns, outside air traq sensors, 100% outside air economizer power exhaust, and supply air temperature controls. Duct distribution shall consist of 40 feet of supply duct to serve as temporary heating and be set up for future tenant VAV terminal with electric coils. Four (4) 70-ton, roof-top packaged electric cooling gas heating variable air volume units to serve the second and first floors. The units shall have roof curbs, rectangular duct silencers in supplies and returns, outside air traq sensors, 100% outside air economizer power exhaust, and supply air temperature controls. Distribution shall consist of 40 feet each unit to serve as temporary heating, and be set up for future tenant VAV terminal with electric coils. Five (5) 4KW, 277/1/60 electric wall heater with heater with built-in thermostat shall serve the stairs and the sprinkler room. MARLBOROUGH CORPORATE CENTER MARLBOROUGH, MASSACHUSETTS BASE BUILDING DESCRIPTION Two (2) 5KW 277/1/60 electric recessed ceiling heater with built-in thermostat shall serve entries. Two (2) roof-mounted exhaust fans shall serve the restrooms with exhaust duct work and exhaust registers. One (1) roof-mounted exhaust fan shall serve the main lobby smoke exhaust requirements with exhaust duct work and exhaust registers. One (1) wall-mounted, one and one-half horsepower exhaust fan shall serve the first floor electric room with two foot by two foot (2'-0" x 2'-0") wall-mounted exhaust louver between Columns 11 and 12. The fan shall operate from the space thermostat. Two (2) 7-1/2KW, 480/3/60 suspended electric unit heater shall serve the first floor loading areas. Controls, control wiring, starter and smoke detectors. 8. ELECTRICAL Secondary Service A 4,000 amp, 277/480 volt, three-phase, four-wire, secondary service from the pad-mounted transformer to the main switchboard. Main Switchboard Main switchboard shall total 4,000 amps at 277/480 volt with a main device unmetered and shall be of NEMA Class II construction having whatever depth necessary to accommodate equipment. Six (6) 400-amp main switches and CT metering (one for each tenant) with empty conduit to each tenant space has been provided for. Building Distribution A 480/277 volt and 208/120 volt, three-phase, four-wire building distribution and power system, including distribution panelboards, 480 to 208/120 volt dry transformers for 208/120 volt panels, local lighting and power panels, disconnect switches, raceways, cables, junction and pull boxes, terminal cabinets, wireways, and all other components and fittings required for a complete power and lighting distribution system. MARLBOROUGH CORPORATE CENTER MARLBOROUGH, MASSACHUSETTS BASE BUILDING DESCRIPTION Lighting The lighting design will be accomplished at the following approximate maintained footcandle levels. (All illumination levels are horizontal values measured four feet (4'-0" above the floor.): Area F.C. Source Ballast - ---- ---- ------ ------- Mechanical & Loading 20 Fluorescent Strips Electronic Toilet 40 2"x2" Parabolics Electronic Lobby 40 Hi-Hats/WallSconces Electronic Stairways/Corridors 40 2"x2".2"x4" Parabolics Electronic Main lobby lighting level of 40 footcandles is to be provided in all travel areas. Comers and alcoves are to be provided with 30 to 40 footcandles. All lighting systems (indoor and outdoor, normal, emergency and exit) include all fixtures, lamps, plaster and/or tile frames, standards, switches, outlets, wiring, raceways, and all other components and fittings required for complete lighting system. Large areas, night lights and stairway lighting shall be panel switched. Future tenant areas are to receive stumble lighting. Emergency Lighting System Provide emergency and exit lighting system consistent with the requirements of the building, life safety and local code requirements. Remote head battery units (12 volt each) shall be installed to meet emergency lighting requirements. Remote heads shall be mini/chrome. Receptacles General convenience outlets shall be 20 amp, 125-volt, duplex type. Utility and mechanical rooms have one (1) duplex receptacle. MARLBOROUGH CORPORATE CENTER MARLBOROUGH, MASSACHUSETTS BASE BUILDING DESCRIPTION Corridor outlets shall be mounted a maximum distance of 50 linear feet apart. Ground fault circuit interrupting outlets will be provided in all toilet rooms. Fire Alarm System A complete city-connected, addressable fire alarm system with pull stations, horn strobes (A.D.A.), smoke detectors, duct detectors, elevator recall wiring, and sprinkler wiring for the base building core areas, toilet and stairways. Heating Ventilating and Air Conditioning Equipment and Plumbing Wiring All power wiring shall be furnished and installed for the operation of heating, ventilating and air conditioning and plumbing systems. Telephone Provide telephone risers and sleeves through the floors to each telephone room, in anticipation of tenant telephone and data communication requirements. Exterior Lighting 400W metal halide fixtures on thirty foot (30') poles to achieve .5 footcandles average maintained at parking. Fifteen (15) light bollards at walkways. All controlled by a time clock with photocell. EXHIBIT C NOTICE OF LEASE In accordance with the provision of Mass. G.L. c. 183, Section 4, as amended, notice is hereby given of the following described Lease: LESSOR: LSOF Pooled Equity L.P., a Delaware limited Partnership with an address at 600 N. Peal Street, Suite 1500, Dallas, Texas 75201 LESSEE: Freedom of Information, Inc., a Delaware corporation with an address at 154 Crane Meadow Road, Marlborough, MA Date of Execution: _____________________, 1998 Leased Premises: That portion of the building located at 154 Crane Meadow Road, Marlborough, Massachusetts, located on the first (1st) floor and consisting of 23,244 rentable square feet of floor area and more particularly described in Exhibit A attached hereto. Terms of Lease: The term of the Lease is sixty-two (62) months commencing on the earlier of: (i) the date that Landlord delivers the Premises to Tenant with the Landlord's Work Substantially Complete, or (ii) the date on which Tenant begins use of the Premises for operation of its business, which date is estimated to be January 1, 1999. WITNESS the execution hereof as an instrument under seal as of the ________ day of __________, 1998. LANDLORD: LSOF POOLED EQUITY L.P. a Delaware limited partnership By: LSOF GENPAR, INC., a Texas corporation, its General Partner By: ______________________________ Name: Title: duly authorized By: ______________________________ Name: Title: duly authorized TENANT: FREEDOM OF INFORMATION, INC. By:_______________________________ Name: Title: duly authorized By:________________________________ Name: Title: duly authorized STATE OF TEXAS COUNTY OF DALLAS, SS ____________,1998 Then personally appeared, the above-named ______________________, _____________ of LSOF GenPar, Inc., known to me and acknowledged the foregoing instrument to be his/her free act and deed on behalf of LSOF GenPar, Inc., before me. ___________________________________ Notary Public My Commission Expires: STATE OF TEXAS COUNTY OF DALLAS, SS ___________, 1998 Then personally appeared, the above-named ____________________, _____________ of LSOF GenPar, Inc., known to me and acknowledged the foregoing instrument to be his free act and deed on behalf of LSOF GenPar, Inc., before me. ___________________________________ Notary Public My Commission Expires: COMMONWEALTH OF MASSACHUSETTS ______________ COUNTY, SS ___________,1998 Then personally appeared, the above-named _______________________, ____________ of Freedom of Information, Inc., known to me and acknowledged the foregoing instrument to be his free act and deed on behalf of Freedom of Information, Inc., before me. __________________________________ Notary Public My Commission Expires: COMMONWEALTH OF MASSACHUSETTS ______________ COUNTY, SS ___________,1998 Then personally appeared, the above-named _______________________, ____________ of Freedom of Information, Inc., known to me and acknowledged the foregoing instrument to be his free act and deed on behalf of Freedom of Information, Inc., before me. __________________________________ Notary Public My Commission Expires: EXHIBIT D TENANT'S WORK There is no Tenant's Work. EXHIBIT E LEASE SUBORDINATION, NON-DISTURBANCE OF POSSESSION AND ATTORNMENT AGREEMENT This Agreement ("Lease Subordination, Non-Disturbance of Possession and Attornment Agreement" or "Agreement") is made as of the _____ day of ___________, 1998, by and among ___________________________ having a place of business at ________________, ("Lender"), LSOF Pooled Equity L.P., a Delaware limited partnership with an address at 600 N. Peal Street, Suite 1500, Dallas, Texas 75201 ("Landlord"), and Freedom of Information, Inc., a Delaware corporation with an address at 154 Crane Meadow Road, Marlborough, MA ("Tenant"). WITNESSETH WHEREAS, Lender is relying on this Agreement as an inducement to Lender in making and maintaining a loan ("Loan") secured by, among other things, a Mortgage and Security Agreement dated as of _______________ ("Mortgage") given by Borrower covering property commonly known as and numbered 154 Crane Meadow Road, Marlborough, Massachusetts ("Property"). Lender is also the "Assignee" under a Collateral Assignment of Leases and Rents ("Assignment") dated as of from Borrower with respect to the Property. WHEREAS, Tenant is the Tenant under that certain lease ("Lease") dated October __, 1998, made with Landlord covering certain premises ("Premises") at the Property as more particularly described in the Lease [and in the "Notice of Lease" dated 1998 which has been recorded at Middlesex South Registry of Deeds in Book ______, Page _____]. WHEREAS, Lender requires, as a condition to the making, and maintaining of the Loan, that the Mortgage be and remain superior to the Lease and that its rights under the Assignment be recognized. WHEREAS, Tenant requires, as a condition to the Lease being subordinate to the Mortgage, that its rights under the Lease be recognized. WHEREAS, Lender, Landlord, and Tenant desire to confirm their understanding with respect to the Mortgage and the Lease. NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements contained herein, and other valuable consideration, the receipt and adequacy of which are hereby acknowledged, and with the understanding by Tenant that Lender shall rely hereon in making and maintaining the Loan, Lender, Landlord, and Tenant agree as follows: Subordination. The Lease and the rights of Tenant thereunder are subordinate and inferior to the Mortgage and any amendment, renewal, substitution, extension or replacement thereof and each advance made thereunder as though the Mortgage, and each such amendment, renewal, substitution, extension or replacement were executed and recorded, and the advance made, before the execution of the Lease. Without limiting the foregoing and notwithstanding, any other term or provision of this Agreement, Tenant's rights with respect to proceeds of insurance and of eminent domain awards are expressly made subject and subordinate to the rights of Lender, and the disposition of such proceeds shall be governed by the Mortgage, and the other "Loan Documents" referred to therein, in all respects. Non-Disturbance. So long as Tenant is not in default (beyond any period expressed in the Lease within which Tenant may cure such default) in the payment of rent or in the performance or observance of any of the terms, covenants or conditions of the Lease on Tenant's part to be performed or observed, (i) Tenant's occupancy of the Premises shall not be disturbed by Lender in the exercise of any of its rights under the Mortgage during the term of the Lease, or any extension or renewal thereof made in accordance with the terms of the Lease, and (ii) Lender will not join Tenant as a party defendant in any action or proceeding for the purpose of terminating Tenant's interest and estate under the Lease because of any default under the Mortgage. Attornment and Certificates. In the event Lender succeeds to the interest of Borrower as Landlord under the Lease, or if the Property or the Premises are sold pursuant to the power of sale under the Mortgage, Tenant shall attorn to Lender, or a purchaser upon any such foreclosure sale, and shall recognize Lender, or such purchaser, thereafter as the Landlord under the Lease. Such attornment shall be effective and self-operative without the execution of any further instrument. Tenant agrees, however, to execute and deliver at any time and from time to time, upon the request of any holder(s) of any of the indebtedness or other obligations secured by the Mortgage, or upon request of any such purchaser, (a) any instrument or certificate which, in the reasonable judgment of such holder(s), or such purchaser, may be necessary or appropriate in any such foreclosure proceeding or otherwise to evidence such attornment, and (b) an instrument or certificate regarding the status of the Lease, consisting of statements, if true (and if not true, specifying in what respect), (i) that the Lease is in full force and effect, (ii) the date through which rentals have been paid, (iii) the duration and date of the commencement of the term of the Lease, (iv) the nature of any amendments or modifications to the Lease, (v) that no default, or state of facts, which with the passage of time, or notice, or both, would constitute a default, exists on the part of either party to the Lease, and (vi) the dates on which payments of additional rent, if any, are due under the Lease. Limitations. If Lender exercises any of its rights under the Assignment or the Mortgage, or if Lender shall succeed to the interest of Landlord under the Lease in any manner, or if any purchaser acquires the Property, or the Premises, upon or after 2 any foreclosure of the Mortgage, or any deed in lieu thereof, Lender or such purchaser, as the case may be, shall have the same remedies by entry, action or otherwise in the event of any default by Tenant (beyond any period expressed in the Lease within which Tenant may cure such default) in the payment of rent or in the performance or observance of any of the terms, covenants and conditions of the Lease on Tenant's part to be paid, performed or observed that the Landlord had or would have had if Lender or such purchaser had not succeeded to the interest of the present Landlord. From and after any such attornment, Lender or such purchaser shall be bound to Tenant under all the terms, covenants and conditions of the Lease, and Tenant shall, from and after such attornment to Lender, or to such purchaser, have the same remedies against Lender, or such purchaser, for the breach of an agreement contained in the Lease that Tenant might have had under the Lease against Landlord, if Lender or such purchaser had not succeeded to the interest of Landlord. Provided, however, that Lender or such purchaser shall only be bound during the period of its ownership, and that in the case of the exercise by Lender of its rights under the Mortgage, or the Assignment, or any combination thereof, or a foreclosure, or deed in lieu of foreclosure, all Tenant claims shall be satisfied only out of the interest, if any, of Lender, or such purchaser, in the Property, and Lender and such purchaser shall not be (a) liable for any act or omission of any prior landlord (including the Landlord); or (b) liable for or incur any obligation with respect to the construction of the Property or any improvements of the Premises or the Property; or (c) subject to any offsets or defenses which Tenant might have against any prior landlord (including the Landlord); or (d) bound by any rent or additional rent which Tenant might have paid for more than the then current rental period to any prior landlord (including the Landlord); or (e) bound by any amendment or modification of the Lease, or any consent to any assignment or sublet, made without Lender's prior written consent; or (f) bound by or responsible for any security deposit not actually received by Lender; or (g) liable for or incur any obligation with respect to any breach of warranties or representations of any nature under the Lease or otherwise including without limitation any warranties or representations respecting use, compliance with zoning, landlord's title, landlord's authority, habitability and/or fitness for any purpose, or possession; or (h) liable for consequential damages. Rights Reserved. Nothing herein contained is intended, nor shall it be construed, to abridge or adversely affect any right or remedy of: (a) the Landlord under the Lease, or any subsequent Landlord, against the Tenant in the event of any default by Tenant (beyond any period expressed in the Lease within which Tenant may cure such default) in the payment of rent or in the performance or observance of any of the terms, covenants or conditions of the Lease on Tenant's part to be performed or observed; or (b) the Tenant under the Lease against the original or any prior Landlord in the event of any default by the original Landlord to pursue claims against such original or prior Landlord whether or not such claim is barred against Lender or a subsequent purchaser. 3 Notice and Right to Cure. Tenant agrees to provide Lender with a copy of each notice of default given to Landlord under the Lease, at the same time as such notice of default is given to the Landlord, and that in the event of any default by the Landlord under the Lease, Tenant will take no action to terminate the Lease (a) if the default is not curable by Lender (so long as the default does not interfere with Tenant's use and occupation of the Premises), or (b) if the default is curable by Lender, unless the default remains uncured for a period of thirty (30) days after written notice thereof shall been given, postage prepaid, to Landlord at Landlord's address, and to Lender at the address provided in Section 7 below; provided, however, that if any such default is such that it reasonably cannot be cured within such thirty (30) day period, such period shall be extended for such additional period of time as shall be reasonably necessary (including, without limitation, a reasonable period of time to obtain possession of the Property and to foreclose the Mortgage), if Lender gives Tenant written notice within such thirty (30) day period of Lender's election to undertake the cure of the default and if curative action (including, without limitation, action to obtain possession and foreclose) is instituted within a reasonable period of time and is thereafter diligently pursued. Lender shall have no obligation to cure any default under the Lease. Notices. Any notice or communication required or permitted hereunder shall be in writing, and shall be given or delivered: (i) by United States mail, registered or certified, postage fully prepaid, return receipt requested, or (ii) by recognized courier service or recognized overnight delivery service; and in any event addressed to the party for which it is intended at its address set forth below: To Lender: To Tenant: Freedom of Information, Inc. 154 Crane Meadow Road, Marlborough, MA or such other address as such party may have previously specified by notice given or delivered in accordance with the foregoing. Any such notice shall be deemed to have been given and received on the date delivered or tendered for delivery during normal business hours as herein provided. No Oral Change. This Agreement may not be modified orally or in any manner than by an agreement in writing signed by the parties hereto or their respective successors in interest. Successors and Assign. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, personal representatives, successors and assigns, and any purchaser or purchasers at foreclosure of the Property or any portion thereof, and their respective heirs, personal representatives, successors and assigns. 4 Payment of Rent To Lender. Tenant acknowledges that it has notice that the Lease and the rent and all sums due thereunder have been assigned to Lender as part of the security for the Obligations secured by the Mortgage. In the event Lender notifies Tenant of a default under the Loan and demands that Tenant pay its rent and all other sums due under the Lease to Lender, Tenant agrees that it will honor such demand and pay its rent and all other sums due under the Lease to Lender, or Lender's designated agent, until otherwise notified in writing by Lender. Borrower unconditionally authorizes and directs Tenant to make rental payments directly to Lender following receipt of such notice and further agrees that Tenant may rely upon such notice without any obligation to further inquire as to whether or not any default exists under the Mortgage or the Assignment, and that Borrower shall have no right or claim against Tenant for or by reason of any payments of rent or other charges made by Tenant to Lender following receipt of such notice. No Amendment or Cancellation of Lease. So long as the Mortgage remains undischarged of record, Tenant shall not amend, modify, cancel or terminate the Lease, or consent to an amendment, modification, cancellation or termination of the Lease, or agree to subordinate the Lease to any other mortgage, without Lender's prior written consent in each instance. Options. With respect to any options for additional space provided to Tenant under the Lease, Lender agrees to recognize the same if Tenant is entitled thereto under the Lease after the date on which Lender succeeds as Landlord under the Lease by virtue of foreclosure or deed in lieu of foreclosure or Lender takes possession of the Premises; provided, however, Lender shall not be responsible for any acts of any prior landlord under the lease, or the act of any tenant, subtenant or other party which prevents Lender from complying with the provisions hereof and Tenant shall have no right to cancel the Lease or to make any claims against Lender on account thereof. Captions. Captions and headings of sections are not parts of this Agreement and shall not be deemed to affect the meaning or construction of any of the provisions of this Agreement. Counterpart. This Agreement may be executed in several counterparts each of which when executed and delivered is an original, but all of which together shall constitute one instrument. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. Parties Bound. The provisions of this Agreement shall be binding upon and inure to the benefit of Tenant, Lender and Borrower and their respective successors and assigns; provided, however, reference to successors and assigns of Tenant shall not constitute a consent by Landlord or Borrower to an assignment or sublet by 5 Tenant, but has reference only to those instances in which such consent is not required pursuant to the Lease or for which such consent has been given. 6 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. LENDER: ATTEST _________________ BY:_____________________________ Name: Name: Title: Title: Date executed by Lender: _______, 1998 TENANT: ATTEST: FREEDOM OF INFORMATION, INC. _________________ BY:______________________________ Name: Name: Title: Title: duly authorized ATTEST: ____________________ BY:_______________________________ Name: Name: Title: Title: duly authorized Date executed by Tenant: _____________, 1998 STATE OF _______________________ _____________,ss. _________, 1998 Then personally appeared before me ______________________, ______________ of____________________, known to me and acknowledged the foregoing to be his free act and deed on behalf of _______________ before me. _______________________________ Notary Public My Commission Expires: 7 COMMONWEALTH OF MASSACHUSETTS COUNTY, SS _____________, 1998 Then personally appeared, the above-named ________________________, of Freedom of Information, Inc., known to me and acknowledged the foregoing instrument to be his free act and deed on behalf of Freedom of Information, Inc., before me. _________________________________ Notary Public My Commission Expires: COMMONWEALTH OF MASSACHUSETTS _______________ COUNTY, SS ____________, 1998 Then personally appeared, the above-named of Freedom of Information, Inc., known to me and acknowledged the foregoing instrument to be his free act and deed on behalf of Freedom of Information, Inc., before me. ________________________________ Notary Public My Commission Expires: 8 LSOF POOLED EQUITY L.P., as Landlord under the Lease, and Borrower under the Mortgage and Security Agreement, the Loan Agreement and the other Loan Documents, agrees for itself and its successors and assigns that: 1. The above agreement does not: (a) constitute a waiver by Lender of any of its rights under the Mortgage and Security Agreement or any of the other Loan Documents; or (b) in any way release Borrower from its obligations to comply with the terms, provisions, conditions, covenants and agreements and clauses of the Mortgage and Security Agreement and other Loan Documents; 2. The provisions of the Mortgage and Security Agreement remain in full force and effect and must be complied with by Borrower; 3. Tenant shall have the right to rely on any notice or request from Lender which directs Tenant to pay rent to Lender without any obligation to inquire as to whether or not a default exists and notwithstanding any notice from or claim of Borrower to the contrary. Borrower shall have no right or claim against Tenant for rent paid to Lender after Lender so notifies Tenant to make payment of rent to Lender; and 4. The Borrower shall be bound by all of the terms, conditions and provisions of the foregoing Agreement in all respects. Executed and delivered as a sealed instrument as of the _____ day of _____, 1998. BORROWER: LSOF POOLED EQUITY L.P. a Delaware limited partnership By: LSOF GENPAR, INC. a Texas corporation, its general partner ATTEST: By: - --------------------------- -------------------------- Name: Name: Title: Title: duly authorized 9 ATTEST: By: - ---------------------------- -------------------------- Name: Name: Title: Title: duly authorized Date executed by Borrower: __________, 1998 10 STATE OF TEXAS COUNTY OF DALLAS, SS. __________, 1998 Then personally appeared the above-named ___________________________, ___________________________ of LSOF GenPar, Inc., known to me and acknowledged the foregoing instrument to be his free act and deed on behalf of LSOF GenPar, Inc., before me. Notary Public My Commission Expires STATE OF TEXAS COUNTY OF DALLAS, SS. __________, 1998 Then personally appeared the above-named ___________________________, ___________________________ of LSOF GenPar, Inc., known to me and acknowledged the foregoing instrument to be his free act and deed on behalf of LSOF GenPar, Inc., before me. Notary Public My Commission Expires: EXHIBIT F LANDLORD'S WORK The following work to be done in the Premises shall be Landlord's Work: I. PARTITIONS: II. DOORS AND FRAMES: III. HARDWARE: IV. CEILINGS: V. FLOOR COVERINGS: VI. PAINTING: VII. WINDOW TREATMENT: VIII. FIRE PROTECTION: IX. HEATING, VENTILATING AND AIR CONDITIONING X. ELECTRICAL/LIGHTING EXHIBIT G CLEANING SERVICES CLEANING SPECIFICATION Office Area Each Business Day: Empty trash receptacles Dust and spot clean horizontal surfaces, furniture, and bright work Spot clean vertical surfaces Clean water fountains Clean partition and door glass Vacuum carpeting Clean kitchen counters and sinks Weekly: Clean Window glass (not including interior of the exterior windows) Monthly: Dust table and chair legs, baseboards, ledges, moldings Vacuum fabric furniture Clean and sanitize phones Dust mini blinds Quarterly: Clean diffusers High dusting Shampoo carpets Semi-Annually: Clean exterior windows Lavatories Each Business Day: Clean and sanitize fixtures, mirrors, horizontal surfaces Polish chrome Mop floors Refill dispensers Empty trash Spot clean vertical surfaces Monthly: Wash all partitions, tile wall, and enamel surfaces Quarterly: Clean diffusers Machine clean floors Public Areas Each Business Day: Empty trash receptacles Dust and spot clean horizontal surfaces, etc. Spot clean vertical surfaces Clean and polish drinking fountains Clean doors and frames Vacuum carpets, mop and buff floors Clean and polish elevator walls and bright work Vacuum elevator carpet and spot clean Sweep stairs Dust railings Monthly: High dust Dust tables and chair legs, baseboards, ledges, moldings Vacuum fabric furniture Spot clean railings Damp mop stairs and landings Quarterly: Wash trash receptacles Clean diffusers Shampoo carpets EX-10.14 17 LICENSE AND SERVICE AGREEMENT Exhibit 10.14 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. GEOCITIES AFFILIATES PROGRAM LICENSE AND SERVICES AGREEMENT This License and Services Agreement ("Agreement") is entered into by and between GeoCities ("GeoCities"), located at 4499 Glencoe Avenue, Marina del Rey, CA 90292, and Be Free, Inc. ("Be Free"), located at 201 Boston Post Road West, Marlborough, MA 01752, effective as of January 13, 1999 ("Effective Date"). 1. CERTAIN DEFINITIONS. "Affiliate(s)" means an individual or legal entity that (a) has a personal Web site hosted by any Web-based community, Internet service provider or Web hosting service provider either at no charge or for a nominal fee, and (b) has entered into an agreement pertaining to membership in the GeoCities Affiliates Program. "Be Free Behavioral Targeting Technology" means Be Free's proprietary technology for compiling Visitors' historical behavioral profiles, which profiles may be used in selecting advertising or promotion strategies designed to maximize Visitor purchases on the Internet. "GeoCities Affiliates Program" means a network of participating Affiliates and Merchants which: (a) enables Affiliates to generate hypertext links ("Affiliate Links") from such Affiliate's Web pages (each, an "Affiliate Page") to participating Merchant Sites, (b) encourages Visitors to interact with such Merchant Sites including, without limitation, making purchases and accessing content on the Merchant Sites, and (c) enables Affiliates to receive compensation. "GeoCities Data" means any and all information or data delivered to Be Free by GeoCities in connection with the GeoCities Affiliates Program concerning GeoCities members, Affiliates and/or Merchants. "Deliverable(s)" means the Licensed Materials and the elements or functionality described in Exhibit A. ---------- "Existing Program" means an affiliates program (other than the GeoCities Affiliates Program): established and operated by or on behalf of a merchant prior to integration of the merchant into the GeoCities Affiliates Program. 1 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Exclusive Features" means any of the following functions: (a) the multi- merchant aggregation features of the products and Deliverables described in Exhibit A including, without limitation, Hot Swapping and, (b) Multi-Level Marketing. "FTC Order" means that certain "Agreement containing a Consent Order" issued by the U.S. Federal Trade Commission on June 11, 1998 as well as any and all modifications, restatements, amendments, supplements, addenda and extensions thereof. "GeoCities Competitors" means any entity or person involved directly in providing on-line and/or Web-based community products or services to its customers, subscribers, members or other users including, without limitation, services known as [**] or any other entity or person controlling, controlled by or under common control with company operating any of the foregoing. "Hot Swapping" means flexibly and dynamically substituting Affiliate Links with one or more Merchant Sites. "Impression" means each serving of an Affiliate Link to a Visitor through the GeoCities Affiliates Program. "Licensed Materials" means (i) Be Free's proprietary BFAST Windows 95 graphical user interface for use by Merchants to participate in the GeoCities Affiliates Program as contemplated by this Agreement, and (ii) any and all updates thereto which may be developed by or on behalf of Be Free during the term of this Agreement. "Merchant" means a commercial entity which: (a) has entered in to a Merchant Agreement and (b) operates a Web site ("Merchant Site") to which Affiliates may generate Affiliate Links. "Merchant Agreement" means an agreement entered into by GeoCities a Merchant participating in the GeoCities Affiliates Program setting forth (a) the characteristics of Qualifying Activity and the method of recording Qualifying Activity and, (b) the rates and calculation methods of Affiliate compensation. "Net Shipped Sales" means, with respect to a given period, the aggregate actual sales price of goods and services less the value of the aggregated actual sales prices of goods and services returned within such period (whether or not related to goods and services provided during such period). 2 "Multi-Level Marketing" means (with respect any program or any entity) services described in Exhibit C. ---------- "Exclusive Feature Launch" means, with respect to an Exclusive Feature, making the GeoCities Affiliates Program widely available to actual and potential Affiliates including GeoCities Community Leaders. "Qualifying Activity" means Visitor interaction with a Merchant Site to be tracked by Be Free and, with respect to which an Affiliate is entitled to receive compensation pursuant to the terms of the applicable Merchant Agreement(s). "Specifications" means the set of technical functionalities and feature descriptions set forth in Exhibit A. ---------- "Visitor(s)" means a third party Internet user who receives an Impression. 2. BE FREE SERVICES. 2.1 Core Be Free Services. During the term of this Agreement, Be Free shall perform (i) the services described in Exhibit A in accordance with the schedule set forth in Exhibit B, and (ii) the Merchant integration services described in Paragraph E.2. of Exhibit A. 2.2 Multi-Level Marketing. During the term of this agreement, Be Free shall perform the services relating to Multi-Level Marketing described, and in accordance with the schedule set forth in Exhibit C. 2.3 Additional Be Free Services. --------------------------- 2.3.1 Check Writing Services. Upon GeoCities' request, Be Free shall perform its customary check writing services (described below) in connection with the GeoCities Affiliates Program, provided that (i) each check generated by Be Free shall reflect aggregate amounts payable by one or more Merchants and (ii) the documentation delivered to each Affiliate with such check shall contain a break-down of the individual Merchant payments comprising the aggregate amount of such check. BFAST will provide a complete and seamless affiliate payment system. Payments will be consolidated across all Merchants. Be Free manages all financial data internally including a full CFO-style voucher-based interface. GeoCities will define a minimum-payment threshold. For all Affiliates whose consolidated payment exceeds the minimum threshold, a check will be printed and posted. For all Affiliates who do not exceed the threshold, a commission will be carried over into the next payment period. Affiliates centers will receive payments quarterly. The months in which the Affiliates receive a check will be based on the month in which the Affiliate originally enrolled in the GeoCities Affiliates Program. Accordingly, at the end of 3 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. each month GeoCities will use the financial interface to accept all Affiliate vouchers. Upon acceptance of a voucher batch, BFAST will generate a report for GeoCities. GeoCities will deposit into the Be Free transfer account the amount indicated on the voucher report. BFAST will convert the approved vouchers into check-printing instructions. The check verification file will be reconciled with the voucher batch. 2.3.2 Affiliate Management Services. Upon GeoCities' request, Be Free shall perform its customary affiliate management services in connection with the GeoCities Affiliates Program, provided that the fees payable by GeoCities for such services shall be [**]as approved by GeoCities, such approval not to be unreasonably withheld. 2.3.3 Be Free Behavioral Targeting Technology. Be Free shall provide to GeoCities, [**], any and all products derived from, and services using, the Be Free Behavioral Targeting Technology. 2.3.4 Option to Cancel or Modify Be Free Services. GeoCities may elect to cancel or modify the scope of any of the additional services to be provided by Be Free pursuant to this Section 2.3 upon reasonable notice. Be Free shall assist GeoCities with any transition and Be Free shall use its commercially reasonable efforts to minimize disruption to the GeoCities Affiliates Program and to be transparent to Merchants and Affiliates. GeoCities shall pay Be Free for such assistance at [**]. 2.4 Service Level Agreement. Be Free shall perform the services required herein in a professional and workman-like manner and in accordance with current standard industry practice. The parties shall negotiate in good faith mutually acceptable terms of a service level agreement, to be entered into no later than January 17, 1999, ("Service Level Agreement") relating to Be Free's standards of performance of the services described in this Section 2 and GeoCities remedies for Be Free's failure to achieve and maintain such standards. 3. LICENSES. 3.1 Grant to GeoCities. Be Free hereby grants GeoCities a worldwide, nontransferable, nonexclusive, right and license, including the right to sublicense to Merchants, to use and copy the Licensed Materials for the purpose of conducting the GeoCities Affiliates Program during the term of this Agreement. All copyright notices, trademarks and other proprietary legends contained in the Licensed Materials 4 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. shall be reproduced in any copies GeoCities makes of the Licensed Materials. Be Free reserves all rights not expressly granted in this Agreement. 3.2 Limitations. GeoCities may not modify, reverse engineer, or otherwise reduce the Licensed Materials to human readable form. GeoCities may not use, or allow any others to use, any component of the Licensed Materials as a stand- alone program or in any other way separate from other software constituting the Licensed Materials. 3.3 Grant to Be Free. GeoCities hereby grants Be Free a worldwide, nontransferable, nonsublicensable, nonexclusive, fully paid-up right and license to use the GeoCities Data for the purpose of fulfilling its obligations under this Agreement and otherwise, provided that all such use shall be strictly in accordance with the FTC Order, All identifying notices or other proprietary legends contained in the GeoCities Data shall be reproduced in any copies Be Free makes of the GeoCities Data. GeoCities reserves all rights not expressly granted in this Agreement. 4. [**]. 4.1 [**] Features. Be Free shall [**] Feature to any third party for a period of [**] following the date of the [**] Launch thereof, Be Free shall be [**] in connection with the GeoCities Affiliates Program. 4.2 Be Free Behavioral Targeting Technology. Be Free shall not make available, in a disaggregated format, any data it derives from use of Be Free Behavioral Targeting Technology. Be Free shall not develop or have developed the capability to measure, track, or identify the relative composition of individual contributors of data derived by the Be Free Behavioral Targeting Technology nor shall Be Free disseminate such relative composition of data to any third party. 5. CONSIDERATION; PAYMENT TERMS. 5.1 Pre-Payment. GeoCities has previously paid Be Free, and Be Free hereby acknowledges receipt of, $[**]. Such amount shall be an advance creditable against payments otherwise due in the first year of the Agreement under Sections 5.2 and 5.3 below. Accordingly, the amount due for each of the first 12 months of this Agreement shall first be calculated under Sections 5.2 and/or 5.3, and shall then be reduced by a fraction of the $[**] advance, the numerator of which shall be the minimum payment for that month under Section 5.2, and the denominator of which shall be $[**] (the total of all such minimum payments). 5 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. 5.2 Monthly Minimums. During the term of this Agreement, GeoCities agrees to pay to Be Free the following monthly minimum amounts: Each of the first full three (3) calendar months (prorated for the first month): $[**] Each of the fourth (4th) through sixth (6/th/) months: $[**] Each of the seventh (7/th/) through ninth (9/th/) months: $[**] The tenth (10/th/) month and each month thereafter: $[**] "Months" are calculated from the first complete calendar month (i.e., commencing on the first day of such calendar month). 5.3 Operational Services and Support Fees. GeoCities shall pay Be Free, to the extent such amount exceeds the applicable monthly minimum payment pursuant to Section 5.2 the lesser of: A. [**] of the aggregate value of Net Shipped Sales generated through the GeoCities Affiliates Program. or B. [**] Impressions. 5.4 Payment Terms. Within 30 days after each calendar month, Be Free shall prepare and deliver an invoice of the amount, if any, due under Section 5.3 with respect to that month, including documentation that reasonably explains its calculation of the amount then due. Amounts due under Section 5.2 shall be paid on the last day of each applicable Month. 5.5 Check Writing Service Fees. In consideration of the check writing services, GeoCities shall pay Be Free, on a monthly basis,[**]per check for the first [**] checks issued in each calendar quarter and [**] for each additional check issued in the same calendar quarter. 5.6 Referral Fees. The parties acknowledge that Be Free may, from time to time, enter into agreements with Merchants that are outside the scope of the GeoCities Affiliates Program, and the parties agree that GeoCities shall be entitled to a referral fee with respect to revenues to Be Free from such Merchants. The parties agree to negotiate in good faith the terms of such referral fees. 6 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. 6. OWNERSHIP. 6.1 Be Free. Subject to the licenses granted to GeoCities in Section 3, as between the parties, Be Free (and, to the extent applicable, its suppliers) shall own all right, title and interest, including all patent rights, copyrights, trade secret rights, mask work rights and other intellectual property rights throughout the world (collectively, "Intellectual Property Rights") in and to the Licensed Materials. GeoCities agrees not to take any action inconsistent with Be Free's ownership of the Licensed Material as described herein. 6.2 GeoCities. Subject to the licenses granted to Be Free in Section 3, as between the parties, GeoCities shall own all Intellectual Property Rights in and to the GeoCities Data. Be Free agrees not to take any action inconsistent with GeoCities' ownership of the GeoCities Data as described herein. 7. DEDICATED DEVELOPMENT TEAM. Be Free shall establish a dedicated development team to perform the services required for the development of Multi-Level Marketing and ongoing developments by GeoCities ("Development Team"). These services shall be the highest priority of the Development Team. The first $[**] of Multi-Level Marketing and subsequent development shall be billed [**]. After exhaustion of the $[**],GeoCities and Be Free will mutually determine a billing rate for development which shall be no higher that the lowest rate Be Free charges for similar development work. GeoCities will receive a credit when the Development Team is billed out on other projects. The rate of credit will be the billing rate. 8. CONFIDENTIALITY. 8.1 Obligations. Each party agrees that all code, inventions, algorithms, know-how and ideas and all other business, technical and financial information which is obtained from the other party, including, without limitation, information contained in any reports generated hereunder, GeoCities Data, aggregated information relating to traffic, Merchants, GeoCities members, Visitors, transactions and customer/advertiser lists, shall be the confidential property of the disclosing party ("Proprietary Information" of the disclosing party). Except as provided herein, 7 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. the receiving party will hold in confidence and not use or disclose any Proprietary Information of the disclosing party and shall similarly bind its employees in writing. 8.2 Exceptions. The receiving party shall not be obligated under this Section 9 with respect to information the receiving party can document: (a) is or has become readily publicly available without restriction through no fault of the receiving party or its employees or agents; or (b) is received without restriction from a third party lawfully in possession of such information and under no confidentiality obligation to the disclosing party; or (c) was rightfully in the possession of the receiving party without restriction prior to its disclosure by the other party; or (d) was independently developed by employees or consultants of the receiving party without access to such Proprietary Information. 9. LIMITATION OF LIABILITY. EXCEPT WITH RESPECT TO SECTION 11.2 OF THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL OR SPECIAL DAMAGES ARISING UNDER THIS AGREEMENT. EXCEPT WITH RESPECT TO SECTIONS 8, 11, OR 13 OF THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE OR UNDER THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY AMOUNTS IN EXCESS IN THE AGGREGATE OF THE GREATER OF [**] OR THE AGGREGATE AMOUNT PAID BY GEOCITIES UNDER THIS AGREEMENT. 10. REPRESENTATIONS AND WARRANTIES. 10.1 GeoCities and Be Free. Each party represents and warrants to the other party that (i) it has the full power and authority to enter into and perform its obligations under this Agreement, (ii) that entering into and performing its obligations under this Agreement does not violate any right of, nor breach any obligation to, any third party under any agreement or arrangement with such third party, and (iii) other than as set forth in this Agreement, no licenses, waivers, assignments or releases of any third-party rights are necessary in order for it to perform its obligations under this Agreement. 10.2 Be Free. Be Free represents and warrants that (i) it has sufficient rights in and to the Licensed Materials to grant the licenses contained in this Agreement; (ii) to its knowledge, the use of the Licensed Materials, the Deliverables and any other technology or other intellectual property that is required for Be Free to perform the services contemplated in this Agreement will not violate, infringe or misappropriate 8 any third party's intellectual property or other rights, domestic or foreign; (iii) the Licensed Materials are free from material defects and the GeoCities Affiliates Program shall, in all material respects, perform in accordance with the Specifications; and (iv) the Deliverables, the Licensed Materials and any software used by Be Free to perform its obligations hereunder shall record, store, process and present calendar dates falling on or after January 1, 2000 in substantially the same manner and with substantially the same degree of performance and functionality as prior to January 1, 2000. 11. INDEMNIFICATION. 11.1 Each party shall defend, indemnify and hold harmless (in such capacity, the "Indemnifying Party") the other party and its officers, directors, affiliates, employees, agents, successors and assigns (collectively, the "Indemnitees") from and against any and all losses, liabilities, damages, costs and expenses (including reasonable attorneys' fees) (collectively, "Losses") incurred by the Indemnitees based upon, arising out of, attributable to or resulting from any demand, claim, suit or action ("Claim") by any third party that (i) includes any allegation that, if true, would constitute a breach by the Indemnifying Party of any of its representations or warranties in this Agreement, (ii) Be Free's performance of any of the services relating to the GeoCities Affiliates Program (with respect to a GeoCities Indemnitee), or GeoCities' operation of, or content residing on, the GeoCities Site (with respect to a Be Free Indemnitee), infringes or otherwise violates such third party's rights, or (iii) the Indemnitees' use of any Licensed Materials in compliance with this Agreement infringes the rights of any party other than the Indemnitees. The foregoing shall not apply to either party's indemnification for Losses related to the FTC Order, which shall be covered by the following paragraph. 11.2 GeoCities shall defend, indemnify and hold harmless the Be Free Indemnitees from and against any and all Losses they may incur based upon, arising out of, attributable to or resulting from a Claim by the FTC that the FTC Order has been violated, except to the extent GeoCities is entitled to be indemnified by Be Free under the following sentence. Be Free shall defend, indemnify and hold harmless the GeoCities Indemnitees from and against any and all Losses the GeoCities Indemnitees may incur based upon, arising out of, attributable to or resulting from Be Free's (a) willful act or omission resulting in GeoCities' violation of the FTC Order or (b) breach of Section 13.2. 11.3 If GeoCities' use of the Licensed Materials is, or is reasonably likely to become, subject to a preliminary injunction or other similar material restriction, Be Free shall (a) secure GeoCities' right to continue to exercise the rights and licenses granted in this Agreement, or (b) modify the Licensed Materials so they have substantially equivalent functionality and are not reasonably likely to be subject to such restriction. 9 11.4 The indemnification obligation in Section 11.1, shall not apply to any Losses to the extent attributable to (a) a modification of the Licensed Materials not performed or authorized by Be Free to the extent such Losses would not have been incurred absent such modification, (b) the use of the Licensed Materials in combination with other software or materials not provided or authorized by Be Free to the extent such Losses would not have been incurred absent such combination, (c) the use of any version of the Licensed Materials other than the most current version Be Free has provided to GeoCities, to the extent such Losses would have been avoided through the use of such version, or (d) use of the Licensed Materials in violation of this Agreement. 11.5 With respect to any indemnification under this Section 11, the Indemnified Party shall promptly notify the other party in writing of any Claim for which indemnification is available hereunder; provide, however, that failure to provide such notice shall not affect the obligation of the Indemnifying Party hereunder except to the extent of actual prejudice to the Indemnifying Party. The Indemnifying Party shall have fifteen (15) business days, or such shorter time period as reasonably required after receipt of notice of a Claim, to assume control of the defense, settlement or compromise of such Claim with counsel of its choice, provided, however, that the Indemnifying Party may not settle or compromise the Claim without the written consent of the Indemnitee(s) unless such settlement or compromise includes a complete and unconditional release of any non-consenting Indemnitee(s) from any liability under the Claim. If the Indemnifying Party has not assumed control of the defense, settlement or compromise of such Claim within the fifteen (15) business day period, or such shorter period as provided above, the Indemnitee(s) may assume control of, and recover from the Indemnifying Party any amounts incurred in, the defense, settlement or compromise of such claim. The Indemnitees shall reasonably cooperate and assist the Indemnifying party in investigating and defending any Claim, at the Indemnifying Party's request and expense. 12. TECHNOLOGY ESCROW; OPERATIONAL INSPECTION. 12.1 Source Code Escrow. The parties shall establish an escrow of the source code to the Licensed Materials and any other software required for Be Free to perform its obligations under this Agreement ("Source Code"). The parties shall negotiate in good faith the terms of the escrow agreement with, and under a prescribed form of, Data Securities International, Inc. ("DSI"), including the conditions for release of the deposited Source Code and a license to GeoCities to use such Source Code. 10 12.2 Operational Inspection. If Be Free files for or becomes subject to a proceeding under Chapter 11 of the United States Bankruptcy Code, commits a material breach of the Service Level Agreement or makes an assignment for the benefit of its creditors, GeoCities may conduct an inspection of Be Free's facilities and operations to determine the resources needed to exercise the rights contemplated under Section 12.1, including without limitation, review of connectivity, hardware resources, human resources, software program applications, and their documentation, other than a review of Source Code. Be Free shall cooperate in good faith and assist GeoCities in conducting this inspection. 13. FTC ORDER. 13.1 FTC Order. The parties acknowledge the existence the FTC Order. Nothing in this Agreement shall be construed as limiting or restricting GeoCities from complying fully with the FTC Order. Be Free shall cooperate fully with GeoCities to ensure compliance with the FTC Order in connection with the collection and use of GeoCities Data or otherwise. 13.2 Safe Harbor. Notwithstanding the foregoing, Be Free shall not be in breach of its obligations under this Agreement that relate to the FTC Order if: (i) within 24 hours after GeoCities requests that Be Free take or cease any action in order to avoid a violation of the FTC Order (a "Request"), Be Free either (A) promptly commits its best efforts to comply in all with respects with the Request, or (B) requests GeoCities to initiate, and commits appropriate Be Free personnel to be available at any time to participate in, communication(s) with the FTC to confirm that Be Free needs to comply with the Request, and (ii) if Be Free requests consultation with the FTC under clause (i)(B) and the FTC indicates that Be Free must comply with the Request and/or take or cease any other actions to comply with the FTC Order, Be Free complies with the FTC's instructions. 13.3 Communications Regarding the FTC Order. Notwithstanding any other provision of this Agreement, for purposes of this Section 15, all communications between the parties shall be effected through live communication, such as in person or by phone (excluding, for example, facsimile or e-mail) between authorized officers of each party. 11 14. TERM; TERMINATION. 14.1 Term. This Agreement will remain in effect, unless terminated in accordance with Section 16.2, from the Effective Date for a period of three (3) years. 14.2 Termination on Breach. Either party may terminate this Agreement if the other party breaches any of its material obligations under this Agreement, unless cured within thirty (30) days following notice thereof. 14.3 Termination Without Cause. At any time 12 months after the date of the earliest program launch described in Exhibit A, GeoCities may terminate this Agreement without cause upon the payment to Be Free of a Termination Fee; provided, however, that a Termination Fee shall not be payable in the event of a change of control of Be Free. The "Termination Fee" shall be (a) if GeoCities terminates the Agreement on or prior to the first anniversary of the date of this Agreement, $[**] or (b) if GeoCities terminates the Agreement after such first anniversary, $[**] minus a fraction thereof, the numerator of which shall be the number of months the Agreement has then been in effect minus 12 (pro rated for any partial Month), and the denominator of which shall be 24. Be Free shall cooperate in good faith and provide reasonable assistance to GeoCities, at GeoCities' expense, in transitioning the GeoCities Affiliates Program to another service provider. 14.4 Effect of Termination. Except as required in order to comply with applicable law (including the FTC Order) or otherwise provided in Section 14.3, in the event of any termination or expiration of the Agreement, all rights and obligations hereunder shall terminate, except under Sections 8 (Confidentiality), 6 (Ownership), 11 (Indemnification), 9 (Limitation of Liability) and, if GeoCities terminates the Agreement for a breach by Be Free, Section 4 (Exclusivity). Promptly following the Termination Date, each party shall return all materials owned or disclosed/provided by the other party during the term of the Agreement including modifications thereof (regardless of form, format or completeness); provided that nothing in this paragraph requires GeoCities to return reports containing GeoCities Data. 15. CHANGE OF CONTROL OF BE FREE. If Geocities determines in good faith that a change of control of Be Free by a GeoCities Competitor is reasonably likely to occur, upon request thereafter by Geocities, Be Free shall promptly return to GeoCities all Proprietary Information of GeoCities, other than Proprietary Information needed for Be Free to perform its obligations under the Agreement. In addition, for a period not to exceed 90 days following such request, (a) Be Free shall prepare the GeoCities Data and related GeoCities materials for expedited transition of the Affiliates Program by Be Free to a third-party service provider, and (b) cooperate in good faith and provide reasonable 12 assistance to GeoCities in preparing to transfer the Affiliates Program. Promptly following the effective date of the termination of this Agreement, Be Free shall transfer such GeoCities Data and related GeoCities materials to such third-party service provider, and in such format and manner as designated by, GeoCities. GeoCities agrees to pay Be Free for such services on a time-and- materials basis at Be Free's standard rates. GeoCities may elect to terminate this Agreement effective upon closing of a change of control without any liability to Be Free or its successor in interest for such termination. 16. GENERAL PROVISIONS. 16.1 Entire Agreement. This Agreement constitute the sole and entire Agreement between the parties with respect to the subject matter hereof and supersedes any prior or contemporaneous discussions, understandings, agreements (whether oral or written) between the parties including the LOI and related documents. 16.2 Waiver, Amendments. The failure of either party to enforce its rights under this Agreement at any time for any period shall not be construed as a waiver of such rights. No changes or modifications or waivers are to be made to this Agreement unless evidenced in writing and signed for and on behalf of both parties. 16.3 Governing Law; Dispute Resolution. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of laws provisions thereof. In any action or proceeding to enforce rights under this Agreement, the prevailing party shall be entitled to recover costs and attorneys fees. 16.4 Non-Exclusive Remedies. The rights and remedies of a party set forth herein with respect to failure of the other to comply with the terms of this Agreement (including, without limitation, rights of full termination of this Agreement) are not exclusive, the exercise thereof shall not constitute an election of remedies and the aggrieved party shall in all events be entitled to seek whatever additional remedies may be available in law or in equity. 16.5 Publicity and Press Releases. The parties agree to issue a joint press release regarding the nature of this Agreement. The parties agree that no press releases or other publicity relating to the substance of the matters contained herein will be made without joint approval. 16.6 Relationship of the Parties. Notwithstanding any provision hereof, for all purposes of this Agreement each party shall be and act as an independent contractor and not as partner, joint venturer or agent of the other and shall not bind nor attempt to bind the other to any contract. 13 16.7 Successors and Assigns. This Agreement shall be binding on and inure to the benefit of the parties hereto and their respective heirs, administrators, executors, and permitted successors and assigns. 16.8 Severability. If any provision or any portion of any provision of this Agreement shall be held to be void or unenforceable, the remaining provisions of this Agreement and the remaining portions of any provisions held void or unenforceable in part shall continue in full force and effect. 16.9 Assignment. Be Free shall have no right or ability to assign, transfer, or sublicense any obligations or benefit under this Agreement without the written consent of GeoCities, and any proposed assignment in violation of this Section 16.9 shall be null and void. 16.10 Notices. All notices under this Agreement shall be in writing, and shall be deemed given when personally delivered or three days after being sent by prepaid certified or registered U.S. mail or private, rapid courier service with tracking capabilities to the address of the party to be noticed as set forth herein or such other address as such party last provided to the other by written notice. If to GeoCities: GeoCities 4499 Glencoe Avenue Marina del Rey, CA 90292 Attention: General Counsel & Vice President of Legal Affairs --------- With a copy to: Brobeck, Phleger & Harrison, LLP 38 Technology Drive Irvine, CA 92618-2301 Attention: Kevin D. DeBre, Esq. --------- Facsimile: (949) 790-6301 If to Be Free: Be Free, Inc. 201 Boston Post Road West Marlborough, MA 01752 Facsimile: (508) 357-8889 Attention: President --------- 14 With a copy to: Hale and Dorr LLP 60 State Street Boston, MA 02109 Attention: Jay E. Bothwick, Esq. --------- Facsimile: (617) 526-5000 16.11 Headings. Headings herein are for convenience of reference only and shall in no way affect interpretation of the Agreement. 16.12 Counterparts. This Agreement (including each of its Exhibits) may be executed in multiple counterparts, all of which shall constitute a singular instrument and each counterpart, and fax copy thereof shall be deemed an original. IN WITNESS WHEREOF, each party has cause this Agreement to be duly executed by its representative as of the Effective Date. BY AND ON BEHALF OF BE FREE, INC. By: /s/ Stephen M. Joseph -------------------------------------- Printed Name: Stephen M. Joseph Title: Chief Financial Officer BY AND ON BEHALF OF GEOCITIES By: /s/ Steve Bardack ------------------------------------- Printed Name: Steven D. Bardack Title: Vice President Strategic Development 15 EXHIBIT A SPECIFICATIONS A. BFAST Application 1. BFAST Application Functions Reference Manual will serve as the functional specification for the features and functions of the BFAST application 2. Merchant/Aggregator Reports The following reports are available for BFAST. The BFAST Manual shall serve as the functional specification for these reports. . Cost Effectiveness [Merchant] . Link Success [Merchant] . Product [Merchant] . Top 10 Best Sellers [Merchant] . Generated Voucher Report [Merchant] . Revenue (detail) [Merchant] . Revenue (summary) [Merchant] . Sales (detail) [Merchant] . Sales (summary) [Merchant] . Sales Trends [Merchant] . Oldest Orders [Merchant] . Shipments Due [Merchant] . Top 10 Traffic Providers [Merchant] . Traffic [Merchant] . Click-through Trend [Merchant] . Merchandise Type Detail [Merchant] . Site Traffic Summary [Merchant] . Traffic Trend [Merchant] . Vendor Report [Merchant] . Product (by day) [Publisher] . Product Activity [Publisher] . Top 10 Best Sellers [Publisher] . Publisher Summary Product Report [Publisher] . Revenue (detail) [Publisher] . Revenue (summary) [Publisher] . Sales (daily) [Publisher] . Traffic [Site] . Link Success [Site] 16 . Product Activity [Site] . Top 10 Best Sellers [Site] . Sales [Site] . Sales Trends [Site] . Traffic [Site] . Click-through Trend [Site] . Traffic Trend [Site] . Merchandise Type Summary Report [Site] . Merchandise Type Detail [Site] 3. Raw Data Delivery Be Free shall provide GeoCities with raw data on Affiliate performance in a format to be mutually agreed upon by the parties. B. Sales Center GeoCities Affiliates Program Sales Center will be a general resource for link generation, merchant selection, and reporting, as well as marketing and promotion, site building, and merchandising information. 1. Unified Log In Be Free will allow affiliates to have a singular login between the GeoCities site and the GeoCities Affiliates Program Sales Center. This is also true among the various functions of account management, link generation, and reporting within the Sales Center. Unified log in will be accomplished by permitting Be Free to access and decrypt authentication information in the GeoCities visitor cookie. This will be accomplished through the establishment of a geocities.com sub-domain using a Be Free owned IP address. Be Free integration with the GeoCities LDAP server and by mutual authentication passing between GeoCities and Be Free. In the interest of maintaining the security and privacy of affiliates' financial information, Be Free authenticates every request for pages containing reporting or account management information. Be Free proposes to continue this scheme if it proves practicable as GeoCities scales its Affiliates Program. In the event that performance of repeated authentication becomes an issue, Be Free will implement a scheme where by the affiliate will be initially authenticated and subsequently periodically authenticated between which times an encrypted authentication code will be stored in a session cookie. This will reduce the load on the LDAP server by reducing the number of authentication requests. 17 INITIAL GEOCITIES LOG IN: If an affiliate has entered an area of GeoCities requiring a log in and subsequently navigates to the Sales Center, the GeoCities cookie will contain the required authentication information, which Be Free will access and use for transparently authenticating and logging on the affiliate to the restricted pages it serves in the sales center. INITIAL BE FREE LOG IN: Should the affiliate initially navigate to restricted pages Be Free serves in the Sales Center, Be Free will authenticate the affiliate by examining its GeoCities cookie. If the appropriate authentication information does not exist, Be Free will redirect the user to a designated GeoCities login URL containing an appended destination URL as a CGI parameter. GeoCities will authenticate the user, populate the cookie, and redirect the user to the destination URL. 2. Affiliate Messaging Be Free will provide the capability to deliver personalized, targeted messages within the content of the Sales Center. These messages may be targeted by merchant, affiliate category and by using search-by-example criteria, or they may be broadcast to the entire affiliate community. These messages may be personalized through the use of substitution placeholders. 3. Link Generation Be Free offers the highest rate of flexibility for link generation in the industry. Specifically, Be Free allows merchants to offer product-specific links, categorical links, promotional links, and product-search links to their affiliates. A key component of the Be Free architecture is an abstraction layer which underlies ALL of the above listed link types. This abstraction layer shields the affiliate link from the specific URL to which it is redirected. This will benefit GeoCities directly by allowing it to switch merchants who provide a specific type of merchandise without requiring its affiliates to alter their links, assuming an industry-standard product identification or conversion- table is available. Secondly, this allows merchants to re-architect their web sites without invalidating their affiliate links. Sophisticated affiliates who prefer to work directly with HTML may go to a link generation section of the Sales Center. In this section they may choose from a list of available search links, category links, and promotional links. They may also choose product-specific links using a product search interface, which allows them to find specific products by category, type, keyword, identifier, and other criteria. After choosing one or more links, BFAST will generate HTML fragments and present them to the user to allow them to cut and paste them into their pages. 18 4. Program Application GeoCities will collect additional data including a tax identifier from Homesteaders who wish to join the Affiliates Program. Be Free will accept this information from GeoCities in the form of URL CGI parameters passed to Be Free after the Homesteader submits a registration form. Members may go directly to link generation or any other area of the Sales Center requiring a log in immediately, assuming that their authentication information exists in the GeoCities cookie. This will permit members to log in under the single GeoCities member name and will provide a unified and seamless log in across the Sales Center as well as all other areas of GeoCities. 5. Affiliate Reporting Be Free offers web-based reports to affiliates for sales, marketing, and merchandising performance analysis and improvement. These reports are accessed through an entirely HTML interface and are optimized for web-based performance. The REPORTING.NET documentation shall serve as the functional specification for these reports: . Product Activity . Revenue (Detail) . Revenue (Summary) . Sales (Daily) . Best Sellers . Traffic . Link Success . Merchandise Type 6. Account Management Affiliates need only to maintain a single record of account information despite relationships with multiple merchants. Be Free will provide an Account Management section of the sales center that allows affiliates to maintain their affiliate profiles. C. GeoBuilder Integration GeoCities wishes to offer seamless integration of affiliate opportunities into the GeoBuilder toolkit and wishes to maintain the look, feel, and functionality of the presentation layer. Be Free will provide the integration by serving link generation pages into a frame of the GeoBuilder interface. The business case, functional specification, and graphical specification are to be provided to Be Free by GeoCities. 19 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. D. Merchant Categories GeoCities wishes to define merchant categories and provide differential affiliate and merchant functionality based on category. The business case, functional specification, and graphical specification are to be provided to Be Free by GeoCities. E. Merchant Integration 1. Quickstart Guide Be Free will re-brand its Quickstart Integration Package with the GeoCities brand and provide it to the merchants with whom GeoCities contracts with to provide specific merchandise types to the GeoCities Affiliates Program. 2. Merchant Integration Services Merchants with Existing Programs. GeoCities shall notify Be Free within a reasonable period of time following execution of each Merchant Agreement. Be Free shall promptly provide GeoCities with a detailed integration plan ("MIP"). GeoCities shall accept or reject such MIP without unreasonable delay. Be Free shall integrate Merchants with Existing Programs into the GeoCities Affiliates Program in accordance with the MIP. GeoCities shall compensate Be Free for these services at a pro-rated rate of [**] per qualified technician per day (minimum eight (8) hours). Merchants Without Existing Programs. Be Free shall integrate Merchants without Existing Programs into the GeoCities Affiliates Program on a first-in first-out basis, unless otherwise agreed by the parties, within seven (7) days after GeoCities notifies Be Free of the execution of the applicable Merchant Agreement. 20 EXHIBIT B SCHEDULE GeoCities Affiliates Program Phase 1 "Basic" Features; NOT Multi-Leveling Marketing Features (See below) Schedule of Deliverables and Activities Delivery Dates
- -------------------------------------------------------------------------------- Week Deliverable/Objective Ending Friday: - -------------------------------------------------------------------------------- 1/15 . Both GeoCities and Be Free identify and make available all elements necessary for overall Program QA process. . Parties jointly conduct QA activities . Merchant #1 joins Program; GeoCities provides Merchant #1 contact (and certain integration) information to Be Free. - -------------------------------------------------------------------------------- 1/22 . Program QA process conducted/completed: Priority #1: Identify, analyze instances non-conformance issues with respect to functional Specifications (See Exhibit A). Priority #2: Identify and agree upon features and/or technical aspects to develop prior to Program Launch in addition to function Specifications (e.g., GeoBuilder integration; multi-Merchant). . Perform, complete integration services for Merchant #1. (Maximum 3 calendar days from commencement). GOAL: Merchant #1 integrated. - -------------------------------------------------------------------------------- 1/29 . Conduct QA on Merchant #1 integration. . Respond to Priority #1 Program Specification non-conformance. GOAL: Program Non-Conformance issues resolved. Program meets all Specifications. (Launch preparations complete.) - --------------------------------------------------------------------------------
21 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. EXHIBIT C MULTI-LEVEL MARKETING (MLM) FEATURES A. Multi-Level Marketing Program Specifications 1. Overview Be Free will provide services to GeoCities to support a [**] multi-level marketing program to be used with the Pages that Pay program. These services will enable a merchant to reward affiliates for their own sales, and for the sales of affiliates who they recruit to the program, and other affiliates subsequently recruited by those affiliates recruited by the affiliate. Be Free will create link-generation and reporting capabilities that will allow GeoCities affiliates and merchants to track activity and sales results of the program. 2. Definitions Generation: The level of ancestry of a given Descendant Affiliate with respect to a given Affiliate. (For example, if Affiliate W recruits Affiliate X and Y, and Affiliate Y recruits Affiliate Z, W is generation 1, X and Y are generation 2, Z is generation 3. (Referring Member: A member who displays an Affiliate Recruitment Link. Ancestor Affiliate: The affiliate who referred a given Descendant Affiliate, or any of the Descendant Affiliate's Ancestors, [**] of Ancestry. Descendant Affiliate: Any affiliate referred by a given Ancestor Affiliate, or referred by any of the Ancestor Affiliate's Descendants, [**] of Ancestry. 3. Application Source Tracking For applications that result from Members clicking on an Affiliate Recruitment Link, the system shall track the identification of the member displaying the Affiliate Recruitment Link. For applications resulting from direct navigation to the application page not through an affiliate application link, the system shall allow the applicant to identify the Referring Member directly. 22 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. 4. Multiple Generation Commission Rate Structure The system shall enable the merchant to enter commission rates for [**] levels, and will process that information to calculate commissions according to rates specified by the merchant. The system will provide functionality to allow a merchant to designate the maximum number [**] to be compensated under the commission structure, [**]. 5. Link Generation Be Free will make available a means for affiliates to generate Affiliate Recruitment links to the Pages that Pay application page that track the Referring Affiliate. Be Free will also make available a means of automatically presenting all new Pages that Pay applicants with an Affiliate Recruitment link at the end of the application process. 6. Reporting Be Free will make available reports for affiliates, merchants and GeoCities that allow them to track the activity and commissions generated by the multi-level marketing program. SCHEDULE OF DELIVERY DATES
- ------------------------------------------------------------------------------- WEEK OBJECTIVE; DELIVERABLE ENDING FRIDAY: - ------------------------------------------------------------------------------- 1/22 GeoCities provides Be Free with MLM features functional specifications - ------------------------------------------------------------------------------- 2/12 Parties identify MLM Development and Implementation plan (including priorities, changes (if any) to MLM specifications, target dates). - ------------------------------------------------------------------------------- 2/19 Begin implementing MLM Development and Integration Plan - -------------------------------------------------------------------------------
23 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. EXECUTION COPY -------------- ADDENDUM AND AMENDMENT NO. 1 TO GEOCITIES AFFILIATES PROGRAM LICENSE AND SERVICES AGREEMENT This Addendum and Amendment No. 1 ("Amendment") to GeoCities Affiliates Program License and Services Agreement is entered into as of January 26, 1999 ("Amendment Date") by and between Be Free, Inc. ("Be Free"), located at 201 Boston Post Road West, Marlborough, MA 01752 and GeoCities ("GeoCities"), located at 4499 Glencoe Avenue, Marina del Rey, CA 90292. WHEREAS, Be Free and GeoCities entered into the GeoCities Affiliates Program License and Services Agreement dated as of January 13, 1999 ("Agreement"); and WHEREAS, Be Free and GeoCities have agreed to supplement and modify certain provisions of the Agreement with the remaining provisions in full force and effect: NOW THEREFORE, the parties agree to amend the Agreement as follows: B. Any capitalized terms not otherwise defined in this Amendment shall have the meaning set forth in the Agreement. C. Certain Definitions. Section 1 is hereby amended as follows: ------------------- 1. The definition of "Hot Swapping" in the eleventh (11th) paragraph of the Agreement shall be deleted. 2. A new sentence shall be added to the Agreement at the end of Section 1 as follows: "Multi-Merchant Aggregation" means a feature or set of features, substantially the same as those services or Deliverables described in Exhibit A to the Agreement as amended that allows brokering of a relationship --------- between an affiliate and more than one merchant and includes affiliate links directly to the associated merchant site." D. Be Free Services. ---------------- 1. Section 2 of the Agreement is hereby amended by inserting before Section 2.1 the following sentence: "Be Free's performance of the services pursuant to this Agreement shall be on behalf of GeoCities only." 2. Check Writing Services. Section 2.3.1 of the Agreement is hereby amended by replacing the first sentence with the following paragraph: "Upon GeoCities' request, Be Free shall perform its customary check writing services (described below) in connection with the GeoCities Affiliates Program, provided that (i) each check generated by Be Free shall reflect aggregate amounts payable by one or more Merchants, (ii) the documentation delivered to each Affiliate with such check shall contain a break-down of the amount owed to the Affiliate by individual Merchants and the amount paid by each such Merchant included within the aggregate amount of such check, (iii) Be Free shall establish a system enabling Merchants to submit Affiliate payments to a central fund for GeoCities' approval of disbursements to Affiliates and (iv) Be Free shall identify Merchants who have, and Merchants who have not, paid into such central fund amounts owed to Affiliates and shall establish a mechanism for notifying nonpaying Merchants of their payment obligations. Be Free shall comply with GeoCities' standard trademark license agreement and GeoCities standard trademark usage guidelines." 3. Section 2.3.2 of the Agreement is hereby amended by adding after the words "affiliate management services" in line 2 "as described in Exhibit A to the Agreement as amended." 4. Section 2.4 of the Agreement is hereby amended and restated as follows: "Be Free shall perform the services required herein in a professional and workman-like manner and in accordance with current standard industry practice and the terms of the Service Level Agreement set forth in Exhibit 11 to the Agreement as amended." E. Grant to Be Free. Section 3.3 of the Agreement is hereby amended by ---------------- replacing the first sentence with the following sentence: "GeoCities hereby grants Be Free a worldwide, nontransferable, nonsublicensable, nonexclusive, fully paid-up right and license to use the GeoCities Data solely for the purpose of fulfilling its obligations under this Agreement; provided that all such use shall be strictly in accordance with the FTC Order." 2 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. F. [**] Features. Section 4.1 of the Agreement is hereby amended and restated ------------- as follows: "Be Free shall [**] for the period beginning on the Effective Date and continuing for [**] following the date on which Be Free first makes [**] available to GeoCities in a form that complies with the specifications set forth in Exhibit A to the Agreement as amended. Be Free shall [**]available to any third party for the period beginning on the Effective Date and continuing for [**] following the date on which Be Free first makes [**] available to GeoCities in a form that complies with the specifications set forth in Exhibit C to the Agreement as amended. Be Free shall be the [**] in connection with the GeoCities Affiliates Program." G. Be Free Behavioral Targeting Technology. Section 4.2 of the Agreement is --------------------------------------- hereby amended as follows: 1. The following sentence shall be added to Section 4.2 of the Agreement following the first sentence: "For purposes of this Agreement, 'disaggregated format' shall mean (i) any format, collection or organization of data from which such data may be identified as having been collected from, or attributable to, the GeoCities Web site ("GeoCities Site") or (ii) any format, collection or organization of data collected from the GeoCities Site from which one or more specific individuals may be identified or contacted using the Internet or otherwise." 2. A new Section 4.2.1 shall be added to the Agreement as follows: "Subject to Section 4.5, Be Free (i) shall [**] Be Free Behavioral Targeting Technology and (ii) shall [**] Be Free Targeting Technology to [**] during the period beginning on the date GeoCities [**] described in Section 4.5 and ending 120 days after the date [**]." H. New Be Free Technology. A new Section 4.3 shall be added to the Agreement ---------------------- as follows: 3 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Subject to Sections 4.5 and 8, GeoCities shall [**] all new technologies and services developed, conceived or reduced to practice by Be Free ("New Be Free Technology"). The parties shall meet at least once each calendar quarter during the term of the Agreement for the purpose of [**]; provided, however, nothing in this Section 4.3 shall be construed as requiring Be Free to take any action in violation of any obligation of confidentiality or non-disclosure to a third party. GeoCities' rights under this Section 4.3 shall expire upon a Change of Control of Be Free; provided, that in connection with such Change of Control, all shares of capital stock of GeoCities are purchased for cash at the then current fair market value in connection with such Change of Control. For purposes of this Section 4.3, "Change of Control" shall have the meaning ascribed to that term in the principal operative agreement for the investment described in Section 4.5." I. New GeoCities Business Models. A new Section 4.4 shall be added to the ----------------------------- Agreement as follows: "Subject to Sections 4.5 and 8, during the [**], GeoCities will [**] (whether by GeoCities or Be Free), that are [**] the GeoCities Affiliates Program or otherwise made widely available by Be Free through the GeoCities Site. GeoCities shall have [**] for a period of [**] after it is incorporated by Be Free into the GeoCities Affiliates Program or otherwise made widely available by Be Free through the GeoCities Site. The parties agree to use reasonable efforts [**]." J. GeoCities' Investment. A new Section 4.5 shall be added to the Agreement --------------------- as follows: "Sections 4.2.1, 4.3 and 4.4 shall be effective [**], or (ii) another amount mutually agreeable to Be Free and GeoCities." K. Referral Fees. Section 5.6 of the Agreement is hereby amended and restated ------------- as follows: 4 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "The parties acknowledge that Be Free may, from time to time, enter into business relationships with Merchants outside the scope of their involvement in the GeoCities Affiliates Program during the term of the Agreement. In such cases, Be Free shall pay GeoCities the following referral fees based upon the revenues from transactions fees (excluding installation and training fees) generated by each such Merchant during the [**] period following the date on which such Merchant begins making payments to Be Free:
Applicable Merchant Referral Fee - -------------------------------------------- ------------ First [**] Merchants integrated during the [**] term of the Agreement Second [**] Merchants integrated during the [**] term of the Agreement [**] and subsequent Merchants integrated [**] during the term of the Agreement
L. Dedicated Development Team. Section 7 of the Agreement is hereby amended --------------------------- as follows: 1. The first sentence of the first paragraph shall be replaced with the following sentence: "Be Free shall establish a dedicated team of engineers with appropriate experience and qualifications, the number of such engineers shall be at GeoCities' discretion, (collectively, the "Development Team") to perform services related to the development, support, maintenance and other services relating to [**] as well as any other development project as requested by GeoCities." 2. The first sentence of the second paragraph shall be replaced with the following sentence: "The first $[**] of costs associated with the services relating to [**] and other services performed by the Development Team shall be billed at [**]." 5 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. M. Representations and Warranties. ------------------------------ 1. Section 10.1 of the Agreement is hereby amended by adding the following clause (iv) at the end of such Section: "and (iv) it shall comply with all applicable laws, rules and regulations, domestic and foreign, pertaining to the performance of its obligations under the Agreement and the conduct of such party in the GeoCities Affiliates Program." 2. Section 10.2 of the Agreement is hereby amended by adding the following clause (v) at the end of the paragraph: "and (v) it shall [**], in a disaggregated format (as defined in Section 4.2), [**] any data derived from use of the Be Free Behavioral Targeting Technology." N. Indemnification. Replace the second sentence of Section 11.2 with the --------------- following sentence: "Be Free shall defend, indemnify and hold harmless the GeoCities Indemnitees from and against any and all Losses the GeoCities Indemnitees may incur based upon, arising out of, attributable to, or resulting from Be Free's (a) willful act or omission resulting in GeoCities' violation of the FTC Order, (b) material breach of this Agreement resulting in GeoCities' violation of the FTC Order, other than a breach by Be Free reasonably related to any act or omission by GeoCities constituting a violation of the FTC Order (excluding acts or omissions by Be Free attributed to GeoCities under the FTC Order), (c) collection or use of information from Affiliates, other than (i) GeoCities Data and (ii) information contained in a GeoCities Affiliate Program application or other standard form expressly approved beforehand by the parties (including any updates to the foregoing information), or (d) any breach of Section 4.2 (excluding Section 4.2.1 thereof) or of Section 13.2." 6 O. Technology Escrow. ----------------- 1. Section 12.1 of the Agreement is hereby amended and restated as follows: "Source Code Escrow. The parties shall establish an escrow of the source code to the Licensed Materials and any other software required for Be Free to perform its obligations under this Agreement ("Source Code"), by entering into an escrow agreement with Data Securities International, Inc. ("DSI") and depositing the Source Code with DSI. Notwithstanding any other term of the escrow agreement: (a) Be Free shall be obligated to promptly deposit into escrow any update of the Source Code and (b) the deposited Source Code shall be released to GeoCities only if Be Free files for or becomes subject to a proceeding under Chapter 7 of the United States Bankruptcy Code." 2. New Section 12.1.1 shall be added to the Agreement as follows: "Source Code License. Be Free hereby grants to GeoCities a perpetual, irrevocable, royalty-free, non-exclusive, worldwide license of Be Free's intellectual property rights in the Source Code to perform or have performed all services contemplated to be provided by Be Free under this Agreement; provided, however, GeoCities shall not exercise its rights under the foregoing license in any respect until the release of the Source Code pursuant to Section 12.1 and the escrow agreement." 3. New Sections 12.2 and 12.2.1 shall be added to the Agreement as follows, and Section 12.2 (Operational Inspection) shall be renumbered as 12.3 and amended and restated as set forth below: "12.2 Object Code Escrow. The parties shall establish an escrow of the object code to the Licensed Materials and any other software required for Be Free to perform its obligations under this Agreement ("Object Code"), by entering into an escrow agreement with Data Securities International, Inc. ("DSI") and depositing the Object Code with DSI. Notwithstanding any other term of the escrow agreement: (a) Be Free shall be obligated to promptly deposit into escrow any update of the Object Code and (b) the deposited Object Code shall be released to GeoCities only if Be Free commits an Object Code Release Breach of the Service Level Agreement (as defined therein), unless GeoCities has elected to terminate this Agreement. 7 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. 12.2.1 Object Code License. Be Free hereby grants to GeoCities a non exclusive, worldwide license of Be Free's intellectual property rights in the Object Code for the term of this Agreement to perform or have performed the services contemplated to be provided by Be Free under Section 2 of the Agreement; provided, however, GeoCities pays [**] the amounts otherwise payable by GeoCities pursuant to Section 5. Be Free shall provide customary software maintenance services in accordance with general industry standards free of charge with respect to the Object Code during the term of this license." 12.3 Operational Inspection. If Be Free files for or becomes subject to a proceeding under Chapter 11 of the United States Bankruptcy Code, commits an Operational Inspection Breach of the Service Level Agreement (as defined therein) or makes an assignment for the benefit of its creditors, GeoCities may conduct an inspection of Be Free's facilities and operations to determine the resources needed to exercise the rights contemplated under Section 12.1, including without limitation, review of connectivity, hardware resources, human resources, software program applications, and their documentation, other than a review of Source Code. Be Free shall cooperate in good faith and assist GeoCities in conducting this inspection." P. FTC Order. --------- 1. Section 13.1 is hereby amended by replacing the first sentence with the following sentence: "The parties acknowledge the existence of the FTC Order and Be Free acknowledges that it has received a copy of the FTC Order and is aware of its provisions. 2. Section 13.2 is hereby amended by replacing clause (A) with the following words: "(A) promptly complies in all respects with the Request, of" 3. A new Section 13.3 shall be added to the Agreement as follows and current Section 13.3 shall be renumbered as Section 13.4: "Notwithstanding the foregoing, if at any time, (a) GeoCities requests Be Free to (i) discontinue using or disclosing any personal identifying 8 information of a child (age 12 or under) obtained through use of the GeoCities Site, or (ii) remove any such information from its databases and (b) BeFree has failed to (1) discontinue using or disclosing such personal identifying information, or (2) remove any such information from its databases, in the case of (1) and/or (2), as soon as practicable (it being understood that Be Free shall assign such request the highest priority), GeoCities shall be permitted to terminate this Agreement without any recourse by Be Free and such termination shall not be subject to payment of the Termination Fee." 4. Current Section 13.3 (being renumbered as Section 13.4 in accordance with the foregoing) is hereby amended by adding the following sentence at the end of such Section: "For this purpose, at any time during the term of this Agreement, the authorized officers of GeoCities shall be limited to the Chief Executive Officer, the Chief Financial Officer and the General Counsel of GeoCities, and the authorized officers of Be Free shall be limited to the Chief Executive Officer, the Chief Financial Officer, the Executive Vice President, Technology and the Executive Vice President, Business Development of Be Free." 5. A new Section 13.5 shall be added to the Agreement as follows: "Be Free acknowledges GeoCities' obligation to maintain a privacy statement on the GeoCities Site, and to update that privacy statement from time to time in order to reflect any changes in the GeoCities Site's content and operations relating to, among other things, the collection and use of information, and applicable law. At least seven (7) and no more than twenty-one (21) days before Be Free Behavioral Targeting Technology is incorporated in the GeoCities Affiliates Program, Be Free shall provide GeoCities with a description of Be Free Behavioral Targeting Technology that is sufficient to enable GeoCities to update its privacy statement to accurately disclose the relevant changes. Thereafter, Be Free shall assist GeoCities in good faith in maintaining the accuracy of GeoCities' privacy statement during the term of this Agreement, keep GeoCities apprised of proposed and actual changes in the Be Free Behavioral Targeting Technology that affect the collection or use of information, and provide reasonable notice of material changes it proposes to make to Be Free Behavioral Targeting Technology in order to allow GeoCities to update its privacy statement prior to implementation of the changes. Q. Termination. Section 14.1 of the Agreement is hereby amended and restated ----------- as follows: 9 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "This Agreement will remain in effect, unless earlier terminated in accordance with Section 14.2 or Section 14.3, from the Effective Date for of period of three (3) years." R. Termination for Cause. Section 14.2 is hereby amended and restated as --------------------- follows: "GeoCities may immediately terminate this Agreement upon an Object Code Release Breach (as defined in the Service Level Agreement), unless GeoCities elects to receive the license provided under Section 12.2.1. In addition to the foregoing, either party may terminate this Agreement in the event of a material breach by the other party of its material obligations under this Agreement following [**] notice, unless such breach is cured within such [**] period. If GeoCities terminates this Agreement in accordance with this Section 14.2, GeoCities shall have no obligation to pay any Termination Fee." S. Effects of Termination. Section 14.4 of the Agreement is hereby amended by ----------------------- inserting "12.1.2 (Source Code License) (if such Source Code is then being, or has previously been, duly released from escrow)" after "(Limitation of Liability)". T. General. The Agreement, as modified by this Amendment, together constitute ------- the entire Agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements between the parties in connection with the subject matter hereof Except as otherwise provided in this Amendment, the terms of the Agreement shall remain in full force and effect. This Amendment may be executed in two or more counterparts, each of which shall be an original and all of which shall constitute one and the same instrument. U. Amendment Controls. To the extent any of the terms set forth in this ------------------ Amendment conflict with the terms of the Agreement, the terms of this Amendment shall control. 10 IN WITNESS WHEREOF, the parties have executed this Amendment as of Amendment Date. GEOCITIES BE FREE, INC. By: /s/ Ellen F. Simonoff By: /s/ Gordon B. Hoffsten --------------------------- -------------------------- Name: Ellen F. Simonoff Name: Gordon B. Hoffsten ----------------------- ----------------------- Title: VP Title: CEO -------------------------- ----------------------- 11 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. ADDENDUM AND AMENDMENT NO. 2 TO GEOCITIES AFFILIATES PROGRAM LICENSE AND SERVICES AGREEMENT This Addendum and Amendment No. 2 ("Amendment No. 2") to GeoCities Affiliates Program License and Services Agreement is entered into as of 6/25, 1999 ("Amendment No. 2 Effective Date") by and between Be Free, Inc., located at 201 Boston Post Road West, Marlborough, MA 01752 ("Be Free"), and GeoCities, located at 4499 Glencoe Avenue, Marina del Ray, CA 90292 ("GeoCities"). WHEREAS, Be Free and GeoCities entered into the GeoCities Affiliates Program License and Services Agreement dated as of January 13, 1999, as amended by that certain Addendum and Amendment No. 1 as of January 26, 1999, (the "Amended Agreement"); and WHEREAS, Be Free and GeoCities have agreed to supplement and modify certain provisions of the Amended Agreement as set forth in this Amendment No. 2 with the other provisions remaining in full force and effect. NOW THEREFORE, the parties agree to amend the Amended Agreement as follows: V. Any capitalized terms not otherwise defined in this Amendment No. 2 shall have the meaning set forth in the Amended Agreement. 1. Certain Definitions. Section 1 of the Amended Agreement is hereby ------------------- amended by adding the following definition: "GeoCities Subdomain" means that portion of the GeoCities domain which is accessible at the Uniform Resource Locator." W. GeoCities Subdomain. A new Section 2.5 shall be added to the Amended ------------------- Agreement as follows: "During the Term of the Agreement, Be Free shall cause each Link generated in conjunction with the GeoCities Affiliates Program to be directed to the GeoCities Subdomain and shall otherwise utilize the GeoCities Subdomain to the fullest extent possible in Be Free's performance of services relating to the GeoCities Affiliates Program. Be Free shall not use, or permit any third party to use, the GeoCities Subdomain for the benefit of any person or entity other than GeoCities during the term of the Agreement [**]. X. Merchant Data Transfer Capability. A new Section 2.6 shall be added to the --------------------------------- Amended Agreement as follows: Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "GeoCities reserves the right to require Merchants to direct any data necessary for Be Free to perform services relating to the GeoCities Affiliates Program, to GeoCities. GeoCities shall be responsible for promptly forwarding such data to Be Free." Y. Be Free Behavioral Targeting Technology. Section 4.2.1 of the Amended --------------------------------------- Agreement is hereby amended and restated in its entirety as follows: "Be Free (i) shall [**] and (ii) shall [**] or a period of [**] beginning on the date that Be Free first makes a commercial version of the Be Free Targeting Technology available to GeoCities for use by way of an offer for a license, subscription or otherwise." Z. New Be Free Technology. The first sentence of Section 4.3 of the Amended ---------------------- Agreement is hereby deleted and replaced with the following: "Be Free shall [**] Be Free [**] Be Free [**] ("New Be Free Technology"). GeoCities' use and disclosure of any such information pertaining to New Be Free Technology shall be subject to the restrictions set forth in Section 8 of this Agreement. Be Free's obligations under this Section 4.3 shall not require Be Free's disclosure of any information that it is prohibited from disclosing pursuant to a written agreement with a third party." AA. New GeoCities Business Models. Section 4.4 of the Amended Agreement ----------------------------- is hereby amended and restated as follows: "Subject to Section 8, during the [**] period following the Effective Date, [**], that are [**] (iii) not obvious to a person of ordinary skill [**]. GeoCities shall [**] after it is [**] or otherwise made widely available[**]. The parties agree to use reasonable efforts to document other origins of each such new business model, product service and improvement. In the event of a dispute as to whether any such business model, product, service or improvement is not obvious a provided in clause (iii) above, either party may submit such dispute to mediation for resolution by notifying the other party in writing of its desire to initiate mediation. The mediation shall be conduced in San Francisco, California under the auspices of JAMS/Endispute. The mediator shall have experience in intellectual property law and the Internet and shall be reasonably acceptable to both parties. Neither party shall be permitted to conduct any discovery in connection with the mediation. Each party shall have a maximum of four (4) hours to present its case and the mediator shall decide the dispute within thirty (30) days of the conclusion of the parties' presentation of the dispute. The mediation proceedings shall be confidential, and the mediator may not testify for either party in any later proceeding 2 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. relating to the dispute. The mediator shall be empowered solely to decide whether the business model(s), product(s), service(s) and/or improvement(s) in question is/are not obvious as provided in clause (ii) above. The mediator is not empowered to award damages in favor of either party. Each party shall bear its own costs in the mediation. The fees and expenses of the mediator shall be shared equally by the parties." BB. Investment; Exclusivity. Section 4.5 of the Amended Agreement shall ----------------------- be deleted in its entirety. CC. [**] Client/Pricing. A new Section 5.7 shall be added to the ------------------- Amended Agreement as follows: "During the term of this Agreement, [**] provided hereunder [**] set forth in this Agreement [**]." DD. Change of Control. Section 15 of the Amended Agreement shall be ----------------- amended by inserting "or if [**]" in the first sentence after "is reasonably likely to occur". EE. Yahoo Store Integration. A new Section E(3) shall be added to Exhibit ----------------------- A (Specifications) of the Amended Agreement as follows: "Within fifteen (15) days following a request by GeoCities, Be Free shall commence taking the necessary steps to integrate Merchants utilizing Yahoo Stores features into the GeoCities Affiliates Program and Be Free shall diligently continue such efforts until the integration is completed. Such integration shall enable such Merchants to participate in the GeoCities Affiliates Program directly through Yahoo Stores to the same extent as other Merchants including, without limitation, integration in the data transfer and report access features of the GeoCities Affiliates Program." FF. General. The Amended Agreement, as modified by this Amendment No. 2, ------- constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements between the parties in connection with the subject matter hereof. Except as otherwise provided in this Amendment No. 2, the terms of the Amended Agreement shall remain in full force and effect. This Amendment No. 2 may be executed in two or more counterparts, each of which shall be an original and all of which shall constitute one and the same instrument. 3 GG. Amendment No. 2 Controls. To the extent any of the terms of this ------------------------ Amendment No. 2 conflict with Amended Agreement, the terms of this Agreement No. 2 shall control. IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 as of Amendment No. 2 Effective Date. GEOCITIES BE FREE, INC. By: /s/Ellen F. Simonoff By: /s/ Gordon B. Hoffsten --------------------------- ------------------------------ Name: Ellen F. Simonof Name: Gordon B. Hoffsten ------------------------ ---------------------------- Title: VP Title: CEO ------------------------ -------------------------- 4 EX-10.15 18 BFAST SERVICE ORDER FORM Exhibit 10.15 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. [BeFree, Inc. Logo] July 20, 1999 Mr. Carl S. Rosendorf Barnesandnoble.com, Inc. 76 Ninth Avenue 11/th/ Floor New York, New York 10011 Dear Carl: This letter serves to amend the BFAST Service Order dated January 31, 1998, as amended by the letter of clarification dated July 20, 1998 and the amendment dated February 12, 1999 (the "Agreement"). Please sign below to confirm your consent to amend the Agreement so that, effective beginning with the month of August 1999, the [**] fee specified in the section of the Agreement entitled Discounted Prepayment for Primary Network is [**]. Further this amendment [**] Advertising Impressions served for the BFIT Advertising placement service from [**]. These rates [**] for such services. Sincerely, /s/William H. Flynn William H. Flynn Director, Eastern Region Sales Approved and Accepted by barnesandnoble.com: /s/ Carl S. Rosendorf - --------------------- Carl S. Rosendorf Senior Vice President barnesandnoble.com, Inc. Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. [BeFree, Inc. Logo] February 12, 1999 Mr. Carl S. Rosendorf Barnesandnoble.com, Inc. 76 Ninth Avenue, 11th Floor New York, New York 10011 Dear Carl: This letter serves to modify the BFAST Service Order dated January 31, 1998, and amended with the letter of clarification dated July 20, 1998. 1. The BFAST Service Order Form, Discounted Prepayment for Primary Network section, as amended in the letter of clarification dated July 20, 1999, shall be replaced with: "In subsequent fiscal years, the Affiliate Provider shall pay a fee for its primary Affiliate Network of [**] of net sales generated through the primary Affiliate Network. A prepayment equal to [**] is due and payable by February 15 of each subsequent fiscal year. Such prepayment represents fees for the first [**] of annual net sales generated through the primary Affiliate Network. Fees for annual net sales in excess of [**] will be invoiced monthly by Be Free and due and payable by the Affiliate Provider within thirty days of the invoice date." 2. A new section will be added to the BFAST Service Order as follows: "Be Free shall provide Affiliate Provider with ongoing client development support. Such support will consist of Be Free assigning one Client Development Manager to the Affiliate Provider's place of business through April 30, 1999. Subsequently, Be Free shall guarantee that one Client Development Manager, assigned to Be Free's place of business, shall provide a minimum of one-half of his or her effort to support the Affiliate Provider." Carl, if this properly reflects our discussions of last week, please indicate your approval and acceptance where noted below. Sincerely, /s/ William H. Flynn William H. Flynn Director, Eastern Region Sales Approved and Accepted by barnesandnoble.com: /s/ Carl S. Rosendorf - --------------------- Carl S. Rosendorf Senior Vice President barnesandnoble.com, Inc. Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. [BeFree, Inc. Logo] 20 July, 1998 Carl S. Rosendorf barnesandnoble.com, Inc. 78 Ninth Avenue New York, NY 10011 Dear Carl, I am writing to confirm the two clarifications to our contract, dated January 31, 1998, that we discussed last week by phone. The following changes will be made and considered to be immediately in effect upon your signature below. 1) BFAST Service Order Form, Discounted Prepayment for Primary Network, the paragraph reading: "In subsequent fiscal years, Affiliate Provider may pre-pay the fees for its primary Affiliate Network by paying Be Free a fee equal to [**] of the traffic-based pricing that would have been due for the year prior. This payment must be made in full before the fiscal year commences, and would replace all traffic-based pricing for Affiliate Provider's primary Affiliate Network and Business Network." shall be deleted and replaced with: "In subsequent fiscal years, Affiliate Provider may pre-pay the fees for its primary Affiliate Network by paying Be Free a fee equal to [**] of the undiscounted, impression and click-through based fees that would have been due for the year prior, if no discount had been given in that year. This payment must be made in full before the fiscal year commences, and would replace all traffic-based pricing for Affiliate Provider's primary Affiliate Network and Business Network." 2) BFAST Terms of Service, Article VIII, Section 4.b shall be deleted and replaced with: "Should either party (1) apply for or consent to the appointment of a receiver, trustee, liquidator of itself, or all or a substantial part of its assets, or (2) be unable or admit in writing its inability to pay its debts as they become due, or (3) make a general assignment for the benefit of creditors, or (4) be adjudicated a bankrupt, or (5) commence a case or other proceeding relating to it under any bankruptcy, reorganization, arrangement, readjustment, insolvency, dissolution, liquidation, or similar law of any jurisdiction, now or hereafter in effect." I would be grateful if you would fax a signed copy to me at your earliest convenience. Please do not hesitate to contact me with questions or concerns. Sincerely yours, /s/ Thomas A. Gerace Thomas A. Gerace President Approved and Accepted: /s/ Carl S. Rosendorf Carl S. Rosendorf Vice President Marketing, Sales, and Business Development barnesandnoble.com, Inc. Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. BFAST Service Order Form The following describes the fee and term information, taken with the attached BFAST Terms of Service, form an agreement between barnesandnoble.com, Inc. ("Affiliate Provider") and Be Free, Inc. ("Be Free") regarding the provision of BFAST and BFIT service by Be Free. Terms not defined herein shall have the meanings ascribed to them in the attached BFAST Terms of Service. ONGOING BFAST SERVICE FEES During the term, Affiliate Provider shall pay the following fees to Be Free for the BFAST service. Payments for a given month shall be made within 30 days of Affiliate Provider's receipt of an invoice for that month and shall made based on the service level marked below. Service levels may not change during the Term: In any month, the Affiliate Provider shall pay the higher of the following for each of its Affiliate Networks: 1. Guaranteed monthly minimum of $[**] OR 2. Impression ad Click-Through based fees as follows: For affiliate sites delivering product impressions with each buying opportunity: . [**] impressions: $[**] Product Impressions delivered . [**] impressions: $[**] Product Impressions delivered . [**] impressions and above: $[**] Product Impressions delivered For affiliates sites that do not deliver product impressions with each buying opportunity: . [**] click-throughs: $[**] per click-through tracked to sales site . [**] click-throughs: $[**] per click-through tracked to sales site . [**] click-throughs and greater: $[**] per click-through tracked to sales site DISCOUNTED PREPAYMENT FOR PRIMARY NETWORKS For Affiliate Provider's fiscal year, beginning February 1, 1998 and ending January 31, 1999, Affiliate Provider may pre-pay Be Free the sum of $[**] to provide service for its primary Affiliate Network and its planned Business Network. This pre-payment shall replace the Ongoing BFAST Service Fees listed above for that network for the Affiliate Provider's fiscal year. This pre- payment shall not cover the proposed AOL Affiliate Network or any other such new networks launched by Affiliate Provider. In subsequent fiscal years, Affiliate Provider may pre-pay the fees for its primary Affiliate Network by paying Be Free a fee equal to [**] of the traffic- based pricing that would have been due for the year prior. This payment must be made in full before the fiscal year commences, and would replace all traffic- based pricing for Affiliate Provider's primary Affiliate Network and Business Network. DEVELOPMENT Because Affiliate Provider requires ongoing development, Affiliate Provider shall pay Be Free on a fixed-fee, project basis. Be Free shall notify Affiliate Provider of any development required before initiating work and shall provide a written estimate of any projects expected to cost in excess of $[**] Affiliate Provider shall review and approve these estimates before work begins. Any increases in fees in excess of development estimates must be mutually agreed upon. Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omission. Because Affiliate Provider requires rapid response to its development needs, Affiliate Provider shall pay Be Free a non-refundable deposit of $[**] on February 15/th/ of each year of this contract, commencing in 1999, against future development to enable Be Free to reserve capacity for Affiliate Provider's development needs. Be Free shall charge the first $[**] of development in each year against this deposit before invoicing Affiliate Provider for additional work. CHECKWRITING FEES Be Free shall perform or have performed quarterly check-writing to Affiliate Provider's Affiliates. This service will be billed at [**] per check plus postage to Affiliate Provider. BFIT ADVERTISING PLACEMENT AND TRACKING FEES Affiliate Provider may use Be Free's BFIT advertising placement service to place advertising on its own Sites or Sites owned by other companies at a cost of [**] Advertising Impressions served. Term: The term of this Agreement shall be Three (3) years commencing on the date on which the parties have both signed this Agreement. AGREED AND ACCEPTED: barnesandnoble.com, INC. BE FREE INC. /s/ Carl S. Rosendorf, VP /s/ Thomas A. Gerace, President - ------------------------- ------------------------------- Carl S. Rosendorf, Vice President Thomas A. Gerace, President Marketing, Sales, and Business Development 1/31/98 1/31/98 - ------------------------- --------------------------------- Date Date 2 EX-10.16 19 AGREEMENT WITH DAN NOVA EXHIBIT 10.16 DIRECTOR INDEMNIFICATION AGREEMENT DIRECTOR INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of March 31, 1999, by and between Be Free, Inc., a Delaware corporation (the "Company") including, where appropriate, any Entity (as hereinafter defined) controlled directly or indirectly by the Company), and Dan Nova ("Indemnitee"): WHEREAS, it is essential to the Company that it be able to retain and attract as directors the most capable persons available; WHEREAS, increased corporate litigation has subjected directors to litigation risks and expenses, and the limitations on the availability of directors and officers liability insurance have made it increasingly difficult for the Company to attract and retain such persons; WHEREAS, the Company's By-laws (the "By-laws") require the Company to indemnify its directors to the fullest extent permitted by law and permit the Company to make other indemnification arrangements and agreements; WHEREAS, the Company desires to provide Indemnitee with specific contractual assurance of Indemnitee's rights to full indemnification against litigation risks and expenses (regardless, among other things, of any amendment to or revocation of the By-laws or any change in the ownership of the Company or the composition of its Board of Directors), which indemnification is intended to be greater than that which is afforded by the Company's Certificate of Incorporation, as amended (the "Certificate of Incorporation"), the By-laws and, to the extent insurance is available, the coverage of Indemnitee under the Company's directors and officers liability insurance policies; and WHEREAS, Indemnitee is relying upon the rights afforded under this Agreement in continuing in Indemnitee's position as a director of the Company: NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: 1. Definitions. ----------- (a) "Corporate Status" describes the status of a person who is serving or has served (i) as a director of the, Company, (ii) in any capacity with respect to any employee benefit plan of the Company, or (iii) as a director, partner, trustee, officer, employee, or agent of any other Entity at the request of the Company. (b) "Entity" shall mean any corporation, partnership, joint venture, trust, foundation, association, organization or other legal entity and any group or division of the Company or any of its subsidiaries. (c) "Expenses" shall mean all reasonable fees, costs and expenses incurred in connection with any Proceeding (as defined below), including, without limitation, attorneys' fees, disbursements and retainers (including, without limitation, any such -1- fees, disbursements and retainers incurred by Indemnitee pursuant to Sections 10 and 11(c) of this Agreement), fees and disbursements of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and Investment bankers), court costs, transcript costs, fees of experts, travel expenses, duplicating, printing and binding costs, telephone and fax transmission charges, postage, delivery services, secretarial services, and other disbursements and expenses. (d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and "Indemnifiable Amounts" shall have the Meanings ascribed to those terms in Section 3(a) below. (e) "Liabilities" shall mean judgments* damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement. (f) "Proceeding" shall mean any threatened pending or completed claim, action, suit, arbitration, alternate dispute resolution process, investigations administrative hearing, appeals or any other proceeding, whether civil, criminal, administrative, arbitrative or investigative, whether formal or informal, including a proceeding initiated by Indemnitee pursuant to Section 10 of this Agreement to enforce Indemnitee's rights hereunder. 2. Services of Indemnitee. In consideration of the Company's covenants ---------------------- and commitments hereunder, Indemnitee agrees to serve or continue to serve as a director of the Company. However, this Agreement shall not impose any obligation on Indemnitee or the Company to continue Indemnitee's service to the Company beyond any period otherwise required by law or by other agreements or commitments of the parties, if any. 3. Agreement to Indemnify. The Company agrees to indemnify Indemnitee as ---------------------- follows: (a) Subject to the exceptions contained in Section 4(a) below, if Indemnitee was or is a party or is threatened to be made a party to any Proceeding (other than in action by or in the right of the Company) by reason of Indemnitee's Corporate Status, Indemnitee shall be indemnified by the Company against all Expenses and Liabilities incurred or paid by Indemnitee in connection with such Proceeding (referred to herein as "Indemnifiable Expenses" and "Indemnifiable Liabilities," respectively, and collectively as "Indemnifiable Amounts"). (b) Subject to the exceptions contained in Section 4(b) below, if Indemnitee was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of Indemnitee's Corporate Status, Indemnitee shall be indemnified by the Company against all Indemnifiable Expenses. 4. Exceptions to Indemnification. Indemnitee shall be entitled to ----------------------------- indemnification under Sections 3(a) and 3(b) above in all circumstances other than the following: -2- (a) If indemnification is requested under Section 3(a) and it has been adjudicated finally by a court of competent jurisdiction that, in connection with the subject of the Proceeding out of which the claim for indemnification has arisen, Indemnitee failed to act in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company with respect to which Indemnitee's Corporate Status has given rise to a claim against Indemnitee, or, with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful, Indemnitee shall not be entitled to payment of Indemnifiable Amounts hereunder. (b) If indemnification is requested under Section 3(b) and (i) it has been adjudicated finally by a court of competent jurisdiction that, in connection with the subject of the Proceeding out of which the claim for indemnification has arisen, Indemnitee failed to act in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, Indemnitee shall not be entitled to payment of Indemnifiable Expenses hereunder; or (ii) it has been adjudicated finally by a court of competent jurisdiction that Indemnitee is liable to the Company with respect to any claim, issue or matter involved in the Proceeding out of which the claim for indemnification has arisen, including, without limitation, a claim that Indemnitee received an improper personal benefit, no Indemnifiable Expenses shall be paid with respect to such claim, issue or matter unless the Superior Court or another court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such Indemnifiable Expenses which such court shall deem proper. 5. Procedure for Payment of Indemnifiable Amounts. Indemnitee shall ---------------------------------------------- submit to the Company a written request specifying the Indemnifiable Amounts for which Indemnitee seeks payment under Section 3 of this Agreement and the basis for the claim. The Company shall pay such Indemnifiable Amounts to Indemnitee within twenty (20) calendar days of receipt of the request. At the request of the Company, Indemnitee shall furnish such documentation and information as are reasonably available to Indemnitee and necessary to establish that Indemnitee is entitled to indemnification hereunder. 6. Indemnification for Expenses of a Party Who is Wholly or Partly --------------------------------------------------------------- Successful. Notwithstanding any other provision of this Agreement, and without - ---------- limiting any such provision, to the extent that Indemnitee is, by reason of Indemnitee's Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, Indemnitee shall be indemnified against all Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or -3- matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Agreement, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter, 7. Effect of Certain Resolutions. Neither the settlement or termination ----------------------------- of any Proceeding nor the failure of the Company to award indemnification or to determine that indemnification is payable shall create an adverse presumption that Indemnitee is not entitled to indemnification hereunder. In addition, the termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendes or its equivalent shall not create a presumption ---- --------- that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee's action was unlawful. 8. Agreement to Advance Expenses; Conditions. The Company shall pay to ----------------------------------------- Indemnitee all Indemnifiable Expenses incurred by Indemnitee in connection with any Proceeding, including a Proceeding by or in the right of the Company, in advance of the final disposition of such Proceeding. To the extent required by Delaware law, Indemnitee hereby undertakes to repay the amount of Indemnifiable Expenses paid to Indemnitee if it is finally determined by a court of competent jurisdiction that Indemnitee is not entitled under this Agreement to Indemnification with respect to such Expenses. This undertaking is an unlimited general obligation of Indemnitee. 9. Procedure for Advance Payment of Expenses. Indemnitee shall submit to ----------------------------------------- the Company a written request specifying the Indemnifiable Expenses for which Indemnitee seeks an advancement under Section 8 of this Agreement, together with documentation evidencing that Indemnitee has incurred such Indemnifiable Expenses. Payment of Indemnifiable Expenses under Section 8 shall be made no later than twenty (20) calendar days after the Company's receipt of such request. 10. Remedies of Indemnitee. ---------------------- (a) Right to Petition Court. In the event that Indemnitee makes a request ----------------------- for payment of Indemnifiable Amounts under Sections 3 and 5 above or a request for an advancement of Indemnifiable Expenses under Sections 8 and 9 above and the Company fails to make such payment or advancement in a timely manner pursuant to the terms of this Agreement, Indemnitee may petition the Superior Court to enforce the Company's obligations under this Agreement. (b) Burden of Proof. In any judicial proceeding brought under Section --------------- 10(a) above, the Company shall have the burden of proving that Indemnitee is not entitled to payment of Indemnifiable Amounts hereunder. (c) Expenses. The Company agrees to reimburse Indemnitee in full for any -------- Expenses incurred by Indemnitee in connection with investigating, preparing for, -4- litigating, defending or sealing any action brought by Indemnitee under Section 10(a) above, or in connection with any claim or counterclaim brought by the Company in connection therewith. (d) Validity of Agreement. The Company shall be precluded from asserting --------------------- in any Proceeding, including, without limitation, an action under Section 10(a) above, that the provisions of this Agreement are not valid, binding and enforceable or that there is insufficient consideration for this Agreement and shall stipulate in court that the Company is bound by all the provisions of this Agreement. (e) Failure to Act Not a Defense. The failure of the Company (including, ---------------------------- without limitation, its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of the payment of Indemnifiable Amounts or the advancement or Indemnifiable Expenses under this Agreement shall not be a defense in any action brought under Section 10(a) above, and shall not create a presumption that such payment or advancement is not permissible. 11. Defense of the Underlying Proceeding. ------------------------------------ (a) Notice by Indemnitee. Indemnitee agrees to notify the Company promptly -------------------- upon being served with any summons, citation, subpoena, complaint, indictment, information, or other document relating to any Proceeding which may result in the payment of Indemnifiable Amounts or the advancement of Indemnifiable Expenses hereunder; provided, however, that the failure to give any such notice -------- ------- shall not disqualify Indemnitee from the right to receive payments of Indemnifiable Amounts or advancements of Indemnifiable Expenses unless the Company's ability to defend in such Proceeding is materially and adversely prejudiced thereby, (b) Defense of the Company. Subject to the provisions of the last sentence ---------------------- of "s Section II (b) and of Section I 1 (c) below, the Company shall have the right to defend Indemnitee n any Proceeding which may give rise to the payment of Indemnifiable Amounts hereunder; provided, however, that the Company shall -------- ------- notify Indemnitee of any such decision to defend within ten (10) days of receipt of notice of any such Proceeding under Section I 1(a) above. The Company shall not, without the prior written consent of Indemnitee, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee or (H) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance satisfactory to Indemnitee. This Section 1 1 (b) shall not apply to a Proceeding brought by Indemnitee under Section 10(a) above or pursuant to Section 19 below. (c) Indemnitee's Right to Counsel. Notwithstanding the provisions of ----------------------------- Section 11(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee's Corporate Status, Indemnitee reasonably concludes that it may have -5- separate defenses or counterclaims to assert with respect to any issue which may not be consistent with the position of other defendants in such Proceeding, or the Company fails to assume the defense of such proceeding in a tamely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee's choice at the expense of the Company. In addition, If the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any action, suit or proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain legal counsel of Indemnitee's choice, at the expense of the Company, to represent Indemnitee in connection with any such matter. 12. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to Indemnitee as follows: (a) Authority. The Company has all necessary power and authority to enter --------- into, and be bound by the terms of* this Agreement, and the execution, delivery and performance of the undertakings contemplated by this Agreement have been duly authorized by the Company. (b) Enforceability. This Agreement, when executed and delivered by the -------------- Company in accordance with the provisions hereof, shall be a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with Its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the enforcement of creditors' rights generally. 13. Insurance. The Company shall, from time to time, make the good faith --------- determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the Indemnitee with coverage for losses from wrongful acts, and to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall bo named as an insured in such a manner as to provide Indemnitee the same rights and benefits as arm, accorded to the most favorably insured of the Company's officers and directors. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, or if the coverage provided by such insurance Is limited by exclusions so as to provide an insufficient benefit. The Company shall promptly notify Indemnitee of any good faith determination not to provide such coverage. 14. Contract Right Not Exclusive. The rights to payment of Indemnifiable ---------------------------- Amounts and advancement of Indemnifiable Expenses provided by this Agreement shall be in addition to, but not exclusive of, any other rights which Indemnitee may have at any time -6- under applicable law, the Company's By-laws or Certificate of Incorporation or any other agreement, vote of stockholders or directors (or a committee of directors), or otherwise, both as to action in Indemnitee's official capacity and as to action in any other capacity as a result of Indemnitee's serving as a director of the Company. 15. Successors. This Agreement shall be (a) binding upon all successors ---------- and assigns of the Company (including any transferee of all or a substantial portion of the business, stock and/or assets of the Company and any direct or indirect successor by merger or . consolidation or otherwise by operation of law) and (b) binding on and shall inure to the benefit of the heirs, personal representatives, executors and administrators of Indemnitee. This Agreement shall continue for the benefit of Indemnitee and such heirs, personal representatives, executors and administrators after Indemnitee has ceased to have Corporate Status. 16. Subrogation. In the event of any payment of Indemnifiable Amounts ----------- under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of contribution or recovery of Indemnitee against other persons, and Indemnitee shall take, at the request of the Company, all reasonable action necessary to secure such rights, including the execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. 17. Change in Law. To the extent that a change in Delaware law (whether ------------- by statute or judicial decision) shall permit broader Indemnification or advancement of expenses than is provided under the terms of the By-laws of the Company and this Agreement, Indemnitee shall be entitled to such broader indemnification and advancements, and this Agreement shall be deemed to be amended to such extent. 18. Severability. Whenever possible, each provision of this Agreement ------------ shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement, or any clause thereof. shall be determined by a court of competent jurisdiction to be illegal, invalid or unenforceable, in whole or in part, such provision or clause shall be limited or modified in its application to the minimum extent necessary to make such provision or clause valid, legal and enforceable, and the remaining provisions and clauses of this Agreement shall remain fully enforceable and binding on the parties. 19. Indemnitee as Plaintiff. Except as provided in Section 10(c) of this ----------------------- Agreement and in the next sentence, Indemnitee shall not be entitled to payment of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect to any Proceeding brought by Indemnitee against the Company, any Entity which it controls, any director or officer thereof, or any third party, unless the Company has consented to the initiation of such Proceeding. This Section shall not apply to counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee. 20. Modifications and Waiver. Except as provided in Section 17 above with ------------------------ respect to changes in Delaware law which broaden the right of Indemnitee to be indemnified -7- by the Company, no supplement, modification or amendment of this Agreement shall be binding unless executed in writing by each of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement (whether or not similar), nor shall such waiver constitute a continuing waiver. 21. General Notices. All notices, requests, demands and other --------------- communications hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered by hand, (b) when transmitted by facsimile and receipt is acknowledged, or (c) if mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (i) If to Indemnitee, to the Indemnitee's address or facsimile number set forth on the signature pages hereto With a copy to: Hutchins, Wheeler & Dittmar, A Professional Corporation 101 Federal Street Boston, MA 02110 Attention: James Westra Facsimile: (617) 951-1295 (ii) If to the Company, to: Be Free, Inc. 154 Crane Meadow Road Suite 100 Marlboro, MA 01752 Attention: Steven Joseph, CFO Facsimile: (508) 357-8889 With a copy to: Hale and Dorr LLP 60 State Street Boston, MA 02109 Attention: Jay E. Bothwick Facsimile: (617) 526-5000 or to such other address as may have been furnished in the same manner by any party to the others. 22. Governing Law. This Agreement shall be governed by and construed and ------------- enforced under the laws of the Commonwealth of Massachusetts without giving effect to the provisions thereof relating to conflicts of law. -8- 23. Consent to Jurisdiction. The Company hereby irrevocably and ----------------------- unconditionally consents to the jurisdiction of the courts of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts. The Company hereby irrevocably and unconditionally waives any objection to the laying of venue of any Proceeding arising out of or relating to this Agreement in the courts of the Commonwealth of Massachusetts or the United States District Court for the District of Massachusetts, and hereby irrevocably and unconditionally waives and agrees ' not to plead or claim that any such Proceeding brought in any such court has been brought in an inconvenient form. 24. Agreement Governs. This Agreement is to be deemed consistent wherever ----------------- possible with relevant provisions of the Company's By-laws and Certificate of Incorporation; however, in the event of a conflict between this Agreement and such provisions, the provisions of this Agreement shall control. [Remainder of page intentionally left blank) -9- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: ------- BE FREE, INC. By:/s/ Stephen M. Joseph ------------------------------------ Name: Stephen M. Joseph Title: CFO INDEMNITEE: ---------- /s/ Dan Nova --------------------------------------- Print Name: Dan Nova Address: c/o Highland Capital Partners Two International Place Boston, MA 02110 -10- EX-10.17 20 INDEMNIFICATION AGREEMENT EXHIBIT 10.17 DIRECTOR INDEMNIFICATION AGREEMENT DIRECTOR INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of August 28, 1998, by and between Freedom of Information, Inc., a Delaware corporation (the "Company" including, where appropriate, any Entity (as hereinafter defined) controlled directly or indirectly by the Company), and Ted R. Dintersmith ("Indemnitee"): WHEREAS, it is essential to the Company that it be able to retain and attract as directors the most capable persons available; WHEREAS, increased corporate litigation has subjected directors to litigation risks and expenses, and the limitations on the availability of directors and officers liability insurance have made it increasingly difficult for the Company to attract and retain such persons; WHEREAS, the Company's Certificate of Incorporation (the "Certificate of Incorporation") requires the Company to indemnify its directors to the fullest extent permitted by law; WHEREAS, the Company desires to provide Indemnitee with specific contractual assurance of Indemnitee's rights to full indemnification against litigation risks and expenses (regardless, among other things, of any amendment to or revocation of the Certificate of Incorporation or any change in the ownership of the Company or the composition of its Board of Directors), which indemnification is intended to be greater than that which is afforded by the Certificate of Incorporation, the Company's By-laws and, to the extent insurance is available, the coverage of Indemnitee under the Company's directors and officers liability insurance policies; and WHEREAS, Indemnitee is relying upon the rights afforded under this Agreement in continuing in Indemnitee's position as a director of the Company: NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: 1. Definitions. ----------- (a) "Corporate Status" describes the status of a person who is serving or has served (i) as a director of the Company, (ii) in any capacity with respect to any employee benefit plan of the Company, or (iii) as a director, partner, trustee, officer, employee, or agent of any other Entity at the request of the Company. (b) "Entity" shall mean any corporation, partnership, joint venture, trust, foundation, association, organization or other legal entity and any group or division of the Company or any of its subsidiaries. (c) "Expenses" shall mean all reasonable fees, costs and expenses incurred in connection with any Proceeding (as defined below), including, without limitation, attorneys' fees, disbursements and retainers (including, without limitation, any such fees, disbursements and retainers incurred by Indemnitee pursuant to Sections 10 and 11(c) of this Agreement), fees and disbursements of expert witnesses, private investigators and professional advisors (including without limitation, accountants and investment bankers), court costs, transcript costs, fees of experts, travel expenses, duplicating, printing and binding costs, telephone and fax transmission charges, postage, delivery services, secretarial services, and other disbursements and expenses. (d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and "Indeninifiable Amounts" shall have the meanings ascribed to those terms in Section 3(a) below. (e) "Liabilities" shall mean judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement. (f) "Proceeding" shall mean any threatened, pending or completed claim, action, suit, arbitration, alternate dispute resolution process, investigation, administrative hearing, appeal, or any other proceeding, whether civil, criminal, administrative, arbitrative or investigative, whether formal or informal, including a proceeding initiated by Indemnitee pursuant to Section 10 of this Agreement to enforce Indeninitee's rights hereunder. 2. Services of Indemnitee. In consideration of the Company's covenants ---------------------- and commitments hereunder, Indemnitee agrees to serve or continue to serve as a director of the Company. However, this Agreement shall not impose any obligation on Indemnitee or the Company to continue Indemnitee's service to the Company beyond any period otherwise required by law or by other agreements or commitments of the parties, if any. 3. Agreement to Indemnify. The Company agrees to indemnify Indeninitee ---------------------- as follows: 2 (a) Subject to the exceptions contained in Section 4(a) below, if Indemnitee was or is a party or is threatened to be made a party to any Proceeding (other than an action by or in the right of the Company) by reason of Indemnitee's Corporate Status, Indemnitee shall be indemnified by the Company against all Expenses and Liabilities incurred or paid by Indemnitee in connection with such Proceeding (referred to herein as "Indemnifiable Expenses" and "Indemnifiable Liabilities," respectively, and collectively as "Indemnifiable Amounts"). (b) Subject to the exceptions contained in Section 4(b) below, if Indemnitee was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of Indemnitee's Corporate Status, Indemnitee shall be indemnified by the Company against all Indemnifiable Expenses. 4. Exceptions to Indemnification. Indemnitee shall be entitled to ----------------------------- indemnification under Sections 3(a) and 3(b) above in all circumstances other than the following: (a) If indemnification is requested under Section 3(a) and it has been adjudicated finally by a court of competent jurisdiction that, in connection with the subject of the Proceeding out of which the claim for indemnification has arisen, Indemnitee failed to act in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company with respect to which Indemnitee's Corporate Status has given rise to a claim against Indemnitee, or, with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful, Indeninitee shall not be entitled to payment of Indemnifiable Amounts hereunder. (b) If indemnification is requested under Section 3(b) and (i) it has been adjudicated finally by a court of competent jurisdiction that, in connection with the subject of the Proceeding out of which the claim for indemnification has arisen, Indemnitee failed to act in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, Indemnitee shall not be entitled to payment of Indemnifiable Expenses hereunder; or (ii) it has been adjudicated finally by a court of competent jurisdiction that Indemnitee is liable to the Company with respect 3 to any claim, issue or matter involved in the Proceeding out of which the claim for indemnification has arisen, including, without limitation, a claim that Indemnitee received an improper personal benefit, no Indemnifiable Expenses shall be paid with respect to such claim, issue or matter unless the Superior Court or another court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such Indemnifiable Expenses which such court shall deem proper. 5. Procedure for Payment of Indemnifiable Amount. Indemnitee shall --------------------------------------------- submit to the Company a written request specifying the Indemnifiable Amounts for which Indemnitee seeks payment under Section 3 of this Agreement and the basis for the claim. The Company shall pay such Indemnifiable Amounts to Indemnitee within twenty (20) calendar days of receipt of the request. At the request of the Company, Indemnitee shall furnish such documentation and information as are reasonably available to Indemnitee and necessary to establish that Indemnitee is entitled to, indemnification hereunder. 6. Indemnification for Expenses of a Party Who is Wholly or Partly --------------------------------------------------------------- Successful. Notwithstanding any other provision of this Agreement, and without - ---------- limiting any such provision, to the extent that Indemnitee is, by reason of Indemnitee's Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, Indemnitee shall be indemnified against all Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Agreement, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. 7. Effect of Certain Resolution. Neither the settlement or termination ---------------------------- of any Proceeding nor the failure of the Company to award indemnification or to determine that indemnification is payable shall create an adverse presumption that Indemnitee is not entitled to indemnification hereunder. In addition, the termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not 4 opposed to the best interests of the Company or, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee's action was unlawful. 8. Agreement to Advance Expenses; Conditions. The Company shall pay to ----------------------------------------- Indemnitee all Indemnifiable Expenses incurred by Indemnitee in connection with any Proceeding, including a Proceeding by or in the right of the Company, in advance of the final disposition of such Proceeding. To the extent required by Delaware law, Indemnitee hereby undertakes to repay the amount of Indemnifiable Expenses paid to Indemnitee if it is finally determined by a court of competent jurisdiction that Indemnitee is not entitled under this Agreement to indemnification with respect to such Expenses. This undertaking is an unlimited general obligation of Indemnitee. 9. Procedure for Advance Payment of Expenses. Indemnitee shall submit to ----------------------------------------- the Company a written request specifying the Indemnifiable Expenses for which Indemnitee seeks an advancement under Section 8 of this Agreement, together with documentation evidencing that Indemnitee has incurred such Indemnifiable Expenses. Payment of Indemnifiable Expenses under Section 8 shall be made no later than twenty (20) calendar days after the Company's receipt of such request. 10. Remedies of Indemnitee. ---------------------- (a) Right to Petition Court. In the event that Indemnitee makes a ----------------------- request for payment of Indemnifiable Amounts under Sections 3 and 5 above or a request for an advancement of Indemnifiable Expenses under Sections 8 and 9 above and the Company fails to make such payment or advancement in a timely manner pursuant to the terms of this Agreement, Indemnitee may petition the Superior Court to enforce the Company's obligations under this Agreement. (b) Burden of Proof. In any judicial proceeding brought under Section --------------- 10(a) above, the Company shall have the burden of proving that Indemnitee is not entitled to payment of Indemnifiable Amounts hereunder. (c) Expenses. The Company agrees to reimburse Indemnitee in full for -------- any Expenses incurred by Indemnitee in connection with investigating, preparing for, litigating, defending or settling any action brought by Indemnitee under Section 10(a) above, or in connection with any claim or counterclaim brought by the Company in connection therewith. (d) Validity of Agreement. The Company shall be precluded from --------------------- asserting in any Proceeding, including, without limitation, an action under 5 Section 10(a) above, that the provisions of this Agreement are not valid, binding and enforceable or that there is insufficient consideration for this Agreement and shall stipulate in court that the Company is bound by all the provisions of this Agreement. (e) Failure to Act Not a Defense. The failure of the Company ---------------------------- (including, without limitation, its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of the payment of Indemnifiable Amounts or the advancement or Indemnifiable Expenses under this Agreement shall not be a defense in any action brought under Section 10(a) above, and shall not create a presumption that such payment or advancement is not permissible. 11. Defense of the Underlying Proceeding. ------------------------------------ (a) Notice by Indemnitee. Indemnitee agrees to notify the Company -------------------- promptly upon being served with any summons, citation, subpoena, complaint, indictment, information, or other document relating to any Proceeding which may result in the payment of Indemnifiable Amounts or the advancement of Indemnifiable Expenses hereunder; provide, however, that the failure to give any such notice shall not disqualify Indemnitee from the right to receive payments of Indemnifiable Amounts or advancements of Indemnifiable Expenses unless the Company's ability to defend in such Proceeding is materially and adversely prejudiced thereby. (b) Defense by the Company. Subject to the provisions of the last ---------------------- sentence of this Section 11(b) and of Section 11(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to the payment of Indemnifiable Amounts hereunder; provided, however, that the Company shall notify Indeninitee of any such decision to defend within ten (10) days of receipt of notice of any such Proceeding under Section 11(a) above. The Company shall not, without the prior written consent of Indemnitee, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee or (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance satisfactory to Indemnitee. This Section 11(b) shall not apply to a Proceeding brought by Indemnitee under Section 10(a) above or pursuant to Section 19 below. 6 (c) Indemnitee's Right to Counsel. Notwithstanding the provisions of ----------------------------- Section 11(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee's Corporate Status, Indemnitee reasonably concludes that it may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with the position of other defendants in such Proceeding, or the Company fails to assume the defense of such proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee's choice at the expense of the Company. In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any action, suit or proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain legal counsel of Indemnitee's choice, at the expense of the Company, to represent Indemnitee in connection with any such matter. 12. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to Indemnitee as follows: (a) Authority. The Company has all necessary power and authority to --------- enter into, and be bound by the terms of, this Agreement, and the execution, delivery and performance of the undertakings contemplated by this Agreement have been duly authorized by the Company. (b) Enforceability. This Agreement, when executed and delivered by the -------------- Company in accordance with the provisions hereof, shall be a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the enforcement of creditors' rights generally. 13. Insurance. The Company shall, from time to time, make the good faith --------- determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the Indemnitee with coverage for losses from wrongful acts, and to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to 7 provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's officers and directors. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, or if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit. 14. Contract Rights Not Exclusive. The rights to payment of Indemnifiable ----------------------------- Amounts and advancement of Indemnifiable Expenses provided by this Agreement shall be in addition to, but not exclusive of, any other rights which Indemnitee may have at any time under applicable law, the Company's By-laws or Certificate of Incorporation or any other agreement, vote of stockholders or directors (or a committee of directors), or otherwise, both as to action in Indemnitee's official capacity and as to action in any other capacity as a result of Indemnitee's serving as a director of the Company. 15. Successors. This Agreement shall be (a) binding upon all successors ---------- and assigns of the Company (including any transferee of all or a substantial portion of the business, stock and/or assets of the Company and any direct or indirect successor by merger or consolidation or otherwise by operation of law) and (b) binding on and shall inure to the benefit of the heirs, personal representatives, executors and administrators of Indeninitee. This Agreement shall continue for the benefit of Indemnitee and such heirs, personal representatives, executors and administrators after Indemnitee has ceased to have Corporate Status. 16. Subrogation. In the event of any payment of Indemnifiable Amounts ----------- under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of contribution or recovery of Indemnitee against other persons, and Indemnitee shall take, at the request of the Company, all reasonable action necessary to secure such rights, including the execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. 17. Change in Law. To the extent that a change in Delaware law (whether ------------- by statute or judicial decision) shall permit broader indemnification or advancement of expenses than is provided under the terms of the By-laws of the Company and this Agreement, Indemnitee shall be entitled to such broader indemnification and advancements, and this Agreement shall be deemed to be amended to such extent. 18. Severability. Whenever possible, each provision of this Agreement ------------ shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement, or any clause thereof, shall be determined by a court 8 of competent jurisdiction to be illegal, invalid or unenforceable, in whole or in part, such provision or clause shall be limited or modified in its application to the minimum extent necessary to make such provision or clause valid, legal and enforceable, and the remaining provisions and clauses of this Agreement shall remain fully enforceable and binding on the parties. 19. Indemnitee as Plaintiff. Except as provided in Section 10(c) of this ----------------------- Agreement and in the next sentence, Indemnitee shall not be entitled to payment of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect to any Proceeding brought by Indemnitee against the Company, any Entity which it controls, any director or officer thereof, or any third party, unless the Company has consented to the initiation of such Proceeding. This Section shall not apply to counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee. 20. Modifications and Waiver. Except as provided in Section 17 above with ------------------------ respect to changes in Delaware law which broaden the right of Indemnitee to be indemnified by the Company, no supplement, modification or amendment of this Agreement shall be binding unless executed in writing by each of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement (whether or not similar), nor shall such waiver constitute a continuing waiver. 9 21. General Notices. All notices, requests, demands and other --------------- communications hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered by hand, (b) when transmitted by facsimile and receipt is acknowledged, or (c) if mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (i) If to Indemnitee, to the Indemnitee's address or facsimile number set forth on the signature pages hereto With a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, MA 02109 Attention: Richard E. Floor, P.C. Facsimile: (617) 570-1260 (ii) If to the Company, to: Freedom of Information, Inc. 124 Mt. Auburn Street Suite 200N Cambridge, MA 02138 Attention: President Facsimile: (781) 996-2298 With a copy to: Ropes & Gray One International Place Boston, MA 02110 Attention: Ann L. Milner, Esq. Facsimile: (617) 951-7050 or to such other address as may have been furnished in the same manner by any party to the others. 22. Governing Law. This Agreement shall be governed by and construed and ------------- enforced under the laws of the Commonwealth of Massachusetts without giving effect to the provisions thereof relating to conflicts of law. 10 23. Consent to Jurisdiction. The Company hereby irrevocably and ----------------------- unconditionally consents to the jurisdiction of the courts of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts. The Company hereby irrevocably and unconditionally waives any objection to the laying of venue of any Proceeding arising out of or relating to this Agreement in the courts of the Commonwealth of Massachusetts or the United States District Court for the District of Massachusetts, and hereby irrevocably and unconditionally waives and agrees not to plead or claim that any such Proceeding brought in any such court has been brought in an inconvenient forum. 24. Agreement Governs. This Agreement is to be deemed consistent wherever ----------------- possible with relevant provisions of the Company's By-laws and Certificate of Incorporation; however, in the event of a conflict between this Agreement and such provisions, the provisions of this Agreement shall control. [Remainder of page intentionally left blank] 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: -------- FREEDOM OF INFORMATION, INC. By:/s/ Thomas A. Gerace -------------------- Name: Thomas A. Gerace Title: President INDEMNITEE: ---------- /s/ Ted R. Dintersmith ---------------------- Print Name: Ted R. Dintersmith -------------------- Address: c/o Charles River Partnership ----------------------------- 1000 Winter Street, Suite 3300 ------------------------------ Waltham, MA 02154 ----------------- 12 Also executed by Samuel P. Gerace, Jr. and W. Michael Humphreys 13 EX-21 21 LIST OF SUBSIDIARIES Exhibit 21 Subsidiaries of the Registrant FOI, Inc. PCX Information Systems, Inc. EX-23.1 22 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated July 2, 1999 relating to the consolidated financial statements of Be Free, Inc. and its subsidiaries, which appears in such Registration Statement. We also consent to the references to us under the headings "Experts" and "Selected Consolidated Financial Data" in such Registration Statement. PricewaterhouseCoopers LLP Boston, Massachusetts August 5, 1999 EX-27 23 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRATION STATEMENT FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS 6-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 JUN-30-1999 4,327,090 21,374,504 0 2,950,312 132,955 675,616 (14,000) (27,700) 0 0 4,613,784 25,799,588 961,702 3,869,859 232,952 364,865 5,970,836 30,182,610 1,192,055 4,767,737 0 0 9,815,447 35,350,482 0 0 195,000 195,000 (10,720,864) (16,689,073) 5,970,836 30,182,610 1,326,763 1,396,149 1,326,763 1,396,149 423,811 238,033 4,793,444 7,602,654 0 0 0 0 223,843 168,192 3,690,524 6,374,697 0 0 3,690,524 6,374,697 0 0 0 0 0 0 3,746,563 6,965,098 (0.23) (0.55) (0.23) (0.55)
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