AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1998
REGISTRATION NO. 333-47953
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
REALTY INFORMATION GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7375 52-1543845
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------
7475 Wisconsin Avenue
Bethesda, Maryland 20814
(301) 215-8300
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
--------------
ANDREW C. FLORANCE
President and Chief Executive Officer
Realty Information Group, Inc.
7475 Wisconsin Avenue
Bethesda, Maryland 20814
(301) 215-8300
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
--------------
Copies to:
<TABLE>
<S> <C>
RICHARD W. CASS, ESQ. ROBERT H. WERBEL, ESQ.
ERIC R. MARKUS, ESQ. GUY N. MOLINARI, ESQ.
Wilmer, Cutler & Pickering Werbel & Carnelutti
2445 M Street, NW A Professional Corporation
Washington, D.C. 20037-1420 711 Fifth Avenue
(202) 663-6000 New York, New York 10022
(212) 832-8300
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER EFFECTIVENESS OF THE REGISTRATION STATEMENT.
--------------
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 of
1933 other than securities offered only in connection with dividend or interest
reinvestment plans, 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, please 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,
please check the following box.[ ]
--------------
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 27, 1998
PROSPECTUS
2,700,000 SHARES
[REALTY INFORMATION GROUP]
Common Stock
Of the 2,700,000 shares of common stock, $.01 par value per share (the
"Common Stock"), of Realty Information Group, Inc. (the "Company") offered
hereby (the "Offering"), 2,109,091 are being offered by the Company and 590,909
are being offered by stockholders (the "Jamison Selling Stockholders") of
Jamison Research, Inc., a business which the Company will acquire immediately
prior to this Offering through the issuance of 909,091 shares of Common Stock.
The foregoing allocation of shares is preliminary based on an assumed offering
price and will be finally determined based on the initial public offering price
of the Common Stock. See "Prospectus Summary -- The Offering." The Company will
not receive any of the proceeds from the sale of the shares of Common Stock by
the Jamison Selling Stockholders.
Prior to this Offering, there has been no public market for the Common Stock
of the Company, and there is no assurance that a market will develop or be
sustained after the Offering. It is currently anticipated that the initial
public offering price will be between $10.00 and $12.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied to have the Common
Stock quoted on the Nasdaq National Market under the symbol "RIGX."
----------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=====================================================================================================
UNDERWRITING PROCEEDS TO THE
DISCOUNT AND PROCEEDS TO JAMISON SELLING
PRICE TO PUBLIC COMMISSIONS(1) THE COMPANY(2) STOCKHOLDERS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share ......... $ $ $ $
- -----------------------------------------------------------------------------------------------------
Total(3) .......... $ $ $ $
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not reflect the Company's reimbursement of the out-of-pocket expenses
of Allen & Company Incorporated ("Allen") and Needham & Company, Inc.
("Needham") incurred in connection with the Offering, which are estimated to
be $150,000. The Company has also agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $950,000,
including out of pocket expenses of Allen and Needham. See "Prospectus
Summary -- The Offering" and "Use of Proceeds."
(3) The Company has granted to the Underwriters, for whom Allen and Needham
(together, the "Representatives") are acting as representatives, an option
exercisable within 45 days after the closing date of the Offering to
purchase up to 270,000 additional shares of Common Stock on the same terms
and conditions as set forth above solely to cover over-allotments (the
"Over-Allotment Option"). See "Underwriting." If the Over-Allotment Option
is exercised in full, the total price to the public, Underwriting Discounts
and Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. The Company, will not receive any of the proceeds from the
sale of Common Stock by the Jamison Selling Stockholders.
----------------
The Common Stock is offered by the Underwriters named herein when, as and
if received and accepted by them, and subject to their right to reject orders in
whole or in part and subject to certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject any
order, in whole or in part. It is expected that delivery of certificates for the
shares will be made at the offices of Allen & Company Incorporated, 711 Fifth
Avenue, New York, New York 10022, on or about , 1998.
----------------
ALLEN & COMPANY NEEDHAM & COMPANY, INC.
INCORPORATED
The date of this Prospectus is , 1998
Information contained in this preliminary prospectus is subject to completion or
amendment. A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time that a final prospectus is
delivered. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
<PAGE>
Graphics: Computer screen images of Company products and Company logo.
Text: A leading provider of commercial real estate information to:
Brokers [types listed]; Owners and Investors
[types listed]; Service Providers
[types listed]; the Public Sector
[types listed].
Graphics: (1) United States map showing markets currently covered by the
Database and planned expansion.
(2) Graph depicting growth of Database coverage from 1994 through
1997.
Text: Three Years of Rolling Out the Most Comprehensive Database Covering
the Largest Commercial Real Estate Markets.
Graphic: Schematic diagram depicting data sources for the Company's Database
and icons representing the Company's products.
Text: Growing Family of Complete Information Solutions from RIG's Intensive
Nationwide Research Effort.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, historical and pro forma financial statements and risks factors
appearing elsewhere in this Prospectus and should be read only in conjunction
with the entire Prospectus. Unless otherwise specified, the information in this
Prospectus (a) gives effect to the contribution to Realty Information Group,
Inc. (the "Company") of all of the outstanding equity interests in its
predecessors, OLD RIG, Inc. ("RIGINC") and Realty Information Group, L.P.
("RIGLP"), in exchange for the Company's shares at a rate of 3.113 shares of
Company Common Stock for each share of RIGINC or unit of RIGLP, (b) except as
otherwise noted, does not give effect to the contribution to the Company of all
of the outstanding shares of Jamison Research, Inc. ("Jamison") in consideration
of Company shares (the "Jamison Acquisition"), (c) assumes an initial public
offering price of $11.00 per share and (d) assumes that the Underwriters'
Over-Allotment Option is not exercised. See "Transactions in Connection with the
Offering." The Company and Jamison are referred to collectively as the "Combined
Company."
THE COMPANY
The Company is a leading provider of comprehensive, building-specific
information to the United States commercial real estate industry and related
industries. The Company has created a proprietary database (the "Database" and
together with Jamison's database, the "Combined Database"), through internal
development and strategic acquisitions, that the Company believes is
significantly more comprehensive, accurate, and up-to-date than any other
database of information detailing office and industrial space in the United
States. The Database includes hundreds of data fields providing substantive
information as well as digitized photographs and floor plan images on individual
commercial buildings in the Company's markets. The Combined Database tracks over
eight billion square feet of office and industrial space in more than 150,000
buildings, better than twice the coverage of the Combined Company's nearest
competitor. The Combined Database also contains detailed information on 120,000
tenants and 14,000 buildings for sale and is supported by one of the largest
office and industrial real estate research staffs in the nation. In addition,
the Company has developed a portfolio of multimedia software products with
Internet connectivity that allows clients to access the Database and from which
the Company generates revenue in each of its markets.
The Combined Company is the market leader in providing comprehensive office
and industrial real estate information in nine of the ten largest United States
metropolitan areas. After establishing the Database and software products in the
Washington, D.C. metropolitan area, the Company expanded to Baltimore (1992),
and thereafter to New York City (1994), Westchester County, Long Island and
Northern New Jersey (1995), Los Angeles, Orange County and Chicago (1996), and
Philadelphia, San Francisco and Boston (1997). In connection with the Offering,
the Company will acquire Jamison, the leading office and industrial real estate
information provider in Atlanta and Dallas/Fort Worth. The Company plans to
continue its aggressive geographic expansion in the United States and in select
international markets. In most instances, the leading office and industrial real
estate brokerage firms in a new market have become the Company's clients within
six months of entry. The Company currently generates positive cash flow from
operations in each regional market in which it has operated for at least 18
months.
The Company's clients access the Database using the Company's multimedia
software products. These software products include (i) CoStar, a product
primarily intended for office and industrial real estate professionals which
allows them to use the Database to analyze leasing options, market conditions
and competitive property positions, and to produce multimedia presentations, and
(ii) CrosTrac, a product primarily intended for participants in the office real
estate industry which allows them to identify the most likely tenants to fill
space vacancies, to find tenants needing representation for their space needs,
and for business-to-business marketing. The Combined Company also derives
significant revenue from Interactive Advertising and Jamison Reports.
Interactive Advertising provides clients with a means of direct access to real
estate professionals by allowing placement of advertisements of properties for
lease or sale directly in the Company's software products and on the Company's
web site. The Combined
3
<PAGE>
Company plans to expand its distribution of Jamison Reports, a collection of
quarterly market conditions reports, on a national basis. The Company is also
developing several new software products to allow clients to better utilize the
Database, including CoStar I/S, a software product that will provide extensive
detail on commercial properties offered for sale.
The Company believes that it has a number of competitive advantages
relative to its actual and potential competitors including:
o The significant cost of developing a database that is as comprehensive or
up-to-date as the Database;
o Software products that have, as a result of extensive upgrades, market
reseach and input from clients, become full service solutions to client
needs;
o Being the first to capitalize on the trend to outsource research and data
collection in a manner that would be difficult to duplicate;
o Data, software and methodologies that have become the standard for clients
as well as a reliable third-party data source for the media;
o The ability to expand rapidly and efficiently into new markets at
relatively low cost;
o A unique ability to offer consistent methodology and quality in
multi-market office and industrial real estate information; and
o Long-standing formal and informal relationships with key participants in
the office and industrial real estate market.
According to the Federal Reserve, the inventory of commercial real estate
in the United States has been valued at approximately $3.3 trillion. The Company
estimates that the value of annual transactions for the sale and lease of office
and industrial real estate in the United States was $175 billion in 1997. The
Company believes that the market for office and industrial real estate
information, though undefined today, is vast based on the volume and value of
commercial real estate transactions and the large number of parties involved in
such transactions. To effect these transactions, real estate brokers
representing lessors and tenants, and buyers and sellers, need comprehensive,
accurate and consistent building-specific information to advise their clients.
From its inception, the Company has sought to consolidate research and software
development efforts and spread the costs of such efforts over its client base in
order to deliver more comprehensive, accurate and timely information than any
single client could obtain through its individual efforts.
Real estate brokers currently comprise a significant portion of the
Company's clients and are the most active users of the Database. Other
participants in the commercial real estate industry require and subscribe to
various subsets of the building-specific information found in the Database.
These clients include owners and investors, providers of goods and services to
buildings and tenants, and public service agencies. The Combined Company has
over 1,900 clients, including leaders of the commercial real estate industry
such as CB Commercial Real Estate Group, Inc., Merrill Lynch & Co., Julien J.
Studley, Inc., Jones Lang Wootton USA, and LaSalle Partners, Inc. Many of these
national companies have multi-year, multi-market contracts with the Company.
These multi-market contracts strengthen the Company's position within the
industry and ease the Company's entry into new markets by providing an initial
client base. In many instances, the Company's entry into new markets has been
facilitated by demand from these industry leaders.
The Company's objective is to become the preeminent provider of
building-specific information to the commercial real estate industry and related
industries in the United States and in select international markets. There can
be no assurance that the Company will achieve its objective. The principal
components of the Company's strategy are:
4
<PAGE>
o Maintain and Improve the Database. The Company intends to maintain the
leading position of the Database by expanding its geographic coverage and
depth and by consistently auditing and improving the Company's model for
collecting the underlying data to help ensure it remains comprehensive and
reliable.
o Maintain Technology Leadership. The Company intends to provide ongoing
upgrades of its software products to incorporate advances in technology and
to provide features and advantages to facilitate ease of use and
flexibility for the Company's clients.
o Enter New Markets. The Company plans to continue its aggressive geographic
expansion in the United States and in select international markets. The
Company, independently, or in connection with strategic acquisitions of
local providers, intends to gain an initial foothold in each new target
market with one of the Company's products, and then over time, introduce
all of its products in that target market.
o Increase Market Penetration and Revenue in Established Markets. The Company
will seek to increase revenue from existing clients by increasing the
performance and use of the Company's existing products. In addition, the
Company has not yet introduced all of its products in all of its markets.
Over the next several years, the Company intends to increase revenue by
introducing its full complement of products in all of its markets.
o Introduce New Products to Satisfy Existing Client Needs and Reach New
Clients. The Company believes the Database contains a wealth of information
that can be packaged to create an array of new products to satisfy existing
client needs and reach new clients. The Company currently has several new
products under development.
The Company was formed in February 1998 by RIGINC and RIGLP to acquire,
directly or indirectly, all of the outstanding equity interests in RIGINC, RIGLP
and Jamison. RIGINC, which was incorporated and organized initially in the
District of Columbia, operated the Company's business until November 1994
(RIGINC was reincorporated under the laws of Delaware in 1996). RIGINC was
formerly known as "Realty Information Group, Inc."; in connection with the
formation of the Company and this Offering, RIGINC was renamed "OLD RIG, Inc."
RIGLP, a Delaware limited partnership, was organized by RIGINC in November 1994
to hold and operate the Company's business. The Company maintains its executive
offices at 7475 Wisconsin Avenue, Bethesda, Maryland 20814. The Company's
telephone number is (301) 215-8300.
----------------
The Company has filed applications in the United States, Canada and the
United Kingdom for the CoStar(Reg. TM) and CrosTrac(Reg. TM) marks. All other
trademarks and trade names referred to in this Prospectus are the property of
their respective owners.
5
<PAGE>
THE OFFERING
Common Stock offered by the
Company...................... 2,109,091 shares(1)
Common Stock offered by the
Jamison Selling Stockholders. 590,909 shares(1)
Common Stock to be outstanding
after the Offering........... 8,929,817 shares(2)
Use of Proceeds............... The net proceeds of the Offering will be used
by the Company primarily for geographic and
product expansion and for repayment of
indebtedness, development of corporate
information systems, and for working capital
and general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Trading
Symbol(3).................... RIGX
- ----------
(1) The allocation of the 2,700,000 shares in this Offering between the Company
and the Jamison Selling Stockholders assumes an initial public offering
price of $11.00, a purchase price for Jamison equal to $10.0 million, and
that the Jamison Selling Stockholders will exercise their right to register
and sell 65% of the shares received by them in the Offering. If the initial
public offering price is higher or lower, the relative number of shares
registered by the Jamison Selling Stockholders and the Company will be
adjusted accordingly. The Company presently intends to issue and sell in the
Offering the number of shares that is the difference between 2,700,000 and
the number offered by the Jamison Selling Stockholders. However, the Company
reserves the right prior to the closing of the Offering to adjust further
the number of shares to be issued by it.
(2) Assumes an initial public offering price of $11.00 per share. This does not
include (i) up to 270,000 shares of Common Stock issuable upon exercise of
the Over-Allotment Option, (ii) 409,297 shares that will be reserved for
issuance upon the exercise of Company options to be issued in exchange for
currently outstanding options, exercisable at a weighted average exercise
price of $3.30 per share, (iii) 46,695 shares that will be reserved for
issuance upon exercise of Company warrants to be issued in exchange for
currently outstanding warrants at an exercise price of 10% less than the
price at which the shares are being offered hereby, and (iv) approximately
350,000 shares that will be reserved for issuance upon the exercise of
options expected to be granted in connection with the Offering. See
"Underwriting," "Management -- Employee Benefit Plans," "Description of
Capital Stock" and "Certain Transactions."
(3) There is currently no market for the Common Stock, and there can be no
assurance that a market for the Common Stock will develop or be sustained
after the Offering. The Company has applied to have the Common Stock quoted
on the Nasdaq National Market. There can be no assurance, however, that such
application for quotation will be approved, or if approved, that listing of
the Common Stock will be maintained. See "Risk Factors -- No Prior Public
Market; Determination of Offering Price; Share Price Volatility."
TRANSACTIONS IN CONNECTION WITH THE OFFERING
The Company will consummate a series of related transactions in connection
with the Offering. Pursuant to a Contribution Agreement dated March 5, 1998 (the
"RIG Contribution Agreement"), RIGLP and RIGINC will be consolidated with the
Company. Limited partners of RIGLP (other than RIGINC) and all of the
stockholders of RIGINC will receive 3.113 shares of the Common Stock of the
Company for each limited partnership unit or share of common stock exchanged.
See "Certain Transactions." As a result, the Company will own (directly or
indirectly) all of the capital stock of RIGINC and all of the equity of RIGLP.
Pursuant to a Contribution Agreement dated February 17, 1998 (the "Jamison
Contribution Agreement"), Jamison will be consolidated with the Company in a
transaction in which the stockholders of Jamison will contribute all of the
outstanding capital stock of Jamison to the Company in exchange for $10 million
of the Common Stock of the Company valued at the price at which Common Stock is
sold in the Offering. As provided in the Jamison Contribution Agreement, the
Company will offer for resale by the Jamison Selling Stockholders as part of the
Offering up to 65% of the shares of the Common Stock issued to them pursuant to
the Jamison Contribution Agreement.
The consolidations contemplated by the RIG Contribution Agreement and the
Jamison Contribution Agreement and the Offering are an integrated transaction
intended to qualify under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Transaction").
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER OPERATING DATA)
The following table sets forth summary financial data of the Company for
the five years ended December 31, 1997 and the three months ended March 31, 1997
and 1998, and certain pro forma financial data for the year ended December 31,
1997 and the three months ended March 31, 1998. The financial data shown below
for 1993 are derived from the unaudited financial statements of RIGINC. The
financial data shown below for the three months ended March 31, 1997 and 1998
are derived from the unaudited financial statements of RIGLP. The Statement of
Operations Data and Balance Sheet Data shown below for 1995, 1996 and 1997 are
derived from the audited financial statements of RIGLP included elsewhere in
this prospectus. The financial data for 1994 is derived from the audited
financial statements of RIGINC which are not included in this prospectus. The
table gives effect to the contribution to the Company of all of the outstanding
equity interests in its predecessors, RIGINC and RIGLP, in exchange for the
Company's shares at a rate of 3.113 shares of Company Common Stock for each
share of RIGINC or unit of RIGLP as if the contribution had been consummated on
January 1, 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 1997(2)
------------- ----------- ----------- ------------- ------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Net revenue .................... $ 946 $ 1,420 $ 2,062 $ 4,336 $ 7,900 $ 11,564
Cost of revenue ................ 391 591 931 2,188 3,413 5,891 (3)
------- ------- ------- --------- --------- ---------
Gross margin ................... 555 829 1,131 2,148 4,487 5,673
Operating expenses ............. 943 990 1,994 4,829 7,786 10,439
------- ------- ------- --------- --------- ---------
Loss from operations ........... (388) (161) (863) (2,681) (3,299) (4,766)
Other income (expense), net..... 768 (4) (76) 79 49 33 (29)
------- ------- ------- --------- --------- ---------
Net income (loss) .............. $ 380 $ (237) $ (784) $ (2,632) $ (3,266) $ (4,795)
======= ======= ======= ========= ========= =========
Pro forma net loss per share.... $ (0.70)
=========
Pro forma weighted average
shares outstanding(5) ......... 6,821
=========
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
PRO FORMA
1997 1998 MARCH 31, 1998(2)
--------- --------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Net revenue .................... $1,555 $2,839 $ 3,887
Cost of revenue ................ 717 904 1,536 (3)
------ ------ ---------
Gross margin ................... 838 1,935 2,351
Operating expenses ............. 1,638 2,281 2,906
------ ------ ---------
Loss from operations ........... (800) (346) (555)
Other income (expense), net..... 31 (38) (56)
------ ------ ---------
Net income (loss) .............. $ (769) $ (384) $ (611)
====== ====== =========
Pro forma net loss per share.... $ (.09)
=========
Pro forma weighted average
shares outstanding(5) ......... 6,821
=========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------------- --------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1)
Cash ............................ $ 58 $ 132 $1,328 $ 3,326 $ 1,069
Working capital (deficit) ....... (126) (332) 1,017 2,248 (1,547)
Total assets .................... 341 790 3,015 7,670 6,581
Total liabilities ............... 854 727 688 2,000 3,664
Stockholders' equity ............ (513) 63 2,327 5,670 2,917
<CAPTION>
PRO FORMA PRO FORMA
AT MARCH 31, 1998 MARCH 31, 1998 AS ADJUSTED(7)
------------------- ---------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA(1)
Cash ............................ $ 866 $ 1,197 $19,977
Working capital (deficit) ....... (1,909) (2,112) 18,457
Total assets .................... 7,315 15,138 33,917
Total liabilities ............... 4,777 5,546 3,725
Stockholders' equity ............ 2,538 9,592(6) 30,192
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 AT MARCH 31, 1998 MARCH 31, 1998
-------- ---------- ---------- ---------- ---------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA(1)
Markets Covered by Data-
base ......................... 2 3 4 9 14 14 17
Counties Covered by Data-
base ......................... 15 16 42 56 120 120 197
Number of Clients ............. 59 88 204 542 1,123 1,328 1,984
Billions of Square Feet in
Database ..................... 0.9 1.3 2.2 3.3 6.5 6.9 8.4
Buildings in Database ......... 9,955 12,775 24,822 43,520 112,335 122,199 152,196
Images in Database ............ 5,998 15,459 24,926 47,308 90,545 105,746 124,616
</TABLE>
- ----------
(1) The statement of operations and balance sheet data for 1993 through March
31, 1998 give effect to the contribution to the Company of all of the
outstanding equity interests in its predecessors, RIGINC and RIGLP, in
exchange for the Company's shares at a rate of 3.113 shares of Company
Common Stock for each share of RIGINC or unit of RIGLP as if it had been
consummated on January 1, 1993.
(2) The pro forma statement of operations and other operating data for the year
ended December 31, 1997 and the three months ended March 31, 1998 gives
effect to the Jamison Acquisition as if it had been consummated on January
1, 1997, while the pro forma balance sheet data as of March 31, 1998 assumes
the Jamison Acquisition occurred on March 31, 1998.
7
<PAGE>
(3) Reflects charges of approximately $1.1 million and $275,000 for 1997 and the
three months ended March 31, 1998, respectively, resulting from the
amortization of capitalized product development acquired through the Jamison
Acquisition.
(4) Includes gain from sale of assets amounting to $893,000.
(5) Includes shares of the Company's predecessors converted at a rate of 3.113
shares per share of RIGINC or unit of RIGLP and the shares issued to the
Jamison stockholders in connection with the Jamison Acquisition. Stock
options and warrants outstanding have been excluded from the calculation
because their effect is anti-dilutive.
(6) The Company anticipates a one time write-off of acquired in process research
and development amounting to $3.0 million resulting from the Jamison
Acquisition. This charge to earnings has been reflected in the pro forma
Balance Sheet data, but has been excluded from the pro forma Statement of
Operations data.
(7) Adjusted to reflect the sale of 2,109,091 shares of Common Stock offered by
the Company and the application of the net proceeds from the Offering.
Additionally, reflects the use of proceeds for the repayment of the RIGLP
line of credit of $1,000,000 and its subordinated debt to RIGINC totaling
$650,000 (which sum was loaned to RIGINC by one of its stockholders) and the
advances from stockholders of Jamison of $110,000 and other long-term debt
of Jamison amounting to $61,000. See "Certain Transactions."
AVAILABLE INFORMATION
As of the effective date of the Registration Statement, the Company will
become subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and, in accordance therewith, will file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The Company intends to furnish its stockholders
with annual reports containing financial statements audited by independent
accountants and other periodic reports as the Company may deem appropriate or as
may be required by law.
8
<PAGE>
RISK FACTORS
An investment in the shares of the Company's Common Stock involves a high
degree of risk. The following factors, in addition to the other information in
this Prospectus, should be carefully considered in evaluating the Company and
its business before purchasing shares of Common Stock. Each of these factors
could have a material adverse effect on the Company's business, financial
condition and results of operations and on the price of the Common Stock.
This Prospectus contains forward-looking statements about business
strategies, market potential, future financial performance and other matters. In
addition, when used in this Prospectus, the words "intends to," "anticipates,"
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements involve many risks and uncertainties that could
cause actual results to differ materially from such statements, including,
without limitation, those risks and uncertainties described, in this Section on
"Risk Factors."
History of Operating Losses and Accumulated Deficit; Expected Losses;
Uncertainty of Future Profitability. By reason of its continuing investment in
expansion and new products, the Company has never recorded an overall operating
profit and had an accumulated deficit of approximately $11.8 million as of March
31, 1998. The Company intends to continue to invest in expansion and, therefore,
to sustain substantial losses for the next several years. The ability of the
Company to achieve overall profitability will largely depend on its ability to
generate revenue from its products and services in excess of its investment in
geographic and product expansion. There can be no assurance that the Company
will be able to generate revenue that is sufficient to achieve profitability, to
maintain profitability on a quarterly or annual basis or to sustain or increase
its revenue growth in future periods.
Uncertainty of Operating Results. The Company's revenue and operating
results may fluctuate as a result of a variety of factors, including: the loss
of clients or revenue due to consolidation in the real estate brokerage and
investment industry; changes in client budgets; investments by the Company in
marketing or other corporate resources; acquisitions of other companies or
assets; the timing of new product introductions and enhancements; sales and
marketing promotional activities; and general economic conditions.
Uncertainties Associated with Planned Market and Product Expansion. The
Company's future success and financial performance will depend in large part on
its ability to enter several additional markets contemporaneously and
successfully, while continuing to develop and market its products and services
in a rapidly evolving information technology environment. To succeed, the
Company believes it will be necessary to further increase its geographic
coverage and broaden its product lines and client mix. These efforts are
expected to impose additional burdens on the Company's research, systems
development, sales and general managerial resources. There can be no assurance
that the Company will be able to manage this growth successfully.
The Company's future success and financial performance also will depend on
its ability to meet the increasingly sophisticated needs of its clients through
the timely development and introduction of new and enhanced versions of its
products and services. Continuing product development efforts have been and are
expected to be required to sustain the Company's growth. Such efforts have
inherent risks. There can be no assurance that the Company will be successful in
entering new markets or in developing and marketing new or enhanced products and
services, or will not experience significant delays in the introduction of new
products and services. In addition, there can be no assurance that new or
enhanced products or services developed by the Company will meet the
requirements of its prospective clients and achieve market acceptance. See
"Business -- Strategy," "-- Database" and "-- Products and Services."
Dependence on Integrity and Reliability of Software and the Database. The
Company's success is highly dependent on its clients' confidence in the
comprehensiveness, accuracy and reliability of the Database and the software
accessing the Database. Although the Company believes that it takes adequate
precautions to safeguard the completeness and consistency of the data in the
Database, and that the information contained in the Database is generally
current, comprehensive and accurate, the task of establishing and maintaining
9
<PAGE>
such quality during growth is challenging. Similarly, it requires substantial
effort and expense to maintain and improve the software that allows clients to
access the Database. There can be no assurance that the Company can sustain
those efforts. See "Business -- Strategy," "-- Database" and "-- Products and
Services."
Dependence on the Real Estate Industry. The Company's business is dependent
on the real estate industry and related industries that supply goods or services
to, or invest in, the real estate industry. Therefore, changes in the real
estate market may affect demand for the Company's products. The real estate
industry traditionally has been subject to cyclical economic swings, which could
adversely affect the Company's business. Moreover, the real estate industry is
undergoing a period of consolidation, often motivated by a desire to reduce
expenses. Such consolidation could erode the Company's existing client base,
reduce the size of the Company's target market and create enterprises with
sufficiently greater bargaining power to cause price erosion which could affect
the Company's products and services.
Dependence on Key Personnel. The success of the Company and of its business
strategy is dependent in large part on its ability to retain and attract key
management and operating personnel, including its President and Chief Executive
Officer, Andrew C. Florance. Highly skilled technical, sales, managerial and
marketing personnel are in high demand and are often subject to competing
offers. Given its plans to expand rapidly, the Company will have an ongoing need
to increase the number of management and support personnel. The Company employs
a variety of measures to retain and attract key management and operating
personnel, including multi-year employment agreements containing confidentiality
and non-competition agreements, a stock option plan and incentive bonuses for
its key executive officers, and the Company is the beneficiary of a $1 million
key person life insurance policy on Mr. Florance. These measures may not be
sufficient to permit the Company to attract necessary personnel or to offset the
impact of the Company's loss of Mr. Florance or other key employees. See
"Management."
Dependence on Proprietary Rights. The Company has made significant
investments in the Database, software, methodologies, and other technology and
relies on a combination of trade secret and copyright laws, nondisclosure and
other contractual provisions, and technical measures to protect its proprietary
rights in those assets and technologies. There can be no assurance that these
protections will be adequate or that the Company's competitors will not
independently develop methodologies, databases or technologies that are
substantially equivalent or superior to those of the Company. In addition, there
can be no assurance that the legal protections and precautions taken by the
Company will be adequate to prevent infringement or misappropriation of the
Company's proprietary rights and assets. See "Business -- Proprietary Rights."
Risk of Third Party Claims for Infringement. There can be no assurance that
third parties will not bring copyright or trademark infringement claims against
the Company or claim that the Company's use of certain technologies violates a
patent. Because the Company relies on certain technology which is licensed from
third parties, including software integrated with the internally-developed
software and used in the Company's products to perform key functions, the
Company may be subject to litigation to defend against claims of infringement of
the rights of others, or to determine the scope and validity of the intellectual
property rights of others. Although the Company does not believe that its
products infringe the proprietary rights of third parties, there can be no
assurance that infringement or invalidity claims (or claims for indemnification
resulting from infringement claims) will not be asserted or prosecuted against
the Company or that any such assertions or prosecutions will not materially
adversely affect the Company's business, operating results or financial
condition. Regardless of the validity or the successful assertion of such
claims, defending against such claims could result in significant costs and
diversion of resources with respect to the defense thereof. In addition, the
assertion of such infringement claims could result in injunctions preventing the
Company from distributing certain products. If any claims or actions are
asserted against the Company, the Company may seek to obtain a license to such
intellectual property rights. There can be no assurance, however, that such a
license would be available on reasonable terms or at all.
Identification and Integration of Acquisitions. Through the Jamison
Acquisition, the Company is expanding its market and product line with
complementary businesses, products, databases, and technologies. The strategy of
acquisition versus internal development may be applied as the Company expands
further. Acquisitions involve numerous risks, including managing the integration
of personnel and products, managing geographically remote units, the diversion
of management's attention from other
10
<PAGE>
business concerns, the inherent risks in entering markets the Company has either
limited or no direct experience in and the potential loss of key employees or
clients of the acquired companies. There can be no assurance that the Company
will not incur unforseen difficulties in connection with integration of any
acquisition. Future acquisitions if pursued and consummated by the Company,
could result in dilutive issuances of equity securities, the incurrence of
additional debt, one-time write-offs and the creation of substantial
amortization expenses arising from goodwill or other intangible assets.
Future Additional Capital Requirements; No Assurance Capital Will Be
Available. Since its inception, the Company has financed its operations through
cash provided by operations, the sale of equity and borrowings. If the Company
proves unable to generate sufficient revenue to fund its operations in the
future, the Company may be required to raise additional funds to meet its
capital and operating requirements through public or private financing,
including equity financing. Any additional equity financing may be dilutive to
stockholders, and debt financing, if available, will require payment of interest
and may involve restrictive covenants that could impose limitations on the
operating flexibility of the Company. Adequate funds for the Company's
operations may not be available when needed and, if available, may not be on
terms attractive to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Technological Change. Outsourcing the collection, storage, management and
dissemination of commercial real estate information from a centralized database
is a recent and evolving development. As a developing market, the requirements
are rapidly evolving to meet changing and increasingly sophisticated client
needs, frequent new product introductions, and new industry standards. In
addition, as the computer and software industries continue to experience rapid
technological change and the Internet continues to grow, the Company must be
able to quickly and successfully adapt its products to allow them to continue to
integrate well with the other computer platforms and software employed by its
clients. There can be no assurance that the Company will avoid difficulties that
could delay or prevent the successful development and introduction of product
enhancements or new products in response to technological changes. See "Business
- -- Products and Services."
Competition. The market for information systems and services in general is
highly competitive and rapidly changing, with the principal competitive factors
including the quality and depth of the underlying databases, the responsiveness
and flexibility of software, the proprietary nature of research methodologies
and databases, the usefulness of the data and reports generated by the software,
compatibility with the client's existing information systems, potential for
product enhancement, price and the effectiveness of sales, client support, and
marketing efforts. While the Company believes its products and services are
differentiated favorably from those offered by competitors providing information
in the office and industrial real estate industry, competitors may develop or
acquire the capacity to narrow or eliminate these differences. Additional
competitors may also enter the market and competition may intensify. The Company
also faces competition from internal information services at individual real
estate brokerage firms, real estate investment institutions and lenders, many of
which have developed their own databases. See "Business -- Competition."
Business Interruption. The Company's operations are dependent upon its
ability to protect the Company's Database, computers, telecommunications
equipment, software systems and facilities against damage from fire, power loss,
telecommunications interruption or failure, natural disaster and other similar
events. In the event the Company experiences an interruption or permanent loss
of one or more of these systems or facilities through casualty, equipment
malfunction or otherwise, the Company's business could be adversely affected.
The Company's core computer servers and networking systems are located in a
climate-controlled, fire and security-protected central location and all data
contained in the Database is subject to offsite backup storage. Such protections
may not, however, adequately protect the Company or compensate the Company for
all losses that it may incur.
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of Common Stock by any of the initial investors in the public market
after the Offering could adversely affect the prevailing market price for the
Common Stock and could impair the Company's future ability to raise capital
through offerings of its equity securities. In addition to the 2,700,000 shares
offered hereby, a total of
11
<PAGE>
5,911,635 shares held by the directors, officers and other stockholders of the
Company will become available for sale in the public market upon the expiration
of certain agreements entered into between the stockholders and the
Underwriters, subject to the provisions of Rule 144 of the Securities Act. In
addition, the Company intends to file, as soon as practicable, a registration
statement under the Securities Act to register an aggregate of 1,450,000 shares
of Common Stock issued or reserved for issuance under the Company's employee
benefit plans. See "Management," "Shares Eligible for Future Sale" and
"Underwriting."
After the Offering, the holders of approximately 2,659,700 shares of Common
Stock, will be entitled to certain rights to cause the Company to register the
sale of such shares under the Securities Act, beginning six months after the
Offering. Holders with such rights could cause a large number of shares to be
registered and to become freely tradable without restrictions under the
Securities Act. Such sales may have an adverse effect on the market price for
the Common Stock and could impair the Company's ability to raise capital through
an Offering of its equity securities. See "Description of Capital Stock --
Registration Rights."
No Prior Public Market; Determination of Offering Price; Share Price
Volatility. There has been no public market for the Common Stock. There can be
no assurance that an active public market for the Common Stock will develop or
be sustained after the Offering. The initial public offering price will be
determined by negotiations between representatives of the Company and the
Representatives, consistent with the rules of the National Association of
Securities Dealers, of which the Representatives are members, and may not be
indicative of future market prices. See "Underwriting" for information related
to the method of determining the initial public offering price. The trading
price of the Common Stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, changes in earnings
estimates by analysts, announcements of technological innovations or new
products by the Company or its competitors, general conditions in the real
estate or software industries, developments or disputes concerning copyrights or
proprietary rights, regulatory developments and economic or other factors. In
addition, in recent years the stock market in general, and the shares of
information and software related companies in particular, have experienced
extreme price fluctuations. This volatility has had a substantial effect on the
market prices of securities issued by many companies for reasons unrelated to
the operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of the Common Stock. See
"Underwriting."
Potential Influence by Principal Stockholder; Benefits of Offering to
Current Shareholders. Following completion of the Offering, assuming that the
Underwriters' Over-Allotment Option is not exercised, Michael R. Klein, the
Chairman of the Board of the Company, will beneficially own 24.3% of the
outstanding shares of Common Stock. As a result, Mr. Klein will have the
potential ability to exercise substantial influence over the Company's business
by virtue of his voting power with respect to the election of directors and all
other matters requiring action by stockholders. Such concentration of share
ownership may have the effect of discouraging, delaying or preventing a change
in control of the Company. The existing shareholders of the Company and the
Jamison Selling Stockholders will receive certain benefits from the sale of the
Common stock offered hereby. The Offering may establish a public market for the
Company Stock and provide increased liquidity for the Common Stock they will own
after the Offering, subject to certain limitations. See "Shares Eligible for
Future Sale." The existing shareholders of the Company and the Jamison Selling
Stockholders will have a substantial unrealized gain in the Common Stock that
they will continue to hold after the Offering over the original cost of the
equity interests exchanged for such Common Stock. See "Dilution." The Jamison
Selling Stockholders will receive approximately $6.5 million in gross proceeds
from the sale of approximately 590,909 shares of Common Stock in the Offering. A
portion of the net proceeds of the Offering to the Company will be used to repay
approximately $650,000 of indebtedness owed to Mr. Klein, and the Jamison
Selling Stockholders will be released from obligations of approximately $180,000
of indebtedness of Jamison that the Company intends to repay with proceeds from
the Offering. See "Use of Proceeds" and "Certain Transactions."
Effect of Certain Charter and Bylaw Provisions. The Company's Certificate
of Incorporation and Bylaws contain certain provisions that could discourage
potential takeover attempts and make attempts by the Company's stockholders to
change management more difficult. Such provisions include: (i) the
12
<PAGE>
requirement that the Company's stockholders follow an advance notification
procedure for certain stockholder nominations of candidates for the Board of
Directors of the Company (the "Board") and for new business to be conducted at
any meeting of the stockholders; (ii) certain limits on the ability of
stockholders to call special meetings; and (iii) no stockholder action by
written consent. The Certificate of Incorporation also allows the Board to issue
up to 2,000,000 shares of preferred stock and to fix the rights, privileges and
preferences of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred shares
that may be issued by the Company in the future. While the Company has no
present intention to issue any shares of preferred stock, any such issuance
could have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. In addition, the
Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits the Company from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date on which the person first becomes an "interested
stockholder," unless the business combination is approved in a prescribed
manner. The application of these provisions could have the effect of delaying or
preventing a change of control of the Company, which could adversely affect the
market price of the Company's Common Stock. See "Description of Capital Stock."
Dilution to New Investors; Absence of Dividends. Purchasers of shares of
Common Stock in the Offering will experience immediate and substantial dilution
of $8.32 per share in pro forma net tangible book value per share. In addition,
purchasers of shares of Common Stock in the Offering will incur additional
dilution to the extent outstanding options and warrants are exercised. See
"Dilution." The Company has never declared or paid any dividends on the Common
Stock and does not anticipate paying any dividends on the Common Stock in the
foreseeable future. See "Dividend Policy."
13
<PAGE>
USE OF PROCEEDS
The gross proceeds to be received by the Company from the sale of an
estimated 2,109,091 shares of Common Stock in the Offering are estimated to be
$23.2 million, assuming an initial public Offering price of $11.00 per share.
Net proceeds after deducting underwriting discounts and commissions and other
expenses of the Offering will be approximately $20.6 million ($23.4 million if
the Over-Allotment Option is exercised in full). The Company plans to use those
net proceeds primarily to fund the continued geographic and product expansion of
the Company's business and increasing its sales and marketing activities. The
Company also intends to use the net proceeds to (i) repay certain indebtedness
aggregating $1.83 million (consisting of (a) a $1.0 million loan from Silicon
Valley Bank to RIGLP and RIGINC, bearing interest at a rate of prime plus two
percent, and maturing on October 5, 1998 (this loan accelerates on, among other
things, a transfer of all of the equity interests in the borrower), (b) three
loans to RIGLP subordinate to the Silicon Valley Bank loan aggregating $650,000
from RIGINC (which sum was loaned to RIGINC by Michael R. Klein; see "Certain
Transactions"), bearing interest at a rate of prime plus two percent, and
maturing on December 31, 1998 (or upon the acceleration of the Silicon Valley
Bank loan) and (c) debt of Jamison in the amount of approximately $180,000),
(ii) to develop corporate information systems and (iii) to provide funds for
working capital and other general corporate purposes. Although the Company
regularly reviews acquisition proposals involving other businesses, products or
technologies complementary to the Company's business, there are currently no
agreements or negotiations with respect to any acquisitions. Pending such uses,
the Company intends to invest the net proceeds of this Offering in interest
bearing, investment-grade securities. The Company will not receive any of the
net proceeds from the sale of Common Stock by the Jamison Selling Stockholders.
DIVIDEND POLICY
The Company has never declared nor paid any dividends on its Common Stock,
and does not plan to do so for the foreseeable future. Instead, the Company
intends to invest any earnings in the operations, development and growth of its
business. The holders of Common Stock are entitled to receive ratably such
dividends as are declared by the Board of Directors out of funds legally
available therefor. The payment of future dividends on the Common Stock and the
rate of such dividends, if any, will be determined in light of any applicable
contractual restrictions limiting the Company's ability to pay dividends, the
Company's earnings, financial condition, capital requirements and other factors
deemed relevant by the Board of Directors.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998: (i) on an actual basis, (ii) on a pro forma basis to reflect the
Jamison Acquisition and the issuance of shares of Common Stock in connection
therewith and (iii) on such pro forma basis as adjusted to give effect to the
sale by the Company of 2,109,091 shares of Common Stock offered hereby at an
initial public offering price of $11.00 per share. This table should be read in
conjunction with the audited Financial Statements of the Company and Jamison
notes and the unaudited pro forma condensed combined financial statements of the
Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 (IN THOUSANDS)
---------------------------------------------------
ACTUAL(1) PRO FORMA(1)(2) AS ADJUSTED(1)(2)(3)
----------- ----------------- ---------------------
<S> <C> <C> <C>
Short-term debt and current portion of
long-term debt .............................. $ 1,650 $ 1,789 $ --
--------- --------- ---------
Long-term debt and capital lease obliga-
tions, less current portion ................. -- 31 --
Stockholders' equity:
Common stock, $.01 par value per share
authorized, 5,911,635, 6,820,726, and
8,929,817 shares issued and outstanding
on an actual, pro forma and as adjusted
basis, respectively ....................... 59 68 89
Additional paid-in capital .................. 14,288 24,279 44,858
Retained deficit ............................ (11,809) (14,755) (14,755)
--------- --------- ---------
Total stockholders' equity ................ 2,538 9,592 30,192
--------- --------- ---------
Total capitalization ..................... $ 4,188 $ 11,412 $ 30,192
========= ========= =========
</TABLE>
- ----------
(1) Assumes the contribution to the Company of all of the outstanding equity
interests in its predecessors, RIGINC and RIGLP, in exchange for the
Company's shares at a rate of 3.113 shares of Company Common Stock for each
share of RIGINC or unit of RIGLP. Excludes: (i) up to 270,000 shares of
Common Stock issuable upon the exercise of the Over-Allotment Option; (ii)
409,297 shares that will be reserved for issuance upon the exercise of
Company options to be issued in exchange for outstanding options,
exercisable at a weighted average exercise price of $3.30 per share and
(iii) 46,695 shares that will be reserved for issuance upon exercise of
Company warrants to be issued in exchange for currently outstanding warrants
at an exercise price of 10% less than the price at which the shares are
being offered hereby. See "Management -- Employee Benefit Plans,"
"Description of Capital Stock" and "Certain Transactions."
(2) Assumes the Jamison Acquisition occurred on March 31, 1998.
(3) Assumes completion of the Offering.
15
<PAGE>
DILUTION
As of March 31, 1998, after giving pro forma effect to (i) the
consolidation of the Company with its predecessors, RIGINC, and RIGLP, in
exchange for the Company's shares at a rate of 3.113 shares of Company Common
Stock for each share of RIGINC or unit of RIGLP and (ii) the consolidation of
the Company with Jamison in exchange for approximately 909,091 shares of Company
Common Stock, the Company had a pro forma net tangible book value of
approximately $3.3 million or $0.49 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of the Company's total pro
forma tangible assets, less total pro forma liabilities, divided by the
6,820,726 shares of Common Stock outstanding after the Jamison Acquisition but
prior to the Offering. See Unaudited Pro Forma Condensed Combined Financial
Statements and "Prospectus Summary -- Transactions in Connection with the
Offering."
Without taking into account any other changes in the pro forma net tangible
book value of the Company after March 31, 1998, other than to give effect to the
sale of 2,109,091 shares offered hereby at the assumed initial offering price of
$11.00 per share and receipt of the net proceeds therefrom and the application
of a portion of the Offering to repay certain outstanding indebtedness as set
forth under "Use of Proceeds," the Company's pro forma net tangible book value,
as adjusted at March 31, 1998 would have been approximately $23.9 million or
$2.68 per share. This represents an immediate increase in pro forma net tangible
book value of $2.19 per share to existing stockholders and immediate dilution in
pro forma net tangible book value of $8.32 per share to purchasers of Common
Stock in the Offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Initial public offering price per share ................................... $ 11.00
Pro forma net tangible book value per share as of March 31, 1998 ......... $ 0.49
Increase per share attributable to new investors ......................... 2.19
------
As adjusted net tangible book value per share after the Offering .......... 2.68
-------
Pro forma net tangible book value dilution per share to new investors ..... $ 8.32
=======
</TABLE>
The following table sets forth, as of March 31, 1998, the number of shares
of Common Stock issued to existing stockholders of the Company and the total
consideration (including the fair value of the shares of Common Stock issued to
the stockholders of Jamison) and the average price per share paid to the Company
for such shares; the number of shares of Common Stock purchased from the Company
by new investors in the Offering and the total consideration paid by them for
such shares; and the percentage of shares purchased from the Company by existing
stockholders and new investors and the percentages of consideration paid to the
Company for such shares by existing stockholders and new investors. The
following table gives pro forma effect to (i) the consolidation of the Company
with its predecessors, RIGINC and RIGLP, in exchange for the Company's shares at
a rate of 3.113 shares of Company Common Stock for each share of RIGINC or unit
of RIGLP and (ii) the consolidation of the Company with Jamison in exchange for
approximately 909,091 shares of Company Common Stock.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1) ......... 5,911,635 66.2% $14,347,000 30.2% $ 2.43
Jamison stockholders ............. 909,091 10.2% 10,000,000 21.0% $11.00
New investors .................... 2,109,091 23.6% 23,200,000 48.8% $11.00
--------- ----- ----------- -----
Total ........................... 8,929,817 100.0% $47,547,000 100.0% $ 5.33
========= ===== =========== =====
</TABLE>
- ----------
(1) Does not include: (i) 1,450,000 shares of Common Stock that will be reserved
for issuance under the Realty Information Group, Inc. 1998 Stock Incentive
Plan (the "Stock Option Plan"), which the Company intends to adopt at or
prior to the consummation of the Offering (under which options for 409,297
shares at a weighted average exercise price of $3.30 per share will be
outstanding) and (ii) 46,695 shares reserved for issuance upon exercise of
currently outstanding warrants at an exercise price of 10% less than the
price at which the shares are being offered hereby. To the extent such
options are exercised, there will be future dilution to investors in the
Offering. See "Management -- Employee Benefit Plans" and "Description of
Capital Stock."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER OPERATING DATA)
The following table sets forth summary financial data of the Company for
the five years ended December 31, 1997, and the three months ended March 31,
1997 and 1998, and certain pro forma financial data for the year ended December
31, 1997 and the three months ended March 31, 1998. The financial data shown
below for 1993 are derived from the unaudited financial statements of RIGINC.
The financial data shown below for the three months ended March 31, 1997 and
1998 are derived from the unaudited financial statements of RIGLP. The Statement
of Operations Data and Balance Sheet Data shown below for 1995, 1996 and 1997
are derived from the audited financial statements of RIGLP included elsewhere in
this prospectus. The financial data for 1994 is derived from the audited
financial statements of RIGINC are not included in this prospectus. The table
gives effect to the contribution to the Company of all of the outstanding equity
interests in its predecessors, RIGINC and RIGLP, in exchange for the Company's
shares at a rate of 3.113 shares of Company Common Stock for each share of
RIGINC or unit of RIGLP as if the contribution had been consummated on January
1, 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 1997(2)
------------- ----------- ----------- ------------- ------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Net revenue .................... $ 946 $ 1,420 $ 2,062 $ 4,336 $ 7,900 $ 11,564
Cost of revenue ................ 391 591 931 2,188 3,413 5,891 (3)
------- ------- ------- --------- --------- ---------
Gross margin ................... 555 829 1,131 2,148 4,487 5,673
Operating expenses ............. 943 990 1,994 4,829 7,786 10,439
------- ------- ------- --------- --------- ---------
Loss from operations ........... (388) (161) (863) (2,681) (3,299) (4,766)
Other income (expense), net..... 768 (4) (76) 79 49 33 (29)
------- ------- ------- --------- --------- ---------
Net income (loss) .............. $ 380 $ (237) $ (784) $ (2,632) $ (3,266) $ (4,795)
======= ======= ======= ========= ========= =========
Pro forma net loss per share.... $ (0.70)
=========
Pro forma weighted average
shares outstanding(5) ......... 6,821
=========
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
PRO FORMA
1997 1998 MARCH 31, 1998(2)
--------- --------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Net revenue .................... $1,555 $2,839 $ 3,887
Cost of revenue ................ 717 904 1,536 (3)
------ ------ ---------
Gross margin ................... 838 1,935 2,351
Operating expenses ............. 1,638 2,281 2,906
------ ------ ---------
Loss from operations ........... (800) (346) (555)
Other income (expense), net..... 31 (38) (56)
------ ------ ---------
Net income (loss) .............. $ (769) $ (384) $ (611)
====== ====== =========
Pro forma net loss per share.... $ (.09)
=========
Pro forma weighted average
shares outstanding(5) ......... 6,821
=========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------------- --------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1)
Cash ............................ $ 58 $ 132 $1,328 $ 3,326 $ 1,069
Working capital (deficit) ....... (126) (332) 1,017 2,248 (1,547)
Total assets .................... 341 790 3,015 7,670 6,581
Total liabilities ............... 854 727 688 2,000 3,664
Stockholders' equity ............ (513) 63 2,327 5,670 2,917
<CAPTION>
PRO FORMA PRO FORMA
AT MARCH 31, 1998 MARCH 31, 1998 AS ADJUSTED(7)
------------------- ---------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA(1)
Cash ............................ $ 866 $ 1,197 $19,977
Working capital (deficit) ....... (1,909) (2,112) 18,457
Total assets .................... 7,315 15,138 33,917
Total liabilities ............... 4,777 5,546 3,725
Stockholders' equity ............ 2,538 9,592(6) 30,192
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 AT MARCH 31, 1998 MARCH 31, 1998
-------- ---------- ---------- ---------- ---------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA(1)
Markets Covered by Data-
base ......................... 2 3 4 9 14 14 17
Counties Covered by Data-
base ......................... 15 16 42 56 120 120 197
Number of Clients ............. 59 88 204 542 1,123 1,328 1,984
Billions of Square Feet in
Database ..................... 0.9 1.3 2.2 3.3 6.5 6.9 8.4
Buildings in Database ......... 9,955 12,775 24,822 43,520 112,335 122,199 152,196
Images in Database ............ 5,998 15,459 24,926 47,308 90,545 105,746 124,616
</TABLE>
- ----------
(1) The statement of operations data and balance sheet data for 1993 through
March 31, 1998 give effect to the contribution to the Company of all of the
outstanding equity interests in its predecessors, RIGINC and RIGLP, in
exchange for the Company's shares at a rate of 3.113 shares of Company
Common Stock for each share of RIGINC or unit of RIGLP as if it had been
consummated on January 1, 1993.
(2) The pro forma statement of operations and other operating data for the year
ended December 31, 1997 and the three months ended March 31, 1998 gives
effect to the Jamison Acquisition as if it had been consummated on January
1, 1997, while the pro forma balance sheet data as of March 31, 1998 assumes
the Jamison Acquisition occurred on March 31, 1998.
(3) Reflects charges of approximately $1.1 million and $275,000 for 1997 and the
three months ended March 31, 1998, respectively, resulting from the
amortization of capitalized product development acquired through the Jamison
Acquisition.
17
<PAGE>
(4) Includes gain from sale of assets amounting to $893,000.
(5) Includes shares of the Company's predecessors converted at a rate of 3.113
shares per share of RIGINC or unit of RIGLP and the shares issued to the
Jamison stockholders in connection with the Jamison Acquisition. Stock
options and warrants outstanding have been excluded from the calculation
because their effect is anti-dilutive.
(6) The Company anticipates a one time write-off of acquired in process research
and development amounting to $3.0 million resulting from the Jamison
Acquisition. This charge to earnings has been reflected in the pro forma
Balance Sheet data, but has been excluded from the pro forma Statement of
Operations data.
(7) Adjusted to reflect the sale of 2,109,091 shares of Common Stock offered by
the Company and the application of the net proceeds from the Offering.
Additionally, reflects the use of proceeds for the repayment of the RIGLP
line of credit of $1,000,000 and its subordinated debt to RIGINC totaling
$650,000 (which sum was loaned to RIGINC by one of its stockholders) and the
advances from stockholders of Jamison of $111,000 and other long-term debt
of Jamison amounting to $67,000. See "Certain Transactions."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus. See "Special Note Regarding Forward-Looking Statements and Risk
Factors." The following discussion also should be read in conjunction with the
Selected Consolidated Financial Data and the historical financial statements and
related notes thereto appearing elsewhere in this Prospectus.
OVERVIEW
The Company is a leading provider of comprehensive, building-specific
information to the United States commercial real estate industry and related
industries. During the period from 1994 through 1997, the Company expanded the
geographical coverage of its products and developed new products. This expansion
included acquisitions made by the Company in 1996 and 1997 in Chicago and San
Francisco, respectively. See "Business -- Overview." In connection with the
Offering, the Company will acquire Jamison, a commercial real estate information
provider with operations in Atlanta and Dallas/Fort Worth. See "-- Jamison
Acquisition." See "Business -- Overview." The Company currently generates
positive cash flow from operations in each region that has operated for at least
18 months. Costs associated with the introduction of new products into these
established regions may result in net losses in such regions in the future.
Because of the Company's growth strategy, costs incurred in expanding into new
regions and introducing new products to existing markets have resulted in
substantial overall net losses and negative cash flow from operations. As each
regional operation and each product becomes established, the revenue produced
generally exceeds operating costs and generates profits and cash flow from
operations. Management expects that proceeds from the Offering will be used
primarily to continue the rapid expansion into new regions and the development
and introduction of new products. Therefore, while existing regions are expected
to grow in profitability and provide substantial funding for the business, the
expansion is expected to generate substantial losses and negative cash flow from
overall operations for at least the next two years.
Approximately 95% of the Company's revenue in 1997 was derived from
one-year to three-year contracts that generally renew automatically. Upon
renewal, many of the contract rates increase automatically in accordance with
contract provisions or as a result of renegotiation. The Company currently
experiences CoStar contract renewal rates in excess of 90%. Clients pay contract
fees on an annual, quarterly or monthly basis. The Company recognizes this
revenue on a straight line basis beginning with the installation or renewal date
over the life of the contract. Annual and quarterly advance payments result in
deferred revenue, which substantially reduces the working capital requirements
generated by the growth in the Company's accounts receivable. Approximately 5%
of the Company's revenue in 1997 was derived from the sale of advertising
products.
19
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS OF THE COMPANY
Consolidated Results of Operations
The following table sets forth selected consolidated results of operations
of the Company (in thousands of dollars and as a percentage of total revenue)
for the periods indicated:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ............................. $2,062 100% $ 4,336 100% $ 7,900 100%
Cost of revenue ..................... 931 45% 2,188 50% 3,413 43%
------ --- -------- --- -------- ---
Gross margin ........................ 1,131 55% 2,148 50% 4,487 57%
Operating expenses
Selling and marketing .............. 566 28% 2,712 63% 4,374 56%
Software development ............... 248 12% 254 6% 395 5%
General and administrative ......... 1,180 57% 1,863 43% 3,017 38%
------ --- -------- --- -------- ---
Total operating expenses ............ 1,994 97% 4,829 112% 7,786 99%
------ --- -------- --- -------- ---
Loss from operations ................ (863) (42%) (2,681) (62%) (3,299) (42%)
Other income (expense) .............. 79 4% 49 1% 33 1%
------ --- -------- --- -------- ---
Net loss ............................ $ (784) (38%) $ (2,632) (61%) $ (3,266) (41%)
====== === ======== === ======== ===
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------------------------
1997 1998
-------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue ............................. $1,555 100% $2,839 100%
Cost of revenue ..................... 717 46% 904 32%
------ --- ------ ---
Gross margin ........................ 838 54% 1,935 68%
Operating expenses
Selling and marketing .............. 863 55% 1,264 45%
Software development ............... 103 7% 118 4%
General and administrative ......... 672 43% 899 32%
------ --- ------ ---
Total operating expenses ............ 1,638 105% 2,281 81%
------ --- ------ ---
Loss from operations ................ (800) (51%) (346) (13%)
Other income (expense) .............. 31 2% (38) (1%)
------ --- ------ ---
Net loss ............................ $ (769) (49%) $ (384) (14%)
====== === ====== ===
</TABLE>
Comparison of March 31, 1997 and March 31, 1998
Revenue. Revenue increased 83% from $1.6 million for the three months ended
March 31, 1997 to $2.8 million for the three months ended March 31, 1998. This
increase in revenue resulted principally from growth of CoStar in the
established regions and growth in new regions entered during 1997. Advertising
revenue increased 174% from $69,000 for the three months ended March 31, 1997 to
$189,000 for the three months ended March 31, 1998. This increase reflects the
expansion of the advertising product in the established regions.
Gross margins. Gross margins increased 131% from $838,000 for the three
months ended March 31, 1997 to $1.9 million for the three months ended March 31,
1998, improving from 54% to 68% of revenue, respectively. This increase resulted
principally from the expanding revenue and profitability of the established
regions, including Washington, D.C., New York, Los Angeles and Chicago.
Selling and marketing expenses. Selling and marketing expenses increased
46% from $863,000 for the three months ended March 31, 1997 to $1.3 million for
the three months ended March 31, 1998, but decreased as a percentage of revenue
from 55% to 45%, respectively. Selling and marketing expenses increased as the
company expanded its sales organization into new markets and developed and
introduced new products to its existing client base.
General and administrative expenses. General and administrative expenses
increased 34% from $672,000 for the three months ended March 31, 1997 to
$899,000 for the three months ended March 31, 1998, but decreased as a percent
of revenue from 43% to 32%, respectively. General and administrative expenses
increased due to additional personnel required to support an expanding
organization and client base.
Interest and other income (expense). Interest income decreased from $31,000
for the three months ended March 31, 1997 to an expense of $38,000 for the three
months ended March 31, 1998 as a result of borrowing on lines of credit used to
fund the operations of the Company.
Comparison of 1997 and 1996
Revenue. Revenue grew 84% from $4.3 million in 1996 to $7.9 million in
1997. This increase in revenue resulted principally from growth in the Company's
client base in all regions of the country, expansion into new regions, expansion
of product lines into existing regions, and introduction of new products.
Revenue from regions considered established at December 31, 1997 grew from $4.3
million in 1996 to $7.3 million in 1997, an increase of 70%. A portion of this
growth resulted from a full year of operation in the Chicago region in 1997,
which the Company entered on April 1, 1996 through the
20
<PAGE>
acquisition of Chicago Resource, Inc. New regions entered and generating revenue
during 1997 include San Francisco, through the purchase of 99.3% of the capital
stock of NMS, Inc., and Philadelphia, both entered in the first quarter of 1997,
and Boston, entered in the fourth quarter of 1997. Advertising revenue,
generated primarily in established regions, increased 232% from $122,000 in 1996
to $405,000 in 1997, reflecting the initial impact of investments in the
advertising product.
Gross margins. Gross margins increased from $2.1 million in 1996 to $4.5
million in 1997, improving from 50% to 57% of revenue. This increase resulted
principally from the expanding revenue and profitability of established regions,
including Washington, D.C., New York, Los Angeles and Chicago.
Selling and marketing expenses. Selling and marketing expenses increased
63% from $2.7 million in 1996 to $4.4 million in 1997, but decreased as a
percentage of revenue from 63% in 1996 to 56% in 1997. Selling and marketing
expenses increased as the Company expanded its sales organization into new
markets and the Company invested in the development of the advertising sales
area. Selling expenses declined as a percent of revenue due to sales growth
during the year and the growing renewable contract base.
General and administrative expenses. General and administrative expenses
increased 58% from $1.9 million in 1996 to $3.0 million in 1997, but decreased
as a percentage of revenue from 43% in 1996 to 38% in 1997. General and
administrative expenses increased due to new hires required to support the
expanding organization and client base, as well as increases in occupancy and
communication costs. General and administrative expenses decreased as a
percentage of revenue due to the Company's ability to leverage these expenses
over its growing revenue.
Interest and other income. Interest income increased from $30,000 in 1996
to $49,000 in 1997 due to higher average cash balances in 1997 resulting from a
capital investment of $4.8 million in the Company in December 1996.
Comparison of 1996 to 1995
Revenue. Revenue increased 105% from $2.1 million in 1995 to $4.3 million
in 1996. This increase in revenue resulted from rapid growth in the Company's
client base, principally in the New York and Washington regions, which accounted
for $1.2 million or 57% of the total growth, and the Company's expansion to new
regions. New regions entered and generating revenue in 1996 included Chicago and
Los Angeles.
Gross margins. Gross margins increased from $1.1 million in 1995 to $2.1
million in 1996 due to the growth in revenue. However, expansion to new regions
including Los Angeles and Chicago resulted in new operating costs, primarily the
cost of compiling, researching and updating the Company's Database. These costs
reached significant levels for each new region and product in advance of revenue
growth. Gross margins as a percentage of revenue were therefore reduced from 55%
in 1995 to 50% in 1996.
Selling and marketing expenses. Selling expenses increased from $566,000 in
1995 to $2.7 million in 1996 as the Company substantially expanded its sales
organization into new regions and enhanced its selling efforts in existing
regions, particularly New York.
General and administrative expenses. General and administrative expenses
increased 58% from $1.2 million in 1995 to $1.9 million in 1996. This increase
is due to hiring additional personnel required to support the expanding number
of regions and growing client base.
Interest and other income. Interest income decreased from $71,000 in 1995
to $30,000 in 1996 as a result of lower average cash balances in 1995.
21
<PAGE>
Consolidated Quarterly Results of Operations
The following tables summarize the Company's consolidated results of
operations on a quarterly basis for the periods indicated:
<TABLE>
<CAPTION>
1996 1997
------------------------------------------------ -----------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ---------- ------------- ----------- ------------ ---------- -----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue .................... $ 725 $ 1,110 $ 1,210 $ 1,291 $ 1,555 $ 1,858 $ 2,074 $ 2,413
Cost of revenue ............ 303 546 647 692 717 937 890 869
------- ------- ------- --------- ------- -------- ------- -------
Gross margin ............... 422 564 563 599 838 921 1,184 1,544
Operating expenses ......... 794 1,196 1,211 1,628 1,638 1,966 1,998 2,184
------- ------- ------- --------- ------- -------- ------- -------
Loss from operations ....... (372) (632) (648) (1,029) (800) ($ 1,045) (814) (640)
Other income (expense) ..... 14 5 4 26 31 17 3 (18)
------- ------- ------- --------- ------- -------- ------- -------
Net loss ................... $ (358) $ (627) $ (644) $ (1,003) $ (769) $ (1,028) $ (811) $ (658)
======= ======= ======= ========= ======= ======== ======= =======
<CAPTION>
1998
----------
MAR. 31
----------
<S> <C>
Revenue .................... $2,839
Cost of revenue ............ 904
------
Gross margin ............... 1,935
Operating expenses ......... 2,281
------
Loss from operations ....... (346)
Other income (expense) ..... (38)
------
Net loss ................... $ (384)
======
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------------------- ---------------------------------------- ----------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
--------- --------- ---------- --------- --------- --------- ---------- --------- ----------
(AS A PERCENTAGE OF TOTAL REVENUE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue .................... 100% 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenue ............ 42% 49% 53% 54% 46% 50% 43% 36% 32%
--- --- --- --- --- --- --- --- ---
Gross margin ............... 58% 51% 47% 46% 54% 50% 57% 64% 68%
Operating expenses ......... 109% 108% 100% 126% 105% 106% 96% 91% 81%
--- --- --- --- --- --- --- --- ---
Loss from operations ....... (51%) (57%) (53%) (80%) (51%) (56%) (39%) (27%) (13%)
Other income (expense) ..... 2% 0% 0% 2% 2% 1% 0% (1%) (1%)
--- --- --- --- --- --- --- --- ---
Net loss ................... (49%) (57%) (53%) (78%) (49%) (55%) (39%) (28%) (14%)
=== === === === === === === === ===
</TABLE>
SUPPLEMENTAL REVENUE AND CONTRIBUTION MARGIN ANALYSIS OF ESTABLISHED REGIONS
Since its inception, the development of the Company's business has required
substantial investments for the expansion of products and establishment of
operating regions, which has resulted in substantial net losses. These
investments continue in certain regions, while other regions have become
profitable. Additionally, existing profitable regions may experience reductions
in profitability as a result of expansions in the scope of product offerings
within the region.
Due to the varying degrees of maturity of the Company's operating regions,
management measures a region's performance in relation to the length of time the
region has been in operation, along with the relative size of the region and its
product offerings. Management believes that financial data for regions that have
been in operation for at least 18 months subsequent to the initial release of
products can provide relevant information as to the performance and
profitability of the Company. Such regions are considered by management to be
established, and generally provide substantial operating cash flows that are
then invested into the development of new regions.
As of March 31, 1998, the Company's operations in the following regions
have been ongoing for more than eighteen months and are considered established:
Washington (includes Baltimore), Chicago, New York (includes Northern New
Jersey, Long Island, Westchester, and Connecticut) and Los Angeles (includes
Orange County). The following table sets forth supplemental quarterly financial
information regarding the regions considered established as of March 31, 1998,
which has been derived from the Company's unaudited interim financial
statements. This information should be read in conjunction with the entire
Prospectus and should not be considered in isolation or as an alternative to
other financial measures. This information is not necessarily indicative of the
results to be expected for any of the Company's other regions.
22
<PAGE>
QUARTERLY REVENUE AND CONTRIBUTION MARGIN OF ESTABLISHED REGIONS
<TABLE>
<CAPTION>
1996
------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
--------- ------------ ------------ ------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Total revenue ................... $ 725 $ 1,109 $ 1,210 $ 1,296
Operating costs(1) .............. 622 1,053 1,140 1,281
------ -------- -------- --------
EBITDA before general and
administrative expenses(2) ..... $ 103 $ 56 $ 70 $ 15
====== ======== ======== ========
Contribution margin(3) .......... 14% 5% 6% 1%
------ -------- -------- --------
<CAPTION>
1997 1998
--------------------------------------------------- -----------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------------ ------------ ------------ ------------ -----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total revenue ................... $ 1,518 $ 1,712 $ 1,894 $ 2,144 $ 2,390
Operating costs(1) .............. 1,190 1,312 1,329 1,233 1,220
-------- -------- -------- -------- -------
EBITDA before general and
administrative expenses(2) ..... $ 328 $ 400 $ 565 $ 911 $ 1,170
======== ======== ======== ======== =======
Contribution margin(3) .......... 22% 23% 30% 42% 49%
-------- -------- -------- -------- -------
</TABLE>
- ----------
(1) Includes cost of revenues and operating expenses for each established
region.
(2) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
shown here excludes allocation of the Company's general and administrative
expenses. Management believes that EBITDA is an indicator of how established
regions are performing. However, EBITDA should not be considered as an
alternative to net income or loss (as an indicator of operating performance)
or to cash flows generated from operating activities (as a measure of
liquidity) determined in accordance with generally accepted accounting
principles.
(3) EBITDA as a percentage of revenues.
JAMISON ACQUISITION
In connection with the Offering, the Company will acquire Jamison for
Common Stock valued at $10.0 million. Jamison is a real estate information
business that has been based in the Atlanta region since 1981 and that expanded
to the Dallas region in 1995. In the Offering the stockholders of Jamison are
selling up to 65% of the Common Stock received by them in the Jamison
Acquisition. The Company will not receive any of the proceeds from the sale of
the Common Stock of the Jamison Selling Stockholders. See "Jamison Selling
Stockholders." The audited financial statements of Jamison are included
elsewhere in this Prospectus. For the year ended December 31, 1997 and the three
months ended March 31, 1998, Jamison generated cash from operating activities of
$266,000 and $230,000, respectively. This positive cash flow principally results
from continued profitable operations in Atlanta and substantial revenue growth
in the Dallas region, which has largely eliminated negative cash flow associated
with entry into that region.
As a result of the Jamison Acquisition, the Company will allocate $7.0
million of the Jamison purchase price to capitalized product development costs
and intangible assets, that will be amortized using estimated lives of two to
fifteen years, and $3.0 million to in process research and development which
will be charged to operations immediately following the Jamison Acquisition. The
estimated charges for amortization of the Jamison capitalized product
development and intangible assets are approximately $1.5 million for the first
two years, and are expected to decline to approximately $500,000 or less per
year thereafter. Approximately $1.1 million of the amortization in each of the
first two years relates to capitalized product development and will be charged
to cost of sales, reducing gross margins substantially.
The Company will make significant investments to convert Jamison's data,
upgrade Jamison's clients to the Company's products and complete the development
of certain acquired technology into products which are commercially viable in
the Company's other markets. These projects are expected to cost up to $1.0
million to complete, including the cost of programming, consulting, training and
research, and are expected to be completed within two years. The Company
anticipates that during this period, the positive cash flow expected from the
Jamison operation will be largely offset by the costs of this conversion
process. There can be no assurance that the conversion and development of
Jamison's data, products and clients will be completed in the time planned, or
that the cost of these projects will not be greater than estimated.
23
<PAGE>
Results of Operations of Jamison
The following table sets forth selected annual results of operations of
Jamison (in thousands of dollars and as a percentage of revenue) for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1996 1997 1997 1998
-------------------- --------------------- ------------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ................................. $2,502 100% $3,664 100% $822 100% $1,049 100%
Cost of revenues ......................... 1,081 43% 1,379 38% 351 43% 357 34%
------ --- ------ --- ---- --- ------ ---
Gross margin ............................. 1,421 57% 2,285 62% 471 57% 692 66%
Operating expenses:
Selling, general and administrative
expenses .............................. 1,637 66% 2,200 60% 461 56% 526 50%
Software development .................... 110 4% 52 1% 21 3% -- 0%
------ --- ------ --- ---- --- ------ ---
Total operating expenses ................. 1,747 70% 2,252 61% 482 59% 526 50%
------ --- ------ --- ---- --- ------ ---
Income (loss) from operations ............ (326) (13%) 33 1% (11) (2%) 166 16%
Other income (expense) ................... (14) (1%) (35) (1%) 5 1% (3) 0%
------ --- ------ --- ---- --- ------ ---
Loss before income taxes ................. (340) (14%) (2) 0% (6) (1%) 163 16%
Provision (benefit) for income taxes ..... (122) (5%) 3 0% -- 0% (59) (6%)
------ --- ------ --- ---- --- ------ ---
Net income/(loss) ........................ $ (218) (9%) $ (5) 0% $ (6) (1%) $ 104 10%
====== ==== ====== === ==== === ====== ===
</TABLE>
Comparison of March 31, 1997 and March 31, 1998 of Jamison
Revenue. Revenue increased 28% from $822,000 for the three months ended
March 31, 1997 to $1.0 million for the three months ended March 31, 1998. This
increase in revenue resulted principally from continued growth of the client
base in Atlanta and Dallas.
Gross Margins. Gross margins increased 47% from $471,000 for the three
months ended March 31, 1997 to $692,000 for the three months ended March 31,
1998, improving from 57% to 66% of revenue, respectively. This increase resulted
principally from the expanding revenue and profitability of the Atlanta and
Dallas regions.
Selling general and administrative expenses. Selling general and
administrative expenses increased 14% from $461,000 for the three months ended
March 31, 1997 to $526,000 for the three months ended March 31, 1998, but
decreased as a percentage of revenue from 56% to 50%, respectively. Selling and
marketing expenses increased as Jamison expanded its sales organization in
Dallas and began focusing on the sale of Jamison Reports in that region. Selling
expenses declined as a percent of revenue due to the sales growth experienced
during the quarter and the growing renewable subscriber base.
Other income (expenses). Other income decreased from $5,000 for the three
months ended March 31, 1997 to an expense of $3,000 for the three months ended
March 31, 1998 due to an increase in interest expense.
Comparison of 1997 and 1996 of Jamison
Revenue. Revenue grew 48% from $2.5 million in 1996 to $3.7 million in
1997. This increase in revenue resulted principally from growth in Jamison's
client base as well as expansion into the Dallas region. Atlanta, a market
entered in 1981, grew approximately $300,000 or 17%, while Dallas revenue
increased from approximately $400,000 in 1996 to $1.2 million in 1997.
Gross Margins. Gross margins increased $864,000 from $1.4 million in 1996
to $2.3 million in 1997, improving from 57% to 62% as a percent of sales. This
increase resulted principally from the expanding revenue in the Dallas region.
24
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 29% from $1.7 million in 1996 to $2.2 million
in 1997, but decreased as a percentage of revenue from 66% in 1996 to 60% in
1997. Selling expenses increased as the Company expanded its sales organization
into Dallas and began focusing on the sale of Jamison Reports. Selling expenses
declined as a percent of revenue due to the sales growth experienced during the
year and the growing renewable subscriber base.
Other income (expense). Other expenses increased from $14,000 in 1996 to
$35,000 in 1997 due to an increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations through cash flow from
established regions, the sale of partnership units and the establishment of
credit lines with a bank and with a stockholder of the Company. Additionally,
the Company receives advance payments from clients on a number of contracts,
resulting in the generation of cash as reflected in deferred revenue balances of
$969,000, $903,000, and $1.6 million as of December 31, 1996 and 1997 and March
31, 1998, respectively. Increases in accounts receivable due to sales growth
expand working capital requirements and reliance on credit lines, but are
substantially offset by deferred revenue. As a result of reduced losses and a
significant increase in deferred revenue as of March 31, 1998, cash provided by
operations for the three months ended March 31, 1998 was $22,000. The Company
had a deficit in working capital at March 31, 1998 of $1.9 million, and
continues to experience operating losses and negative cash flow as a result of
its rapid expansion into new regions, while established regions continue to
generate cash flow from operations.
Net cash used in operating activities was $454,000, $1.8 million, and $2.2
million, in 1995, 1996, and 1997, respectively, as a result of the operating
losses of the Company. Net cash used in investing activities amounted to $1.7
million in 1997, including the acquisition of NMS, Inc. and capitalized product
development, including the cost of building photography, and fixed asset
purchases, consisting principally of computer and office equipment. The Company
currently has no material commitments for capital expenditures. Management
believes that the Company's current resources and commitments for funding are
adequate to support its current operations, and based on its current plans, the
proceeds of the Offering combined with positive cash flow from the Company's
established regions will be sufficient to fund its planned operations and
expansion into new regions and products for at least the next two years.
To date, the Company has generated substantial growth through the
acquisition of other entities. The Company plans include further growth which
may occur through the acquisition of other entities. Acquisitions may vary in
size and could be material to the current operations of the Company. The Company
expects that it will use cash, stock issuances, or other means of funding to
effect such transactions.
To date the Company has operated as either a Subchapter S corporation or a
limited partnership, and has not been subject to corporate income taxes.
Currently, the Company is a taxable entity. Although the Company has experienced
losses to date, future profitability, to the extent it is not offset by the
benefits of loss carryforwards, would result in income tax liabilities. The
Company does not expect to benefit substantially from tax loss carry forwards
generated prior to its formation.
Management does not believe the impact of inflation has significantly
affected the Company's operations. Management does not anticipate that the Year
2000 will have a significant impact on its information systems or result in a
significant commitment of resources to resolve potential problems associated
with this event.
25
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading provider of comprehensive, building-specific
information to the United States commercial real estate industry and related
industries. The Company has created a proprietary Database, through internal
development and strategic acquisitions, that the Company believes is
significantly more comprehensive, accurate and up-to-date than any other
database of information detailing office and industrial space in the United
States. The Database includes hundreds of data fields providing substantive
information as well as digitized photographs and floor plan images on individual
commercial buildings in the Company's markets. The Combined Database tracks over
eight billion square feet of office and industrial space in more than 150,000
buildings, better than twice the coverage of the Combined Company's nearest
competitor. The Combined Database also contains detailed information on 120,000
tenants and 13,000 buildings for sale (with an aggregate asking price in excess
of $15 billion). In addition, the Company has developed a portfolio of
multimedia software products with Internet connectivity that allows clients to
access the Database and from which the Company generates revenue in each of its
markets.
The Combined Company is the market leader in providing comprehensive office
and industrial real estate information in nine of the ten largest United States
metropolitan areas. After establishing the Database and software products in the
Washington, D.C. metropolitan area, the Company expanded to Baltimore (1992),
and thereafter to New York City (1994), Westchester County, Long Island and
Northern New Jersey (1995), Los Angeles, Orange County and Chicago (1996), and
Philadelphia, San Francisco and Boston (1997). In connection with the Offering,
the Company will acquire Jamison, the leading commercial real estate information
provider in Atlanta and Dallas/Fort Worth. The Company plans to continue its
aggressive geographic expansion in the United States and in select international
markets. In most instances, the leading office and industrial real estate
brokerage firms in a new market have become the Company's clients within six
months of entry. The Company currently generates positive cash flow from
operations in each regional market in which it has operated for at least 18
months.
The Company's clients access the Database using the Company's multimedia
software products. These software products include (i) CoStar, a product
primarily intended for office and industrial real estate professionals which
allows them to use the Database to analyze leasing options, market conditions
and competitive property positions, and to produce multimedia presentations, and
(ii) CrosTrac, a product primarily intended for participants in the office real
estate industry which allows them to identify the most likely tenants to fill
space vacancies, to find tenants needing representation for their space needs,
and for business-to-business marketing. The Company also derives significant
revenue from other products. Interactive Advertising provides clients with a
means of direct access to real estate professionals by allowing placement of
advertisements of properties for lease or sale, directly in the Company's
software products and on the Company's web site. The Combined Company plans to
expand its distribution of Jamison Reports, a collection of quarterly market
conditions reports, on a national basis. The Company is also developing several
new software products to allow clients to better utilize the Database, including
CoStar I/S, a software product that will provide extended detail on office and
industrial properties offered for sale.
INDUSTRY BACKGROUND
According to the Federal Reserve, the inventory of commercial real estate
in the United States has been valued at approximately $3.3 trillion. The Company
estimates that the value of annual transactions for the sale and lease of office
and industrial real estate in the United States was $175 billion in 1997. The
Company believes that the market for office and industrial real estate
information, though undefined today, is vast based on the volume and value of
commercial real estate transactions and the large number of parties involved in
such transactions. Comprehensive and reliable information is a critical
component of all transactions in the commercial real estate industry. To effect
these transactions, real estate brokers representing lessors and tenants, and
buyers and sellers need comprehensive, accurate and consistent building-specific
information to enable them to advise their clients. A study by an inde-
26
<PAGE>
pendent consulting firm commissioned by the Company found that commercial real
estate professionals spend 40% of their work day collecting and analyzing
information on the real estate market. In the United States there are currently
an estimated 160,000 commercial real estate firms.
The importance of accurate, property-specific information to a broker's
business translates both into time (as indicated by the consulting firm's study)
and money. Traditionally, large brokerage firms maintained their own research
departments to catalogue buildings, space availabilities, properties for sale,
market statistics, and other building specific information. Smaller brokerage
firms, unable to afford their own research departments, would periodically
research the market in response to client requests. Each firm also spent
significant resources adapting or developing software to analyze the information
it had independently gathered. This fragmented approach resulted in duplication
of effort in the collection and analysis of information, excessive internal
costs, non-standard data with varying degrees of accuracy and comprehensiveness
and, especially for smaller firms, a large information gap. From its inception,
the Company has sought to consolidate research and software development efforts
and spread the costs of such efforts over all its clients in order to deliver
more comprehensive, accurate and timely information than any single client could
obtain through its individual efforts.
COMPETITIVE ADVANTAGES
The Company believes that it has a number of competitive advantages
relative to its actual and potential competitors including:
o Comprehensive Proprietary Database. The Company's Database is the
accumulation of more than ten years of data collection by the Company. This
effort includes both direct data collection by the Company and the
acquisition of various real estate information providers in various markets
who themselves (like Jamison) expended significant effort building their
databases. The Combined Database tracks over eight billion square feet of
office and industrial inventory and more than 120,000 tenants. The Combined
Database also includes photographs of more than 70,000 buildings, believed
by the Company to be the largest library of digitized building photographs
in existence. The Combined Database is supported and maintained by one of
the largest office and industrial real estate listings research staffs in
the nation. Whereas the Company's Database costs are mostly related to
maintaining the accuracy, currency and integrity of the Database and
expanding the Database to cover new markets, the Company believes that any
new competitor would have to make substantial expenditures over a number of
years to develop a database as comprehensive as the Database.
o Full Service Software and Data Solutions. As the result of numerous
upgrades over the last several years, the Company's software products have
become a high value-added tool for its clients by providing them with
full-service solutions to their needs. Through continuous feedback from
clients and a highly sophisticated software platform, the Company has
improved its software products to service more of its clients' needs. The
Company believes that, because of its size and experience, it will be able
to maintain and upgrade this software at a lower cost per client compared
to its competitors.
o First to Capitalize on Outsourcing Trend. During the 1990s, many of the
Company's clients began outsourcing the collection and assembly of
commercial real estate data. A portion of the Company's Database was
developed with data contributed by clients that had outsourced their real
estate information needs to the Company. In addition, most of the databases
that were contributed to the Company no longer exist, as the firms that
originally built them (and provided them to the Company) ceased maintaining
them when they subscribed to the Company's products and services. As a
result, the Company believes that it would be difficult for any new
competitor to duplicate this process.
o Standardization on Company Products. Many of the Company's clients have
standardized their internal reporting systems on the Company's proprietary
data structures. Users of the Company's software have invested significant
time mastering the Company's products and understanding its methodologies,
so that the Company's clients are likely reluctant to change information
suppliers. In addition, a growing number of prominent print and other media
outlets are routinely citing the Company as a source for office and
industrial real estate data.
27
<PAGE>
o Resources to Enter Markets Efficiently. The Company's market coverage, size
and experience with geographic expansion allow it to expand rapidly into
new markets at a relatively low cost compared to its competitors. New
market entry is facilitated because, prior to entry, the Company already
has the Database, software products that use the Database, established
research and data collection procedures, existing administrative
infrastructure, and marketing and sales procedures that have been
successful in other markets.
o Sole National Information Provider. The Combined Company is the only
provider of uniform, up-to-date and comprehensive data in all of the major
markets encompassed by the Combined Database. As a result, the Combined
Company has the unique ability to offer significant multi-market real
estate information for those markets to national clients who find value in
purchasing uniformly-presented data.
o Relationships with Key Clients. As a result of the Combined Company's
presence in the nine regions it currently serves, it has developed
long-standing formal and informal relationships with key participants in
the office and industrial real estate market. The Company is able to
capitalize on these relationships when entering new markets and when
expanding product lines in existing markets.
STRATEGY
Building upon its competitive advantages, the Company's objective is to
become the preeminent provider of building-specific information to the
commercial real estate industry and related industries in the United States and
select international markets. The principal components of the Company's strategy
are:
o Maintain and Improve the Database. Management believes that the Database is
the most comprehensive database of building-specific office and industrial
real estate information available today. The Company intends to maintain
this leading position by continuing to expand the Database's coverage and
by constantly auditing and improving the Company's model for collecting the
data underlying the Database to ensure it remains comprehensive and
reliable.
o Maintain Technology Leadership. The Company intends to provide ongoing
upgrades of its software products to incorporate advances in technology and
to provide features and advantages to facilitate ease of use and
flexibility for the Company's clients.
o Enter New Markets. The Company plans to continue its aggressive geographic
expansion in the United States and select international markets. The
Company, independently, or in connection with strategic acquisitions of
local providers, intends to gain an initial foothold in each new target
market with one of the Company's products, and then over time, introduce
all of its products in that target market. In order to accomplish this, the
Company intends to first expand the Database to include substantially more
comprehensive information on office and industrial buildings in the target
market than any competitor in that market. The Company believes that
favorable references from reputable clients in established markets will
enable the Company to accelerate the rate at which it can gain market
acceptance in newly entered regions.
o Increase Market Penetration and Revenue in Established Markets. The Company
believes that substantial opportunities exist in its established markets to
both attract new clients and increase its revenue from existing clients.
The Company also seeks to increase revenue from existing clients by
increasing the performance and use of the Company's existing products. In
addition, the Company has not yet introduced all its products in all of its
markets. Over the next several years, the Company intends to increase
revenue by introducing its full complement of its products in all of its
markets.
o Introduce New Products to Satisfy Existing Client Needs and Reach New
Clients. The Company believes its Database contains a wealth of information
that can be packaged to create an array of new products, several of which
are currently under development. Management intends to sell
28
<PAGE>
these new products to satisfy both existing client needs and attract new
clients. The Company also intends to attract new clients by expanding its
Database to cover additional segments of the commercial real estate
industry (such as retail, multi-family and hotels).
THE DATABASE
The Company believes that the Database is the largest and most
sophisticated database of office and industrial real estate information
available today. It is the basis for all of the Company's products and services.
This highly complex database is a real-time information system comprised of more
than 100 inter-related tables, containing hundreds of data fields of
information. The data fields tracked include such categories as: location, site
and zoning information; building characteristics; space availabilities; tax
assessments; ownership; sale comparables; mortgage and deed information;
for-sale information; and income and expense histories.
The Combined Database is the result of more than ten years of research by
the Combined Company. It tracks more than eight billion square feet of office
and industrial inventory in more than 150,000 buildings and 1.3 billion square
feet of available space on a floor-by-floor, suite-by-suite level in increments
as small as 100 square feet. The Combined Database archives valuable historical
information such as leasing, occupancy, rental rate and ownership histories. It
also contains detailed information on more than 32,000 commercial real estate
companies that own, lease and manage properties tracked by the Company. In
addition, the Combined Company actively tracks over 120,000 tenants and
thousands of lease transactions.
The Combined Database also includes 124,000 building photographs, aerial
photographs and floor plans. The Company believes this is the largest library of
digitally stored property photographs in existence. These images were collected
over a ten year period by dozens of staff and contract architectural
photographers nationwide.
DATA COLLECTION
The Company has developed a highly evolved data collection organization,
made up of a unique combination of researchers, management systems, computer and
communications hardware, and software systems.
Research. The Combined Company has more than 133 researchers collecting and
analyzing office and industrial real estate information. The Combined Company's
research department updates, on a monthly basis, the majority of the more than
140,000 buildings tracked, through over 500,000 phone calls a year, e-mails,
faxes, field inspections, news monitoring and direct mail.
The Company puts every new employee through an extensive training program
to maintain a consistent research process. New employees must pass a series of
examinations developed by the Company to ensure their technical proficiency in
office and industrial real estate, as well as in the Company's internal data
collection systems, which are described in greater detail below. The Company's
research department is structured into geographic teams of Research Analysts,
each led by a Research Manager. This team structure creates opportunities for
upward employee mobility and provides the Company with the flexibility to easily
redeploy research resources to cover new markets.
Management and Quality Control Systems. The Company has established both
automated and non-automated controls to manage the data collection process and
to ensure its integrity. Automated measures such as the Contact Management
System (CMS) track every contact with individuals and firms in the Database and
allow researchers to set call-backs for future data updates. There are a large
number of automated data quality tests that check for potential errors including
contiguous space, occupancy date conflicts, available square footage greater
than building area, typical floor greater than land area, and expired leases.
The Company employs regular non-automated quality control measures as well,
monitoring items such as the number of images scanned and photographs taken, to
the number of tenants canvassed by tenant canvassers and the number of news
stories submitted by researchers. The Company performs
29
<PAGE>
regular auditing of all research to check for data accuracy, completeness and
quality. Audit methods include calling the leasing contact on properties
recently updated to re-verify information collected or reviewing commercial real
estate periodicals and newspapers for transactions to determine whether they are
reflected in the Database. Field research is performed to determine if buildings
were canvassed correctly and to determine if any buildings were missed.
Finally, one of the most important and effective quality control measures
is feedback from the thousands of commercial real estate professionals that use
the Company's data every day. The Company regularly surveys clients regarding
data quality and uses this information to target areas for improvement and to
obtain early warnings about any problem areas.
Computer and Communications Hardware. The Company maintains six Novell
and/or Windows NT servers in support of the Database and a national internal
frame relay network to allow remote researchers real-time access to the
Database. The servers are in a secured, firewall-protected environment. The
Company also maintains redundant drive arrays and stockpiles hardware spare
parts to minimize potential system downtime. The Company stores full data
back-ups off site and is evaluating implementing fully-redundant server capacity
following the Offering.
Software Systems. The Company uses client server software to manage the
Company's internal data collection. In addition, the Company's own systems
software has been developed over ten years and contains over 250,000 lines of
code. This software enables the Company to continuously improve data integrity
and research productivity even as the volume of data tracked has grown
exponentially. The system has four primary functions: collecting
building-specific data, tracking companies and individuals, facilitating the
Company's operations and distributing data.
o Collects Building-Specific Data. Researchers can add or change data
relating to buildings, space available for lease, buildings for sale, lease
and sale comparables, and other historical data. The system goes well
beyond simple data entry. It demands that researchers account for every
square foot of available space they add, delete, or modify in the Database.
It enforces commercial real estate business guidelines and compels the
researcher to record and reconcile available space adjustments in vacancy
and occupancy much like making offsetting entries in a general ledger.
Though the number of data fields on a specific building has increased
dramatically, the system has allowed average researcher productivity to
double over the last five years through increased automation. The system
enforces referential integrity by ensuring that changes made in one area of
the Database are consistent with all related areas of the Database and
utilizes comprehensive audit trails to allow management to understand how
and why changes were made and by whom. The system is scalable to allow for
continued growth in the size of the Database.
o Tracks Companies and Individuals Associated with Commercial Real Estate.
The system tracks brokerage firms, tenants, owners, property managers,
developers, architects and many others. The system allows employees to
track contact and call histories and set automated and manual call-backs.
This second function of the Company's software systems is highly integrated
with the first. For example, it transforms available space listing updates
into actual tenant and tenant deal transaction information.
o Facilitates the Company's Operations. The Company's software systems are
utilized by the Company internally in a number of areas including sales,
marketing, customer service, administration and accounting. For example, a
new leasing agent entered in the system by a researcher is automatically
flagged on the sales representative's system as a sales prospect. Later,
this same leasing agent may be identified in a query by the marketing
department as a direct mail target. After that leasing agent becomes a
client, customer service will schedule installation and manage ongoing data
delivery through this same system. Finally, the accounting department will
handle contract management and accounts receivable communications, all
within this same integrated system.
o Distributes Data. The software system automates packaging and delivery of
subsets of the Database for client use. This is accomplished through a
series of nightly, automated, triggered events. Quality control reports are
generated for management, redundant online backups are made and database
subsets are compressed for more efficient distribution. Finally, the
Database subsets are transported over the Internet to client systems.
30
<PAGE>
PRODUCTS AND SERVICES
The Company has developed advanced proprietary software products utilizing
its Database. These products use sophisticated Windows-based programs with
Internet connectivity to access the Company's Database and present information
in a variety of formats.
CoStar. Introduced in 1991, CoStar is a software product heavily utilized
by commercial real estate brokers and increasingly used by building owners,
investors and lenders and by goods and service providers such as
telecommunications providers, insurance companies and building services vendors.
CoStar allows access to utilize the Database to research leasing options,
analyze market conditions and competitive property positions, keep abreast of
industry news, and produce multimedia client presentations.
The Company's clients use CoStar to find leasing options in office and
industrial buildings. The user can query the Database with any combination of
pertinent criteria, combining any of approximately one hundred CoStar data
fields from categories such building size, location, building characteristics,
space availabilities, ownership, or sales comparables. For example, if a CoStar
user needs to find an office suite of 5,000 square feet in a high quality
building in one of two specific submarkets, the client simply enters these
requirements into CoStar and initiates a query. CoStar then searches through
hundreds of millions of square feet of space in seconds to find all the
available space meeting the search criteria.
The Company's clients also use CoStar to analyze market conditions by
calculating up-to-the-minute vacancy rates, absorption rates, or average rental
rates. This allows clients to gauge supply and demand balance and track market
trends. Clients can also keep abreast of their competitor's market share and how
competitors are positioning their properties. In addition, CoStar has a newswire
feature that keeps clients informed of late breaking commercial real estate news
such as major deals signed, acquisitions, ground breakings and other features.
CoStar allows users to create professional client presentations complete
with high-resolution, digital color photographs and aerials of commercial
buildings in minutes using a desktop computer and color printer. CoStar further
details space availability by providing digital floor-plans indicating
"as-built" conditions or typical floors. The user can select from over 50
customizable reports, presenting space availability, comparable sales, tenant
activity, market statistics, photographs and floor plans. Preliminary space
planning can also be performed on CoStar's floor-plans to help determine
feasibility and use. The user can export and edit reports, photos, and floor
plans in popular software packages like Microsoft Word, Power Point,
WordPerfect, Excel, or Lotus 123. CoStar reports can be edited in Microsoft Word
or WordPerfect for Windows to easily customize and print presentations.
CrosTrac. Introduced in 1996, CrosTrac is a software product that delivers
detailed information profiling the tenants occupying office buildings to a wide
variety of commercial real estate and other clients. Building owners rely upon
the product as do commercial real estate brokers, providers of goods and
services to building tenants, and providers of goods and services to building
owners. These clients use the Database to identify and target the most likely
tenants to lease space, to understand trends and the demand for commercial real
estate, to identify and target the tenants most likely to need representation
for their real estate requirements, and to identify and target the tenants most
likely to buy a particular vendor's goods and services.
Commercial real estate professionals use CrosTrac to identify and target
the tenants most likely to fill their space vacancies. For example, if a client
owns or represents a high quality building in a certain area with an upcoming
vacancy of 5,000 square feet, the client might enter two queries to develop both
a list of prospects for direct mail marketing and a more focused list for
telemarketing. For the first broad list, the client might query for all tenants
with leases expiring within the next year who occupy 3,000 to 7,000 square feet
of space in buildings that are within the same general area as the client's
building. Within seconds, CrosTrac might identify several hundred prospective
tenants from a list of tens of thousands of tenants and enable the client to
print labels for a mailing to these prospects. For the second, more focused
list, the client might use the same query as before, but add a parameter
restricting
31
<PAGE>
the list to those firms with SIC classifications typically found in high quality
buildings, such as law firms or investment banking firms. With the resulting
more focused list of dozens of prospective tenants, the client might use
CrosTrac's call tracking features and data collection features to assist them in
telemarketing the list.
The Company's other clients use CrosTrac to identify and target the tenants
most likely to purchase goods and services from the client. For example,
companies are more likely to make significant purchases in connection with a
move. A furniture vendor specializing in selling economy furniture to mid-size
companies therefore might use CrosTrac to query for all tenants who have, for
ten years or more, occupied 10,000 to 20,000 square feet in mid-quality
buildings and who are moving or who have recently moved into larger spaces.
Within seconds, CrosTrac provides the client with a list of prospective firms
most likely to need new or additional economy furniture. Before the furniture
vendor contacts these prospects, the vendor can learn more about the prospects
by using the web home page addresses of the prospects that are stored in
CrosTrac and CrosTrac's ability to call up those web pages.
Interactive Advertising. In 1997, the Company began to derive significant
revenue from the advertising of office and industrial real estate buildings for
sale or lease on its software products. In the past, few effective vehicles for
targeted marketing of office and industrial properties existed. For owners and
agents representing buildings for lease or sale, reaching potential tenants
directly was not effective because the tenants generally deferred to their
commercial real estate broker to create the short lists of properties for them
to consider. Brokers were difficult to reach with traditional marketing tools
like advertising and direct mail, advertising was hindered because brokers did
not rely on any single information source when researching properties for their
clients, and direct mail also had limited effectiveness because brokers were
deluged with marketing material.
Computerized information systems such as the Company's array of software
products have significantly diminished the Company's clients' reliance on
printed directories and materials. The Company introduced Interactive
Advertising for its CoStar system as well as its web site to take advantage of
this new trend toward electronic delivery and analysis of information. The
Company's clients are made up in large part of commercial real estate
professionals, who are normally the targeted market for advertisers. Since these
professionals generally use the Company's products regularly, advertisers are
realizing an opportunity to market in a more targeted fashion than previously
possible. The multimedia aspects of the Company's products and web site permit
multiple images, text and relevant information about a property for sale or
lease to be delivered instantly to the user.
Each time a user performs a search, looks up a building, views a photograph
or completes another task on one of the Company's products, a new interactive
advertisement appears on a portion of the screen. If interested, the user can
directly access further information on the property from the Company's Database.
Full screen ads contain any combination of information, created and enhanced by
professionally designed graphics. This includes floor plans, maps, photos,
aerials or illustrations. On average, the Company believes an advertisement
appears on one of its software products approximately 20 times per month.
Interactive ads also appear on the Company's web site.
Jamison Reports. In connection with this Offering, the Company will acquire
Jamison, a commercial real estate information provider based in Atlanta and
Dallas/Fort Worth. Jamison has derived a substantial portion of its revenue from
quarterly market conditions reports. The Company will create a new division,
Jamison Reports, to expand this business to the Company's markets nationwide.
This new division will be built upon Jamison's professionally trained analysts
using the Company's Database to produce reports to help clients better
understand the risks and opportunities inherent in real estate projects.
Management believes Jamison Reports will provide institutional investors, Wall
Street analysts and participants in the real estate market with consistent,
independent analysis of real estate trends in each of the Company's markets.
Jamison Reports will be initially divided into two business groups: the
Market Conditions Reporting Group and the REIT Reporting and Analysis Group. The
Market Conditions Reporting Group currently publishes 80 quarterly and
semiannual market conditions reports for the office, industrial, and
32
<PAGE>
retail markets in Atlanta and the Dallas/Fort Worth markets. These reports are
nationally recognized and include vacancy, absorption, effective rental
forecasts, tenant profiles, and historical trends. The objective of this Group
will be to expand the production of these same types of reports into all major
U.S. commercial real estate markets. The REIT Reporting and Analysis Group
intends to provide customized market reports to REITs and report on local and
regional market trends potentially impacting a REIT's financial performance
directly to Wall Street. The objective of the REIT Group is to provide access to
market data to enable professional investors to value real estate with the
support of systematic and comprehensive market data.
CLIENTS
Real estate brokers currently comprise a significant portion of the
Company's clients and are the most active users of the Database. Other
participants in the commercial real estate industry also require various subsets
of the building-specific information found in the Database. Owners and investors
are a significant and growing portion of the Company's client base and include
institutions, banks, mortgage lenders, REITs, asset managers, investment banks
and securities analysts. Another large and growing type of client is providers
of goods and services to buildings and tenants such as property managers,
developers, construction firms, architects, appraisers, building services
vendors, tenant services vendors, telecommunication providers, office furniture
vendors, space planners, insurance companies, utilities and moving companies.
Public service agencies at the federal state and local level are also among the
Company's clients, such as economic development agencies, the Federal Reserve,
General Services Administration and Department of Commerce.
The Combined Company has over 1,900 clients, including leaders of the
commercial real estate industry such as CB Commercial Real Estate Group, Inc.,
Merrill Lynch & Co., Julien J. Studley, Inc. and LaSalle Partners, Inc. Many of
these national companies have multi-year, multi-market contracts with the
Company. These multi-market contracts strengthen the Company's role within the
industry and ease the Company's entry into new markets by providing an initial
client base. In many instances, the Company's entry into new markets has been
facilitated by demand from these leaders of the commercial real estate industry.
No one client accounts for more than 5% of the Company's revenue and during the
past five years, the Company's contract renewal rate has exceeded 90%.
SALES AND MARKETING
The Company sells its products through its own sales force, which is
located at its Bethesda headquarters and at regional offices in each of the
metropolitan areas in which the Company offers its products. All sales personnel
have experience in the commercial real estate industry, so that they are able to
position and employ the Company's products to create maximum value for each
client's unique situation.
The Company has developed a multi-faceted marketing strategy that takes
full advantage of the Database to effectively target its direct mail,
advertising, trade show and public relations efforts. The Company uses the
Database to identify and target the industry leaders in each of the markets it
enters. The Company then builds upon this initial base through direct mailings,
public relations and print advertising.
The Company has developed sales and marketing methods that achieve
meaningful penetration in a new market within three months of entry. The Company
has two specialized teams within its sales organization. The first is the
National Sales Group, which places experienced account executives in new markets
to make the first introductions. The second is a centralized Outbound
Telemarketing Group, which has allowed the Company to leverage the time and
experience of veteran senior-level sales people at a far lower cost than the
incremental addition of new sales people. These sales resources also enable the
Company to respond rapidly to competitive shifts in the marketplace, as their
focus can quickly be shifted to different geographic areas or products as
needed.
33
<PAGE>
The Company has won several national awards over the last two years as a
result of its in-house Marketing Group. The Company was the National Association
of Industrial and Office Properties ("NAIOP") 1996 winner "Best Single Ad to
Promote a Company," the 1997 1st Place winner "Ad Campaign to Promote a Company"
for New York CoStar and the 1998 1st Place & Grand Award winner "Electronic
Marketing" for the Company's web site. The Company's web site has received
numerous awards including the NAIOP 1997 Grand Award in Electronic Marketing,
the National Real Estate Investor/Internet Review Online Site of the Week,
PikeNet 5-Star Superior Site Award, and the Web Marketing Association's Standard
of Excellence Web Award.
As part of its marketing strategy, the Company seeks to make its products
integral to its clients' transaction decision support processes. Therefore,
unlike services that charge fees based in whole or in part on actual system
usage time, the Company charges fixed monthly amounts which vary among clients
based on the number of sites, organization size and number of accessible
databases and other services to which a client subscribes. The Company believes
this pricing policy encourages clients to use the Company's products regularly.
Although the Company's subscription charges are quoted to clients in annual
amounts, revenue is recognized on a monthly basis.
The basic CoStar contract consists of: (i) database including fundamental
property and space availability data; (ii) local commercial real estate news and
basic market statistics; (iii) basic application package with research and
analytical capabilities; and (iv) client support and training. Additional
components, such as additional data classes (office or industrial), other
geographic areas, tenant information, and image databases, are available at
additional cost. Over 80% of existing clients of the Company subscribe to
additional components, the most popular of which are image databases and
additional data classes.
COMPETITION
The market for information systems and services generally is competitive
and rapidly changing. In the real estate industry, the principal competitive
factors are the quality and depth of the underlying databases, the proprietary
nature of methodologies, databases and technical resources, the usefulness of
the data and reports generated by the software, client service and support,
compatibility with the client's existing information systems, potential for
product enhancement, vendor reputation, price and the effectiveness of marketing
and sales efforts.
The Company has been in competition for many years with Black's Guide in
Washington, Northern New Jersey and Los Angeles. Black's Guide primarily
provides information through the print media but has periodically attempted to
develop computer-delivered products and services competitive with those of the
Company. In July 1996, Black's Guide, previously owned by McGraw-Hill Company
and then by a group including CDA Technologies and Thompson Publishing Company,
or their affiliates, was sold to Teleres, a joint venture between Dow Jones &
Company, Inc. and Aegon (a Dutch insurance company). That joint venture targeted
the investment and financial analyst community, through a product called
"Teleres-Pro," that targeted primarily portfolio managers, and secondarily
brokers and appraisers. In August 1997, the joint venture terminated, discharged
its employees and returned Black's database to Black's Guide. In November 1997,
Black's Guide reportedly entered into an arrangement, the terms of which are not
known to the Company, with ReLocate, Inc. ReLocate, Inc. provides a database
product that competes with the Company's product in New York City, Philadelphia
and Boston. Further competition may result from that venture. Other competitors
include: Smith's Guide and ILS in Orange County and the Association of
Industrial Realtors in Los Angeles, CA; Loopnet Venture, Inc. which provides an
Internet based listing service; and Leasetrends, a firm specializing in tenant
information for Midwestern markets, Denver and South Florida. In addition, there
are a number of firms with which the Company expects to compete as it expands
into their areas. Other ventures may develop from which the Company will face
competition.
While the Company faces competitors in individual markets, the Company
believes that it does not presently face competition from any Company on a
national basis. The Company has successfully competed with companies having
greater financial, product development, technical and marketing resources than
the Company with which to develop competitive databases, software and systems
and other similar
34
<PAGE>
competitors may arise in the future. The Company faces significant indirect
competition from internal information services at some office and industrial
brokerage firms, many of which developed their own databases. As the market for
support systems develops, additional competitors may enter the market and
competition may intensify. While the Company believes that it has successfully
differentiated itself from competitors, there can be no assurance that future
competition would not have a material adverse effect on the Company.
PROPRIETARY RIGHTS
The Company depends upon a combination of trade secret and copyright laws,
nondisclosure and other contractual provisions and technical measures to protect
its proprietary rights in its methodologies, Database and software. The Company
has not filed any patent applications covering its methodologies and software.
The Company distributes its software products under agreements that grant
clients non-exclusive licenses and contain terms and conditions restricting the
disclosure and use of its Database or software and prohibiting the unauthorized
reproduction or transfer of its products. The products also include technical
measures to prevent unauthorized copying. In addition, the Company attempts to
protect the secrecy of its proprietary Database and other trade secrets and
proprietary information through agreements with employees and consultants.
The Company also seeks to protect the source code of its software and its
Database as trade secrets and under copyright law. Although copyright
registration is not a pre-requisite for copyright protection, the Company has
copyright registrations for certain of its software, user manuals and, portions
of its Database. While the arrangement and selection of data are protectible,
the actual data may not be, and others may be free to create databases that
perform the same function. The Company believes, however, that the creation of
competing databases would be very time-consuming and costly.
The Company has filed applications for the "CoStar" and "CrosTrac" marks in
the United States and Canada and expects examination of such marks in due
course. The Company believes that it has developed substantial goodwill in
connection with these marks as an indicator of quality products and services.
The Company believes that, aside from the various legal protections of its
proprietary information and technologies, factors such as the technological and
creative skills of its personnel and its ongoing reliable product maintenance
and support are integral to establishing and maintaining its leadership position
within the real estate industry due to the rapid pace of innovation within the
software industry.
EMPLOYEES
As of March 31, 1998, the Company employed a total of 145 full-time
employees. Upon consummation of the acquisition of Jamison, the Company will
employ approximately 190 full-time employees, including 133 researchers and 30
sales and marketing employees. None of the Company's employees is represented by
a labor union. The Company has experienced no work stoppages and believes that
its employee relations are excellent.
FACILITIES
The Company's corporate offices occupy approximately 21,000 square feet in
Bethesda, Maryland, under leases and subleases expiring June 30, 2000. In
addition to its corporate offices, the Combined Company leases office space in
the following cities: New York; Los Angeles; Elmhurst, Illinois; San Francisco;
Boston; Newport Beach; Philadelphia; Atlanta; and Dallas. Aggregate lease
payments for the Combined Company for the year ended December 31, 1997 were
approximately $895,000.
LEGAL PROCEEDINGS
The Company has been involved from time to time in lawsuits incidental to
its business. The Company is not currently subject to, and none of its
properties is subject to, any material legal proceedings.
35
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
YEARS
OF
NAME AGE SERVICE POSITION
---- --- ------- --------
<S> <C> <C> <C>
Michael R. Klein ................. 56 11 Chairman of the Board of Directors
Andrew C. Florance ............... 34 11 Chief Executive Officer, President and Director
Frank A. Carchedi ................ 40 1 Chief Financial Officer
Curtis M. Ricketts ............... 35 3 Senior Vice President of Sales and Marketing
David M. Schaffel ................ 36 9 Vice President of Product Development
Dean Violagis .................... 30 8 Vice President of Research
Henry D. Jamison, IV ............. 41 17 (1) Vice President, President of Jamison Reports
David P. Evemy ................... 40 5 (1) Vice President of Jamison Reports
Robert J. Caulfield, Jr. ......... 41 0 Vice President of Sales
David Bonderman .................. 55 3 Director
Warren H. Haber .................. 56 3 Director
John Simon ....................... 53 2 Director
Lanning Macfarland III ........... 44 2 Director
</TABLE>
- ----------
(1) Includes years of service with Jamison. Mr. Jamison will become an officer
of the Company in connection with the Jamison Acquisition.
Michael R. Klein is a founder and has been Chairman of the Board of
Directors of the Company Since 1987. He has been, since 1974, a partner of the
law firm Wilmer, Cutler & Pickering, based in Washington, D.C., where he is a
member of its five person management committee. Over the past five years he has
served as a member of the board of directors (and Audit Committee Chairman) of
both National Education Corporation and Steck-Vaughn Publishing Corporation and
as a director (and member of the Executive Committee) of Perini Corporation. In
1990 to 1991, on leave from his law firm, he served as the Chief Administrative
Officer and Vice Chairman of the Board of Directors of Republic Waste Industries
(now known as Republic Industries), Inc.
Andrew C. Florance is a founder of the Company and has served as President
and as a Director since 1987 and as Chief Executive Officer since 1995. Prior
to founding the Company, Mr. Florance was President of its predecessor company,
Real Estate Infonet, a real estate public records publishing operation, from
1985 to 1987. Mr. Florance held primary responsibility for developing the first
generation software products for Federal Filings, a 13-D tracking service,
which was later acquired by Dow Jones. Mr. Florance was a co-founder of an
industry trade association (REI-NEX) and served on its board from 1993-96. Mr.
Florance also served on the focus group responsible for developing the concepts
related to the Federal government's use of real estate in Vice President Gore's
National Performance Review. Mr. Florance is a graduate of Princeton University
with a degree in economics.
Frank A. Carchedi, Chief Financial Officer, joined the Company in May 1997,
from ITC Learning Corporation, a publicly held publisher and distributor of
multi-media training products, at which he had been Vice President, Treasurer
and Chief Financial Officer since 1995. Prior to that, Mr. Carchedi was with
Ernst & Young, LLP for ten years, most recently as a consultant in the firm's
New York Merger and Acquisitions Group and its Entrepreneurial Services Group in
Washington, D.C. He received a B.S. in accounting from Wake Forest University.
Curtis M. Ricketts, Senior Vice President of Sales and Marketing, joined
the Company as the Vice President of Sales and Marketing in December 1994. Prior
to joining the Company, Mr. Ricketts spent six years as an officer of the Carey
Winston Company, the largest office and industrial real estate services firm in
the Washington-Baltimore region. Mr. Ricketts served as a broker and as the
chief financial analyst for the firm's office and industrial brokerage and
advisory divisions, but was also responsible for new technology.
36
<PAGE>
David M. Schaffel, Vice President of Product Development, has been with the
Company since 1989. Mr. Schaffel is responsible for the design, development, and
maintenance of the Company's software products as well as any new products. From
1987 until joining the Company, Mr. Schaffel was President of Biscayne Technical
Services, Inc., where he developed a logistics tracking application for the
United States Air Force. Mr. Schaffel received a Masters of Science --
Operations Research/Statistics from the University of Miami and a Bachelor of
Science in Business from the University of Florida.
Dean Violagis, Vice President of Research, is responsible for the
Company's research department, of which he has been a manager since 1989. The
majority of the Company employees report to Mr. Violagis through three research
team leaders. Mr. Violagis received a B.A. in Real Estate Finance from the
American University in Washington, D.C.
Henry D. Jamison, IV is Vice President of the Company and President of
Jamison Reports. He began his business career in 1976 with Jamison Bedding and
Furniture, Inc., a family bedding and furniture manufacturing firm founded in
1883. Upon the sale of his family's firm in 1981, Mr. Jamison moved to Atlanta
and founded Jamison Research, Inc.
David P. Evemy is Vice President of Jamison Reports. Mr. Evemy began his
career with Matthews and Goodman in London, England. In 1987, Mr. Evemy moved to
Atlanta, and joined Beazer Developments as Vice President of Acquisitions and
became President in 1990. In January 1993, Mr. Evemy joined Jamison Research,
Inc., as Executive Vice President and was named President in January 1995. He is
a graduate of Kings College, Taunton and received a Masters Degree in Real
Estate from Fitzwilliam College, Cambridge in 1981.
Robert J. Caulfield, Jr., Vice President of Sales. Prior to joining the
Company in 1998, Mr. Caulfield was Director of Sales and Business Manger of the
Southeast District of Reuters America, Inc. from 1988 to 1998, where he managed
a media sales unit. Prior to joining Reuters, he was a marketing manager of
Southern California Technology Executives Network. He received a B.S. in
Marketing from Villanova University and his M.B.A. in International Marketing
from The George Washington University.
David Bonderman is a principal of Texas Pacific Group and an indirect
general partner of TPG Partners I, L.P. and TPG Partners II, L.P. Prior to
forming Texas Pacific Group, Inc., Mr. Bonderman served as Vice President and
Chief Operating Officer of Keystone, Inc. (formerly the Robert M. Bass Group,
Inc.) from July 1983 to August 1992. Mr Bonderman was a partner in the law firm
of Arnold & Porter from 1971 to 1983. Mr Bonderman currently serves on the
boards of directors of Continental Airlines, Inc., Bell and Howell Company,
Ducati Motorcycles S.p.A., Beringer Wine Estates, Denbury Resources, Inc.,
Ryanair, P.L.C., Washington Mutual, Inc., and Virgin Entertainment, Ltd. He has
been a Director of the Company since 1987.
Warren H. Haber has been, for more than twenty years, Chairman of the Board
and Chief Executive of Founders Equity, Inc. and its affiliates, private
investment concerns engaged in the business of identifying businesses for
acquisition in principal transactions, and managing such businesses for its own
account. Mr. Haber currently serves as Chairman of the Board of Batteries
Batteries, Inc. (Nasdaq) and serves on the boards of directors of Beverly Glen
Medical Systems, American Life Care and Grand Charter, Ltd. He has been a
Director of the Company since 1995. See "Certain Transactions."
John Simon is a Managing Director of the investment banking firm Allen &
Company Incorporated, with which he has been associated for over 20 years. Mr.
Simon currently serves on the board of directors of The Immune Response
Corporation, Neurogen Corporation, Batteries Batteries, Inc. and Advanced
Technical Products, Inc. (all Nasdaq). Mr. Simon has been a Director since 1996.
See "Certain Transactions."
Lanning Macfarland III has been associated with the Law Bulletin Publishing
Company ("LBPC") of Chicago since 1983, from which the Company acquired ReSource
in March 1996. He is currently the General Operations Officer of LBPC and is its
publisher for all real estate trade publications and its Director of Sales --
Legal Advertising. Prior to his association with LBPC, Mr. Macfarland held sales
and publishing positions with The New Yorker, Time, Inc. and Bradley Printing.
Mr. Macfarland holds a B.A. degree from Texas Christian University, and an
M.B.A. from Keller Graduate School in Chicago. "See Certain Transactions." He
has been a Director of the Company since 1996.
37
<PAGE>
ELECTION OF DIRECTORS
All of the current directors serve for one-year terms or until their
successors are elected and qualified. Stockholders Agreements which include
provisions governing the composition, power and election of the Board of
Directors, will terminate upon the closing of the Offering.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has (i) an Audit Committee that reviews the results
and scope of the annual audit and other services provided by the Company's
independent public accountants and (ii) a Compensation Committee that makes
recommendations concerning salaries and incentive compensation for employees of
the Company. The Company's Board of Directors has designated the Compensation
Committee as the administrator of the Stock Option Plan described below.
DIRECTOR COMPENSATION
Directors who are not currently receiving compensation as officers or
employees of the Company are entitled to reimbursement of expenses for attending
each meeting of the Board of Directors and each meeting of any committee.
Founders Equity Inc. has received a monthly fee of $10,000 and Mr. Klein a
monthly fee of $6,667, each of which will terminate upon completion of the
Offering. Upon consummation of the Offering, the Company intends to pay
non-employee directors $15,000 annually, payable in Common Stock.
EXECUTIVE COMPENSATION
The following table sets forth the annual salary, bonuses and all other
compensation awards and payouts to the Chief Executive Officer and President and
to certain named executive officers of the Company (collectively, the "Named
Executive Officers") for services rendered to the Company and its subsidiaries
during the fiscal year ended December 31, 1997.
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
OTHER ALL
NAME AND FISCAL ANNUAL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
------------------ ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Andrew C. Florance ................... 1997 $ 150,000 $100,000 $ 150,000(1) --
President and Chief 1996 150,000 100,000 150,000(1) --
Executive Officer 1995 140,577 -- -- --
Frank A. Carchedi .................... 1997 $ 70,654(2) $ 20,000 -- --
Chief Financial Officer 1996 -- -- -- --
1995 -- -- -- --
Curtis M. Ricketts ................... 1997 $ 83,077 $ 46,166 -- --
Senior Vice President of Sales 1996 64,481 37,012 -- --
and Marketing 1995 76,246 -- -- --
David M. Schaffel .................... 1997 $ 117,898 $ 3,000 -- $8,614
Vice President of Product Development 1996 96,941 3,000 -- --
1995 82,782 -- -- --
</TABLE>
- ----------
(1) Other compensation for Mr. Florance is deferred compensation that was paid
to him in 1997 in the form of RIGINC shares valued at $14.00 per share
(equivalent to $4.50 per share of Common Stock of the Company).
(2) Mr. Carchedi joined RIGLP as Chief Financial Officer in May 1997. On an
annualized basis, his base salary is $110,000 per year.
38
<PAGE>
EMPLOYMENT AGREEMENTS
Andrew C. Florance. In April 1998, the Company entered into an amended
employment agreement with Andrew C. Florance, its President and Chief Executive
Officer, which agreement is effective as of January 1, 1998. Mr. Florance's
amended employment agreement provides for a base salary of $175,000. Mr.
Florance is entitled to an annual bonus award up to 100% of his base salary
based upon achievement of performance objectives to be agreed with the
Compensation Committee, and to participate in and receive benefits from any
insurance, medical, disability or pension plan generally made available to the
senior executive officers of the Company. In addition, Mr. Florance's employment
agreement calls for an initial grant of an option for 65,000 shares of Common
Stock to Mr. Florance, with an exercise price equal to the Offering price. Those
options vest one-fourth upon the initial public offering and one-fourth on each
of December 31, 1998, 1999 and 2000. Mr. Florance's employment agreement is for
an initial term of three years and is automatically renewable for additional,
successive one-year terms, unless terminated or not renewed by the Company or
Mr. Florance. In the event of a termination of employment by the Company without
cause or by Mr. Florance with good reason, Mr. Florance is entitled to receive
his base salary for the longer of one year from the date of termination or
whatever period is remaining under the employment agreement, his bonus for the
year in which the termination occurred and a gross-up payment to cover any taxes
assessed pursuant to Section 4999 of the Internal Revenue Code, and all of his
unvested options immediately vest. Mr. Florance's employment agreement contains
a covenant not to compete with the Company for a period of two years immediately
following the termination of employment. Applicable law may limit the term or
scope of the covenant not to compete.
Frank A. Carchedi. In April 1998, the Company entered into an amended
employment agreement with Frank A. Carchedi, its Chief Financial Officer, which
agreement is effective as of January 1, 1998. Mr. Carchedi's amended employment
agreement provides for continuation of Mr. Carchedi's current base salary, which
base salary increases to $125,000 upon the initial public offering. Mr. Carchedi
is entitled to an annual bonus award up to 75% of his base salary based upon
achievement of certain performance objectives to be negotiated with the Chief
Executive Officer and the Compensation Committee, and to participate in and
receive benefits from any insurance, medical, disability or pension plan
generally made available to the senior executive officers of the Company. In
addition, Mr. Carchedi's employment agreement calls for an initial grant of an
option for 40,000 shares of Common Stock to Mr. Carchedi, with an exercise price
equal to the Offering price. Those options vest one-fourth upon the initial
public offering and one-fourth on each of December 31, 1998, 1999 and 2000. Mr.
Carchedi's employment agreement is for an initial term of two years and is
automatically renewable for additional, successive one-year terms, unless
terminated or not renewed by the Company or Mr. Carchedi. In the event of a
termination of employment by the Company without cause, Mr. Carchedi is entitled
to receive his base salary for whatever period is remaining under the employment
agreement or six months (whichever is greater), a prorated share of his bonus
for the year in which the termination occurred, and all of his unvested options
that would have vested within twelve months immediately vest. Pursuant to his
agreement, Mr. Carchedi is subject to a two-year covenant not to compete with
the Company similar to that described with respect to Mr. Florance. Applicable
law may limit the term or scope of the covenant not to compete.
David M. Schaffel. In April 1998, the Company entered into an employment
agreement with David M. Schaffel, its Vice President for Product Development,
which agreement is effective as of January 1, 1998. Mr. Schaffel's employment
agreement provides for continuation of Mr. Schaffel's current base salary, which
base salary increases to $120,000 upon the initial public offering. Mr. Schaffel
is entitled to an annual bonus award up to 50% of his base salary based upon
achievement of certain performance objectives to be negotiated with the Chief
Executive Officer and the Compensation Committee, and to participate in and
receive benefits from any insurance, medical, disability or pension plan
generally made available to the senior executive officers of the Company. In
addition, Mr. Schaffel's employment agreement provides for an initial grant of
an option for 40,000 shares of Common Stock to Mr. Schaffel with an exercise
price equal to the Offering price. Those options vest one-fourth upon the
initial public offering and one-fourth on each of December 31, 1998, 1999 and
2000. Mr. Schaffel's employment agreement is for an initial term of two years
and is automatically renewable for additional, successive one-year terms, unless
terminated or not renewed by the Company or Mr. Schaffel. In the event of a
termination of employment by the Company without cause, Mr. Schaffel is entitled
to receive his base
39
<PAGE>
salary for whatever period is remaining under the employment agreement or six
months (whichever is greater), a prorated share of his bonus for the year in
which the termination occurred, and all of his unvested options that would have
vested within twelve months immediately vest. Pursuant to his agreement, Mr.
Schaffel is subject to a two-year covenant not to compete with the Company
similar to that described with respect to Mr. Florance. Applicable law may limit
the term or scope of the covenant not to compete.
Curtis M. Ricketts. In April 1998, the Company entered into an employment
agreement with Curtis M. Ricketts, its Vice President-Sales, which agreement is
effective as of January 1, 1998. Mr. Ricketts' employment agreement provides for
continuation of Mr. Rickett's current base salary, which base salary increases
to $110,000 upon the initial public offering. Mr. Ricketts is entitled to a
quarterly bonus award up to 100% of his base salary during the quarter based
upon achievement of certain performance objectives to be negotiated with the
Chief Executive Officer and the Compensation Committee, and to participate in
and receive benefits from any insurance, medical, disability or pension plan
generally made available to the senior executive officers of the Company. In
addition, Mr. Ricketts' employment agreement provides for an initial grant of an
option for 25,000 shares of Common Stock to Mr. Ricketts with an exercise price
equal to the Offering price. Those options vest one-fourth upon the initial
public offering and one-fourth on each of December 31, 1998, 1999 and 2000. Mr.
Ricketts' employment agreement is for an initial term of two years and is
automatically renewable for additional, successive one-year terms, unless
terminated or not renewed by the Company or Mr. Ricketts. In the event of a
termination of employment by the Company without cause, Mr. Ricketts is entitled
to receive his base salary for whatever period is remaining under the employment
agreement or six months (whichever is greater), a prorated share of his bonus
for the year in which the termination occurred, and all of his unvested options
that would have vested within twelve months immediately vest. Pursuant to his
agreement, Mr. Ricketts is subject to a two-year covenant not to compete with
the Company similar to that described with respect to Mr. Florance. Applicable
law may limit the term or scope of the covenant not to compete.
Henry D. Jamison, IV. In March 1998, the Company entered into an employment
agreement with Henry D. Jamison, IV, to serve as a Vice President of the Company
and as president of a division of the Company likely to be named Jamison
Reports. This employment agreement does not become effective unless and until
the acquisition of Jamison is consummated. Mr. Jamison's employment agreement
provides for a base salary of $135,000. Mr. Jamison is entitled to an annual
performance bonus based on criteria negotiated with the Company's President and
to participate in and receive benefits from any insurance, medical, disability
or pension plan generally available to senior executive officers of the Company.
Mr. Jamison's employment agreement is not terminable by either party without
cause until after the second anniversary. After that point, the Company will be
permitted to terminate the agreement without cause upon sixty (60) days written
notice. In the event of a termination of employment by the Company without
cause, he will continue to receive over the term of this agreement, as if he had
not been terminated, all payments he would have received had he not been
terminated, and all of Mr. Jamison's unvested options due to vest within the six
months will vest immediately. This agreement is due to expire three years after
its execution. See "Certain Transactions." Pursuant to his agreement, Mr.
Jamison is subject to a two-year covenant not to compete with the Company
similar to that described with respect to Mr. Florance. Applicable law may limit
the term or scope of the covenant not to compete.
OPTION GRANTS
One Named Executive Officer was granted stock options during the fiscal
year ended December 31, 1997. In addition, at or about the time of the Offering,
in connection with the Company's customary compensation review process, the
Company will consider option grants to its valued employees. The Company
currently expects that approximately 350,000 options will be granted as part of
this process, subject to approval by the Compensation Committee.
FISCAL YEAR-END VALUES
None of the Named Executive Officers exercised any stock options during
fiscal year 1997. The following table provides information regarding stock
options held by the Named Executive Officers as of the end of fiscal year 1997.
40
<PAGE>
OPTION VALUES AT DECEMBER 31, 1997
The following table sets forth certain information regarding unexercised
options held by the Named Executive Officers at December 31, 1997.
AGGREGATED OPTIONS AND YEAR END 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF
HELD AT DECEMBER 31, 1997(1) UNEXERCISED OPTIONS(2)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Andrew C. Florance ......... 129,532 43,177 $ 990,000 $ 330,000
Frank A. Carchedi .......... -- 15,565 -- 110,000
David M. Schaffel .......... 8,302 4,151 63,000 32,000
Curtis M. Ricketts ......... 58,110 4,151 531,000 32,000
</TABLE>
- ----------
(1) Includes unit options of RIGLP which have been converted to stock options of
the Company at a rate of 3.113 shares of Common Stock per RIGLP unit.
(2) Calculated based on the amount by which the fair market value of the
underlying security exceeds the option exercise price. For purposes of this
calculation, the fair market value is assumed to be equal to the per share
price set forth on the front cover page of this Prospectus.
EMPLOYEE BENEFIT PLANS
The Company currently anticipates that its Board of Directors will adopt
the Stock Option Plan at or prior to consummation of the Offering and that such
plan will be submitted for stockholder approval at the next annual meeting of
stockholders. The Company has reserved 1,450,000 shares of Common Stock for
issuance under the Stock Option Plan and expects that approximately 350,000
options will be granted as part of this process, subject to approval of the
Compensation Committee. Unless terminated sooner by the Board of Directors, the
Stock Option Plan will terminate in April 2006.
The Stock Option Plan will be administered by the Compensation Committee of
the Board of Directors. The Committee will have the authority and discretion,
subject to the provisions of the Stock Option Plan, to select persons to whom
options will be granted, to designate the number of shares to be covered by
options, to specify the type of consideration to be paid to the Company, and to
establish all other terms and conditions of each stock option.
The Stock Option Plan will provide for the grant of stock options to
officers and employees of the Company or its subsidiaries. Options granted under
the Stock Option Plan may be incentive or non-qualified stock options. The
exercise price for a stock option may not be less than the fair market value of
the Company's Common Stock on the date of grant. Stock options granted under the
Stock Option Plan may not be transferred other than by will or by the laws of
descent and distribution. Upon the occurrence of a Change of Control, as defined
in the Stock Option Plan, all outstanding unexercisable options under the Stock
Option Plan immediately become exercisable.
JAMISON SELLING STOCKHOLDERS
In connection with the Transactions, the Company agreed to register for
resale up to 65% percent of the shares received by Henry D. Jamison, IV and
Leslie Lees Jamison pursuant to the Jamison Contribution Agreement. They are
selling as part of the Offering, respectively, 367,677 and 223,232 shares of the
Company's Common Stock. Those shares represent 5.4% and 3.3%, respectively, of
the Company's Common Stock prior to the Offering and 4.1% and 2.5%,
respectively, of the Company's Common Stock after the Offering (assuming no
exercise of the Underwriters' Over-Allotment Option).
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the shares of the Company's equity as of March 31, 1998, as
adjusted to give effect to the consolidation of RIGINC, RIGLP and Jamison into
the Company and the sale of shares of Common Stock in the Offering by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director of the Company, (iii) each Named
Executive Officer and (iv) all of the Company's executive officers and directors
as a group. Except as indicated in the footnotes to the table, the Company
believes that the persons named in the table have sole voting and investment
power with respect to the shares of Common Stock indicated:
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
----------------------- ------------------------
NAME NUMBER PERCENT NUMBER PERCENT
---- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Michael R. Klein(1) ........................... 2,181,550 31.8% 2,181,550 24.3%
Andrew C. Florance(2) ......................... 500,860 7.2% 500,860 5.5%
Frank A. Carchedi(3) .......................... 5,188 * 5,188 *
Curtis M. Ricketts(4) ......................... 58,110 * 58,110 *
David M. Schaffel(5) .......................... 39,432 * 39,432 *
David Bonderman ............................... 456,886 6.7% 456,886 5.1%
Warren Haber(6) ............................... 1,298,348 19.0% 1,298,348 14.5%
John Simon(7) ................................. 729,847 10.7% 188,754 2.1%
Lanning Macfarland III(8) ..................... 424,688 6.2% 424,688 4.8%
All Named Executive Officers and Directors as a
group (nine) ................................. 5,694,907 79.2% 5,694,907 61.2%
Henry D. Jamison, IV(9) ....................... 909,091 13.3% 318,182 3.6%
RIG Holdings, L.L.C.(10) ...................... 729,847 10.7% 0 *
Founders/RIG, L.L.C. .......................... 1,190,106 17.4% 1,190,106 13.3%
Law Bulletin Publishing Company ............... 421,575 6.2% 421,575 4.7%
</TABLE>
- ----------
* Less than 1%
(1) Includes 14,892 shares held as trustee for his nieces and 14,892 shares
held by others as trustee for his children. Also includes warrants for the
purchase of 46,695 shares of Common Stock. See "Certain Transactions".
(2) Includes 172,709 shares of Common Stock issuable upon options exercisable
within 60 days.
(3) Includes 5,188 shares of Common Stock issuable upon options exercisable
within 60 days. Excludes 10,376 shares of Common Stock issuable upon
options not exercisable within 60 days.
(4) Includes 58,110 shares of Common Stock issuable upon options exercisable
within 60 days. Excludes 4,150 shares of Common Stock issuable upon options
not exercisable within 60 days.
(5) Includes 8,302 shares of Common Stock issuable upon options exercisable
within 60 days. Excludes 4,150 shares of Common Stock issuable upon options
not exercisable within 60 days.
(6) Includes 1,190,106 shares held by Mr. Haber and others as members of
Founders/RIG, L.L.C.
(7) Includes 729,847 shares held before the Offering by Allen, as
Member-Manager, and certain of its officers and affiliates, as members of
RIG Holdings, L.L.C. ("RH LLC"). Includes 188,754 shares held after the
Offering by Allen (of which Mr. Simon is a Managing Director) and certain
of its officers and affiliates after the dissolution of RH LLC concurrent
with the consummation of the Offering. See "Certain Transactions."
(8) Includes 421,575 shares held by Law Bulletin Publishing Company.
(9) Includes 343,434 shares and 120,202 shares held by Mr. Jamison's wife,
Leslie Lees Jamison, before and after the Offering, respectively.
(10) Concurrently with the consummation of the Offering, RH LLC will be
dissolved, and the shares of Common Stock beneficially owned by it will be
distributed to its members. At such time, Allen, currently the
Member-Manager of RH LLC and a Representative, together with certain of its
officers, will be the beneficial owner of approximately 188,754 shares of
the Company's Common Stock. See "Certain Transactions."
42
<PAGE>
CERTAIN TRANSACTIONS
There have been no assets sold to or acquired from the Company and its
officers or directors other than in connection with: (i) the acquisition of the
Company's Chicago operations, (ii) routine compensation arrangements approved by
the Board of Directors, (iii) subscriptions for additional equity to fund the
Company's growth (iv) loans extended to the Company by certain of its
stockholders from time to time, (v) the Jamison Acquisition from Henry D.
Jamison, IV and Leslie Lees Jamison, and (vi) the RIG Contribution Agreement.
Warren H. Haber is chairman and chief executive officer of Founders Equity,
Inc. ("Founders") and a director of the Company. On May 15, 1995, Founders/RIG,
LLC ("FR LLC"), an affiliate of Founders acquired 296,652 limited partnership
units of RIGLP for an aggregate purchase price of $3.1 million, or $10.45 per
unit (equivalent to 923,478 shares of Common Stock of the Company at an
effective price per share of $3.36). As part of the contractual arrangements
that accompanied Founders' investment, Mr. Haber became a director and the
Company agreed to register the securities FR LLC received for resale upon its
demand at a future date. On December 3, 1996, FR LLC and certain of its
affiliates acquired an additional 85,650.62 limited partnership units of RIGLP
for an aggregate purchase price of $1.06 million, or $12.37 per unit (equivalent
to 266,630 shares of Common Stock of the Company at an effective price per share
of $3.97). In addition, pursuant to the RIG Contribution Agreement, FR LLC's
registration rights were amended. See "Description of Capital Stock --
Registration Rights." FR LLC's right to designate a director of RIGINC will
terminate upon consummation of the Transaction.
At the time of the Founders' investment in RIGINC and RIGLP in May 1995,
those entities were indebted to Michael R. Klein, then and now the Chairman of
the Company and a 31.8% stockholder, for loans he had extended with a then
balance of $751,961. In connection with Founders' investment, $426,693 was
repaid and the remaining balance of $325,268 was converted into 31,126 units of
RIGLP (96,895 shares of Common Stock of the Company at an effective price per
share of $3.36, the same price at which FR LLC purchased its interest in that
transaction). In connection with that same transaction, the Company agreed to
pay monthly fees to Founders of $10,000 and to Mr. Klein of $6,667, both of
which will terminate in June 1998. During 1997, Mr. Klein committed to extend up
to $1.0 million of credit to RIGINC, which in turn agreed to loan such amounts
to RIGLP to support a $1.0 million credit facility RIGLP secured with Silicon
Valley Bank ("SVB"), of which $650,000 has been extended and is outstanding. The
RIGINC loan to RIGLP is contractually subordinated, and Mr. Klein's loans to
RIGINC are structurally subordinated, to the SVB loan, interest on the balance
is payable to RIGINC and Mr. Klein at the same rate (2% over prime) as the SVB
loan and no principal may be repaid until the SVB loan is paid. Repayment of the
SVB loan and the RIGINC/Klein loan are contemplated uses of the proceeds of this
Offering. See "Use of Proceeds." As consideration for Mr. Klein's commitment, a
committee of three independent directors authorized the issuance to Mr. Klein of
warrants to purchase 15,000 units of RIGLP (effectively, 46,695 shares of the
Company's Common Stock) at a price 10% less than the price at which the shares
are being offered hereby, exercisable during the two years following the closing
of this Offering. The Company has paid fees to the law firm of which Mr. Klein
is a partner for legal services rendered; under the policies of his firm, Mr.
Klein is not the partner responsible for supervising or billing for those
services.
John Simon is a managing director of Allen and a director of the Company.
On December 3, 1996, RIG Holdings, LLC ("RH LLC"), acquired 234,451.42 limited
partnership units of RIGLP for an aggregate purchase price of $2.9 million, or
$12.37 per unit (equivalent to 729,847 shares of Common Stock of the Company at
an effective price per share of $3.97). RH LLC was granted the right to
designate one member of the board of directors of RIGINC as well as certain
registration rights in regards to the units it purchased. Pursuant to the RIG
Contribution Agreement, RH LLC's registration rights were amended. See
"Description of Capital Stock -- Registration Rights." Allen is the
Member-Manager of RH LLC and, together with certain of its officers and
affiliates, is the owner of approximately 26% of RH LLC; as Member-Manager,
Allen is currently entitled to exercise voting power over all of the limited
partnership units of RIGLP held by RH LLC. For these reasons, RH LLC may be
deemed to be an affiliate of Allen. RH LLC's (and its members') right to
designate a director of RIGINC will terminate upon consummation of the
Transaction, at which time RH LLC will be dissolved and its ownership interests
(and the registration rights connected therewith) will be distributed pro rata
to its members. At
43
<PAGE>
such time, Allen, together with certain of its officers and affiliates, will be
the beneficial owner of 188,754 shares of Company's Common Stock. Allen, as a
Representative, will receive certain underwriting discounts and commissions with
respect to services rendered on behalf of the Company with respect to the
Offering. See "Underwriting." Prior to making this investment, on November 5,
1996, Allen had loaned RIGLP $250,000, bearing interest at a rate of 8.5% per
year. This loan was paid off in connection with RH LLC's investment.
Lanning Macfarland III is head of real estate publications at Law Bulletin
Publishing Company ("LBPC") and a director of the Company. On March 29, 1996,
RIGLP acquired all of the assets of ReSource from LBPC for 114,640.55 limited
partnership units of RIGLP valued nominally at $10.45 per unit (equivalent to
356,876 shares of Common Stock of the Company at an effective price per share of
$3.36). ReSource was a real estate information provider in the Chicago, Illinois
area. On December 3, 1996, LBPC and certain of its affiliates acquired an
additional 23,283.45 limited partnership units of RIGLP for an aggregate
purchase price of $288,000, or $12.37 per unit (equivalent to 72,481 shares of
Common Stock of the Company at an effective price per share of $3.97). In
addition, pursuant to the RIG Contribution Agreement, LBPC's registration rights
were amended. See "Description of Capital Stock -- Registration Rights." LBPC's
right to designate a director of RIGINC will terminate upon consummation of the
Transaction.
On February 17, 1998, the Company entered into the Jamison Contribution
Agreement pursuant to which the Company agreed to acquire Jamison from Henry D.
Jamison, IV and Leslie Lees Jamison for Company Common Stock valued at $10.0
million at the price per share of the Common Stock sold in this Offering.
Consummation of the Jamison Contribution Agreement is contingent upon a number
of factors, including completion of this Offering and consummation of the RIG
Contribution Agreement. In connection with the consummation of the Jamison
Contribution Agreement, Henry D. Jamison entered into an employment agreement
with the Company to serve as an officer of the Company. This employment
agreement will take effect upon consummation of the Jamison Acquisition. See
"Management -- Employment Agreements." The Jamison Contribution Agreement
includes terms such as: (i) usual and customary representations and warranties
from the Jamison Selling Stockholders to the Company; (ii) usual and customary
representations and warranties from the Company to the Jamison Selling
Stockholders; (iii) survival of most representations and warranties for one year
following the closing; (iv) an agreement by the Jamison Selling Stockholders not
to compete with the Company for a period of two years following the closing; and
(v) indemnification by the Company and Jamison Selling Stockholders for breaches
of their representations, warranties and covenants.
Effective as of March 5, 1998, all of the limited and general partners of
RIGLP and all of the stockholders of RIGINC entered into the RIG Contribution
Agreement. Pursuant to this agreement, each limited partner of RIGLP (other than
RIGINC) agreed to contribute all of its limited partnership units to the
Company, and all of the stockholders of RIGINC agreed to contribute all of their
shares of RIGINC to the Company, all in exchange for 3.113 shares of Common
Stock of the Company for each limited partnership unit or share of common stock.
Consummation of the RIG Contribution Agreement is contingent upon a number of
events, including completion of the Offering and consummation of the Jamison
Contribution Agreement. All of the current officers and directors of the Company
who will own shares of Common Stock after the Offering will exchange their units
of RIGLP and their shares of RIGINC for Company Common Stock pursuant to the RIG
Contribution Agreement.
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of the Offering, the authorized capital
stock of the Company will consist of 30,000,000 shares of Common Stock, par
value $.01 per share, and 2,000,000 shares of Preferred Stock, par value $.01
per share.
COMMON STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock. As of
February 28, 1998, the Company had no outstanding shares of Common Stock.
Following the consummation of the Jamison Contribution Agreement and the RIG
Contribution Agreement, the Company expects to have outstand-
44
<PAGE>
ing 6,820,726 shares of Common Stock held of record by a total of 40 holders
(assuming dissolution of RH LLC concurrent with the Offering). Upon the
consummation of the Offering made hereby, there will be 8,929,817 shares of
Common Stock outstanding, after giving effect to the sale of the shares of
Common Stock offered hereby. Each stockholder of record is entitled to one vote
for each outstanding share of Common Stock owned by him on every matter properly
submitted to the stockholders for their vote. The holders of Common Stock are
entitled to receive ratably such dividends as are declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
have the right to a ratable portion of assets remaining after payment of
liabilities. Holders of Common Stock have neither preemptive rights nor rights
to convert their Common Stock into any other securities and are not subject to
future calls or assessments by the Company. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and the shares offered hereby upon issuance and sale will be, fully
paid and non-assessable.
PREFERRED STOCK
The Company is authorized to issue 2,000,000 shares of Preferred Stock in
one or more series. As of February 28, 1998, the Company had no outstanding
shares of Preferred Stock. The rights, preferences, privileges and restrictions,
including dividend rights, voting rights, terms of redemption, retirement,
sinking fund provisions, liquidation preferences, conversion rights and exchange
rights, if any, of the Preferred Stock of each series will be fixed or
designated pursuant to Articles Supplementary adopted by the Board of Directors
or a duly authorized committee thereof.
REGISTRATION RIGHTS
The Company has granted certain registration rights to certain stockholders
of the Company who will own in the aggregate 2,659,700 shares of Common Stock
upon consummation of this Offering. Those holders have "piggyback" registration
rights to request that the Company register any of their shares in the event
that the Company proposes to register any of its securities under the Securities
Act (other than a registration effected solely to implement an employee benefit
plan or a transaction to which Rule 145 of the Securities and Exchange
Commission is applicable). However, if such piggyback rights are exercised in
connection with an underwritten public offering of the Company's Common Stock,
the managing underwriter of such an offering has the right to exclude or
otherwise limit the number of such shares to be included in such public
offering. Additionally, FR LLC and RH LLC and their successors share two
"demand" registration rights to require the Company to prepare and file a
registration statement so as to permit a public offering and sale of their
shares of Common Stock, provided that at least 20% of the shares covered by the
registration rights demand such registration. Likewise, the Jamison Selling
Stockholders have one "demand" registration right to have the Company prepare
and file a registration statement so as to permit a public offering and sale of
their shares of Common Stock. None of the demand registration rights are
exercisable until the date that is six months after the Offering.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Section 203 of Delaware General Corporation Law. Section 203 of the
Delaware General Corporation Law ("DGCL") prohibits certain transactions between
a Delaware corporation and an "interested stockholder," which is defined as a
person who, together with any affiliates or associates of such person,
beneficially owns, directly or indirectly, 15% or more of the outstanding voting
shares of a Delaware corporation. This provision prohibits certain business
combinations (defined broadly to include mergers, consolidations, sales or other
dispositions of such assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation) between an interested stockholder and a corporation for a period of
three years after the date the interested stockholder becomes an interested
stockholder, unless (i) the business combination is approved by the
corporation's board of directors prior to the date the interested stockholder
becomes an interested stockholder, (ii) the interested stockholder acquired at
least 85% of the voting stock of the corporation (other than stock held by
directors
45
<PAGE>
who are also officers or by certain employee stock plan) in the transaction in
which it becomes an interested stockholder or (iii) the business combination is
approved by a majority of the board of directors and by the affirmative vote of
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder.
Certain Antitakeover Provisions. The Company's Certificate of Incorporation
contains provisions that may have the effect of discouraging a third party from
making an acquisition proposal for the Company. The Certificate of Incorporation
of the Company, among other things, (i) permits the Board of Directors, but not
the Company's stockholders, to fill vacancies and newly created directorships on
the Board of Directors and (ii) provides that any action required or permitted
to be taken by the stockholders of the Company must be effected at an annual or
special meeting of stockholders and not by any consent in writing by such
stockholders. Special meetings of stockholders may be called only by the Board
of Directors. Such provisions would make the removal of incumbent directors more
difficult and time-consuming and may have the effect of discouraging a tender
offer or other takeover attempt not previously approved by the Board of
Directors.
Indemnification and Limitation of Liability. The Company's Certificate of
Incorporation provides that the Company shall, subject to certain limitations,
indemnify its directors and officers against expenses (including attorneys'
fees, judgments, fines and certain settlements) actually and reasonably incurred
by them in connection with any suit or proceeding to which they are a party so
long as they acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to a
criminal action or proceeding, so long as they had no reasonable cause to
believe their conduct to have been unlawful.
Section 102 of the DGCL permits a Delaware corporation to include in its
certificate of incorporation a provision eliminating or limiting a director's
liability to a corporation or its stockholders for monetary damages for breaches
of fiduciary duty. DGCL Section 102 provides, however, that liability for
breaches of the duty of loyalty, acts or omissions not in good faith or
involving intentional misconduct, or knowing violation of the law, and the
unlawful purchase or redemption of stock or payment of unlawful dividends or the
receipt of improper personal benefits cannot be eliminated or limited in this
manner. The Company's Certificate of Incorporation includes a provision which
eliminates, to the fullest extent permitted, director liability for monetary
damages for breaches of fiduciary duty.
Preferred Stock. Upon the completion of the Offering, the Company will have
the authority to issue up to 2,000,000 shares of so-called "blank-check"
preferred stock which authorizes the Board of Directors to establish one or more
series of Preferred Stock and to fix and determine the relative rights,
preferences and limitations of each class or series of Preferred Stock with
voting and conversion rights which could adversely affect the voting power of
the holders of Common Stock and have the effect of delaying or preventing a
change of control of the Company. After the completion of the Offering, no
shares of Preferred Stock will be outstanding. The Company has no current
intention to issue any shares of Preferred Stock.
TRANSFER AGENT AND REGISTRAR
Upon consummation of the Offering, the transfer agent and registrar for the
Common Stock will be American Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have 8,929,817
outstanding shares of Common Stock. Of these shares, the 2,700,000 shares of
Common Stock sold in this Offering will be freely tradable without restriction
or further registration under the Securities Act unless purchased by affiliates
of the Company (as defined under the Securities Act). 6,229,817 shares that will
be held by existing stockholders, representing approximately 70% of the total
number of shares of Common Stock to be outstanding upon the completion of this
Offering, may not be resold except pursuant to an effective registration
statement filed by the Company or an applicable exemption from registration,
including an exemption under Rule 144. 318,182 of these shares are subject to
contractual pledge or lock-up obliga-
46
<PAGE>
tions to the Company. In addition, certain holders of Common Stock have agreed
that they will not, without obtaining the prior written approval of the
Representatives (as defined in "Underwriting"), directly or indirectly offer for
sale, sell, transfer, encumber, contract to sell, grant any option, right or
warrant to purchase or otherwise dispose (or announce any offer, sale, transfer,
encumbrance, contract to sell, grant of an option to purchase or other
disposition) of any shares of Common Stock, or any securities, subject to
certain exceptions, convertible into, or exchangeable or exercisable for, shares
of Common Stock, for a lock-up period of 240 days after the effective date of
the Registration Statement of which this Prospectus forms a part. See
"Underwriting."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company (as defined
in Rule 144, an "Affiliate"), who has beneficially owned "restricted securities"
(as that term is defined in Rule 144) for a period of at least one year from the
later of the date such restricted securities were acquired from the Company or
the date they were acquired from an Affiliate, is entitled to sell, within any
three-month period, a number of such securities that does not exceed the greater
of (i) 1% of the then outstanding shares of the Company's Common Stock
(approximately 90,000 shares immediately after the Offering) or (ii) the average
weekly trading volume in the Company's Common Stock during the four calendar
weeks preceding the filing of notice of such sale. Sales under Rule 144 are also
subject to certain restrictions on the manner of sale, notice requirements, and
the availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an Affiliate of the Company 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 (including the holding period
of any prior owner except an affiliate), is entitled to sell such shares without
complying with the manner of sale, notice, public information, or volume
limitation provisions of Rule 144; therefore, unless otherwise restricted,
"144(k) shares" may be sold immediately upon the completion of the Offering,
subject to the lock-up periods described in the preceding paragraph.
Under Rule 701 under the Securities Act, certain shares issued pursuant to
employee benefit plans or arrangements in effect prior to this Offering are
eligible for resale 90 days after the Company becomes a reporting company under
the Exchange Act and may be sold by persons other than Affiliates subject only
to the manner of sale provisions of Rule 144 and by Affiliates without
compliance with the holding period requirements of Rule 144.
As soon as practicable following the expiration of the lock-up periods
described above, the Company intends to file a registration statement or
statements on Form S-8 under the Securities Act to register the shares of Common
Stock issuable pursuant to the Stock Option Plan. As of March 31, 1998, options
for units of RIGLP and shares of RIGINC were outstanding that, when converted to
options for shares of Common Stock under the Stock Option Plan, will result in
options to purchase approximately 409,297 shares, of which options to purchase
256,128 shares will be exercisable. Shares issued upon the exercise of the
options generally will be eligible for sale in the public market after the
effective date of such registration, subject, in certain cases, to the lock-up
agreements described herein and volume and other restrictions.
Prior to the Offering, there has been no public market for the Common
Stock. No predictions can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. The Company is unable to estimate
the number of shares that may be sold in the public market pursuant to Rule 144,
since this will depend on the market price of the Common Stock, the specific
circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of the Common Stock of the Company in the public market
could adversely affect the market price of the Company's Common Stock.
After the completion of the Offering, certain persons will be entitled to
certain rights with respect to registration under the Securities Act of
approximately 2,659,700 shares of Common Stock.
47
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), through their
representatives, Allen & Company Incorporated and Needham & Company, Inc. (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company and the Jamison
Selling Stockholders the number of shares of Common Stock set forth opposite
their names below. The Underwriters are committed to purchase and pay for all
such shares if any are purchased.
<TABLE>
<CAPTION>
NAME OF UNDERWRITER NUMBER OF SHARES
- --------------------------------------- -----------------
<S> <C>
Allen & Company Incorporated ..........
Needham & Company, Inc. ...............
---------
Total ................................ 2,700,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares to the public at the offering price set forth on the cover
page of this Prospectus and that the Underwriters may allow certain dealers who
are members of the National Association of Securities Dealers, Inc. (the "NASD")
concessions of not in excess of $ per share of Common Stock, of which not in
excess of $ may be reallowed to other dealers who are members of the NASD. After
the commencement of the Offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such reduction
shall change the amount of proceeds to be received by the Company as set forth
on the cover page of this Prospectus.
In connection with the Offering and after the Offering, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over allot the
Offering, creating a syndicate short position. In addition, the Underwriters may
bid for and purchase shares of Common Stock in the open market to stabilize the
price of the Common Stock. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock above independent market levels. The
Underwriters are not required to engage in these activities and may end these
activities at any time.
The Company has granted to the Underwriters the Over-Allotment Option,
exercisable during the 45-day period after the closing date of the Offering, to
purchase up to an aggregate of 270,000 additional shares of Common Stock at the
initial public offering price, less underwriting discounts and commissions. The
Underwriters may exercise such option only for the purpose of covering
over-allotments made in connection with the sale of the Common Stock offered
hereby.
As is customary for such arrangements, the Company has agreed to indemnify
the Underwriters and each person who controls any Underwriter against certain
liabilities in connection with the Registration Statement, such as liabilities
under the Securities Act, including for material misstatements or omissions in
the Registration Statement. In addition, the Underwriters have agreed to
indemnify the Company for such liabilities arising from material misstatements
or omissions in connection with disclosure for which the Underwriters are
responsible. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to the Underwriters, the Underwriters have been
advised that, in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
The Company has agreed to reimburse the Representatives their out-of-pocket
expenses incurred in connection with the Offering, which are estimated to be
$150,000.
The foregoing discussion of the material terms and provisions of the
Underwriting Agreement is qualified in its entirety by reference to the detailed
provisions of the Underwriting Agreement, the form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
48
<PAGE>
The Company, certain of its officers and directors who own shares of Common
Stock and certain other stockholders and option holders of the Company have
executed agreements pursuant to which they have agreed not to offer, pledge,
sell, contract to sell, grant any option for the sale of or otherwise dispose of
any of the Company's securities held by them for a period of 240 days from the
effective date of the Offering, without the prior written consent of Allen,
subject to certain exceptions. See "Shares Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Allen is the Manager-Member of RH LLC and, together with certain of its
officers and affiliates, owns approximately 26% of RH LLC, which beneficially
owns an aggregate of 234,451 units of RIGLP (effectively 729,847 shares of
Common Stock of the Company). RH LLC will be dissolved concurrently with the
consummation of the Offering. See "Certain Transactions" and "Principal
Stockholders." John Simon, a managing director of Allen, may be deemed to be a
beneficial owner of shares of Common Stock held by RH LLC or Allen and serves as
a director of the Company.
Consistent with the rules of the NASD, of which Allen is a member, the
Company may be deemed to be an affiliate of Allen, inasmuch as RH LLC (which
will be dissolved in connection with the Offering) is the beneficial owner of
more than 10% of the Company's Common Stock. The Offering is therefore being
made in conformity with the applicable provisions of such rules, including Rule
2720 of the NASD Conduct Rules. Accordingly, the price of the Shares being
offered hereby is no higher than that recommended by Needham as "qualified
independent underwriter" as defined in the applicable provisions of the rules of
the NASD; in connection with serving in such a capacity, Needham is assuming the
responsibilities of acting as qualified independent underwriter in pricing the
Offering and in exercising the usual standards of due diligence with respect
thereto. As compensation for serving as a Representative, Needham will receive
underwriting discounts and commissions as set forth on the front cover page of
the Prospectus; Needham will not receive any additional compensation for serving
as qualified independent underwriter.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the shares of Common
Stock offered and sold in the Offering will be determined by negotiation among
the Company and the Representatives and will not necessarily bear any
relationship to the Company's book value, assets, past operating results,
financial condition, or other established criteria of value. Factors to be
considered in determining such price include the nature of the Company's
business, its history and present state of development, an assessment of the
Company's recent financial results and current financial condition, future
prospects of the Company, the qualifications of the Company's management, the
general condition of the securities markets at the time of the Offering, and
other relevant factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilmer, Cutler & Pickering, Washington, D.C. Mr. Klein is the
Chairman of the Board of Directors of the Company and is a partner of Wilmer,
Cutler & Pickering. After the Offering, Mr. Klein will be a 24.3% stockholder of
the Company. See "Management," "Principal Stockholders" and "Certain
Transactions." Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Werbel & Carnelutti, a Professional
Corporation, New York, New York.
EXPERTS
The consolidated financial statements of RIGLP at December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997; the
financial statements of RIGINC at December 31, 1996 and 1997 and for each of the
three years in the period ended December 31, 1997; the financial statements of
Jamison at December 31, 1996 and 1997 and the years then ended; and the balance
sheet of the Company at February 28, 1998, appearing in this Prospectus and
Registration Statement have
49
<PAGE>
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C. 20549, a Registration Statement on Form S-1, including
amendments thereto, under the Securities Act of 1933 with respect to shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the SEC. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to such Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any contract or other documents referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being deemed to be qualified in its entirety by such reference. The
Registration Statement, including all exhibits and schedules thereto, may be
inspected without charge at the principal office of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and at Seven World Trade Center, Suite 1300, New York, New York
10048, and copies of all or any part thereof may be obtained from such offices
upon the payment of the prescribed fees. In addition, electronically filed
documents, including reports, proxy and information statements and other
information regarding the Company, can be obtained from the SEC's web site at:
http://www.sec.gov.
As of the effective date of the Registration Statement, the Company will
become subject to the reporting requirements of the Exchange Act and, in
accordance therewith, will file reports, proxy statements and other information
with the Commission. The Company intends to furnish its stockholders with annual
reports containing financial statements audited by independent accountants and
other periodic reports as the Company may deem appropriate or as may be required
by law.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent certified public
accountants and quarterly reports containing unaudited financial statements for
the first three quarters of each fiscal year.
50
<PAGE>
REALTY INFORMATION GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REALTY INFORMATION GROUP, INC. UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Condensed Combined Financial Statements .... F-2
Unaudited Pro Forma Condensed Combined Statement of Operations ................. F-3
Unaudited Pro Forma Condensed Combined Balance Sheet ........................... F-4
Notes to Unaudited Pro Forma Condensed Combined Financial Statements ........... F-5
REALTY INFORMATION GROUP, INC.
Report of Independent Auditors ................................................. F-8
Balance Sheet .................................................................. F-9
Notes to Balance Sheet ......................................................... F-10
REALTY INFORMATION GROUP, L.P.
Report of Independent Auditors ................................................. F-11
Consolidated Statements of Operations .......................................... F-12
Consolidated Balance Sheets .................................................... F-13
Consolidated Statements of Partners' Capital ................................... F-14
Consolidated Statements of Cash Flows .......................................... F-15
Notes to Consolidated Financial Statements ..................................... F-16
OLD RIG, INC.
Report of Independent Auditors ................................................. F-23
Consolidated Statements of Operations .......................................... F-24
Consolidated Balance Sheets .................................................... F-25
Consolidated Statements of Stockholders' Deficit ............................... F-26
Consolidated Statements of Cash Flows .......................................... F-27
Notes to Consolidated Financial Statements ..................................... F-28
JAMISON RESEARCH, INC.
Report of Independent Auditors ................................................. F-29
Statements of Operations ....................................................... F-30
Balance Sheets ................................................................. F-31
Statements of Stockholders' Equity (Deficit) ................................... F-32
Statements of Cash Flows ....................................................... F-33
Notes to Financial Statements .................................................. F-34
</TABLE>
F-1
<PAGE>
REALTY INFORMATION GROUP, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to (i) the contribution to Realty Information Group, Inc. (the
"Company") by the holders of units of Realty Information Group, L.P. ("RIGLP")
and the stockholders of OLD RIG, Inc. ("RIGINC") of all of the units of RIGLP
(other than units held by RIGINC) and the capital stock of RIGINC in return for
certain shares of Common Stock of the Company, (ii) the acquisition of Jamison
Research, Inc. ("Jamison"), and (iii) the Company's planned initial public
offering of 2,700,000 shares of Common Stock. The acquisition of Jamison will
occur simultaneously with the closing of the Company's initial public offering
and will be accounted for using the purchase method of accounting.
The unaudited pro forma condensed combined balance sheet gives effect to
the formation of the Company and the acquisition of Jamison as if they had
occurred on March 31, 1998. The unaudited pro forma condensed combined statement
of operations gives effect to the transactions as if they had occurred on
January 1, 1997.
Unless otherwise specified, the information in the unaudited pro forma
condensed combined financial statements (a) assumes that the Underwriters'
Over-Allotment Option is not exercised, (b) gives effect to the contribution to
the Company of all of the outstanding equity interests in its predecessors in
exchange for the Company's shares at a rate of 3.113 shares of Company Common
Stock for each unit of RIGLP and share of RIGINC.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not necessarily represent what the
Company's financial position or results of operations would actually have been
if such transactions in fact had occurred on those dates or the results of
operations for any future period. The unaudited pro forma combined financial
statements should be read in conjunction with Management's Discussion and
Analysis and the other financial statements and notes thereto included elsewhere
in this Prospectus.
F-2
<PAGE>
REALTY INFORMATION GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------
REALTY
INFORMATION
GROUP, INC. RIG INC JAMISON
------------- --------------- -------------
<S> <C> <C> <C>
Revenues .......................................... -- $ 7,899,940 $3,664,198
Cost of revenues .................................. -- 3,412,593 1,378,946
------------- ------------ ----------
Gross margin ..................................... -- 4,487,347 2,285,252
Operating expenses ................................ -- 7,786,430 2,252,163
------------- ------------ ----------
Income (loss) from operations .................... -- (3,299,083) 33,089
Other income (expense) ............................ -- 33,537 (38,490)
Minority interest-net loss allocated to limited
partners of RIGLP ................................ -- 1,473,252 --
------------- ------------ ----------
Net income (loss) ................................ -- $ (1,792,294) $ (5,401)
============= ============ ==========
Basic earnings (loss) per share ...................
Weighted average shares outstanding ...............
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------
PRO FORMA
ADJUSTMENTS PRO FORMA
(SEE NOTE 3) COMBINED
---------------------- ----------------
<S> <C> <C>
Revenues .......................................... -- $ 11,564,138
Cost of revenues .................................. $ 1,100,000 (a) 5,891,539
------------- ------------
Gross margin ..................................... (1,100,000) 5,672,599
Operating expenses ................................ 400,000 (a) 10,438,593
------------- ------------
Income (loss) from operations .................... (1,500,000) (4,765,994)
Other income (expense) ............................ (24,000)(b) (28,953)
Minority interest-net loss allocated to limited
partners of RIGLP ................................ (1,473,252)(c) --
------------- ------------
Net income (loss) ................................ $ (2,997,252) $ (4,794,947)
============= ============
Basic earnings (loss) per share ................... $ (.70)
============
Weighted average shares outstanding ............... 6,820,726
============
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------
REALTY PRO FORMA
INFORMATION ADJUSTMENTS PRO FORMA
GROUP, INC. RIG INC JAMISON (SEE NOTE 3) COMBINED
------------- --------------- ------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues .......................................... -- $ 2,839,023 $1,048,529 $ $3,887,552
Cost of revenues .................................. -- 904,328 357,104 275,000 (a) 1,536,432
------------- ------------ ---------- ------------ ----------
Gross margin ..................................... -- 1,934,695 691,425 (275,000) 2,351,120
Operating expenses ................................ -- 2,280,678 525,923 100,000 (a) 2,906,601
------------- ------------ ---------- ------------ ----------
Income (loss) from operations .................... -- (345,983) 165,502 (375,000) (555,481)
Other income (expense) ............................ -- (38,135) (61,613) 43,550 (b) (56,198)
Minority interest-net loss allocated to limited
partners of RIGLP ................................ -- 172,853 -- (172,853)(c) --
------------- ------------ ---------- ------------ ----------
Net income (loss) ................................ -- $ (211,265) $ 103,889 $ (504,303) $ (611,679)
============= ============ ========== ============ ==========
Basic earnings (loss) per share ................... $ (.09)
==========
Weighted average shares outstanding ............... 6,820,726
==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
REALTY INFORMATION GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
REALTY
INFORMATION
GROUP, INC. RIGNC JAMISON
------------- --------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents .............................. -- $ 865,654 $ 331,807
Accounts receivable, net ............................... -- 1,462,271 66,289
Prepaid expenses and other current assets .............. -- 540,443 136,500
-- ------------- ---------
Total current assets ................................. -- 2,868,368 534,596
Property and equipment, net ............................ -- 1,338,980 206,759
Capitalized product development costs, net ............. -- 1,244,387 82,183
Other assets, net ...................................... -- 1,771,257 --
Deposits ............................................... -- 91,469 474
------------- ---------
Total assets ......................................... -- $ 7,314,461 $ 824,012
== ============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses .................. -- $ 1,481,404 $ 202,755
Deferred revenue ....................................... -- 1,645,545 395,604
Line of credit ......................................... -- 1,000,000 --
Subordinated debt to stockholder ....................... -- 650,000 --
Advances from stockholders ............................. -- -- 109,853
Current portion of long-term debt ...................... -- -- 29,567
-- ------------- ---------
Total current liabilities ............................ -- 4,776,949 737,779
Long-term debt, net of current portion ................. -- -- 31,382
Minority interest -- RIGLP limited partners' equity..... -- 7,000,000 --
Stockholders' equity ................................... -- (3,831,372) 54,851
-- ------------- ---------
Total liabilities and stockholders' equity ........... -- $ 7,314,461 $ 824,012
== ============= =========
<CAPTION>
PRO FORMA
PRO FORMA OFFERING
ADJUSTMENTS PRO FORMA ADJUSTMENTS
(SEE NOTE 3) COMBINED (SEE NOTE 3)
--------------------- --------------- ----------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents .............................. $ -- $ 1,197,461 $ 18,779,198 (f)
Accounts receivable, net ............................... -- 1,528,560
Prepaid expenses and other current assets .............. 676,943 --
------------ --------------
Total current assets ................................. 3,402,964 18,779,198
Property and equipment, net ............................ -- 1,545,739 --
Capitalized product development costs, net ............. 2,500,000 (e) 3,826,570 --
Other assets, net ...................................... 4,500,000 (e) 6,271,257 --
Deposits ............................................... -- 91,943 --
------------- ------------ --------------
Total assets ......................................... $ 7,000,000 $ 15,138,473 $ 18,779,198
============= ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses .................. $ -- $ 1,684,159 $ --
Deferred revenue ....................................... -- 2,041,149 --
Line of credit ......................................... -- 1,000,000 (1,000,000)
Subordinated debt to stockholder ....................... 650,000 (650,000)
Advances from stockholders ............................. -- 109,853 (109,853)
Current portion of long-term debt ...................... -- 29,567 (29,567)
------------- ------------ --------------
Total current liabilities ............................ 5,514,728 (1,789,420) (f)
Long-term debt, net of current portion ................. -- 31,382 (31,382) (f)
Minority interest -- RIGLP limited partners' equity..... (6,368,884)(d) -- --
6,368,884 (d)
Stockholders' equity ................................... 7,000,000 (e) 9,592,363 20,600,000 (f)
------------- ------------ --------------
Total liabilities and stockholders' equity ........... $ 7,000,000 $ 15,138,473 $ 18,779,198
============= ============ ==============
<CAPTION>
PRO FORMA
AS
ADJUSTED
--------------
<S> <C>
ASSETS
Cash and cash equivalents .............................. $19,976,659
Accounts receivable, net ............................... 1,528,560
Prepaid expenses and other current assets .............. 676,943
-----------
Total current assets ................................. 22,182,162
Property and equipment, net ............................ 1,545,739
Capitalized product development costs, net ............. 3,826,570
Other assets, net ...................................... 6,271,257
Deposits ............................................... 91,943
-----------
Total assets ......................................... $33,917,671
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses .................. $ 1,684,159
Deferred revenue ....................................... 2,041,149
Line of credit ......................................... --
Subordinated debt to stockholder ....................... --
Advances from stockholders .............................
Current portion of long-term debt ...................... --
-----------
Total current liabilities ............................ 3,725,308
Long-term debt, net of current portion ................. --
Minority interest -- RIGLP limited partners' equity..... --
Stockholders' equity ................................... 30,192,363
-----------
Total liabilities and stockholders' equity ........... $33,917,671
===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
REALTY INFORMATION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. GENERAL
The Company was formed in February 1998 to succeed its predecessors, RIGLP
and RIGINC, and to acquire Jamison in connection with an initial public offering
of its common stock. The predecessors, RIGLP and RIGINC, will be combined on a
historical cost basis with the Company as an exchange of interests of entities
under common control. The acquisition of Jamison will occur simultaneously with
the completion of the Company's initial public offering and will be accounted
for using the purchase method of accounting.
The Company will consummate a series of related transactions in connection
with the Offering. Pursuant to a Contribution Agreement effective March 5, 1998
(the "RIG Contribution Agreement"), RIGLP and RIGINC will be consolidated with
the Company. Limited partners of RIGLP (other than RIGINC) and all of the
stockholders of RIGINC will receive 3.113 shares of the Common Stock of the
Company per each limited partnership unit or share of common stock exchanged.
See "Certain Transactions." As a result, the Company will own (directly or
indirectly) all of the capital stock of RIGINC and all of the equity of RIGLP.
Pursuant to a Contribution Agreement dated February 17, 1998 (the "Jamison
Contribution Agreement"), Jamison will be consolidated with the Company in a
transaction in which the stockholders of Jamison will contribute all of the
outstanding capital stock of Jamison to the Company in exchange for $10 million
of the Common Stock of the Company, valued at the price at which Common Stock is
sold in this Offering. As provided in the Jamison Contribution Agreement, the
Company will offer for resale by the Jamison Selling Stockholders as part of
this Offering up to 65% of the shares of the Common Stock issued to them
pursuant to the Jamison Contribution Agreement.
The historical financial statements included in the unaudited pro forma
condensed combined balance sheet and statement of operations were derived from
the separate financial statements of the Company, RIGINC (including its
consolidated subsidiary, RIGLP) and Jamison as of December 31, 1997 and March
31, 1998 and for the year and the three months then ended. The related audited
and unaudited historical financial statements are included elsewhere herein and
should be read in conjunction with these pro forma condensed combined financial
statements.
2. ACQUISITION OF JAMISON
The Company will adjust the carrying value of the acquired assets and
liabilities of Jamison to fair market value as discussed below. The amounts and
classifications are estimates, based on the current operations of Jamison, and
the recorded book values of assets and liabilities at March 31, 1998. The
allocation will include all existing recorded assets and liabilities of Jamison
which currently approximate fair market value except for capitalized product
development costs. These accounts are not shown here because they have no
significant net book value.
<TABLE>
<CAPTION>
ESTIMATED VALUE ESTIMATED LIFE
----------------- ---------------
<S> <C> <C>
Capitalized product development ................ $ 2,500,000 2-5 years
In process research and development ............ 3,000,000
Intangible assets (customer base, in place work-
force, and goodwill) .......................... 4,500,000 7-15 years
-----------
$10,000,000
===========
</TABLE>
Capitalized product development includes those developed software products
and proprietary databases which are expected to produce revenues currently,
until their conversion by the Company into products with a format consistent
with the Company's products. This effort is expected to take up to 2 years.
Certain underlying data elements of the Jamison products are expected to
continue in use. These elements have a 5 year life.
F-5
<PAGE>
REALTY INFORMATION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS- (CONTINUED )
In process research and development includes certain unique products which
are sold by Jamison in the Atlanta and Dallas regions and are expected to be
further developed for use by the Company in all its covered regions. This
development effort is expected to require significant funds and take up to two
years to complete. As a result, the Company considers this technology in process
and will take a one time charge to earnings for the $3,000,000 assigned to the
acquired value of this technology in the period following completion of the
acquisition.
Certain intangible assets have been identified within the business and are
expected to have substantial value to the Company and have been assigned a
portion of the purchase price based on their estimated fair market value. The
remaining purchase price, estimated at approximately $2,000,000, is allocated to
goodwill.
3. PRO FORMA ADUSTMENTS
The pro forma adjustments reflect the consolidation of the Company and its
predecessors and the acquisition of Jamison. The offering adjustments reflect
the issuance of common stock of the Company and the net proceeds from the
initial public offering. The adjustments are as follows:
Pro forma condensed combined statement of operations:
(a) Estimated charges for amortization of the assets noted above,
amounting to $1,100,000 and $275,000 to cost of sales for product
amortization and $400,000 and $100,000 to operating expenses for
amortization of other assets for the year ended December 31, 1997
and the three months ended March 31, 1998, respectively.
(b) A charge of $50,000 for financing costs is recorded to recognize
46,695 warrants issued in connection with the subordinated debt of
the Company. Such warrants are exerciseable at 10% below the price
of the stock in an initial public offering. This charge is offset by
the net reduction of $26,000 in interest expense of RIGLP due to the
planned repayment of debt from offering proceeds. This results in a
net charge of $24,000 for the year ended December 31, 1997. The
reduction in interest expense for the three months ended March 31,
1998 is $43,550.
(c) Minority interest-net loss allocated to limited partners of RIGLP
recorded in the accounts of RIGINC is eliminated.
Pro forma condensed combined balance sheet:
(d) Minority interest -- RIGLP limited partners' equity recorded in the
accounts of RIGINC is eliminated.
(e) The estimated purchase price of $10,000,000 is allocated to
capitalized product development and intangible assets as indicated
in Note 2.
F-6
<PAGE>
Offering adjustment:
(f) Assuming an initial public offering price of $11.00 per share, the
proceeds of the initial public offering amounting to approximately
$20,600,000, net of expenses of the offering estimated at $950,000,
are used initially to eliminate debts of RIGLP, RIGINC and Jamison,
including the line of credit, subordinated debt to partner, advances
from stockholders, and long term debt. The total elimination of debt
is estimated at $1,789,420 in current debts and $31,382 in long term
debt for a total of $1,820,802, resulting in an increase in cash of
the Company from the Offering, after repayment of debt, of
$18,779,198.
4. WEIGHTED AVERAGE SHARES OUTSTANDING
Includes 1,899,015 shares or units of the Company's predecessors
converted at a rate of 3.113 shares per share of RIGINC or unit of
RIGLP and the 909,091 shares issued to the Jamison stockholders in
connection with the acquisition of Jamison, as if such shares were
outstanding for the entire period. Stock options and warrants
outstanding have been excluded from the calculation because their
effect is anti-dilutive.
F-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Realty Information Group, Inc.
We have audited the accompanying balance sheet of Realty Information Group,
Inc. as of February 28, 1998. This financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Realty Information Group,
Inc. at February 28, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
----------------------------------
Washington, D.C.
March 12, 1998
F-8
<PAGE>
REALTY INFORMATION GROUP, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
February 28, MARCH 31,
1998 1998
---------- ----------
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares autho-
rized, none issued ................................... $ -- $ --
Common stock, $.01 par value, 30,000,000 shares autho-
rized, no shares issued and outstanding .............. -- --
---- ----
Additional paid-in capital ............................. -- --
---- ----
Total stockholders' equity .............................. $ -- $ --
==== ====
</TABLE>
See accompanying notes.
F-9
<PAGE>
REALTY INFORMATION GROUP, INC.
NOTES TO BALANCE SHEET
1. ORGANIZATION
Realty Information Group, Inc. (the "Company") was formed in February 1998
to succeed its predecessors, Realty Information Group, L.P. ("RIGLP") and OLD
RIG, Inc. ("RIGINC"), and to acquire Jamison Research, Inc. ("Jamison") in
connection with an initial public offering of its common stock. The Company has
not commenced operations, and all activities to date have related to its
organization and the initial public offering. The Company is dependent upon the
initial public offering to succeed its predecessor companies and execute the
pending acquisition. Therefore, there is no assurance that the pending
acquisition or related transactions will be completed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 at the
date of the financial statements and the associated amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates.
Unaudited Balance Sheet
The balance sheet as of March 31, 1998 is unaudited. In the opinion of
management, such balance sheet reflects all adjustments necessary for a fair
presentation.
3. PLANNED TRANSACTIONS
The Company has entered into the Agreement and Plan of Contribution with
RIGINC, RIGLP, Jamison and the stockholders of Jamison (the "Agreement"), in
which the various entities will contribute their stock or partnership units to
the Company in exchange for a distribution of the common stock of the Company
contingent upon the closing of the initial public offering. Pursuant to the
Agreement, the Company intends to undertake an initial public offering of its
common stock. In March, 1998, the Company filed a registration statement on Form
S-1 for the initial public offering of its common stock. The offering costs will
be netted against the proceeds of the offering. Simultaneously with and
contingent upon the initial public offering, the Company will purchase Jamison
at a price equal to $10 million in shares.
F-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Realty Information Group, L.P.
We have audited the accompanying consolidated balance sheets of Realty
Information Group, L.P. as of December 31, 1996 and 1997, and the related
consolidated statements of operations, partners' capital and cash flows for the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Realty
Information Group, L.P. at December 31, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Washington, D.C.
February 10, 1998
F-11
<PAGE>
REALTY INFORMATION GROUP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- -----------------------------
1995 1996 1997 1997 1998
--------------- ---------------- ---------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues ............................... $2,061,526 $ 4,335,966 $ 7,899,940 $1,555,473 $2,839,023
Cost of revenues ....................... 930,570 2,188,136 3,412,593 717,398 904,328
---------- ----------- ----------- ---------- ----------
Gross margin ........................... 1,130,956 2,147,830 4,487,347 838,075 1,934,695
Operating expenses:
Selling and marketing ................. 566,548 2,711,823 4,373,914 862,658 1,264,454
Software development .................. 247,800 254,177 395,077 103,062 117,688
General and administrative ............ 1,180,090 1,863,236 3,017,439 672,068 898,536
---------- ----------- ----------- ---------- ----------
Total operating expenses ............... 1,994,438 4,829,236 7,786,430 1,637,788 2,280,678
---------- ----------- ----------- ---------- ----------
Loss from operations ................... (863,482) (2,681,406) (3,299,083) (799,713) (345,983)
Other income (expense):
Interest expense ....................... (25,950) (2,323) (26,421) -- (43,550)
Interest income ........................ 70,849 29,642 48,743 24,667 5,415
Other income ........................... 34,319 21,858 11,215 6,402 --
---------- ----------- ----------- ---------- ----------
Net loss ............................... $ (784,264) $(2,632,229) $(3,265,546) $(768,644) $(384,118)
========== =========== =========== ========== ==========
Net loss allocated to general part-
ners ................................ $ (636,096) $(1,766,764) $(1,792,294) $(418,806) $(211,265)
Net loss allocated to limited part-
ners ................................ $ (148,168) $ (865,465) $(1,473,252) $(349,838) $(172,853)
Pro forma loss per share:
Net loss ............................... $ (784,264) (2,632,229) $(3,265,546) $(768,644) $(384,118)
========== =========== =========== ========== ==========
Loss per share ......................... $ (.29) $ (.58) $ (.56) $ (.13) $ (.06)
========== =========== =========== ========== ==========
Weighted average common shares ......... 2,666,829 4,507,778 5,879,185 5,814,911 5,911,635
========== =========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-12
<PAGE>
REALTY INFORMATION GROUP, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- MARCH 31,
1996 1997 1998
------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $3,326,367 $1,068,835 $ 865,654
Accounts receivable, less allowance for doubtful ac-
counts of $90,000, $151,000 and $219,000 as of De-
cember 31, 1996 and 1997 and March 31, 1998 ......... 865,535 1,021,345 1,462,271
Prepaid expenses and other current assets ............. 56,439 26,601 540,443
---------- ---------- ----------
Total current assets ................................... 4,248,341 2,116,781 2,868,368
Property and equipment:
Leasehold improvements ................................ 84,950 111,623 114,043
Furniture and equipment ............................... 503,067 623,417 693,594
Computer hardware and software ........................ 991,117 1,366,687 1,424,238
---------- ---------- ----------
1,579,134 2,101,727 2,231,875
Accumulated depreciation ............................... (446,430) (799,763) (892,895)
---------- ---------- ----------
1,132,704 1,301,964 1,338,980
Capitalized product development costs, net of accumu-
lated amortization of $256,000, 514,000 and $626,000 as
of December 31, 1996 and 1997 and March 31, 1998 919,749 1,261,974 1,244,387
Other assets (Note 4) .................................. 1,271,258 1,796,356 1,771,257
Deposits ............................................... 97,819 104,510 91,469
---------- ---------- ----------
Total assets ........................................... $7,669,871 $6,581,585 $7,314,461
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ...................................... $ 405,939 $ 355,416 536,082
Accrued wages and commissions ......................... 348,644 368,667 534,996
Accrued expenses ...................................... 276,398 387,428 410,326
Deferred revenue ...................................... 969,243 902,575 1,645,545
Line of credit ........................................ -- 1,000,000 1,000,000
Subordinated debt to partner .......................... -- 650,000 650,000
---------- ---------- ----------
Total current liabilities .............................. 2,000,224 3,664,086 4,776,949
Redeemable limited partners' capital ................... 200,000 200,000 200,000
Partners' capital ...................................... 5,469,647 2,717,499 2,337,512
---------- ---------- ----------
Total liabilities and partners' capital ................ $7,669,871 $6,581,585 $7,314,461
========== ========== ==========
</TABLE>
See accompanying notes.
F-13
<PAGE>
REALTY INFORMATION GROUP, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED TOTAL
PARTNERS' PARTNERS' PARTNERS'
EQUITY EQUITY EQUITY
---------------- --------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1994 ............................... $ (430,216) $ 196,066 $ (234,150)
Capital contributions (net of fees of $79,845)............. -- 3,345,155 3,345,155
Net loss .................................................. (636,096) (148,168) (784,264)
------------ ------------ ------------
Balance at December 31, 1995 ............................... (1,066,312) 3,393,053 2,326,741
Capital contributions (net of fees of $271,624)............ 705,263 4,115,543 4,820,806
Partnership units issued for acquisition .................. -- 1,200,000 1,200,000
Note receivable from limited partner ...................... -- (45,671) (45,671)
Net loss .................................................. (1,766,764) (865,465) (2,632,229)
------------ ------------ ------------
Balance at December 31, 1996 ............................... (2,127,813) 7,797,460 5,669,647
Non cash compensation ..................................... 300,000 -- 300,000
Partnership units issued for acquisition .................. -- 205,940 205,940
Reduction of note receivable from limited partner ......... -- 7,458 7,458
Net loss .................................................. (1,792,294) (1,473,252) (3,265,546)
------------ ------------ ------------
Balance at December 31, 1997 ............................... (3,620,107) 6,537,606 2,917,499
------------ ------------ ------------
Reduction of note receivable from limited partner ......... -- 4,131 4,131
Net loss .................................................. (211,265) (172,853) (384,118)
------------ ------------ ------------
Balance at March 31, 1998 (unaudited) ...................... $ (3,831,372) $ 6,368,884 $ 2,537,512
============ ============ ============
</TABLE>
See accompanying notes.
F-14
<PAGE>
REALTY INFORMATION GROUP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1996 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
Operating activities:
Net loss ......................................... $ (784,264) $ (2,632,229) $ (3,265,546)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ................................... 107,090 212,030 353,333
Amortization ................................... 92,207 266,986 487,144
Loss on sale of property and equipment ......... 8,302 -- --
Provision for losses on accounts receivable..... 23,000 30,000 61,343
Non cash compensation charges .................. -- -- 157,459
Changes in operating assets and liabilities:
Accounts receivable .......................... (112,162) (470,117) (217,153)
Prepaid expenses and other current as-
sets ........................................ (25,018) (22,942) 29,838
Deposits ..................................... (38,186) (33,152) (6,691)
Accounts payable and accrued expenses 175,893 667,649 230,530
Deferred revenue ............................. 99,609 157,410 (66,668)
------------ ------------ ------------
Net cash provided by (used in) operating ac-
tivities ....................................... (453,529) (1,824,365) (2,236,411)
Investing activities:
Net purchases of property and equipment .......... (635,965) (631,385) (522,592)
Capitalization of product development costs ...... (432,683) (347,065) (600,670)
Acquisitions (net of acquired cash) .............. -- 25,924 (547,859)
------------ ------------ ------------
Net cash used in investing activities ............ (1,068,648) (952,526) (1,671,121)
Financing activities:
Payments on related party note and accrued
interest ....................................... (627,150) -- --
Proceeds from line of credit ..................... -- -- 1,000,000
Proceeds from subordinated debt to partner ....... -- -- 650,000
Net proceeds from capital contributions .......... 3,345,155 4,775,135 --
------------ ------------ ------------
Net cash provided by financing activities ........ 2,718,005 4,775,135 1,650,000
Net increase (decrease) in cash and cash equiv-
alents ......................................... 1,195,828 1,998,244 (2,257,532)
Cash and cash equivalents at beginning of pe-
riod ........................................... 132,295 1,328,123 3,326,367
------------ ------------ ------------
Cash and cash equivalents at end of period ....... $ 1,328,123 $ 3,326,367 $ 1,068,835
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AT MARCH 31,
------------------------------
1997 1998
--------------- --------------
(UNAUDITED)
<S> <C> <C>
Operating activities:
Net loss ......................................... $ (768,644) $ (384,118)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ................................... 80,966 93,132
Amortization ................................... 99,772 137,305
Loss on sale of property and equipment ......... -- --
Provision for losses on accounts receivable..... 12,206 46,935
Non cash compensation charges .................. 2,193 4,131
Changes in operating assets and liabilities:
Accounts receivable .......................... 112,670 (487,861)
Prepaid expenses and other current as-
sets ........................................ (2,057) (513,842)
Deposits ..................................... (4,589) 13,041
Accounts payable and accrued expenses 299,427 369,893
Deferred revenue ............................. (59,230) 742,970
------------- ----------
Net cash provided by (used in) operating ac-
tivities ....................................... (227,286) 21,586
Investing activities:
Net purchases of property and equipment .......... (249,228) (130,149)
Capitalization of product development costs ...... (143,110) (94,618)
Acquisitions (net of acquired cash) .............. (547,859)
-------------
Net cash used in investing activities ............ (940,197) (224,767)
Financing activities:
Payments on related party note and accrued
interest ....................................... -- --
Proceeds from line of credit ..................... -- --
Proceeds from subordinated debt to partner ....... -- --
Net proceeds from capital contributions .......... -- --
------------- ----------
Net cash provided by financing activities ........ -- --
Net increase (decrease) in cash and cash equiv-
alents ......................................... (1,167,483) (203,181)
Cash and cash equivalents at beginning of pe-
riod ........................................... 3,326,367 1,068,835
------------- ----------
Cash and cash equivalents at end of period ....... $ 2,158,884 $ 865,654
============= ==========
</TABLE>
See accompanying notes.
F-15
<PAGE>
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Realty Information Group, L.P. ("RIGLP") has created a proprietary database
(the "Database") of comprehensive office and industrial real estate information
in seven major metropolitan areas throughout the United States. In addition, the
Company has developed a portfolio of multimedia software products that allow
clients to access the Database. The Database and software products are
distributed to its clients under license agreements which are typically one to
three years in duration.
Pursuant to the partnership agreement, the term of RIGLP will continue
until December 31, 2094. Generally, the profits and losses of RIGLP will be
allocated to the partners in proportion to their respective partnership
percentages, which are generally based on contributions to RIGLP. There are
certain limitations on the allocation of partnership losses such that any
limited partner can not have a capital account deficit. The partnership
agreement specifies that RIGLP shall have the option to require the initial
limited partner to sell its partnership interest to RIGLP for fair value during
the period from November 1, 2004 through November 30, 2004. Additionally, the
agreement specifies that during this same period, the initial limited partner
has the right to require RIGLP to repurchase its limited partnership interest
for fair value.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of RIGLP include the accounts of New
Market Systems, Inc. ("NMS") acquired on March 1, 1997 (Note 3).
Unaudited Interim Statements
The consolidated financial statements as of March 31, 1998 and for the
three months ended March 31, 1998 and 1997 are unaudited. In the opinion of
management, such financial statements reflect all adjustments necessary for a
fair presentation of the results of the respective interim periods. All such
adjustments are of a normal recurring nature.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
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 at the
date of the financial statements and the associated amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates.
Revenue Recognition
Revenue from the sale of licenses to the proprietary software and the
Database is recognized on a straight-line basis over the term of the license,
which is typically from one to three years.
Cash and Cash Equivalents
RIGLP's cash and cash equivalents include highly liquid instruments
purchased with an original maturity of less than three months.
F-16
<PAGE>
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Property and Equipment
Property and equipment, including leasehold improvements, are stated at
cost and depreciated using the straight-line method over estimated useful lives
of three to seven years. Leasehold improvements are amortized over the lesser of
the related lease term or the useful life.
Capitalized Product Development Costs
Initial costs to develop and produce the Database and software products,
including direct labor, contractors and applicable overhead are capitalized from
the time technological feasibility is determined until product release. Prior to
technological feasibility, such costs are classified as software development and
expensed as incurred. Amortization of capitalized costs is based on the greater
of the amount computed using (a) the ratio of current gross revenues to the sum
of current and anticipated gross revenues, or (b) the straight-line method over
the remaining estimated economic life of the product, typically five years after
product release. Included in amortization is approximately $75,000, $181,000,
$287,000 and $112,000 of expense related to the capitalized product development
costs for the years ended December 31, 1995, 1996 and 1997 and the three months
ended March 31, 1998, respectively.
Intangible Assets
The value assigned to the customer base acquired through the purchase of
NMS and Chicago Resource, Inc., and goodwill, resulting from the purchase of
Space Datagraphics Systems, Inc., in December 1994, are being amortized on a
straight-line basis over ten years. RIGLP continuously evaluates and adjusts, if
necessary, the net realizable value of these assets.
Income Taxes
RIGLP is a partnership for federal income tax purposes under which income,
losses, deductions and credits are allocated to and reported by the partners on
their individual income tax returns. Accordingly, no provision for income tax
has been recorded in the financial statements. Upon the effectiveness of the
Registration Statement on Form S-1 (see note 10), the partnership will become
part of Realty Information Group, Inc., the successor, and will be taxed as a
C-Corporation. Had the Partnership operated as a C-Corporation for the year
ended December 31, 1995, 1996 and 1997 and the three months ended March 31,
1998, their would be no income taxes recorded as a result of the losses for the
periods. NMS is a corporation which provides for income taxes under the
provisions of Statement of Financial Accounting Standards No. 109. As of
December 31, 1997, NMS had net loss carryforwards of approximately $522,000. A
valuation allowance has been established against the related net deferred tax
asset in its entirety.
Unit Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" which is effective for the RIGLP's financial statements after
1995. SFAS No. 123 allows companies to account for stock-based compensation
under the provisions of either SFAS No. 123 or Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", with pro
forma disclosure as if the measurement provision of SFAS No. 123 had been
adopted. RIGLP applies these principles and accounts for its unit based
compensation in accordance with the provisions of APB No. 25. As such, the
adoption of SFAS No. 123 does not impact the financial position or results of
operations of RIGLP.
Advertising Costs
Advertising costs are expensed as incurred. Such costs included in selling
and marketing expense totaled approximately $125,698, $203,659, $397,966 and
$53,908 for the years ended December 31, 1995, 1996, and 1997 and the three
months ended March 31, 1998, respectively.
F-17
<PAGE>
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Concentration of Credit Risk
RIGLP performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. RIGLP maintains reserves
for credit losses, and such losses have been within management's expectations.
The credit risk in accounts receivable is mitigated by the large and widespread
customer base and lack of dependence on individual customers. The carrying
amount of the accounts receivable approximates their net realizable value.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the Statements of Stockholders' Deficit. The implementation
of SFAS 130, "Comprehensive Income", information on the financial statements is
not expected to be material. For all periods presented, including the three
months ended March 31, 1998, RIGLP had no items of comprehensive income and,
accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information", which is required to be adopted for
the year ended December 31, 1998. SFAS 131 changes the way public companies
report segment information in annual financial statements and also requires
those companies to report selected segment information in interim financial
reports to stockholders. The disclosure for segment information on the financial
statements is not expected to be material.
In October 1997, the AICPA issued SOP 97-2, Software Revenue Recognition,
which changes the requirements for revenue recognition effective for
transactions that the Company will enter into beginning January 1, 1998. The
implementation of SOP 97-2 is not expected to have a material effect on the
financial statements of RIGLP. As of January 1, 1998 the Company adopted AICPA
SOP 97-2, Software Revenue Recognition, which was effective for transactions
that RIGLP entered into in 1998. Prior years were not restated. The effect of
adopting SOP 97-2 was not material in the financial statements of RIGLP. In
March 1998, AcSEC issued SOP 98-4 which defers for one year the implementation
of certain prevision of SOP 97-2. The issuance of SOP 98-4 had no effect on
RIGLP.
Pro Forma Loss Per Share
Pro Forma per share information is presented as if the Partnership had
operated as a C-Corpration for all perios presented. In February 1997, the
Finacial Accounting Standards Board issued Statement No. 128, Earnings per
Share. All pro forma earnings per share amounts for all periods have been
presented to conform to the Statement 128 requirements.
F-18
<PAGE>
3. ACQUISITIONS
On April 1, 1996, RIGLP expanded to the Chicago area by purchasing
substantially all of the assets and liabilities of Chicago ReSource, Inc.
("CRI"), through the issuance of 114,640.55 partnership units valued at
$1,200,000. On March 1, 1997 RIGLP expanded to the San Francisco area through a
purchase of 99.3% of the outstanding shares of New Market Systems, Inc. ("NMS"),
a California corporation, through the exchange of 14,710 partnership units
valued at $206,000 and payment of $550,000 in cash. The accompanying statements
of operations reflect the operating results of CRI and NMS since the effective
date of the acquisition. Except for cash acquired, these transactions have been
excluded from the statements of cash flows and have been accounted for using
purchase accounting.
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. ACQUISITIONS - (CONTINUED)
The pro forma unaudited results of operations for the years ended December
31, 1996 and 1997, assuming the purchase of CRI and NMS had been consummated as
of January 1 of each year, respectively, are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
REVENUES ......................... $ 4,576,000 $ 7,960,000
=========== ===========
Net loss ......................... (2,810,000) (3,386,000)
=========== ===========
</TABLE>
4. OTHER ASSETS
Other assets consists of intangible assets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------- -------------
1996 1997 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Acquired contracts ............... $ 1,286,259 $ 2,041,289 $2,041,289
Accumulated Amortization ......... 78,614 301,912 325,353
----------- ----------- ----------
$ 1,207,645 $ 1,739,377 $1,715,936
----------- ----------- ----------
Goodwill ......................... $ 78,667 $ 79,979 $ 79,979
Accumulated Amortization ......... 15,054 23,000 24,658
----------- ----------- ----------
63,613 56,979 55,321
----------- ----------- ----------
$ 1,271,258 $ 1,796,356 $1,771,257
=========== =========== ==========
</TABLE>
5. LINE OF CREDIT
In October, 1997, RIGLP entered into a $1,000,000 line of credit agreement
with Silicon Valley East (a Division of Silicon Valley Bank). The line bears
interest at the bank's prime rate plus 2%, and has a one year term. Borrowings
under the line are secured by the assets of RIGLP. RIGLP is in compliance at
December 31, 1997, with the terms of the line of credit agreement which includes
covenants requiring minimum cash, working capital and partners' capital amounts,
and limits operating losses of RIGLP. At December 31, 1997, $1,000,000 of
borrowings were outstanding under the line. Interest paid in 1997 totaled
$17,760.
6. RELATED PARTY TRANSACTIONS
During 1997, the general partner of RIGLP obtained a commitment from a
partner for an additional $1,000,000 of subordinated, unsecured credit, bearing
interest at a rate equal to that of the line of credit. In connection with the
commitment, the individual contributing partner has received warrants for the
purchase of 15,000 shares of stock of the general partner, exerciseable only in
the event of an initial public offering or an equity funding in excess of $5.0
million ("a triggering event"). The warrants have a two year term beyond the
triggering event and provide for the purchase of an equivalent number of shares
at a price of 10% less than the price of the stock sold in an initial public
offering or an equity funding in excess of $5.0 million. At December 31, 1997,
$650,000 of borrowings were outstanding under the commitment and have been
advanced to RIGLP. Interest paid in 1997 totaled $8,055.
Commencing in May 1995 RIGLP agreed to pay an investor $10,000 per month
and the Chairman of RIGLP $6,667 per month for consulting services. During 1995,
1996 and 1997, RIGLP incurred fees of approximately $130,000, $200,000 and
$200,000, respectively, related to such consulting services.
F-19
<PAGE>
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
7. COMMITMENTS
RIGLP leases office space and equipment under operating lease agreements
which expire at various dates through the year 2001. Lease agreements provide
for various renewal terms and reimbursement of taxes, maintenance, insurance and
other occupancy expenses applicable to the leased premises or property. In
addition, RIGLP, as lessor, also subleases a portion of its office space to
another tenant under a cancelable lease.
F-20
<PAGE>
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. COMMITMENTS - (CONTINUED)
At December 31, 1997, future minimum lease payments under operating leases
are as follows:
<TABLE>
<S> <C>
1998 ........................ $ 869,100
1999 ........................ 738,100
2000 ........................ 460,000
2001 ........................ 90,600
2002 and thereafter ......... 70,000
-----------
$ 2,227,800
===========
</TABLE>
Rent expense was approximately $201,000, $525,000 and $766,000 and rental
income was approximately $23,000, $46,000 and $0 for the years ended December
31, 1995, 1996 and 1997, respectively.
8. SALES OF PARTNERSHIP UNITS
During 1995 RIGLP sold 327,780 limited partnership units to two investors
for total net proceeds of approximately $3.3 million. The transaction granted
the investors liquidation preferences of the investment plus a 6% per annum
return in the event of a liquidation. In addition, beginning April 15, 1999
through April 15, 2001, the transaction allows the investors to liquidate their
investments under a range of alternative strategies and exit transactions. The
proceeds of the transaction were used to retire a related party note payable and
to fund RIGLP's working capital needs.
On December 3, 1996, RIGLP completed a private placement (the "Private
Placement") in which RIGLP raised approximately $5.0 million through the sale of
338,580.2 partnership units. The proceeds of the transaction were used to fund
RIGLP's working capital needs and the NMS acquisitions.
In May 1997, RIGLP issued 21,428 partnership units valued at $300,000 to
provide compensation to an officer, $150,000 of which had been accrued at
December 31, 1996.
9. EMPLOYEE BENEFIT PLANS
Unit Option Plan
In March 1996 RIGLP adopted the 1996 Unit Option and Unit Purchase Plan
(the "Plan"), under which 200,000 partnership units were reserved for issuance
upon the exercise of options granted to officers, executive personnel, directors
and key employees. Certain options previously granted were included in the Plan.
The option plan is administered by the Board of Directors of RIGINC. Options are
granted at prices which the Board of Directors of RIGINC believes approximate
the fair market value of its limited partnership units. Individual grants become
exercisable over a period of three years from the date of grant. The contractual
term of the options range from three to ten years from the date of grant.
F-21
<PAGE>
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE BENEFIT PLANS - (CONTINUED)
Unit option activity was as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
UNITS PRICE PER UNIT EXERCISE PRICE
----------- ---------------- ---------------
<S> <C> <C> <C>
Outstanding at December 31, 1994 ......... 26,000 $ 5.00 $ 5.00
Granted ................................. 55,480 $ 10.45 $ 10.45
Exercised ............................... --
Canceled or expired ..................... --
------
Outstanding at December 31, 1995 ......... 81,480 $ 8.71
Granted ................................. 42,000 $ 10.45 $ 10.45
Exercised ............................... (10,000) $ 5.00 $ 5.00
Canceled or expired ..................... --
-------
Outstanding at December 31, 1996 ......... 113,480 $ 9.68
Granted ................................. 23,000 $ 12.34-$14.00 $ 13.28
Exercised ...............................
Canceled or expired ..................... (5,000) $ 10.45 $ 10.45
-------
Outstanding at December 31, 1997 ......... 131,480 $ 10.28
=======
Exercisable at December 31, 1997 ......... 82,277 $ 9.39
=======
Exercisable at December 31, 1996 ......... 57,740 $ 8.94
=======
Exercisable at December 31, 1995 ......... 21,870 $ 8.46
=======
</TABLE>
During 1996 RIGLP adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the Plan. Had
compensation expense related to the Plan been determined based on the fair value
at the grant date for options granted in 1995, 1996 and 1997 consistent with the
provisions of SFAS No. 123, RIGLP's pro forma net loss would have been $817,408,
$2,690,009 and $3,337,420 as of December 31, 1995, 1996 and 1997, respectively.
Such pro forma results are not representative of the effects on operations for
future years.
The fair value of each option grant is estimated on the date of grant using
the Minimum Value option-pricing model with the following weighted-average
assumptions: dividend yield of 0%; risk-free interest rate of approximately
6.0%; and expected life of 3 years for 1995 grants and 4 years for 1996 and 1997
grants.
The following table summarizes information regarding unit options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
OPTIONS AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE
- ---------------------------- ------------- -----------------
<S> <C> <C>
$ 5.00.................... 16,000 1.9
$ 10.45................... 92,480 2.6
$ 12.34................... 10,000 4.2
$ 14.00................... 13,000 4.4
</TABLE>
F-22
<PAGE>
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE BENEFIT PLANS - (CONTINUED)
Employee 401(k) Plan
Effective January 1, 1997, RIGLP established a 401(k) Plan (the "401(k)")
to provide retirement benefits for eligible employees. The 401(k) provides for
tax deferred contributions of between 1% and 15% of employees' salaries, limited
to a maximum annual amount as established by the Internal Revenue Service. RIGLP
matches 25% of employee contributions up to a maximum of 6% of total
compensation. Amounts contributed to the 401(k) by RIGLP to match employee
contributions were $27,808 in 1997.
10. MANAGEMENT PLANS
Related to a filing of a Registration Statement on Form S-1 by Realty
Information Group, Inc., a newly formed successor corporation, RIGLP anticipates
entering into an Agreement and Plan of Contribution ("Agreement") by and among
Realty Information Group, Inc., RIGLP, RIGINC, and Jamison and the Stockholders
of Jamison, to contribute all of RIGLP's outstanding partnership units (other
than those held by the general partner) to Realty Information Group, Inc. in
exchange for common stock of Realty Information Group, Inc.
F-23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors OLD RIG, Inc.
We have audited the accompanying consolidated balance sheets of OLD RIG,
Inc. as of December 31, 1996 and 1997, and the related consolidated statements
of operations, stockholders' deficit and cash flows for the three years in the
period ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of OLD RIG, Inc.
at December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Washington, D.C.
February 10, 1998
F-24
<PAGE>
OLD RIG, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- -----------------------------
1995 1996 1997 1997 1998
------------- ---------------- ---------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues .............................. $2,061,526 $ 4,335,966 $ 7,899,940 $1,555,473 $2,839,023
Cost of revenues ...................... 930,570 2,188,136 3,412,593 717,398 904,328
---------- ----------- ----------- ---------- ----------
Gross margin .......................... 1,130,956 2,147,830 4,487,347 838,075 1,934,695
Operating expenses:
Selling and marketing ................ 566,548 2,711,823 4,373,914 862,658 1,264,454
Software development ................. 247,800 254,177 395,077 103,062 117,688
General and administrative ........... 1,180,090 1,863,236 3,017,439 672,068 898,536
---------- ----------- ----------- ---------- ----------
Total operating expenses .............. 1,994,438 4,829,236 7,786,430 1,637,788 2,280,678
---------- ----------- ----------- ---------- ----------
Loss from operations .................. (863,482) (2,681,406) (3,299,083) (799,713) (345,983)
Other income (expense):
Interest expense ...................... (25,950) (2,323) (26,421) -- (43,550)
Interest income ....................... 70,849 29,642 48,743 24,667 5,415
Other income .......................... 34,319 21,858 11,215 6,402 --
---------- ----------- ----------- ---------- ----------
Loss before minority interest ......... (784,264) (2,632,229) (3,265,546) (768,644) (384,118)
Minority interest-net loss allocated to
limited partners of RIGLP ............ 148,168 865,465 1,473,252 349,838 172,853
---------- ----------- ----------- ---------- ----------
Net loss .............................. $(636,096) $(1,766,764) $(1,792,294) $(418,806) $(211,265)
========== =========== =========== ========== ==========
Loss Per Share......................... $ (.22) $ (.58) $ (.56) $ (.13) $ (.06)
========== =========== =========== ========== ==========
Weighted average common shares......... 2,919,315 3,028,399 3,229,160 3,184,689 3,251,395
========== =========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-25
<PAGE>
OLD RIG, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- MARCH 31,
1996 1997 1998
--------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 3,326,367 $ 1,068,835 $ 865,654
Accounts receivable, less allowance for doubtful ac-
counts of $90,000, $151,000 and $219,000 as of December
31, 1996 and 1997 and March 31, 1998 865,535 1,021,345 1,462,271
Prepaid expenses and other current assets ............... 56,439 26,601 540,443
------------ ------------ ------------
Total current assets ..................................... 4,248,341 2,116,781 2,868,368
Property and equipment:
Leasehold improvements .................................. 84,950 111,623 114,043
Furniture and equipment ................................. 503,067 623,417 693,594
Computer hardware and software .......................... 991,117 1,366,687 1,424,238
------------ ------------ ------------
1,579,134 2,101,727 2,231,875
Accumulated depreciation ................................. (446,430) (799,763) (892,895)
------------ ------------ ------------
1,132,704 1,301,964 1,338,980
Capitalized product development costs, net of accumu-
lated amortization of $256,000, $514,000 and $626,000 as
of December 31, 1996 and 1997 and March 31, 1998.......... 919,749 1,261,974 1,244,387
Other assets (Note 4) .................................... 1,271,258 1,796,356 1,771,257
Deposits ................................................. 97,819 104,510 91,469
------------ ------------ ------------
Total assets ............................................. $ 7,669,871 $ 6,581,585 $ 7,314,461
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ........................................ $ 405,939 $ 355,416 536,082
Accrued wages and commissions ........................... 348,644 368,667 534,996
Accrued expenses ........................................ 276,398 387,428 410,326
Deferred revenue ........................................ 969,243 902,575 1,645,545
Line of credit .......................................... -- 1,000,000 1,000,000
Note payable to a shareholder ........................... -- 650,000 650,000
------------ ------------ ------------
Total current liabilities ................................ 2,000,224 3,664,086 4,776,949
Stockholders' Deficit:
Minority interest-RIGLP Limited Partners' Equity ......... 7,797,460 6,537,606 6,368,884
Common stock, par value $.02694 per share; 962,782
shares authorized; 1,023,029 and 1,044,457 shares
issued and outstanding at December 31, 1996 and 1997
and March 31, 1998, respectively ........................ 27,569 28,146 28,146
Additional paid in capital ............................... 4,991,777 5,291,200 5,291,200
Retained earnings (deficit) .............................. (7,147,159) (8,939,453) (9,150,718)
------------ ------------ ------------
Total stockholders' equity (deficit) ..................... (2,127,813) (3,620,107) (3,831,372)
------------ ------------ ------------
Total liabilities and stockholders' deficit .............. $ 7,669,871 $ 6,581,585 $ 7,314,461
============ ============ ============
</TABLE>
See accompanying notes.
F-26
<PAGE>
OLD RIG, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------------ ---------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 .................. 887,782 $24,070 $4,232,801 $ (4,744,299) $ (487,428)
Issuance of common stock ..................... 75,000 1,875 15,600 -- 17,475
Net loss ..................................... -- -- -- (636,096) (636,096)
------- ------- ---------- ------------ ------------
Balance at December 31, 1995 .................. 962,782 25,945 4,248,401 (5,380,395) (1,106,049)
Issuance of common stock ..................... 60,247 1,624 743,376 -- 745,000
Net loss ..................................... -- -- -- (1,766,764) (1,766,764)
------- ------- ---------- ------------ ------------
Balance at December 31, 1996 .................. 1,023,029 27,569 4,991,777 (7,147,159) (2,127,813)
Issuance of common stock ..................... 21,428 577 299,423 -- 300,000
Net loss ..................................... -- -- -- (1,792,294) (1,792,294)
--------- ------- ---------- ------------ ------------
Balance at December 31, 1997 .................. 1,044,457 28,146 5,291,200 (8,939,453) (3,620,107)
--------- ------- ---------- ------------ ------------
Net loss ..................................... -- -- -- (211,265) (211,265)
--------- ------- ---------- ------------ ------------
Balance at March 31, 1998 (unaudited) ......... 1,044,457 $28,146 $5,291,200 $ (9,150,718) $ (3,831,372)
========= ======= ========== ============ ============
</TABLE>
See accompanying notes.
F-27
<PAGE>
OLD RIG, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1996 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
Operating activities:
Net loss ......................................... $ (636,096) $ (1,766,764) $ (1,792,294)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest .............................. (148,168) (865,465) (1,473,252)
Depreciation ................................... 107,090 212,030 353,333
Amortization ................................... 92,207 266,986 487,144
Loss on sale of property and equipment ......... 8,302 -- --
Provision for losses on accounts receivable..... 23,000 30,000 61,343
Non cash compensation charges .................. -- -- 157,459
Changes in operating assets and liabilities:
Accounts receivable .......................... (112,162) (470,117) (217,153)
Prepaid expenses and other current as-
sets ........................................ (25,018) (22,942) 29,838
Deposits ..................................... (38,186) (33,152) (6,691)
Accounts payable and accrued expenses 175,893 667,649 230,530
Deferred revenue ............................. 99,609 157,410 (66,668)
------------ ------------ ------------
Net cash provided by (used in) operating ac-
tivities ....................................... (453,529) (1,824,365) (2,236,411)
Investing activities:
Net purchases of property and equipment .......... (635,965) (631,385) (522,592)
Capitalization of product development costs ...... (432,683) (347,065) (600,670)
Acquisitions (net of acquired cash) .............. -- 25,924 (547,859)
------------ ------------ ------------
Net cash used in investing activities ............ (1,068,648) (952,526) (1,671,121)
Financing activities:
Payments on note and accrued interest ............ (627,150) -- --
Proceeds from line of credit ..................... -- -- 1,000,000
Proceeds from note payable ....................... -- -- 650,000
Net proceeds from capital contributions .......... 3,345,155 4,775,135 --
------------ ------------ ------------
Net cash provided by financing activities ........ 2,718,005 4,775,135 1,650,000
Net increase (decrease) in cash and cash equiv-
alents ......................................... 1,195,828 1,998,244 (2,257,532)
Cash and cash equivalents at beginning of pe-
riod ........................................... 132,295 1,328,123 3,326,367
------------ ------------ ------------
Cash and cash equivalents at end of period ....... $ 1,328,123 $ 3,326,367 $ 1,068,835
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AT MARCH 31,
------------------------------
1997 1998
--------------- --------------
(UNAUDITED)
<S> <C> <C>
Operating activities:
Net loss ......................................... $ (418,806) $ (211,265)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest .............................. (349,838) (172,853)
Depreciation ................................... 80,966 93,132
Amortization ................................... 99,772 137,305
Loss on sale of property and equipment ......... -- --
Provision for losses on accounts receivable..... 12,206 46,935
Non cash compensation charges .................. 2,193 4,131
Changes in operating assets and liabilities:
Accounts receivable .......................... 112,670 (487,861)
Prepaid expenses and other current as-
sets ........................................ (2,057) (513,842)
Deposits ..................................... (4,589) 13,041
Accounts payable and accrued expenses 299,427 369,893
Deferred revenue ............................. (59,230) 742,970
------------- ----------
Net cash provided by (used in) operating ac-
tivities ....................................... (227,286) 21,586
Investing activities:
Net purchases of property and equipment .......... (249,228) (130,149)
Capitalization of product development costs ...... (143,110) (94,618)
Acquisitions (net of acquired cash) .............. (547,859)
-------------
Net cash used in investing activities ............ (940,197) (224,767)
Financing activities:
Payments on note and accrued interest ............ -- --
Proceeds from line of credit ..................... -- --
Proceeds from note payable ....................... -- --
Net proceeds from capital contributions .......... -- --
------------- ----------
Net cash provided by financing activities ........ -- --
Net increase (decrease) in cash and cash equiv-
alents ......................................... (1,167,483) (203,181)
Cash and cash equivalents at beginning of pe-
riod ........................................... 3,326,367 1,068,835
------------- ----------
Cash and cash equivalents at end of period ....... $ 2,158,884 $ 865,654
============= ==========
</TABLE>
See accompanying notes.
F-28
<PAGE>
OLD RIG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
OLD RIG, INC. ("RIGINC") is the majority owner of Realty Information Group,
L.P. (RIGLP) and is its General Partner. RIGINC has no operations of its own.
RIGLP has created a proprietary database (the "Database") of comprehensive
office and industrial real estate information in seven major metropolitan areas
throughout the United States. In addition, RIGLP has developed a portfolio of
multimedia software products that allow clients to access the Database. The
Database and software products are distributed to its clients under license
agreements which are typically one to three years in duration.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of RIGINC include the accounts of
RIGLP and of New Market Systems, Inc.("NMS") acquired on March 1, 1997 (Note 3).
Unaudited Interim Statements
The consolidated financial statements as of March 31, 1998 and for the
three months ended March 31, 1998 and 1997 are unaudited. In the opinion of
management, such financial statements reflect all adjustments necessary for a
fair presentation of the results of the respective interim periods. All such
adjustments are of a normal recurring nature.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
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 at the
date of the financial statements and the associated amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates.
Revenue Recognition
Revenue from the sale of licenses to the proprietary software and the
Database is recognized on a straight-line basis over the term of the license,
which is typically from one to three years.
Cash and Cash Equivalents
RIGINC's cash and cash equivalents include highly liquid instruments
purchased with an original maturity of less than three months.
Property and Equipment
Property and equipment, including leasehold improvements, are stated at
cost and depreciated using the straight-line method over estimated useful lives
of three to seven years. Leasehold improvements are amortized over the lesser of
the related lease term or the useful life.
Capitalized Product Development Costs
Initial costs to develop and produce the Database and software products,
including direct labor, contractors and applicable overhead are capitalized from
the time technological feasibility is determined until product release. Prior to
technological feasibility, such costs are classified as software development and
expensed as incurred. Amortization of capitalized costs is based on the greater
of the amount computed using (a) the ratio of current gross revenues to the sum
of current and anticipated gross
F-29
<PAGE>
OLD RIG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
revenues, or (b) the straight-line method over the remaining estimated economic
life of the product, typically five years after product release. Included in
amortization is approximately $75,000, $181,000, $287,000 and $112,000 of
expense related to the capitalized product development costs for the years ended
December 31, 1995, 1996 and 1997, and the three months ended March 31, 1998,
respectively.
Intangible Assets
The value assigned to the customer base acquired through the purchase of
NMS and Chicago Resource, Inc., and goodwill, resulting from the purchase of
Space Datagraphics Systems, Inc., in December 1994, are being amortized on a
straight-line basis over ten years. RIGINC continuously evaluates and adjusts,
if necessary, the net realizable value of these assets.
Income Taxes
RIGINC is a Subchapter S Corporation for federal income tax purposes under
which income, losses, deductions and credits are allocated to and reported by
the individual stockholders of the corporation. Accordingly, no provision for
income tax has been recorded in the financial statements. Upon the effectiveness
of the Registration Statement on Form S-1 (see note 10), RIGINC will become part
of Realty Information Group, Inc., the successor, and will be taxed as a
C-Corporation. Had the S-Corporation operated as a C-Corporation for the year
ended December 31, 1995, 1996 and 1997 and the three months ended March 31,
1998, there would be no income taxes recorded as a result of the losses for the
periods. NMS is a corporation which provides for income taxes under the
provisions of Statement of Financial Accounting Standards No. 109. As of
December 31, 1997, NMS had net loss carryforwards of approximately $522,000. A
valuation allowance has been established against the related net deferred tax
asset in its entirety.
Unit Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" which is effective for the RIGLP's financial statements after
1995. SFAS No. 123 allows companies to account for stock-based compensation
under the provisions of either SFAS No. 123 or Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", with pro
forma disclosure as if the measurement provision of SFAS No. 123 had been
adopted. RIGINC applies these principles and accounts for RIGLP unit based
compensation in accordance with the provisions of APB No. 25. As such, the
adoption of SFAS No. 123 does not impact the financial position or results of
operations of RIGINC.
Advertising Costs
Advertising costs are expensed as incurred. Such costs included in selling
and marketing expense totaled approximately $125,698, $203,659, $397,966 and
$53,908 for the years ended December 31, 1995, 1996, and 1997 and the three
months ended March 31, 1998, respectively.
Concentration of Credit Risk
RIGINC performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. RIGINC maintains reserves
for credit losses, and such losses have been within management's expectations.
The credit risk in accounts receivable is mitigated by the large and widespread
customer base and lack of dependence on individual customers. The carrying
amount of the accounts receivable approximates their net realizable value.
Earnings (loss) Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share. The effect of options, warrants or convertible
securities are not included in the earnings per share calculation as they are
anti-dilutive. All earnings per share amounts for all periods have been
presented to conform to the Statement 128 requirements.
F-30
<PAGE>
OLD RIG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the Statements of Stockholders' Deficit. The implementation
of SFAS 130, "Comprehensive Income", information on the financial statements is
not expected to be material. For all periods presented, icluding the three
months ended March 31, 1998, RIGINC had no items of Comprehensive Income and,
accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information", which is required to be adopted for
the year ended December 31, 1998. SFAS 131 changes the way public companies
report segment information in annual financial statements and also requires
those companies to report selected segment information in interim financial
reports to stockholders. The disclosure for segment information on the financial
statements is not expected to be material.
In October 1997, the AICPA issued SOP 97-2, Software Revenue Recognition,
which changes the requirements for revenue recognition effective for
transactions that the Company will enter into beginning January 1, 1998. The
implementation of SOP 97-2 is not expected to have a material effect on the
financial statements of RIGLP. As of January 1, 1998 the Company adopted AICPA
SOP 97-2, Software Revenue Recognition, which was effective for transactions
that RIGINC entered into in 1998. Prior years were not restated. The effect of
adopting SOP 97-2 was not material in the financial statements of RIGINC. In
March 1998, AcSEC issued SOP 98-4 which defers for one year the implementation
of certain provisions of SOP 97-2. The issuance of SOP 98-4 had no effect on
RIGINC.
3. ACQUISITIONS
On April 1, 1996, RIGLP expanded to the Chicago area by purchasing
substantially all of the assets and liabilities of Chicago ReSource, Inc.
("CRI"), through the issuance of 114,640.55 partnership units valued at
$1,200,000. On March 1, 1997 RIGLP expanded to the San Francisco area through a
purchase of 99.3% of the outstanding shares of New Market Systems, Inc. ("NMS"),
a California corporation, through the exchange of 14,710 partnership units
valued at $206,000 and payment of $550,000 in cash. The accompanying statements
of operations reflect the operating results of CRI and NMS since the effective
date of the acquisition. Except for cash acquired, these transactions have been
excluded from the statements of cash flows and have been accounted for using
purchase accounting.
The pro forma unaudited results of operations for the years ended December
31, 1996 and 1997, assuming the purchase of CRI and NMS had been consummated as
of January 1 of each year, respectively, are as follows:
<TABLE>
<CAPTION>
1996 1997
----------------- -----------------
<S> <C> <C>
Revenues ................. $ 4,576,000 $ 7,960,000
============= =============
Net loss ................. $ (2,810,000) $ (3,386,000)
============= =============
</TABLE>
F-31
<PAGE>
OLD RIG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
4. OTHER ASSETS
Other assets consists of intangible assets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------- -------------
1996 1997 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Acquired contracts ............... $ 1,286,259 $ 2,041,289 $2,041,289
Accumulated Amortization ......... 78,614 301,912 325,353
----------- ----------- ----------
$ 1,207,645 $ 1,739,377 $1,715,936
=========== =========== ==========
Goodwill ......................... $ 78,667 $ 79,979 $ 79,979
Accumulated Amortization ......... 15,054 23,000 24,659
----------- ----------- ----------
63,613 56,979 55,320
----------- ----------- ----------
$ 1,271,258 $ 1,796,356 $1,771,256
=========== =========== ==========
</TABLE>
5. LINE OF CREDIT
In October, 1997, RIGINC entered into a $1,000,000 line of credit agreement
with Silicon Valley East (a Division of Silicon Valley Bank). The line bears
interest at the bank's prime rate plus 2%, and has a one year term. Borrowings
under the line are secured by the assets of RIGINC. RIGINC is in compliance at
December 31, 1997, with the terms of the line of credit agreement which includes
covenants requiring minimum cash, working capital and partners' capital amounts,
and limits operating losses of RIGINC. At December 31, 1997, $1,000,000 of
borrowings were outstanding under the line. Interest paid in 1997 totaled
$17,760.
6. RELATED PARTY TRANSACTIONS
During 1997, RIGINC obtained a commitment from a shareholder for an
additional $1,000,000 of subordinated, unsecured credit, bearing interest at a
rate equal to that of the line of credit. In connection with the commitment, the
individual has received warrants for the purchase of 15,000 shares of stock,
exerciseable only in the event of an initial public offering or an equity
funding in excess of $5.0 million ("a triggering event"). The warrants have a
two year term beyond the triggering event and provide for the purchase of an
equivalent number of shares at a price of 10% less than the price of the stock
sold in an initial public offering or an equity funding in excess of $5.0
million. At December 31, 1997, $650,000 of borrowings were outstanding under the
commitment and have been advanced to RIGINC. Interest paid in 1997 totaled
$8,055.
Commencing in May 1995 RIGINC agreed to pay an investor $10,000 per month
and the Chairman of RIGINC $6,667 per month for consulting services. During
1995, 1996 and 1997, RIGINC incurred fees of approximately $130,000, $200,000
and $200,000, respectively, related to such consulting services.
7. COMMITMENTS
RIGLP leases office space and equipment under operating lease agreements
which expire at various dates through the year 2001. Lease agreements provide
for various renewal terms and reimbursement of taxes, maintenance, insurance and
other occupancy expenses applicable to the leased premises or property. In
addition, RIGLP, as lessor, also subleases a portion of its office space to
another tenant under a cancelable lease.
F-32
<PAGE>
OLD RIG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. COMMITMENTS - (CONTINUED)
At December 31, 1997, future minimum lease payments under operating leases
are as follows:
<TABLE>
<S> <C>
1998 ........................ $ 869,100
1999 ........................ 738,100
2000 ........................ 460,000
2001 ........................ 90,600
2002 and thereafter ......... 70,000
-----------
$ 2,227,800
===========
</TABLE>
Rent expense was approximately $201,000, $525,000 and $766,000 and rental
income was approximately $23,000, $46,000 and $0 for the years ended December
31, 1995, 1996 and 1997, respectively.
8. COMMON STOCK AND SALES OF PARTNERSHIP UNITS
In March 1996, the Company recorded a 40:1 stock split, and in January of
1997, a 1000:928 reverse stock split. All share amounts and transaction have
been restated to reflect the stock splits as of January 1, 1995.
During 1995 RIGLP sold 327,780 limited partnership units to two investors
for total net proceeds of approximately $3.3 million. The transaction granted
the investors liquidation preferences of the investment plus a 6% per annum
return in the event of a liquidation. In addition, beginning April 15, 1999
through April 15, 2001, the transaction allows the investors to liquidate their
investments under a range of alternative strategies and exit transactions. The
proceeds of the transaction were used to retire a related party note payable and
to fund RIGLP's working capital needs.
On December 3, 1996, RIGLP completed a private placement (the "Private
Placement") in which RIGLP raised approximately $5.0 million through the sale of
338,580.2 partnership units. The proceeds of the transaction were used to fund
RIGLP's working capital needs and the NMS acquisitions.
In May 1997, RIGLP issued 21,428 partnership units valued at $300,000 to
provide compensation to an officer, $150,000 of which had been accrued at
December 31, 1996.
9. EMPLOYEE BENEFIT PLANS
Unit Option Plan
In March 1996 RIGLP adopted the 1996 Unit Option and Unit Purchase Plan
(the "Plan"), under which 200,000 partnership units were reserved for issuance
upon the exercise of options granted to officers, executive personnel, directors
and key employees. Certain options previously granted were included in the Plan.
The option plan is administered by the Board of Directors of RIGINC. Options are
granted at prices which the Board of Directors of RIGINC believes approximate
the fair market value of its limited partnership units. Individual grants become
exercisable over a period of three years from the date of grant. The contractual
term of the options range from three to ten years from the date of grant.
F-33
<PAGE>
OLD RIG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE BENEFIT PLANS - (CONTINUED)
Unit option activity was as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
UNITS PRICE PER UNIT EXERCISE PRICE
----------- ---------------- ---------------
<S> <C> <C> <C>
Outstanding at December 31, 1994 ......... 26,000 $ 5.00 $ 5.00
Granted ................................. 55,480 $ 10.45 $ 10.45
Exercised ............................... --
Canceled or expired ..................... --
-------
Outstanding at December 31, 1995 ......... 81,480 $ 8.71
Granted ................................. 42,000 $ 10.45 $ 10.45
Exercised ............................... (10,000) $ 5.00 $ 5.00
Canceled or expired ..................... --
-------
Outstanding at December 31, 1996 ......... 113,480 $ 9.68
Granted ................................. 23,000 $ 12.34-$14.00 $ 13.28
Exercised ...............................
Canceled or expired ..................... (5,000) $ 10.45 $ 10.45
-------
Outstanding at December 31, 1997 ......... 131,480 $ 10.28
=======
Exercisable at December 31, 1997 ......... 82,277 $ 9.39
=======
Exercisable at December 31, 1996 ......... 57,740 $ 8.94
=======
Exercisable at December 31, 1995 ......... 21,870 $ 8.46
=======
</TABLE>
During 1996 RIGLP adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the Plan. Had
compensation expense related to the Plan been determined based on the fair value
at the grant date for options granted in 1995, 1996 and 1997 consistent with the
provisions of SFAS No. 123, RIGLP's pro forma net loss would have been $817,408,
$2,690,009 and $3,337,420 as of December 31, 1995, 1996 and 1997, respectively.
Such pro forma results are not representative of the effects on operations for
future years.
The fair value of each option grant is estimated on the date of grant using
the Minimum Value option-pricing model with the following weighted-average
assumptions: dividend yield of 0%; risk-free interest rate of approximately
6.0%; and expected life of 3 years for 1995 grants and 4 years for 1996 and 1997
grants.
The following table summarizes information regarding unit options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
OPTIONS AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE
-------------- ----------- ----------------
<S> <C> <C>
$ 5.00.................... 16,000 1.9
$ 10.45................... 92,480 2.6
$ 12.34................... 10,000 4.2
$ 14.00................... 13,000 4.4
</TABLE>
F-34
<PAGE>
OLD RIG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE BENEFIT PLANS - (CONTINUED)
Employee 401(k) Plan
Effective January 1, 1997, RIGLP established a 401(k) Plan (the "401(k)")
to provide retirement benefits for eligible employees. The 401(k) provides for
tax deferred contributions of between 1% and 15% of employees' salaries, limited
to a maximum annual amount as established by the Internal Revenue Service. RIGLP
matches 25% of employee contributions up to a maximum of 6% of total
compensation. Amounts contributed to the 401(k) by RIGLP to match employee
contributions were $27,808 in 1997.
10. MANAGEMENT PLANS
Related to a filing of a Registration Statement on Form S-1 by Realty
Information Group, Inc., a newly formed successor corporation, RIGINC
anticipates entering into an Agreement and Plan of Contribution ("Agreement") by
and among Realty Information Group, Inc., RIGLP, RIGINC, and Jamison and the
Stockholders of Jamison, to contribute all of RIGINC's outstanding common stock
to Realty Information Group, Inc. in exchange for common stock of Realty
Information Group, Inc.
F-35
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Jamison Research, Inc.
We have audited the accompanying balance sheets of Jamison Research, Inc.
as of December 31, 1996 and 1997, and the related statements of operations,
stockholders' deficit and cash flows for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jamison Research, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Washington, D.C.
January 16, 1998
F-36
<PAGE>
JAMISON RESEARCH, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ---------------------------
1996 1997 1997 1998
------------- ------------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues ..................................... $2,501,865 $3,664,198 $ 822,085 $1,048,529
Costs of revenues ............................ 1,080,573 1,378,946 350,830 357,104
---------- ---------- --------- ----------
Gross margin ................................. 1,421,292 2,285,252 471,255 691,425
Selling, general and administrative ex-
penses ..................................... 1,636,502 2,200,662 460,668 525,923
Software development expenses ................ 110,320 51,501 21,111 --
---------- ---------- --------- ----------
Total operating expenses ..................... 1,746,822 2,252,163 481,779 525,923
---------- ---------- --------- ----------
Income (loss) from operations ................ (325,530) 33,089 (10,524) 165,502
Other income (expense):
Interest income ........................... 4,879 1,755 4,461 --
Other income .............................. 2,251 5,883 5,218 466
Interest expense .......................... (12,677) (23,758) (5,079) (3,079)
Other expense ............................. (8,090) (18,670) -- --
---------- ---------- --------- ----------
(13,637) (34,790) 4,600 (2,613)
---------- ---------- --------- ----------
Income (loss) before income taxes ............ (339,167) (1,701) (5,924) 162,889
Provision (benefit) for income taxes ......... (121,600) 3,700 -- (59,000)
---------- ---------- --------- ----------
Net income (loss) ............................ $ (217,567) $ (5,401) $ (5,924) $ 103,889
========== ========== ========= ==========
Net income (loss) per share .................. $ (24.17) $ (.60) $ (.66) $ 11.54
========== ========== ========= ==========
Common shares outstanding .................... 9,000 9,000 9,000 9,000
========== ========== ========= ==========
</TABLE>
See accompanying notes.
F-37
<PAGE>
JAMISON RESEARCH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- AT MARCH 31,
1996 1997 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ......................................................... $ 63,286 $ 118,550 $ 331,807
Accounts receivable, less allowance for doubtful ac-
counts of $0, $9,700 and $1,000 as of December 31,
1996 and 1997 and March 31, 1998 ........................... 84,179 84,730 66,289
Refundable income taxes ...................................... 5,600 5,600 --
Prepaid expenses and other current assets .................... -- 19,205 --
Deferred tax asset ........................................... 127,000 126,500 136,500
---------- ---------- ----------
Total current assets ...................................... 280,065 354,585 534,596
Property and equipment:
Furniture and equipment ...................................... 262,126 281,865 282,233
Computer hardware and software ............................... 178,693 223,518 232,965
---------- ---------- ----------
440,819 505,383 515,198
Accumulated depreciation ..................................... (204,373) (280,949) (308,439)
---------- ---------- ----------
236,446 224,434 206,759
Capitalized product development cost, net of accumulated
amortization of $31,314, $61,580 and $69,147 as of De-
cember 31, 1996 and 1997 and March 31, 1998 .................. 120,016 89,750 82,183
Deposits ...................................................... 474 474 474
---------- ---------- ----------
Total assets .............................................. $ 637,001 $ 669,243 $ 824,012
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ......................... $ 144,859 $ 217,133 $ 133,355
Accrued income taxes payable .................................. -- 3,200 69,400
Deferred revenue .............................................. 223,934 320,385 395,604
Advances from stockholders .................................... 180,090 110,672 109,853
Current portion of long-term debt ............................. 86,667 29,442 29,567
---------- ---------- ----------
Total current liabilities ................................. 635,550 680,832 737,779
Long-term debt, net of current portion ........................ 45,088 37,449 31,382
Stockholders' deficit:
Common stock, $0.10 par value; 500,000 shares authorized; 9,000 issued and
outstanding as of December
31, 1996 and 1997 ............................................ 900 900 900
Retained earnings (deficit) ................................... (44,537) (49,938) 53,951
---------- ---------- ----------
Total stockholders' equity (deficit) .......................... (43,637) (49,038) 54,851
---------- ---------- ----------
Total liabilities and stockholders' equity (deficit) .....
..... $ 637,001 $ 669,243 $ 824,012
========== ========== ==========
</TABLE>
See accompanying notes.
F-38
<PAGE>
JAMISON RESEARCH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS'
COMMON STOCK EARNINGS EQUITY
SHARES AMOUNT (DEFICIT) (DEFICIT)
-------- -------- ------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 .................. 9,000 $ 900 $ 173,030 $ 173,930
Net loss ..................................... -- -- (217,567) (217,567)
----- ----- ---------- ----------
Balance at December 31, 1996 .................. 9,000 900 (44,537) (43,637)
Net loss ..................................... -- -- (5,401) (5,401)
----- ----- ---------- ----------
Balance at December 31, 1997 .................. 9,000 900 (49,938) (49,038)
Net income ................................... 103,889 103,889
---------- ----------
Balance at March 31, 1998 (unaudited) ......... 9,000 900 $ 53,951 $ 54,851
===== ===== ========== ==========
</TABLE>
See accompanying notes.
F-39
<PAGE>
JAMISON RESEARCH, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- --------------------------
1996 1997 1997 1998
-------------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss) ................................ $ (217,567) $ (5,401) $ (5,924) $ 103,889
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation ................................... 118,841 113,681 23,020 27,490
Amortization ................................... 23,959 30,266 7,567 7,567
Provision for losses on accounts receivable..... -- 9,686 -- 1,000
Deferred income taxes .......................... (116,000) 500 -- (10,000)
Non-cash compensation to stockholders .......... -- 27,036 -- --
Changes in operating assets and liabilities
Accounts receivable .............................. (22,136) (10,237) (44,015) 17,441
Prepaid expenses and other current assets ........ 8,150 (19,205) -- 19,205
Refundable (accrued) income taxes ................ (5,600) 3,200 -- 71,800
Accounts payable and accrued expenses ............ 77,364 72,274 51,437 (83,778)
Deferred revenue ................................. 61,471 44,518 28,509 75,219
---------- ---------- --------- ---------
Net cash (used in) provided by operating activi-
ties ............................................. (71,518) 266,318 60,594 229,833
Investing activities:
Purchase of property and equipment ............... (71,048) (76,772) (28,678) (9,815)
Capitalized product development cost ............. (45,476) -- -- --
---------- ---------- --------- ---------
Net cash used in investing activities ............. (116,524) (76,772) (28,678) (9,815)
Financing activities:
Re-payments of advances from stockholders ........ -- (69,418) -- (819)
Proceeds from advances from stockholders ......... 130,090 -- 35,333 --
Re-payments of long-term debt .................... -- (64,864) (13,144) (5,942)
Proceeds from long-term debt ..................... 69,793 -- -- --
---------- ---------- --------- ---------
Net cash provided by (used in) financing activi-
ties ............................................. 199,883 (134,282) 22,189 (6,761)
---------- ---------- --------- ---------
Net increase in cash and cash equivalents ......... 11,841 55,264 54,105 213,257
Cash at beginning of period ....................... 51,445 63,286 63,286 118,550
---------- ---------- --------- ---------
Cash at end of period ............................. $ 63,286 $ 118,550 $ 117,391 $ 331,807
========== ========== ========= =========
</TABLE>
See accompanying notes.
F-40
<PAGE>
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Jamison Research, Inc. ("Jamison") was incorporated in the State of Georgia
on January 19, 1984. Jamison develops and maintains a proprietary database of
commercial real estate information in the Atlanta and Dallas metropolitan areas
using proprietary software that permits access to its database. The database and
software are distributed to its clients under monthly and annual license
agreements. Jamison also provides various market specific reports using its
database of information which are sold on an individual and subscription basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the 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 at the
date of the financial statements and the associated amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Jamison recognizes revenue from the sale of licenses to the database on a
straight line basis over the term of the license agreement which is typically
one year or less. Revenue from market specific reports are recognized when
delivered to the customer.
Cash and Cash Equivalents
Jamison's cash and cash equivalents include highly liquid investments
purchased with an original maturity of less than three months.
Property and Equipment
Property and equipment, including leasehold improvements, are stated at
cost and depreciated using the straight-line method over estimated useful lives
of three to seven years. Leasehold improvements are amortized over the lesser of
the related lease term or the useful life.
Capitalized Product Development Costs
Initial costs to develop and produce proprietary software and database
products, including direct labor, contractors and applicable overhead are
capitalized from the time technological feasibility is determined until product
release. Prior to technological feasibility, such costs are classified as
software development and expensed as incurred. Amortization of capitalized costs
is based on the greater of the amount computed using (a) the ratio of current
gross revenues to the sum of current and anticipated gross revenues, or (b) the
straight-line method over the remaining estimated economic life of the product,
typically five years, after product release.
Concentration of Credit Risk
Jamison performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. Jamison maintains reserves
for credit losses, and such losses have been within management's expectations.
The credit risk in accounts receivable is mitigated by the large customer base
and lack of dependence on individual customers. The carrying amount of the
accounts receivable approximates their net realizable value.
F-41
<PAGE>
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Income Taxes
Jamison provides for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax assets and liabilities for expected future
tax consequences of events that have been included in the financial statements
or income tax returns. Under this method, deferred tax assets and liabilities
are determined based upon the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Jamison recognizes revenue and
expenses on a cash basis for tax purposes while using the accrual method for
book purposes.
Earnings (loss) Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share. Jamison has no dilutive options, warrants or
convertible securities. All earnings per share amounts for all periods have been
presented to conform to the Statement 128 requirements.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the Statements of Stockholders' Deficit. The implementation
of SFAS 130, "Comprehensive Income", on the financial statements is not expected
to be material. For all periods presented, including the three months ended
March 31, 1998, RIGLP had no items of comprehensive income and, accordingly, the
Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information", which is required to be adopted for
the year ended December 31, 1998. SFAS 131 changes the way public companies
report segment information in annual financial statements and also requires
those companies to report selected segment information in interim financial
reports to stockholders. The disclosure of segment information on the financial
statements is not expected to be material.
In October 1997, the AICPA issued SOP 97-2, Software Revenue Recognition,
which changes the requirements for revenue recognition effective for
transactions that the Company will enter into beginning January 1, 1998. The
implementation of SOP 97-2 is not expected to have a material effect on the
financial statements of Jamison. As of January 1, 1998 the Company adopted AICPA
SOP 97-2, Software Revenue Recognition, which was effective for transactions
that Jamison entered into in 1998. Prior years were not restated. The effect of
adopting SOP 97-2 was not material in the financial statements of Jamison. In
March 1998 AcSEC issued SOP 98-4 which defers for one year the implementation of
certain provisions of SOP 97-2. The issuance of SOP 98-4 had no effect on
Jamison.
F-42
<PAGE>
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
3. COMMITMENTS
Operating Leases
Jamison leases office space in Atlanta and Dallas under non-cancelable
operating lease agreements. The leases generally provide for renewal terms and
Jamison is required to pay a portion of common area expenses including
maintenance, real estate taxes and other expense. Rent expense for the years
ended December 31, 1996 and 1997 was $108,114 and $128,529, respectively. As of
December 31, 1997, payments due under non-cancelable operating leases are as
follows:
1998 ........................ $ 170,200
1999 ........................ 146,000
2000 ........................ 145,100
2001 ........................ 143,300
2002 and thereafter ......... --
---------
$ 604,600
=========
Employment Agreements
During 1991 Jamison entered in an employment service termination agreement
with a former employee of Jamison, whereby Jamison is required to pay the former
employee up to $25,000 upon a change in ownership of Jamison. As of December 31,
1997, no amount has been recorded in the financial statements for this
contingency.
In December 1997, Jamison entered into a one year employment agreement with
an employee of Jamison. Pursuant to this agreement, upon the sale of a majority
of Jamison's outstanding shares to a third party, Jamison is required to pay the
employee 5.25 % of the amount of the sales price exceeding $7,500,000 less
certain expenses. As of December 31, 1997, no amount has been recorded in the
financial statements for this contingency.
4. RELATED PARTY TRANSACTIONS
During 1996 Jamison's two stockholders entered into a personal line of
credit agreement with a bank. During 1996 and 1997 the stockholders used the
proceeds from the line of credit agreement to advance Jamison cash to support
operations and expansion. As of December 31, 1996 and 1997 outstanding advances
due to the stockholders were approximately $180,000 and $111,000, respectively.
Jamison repays principal and interest (approximately 8.25% annually), directly
to the bank on behalf of the stockholders.
In December 1997, Jamison transferred title of two vehicles with a net book
value of approximately $27,000 to the stockholders and recorded non-cash
compensation.
Jamison paid interest of approximately $12,700 and $23,800 in 1996 and
1997, respectively.
5. INCOME TAXES
Jamison accounts for taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS 109,
deferred tax liabilities and assets are determined based on the difference
between financial statement and tax basis of assets and liabilities using
enacted rates expected to be in effect during the year in which the differences
reverse. Deferred taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and tax purposes. These differences relate principally to reporting on
the cash basis for tax purposes. Jamison paid no income taxes in 1996 or 1997
utilizing net operating losses in 1997.
F-43
<PAGE>
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
5. INCOME TAXES - (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------- -----------
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Accrual to cash adjustments ........................ $ 103,000 $ 154,000 $ 171,000
Net operating loss carryforward .................... 59,000 -- --
Other liabilities .................................. 10,000 6,000 (3,100)
Capitalization of product development cost ......... (45,000) (33,500) (31,400)
--------- --------- ---------
Net deferred tax assets .............................. $ 127,000 $ 126,500 $ 136,500
========= ========= =========
</TABLE>
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
-------------------------- ---------------------
1996 1997 1997 1998
-------------- --------- ------- -----------
<S> <C> <C> <C> <C>
Current .......... $ (5,600) $3,200 $ -- $ 69,000
Deferred ......... (116,000) 500 -- (10,000)
---------- ------ ---- ---------
Total ............ $ (121,600) $3,700 $ -- $ 59,000
========== ====== ====== =========
</TABLE>
Jamison's provision for income taxes resulted in effective tax rates that
varied from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
----------------------------- ---------------------------
1996 1997 1997 1998
--------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Expected federal income tax (benefit) at 34% ......... $ (115,400) $ (600) $ (2,000) $ 55,500
State income taxes, net of federal benefit ........... (13,600) (100) -- 9,000
Expenses not deductible for tax purposes ............. 3,000 7,100 2,000 1,500
Graduated tax rate difference ........................ 4,400 (2,700) -- (7,000)
----------- -------- --------- --------
$ (121,600) $ 3,700 $ -- $ 59,000
=========== ======== ========= ========
</TABLE>
6. NON CASH TRANSACTIONS
In 1996 and 1997 Jamison entered into arrangements with various vendors
whereby such vendors provided various office equipment and office space in
exchange for licenses to access Jamison's commercial real estate database. As a
result of these transactions, Jamison recorded property and equipment of
approximately $60,000 and $52,000, and expenses of approximately $42,000 and
$53,000 in 1996 and 1997, with a corresponding credit to deferred revenue to be
recognized in accordance with Jamison's revenue recognition policies. The value
of the licenses has been determined to equal the fair value of the equipment
received and office space used.
7. MANAGEMENT'S PLANS
Related to a filing of a Registration Statement on Form S-1 by Realty
Information Group, Inc., Jamison and the stockholders of Jamison anticipate
entering into an Agreement and Plan of Contribution ("Agreement") with Realty
Information Group, Inc., OLD RIG, Inc., and Realty Information Group, L.P. to
contribute all of Jamison's outstanding common stock to Realty Information
Group, Inc. in exchange for common stock of Realty Information Group, Inc.
Pursuant to the Agreement, the employment agreements (Note 3) will be paid by
the current stockholders of Jamison prior to the completion of the transaction
as described in the Agreement.
F-44
<PAGE>
<TABLE>
<CAPTION>
========================================================= ====================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR 2,700,000 Shares
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES [GRAPHIC OMITTED]
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE. Common Stock
--------------
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ............................ 3
Risk Factors .................................. 9
Use of Proceeds ............................... 14
Dividend Policy ............................... 14
Capitalization ................................ 15
Dilution ...................................... 16
Selected Consolidated Financial and
Operating Data ............................. 17 --------------
Management's Discussion and Analysis .......... 19
Business ...................................... 26 PROSPECTUS
Management .................................... 36
Jamison Selling Stockholders .................. 40 --------------
Certain Transactions .......................... 42
Description of Capital Stock .................. 43
Shares Eligible for Future Sale ............... 45
Underwriting .................................. 47
Legal Matters ................................. 48
Experts ....................................... 48
Additional Information ........................ 49
Index to Financial Statements ................. F-1
ALLEN & COMPANY
-------------- INCORPORATED
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS NEEDHAM & COMPANY, INC.
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING ,1998
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
========================================================= ====================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting compensation, are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ............... $ 11,000
National Association of Securities Dealers, Inc. filing fee ....... 4,000
Nasdaq National Market entry fee .................................. 50,000
Legal fees and expenses ........................................... 350,000
Accountants' fees and expenses .................................... 200,000
Printing and engraving expenses ................................... 150,000
Transfer Agent and Registrar fees and expenses .................... 2,500
Miscellaneous ..................................................... 182,500
Total ............................................................ $950,000
========
</TABLE>
The Company will bear all of the foregoing fees and expenses.
The foregoing, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the Nasdaq National Market entry fee, are estimates.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Registrant's Certificate of Incorporation provides that the Registrant
shall, subject to certain limitations, indemnify its directors and officers
against expenses (including attorneys' fees, judgments, fines and certain
settlements) actually and reasonably incurred by them in connection with any
suit or proceeding to which they are a party so long as they acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to a criminal action or
proceeding, so long as they had no reasonable cause to believe their conduct to
have been unlawful.
Section 102 of the Delaware General Corporation Law permits a Delaware
corporation to include in its certificate of incorporation a provision
eliminating or limiting a director's liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. The enabling
statute provides, however, that liability for breaches of the duty of loyalty,
acts or omissions not in good faith or involving intentional misconduct, or
knowing violation of the law, and the unlawful purchase or redemption of stock
or payment of unlawful dividends or the receipt of improper personal benefits
cannot be eliminated or limited in this manner. The Registrant's Certificate of
Incorporation includes a provision which eliminates, to the fullest extent
permitted, director liability for monetary damages for breaches of fiduciary
duty.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Company sold the following securities that were not registered under the
Securities Act:
1. On August 9, 1994, RIGLP was capitalized with the issuance of (i) 24,070
limited and general partnership units to RIGINC, its general partner, in
exchange for all of the assets and liabilities of RIGINC 's operating business,
and (ii) 1,000 limited partnership units to Horowitz Limited Partnership I in
exchange for $200,000. These units were purchased for investment purposes. The
issuance of such units was effected in reliance on the exemption from
registration under Section 4(2) of the Securities Act.
II-1
<PAGE>
2. On May 15, 1995, RIGLP was further capitalized with the issuance of (i)
334 general partnership units to RIGINC, its general partner, (ii) 7,416.3
limited partnership units to Founders/RIG, L.L.C. in exchange for $3.1 million
and (iii) 778.2 limited partnership units issued to Michael R. Klein, the
Chairman of RIGINC, as repayment of certain debts of RIGLP (see "Certain
Transactions"). As part of the same transaction, RIGINC issued 937, 469 and 469
shares to Warren Haber (the Chairman of Founders Equity, Inc. ("Founders"), the
general partner of Founders/RIG, L.L.C.), John D. White and John Teeger (the
President of Founders), respectively, in exchange for $1.00 per share. These
units and shares were purchased for investment purposes. The issuance of such
units and shares was effected in reliance on the exemption from registration
under Section 4(2) of the Securities Act.
3. On April 6, 1996, RIGLP acquired all of the assets of ReSource from Law
Bulletin Publishing Company in exchange for 114,640.55 limited partnership units
valued nominally at $10.45 per unit. ReSource was a real estate information
provider in the Chicago, Illinois area. These units were issued for investment
purposes. The issuance of such units was effected in reliance on the exemption
from registration under Section 4(2) of the Securities Act.
4. On June 30, 1996, RIGLP issued to David Schaffel, a vice president of
RIGLP, 10,000 limited partnership units following Mr. Schaffel's exercise of an
option to acquire such units. In connection with the exercise of such units, Mr.
Scheffel received a loan of $50,000 from the partnership, which was utilized for
the payment of the exercise price. Such loan is being forgiven over a three year
period. These units were purchased for investment purposes. The issuance of such
units was effected in reliance on the exemption from registration under Section
4(2) of the Securities Act and Rule 701.
5. During June through October 1996, RIGINC issued 45,749, 12,200, 871,
1,743, 3,486 and 871 shares to Michael R. Klein (the Chairman of RIGINC), David
Bonderman (a Director of RIGINC), Andrew C. Florance (the President and a
Director of RIGINC), Colden L. Florance (the father of Andrew C. Florance), John
D. White and John Teeger (the President of Founders), respectively, for $11.48
per share. On December 3, 1996, RIGLP was further capitalized with the issuance
of (i) 60,229.762 limited and general partnership units to RIGINC, its general
partner, in exchange for $745,000 (the amount raised by RIGINC described in the
preceding sentence), (ii) 4,042.266 limited partnership units to Roy V. Fabry
(Mr. Klein's brother-in-law) in exchange for $50,000, (iii) 85,650.062 limited
partnership units issued to Founders/RIG, L.L.C. in exchange for $1.0 million,
(iv) 234,451.424 limited partnership units issued to RIG Holdings, L.L.C. (see
"Certain Transactions"), in exchange for $2.9 million, and (v) an aggregate of
22,283.452 limited partnership units issued to Law Bulletin Publishing Company
and certain of its affiliates in exchange for $275,646. These units and shares
were purchased for investment purposes. The issuance of such units and shares
was effected in reliance on the exemption from registration under Section 4(2)
of the Securities Act.
6. On March 1, 1997, RIGLP acquired all of the assets of NMS, Inc. from
Craig Brown, Kerin Garrett, Nella Shapiro and James D. Carr, the owners of 99.3%
of the stock of NMS, Inc. in exchange for 1,786, 1,429, 365 and 11,130 limited
partnership units, respectively (valued nominally at $14.00 per unit). NMS, Inc.
was a real estate information provider in the San Francisco, California area.
These units were purchased for investment purposes. The issuance of such units
was effected in reliance on the exemption from registration under Section 4(2)
of the Securities Act.
7. On May 12, 1997, RIGINC acquired 21,429 limited partnership units of
RIGLP in exchange for $300,000. Simultaneously, RIGINC issued to Andrew C.
Florance, its President, Chief Executive Officer and a director, 21,429 shares
in full payment of deferred compensation of $300,000 owed to Mr. Florance. These
units were purchased for investment purposes. The issuance of such units was
effected in reliance on the exemption from registration under Section 4(2) of
the Securities Act.
8. Simultaneously with this Offering, the Company will issue up to
6,820,727 shares of Common Stock to the limited partners of RIGLP and the
stockholders of RIGINC and Jamison. The Company will receive as consideration
all of the outstanding equity interests of these entities. The shares of Common
Stock obtained by limited partners of RIGLP and stockholders of RIGINC upon the
exchange of their units and shares continue to be held for investment purposes,
and the shares of Common Stock issued to the Jamison Selling Stockholders that
are not being registered hereby for resale were pur-
II-2
<PAGE>
chased for investment purposes. The issuance of such shares was effected in
reliance on the exemption from registration under Section 4(2) of the Securities
Act. The remainder of the shares to be issued to the stockholders of Jamison are
being registered pursuant to this Offering. See "Prospectus Summary --
Transactions in Connection with Closing" in the accompanying prospectus.
No underwriters were involved in any of the foregoing sales of securities
Explanatory Note: Partnership units of RIGLP were split 40:1 on March 29,
1996. Shares of RIGINC were split 40:1 on March 29, 1996. Shares of RIGINC were
split 1,000:928 effective on January 7, 1997.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS -- See Index to Exhibits.
(b) Financial Statement Schedules are not required.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
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 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
of 1933, 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Bethesda, State of Maryland, on the 27th day of April, 1998.
REALTY INFORMATION GROUP, INC.
By: /s/ Andrew C. Florance
-----------------------------------
Andrew C. Florance
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities indicated on April 27, 1998.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------ ---------------------------------------- ---------------
<S> <C> <C>
* Chairman of the Board April 27, 1998
- ---------------------------
Michael R. Klein
/s/ Andrew C. Florance Chief Executive Officer and President, April 27, 1998
- ------------------------------- and a Director
Andrew C. Florance (Principal Executive Officer)
* Chief Financial Officer April 27, 1998
- ------------------------------- (Chief Financial and Accounting
Frank A. Carchedi Officer)
* Director April 27, 1998
- -------------------------------
David Bonderman
* Director April 27, 1998
- -------------------------------
Warren H. Haber
* Director April 27, 1998
- -------------------------------
John Simon
* Director April 27, 1998
- -------------------------------
Lanning Macfarland III
*By: /s/ Andrew C. Florance
- -------------------------------
Andrew C. Florance
Attorney-in-fact
</TABLE>
II-4
<PAGE>
SCHEDULE VIII
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTIONS PAGE
------- ------------ ----
<S> <C> <C>
1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation
3.2 Amended and Restated By-laws
4.1 Specimen Common Stock Certificate
5.1 Opinion of Wilmer, Cutler & Pickering*
10.1 Realty Information Group, Inc. 1998 Stock Option Plan*
10.2 Employment Agreement for Andrew C. Florance
10.3 Employment Agreement for Frank A. Carchedi
10.4 Employment Agreement for David M. Schaffel
10.5 Employment Agreement for Curtis M. Ricketts
10.6 Employment Agreement for Henry D. Jamison, IV
10.7 Registration Rights Agreement
10.8 RIG Contribution Agreement
10.9 Jamison Contribution Agreement
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Wilmer, Cutler & Pickering (contained in Exhibit 5.1)
24.1 Powers of Attorney (Included in the Signature Pages to the Registration
Statement)
</TABLE>
- ----------
* To be filed by amendment.
EXHIBIT
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is executed as of the 24th day of April, 1998,
and effective as of January 1, 1998 (the "Effective Date"), by and between OLD
RIG, Inc. ("OLD RIG" and, prior to the Assignment (defined below), the
"Company"), a Delaware corporation which is the general partner of Realty
Information Group, L.P. ("RIGLP"), a Delaware pimited partnership, and ANDREW C.
FLORANCE ("Executive").
WHEREAS, Executive has been heretofore employed as President
and Chief Executive Officer of OLD RIG;
WHEREAS, OLD RIG desires to retain Executive in his capacity
as President and Chief Executive Officer;
WHEREAS, Executive desires to remain President and Chief
Executive Officer of OLD RIG upon the terms and conditions hereinafter set
forth; and
WHEREAS, Executive and OLD RIG acknowledge that it is
presently contemplated that, in connection with an initial public offering (the
"Offering") of, or other significant transaction involving, the stock of Realty
Information Group, Inc., a Delaware corporation ("RIG" and, after the Assignment
(defined below), the "Company"), formerly known as Realty Information Group
(Delaware), Inc., (i) OLD RIG and RIGLP will be consolidated with RIG, and (ii)
this Employment Agreement will be automatically assigned to and assumed by RIG
pursuant to Section 19 without further action by any party.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, and in consideration of the mutual covenants herein contained,
agree as follows:
1. Employment. As of the Effective Date, OLD RIG hereby
continues the employment of Executive, and Executive hereby agrees to such
continued employment, upon the terms and conditions set forth herein.
2. Duties. Executive shall be the President and Chief
Executive Officer ("CEO") of the Company. Executive shall perform such executive
duties as are consistent with the role of the President and CEO of the Company
and the reasonable directions of the Board. Executive shall report to, and be
subject to the authority of, the Board.
3. Extent of Services. Subject to this Section 3, Executive
agrees to devote all his business time to the business of the Company. Executive
shall not, without the prior written consent of the Company, during the term of
his employment with the Company under this Agreement, be engaged in any other
business activity whether or not such business activity is pursued for gain,
profit, or other pecuniary advantage; but, subject to Section 8, this shall not
be construed as preventing Executive from (i) investing his and his family's
assets in such form or
<PAGE>
manner as will not require the direct performance of services (except as a
director, in the manner hereinafter permitted in clause (ii) below) by Executive
in the operation of the affairs of the enterprises or companies in which said
investments are made; (ii) acting as a director, trustee, or officer of, or
participating as a member of a committee of, any firm or corporation other than
the Company or an affiliate of the Company where such positions do not
unreasonably interfere or conflict with the duties and responsibilities of
Executive as the CEO of the Company; provided, however, that service in such
capacity with each such entity has been approved by the Board; or (iii) acting
as a director, trustee or officer of, or participating as a member of a
committee of, any non-profit or community organization where such position does
not unreasonably interfere or conflict with the duties and responsibilities of
Executive as the CEO of the Company.
4. Compensation.
(a) The salary of Executive under this Agreement shall be
at the rate of One Hundred Seventy-Five Thousand Dollars ($175,000) per year
(the "Base Salary"). Base Salary shall be payable in biweekly or such other
installments as shall be consistent with the Company's payroll procedures for
its senior executives.
(b) The Company shall adopt as of January 1, 1998, and
maintain for the benefit of Executive during the term of Executive's employment
under this Agreement (and, where applicable, for such period thereafter as
Executive is entitled to payments thereunder pursuant to this Agreement) a bonus
program (the "Bonus Program"), which will provide Executive with an opportunity
to receive an annual cash bonus of up to 100% of Base Salary based on the
attainment of performance objectives set forth in Exhibit A. The annual bonus
shall be paid within one hundred twenty calendar days of the end of the year for
which it is earned. During the Term, the Bonus Program will be based on
performance objectives established on a calendar year basis.
(c) RIG shall adopt as of the effectiveness of its initial
public offering, and maintain for the benefit of Executive for as long as any
options are outstanding, a Stock Option Plan (the "Stock Option Plan"). Under
the Stock Option Plan, RIG will grant to Executive as of the effectiveness of
the Offering an option to purchase 40,000 shares of RIG common stock with a
strike price equal to the offering price of the stock in the Offering. Options
granted to Executive under the Stock Option Plan may be non-qualified stock
options or "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Such options shall have
a life of not less than ten years and shall be exercisable in accordance with
the terms of the Stock Option Plan, unless otherwise provided for in this
Agreement. If Employee does not exercise an option on or prior to the date the
option expires or is no longer exercisable, Employee shall be deemed to have
made a "cashless exercise" and RIG shall pay to Employee within thirty days of
the cashless exercise a cash payment equal to the total number of shares
underlying the option or options multiplied by a number equal to the difference
between the price of RIG's stock on the date of the cashless exercise and the
exercise price of the option; provided, however, that the cashless exercise
alternative shall not be available if Executive's employment has been terminated
by RIG with cause (as defined in Section 7(b)) or by Executive without good
reason (as defined in Section
- 2 -
<PAGE>
7(c)). Such options shall vest: 25% upon the effectiveness of the Offering; 25%
on December 31, 1998; 25% on December 31, 1999; and 25% on December 31, 2000.
(d) In addition to the options granted pursuant to Section
4(c), Executive shall be granted additional options under the Stock Option Plan
to purchase 25,000 shares of RIG common stock with a strike price equal to the
offering price of the stock in the Offering. Such options (the "Stub Period
Bonus Options") shall be granted upon consummation of the Offering and shall be
in lieu of Executive's right to receive from the Company a cash bonus for the
period May 1, 1997 through December 31, 1997. The Stub Period Bonus Options
shall be subject to the same vesting and exercise rules as the options granted
to Executive under Section 4(c) of the Agreement.
(e) Nothing contained in this Section 4 shall prevent the
Board from adopting additional compensation arrangements for Executive or
providing additional benefits under any of the existing compensation
arrangements.
5. Fringe Benefits. During the term of Executive's employment
under this Agreement, the Company shall provide to Executive term life insurance
coverage not to exceed a total of One Million Dollars ($1,000,000) (provided
that Executive shall be insurable at a cost not exceeding $2,000 per year),
which such benefits will be payable as designated by Executive, six weeks of
paid vacation per year earned ratably over the year (provided, however, that
Executive shall not accrue more than six weeks of paid vacation), and the same
health insurance, accident and disability insurance, life insurance, and such
other fringe benefits, as are provided to the most senior executives of the
Company.
6. Term. The term of Executive's employment under this
Agreement shall commence on the Effective Date and shall continue for an initial
term (the "Initial Term") extending through December 31, 2000, and for automatic
and successive renewal terms of one (1) year each (each, a "Renewal Term" and
collectively, the "Renewal Terms"), unless either the Company or Executive
elects not to extend the term beyond the Initial Term or any Renewal Term
(herein, the Initial Term or a Renewal Term is sometimes referred to as the
"Current Term") and gives to the other party hereto written notice of
termination at least six (6) months prior to the end of the Initial Term, or
three (3) months prior to the end of the Renewal Term, as applicable.
7. Termination.
(a) By the Company Without Cause. The Company may
terminate Executive's employment at any time, without Cause (as defined herein),
upon sixty (60) days written notice to Executive. If the Company terminates
Executive's employment without Cause, Executive: (x) shall receive through the
later of (i) the expiration of the Current Term or (ii) one year from the date
of termination, the compensation provided for under paragraph 4(a) of this
Agreement; (y) shall be entitled to receive the bonus he would have received
under the Bonus Program (as in effect on the date of termination) as if he
continued in the position he held immediately prior to termination for the
balance of the calendar year in which such termination occurs; and (z) shall be,
if not
- 3 -
<PAGE>
otherwise, fully vested in all stock options granted to Executive under the
Stock Option Plan (as in effect on the date of termination) and any predecessor
stock option plan or program. Upon termination of Executive's employment without
Cause, the exercise period for all vested options shall be one-hundred eighty
(180) days after cessation of employment.
(b) By the Company For Cause. Notwithstanding anything
herein to the contrary, the Company shall have the right to terminate
Executive's employment under this Agreement for "Cause." For the purposes of
this Agreement, the term "Cause" shall mean (i) a material failure by Executive
to perform his duties hereunder which shall persist uncured by Executive for a
sixty (60) day period after written notice is given to Executive which details
the duties which the Company alleges Executive has failed to perform; (ii)
Executive being convicted of a felony or Executive pleading nolo contendere to a
felony; or (iii) any other willful act or omission by Executive, which is
materially injurious to the financial condition or business reputation of the
Company or its affiliates, including without limitation any violation during the
term of Executive's employment of Executive's obligations under Section 8
hereof. Executive will not receive Base Salary or Fringe Benefits with respect
to any period after his termination for Cause. Upon termination of Executive's
employment with Cause, (A) Executive shall forfeit (x) all right to participate
in the Bonus Program and (y) all unvested stock options, and (B) the exercise
period for all vested options shall be sixty (60) days after cessation of
employment.
(c) By Executive For Good Reason. Executive shall have the
right to voluntarily terminate his employment for Good Reason upon at least
sixty (60) days prior written notice to the Company. For purposes of this
Agreement, Good Reason shall mean (i) Executive is required to relocate his
principal office more than forty-five (45) miles from its current location in
Bethesda, Maryland; (ii) Executive ceases involuntarily to be CEO of the Company
(or any successor) or is required to perform duties materially inconsistent with
the duties normally performed by a chief executive officer; (iii) the Company
(or any successor) takes actions which constitute a material diminution of
Executive's position or title with the Company or in the nature of Executive's
authority, duties or responsibilities; (iv) Executive is required to report to
an individual or entity other than the Board; or (v) a material breach by the
Company of its obligations hereunder which shall persist uncured by the Company
for a ninety (90) day period after written notice is given to the Company which
details the obligations which Executive alleges the Company has breached; (vi)
there is a Material Change (as defined herein) with respect to the Company and
Executive terminates his employment within one year after the Material Change.
For purposes of this Agreement, a Material Change is defined as the occurrence
of any of the following events:
(1) The acquisition (in one or more transactions) of
beneficial ownership of more than 50% of the outstanding shares of common stock
of the Company by any person or entity or by any group of persons or entities
acting in concert for the purpose of acquiring, voting, holding or disposing of
shares of the Company's common stock (other than as a result of (x) the
consolidations of OLD RIG, RIGLP and Jamison Research, Inc. described in the
recitals, (y) the completion of an initial public offering or (z) the
acquisition of stock by any person who is a stockholder of OLD RIG or a partner
of RIGLP as of the Effective Date);
- 4 -
<PAGE>
(2) The election or appointment (in one or more
elections or as a result of one or more appointments to fill vacancies) as
directors comprising one-half (1/2) or more of the Board of persons who were not
nominated, recommended or appointed by the Company's incumbent Board (including
as incumbent directors all directors who were nominated, recommended or approved
by a majority of the Board composed of persons who were incumbent directors);
(3) The Company's merging with any other entity in a
transaction in which the Company is not the surviving entity;
(4) The sale by the Company (in one or more
transactions) of all or substantially all of its assets. If Executive terminates
his employment for Good Reason, Executive: (x) shall receive through the later
of (i) the expiration of the Current Term or (ii) one year from the date of
termination, the compensation provided for under paragraph 4(a) of this
Agreement; (y) shall be entitled to receive the bonus he would have received
under the Bonus Program (as in effect on the date of termination) as if he
continued in the position he held immediately prior to termination for the
balance of the calendar year in which such termination occurs; and (z) shall be,
if not otherwise, fully vested in all outstanding Stock Options granted to
Executive under the Stock Option Plan (as in effect on the date of termination)
and any predecessor stock option plan or program. Upon termination of
Executive's employment with Good Reason, the exercise period for all vested
options shall be one-hundred eighty (180) days after cessation of employment.
(d) By Executive Without Good Reason. Executive shall have
the right to voluntarily terminate, for any reason other than Good Reason, his
employment with the Company upon one-hundred eighty (180) days written notice to
the Company. Executive will not receive Base Salary or Fringe Benefits with
respect to any period after his termination without Good Reason. Upon
termination of Executive's employment without good reason, (i) Executive shall
forfeit (x) all right to participate in the Bonus Program and (y) all unvested
stock options, and (ii) the exercise period for all vested options shall be
sixty (60) days after cessation of employment.
8. Confidentiality, Invention and Non-Compete Agreement.
(a) During the term of this Agreement, and thereafter for
the duration of the period, if any, that Executive continues to be employed by
the Company and/or any other entity owned by or affiliated with the Company or
on an "at will" basis, and thereafter for the Non- Competition Period (defined
below), Executive shall not, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, company, partnership, corporation,
business, group, or other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder,
owner, partner, member, joint venturer, or in a managerial capacity, whether as
an employee, independent contractor, consultant, advisor, or sales
representative, in any group or division of a business selling any
- 5 -
<PAGE>
products or services in direct competition with the Company in the United
States, Canada, the United Kingdom or other nations in which the Company is
conducting or in which he was aware the Company had plans to conduct business
within the twelve months following his termination (the "Territory"); provided,
however, that the foregoing covenant shall not be deemed to prohibit Executive
from acquiring as an investment not more than one percent (1%) of the capital
stock of a competing business whose stock is traded on a national securities
exchange or over-the-counter;
(ii) call upon any Person who is, at that time, within
the Territory, an employee of the Company for the purpose or with the intent of
enticing such employee out of the employ of the Company;
(iii) call upon any Person who or that is, at the time
of termination, or has been, within one year prior to that time, a customer of
the Company within the Territory for the purpose of soliciting or selling
products or services in direct competition with the Company within the
Territory; or
(iv) on Executive's own behalf or on behalf of any
competitor, call upon any Person as a prospective acquisition candidate for an
entity other than the Company or its affiliates who or that, during Executive's
employment by the Company was, to Executive's knowledge, either called upon by
the Company as a prospective acquisition candidate or was the subject of an
acquisition analysis conducted by the Company. Executive, to the extent lacking
the knowledge described in the preceding sentence, shall immediately cease all
contact with any prospective acquisition candidate upon being informed that the
Company had called upon such candidate or made an acquisition analysis thereof.
(b) Executive acknowledges that during the course of his
employment, he may develop and obtain access to trade secrets, proprietary
software and other "confidential business information" of the Company, such as
its software systems, sources of data, databases and other competitively
sensitive information kept in confidence by the Company such as selling and
pricing information and procedures, research methodologies, customer lists,
business and marketing plans, and internal financial statements. Executive
agrees to not use or disclose any trade secrets, proprietary software or
confidential business information to which he is exposed or has access in the
course of his employment with the Company, even if elements of any of them may
belong to third parties, during his employment and for so long afterwards as the
Company seeks to maintain as confidential the proprietary software, trade
secrets or confidential business information, whether or not the software, trade
secrets and confidential business information are in written or tangible form,
except as required and authorized during the performance of Executive's duties
for and with the Company. Executive agrees that, given the nature of the
Company's business and business plans there will never come a time when
disclosure of the Company's proprietary software, trade secrets or confidential
information would not be seriously injurious to the Company.
(c) Executive acknowledges that he has been employed by
the Company during its critical developmental and roll-out stages and that
leaving the employ of the Company to
- 6 -
<PAGE>
join any business competitor would seriously hamper the business of the Company.
Accordingly, Executive agrees that the Company shall be entitled to injunctive
relief to prevent him from violating this Section 8, in addition to all remedies
permitted by law, to enforce the provisions of this Agreement. Executive further
acknowledges that his training, experience and technical skills are of such
breadth that they can be employed to Executive's advantage in other areas which
are not in direct competition with the business of the Company on the date of
termination of Executive's employment and consequently the foregoing obligations
will not unreasonably impair Executive's ability to engage in business activity
after the termination of Executive's employment.
(d) For purposes of this Section 8, the term "Company"
shall mean the Company and each of its subsidiaries and predecessors in
interest; the term "Non-Competition Period" shall mean the period commencing on
the date hereof to and including the second anniversary of the date on which
Executive ceases to be employed by the Company (provided, however, that the
Non-Competition Period, during which the agreements and covenants of Executive
made in this Section 8 shall be effective, shall be computed by excluding from
such computation any time during which Executive is in violation of any
provision of this Section 8).
(e) The covenants in this Section 8 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 8 relating to
the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination. Upon termination of this Agreement for any reason, the covenants
specified in this Section 8 shall survive for the term specified herein.
(f) All of the covenants in this Section 8 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of Executive against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of such covenants.
9. Disability. In the event Executive shall become disabled so
that he is unable to perform the essential duties of his position with
reasonable accommodation ("Disability" or "Disabled") for more than six (6)
consecutive months or should the Disability exist for more than nine (9) months
in any twelve (12) month period, the Company shall have the right to terminate
Executive's employment and, upon such termination of employment, the Company
shall thereafter have no obligation to provide Executive compensation or
Executive benefits of any kind; provided, however, that (i) a pro rata portion
of Executive's unvested stock options that would have otherwise vested during
the calendar year of his termination shall vest immediately, and (ii) Executive
shall receive a pro rata bonus under the Bonus Program based on the bonus
Executive would have received for the calendar year of termination if he
remained employed by the Company through the
- 7 -
<PAGE>
end of the Calendar Year. Such pro rata benefits shall be determined by
multiplying the number of unvested options that would have vested in the
calendar year of termination, or the amount of bonus, as the case may be, by a
fraction, the numerator of which is the number of complete weeks Executive was
employed during the year of termination and the denominator of which is
fifty-two. Upon termination of Executive's employment for Disability, the
exercise period for all vested options shall be one year after cessation of
employment.
10. Death. In the event of Executive's death, Executive's
estate shall become entitled to any earned but unpaid compensation owed to
Executive pursuant to paragraph 4(a) of this Agreement. Neither Executive's
estate nor any of Executive's beneficiaries shall be entitled to any additional
amounts of earned but unpaid compensation following Executive's death; provided,
however, that (i) a pro rata portion of Executive's unvested stock options that
would have vested in the year of his termination shall vest immediately, and
(ii) Executive shall receive a pro rata bonus under the Bonus Program based on
the bonus Executive would have received for the calendar year of termination if
he remained employed by the Company through the end of the calendar year. Such
pro rata benefits shall be determined by multiplying the number of unvested
options that would have vested in the calendar year of termination, or the
amount of bonus, as the case may be, by a fraction, the numerator of which is
the number of complete weeks Executive was employed during the year of
termination and the denomination of which is fifty-two. In the event of
Executive's death, the exercise period for all vested options shall be one year
after Executive's death.
11. Insurance. Employer shall have the right to purchase such
policies of insurance on the life of Executive as may be determined by Employer
in its sole discretion, and as may be available, at the sole cost and expense of
Employer, and naming Employer as owner and beneficiary, and Executive shall
cooperate in the placement thereof.
12. Reimbursement of Expenses. The Company shall reimburse
Executive for all reasonable expenses incurred in carrying out his duties under
this Agreement, including reasonable attorneys' fees incurred by Executive in
negotiating this Agreement. Executive shall present to the Company from him an
itemized account of such expenses in a form required by the Company.
13. Arbitration. The parties agree that any dispute between
the parties relating to this Agreement shall not be resolved in litigation, but
instead shall be resolved in final, binding arbitration by a single arbitrator
under the auspices of the American Arbitration Association ("AAA") in
Washington, D.C. Any such arbitration shall be conducted in accordance to the
AAA's Employment Dispute Resolution Procedures. The arbitrator shall require the
losing party to pay the prevailing party's reasonable attorney's fees and costs
of arbitration.
14. Notice. All notices which are or may be required to be
given by either party to the other in connection with this Agreement and the
transactions contemplated thereby shall be in writing, and shall be deemed to
have been properly given if and when delivered personally or sent by certified
mail, return receipt requested; addressed, if to the Company, to:
- 8 -
<PAGE>
Michael R. Klein
Chairman, Realty Information Group, Inc.
2425 Wyoming Street, N.W.
Washington, D.C. 20008
and if to Executive, to:
Andrew C. Florance
4948 Western Avenue
Bethesda, Maryland 20816
15. Waiver of Breach. The waiver by either party of a breach
of any provisions of this Agreement by the other shall not operate or be
construed as a waiver of any subsequent breach.
16. Due Authorization. OLD RIG represents and warrants to
Executive that the execution, delivery and performance of this Agreement has
been duly authorized on behalf of the OLD RIG and that this Agreement is valid
and binding on OLD RIG and enforceable in accordance with its terms against OLD
RIG.
17. Indemnification. Executive shall be indemnified for his
actions as an officer and director of the Company in accordance with the by-laws
of the Company.
18. Governing Law. The Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
19. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the Company and its respective successors and
assigns but the rights and obligations of Executive are personal and may not be
assigned or delegated without the Company's prior written consent.
Notwithstanding the preceding sentence, OLD RIG shall be permitted to assign all
of its obligations hereunder to RIG and such assignment shall be deemed to have
occurred upon the effectiveness of the consolidation of OLD RIG and RIGLP with
RIG (the "Assignment").
20. Counterparts. This Agreement, for the convenience of the
parties, may be executed in any number of counterparts, all of which when taken
together shall constitute one and the same Agreement.
21. Entire Agreement concerning Employment; Supremacy of
Employment Agreement. This Agreement constitutes the entire Agreement between
the parties as to Executive's employment and compensation therefor and
supersedes and replaces any and all agreements, written or oral, as to such
matters. This Agreement may not be modified or amended orally, but only by an
agreement in writing, signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. If there is any
conflict with respect to Executive
- 9 -
<PAGE>
between the provisions of this Agreement and the provisions of either the Bonus
Program or the Stock Option Plan, as applicable, the provisions of this
Agreement shall govern. If there is no such conflict, the provisions of the
Bonus Plan or the Stock Option Plan, as applicable, shall govern.
22. Special Reimbursement. In the event that Executive's
employment is terminated pursuant to clause (a) or (c) of Section 7 and he is
assessed a tax pursuant to Section 4999 of the Code (the "Parachute Tax"), the
Company shall immediately pay Executive that additional amount of money (the
"Gross-Up Payment") which will put Executive in the same net after tax position
had no Parachute Tax been incurred. The Gross-Up Payment shall be sufficient in
amount to cover any income or excise tax on the Gross-Up Payment itself (and any
interest or penalty imposed with respect to an excess parachute payment). In the
event that the Parachute Tax is ultimately determined to exceed the amount taken
into account in computing the Gross-Up Payment at the time of the termination of
Executive's employment (including by reason of any payment the existence or
amount of which could not be determined at the time of the Gross-Up Payment),
the Company shall make an additional Gross-Up Payment in respect of such excess
(and any interest, penalties or additions payable by Executive with respect to
such excess) at the time that the amount of such excess is finally determined.
Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of any such subsequent liability for the Parachute Tax.
Notwithstanding the foregoing, the Company shall not have an obligation to
include within the Gross-Up Payment any interest or penalty with respect to the
Parachute Tax to the extent that (i) at least thirty (30) days prior to the date
such Parachute Tax payment is due the Company provides Executive with its
calculation of the Parachute Tax due and (ii) Executive could have avoided such
interest or penalty by paying the amount due calculated by the Company pursuant
to clause (i).
- 10 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
on the day and year first above written.
OLD RIG, Inc.
By: /s/ Michael B. Klein
----------------------------------
Michael B. Klein
Chairman of the Board
/s/ Andrew C. Florance
----------------------------------
Andrew C. Florance
- 11 -
EXHIBIT
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT is executed this 24 day of April, 1998,
and effective as of January 1, 1998 (the "Effective Date"), by and between OLD
RIG, Inc. ("OLD RIG" and, prior to the Assignment (defined below), the
"Company"), a Delaware corporation which is the general partner of Realty
Information Group, L.P. ("RIGLP"), a Delaware limited partnership, and Frank A.
Carchedi ("Executive").
WHEREAS, Executive has been heretofore employed by OLD RIG in
the capacity of Chief Financial Officer;
WHEREAS, OLD RIG desires to retain Executive in such capacity;
WHEREAS, Executive desires to remain employed in such capacity
by OLD RIG upon the terms and conditions hereinafter set forth; and
WHEREAS, Executive and OLD RIG acknowledge that it is
presently contem plated that, in connection with an initial public offering (the
"Offering") of, or other significant transaction involving, the stock of Realty
Information Group, Inc., a Delaware corporation ("RIG" and, after the Assignment
(defined below), the "Company"), formerly known as Realty Information Group
(Delaware), Inc., (i) OLD RIG and RIGLP will be consolidated with RIG, and (ii)
this Employment Agreement will be automatically assigned to and assumed by RIG
pursuant to Section 15 without further action by any party.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, and in consideration of the mutual covenants herein contained,
agree as follows:
1. Employment. The Company agrees to employ Executive at the
Company's offices in the greater Washington metropolitan area, and Executive
agrees to be so employed, in the capacity of Chief Finanical Officer. Executive
shall perform such functions and undertake such responsibilities as are assigned
from time to time by the President of the Company or the Board of Directors. The
Company and Executive agree that this agreement terminates and replaces any
previous employment agreements between Executive and the Company.
2. Term. The term of Executive's employment under this
Agreement shall commence on the Effective Date and shall continue for the
initial term set forth of two (2) years (the "Initial Term"), and for automatic
and successive renewal terms of one (1) year each (each, a "Renewal Term" and
collectively, the "Renewal Terms"), unless either the Company or Executive
elects not to extend the term beyond the Initial Term or any Renewal Term
(herein, the Initial Term or a Renewal Term is sometimes referred to as the
"Current Term") and gives to the other party hereto written notice of
termination at least six (6) months prior to the end of the Initial Term or at
least three (3) months prior to the end of the Renewal Term.
<PAGE>
3. Full time and efforts. Executive shall diligently and
conscientiously de vote his full time, exclusive attention and best efforts to
his duties under this contract.
4. Compensation.
(a) Commencing as of the Effective Date of this Agreement
and until the Offering, the Company shall pay Executive base compensation for
his services at the annual rate then in effect under Executive's existing
arrangements with the Company (the "Base Compensation"). Commencing as of the
effective date of the Offering, Executive's Base Compensation shall be $125,000
per year. The President of the Company in consultation with the Compensation
Committee of the Board of the Company will review Executive's performance and
determine any appropriate increases annually thereafter. Base Compensation shall
be pay able in biweekly or such other installments as shall be consistent with
the Company's payroll procedures for its senior executives.
(b) In addition, Executive shall be eligible to earn an
annual performance bonus (the "Annual Bonus") pursuant to criteria negotiated
with the President and approved by the Compensation Committee of the Board of
Directors of the Company. The Annual Bonus, if any, shall be paid within
one-hundred twenty (120) days of the end of the relevant measuring period. It is
expected that the Annual Bonus will be at a target level of not less than 25%
nor more than 75% of the Base Compensation paid during such calendar year.
(c) RIG shall adopt as of the effectiveness of its
Offering, and maintain for the benefit of Executive for as long as any options
are outstanding, a Stock Option Plan (the "Stock Option Plan"). Under the Stock
Option Plan, RIG will grant to Executive as of the effectiveness of the Offering
an option to purchase such number of shares of RIG common stock as 12,849 units
of RIGLP would be converted in the Offering. The exercise price of the options
shall be the fair market value of such stock on the grant date (measured by the
price of such stock determined at the pricing meeting of underwriters in
connection with the Offering). Options granted to Executive under the Stock
Option Plan may be non-qualified stock options or "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Such options shall vest: 25% upon the effectiveness of the
Offering; 25% on December 31, 1998; 25% on December 31, 1999; and 25% on
December 31, 2000.
(d) In full satisfaction of Executive's right to receive
from the Company a cash bonus for the period through December 31, 1997,
Executive shall receive $25,000 in cash, paid over two months.
(e) In the event that no Offering shall occur but the
Company, OLD RIG or RIGLP shall consummate a Significant Equity Transaction
during the term of this Agree ment, then immediately prior to the consummation
of such transaction the Company, OLD RIG or RIGLP, as the case may be, shall
grant to Executive options to purchase 40,000 shares of
- 2 -
<PAGE>
common stock of the Company, 12,849 shares of OLD RIG or 12,849 units of RIGLP,
as the case may be, at a price per share or unit equivalent to the price being
paid by the purchaser in such Significant Equity Transaction. Such options will
vest as provided in Section 4(c). For purposes of this clause (e), "Significant
Equity Transaction" shall mean any equity funding of the Company, OLD RIG or
RIGLP, as the case may be, in which the purchaser invests at least $15 million
in such entity or entities.
5. Benefits. Executive shall be entitled to participate in,
and receive benefits from any insurance, medical, disability, vacation or
pension plan of the Company for which Executive satisfies the generally
applicable criteria for eligibility, and to other perquisites which may be in
effect at any time during the term hereof that are generally available to senior
executive officers of the Company.
6. Expense reimbursement. The Company shall reimburse
Executive for all categories of expenses incurred in carrying out his duties
under this Agreement that the Company's policies regard as reasonable and
necessary. Executive shall present to the Company from time to time an itemized
account of such expenses in any form required by the Company.
7. Termination without cause.
(a) By the Company. The Company may terminate this
Agreement without cause upon sixty (60) days' written notice. In such an event
(i) all of Executive's unvested options due to vest within the next twelve (12)
months will vest and (ii) Executive will, as severance and liquidated damages
and in consideration of his execution of a complete and absolute release of the
Company and its officers from any and all further claims, receive (A) on a
monthly basis, as if he had not been terminated, all payments (other than bonus)
he would have received for the greater of (x) the term remaining under the
Agreement had he not been terminated or (y) six months, and (B) a pro rata share
of any bonus based upon that portion of such calendar year during which
Executive was employed.
(b) By Executive. Executive may without cause terminate
this Agreement, by giving one hundred eighty (180) days' written notice during
the Initial Term, or ninety (90) days' written notice during any Renewal Term,
to the Company. In such event, at the sole discretion of the Company, Executive
shall continue to render all services. Executive shall be paid the base
compensation, accrue bonus and vest options as provided by Section 4 up to the
date of termination, but shall not receive any salary or bonus payment
thereafter nor shall any stock option that is not otherwise vested or
nonforfeitable on the date of termination become vested or nonforfeitable on
such date.
8. Termination after merger or acquisition. In the event of
the merger of the Company or the acquisition, directly or indirectly, of all or
substantially all of the Company's assets or a controlling interest in the
voting shares of the Company by an unaffiliated party (a "Change of Control"),
Executive may elect to treat that event as a termination without cause
- 3 -
<PAGE>
unless the new party: (a) extends to him a reasonable offer to (i) be retained
by the Company in an executive position of responsibility, authority and
compensation comparable in material respects (including location) to the
position of Executive immediately prior to the Change of Control, (ii) retain
all rights accorded under this Agreement and (iii) be afforded all privileges
accorded to other executives of the Company; and (b) in fact retains Executive
in such capacity for at least twelve (12) months after the Change of Control.
Executive acknowledges and agrees that the transactions described in the fourth
recital shall not constitute a "Change of Control."
9. Termination for cause. The Company may terminate this
Agreement (a) for cause at any time by notifying Executive in writing of such
termination and the cause thereof or (b) in the event of Executive's death or
prolonged disability; provided, however, that the only grounds constituting
cause shall be: (i) Executive's gross negligence in the performance of his
duties hereunder, intentional nonperformance or mis-performance of such duties,
or refusal to abide by or comply with the reasonable, material and documented
directives of the Board, his superior officers, or the Company's material
policies and procedures (including without limitation the provisions of Section
10 hereof), which actions continue uncured for a period of at least thirty (30)
days after receipt by Executive of written notice of the need to cure or cease;
(ii) Executive's willful dishonesty, fraud, or misconduct with respect to the
business or affairs of the Company; (iii) Executive's indictment for, conviction
of, or guilty or nolo contendere plea to, a felony; and (iv) Executive's abuse
of alcohol or drugs (legal or illegal), other than legal drugs taken under the
direction of a physician, that, in the Company's reasonable judgment, materially
impairs Executive's ability to perform his duties hereunder. In any such event,
Executive will forfeit all unvested options and all claims to bonuses not yet
awarded, and will be paid through the date of the termination; provided,
however, that in the event of termination for death or prolonged disability, all
unvested options shall immediately vest.
10. Confidentiality, Invention and Non-Compete Agreement.
(a) During the term of this Agreement, and thereafter for
the duration of the period, if any, that Executive continues to be employed by
the Company and/or any other entity owned by or affiliated with the Company or
on an "at will" basis, and thereafter for the Non-Competition Period (defined
below), Executive shall not, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, company, partnership, corporation,
business, group, or other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder,
owner, partner, member, joint venturer, or in a managerial capacity, whether as
an employee, independent contractor, consultant, advisor, or sales
representative, in any business selling any products or services in direct
competition with the Company in the United States, Canada, the United Kingdom,
or other nations in which the Company is conducting or in which he was aware the
Company had plans to conduct business within the eighteen (18) months following
his termina tion (the "Territory"); provided, however, that the foregoing
covenant shall not be deemed to prohibit Executive from acquiring as an
investment not more than one percent (1%) of the capital
- 4 -
<PAGE>
stock of a competing business whose stock is traded on a national securities
exchange or over- the-counter;
(ii) call upon any Person who is, at that time,
within the Territory, an employee of the Company for the purpose or with the
intent of enticing such employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that
time, or has been, within one year prior to that time, a customer of the Company
within the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company within the Territory; or
(iv) on Executive's own behalf or on behalf of any
competitor, call upon any Person as a prospective acquisition candidate for an
entity other than the Company or its affiliates who or that, during Executive's
employment by the Company was, to Executive's knowledge, either called upon by
the Company as a prospective acquisition candidate or was the subject of an
acquisition analysis conducted by the Company. Executive, to the extent lacking
the knowledge described in the preceding sentence, shall immediately cease all
contact with any prospective acquisition candidate upon being informed that the
Company had called upon such candidate or made an acquisition analysis thereof.
(b) Executive acknowledges that during the course of his
employment, he may develop and obtain access to trade secrets, proprietary
software and other "confidential business information" of the Company, such as
its software systems, sources of data, databases and other competitively
sensitive information kept in confidence by the Company such as selling and
pricing information and procedures, research methodologies, customer lists,
business and marketing plans, and internal financial statements. Executive
agrees to not use or disclose any trade secrets, proprietary software or
confidential business information to which he is exposed or has access in the
course of his employment with the Company, even if elements of any of them may
belong to third parties, during his employment and for so long afterwards as the
Company seeks to maintain as confidential the proprietary software, trade
secrets or confidential business information, whether or not the software, trade
secrets and confidential business information are in written or tangible form,
except as required and authorized during the performance of Executive's duties
for and with the Company. Executive agrees that, given the nature of the
Company's business and business plans there will never come a time when
disclosure of the Company's proprietary software, trade secrets or confidential
information would not be seriously injurious to the Company.
(c) Executive acknowledges that he has been employed by
the Company during its critical developmental and roll-out stages and that
leaving the employ of the Company to join any business competitor would
seriously hamper the business of the Company. Accordingly, Executive agrees that
the Company shall be entitled to injunctive relief to prevent him from violating
this Section 10, in addition to all remedies permitted by law, to enforce the
- 5 -
<PAGE>
provisions of this Agreement. Executive further acknowledges that his training,
experience and technical skills are of such breadth that they can be employed to
Executive's advantage in other areas which are not in direct competition with
the business of the Company on the date of termination of Executive's employment
and consequently the foregoing obligations will not unreasonably impair
Executive's ability to engage in business activity after the termination of
Executive's employment.
(d) For purposes of this Section 10, the term "Company"
shall mean the Company and each of its subsidiaries, predecessors in interest
and successors; and the term "Non-Competition Period" shall mean the period
commencing on the date hereof to and including the second anniversary of the
date on which Executive ceases to be employed by the Company (provided, however,
that the Non-Competition Period, during which the agreements and covenants of
Executive made in this Section 10 shall be effective, shall be computed by
excluding from such computation any time during which Executive is in violation
of any provision of this Section 10).
(e) The covenants in this Section 10 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 10 relating
to the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination. Upon termination of this Agreement for any reason, the covenants
specified in this Section 10 shall survive for the term specified herein.
(f) All of the covenants in this Section 10 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of Executive against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of such covenants.
11. Notices. All notices required or permitted to be given
under this Agreement shall be given by certified mail, return receipt requested,
to the parties at the following addresses or to such other addresses as either
may designate in writing to the other party.
- 6 -
<PAGE>
(a) If to the Company:
Andrew C. Florance
Chief Executive Officer
Realty Information Group
7475 Wisconsin Avenue
Sixth Floor
Bethesda, Maryland 20814
Telefax: 301-718-2444
(b) If to Executive, to the address indicated below
Executive's name on the signature page.
12. Arbitration. The parties agree that any dispute between
the parties relating to this Agreement shall not be resolved in litigation, but
instead shall be resolved in final, binding arbitration by a single arbitrator
under the auspices of the American Arbitration Association ("AAA") in
Washington, D.C. Any such arbitration shall be conducted in accordance to the
AAA's Employment Dispute Resolution Procedures.
13. Waiver of Breach. The waiver by either party of a breach
of any provisions of this Agreement by the other shall not operate or be
construed as a waiver of any subsequent breach. A delay or failure by either
party to exercise a right under this Agreement, or a partial or single exercise
of that right, shall not constitute a waiver of that or any other right.
14. Governing Law. The Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
15. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the Company and its respective successors and
assigns but the rights and obligations of Executive are personal and may not be
assigned or delegated without the Company's prior written consent.
Notwithstanding the preceding sentence, OLD RIG shall be permitted to assign all
of its obligations hereunder to RIG and such assignment shall be deemed to have
occurred upon the effectiveness of the consolidation of OLD RIG and RIGLP with
RIG (the "Assignment").
16. Counterparts. This Agreement, for the convenience of the
parties, may be executed in any number of counterparts, all of which when taken
together shall constitute one and the same Agreement.
17. Entire Agreement concerning Employment; Supremacy of
Employment Agreement. This Agreement constitutes the entire Agreement between
the parties as to Executive's employment and compensation therefor and
supersedes and replaces any and all
- 7 -
<PAGE>
agreements, written or oral, as to such matters. This Agreement may not be
modified or amended orally, but only by an agreement in writing, signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought. If there is any conflict with respect to Executive between
the provisions of this Agreement and the provisions of either the bonus plan or
the Stock Option Plan, as applicable, the provisions of this Agreement shall
govern.
18. Amendments. This Agreement may be amended only in writing,
signed by both parties.
In witness whereof, Company has by its appropriate officers,
signed and affixed its seal and Executive has signed and sealed this Agreement,
to be effective as of the last date noted below.
OLD RIG, INC. EXECUTIVE
By:/s/ Andrew C. Florance /s/ Frank A. Carchedi
--------------------------- -----------------------------------
Date: April 24, 1998
------------------------- -----------------------------------
Name: Frank A. Carchedi
Date: Date: April 24, 1998
------------------------- ------------------------------
Address:
-----------------------------------
-----------------------------------
Telephone/Fax:
-----------------------------------
- 8 -
EXHIBIT
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT is executed this 24
day of April, 1998,
and effective as of January 1, 1998 (the "Effective Date"), by and between OLD
RIG, Inc. ("OLD RIG" and, prior to the Assignment (defined below), the
"Company"), a Delaware corporation which is the general partner of Realty
Information Group, L.P. ("RIGLP"), a Delaware limited partnership, and David M.
Schaffel ("Executive").
WHEREAS, Executive has been heretofore employed by OLD RIG in
the capacity of Vice President of Product Development;
WHEREAS, OLD RIG desires to retain Executive in such capacity;
WHEREAS, Executive desires to remain employed in such capacity
by OLD RIG upon the terms and conditions hereinafter set forth; and
WHEREAS, Executive and OLD RIG acknowledge that it is
presently contemplated that, in connection with an initial public offering (the
"Offering") of, or other significant transaction involving, the stock of Realty
Information Group, Inc., a Delaware corporation ("RIG" and, after the Assignment
(defined below), the "Company"), formerly known as Realty Information Group
(Delaware), Inc., (i) OLD RIG and RIGLP will be consolidated with RIG, and (ii)
this Employment Agreement will be automatically assigned to and assumed by RIG
pursuant to Section 15 without further action by any party.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, and in consideration of the mutual covenants herein contained,
agree as follows:
1. Employment. The Company agrees to employ Executive at the
Company's offices in the greater Washington metropolitan area, and Executive
agrees to be so employed, in the capacity of Vice President of Product
Development. Executive shall perform such functions and undertake such
responsibilities as are assigned from time to time by the President of the
Company or the Board of Directors. The Company and Executive agree that this
agreement terminates and replaces any previous employment agreements between
Executive and the Company.
2. Term. The term of Executive's employment under this
Agreement shall commence on the Effective Date and shall continue for the
initial term set forth of two (2) years (the "Initial Term"), and for automatic
and successive renewal terms of one (1) year each (each, a "Renewal Term" and
collectively, the "Renewal Terms"), unless either the Company or Executive
elects not to extend the term beyond the Initial Term or any Renewal Term
(herein, the Initial Term or a Renewal Term is sometimes referred to as the
"Current Term") and gives to the other party hereto written notice of
termination at least six (6) months prior to the end of the Initial Term or at
least three (3) months prior to the end of the Renewal Term.
<PAGE>
3. Full time and efforts. Executive shall diligently and
conscientiously de vote his full time, exclusive attention and best efforts to
his duties under this contract.
4. Compensation.
(a) Commencing as of the Effective Date of this Agreement
and until the Offering, the Company shall pay Executive base compensation for
his services at the annual rate then in effect under Executive's existing
arrangements with the Company (the "Base Compensation"). Commencing as of the
effective date of the Offering, Executive's Base Compensation shall be $120,000
per year. The President of the Company in consultation with the Compensation
Committee of the Board of the Company will review Executive's performance and
determine any appropriate increases annually thereafter. Base Compensation shall
be payable in biweekly or such other installments as shall be consistent with
the Company's payroll procedures for its senior executives.
(b) In addition, Executive shall be eligible to earn an
annual performance bonus (the "Annual Bonus") pursuant to criteria negotiated
with the President and approved by the Compensation Committee of the Board of
Directors of the Company. The Annual Bonus, if any, shall be paid within
one-hundred twenty (120) days of the end of the relevant measuring period. It is
expected that the Annual Bonus will be at a target level of not less than 25%
nor more than 50% of the Base Compensation paid during such calendar year.
(c) RIG shall adopt as of the effectiveness of its
Offering, and maintain for the benefit of Executive for as long as any options
are outstanding, a Stock Option Plan (the "Stock Option Plan"). Under the Stock
Option Plan, RIG will grant to Executive as of the effectiveness of the Offering
an option to purchase such number of shares of RIG common stock as 12,849 units
of RIGLP would be converted in the Offering. The exercise price of the options
shall be the fair market value of such stock on the grant date (measured by the
price of such stock determined at the pricing meeting of underwriters in
connection with the Offering). Options granted to Executive under the Stock
Option Plan may be non-qualified stock options or "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Such options shall vest: 25% upon the effectiveness of the
Offering; 25% on December 31, 1998; 25% on December 31, 1999; and 25% on
December 31, 2000.
(d) In the event that no Offering shall occur but the
Company, OLD RIG or RIGLP shall consummate a Significant Equity Transaction
during the term of this Agree ment, then immediately prior to the consummation
of such transaction the Company, OLD RIG or RIGLP, as the case may be, shall
grant to Executive options to purchase 40,000 shares of common stock of the
Company, 12,849 shares of OLD RIG or 12,849 units of RIGLP, as the case may be,
at a price per share or unit equivalent to the price being paid by the purchaser
in such Significant Equity Transaction. Such options will vest as provided in
Section 4(c). For purposes of this clause (d), "Significant Equity Transaction"
shall mean any equity funding of the
- 2 -
<PAGE>
Company, OLD RIG or RIGLP, as the case may be, in which the purchaser invests at
least $15 million in such entity or entities.
5. Benefits. Executive shall be entitled to participate in,
and receive benefits from any insurance, medical, disability, vacation or
pension plan of the Company for which Executive satisfies the generally
applicable criteria for eligibility, and to other perquisites which may be in
effect at any time during the term hereof that are generally available to senior
executive officers of the Company.
6. Expense reimbursement. The Company shall reimburse
Executive for all categories of expenses incurred in carrying out his duties
under this Agreement that the Company's policies regard as reasonable and
necessary. Executive shall present to the Company from time to time an itemized
account of such expenses in any form required by the Company.
7. Termination without cause.
(a) By the Company. The Company may terminate this
Agreement without cause upon sixty (60) days' written notice. In such an event
(i) all of Executive's unvested options due to vest within the next twelve (12)
months will vest and (ii) Executive will, as severance and liquidated damages
and in consideration of his execution of a complete and absolute release of the
Company and its officers from any and all further claims, receive (A) on a
monthly basis, as if he had not been terminated, all payments (other than bonus)
he would have received for the greater of (x) the term remaining under the
Agreement had he not been terminated or (y) six months, and (B) a pro rata share
of any bonus based upon that portion of such calendar year during which
Executive was employed.
(b) By Executive. Executive may without cause terminate
this Agreement, by giving one hundred eighty (180) days' written notice during
the Initial Term, or ninety (90) days' written notice during any Renewal Term,
to the Company. In such event, at the sole discretion of the Company, Executive
shall continue to render all services. Executive shall be paid the base
compensation, accrue bonus and vest options as provided by Section 4 up to the
date of termination, but shall not receive any salary or bonus payment
thereafter nor shall any stock option that is not otherwise vested or
nonforfeitable on the date of termination become vested or nonforfeitable on
such date.
8. Termination after merger or acquisition. In the event of
the merger of the Company or the acquisition, directly or indirectly, of all or
substantially all of the Company's assets or a controlling interest in the
voting shares of the Company by an unaffiliated party (a "Change of Control"),
Executive may elect to treat that event as a termination without cause unless
the new party: (a) extends to him a reasonable offer to (i) be retained by the
Company in an executive position of responsibility, authority and compensation
comparable in material respects (including location) to the position of
Executive immediately prior to the Change of Control, (ii) retain all rights
accorded under this Agreement and (iii) be afforded all privileges
- 3 -
<PAGE>
accorded to other executives of the Company; and (b) in fact retains Executive
in such capacity for at least twelve (12) months after the Change of Control.
Executive acknowledges and agrees that the transactions described in the fourth
recital shall not constitute a "Change of Control."
9. Termination for cause. The Company may terminate this
Agreement (a) for cause at any time by notifying Executive in writing of such
termination and the cause thereof or (b) in the event of Executive's death or
prolonged disability; provided, however, that the only grounds constituting
cause shall be: (i) Executive's gross negligence in the performance of his
duties hereunder, intentional nonperformance or mis-performance of such duties,
or refusal to abide by or comply with the reasonable, material and documented
directives of the Board, his superior officers, or the Company's material
policies and procedures (including without limitation the provisions of Section
10 hereof), which actions continue uncured for a period of at least thirty (30)
days after receipt by Executive of written notice of the need to cure or cease;
(ii) Executive's willful dishonesty, fraud, or misconduct with respect to the
business or affairs of the Company; (iii) Executive's indictment for, conviction
of, or guilty or nolo contendere plea to, a felony; and (iv) Executive's abuse
of alcohol or drugs (legal or illegal), other than legal drugs taken under the
direction of a physician, that, in the Company's reasonable judgment, materially
impairs Executive's ability to perform his duties hereunder. In any such event,
Executive will forfeit all unvested options and all claims to bonuses not yet
awarded, and will be paid through the date of the termination; provided,
however, that in the event of termination for death or prolonged disability, all
unvested options shall immediately vest.
10. Confidentiality, Invention and Non-Compete Agreement.
(a) During the term of this Agreement, and thereafter for
the duration of the period, if any, that Executive continues to be employed by
the Company and/or any other entity owned by or affiliated with the Company or
on an "at will" basis, and thereafter for the Non-Competition Period (defined
below), Executive shall not, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, company, partnership, corporation,
business, group, or other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder,
owner, partner, member, joint venturer, or in a managerial capacity, whether as
an employee, independent contractor, consultant, advisor, or sales
representative, in any business selling any products or services in direct
competition with the Company in the United States, Canada, the United Kingdom,
or other nations in which the Company is conducting or in which he was aware the
Company had plans to conduct business within the eighteen (18) months following
his termina tion (the "Territory"); provided, however, that the foregoing
covenant shall not be deemed to prohibit Executive from acquiring as an
investment not more than one percent (1%) of the capital stock of a competing
business whose stock is traded on a national securities exchange or
over-the-counter;
- 4 -
<PAGE>
(ii) call upon any Person who is, at that time,
within the Territory, an employee of the Company for the purpose or with the
intent of enticing such employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that
time, or has been, within one year prior to that time, a customer of the Company
within the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company within the Territory; or
(iv) on Executive's own behalf or on behalf of any
competitor, call upon any Person as a prospective acquisition candidate for an
entity other than the Company or its affiliates who or that, during Executive's
employment by the Company was, to Executive's knowledge, either called upon by
the Company as a prospective acquisition candidate or was the subject of an
acquisition analysis conducted by the Company. Executive, to the extent lacking
the knowledge described in the preceding sentence, shall immediately cease all
contact with any prospective acquisition candidate upon being informed that the
Company had called upon such candidate or made an acquisition analysis thereof.
(b) Executive acknowledges that during the course of his
employment, he may develop and obtain access to trade secrets, proprietary
software and other "confidential business information" of the Company, such as
its software systems, sources of data, databases and other competitively
sensitive information kept in confidence by the Company such as selling and
pricing information and procedures, research methodologies, customer lists,
business and marketing plans, and internal financial statements. Executive
agrees to not use or disclose any trade secrets, proprietary software or
confidential business information to which he is exposed or has access in the
course of his employment with the Company, even if elements of any of them may
belong to third parties, during his employment and for so long afterwards as the
Company seeks to maintain as confidential the proprietary software, trade
secrets or confidential business information, whether or not the software, trade
secrets and confidential business information are in written or tangible form,
except as required and authorized during the performance of Executive's duties
for and with the Company. Executive agrees that, given the nature of the
Company's business and business plans there will never come a time when
disclosure of the Company's proprietary software, trade secrets or confidential
information would not be seriously injurious to the Company.
(c) Executive acknowledges that he has been employed by
the Company during its critical developmental and roll-out stages and that
leaving the employ of the Company to join any business competitor would
seriously hamper the business of the Company. Accordingly, Executive agrees that
the Company shall be entitled to injunctive relief to prevent him from violating
this Section 10, in addition to all remedies permitted by law, to enforce the
provisions of this Agreement. Executive further acknowledges that his training,
experience and technical skills are of such breadth that they can be employed to
Executive's advantage in other areas which are not in direct competition with
the business of the Company on the date of
- 5 -
<PAGE>
termination of Executive's employment and consequently the foregoing obligations
will not unreasonably impair Executive's ability to engage in business activity
after the termination of Executive's employment.
(d) For purposes of this Section 10, the term "Company"
shall mean the Company and each of its subsidiaries, predecessors in interest
and successors; and the term "Non-Competition Period" shall mean the period
commencing on the date hereof to and including the second anniversary of the
date on which Executive ceases to be employed by the Company (provided, however,
that the Non-Competition Period, during which the agreements and covenants of
Executive made in this Section 10 shall be effective, shall be computed by
excluding from such computation any time during which Executive is in violation
of any provision of this Section 10).
(e) The covenants in this Section 10 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 10 relating
to the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination. Upon termination of this Agreement for any reason, the covenants
specified in this Section 10 shall survive for the term specified herein.
(f) All of the covenants in this Section 10 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of Executive against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of such covenants.
11. Notices. All notices required or permitted to be given
under this Agreement shall be given by certified mail, return receipt requested,
to the parties at the following addresses or to such other addresses as either
may designate in writing to the other party.
(a) If to the Company:
Andrew C. Florance
Chief Executive Officer
Realty Information Group
7475 Wisconsin Avenue
Sixth Floor
Bethesda, Maryland 20814
Telefax: 301-718-2444
- 6 -
<PAGE>
(b) If to Executive, to the address indicated below
Executive's name on the signature page.
12. Arbitration. The parties agree that any dispute between
the parties relating to this Agreement shall not be resolved in litigation, but
instead shall be resolved in final, binding arbitration by a single arbitrator
under the auspices of the American Arbitration Association ("AAA") in
Washington, D.C. Any such arbitration shall be conducted in accordance to the
AAA's Employment Dispute Resolution Procedures.
13. Waiver of Breach. The waiver by either party of a breach
of any provisions of this Agreement by the other shall not operate or be
construed as a waiver of any subsequent breach. A delay or failure by either
party to exercise a right under this Agreement, or a partial or single exercise
of that right, shall not constitute a waiver of that or any other right.
14. Governing Law. The Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
15. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the Company and its respective successors and
assigns but the rights and obligations of Executive are personal and may not be
assigned or delegated without the Company's prior written consent.
Notwithstanding the preceding sentence, OLD RIG shall be permitted to assign all
of its obligations hereunder to RIG and such assignment shall be deemed to have
occurred upon the effectiveness of the consolidation of OLD RIG and RIGLP with
RIG (the "Assignment").
16. Counterparts. This Agreement, for the convenience of the
parties, may be executed in any number of counterparts, all of which when taken
together shall constitute one and the same Agreement.
17. Entire Agreement concerning Employment; Supremacy of
Employment Agreement. This Agreement, together with Executive's arrangement with
the Company concerning the forgiveness of debt relating to his purchase of units
in RIGLP, constitutes the entire Agreement between the parties as to Executive's
employment and compensation therefor and supersedes and replaces any and all
agreements, written or oral, as to such matters. This Agreement may not be
modified or amended orally, but only by an agreement in writing, signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought. If there is any conflict with respect to Executive between
the provisions of this Agreement and the provisions of either the bonus plan or
the Stock Option Plan, as applicable, the provisions of this Agreement shall
govern.
18. Amendments. This Agreement may be amended only in writing,
signed by both parties.
- 7 -
<PAGE>
In witness whereof, Company has by its appropriate officers,
signed and affixed its seal and Executive has signed and sealed this Agreement,
to be effective as of the last date noted below.
OLD RIG, INC. EXECUTIVE
By:/s/ Andrew C. Florance /s/ David M. Schaffel
-------------------------- -----------------------------------
Name: David M. Schaffel
Date: March 24, 1998 Date: March 24, 1998
------------------------- ------------------------------
Address:
-----------------------------------
-----------------------------------
Telephone/Fax:
-----------------------------------
- 8 -
EXHIBIT
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT is executed this 24 day of April, 1998,
and effective as of January 1, 1998 (the "Effective Date"), by and between OLD
RIG, Inc. ("OLD RIG" and, prior to the Assignment (defined below), the
"Company"), a Delaware corporation which is the general partner of Realty
Information Group, L.P. ("RIGLP"), a Delaware limited partnership, and Curtis M.
Ricketts ("Executive").
WHEREAS, Executive has been heretofore employed by OLD RIG in
the capacity of Senior Vice President of Sales and Marketing;
WHEREAS, OLD RIG desires to retain Executive in such capacity;
WHEREAS, Executive desires to remain employed in such capacity
by OLD RIG upon the terms and conditions hereinafter set forth; and
WHEREAS, Executive and OLD RIG acknowledge that it is
presently contem plated that, in connection with an initial public offering (the
"Offering") of, or other significant transaction involving, the stock of Realty
Information Group, Inc., a Delaware corporation ("RIG" and, after the Assignment
(defined below), the "Company"), formerly known as Realty Information Group
(Delaware), Inc., (i) OLD RIG and RIGLP will be consolidated with RIG, and (ii)
this Employment Agreement will be automatically assigned to and assumed by RIG
pursuant to Section 15 without further action by any party.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, and in consideration of the mutual covenants herein contained,
agree as follows:
1. Employment. The Company agrees to employ Executive at the
Company's offices in the greater Washington metropolitan area, and Executive
agrees to be so employed, in the capacity of Senior Vice President of Sales and
Marketing. Executive shall perform such functions and undertake such
responsibilities as are assigned from time to time by the President of the
Company or the Board of Directors. The Company and Executive agree that this
agreement terminates and replaces any previous employment agreements between
Executive and the Company.
2. Term. The term of Executive's employment under this
Agreement shall commence on the Effective Date and shall continue for the
initial term set forth of two (2) years (the "Initial Term"), and for automatic
and successive renewal terms of one (1) year each (each, a "Renewal Term" and
collectively, the "Renewal Terms"), unless either the Company or Execu tive
elects not to extend the term beyond the Initial Term or any Renewal Term
(herein, the Initial Term or a Renewal Term is sometimes referred to as the
"Current Term") and gives to the other party hereto written notice of
termination at least six (6) months prior to the end of the Initial Term or at
least three (3) months prior to the end of the Renewal Term.
<PAGE>
3. Full time and efforts. Executive shall diligently and
conscientiously de vote his full time, exclusive attention and best efforts to
his duties under this contract.
4. Compensation.
(a) Commencing as of the Effective Date of this Agreement
and until the Offering, the Company shall pay Executive base compensation for
his services at the annual rate then in effect under Executive's existing
arrangements with the Company (the "Base Compensation"), including his monthly
bonus. Commencing as of the effective date of the Offering, Executive's Base
Compensation shall be $110,000 per year. The President of the Company in
consultation with the Compensation Committee of the Board of the Company will
review Executive's performance and determine any appropriate increases annually
thereafter. Base Compensation shall be payable in biweekly or such other
installments as shall be consistent with the Company's payroll procedures for
its senior executives.
(b) Commencing as of the effective date of the Offering,
Executive shall be eligible to earn a quarterly performance bonus (the
"Quarterly Bonus") pursuant to criteria negotiated quarterly with the President
and approved annually by the Compensation Committee of the Board of Directors of
the Company. The Quarterly Bonus, if any, shall be paid within thirty (30) days
of then end of the relevant measuring period. It is expected that the Quarterly
Bonus will be at a target level of not more than 100% of the Base Compensation
paid during such calendar quarter.
(c) RIG shall adopt as of the effectiveness of its
Offering, and main tain for the benefit of Executive for as long as any options
are outstanding, a Stock Option Plan (the "Stock Option Plan"). Under the Stock
Option Plan, RIG will grant to Executive as of the effectiveness of the Offering
an option to purchase such number of shares of RIG common stock at the fair
market value of such stock on the grant date as as 8,031 units of RIGLP would be
converted in the Offering. The exercise price of the options shall be the fair
market value of such stock on the grant date (measured by the price of such
stock determined at the pricing meeting of underwriters in connection with the
Offering). Options granted to Executive under the Stock Option Plan may be
non-qualified stock options or "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Such
options shall vest: 25% upon the effectiveness of the Offering; 25% on December
31, 1998; 25% on December 31, 1999; and 25% on December 31, 2000.
(d) In the event that no Offering shall occur but the
Company, OLD RIG or RIGLP shall consummate a Significant Equity Transaction
during the term of this Agree ment, then immediately prior to the consummation
of such transaction the Company, OLD RIG or RIGLP, as the case may be, shall
grant to Executive options to purchase 25,000 shares of common stock of the
Company, 8,031 shares of OLD RIG or 8,031 units of RIGLP, as the case may be, at
a price per share or unit equivalent to the price being paid by the purchaser in
such Significant Equity Transaction. Such options will vest as provided in
Section 4(c). For purposes
- 2 -
<PAGE>
of this clause (d), "Significant Equity Transaction" shall mean any equity
funding of the Company, OLD RIG or RIGLP, as the case may be, in which the
purchaser invests at least $15 million in such entity or entities.
5. Benefits. Executive shall be entitled to participate in,
and receive benefits from any insurance, medical, disability, vacation or
pension plan of the Company for which Executive satisfies the generally
applicable criteria for eligibility, and to other perquisites which may be in
effect at any time during the term hereof that are generally available to senior
executive officers of the Company.
6. Expense reimbursement. The Company shall reimburse
Executive for all categories of expenses incurred in carrying out his duties
under this Agreement that the Company's policies regard as reasonable and
necessary. Executive shall present to the Company from time to time an itemized
account of such expenses in any form required by the Company.
7. Termination without cause.
(a) By the Company. The Company may terminate this
Agreement without cause upon sixty (60) days' written notice. In such an event
(i) all of Executive's unvested options due to vest within the next twelve (12)
months will vest and (ii) Executive will, as severance and liquidated damages
and in consideration of his execution of a complete and absolute release of the
Company and its officers from any and all further claims, receive (A) on a
monthly basis, as if he had not been terminated, all payments (other than bonus)
he would have received for the greater of (x) the term remaining under the
Agreement had he not been terimated or (y) six months, and (B) a pro rata share
of any bonus based upon that portion of the measuring period during which
Executive was employed.
(b) By Executive. Executive may without cause terminate
this Agreement, by giving one hundred eighty (180) days' written notice during
the Initial Term, or ninety (90) days' written notice during any Renewal Term,
to the Company. In such event, at the sole discretion of the Company, Executive
shall continue to render all services. Executive shall be paid the base
compensation, accrue bonus and vest options as provided by Section 4 up to the
date of termination, but shall not receive any salary or bonus payment
thereafter nor shall any stock option that is not otherwise vested or
nonforfeitable on the date of termination become vested or nonforfeitable on
such date.
8. Termination after merger or acquisition. In the event of
the merger of the Company or the acquisition, directly or indirectly, of all or
substantially all of the Company's assets or a controlling interest in the
voting shares of the Company by an unaffiliated party (a "Change of Control"),
Executive may elect to treat that event as a termination without cause unless
the new party: (a) extends to him a reasonable offer to (i) be retained by the
Company in an executive position of responsibility, authority and compensation
comparable in material respects (including location) to the position of
Executive immediately prior to the Change of
- 3 -
<PAGE>
Control, (ii) retain all rights accorded under this Agreement and (iii) be
afforded all privileges accorded to other executives of the Company; and (b) in
fact retains Executive in such capacity for at least twelve (12) months after
the Change of Control. Executive acknowledges and agrees that the transactions
described in the fourth recital shall not constitute a "Change of Control."
9. Termination for cause. The Company may terminate this
Agreement (a) for cause at any time by notifying Executive in writing of such
termination and the cause thereof or (b) in the event of Executive's death or
prolonged disability; provided, however, that the only grounds constituting
cause shall be: (i) Executive's gross negligence in the performance of his
duties hereunder, intentional nonperformance or mis-performance of such duties,
or refusal to abide by or comply with the reasonable, material and documented
directives of the Board, his superior officers, or the Company's material
policies and procedures (including without limitation the provisions of Section
10 hereof), which actions continue uncured for a period of at least thirty (30)
days after receipt by Executive of written notice of the need to cure or cease;
(ii) Executive's willful dishonesty, fraud, or misconduct with respect to the
business or affairs of the Company; (iii) Executive's indictment for, conviction
of, or guilty or nolo contendere plea to, a felony; and (iv) Executive's abuse
of alcohol or drugs (legal or illegal), other than legal drugs taken under the
direction of a physician, that, in the Company's reasonable judgment, materially
impairs Executive's ability to perform his duties hereunder. In any such event,
Executive will forfeit all unvested options and all claims to bonuses not yet
awarded, and will be paid through the date of the termination; provided,
however, that in the event of termination for death or prolonged disability, all
unvested options shall immediately vest.
10. Confidentiality, Invention and Non-Compete Agreement.
(a) During the term of this Agreement, and thereafter for
the duration of the period, if any, that Executive continues to be employed by
the Company and/or any other entity owned by or affiliated with the Company or
on an "at will" basis, and thereafter for the Non-Competition Period (defined
below), Executive shall not, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, company, partnership, corporation,
business, group, or other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder,
owner, partner, member, joint venturer, or in a managerial capacity, whether as
an employee, independent contractor, consultant, advisor, or sales
representative, in any business selling any products or services in direct
competition with the Company in the United States, Canada, the United Kingdom,
or other nations in which the Company is conducting or in which he was aware the
Company had plans to conduct business within the eighteen (18) months following
his termination (the "Territory"); provided, however, that the foregoing
covenant shall not be deemed to prohibit Executive from acquiring as an
investment not more than one percent (1%) of the capital stock of a competing
business whose stock is traded on a national securities exchange or
over-the-counter;
- 4 -
<PAGE>
(ii) call upon any Person who is, at that time,
within the Territory, an employee of the Company for the purpose or with the
intent of enticing such employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that
time, or has been, within one year prior to that time, a customer of the Company
within the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company within the Territory; or
(iv) on Executive's own behalf or on behalf of any
competitor, call upon any Person as a prospective acquisition candidate for an
entity other than the Company or its affiliates who or that, during Executive's
employment by the Company was, to Executive's knowledge, either called upon by
the Company as a prospective acquisition candidate or was the subject of an
acquisition analysis conducted by the Company. Executive, to the extent lacking
the knowledge described in the preceding sentence, shall immediately cease all
contact with any prospective acquisition candidate upon being informed that the
Company had called upon such candidate or made an acquisition analysis thereof.
(b) Executive acknowledges that during the course of his
employment, he may develop and obtain access to trade secrets, proprietary
software and other "confidential business information" of the Company, such as
its software systems, sources of data, databases and other competitively
sensitive information kept in confidence by the Company such as selling and
pricing information and procedures, research methodologies, customer lists,
business and marketing plans, and internal financial statements. Executive
agrees to not use or disclose any trade secrets, proprietary software or
confidential business information to which he is exposed or has access in the
course of his employment with the Company, even if elements of any of them may
belong to third parties, during his employment and for so long afterwards as the
Company seeks to maintain as confidential the proprietary software, trade
secrets or confidential business information, whether or not the software, trade
secrets and confidential business information are in written or tangible form,
except as required and authorized during the performance of Executive's duties
for and with the Company. Executive agrees that, given the nature of the
Company's business and business plans there will never come a time when
disclosure of the Company's proprietary software, trade secrets or confidential
information would not be seriously injurious to the Company.
(c) Executive acknowledges that he has been employed by the
Company during its critical developmental and roll-out stages and that leaving
the employ of the Company to join any business competitor would seriously hamper
the business of the Company. Accordingly, Executive agrees that the Company
shall be entitled to injunctive relief to prevent him from violating this
Section 10, in addition to all remedies permitted by law, to enforce the
provisions of this Agreement. Executive further acknowledges that his training,
experience and technical skills are of such breadth that they can be employed to
Executive's advantage in other areas which are not in direct competition with
the business of the Company on the date of
- 5 -
<PAGE>
termination of Executive's employment and consequently the foregoing obligations
will not unreasonably impair Executive's ability to engage in business activity
after the termination of Executive's employment.
(d) For purposes of this Section 10, the term "Company"shall
mean the Company and each of its subsidiaries, predecessors in interest and
successors; and the term "Non-Competition Period" shall mean the period
commencing on the date hereof to and including the second anniversary of the
date on which Executive ceases to be employed by the Company (provided, however,
that the Non-Competition Period, during which the agreements and covenants of
Executive made in this Section 10 shall be effective, shall be computed by
excluding from such computation any time during which Executive is in violation
of any provision of this Section 10).
(e) The covenants in this Section 10 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 10 relating
to the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination. Upon termination of this Agreement for any reason, the covenants
specified in this Section 10 shall survive for the term specified herein.
(f) All of the covenants in this Section 10 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of Executive against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of such covenants.
11. Notices. All notices required or permitted to be given
under this Agreement shall be given by certified mail, return receipt requested,
to the parties at the following addresses or to such other addresses as either
may designate in writing to the other party.
(a) If to the Company:
Andrew C. Florance
Chief Executive Officer
Realty Information Group
7475 Wisconsin Avenue
Sixth Floor
Bethesda, Maryland 20814
Telefax: 301-718-2444
- 6 -
<PAGE>
(b) If to Executive, to the address indicated below
Executive's name on the signature page.
12. Arbitration. The parties agree that any dispute between
the parties relating to this Agreement shall not be resolved in litigation, but
instead shall be resolved in final, binding arbitration by a single arbitrator
under the auspices of the American Arbitration Association ("AAA") in
Washington, D.C. Any such arbitration shall be conducted in accordance to the
AAA's Employment Dispute Resolution Procedures.
13. Waiver of Breach. The waiver by either party of a breach
of any provisions of this Agreement by the other shall not operate or be
construed as a waiver of any subsequent breach. A delay or failure by either
party to exercise a right under this Agreement, or a partial or single exercise
of that right, shall not constitute a waiver of that or any other right.
14. Governing Law. The Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
15. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the Company and its respective successors and
assigns but the rights and obligations of Executive are personal and may not be
assigned or delegated without the Company's prior written consent.
Notwithstanding the preceding sentence, OLD RIG shall be permitted to assign all
of its obligations hereunder to RIG and such assignment shall be deemed to have
occurred upon the effectiveness of the consolidation of OLD RIG and RIGLP with
RIG (the "Assignment").
16. Counterparts. This Agreement, for the convenience of the
parties, may be executed in any number of counterparts, all of which when taken
together shall constitute one and the same Agreement.
17. Entire Agreement concerning Employment; Supremacy of
Employment Agreement. This Agreement constitutes the entire Agreement between
the parties as to Executive's employment and compensation therefor and
supersedes and replaces any and all agreements, written or oral, as to such
matters. This Agreement may not be modified or amended orally, but only by an
agreement in writing, signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. If there is any
conflict with respect to Executive between the provisions of this Agreement and
the provisions of either the bonus plan or the Stock Option Plan, as applicable,
the provisions of this Agreement shall govern.
18. Amendments. This Agreement may be amended only in writing,
signed by both parties.
- 7 -
<PAGE>
In witness whereof, Company has by its appropriate officers,
signed and affixed its seal and Executive has signed and sealed this Agreement,
to be effective as of the last date noted below.
OLD RIG, INC. EXECUTIVE
By:/s/ Andrew C. Florance /s/ Curtis M. Ricketts
------------------------------- -----------------------------
Name: Curtis M. Ricketts
Date: April 24, 1998 Date: April 24, 1998
----------------------------- ------------------------
Address:
-----------------------------
-----------------------------
Telephone/Fax:
-----------------------------
- 8 -
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated this 13th day of March, 1998, and
effective as of the Effective Date (defined below), by and between Realty
Information Group, Inc., a Delaware corporation (formerly known as "Realty
Information Group, Inc. (Delaware), Inc.") (the "Company"), Jamison Research
Incorporated ("JRI") and Henry D. Jamison, IV (the "Executive").
In connection with the Company's acquisition of all the shares
of JRI the Company desires to employ the Executive to devote full time to the
business of the Company and or JRI, and the Executive desires to be so employed.
The parties agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Executive, and
the Executive agrees to be so employed, in the capacity of Vice
President-Consulting Services and President of an entity likely to be named
Jamison Reports ("JR") , located in Atlanta, Georgia. The Executive shall
perform such functions and undertake such responsibilities as are assigned from
time to time by the President of the Company or the Board of Directors. The
Executive's employment shall be for a term of three years commencing on the
Effective Date of this Agreement.
2. TERMINATION OF PRIOR EMPLOYMENT AGREEMENTS. The Company and
the Executive agree that this agreement terminates and replaces any previous
employment agreements between the Executive and JRI including any resolutions or
oral understandings that might be construed to be a part of any such agreement,
subject to agreement between the Company, JRI and the Executive concerning the
settlement as Effective Date, of any amounts that may then be due and owing
under and in accordance with any such agreements. Upon that settlement, all
other agreements between the parties concerning employment are hereby terminated
and of no further force and effect, all without cost or charge to JRI or the
Company.
3. FULL TIME AND EFFORTS. Except as otherwise provided in this
Section 3, the Executive shall diligently and conscientiously devote his full
time, exclusive attention and best efforts to his duties as the Company's Vice
President-Consulting Services and President of JC. However, the Executive shall
be entitled to devote a reasonable amount of time to service with religious,
charitable and other non-profit organizations, to service on advisory boards and
boards of directors of trade associations, and to such other business entities
that do not compete with the business of the Company, to the extent that the
cumulative burden of such service does not, in the reasonable view of the
President of the Company, interfere with the Executive's primary responsibility
to the Company. The Executive shall keep the President of the Company apprised
of the fact and demands of each such activity.
4. COMPENSATION. Commencing as of the Effective Date of this
Agreement, the Company shall pay the Executive base compensation for his
services at an annual rate of one
<PAGE>
hundred thirty-five thousand dollars ($135,000) for the first full year. For the
second and third years, the Company shall pay the Executive base compensation
for his services at an annual rate of no less one hundred thirty-five thousand
dollars ($135,000), and the President of the Company in consultation with the
Compensation Committee of the Board of the company, will review the Executive's
performance and determine any appropriate increases. This base compensation
shall be paid in equal bi-weekly installments. In addition, the Executive shall
be eligible to earn an annual performance bonus (the "Annual Bonus") of up to
two hundred percent (200%) of his base salary pursuant to criteria negotiated
with the President and approved by the the Compensation Committee of the Board
of Directors of the Company. For the first year, the criteria for the Annual
Bonus will be that set forth in Appendix A to this Agreement. The Annual Bonus,
if any, shall be paid within 120 days of each anniversary of the Effective Date
hereof.
5. BENEFITS. The Executive shall be entitled to participate
in, and receive benefits from any insurance, medical, disability or pension plan
of the Company, and to other perquisites which may be in effect at any time
during the term hereof that are generally available to senior executive officers
of the Company. Copies of the current version of those policies are attached as
Schedule 5 to this Agreement.
6. EXPENSE REIMBURSEMENT. The Company shall reimburse the
Executive for all categories of reasonable and necessary expenses incurred in
carrying out his duties under this Agreement that are reimbursed to any other
Vice President of the Company. The Executive shall present to the Company from
time to time an itemized account of such expenses in any form required by the
Company. Such expenses shall be reimbursed within 30 days of submission of
appropriate documentation.
7. TERMINATION WITHOUT CAUSE.
(a) BY THE COMPANY. After the second anniversary of the
Effective Date of this Agreement, the Company may terminate this Agreement
without cause upon sixty (60) days written notice, however in that event (i) all
of the Executive's unvested options due to vest within the six months will vest
and (ii) the Executive will continue to receive over the term of this agreement,
as if he had not been terminated, all payments he would have received had he not
been terminated (and a pro rata share of any bonus, which shall be based upon
the number of days since the last anniversary, and the number remaining until
the next anniversary, of the Effective Date hereof) as severance and as
liquidated damages, subject to and in consideration of his execution of a
complete and absolute release of the Company and its officers and directors from
any and all further claims relating to his employment hereunder.
(b) BY THE EXECUTIVE. After the second anniversary of the
Effective Date of this Agreement, the Executive may without cause terminate this
Agreement, by giving one hundred twenty (120) days' written notice to the
Company. In such event, at the sole discretion of the Company, the Executive
shall continue to render all services and shall be paid
-2-
<PAGE>
the base compensation as provided by Section 4 up to the date of termination,
but shall not receive any bonus payment thereafter nor shall any stock option
that is not otherwise vested or nonforfeitable on the date of termination become
vested or nonforfeitable on such date.
8. TERMINATION AFTER MERGER OR ACQUISITION. In the event of
the merger of the Company or the acquisition, directly or indirectly, of all or
substantially all of the Company's assets or a controlling interest in the
voting shares of the Company by an unaffiliated party (a AChange of Control"),
the Executive may elect to treat that event as a termination without cause
unless the new party extends to him a reasonable offer to: (a) be retained by
the Company in an executive position of responsibility, authority and
compensation comparable in material respects (including location) to the
position of the Executive immediately prior to the Change of Control; (b) retain
all rights accorded under this Agreement; and (c) be afforded all privileges
accorded to other executives of the Company. If the Executive elects to be
terminated pursuant to such a Change of Control, then on the date the
termination becomes effective, any portion of any stock option awarded to the
Executive pursuant to any stock option plan not already vested shall become
fully vested.
9. TERMINATION FOR CAUSE. The Company may terminate this
Agreement for cause at any time by notifying the Executive of such termination
and the cause thereof; provided, however, that the only grounds constituting
cause shall be: (a) the Executive's death, (b) the Executive's prolonged
disability, (c) the Executive's gross negligence in the performance of his
duties hereunder, intentional nonperformance or mis-performance of such duties,
or refusal to abide by or comply with the reasonable and documented directives
of the Board, his superior officers, or the Company's material policies and
procedures, which actions continue for a period of at least ten (10) days after
receipt by Executive of written notice of the need to cure or cease; (d) the
Executive's willful dishonesty, fraud, or misconduct with respect to the
business or affairs of the Company and that, in the judgment of the Company,
materially and adversely affects the operations or reputation of the Company;
(e) the Executive's conviction of a felony involving moral turpitude; and (f)
the Executive's abuse of alcohol or drugs (legal or illegal) that, in the
Company's judgment, materially impairs the Executive's ability to perform his
duties hereunder. In any such event, the Executive will forfeit all unvested
options, all claims to bonuses not yet awarded and will be paid through the date
of the termination.
10. CONFIDENTIALITY, INVENTION AND NON-COMPETE AGREEMENT.
(a) During the term of this Agreement, and thereafter for
the duration of the period, if any, that the Executive continues to be employed
by the Company and/or any other entity owned by or affiliated with the Company
or on an "at will" basis, and thereafter for the Non-Competition Period (defined
below), the Executive shall not, directly or indirectly, for himself or on
behalf of or in conjunction with any other person, company, partnership,
corporation, business, group, or other entity (each, a " Person"):
(i) engage, as an officer, director, shareholder,
owner, partner, member, joint venturer, or in a managerial capacity, whether as
an employee, independent
-3-
<PAGE>
contractor, consultant, advisor, or sales representative, in any business
selling any products or services in direct competition with the Company in any
business selling any products or services in direct competition with Parent, in
the United States, Canada, the United Kingdom, or other nations in which the
Company is conducting or in which he was aware the Company had plans to conduct
business within the twelve months following his termination (the "Territory");
provided, however, that the foregoing covenant shall not be deemed to prohibit
the Executive from acquiring as an investment not more than one percent (1%) of
the capital stock of a competing business whose stock is traded on a national
securities exchange or over-the-counter;
(ii) call upon any Person who is, at that time, within
the Territory, an employee of the Company for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that
time, or has been, within one year prior to that time, a customer of the Company
within the Territory for the purpose of soliciting or selling products or
services in direct competition with the Company within the Territory; or
(iv) on the Executive's own behalf or on behalf of any
competitor, call upon any Person as a prospective acquisition candidate for an
entity other than the Company or its affiliates who or that, during the
Executive's employment by the Company was, to the Executive's knowledge, either
called upon by the Company as a prospective acquisition candidate or was the
subject of an acquisition analysis conducted by the Company. The Executive, to
the extent lacking the knowledge described in the preceding sentence, shall
immediately cease all contact with any prospective acquisition candidate upon
being informed that the Company had called upon such candidate or made an
acquisition analysis thereof.
(b) The Executive acknowledges that during the course of his
employment, he may develop and obtain access to trade secrets, proprietary
software and other "confidential business information" of the Company, such as
its software systems, sources of data, databases and other competitively
sensitive information kept in confidence by the Company such as selling and
pricing information and procedures, research methodologies, customer lists,
business and marketing plans, and internal financial statements. The Executive
agrees to not use or disclose any trade secrets, proprietary software or
confidential business information to which he is exposed or has access in the
course of his employment with the Company, even if elements of any of them may
belong to third parties, during his employment and for so long afterwards as the
Company seeks to maintain as confidential the proprietary software, trade
secrets or confidential business information, whether or not the software, trade
secrets and confidential business information are in written or tangible form,
except as required and authorized during the performance of the Executive's
duties for and with the Company. The Executive agrees that, given the nature of
the Company's business and business plans twenty-four (24) months is a
reasonable period during which disclosure of proprietary software, trade secrets
or confidential information would be injurious to the Company; and that there
will never come a time when
-4-
<PAGE>
disclosure of the Company's proprietary software would not be seriously
injurious to the Company.
(c) The Executive acknowledges that he has been employed by the
Company during its critical developmental and roll-out stages and that leaving
the employ of the Company to join any business competitor would seriously hamper
the business of the Company. Accordingly, the Executive agrees that the Company
shall be entitled to injunctive relief to prevent him from violating this
Section 10, in addition to all remedies permitted by law, to enforce the
provisions of this Agreement. The Executive further acknowledges that his
training, experience and technical skills are of such breadth that they can be
employed to the Executive's advantage in other areas which are not in direct
competition with the business of the Company on the date of termination of the
Executive's employment and consequently the foregoing obligations will not
unreasonably impair the Executive's ability to engage in business activity after
the termination of the Executive's employment.
(d) For purposes of this Section 10, the term "Company" shall
mean the Company and each of its subsidiaries and predecessors in interest; and
the term "Non-Competition Period" shall mean the period commencing on the
Effective Date to and including the second anniversary of the date on which the
Executive ceases to be employed by the Company (provided, however, that the
Non-Competition Period, during which the agreements and covenants of the
Executive made in this Section 10 shall be effective, shall be computed by
excluding from such computation any time during which the Executive is in
violation of any provision of this Section 10).
(e) The covenants in this Section 10 are severable and separate,
and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of this Section 10 relating
to the time period or geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or geographic area, as applicable, that such court deems reasonable and
enforceable, said time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and revised to reflect such
determination.
(f) All of the covenants in this Section 10 shall be construed as
an agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of the Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants.
11. NOTICES. All notices required or permitted to be given under this
Agreement shall be given by certified mail, return receipt requested, to the
parties at the
-5-
<PAGE>
following addresses or to such other addresses as either may designate in
writing to the other party.
If to the Company:
Michael R. Klein
Chairman of the Board
Realty Information Group
7475 Wisconsin Avenue
Sixth Floor
Bethesda, Maryland 20814
Telefax: 301-718-2444
If to the Executive:
Henry D. Jamison IV
Suite 100
1731 Commerce Drive
Atlanta, Georgia 30318
Telefax: 404-256-3486
12. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware.
13. AMENDMENTS. This Agreement may be amended only in writing,
signed by both parties.
14. NON-WAIVER. A delay or failure by either party to exercise
a right under this Agreement, or a partial or single exercise of that right,
shall no constitute a waiver of that or any other right.
15. ARBITRATION. Any and all disputes hereunder not resolved
amicably shall be resolved only through arbitration by a single member panel
under the auspices and pursuant to the rules of the American Arbitration
Association, or any mutually agreeable substitute. The arbitrator shall be
empowered to permit limited discovery and allocate expenses between the
prevailing and losing party as he or she deems appropriate.
16. BINDING EFFECT. The provisions of this Agreement shall be
binding upon and inure to the benefit of both parties and their respective
successors and assigns.
17. EFFECTIVENESS. This Agreement shall take effect
automatically upon the consummation of that certain Agreement and Plan of
Contribution, dated February 17, 1998, by and among the Company, the Executive,
JRI, OLD RIG, Inc.(formerly known as "Realty
-6-
<PAGE>
Information Group, Inc."), Realty Information Group, L.P. and Leslie Lees
Jamison. The consummation of such agreement is referred to herein as the
"Effective Date."
In witness whereof, Company has by its appropriate officers,
signed and affixed its seal and the Executive has signed and sealed this
Agreement.
REALTY INFORMATION GROUP, INC. HENRY D. JAMISON, IV
By:__________________________
By:_________________________
Date:________________________
Date:_______________________
JAMISON RESEARCH INCORPORATED
By:__________________________
Date:________________________
-7-
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 12, 1998 for Realty Information Group, Inc.,
February 10, 1998 for Realty Information Group, L.P., March 12, 1998 for OLD
RIG, Inc., and January 16, 1998 for Jamison Research, Inc., in Amendment No. 1
to the Registration Statement (Form S-1 No. 333-47953) and related Prospectus of
Realty Information Group, Inc. for the registration of 2,700,000 shares of its
common stock.
/s/ Ernst & Young LLP
Washington, D.C.
April 27, 1998
