<PAGE>
As filed with the Securities and Exchange Commission on August 5, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
---------------
REGISTRATION STATEMENT
ON FORM S-1
UNDER
THE SECURITIES ACT OF 1933
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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]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
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<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $.01 par value per
share.............................. $59,800,000 $16,625
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</TABLE>
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(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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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
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Prospectus
, 1999
[Be Free logo appears here]
Shares of Common Stock
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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.
-----------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
-----------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to Be Free:
-----------------------------------------
</TABLE>
This investment involves risk. See "Risk Factors" beginning on page 6.
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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.
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Donaldson, Lufkin & Jenrette
Hambrecht & Quist
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
The undersigned is facilitating Internet distribution
DLJdirect Inc.
<PAGE>
[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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
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
</TABLE>
i
<PAGE>
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
<PAGE>
. 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.
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<PAGE>
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
<PAGE>
The Offering
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
Six Months
Ended June
Year Ended December 31, 30,
------------------------- --------------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
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.....................
</TABLE>
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.
<TABLE>
<CAPTION>
As of June 30, 1999
---------------------
Pro Forma
Actual As Adjusted
<S> <C> <C>
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)
</TABLE>
5
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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<PAGE>
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
<PAGE>
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
<PAGE>
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.
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<PAGE>
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
<PAGE>
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.
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<PAGE>
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.
<TABLE>
<CAPTION>
As of June 30, 1999
-----------------------
Pro Forma
As
Actual Adjusted
<S> <C> <C>
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 $
=========== ==========
</TABLE>
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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:
<TABLE>
<S> <C> <C>
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...... $
====
</TABLE>
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:
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration Average Price
-------------- -------------- Per Share
Number Percent Amount Percent
<S> <C> <C> <C> <C> <C>
Existing stockholders............... % % $
New investors.......................
--- --- --- ---
Total............................. 100% 100%
=== === === ===
</TABLE>
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.
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<PAGE>
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.
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Selected Consolidated Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------ ---------------
1994 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
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...................
<CAPTION>
As of December 31, As of
------------------------------------ June 30,
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
22
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
Six
Months
Year Ended Ended
December 31, June 30,
------------------ -----------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
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)%
==== ==== ==== === ====
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
===== ===== ===== ==== ======= ======= ======= =======
</TABLE>
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
<PAGE>
. 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
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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;
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. 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.
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. 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.
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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.
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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;
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. 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
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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!,
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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.
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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
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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
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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.
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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:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
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
</TABLE>
- ---------------------
(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
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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
<PAGE>
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
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<PAGE>
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
<TABLE>
<CAPTION>
Annual
Compensation
---------------
Name and Principal Position Salary Bonus
<S> <C> <C>
Gordon B. Hoffstein(1)......................................... $49,573 $16,589
President and Chief Executive Officer
Thomas A. Gerace(2)............................................ $77,916 --
Executive Vice President, Business Development
</TABLE>
- ---------------------
(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.
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<PAGE>
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
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<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C>
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
</TABLE>
- ---------------------
(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
<PAGE>
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:
<TABLE>
<CAPTION>
Shares
Contributor Received
<S> <C>
Samuel P. Gerace, Jr.............................................
Samuel P. Gerace, Sr.............................................
Gerace Family L.P................................................
Thomas A. Gerace.................................................
</TABLE>
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:
<TABLE>
<CAPTION>
Number
of Purchases
Seller Shares Price
<S> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
Number of
Shares
Transferor Transferred
<S> <C>
Gerace Family L.P.............................................
Samuel P. Gerace, Jr..........................................
Thomas A. Gerace..............................................
Samuel P. Gerace, Sr..........................................
</TABLE>
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.
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<PAGE>
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.
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<PAGE>
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.
<TABLE>
<CAPTION>
Percent of Ownership
-------------------------
Voting Shares Prior to After
Name of Beneficial Owner Beneficially Owned the Offering the Offering
<S> <C> <C> <C>
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%
</TABLE>
- ---------------------
* 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
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<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
Number
of
Shares Date
<S> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Number
of
Underwriters Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.....................
Hambrecht & Quist LLC...................................................
Dain Rauscher Wessels...................................................
-------
Total.................................................................
=======
</TABLE>
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.
<TABLE>
<CAPTION>
No Full
Exercise Exercise
<S> <C> <C>
Per share..................................................... $ $
Total.........................................................
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
BE FREE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
BE FREE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
December 31, (Note B)
------------------------- June 30, June 30,
1997 1998 1999 1999
ASSETS (Unaudited)
<S> <C> <C> <C> <C>
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
=========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
BE FREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June
Year Ended December 31, 30,
------------------------------------- -----------------------
1996 1997 1998 1998 1999
(Unaudited)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
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)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
--------------------- Retained ------------------------
$0.01 Additional Stockholders' Earnings
Par Paid-in Unearned Notes (Accumulated
Shares Value Capital Compensation Receivable Deficit) Shares Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
=========== ======== ========== ============ ========== ============ ========== ============
<CAPTION>
Total
<S> <C>
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)
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
BE FREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------- ----------------------
1996 1997 1998 1998 1999
(Unaudited)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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):
<TABLE>
<CAPTION>
For the Six
Months
Year Ended Ended
December 31, June 30,
1998 1999
<S> <C> <C>
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)
=========== ===========
</TABLE>
D. Property and Equipment:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1997 1998 1999
<S> <C> <C> <C>
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
========= ========== ==========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1997 1998 1999
<S> <C> <C> <C>
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
======== ======== ==========
</TABLE>
F. Long-Term Debt:
The following table summarizes the Company's long-term borrowings:
<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1997 1998 1999
<S> <C> <C> <C>
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
========= ========== ===========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Long-Term
Debt
Year ended December 31, Payments
<S> <C>
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
==========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Operating
Year ended December 31, Leases
<S> <C>
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
==========
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Weighted
Average
Remaining
Exercise Contractual Shares
Price Shares Life (Years) Exercisable
<S> <C> <C> <C>
$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 --
=========
</TABLE>
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:
<TABLE>
<S> <C>
Net loss--as reported....................................... $(3,690,524)
Net loss--pro forma under SFAS 123.......................... $(3,704,181)
</TABLE>
The following table presents the significant assumptions used to estimate
the fair values of the options:
<TABLE>
<S> <C>
Weighted average risk free interest rate......................... 4.85%
Expected life from the date of grant............................. 7 years
Volatility....................................................... None
Expected dividends............................................... None
</TABLE>
F-19
<PAGE>
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:
<TABLE>
<CAPTION>
December 31,
---------------------- June 30,
Net deferred tax assets 1997 1998 1999
<S> <C> <C> <C>
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................. $ -- $ -- $ --
========= =========== ===========
</TABLE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<S> <C>
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......................................................... $ *
========
</TABLE>
- ---------------------
* 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
<PAGE>
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
<PAGE>
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
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
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
</TABLE>
- ---------------------
* To be filed by amendment
+ Confidential Treatment Requested
II-4
<PAGE>
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
<PAGE>
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:
<TABLE>
<S> <C> <C>
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
- -----------------------------------
</TABLE> Daniel Nova
II-6
<PAGE>
[Inside Back Cover]
[Be Free logo]
This page contains the logos of several of Be Free's e-merchant and portal
customers.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 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.
- --------------------------------------------------------------------------------
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
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
</TABLE>
- ---------------------
* To be filed by amendment
+ Confidential Treatment Requested
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
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<PAGE>
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
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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
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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.
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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.
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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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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.
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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)
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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");
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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
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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
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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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
EXHIBIT 10.2
COMPOSITE COPY
FREEDOM OF INFORMATION, INC.
-----------------------------------------------------------
STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT
-----------------------------------------------------------
As of August 28, 1998
<PAGE>
FREEDOM OF INFORMATION, INC.
Stock Purchase
and Shareholders Agreement
As of August 28, 1998
<TABLE>
<CAPTION>
Page
------
<S> <C>
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
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
(iii)
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
/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.
<PAGE>
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
<PAGE>
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
<PAGE>
/s/ Gordon B. Hoffstein
-----------------------
Gordon B. Hoffstein
<PAGE>
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.
<PAGE>
(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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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
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<PAGE>
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-
<PAGE>
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-
<PAGE>
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:
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
(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
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<PAGE>
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.
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<PAGE>
(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
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
(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-
<PAGE>
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-
<PAGE>
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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
HOLDER:
------
COMDISCO, INC.
By: /s/ James P. Labe
------------------------------
Name: James P. Labe
Title: President
Comdisco Ventures Division
11
<PAGE>
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
<PAGE>
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:
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
HOLDER:
------
COMDISCO, INC.
By: /s/James P. Labe
---------------------------------
Name: James P. Labe
Title: President
Comdisco Ventures Division
-15-
<PAGE>
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-
<PAGE>
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
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
HOLDER:
------
COMDISCO, INC.
By: /s/ James P. Labe
-----------------------
Name: James P. Labe
Title: President
Comdisco Ventures Division
-15-
<PAGE>
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-
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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").
<PAGE>
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.
<PAGE>
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
<PAGE>
(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
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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
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<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
13. Notices. Any notices, requests, demands and other communications
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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
<PAGE>
EXHIBIT 10.12
425 SIXTH AVENUE BUILDING
LEASE
SOUTHWESTERN PENNSYLVANIA CORPORATION (LANDLORD)
BY GRUBB & ELLIS COMPANY, AGENT
AND
FREEDOM OF INFORMATION, INC. (TENANT)
<PAGE>
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
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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
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<PAGE>
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
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<PAGE>
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.
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/1/ Words in BOLD CAPS are defined in Section 2 of this LEASE.
<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
COMMENCEMENT DATE and continuing on the first day of each calendar month
thereafter until the EXPIRATION DATE:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Time Period Monthly Rental Annual Rental
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- --------------------------------------------------------------------------------------------------
</TABLE>
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
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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,
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<PAGE>
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
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<PAGE>
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
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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.
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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.
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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
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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,
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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.
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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
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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
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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
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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
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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.
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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.
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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
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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
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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
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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.
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(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
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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
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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.
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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)
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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.
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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.
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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
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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.
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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.
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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
<PAGE>
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
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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
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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
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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
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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.
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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
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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
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(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.
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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.
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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
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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:
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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.
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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,
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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
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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.
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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
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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.
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(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.
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(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
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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
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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
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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.
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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.
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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(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
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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
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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
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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.
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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.
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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
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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
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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;
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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,
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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).
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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
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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
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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
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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
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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
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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.
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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
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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
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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.
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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
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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
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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
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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:
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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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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:
<PAGE>
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:
<PAGE>
EXHIBIT D
TENANT'S WORK
There is no Tenant's Work.
<PAGE>
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:
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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
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ATTEST:
By:
- ---------------------------- --------------------------
Name: Name:
Title: Title: duly authorized
Date executed by Borrower: __________, 1998
10
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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:
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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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
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"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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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
<PAGE>
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
<PAGE>
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
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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.
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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.
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
. 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT B
SCHEDULE
GeoCities Affiliates Program Phase 1
"Basic" Features; NOT Multi-Leveling Marketing Features (See below)
Schedule of Deliverables and Activities Delivery Dates
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Week Deliverable/Objective
Ending
Friday:
- --------------------------------------------------------------------------------
<C> <S>
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.)
- --------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
WEEK OBJECTIVE; DELIVERABLE
ENDING
FRIDAY:
- -------------------------------------------------------------------------------
<C> <S>
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
- -------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
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."
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Applicable
Merchant Referral Fee
- -------------------------------------------- ------------
<S> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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 <geocities.befast.com> 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:
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
<PAGE>
(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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Also executed by Samuel P. Gerace, Jr. and W. Michael Humphreys
13
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
FOI, Inc.
PCX Information Systems, Inc.
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 4,327,090 21,374,504
<SECURITIES> 0 2,950,312
<RECEIVABLES> 132,955 675,616
<ALLOWANCES> (14,000) (27,700)
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,613,784 25,799,588
<PP&E> 961,702 3,869,859
<DEPRECIATION> 232,952 364,865
<TOTAL-ASSETS> 5,970,836 30,182,610
<CURRENT-LIABILITIES> 1,192,055 4,767,737
<BONDS> 0 0
9,815,447 35,350,482
0 0
<COMMON> 195,000 195,000
<OTHER-SE> (10,720,864) (16,689,073)
<TOTAL-LIABILITY-AND-EQUITY> 5,970,836 30,182,610
<SALES> 1,326,763 1,396,149
<TOTAL-REVENUES> 1,326,763 1,396,149
<CGS> 423,811 238,033
<TOTAL-COSTS> 4,793,444 7,602,654
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 223,843 168,192
<INCOME-PRETAX> 3,690,524 6,374,697
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 3,690,524 6,374,697
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,746,563 6,965,098
<EPS-BASIC> (0.23) (0.55)
<EPS-DILUTED> (0.23) (0.55)
</TABLE>
