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EXHIBIT 10.1  






PREFERRED STOCK EXCHANGE AND PURCHASE AGREEMENT  


between 


US SEARCH.COM INC.,
  a Delaware corporation 


and 


PEQUOT PRIVATE EQUITY FUND II, L.P.,
  a Delaware limited partnership 




Dated



June 5, 2001  











  
 

    PREFERRED STOCK EXCHANGE AND PURCHASE AGREEMENT    
  


    THIS PREFERRED STOCK EXCHANGE AND PURCHASE AGREEMENT (this "Agreement") is made as of June 5, 2001, by
and between US SEARCH.com Inc., a Delaware corporation (the "Company"), and Pequot Private Equity Fund II, L.P., a Delaware limited partnership
(the "Purchaser"). 


R E C I T A L S  


    WHEREAS, the Purchaser and the Company are party to that certain Purchase Agreement, dated as of September 7, 2000 (the
"September Agreement"), pursuant to which the Purchaser purchased from the Company, and the Company sold to the Purchaser, 100,000 shares of
Series A Convertible Preferred Stock, par value $0.001 per share, of the Company (the "Series A Shares") and a warrant to purchase up to
75,000 shares of Series A Convertible Preferred Stock of the Company (the "September Warrant"); 


    WHEREAS,
the Purchaser is the holder of that certain Convertible Subordinated Promissory Note, dated February 28, 2001, in the principal amount of $5 million, by the
Company in favor of the Purchaser, as amended by an Amendment dated March 30, 2001 (as amended, the "February Note") and that certain Convertible
Subordinated Promissory Note, dated March 30, 2001, in the principal amount of $5.15 million, by the Company in favor of the Purchaser (the "March
Note" and, together with the February Note, the "Promissory Notes"); and 



    WHEREAS,
the Company and the Purchaser each desire that the Purchaser exchange the Series A Shares for a newly issued series of convertible preferred stock of the Company (the
"Series A-1 Preferred Stock"), to cancel the September Warrant without further recourse and to convert the Promissory Notes into
additional shares of Series A-1 Preferred Stock and that the Company issue to the Purchaser the Series A-1 Warrant (as defined herein) for the purchase of
additional shares of Series A-1 Preferred Stock. 


A G R E E M E N T  


    NOW, THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each
of the parties hereto hereby agree as follows. 


 
 

ARTICLE I.
  
    DEFINITIONS    
  


    As used in this Agreement, the following terms shall have the following meanings: 


    "A-1 Certificate of Designations" shall have the meaning set forth in Section 2.1. 



    "Affiliate" shall mean, with respect to any person, any other person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified person and, in the case of a person who is an individual, shall include (i) members of such specified person's immediate family (as defined
in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act) and (ii) trusts, the trustee and all beneficiaries of which are such specified person or members
of such person's immediate family as determined in accordance with the foregoing clause (i). For the purposes of this definition, "control," when used with respect to any person means the power
to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling"
and "controlled" have meanings correlative to the foregoing. 


    "Agreement" shall have the meaning set forth in the Preamble. 





 


    "Applicable Law" shall mean, with respect to any person, any law, statute, rule, regulation, order, writ, injunction, judgment or
decree of any Governmental Authority to which such person or any of its subsidiaries is bound or to which any of their respective properties is subject. 


    "Benefit Plan" shall have the meaning set forth in Section 3.9. 


    "Charter" with respect to any corporation shall mean the certificate of incorporation or articles of incorporation of such corporation. 


    "Closing" shall have the meaning set forth in Section 2.3. 



    "Closing Date" shall have the meaning set forth in Section 2.3. 


    "Code" shall mean have the meaning set forth in Section 3.9. 


    "Commission" shall mean the United States Securities and Exchange Commission. 


    "Commitment" shall have the meaning set forth in Section 3.14. 


    "Common Stock" shall mean the common stock, par value $.001 per share, of the Company. 


    "Company" shall have the meaning set forth in the Preamble. 


    "Documents" shall mean (i) this Agreement, (ii) the A-1 Certificate of Designations, (iii) the
Stockholders Agreement, (iv) the Investors' Rights Agreement, (v) the Right of First Refusal and the Series A-1 Warrant. 


    "Employee" shall have the meaning set forth in Section 3.9. 


    "Environmental Claim" shall have the meaning set forth in Section 3.13. 


    "Environmental Laws" shall have the meaning set forth in Section 3.13. 


    "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 


    "ERISA Affiliate" shall mean with respect to any person (within the meaning of section 3(9) of ERISA) any other person that
would be regarded together with such person as a single employer under section 414(b), (c), (m) or (o) of the Code. 


    "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 


    "February Note" shall have the meaning set forth in the recitals hereto. 


    "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, which are in effect from time to time, consistently
applied. 


    "Governmental Authority" shall mean any foreign, Federal, state or local court or governmental or regulatory authority. 


    "Holder" shall mean any person that is the beneficial owner of Shares, or shares of Common Stock issued upon conversion of Shares, as a
result of the sale, assignment or other transfer of Shares originally issued to the Purchaser or issuable or issued upon the conversion or exercise of any such Shares. 



    "Indebtedness" shall mean, with respect to any person, the aggregate amount of, without duplication, the following: (i) all
obligations for borrowed money; (ii) all obligations evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations to pay the deferred purchase price of
property or services, except trade payables, accrued commissions and other similar accrued 


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current liabilities in respect of such obligations, if such liabilities are not overdue and arise in the ordinary course of business or are being contested in good faith by appropriate proceedings and
as to which adequate reserves have been made on the books of the Company; (iv) all capitalized lease obligations; (v) all obligations or liabilities of any other person or persons
secured by a Lien on any asset owned by such person or persons whether or not such obligation or liability is assumed; (vi) all obligations of such person or persons, contingent or otherwise,
in respect of any letters of credit or bankers' acceptances; and (vii) all guarantees; provided,  however, that the term Indebtedness shall not
included Taxes and other governmental charges which are not yet due and owing, or are being
contested in good faith by appropriate proceedings and as to which adequate reserves have been made on the books of the Company. 


    "Indemnified Party" shall have the meaning set forth in Section 8.1. 


    "Indemnifying Party" shall have the meaning set forth in Section 8.1. 


    "Infospace Warrant" shall mean that certain warrant to purchase up to 1,750,000 shares of Common Stock of the Company, dated
September 29, 2000, by the Company in favor of Infospace, Inc., a Delaware corporation. 



    "Investors' Rights Agreement" shall mean the Investors' Rights Agreement, dated as of September 7, 2000, as amended by the First
Amendment to Investors' Rights Agreement to be entered into by and among the Company, the Purchaser and KL concurrently with the Closing, substantially in the form attached as  Exhibit A hereto.



    "KL" shall mean The Kushner-Locke Company, a California corporation. 


    "Lien" shall mean any pledge, lien, claim, restriction, charge or encumbrance of any kind. 


    "March Note" shall have the meaning set forth in the recitals hereto. 


    "Material Adverse Effect" shall mean a material adverse effect (i) on the business, operations, prospects, properties, earnings,
assets, liabilities or condition (financial or other) of the Company and its Subsidiary, taken as a whole, or (ii) on the ability of the Company or its Subsidiary to perform its obligations
hereunder or under any of the other Documents; provided that a delisting from the Nasdaq Stock Market will not be a Material Adverse Effect for any
purposes hereunder. 


    "Materials of Environmental Concern" shall have the meaning set forth in Section 3.13. 


    "Multiemployer Plan" shall have the meaning set forth in Section 3.9. 


    "Notices" shall have the meaning set forth in Section 8.2. 


    "Option Plans" shall mean the Company's Amended and Restated 1998 Stock Incentive Plan and 2000 Stock Incentive Plan. 


    "PBGC" shall have the meaning set forth in Section 3.9. 


    "Permitted Liens" means: (i) liens for Taxes and other governmental charges and assessments arising in the ordinary course of
business which are not yet due and payable, (ii) liens of landlords and liens of carriers, warehousemen, mechanics and materialmen and other like liens arising in the ordinary course of
business for sums not yet due and payable and (iii) other liens or imperfections on property which are not material in amount, do not interfere with, and are not violated by, the consummation
of the transactions contemplated by this Agreement, and do not impair the marketability of, or materially detract from the value of or materially impair the existing use of, the property affected by
such lien or imperfection. 


    "Permitted Transferee" shall mean: (i) any officer, director, partner or member of, or person controlling, the Purchaser or
(ii) any other person that is (x) an Affiliate of a general partner, 


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investment manager or investment advisor of the Purchaser, (y) an Affiliate of the Purchaser or a Permitted Transferee of an Affiliate of the Purchaser, or (z) an investment fund,
investment account or investment entity whose investment manager, investment advisor or general partner thereof is a Purchaser or a Permitted Transferee of the Purchaser. 


    "person" shall mean any individual, partnership, corporation, limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization, government or agency or political subdivision thereof, or other entity. 


    "Preferred Stock" shall mean the preferred stock, par value $.001 per share, of the Company. 



    "Promissory Notes" shall have the meaning set forth in the recitals hereto. 


    "Purchaser" shall have the meaning set forth in the Preamble. 


    "Recapitalization" shall have the meaning set forth in Section 5.16. 


    "Right of First Refusal" shall mean the Rights of First Refusal Agreement, dated as of September 7, 2000, as amended by the
First Amendment to Rights of First Refusal Agreement to be entered into by and between the Purchaser and KL concurrently with the Closing, substantially in the form attached as Exhibit E
hereto. 


    "SEC Documents" shall have the meaning set forth in Section 3.7. 


    "Secretary of State" shall mean the Office of the Secretary of State of the State of Delaware. 


    "Securities" shall mean the Shares and the Common Stock. 


    "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder. 


    "September Agreement" shall have the meaning set forth in the recitals hereto. 


    "September Warrant" shall have the meaning set forth in the recitals hereto. 


    "Series A Preferred Stock" shall mean the authorized Series A Convertible Preferred Stock of the Company issued to the
Purchasers on September 7, 2000 and described in the Amended Certificate of Designations of Series A Convertible Preferred Stock of the Company as filed with the Secretary of State on
September 5, 2000 and as further described in the Certificate of Correction of the Amended Certificate of Designations of Series A Convertible Preferred Stock of the Company as filed
with the Secretary of State on September 6, 2000. 


    "Series A-1 Preferred Stock" shall mean the authorized Series A-1 Convertible Preferred Stock of
the Company as described in the A-1 Certificate of Designations to be filed with the Secretary of State on or before the Closing Date. 


    "Series A-1 Warrant" shall have the meaning set forth in Section 2.1(b). 


    "Series A Shares" shall have the meaning set forth in the recitals hereto. 


    "Shares" shall mean the shares of Series A-1 Preferred Stock to be issued and sold by the Company to the Purchaser
under Section 2.1(b) and shall include the shares of Series A-1 Preferred Stock issuable upon exercise of the Series A-1 Warrant. 


    "Stockholders Agreement" shall mean that certain Stockholders Agreement, dated September 7, 2000, as amended by the First
Amendment to Stockholders Agreement, to be entered into by and among the Company, the Purchaser and KL concurrently with the Closing and substantially in the form of Exhibit F hereto. 


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    "subsidiary" shall mean, with respect to any person, (a) a corporation a majority of whose capital stock with voting power,
under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such person, by a subsidiary of such person, or by such person and one or more subsidiaries of such
person, (b) a partnership in which such person or a subsidiary of such person is, at the date of determination, a general partner of such partnership, or (c) any other person (other than
a corporation) in which such person, a subsidiary of such person or such person and one or more subsidiaries of such person, directly or indirectly, at the date of determination thereof, has
(i) at least a majority ownership interest, (ii) the power to elect or direct the election of the directors or other governing body of such person, or (iii) the power to direct or
cause the direction of the affairs or management of such person. For purposes of this definition, a person is deemed to own any capital stock or other ownership interest if such person has the right
to acquire such capital stock or other ownership interest, whether through the exercise of any purchase option, conversion privilege or similar right. 


    "Subsidiary" shall mean a subsidiary of the Company. 


    "Taxes" shall mean all foreign, Federal, State and local taxes, including any interest, penalties or additions to tax that may become
payable in respect thereof, imposed by any Governmental Authority, which taxes shall include, without limiting the generality of the foregoing, all income taxes, payroll and employee withholding
taxes, unemployment insurance, social security, sales and use taxes, excise taxes, franchise taxes, gross receipts taxes, occupation taxes, real and personal property taxes, stamp taxes, transfer
taxes, workmen's compensation taxes and other obligations of the same or a similar nature, whether arising before, on or after the Closing Date. 



    "Tax Returns" shall mean all returns, declarations, statements, schedules, forms, reports, information returns or other documents
(including any related or supporting information), and any amendments thereto, filed or required to be filed with any Governmental Authority in connection with the determination, assessment,
collection or administration of any Taxes. 


    "Trust Advocacy Business" shall mean any activity involving the provision of information online between the parties (whether consumer
or business) to a transaction for the purpose of enabling the consummation of such transaction. 


    "WARN Act" shall mean the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any applicable state or local law
with regard to "plant closings" or "mass layoffs" as such terms are defined in the WARN Act or applicable state or local law. 


    "Warrant Shares" shall have the meaning set forth in Section 3.2. 


 
 

ARTICLE II.
  
    SALE, PURCHASE AND EXCHANGE    
  


    Section 2.1  Sale and Issuance of Shares.  


    (a) On
or before the Closing, the Company shall approve by resolution and file with the Secretary of State the Certificate of Designations relating to the
Series A-1 Preferred Stock (the "A-1 Certificate of Designations"), substantially in the form attached as  Exhibit B hereto. The Series A-1
Preferred Stock will be convertible into Common Stock of the Company, as more fully set forth
in the A-1 Certificate of Designations, at a price per share equal to $0.48237, which is the lesser of (i) 105% of the ten day average of the closing bid prices of the Company's
common stock for the ten trading days prior to but not including the date hereof and (ii) 105% of the ten day average of the closing bid prices of the Company's common stock for the ten trading
days prior to but not including the date of April 15, 2001. 


    (b) On
the Closing Date, and upon the terms and subject to the conditions set forth in this Agreement, (i) the Company shall issue and sell to the Purchaser, and
the Purchaser shall purchase 


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and accept from the Company, one hundred one thousand five hundred (101,500) shares of Series A-1 Preferred Stock pursuant to the conversion of the principal amount of the
Promissory Notes, (ii) the Company shall issue and sell to the Purchaser, and the Purchaser shall accept from the Company, one thousand six hundred thirteen (1,613) additional shares of
Series A-1 Preferred Stock at the issue price per share of $100 representing the conversion of the accrued interest under the Promissory Notes and a cash payment of ninety eight
dollars and sixty once cents ($98.61) representing the cash settlement of any fractional shares of Series A-1 Preferred Stock in respect of such accrued interest, (iii) the
Company shall issue to the Purchaser and the Purchaser shall accept from the Company one hundred thousand (100,000) shares of Series A-1 Preferred Stock in exchange for the
Series A Shares as indicated in Section 2.2 below and (iv) the Company shall issue to the Purchaser pursuant to the terms and provisions of the March Note a warrant to
purchase 5,000 shares of Series A-1 Preferred Stock at a purchase price per share of $100 in the form attached as Exhibit C
hereto (the "Series A-1 Warrant"). 


    Section 2.2  Purchase and Exchange of Shares.  


    (a) On
the Closing Date, and upon the terms and subject to the conditions set forth in this Agreement, the Purchaser shall deliver to the Company (i) each of the
original Promissory Notes for cancellation, (ii) certificates representing the Series A Shares for cancellation and (iii) the September Warrant for cancellation without recourse. 


    (b) On
the Closing Date, and upon the terms and subject to the conditions set forth in this Agreement, the Company shall deliver to the Purchaser, against payment of
the purchase price therefor by the deliveries set forth in Section 2.2(a) above, (i) certificates representing the Shares, being purchased or exchanged by Purchaser pursuant to
Section 2.1(b), (ii) a cash payment pursuant to Section 2.1(b) and (iii) the Series A-1 Warrant. The Shares shall be in definitive form and registered in
the name of the Purchaser or its nominee or designee and in such denominations (including fractional shares) as the Purchaser shall request not later than one business day prior to the Closing Date. 


    Section 2.3  Closing.  The closing of the exchange, purchase and sale of the
Series A-1 Preferred Stock (the "Closing") shall take place at 9:00 a.m., local time, on June 5, 2001, (the "Closing Date"), at the offices of Latham & Watkins,
885 Third Avenue, Suite 1000, New York, NY 10022-4802 or at such other place as the parties hereto shall agree in writing. 


 
 

ARTICLE III.
  
    REPRESENTATIONS AND WARRANTIES
  OF THE COMPANY    
  


    The Company hereby represents and warrants to the Purchaser as follows: 


    Section 3.1  Organization and Standing.  The Company is duly incorporated, validly existing and in
good standing as a domestic corporation under the laws of the State of Delaware and has all requisite corporate power and authority to own its properties and assets and to carry on its business as it
is now being conducted and as proposed to be conducted. The Company is duly qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the character
of the properties owned or leased by it or the nature of its business makes such qualification necessary, except where the failure to so qualify or be in good standing could not, individually or in
the aggregate, or together with such failure of its Subsidiary referred to in Section 3.3(b) below reasonably be expected to have a Material Adverse Effect. 


    Section 3.2  Capital Stock.  Immediately following the Closing (and giving effect to the
elimination of the Series A Preferred Stock), the authorized capital stock of the Company will consist solely of (a) forty million (40,000,000) shares of Common Stock, of which
(i) seventeen million nine hundred thirteen thousand seven hundred forty four (17,913,744) shares will be issued and outstanding, (ii) four million five hundred eighteen thousand two
hundred twenty three (4,518,223) will be reserved 


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for issuance upon the conversion of the Series A-1 Preferred Stock, (iii) fifteen million eight hundred eighteen thousand thirty three (15,818,033) will be reserved for
issuance pursuant to the exercise of stock options granted or to be granted after the date hereof under the Company's Option Plans and (iv) 1,750,000 will be reserved for issuance upon exercise
of the Infospace Warrant, and (b) one million (1,000,000) shares of Preferred Stock, of which (i) two hundred three thousand one hundred thirteen (203,113) shares of
Series A-1 Preferred Stock will be issued and outstanding, (ii) one hundred thousand (100,000) shares of Series A-1 Preferred Stock will be reserved for
issuance as dividends as provided in the A-1 Certificate of Designations and (iii) 5,000 shares of Series A-1 Preferred Stock will be reserved for issuance upon
exercise of the Series A-1 Warrant. Immediately following the Closing, each share of capital stock of the Company that is issued and outstanding will be duly authorized, validly
issued, fully paid and nonassessable. All shares of Series A-1 Preferred Stock reserved for issuance as a dividend upon the shares of Series A-1 Preferred Stock
to be issued at the Closing or reserved for issuance upon exercise of the Series A-1 Warrant (the "Warrant Shares") or as a dividend on the Warrant Shares are duly authorized and,
when issued in accordance with the terms of the A-1 Certificate of Designations or the Series A-1 Warrant, as applicable, will be validly issued, fully paid and
nonassessable. Upon conversion of any shares of Series A-1 Preferred Stock in accordance with their terms, all of the Common Stock issued upon such conversion will be duly
authorized, validly issued, fully paid and nonassessable (giving effect to and assuming the Recapitalization). Schedule 3.2(a) sets forth a true and complete table of (i) the
capitalization of the Company immediately prior to the Closing and (ii) a pro forma capitalization of the Company immediately following the transactions contemplated by the Documents. Except as
set forth on Schedule 3.2(b) or as contemplated by this Agreement, at the date hereof there are, and immediately following the Closing there will be (a) no outstanding options, warrants,
agreements, conversion rights, preemptive rights or other rights to subscribe for, purchase or acquire any issued or unissued shares of capital stock of the Company and (b) no restrictions upon
the voting or transfer of any shares of capital stock of the Company pursuant to its Charter, Amended and Restated Bylaws or other governing documents or any agreement or other instruments to which it
is a party or by which it is bound. The holders of the Series A-1 Preferred Stock will, upon issuance thereof, have the rights set forth in the A-1 Certificate of
Designations. The shares of Series A Preferred Stock, when cancelled in accordance with Section 5.5 of this Agreement, will not be available for re-issuance by the Company
(although the Company will have available to it a number of shares of preferred stock
equal to the number of shares of Series A Preferred Stock as authorized, unissued and undesignated "blank check" preferred stock under its Certificate of Incorporation in addition to the amount
set forth above). 


    Section 3.3  Subsidiary.  


    (a) Schedule 3.3
sets forth the one Subsidiary, including the percentage of the fully diluted capital stock of such Subsidiary owned, directly or indirectly, by
the Company. 


    (b) The
Subsidiary is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to own its properties and assets and to conduct its business as now conducted and as proposed to be conducted. The Subsidiary is duly qualified to do business as a foreign corporation in
every jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to so
qualify could not, individually or in the aggregate, or together with such failure of the Company referred to in Section 3.1 above, reasonably be expected to have a Material Adverse Effect. 



    (c) The
outstanding shares of capital stock of the Subsidiary has been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth on
Schedule 3.3, (i) all of the shares of the Subsidiary are owned of record and beneficially, directly or indirectly, by the Company, free and clear of all Liens and (ii) there are
no outstanding options, warrants, agreements, conversion rights, 


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preemptive rights or other rights to subscribe for, purchase or otherwise acquire any issued or unissued shares of capital stock of the Subsidiary. 



    Section 3.4  Authorization; Enforceability.  The Company has the corporate power to execute,
deliver and perform its obligations under each of the Documents and has taken all necessary corporate action (other than the Recapitalization) to authorize the execution, delivery and performance by
it of each of the Documents and to consummate the transactions contemplated hereby and thereby. No other corporate proceedings on the part of the Company are necessary therefor. The Company has duly
executed and delivered this Agreement. This Agreement constitutes, and each of the other Documents, when executed and delivered by the Company and, assuming due execution by the other parties hereto
and thereto, will constitute legal, valid and binding obligations of the Company enforceable against it in accordance with their terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law). 


    Section 3.5  No Violation; Consents.  


    (a) The
execution, delivery and performance by the Company of each of the Documents and the consummation of the transactions contemplated hereby and thereby does not
and will not contravene any Applicable Law. The execution, delivery and performance by the Company of each of the Documents and the consummation of the transactions contemplated hereby and thereby
(i) will not (after giving effect to all amendments or waivers obtained on or prior to the Closing Date) (x) violate, result in a breach of or constitute (with due notice or lapse of
time or both) a default under, or constitute a change of control under (unless such change of control could not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect) any contract, lease, loan agreement, Benefit Plan, mortgage, security agreement, trust indenture or other agreement or instrument to which the Company or any of its Subsidiaries is a party or
by which any of them is bound or to which any of their properties or assets is subject or (y) result in the creation or imposition of any Lien (other than a Permitted Lien) upon any of the
properties or assets of any of them, or (z) permit or cause the acceleration of the maturity of any debt or obligation of the Company or its Subsidiary in an amount exceeding, in the aggregate,
$500,000, and (ii) will not violate any provision of the Charter or the Amended and Restated Bylaws of the Company or its Subsidiary. 


    (b) Except
as set forth on Schedule 3.5(b), no consent, authorization or order of, or filing or registration with, any Governmental Authority or other person is
required to be obtained or made by the Company or its Subsidiary for the execution, delivery and performance of any of the Documents, or the consummation of any of the transactions contemplated hereby
or thereby, except (i) for those consents or authorizations required for the Closing that will have been obtained or made on or prior to the Closing Date or (ii) where the failure to
obtain such consents, authorizations or orders, or make such filings or registrations, could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 


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    Section 3.6  Litigation.  Except as set forth on Schedule 3.6, there are no pending or, to
the best knowledge of the Company, threatened claims, actions, suits, labor disputes, grievances, administrative or arbitration or other proceedings or, to the best knowledge of the Company,
investigations against the Company, its Subsidiary or their respective assets or properties before or by any Governmental Authority or before any arbitrator that could, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. None of the transactions contemplated by any of the Documents is restrained or enjoined (either temporarily, preliminarily or
permanently), and no material adverse conditions have been imposed thereon by any Governmental Authority or arbitrator. None of the Company, its Subsidiary or any of their respective assets or
properties, is subject to any order, writ, judgment, award, injunction or decree of any Governmental Authority or arbitrator, that could, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. 


    Section 3.7  SEC Documents; Financial Statements.  


    (a) Since
June 24, 1999, (i) the Company has filed all forms, reports and documents with the Commission (including all exhibits thereto) required under
the Securities Act or the Exchange Act or the rules and regulations promulgated thereunder (collectively, the "SEC Documents"), each of which complied
in all material respects with all applicable requirements of the Securities Act and the Exchange Act as in effect on the dates so filed and (ii) no event of which the Company has knowledge has
occurred which the Company reasonably believes requires the filing of a Form 8-K with the Commission and which has not been filed. None of the SEC Documents (as of their respective
filing dates) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading. The Company has heretofore made available to the Purchasers copies of each of the SEC Documents (other than exhibits or schedules to the
SEC Documents). 


    (b) The
financial statements contained in the SEC Documents (i) comply as to form in all material respects with the published rules and regulations of the
Commission applicable thereto; (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered, except as may be indicated in the notes to such financial
statements and (in the case of unaudited statements) as permitted by Form 10-Q of the Commission, and except that unaudited financial statements may not contain footnotes and are
subject to normal and recurring year-end audit adjustments (which will not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect); and
(iii) fairly present the consolidated financial position of the Company as of the respective dates thereof and the consolidated results of operations and cash flows of the Company for the
periods covered thereby. 


    (c) The
unaudited financial statements dated as of September 30, 2000, which have been furnished to the Purchaser: (i) were prepared in accordance with
GAAP applied on a consistent basis with prior periods,
except as indicated in the notes, if any, to such financial statements (which are subject to normal and recurring year-end audit adjustments (which will not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect)) and (ii) fairly present the consolidated financial position of the Company and its Subsidiary as of the date thereof and
the consolidated results of operations of the Company and its Subsidiary for the period covered therein. 


    (d) No
representation or warranty of the Company contained in any document, certificate or written statement furnished or made available to the Purchasers by or at the
direction of the Company for use in connection with the transactions contemplated by this Agreement, contains any untrue statement of a material fact or omits to state any material fact (known to the
Company, in the case of information not furnished by them) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were
made. There are no facts known to the Company (other than matters of a nature affecting the general economy) that could, 


9





 


individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and that have not been disclosed in the SEC Documents, this Agreement or in such other documents,
certificates and statements furnished to the Purchasers for use in connection with the transactions contemplated by this Agreement. 



    (e) As
of December 31, 2000, the Company had no assets or liabilities that would have been required to reflect in consolidated financial statements of the
Company prepared in accordance with GAAP, including notes thereto, that are not reflected in the financial statements contained in the SEC Documents. 


    Section 3.8  Change in Condition.  


    (a) Since
December 31, 2000, there has been no material adverse change in the business, operations, properties, prospects or condition (financial or other) of
the Company or its Subsidiary, whether or not arising in the ordinary course of business. 


    (b) To
the best knowledge of the Company, there is no event, condition, circumstance or development which could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. 


    Section 3.9  Employee Benefit Plans and Labor Matters.  


    (a) For
purposes of this Agreement: 



     (i) "Benefit
Plan" means any employee benefit plan, arrangement, policy or commitment, including, without limitation, any employment, consulting, severance or deferred
compensation agreement, executive compensation, bonus, incentive, pension, profit-sharing, savings, retirement, stock option, stock purchase or severance pay plan, any such date and time to be agreed
upon by the parties hereto as promptly as practicable after life, health, disability or accidental death and dismemberment insurance plan, any holiday and vacation practice or any other employee
benefit plan, within the meaning of section 3(3) of ERISA, whether formal or informal, written or oral and whether legally binding or not, that is maintained, administered or contributed to or
was maintained, administered or contributed to at any time by the Company or any of its ERISA Affiliates for the benefit of any employee, former employee, consultant, officer or director of the
Company or any ERISA Affiliate; 


    (ii) "Code"
means the Internal Revenue Code of 1986, as amended; 


    (iii) "Employee"
means any individual employed by the Company or any of its ERISA Affiliates; 


    (iv) "IRS"
means the United States Internal Revenue Service; and 


    (v) "PBGC"
means the Pension Benefit Guaranty Corporation. 




    (b) Schedule 3.9(b)
lists all Benefit Plans. With respect to each such plan, the Company has delivered or made available to the Purchasers correct and complete
copies of (i) all plan texts and agreements and related trust or other funding arrangements (including all amendments thereto); (ii) all summary plan descriptions and material employee
communications; (iii) the annual report and actuarial report (including all schedules thereto) if required under ERISA or other applicable law, for the last three most recently completed plan
years; (iv) the most recent annual audited financial statement; (v) if the plan is intended to qualify under Code section 401(a) or 403(a), the most recent determination letter,
if any, received from the IRS; and (vi) all material communications with any Governmental Authority (including, without limitation, the PBGC and the IRS). 



    (c) There
are no Benefit Plans that (i) are subject to any liability under Code section 412, ERISA section 302 or Title IV of ERISA and no
condition exists that presents a material risk to the Company 


10





 


or any ERISA Affiliate of incurring such liability; (ii) are intended to qualify under Code section 401(a) or 403(a); or (iii) provide benefits to current or former Employees
beyond their retirement or other termination of service (other than coverage mandated by Code section 4980B and Part 6 of Title I of ERISA), or are self-insured "multiple
employer welfare arrangements," as such term is defined in section 3(40) of ERISA. 


    (d) Except
as set forth on Schedule 3.9(d), each Benefit Plan conforms in all material respects to, and its administration is in all material respects in
compliance with, its terms and all Applicable Law, including but not limited to ERISA and the Code. 


    (e) The
consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former Employee or officer of the Company or any
ERISA Affiliate to severance pay, unemployment compensation or any similar payment; or (ii) accelerate the time of payment or vesting of any right or privilege, or increase the amount of any
compensation due to, any current or former Employee or officer. 


    (f)  No
Benefit Plan is a "multiple employer plan" or a "multiemployer plan" within the meaning of the Code or ERISA. 


    (g) In
the six years preceding the date hereof, (i) no Benefit Plan that is or was subject to Title IV of ERISA has been terminated; (ii) no reportable
event within the meaning of section 4043 of ERISA has occurred; (iii) no filing of a notice of intent to terminate such a Benefit Plan has been made; (iv) the PBGC has not
initiated any proceeding to terminate any such Benefit Plan and no condition exists that presents a material risk that such proceeding will be initiated; and (v) no prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Code) has occurred. 


    (h) Except
as set forth on Schedule 3.9(h), neither the Company nor any of its Subsidiaries has any existing arrangement with any of its Employees providing for
an excise tax gross up in respect of any excise taxes imposed by section 4999 of the Code. 


    (i)  Except
as set forth on Schedule 3.9(i), none of the Company, any Subsidiary or any ERISA Affiliate has any commitment or formal plan, whether legally
binding or not, to create any additional employee benefit plan or modify or change any existing Benefit Plan that would affect any Employee or former Employee. 


    (j)  Except
as set forth on Schedule 3.9(j), (i) no amounts payable under the Benefit Plans will fail to be deductible for federal income tax purposes by
virtue of section 162(a)(1), 162(m) or 280G of the Code and (ii) all contributions (including all employer contributions and employee salary reduction contributions) required to be made
to any Benefit Plan by applicable law or regulation or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance
policies funding any Benefit Plan, have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, have been fully reflected on the financial
statements. Each Benefit Plan that is an employee welfare benefit plan under Section 3(1) of ERISA is either (i) funded through an insurance company contract and is not a "welfare
benefit fund" with the meaning of Section 419 of the Code or (ii) unfunded. 


    (k) Except
as set forth on Schedule 3.9(k): 



     (i) there
is no labor strike, dispute, slowdown, stoppage or lockout actually pending, or to the knowledge of the Company or any of its Subsidiaries, threatened against
or affecting the Company or any of its Subsidiaries and during the past five years there has not been any such action; 


    (ii) to
the knowledge of the Company and any of its Subsidiaries, there are no union claims to represent the employees of the Company or any of its Subsidiaries; 



11





 


    (iii) the Company is not a party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with
any labor organization or employee association applicable to employees of the Company; 


    (iv) the
employees of the Company are not represented by any labor organization and the Company does not have any knowledge of any current union organizing activities
among the employees of the Company, nor does any question concerning representation exist concerning such employees; 


    (v) true,
correct and complete copies of all written personnel policies, rules and procedures applicable to employees of the Company have heretofore been delivered to
the Purchaser; 


    (vi) the
Company is, and has at all times been, in material compliance with all applicable laws respecting employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health, and are not engaged in any unfair labor practices as defined in the National Labor Relations Act or other applicable law, ordinance
or regulation; 


   (vii) there
is no unfair labor practice charge or complaint against the Company pending or, to the knowledge of the Company, threatened before the National Labor
Relations Board or any similar state or foreign agency; 


   (viii) there
is no grievance or arbitration proceeding arising out of any collective bargaining agreement or other grievance procedure relating to the Company; 



    (ix) to
the knowledge of the Company, no charges with respect to or relating to the Company are pending before the Equal Employment Opportunity Commission or any other
agency responsible for the prevention of unlawful employment practices; 


    (x) to
the knowledge of the Company, no federal, state, local or foreign agency responsible for the enforcement of labor or employment laws intends to conduct an
investigation with respect to or relating to the Company and no such investigation is in progress; and 


    (xi) there
are no complaints, controversies, lawsuits or other proceedings pending or, to the knowledge of the Company, any applicant for employment or classes of the
foregoing alleging breach of any express or implied contract or employment, any law or regulation governing employment or the termination thereof or other discriminatory, wrongful or tortious conduct
in connection with the employment relationship. Except as set forth in Schedule 3.9(k)(xi), there are no employment contracts or severance agreements with any employees of the Company. The
execution of this Agreement and the consummation of the transactions contemplated hereby shall not result in a breach or other violation of any collective bargaining agreement to which the Company is
a party. 


   (xii) Since
the enactment of the WARN Act, the Company has not effectuated (i) a "plant closing" (as defined in the WARN Act) affecting any site of employment or
one or more facilities or operating units within any site of employment or facility of the Company, or (ii) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of the Company; nor has the Company been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local
law. Except as set forth in Schedule 3.9(k)(xii), none of the employees of the Company has suffered an "employment loss" (as defined in the WARN Act) with regard to their employment with the
Company since March 1, 1995. 




    Section 3.10  Properties.  Except as otherwise stated in the SEC Documents filed and publicly
available prior to the date hereof, the Company and its Subsidiary have good and marketable title, free and clear of all liens, encumbrances or claims of which the Company has knowledge to all of its
real 


12





 


and personal property, except where such liens, encumbrances and equities could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and, except as otherwise
stated in the SEC Documents filed and publicly available prior to the date hereof, the Company and its Subsidiary have valid and enforceable leases to all of the real and personal property described
in the SEC Documents as under lease to it except where such invalidity or unenforceability of such leasehold interests could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. 


    Section 3.11  Compliance with Law.  The operations of the Company have been conducted in
accordance with all Applicable Laws, including, without limitation, all Applicable Laws relating to consumer protection, currency exchange, employment (including, without limitation, equal opportunity
and wage and hour), safety and health, environmental protection, conservation, wetlands, architectural barriers to the handicapped, fire, zoning and building, occupation safety, pension and
securities, except for violations or failures so to comply, if any, that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as disclosed in
the SEC Documents filed and publicly available prior to the date hereof, the Company has not received notice of any violation of or noncompliance with any Applicable Laws except for notices of
violations or failures so to comply, if any, that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as disclosed in Schedule 3.11,
there are no proposed or pending federal privacy laws or regulations, nor, to the knowledge of the Company, any proposed or pending state privacy laws or regulations, which if enacted in the form
drafted as of the Closing would prevent the Company from pursuing their current line of business or the Trust Advocacy Business, except in such instances which would not individually or in the
aggregate have a Material Adverse Effect. 


    Section 3.12  Tax Matters.  Except as set forth in Schedule 3.12: 



    (a) The
Company and its Subsidiary have duly and properly filed, or will duly and properly file, on a timely basis, all material Tax Returns which were or will be
required to be filed by them for all periods ending on or before the Closing Date. All such Tax Returns of the Company and its Subsidiary were (or will be) true, correct and complete in all material
respects when filed. The Company and its Subsidiary have paid all material Taxes required to be paid by them for periods ending on or before the Closing Date, or with respect to any period that ends
after the Closing Date, the portion of such period up to and including the Closing Date, other than those Taxes being contested in good faith or those Taxes currently payable without penalty or
interest, in each case for which an adequate reserve or accrual has been established in the Financial Statements in accordance with GAAP. 


    (b) All
material Taxes that the Company and its Subsidiary are or were required by law to withhold or collect through the Closing Date have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental Authority. There are no Liens with respect to Taxes upon any of the properties or assets, real or personal, tangible or
intangible, of the Company and its Subsidiary except for statutory liens for Taxes not yet due or delinquent. 


    (c) Neither
the Company nor its Subsidiary is currently the beneficiary of any waivers or extensions with respect to any Tax Returns, no Tax Returns of the Company are
currently under audit or examination
by any Governmental Authority and to the best knowledge of the Company and its Subsidiary, no such audit or examination is threatened. No issue was raised in any audit or examination of Tax Returns by
any Governmental Authority that, if raised with respect to any period not so audited or examined, could be expected to result in a proposed deficiency. 



    (d) Neither
the Company nor its Subsidiary is party to, bound by or has an obligation under, any Tax allocation, Tax indemnity, or Tax sharing agreement or similar
contract arrangement. Neither the Company nor its Subsidiary (i) has been a member of an affiliated group filing a consolidated Tax Return (other than a group the common parent of which was the
Company) or 



13





 


(ii) has any liability for the Taxes of any person (other than the Company and its Subsidiaries) under Treasury Regulation 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract, agreement to indemnify or otherwise. Neither the Company nor its Subsidiary has any obligation by contract, agreement, arrangement or
otherwise to permit any person, other than the Company and its Subsidiary, to use the benefit of a refund, credit or offset of Tax of any of the Company and its Subsidiary. 


    (e) Neither
the Company nor its Subsidiary has been a United States real property holding corporation within the meaning of section 897(c)(2) of the Code during
the period specified in section 897(c)(1)(A)(ii) of the Code. 


    (f)  Neither
the Company nor its Subsidiary has filed (or will file prior to any Closing) a consent under section 341(f) of the Code. 




    Section 3.13  Environmental Matters.  


    (a) The
Company and its Subsidiary are in compliance in all material respects with all applicable federal, state, local and foreign laws and regulations relating to
pollution or protection of human health or the environment, including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata, and natural resources (together
"Environmental Laws" and including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic or
hazardous substances or wastes, petroleum and petroleum products, asbestos or asbestos-containing materials, polychlorinated biphenyls, lead or lead-based paints or materials, or radon
("Materials of Environmental Concern")), or otherwise relating to the manufacture, generation, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern, or the preservation of the environment or mitigation of adverse effects thereon and each law and regulation with regard to record
keeping, notification, disclosure, and reporting requirements respecting Materials of Environmental Concern. Each of the Company and its Subsidiary possess all permits and other governmental
authorizations required under
all applicable Environmental Laws, and is in compliance in all material respects with the terms and conditions thereof. All permits and other governmental authorizations currently held by the Company
and its Subsidiary pursuant to the Environmental Laws are identified in Schedule 3.13(a). 


    (b) Neither
the Company nor its Subsidiary has received any communication (written or oral), whether from a Governmental Authority, citizens group, employee or
otherwise, that alleges that the Company or its Subsidiary are not in full compliance with any Environmental Laws and, to the best knowledge of the Company, there are no circumstances that may prevent
or interfere with such full compliance in the future. 


    (c) There
is no claim, action, written or oral notice or cause of action pending or, to the best knowledge of the Company, any investigation or notice of violation
threatened (together, "Environmental Claim") by any person or entity alleging potential liability (including, without limitation, potential liability
for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from
(a) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned or operated by the Company or its Subsidiary or
(b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law, that in either case is pending or threatened against the Company or its Subsidiary or
against any person or entity whose liability for any Environmental Claim the Company or its Subsidiary has retained or assumed either contractually or by operation of law. 


    (d) To
the best knowledge of the Company, there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that could form the basis of 


14





 


any Environmental Claim against the Company or its Subsidiary or, to the Company's or its Subsidiary's best knowledge after due inquiry, against any person or entity whose liability for any
Environmental Claim the Company or its Subsidiary has retained or assumed either contractually or by operation of law. 


    (e) Without
in any way limiting the generality of the foregoing, (i) there are no on-site or off-site locations where the Company or its
Subsidiary has (previously or currently) stored, disposed or arranged for the disposal of Materials of Environmental Concern, (ii) there are no underground storage tanks located on any property
owned, leased, operated or controlled by the Company or its Subsidiary, (iii) there is no asbestos contained in or forming part of any building, building component, structure or office space
owned, leased, operated or controlled by the Company or its Subsidiary, and (iv) there are no PCBs or PCB-containing items are used or stored at any property owned, leased, operated
or controlled by the Company or its Subsidiary. 


    (f)  The
Company and its Subsidiary has provided to the Purchasers all assessments, reports, data, results of investigations or audits, and other information that is in
the possession of or reasonably available to the Company or its Subsidiary regarding environmental matters pertaining to or the environmental condition of the business of the Company or its
Subsidiary, or the compliance (or noncompliance) by the Company or its Subsidiary with any Environmental Laws. 



    (g) Neither
the Company nor its Subsidiary is required by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the effectiveness of
any transactions contemplated hereby, (i) to perform a site assessment for Materials of Environmental Concern, (ii) to remove or remediate Materials of Environmental Concern,
(iii) to give notice to or receive approval from any Governmental Authority, or (iv) to record or deliver to any person or entity any disclosure document or statement pertaining to
environmental matters. 


    Section 3.14  Enforceability of Contracts; Material Contracts.  Except as set forth on
Schedule 3.14, there are no other contracts material, individually or in the aggregate, to the business, operations, properties, prospects or financial condition of the Company or its
Subsidiary (collectively, the "Commitments"). To the Company's best knowledge, neither the Company nor its Subsidiary is in default in respect of any
Commitment, and no event has occurred which, with due notice or lapse of time or both, would constitute such a default, except for any such defaults that could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Company, after due inquiry, no other party to any of the Commitments is in default in respect thereof, and no
event has occurred which, with due notice or lapse of time or both, would constitute such a default, except for any such defaults that could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. 


    Section 3.15  Accuracy of Information.  None of the representations, warranties or statements of
the Company contained in this Agreement or in the exhibits hereto contains any untrue statement of a material fact or, taken as a whole together with the SEC Documents, omits to state any material
fact necessary in order to make any of such representations, warranties or statements not misleading. 


    Section 3.16  Brokers.  Neither the Company nor its Subsidiary or their respective agents and
representatives have incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees, agents' commissions, investment banking fees, or other similar payment in connection
with this Agreement. 


    Section 3.17  Outstanding Indebtedness; Liens.  


    (a) Schedule 3.17(a)
sets forth and identifies in reasonable detail all individual items of outstanding short-term and long-term
Indebtedness of the Company and its Subsidiary in excess of $25,000 incurred or otherwise not listed on the most recent financial statement received by the Purchasers, including all notes issued by
the Company or its Subsidiary to finance the acquisition of 


15





 


real or personal property, prior to and after giving effect to the transactions contemplated by this Agreement. 


    (b) Except
as set forth on Schedule 3.17(b), there are no Liens outstanding on the date hereof and there will be no Liens outstanding as of the Closing on any
property or asset of the Company or its Subsidiary. 


    Section 3.18  Related-Party Transactions.  


    (a) Except
as set forth in the Company's filings under the Exchange Act, 



     (i) no
employee, officer, stockholder, director or consultant of the Company or member of his or her immediate family (defined as parents, spouse, siblings or lineal
descendents) is indebted to the Company, and the Company is not indebted (or committed to make any loans or extend or guarantee any credit) to any of them; 



    (ii) to
the knowledge of the Company, no employee, officer, stockholder, director or consultant of the Company has any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except stock ownership by
employees, officers, stockholders or directors of the Company and members of their immediate families in publicly traded companies; and 


    (iii) no
officer, stockholder or director or any member of their immediate families is, directly or indirectly, interested in any contract (other than the Documents)
with the Company. 




    (b) Except
for the Documents or as set forth on Schedule 3.18(b), the Company has not entered into any side letters, agreements or other arrangements with any
existing or prospective stockholder. 


    Section 3.19  Offering Exemption.  Assuming the truth and accuracy of the Purchaser's
representations and warranties contained in Section 4, the exchange of Series A Shares for the Series A-1 Preferred Stock as contemplated hereby and the issuance and
delivery to the Purchaser of the Shares, the Series A-1
Warrant and the shares of Common Stock issuable upon the conversion of the Shares and the shares of Series A-1 Preferred Stock issuable upon exercise of the
Series A-1 Warrant are exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and under
applicable state securities and "blue sky" laws, as currently in effect. 


    Section 3.20  Company Status.  The Company is not (i) a "public utility holder company" or
a "holding company" as defined in the Public Utility Holding Company Act of 1935, as amended, (ii) a "public utility" as defined in the Federal Power Act, as amended, or (iii) an
"investment company" as defined in the Investment Company Act of 1940, as amended. 


    Section 3.21  Insurance.  The Company carries insurance in such amounts (to the extent available
in the public market), including (as applicable) self-insurance, retainage and deductible arrangements, and of such a character as is reasonable for companies engaged in the same or
similar business similarly situated. The Company has procured and is the beneficiary of a "key man" life insurance policy on the life of Brent Cohen in the amount of $5 million.
Schedule 3.21 sets forth copies of certificates of all insurance coverage carried by the Company, identifying the carrier and the amount of coverage. 


    Section 3.22  Proprietary Rights.  


    (a) Except
as set forth on Schedule 3.22(a), (i) the Company is the sole owner, free and clear of any lien or encumbrance, of, or has a valid license,
without the payment of any royalty except with respect to off-the-shelf software and otherwise on commercially reasonable terms, to all U.S. and foreign trademarks, service
marks, logos, designs, trade names, internet domain names and corporate names, patents, registered designs, copyrights, computer software and databases, whether or not 


16





 


registered, web sites and web pages and related items (and all intellectual property and proprietary rights incorporated therein) and all other trade secrets, research and development, formulae,
know-how, proprietary and intellectual property rights and information, including all grants, registration and applications relating thereto (collectively, the "Proprietary Rights")
necessary or advisable for the conduct of its business as now conducted or as presently proposed to be conducted (such Proprietary Rights owned by or licensed to the Company collectively, the "Company
Rights"); (ii) the Company has taken, and will take all actions which are necessary or advisable in order to protect the Company Rights, and to acquire Proprietary Rights, consistent with
prudent commercial practices in the relevant industry; (iii) the Company's rights in the Company Rights are valid and enforceable; (iv) the Company has received no demand, claim, notice
or inquiry from any Person in respect of the Company Rights which challenges, threatens to challenge or inquires as to whether there is any basis to challenge, the validity of, or the rights of the
Company in, any such Company Rights, and the Company knows of no basis for any such challenge; (v) the Company is not in violation or infringement of, and has not violated or infringed, any
Proprietary Rights of any other Person; (vi) to the knowledge of the Company, no Person is infringing any Company Rights; and (vii) except on an arm's-length basis for
value and other commercially reasonable terms, the Company has not granted any license with respect to any Company Rights to any Person. 



    (b) Schedule 3.22(b)
contains a complete and accurate description of the Company Rights material, individually or in the aggregate, to the operation of the
Company's business and all of the material licenses and other agreements relating thereto. 


    (c) Except
as set forth on Schedule 3.22(c), as of the Closing, all of the Company's employees at or above the level of vice president, and all employees
involved in the invention, creation and development of Proprietary Rights, have executed a proprietary rights and inventions agreement in the form attached to  Schedule 3.22(c) hereof. 


17






  



 
 

ARTICLE IV.
  
    REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS    
  


    The Purchaser hereby represents and warrants to the Company as follows: 


    Section 4.1  Authorization; Enforceability; No Violations.  


    (a) The
Purchaser is duly organized and validly existing in good standing as a limited partnership under the laws of the State of Delaware and has all requisite limited
partnership power and authority to own its properties and assets and to carry on its business as it is now being conducted. The Purchaser has the partnership power to execute, deliver and perform the
terms and provisions of the Documents and has taken all necessary partnership action to authorize the execution, delivery and performance by it of such Documents and to consummate the transactions
contemplated hereby and thereby. No other partnership proceedings on the part of such Purchaser is necessary therefor. 


    (b) The
Purchaser has duly executed and delivered this Agreement and, at the Closing, will have duly executed and delivered the other Documents to which it is a party.
This Agreement constitutes, and the other Documents to which the Purchaser is a party, when executed and delivered by the Purchaser, and, assuming the due execution by the other parties hereto and
thereto, will constitute the legal, valid and binding obligations of the Purchaser, enforceable against it in accordance with their terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law). 


    Section 4.2  Consents.  No consent, authorization or order of, or filing or registration with, any
Governmental Authority or other person is required to be obtained or made by the Purchaser for the execution, delivery and performance by the Purchaser of this Agreement or any of the other Documents
or the consummation by the Purchaser of any of the transactions contemplated hereby or thereby other than those required for the Closing that will have been made or obtained on or prior to the Closing
Date. 


    Section 4.3  Title to Promissory Notes, Series A Shares and September Warrant.  The
Purchaser is the beneficial holder of each of the Promissory Notes, the Series A Shares and the September Warrant, and holds each free and clear of any Lien or other encumbrance, mortgage,
pledge or other security
interest with respect thereto, and, other than any restrictions under applicable federal or state securities laws, at the Closing will have the absolute and unrestricted right, power, authority and
capacity to sell, assign, exchange or transfer, as applicable, each of the Promissory Notes, the Series A Shares and the September Warrant for cancellation by the Company. No person has any
option to purchase, right of first refusal, right of first offer or first negotiation, or similar right or interest in the Promissory Notes, any of the Series A Shares or the September Warrant. 


    Section 4.4  Private Placement.  


    (a) The
Purchaser understands that (i) the offering and sale of the Securities by the Company to the Purchaser is intended to be exempt from registration under
the Securities Act pursuant to section 4(2) thereof, and (ii) there is no existing public or other market for the Securities. 



    (b) The
Securities to be acquired by the Purchaser pursuant to this Agreement are being acquired for its own account and without a view to making a distribution thereof
in violation of the Securities Act, without prejudice, however, to its right to sell or otherwise dispose of all or any part of such Securities in compliance with the provisions of the Securities Act
and applicable state securities or "blue sky" laws. 


    (c) The
Purchaser has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in
the Securities and the Purchaser is 


18





 


capable of bearing the economic risks of such investment, including a complete loss of its investment in the Securities. 


    (d) The
Purchaser is an "accredited investor," as such term is defined in Regulation D under the Securities Act. 


    (e) The
Purchaser acknowledges that the Company and, for purposes of the opinions to be delivered to the Purchaser pursuant to Section 7.2(k) hereof,
Latham & Watkins will rely, in part, on the accuracy and truth of its representations in this Section 4.3, and the Purchaser hereby consents to such reliance. 


    (f)  The
Purchaser has had the opportunity to ask questions of, and receive answers from, representatives of the Company concerning the Company and the terms and
conditions of this transaction, as well as to obtain any information requested by the Purchaser. Any questions raised by the Purchaser
concerning the transaction have been answered to the satisfaction of the Purchaser. The Purchaser's decision to enter into the transactions contemplated hereby is based in part on the answers to such
questions as the Purchaser has raised concerning the transaction and on the Purchaser's own evaluation of the risks and merits of the purchase and the Company's proposed business activities. 


 
 

ARTICLE V.
  
    COVENANTS OF THE COMPANY    
  


    Section 5.1  Agreement to Take Necessary and Desirable Actions.  The Company shall execute and
deliver the Documents and such other documents, certificates, agreements and other writings and take such other actions as may be necessary, desirable or reasonably requested by the Purchaser in order
to consummate or implement as expeditiously as practicable the transactions contemplated hereby. 


    Section 5.2  Compliance with Conditions; Best Efforts.  The Company shall use its best efforts to
cause all of the obligations imposed upon it in this Agreement to be duly complied with and to cause all conditions precedent to the obligations of the Company and the Purchaser to be satisfied. Upon
the terms and subject to the conditions of this Agreement, the Company shall use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable consistent with applicable law to consummate and make effective in the most expeditious manner practicable the transactions contemplated hereby. 


    Section 5.3  Consents and Approvals.  The Company shall (a) use its best efforts to obtain
all necessary consents, waivers, authorizations and approvals of all Governmental Authorities and of all other persons, firms or corporations required in connection with the execution, delivery and
performance by them of this Agreement, any other Document or any of the transactions contemplated hereby or thereby, and (b) diligently assist and cooperate with the Purchaser in preparing and
filing all documents required to be submitted by the Purchaser to any Governmental Authority in connection with such transactions and in obtaining any governmental consents, waivers, authorizations or
approvals which may be required to be obtained by the Purchaser in connection with such transactions (which assistance and cooperation shall include, without limitation, timely furnishing to the
Purchaser all information concerning the Company and its Subsidiary that counsel to the Purchaser reasonably determines is required to be included in such documents or would be helpful in obtaining
any such required consent, waiver, authorization or approval). 


    Section 5.4  Tax Treatment of Preferred Stock.  The Company covenants and agrees not to take any
action inconsistent with the Series A-1 Preferred Stock being considered common stock for U.S. Federal income tax purposes. 



    Section 5.5  Cancellation of Series A Preferred Stock.  On the business day immediately
following the Closing and upon delivery to the Company for cancellation in accordance with Section 2.2(a) 


19





 


hereof of certificates representing the Series A Shares, the Company will in accordance with Section 151(g) of the General Corporation Law of Delaware, file a Certificate of
Elimination with the Secretary of State eliminating from the charter of the Company all matters set forth in the Series A Certificate of Designations with respect to the Series A
Convertible Preferred Stock of the Company. 


    Section 5.6  Use of Proceeds.  The Company shall use the proceeds received in consideration of the
Promissory Notes and the exercise of the Series A-1 Warrant for continued product development, growth of its sales organization, working capital, acquisition of technology assets as
appropriate and other general corporate purposes. 


    Section 5.7  New Option Plan; Awards.  At its next regularly scheduled annual meeting or at such
earlier time as determined by a majority of the Board of Directors, the Company shall use reasonable efforts to have its holders of Securities approve (i) an amendment to the Amended and
Restated 1998 Stock Incentive Plan (the "1998 Plan") to authorize the issuance of an additional 6,500,000 shares of Common Stock under the 1998 Plan, and (ii) certain other changes necessary to
authorize the awards of new options and the inclusion of competition option claw backs. The Company shall recommend to the Board of Directors and use reasonable efforts to facilitate the granting of
such awards by the Board of Directors (or the Compensation Committee thereof) to the persons listed on Schedule 5.8 in such forms as shall be approved by the Board of Directors. Any additional
awards under the 1998 Plan and 2000 Plan shall be approved by the Board of Directors, subject to the approval of the members thereof nominated by the Purchaser. 



    Section 5.8  Director and Officer Insurance; "Key Man" Life Insurance.  The Company has provided
and will maintain, and the Purchaser have received copies of current and effective liability insurance policies, which provide coverage for the directors and officers of the Company with respect to
any liabilities reasonably incurred in connection with their services for or on behalf of the Company. The Company has procured and will maintain "key man" life insurance on the life of Brent N. Cohen
in the amount of five million dollars ($5,000,000), such policy shall be owned by the Company and shall name the Company as beneficiary and loss payee and shall not be cancelable by the Company
without prior approval of the Board of Directors, including the approval of the members thereof nominated by the Purchaser. 



    Section 5.9  Company Insurance.  The Company shall at all times maintain insurance in such amounts
(to the extent available in the public market), including (as applicable) self-insurance, retainage and deductible arrangements, and of such a character as is reasonable for companies
engaged in the same or similar business similarly situated. 


    Section 5.10  Agreements with Employees.  The Company shall require the execution of a proprietary
information and assignment of inventions agreement ("Proprietary Rights Agreement"), in the form attached as Exhibit C to the September Agreement by all of the Company's employees at or above
the level of vice president, and other employees involved in the invention, creation or development of Proprietary Rights, proprietary information and assignment of inventions agreement. 


    Section 5.11  Maintenance of Existence.  The Company shall maintain in full force and effect its
corporate existence, rights, governmental approvals and franchises and all licenses and other rights to use patents, processes, trademarks, trade names or copyrights owned or possessed by it and
deemed by it to be material to the conduct of its business. 



    Section 5.12  Books and Records.  The books of account and other financial and corporate records
of the Company shall be maintained in accordance with good business and accounting practices. 


    Section 5.13  Reservation of Common Stock.  From and after the Recapitalization, the Company shall
at all times reserve and keep available out of its authorized shares of Common Stock, (i) solely for the purpose of issue or delivery upon conversion of the Series A-1
Preferred Stock, the maximum 


20





 


number of shares of Common Stock that may be issuable or deliverable upon such conversion. Such shares of Common Stock are or will be duly authorized and, when issued or delivered in accordance with
the A-1 Certificate of Designations against payment therefor, shall be validly issued, fully paid and non-assessable. The Company shall issue such shares of Common Stock in
accordance with the terms of the Certificate of Designation and otherwise comply with the terms hereof and thereof. 


    Section 5.14  Compliance with Law.  The operations of the Company will continue to be conducted in
accordance with all Applicable Laws, including, without limitation, all Applicable Laws relating to consumer protection, currency exchange, employment (including, without limitation, equal opportunity
and wage and hour), safety and health, environmental protection, conservation, wetlands, architectural barriers to the handicapped, fire, zoning and building, occupation safety, pension and
securities, except for violations or failures so to comply, if any, that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 


    Section 5.15  Board Meetings.  A meeting of the Board of Directors of the Company shall be held at
least once per month, unless otherwise agreed by a majority of directors who are not employees of the Company. 


    Section 5.16  Recapitalization.  The Company will use reasonable best efforts to present to its
stockholders at or prior to the next Annual Meeting of Stockholders a proposal to amend the Certificate of Incorporation of the Company (a) to increase the total number of authorized shares of
Common Stock of the Company to a number sufficient to allow fully (i) the conversion of all authorized shares of Series A-1 Preferred Stock (including all dividends which may
accumulate with respect thereto) and (ii) the issuance of all shares of Common Stock pursuant to then existing option plans of the Company (collectively, the "Recapitalization") and
(b) to effect certain other amendments to the Certificate of Incorportion of the Company, all in the form of a Certificate of Amendment to Certificate of Incorporation substantially in the form
attached as Exhibit G hereto. Immediately following the Recapitalization, the Company shall reserve an amount of Common Stock of the Company to
allow fully the conversion of all of the authorized shares of Series A-1 Preferred Stock (including any additional shares of Series A-1 Preferred Stock issued as
dividends upon then outstanding shares of Series A-1 Preferred Stock) for issuance on such conversion. 


 
 

ARTICLE VI.
  
    COVENANTS OF THE PURCHASER    
  


    Section 6.1  Agreement to Take Necessary and Desirable Actions.  The Purchaser agrees to execute
and deliver each of the Documents and such other documents, certificates, agreements and other writings and to take such other actions as may be necessary, desirable or reasonably requested by the
Company in order to consummate or implement as expeditiously as practicable the transactions contemplated hereby. 


    Section 6.2  Compliance with Conditions; Commercially Reasonable Efforts.  The Purchaser will use
its commercially reasonable efforts to cause all of the obligations imposed upon it in this Agreement to be duly complied with, and to cause all conditions precedent to the obligations of the Company
and the Purchaser to be satisfied. Upon the terms and subject to the conditions of this Agreement, the Purchaser shall use its best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable consistent with Applicable Law to consummate and make effective in the most expeditious manner practicable the transactions contemplated
hereby. 


    Section 6.3  Confidential Information.  The Purchaser acknowledges that the information provided
to the Purchaser in connection with this Agreement or the September Agreement may be material non-public nformation and the Purchaser hereby covenants and agrees to keep, and cause its
representatives to keep, confidential any information identified by the Company as confidential, in a 


21





 


writing delivered to the Purchaser unless (a) such information becomes generally available to the public (other than as a result of a breach of this provision by the Purchaser), (b) such
information was available to the Purchaser on a non-confidential basis from a source (other than the Company or its representatives) that, to the Purchaser's knowledge, is not and was not
prohibited from disclosing such information to the Purchaser by a contractual, legal or fiduciary obligation or (c) the Purchaser is required by law to disclose such information;  provided, that in
an event specified in clause (c), the Purchaser shall provide the Company with prompt prior written notice of such required
disclosure, the Purchaser shall disclose only that portion of the confidential information that the Purchaser is advised by counsel is legally required, and the Purchaser shall exercise reasonable
efforts to obtain assurance that confidential treatment will be accorded such information. The Purchaser agrees that it will comply, and will cause its representatives to comply, with all U.S.
securities laws applicable to the receipt of material non-public information and restrictions on trading in securities when in possession of such information. The Purchaser agrees not to
use any confidential information in violation of any law. 


    Section 6.4  Purchaser Voting.  If necessary, when stockholder approval is sought, the Purchaser
hereby agrees to vote all voting securities of the Company then held by the Purchaser or over which the Purchaser exercises voting control in favor of the amendments described in Section 5.8
hereof and in favor of the Recapitalization. 


 
 

ARTICLE VII.
  
    CONDITIONS PRECEDENT TO CLOSING    
  


    Section 7.1  Conditions to the Company's Obligations.  The obligations of the Company hereunder
required to be performed on the Closing Date with respect to the Purchaser shall be subject, at its election, to the satisfaction or waiver (which waiver, if so requested by the Purchaser, shall be
made in writing), at or prior to the Closing of the following conditions: 



    (a) The
representations and warranties of the Purchaser contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date. 


    (b) The
Purchaser shall have performed in all material respects all obligations and agreements, and complied in all material respects with all covenants, contained in
this Agreement, to be performed and complied with by the Purchaser such at or prior to the Closing Date. 


    (c) All
governmental and regulatory approvals and clearances and all third-party consents necessary for the consummation of the transactions contemplated at such
Closing shall have been obtained and shall be in full force and effect, and the Company shall be reasonably satisfied that the consummation of such transactions does not and will not contravene any
Applicable Law, except to the extent any
contravention or contraventions, individually or in the aggregate, could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 


    (d) The
Purchaser shall have delivered to the Company the original of each of Promissory Notes, and original certificates evidencing all of the Series A Shares
and the September Warrant, properly endorsed for transfer to the Company or otherwise marked for cancellation, or an affidavit of lost certificate, in form and substance satisfactory to the Company
(together with any bond or other customary surety as may be reasonably requested by the Company). 




    Section 7.2  Conditions to The Purchaser's Obligations.  The obligations of the Purchaser
hereunder required to be performed at the Closing shall be subject, at its election, to the satisfaction or waiver (which waiver, if so requested by the Company, shall be made in writing), at or prior
to the Closing of the following conditions: 



    (a) The
representations and warranties of the Company made herein shall be true and correct in all material respects (disregarding, for purposes of such determination
of materiality, all 



22





 


qualifications in such representations and warranties regarding "material") as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that
representations and warranties made herein that by their terms speak as of the date of this Agreement or some other date shall be true and correct only as of such date). 



    (b) The
Company shall have performed in all material respects all obligations and agreements, and complied in all material respects with all covenants, contained in
this Agreement, to be performed and complied with by it at or prior to the Closing Date. 


    (c) Each
of the Company and KL shall have executed and delivered each of the Documents, as applicable. 


    (d) All
documents, instruments, agreements and arrangements relating to the transactions contemplated by the Documents shall be reasonably satisfactory to the
Purchaser, shall have been executed and delivered by the parties thereto and no party to any of the foregoing (other than the Purchaser) shall have breached any of its material obligations thereunder. 



    (e) Since
December 31, 1999, no change, occurrence or development shall have occurred, been threatened or become known to the Purchaser that could reasonably be
expected to have a Material Adverse Effect on the business, operations, prospects, properties or condition (financial or other) of the Company and its Subsidiary, taken as a whole, which, in the
reasonable judgment of the Purchaser, is or may be materially adverse to the Company and its Subsidiary, taken as a whole, and (ii) the Purchaser shall not have become aware of any information
or other matter relating to the Company (x) of which the Company (but not the Purchaser) had knowledge on or prior to the date of this Agreement, (y) that, in the Purchaser's reasonable
judgement, is inconsistent with any information or other matter relating to the Company disclosed to the Purchaser by the Company or any of its representatives prior to the date of this Agreement, and
(z) would have been viewed by the Purchaser, in its reasonable judgment, as having materially and adversely altered the total mix of information made available to the Purchaser prior to the
date of this Agreement. For purposes of this Section 7.2(e), the Company shall be deemed to have "knowledge" of a particular fact or other matter if (I) any individual who is serving, or
who has at any time served, as a director, officer or management-level employee of the Company is actually aware of such fact or other matter; or (II) a prudent individual serving as a
director, officer or management-level employee of the Company could be expected to discover or otherwise become aware of such fact or other matter in the diligent exercise of his or her duties in such
capacity. 


    (f)  Since
December 31, 1999, the business of the Company shall have been operated in compliance with all Applicable Laws, except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. 


    (g) There
shall be no litigation, proceeding or other action seeking an injunction or other restraining order, damages or other relief from a Governmental Authority or
other Person pending or threatened which, in the reasonable judgment of such Purchaser, would materially adversely affect the consummation of the transactions contemplated by the Documents on the
terms contemplated hereby and thereby and there shall be no litigation, proceeding or other action (including, without limitation, relating to environmental matters or the Benefit Plans) pending or
threatened against the Company or its Subsidiary which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 


    (h) All
governmental and regulatory approvals and clearances and all third-party consents necessary for the consummation of all of the transactions contemplated at the
Closing shall have been obtained and shall be in full force and effect, and the Purchaser shall be reasonably satisfied that the consummation of such transactions does not and will not contravene any
Applicable Law, 



23





 


except to the extent any contravention or contraventions, individually or in the aggregate, could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 


    (i)  The
Company shall have delivered to the Purchaser a certificate, executed by it or on its behalf by a duly authorized representative, dated as of such Closing
Date, certifying that each of the conditions (other than any condition the fulfillment of which is subject to the reasonable satisfaction of such Purchaser) specified in this Section 7.2 has
been satisfied. 


    (j)  Latham &
Watkins, counsel to the Company, and Richards, Layton & Finger, special Delaware counsel to the Company, each shall have delivered to the
Purchaser an opinion, dated as of such applicable Closing Date, addressed to the Purchaser, substantially in the form attached hereto as  Exhibit D-1 and Exhibit D-2, respectively. 


    (k) The
Company shall have filed the A-1 Certificate of Designations in compliance with Section 2.1(a). 



 
 

ARTICLE VIII.
  
    MISCELLANEOUS    
  


    Section 8.1  Survival; Indemnification.  


    (a) All
representations, warranties, covenants and agreements (except covenants and agreements which are expressly required to be performed and are performed in full on
or before the Closing Date) contained in this Agreement shall be deemed made at the Closing as if made at such time and shall survive the Closing for two years, except that (i) with respect to
claims asserted pursuant to this Section 8.1 before the expiration of the applicable representation or warranty, such claims shall survive until the date they are finally liquidated or
otherwise resolved, (ii) Sections 3.9, 3.12 and 3.13 shall survive until the end of the applicable statute of limitations, and (iii) Section 3.2 and this Section 8.1 shall
survive indefinitely. All statements as to factual matters contained in any certificate executed and delivered by the parties pursuant hereto shall be deemed to be representations, warranties and
covenants by such party hereunder. No claim may be commenced under this Section 8.1 (or otherwise) following expiration of the applicable period of survival, and upon such expiration the
Indemnifying Party shall be released from all liability with respect to claims under each such section not theretofore made by the Indemnified Party. No right of indemnity against any claim of a third
party shall arise from any representation, warranty or covenant of an Indemnifying Party herein contained, unless such third-party claim is filed or lodged against the Indemnified Party on or prior to
the expiration of the applicable period of survival provided above, and all other conditions hereunder are satisfied. A claim shall be made or commenced hereunder by the Indemnified Party delivering
to the Indemnifying Party a written notice specifying in reasonable detail the nature of the claim, the amount claimed (if known or reasonably estimable), and the factual basis for the claim. 


    (b) (i) The
Company agrees to indemnify and hold harmless the Purchaser and its partners, Affiliates, officers, directors, employees and duly authorized agents
and each of their affiliates and each other person controlling the Purchaser or any of their Affiliates within the meaning of either section 15 of the Securities Act or section 20 of the
Exchange Act and any partner of any of them from and against all losses, claims, damages or liabilities resulting from any claim, lawsuit or other proceeding by any person to which any party
indemnified under this clause may become subject which is related to or arises out of (A) the transactions contemplated by this Agreement and the other Documents, whether or not consummated,
(B) any breach of, or failure to perform any of the representations, warranties, covenants or agreements made in any of the Documents by the Company or (C) any action or omission of the
Company or its Subsidiary in connection with the transactions contemplated hereby or by the other Documents, and will reimburse each of the Purchasers and any other party indemnified under this clause
for all reasonable out-of-pocket expenses (including reasonable counsel fees and 


24





 


disbursements) incurred by the Purchaser or any such other party indemnified under this clause and further agrees that the indemnification and reimbursements commitments herein shall apply whether or
not the Purchaser or any such other party indemnified under this clause is a formal party to any such lawsuits, claims or other proceedings. The foregoing provisions are expressly intended to cover
reimbursement of legal and other expenses incurred in a deposition or other discovery proceeding. (ii) Notwithstanding the foregoing clause (i), the Company shall not be liable to any
party otherwise entitled to indemnification pursuant thereto: (A) in respect of any loss, claim, damage, liability or expense to the extent the same is determined, in final judgment by a court
having jurisdiction, to have resulted from the gross negligence or willful misconduct of such party or (B) for any settlement effected by such party without the written consent of the Company,
which consent shall not be unreasonably withheld or delayed. 


    (c) If
a person entitled to indemnity hereunder (an "Indemnified Party") asserts that any party hereto (the
"Indemnifying Party") has become obligated to the Indemnified Party pursuant to Section 8.1(b), or if any suit, action, investigation, claim or
proceeding is begun, made or instituted as a result of which the Indemnifying Party may become obligated to the Indemnified Party hereunder, the Indemnified Party agrees to notify the Indemnifying
Party promptly and to cooperate with the Indemnifying Party, at the Indemnifying Party's expense, to the extent reasonably necessary for the resolution of such claim or in the defense of such suit,
action or proceeding, including making available any information, documents and things in the possession of the Indemnified Party which are reasonably necessary therefor. 


    Notwithstanding
the foregoing notice requirement, the right to indemnification hereunder shall not be affected by any failure to give, or delay in giving, notice unless, and only to
the extent that, the rights and remedies of the Indemnifying Party shall have been materially prejudiced as a result of such failure or delay. 


    (d) In
fulfilling its obligations under this Section 8.1, after providing each Indemnified Party with a written acknowledgment of any liability under this
Section 8.1 as between such Indemnified Party and the Indemnifying Party, the Indemnifying Party shall have the right to investigate, defend, settle or
otherwise handle, with the aforesaid cooperation, any claim, suit, action or proceeding brought by a third party in such manner as the Indemnifying Party may in its sole discretion deem appropriate;  provided, however, that (i) counsel retained by the Indemnifying Party is reasonably satisfactory
to the Indemnified Party and (ii) the Indemnifying Party will not consent to any settlement imposing any obligations on any other party hereto, unless such party has consented in writing to
such settlement. Notwithstanding anything to the contrary contained herein, the Indemnifying Party may retain one firm of counsel to represent all Indemnified Parties in such claim, action or
proceeding; provided, however, that in the event that the defendants in, or targets of, any such claim, action or proceeding include more than one
Indemnified Party, and any Indemnified Party shall have reasonably concluded, based on the opinion of its own counsel, that there may be one or more legal defenses available to it which are in
conflict with those available to any other Indemnified Party, then such Indemnified Party may employ separate counsel to represent or defend it or any other person entitled to indemnification and
reimbursement hereunder with respect to any such claim, action or proceeding in which it or such other person may become involved or is named as defendant and the Indemnifying Party shall pay the
reasonable fees and disbursement of such counsel. Notwithstanding the Indemnifying Party's election to assume the defense or investigation of such claim, action or proceeding, the Indemnified Party
shall have the right to employ separate counsel at the expense of the Indemnifying Party and to direct the defense or investigation of such claim, action or proceeding if (A) in the written
opinion of counsel to the Indemnified Party, use of counsel of the Indemnifying Party's choice could reasonably be expected to give rise to a conflict of interest, or (B) the Indemnifying Party
shall not have employed counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party within a reasonable time (as determined in the light of the facts and circumstances
surrounding such event), but in no 


25





 


event shall such time exceed twenty (20) Business Days, after notice of the assertion of any such claim or institution of any such action or proceeding. In all other situations, the Indemnified
Party shall have the right to participate in the defense or investigation of such claim, action or proceeding if the Indemnifying Party shall authorize the Indemnified Party to employ separate counsel
at the Indemnifying Party's expense or if the fees and expenses of counsel for the Indemnified Party shall be borne by the Indemnified Party. 



    (e) If
for any reason (other than the gross negligence or willful misconduct referred to in subclause (b)(ii) above) the foregoing indemnification by the Company
is unavailable to any Indemnified Party or is insufficient to hold it harmless as and to the extent contemplated by subclauses (b), (c) and (d) above, then the Company shall contribute
to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative benefits received by the
Company and its Affiliates, on the one hand, and the Purchasers and any other applicable Indemnified Party, as the case may be, on the other hand, as well as any other relevant equitable
considerations. 


    Section 8.2  Notices.  All notices, demands, requests, consents, approvals or other communications
(collectively, "Notices") required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be
personally served, delivered by a reputable air courier service with tracking capability, with charges prepaid, or transmitted by hand delivery or facsimile, addressed as set forth below, or to such
other address as such party shall have specified most recently by written notice. Notice shall be deemed given on the date of service or transmission if personally
served or transmitted by facsimile. Notice otherwise sent as provided herein shall be effective upon receipt. 



    If
to the Company, to it at: 




US
SEARCH.com Inc.

5401 Beethoven Street

Los Angeles, CA 90066

Attention: Karol Pollock, General Counsel

Facsimile: (310) 578-5549 





    with
a copy (which shall not constitute notice) to: 




Latham &
Watkins

633 W. Fifth Street

Los Angeles, CA 90071

Attn: Pamela B. Kelly, Esq.

Facsimile: (213) 891-8763 





    If
to the Purchaser: 




Pequot
Private Equity Fund II, L.P.

500 Nyala Farm Road

West Port, CT 06880

Attention: Carol Holley, and Amber Tencic

Facsimile: (203) 429-2420 





    with
a copy (which shall not constitute notice) to: 




Dewey
Ballantine LLP

1301 Avenue of the Americas

New York, NY 10019

Attn: Ann Gill, Esq.

Facsimile: (212) 259-6333 





26





 





    Section 8.3  Governing Law.  This Agreement and the rights and obligations of the parties
hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, including without limitation, sections 5-1401 and 5-1402 of the New York
General Obligations Law and New York Civil Practice Laws and Rules 327(b), and each party hereto submits to the non-exclusive jurisdiction of the state and federal courts within the
County of New York in the State of New York. 


    Section 8.4  Termination.  This Agreement may be terminated by the Company or the Purchaser (in
each case if not in breach of any of its material obligations, representations or warranties hereunder) in the event of a breach or failure by the other party that is material in the context of the
transactions contemplated hereby of any representation, warranty, covenant or agreement by such party contained herein that has not been or cannot be cured or otherwise corrected within ten
(10) Business Days after written notice of such failure or event has been given. Termination pursuant to the foregoing clauses (i) or (ii) notwithstanding, Sections 8.1 and 8.10
hereof shall remain in effect. 


    Section 8.5  Entire Agreement.  This Agreement (including all agreements entered into pursuant
hereto and all certificates and instruments delivered pursuant hereto and thereto) constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior
and contemporaneous agreements, representations, understandings, negotiations and discussions between the parties or their Affiliates, whether oral or written, with respect to the subject matter
hereof. 


    Section 8.6  Termination of September Agreement.  Each of the undersigned agree that the September
Agreement is hereby terminated; provided that each party to the September Agreement shall remain liable to the other party with respect to any breaches
of the representations and warranties set forth therein and shall continue to have recourse to all rights and remedies set forth therein with respect to any such breaches, including any rights of
indemnification set forth therein. 


    Section 8.7  Modifications and Amendments.  No amendment, modification or termination of this
Agreement shall be binding upon any other party unless executed in writing by the parties hereto intending to be bound thereby. 


    Section 8.8  Waivers and Extensions.  Any party to this Agreement may waive any right, breach or
default which such party has the right to waive, provided that such waiver will not be effective against the waiving party unless it is in writing, is
signed by such party, and specifically refers to this Agreement. Waivers may be made in advance or after the right waived has arisen or the breach or default waived has occurred. Any waiver may be
conditional. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision
herein contained. No waiver or extension of time for performance of any
obligations or acts shall be deemed a waiver or extension of the time for performance of any other obligations or acts. 


    Section 8.9  Titles and Headings.  Titles and headings of sections of this Agreement are for
convenience only and shall not affect the construction of any provision of this Agreement. 



    Section 8.10  Exhibits and Schedules.  Each of the annexes, exhibits and schedules referred to
herein and attached hereto is an integral part of this Agreement and is incorporated herein by reference. 


    Section 8.11  Expenses; Brokers.  Provided that the Closing shall have occurred, the Company shall
pay or cause to be paid, all reasonable and documented out-of-pocket fees and expenses incurred by the Purchaser and their respective Affiliates for the Closing contemplated by
this Agreement, and in connection with the transactions contemplated by this Agreement, the other Documents and all matters related thereto (including legal fees, and expenses of counsel to Pequot).
Each of the parties represents to the others that neither it nor any of its Affiliates has used a broker or other intermediary, in connection with the transactions contemplated by this Agreement for
whose fees or expenses any other party will be liable and respectively agrees to indemnify and hold the others harmless from and against 


27





 


any and all claims, liabilities or obligations with respect to any such fees or expenses asserted by any person on the basis of any act or statement alleged to have been made by such party or any of
its Affiliates. 


    Section 8.12  Press Releases and Public Announcements.  All press releases and similar public
announcements relating to the transactions contemplated by the Documents shall be made only if mutually agreed upon by the Company and the Purchaser, except to the extent that such disclosure is, in
the opinion of counsel, required by law or by stock exchange regulation; provided that any such required disclosure shall only be made, to the extent consistent with law, after consultation with the
Purchaser. 


    Section 8.13  Assignment; No Third Party Beneficiaries.  This Agreement and the rights, duties and
obligations hereunder may not be assigned or delegated by either the Company or the Purchaser without the prior written consent of the other parties hereto;  provided that the Purchaser may assign or
delegate its rights, duties and obligations hereunder to a Permitted Transferee or to such other person as may
be reasonably satisfactory to the Company. Except as provided in the preceding sentence, any assignment or delegation of rights, duties or obligations hereunder made without the prior written consent
of the other parties hereto shall be void and of no effect. This Agreement and the provisions hereof shall be binding upon and shall inure to the benefit of each of the parties and their respective
successors and permitted assigns. This Agreement is not intended to confer any rights or benefits on any persons that are not party hereto other than as expressly set forth in Sections 8.1 and 8.13. 


    Section 8.14  Severability.  This Agreement shall be deemed severable, and the invalidity or
unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or
unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be
possible and be valid and enforceable. 


    Section 8.15  Counterparts; Facsimile.  This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. All documents and closing deliveries for the transactions contemplated by this
Agreement and the other Documents may be delivered by a party at the Closing via facsimile. Facsimile execution and delivery of this Agreement shall be legal, valid and binding execution and delivery
for all purposes. 


    Section 8.16  Further Assurances.  Each party hereto, upon the request of any other party hereto,
shall do all such further acts and execute, acknowledge and deliver all such further instruments and documents as may be necessary or desirable to carry out the transactions contemplated by this
Agreement, including, in the case of the Company, such acts, instruments and documents as may be necessary or desirable to convey and transfer to each Purchaser the Shares to be purchased by it
hereunder. 


    Section 8.17  Remedies Cumulative.  The remedies provided herein shall be cumulative and shall not
preclude the assertion by any party hereto of any other rights or the seeking of any remedies against the other party hereto. 


*
* * 


28





 


    IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. 



	

 	
 	

 	
 	

US SEARCH.COM INC.

a Delaware corporation
	

 	
 	

 	
 	

 	
 	

 
	

 	
 	

 	
 	

By:	
 	

/s/ BRENT N. COHEN   
 Name: Brent N. Cohen

Title: Chief Executive Officer
	

PEQUOT PRIVATE EQUITY FUND II, L.P.

a Delaware limited partnership	
 	

 	
 	

 
	

By:	
 	

Pequot Capital Management, Inc.

its Investment Manager	
 	

 	
 	

 
	

 	
 	

 	
 	

 	
 	

 
	

By:	
 	

/s/ KEVIN E. O'BRIEN   
 Name: Kevin E. O'Brien

Title: General Counsel

	
 	

 	
 	

 




29






  



 
 

EXHIBIT A
  
    FORM OF INVESTORS' RIGHTS AGREEMENT    
  


    Incorporated by reference to Exhibit 10.2 to this report on Form 8-K. 


A–1






  



 
 

EXHIBIT B
  
    A-1 CERTIFICATE OF DESIGNATIONS    
  


    Incorporated by reference to Exhibit 3.1 to this report on Form 8-K. 


B–1






  



 
 

EXHIBIT C
  
    SERIES A-1 WARRANT    
  



    Incorporated by reference to Exhibit 10.3 to this report on Form 8-K. 


C–1






  



 
 

EXHIBIT D-1
  
    OPINION OF LATHAM & WATKINS    
  


[Delivered Separately] 


D–1





 
 
 

EXHIBIT D-2
  
    OPINION OF RICHARDS, LAYTON & FINGER    
  


[Delivered Separately] 


D–2






  



 
 

EXHIBIT E
  
    FORM OF RIGHT OF FIRST REFUSAL
  
    US SEARCH.COM INC.
  
    FIRST AMENDMENT
  
    TO
  
    RIGHT OF FIRST REFUSAL AGREEMENT    
  


    THIS FIRST AMENDMENT TO RIGHT OF FIRST REFUSAL AGREEMENT (this
"Amendment") is entered into as of June 5, 2001, by and between The Kushner-Locke Company, a California corporation (the
"Kushner-Locke"), Pequot Private Equity Fund II, L.P., a limited partnership organized under the laws of Delaware (the
"Purchaser" and together with any of its Affiliates (as defined in the Exchange Agreement) "Pequot"). 


 
 

R E C I T A L S    
  


    WHEREAS, the parties to this Amendment are parties to that certain Right of First Refusal Agreement, dated as of September 7, 2000 (the
"Agreement"); 


    WHEREAS,
the US Search.com Inc., a Delaware Corporation (the "Company"), and Pequot have entered into a Preferred Stock Exchange
and Purchase Agreement, of even date herewith (the "Exchange Agreement"), pursuant to which Pequot has agreed to exchange its Series A
Convertible Preferred Stock of the Company (the "Series A Shares") for newly issued series of convertible preferred stock of the Company (the
"Series A-1 Shares"), cancel a certain warrant for shares of Series A Shares, and convert certain promissory notes for
additional shares of Series A-1 Shares; and pursuant to which the Company will issue a new warrant to Pequot for the purchase of Series A-1 Shares, subject to the
terms and conditions set forth therein; and 


    WHEREAS,
in connection with the transactions contemplated by the Exchange Agreement and to induce Pequot to enter into the Exchange Agreement the parties hereto desire to amend the
Agreement as provided below. 


 
 

A M E N D M E N T    
  


    NOW, THEREFORE, BE IT RESOLVED, that in consideration of the foregoing and for good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the Agreement is hereby amended as set forth below. 


    1.  References
in the Agreement to "this Agreement" shall be deemed to be references to the Agreement as amended hereby. 


    2.  The
phrase "Section 8.10 of the USS Purchase Agreement" in the final sentence of Section 1(d) of the Agreement is hereby deleted and replaced with the
phrase "Section 8.11 of the Exchange Agreement". 


    3.  Section 2
of the Agreement is hereby deleted in its entirety and replaced with the following: 



    "Termination. This Agreement shall terminate and be of no further force or effect immediately when (i) before the Closing (as
defined therein) of the Exchange Agreement, Pequot owns less than ten percent (10%) of the Series A Shares originally purchased on the First Closing of the USS Purchase Agreement, or the Stock
underlying such Series A Shares, (ii) on or after the Closing of the Exchange Agreement Pequot owns less than ten percent (10%) of the Series A-1 Shares exchanged for
Series A Shares pursuant to the Exchange Agreement, or the Stock underlying such Series A-1 Shares, or (iii) Pequot owns less than ten percent (10%) of all the 



E–1





 


issued and outstanding shares of capital stock of the Company (including all shares of capital stock issuable upon conversion or exercise of any outstanding rights, warrants or other convertible
securities of the Company), whichever shall occur later." 




    4.  In
the first sentence of Section 3 (a) the words "David Malat, the Chief Accounting Officer of Purchaser's Investment Manager" are hereby omitted and
replaced with the words "Amber Tencic". In the second sentence of Section 3 (a) the words "dmalat@pequotcap.com, in the case of Mr. Malat" are hereby omitted and replaced with the
words "PPE_Accounting@pequotcap.com, in the case of Ms. Tencic". 


    Except
as amended hereby the provisions of the Agreement shall remain unchanged and in full force and effect. This Amendment shall be governed by, and construed in accordance with,
the laws of the State of New York. 


[Signature
Page Follows] 


E–2





 


    IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first set forth above. 



	

 	
 	

PEQUOT PRIVATE EQUITY FUND II, L.P.
	

 	
 	

By:	
 	

Pequot Capital Management, Inc.
	 	 	Its:	 	Investment Manager
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Name:	 	Kevin E. O'Brien
	 	 	Title:	 	General Counsel
	 	 	Address:	 	500 Nyala Farm Road

Westport, CT 06880
	

 	
 	

 	
 	

 
	

 	
 	

THE KUSHNER-LOCKE COMPANY
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Name:	 	Donald Kushner
	 	 	Title:	 	Co-Chief Executive Officer
	 	 	Address:	 	11601 Wilshire Boulevard

21st Floor

Los Angeles, California 90025






E–3






  



 
 

EXHIBIT F
  
    FORM OF STOCKHOLDERS AGREEMENT    
  


    Incorporated by reference to Exhibit 10.4 to this report on Form 8-K. 


F–1






  



 
 

EXHIBIT G
  
    FORM OF CERTIFICATE OF AMENDMENT TO
  CERTIFICATE OF INCORPORATION
  
    CERTIFICATE OF AMENDMENT
  
    OF
  
    CERTIFICATE OF INCORPORATION
  
    OF
  
    US
SEARCH.COM INC.    
  


    US Search.com Inc., a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that: 


    1.  The
Certificate of Incorporation of the Corporation is hereby amended by deleting Article IV, Paragraph A thereof in its entirety and inserting the
following in lieu thereof: 



"A.
This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to
issue is            (            million) shares.            million
shares (            ) shares shall be Common Stock, each having a par value of one-tenth
of one cent ($0.001). One million (1,000,000) shares shall be Preferred Stock, each having a par value of one-tenth of one cent ($0.001)." 




    2.  The
Certificate of Incorporation of the Corporation is hereby amended by deleting the phrase "to elect directors under specified circumstances" from
Section 3.a. of Article V, Paragraph A. 


    3.  The
Certificate of Incorporation of the Corporation is hereby amended to add "or any Preferred Stock Designation" immediately after the phrase "Subject to any
limitation imposed by law" and before the comma in Section 3.b. of Article V, Paragraph A. 


    4.  The
Certificate of Incorporation is hereby amended to add "or any Preferred Stock Designation" immediately after the phrase "except as provided in
paragraph B of this Article VII" and before the comma in Article VII, Paragraph A. 



    5.  The
foregoing amendments were duly adopted in accordance with the provisions of Sections 242 and 228 (by the written consent of the stockholders of the Corporation)
of the General Corporation Law of the State of Delaware. 


    IN
WITNESS WHEREOF, US Search.com Inc. has caused this Certificate to be executed by its duly authorized officer, on this    day of            , 2001. 



	

 	
 	

US SEARCH.COM INC.
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

 Name: Brent N. Cohen

Office: Chief Executive Office






G–1









QuickLinks


PREFERRED STOCK EXCHANGE AND PURCHASE AGREEMENT

ARTICLE I. DEFINITIONS

ARTICLE II. SALE, PURCHASE AND EXCHANGE

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY


ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

ARTICLE V. COVENANTS OF THE COMPANY

ARTICLE VI. COVENANTS OF THE PURCHASER

ARTICLE VII. CONDITIONS PRECEDENT TO CLOSING

ARTICLE VIII. MISCELLANEOUS



EXHIBIT A FORM OF INVESTORS' RIGHTS AGREEMENT


EXHIBIT B A-1 CERTIFICATE OF DESIGNATIONS


EXHIBIT C SERIES A-1 WARRANT


EXHIBIT D-1 OPINION OF LATHAM & WATKINS

EXHIBIT D-2 OPINION OF RICHARDS, LAYTON & FINGER



EXHIBIT E FORM OF RIGHT OF FIRST REFUSAL US SEARCH.COM INC. FIRST AMENDMENT TO RIGHT OF FIRST REFUSAL AGREEMENT

R E C I T A L S

A M E N D M E N T


EXHIBIT F FORM OF STOCKHOLDERS AGREEMENT


EXHIBIT G FORM OF CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF US SEARCH.COM INC.