As filed with the Securities and Exchange Commission on August 5, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION

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REGISTRATION STATEMENT
ON FORM S-1
UNDER
THE SECURITIES ACT OF 1933

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BE FREE, INC.
(Exact name of registrant as specified in its charter)

Delaware 7374 04-3303188
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification Number)
of incorporation or
organization)

154 Crane Meadow Road
Marlborough, Massachusetts 01752
(508) 357-8888
(Address, including zip code, telephone number, including area code, of
registrant's principal executive offices)

Gordon B. Hoffstein
President and Chief Executive Officer
BE FREE, INC.
154 Crane Meadow Road
Marlborough, Massachusetts 01752
(508) 357-8888
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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Copies to:
JAY E. BOTHWICK, ESQ. MARK H. BURNETT, ESQ.
DAVID A. WESTENBERG, ESQ. JOCELYN M. AREL, ESQ.
HALE AND DORR LLP TESTA, HURWITZ & THIBEAULT, LLP
60 State Street 125 High Street
Boston, Massachusetts 02109 Boston, Massachusetts 02110
Telephone: (617) 526-6000 Telephone: (617) 248-7000
Telecopy: (617) 526-5000 Telecopy: (617) 248-7100

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [X]

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CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee
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Common Stock, $.01 par value per
share.............................. $59,800,000 $16,625
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION-AUGUST 5, 1999

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Prospectus
, 1999

[Be Free logo appears here]

Shares of Common Stock
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The Company: The Offering:
. We are a leading . We are offering shares of our common
provider of services stock.
that enable electronic
commerce merchants and . The underwriters have an option to purchase up
Internet portals to to an additional shares from us to
market their products cover over-allotments.
and services in tens of
thousands of locations . This is our initial public offering. We
on the Internet and to anticipate that the initial public offering
pay for these price will be between $ and $ per
promotions based on share.
resulting sales or
traffic. . We plan to use the proceeds from this offfering
for working capital and other general corporate
purposes.
Proposed Symbol & Market:
. BFRE/NASDAQ

. Closing: , 1999.

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Per Share Total
-----------------------------------------

Public offering price: $ $
Underwriting fees:
Proceeds to Be Free:
-----------------------------------------

This investment involves risk. See "Risk Factors" beginning on page 6.

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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.

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Donaldson, Lufkin & Jenrette

Hambrecht & Quist

Dain Rauscher Wessels
a division of Dain Rauscher Incorporated

The undersigned is facilitating Internet distribution

DLJdirect Inc.

[Be Free logo]

[Inside Front Cover Artwork]
Graphic of two Web site pages that contain promotions of Be Free's e-merchant
customers.

[Be Free logo]

Graphic of a promotion featured on the Web site of a marketing affiliate.
This graphic is being viewed by a crowd of miniature people and is connected by
arrows flowing through a graphic of Be Free's Data Interchange to a graphic of
an e-merchant customer's Web site. These three graphics together represent the
exchange of information between Be Free, its customers and their marketing
affiliates, and illustrate how performance marketing works in the Internet.

TABLE OF CONTENTS

Page

Prospectus Summary........................................................ 1
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 31

Page

Management................................................................. 44
Transactions with Related Parties.......................................... 50
Principal Stockholders..................................................... 53
Description of Capital Stock............................................... 55
Shares Eligible for Future Sale............................................ 59
Underwriting............................................................... 61
Legal Matters.............................................................. 63
Experts.................................................................... 64
Where You Can Find More Information........................................ 64
Index to Financial Statements.............................................. F-1

PROSPECTUS SUMMARY

This summary may not contain all of the information that is important to
you. You should read the entire prospectus, including the financial statements
and related notes, before making an investment decision. As used in this
prospectus, the terms "we," "us," "our" and similar terms refer to Be Free,
Inc. and not to its management or stockholders. Unless otherwise indicated, all
information in this prospectus:

. reflects a for reverse stock split effected on , 1999;

. assumes that the underwriters will not exercise their over-allotment
option;

. gives effect to the conversion of all outstanding shares of preferred
stock into shares of common stock upon completion of this
offering; and

. assumes the effectiveness of our amended and restated certificate of
incorporation.

Be Free

Our Business

We are a leading provider of services that enable electronic commerce
merchants and Internet portals to market their products and services in tens of
thousands of locations on the Internet and to pay for these promotions based on
performance. Our e-merchant and portal customers use our services to establish
and manage performance marketing relationships directly with these third party
locations. We enable the third party marketing partners to integrate our
customers' promotions into their Web sites and e-mail messages that contain
content that is relevant to the products or services being promoted. Our
customers pay their marketing partners only for those promotions that generate
sales or traffic. In this way, our customers create their own performance
marketing sales channels. We provide a cost-effective solution for
establishing, managing and rewarding these channels. We enable our customers to
increase their sales and traffic and decrease their cost of customer
acquisition.

Our services are critical to online performance marketing because they:

. provide the data interchange that integrates our customers' catalog,
transactional and fulfillment systems with tens of thousands of Web sites
and e-mail messages created by their marketing partners;

. enable our customers to generate and manage a variety of promotional
links for each of their products or services;

. enable each of our customer's marketing partners to select those
promotional links that are relevant to the content on its Web site or
within its e-mail messages and integrate those links within that content;

. track the effectiveness of each individual promotion by recording each
time a user views it on a marketing partner's site, clicks on it and is
directed to our customer's site, and makes a purchase on that customer's
site; and

. collect, store and analyze viewing, click-through and sales data to
improve the effectiveness of online marketing and to reduce the cost of
customer acquisition.

Using our services, our customers pay only for those individual promotions
that succeed. Our e-merchant customers typically pay their marketing partners
only for the sales they generate. Our portal customers typically pay their
marketing partners only for the traffic they send to the portal. Our fees are
also typically based on the level of sales or traffic generated for our
customers through their performance marketing channels. As a result, our
economic interests are closely aligned with the economic interests of our
customers and their marketing partners.

Our performance marketing services to date have focused on enabling our
customers to establish and manage affiliate sales channels. These channels
comprise third-party Web site publishers that include on their sites
promotional links to their affiliated e-merchants and portals. We also provide
performance marketing services which enhance more traditional online marketing,
such as the serving of ad banners, by tracking their effectiveness through to a
sale. Recently, we expanded our performance marketing services to enable the
inclusion of promotions in e-mail messages sent by businesses and individuals.

The promotions we tracked for our customers were shown more than 300 million
times in June 1999 through the more than one million performance marketing
relationships our customers have established. Jupiter Communications, an
Internet research firm, estimates that e-merchants with an affiliate sales
channel generate on average 17% of their online sales from that channel. We
believe that affiliate sales channels and other online performance marketing
channels will constitute an increasingly significant revenue source for our
customers.

Our Market Opportunity

The Internet has experienced rapid growth both in terms of the number of
users online and in the amount and dispersion of content available to them
online. The Internet has also emerged as a significant sales channel for goods
and services to consumers, with total U.S. online consumer spending projected
to increase from $7.8 billion in 1998 to $108.0 billion in 2003.

E-merchants and portals use online promotions to reach a global audience for
their products and services, drive traffic to their Web sites, attract
customers and facilitate transactions. Initially, these online promotions took
the form of banner advertisements. Under this model an advertiser pays fees
based on the number of times its ad is displayed and typically evaluates the
performance of that ad based on the rate at which viewers click on it and are
directed to the advertiser's Web site.

As a result of decreases in these click-through rates and a need to reach a
broader audience viewing more widely dispersed content, e-merchants and portals
sought to pay for their marketing programs based on the sales or traffic they
generated. These affiliate sales channels have emerged as the first widely
introduced type of these performance marketing programs.

E-merchants and portals face several challenges in establishing and managing
performance marketing programs. These challenges include developing
technologies to exchange data with thousands of marketing partners that operate
disparate systems, generating and placing promotions and managing relationships
with large numbers of marketing partners. In addition, marketing partners want
to minimize the time and expense associated with enrolling in a performance
marketing program and creating and changing promotions for a particular e-
merchant or portal. We believe these challenges provide a significant
opportunity for our comprehensive solutions that are designed to help e-
merchants and portals establish and manage performance marketing channels and
to help marketing partners enhance their revenue.

Our Strategy

Our objective is to be the leading provider of online performance marketing
solutions. We are focusing on the following strategic initiatives to achieve
this objective:

. continue our technology leadership and expertise to enhance and extend
our comprehensive solutions for performance marketing programs;

. rapidly expand our targeted customer base, both in the U.S. and selected
markets abroad;

. continue to provide customer branded and controlled solutions;

. increase the size and effectiveness of our customers' sales channels; and

. expand our services to existing customers.

Our History

We were incorporated in 1996 in Delaware under the name Freedom of
Information, Inc. and changed our name to Be Free, Inc. in March 1999. In
August 1998 we combined with two affiliated companies under common control and
management. One affiliated company was incorporated in 1985 in Pennsylvania and
the other was incorporated in 1996 in Delaware. All of our financial statements
and data in this prospectus are presented on a consolidated basis for all three
entities.

Our principal executive office is located at 154 Crane Meadow Road,
Marlborough, Massachusetts 01752, and our telephone number is (508) 357-8888.
Our corporate Web sites are located at www.befree.com and
www.affiliaterecruiters.com. The information contained on our Web sites is not
a part of this prospectus.

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Be Free, BFAST, BFIT, B-INTOUCH and e-nabled are our servicemarks. This
prospectus also contains other trademarks, servicemarks and tradenames that are
the property of their respective owners.

The Offering

Common stock offered by Be Free.... shares

Common stock to be outstanding
after this offering............... shares

Use of proceeds.................... Working capital and other general corporate
purposes

Proposed Nasdaq National Market
symbol............................ BFRE

The common stock outstanding after the offering is based on the number of
shares outstanding as of , 1999, and excludes:

. shares issuable upon the exercise of outstanding options with a
weighted average exercise price of $ per share;

. shares available for issuance and grant under our 1998 Stock
Incentive Plan, net of outstanding options; and

. shares issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $ per share.

Summary Consolidated Financial Information
(In thousands, except per share data)

The financial data set forth below should be read with "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and related notes, all included elsewhere in this prospectus.

Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all outstanding shares of preferred stock
into shares of common stock, as if the shares had converted immediately upon
issuance. Accordingly, accretion of preferred stock to redemption value has not
been included in the calculation of unaudited pro forma basic and diluted net
loss per share.

Six Months
Ended June
Year Ended December 31, 30,
------------------------- --------------
1996 1997 1998 1998 1999

Statement of Operations Data:
Revenue:
Performance marketing services..... $ -- $ 216 $ 1,319 $ 617 $ 1,396
Other.............................. 196 60 8 3 --
------- ------- ------- ----- -------
Total revenue..................... 196 276 1,327 620 1,396
Total operating expenses............ 1,461 1,211 4,794 825 7,603
------- ------- ------- ----- -------
Operating loss...................... (1,265) (935) (3,467) (205) (6,207)
Interest expense, net............... (26) (99) (224) (61) (168)
------- ------- ------- ----- -------
Net loss............................ (1,291) (1,034) (3,691) (266) (6,375)
Accretion of preferred stock to
redemption value................... -- -- (56) -- (590)
------- ------- ------- ----- -------
Net loss attributable to common
stockholders....................... $(1,291) $(1,034) $(3,747) $(266) $(6,965)
======= ======= ======= ===== =======

Basic and diluted net loss per
share.............................. $ $ $ $ $

Shares used in computing basic and
diluted net loss per share.........
Unaudited pro forma basic and
diluted net loss per share......... $ $

Shares used in computing unaudited
pro forma basic and diluted net
loss per share.....................

The pro forma as adjusted balance sheet data as of June 30, 1999 give effect
to the conversion of all outstanding shares of preferred stock into shares of
common stock and have been adjusted to give effect to the sale of
shares of common stock offered hereby at the assumed initial public offering
price of $ per share, after deducting underwriting discounts and commissions
and estimated offering expenses.

As of June 30, 1999
---------------------
Pro Forma
Actual As Adjusted

Balance Sheet Data:
Cash, cash equivalents and marketable securities......... $ 24,325 $
Working capital.......................................... 21,032
Total assets............................................. 30,183
Long-term debt, net of current portion................... 6,018 6,018
Convertible preferred.................................... 35,350 --
Total stockholders' equity (deficit)..................... (16,494)

RISK FACTORS

You should consider carefully the following risks, together with all other
information included in this prospectus before you decide to buy our common
stock. Please keep these risks in mind when reading this prospectus, including
any forward-looking statements appearing in this prospectus. If any of the
following risks actually occurs, our business, financial condition or results
of operations would likely suffer materially. As a result, the trading price of
our common stock may decline, and you could lose all or part of the money you
paid to buy our common stock.

Risks Related to Our Business

Our limited operating history makes the evaluation of our business and
prospects difficult

We introduced our first performance marketing services and recorded our
first revenue from these services in the third quarter of 1997. Accordingly, we
have a limited operating history of running our current business. Our current
business has never achieved profitability and our business model and profit
potential are unproven. Before buying our common stock, you should consider the
risks and difficulties frequently encountered by early stage companies in new
and rapidly evolving markets, particularly those companies whose business
depends on the Internet. We cannot assure you that our business strategy will
be successful or that we will address these risks and difficulties
successfully. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for detailed information on our limited operating
history.

We have a history of losses and expect future losses

Our accumulated deficit as of June 30, 1999 was $12.5 million. Our current
business has never achieved profitability and we expect to continue to incur
losses for the foreseeable future in light of the level of our planned
operating and capital expenditures. To support our current and future lines of
business, we plan to invest in our technology and infrastructure, including an
expansion of our existing data center and the opening of new data centers. We
also intend to increase our expenditures relating to sales and marketing and
product development activities. The timing of our investments and expansion
could cause material fluctuations in our results of operations. We also plan to
purchase additional capital equipment, which will result in additional
depreciation expense. Our losses may increase in the future and we may not be
able to achieve or sustain profitability. We will need to generate significant
additional revenue to achieve profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis in the future. If our revenue grows more slowly than
we anticipate, or if our operating expenses exceed our expectations and cannot
be adjusted accordingly, our business, results of operations and financial
condition would be materially and adversely affected. We also expect to
experience negative operating cash flow for the foreseeable future as we fund
our operating losses and capital expenditures. See "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for more detailed information.

The acceptance and effectiveness of Internet advertising and marketing are not
yet fully established and it is uncertain whether they will receive widespread
customer acceptance

Our future success depends in part on a significant increase in the use of
the Internet as an advertising and marketing medium. The Internet advertising
and marketing market is new and rapidly

evolving, and it cannot yet be compared with traditional advertising media or
marketing programs to gauge its effectiveness. As a result, demand for and
market acceptance of Internet advertising and marketing solutions are
uncertain. Many of our current and potential customers have little or no
experience with Internet advertising and marketing and have allocated only a
limited portion of their advertising and marketing budgets to Internet
activities. The adoption of Internet advertising and marketing, particularly by
entities that have historically relied upon more traditional methods, requires
the acceptance of a new way of advertising and marketing. These customers may
find Internet advertising and marketing to be less effective for meeting their
business needs than other methods of advertising and marketing. Furthermore,
there are software programs that limit or prevent advertising from being
delivered to a user's computer. Widespread adoption of this software by Web
users would significantly undermine the commercial viability of Internet
advertising and marketing. In addition, performance marketing on the Internet
requires the collection and maintenance of sensitive marketing and consumer
data by companies like us. Customers may refuse to allow this data collection
and choose alternative forms of Internet advertising and marketing. If these
markets fail to develop or develop more slowly than we expect, our business,
financial condition and results of operations would be materially and adversely
affected.

Our business model is unproven and may not be successful

We do not know whether our business model and strategy will be successful.
If the assumptions underlying our business model are not valid or we are unable
to implement our business plan, achieve the predicted level of market
penetration or obtain the desired level of pricing of our services for
sustained periods, our business results will be materially and adversely
affected. Substantially all of our revenue is derived from a new business
model. Our revenue depends on whether the online marketing that we facilitate
generates sales or traffic for our customers. In contrast, others earn fees
based merely on placing online advertisements for customers. If our performance
marketing business model proves to be unsuccessful, our business results will
be materially and adversely affected.

We have a small number of customers from which we derive a significant portion
of our revenue and the loss of these customers would adversely affect our
financial condition and results of operations

We derive a substantial portion of our revenue from a small number of e-
merchants and other Web-based businesses. Our largest customer,
barnesandnoble.com, represented 78%, 73% and 40% of our revenue in 1997, 1998
and the first six months of 1999, respectively. GeoCities, a subsidiary of
Yahoo, Inc., which became a customer in 1999, accounted for 15% of our revenue
in the first six months of 1999. Our business, results of operations and
financial condition would be materially and adversely affected by the loss of
either of these customers, any significant reduction in net revenue generated
from these customers or any system or other disruptions related to these
customers or their significant marketing partners. Our contracts with
barnesandnoble.com and GeoCities expire in January 2001 and January 2002,
respectively. GeoCities has the right to terminate its contract prior to the
expiration of its term by giving us notice and paying a penalty. Both contracts
provide that either party may terminate upon a material breach under certain
circumstances. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note B to Notes to Consolidated Financial
Statements included elsewhere in this prospectus for detailed information on
our customer concentration.

System disruptions and failures could cause data loss and customer
dissatisfaction or financial loss

The continuing and uninterrupted performance of the computer systems used by
us, our customers and their marketing partners is critical to our success.
Customers may become dissatisfied by any system failure that interrupts our
ability to provide our services to them. These failures could affect our
ability to deliver and track promotions quickly and accurately to the targeted
audience and deliver reports to our customers and their marketing partners.
Sustained or repeated system failures would reduce the attractiveness of our
services significantly. Our operations depend on our ability to protect our
computer systems against damage from fire, power loss, water damage,
telecommunications failures, vandalism and similar unexpected adverse events.
In addition, interruptions in our services could result from the failure of
telecommunications providers to provide the necessary data communications
capacity in the time required. Our critical computer hardware and software is
housed at Exodus Communications, Inc., a third party provider of Internet
hosting and communication services located in the Harborside, New Jersey area.
Any system failure by us or Exodus, or any of the above factors affecting the
Harborside, New Jersey area specifically, would have a material adverse effect
on our business. Further, despite our efforts to implement network security
measures, our systems are vulnerable to computer viruses, break-ins and similar
disruptions from unauthorized tampering. We do not carry enough business
interruption insurance to compensate for any significant losses that may occur
as a result of any of these events.

We have experienced systems outages in the past, during which we were unable
to route transactions to our customers from their marketing partners or provide
reports. During these outages our customers may have lost sales and some of
their marketing partners may have failed to earn commissions. We may experience
such outages in the future. The expansion of our existing data center and the
opening of additional data centers may not eliminate systems outages or prevent
the loss of sales when system outages occur. Our business, results of
operations and financial condition could be materially and adversely affected
by any damage or failure that interrupts or delays our operations. See
"Business--Technology Infrastructure."

We operate in highly competitive markets and may not be able to compete
effectively

We compete in markets that are new, intensely competitive, highly fragmented
and rapidly changing. We do not currently compete against established companies
across the range of services we provide. We do, however, compete against larger
companies with respect to a portion of the services we provide and compete more
broadly against similar sized, private companies. We face competition in the
overall performance marketing solutions market as well as the affiliate network
and banner advertising delivery segments of the Internet advertising and
marketing markets. In addition, we have recently entered the online e-mail
referral services market and expect to face competition in this market as well.
We have experienced and expect to continue to experience increased competition
from current and potential competitors. We believe our principal competitors
are Commission Junction, LinkShare and Microsoft's LinkExchange.

Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than we can. In addition, our
current and potential competitors may bundle their products with other software
or hardware, including operating systems and Internet browsers, in a manner
that may discourage users from purchasing products offered by us. Also, many
current and potential competitors have greater name recognition and
significantly greater financial,

technical, marketing and other resources than we do. Increased competition
could result in price reductions, fewer customer orders, reduced gross margins
and loss of market share.

A breach of our security measures and release of confidential data could cause
financial loss

A fundamental requirement for online commerce is the secure transmission of
confidential information over public networks. Third parties may attempt to
breach our security. If they are successful, they could obtain our customers'
or their marketing partners' confidential information, including marketing
data, sales data, passwords, financial account, performance and contact
information. We may be liable for any breach in our security and any breach
could harm our reputation, reduce demand for our services or cause customers to
terminate their relationships with us. We rely on encryption technology
licensed from third parties. Our systems are vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, which could lead to
interruptions, delays or loss or theft of data. We may be required to expend
significant capital and other resources to license encryption technology and
additional technologies to protect against security breaches or to alleviate
problems caused by any breach. Our failure to prevent security breaches may
have a material adverse effect on our business and operating results.

We may be exposed to potential liabilities if we supply inaccurate information
to our customers

Our services depend on complex software that we have internally developed or
licensed from third parties. Software often contains defects, particularly when
first introduced or when new versions are released, which can adversely affect
performance or result in inaccurate data. We may not discover software defects
that affect our new or current services or enhancements until after they are
deployed. In addition, our services depend on our customers and their marketing
partners supplying us with data regarding contacts, performance and sales. They
may provide us with erroneous or incomplete data. Software defects or
inaccurate data may cause incorrect recording, reporting or display of
information to our customers or their marketing partners, which could provide
an inaccurate basis for payment of fees or the extension, termination or
alteration of our customer relationships.

To be competitive, we must continue to develop new services, and our failure to
do so may adversely affect future revenue growth

Our market is characterized by rapid technological change, frequent new
service introductions, changes in customer requirements and evolving industry
standards. The introduction of services embodying new technologies and the
emergence of new industry standards could render our existing services
obsolete. Our future success will depend upon our ability to develop and
introduce a variety of new services and service enhancements to address the
increasingly sophisticated needs of our customers. We have experienced delays
in releasing new services and service enhancements and may experience similar
delays in the future. Material delays in introducing new services and
enhancements may cause customers to forego purchasing or renewing our services
and purchase those of our competitors.

We face risks associated with potential government regulation, both foreign and
domestic, related to e-commerce

Laws and regulations directly applicable to Internet communications,
commerce and marketing are becoming more prevalent. The United States Congress
has enacted Internet laws regarding

children's privacy, copyrights and taxation. Other laws and regulations may be
adopted covering issues such as user privacy, pricing, content, taxation and
quality of products and services. Such legislation could hinder the growth in
use of the Web generally and decrease the acceptance of the Web as a medium of
communications, commerce and marketing. The governments of states and foreign
countries might attempt to regulate our transmissions or levy sales or other
taxes relating to our activities. The laws governing the Internet remain
largely unsettled, even in areas where legislation has been enacted. It may
take years to determine whether and how existing laws such as those governing
intellectual property, privacy, libel and taxation apply to the Internet and
Internet advertising and marketing services. In addition, the growth and
development of the market for Internet commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad, that
may impose additional burdens on companies conducting business over the
Internet. Our business, results of operations and financial condition could be
adversely affected by the adoption or modification of laws or regulations
relating to the Internet.

The Internet generates privacy concerns which could result in market
perceptions or legislation which could harm our business, result in reduced
sales of our services, or both

We develop and maintain data related to communications, consumer behavior
and marketing profiles. When a user first views or clicks on a customer's
promotion managed by our system, our software creates an anonymous profile for
that user and we add and change profile attributes based upon that user's
behavior on our customer's Web site and its marketing partners' Web sites.
Privacy concerns may cause visitors to avoid Web sites that track behavioral
information and even the perception of security and privacy concerns, whether
or not valid, may indirectly inhibit market acceptance of our services. In
addition, legislative or regulatory requirements may heighten these concerns if
businesses must notify users that the data captured after visiting Web sites
may be used to direct product promotions and advertising to that user. For
example, the European Union recently enacted its own privacy regulations that
may result in limits on the collection and use of some user information. The
United States and other countries may adopt similar legislation or regulatory
requirements. If privacy legislation is enacted or consumer privacy concerns
are not adequately addressed, our business, results of operations and financial
condition could be harmed.

We may not be able to protect and enforce our intellectual property rights and
may be infringing upon third-party intellectual property rights

Our success and ability to compete depend to a significant degree on the
protection of our proprietary rights. We seek to protect our proprietary rights
through a combination of patent, copyright, trade secret and trademark law and
assignment of invention and confidentiality agreements. The unauthorized
reproduction or other misappropriation of our proprietary rights could enable
third parties to benefit from our technology without paying us for it. If this
occurs, our business could be materially adversely affected. In December 1998,
we were granted U.S. Patent No. 5,848,396 covering the development of profiles
based on viewing history and targeting advertisements based upon such profiles.
We have also filed applications to register various servicemarks. We cannot
assure you that any of our servicemark registrations will be approved. We
cannot assure you that our patent or any future patents or servicemark
registrations we receive will not be successfully challenged by others or
invalidated. In addition, we cannot assure you that we do not infringe any
intellectual property rights of third parties or that we will be able to
prevent

misappropriation of our technologies, particularly in foreign countries where
laws or law enforcement practices may not protect our proprietary rights as
fully as in the United States.

We may be unable to manage effectively the rapid growth in our operations

We have experienced rapid growth and expansion in our operations that have
placed a significant strain on our managerial, operational and financial
resources. Many members of our management have only recently joined us. We have
grown from 12 employees as of June 30, 1998 to 118 employees as of June 30,
1999 and expect the number of employees to increase in the future. To compete
successfully, we must:

. continue to improve our financial and management controls;

. enhance our reporting systems and procedures;

. continue to scale our performance marketing systems;

. expand, train and manage our work force; and

. integrate new customers effectively.

We cannot be certain that our systems, procedures or controls will be
adequate to support our expanding operations, or that management will be able
to respond effectively to our growth. Our future results of operations also
depend on the expansion of our sales, marketing and customer support
departments.

We may be adversely affected if we fail to attract and retain key personnel

Our success depends upon the continued services of our key technical, sales
and senior management personnel, including our President and Chief Executive
Officer, Gordon B. Hoffstein. Any officer or employee can terminate his or her
relationship with us at any time. Our future success will also depend on our
ability to attract, train, retain and motivate highly qualified technical,
marketing, sales and management personnel. Competition for these personnel is
intense, and we may not be able to attract and retain them. The loss of the
services of one or more of our key employees or our failure to attract
additional qualified personnel could have a material adverse effect on our
business, results of operations and financial condition.

Our failure or the failure of third parties to be year 2000 compliant could
negatively impact our business

Beginning in the year 2000, the date fields coded in some computer systems
and software products will need to accept four-digit entries in order to
distinguish between 21st century and 20th century dates. There is significant
uncertainty regarding the potential effects of this issue. To address these
concerns, we have reviewed internally developed software included in our
systems. We are also working with our external suppliers and service providers
to determine if third-party systems and applications will be able to
interoperate with our hardware and software infrastructure in the year 2000.
Based on these efforts, we believe we have no significant Year 2000 issues
within our systems or services. We have not had any independent verification of
our Year 2000 readiness or assessment of potential costs associated with Year
2000 risks. We also have not procured any Year 2000 specific insurance or made
any contingency plans to address Year 2000 risks. Further, we have not deferred

any of our ongoing development efforts to address Year 2000 issues, and do not
anticipate any material payments to vendors to remediate Year 2000 problems.
However, unanticipated costs associated with any Year 2000 compliance may
exceed our present expectations and have a material adverse effect on our
business, results of operations and financial condition.

We depend on the uninterrupted availability of the Internet infrastructure
to conduct our business. We also rely on the continued operations of our
customers, in particular their e-commerce sites where commercial transactions
are performed, and our customers' marketing partners, in particular the Web
sites and e-mail systems that host and distribute promotions, for our revenue.
We are thus dependent upon the success of the Year 2000 compliance efforts of
the service providers that support the Internet, our customers and their
marketing partners. Interruptions in the Internet infrastructure affecting us,
our customers or their marketing partners, or the failure of the Year 2000
compliance efforts of one or more of our customers or their marketing partners,
could have a material adverse effect on our business, results of operations and
financial condition. Further, the marketing initiatives pursued by our
prospective customers could be affected by Year 2000 issues as companies expend
significant resources to correct their current systems for the year 2000. These
expenditures may result in reduced funds available for Internet advertising.
This could materially and adversely affect our business, results of operations
and financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."

We depend on hardware and software vendors for essential products

We buy and lease hardware, including our servers and storage arrays from Sun
Microsystems. We also license software, including our servers' operating
systems, Web server technology, database technology, graphical user interface
technology and encryption technology, primarily from Sun Microsystems, Oracle
Corporation and PowerSoft. The market is evolving and we may need to purchase
or lease additional hardware or license additional software to remain
competitive. We may not be able to purchase or lease this hardware or license
this software on a timely basis, commercially reasonable terms or at all. In
addition, we may not successfully integrate any additional hardware or
software.

These third-party dependencies may expose us to increased risks. These risks
include the integration of new technology, the diversion of resources from the
development of our own proprietary technology and our inability to generate
revenue from new technology sufficient to offset associated acquisition and
maintenance costs. Our inability to obtain any of these leases or licenses
could delay product and service development until equivalent technology can be
identified, licensed and integrated. Any such delays in services could cause
our business and operating results to suffer.

We may be liable for information displayed on our customers' Web sites or
within their marketing partners' Web sites or e-mail messages

We may face potential liability for defamation, negligence, copyright,
patent or trademark infringement and other claims based on the nature and
content of the materials displayed on our customers' sites and on their
marketing partners' sites and e-mail messages. We may also suffer a loss of
customers or reputational harm based on such information. We do not and cannot
screen all of the content generated by our customers and their partners, and we
could be exposed to liability

with respect to this content. Furthermore, some foreign governments have
enforced laws and regulations related to content distributed over the Internet
that are more strict than those currently in place in the United States.

Our insurance may not cover claims of these types or may not be adequate to
indemnify us for all liability that may be imposed. There is a risk that a
single claim or multiple claims, if successfully asserted against us, could
exceed the total of our coverage limits. There is also a risk that a single
claim or multiple claims asserted against us may not qualify for coverage under
our insurance policies as a result of coverage exclusions that are contained
within these policies. Any imposition of liability, particularly liability that
is not covered by insurance or is in excess of insurance coverage could have a
material adverse effect on our reputation and our business and operating
results, or could result in the imposition of criminal penalties.

We expect our operating results to fluctuate and the price of our common stock
could fall if quarterly results are lower than the expectations of securities
analysts

Our revenue and operating results may vary significantly from quarter to
quarter. If our quarterly results fall below the expectations of securities
analysts, the price of our common stock could fall. A number of factors are
likely to cause variations in our operating results, including:

. the continued acceptance of online commerce;

. demand for and the timing of sales of our services;

. changes in the rapidly evolving market for Internet performance marketing
services;

. delays in introducing new services;

. the timing of when we initially integrate our services with our new
customers' systems and how long it takes them to generate significant
regular online sales or traffic;

. possible seasonality of the online sales of our e-merchant customers,
most of whom sell goods and service at the retail level; and

. increased expenses, whether related to capital expenditures, sales and
marketing, product development or administration.

Accordingly, we believe that quarter-to-quarter comparisons of our operating
results are not necessarily meaningful. You should not rely on the results of
one quarter as an indication of our future performance.

We may be unable to fund our debt service, operating and capital requirements
satisfactorily

We expect the net proceeds from this offering, our current cash and cash
equivalents and borrowings to meet our debt service, operating and capital
requirements for at least the next 12 months. After that, we may need to raise
additional funds. We cannot be certain that we will be able to obtain
additional financing on favorable terms, if at all. If we issue equity
securities, stockholders may experience additional dilution or the holders of
the new equity securities may have rights, preferences or privileges senior to
those of existing holders of common stock. If we cannot raise funds when
needed, on acceptable terms, we may not be able to develop or enhance our
services, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. This could seriously harm our
business, results of operations and financial condition.

We plan to devote substantial resources to expand our existing data center
and open additional data centers in 1999 and 2000. In addition, we expect to
make significant investments in sales and marketing and the development of new
services as part of our business strategy. The failure to generate sufficient
cash from operations or to raise sufficient funds to finance this growth could
require us to delay or abandon some or all of our plans or otherwise forego
market opportunities. This could make it difficult for us to respond to
competitive pressures.

We face many challenges in connection with our planned international expansion

We intend to expand our international operations and international sales and
marketing efforts. To date, we have limited experience in developing localized
versions of our services and in marketing, selling and distributing our
services internationally. We have agreed to establish performance marketing
programs for an existing customer in Europe and may establish additional
programs in additional European countries and Japan. Our success in these
markets will depend on the success of our customers in these countries.

International operations are subject to other inherent risks, including:

. the impact of recessions in economies outside the United States;

. changes in regulatory requirements;

. potentially adverse tax consequences;

. difficulties and costs of staffing and managing foreign operations;

. political and economic instability;

. fluctuations in currency exchange rates; and

. seasonal reductions in business activity during the summer months in
Europe and some other parts of the world.

These risks may materially and adversely affect our business, results of
operations or financial condition.

Management may invest or spend the proceeds of this offering in ways with which
you may not agree

Our board of directors and management will have significant flexibility in
applying the net proceeds of this offering. As of the date of this prospectus,
we do not have plans for using most of the proceeds from this offering other
than for working capital and general corporate purposes, which may include the
prepayment of certain existing indebtedness.

Risks Related to the Internet Industry

We depend on the continued viability of the Internet infrastructure

Our success depends upon the development and maintenance of a viable
Internet infrastructure. The current Internet infrastructure may be unable to
support an increased number of users. The timely development of products such
as high-speed modems and communications equipment will be necessary to continue
reliable Internet access. Furthermore, the Internet has experienced outages and

delays as a result of damage to portions of its infrastructure. Outages and
delays, including those resulting from Year 2000 problems, could adversely
affect Web sites, e-mail and the level of traffic on the Web sites of our
customers and their marketing partners. We also depend upon Internet access
providers that provide consumers with access to our services. In the past,
users have occasionally experienced difficulties due to system failures
unrelated to our systems. Any disruption in the Internet access provided by
third-party providers or any failure of third-party providers to handle higher
volumes of user traffic could have a material adverse effect on our business,
results of operations and financial condition. Finally, the effectiveness of
the Internet may decline due to delays in the development or adoption of new
standards and protocols designed to support increased levels of activity. If
new standards or protocols are developed, we may be required to incur
substantial expenditures to adapt our products.

The demand for our services could be negatively affected by a reduced growth of
e-commerce

Our future success is dependent on an increase in the use of the Internet
for business transactions with consumers. The electronic commerce market is new
and rapidly evolving and the extent of consumer acceptance of the Internet is
uncertain. If a sufficiently broad base of consumers do not accept the use of
the Internet for transacting business, our business, results of operations and
financial condition could be materially and adversely affected.

Technical change may render our services obsolete

The Internet and marketing on the Internet are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions and changing customer demands. Our future success will
depend on our ability to provide sophisticated technological services to
customers who lack the expertise, technology, resources or capital to perform
the services themselves. Technological developments that decrease these
barriers to entry may adversely affect the market for our services. In
addition, the establishment of technological developments or industry standards
that make delivery of Internet advertising and marketing solutions difficult or
obsolete may adversely affect our business, results of operation and financial
condition.

Projections included in this prospectus relating to the growth of e-commerce
and the Internet are based on assumptions that could turn out to be incorrect
and actual results could be materially different from the projections

This prospectus contains various third-party data and projections, including
those relating to revenue generated by electronic commerce, the number of
Internet users and the amount of Internet advertising. These data and
projections have been included in studies prepared by independent market
research firms, and the projections are based on surveys, financial reports and
models used by these firms. Actual results or circumstances may be materially
different from the projections. This could reduce our revenue and harm our
operating results. These data and projections are inherently imprecise and
investors are cautioned not to place undue reliance on them.

Risks Related to the Securities Markets

Our stock price may be volatile

Prior to this offering, investors could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. We will

negotiate the initial public offering price with the representatives of the
underwriters based on several factors. The market price of the common stock
after this offering may vary from the initial public offering price.
Fluctuations in market price and volume are particularly common among
securities of Internet and other technology companies. The market price of our
common stock may fluctuate significantly in response to the following factors,
some of which are beyond our control:

. variations in quarterly operating results;

. changes in market valuations of Internet and other technology companies;

. our announcements of significant contracts, acquisitions, strategic
partnership, joint ventures or capital commitments;

. failure to complete significant sales;

. additions or departures of key personnel;

. future sales of common stock; and

. changes in financial estimates by securities analysts.

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
stock. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.

Substantial sales of our common stock could cause our stock price to decline

Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of the common stock. On completion of
this offering, we will have shares of common stock outstanding and
shares subject to outstanding options. The shares sold in
this offering will be freely tradable without restriction or further
registration under the federal securities laws unless purchased by our
"affiliates" as that term is defined in Rule 144. The remaining
shares, or %, of common stock outstanding on completion of the offering will
be "restricted securities" as that term is defined in Rule 144. Our directors,
executive officers and other stockholders who collectively beneficially own
approximately % of our outstanding stock have entered into lock-up
agreements that limit their ability to sell common stock. These stockholders
have agreed not to sell or otherwise dispose of any shares of common stock for
a period of 180 days after the date of this prospectus without the prior
written approval of Donaldson, Lufkin & Jenrette Securities Corporation. When
the lock-up agreements expire, most of the restricted securities will become
eligible for sale.

Our existing stockholders will be able to control all matters requiring
stockholder approval and could delay or prevent someone from acquiring or
merging with us on terms favored by a majority of our independent stockholders

On completion of this offering, our executive officers and directors and
their affiliates will beneficially own approximately % of our outstanding
common stock. As a result, these stockholders will be able to exercise control
over the company's operations and all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This could delay or prevent a third party from acquiring or
merging with us.

Anti-takeover provisions in our charter documents and Delaware law could
prevent or delay a change in control of our company

Some provisions of our certificate of incorporation and by-laws may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable, which could reduce the market price of our common stock.
Such provisions include:

. authorizing the issuance of blank check preferred stock or additional
shares of common stock;

. providing for a classified board of directors with staggered, three-year
terms;

. providing that directors may only be removed for cause by a two-thirds
vote of stockholders;

. limiting the persons who may call special meetings of stockholders;

. prohibiting stockholder action by written consent; and

. establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.

Delaware law may also discourage, delay or prevent a third party from
acquiring or merging with us.

Investors will experience immediate dilution

The initial public offering price is expected to be substantially higher
than the book value per share of the outstanding common stock immediately after
this offering. Accordingly, if you purchase common stock in the offering, you
will incur immediate dilution of approximately $ in the book value per share
of the common stock from the price you pay for the common stock.

The forward-looking statements we make in this prospectus might prove
inaccurate. As a result, our actual results, levels of activity, performance or
achievements may differ materially from those expressed in the forward-looking
statements

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. In some cases, you can identify forward-looking statements
by terminology such as "may," "might," "will," "should," "could," "expects,"
"plans," "intends," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or other comparable terminology. These statements
involve known and unknown risks and uncertainties that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. These
factors include, among other things, the risk factors discussed above.

We cannot guarantee any future results, levels of activity, performance or
achievements. Moreover, neither we nor anyone else assumes responsibility for
the accuracy and completeness of these statements. We do not intend to update
any of the forward-looking statements after the date of this prospectus.

USE OF PROCEEDS

We estimate that the net proceeds from our sale of shares of common
stock at an initial public offering price of $ per share to be $
(approximately $ if the underwriters' over-allotment option is
exercised in full), after deducting estimated underwriting discounts and
offering expenses payable by us.

Our primary purposes for this offering are to increase our equity capital,
create a public market for our common stock and facilitate our future access to
public equity markets. We intend to use our net proceeds of this offering for
working capital and other general corporate purposes, including expansion of
our existing data center and the addition of new data centers. We also intend
to increase our expenditures relating to sales and marketing and product
development activities. As of June 30, 1999, we had outstanding the following
principal amounts under certain credit arrangements that we may repay, in whole
or in part, with a portion of the proceeds of this offering:

. $5,000,000 with an interest rate of 12% per annum under a subordinated
debt agreement, to be repaid in equal monthly installments of principal
beginning December 1999 and ending November 2001; and

. $1,824,228 with an interest rate of 6.8% per annum under a revolving
capital equipment line of credit with each borrowing under the line to be
repaid in equal monthly installments of principal over four years from
the date of that borrowing.

These borrowings were used to provide working capital and to acquire
computer equipment, furniture and fixtures.

We have not identified specific uses for a substantial portion of our net
proceeds of this offering, and we will have discretion over their use and
investment. Pending use of the net proceeds, we intend to invest these proceeds
in short-term, investment grade, interest-bearing securities.

DIVIDEND POLICY

We currently intend to retain future earnings, if any, to finance our
growth. We have not paid any cash dividends since January 1, 1996 and do not
anticipate paying cash dividends on our common stock in the foreseeable future.
Payment of future dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs, restrictions
in financing agreements and plans for expansion.

Under the terms of our existing subordinated debt agreement, we are
prohibited from paying any cash dividends without the prior consent of our
lenders.

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 1999 on an
actual basis and pro forma as adjusted basis. This information should be read
in conjunction with our consolidated financial statements and related notes,
all included elsewhere in this prospectus.

The pro forma as adjusted basis:

. gives effect to the automatic conversion of all outstanding shares of
preferred stock into shares of common stock upon the
closing of this offering; and

. reflects our receipt and application of the estimated net proceeds from
the sale of shares of common stock in this offering at an
assumed initial public offering price of $ per share after
deducting the estimated underwriting discounts and offering expenses
payable by us.

Shares of common stock reflected by this table exclude:

. shares issuable upon the exercise of outstanding options with a
weighted average exercise price of $ per share;

. shares available for issuance and grant under our 1998 Stock
Incentive Plan, net of outstanding options; and

. shares issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $ per share.

As of June 30, 1999
-----------------------
Pro Forma
As
Actual Adjusted

Cash, cash equivalents and marketable securities....... $24,324,816 $
=========== ==========
Current portion of long-term debt...................... $ 1,932,355 $1,932,355
=========== ==========
Long-term debt, net of current portion................. $ 6,018,464 $6,018,464
Series A Convertible Participating Preferred Stock;
$.01 par value; 11,300,000 shares authorized, actual:
10,600,000 shares issued and outstanding, actual; none
authorized, issued and outstanding, pro forma as
adjusted.............................................. 9,899,507 --
Series A Convertible Participating Preferred Stock
Warrants: 700,000 warrants, exercise price $1.00...... 540,000 --
Series B Convertible Participating Preferred Stock;
$.01 par value; 13,196,522 shares authorized, actual:
13,196,522 shares issued and outstanding, actual; none
authorized, issued and outstanding, pro forma as
adjusted.............................................. 25,450,975 --
Stockholders' equity (deficit):
Common stock, $0.01 par value; 55,000,000 shares
authorized, actual; shares authorized, pro forma
as adjusted: shares issued, actual; shares
issued pro forma as adjusted.........................
Additional paid-in capital............................
Unearned compensation................................. (3,522,819)
Shareholders notes receivable......................... (309,659)
Accumulated deficit................................... (12,484,321)
Treasury stock, at cost ( shares, actual and pro
forma as adjusted)................................... (1,593,239)
----------- ----------
Total stockholders' equity (deficit)................... (16,494,073)
----------- ----------
Total capitalization................................... $25,414,873 $
=========== ==========

DILUTION

The pro forma net tangible book value of our common stock as of June 30,
1999 was $19,396,409, or $ per share, after giving effect to the automatic
conversion of all outstanding shares of preferred stock into shares of
common stock upon the closing of this offering. After giving effect to the sale
of common stock pursuant to this offering at an assumed initial public offering
price of $ per share, assuming the underwriters' option to purchase
additional shares in this offering is not exercised, and after deducting
estimated underwriting discounts and offering expenses, the adjusted pro forma
net tangible book value as of June 30, 1999 would have been $ or
$ per share.

Pro forma net tangible book value per share before the offering has been
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding as of June 30, 1999. This offering will result in an increase in
pro forma net tangible book value per share of $ to existing
stockholders and dilution in pro forma net tangible book value per share of
$ to new investors who purchase shares in this offering. Dilution is
determined by subtracting pro forma net tangible book value per share from the
assumed initial public offering price of $ per share. The
following table illustrates this dilution:

Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share as of June 30, 1999.... $
Increase attributable to sale of common stock in this offering.....
---
Pro forma net tangible book value per share after this offering.....
----
Dilution of net tangible book value per share to new investors...... $
====

If the underwriters exercise their option to purchase additional shares in
this offering, the pro forma net tangible book value per share after the
offering would be $ per share, the increase in net tangible book value per
share to existing stockholders would be $ per share and the dilution to new
investors would be $ per share.

The following table summarizes, on a pro forma basis as of June 30, 1999,
the differences between the total consideration paid and the average price per
share paid by the existing stockholders and the new investors with respect to
the number of shares of common stock purchased from us based upon an assumed
initial public offering price of $ per share:

Shares Total
Purchased Consideration Average Price
-------------- -------------- Per Share
Number Percent Amount Percent

Existing stockholders............... % % $
New investors.......................
--- --- --- ---
Total............................. 100% 100%
=== === === ===

These tables assume no exercise of stock options or warrants outstanding as
of , 1999. At , 1999, there were shares of common
stock issuable upon exercise of outstanding stock options at a weighted average
exercise price of $ per share. Upon completion of this offering,
there will be outstanding warrants to purchase shares of common
stock at a weighted-average exercise price of $ per share. To the
extent that outstanding options or warrants are exercised in the future, there
will be further dilution to new investors.

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and
related notes included elsewhere in this prospectus. The consolidated statement
of operations data for the fiscal years ended December 31, 1996, 1997 and 1998
and the consolidated balance sheet data as of December 31, 1997 and 1998 are
derived from our consolidated financial statements audited by
PricewaterhouseCoopers LLP, independent accountants. The consolidated statement
of operations data for the six-month periods ended June 30, 1998 and 1999 and
the consolidated balance sheet data as of June 30, 1999 are derived from our
unaudited consolidated financial statements included elsewhere in this
Prospectus. The consolidated statement of operations data for the years ended
December 31, 1994 and 1995 and the consolidated balance sheet data as of
December 31, 1994, 1995 and 1996 are derived from our unaudited consolidated
financial statements not included elsewhere in this prospectus. The unaudited
consolidated financial statements have been prepared on the same basis as our
audited consolidated financial statements and, in our opinion, include all
adjustments, consisting only of normal recurring adjustments, which we consider
necessary for a fair presentation of our results of operations and financial
position for these periods. These historical results are not necessarily
indicative of results to be expected for any future period.

In the third quarter of 1997 we began providing performance marketing
services. Prior to that time, we provided customers certain software
development services which are reflected as other revenue.

Selected Consolidated Financial Data
(In thousands, except per share data)

Six Months
Year Ended December 31, Ended June 30,
------------------------------------ ---------------
1994 1995 1996 1997 1998 1998 1999

Statement of Operations
Data:

Revenue:
Performance marketing
services............... $-- $-- $ -- $ 216 $ 1,319 $ 617 $ 1,396
Other................... 662 463 196 60 8 3 --
---- ---- ------- ------- ------- ----- -------
Total revenue.......... 662 463 196 276 1,327 620 1,396

Operating expenses:
Cost of revenue......... -- -- -- 273 424 156 238
Sales and marketing..... 83 49 398 180 1,454 146 4,496
Development and
engineering............ 210 274 505 426 729 292 1,482
General and
administrative......... 192 125 558 332 875 231 854
Equity related
compensation........... -- -- -- -- 1,312 -- 533
---- ---- ------- ------- ------- ----- -------
Total operating
expenses.............. 485 448 1,461 1,211 4,794 825 7,603
Operating income (loss).. 177 15 (1,265) (935) (3,467) (205) (6,207)
Interest income
(expense), net.......... 30 (5) (26) (99) (224) (61) (168)
---- ---- ------- ------- ------- ----- -------
Net income (loss)........ 207 10 (1,291) (1,034) (3,691) (266) (6,375)

Accretion of preferred
stock to redemption
value................... -- -- -- -- (56) -- (590)
---- ---- ------- ------- ------- ----- -------

Net income (loss)
attributable to common
stockholders............ $207 $ 10 $(1,291) $(1,034) $(3,747) $(266) $(6,965)
==== ==== ======= ======= ======= ===== =======

Basic and diluted net
income (loss) per share. $ $ $ $ $ $ $

Shares used in computing
basic and diluted net
income (loss) per share.

Unaudited pro forma basic
and diluted net loss per
share................... $ $

Shares used in computing
pro forma basic and
diluted net loss per
share...................

As of December 31, As of
------------------------------------ June 30,
1994 1995 1996 1997 1998 1999

Balance Sheet Data:
Cash, cash equivalents
and marketable
securities.............. $ 30 $ 90 $ 25 $ 76 $ 4,327 $24,325
Working capital
(deficit)............... 156 169 (443) (502) 3,422 21,032
Total assets............. 257 294 140 254 5,971 30,183
Long-term debt, net of
current portion......... 48 62 751 333 4,949 6,018
Convertible preferred.... -- -- -- -- 9,815 35,350
Total stockholders'
equity (deficit)........ 158 168 (1,104) (1,897) (10,526) (16,494)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in the
forward-looking statements.

Overview

We are a leading provider of services that enable e-merchants and Internet
portals to promote their products and services in tens of thousands of
locations on the Internet and to pay for these promotions based on performance.
Our solutions-BFAST affiliate marketing services, B-INTOUCH e-mail referral
services and BFIT advertising services-are designed to increase our customers'
online sales or traffic and to decrease their cost of customer acquisition.

Be Free was originally incorporated in January 1996 as Freedom of
Information, Inc. We changed our name to Be Free in March 1999. In August 1998,
we combined with two affiliated companies under common control and management
in a share exchange and these affiliated companies became our subsidiaries.
Initially we provided customized software development and support services for
automating marketing programs. In 1996 we began to change our focus to
performance marketing solutions, although we continued to provide customized
software and support services on a limited basis through the third quarter of
1998. The financial statements and data for us and these two affiliated
companies, including the description of our financial condition and results of
operations, are set forth on a consolidated basis for all periods presented.

To date, we have generated our performance marketing services revenue
primarily from our BFAST affiliate marketing services. In general, we enter
into a standard service agreement that requires our BFAST customers to pay us a
one-time integration fee and monthly performance fees, subject to minimum
monthly or annual fees, for the use of our data interchange. For our e-merchant
customers, the performance fees are generally based on either a percentage of
the sales generated or on the number of transactions or orders generated by
their marketing partners. For our portal customers, the performance fees are
generally based on the volume of click-throughs generated by their marketing
partners. In addition to the core BFAST service, we also offer related service
options, such as affiliate commission payment services, which customers may
select on an item-by-item basis for set fees. We also generate revenue through
our other performance marketing services-BFIT, a service that tracks the
effectiveness of customers' banner ads, launched in the second quarter of 1998,
and B-INTOUCH, an e-mail referral service, launched in the third quarter of
1999. Our BFIT customers pay us based on the number of impressions served. Our
B-INTOUCH customers typically pay us based on the sales or traffic generated by
these promotions. We are seeking to develop additional performance marketing
services.

We have incurred significant net losses and negative cash flows from
operations since the commencement of our performance marketing business, and as
of June 30, 1999, had an accumulated deficit of approximately $12.5 million. We
had net losses of approximately $3.7 million in 1998 and $6.4 million in the
first six months of 1999. These losses have been funded primarily through the
issuance of preferred stock. We intend to continue to invest in our technology
and infrastructure, including investment in our existing data center and new
data centers. We intend to increase our

expenditures relating to sales and marketing and product development
activities. As a result, we believe that we will continue to incur operating
losses and negative cash flow from operations for the foreseeable future and
that the rate at which such losses will be incurred may increase from current
levels.

Results of Operations

The following table sets forth consolidated statement of operations data as
a percentage of total revenue for the periods indicated. The historical results
are not necessarily indicative of results to be expected for any future period.

Six
Months
Year Ended Ended
December 31, June 30,
------------------ -----------
1996 1997 1998 1998 1999

Revenue:
Performance marketing services............ -- % 78 % 99 % 100 % 100 %
Other..................................... 100 22 1 -- --
---- ---- ---- --- ----
Total revenue........................... 100 100 100 100 100
Operating expenses:
Cost of revenue........................... -- 99 32 25 17
Sales and marketing....................... 203 65 109 24 322
Development and engineering............... 258 154 55 47 106
General and administrative................ 284 120 66 37 61
Equity related compensation............... -- -- 99 -- 38
---- ---- ---- --- ----
Total operating expenses................ 745 438 361 133 544
Operating loss.............................. (645) (338) (261) (33) (444)
Interest expense (net)...................... (13) (36) (17) (10) (12)
---- ---- ---- --- ----
Net loss.................................... (658)% (374)% (278)% (43)% (456)%
==== ==== ==== === ====

Revenue

To date, performance marketing services revenue has included BFAST
integration fees and monthly service fees as well as BFIT monthly service fees.
Integration fees are recognized when a customer begins accepting applications
from potential marketing partners for their affiliate sales channel. BFAST and
BFIT service fees are recognized monthly. Other revenue reflects customized
software development and support services. We no longer offered these services
after September 30, 1998.

Revenue from performance marketing services was first recognized in 1997 and
increased to $1.3 million in 1998 from $216,000 in 1997 as a result of
increases in our BFAST customer base and the introduction of BFIT. Other
revenue declined to $60,000 in 1997 from $196,000 in 1996 as a result of the
continued reduction of customized software development and support services.
Other revenue declined to $8,000 in 1998 when the final support contract for
customized software expired.

Revenue from performance marketing services increased to $1.4 million for
the six months ended June 30, 1999, from $617,000 for the six months ended June
30, 1998, as a result of increases in our BFAST customer base and as the level
of transactions tracked by our services grew on average for each customer.
Other revenue declined to zero for the six months ended June 30, 1999 from
$3,000 for the six months ended June 30, 1998 when the last support contract
for customized software expired.

Cost of Revenue

Cost of revenue consists of expenses related to the operation of our data
interchange. These expenses primarily include depreciation for systems and
storage equipment, costs for a third-party data center facility and costs for
Internet connectivity to our customers and their marketing partners.

Cost of revenue was $273,000 in 1997 as a result of the introduction of
BFAST. Cost of revenue increased to $424,000 in 1998 as we expanded our server
and storage equipment and moved this equipment to a third-party facility.
However, cost of revenue decreased to 32% of total revenue in 1998 from 99% of
total revenue in 1997, primarily from the increased utilization of our server
and storage equipment resulting from an increased customer base and usage of
our services.

Cost of revenue increased to $238,000 for the six months ended June 30,
1999, from $156,000 for the six months ended June 30, 1998, as a result of
increased depreciation and amortization reflecting higher equipment levels. As
a percentage of total revenue, cost of revenue decreased to 17% of total
revenue from 25% of total revenue over these periods as a result of higher
utilization of our server and storage equipment. In order to maintain targeted
service levels, we will be required to add equipment in advance of anticipated
future growth and this growth may not materialize as expected. Cost of revenue
as a percentage of total revenue may increase in the future as we add
additional equipment to support anticipated future growth.

Sales and Marketing Expenses

Sales and marketing expenses consist of payroll and related costs for our
sales, customer service, marketing and business development groups. Also
included are the costs for marketing programs to promote our services to our
current and prospective customers, as well as programs to recruit marketing
partners for our current customers.

Sales and marketing expenses decreased to $180,000 in 1997 from $398,000 in
1996 primarily as a result of approximately $250,000 in marketing-related
license fees incurred in 1996. Sales and marketing expenses increased to $1.5
million in 1998 as the result of the establishment of direct sales and internal
telesales groups and the use of third party public relations services.

Sales and marketing expenses increased to $4.5 million for the six months
ended June 30, 1999, from $146,000 for the six months ended June 30, 1998, as a
result of the continued increase in our direct sales and internal telesales
forces, as well as an increase in our general marketing efforts and the
establishment of a recruitment program to assist customers in attracting
marketing partners. We expect that sales and marketing expenses will continue
to increase in amount in future periods to support expected growth.

Development and Engineering Expenses

Development and engineering expenses primarily include payroll and related
costs for our product development and engineering groups and depreciation
related to equipment used for development purposes. The product development
group designs and develops the underlying

technologies for our BFAST, B-INTOUCH and BFIT services and the engineering
group develops and manages the infrastructure necessary to support our
services. Prior to 1998, development and engineering expenses also included the
expenses related to customized software development and support services.

Development and engineering expenses decreased to $426,000 in 1997 from
$505,000 in 1996 primarily as a result of certain engineering start-up expenses
that were incurred in 1996 with the initial development of our performance
marketing technologies. Development and engineering expenses increased to
$729,000 in 1998 as a result of an increase in product development and
engineering personnel.

Development and engineering expenses increased to $1.5 million for the six
months ended June 30, 1999, from $292,000 for the six months ended June 30,
1998, primarily as a result of further personnel growth and additional
depreciation and amortization charges related to the purchase of additional
development and engineering hardware and software.

General and Administrative Expenses

General and administrative expenses principally consist of payroll and
related costs and professional fees related to our general management, finance
and human resource functions. Facility and related costs are allocated to sales
and marketing, development and engineering and general and administrative
expenses based upon the relative number of employees in each area.

General and administrative expenses decreased to $332,000 in 1997 from
$558,000 in 1996 primarily as a result of a higher level of professional fees
incurred in 1996 in connection with a contemplated financing. General and
administrative expenses increased to $875,000 in 1998 as a result of increased
professional fees related to financing efforts and increased personnel and
related costs resulting from the addition of a new executive management team.

General and administrative expenses increased to $854,000 for the six months
ended June 30, 1999, from $231,000 for the six months ended June 30, 1998, as a
result of increased personnel and related costs.

Equity Related Compensation Expenses

Equity related compensation expenses are non-cash charges representing the
difference between the exercise price of options to purchase common stock
granted to our employees and the price paid for restricted stock sold to our
employees and the fair value of these shares as of the date of grant, as
subsequently determined for financial reporting purposes. These expenses also
include the fair value of options granted to our consultants as of the date of
grant, as subsequently determined for financial reporting purposes. These fair
values were determined in accordance with Accounting Principles Board Opinion
25 and Statement of Financial Accounting Standards 123. We did not incur any
equity related compensation expenses in 1996 or in 1997. Equity related
compensation expenses were $1.3 million in 1998 and $533,000 for the six months
ended June 30, 1999.We expect to recognize additional equity related
compensation expenses of at least $250,000 per quarter through the end of 2002
as a result of the issuance of stock and stock options to employees and others
with exercise

prices per share subsequently determined to be below the fair market values per
share of our common stock for financial reporting purposes at the dates of
grant. The stock compensation is being expensed over the vesting period of the
applicable stock awards or options.

Interest Expense (net)

Interest expense (net) is comprised of interest expense on our borrowings,
partially offset by interest income earned on our cash balances.

As a result of increased borrowings used to finance the growth of our
business, interest expense (net) increased from $26,000 in 1996 to $99,000 in
1997 and to $224,000 in 1998. Interest expense (net) increased from $61,000 for
the six months ended June 30, 1998 to $168,000 for the six months ended June
30, 1999.

Consolidated Quarterly Results of Operations

The following table sets forth unaudited consolidated quarterly statement of
operations data for the eight quarters ended June 30, 1999. This unaudited
consolidated quarterly information has been derived from our unaudited
consolidated financial statements and, in the opinion of management, have been
prepared on a basis consistent with the financial statements contained
elsewhere in this prospectus and includes all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the
information for the periods covered when read in conjunction with our financial
statements and related notes. The operating results for any quarter are not
necessarily indicative of the operating results for any future period.

Quarter Ended
-------------------------------------------------------------------------
Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31 Mar. 31, Jun. 30,
1997 1997 1998 1998 1998 1998 1999 1999
(in thousands)

Revenue:
Performance marketing
services............. $ 48 $ 169 $ 237 $383 $ 313 $ 386 $ 533 $ 863
Other................. 19 11 -- -- 8 -- -- --
----- ----- ----- ---- ------- ------- ------- -------
Total revenue....... 67 180 237 383 321 386 533 863
Operating expenses:
Cost of revenue....... 84 96 89 67 70 198 101 137
Sales and marketing... 36 33 125 147 267 915 1,734 2,762
Development and
engineering.......... 72 94 116 177 106 330 562 920
General and
administrative....... 168 154 47 59 327 442 351 503
Equity related
compensation......... -- -- -- -- 1,252 60 216 317
----- ----- ----- ---- ------- ------- ------- -------
Total operating
expenses........... 360 377 377 450 2,022 1,945 2,964 4,639
Operating loss.......... (293) (197) (140) (67) (1,701) (1,559) (2,431) (3,776)
Interest income
(expense), net......... (26) (32) (33) (28) (25) (138) (216) 48
----- ----- ----- ---- ------- ------- ------- -------
Net loss................ $(319) $(229) $(173) $(95) $(1,726) $(1,697) $(2,647) $(3,728)
===== ===== ===== ==== ======= ======= ======= =======

Our quarterly operating results have fluctuated in the past and may
fluctuate significantly in the future due to a variety of factors, including:

. the continued acceptance of online commerce;

. demand for and the timing of sales of our services;

. changes in the rapidly evolving market for Internet performance marketing
services;

. delays in introducing new services;

. the timing of when we initially integrate our services with our new
customers' systems and how long it takes them to generate significant
regular online sales or traffic;

. possible seasonality of the online sales of our e-merchant customers,
most of whom sell goods and service at the retail level; and

. increased expenses, whether related to capital expenditures, sales and
marketing, product development or administration.

Liquidity and Capital Resources

We have financed our operations to date primarily through the private sale
of equity securities and borrowings. Net proceeds from financing activities
from January 1, 1998 through June 30, 1999 included:

. approximately $10.4 million received upon the sale of Series A preferred
stock and common stock purchase warrants in August and September 1998;

. approximately $24.9 million received upon the sale of Series B preferred
stock in March 1999; and

. approximately $8.0 million in borrowings under various credit facilities
and capital lease agreements.

Cash used in operating activities was $2.4 million and $4.7 million in 1998
and 1999, respectively. Cash used in operating activities during 1998, resulted
from net losses and deposits of $384,000 required primarily for our new offices
and related expenditures. These amounts were partially offset by an increase of
$345,000 of accounts payable and accrued expenses. In the six months ended June
30, 1999, cash used in operating activities resulted from net losses and from
an increase of $534,000 in prepaid expenses primarily relating to sales
commissions paid for revenue to be recognized in future periods and payments
under annual hardware and software maintenance contracts. These amounts were
partially offset during the first six months ended June 30, 1999 by an increase
of $1.1 million in deferred revenue for payments received from certain
customers for future services, and by an increase of $779,000 of accounts
payable and accrued expenses.

Through June 30, 1999, our investing activities for our business have
consisted primarily of capital expenditures totaling $610,000 and $598,000 in
1998 and the six months ended June 30, 1999, respectively. These capital
expenditures were incurred primarily to acquire computer hardware and software
for our operations and our internal use. We expect that as our customer base
and employee base grow, we will require additional computer hardware and
software and our related capital expenditures will increase significantly. We
currently have no material commitments to make future capital expenditures.

At June 30, 1999 we had $24.3 million in cash, cash equivalents and
marketable securities and $21.0 million in working capital. In addition we have
agreements for a $5.0 million line of credit that bears interest at 12% per
annum and a $2.0 million equipment line of credit that bears interest at 6.8%
per annum. The $5.0 million line of credit provides for principal payments in
equal monthly installments commencing in December 1999 and ending November
2001. The $2.0 million equipment line of credit provides for principal payments
in monthly installments over a period of

four years from the date of each borrowing. At June 30, 1999 we had borrowed
substantially all of the amounts available under these lines of credit. During
the first six months ended June 30, 1999, we prepaid $305,000 of indebtedness.

We believe that the net proceeds of this offering, together with cash on
hand, cash equivalents and borrowings, will be sufficient to meet our debt
service, operating and capital requirements for at least the next 12 months.
After that, we may need to raise additional funds. We may seek to raise such
additional funds through additional borrowings, public or private equity
financings or from other sources. There can be no assurance that additional
financing will be available at all or, if available, will be on terms
acceptable to us.

We have not entered into any financial derivative instruments that expose
us to material market risk.

Year 2000 Compliance

Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. In order to
distinguish 21st century dates from 20th century dates, the date code field
needs to be expanded to 4 digits. As a result, many companies' software and
computer systems may need to be upgraded or replaced in order to function
properly with dates after December 31, 1999. The use of software and computer
systems that are not Year 2000 compliant could result in system failures or
miscalculations resulting in disruptions of operations, including among other
things, a temporary inability to process transactions, send invoices, or
engage in normal business activities.

Our services rely on technology-such as Oracle-based databases, Sun
Microsystems servers, proprietary programming and high-capacity Internet
connections through Exodus Communications- that is relatively new and,
therefore, was developed at a time when the Year 2000 issue was visible. We
believe this also applies to the servers and their operating systems commonly
used by our customers and with respect to which we must integrate our
technology. Based solely on the foregoing and written statements of our
critical vendors regarding their Year 2000 compliance status, we have no
reason to believe that the hardware and software used in the provision of our
services are not currently Year 2000 compliant. We have not reviewed our non-
information technology systems for Year 2000 issues relating to embedded
microprocessors. Failure of our current service offerings to operate properly
with regard to the Year 2000 and thereafter could require us to incur
significant unanticipated expenses to remedy any problems or replace affected
vendors and could have a material adverse effect on our business, operating
results and financial condition.

We depend on the uninterrupted availability of the Internet infrastructure
to conduct our business. We also rely on the continued operations of our
customers, in particular their e-commerce sites where commercial transactions
are performed, and our customers' marketing partners, in particular the
affiliate sites and e-mail systems that host and distribute promotions, for
our revenue. We are thus dependent upon the success of the Year 2000
compliance efforts of the service providers that support the Internet and the
Year 2000 compliance efforts of our customers. We have not contacted our
customers to inquire of their Year 2000 compliance status. Interruptions in
the Internet infrastructure affecting us, our customers or their marketing
partners, or the failure of the Year 2000 compliance efforts of one or more of
our customers or their marketing partners, could have a material adverse
effect on our business, results of operations and financial condition.
Further, the marketing initiatives pursued by our prospective customers could
be affected by Year 2000 issues as companies

expend significant resources to correct their current systems for the year
2000. These expenditures may result in reduced funds available for Internet
advertising. This could materially and adversely affect our business, results
of operations and financial condition.

Because our internal information systems, such as our payroll and accounting
systems, utilize relatively new equipment and mostly new standard software
applications, we believe that such internal information systems are currently
Year 2000 compliant, or will be timely made Year 2000 compliant with
commercially available patches or upgrades in the ordinary course of business.

We do not separately account for Year 2000 related expenses but estimate
that the expenses we have incurred to date to address Year 2000 issues have not
been material and we do not expect to incur material expenses in connection
with any required future remediation efforts.

At this time, we anticipate that the worst case scenario related to Year
2000 issues would involve a major shutdown of the Internet, which would result
in a total loss of revenue to us, or the significant online business
interruption of one or more of our larger customers, which could result in a
severe loss of revenue, until it were resolved. The most reasonably likely
worst case scenario would be that we would have a problem with our data
interchange with our customers that would reduce the flow of tracking
information or cause such information to be incorrect. This could result in
substantial delays or inaccuracies in reporting information to our customers,
billing our customer, paying marketing partner commissions and preparing our
financial statements.

We have not developed a Year 2000 contingency plan. We expect to develop
such a plan prior to December 31, 1999 to the extent that we discover Year 2000
issues that we can address with such a plan.

The information set forth above and elsewhere in this prospectus relating to
Year 2000 issues constitute "Year 2000 Readiness Disclosures," as such term is
defined by the Year 2000 Information and Readiness Disclosure Act of 1998,
enacted October 19, 1998 (Public Law 105-271, 112 State. 2386).

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. To
date, we have not engaged in derivative and hedging activities, and accordingly
do not believe that the adoption of the SFAS No. 133 will have a material
impact on our financial reporting and related disclosures. We will adopt SFAS
No. 133 as required by SFAS No. 137, "Deferral of the effective date of FASB
Statement No. 133," in fiscal year 2000.

BUSINESS

We are a leading provider of services that enable e-merchants and Internet
portals to market their products and services in tens of thousands of locations
on the Internet and to pay for these promotions based on performance. Our e-
merchant and portal customers use our services to establish and manage
performance marketing relationships directly with these third party locations.
We enable the third party marketing partners to integrate our customers'
promotions into their Web sites and e-mail messages that contain content that
is relevant to the products or services being promoted. Our e-merchant
customers typically pay fees to their marketing partners based on the sales
they generate. Our portal customers typically pay fees to their marketing
partners based on the traffic sent to the portal. We are typically paid fees
based upon the level of sales or traffic generated for our customers from these
pay-for-performance efforts. We provide a cost-effective solution for
establishing, managing and rewarding these performance marketing sales
channels. We enable our customers to increase their sales and traffic and
decrease their cost of customer acquisition.

Industry Background

The Internet has emerged as a significant communications and commerce
medium. Nua Internet Surveys estimates that the number of Internet users
worldwide has increased from 26 million in December 1995 to 179 million in June
1999 and expects this growth to continue with the number of online users
reaching 350 million by 2005. In addition, as users gain online experience,
they tend to increase the amount of time they spend on the Internet and spend
their time online conducting a greater variety of activities.

Expansion and Dispersion of Content; Evolution of Internet User Habits

The content available to Internet users has increased dramatically and
become more widely dispersed. Increased ease and lower cost of Web publishing
has permitted smaller businesses, organizations and individuals to create and
host their own Web sites. The NEC Research Institute estimated that the number
of pages available on the Web grew from 320 million pages in December 1997 to
approximately 800 million pages in February 1999.

More experienced Internet users tend to rely increasingly on their own lists
or bookmarks of Web sites, rather than on search engines and directories to
access content that is of specific interest to them. While visits to high
traffic Web sites such as portals have grown in absolute numbers, they
represent a limited amount of all online traffic. Neilsen//NetRatings reports
that the top ten portals made up 20% of the average monthly page views as
measured in their home Internet user sample in June 1999.

Growth of E-commerce

The Internet has emerged as a significant sales channel for goods and
services to consumers. The Internet provides a cost-effective means for e-
merchants to reach a global audience, and provides consumers with increased
information, broad selection and greater convenience.

In November 1998, Forrester Research projected that total online U.S.
consumer spending will grow to $108 billion in 2003, accounting for about 6% of
the $1.8 trillion in expected overall consumer spending that year:

1998 1999 2000 2001 2002 2003

Total U.S. online consumer spending
(billions)........................... $ 7.8 $ 18.1 $ 33.0 $ 52.2 $ 76.3 $108.0
U.S. households online (millions)..... 28.6 33.5 38.3 43.5 48.6 52.8
U.S. households shopping online
(millions)........................... 8.7 13.1 17.7 23.1 30.3 40.3
Average online expenditures per U.S.
household............................ $ 899 $1,385 $1,864 $2,259 $2,518 $2,678

Experienced Internet users are more likely to purchase goods or services
online than new Internet users. Forrester Research also reported in September
1998 that 15% of users with less than 18 months of Internet experience purchase
online, but that percentage increases to 39% for users with more than 42 months
of experience.

The Evolution of Internet Marketing

In response to increasing demand for online products and services, and as
the Internet and electronic commerce expand, e-merchants and portals are
increasingly adopting online promotions to reach a global audience for their
products and services, drive traffic to their Web sites, attract customers and
facilitate transactions.

Initially, Internet advertising took the form of banner ads, similar to
advertising billboards, typically placed on portals and other high-traffic Web
sites. Advertising networks then emerged to allow banner ads to be placed
across multiple sites that did not have sufficient traffic individually to
appeal to larger advertisers. In order to allow different advertisements to
appear on the same space on a Web page, portals and advertising networks
require banner ads of specific size and format, generally in a rectangular
shape. Under this model, advertisers generally pay a fee each time an ad is
displayed on a cost-per-thousand-impressions basis. These pay-for-display
campaigns are typically evaluated based on the number of times a user clicks on
the banner ad and is directed to the e-merchant site.

E-merchants face an increasingly difficult and expensive task in converting
viewers of banner ads into shoppers and eventually buyers. Banner ad click-
through rates have decreased significantly from 2.11%, as reported by I/Pro in
October 1996, to 0.37%, as reported by Nielsen//NetRatings for the week ended
June 30, 1999. Forrester Research reported in September 1998 that 38% of people
online for more than 42 months have indicated that they have never clicked on a
banner ad and that they are less likely to click on a banner ad than users
online less than six months. We believe that decreasing click-through rates
result from the lack of integration and relevance of the banner ads with the
content of the site where they are displayed.

E-merchants also face an increasing challenge in reaching their audience.
More experienced Internet users who are more likely to buy online spend a
smaller percentage of their time on portals, and instead focus on content sites
that match their interests. With millions of sites displaying hundreds of
millions of pages of content, e-merchants must identify and form partnerships
with an increasing number of Web sites that might appeal to their buying
audience. The decreased effectiveness of banner ads together with the e-
merchant's desire to expand promotional reach have led to the development of
online promotions targeted to specific Web sites with relevant content and
consumers, with the marketing partners rewarded according to the actual results
they generate.

The Emergence of Affiliate Sales Channels

By the end of 1996, a few leading e-merchants began to develop new sales
channels consisting of affiliated third-party Web site publishers hosting a
variety of promotions for the e-merchant's goods and services. In establishing
these new affiliate sales channels, e-merchants generally paid commissions to
the Web site publishers based on the sales generated by the ads or promotions.
These affiliate sales channels were the first widely introduced type of
performance marketing program.

These affiliate sales channels had benefits for both the e-merchants and
their affiliated Web site publishers. E-merchants could pay for their marketing
based upon the performance of the promotions, making it more cost-effective to
partner with a broader array of third parties than under pay-for-display
methods. Web site publishers could generate revenue from their Web pages at
little or no cost and use ad space that might otherwise go unsold, since there
was no limit to the number of promotions they could run. The Web site
publishers could choose the location and type of promotions, leading to better
merchandising and increased effectiveness of the promotions which would benefit
both the e-merchant and the Web site publisher.

Initially, e-merchants built their own systems for developing, managing and
tracking affiliate sales channels. Most of these internally developed systems
track activity only on the e-merchant's site. Using internal techniques for
tracking users to point of sale, the e-merchant could then determine the sales
generated by promotions hosted by each partner and pay commissions accordingly.

The Challenges of Internally Developing and Managing Affiliate Sales Channels

E-merchants face many challenges in building an affiliate sales channel or
other performance marketing program on a broad scale. Tracking individual
transactions through to point of sale requires that e-merchants and their
marketing partners exchange data, usually by creating special links that are
specific to the marketing partner and the product or service to which the
marketing partner is linking. Recording orders, order cancellations, sales and
returns requires that these systems be integrated with both the e-merchant's
transactional and fulfillment systems, which are often separate. Following this
integration, the process of transmitting data between disparate systems must be
monitored for success and accuracy. Developing the necessary technology, which
may involve tracking promotions viewed millions of times on thousands of
separate affiliate sites, is time consuming and expensive. An e-merchant faces
additional expense to acquire and maintain the equipment needed to track, store
and analyze this data once collected.

E-merchants also face challenges in managing their relationships, often with
tens of thousands of marketing partners, including:

. creating a wide variety of promotional links for each of its various
products or services;

. generating, placing and replacing the promotions selected by individual
marketing partners within the context of that marketing partner's site or
e-mail messages;

. measuring and managing the productivity and effectiveness of marketing
partners;

. analyzing and reporting on the data collected from thousands of sources
to permit better merchandising by both the e-merchant and the marketing
partner;

. communicating with and making payments to thousands of marketing
partners; and

. enhancing their systems to reflect changes in business models and payment
methods to influence the behavior of marketing partners.

Marketing partners also face challenges in realizing the potential benefits
offered by performance marketing programs. They want to minimize the time and
expense associated with enrolling in a performance marketing program and
creating and changing promotions for a particular e-merchant. In addition,
marketing partners are looking for easy, cost-effective solutions for the
delivery, targeting and tracking of the promotional efforts that they run to
enhance their revenue.

The Be Free Solution

We provide a comprehensive solution specifically designed to enable our e-
merchant and portal customers to increase sales and decrease the cost of
customer acquisition by establishing and managing their own performance
marketing channels. We have developed, and continue to enhance, a broad set of
technologies and services that provide a data interchange between disparate
systems utilized by our customers and their thousands of performance marketing
partners. Through this data interchange, we compile, store and analyze data
about our customers and their marketing partners.

Merchant Connection

We integrate our systems with each customer's often disparate catalog,
transactional and fulfillment systems. Through this connection, we receive and
store information about available products and services and the customer's Web
site. This information enables our customer's marketing partners to generate
and place a variety of promotions for each of our customer's products or
services. We also receive order, order cancellation, sales and return data from
our customer.

Our data interchange also tracks each time a user views and clicks on a
specific promotion run by any one of our customers' thousands of marketing
partners. We link individual viewings and clicks to unique transactions with
our customers. Promotions we tracked for our customers were shown more than 300
million times in June 1999 through more than one million performance marketing
relationships our customers have established. This combination of customer and
marketing partner data is stored at our central processing facilities and
allows us to measure the sales or traffic performance of each specific
promotion.

Management Solutions

We have significant resources and expertise dedicated to the successful
implementation, development, management and control of online performance
marketing programs. These solutions include:

. Establishment of sales channels. We provide online, automated application
and approval processes for Web site publishers joining a customer's sales
channel. We also help customers identify and recruit potential
affiliates.

. Customer control of sales channel. All of our services are designed to
enable a customer to maximize the efficiency of a broadly distributed
sales channel. Each of our customers selects its marketing partners and
determines the terms of its relationships with these marketing partners.
We brand reports, communications and payments with our customer's name.

. Development and placement of promotions. We store and deliver promotions
for our customers on our systems. Our customers' marketing partners can
access our systems, choose among these promotions, and incorporate them
into their Web sites or e-mail messages through simple procedures.

. Replacement of promotions. Since all promotions are routed through our
systems before being directed to a customer's Web site, changes in that
customer's Web site only require programming changes on our systems
rather than the replacement of promotions by all of its marketing
partners.

. Data collection and reporting. We collect and store data both from our
customers and their marketing partners, tracking specific promotions
through sales and returns. We provide extensive analyses online, both to
our customers and to their marketing partners. Analyses can be configured
to examine the performance of the entire sales channel, a specific
promotion or a specific marketing partner.

. Communication and payment services. We can generate e-mail communications
and payments to widely dispersed marketing partners on behalf of
customers. Communications can be automatically generated and broadcast
based upon e-merchant selected criteria.

. Merchandising assistance. Our reporting and communication services permit
both our customers and their marketing partners to make and implement
more effective merchandising decisions. Our best practices group monitors
industry and competitive trends, as well as results achieved by customers
generally, and shares this expertise with customers and their marketing
partners. E-merchants can use our system to identify promotions or sites
that are leading to high sales or return rates, manage product demand,
and rank marketing partners by effectiveness.

Our solutions enable customers to pay their online marketing partners based
upon performance. Our customers also pay us for our services based upon the
level of activity generated from these promotional activities, typically as a
percentage of the resulting sales or traffic. As a result, our economic
interest is aligned with the economic interest of our customers and their
marketing partners.

Strategy

Our objective is to be the leading provider of online performance marketing
solutions. To achieve this objective we are focused on the following strategic
initiatives:

Leverage Technology Leadership to Provide Comprehensive Solutions

We intend to continue our focus on performance marketing solutions. We plan
to both enhance our existing, as well as develop new, performance marketing
technologies, expertise and services.

We have made significant investments in technology and personnel to develop a
comprehensive set of online services specifically designed for the development
of performance marketing programs, including affiliate sales channels. We
believe that customers will continue to seek cost-effective solutions to
establish and manage performance marketing programs.

Rapidly Expand Our Targeted Customer Base

We seek continued expansion of our customer base nationally and
internationally, primarily through our direct sales force. Because our revenue
is tied to our customers' performance, we are currently targeting large e-
merchants and portals in the U.S. as customers. We have recently begun to
expand our sales efforts to the emerging online markets in Europe.

Continue to Provide Customer Branded and Controlled Solutions

We enable each customer to extend its merchandising techniques to its
marketing partners, with which they contract directly. Services we provide to
our customers' marketing partners, including analyses, communications and
payments, are customer branded. We believe customers will find our merchant
branded solutions more appealing and will invest more heavily in the
development and growth of these sales channels and in performance marketing
solutions provided by us.

Increase the Size of Our Customers' Sales Channels

We will continue to identify and recruit potential affiliates on behalf of
our customers. Increasing our customers' marketing reach and revenue increases
our revenue. We have launched an online affiliate recruiters program, located
at www.affiliaterecruiters.com, that allows Web site publishers to promote our
customers' affiliate sales channels. We are extending our Web site outreach for
customers by entering into strategic partnerships with companies that provide
Web site creation tools and hosting services. In addition, we are continuing to
develop relationships with syndicated content providers that permit them to
incorporate links to our customers in syndicated content.

Increase Our Services to Existing Customers

We intend to continue to develop additional services to support new online
performance marketing programs and new revenue sources for our customers and
us, such as our recently developed e-mail referral services, B-INTOUCH. We are
working with ad serving companies to utilize our technology to track the banner
ads they deliver to point of sale on our customer sites.

Increase the Effectiveness of Our Customers' Sales Channels

We intend to continue and enhance services designed to help our customers
increase their sales. Our best practices research and consulting group helps
our customers generate better response rates by providing industry analysis,
benchmarks and merchandising expertise. We assist our customers' marketing
partners to increase their traffic through various tools and techniques, such
as search engine registration. We are also developing technologies to build and
analyze anonymous, individual user profiles based on browsing, clicking and
buying behavior, and to target promotions to a given user based on these
profiles.

Expand Internationally

We intend to be an early entrant and a leader in the development of
performance marketing programs outside the U.S. We have expanded our services
to Europe with our initial integration with Bertelsmann's online subsidiary,
BOL International. We have developed German, French and Dutch interfaces for
marketing partners in Europe. We will continue to develop foreign language
interfaces and may establish physical operations in Europe. We may also expand
our services to Japan. We will begin to target other large customers in Europe
during 2000.

Services

Our data interchange provides the communications link, technologies and
services for performance marketing generally and Web-based affiliate sales
channels in particular. Our customers adopt a core transactional service and
may then select from a number of additional services. Our core services enable
the collection and tracking of data that resides on our systems in Oracle
databases. Reports analyzing the data are accessible to our customers and their
marketing partners from desktop computers using standard Internet protocols and
standard Web browser protocols. Specifically, our systems provide:

Workflow Automation

. Automated sign-up of potential marketing partners through an online
application;

. Definition and selection of marketing partners, compensation rules and
methods;

. Rapid review and approval of marketing partner applications by customers;

. Generation of individualized messages from our customers to selected
marketing partners; and

. Payment of fees due to marketing partners.

Serving and Tracking Promotions, Routing of Users

. Tracking of selected links each time a link is displayed or delivery of
dynamic, rotating promotions and tracking of display of these promotions
each time a dynamic link is displayed;

. Directing users clicking on any promotions to the correct location on our
customer's site; and

. Collection of order, order cancellation, sales and return information
from our customer's systems and matching that information with marketing
partner data collected by our systems.

Reporting and Decision Support

. Online generation of daily customer-specific reports, including detail on
orders and order cancellations, sales and returns, traffic, promotional
success and payments due to marketing partners. A complete decision
support system allows our customers to filter and sort these reports and
to export this data for use in a spreadsheet or word processing program;

. Modification of the available promotions and addition of new promotions
instantly; and

. Online generation of daily marketing partner reports including detail on
orders and order cancellations, sales and returns, traffic, promotions
used and success of each promotion, products purchased by the site's
audience and commissions due to the marketing partner. Marketing partners
may download these reports for use in a spreadsheet or word processing
program.

Our services, any one or more of which may be selected, are offered as
follows:

BFAST Affiliate Marketing Service

BFAST allows our customers to build and maintain their own, branded
affiliate sales channels. Our customers use BFAST to create and build these
sales channels and to evaluate their affiliates using more than 80 online
analyses. BFAST enables customers to create and offer promotions, including
individual product links, search links, product category links, coupons and
other incentives appearing in a variety of formats including text, graphics,
search boxes, regularly updated "top 10" lists and streaming video. Each
affiliated Web site publisher can select the promotions that are most likely to
appeal to its audience and use BFAST to generate the code it needs to add those
promotions to its site. These affiliates can check the performance of each
promotional initiative they implement with daily reporting.

We also provide optional services to help recruit affiliates for our
customers' affiliate sales channels and provide merchandising advice directly
to affiliates. Our affiliate outreach services include recruitment by affiliate
recruiters, direct mail to Web site managers who have requested this
information, sponsorship of newsletters, and banner advertising. We also offer
affiliate application review and approval services, where we accept affiliate
applications on behalf of our customers based upon their established criteria.
We can provide customer-branded support by telephone and e-mail to affiliated
Web site publishers to assist with applications, link generation, merchandising
and analysis. We can also provide performance analysis and promotional and
merchandising recommendations for the largest 250 sites in our customers'
affiliate sales channels. We have a best practices group that has developed
expertise by monitoring industry and customer specific trends and provides
strategic advice designed to improve the performance of these sales channels.

In general, we enter into a standard service agreement that requires our
BFAST customer to pay us a one-time integration fee and monthly performance
fees, subject to minimum monthly or annual fees, for use of our data
interchange. For our e-merchant customers, the performance fees are generally
based on either a percentage of the sales generated or a fee based on the
number of transactions or orders. For our portal customers, the performance
fees are generally based on the volume of click-throughs generated by their
marketing partners' Web sites. We currently derive most of our revenue from
BFAST services.

B-INTOUCH E-mail Referral Services

Our recently introduced B-INTOUCH services allow our customers to partner
with individuals and corporations that send e-mail messages. B-INTOUCH lets an
approved sender of e-mail messages include our customers' promotions in e-mail
messages and receive fees for the sales or

traffic that result from these promotions. B-INTOUCH offers a simple user
interface for link placement and reporting, designed for the less
technologically sophisticated e-mail user. B-INTOUCH pricing is based on the
volume of sales or traffic that results from a customer's e-mail referral
program.

BFIT Advertising Services

BFIT is an enhanced banner ad delivery service that tracks our customers'
banner advertising through to point of sale and determines the performance for
a specific banner placed in a specific location. This may include ad
trafficking services through which we place and manage our customers'
advertising campaigns on their behalf. By integrating our BFIT and BFAST
services, our customers marketing partners can dedicate space on their Web
sites within which a customer may determine the promotional initiative
displayed and modify it at any time or upon the occurrence of specified
criteria. BFIT is priced based on the number of impressions served.

Customers

Our principal customers are large e-merchants and high-traffic portal sites
that use the Internet as a central or sole business channel. We have
successfully targeted as customers leading e-merchants and portals in a wide
variety of markets. The following is a partial list of e-merchants and portals
that have contracted for our services:

American Greetings Furniture.com
Ameritech Lycos
Babbages, Etc. Micro Warehouse
BabyCenter MotherNature.com
barnesandnoble.com Multiple Zones International
Bertelsmann (bol.com) Network Solutions
CNET OneCore
Compaq Pets.com
Digital Chef priceline.com
eBags.com Reel.com
egghead.com SEND.com
Enews.com The SABRE Group (Travelocity.com)
eToys(R) toysmart.com
Franklin Covey Value America
Fogdog Sports Yahoo!

Our customers typically enter into a written agreement with us that runs for
one year from program launch and renews automatically for successive one-year
periods unless either party gives notice not to extend. We generally provide
representations concerning our system performance and discount our fees if we
fail to meet specified performance levels. We also agree to provide customers
certain indemnities for infringement of third party intellectual property
rights. Our customers agree to provide certain information regarding
merchandise or services they make available over the Internet and transactional
information.

For 1997 and 1998 and six months ended June 30, 1999, barnesandnoble.com
accounted for more than 10% of our revenue. For the six months ended June 30,
1999, GeoCities, a subsidiary of Yahoo!,

accounted for more than 10% of our revenue. Our contracts with
barnesandnoble.com and GeoCities expire in January 2001 and January 2002,
respectively. GeoCities has the right to terminate its contract prior to the
expiration of its term by giving notice and paying a penalty. Both contracts
provide that either party may terminate upon a material breach under certain
circumstances. In addition, in 1997, Duquesne Light and Power, to whom we
provided customized software development and support, accounted for more than
10% of our revenue.

Sales and Marketing

We have a direct sales force that targets large e-merchants and portals. The
direct sales force is assigned to different geographical regions and is
supported by sales engineers. We maintain direct sales personnel in seven major
metropolitan areas throughout the United States. We also have a telesales
group, located in our Marlborough, Massachusetts headquarters, that targets
mid-sized e-merchants.

In order to achieve broader distribution of our services, we engage
marketing partners that are authorized to resell our services. These resellers
typically receive a percentage of our revenue derived from the e-merchant
accounts they generate during specified periods.

We target potential customers through our public relations program, our Web
sites, conferences, trade shows and customer referrals. While we have primarily
focused on marketing efforts in the United States, we intend to extend these
efforts into Europe and may extend these efforts into Japan.

Customer Service

We provide comprehensive integration, training, consulting and support
services. We provide our customers with individualized customer services
designed to increase the performance of their marketing channels and their
overall satisfaction with our services. We assign dedicated, knowledgeable
customer development managers to each customer.

Our best practices consulting team gathers and analyzes data from industry
sources, our database and customer initiatives to provide our customers with
industry-wide performance results against which they can measure their own
success. This team formulates strategies for how our customers might more
effectively promote their products or services. We present our best practices
solutions through seminars, customer bulletins, case studies and one-on-one
dialogues with customers.

We provide integration services, both by telephone and in person, to new
customers. We work with new customers to create a reliable, automated data
transfer between their systems and our systems.

We teach our customers to use our technology effectively and efficiently. We
provide business training to customers, which helps them better understand the
business decisions that they face in launching their affiliate sales channel
and other performance marketing programs. We also offer regular refresher and
update training.

Our customer development managers assist our individual customers in
managing their affiliate sales channel and other performance marketing
programs, developing and interpreting their analyses, and testing new
promotional methods. These customer development managers also convey emerging
customer strategies, communicate customer feature requests, manage data
requests and provide ongoing project management services for special customer
initiatives.

Technology Infrastructure

Our technologies are designed to provide the following advantages:

Performance, Scalability, Availability and Reliability

Our system infrastructure has been designed as a layered architecture to
yield significant benefits to our customers in performance, scalability,
availability and reliability. Our products run on multiple high-speed servers
that are connected by high-capacity connections and are organized into multiple
tiers. Each tier functions to address specific data storage and data traffic
considerations to enhance reporting and real-time transactional performance. We
have recently upgraded this system by adding additional servers or storage
devices to each tier.

Scalability is a term used to describe the ability of an application to
handle greater traffic when additional servers are added to a system.
Scalability is particularly important for growth-stage Internet applications
where demand can grow rapidly and unpredictably. Our servers are connected not
only within a given tier but also between tiers. This multi-tiered server
design enables us to add, extend, duplicate or exchange the specific servers
requiring the enhancement within the system as needed, without recompiling the
rest of the system or interrupting services.

The multi-tiered server design better enables us to provide our customers
with highly-available and reliable uninterrupted service. Each tier is
comprised of multiple connected servers performing similar tasks, each of which
has its own power supply. If a server fails, that server's tasks are
automatically reassigned to another running computer. In addition, identical
data is also stored in various locations. This redundant design enhances the
ability of the system to tolerate the failure of an individual server or
failures in system storage without the loss of data or the ability of the
computers to give our customers' real-time operating capability.

The connections from the network data center into the multi-tiered servers
are also designed to provide customers with reliable, uninterrupted service. We
regularly test and maintain the multiple connections between our servers, and
regularly test the connections between the network data center and the
Internet. Our engineering and hosting center personnel monitor traffic patterns
and congestion points and reroute traffic flows in an effort to reduce end-user
response times. We provide monitoring and support services required to maintain
transaction availability 24 hours a day, 365 days a year.

Although our systems are designed to enhance reliability, system and
communication failures have caused both delays and cessation of services. We
recently experienced an 11-hour systems outage during which we were unable to
redirect Internet users to our customers from their marketing partners or
provide reports.

We have taken and are taking additional steps to decrease the likelihood of
future outages. These steps include installing additional server and storage
hardware, and adding an additional level of redundancy to all tiers of our
system architecture. Our development team is modifying our software to make it
more functional upon hardware failure. Even with these improvements, there can
be no assurance that our services will not be interrupted in the future.

Flexibility

Our system infrastructure uses platform systems with UNIX, a non-proprietary
open operating system, and is also compatible with Microsoft's proprietary
operating system, Windows NT. We

currently use servers manufactured by Sun Microsystems. While we are not
dependent on any single server hardware system or vendor, any change could be
costly and time consuming.

Internet Access

Our systems are developed entirely for use over the Internet. Our customers
are able to access marketing, sales and merchandising data from our Oracle-
based databases using their desktop computers and their standard Internet
connection. Our reporting systems use standard Internet and Web protocols.

Central Operations Facility

Our network data center is designed to optimize performance and maintain
reliability. Our network data center is housed at Exodus Communications in
Harborside, New Jersey. This center has multiple, physically distinct, high-
capacity connections to the Internet designed to reduce the likelihood that
outages within the network will materially impact customer use. The center also
has duplicate systems for power, climate-control, fire protection, seismic
reinforcement and continuous security surveillance. The facility utilizes
manual and automated intrusion detection techniques to monitor the security of
the center and its hardware. We regularly use outside security professionals to
evaluate our physical and electronic security measures. We currently plan to
open a data center in Europe before December 31, 1999.

Development

Development of new services begins with our product marketing group. Based
upon customer, competitive and market analyses, our product marketing group
determines functions and specifications for future services and enhancements to
current services. Our development group develops new services and enhances
existing services based on specifications provided by the product marketing
group. Our development group is divided into strategic and tactical teams. Our
strategic team develops new performance marketing services and new generations
of current services. Our tactical development team focuses on extending
existing functions or developing additional functions within any given release.

We have developed a managed release process to assist customers in the
adoption of new releases. This process includes testing and evaluating
revisions, updating online and paper documentation to include new features,
training customer support personnel and notifying and training customers.

Our development group consists of 16 full-time employees as of June 30,
1999. For the year ended December 31, 1998 and the six months ended June 30,
1999, we spent $304,100 and $719,800, respectively, on research and development
activities.

Competition

The market for online performance marketing solutions is new, rapidly
evolving and highly competitive. We do not currently compete against
established companies across the range of services we provide. We do, however,
compete against larger companies with respect to a portion of the

services we provide and compete more broadly against similar sized, private
companies. We expect to face future competition across a broad range of our
services from larger companies currently providing products or services that
compete only with respect to a portion of the services we provide.

For the provision of e-merchant branded affiliate sales channel solutions,
we compete against internally-developed performance marketing solutions and
against enterprise software solution providers. We also compete against multi-
merchant, shared affiliate program providers, including Commission Junction,
Linkshare and Microsoft's LinkExchange. Finally, we compete with ad server
companies that provide banner ad services that might be considered an
alternative marketing solution.

We believe that the principal competitive factors in our market are:

. the provision of comprehensive, reliable services;

. the ability to offer a customer ownership of and control over a
significant sales channel;
. the provision of extensive online reports and analyses; and

. price.

We seek to compete against internally developed efforts and enterprise
software solutions by providing more comprehensive, cost-effective services
that are more easily managed. We seek to compete against multi-merchant,
shared affiliate program providers on the basis of our technology, by
permitting our customers greater control over their affiliate sales channel
and providing individualized customer service. We seek to compete against ad
serving companies by offering broader services and the ability to track
promotional efforts through to the point of sale.

Employees

As of June 30, 1999, we had a total of 118 employees, 74 of whom were in
sales and marketing, 30 in development and engineering and 14 in finance and
administration. Sales and marketing employees include salespeople, sales
administration personnel, customer service personnel, product marketing and
marketing communications personnel. From time to time we also employ
independent contractors to supplement our development staff. Our employees are
not represented by a labor union and we have never experienced a work
stoppage. We believe our relations with our employees are good.

Facilities

Our headquarters are located in Marlborough, Massachusetts, where we occupy
approximately 23,000 square feet under a lease that expires in March 2004. Our
development and engineering departments are located in Pittsburgh,
Pennsylvania, where we occupy approximately 12,000 square feet of office space
under a lease that expires in January 2004. In the future, we may lease
additional space as needed.

Legal Proceedings

From time to time, we may be involved in litigation incidental to the
conduct of our business. We are not currently a party to any legal
proceedings.

MANAGEMENT

Directors and Executive Officers

Our executive officers and directors, and their respective ages and
positions as of June 30, 1999, are set forth below:

Name Age Position

Gordon B. Hoffstein..... 47 President, Chief Executive Officer and Director
Samuel P. Gerace, Jr.... 36 Executive Vice President, Research & Technology and Director
Thomas A. Gerace........ 28 Executive Vice President, Business Development
Stephen M. Joseph....... 40 Chief Financial Officer and Treasurer
Ellen M. Brezniak....... 40 Vice President, Product Marketing
W. Blair Heavey......... 37 Vice President, Sales
Steven D. Pike.......... 46 Vice President, Client Services
Patricia L. Travaline... 43 Vice President, Marketing Communications
Ted R. 47 Director
Dintersmith(1)(2)......
W. Michael Humphreys(2). 47 Director
Daniel J. Nova(1)(2).... 37 Director
Jeffrey Rayport(1)...... 39 Director

- ---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

Gordon B. Hoffstein has been our Chief Executive Officer and a director
since August 1998. From October 1991 to April 1997, he was a co-founder and the
Chief Executive Officer of PCs Compleat, Inc., a direct marketer of PCs and
related products now known as CompUSA Direct. From February 1991 to June 1991,
he was Chief Executive Officer of Edsun Laboratories, a semiconductor designer.
He was a co-founder and the Chief Executive Officer of Microamerica, Inc., a
distributor of computer hardware and software products, from November 1979 to
May 1990. He currently serves as a director of various private companies. Mr.
Hoffstein earned a B.S. from the University of Massachusetts and an M.B.A. from
Babson College.

Samuel P. Gerace, Jr. has been our Executive Vice President, Research &
Technology and a director since August 1998. He was a founder of and has been
involved in managing our business since the inception of one of our affiliated
companies in September 1985. Mr. Gerace holds an A.B. from Harvard College.
Samuel P. Gerace, Jr. is the brother of Thomas A. Gerace.

Thomas A. Gerace has been our Executive Vice President, Business Development
since August 1998. He was a founder of and has been involved in managing our
business since inception. Previously, he served as a research analyst for
Harvard Business School. During his time at Harvard Business School, he also
served as a consultant for the Technology for Effective Cooperation Network, a
non-profit organization, and Welty-Leger Corporation, a distribution and
warehouse software provider. Mr. Gerace received an A.B. from Harvard College.
Thomas A. Gerace is the brother of Samuel P. Gerace, Jr.

Stephen M. Joseph has been our Chief Financial Officer since August 1998.
From October 1991 to December 1997, he served as Chief Financial Officer of PCs
Compleat, Inc. From March 1991 to

June 1991, he was Chief Financial Officer of Edsun Laboratories. Prior to that
time, he held various financial positions in private companies and Ingersoll-
Rand Company, a machinery and equipment manufacturer. Mr. Joseph earned a B.S.
from Bentley College.

W. Blair Heavey has been our Vice President, Sales since October 1998. From
April 1995 until joining us, he held sales positions at Open Market, Inc., an
Internet software developer, including Director of Sales and Director,
Strategic Channel Sales. From March 1989 until March 1995, he held several
sales and marketing positions at Hewlett-Packard Corporation, a manufacturer of
measurement, computation and communications systems and equipment. Mr. Heavey
received a B.A. from Boston College and an M.B.A. from Babson College.

Ellen M. Brezniak has been our Vice President, Product Marketing since
November 1998. From October 1996 until joining us, she was Vice President,
Business-To-Business Operating Unit at Open Market, Inc. From March 1994 until
September 1996, she was Director, Product Marketing and Planning with Progress
Software Corporation, a supplier of application development and management
technology. Prior to that time, she held various marketing positions at Cognos,
Inc., which offers application development software and EIS tools, and software
database companies such as Sybase, Inc. and Oracle Corporation. Ms. Brezniak
holds a B.S. from Rensselaer Polytechnic Institute.

Patricia L. Travaline has been our Vice President, Marketing Communications
since October 1998. From January 1992 to February 1998, she served in positions
at PCs Compleat, Inc. including Director of Marketing Communications and
Director, Extended Services Development. From December 1985 to September 1991,
she held positions at the public relations firm of Sharon Merrill Associates,
including Vice President, Investor Relations. Ms. Travaline earned a B.A. from
the University of Denver and an M.B.A. from Simmons College.

Steven D. Pike has been our Vice President, Client Services since April
1999. From July 1998 until joining us, he served as Vice President, Customer
Services at Internet Commerce Services, Inc., a commerce service provider. From
September 1995 to June 1998, he held the position of Director of Technical
Services at Open Market, Inc. From January 1995 to September 1995, he held the
position of Manager, Product & Program Management at Progress Software
Corporation and from September 1992 to January 1995 he was Manager, Product
Support and Business Management at Bay Networks, a manufacturer of data
networking products. Mr. Pike holds a B.S. from Franklin Pierce College.

Ted R. Dintersmith has been a director since August 1998. Since February
1996, he has been a General Partner of Charles River Partnership VIII, a
private venture capital firm. Prior to his association with Charles River, he
was a General Partner of Aegis Management Corporation, a venture capital firm.
Mr. Dintersmith is a director of Flycast Communications Corporation, an
Internet advertising company. Mr. Dintersmith holds a B.A. degree in Physics
and English from the College of William and Mary and a Ph.D. in Engineering
from Stanford University.

W. Michael Humphreys has been a director since August 1998. Mr. Humphreys
has been a partner of Matrix Partners, a private venture capital firm, since
1979. He received a B.S. from the University of Oregon and an M.B.A. from
Harvard Business School.

Daniel J. Nova has been a director since March 1999. Since August 1996, Mr.
Nova has served as a general partner of Highland Capital Partners, a venture
capital firm. Previously, he was a general partner of CMG@Ventures from January
1995 to August 1996 and a Senior Associate at Summit Partners from June 1991 to
January 1995. Mr. Nova is a director of eToys, Inc., an online retailer of
toys, Lycos, Inc., an online portal, MapQuest.com, Inc., an online mapping
company, and Ask Jeeves, Inc., an Internet question answering service company.
Mr. Nova received a B.S. in Computer Science and Marketing with honors from
Boston College and an M.B.A. from Harvard Business School.

Jeffrey Rayport has been a director since December 1998. He has been a
faculty member at Harvard Business School in the Service Management Unit since
1991. He is currently on leave from Harvard and is working at Monitor Company,
a management consulting firm, as the founder and executive director of Monitor
Marketplace Center, an e-commerce research and media unit established in 1998.
Dr. Rayport is a director of Global Sports, Inc., a sporting goods company.
Dr. Rayport earned an A.B., A.M. and Ph.D. from Harvard University and an
M. Phil. from the University of Cambridge (U.K.).

Our board of directors is divided into three classes, with the members of
each class serving for a staggered three-year term. Our board currently
consists of two Class I directors, two Class II directors and two Class III
directors. At each annual meeting of stockholders, a class of directors will be
elected for a three-year term to succeed the directors of the same class whose
terms are then expiring. The term of the Class I directors ( )
expires at the annual meeting of stockholders to be held in 2000. The term of
the Class II directors ( ) expires at the annual meeting of
stockholders to be held in 2001. The term of the Class III directors
( ) expires at the annual meeting of stockholders to be held in
2002.

Each officer serves at the discretion of our board of directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal.

Messrs. Dintersmith, S. Gerace, Humphreys and Nova were elected to the board
of directors pursuant to an agreement among us and some of our stockholders.
The agreement obligating the stockholders to vote in favor of them as directors
will terminate upon the closing of this offering.

Committees of the Board of Directors

Our board of directors has established a compensation committee and an audit
committee. The compensation committee makes recommendations concerning salaries
and incentive compensation for our employees and consultants and administers
our employee incentive plans. The current members of the compensation committee
are Messrs. Dintersmith, Humphreys and Nova. The audit committee reviews the
results and scope of the audit and other services provided by our independent
public accountants. The current members of the audit committee are Messrs.
Dintersmith, Nova and Rayport.

Director Compensation

We have no present plans to pay cash compensation to directors but intend to
reimburse directors for certain out-of-pocket expenses incurred in connection
with attendance at meetings of the board of directors or committees of the
board. We have granted Mr. Rayport an option under the

1998 Stock Incentive Plan to purchase 75,000 shares of common stock that vests
over four years. In addition, we may issue additional options to directors
under our 1998 Stock Incentive Plan, which options would vest and become
exercisable over time.

Compensation Committee Interlocks and Insider Participation

Prior to the appointment of the compensation committee in July 1999, Be
Free's full board of directors (which includes executive officers Gordon B.
Hoffstein and Samuel P. Gerace, Jr.) and Thomas A. Gerace (who previously was a
director and Chief Executive Officer of Be Free) were responsible for the
functions of a compensation committee. During 1998, none of our executive
officers served as a member of the compensation committee, or a committee
serving an equivalent function, of any entity whose executive officers served
as a director of Be Free or otherwise had compensation committee
responsibilities.

Executive Compensation

The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1998 to our chief executive officer and to Mr.
Thomas A. Gerace, an Executive Vice President, Business Development, who served
as our Chief Executive Officer from January 1998 through August 1998. No other
executive officers received compensation in excess of $100,000 in 1998.

Summary Compensation Table

Annual
Compensation
---------------
Name and Principal Position Salary Bonus

Gordon B. Hoffstein(1)......................................... $49,573 $16,589
President and Chief Executive Officer
Thomas A. Gerace(2)............................................ $77,916 --
Executive Vice President, Business Development

- ---------------------
(1) Mr. Hoffstein's current annual salary is $175,000.
(2) Mr. Thomas Gerace was Chief Executive Officer until August, 1998. His
current annual salary is $120,000.

We have never granted any stock options to Mr. Hoffstein or Mr. Thomas A.
Gerace. Mr. Hoffstein purchased shares of restricted stock for a
purchase price of $ per share under the 1998 Stock Incentive Plan on
December 31, 1998. See "Transactions with Related Parties."

Employment Agreements

On August 28, 1998 we entered into employment agreements with Samuel P.
Gerace, Jr. and Thomas A. Gerace that provide for an annual base salary of not
less than $110,000 and annual merit bonuses as may be determined by the board
of directors. These agreements contain customary noncompetition and
nonsolicitation provisions, and have an initial term of two years with a one
year renewal subject to the parties' agreement.

Change of Control Arrangements

Shares subject to options or restricted stock awards granted under our 1998
Stock Incentive Plan generally vest over four years, with 25% of the shares
vesting after one year and the remaining shares vesting in equal monthly
installments over the next 36 months. This plan provides accelerated vesting of
25% of the shares subject to each option upon a change of control, and full
acceleration upon the termination of employment after a change of control in
certain instances. In general terms, change of control would occur where any
person acquires ownership of more than 50% of our voting shares or upon any
merger or acquisition where our stockholders before the transaction hold less
than a majority of the voting stock of the surviving entity outstanding after
the transaction. We have issued shares of restricted stock to Gordon Hoffstein
that provide for accelerated vesting of 50% of these shares of restricted stock
upon a change in control, and full acceleration upon the termination of
employment after a change of control in certain instances.

1998 Stock Incentive Plan

Our 1998 Stock Incentive Plan was adopted by our board of directors and
stockholders in November 1998. The plan authorizes the issuance of up to
shares of our common stock. As of June 30, 1999, shares of restricted
stock and options to purchase an aggregate of shares of common stock
at a weighted average restricted stock purchase price of $ per share
and a weighted average exercise price of $ per share were outstanding
under the plan.

The stock incentive plan provides for the grant of incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code and
nonstatutory stock options.

Our officers, employees, directors, consultants and advisors are eligible to
receive awards under the stock incentive plan. Under present law, however,
incentive stock options may only be granted to employees. No employee may
receive any award for more than shares in any calendar year.

Optionees receive the right to purchase a specified number of shares of
common stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. We may grant
options at an exercise price less than, equal to or greater than the fair
market value of our common stock on the date of grant. Under present law,
incentive stock options and options intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code may not be
granted at an exercise price less than the fair market value of the common
stock on the date of grant or less than 110% of the fair market value in the
case of incentive stock options granted to optionees holding more than 10% of
the voting power of the company. The stock incentive plan permits our board of
directors to determine how optionees may pay the exercise price of their
options, including by cash, check or in connection with a "cashless exercise"
through a broker, by surrender to us of shares of common stock, by delivery to
us of a promissory note, or by any combination of the permitted forms of
payment.

As of June 30, 1999, approximately 124 persons were eligible to receive
awards under the stock incentive plan, including eight executive officers and
four non-employee directors.

Our board of directors administers the stock incentive plan. Our board of
directors has the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the plan and to interpret its
provisions. It may delegate authority under the stock incentive plan to one or

more executive officers or committees of the board of directors. Our board of
directors has authorized the compensation committee to administer the stock
incentive plan, including the granting of options to our executive officers.
Subject to any applicable limitations contained in the stock incentive plan,
our board of directors, our compensation committee or any other committee to
whom our board of directors delegates authority, as the case may be, selects
the recipients of awards and determines:

. the number of shares of common stock covered by options and the dates
upon which such options become exercisable;

. the exercise price of options; and

. the duration of options.

In the event of a merger, liquidation or other acquisition event, our board
of directors is authorized to take one or more of the following actions:

. provide that outstanding options be assumed or substituted for by the
acquirer;

. in the event of an acquisition in which the holders of common stock would
receive a cash payment for each share surrendered, provide for a cash
payment to each option holder equal to the amount by which the amount
paid to common stock holders exceeds the option's exercise price,
multiplied by the total number of shares of common stock subject to the
option;

. provide that any or all outstanding options become fully exercisable as
of a specified time prior to the event; and

. provide that all unexercised options terminate immediately prior to the
event unless exercised before such time.

No award may be granted under the stock incentive plan after November 2008,
but the vesting and effectiveness of awards previously granted may extend
beyond that date. Our board of directors may at any time amend, suspend or
terminate the stock incentive plan.

401(k) Plan

We have adopted an employee savings and retirement plan qualified under
Section 401 of the Internal Revenue Code and covering employees who are at
least 21 years of age and who have completed three months of service. Employees
may elect to reduce their current compensation by up to the statutorily
prescribed annual limit and have the amount of such reduction contributed to
the 401(k) plan. Although not required, we may make matching or additional
contributions to the 401(k) plan in amounts to be determined annually by our
board of directors. To date we have not made any such contributions.

TRANSACTIONS WITH RELATED PARTIES

Preferred Stock and Related Transactions

Sale of Preferred Stock. We sold preferred stock pursuant to the following
transactions:

. On August 28, 1998, we sold an aggregate of 10,500,000 shares of Series A
preferred stock at a price of $1.00 per share and issued warrants to
purchase shares of common stock at an exercise price of $ per
share.

. On September 29, 1998, we sold 100,000 shares of Series A preferred stock
at a price of $1.00 per share and issued a warrant to purchase
shares of common stock at an exercise price of $ and warrants to
purchase up to 700,000 shares of Series A preferred stock at an exercise
price of $1.00 per share; and

. On March 31, 1999, we sold an aggregate of 13,196,522 shares of Series B
preferred stock at a price of $1.89443 per share.

The following directors, executive officers, holders of more than 5% of a
class of voting securities and members of such person's immediate family
purchased these shares or received these warrants to purchase common stock or
Series A preferred stock. Upon consummation of the offering, each share of
Series A preferred stock will be converted into shares of common stock and
each share of Series B preferred stock will be converted into shares of
common stock.

Warrants to
Shares of Warrants to Purchase Shares of
Series A Purchase Series A Series B
Preferred Common Preferred Preferred
Purchaser(1) Stock Stock Stock Stock

Gordon B. Hoffstein(2).............. 500,000 -- --
Charles River Partnership(2)(3)..... 5,000,000 -- 2,322,598
Highland Capital(2)(4).............. -- -- -- 5,070,139
Matrix Partners(2)(5)............... 5,000,000 -- 2,322,598

- ---------------------
(1) See Notes to Table of Beneficial Ownership in "Principal Stockholders" for
information relating of the beneficial ownership of such shares.
(2) A holder of more than 5% of Be Free's Common Stock.
(3) Of the securities listed, Charles River Partnership VIII owns 4,909,475
shares of Series A preferred stock, warrants to purchase shares of
common stock and 2,280,547 shares of Series B preferred stock, and Charles
River VIII-A owns 90,525 shares of Series A preferred stock, warrants to
purchase shares of common stock and 42,051 shares of Series B
preferred stock. Mr. Dintersmith, a director of Be Free, is a general
partner of Charles River Partnership VIII, the general partner of Charles
River Partnership VIII, L.P. and an officer of Charles River VII Friends,
Inc., the manager of Charles River VIII-A, LLC.
(4) Of the securities listed, Highland Capital Partners IV owns 4,867,333
shares of Series B preferred stock and Highland Entrepreneurs' Fund IV owns
202,806 shares of Series B preferred stock. Mr. Nova, a director of Be
Free, is a General Partner of Highland Capital Partners, the general
partner of Highland Capital Partners IV, LP and Highland Entrepreneurs'
Fund IV, LP.
(5) Of the securities listed above, Matrix Partners V, L.P. owns 4,500,000
shares of Series A preferred stock, warrants to purchase shares of
common stock and 2,090,338 shares of Series B preferred stock, and Matrix V
Entrepreneurs Fund, L.P. owns 500,000 shares of Series A Preferred Stock,
warrants to purchase shares of common stock and 232,260 shares of
Series B preferred stock. Mr. Humphreys, a director of Be Free, is a
general partner of Matrix V Management Co., LLC, the general partner of
both Matrix Partners V, L.P. and Matrix V Entrepreneurs' Fund.

In connection with the sale of Series A preferred stock, the following
transactions also occurred which involved executive officers, directors and/or
holders of more than 5% of a class of voting securities (or persons or entities
related to the foregoing):

Contribution Transactions. Samuel P. Gerace, Jr., a director and executive
officer, Thomas A. Gerace, an executive officer, their father Samuel P. Gerace,
Sr. and a limited partnership for the benefit of members of the Gerace family,
contributed to us shares of affiliated companies under common control and
management, in exchange for shares of our common stock, as follows:

Shares
Contributor Received

Samuel P. Gerace, Jr.............................................
Samuel P. Gerace, Sr.............................................
Gerace Family L.P................................................
Thomas A. Gerace.................................................

Redemption of Shares of Freedom of Information. On August 28, 1998, Be Free
redeemed for a price of $ per share a portion of the outstanding common
stock, including the following shares of its common stock from executive
officers of Be Free (or related persons or entities), as well as other
stockholders of Be Free:

Number
of Purchases
Seller Shares Price

Samuel P. Gerace, Jr.................................... $1,002,202
Samuel P. Gerace, Sr.................................... 189,047
Gerace Family L.P....................................... 3,703,528
Thomas A. Gerace........................................ 1,002,202

Be Free paid the purchase price for the redeemed shares by issuing a
promissory note, which was paid in full on August 28, 1998 with a portion of
the proceeds from the sale of the Series A preferred stock.

Transfer Agreement. On August 28, 1998, the following executive officers (or
related persons or entities) of Be Free transferred shares of common stock to a
group of employees and advisors, including shares to Kristin L. Gerace
(sister of Samuel P. Gerace, Jr. and Thomas A. Gerace) and shares to
Jeffrey Rayport (one of our directors), in consideration for services rendered
to us.

Number of
Shares
Transferor Transferred

Gerace Family L.P.............................................
Samuel P. Gerace, Jr..........................................
Thomas A. Gerace..............................................
Samuel P. Gerace, Sr..........................................

Upon the consummation of this offering, all outstanding shares of Series A
preferred stock, Series B preferred stock and warrants to purchase Series A
preferred stock will automatically convert into shares or warrants to purchase
shares of common stock on a one-for- basis.

Restricted Stock Awards

On December 30, 1998 Gordon B. Hoffstein, President and Chief Executive
Officer, and Stephen M. Joseph, Chief Financial Officer, purchased restricted
stock under the 1998 Stock Incentive Plan. Mr. Hoffstein purchased
shares of common stock and Mr. Joseph purchased shares of common stock
each at a purchase price of $ per share. See "Compensation Committee
Interlocks and Insider Participation."

Mr. Joseph paid for such restricted stock awards by providing a cash payment
for 25% of the award and by executing a promissory note in favor of Be Free for
the remaining 75% of the award. The note is due on June 30, 2003 and accrues
interest at 7% per annum. The terms of the note provide that interest accrues
beginning on January 1, 1999, and payments of interest commence on July 15,
1999. As of June 30, 1999, $78,360 in principal was outstanding with respect to
Mr. Joseph's promissory note.

Other

On August 28, 1998 Be Free entered into employment agreements with Samuel P.
Gerace, Jr. and Thomas A. Gerace that provide for an annual base salary of not
less than $110,000 and annual merit bonuses as may be determined by the board
of directors. These agreements contain customary noncompetition,
confidentiality and nonsolicitation provisions, and have an initial term of two
years with a one year renewal subject to the parties' agreement.

Be Free is a party to indemnification agreements with Ted R. Dintersmith,
Samuel P. Gerace, Jr., W. Michael Humphreys and Daniel J. Nova pursuant to
which it has agreed to indemnify these directors to the fullest extent possible
under Delaware Law from liabilities arising out of their respective service as
a director of Be Free.

All future transactions between us and our officers, directors, principal
stockholders and their affiliates will be approved by a majority of the board
of directors, including a majority of the disinterested directors, and will be
on terms no less favorable to us than could be obtained from unaffiliated third
parties.

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock as of June 30, 1999 and as adjusted to reflect
the sale of the shares of common stock in this offering, by:

. each person we know to own beneficially more than 5% of our common stock;

. each of our directors;

. the Named Executive Officers; and

. all directors and executive officers as a group.

Unless otherwise indicated, each person named in the table has sole voting
power and investment power, or shares such power with his or her spouse, with
respect to all shares of capital stock listed as owned by such person. The
address of each of our executive officers and directors is c/o Be Free, Inc.,
154 Crane Meadow Road, Marlborough, Massachusetts 01752.

The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission. The
information is not necessarily indicative of beneficial ownership for any other
purpose. Under these rules, beneficial ownership includes any shares as to
which the individual has sole or shared voting power or investment power and
any shares as to which the individual has the right to acquire beneficial
ownership within 60 days after June 30, 1999 through the exercise of any stock
option or other right. The inclusion herein of such shares, however, does not
constitute an admission that the named stockholder is a direct or indirect
beneficial owner of such shares. Percentage of beneficial ownership is based on
shares of common stock (on an as converted basis) outstanding as of
June 30, 1999 and shares of common stock outstanding after
completion of this offering, assuming no exercise of the over-allotment option.

Percent of Ownership
-------------------------
Voting Shares Prior to After
Name of Beneficial Owner Beneficially Owned the Offering the Offering

Five Percent Stockholders:
Charles River Partnership VIII, LP
(1)(5)........................... 20.85%
Matrix Partners V, LP (2)(6)...... 20.85%
Highland Capital Partners IV, LP
(3)(7)........................... 12.25%

Directors and Named Executive
Officers:
Thomas A. Gerace.................. 8.23%
Samuel P. Gerace, Jr.............. 8.23%
Gordon B. Hoffstein (4)........... 9.05%
Ted R. Dintersmith (5)............ 20.85%
W. Michael Humphreys (6).......... 20.85%
Daniel Nova (7)................... 12.25%
Jeffrey Rayport................... *
All directors and executive
officers as a group (12 persons). 77.97%

- ---------------------
* Less than 1%
(1) Includes shares owned by Charles River VIII-A, LLC, an affiliate of
Charles River Partnership VIII, LP, shares issuable upon exercise
of a warrant in the name of Charles River VIII-A, LLC and shares

issuable upon exercise of a warrant in the name of Charles River
Partnership VIII, LP. The address of Charles River Partnership VIII, LP is
1000 Winter Street, Suite 3300, Waltham, MA 02451.
(2) Includes shares owned by Matrix V Entrepreneurs' Fund IV, LP, an
affiliate of Matrix Partners V, LP, shares issuable upon exercise
of a warrant in the name of Matrix V Entrepreneurs' Fund IV, LP and
shares issuable upon exercise of a warrant in the name of Matrix
Partners V, LP. Matrix Partners V, LP is located at 1000 Winter Street,
Suite 4500, Waltham, MA 02451.
(3) Includes shares owned by Highland Entrepreneurs' Fund IV, LP, an
affiliate of Highland Capital Partners IV, LP. Highland Capital Partners
IV, LP is located at Two International Place, Boston, MA 02110.
(4) Includes shares issuable upon exercise of a warrant.
(5) Mr. Dintersmith, a member of the board of directors, is a general partner
of Charles River VIII GP, the general partner of Charles River Partnership
VIII, LP, and an officer of Charles River VII Friends, Inc., the manager
of Charles River VIII-A, LLC, and may be deemed to have beneficial
ownership of shares. Mr. Dintersmith has shared voting power with
respect to such shares and disclaims beneficial ownership of any such
shares, except to the extent of his pecuniary interest in such shares.
(6) Mr. Humphreys, a member of the board of directors, is a general partner of
Matrix V Management Co., LLC, the general partner of both Matrix Partners
V, L.P. and Matrix V Entrepreneurs' Fund and may be deemed to have
beneficial ownership of shares. Mr. Humphreys has shared voting
and investment power over such shares and disclaims beneficial ownership
of any such shares, except to the extent of his pecuniary interest
therein.
(7) Mr. Nova, a member of the board of directors, is a general partner of
Highland Capital Partners, the general partner of Highland Capital
Partners IV, LP and Highland Entrepreneurs' Fund IV, LP and may be deemed
to have beneficial ownership of shares. Mr. Nova has shared voting
and investment power over such shares and disclaims beneficial ownership
of any such shares, except to the extent of his pecuniary interest
therein.

DESCRIPTION OF CAPITAL STOCK

General

Be Free's amended and restated certificate of incorporation, the filing of
which will occur at the closing of this offering, authorizes the issuance of up
to million shares of common stock, par value $0.01 per share, and
million shares of preferred stock, par value $0.01 per share, the rights and
preferences of which may be established from time to time by Be Free's board of
directors. As of July , 1999, giving effect to the conversion of all
preferred stock into common stock, shares of common stock were
outstanding. As of July , 1999, Be Free had stockholders.

Common Stock

Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our board of directors,
subject to any preferential dividend rights of outstanding preferred stock.
Upon our liquidation, dissolution or winding up, the holders of common stock
are entitled to receive proportionately our net assets available after the
payment of all debts and other liabilities and subject to the prior rights of
any outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. Our outstanding shares of common
stock are, and the shares offered by us in this offering will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which we may designate and issue in the future.

Preferred Stock

Under the terms of our certificate of incorporation, our board of directors
is authorized to issue shares of preferred stock in one or more series without
stockholder approval. Our board of directors has the discretion to determine
the rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.

The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or could discourage a third party from acquiring,
a majority of our outstanding voting stock. We have no present plans to issue
any shares of preferred stock.

Warrants

As of July , 1999, Be Free had outstanding warrants to purchase
shares of common stock at an exercise price of $ and, giving effect to the
conversion of all preferred stock into common stock, additional warrants to
purchase shares at an exercise price of $ . The warrants have a net
exercise provision under which the holder may, in lieu of payment of the
exercise price in cash, surrender the warrant and receive a net amount of
shares, based on the fair market value of Be Free's stock at the time of the
exercise of the warrant, after deducting the aggregate exercise price. Of the
warrants to purchase shares of common stock, warrants to purchase
shares of common stock will expire on September 29, 2008 and the balance
will expire on August 28, 2008. The additional warrants to purchase
shares of common stock will expire on the fifth anniversary of the initial
public offering of the common stock of Be Free.

Registration Rights

Pursuant to a Registration Rights Agreement, dated as of March 31, 1999, the
holders of approximately shares of common stock, warrants to purchase
shares of common stock and options to purchase shares of common
stock have the right to register those shares under the Securities Act of 1933.
Subject to limitations in the Rights Agreement, some of the holders, whose
shares total at least 33 1/3% of all shares of common stock then-held by the
holders, or any lesser percentage with a price to the public reasonably
expected to exceed $5,000,000, may require, at any time 180 days after this
offering, that Be Free register such shares for public resale; furthermore, the
holders of shares with sale proceeds of at least $1,000,000 may require Be Free
to register all or a portion of their registrable securities on Form S-3 after
this offering. Be Free shall not be required to effect more than two such
demand registrations. In addition, if Be Free registers any of its common stock
for its own account or for the account of other security holders, the parties
to the Rights Agreement are entitled to include their shares of common stock in
the registration, subject to the ability of the underwriters to limit the
number of shares included in the offering.

Pursuant to a Stock Purchase and Shareholders Agreement dated as of August
28, 1998, the holders of approximately shares of common stock and
warrants to purchase shares, have the right to demand that Be Free
register those shares under the Securities Act of 1933. All of these shares and
warrants, other than shares of common stock and warrants to purchase
shares, are also entitled to be registered under the Rights Agreement
subject to limitations in the Stock Purchase Agreement, at any time 180 days
after this offering, any of these holders holding 33 1/3% of the common stock
then-held by the such holders may require Be Free to register at least 33 1/3%
of the shares on Form S-1. In addition, at any time after the closing of this
offering, any of these holders may require Be Free to register any such shares
with proceeds of at least $1,000,000 on Form S-3. Be Free shall not be required
to effect more than two such demand registrations. In addition, if Be Free
registers any of its common stock for its own account or for the account of
other securityholders, the holders of approximately shares of common
stock, of which all but shares are entitled to be registered under the
Rights Agreement, are entitled to include their shares of common stock in the
registration, subject to the ability of the underwriters to limit the number of
shares included in the offering.

Finally, pursuant to a Stock Purchase Agreement dated as of September 29,
1998, if Be Free registers any of its common stock for its own account or for
the account of other securityholders, a

holder of shares of common stock and warrants to purchase shares
has the right to include those shares in the registration, subject to the
ability of the underwriters to limit the number of shares issued in the
offering. All of these shares are entitled to be registered under the
Registration Rights Agreement.

Be Free will bear all fees, costs and expenses of such registrations, other
than underwriting discounts and commissions. Upon the effectiveness of any
registration statement filed to register our common stock, such shares would
become freely tradable, without any restrictions imposed by the Securities Act.

Delaware Law and Our Charter and By-Law Provisions

We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. Section 203 prohibits a publicly held Delaware corporation
from engaging in a business combination with an interested stockholder for a
period of three years after the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A business
combination includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an interested stockholder is a person who, together with affiliates and
associates, owns, or within the prior three years did own, 15% or more of the
corporation's voting stock.

Our certificate of incorporation divides our board of directors into three
classes with staggered three-year terms. In addition, our certificate of
incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of our shares of capital stock
entitled to vote. Under our certificate of incorporation, any vacancy on our
board of directors, including a vacancy resulting from an enlargement of our
board of directors, may only be filled by vote of a majority of our directors
then in office. The classification of our board of directors and the
limitations on the removal of directors and filling of vacancies could make it
more difficult for a third party to acquire, or discourage a third party from
acquiring, control of the company.

Our certificate of incorporation also provides that any action required or
permitted to be taken by our stockholders at an annual meeting or special
meeting of stockholders may only be taken if it is properly brought before such
meeting and may not be taken by written action in lieu of a meeting. Our
certificate of incorporation further provides that special meetings of the
stockholders may only be called by our Chairman of the Board, President or
board of directors. Under our by-laws, in order for any matter to be considered
properly brought before a meeting, a stockholder must comply with advance
notice requirements. These provisions could have the effect of delaying until
the next stockholders' meeting stockholder actions which are favored by the
holders of a majority of our outstanding voting securities. These provisions
may also discourage a third party from making a tender offer for our common
stock, because even if it acquired a majority of our outstanding voting
securities, the third party would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly called
stockholders' meeting, and not by written consent.

The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case

may be, requires a greater percentage. Our certificate of incorporation and
by-laws require the affirmative vote of the holders of at least 75% of the
shares of our capital stock issued and outstanding and entitled to vote to
amend or repeal any of the provisions described in the prior two paragraphs.

Our amended and restated certificate of incorporation contains provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions that involve intentional misconduct or a knowing violation
of law. Further, our amended and restated certificate of incorporation
contains provisions to indemnify our directors and officers to the fullest
extent permitted by the General Corporation Law of Delaware. We believe that
these provisions will assist us in attracting and retaining qualified
individuals to serve as directors.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust.

SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of our common stock.

Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming the issuance of
shares of common stock offered hereby and no exercise of options after
, 1999. Of these shares, the shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by Affiliates of Be
Free as that term is defined in Rule 144 under the Securities Act (whose sales
would be subject to certain limitations and restrictions described below).

The remaining shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. Of these shares,
shares will be subject to lock-up agreements described below on the effective
date of this offering. Upon expiration of the lock-up agreements 180 days after
the effective date of this offering, shares will become eligible for
sale pursuant to Rule 144(k), and the remaining shares will become eligible for
sale subject in most cases to the limitations of either Rule 144 or Rule 701.
In addition, holders of stock options could exercise such options and sell
certain of the shares issued upon exercise as described below.

Number
of
Shares Date

After the date of this prospectus
After 180 days from the date of this prospectus (subject, in
some cases, to volume limitations)
At various times after 180 days from the date of this prospectus

As of , 1999 there were a total of shares of common
stock subject to outstanding options under our 1998 Stock Incentive Plan,
approximately of which were vested and exercisable. However, all of
these shares are subject to lock-up agreements. All options held by officers
and directors of Be Free are subject to 180 day lock-up agreements described
below. Immediately after the completion of this offering, we intend to file
registration statements on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under the
1998 Stock Incentive Plan. Based on the options outstanding as of ,
1999, within 180 days after the effective date of this offering, a total of
approximately shares of common stock subject to outstanding options
will be vested and exercisable. After the effective dates of the registration
statements on Form S-8, shares purchased upon exercise of options granted
pursuant to the 1998 Stock Incentive Plan generally would be available for
resale in the public market.

All officers and directors and substantially all of our existing
stockholders agreed not to sell or otherwise dispose of any of their shares for
a period of 180 days after the date of this offering. Donaldson, Lufkin &
Jenrette Securities Corporation, however, may in its sole discretion, at any
time without notice, release all or any portion of the shares subject to lock-
up agreements.

Rule 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell in broker's
transactions or to market makers, within any three-month period, a number of
shares that does not exceed the greater of:

. 1% of the number of shares of common stock then outstanding (which will
equal approximately shares immediately after this offering);
or

. the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.

Sales under Rule 144 are generally subject to the availability of current
public information about Be Free.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been an affiliate of
Be Free at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice filing provisions of Rule 144.
Therefore, unless otherwise restricted, 144(k) shares may be sold immediately
upon the completion of this offering.

Rule 701

In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period and notice filing requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144.

The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be sold by persons
other than affiliates (as defined in Rule 144) subject only to the manner of
sale provisions of Rule 144 and by affiliates under Rule 144 without compliance
with its one year minimum holding period requirements.

UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement,
dated , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Hambrecht & Quist LLC and
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, have severally
agreed to purchase from us the number of shares opposite their names below:

Number
of
Underwriters Shares

Donaldson, Lufkin & Jenrette Securities Corporation.....................
Hambrecht & Quist LLC...................................................
Dain Rauscher Wessels...................................................
-------
Total.................................................................
=======

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters and to certain other
conditions. The underwriters are obligated to purchase and accept delivery of
all the shares, other than those shares covered by the over-allotment option
described below, if they purchase any of the shares.

The underwriters propose to offer initially some of the shares directly to
the public at the initial public offering price on the cover page of this
prospectus and some of the shares to certain dealers at the initial public
offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share on sales to other dealers. After the initial offering
of the shares to the public, the representatives may change the public offering
price and such concessions. The underwriters do not intend to confirm sales to
any accounts over which they exercise discretionary authority.

The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of our common stock.

No Full
Exercise Exercise

Per share..................................................... $ $
Total.........................................................

We will pay the offering expenses, estimated to be $ million.

DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in the offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to its
brokerage account holders.

We have granted to the underwriters an option, exercisable for 30 days after
the date of this prospectus, to purchase up to additional shares at
the initial public offering price minus the underwriting fees. The underwriters
may exercise this option solely to cover over-allotments, if any, made in
connection with this offering. To the extent that the underwriters exercise
this option, each underwriter will become obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitments.

We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the underwriters may be required to make in respect of any of
those liabilities.

We, our executive officers and directors, and certain of our stockholders
have agreed, for a period of 180 days from the date of this prospectus, not to,
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation:

. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock; or

. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock, regardless of whether any of these transactions is to be settled
by the delivery of common stock, or such other securities, in cash or
otherwise.

However, we may:

. grant stock options under the 1998 Stock Incentive Plan; and

. issue shares of our stock upon the exercise of options, warrants or
rights or the conversion of currently outstanding securities.

In addition, during this period, we have agreed not to file any registration
statement with respect to, and each of our executive officers, directors and
certain stockholders have agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.

At the request of Be Free, the underwriters have reserved at the initial
public offering price up to additional shares of common stock for sale to
directors, employees and associates of Be Free. There can be no assurance that
any of the served shares will be so purchased. The number of shares available
for sale to the general public in the offering will be reduced by the number of
reserved shares sold. Any reserved shares not so purchased will be offered to
the general public on the same basis as the other shares offered hereby.

Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of our common
stock included in this offering in any

jurisdiction where action for that purpose is required. The shares included in
this offering may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisement in connection with
the offer and sale of any of these shares be distributed or published in any
jurisdiction, except under circumstances that will result in compliance with
the applicable rules and regulations of such jurisdiction. Persons who receive
this prospectus are advised to inform themselves about and to observe any
restrictions relating to the offering of our common stock and the distribution
of this prospectus. This prospectus is not an offer to sell or a solicitation
of an offer to buy any shares of our common stock included in this offering in
any jurisdiction where that would not be permitted or legal.

In connection with this offering, certain underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of our common stock in the open market to cover syndicate
short positions or to stabilize the price of our common stock. These activities
may stabilize or maintain the market price of our common stock above
independent market levels. The underwriters are not required to engage in these
activities and may end any of these activities at any time.

Prior to this offering, there has been no established public market for our
common stock. The initial public offering price for the shares of our common
stock offered by this prospectus will be determined by negotiation between us
and the representatives of the underwriters. The factors to be considered in
determining the initial public offering price include:

. our history and the prospects for the industry in which we compete;

. our past and present operations;

. our historical results of operations;

. our prospects for future earnings;

. the recent market prices of securities of generally comparable companies;
and

. the general conditions of the securities market at the time of the
offering.

We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol BFRE.

LEGAL MATTERS

The validity of the shares of common stock offered by us hereby will be
passed upon for us by Hale and Dorr LLP, Boston, Massachusetts. Legal matters
will be passed upon for the underwriters by Testa, Hurwitz & Thibeault, LLP,
Boston, Massachusetts.

EXPERTS

The consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus and the registration statement relating to this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-1 with the SEC for the
stock we are offering by this prospectus. This prospectus does not include all
of the information contained in the registration statement. You should refer to
the registration statement and its exhibits for additional information.
Whenever we make reference in this prospectus to any of our contracts,
agreements or other documents, the references are not necessarily complete and
you should refer to the exhibits attached to the registration statement for
copies of the actual contract, agreement or other document. When we complete
this offering, we will also be required to file annual, quarterly and special
reports, proxy statements and other information with the SEC.

You can read our SEC filings, including the registration statement, over the
Internet at the SEC's Web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
450 Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade Center, Suite
1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. You may also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
facilities. Our SEC filings are also available at the office of the Nasdaq
National Market. For further information on obtaining copies of our public
filings at the Nasdaq National Market, you should call (212) 656-5060.

BE FREE, INC.

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

Page

Report of Independent Accountants........................................ F-2

Consolidated Balance Sheets as of December 31, 1997 and 1998 and as of
June 30, 1999 (unaudited) and pro forma as of June 30, 1999 (unaudited). F-3

Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998, and for the six months ended June 30, 1998 and 1999
(unaudited)............................................................. F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1996, 1997 and 1998 and for the six months ended June
30, 1999 (unaudited).................................................... F-5

Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30, 1998 and 1999
(unaudited)............................................................. F-6

Notes to Consolidated Financial Statements............................... F-7

All share and per share data included in these consolidated financial
statements and related notes do not reflect the contemplated reverse stock
split of our common stock.

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Be Free, Inc. and Subsidiaries:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows present fairly, in all material respects, the financial position of Be
Free, Inc. and its subsidiaries (the "Company") at December 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Boston, Massachusetts
July 2, 1999

F-2

BE FREE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Pro Forma
December 31, (Note B)
------------------------- June 30, June 30,
1997 1998 1999 1999
ASSETS (Unaudited)

Current assets:
Cash and cash equiva-
lents.................. $ 75,843 $ 4,327,090 $ 21,374,504 $21,374,504
Marketable securities... -- -- 2,950,312 2,950,312
Accounts receivable,
net of allowance for
doubtful accounts of
$0, $14,000, $27,700
and $27,700 at
December 31, 1997,
1998, June 30, 1999,
and June 30, 1999 pro
forma, respectively.... 80,390 118,955 647,916 647,916
Prepaid expenses........ -- 144,517 826,856 826,856
Other current assets.... 343 23,222 -- --
----------- ------------ ------------ -----------
Total current assets. 156,576 4,613,784 25,799,588 25,799,588
Property and equipment,
net (Note D)........... 96,902 961,702 3,869,859 3,869,859
Deposits................ 550 384,991 423,932 423,932
Other assets............ -- 10,359 89,231 89,231
----------- ------------ ------------ -----------
Total assets......... $ 254,028 $ 5,970,836 $ 30,182,610 $30,182,610
=========== ============ ============ ===========
LIABILITIES, CONVERTIBLE
PARTICIPATING
PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable........ 431,756 533,524 583,013 583,013
Accrued expenses........ 106,360 349,725 1,078,798 1,078,798
Deferred revenue........ -- 121,667 1,173,571 1,173,571
Current portion of
long-term debt......... 120,226 187,139 1,932,355 1,932,355
----------- ------------ ------------ -----------
Total current liabil-
ities............... 658,342 1,192,055 4,767,737 4,767,737
Notes payable to related
parties................ 1,159,938 -- -- --
Long-term debt, net of
current portion........ 333,040 4,949,198 6,018,464 6,018,464
----------- ------------ ------------ -----------
Total liabilities.... 2,151,320 6,141,253 10,786,201 10,786,201
Commitments and contin-
gencies (Note G)
Series A Convertible
Participating Preferred
Stock; $0.01 par value;
11,300,000 shares
authorized, 10,600,000
shares issued and
outstanding at December
31, 1998, and June
30,1999; none issued
and outstanding on a
pro forma basis
(liquidation preference
$10,600,000 at
December 31, 1998 and
June 30, 1999), net of
issuance costs of
$152,592............... -- 9,815,447 9,899,507 --
Series A Convertible
Participating Preferred
Stock Warrants......... -- 540,000 540,000 --
Series B Convertible
Participating Preferred
Stock; $0.01 par value;
13,196,522 shares au-
thorized, issued, and
outstanding at June 30,
1999; none issued and
outstanding on a pro
forma basis (liquida-
tion preference
$25,503,465 at June 30,
1999), net of issuance
costs of $55,253....... -- -- 25,450,975 --
Stockholders' equity
(deficit) (Note H):
Common stock, $0.01 par
value; 55,000,000
shares authorized;
17,613,013 shares
issued and outstanding
at December 31, 1997;
19,500,000 shares
issued at December 31,
1998 and June 30,
1999; 43,296,522
issued on a pro forma
basis.................. 176,130 195,000 195,000 432,965
Additional paid-in cap-
ital................... 345,678 31,356 1,220,965 36,873,482
Unearned compensation... -- (2,177,843) (3,522,819) (3,522,819)
Stockholders' notes re-
ceivable............... -- (779,558) (309,659) (309,659)
Accumulated deficit..... (2,419,100) (6,109,624) (12,484,321) (12,484,321)
----------- ------------ ------------ -----------
(1,897,292) (8,840,669) (14,900,834) 20,989,648
Treasury stock, at cost
(1,685,195 shares at
December 31, 1998;
1,922,157 shares at
June 30, 1999 and on a
pro forma basis)....... -- (1,685,195) (1,593,239) (1,593,239)
----------- ------------ ------------ -----------
Total stockholders'
equity (deficit).... (1,897,292) (10,525,864) (16,494,073) 19,396,409
----------- ------------ ------------ -----------
Total liabilities,
convertible
participating
preferred stock and
stockholders'
equity (deficit)... $ 254,028 $ 5,970,836 $ 30,182,610 $30,182,610
=========== ============ ============ ===========

The accompanying notes are an integral part of the financial statements.

F-3

BE FREE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Six Months Ended June
Year Ended December 31, 30,
------------------------------------- -----------------------
1996 1997 1998 1998 1999
(Unaudited)

Revenue:
Performance marketing
services............. $ -- $ 216,286 $ 1,319,183 $ 617,413 $ 1,396,149
Other................. 196,069 60,424 7,580 2,697 --
----------- ----------- ----------- ---------- -----------
Total revenue....... 196,069 276,710 1,326,763 620,110 1,396,149
----------- ----------- ----------- ---------- -----------
Operating expenses:
Cost of revenue....... -- 272,585 423,811 155,711 238,033
Sales and marketing... 397,819 180,108 1,453,706 146,310 4,496,110
Development and
engineering.......... 505,509 426,329 728,538 292,143 1,481,817
General and
administrative....... 557,760 332,376 875,153 230,785 854,160
Equity related
compensation......... -- -- 1,312,236 -- 532,534
----------- ----------- ----------- ---------- -----------
Total operating
expenses........... 1,461,088 1,211,398 4,793,444 824,949 7,602,654
----------- ----------- ----------- ---------- -----------
Operating loss...... (1,265,019) (934,688) (3,466,681) (204,839) (6,206,505)
Interest income....... 1,324 6,293 34,577 6,139 276,946
Interest expense...... (27,566) (105,215) (258,420) (67,014) (445,138)
----------- ----------- ----------- ---------- -----------
Net loss................ (1,291,261) (1,033,610) (3,690,524) (265,714) (6,374,697)
Accretion of preferred
stock to redemption
value.................. -- -- (56,039) -- (590,401)
----------- ----------- ----------- ---------- -----------
Net loss attributable to
common stockholders.... $(1,291,261) $(1,033,610) $(3,746,563) $ (265,714) $(6,965,098)
=========== =========== =========== ========== ===========
Basic and diluted net
loss per share......... $ (0.07) $ (0.04) $ (0.23) $ (0.02) $ (0.55)
Shares used in computing
basic and diluted net
loss per share......... 19,543,204 27,138,512 16,018,258 17,613,013 12,695,148
Unaudited pro forma
basic and diluted net
loss per share......... $ (0.19) $ (0.21)
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 19,639,628 29,878,553

The accompanying notes are an integral part of the financial statements.

F-4

BE FREE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

for the years ended December 31, 1996, 1997 and 1998 and for the six months
ended June 30, 1999 (unaudited)

Common Stock Treasury Stock
--------------------- Retained ------------------------
$0.01 Additional Stockholders' Earnings
Par Paid-in Unearned Notes (Accumulated
Shares Value Capital Compensation Receivable Deficit) Shares Value

Balance at January
1, 1996........... 3,522,601 $ 35,226 $ 15,774 $ -- $ -- $ 116,578 -- $ --
Issuance of
Common Stock.... 24,658,215 246,582 (15,774) -- -- (210,807) -- --
Net loss........ -- -- -- -- -- (1,291,261) -- --
----------- -------- ---------- ------------
Balance at
December 31, 1996. 28,180,816 281,808 -- -- -- (1,385,490)
Contribution of
capital by
stockholders.... -- -- 250,000 -- -- -- -- --
Acquisition and
retirement of
treasury stock.. (10,567,803) (105,678) 95,678 -- -- -- -- --
Net loss........ -- -- -- -- -- (1,033,610) -- --
----------- -------- ---------- ------------
Balance at
December 31, 1997. 17,613,013 176,130 345,678 -- -- (2,419,100) -- --
Stock issuance
in connection
with warrant
exercise........ 1,886,987 18,870 356,130 -- -- -- -- --
Acquisition of
treasury stock.. -- -- -- -- -- -- (6,176,881) (6,176,881)
Issuance of
restricted stock
to employees by
controlling
stockholders.... -- -- 1,029,600 (152,909) -- -- -- --
Issuance of
warrants to
purchase Common
Stock in
connection with
Series A
Convertible
Participating
Preferred Stock
financing....... -- -- 688,000 -- -- -- -- --
Exercise of call
option on Common
Stock........... -- -- -- -- -- -- (705,364) (705,364)
Forfeiture of
unvested shares
of restricted
stock........... -- -- (86,550) 86,550 -- -- -- --
Issuance of
restricted
stock........... -- -- (2,702,466) (1,715,026) (779,558) -- 5,197,050 5,197,050
Unearned
compensation
related to
option
grants.......... -- -- 457,003 (457,003) -- -- -- --
Amortization of
unearned
compensation.... -- -- -- 60,545 -- -- -- --
Net loss........ -- -- -- -- -- (3,690,524) -- --
Accretion to
redemption value
of Series A
Preferred Stock. -- -- (56,039) -- -- -- -- --
----------- -------- ---------- ------------ ---------- ------------ ---------- ------------
Balance at
December 31, 1998. 19,500,000 195,000 31,356 (2,177,843) (779,558) (6,109,624) (1,685,195) (1,685,195)
Acquisition of
treasury stock.. -- -- (130,890) 130,890 58,044 -- (386,962) (58,044)
Acceleration of
vesting of
restricted
stock........... -- -- 112,320 -- -- -- -- --
Issuance of
restricted
stock........... -- -- -- (97,500) (52,500) -- 150,000 150,000
Repayment of
receivable from
stockholder..... -- -- -- -- 464,355 -- -- --
Unearned
compensation
related to
option grants... -- -- 1,798,580 (1,798,580) -- -- -- --
Amortization of
unearned
compensation.... -- -- -- 420,214 -- -- -- --
Net loss........ -- -- -- -- -- (6,374,697) -- --
Series B
Preferred Stock
dividend........ -- -- (503,578) -- -- -- -- --
Accretion to
redemption value
of Series A and
B Preferred
Stock........... -- -- (86,823) -- -- -- -- --
----------- -------- ---------- ------------ ---------- ------------ ---------- ------------
Balance at June
30, 1999
(unaudited)....... 19,500,000 $195,000 $1,220,965 $ (3,522,819) $ (309,659) $(12,484,321) (1,922,157) $ (1,593,239)
=========== ======== ========== ============ ========== ============ ========== ============

Total

Balance at January
1, 1996........... $ 167,578
Issuance of
Common Stock.... 20,001
Net loss........ (1,291,261)
-------------
Balance at
December 31, 1996. (1,103,682)
Contribution of
capital by
stockholders.... 250,000
Acquisition and
retirement of
treasury stock.. (10,000)
Net loss........ (1,033,610)
-------------
Balance at
December 31, 1997. (1,897,292)
Stock issuance
in connection
with warrant
exercise........ 375,000
Acquisition of
treasury stock.. (6,176,881)
Issuance of
restricted stock
to employees by
controlling
stockholders.... 876,691
Issuance of
warrants to
purchase Common
Stock in
connection with
Series A
Convertible
Participating
Preferred Stock
financing....... 688,000
Exercise of call
option on Common
Stock........... (705,364)
Forfeiture of
unvested shares
of restricted
stock........... --
Issuance of
restricted
stock........... --
Unearned
compensation
related to
option
grants.......... --
Amortization of
unearned
compensation.... 60,545
Net loss........ (3,690,524)
Accretion to
redemption value
of Series A
Preferred Stock. (56,039)
-------------
Balance at
December 31, 1998. (10,525,864)
Acquisition of
treasury stock.. --
Acceleration of
vesting of
restricted
stock........... 112,320
Issuance of
restricted
stock........... --
Repayment of
receivable from
stockholder..... 464,355
Unearned
compensation
related to
option grants... --
Amortization of
unearned
compensation.... 420,214
Net loss........ (6,374,697)
Series B
Preferred Stock
dividend........ (503,578)
Accretion to
redemption value
of Series A and
B Preferred
Stock........... (86,823)
-------------
Balance at June
30, 1999
(unaudited)....... $(16,494,073)
=============

The accompanying notes are an integral part of the financial statements.

F-5

BE FREE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended
Year Ended December 31, June 30,
------------------------------------- ----------------------
1996 1997 1998 1998 1999
(Unaudited)

Cash flows for operating
activities:
Net loss............... $(1,291,261) $(1,033,610) $(3,690,524) $(265,714) $(6,374,697)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 42,067 56,999 285,794 45,139 482,387
Compensation charge
and amortization of
unearned
compensation......... -- -- 1,312,236 -- 532,534
Loss on disposal on
fixed assets......... -- 3,304 -- -- --
Acquisition of fixed
assets in exchange
for services......... -- -- (202,688) (202,688) --
Provisions for
doubtful accounts.... -- -- 14,000 -- 13,700
Changes in operating
assets and
liabilities:
Accounts receivable... 118,072 (54,717) (52,565) (156,201) (542,661)
Prepaid expenses...... -- -- (75,991) -- (533,625)
Deposits.............. -- -- (384,441) (2,231) (38,941)
Accounts payable...... 329,044 94,570 101,768 186,848 49,489
Accrued expenses...... 25,261 46,085 243,365 (23,095) 729,073
Deferred revenue...... 24,508 (24,508) 121,667 466,667 1,051,904
Other, net............ (123) (343) (33,238) (1,534) (55,650)
----------- ----------- ----------- --------- -----------
Net cash provided by
(used in) operating
activities............. (752,432) (912,220) (2,360,617) 47,191 (4,686,487)
----------- ----------- ----------- --------- -----------
Cash flows for investing
activities:
Purchases of property
and equipment......... (71,232) (67,726) (610,064) (32,235) (597,636)
Purchases of marketable
securities............ -- -- -- -- (2,932,150)
----------- ----------- ----------- --------- -----------
Net cash used in
investing activities... (71,232) (67,726) (610,064) (32,235) (3,529,786)
----------- ----------- ----------- --------- -----------
Cash flows from
financing activities:
Proceeds from issuance
of Series A
Convertible
Participating
Preferred Stock, net
of issuance costs..... -- -- 9,759,408 -- --
Issuance of warrants
for Common Stock in
connection with Series
A Preferred Stock..... -- -- 688,000 -- --
Proceeds from issuance
of Series B
Convertible
Participating
Preferred Stock, net
of issuance costs..... -- -- -- -- 24,944,635
Proceeds from issuance
of Common Stock....... 20,001 250,000 -- -- --
Acquisition of common
stock and treasury
shares................ -- (10,000) (6,882,245) -- --
Payments on notes
payable to related
parties............... -- -- (1,159,938) (3,880) --
Proceeds from notes
receivable from
stockholders.......... -- -- -- -- 464,355
Proceeds from
sales/leaseback....... -- -- -- -- 240,818
Proceeds from long-term
debt.................. 738,795 791,080 5,000,000 -- --
Payments on long-term
debt.................. -- -- (183,297) (61,588) (386,121)
----------- ----------- ----------- --------- -----------
Net cash provided by
(used in) financing
activities............. 758,796 1,031,080 7,221,928 (65,468) 25,263,687
----------- ----------- ----------- --------- -----------
Net increase (decrease)
in cash and cash
equivalents............ (64,868) 51,134 4,251,247 (50,512) 17,047,414
Cash and cash
equivalents at
beginning of period.... 89,577 24,709 75,843 75,843 4,327,090
----------- ----------- ----------- --------- -----------
Cash and cash
equivalents at end of
period................. $ 24,709 $ 75,843 $ 4,327,090 $ 25,331 $21,374,504
=========== =========== =========== ========= ===========
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for interest... $ 22,823 $ 53,819 $ 284,561 $ 121,589 $ 305,139
Supplemental disclosures
of noncash
transactions:
Notes receivable for
Common Stock sold..... -- -- $ 779,558 -- $ 52,500
Elimination of note
receivable for
restricted stock...... -- -- -- -- $ 58,044
Issuance of warrants in
connection with
subordinated debt
agreement............. -- -- $ 540,000 -- --
Purchases of property
and equipment under
capital lease
obligations and
equipment financing... -- -- $ 285,000 -- $ 2,675,386

The accompanying notes are an integral part of the financial statements.

F-6

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

A. The Company and Basis of Presentation:

Be Free, Inc. (the "Company") is a provider of services that enable
electronic commerce merchants and Internet portals to promote their products
and services on the Internet. As such, the Company is subject to a number of
risks similar to other companies in the Internet industry, including rapid
technological change, uncertainty of market acceptance of services, competition
from substitute services and larger companies, protection of proprietary
technology and dependence on key individuals.

The Company has a single operating segment, performance marketing services.
The Company has no organizational structure dictated by product lines,
geography or customer type. Revenue has been primarily derived from services
provided through the Company's BFAST technology, which have been provided to
domestic companies to date.

The Company was incorporated on January 25, 1996 as "Freedom of Information,
Inc." On March 31, 1999, the Company changed its name to Be Free, Inc.

Prior to August 28, 1998, the Company and two affiliated companies, PCX
Information Systems, Inc. ("PCX") and FOI, Inc. ("FOI"), were under common
ownership and management by members of the same immediate family. On August 28,
1998, stockholders of the affiliated companies exchanged their shares of
capital stock of the affiliated companies for shares of the Company's common
stock which resulted in the affiliated companies becoming wholly owned
subsidiaries of the Company (Note H). This combination was accounted for at
historical cost due to the common control of the entities.

B. Summary of Significant Accounting Policies:

Cash and Cash Equivalents

The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of acquisition to be cash
equivalents. Cash equivalents, which consist of money market accounts and
commercial paper, are stated at cost, which approximates market value.

Marketable Securities

The Company's marketable securities are comprised entirely of commercial
paper which are classified as available for sale at the date of purchase.
Marketable securities with remaining maturities of less than twelve months from
the balance sheet date are classified as short-term. Marketable securities with
remaining maturities of more than twelve months from the balance sheet date are
classified as long-term. These securities are carried at amortized cost, which
approximates fair value.

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents,
marketable securities and accounts receivable. At

F-7

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

December 31, 1998, June 30, 1999, substantially all of the Company's cash was
invested in money market accounts and commercial paper at one and four
financial institutions, respectively, which the Company believes to be of high
credit quality. The Company had one customer in 1996 totaling 74% of revenue,
two customers in 1997 totaling 78% and 12% of revenue, respectively, one
customer in 1998 totaling 73% of revenue and two customers in the six-month
period ended June 30, 1999 totaling 40% and 15% of revenue, respectively. The
Company had two customers that accounted for 40% and 11%, respectively, of
accounts receivable at December 31, 1998.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which are five years for furniture and office
equipment and three to five years for computer equipment and software.
Leasehold improvements are depreciated over the shorter of related lease terms
or the estimated useful lives. The cost of maintenance and repairs is charged
to expense as incurred. When assets are retired or disposed, the assets and
related accumulated depreciation are eliminated from accounts and any related
gains or losses are reflected in income or loss for the period.

Revenue Recognition

The Company derives revenue primarily from providing performance marketing
services to customers. Customer contracts generally provide for fees on a per
transaction basis with a monthly or annual minimum. Revenue under service
contracts is recognized monthly over the contract period up to the contractual
monthly or annual minimum payments. Revenue from transactions in excess of
minimums are recognized when the service is provided. The Company also charges
a one time integration fee for certain services. Revenue for integration fees
is recognized when the integration is complete and the service is available to
the customer up to the cost of providing such service. Revenue for integration
fees in excess of the cost are deferred and recognized ratably over the initial
term of the service contract. Costs related to performing integration services
are expensed as incurred. Other revenue consists of customized software
development and support services which were recognized when the services were
provided.

Revenue under arrangements where multiple services are sold together under
one contract is allocated to each element based on the relative fair value of
each element, with fair value being determined using the price charged when the
element is sold separately.

Cost of Revenue

Cost of Revenue represents direct expenses relating to delivering
performance marketing services to customers. Expenses included primarily
represent depreciation for servers and storage equipment, costs for a third-
party data center facility and costs for Internet connectivity.

F-8

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

Development and Engineering

Development and Engineering costs are expensed as incurred and include labor
and related costs for product development and maintenance and support of system
infrastructure.

On January 1, 1999, the Company adopted American Institute of Certified
Public Accountants Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
Accordingly, the Company capitalizes costs associated with the design and
implementation of its operating systems, including internally and externally
developed software. To date, internal costs eligible for capitalization under
SOP 98-1 have been immaterial.

During the years ended December 31, 1996, 1997 and 1998, certain engineering
and development personnel performed software development services for third
parties. The cost of those services were approximately $221,000, $40,000 and $0
for the years ended December 31, 1996, 1997 and 1998, respectively.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense of
approximately $265,100, $3,100, $34,900, $2,200 and $927,100 were charged to
sales and marketing expenses for the years ended December 31, 1996, 1997, 1998
and the six-month period ended June 30, 1998 and 1999, respectively.

Income Taxes

The Company provides for income taxes using the liability method whereby
deferred tax liabilities and assets are recognized based on temporary
differences between the amounts presented in the financial statements and the
tax bases of assets and liabilities using current statutory tax rates. A
valuation allowance is established against net deferred tax assets, if based on
the weighted available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized.

Accounting for Stock-Based Compensation

Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," encourages but does not require companies to record
compensation cost for stock-based employee compensation at fair value. The
Company has chosen to account for stock-based compensation granted to employees
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation cost for stock options granted to
employees is measured as the excess, if any, of the fair value of the Company's
stock at the date of the grant over the amount that must be paid to acquire the
stock. Stock-based compensation issued to nonemployees is measured and recorded
using the fair value method prescribed in SFAS No. 123.

F-9

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

Treasury Stock

The Company has delivered treasury shares upon issuance of restricted stock
and may deliver treasury shares upon the exercise of stock options. The
difference between the cost of the treasury shares, on a first-in, first-out
basis, and the exercise price of the options or purchase price of restricted
stock is reflected in additional paid in capital. Repurchase of treasury stock
is accounted for by using the cost method of accounting.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during
the reporting period. Estimates include accrued expenses and the valuation
allowance for deferred tax assets. Actual results could differ from those
estimates.

Recent Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company, to
date, has not engaged in derivative and hedging activities, and accordingly
does not believe that the adoption of SFAS No. 133 will have a material impact
on the financial reporting and related disclosures of the Company. The Company
will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral of the effective
date of FASB Statement No. 133," in fiscal year 2000.

Interim Financial Information

The consolidated financial statements of the Company as of June 30, 1999 and
for the six months ended June 30, 1998 and 1999 are unaudited. All adjustments
(consisting only of normal recurring adjustments) have been made, which in the
opinion of management, are necessary for a fair presentation. Results of
operations for the six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999 or for any other future period.

Pro Forma Balance Sheet (Unaudited)

Upon the closing of the Company's initial public offering, all of the
outstanding shares of Series A and B convertible participating preferred stock
will automatically convert to an equivalent number

F-10

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

of shares (approximately 23,796,522 shares) of the Company's common stock
assuming an offering price of greater than $3.98 per share. Upon the closing of
the Company's initial public offering, warrants for the purchase of 700,000
shares of preferred stock will become exercisable for an equivalent number of
shares of common stock. The unaudited pro forma presentation of the balance
sheet has been prepared assuming the conversion of the convertible preferred
stock into common stock at June 30, 1999.

C. Net Loss Per Share and Pro Forma Loss Per Share:

Basic loss per share is computed using the weighted average number of common
shares outstanding during the period. Diluted loss per share is computed using
the weighted average number of common shares outstanding during the period,
plus the effect of any dilutive potential common shares. Dilutive potential
common shares consist of stock options, preferred stock and warrants. Potential
common shares were excluded from the calculation of net loss per share for the
periods presented since their inclusion would be antidilutive. During the year
ended December 31, 1996, there were no dilutive potential common shares. During
the year ended December 31, 1997, there were no options to purchase common
shares, no shares of preferred stock convertible into shares of common stock
and 1,886,987 warrants to purchase shares of common stock. During the year
ended December 31, 1998, there were 1,402,407 options to purchase common stock,
10,600,000 shares of preferred stock convertible into common stock and warrants
to purchase 4,198,000 shares of common stock. During the six-month period ended
June 30, 1999, there were 2,638,791 options to purchase common stock,
23,796,522 shares of preferred stock convertible into common stock and warrants
to purchase 4,198,000 shares of common stock.

Pro forma basic and diluted loss per share have been calculated assuming the
conversion of all outstanding shares of preferred stock into common stock, as
if the shares had converted immediately upon their issuance. Accordingly, net
loss has not been adjusted for the accrued dividends for preferred stock in the
calculation of pro forma loss per share.

F-11

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

The following is a calculation of pro forma net loss per share (unaudited):

For the Six
Months
Year Ended Ended
December 31, June 30,
1998 1999

Pro forma net loss:
Net loss attributable to common stockholders....... $(3,746,563) $(6,965,098)
Accretion of preferred stock to redemption value... 56,039 590,401
----------- -----------
Pro forma net loss................................. $(3,690,524) $(6,374,697)
=========== ===========
Shares used in computing pro forma basic and diluted
net loss per share:
Weighted average number of common shares
outstanding....................................... 16,018,258 12,695,148
Weighted average impact of assumed conversion of
preferred stock on issuance....................... 3,621,370 17,183,405
----------- -----------
Shares used in computing pro forma basic and
diluted net loss per share........................ 19,639,628 29,878,553
=========== ===========
Basic and diluted pro forma net loss per common
share............................................. $ (0.19) $ (0.21)
=========== ===========

D. Property and Equipment:

Property and equipment consist of the following:

December 31,
--------------------- June 30,
1997 1998 1999

Furniture and office equipment............... $ 1,803 $ 27,778 $ 402,589
Computer equipment and software.............. 213,906 1,285,683 3,994,002
Leasehold improvements....................... -- -- 189,892
--------- ---------- ----------
215,709 1,313,461 4,586,483
Accumulated depreciation..................... (118,807) (351,759) (716,624)
--------- ---------- ----------
Property and equipment, net.................. $ 96,902 $ 961,702 $3,869,859
========= ========== ==========

At December 31, 1998, cost and accumulated depreciation relating to computer
equipment under a long-term financing arrangement totaled $285,000 and $47,500,
respectively. At June 30, 1999, cost and accumulated depreciation relating to
furniture and office equipment under long-term financing arrangements totaled
$416,593 and $36,855, respectively. At June 30, 1999, cost and accumulated
depreciation relating to computer equipment and software under long-term
financing arrangements totaled $2,676,312 and $190,188, respectively. At June
30, 1999, cost and accumulated depreciation relating to leasehold improvements
totaled $108,299 and $4,961, respectively. Depreciation expense totaled
$42,067, $56,999 and $232,952 for the years ended December 31, 1996, 1997 and
1998, respectively, and for the six months ended June 30, 1998 and 1999 was
$45,139 and $364,865, respectively.

F-12

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

E. Accrued Expenses:

Accrued expenses include the following:

December 31,
----------------- June 30,
1997 1998 1999

Accrued interest............................. $ 56,140 $ 50,000 $ 50,000
Professional fees............................ 42,500 135,395 420,683
Commissions.................................. -- -- 175,780
Salaries and benefits........................ -- 27,876 208,924
Rent......................................... -- 67,644 42,143
Other........................................ 7,720 68,810 181,268
-------- -------- ----------
Accrued expenses........................... $106,360 $349,725 $1,078,798
======== ======== ==========

F. Long-Term Debt:

The following table summarizes the Company's long-term borrowings:

December 31,
--------------------- June 30,
1997 1998 1999

Subordinated debt, net............... $ -- $4,490,000 $ 4,580,000
Obligations under capital leases and
equipment financing................. -- 332,510 3,370,819
Term loans........................... 453,266 313,827 --
--------- ---------- -----------
453,266 5,136,337 7,950,819
Less current portion................. (120,226) (187,139) (1,932,355)
--------- ---------- -----------
Long-term debt..................... $ 333,040 $4,949,198 $ 6,018,464
========= ========== ===========

The Company entered into term loans during 1996 and 1997 that accrued
interest based on the lender's published prime rate, which was 9% and 8.5% at
December 31, 1997 and 1998, respectively. These loans were paid in full in
March 1999.

On August 25, 1998, the Company entered a software and support financing
arrangement with a lender totaling $376,368. Borrowings under this arrangement
have an implied interest rate of 13%. The repayment period for borrowings
outstanding under this arrangement concludes in September 2001.

On September 29, 1998, the Company entered into a subordinated debt
agreement totaling $5,000,000 which bears interest at 12% per annum. The
Company borrowed the full amount available under this agreement on October 23,
1998. The repayment period on this agreement

F-13

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

concludes in November 2001. In connection with the subordinated debt financing,
the Company also granted warrants to purchase 700,000 shares of the Company's
Series A Preferred Stock at $1.00 per share. The fair value of the warrants,
estimated to be approximately $540,000 at issuance, has been recorded as a
discount on the carrying value of the debt to be amortized to interest expense
over the term of the debt. The value of the warrants was estimated assuming a
weighted average risk free interest rate of 4.51%, an expected life from date
of grant of four years, a volatility of 100% and no expected dividends. The
amount of expense recognized for the year ended December 31, 1998 and the six-
month period ended June 30, 1999 totaled $30,000 and $90,000, respectively.

On September 29, 1998, the Company established a capital equipment line of
credit totaling $2,000,000 which is available through September 29, 1999 and is
collateralized by the asset purchases made under the line. At December 31,
1998, no amounts had been borrowed under this line. At June 30, 1999, the
Company borrowed $1,824,228 under this line which bears interest at 6.8%.
Purchases under this line are financed as capital leases with terms of four
years.

During 1999, the Company entered into a sale/leaseback agreement with a
vendor for $240,818 in fixed assets. There was no gain or loss on the
transaction and the equipment has been accounted for as a capital lease.

The weighted average interest rate of outstanding long-term debt at December
31, 1997, 1998 and June 30, 1999 was 9%, 11.9% and 11.0%, respectively.

Principal payments on long-term debt are as follows:

Long-Term
Debt
Year ended December 31, Payments

1999.......................................................... $ 367,139
2000.......................................................... 2,563,314
2001.......................................................... 2,582,551
2002.......................................................... 57,143
2003.......................................................... 57,143
2004 and thereafter........................................... 19,047
----------
Total minimum debt payments................................. $5,646,337
==========

G. Commitments and Contingencies:

The Company leases facilities and computer equipment under operating lease
agreements that expire on various dates through January 31, 2004. The Company
pays all insurance and pro-rated portions of certain operating expenses for
certain leases. Rent expense was $72,687, $113,025 and $307,575 for the years
ended December 31, 1996, 1997 and 1998, respectively, and $101,905 and $207,298
for the six months ended June 30, 1998 and 1999, respectively.

F-14

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

The future minimum lease payments at December 31, 1998 are as follows:

Operating
Year ended December 31, Leases

1999.......................................................... $ 449,944
2000.......................................................... 605,377
2001.......................................................... 662,361
2002.......................................................... 694,545
2003.......................................................... 706,421
2004 and thereafter........................................... 142,202
----------
Total minimum lease payments................................ $3,260,850
==========

H. Capital Structure:

The authorized capital stock of the Company consists of (i) 55,000,000
shares of voting common stock ("Common Stock") authorized for issuance with a
par value of $0.01 and (ii) 24,496,522 shares of preferred stock with a par
value of $0.01, of which 11,300,000 shares are designated as Series A
Convertible Participating Preferred Stock ("Series A Preferred Stock") and
13,196,522 shares are designated as Series B Convertible Participating
Preferred Stock ("Series B Preferred Stock").

Common Stock

Prior to August 28, 1998, the Company and its affiliated companies, FOI,
Inc. and PCX were under common control and management by immediate members of
one family. On August 28, 1998, stockholders of the affiliated companies
exchanged their shares of capital stock of the affiliated companies for shares
of the Company's Common Stock which resulted in the affiliated companies
becoming wholly owned subsidiaries of the Company. The financial statements for
the Company, FOI and PCX are presented on a consolidated basis for all periods
presented.

On August 28, 1998, the holders of warrants to purchase shares of Common
Stock exercised their warrants for 1,886,987 shares of Common Stock. Of these
shares, 705,364 shares were subject to a call option at the discretion of the
Company for $1.00 per share. On October 27, 1998, the Company exercised its
call option in full for $705,364.

On August 28, 1998, the Company repurchased 6,176,881 shares of Common Stock
from founders and employees of the Company in exchange for notes payable issued
by the Company for $6,176,881. These notes were paid in full on August 31,
1998.

On August 28, 1998, certain controlling stockholders of the Company
transferred 2,145,000 shares of Common Stock to employees in consideration of
past performance and as an incentive for continuing employment with the
Company. The stock was transferred subject to certain vesting

F-15

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

restrictions and for no cash consideration. The fair value of these restricted
stock awards at the date of transfer totaled $1,029,600, which the Company is
recognizing as compensation expense over the defined vesting period. Upon the
transfer of these shares, the Company recorded a charge of $876,691
representing fully vested shares. In addition, the Company recorded unearned
compensation related to unvested shares totaling $152,909. The Company recorded
amortization of the unearned compensation totaling $12,694 and $11,900 for the
year ended December 31, 1998 and for the six months ended June 30, 1999,
respectively.

On August 28, 1998, the Company's Board of Directors authorized a 35,226.01-
for-1 Common Stock split effected in the form of a stock dividend.
Stockholders' equity (deficit) has been restated for all periods presented to
give retroactive recognition to the split in prior periods by reclassifying
from additional paid-in capital to Common Stock the par value of the additional
shares arising from the split. In addition, all references in the consolidated
financial statements to the number of Common Stock shares and per share amounts
have been adjusted to reflect this split.

Preferred Stock

On August 28, 1998, the Company issued 10,500,000 shares of Series A
Preferred Stock for cash proceeds of $10,355,408, net of issuance costs of
$144,592. On September 29, 1998, the Company issued 100,000 shares of Series A
Preferred Stock for cash proceeds of $92,000, net of issuance costs of $8,000.

Each share of Series A Preferred Stock is convertible, at the option of the
holder, into one share of Common Stock, adjusted for certain events. The Series
A Preferred Stock automatically converts to Common Stock upon the closing of a
public offering raising an amount greater than $10,000,000 at a price per share
of at least $3.98. In addition, the Company can elect to convert the Series A
Preferred Stock to Common Stock if less than 25% of the original shares are
outstanding. The Company has reserved 11,300,000 shares of Common Stock for the
conversion of Series A Preferred Stock.

The holders of the Series A Preferred Stock are entitled to voting rights
equal to the number of shares of Common Stock into which the Series A Preferred
Stock could be converted at the time. Two of the holders of Series A Preferred
Stock have the right to elect one member each to the Board of Directors.

On or after March 31, 2004, the Company shall, at the written election of
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, (i) redeem on the date specified by such holders one-third of
all the shares of Series A Preferred Stock outstanding on the date of such
election and (ii) redeem on the first anniversary of such date up to an
additional one-third of the shares of the Series A Preferred Stock outstanding
on such date (and not previously called for redemption) and (iii) redeem on the
second anniversary of such date all remaining shares of Series A Preferred
Stock outstanding on such date (and not previously called for redemption). The

F-16

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

redemption price is equal to the sum of the original purchase price (adjusted
appropriately for any stock dividend, stock split or similar event affecting
the Series A Preferred Stock) plus the amount of any declared but unpaid
dividends.

In the event of liquidation of the Company, the holders of the Series A
Preferred Stock are entitled to be paid a liquidation amount equal to $1.00
(adjusted appropriately for any stock dividend, stock split or similar event
affecting the Series A Preferred Stock) plus any declared but unpaid dividends.
In addition, after the liquidation preferences of the Series A and Series B
Preferred Stock have been paid, the holders of Series A Preferred Stock are
entitled to share in the remaining proceeds, if any, as if their shares had
been converted into shares of Common Stock.

In connection with the issuance of Series A Preferred Stock, the Company
issued warrants to the holders of the Series A Preferred Stock, for the
purchase of up to 3,498,000 shares of Common Stock at $1.50 per share. Of these
warrants, 3,465,000 are exercisable from the date of issuance through August
28, 2008 and 33,000 are exercisable from the date of issuance through September
29, 2008. The fair value of these warrants at the date of issue was $688,000.
This amount has been recorded as a reduction of Series A Preferred Stock and an
increase to paid-in-capital. The value of the warrants was estimated assuming a
weighted average risk free interest rate of 4.51%, an expected life from date
of grant of four years, a volatility of 100% and no expected dividends.

On March 31, 1999, the Company issued 13,196,522 shares of Series B
Preferred Stock for cash proceeds of $24,944,635, net of issuance costs of
$55,253.

Each share of Series B Preferred Stock is convertible, at the option of the
holder, into one share of Common Stock, adjusted for certain events. The Series
B Preferred Stock automatically converts to Common Stock upon the closing of a
public offering raising an amount greater than $10,000,000 at a price per share
of at least $3.98. In addition, the Company can elect to convert the Series B
Preferred Stock to Common Stock if less than 25% of the original shares of
Series B Preferred Stock are outstanding. The Company has and will continue to
reserve a sufficient number of its Common Stock to satisfy the conversion
rights of the holders of the Series B Preferred Stock. The holders of the
Series B Preferred Stock are entitled to receive cumulative dividends at a rate
of 8% per annum.

The holders of the Series B Preferred Stock are entitled to voting rights
equal to the number of shares of Common Stock into which the Series B Preferred
Stock could be converted at the time. One of the holders of Series B Preferred
Stock has the right to elect one member to the Board of Directors.

On or after March 31, 2004, the Company shall, at the written election of
the holders of at least majority of the then outstanding shares of Series B
Preferred Stock, (i) redeem on the date specified by such holders one-third of
all the shares of Series B Preferred Stock outstanding on the date of such
election (the "Election Date") and (ii) redeem on March 31, 2005 one-third of
the shares of the Series B Preferred Stock outstanding on the Election Date
(and not previously called for redemption)

F-17

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

and (iii) redeem on March 31, 2006 all remaining shares of Series B Preferred
Stock outstanding on such date (and not previously called for redemption). The
redemption price is equal to the sum of the original purchase price (adjusted
appropriately for any stock dividend, stock split or similar event affecting
the Series B Preferred Stock) plus the amount of any declared or accrued but
unpaid dividends.

In the event of liquidation of the Company, the holders of the Series B
Preferred Stock are entitled to be paid a liquidation amount equal to $1.89
(adjusted appropriately for any stock dividend, stock split or similar event
affecting the Series B Preferred Stock) per share plus any declared or accrued
but unpaid dividends. In addition, after the liquidation preference of the
Series A and B Preferred Stock has been paid, the holders of Series B Preferred
Stock are entitled to share in the remaining proceeds, if any, as if their
shares had been converted into Common Stock.

I. Stock Options and Restricted Stock Awards:

On November 19, 1998, the Company adopted its 1998 Stock Incentive Plan (the
"Option Plan"). The Option Plan is administered by the Company's Board of
Directors (the "Board"), and allows for the granting of awards in the form of
incentive stock options to employees and nonqualified options and restricted
stock to officers, employees, consultants, directors and advisors. The exercise
prices for awards and options granted were determined by the Board of Directors
of the Company to be equal to the fair value of the Common Stock on the date of
grant. In reaching this determination at the time of each such grant, the Board
considered a broad range of factors including the illiquid nature of an
investment in the Common Stock, the Company's historical financial performance
and financial position and the Company's future prospects and opportunity for
liquidity events. The option plan allows for the Company to grant up to
9,534,506 options for common shares and restricted stock. Stock options may not
be exercised after ten years from the date of grant. Options and restricted
stock awards normally vest over 48 months as follows: 25% after 12 months from
the date of grant, thereafter, an additional 2.0833% of shares vest at the end
of each month until all shares are fully vested. In the event of a change of
control of the Company (as defined by the Option Plan), the vesting for each
option and restricted stock award will automatically be accelerated with
respect to 25% of the shares subject to such options or restricted stock
awards.

During the year ended December 31, 1998, the Company granted incentive stock
options for the purchase of 1,402,407 shares with an exercise price of $0.15
per share. During 1998, the Company sold 5,197,050 shares of restricted stock
to certain employees for $0.15 per share. There were 17,550 stock option
cancellations during the year ended December 31, 1998.

During the six months ended June 30, 1999, the Company granted incentive
stock options for the purchase of 1,184,934 shares and nonqualified stock
options for the purchase of 75,000 shares at a weighted average exercise price
of $0.71. There were 6,000 stock option cancellations during the

F-18

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

six months ended June 30, 1999. During the six months ended June 30, 1999, the
Company issued 150,000 shares of restricted stock for $0.35 per share in
exchange for a note receivable totaling $52,500.

The following table summarized information about stock options outstanding
at June 30, 1999:

Weighted
Average
Remaining
Exercise Contractual Shares
Price Shares Life (Years) Exercisable

$0.15 1,384,857 9.3 --
$0.35 427,106 9.5 75,000
$0.60 219,914 9.7 --
$0.95 541,914 9.9 --
$1.40 65,000 10.0 --
---------
2,638,791 9.5 --
=========

No options were exercisable at December 31, 1998. The weighted average
remaining contractual life of the options at December 31, 1998 was 9.8 years.

During the year ended December 31, 1998 and the six months ended June 30,
1999 the Company recorded deferred compensation for restricted stock and
options granted to employees below fair value of $2,172,029 and $1,896,080,
respectively. The Company is recognizing the compensation expense over the
vesting period. The Company recorded equity compensation expense including
amortization expense relating to deferred compensation of $1,312,236 and
$532,534 for the year ended December 31, 1998 and the six months ended June
30, 1999, respectively.

On April 30, 1999, the Company also accelerated the vesting with respect to
77,393 shares of restricted stock held by a former employee. The Company has
recorded a charge of $112,320 in connection with this acceleration.

Had compensation cost for the stock option grants been calculated based on
the fair value at the date of grant for options granted in 1998 consistent
with SFAS 123, the Company's net loss for the year ended December 31, 1998
would have been increased to the pro forma amounts indicated below:

Net loss--as reported....................................... $(3,690,524)
Net loss--pro forma under SFAS 123.......................... $(3,704,181)

The following table presents the significant assumptions used to estimate
the fair values of the options:

Weighted average risk free interest rate......................... 4.85%
Expected life from the date of grant............................. 7 years
Volatility....................................................... None
Expected dividends............................................... None

F-19

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

The weighted average fair value of options on the date of grant for the
options granted in 1998 was $0.37.

The pro forma effects of applying SFAS 123 are not indicative of future
impacts. Additional grants in future years are anticipated.

J. Income Taxes:

Deferred income taxes include the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

The components of the Company's deferred tax assets (liabilities) are as
follows:

December 31,
---------------------- June 30,
Net deferred tax assets 1997 1998 1999

Temporary differences................ $ 656,576 $ 692,802 $ 1,179,906
Net operating losses................. 261,896 1,473,754 3,545,513
--------- ----------- -----------
Total net deferred tax asset......... 918,472 2,166,556 4,725,419
Valuation allowance.................. (918,472) (2,166,556) (4,725,419)
--------- ----------- -----------
Net deferred taxes................. $ -- $ -- $ --
========= =========== ===========

A valuation allowance is established if it is more likely than not that all
or a portion of the deferred tax asset will not be realized. Accordingly, a
valuation allowance has been established for the full amount of the deferred
tax asset due to the uncertainty of realization.

The Company had net operating loss carryforwards of approximately $650,000,
$3,660,000 and $8,804,000 at December 31, 1997, 1998 and June 30, 1999,
respectively. These net operating loss carryforwards begin to expire in 2010.

Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may have limited, or may limit in the
future, the amount of net operating loss carryforwards which could be utilized
annually to offset future taxable income and income tax liabilities. The amount
of any annual limitation is determined based upon the Company's value prior to
an ownership change.

K. Employee Benefit Plan:

In January 1999, the Company established a savings plan for its employees
which it designed to be qualified under Section 401(k) of the Internal Revenue
Code. Eligible employees are permitted to contribute to the 401(k) plan through
payroll deduction within statutory and plan limits. The Company may make
contributions to the 401(k) plan in its discretion. No Company contributions
have been made to the savings plan to date.

F-20

BE FREE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(the information presented relating to the six months ended June 30, 1998 and
1999 is unaudited)

L. Related Party Transactions:

The Company had amounts due from related parties totaling $343, $813,139 and
$398,890 at December 31, 1997, 1998 and June 30, 1999, respectively. Amounts
due from related parties at December 31, 1997 related to employee advances.
Amounts due from related parties at December 31, 1998 was composed of $779,558
related to notes receivable from stockholders for restricted stock and $33,581
related to employee advances. The notes receivable from stockholders for
restricted stock are due in June 2003 and accrue interest monthly at 7% per
annum. The terms of the notes provide that interest accrues beginning January
1, 1999 and payments of interest commence on July 15, 1999. Amounts due from
related parties at June 30, 1999 was composed of $309,659 related to notes
receivable from stockholders executed in connection with the issuance of
restricted stock and $89,231 related to employee advances.

F-21

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts. All amounts
shown are estimates except for the Securities and Exchange Commission
registration fee and the NASD filing fee.

SEC registration fee............................................ $ 16,625
NASD filing fee................................................. 6,480
Nasdaq National Market listing fee.............................. *
Blue Sky fees and expenses...................................... *
Transfer Agent and Registrar fees............................... *
Accounting fees and expenses.................................... *
Legal fees and expenses......................................... *
Printing and mailing expenses................................... *
Miscellaneous................................................... *
--------
Total......................................................... $ *
========

- ---------------------
* to be filed by amendment

Item 14. Indemnification of Directors and Officers

Article Seventh of the Registrant's Amended and Restated Certificate of
Incorporation provides that no director of the Registrant shall be personally
liable for any monetary damages for any breach of fiduciary duty as a director,
except to the extent that the Delaware General Corporation Law prohibits the
elimination or limitation of liability of directors for breach of fiduciary
duty.

Article Eighth of the Registrant's Amended and Restated Certificate of
Incorporation provides that a director or officer of the Registrant (a) shall
be indemnified by the Registrant against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement incurred in connection
with any litigation or other legal proceeding (other than an action by or in
the right of the Registrant) brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without

II-1

limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.

Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.

Article Eighth of the Registrant's Amended and Restated Certificate of
Incorporation further provides that the indemnification provided therein is not
exclusive, and provides that in the event that the Delaware General Corporation
Law is amended to expand the indemnification permitted to directors or officers
the Registrant must indemnify those persons to the fullest extent permitted by
such law as so amended.

Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and other persons serving at the request of the corporation
in related capacities against amounts paid and expenses incurred in connection
with an action or proceeding to which he is or is threatened to be made a party
by reason of such position, if such person shall have acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.

Under Section of the Underwriting Agreement, the underwriters are
obligated, under circumstances, to indemnify directors and officers of the
Registrant against liabilities, including liabilities under the Securities Act.
Reference is made to the form of Underwriting Agreement to be filed as Exhibit
1 hereto.

The Registrant carries Directors and Officers liability insurance. Through
an agreement dated as of March 31, 1999 with Daniel J. Nova, and agreements
with Ted R. Dintersmith, W. Michael Humphreys and Samuel P. Gerace, Jr. dated
as of August 28, 1999 the Registrant has agreed to indemnify each director
against litigation risks and expenses arising out of his service to the
Registrant.

Finally, Ted Dintersmith, a director of the Registrant, is indemnified by
Charles River Partnership VIII for actions he takes on its behalf.

II-2

Item 15. Recent Sales of Unregistered Securities

Set forth is information regarding shares of common stock and preferred
stock issued, and warrants issued and options granted by the Company since
January 1, 1996 (without giving effect to the Company's -for- reverse
stock split to be effected prior to the closing of this offering). Further
included is the consideration, if any, received by the Company for such shares,
warrants and options and information relating to the section of the Securities
Act of 1933, as amended (the "Securities Act"), or rule of the Securities and
Exchange Commission under which exemption was claimed.

On August 28, 1998, we issued 399 shares of Freedom of Information, Inc.
("FOI") (the immediate predecessor of Be Free) common stock and $6,176,881 in
promissory notes (the "Redemption Notes") of FOI in consideration for the
exchange of all of the shares of Be Free, Inc. (an unrelated corporation, "Old
Be Free") and PCX Systems, Inc. by shareholders of such entities.

On August 28, 1998 we issued a total of 10,500,000 shares of Series A
Preferred Stock to five private investors (including three venture capitalist
firms, a bank and an individual investor) for an aggregate capital contribution
of $10,500,000 and warrants to purchase a total of shares of common stock
at a purchase price of $ per share.

On September 29, 1998, we issued 100,000 shares of Series A Convertible
Preferred Stock to Comdisco, Inc. for an aggregate capital contribution of
$100,000 and a warrant to purchase shares of common stock at a purchase
price of $ per share.

On September 29, 1998, we issued to Comdisco two warrants, one to purchase
100,000 shares of Series A Preferred Stock at a purchase price of $1.00 and the
other to purchase up to 600,000 shares of Series A Convertible Preferred Stock
at a purchase price of $1.00 per share. We issued these warrants as partial
consideration for certain financing transactions between Comdisco and the
Company.

On March 31, 1999, we issued a total of 13,196,522 shares of Series B
Convertible Preferred Stock to sixteen private investors for an aggregate
capital contribution of $24,999,888.06.

At various times since November 1998, we issued shares of restricted
common stock, at a purchase price of $ , and options to purchase shares of
common stock to employees, consultants, advisors and a director pursuant to our
1998 Stock Incentive Plan.

No underwriters were involved in the foregoing sale of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of restricted common stock or options to purchase
common stock, Rule 701 under the Securities Act. All foregoing securities are
deemed restricted securities for the purpose of the Securities Act.

II-3

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

Exhibit
No. Description
------- -----------

1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of the Registrant, as amended
and as currently in effect.
*3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed on or immediately subsequent to the date of the
closing of the Offering contemplated by this Registration Statement.
3.3 By-Laws of the Registrant, as amended to date
*3.4 Amended and Restated By-Laws of the Registrant to be effective on the
date of the closing of the Offering.
*4 Specimen certificate for shares of Common Stock, $.01 par value per
share, of the Registrant.
5 Form of Opinion of Hale and Dorr LLP.
10.1 1998 Stock Incentive Plan
10.2 Stock Purchase and Shareholders Agreement, as amended, dated as of
August 28, 1998
10.3 Form of Warrant dated as of August 28, 1998
10.4 Stock Purchase Agreement, as amended, dated as of September 29, 1998
10.5 Warrant Certificate for the purchase of shares of common stock issued
to Comdisco, Inc.
10.6 Warrant Certificate A-1 for the purchase of shares of Series A
Preferred Stock issued to Comdisco, Inc.
10.7 Warrant Certificate A-2 for the purchase of shares of Series A
Preferred Stock issued to Comdisco, Inc.
10.8 Subordinated Loan and Security Agreement dated as of September 29,
1998
10.9 Registration Rights Agreement dated as of March 31, 1999
10.10 Employment Agreement with Samuel P. Gerace, Jr., dated August 28, 1998
10.11 Employment Agreement with Thomas A. Gerace dated August 28, 1998
10.12 Lease dated as of November 9, 1998 with Southwestern Pennsylvania
Corporation
10.13 Lease dated October 20, 1998 with LSOF Pooled Equity L.P.
+10.14 License and Services Agreement, effective January 13, 1999, with
GeoCites
+10.15 BFAST Service Order Form, as amended, with barnesandnoble.com, Inc.
dated January 31, 1998
10.16 Director Indemnification Agreement dated as of March 31, 1999 with Dan
Nova
10.17 Form of Indemnification Agreement dated August 28, 1998
21 List of Subsidiaries
23.1 Consent of Independent Accountants.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5).
24 Power of Attorney (see page II-5)
27 Financial Data Schedule

- ---------------------
* To be filed by amendment
+ Confidential Treatment Requested

II-4

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-5

SIGNATURE

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in Boston,
Massachusetts, on this 5th day of August, 1999.

Be Free, Inc.

/s/ Gordon B. Hoffstein
By:__________________________________
Gordon B. Hoffstein
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Gordon B. Hoffstein, Stephen M. Joseph,
Thomas A. Gerace and Samuel P. Gerace, Jr. each of them, their true and lawful
attorneys and agents, with full power of substitution, each with power to act
alone, to sign and execute on behalf of the undersigned any amendment or
amendments to this Registration Statement on Form S-1, and any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b), and to perform any acts necessary to enable Be Free, Inc. to comply
with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission, and each of the
undersigned does hereby ratify and confirm that said attorneys and agents, or
their or his or her substitutes, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:

Signature Title Date

/s/ Gordon B. Hoffstein
President and Chief August 5, 1999
Executive Officer
- ----------------------------------- (Principal Executive
Gordon B. Hoffstein Officer) and Director

/s/ Samuel P. Gerace, Jr.
Executive Vice August 5, 1999
President, Research &
- ----------------------------------- Technology and
Samuel P. Gerace, Jr. Director

/s/ Stephen M. Joseph
Chief Financial August 5, 1999
Officer, Secretary and
- ----------------------------------- Treasurer (Principal
Stephen M. Joseph Financial and
Accounting Officer)

/s/ Ted R. Dintersmith
Director August 5, 1999
- -----------------------------------
Ted R. Dintersmith

/s/ W. Michael Humphreys
Director August 5, 1999
- -----------------------------------
W. Michael Humphreys

/s/ Jeffrey Rayport
Director August 5, 1999
- -----------------------------------
Jeffrey Rayport

Director
- -----------------------------------
Daniel Nova

II-6

[Inside Back Cover]

[Be Free logo]

This page contains the logos of several of Be Free's e-merchant and portal
customers.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999

[Be Free logo appears here]

Shares of Common Stock

----------------------
PROSPECTUS
----------------------

Donaldson, Lufkin & Jenrette

Hambrecht & Quist

Dain Rauscher Wessels
a division of Dain Rauscher Incorporated

----------------------

DLJdirect Inc.

- --------------------------------------------------------------------------------

We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the company
have not changed since the date hereof.

- --------------------------------------------------------------------------------

Until , 1999 (25 days after the date of this prospectus), all dealers that
affect transactions in these securities may be required to deliver a prospectus
when acting as an underwriter in this offering and when selling previously
unsold allotments or subscriptions.

- --------------------------------------------------------------------------------

Exhibit Index

Exhibit
No. Description
------- -----------

- ---------------------
* To be filed by amendment
+ Confidential Treatment Requested