AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1998
REGISTRATION NO. 333-47953
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 2
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.[ ]
--------------
<PAGE>
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 MAY 14, 1998
PROSPECTUS
2,700,000 SHARES
[GRAPHIC OMITTED]
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 risk 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., Grubb & Ellis, 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>
<PAGE>
<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>
<PAGE>
<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.
<PAGE>
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.
<PAGE>
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.
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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.
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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-
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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.
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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
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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
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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.
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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
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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
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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.,
Grubb & Ellis, 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.
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
33
<PAGE>
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 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
34
<PAGE>
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-35
Statements of Operations ....................................................... F-36
Balance Sheets ................................................................. F-37
Statements of Stockholders' Equity (Deficit) ................................... F-38
Statements of Cash Flows ....................................................... F-39
Notes to Financial Statements .................................................. F-40
</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. RIGINC 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
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------
PRO FORMA
ADJUSTMENTS PRO FORMA
JAMISON (SEE NOTE 3) COMBINED
------------- ------------------ -------------
<S> <C> <C> <C>
Revenues .......................................... $1,048,529 $ $3,887,552
Cost of revenues .................................. 357,104 275,000 (a) 1,536,432
---------- ------------ ----------
Gross margin ..................................... 691,425 (275,000) 2,351,120
Operating expenses ................................ 525,923 100,000 (a) 2,906,601
---------- ------------ ----------
Income (loss) from operations .................... 165,502 (375,000) (555,481)
Other income (expense) ............................ (61,613) 43,550 (b) (56,198)
Minority interest-net loss allocated to limited
partners of RIGLP ................................ -- (172,853)(c) --
---------- ------------ ----------
Net income (loss) ................................ $ 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..... -- 6,368,884 --
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
============== ============ ==============
</TABLE>
<PAGE>
<TABLE>
<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. The fair value of each
warrant 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 1 year. 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. In process research and development totaling $3,000,000
will be charged to equity at the time of the acquisition.
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
-------------- ------------
(UNAUDITED)
<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 SOP97-2 was not material in the financial statements of RIGLP. In March
1998, AcSEC issued SOP98-4 which defers for one year the implementation of
certain provision of SOP 97-2. The issuance of SOP 98-4 had no effect on RIGLP.
Pro Forma Loss Per Share
Pro Forma loss per share information is presented as if the Partnership had
operated as a C-Corporation for all periods presented. In February 1997, the
Financial 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>
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
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.
F-19
<PAGE>
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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.
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.
F-20
<PAGE>
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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.
F-21
<PAGE>
REALTY INFORMATION GROUP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE BENEFIT PLANS - (CONTINUED)
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>
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-22
<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.
March 12, 1998
F-23
<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)
========== =========== =========== ========== ==========
Pro forma loss per share:
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-24
<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 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 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
Minority interest-RIGLP Limited Partners' Equity ......... 7,797,460 6,537,606 6,368,884
Stockholders' Deficit:
Common stock, par value $.01 per share; 1,500,000
shares authorized; 1,023,029, 1,044,457 and 1,044,457
shares issued and outstanding at December 31, 1996,
December 31, 1997 and March 31, 1998, respectively 10,230 10,445 10,445
Additional paid in capital ............................... 5,009,116 5,308,901 5,308,901
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-25
<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 $ 8,878 $4,247,993 $ (4,744,299) $ (487,428)
Issuance of common stock ..................... 75,000 750 16,725 -- 17,475
Net loss ..................................... -- -- -- (636,096) (636,096)
------- ------- ---------- ------------ ------------
Balance at December 31, 1995 .................. 962,782 9,628 4,264,718 (5,380,395) (1,106,049)
Issuance of common stock ..................... 60,247 602 744,398 -- 745,000
Net loss ..................................... -- -- -- (1,766,764) (1,766,764)
------- ------- ---------- ------------ ------------
Balance at December 31, 1996 .................. 1,023,029 10,230 5,009,116 (7,147,159) (2,127,813)
Issuance of common stock ..................... 21,428 215 299,785 -- 300,000
Net loss ..................................... -- -- -- (1,792,294) (1,792,294)
--------- ------- ---------- ------------ ------------
Balance at December 31, 1997 .................. 1,044,457 10,445 5,308,901 (8,939,453) (3,620,107)
--------- ------- ---------- ------------ ------------
Net loss ..................................... -- -- -- (211,265) (211,265)
--------- ------- ---------- ------------ ------------
Balance at March 31, 1998 (unaudited) ......... 1,044,457 $10,445 $5,308,901 $ (9,150,718) $ (3,831,372)
========= ======= ========== ============ ============
</TABLE>
See accompanying notes.
F-26
<PAGE>
OLD RIG, INC.
CONSOLIDATED 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-27
<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. In addition, on May 23,
1996, RIGINC was re-incorporated as a Delaware corporation, changing authorized
common stock to 1,500,000 shares at a par value of $.01 per share. Accordingly,
common stock and additional paid-in capital accounts have been reclassified to
reflect this change for all periods presented.
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.
F-28
<PAGE>
OLD RIG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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. 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, 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. 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.
F-29
<PAGE>
OLD RIG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 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 earning 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.
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, RIGINC had no item of comprehensive income and,
according, 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 1988. 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.
F-30
<PAGE>
OLD RIG, INC.
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 24,659
----------- ----------- ----------
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.
F-31
<PAGE>
OLD RIG, INC.
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.
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 shares amounts and transactions have
been restated to refelect the split 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-32
<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-33
<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. PRO FORMA LOSS PER SHARE
The following table sets forth the computation of pro forma basic and
diluted loss per share. Shares presented give effect to the contribution of
RIGINC shares in exchange for Realty Information Group, Inc. shares at a rate of
3.113 per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -----------------------------
1995 1996 1997 1997 1998
-------------- ---------------- ---------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss ................................. $ (636,096) $ (1,766,764) $ (1,792,294) $ (418,806) $ (211,265)
---------- ------------ ------------ ---------- ----------
Denominator:
Denominator for basic loss per share--
weighted-average shares ................ 2,919,315 3,028,399 3,229,160 3,184,689 3,251,395
---------- ------------ ------------ ---------- ----------
Dilutive potential common shares ......... -- -- -- -- --
Denominator for diluted loss per
share--adjusted weighted-average
shares and assumed conversions ......... 2,919,315 3,028,399 3,229,160 3,184,689 3,251,395
---------- ------------ ------------ ---------- ----------
Pro forma basic loss per share ............ $ (0.22) $ (0.58) $ (0.56) $ (0.13) $ (0.06)
---------- ------------ ------------ ---------- ----------
Pro forma diluted loss per share .......... $ (0.22) $ (0.58) $ (0.56) $ (0.13) $ (0.06)
---------- ------------ ------------ ---------- ----------
</TABLE>
11. 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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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.
Unaudited Interim Statements
The 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.
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.
F-40
<PAGE>
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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.
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 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, Jamison had no item 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 Review 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-41
<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:
<TABLE>
<S> <C>
1998 ........................ $ 170,200
1999 ........................ 146,000
2000 ........................ 145,100
2001 ........................ 143,300
2002 and thereafter ......... --
---------
$ 604,600
=========
</TABLE>
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-42
<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.
F-43
<PAGE>
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- ----------------------------
1996 1997 1997 1998
-------------- ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) .......................... $ (217,567) $ (5,401) $ (5,924) $ 103,889
---------- -------- -------- ---------
Denominator:
Denominator for basic earnings per share--
weighted-average shares .................. 9,000 9,000 9,000 9,000
Dilutive potential common shares ........... -- -- -- --
Denominator for diluted earnings per share--
adjusted weighted-average shares and as-
sumed conversions ........................ 9,000 9,000 9,000 9,000
Basic income (loss) per share ............... $ (24.17) $ (0.60) $ (0.66) $ 11.54
Diluted income (loss) per share ............. $ (24.17) $ (0.60) $ (0.66) $ 11.54
---------- -------- -------- ---------
</TABLE>
8. 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>
================================================================================
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE 2,700,000 Shares
CONTAINED IN THIS PROSPECTUS, AND IF
GIVEN OR MADE, SUCH INFORMATION OR
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 [GRAPHIC OMITTED]
UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE Common Stock
DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES 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.
-----------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ................... 3 ----------------------
Risk Factors ......................... 9
Use of Proceeds ...................... 14 PROSPECTUS
Dividend Policy ...................... 14
Capitalization ....................... 15 ----------------------
Dilution ............................. 16
Selected Consolidated Financial and
Operating Data .................... 17
Management's Discussion and Analysis . 19
Business ............................. 26
Management ........................... 36
Jamison Selling Stockholders ......... 41
Principal Stockholders ............... 42
Certain Transactions ................. 43
Description of Capital Stock ......... 44
Shares Eligible for Future Sale ...... 46
Underwriting ......................... 48
Legal Matters ........................ 49
Experts .............................. 49
Additional Information ............... 50
Index to Financial Statements ........ F-1
------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF ALLEN & COMPANY
THIS PROSPECTUS), ALL DEALERS EFFECTING INCORPORATED
TRANSACTIONS IN THE COMMON STOCK OFFERED
HEREBY, WHETHER OR NOT PARTICIPATING IN NEEDHAM & COMPANY, INC.
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 ,1998
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
<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. 2 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 14th day of May, 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. 2 to the Registration Statement has been signed by the
following persons in the capacities indicated on May 14, 1998.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
* Chairman of the Board May 14, 1998
- ------------------------------
Michael R. Klein
/s/ Andrew C. Florance Chief Executive Officer and President, May 14, 1998
- ------------------------------ and a Director
Andrew C. Florance (Principal Executive Officer)
* Chief Financial Officer May 14, 1998
- ------------------------------ (Chief Financial and Accounting
Frank A. Carchedi Officer)
* Director May 14, 1998
- ------------------------------
David Bonderman
* Director May 14, 1998
- ------------------------------
Warren H. Haber
* Director May 14, 1998
- ------------------------------
John Simon
*
- ------------------------------ Director May 14, 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>
EXHIBIT DESCRIPTIONS
------- ------------
<S> <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 Incentive 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.
REALTY INFORMATION GROUP, L.P.
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
entered into as of December 3, 1996 by and among Realty Information Group, L.P.,
a Delaware limited partnership (together with its successors and assigns,
including a corporate successor entity, the "Company"), Realty Information
Group, Inc., a Delaware corporation and the general partner of the Company (the
"General Partner"), Founders/RIG, L.L.C., a Delaware limited liability company
and a limited partner of the Company (together with its members and their
successors and assigns, "Founders LLC"), Law Bulletin Publishing Company, a
Delaware corporation (together with its shareholders and their successors and
assigns, "LBPC"), and RIG Holdings, LLC, a Delaware limited liability company
and a limited partner of the Company (together with its members and their
successors and assigns,"RH LLC" and, together with Founders LLC and LBPC, the
"Investors").
RECITALS
--------
WHEREAS, the Company and Founders LLC have entered into an
Agreement Relating to Investments in the General Partner, and its Affiliated
Limited Partnership dated May 15, 1995 (as the same may be amended, modified or
supplemented from time to time, the "Founders Purchase Agreement"), providing
for the issuance, delivery and sale of limited partnership interests of the
Company; and
WHEREAS, the Company and LBPC have entered into an Agreement
Relating to the Acquisition by the Company of Substantially all the Assets and
Liabilities of Chicago Resource and the Investment by Law Bulletin Publishing
Company in Units of the Company, dated March 29, 1996 (as the same may be
amended, modified or supplemented from time to time, the "LBPC Purchase
Agreement"), providing for the issuance, delivery and sale of limited
partnership interests of the Company; and
WHEREAS, the Company and Allen LLC are simultaneously herewith
entering into a Purchase Agreement (as the same may be amended, modified or
supplemented from time to time, the "RH Purchase Agreement" and, together with
the Founders Purchase Agreement and the LBPC Purchase Agreement, the "Purchase
Agreements"), providing for the issuance, delivery and sale by the Company of
limited partnership interests of the Company; and
WHEREAS, the parties hereto agree that they would all be
better served if certain provisions in the Founders Purchase Agreement and LBPC
Purchase Agreement were eliminated and addressed in a different manner in a
master form of registration rights agreement providing for certain rights to
Founders LLC, LBPC, and Allen LLC; and
<PAGE>
WHEREAS, in order to induce Allen LLC to enter into the RH
Purchase Agreement and to induce Founders LLC and LBPC to terminate certain
provisions of the Founders Purchase Agreement and LBPC Purchase Agreement,
respectively, the Company and the General Partner have agreed, subject to the
terms set forth herein, to cause the Company to be converted to a C corporation
so that common stock would be issued in exchange for the limited partnership
interests of the Company (the "Limited Partnership Interests") and to register
the shares of such common stock (the "Common Shares") pursuant to a registration
statement filed with the U.S. Securities and Exchange Commission upon the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual premises,
covenants and conditions set forth herein, the parties hereby agree as follows:
1. Definitions. Capitalized terms used herein without
definition shall have the meanings assigned to such terms in the Purchase
Agreements. For the purposes of this Agreement:
"Commission" means the U.S. Securities and Exchange
Commission or any other governmental authority from time to
time administering the Securities Act.
"Common Shares" means shares of common stock of the
Corporation or issuable pursuant in exchange for Limited
Partnership Interests pursuant to an Incorporation
Transaction.
"Corporation" means the corporation into which the
Company is converted in an Incorporation Transaction.
"Exchange Act" means the Securities Exchange Act of
1934, as amended or any similar federal statute and the rules
and the regulations of the Commission promulgated thereunder,
all as the same shall be in effect from time to time.
"Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in
accordance with Section 10 hereof.
"Incorporation Transaction" means a transaction,
however effected, in which the Company is converted into a C
corporation.
"Initial Public Offering" shall mean the initial
public offering of Common Shares by the Company.
"Register," "Registered," and "Registration" refer
to a Registration effected by preparing and filing a
Registration Statement or similar document in compliance
2
<PAGE>
with the Securities Act, and the declaration or ordering of
effectiveness of such Registrant on Statement or Document.
"Registrable Securities" means (i) as applied to a
holder of Limited Partnership Interests, the Common Shares
issuable in exchange therefor in an Incorporation Transaction,
(ii) the Common Shares and (iii) any common stock of the
Corporation issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of, the
Common Shares. As to any particular Registrable Securities,
such securities shall cease to be Registrable Securities when
(a) a Registration Statement with respect to the sale of such
securities shall have become effective under the Securities
Act and such securities shall have been transferred in
accordance with such Registration Statement, (b) they shall
have been sold as permitted by Rule 144 (or any successor
provision) under the Securities Act, or provided that at the
time such securities are proposed to be sold, they may be sold
under Rule 144 without any limitation on the amount of such
securities which may be sold or (c) they shall have ceased to
be outstanding.
"Registration Expenses" means all expenses incident
to the Company's performance of or compliance with Article 2
and 3, including, without limitation, (a) the conversion of
the Company to a Corporation, however effected, (b) any
allocation of salaries and expenses of Company personnel or
other general overhead expenses of the Company, or other
expenses for the preparation of historical and pro forma
financial statements or other data normally prepared by the
Company in the ordinary course of business; (c) all
Registration, application, filing, transfer fees, exchange
listing fees, and register fees; (d) all NASD fees and fees
and expenses of Registration or qualification of Registrable
Securities under state securities or blue sky laws; (e) all
word processing, duplicating and printing expenses, messenger
and delivery expenses; (f) the fees and expenses of counsel
for the Company, the fees and expenses of one counsel selected
by the Selling Holders to represent the Selling Holders up to
a maximum of $10,000 and the fees of the Company's independent
accountants, including the expenses of customary "cold
comfort" letters required by or incident to such performance
and compliance; and (g) any fees and disbursements of
underwriters and broker-dealers customarily paid by issuers or
sellers of securities; provided, however, that in all cases in
which the Company is required to pay Registration Expenses
hereunder, Registration Expenses shall exclude underwriting
discounts, selling commissions, and the fees and expenses of
Selling Holders' own counsel (other than the counsel selected
to represent all Selling Holders).
"Securities Act" means the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and
regulations of the Commission promulgated thereunder, all as
the same shall be in effect from time to time.
3
<PAGE>
"Selling Holder" means any Holder that has requested
inclusion of Registrable Securities held by such Holder in
either a Demand Registration or a Registration by the Company
pursuant to Section 3 hereof.
2. Demand Registration.
(a) Request for Registration. At any time after the first to
occur of (i) an Initial Public Offering or (ii) December 3, 1998, either Allen
LLC or Founders LLC may request that the Company be converted into a C
corporation (if not already so converted) and effect a Registration under the
Securities Act of all or part of its Registrable Securities on Form S-1 or any
similar long-form Registration (a "Long-Form Demand Registration") or on Form
S-3 or any similar short-form Registration (a "Short-Form Demand Registration"),
if available. A request for Registration pursuant to this Section 2 (a "Demand
Registration") shall specify the approximate number of Registrable Securities
requested to be Registered and the anticipated per share price range for such
offering. If Allen LLC or Founders LLC, as the case may be, intends to
distribute the Registrable Securities by means of an underwriting, it shall so
advise the Company in its request. In the event such Registration is
underwritten, the right of other Selling Holders to participate shall be
conditioned on such Selling Holders, participation in such underwriting. Upon
receipt of any such request, the Company shall promptly give written notice of
such proposed registration to all Holders. Such Holders shall have the right, by
giving written notice to the Company within twenty (20) days after the Company
provides its notice, to elect to have included in such Registration such of
their Registrable Securities as such Holders may request in such notice of
election. Thereupon, the Company shall, as expeditiously as possible, use
commercially reasonable efforts to convert the Company to a C corporation (if it
has not already done so) and to effect the Registration, of all Registrable
Securities that the Company has been requested to so register provided that if
the underwriter (if any) managing the offering determines that, because of
marketing factors, all of the Registrable Securities requested to be registered
by all Holders may not be included in the offering, then all Holders who have
requested Registration shall participate in the offering pro rata based upon the
number of Registrable Securities that they have requested to be so registered.
(b) Registration Statement Form. Registrations under this
Section 2 shall be on such appropriate Registration form of the Commission as
shall be selected by the Company and available to it under the Securities Act.
The Company agrees to include in any such Registration Statement all information
which, in the opinion of counsel to the Selling Holders and counsel to the
Company, is required to be included therein under the Securities Act.
(c) Limitations on Registration. The Company shall not be
required to effect more than two (2) Demand Registrations pursuant to this
Section 2 at the request of Allen LLC and not more than one (1) Demand
Registration pursuant to this Section 2 at the request of Founders LLC. The
Company shall not be required to effect any Demand Registration within a period
of 90 days after the effective date of any other Registration effected pursuant
to Section 2.
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<PAGE>
(d) Priority on Demand Registrations. The Company may, subject
to Section 2(g), elect to include in any Registration Statement made pursuant to
Section 2, authorized but unissued Common Shares or Common Shares held as
treasury stock.
(e) Effective Registration Statement. A Demand Registration
shall not be deemed to have been effected (i) unless a Registration Statement
with respect thereto has become effective, (ii) if after it has become
effective, such Registration is interfered with by any stop order, injunction or
other order requirement of the Commission or other governmental agency or court
for any reason not attributable to the Selling Holders and has not thereafter
become effective, or (iii) if the conditions to closing specified in the
underwriting agreement, if any, entered into in connection with such
Registration are not satisfied or waived, other than by reason of a failure on
the part of the Selling Holders.
(f) Suspension. If the Board of Directors of the Company, in
its good faith judgment, determines that any Registration of Common Shares
should not be made or continued because it would materially interfere with any
material financing, acquisition, corporation reorganization, merger, or other
transaction involving the Company or any of its subsidiaries (a "Valid Business
Reason"), (i) the Company may postpone filing a Registration Statement relating
to a Demand Registration until such Valid Business Reason no longer exists, but
in no event for more than 90 days, and (ii) in case a Registration Statement has
been filed relating to a Demand Registration, if the Valid Business Reason has
not resulted from actions taken by the Company, the Company may cause such
Registration Statement to be withdrawn and its effectiveness terminated or may
postpone amending or supplementing such Registration Statement until such Valid
Business Reason no longer exists, but in no event for more than 90 days (the
"Postponement Period"); provided, however, that in no event shall the Company be
permitted to postpone or withdraw a Registration Statement within 120 days after
the expiration of Postponement Period.
(g) Allocation. If any Demand Registration involves an
underwritten offering and the managing underwriter of such offering shall advise
the Company that, in its view, the number of securities requested to be included
in such Registration exceeds the largest number (the "Section 2(g) Number") that
can be sold in an orderly manner in such offering within a price range
acceptable to the Selling Holders, the Company shall include in such
Registration:
(i) first, all Common Shares requested to be included in
such Registration by the Selling Holders; provided, however, that, if the number
of such Common Shares exceeds the Section 2(g) Number, the number of such Common
Shares (not to exceed the Section 2(g) Number) shall be allocated to the Selling
Holders; provided, further, however, that if the number of Common Shares
requested to be included by all Selling Holders exceeds the Section 2(g) Number,
then the number of such Common Shares included in such Registration shall be
allocated on a pro rata basis among all Selling Holders requesting that Common
Shares be included in such registration, based on the number of Common Shares
then owned by each Selling Holder requesting inclusion in relating to the number
of Common Shares then owned by all Selling Holders requesting inclusion; and
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<PAGE>
(ii) second, to the extent that the number of Common
Shares to be included by all Selling Holders is less than the Section 2(g)
Number, securities that the Company proposes to register.
3. Company Registration.
(a) Inclusion in Company Registration. Whenever the Company
proposes to file a Registration Statement (other than pursuant to Section 2 or a
Registration relating solely to the sale of securities to participants in a
Company stock plan, or on Form S-4 with respect to any merger, consolidation or
acquisition) at any time and from time to time (a "Company Registration"), it
will, prior to such filing, give written notice to all Holders of its intention
to do so and, upon the written request; of a Holder or folders given within
twenty (20) days after the Company provides such notice (which request shall
state the intended method of disposition of such Registration Securities), the
Company shall use commercially reasonable efforts to cause all Registrable
Securities Act the Company has been requested by such Holder or Holders to
register to be registered under the Securities Act to the extent necessary to
permit their sale or other disposition in accordance with the intended methods
of distribution specified in the request or such Holder or Holders; provided
that the Company shall have the right to postpone or withdraw any registration
effected pursuant to this Section 3 without obligation to any Holder.
(b) Term. In connection with any offering under this Section 3
involving an underwriting, the Company shall not be required to include any
Registrable Securities in such offering unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it provided that such terms must be consistent with
this Agreement), and then only in such quantity as will not, in the opinion of
the underwriters, jeopardize the success of the offering by the Company.
(c) Allocation. If any Company Registration involves an
underwritten offering and the managing underwriter of such offering shall advise
the Company that, in its view, the number of securities requested to be included
in such Registration exceeds the largest number (the "Section 3(c) Number") that
can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company shall include in such Registration:
(i) first, all Common Shares that the Company
proposes to register for its own account (the "Company Securities"); and
(ii) second, to the extent that the number of Company
Securities is less than the Section 3(c) Number, the remaining shares to be
included in such registration shall be allocated on a pro rata basis among all
Selling Holders requesting that Common Shares be included in such registration,
based on the number of Common Shares then owned by each Selling Holder
requesting inclusion in relation to the number of Common Shares then owned by
all Selling Holders requesting inclusion.
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<PAGE>
4. Allocation of Expenses. The Company will pay all
Registration Expenses of all Registrations under this Agreement; provided,
however, that if a Registration under Section 2 is withdrawn at the request of
the Requesting Holder requesting such Registration (other than as a result of
information concerning the business or financial condition of the Company that
is made known to the Holders after the date on which such Registration was
requested) and if the requesting Holder elects not to have such Registration
counted as a registration requested under Section 2, the requesting Holder shall
pay the Registration Expenses of such registration pro rata in accordance with
the number of their Registrable Securities included in such Registration.
5. Obligations of the Company. Whenever required under this
Agreement to effect the Registration of any Registrable Securities under this
Agreement, the Company shall, as expeditiously as reasonably possible:
(a) file with the Commission a Registration Statement with
respect to such Registrable Securities and use commercially reasonable efforts
to cause that Registration Statement to become and remain effective;
(b) prepare and file with the Commission any amendments and
supplements to the Registration Statement and the prospectus included in the
Registration Statement as may be necessary to keep the Registration Statement
effective for up to six months, in the case of a Long- Form Demand Registration,
and one year in the case of a Short-Form Demand Registration, or, if occurring
sooner, until the date on which the distribution of the Registrable Securities
shall be completed;
(c) furnish to each Selling Holder such reasonable numbers of
copies of the prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as the Selling
Holder may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by the Selling Holder; provided,
that if the Company has delivered preliminary or final prospectuses to the
Selling Holders and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, the Company shall promptly notify
the Selling Holders and, if requested, the Selling Holders shall immediately
cease making offers of Registrable Securities and return all prospectuses to the
Company. The Company shall promptly provide the Selling Holders with revised
prospectuses and, following receipt of the revised prospectuses, the Selling
Holders shall be free to resume making offers of the Registrable Securities;
(d) use commercially reasonable efforts to register or qualify
the Registrable Securities covered by the Registration Statement under the
securities or Blue Sky laws of such states as the Selling Holders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Selling Holders to consummate the public
sale or other disposition in such states of the Registrable Securities owned by
the Selling Holder;
(e) in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing
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<PAGE>
underwriter of such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such agreement; and
(f) notify each Holder of Registrable Securities covered by
such Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
6. Certain Obligations of Holders.
(a) It shall be a condition precedent to the
obligations of the Company to take any action under this Agreement with respect
to the Registrable Securities of any Selling Holder that such Holder shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the Intended method of disposition of such securities
as shall be required to effect the Registration of such Holder's Registrable
Securities.
(b) Each Holder of Registrable Securities covered by
a Registration Statement agrees that, upon receipt of any notice from the
Company under Section 5.(f) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to such Registration Statement
until such Holder's receipt of copies of a supplemented or amended prospectus
covering such Registrable Securities, and, if so directed by the Company, such
Holder will deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of its receipt of such
notice.
7. Indemnification and Contribution. In the event of any
Registrar on of any of the Registrable Securities under the Securities Act
pursuant to this agreement, the Company will indemnify and hold harmless the
Selling Holder of such Registrable Securities, each underwriter of such
Registrable Securities, and each other person, if any, who controls such Selling
Holder or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities, joint or several, to
which such Selling Holder, underwriter, or controlling person may become subject
under the Securities Act, the Exchange Act, state securities or Blue Sky laws,
or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Securities were registered under the
Securities Act, any preliminary prospectus, or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such Selling
Holder, underwriter, and each such controlling person in connection with
investigation or defending any such loss, claim, damage, liability, or action;
provided, however, that the Company will not be liable in any such case to the
8
<PAGE>
extent that any such loss, claim, damage, or liability arises out of or is based
upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus, or final prospectus, or any such amendment or
supplement, in reliance upon and in conformity with information furnished to the
Company, in writing, by or on behalf of such Selling Holder, underwriter, or
controlling person specifically for use in the preparation thereof.
In the event of any Registration of any of the Registrable
Securities under the Securities Act pursuant to this Agreement, each Selling
Holder of Registrable Securities, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors and officers and each
underwriters (if any) and each person, if any, who controls the Company or any
such underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities, joint or several, to which
the Company, such directors and officers, underwriter, or controlling person may
become subject under the Securities Act, Exchange Act, state securities or Blue
Sky laws, or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material act contained n any
Registration Statement under which such Registrable Securities were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to the
Registration Statement, or arise out of or are based upon any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if the statement or
omission was made in reliance upon and in conformity with information relating
to such Selling Holder furnished in writing to the Company by or on behalf of
such Selling Holder specifically for use in connection with the preparation of
such Registration Statement, prospectus, amendment, or supplement; provided,
however, that the obligations of each selling Holder hereunder shall be limited
to an amount equal to the proceeds to such selling Holder of Registrable
Securities sold in connection with such Registration.
Each party entitled to indemnification under this Section 7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 7. The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation, shall except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigations, and no Indemnified Party
shall
9
<PAGE>
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 7 but it is Judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 7 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such Selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 7; then, in each such case, the Company and such
Selling Holder will contribute to the aggregate losses, claims, damages, or
liabilities to which they may be subject (after contribution from others) in
such proportions so that such holder is responsible for the portion represented
by the percentage that the public offering price of its Registrable Securities
offered by the Registration Statement bears to the public offering price of all
securities offered by such Registration Statement, and the Company is
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the proceeds to it of all Registrable Securities sold by it pursuant to such
Registration Statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Securities Act,
shall be entitled to contribution from any person or entity who is not guilty of
such fraudulent misrepresentation.
8. Indemnification with Respect to Underwritten Offering. In
the event that Registrable Securities are sold pursuant to a Registration
Statement in an underwritten offering, the Company agrees to enter into an
underwriting agreement containing customary representations and warranties with
respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including without limitation customary provisions with respect to
indemnification by the Company of the underwriters of such offering.
9. Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the Commission that may
at any time permit a Holder to sell securities of the Company to the public
without Registration, the Company agrees to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the
Securities Act, at all times following the ninetieth (90th)
day after the effective date of the first Registration
Statement filed by the Company for the offering of its
securities to the general public;
10
<PAGE>
(b) file with the Commission in a timely manner all
reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to any Holder, so long as such Holder
owns any Registrable Securities, forthwith upon request (i) a
written statement by the Company that it has complied with the
reporting requirements of Rule 144 under the Securities Act at
any time following the ninetieth (90th) day after the
effective date of the first Registration Statement tiled by
the Company), the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any
Holder of any rule or regulation of the Commission which
permits the selling of any such securities without
Registration or pursuant to such form.
10. Transfer of Registration Rights. The Registration rights
of any Holder under this Agreement may not be transferred except (i) as to any
Investor, to any Affiliate of such Investor, or (ii) to any person who is a
Permitted Transferee (as such term is defined in the Limited Partnership
Agreement of the Company) of that number of Common Shares (or a number of
Limited Partnership Interests exchangeable for that number of Common Shares)
representing not less than one percent (1%) of the aggregate common equity of
the Company outstanding (on a fully-diluted basis) at the time of such transfer;
provided, however, that the Company is given written notice from such Investor
at the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which the rights hereunder are being
transferred. As a condition to the effectiveness of any transfer permitted
hereunder (i) the transferee shall agree, in writing, upon request of the
Company, to be bound by the provisions of this Agreement, and (ii) the Company
shall be given written notice at the time of or within a reasonable time after
said transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such Registration rights are
being assigned.
11. Allocation of Rights to Member of an Investor.
Notwithstanding anything to the contrary herein, it is understood and agreed by
the parties that the members of Allen r LC and Founders LLC are currently the
ultimate beneficial owners of the Limited Partnership Interests held by each
such Investor and the rights contained herein. At the direction of any Investor
upon any Incorporation Transaction, the Company shall issue the Common Shares
issuable in exchange for the Limited Partnership Interests directly to such
members of the Investor in such amounts as the Investor shall specify in lieu of
issuing such Common Shares to the Investor. Thereafter, for all intents and
purposes hereunder, such members shall be deemed Holders as provided herein
without further action and shall have the rights and obligations as provided
herein.
12. "Stand-Off" Agreement. Each Holder, if requested by the
Company and an underwriter of Common Stock or other securities of the Company,
shall agree not to sell or
11
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otherwise transfer or dispose of any Registrable Securities or other securities
of the Company held by such Holder for a specified period of time (not to exceed
120 days) following the effective date of a Registration Statement; provided,
that:
(a) such agreement shall only apply to the first such
Registration Statement covering Common Stock of the Company to be sold on its
behalf to the public in an underwritten offering; and
(b) all other holders of similar securities holding not less
than the number of such securities held by such Holder (including shares of
Common Shares issuable in exchange for the Limited Partnership Interests and
issuable upon the conversion of convertible securities, or upon the exercise of
options, warrants or rights) and all officers and directors of the Company enter
into similar agreements.
13. Amendments to Founders Purchase Agreement and LBPC
Purchase Agreement. The Founders Purchase Agreement is hereby amended by
deleting in its entirety Article VIII thereof which Article shall be of no
further force or effect. The LBPC Purchase Agreement is hereby amended by
deleting in its entirety Article VI thereof which Article shall be of no further
force or effect.
14. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the Holders in this Agreement.
(b) Adjustments Affecting Registrable Securities. The Company
will not take any action, or permit any change to occur, with respect to its
securities that would adversely affect the ability of the Holders to include
such Registrable Securities in a Registration undertaken pursuant to this
Agreement or which would adversely affect the marketability of such Registrable
Securities in any such Registration (including, without limitation, effecting a
stock split or a combination of shares).
(c) Specific Performance; Other Rights. The parties recognize
that various of the rights of the Investors under this Agreement are unique and,
accordingly, the Investors shall, in addition to such other remedies as may be
available to any of them at law or in equity, have the right to enforce their
rights hereunder by actions for injunctive relief and specific performance to
the extent permitted by law. The Company hereby waives any requirement for
security or the posting of any bond in connection with any temporary or
permanent award of injunctive, mandatory or other equitable relief.
(d) Successors and Assigns. Except as otherwise set forth
herein, all covenants, agreements and representations made herein shall bind and
inure to the benefit of each party hereto, and their respective successors and
assigns.
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(e) Notices and Communications. All notices and other
communications which by any provision of this Agreement are required or
permitted to be given shall be given in writing and shall be (i) mailed by first
class or express mail, postage prepaid, (ii) sent by telex, telegram or telecopy
confirmed by mailing (by first class or express mail, postage prepaid) written
confirmation at substantially the same time as such rapid transmission, or (iii)
personally delivered to an officer of the receiving party. All such
communications shall be mailed, sent or delivered to the notice address then
applicable under the Company's Agreement of Limited Partnership.
A notice delivered in person shall be effective when given; a
notice sent by mail shall not become effective until received by the person to
whom it is given, unless it is mailed by registered mail, in which case it shall
be deemed effective on the earlier of the date of receipt or the third business
day after it has been mailed; a notice sent by telex, telegram or telecopy shall
be deemed to be given when receipt of such transmission is acknowledged.
(f) Amendments and Waivers. Any provision of this Agreement to
the contrary notwithstanding, changes in or additions to this Agreement may only
be made, and compliance with any term, covenant, agreement, condition or
provision set forth herein may only be omitted or waived (either generally or in
a particular instance and either retroactively or prospectively), with the
consent in writing of the Holders of 75% of Registrable Securities.
(g) Headings; Counterparts. Headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument .
(h) Gender. Whenever used herein the singular number shall
include the plural, the plural shall include the singular, and the use of any
gender shall include all genders.
(i) Further Assurances. Each of the parties hereto agrees to
execute and deliver those writings and documents reasonably required to more
fully carry out the purposes of this Agreement and the transactions contemplated
hereby.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed under seal by their respective duly authorized officers as of the
day and year first above written.
REALTY INFORMATION GROUP, L.P.
By: Realty Information Group, Inc.
General Partner
By:
------------------------------------
Name:
Title:
REALTY INFORMATION GROUP, INC.
By:
---------------------------------------------
Name:
Title:
FOUNDERS/RIG, L.L.C.
By:
---------------------------------------------
Name:
Title:
RIG HOLDINGS, LLC
By: Allen & Company Incorporated
Member
By:
---------------------------------------------
Name:
Title:
LAW BULLETIN PUBLISHING COMPANY
By:
---------------------------------------------
Name:
Title:
14
AGREEMENT AND PLAN OF CONTRIBUTION
BY AND AMONG
REALTY INFORMATION GROUP, INC.
AND
THE LIMITED PARTERS OF REALTY INFORMATION GROUP, L.P. NAMED HEREIN
AND
THE STOCKHOLDERS OF OLD RIG, INC. NAMED HEREIN
EFFECTIVE AS OF MARCH 5, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I.
PLAN OF CONTRIBUTION...........................................................2
1.1 THE CONTRIBUTION.............................................2
1.2 CONSIDERATION................................................2
1.3 OWNERS' REPRESENTATIVE.......................................3
1.4 ACCOUNTING TERMS.............................................3
ARTICLE II.
CLOSING........................................................................3
2.1 LOCATION AND DATE............................................3
2.2 DELIVERIES...................................................4
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE .........................................4
3.1 DUE ORGANIZATION.............................................4
3.2 AUTHORIZATION; VALIDITY......................................5
3.3 NO CONFLICTS.................................................5
3.4 CAPITAL STOCK................................................5
3.5 ABSENCE OF CLAIMS AGAINST COMPANY............................6
3.6 SECURITIES REPRESENTATIONS...................................6
ARTICLE IV.
REPRESENTATIONS OF PARENT.....................................................6
4.1 DUE ORGANIZATION.............................................6
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS.......................6
4.3 NO CONFLICTS.................................................7
4.4 CAPITALIZATION OF PARENT AND OWNERSHIP OF PARENT STOCK.......7
ARTICLE V.
COVENANTS......................................................................8
5.1 COOPERATION..................................................8
5.2 NOTIFICATION OF CERTAIN MATTERS..............................8
<PAGE>
5.3 TERMINATION OF CERTAIN AGREEMENTS............................8
5.4 AMENDMENT OF REGISTRATION RIGHTS.............................8
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT..................................9
6.1 NO LITIGATION................................................9
6.2 CONSENTS AND APPROVALS.......................................9
6.3 REGISTRATION STATEMENT.......................................9
6.4 IPO..........................................................9
6.5 TENDER.......................................................9
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CONTRIBUTING
PARTIES.......................................................................10
7.1 NO LITIGATION...............................................10
7.2 CONSENTS AND APPROVALS......................................10
7.3 REGISTRATION STATEMENT......................................10
7.4 IPO.........................................................10
7.5 LEGAL OPINION...............................................10
ARTICLE VIII.
GENERAL.......................................................................11
8.1 TERMINATION.................................................11
8.2 EFFECT OF TERMINATION.......................................11
8.3 SUCCESSORS AND ASSIGNS......................................11
8.4 ENTIRE AGREEMENT; AMENDMENT; WAIVER.........................12
8.5 COUNTERPARTS................................................12
8.6 BROKERS AND AGENTS..........................................12
8.7 NOTICES.....................................................12
8.8 GOVERNING LAW...............................................13
8.9 SEVERABILITY................................................14
8.10 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS...................14
8.11 FURTHER REPRESENTATIONS.....................................14
8.12 EFFECTIVENESS OF REPRESENTATIONS WARRANTIES. ...............15
ii
<PAGE>
AGREEMENT AND PLAN OF CONTRIBUTION
THIS AGREEMENT AND PLAN OF CONTRIBUTION (the "Agreement") is made and
effective as of this 5th day of March, 1998, by and among Realty Information
Group, Inc., a Delaware corporation ("Parent"), formerly known as Realty
Information Group (Delaware), Inc., the undersigned limited partners of Realty
Information Group, L.P. (the "Contributing Partners"), and the undersigned
stockholders of OLD RIG, Inc. (the "Contributing Stockholders" and, collectively
with the Contributing Partners, the "Contributing Parties"), formerly known as
Realty Information Group, Inc.
BACKGROUND
A. Parent was incorporated on February 2, 1998 (the "Formation") under the
laws of the State of Delaware for the purpose of acquiring certain commercial
real estate information businesses; and
B. The Contributing Parties are security holders of one or more of the
predecessors of Parent, each of which was formed with the express expectation of
the parties that such entity's equity interests might be converted into common
stock of a corporation in connection an initial public offering.
C. Parent intends to undertake an initial public offering of its common
stock (the "IPO") in April or May, 1998 and in connection therewith intends to
file a Registration Statement on Form S-1 with the Securities and Exchange
Commission promptly following the execution of this Agreement; and
D. The Contributing Stockholders intend to contribute their shares (the
"Shares") of capital stock of OLD RIG, Inc. ("RIGINC") to Parent in exchange for
Parent shares in connection with the IPO (the "RIGINC Contribution"), all to
facilitate the effectuation of the IPO; and
E. The Contributing Partners intend to contribute their partnership units
(the "Units") of Realty Information Group, L.P. ("RIGLP") to Parent in exchange
for Parent shares in connection with the IPO (the "RIGLP Contribution" and,
collectively with the RIGINC Contribution, the "RIG Contributions");
F. In connection with the Contributions and the IPO, Parent also expects to
receive from the the Stockholders of Jamison Research, Inc. ("JRI") the
contribution of all of their shares of capital stock of JRI to Parent in
exchange for Parent shares as set forth therein (the "Jamison Contribution");
and
G. The Formation, the IPO, the RIG Contributions, and the Jamison
Contribution are being undertaken pursuant to an integrated transaction intended
to qualify under Section 351 of the Internal Revenue Code of 1986, as amended
(the "Transaction");
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I.
PLAN OF CONTRIBUTION
1.1 THE CONTRIBUTION. Upon the terms and subject to the conditions hereof,
at the Closing, (a) each Contributing Stockholder will contribute to Parent all
of the Shares owned by it, and (b) each Contributing Partner will contribute to
Parent all of the limited partnership Units owned by it, in each case free and
clear of all Liens (defined below), in exchange for such Contributing
Stockholder's or Contributing Partner's pro rata share of the Consideration
specified in Section 1.2. For the purposes of this Agreement, "Lien" means any
mortgage, security interest, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or otherwise), charge, preference,
priority or other security agreement, option, warrant, attachment, right of
first refusal, preemptive, conversion, put, call or other claim or right,
restriction on transfer (other than restrictions imposed by federal and state
securities laws), or preferential arrangement of any kind or nature whatsoever
(including any conditional sale or other title retention agreement, any
financing lease involving substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction).
1.2 CONSIDERATION.
(a) For purposes of this Agreement, the "Consideration" shall be such
number of shares of common stock of Parent, $0.01 par value (the "Parent Common
Stock"), as the board of Parent shall decide to issue in connection with the
Transaction less common stock worth Ten Million Dollars ($10,000,000.00), as
adjusted pursuant to Section 1.2 and Section 1.3 of the Agreement among Parent,
RIGINC, RIGLP, JRI and the stockholders of JRI (the "JRI Contribu tion
Agreement"), valued at the Share Price (as defined in the JRI Contribution
Agreement).
(b) Consideration issued to the Contributing Stockholders and the
Contributing Partners shall be Parent Common Stock.
(c) Pro rata share, as to any Contributing Stockholder or Contributing
Partner, shall mean the fraction, (i) the numerator of which is equal to the
number of shares of common stock of RIGINC held by such Contributing Stockholder
or the number of partnership units held by such Contributing Partner, and (ii)
the denominator of which is the sum total of the number of shares of common
stock of RIGINC held by all Contributing Stockholders plus the number of
partnership units held by all Contributing Partners.
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<PAGE>
1.3 OWNERS' REPRESENTATIVE.
(a) Each Contributing Party, by signing this Agreement, designates
Michael R. Klein or, in the event that Michael R. Klein is unable or unwilling
to serve, Andrew C. Florance, to be the Owners' Representative solely for
purposes specified in this Agreement. The Contributing Parties shall be bound by
any and all actions taken by the Owners' Representative on their behalf
consistent with this Agreement.
(b) The Owners' Representative is hereby appointed and constituted the
true and lawful attorney-in-fact of each Contributing Party, with full power in
his or her name and on his or her behalf to act as specifically provided
according to the terms of this Agreement in the absolute discretion of the
Owners' Representative and to do all things and to perform all acts in
connection with those specifically provided for actions including, without
limitation, executing and delivering all agreements, certificates, receipts,
instructions and other instruments contem plated by or deemed advisable in
connection with this Agreement; provided, however, that this power of attorney
shall not be construed to authorize the Owners' Representative to amend this
Agreement or waive any of the conditions to Closing. This power of attorney and
all authority hereby conferred is granted subject to the interest of the other
Contributing Parties hereunder and in consideration of the mutual covenants and
agreements made herein, and shall be irrevocable and shall not be terminated by
any act of any person, by operation of law, whether by such Contributing Party's
death or any other event.
1.4 ACCOUNTING TERMS. Except as otherwise expressly provided herein or in
the Schedules, all accounting terms used in this Agreement shall be interpreted,
and all financial statements, Schedules, certificates and reports as to
financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
ARTICLE II.
CLOSING
2.1 LOCATION AND DATE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Wilmer, Cutler & Pickering on the date that the IPO is scheduled to close,
providing that all conditions to Closing shall have been satisfied or waived, or
at such other time and date as Parent and the Owners' Representative may
mutually agree, which date shall be referred to as the "Closing Date."
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<PAGE>
2.2 DELIVERIES.
(a) The Contributing Stockholders shall deliver to Parent the following
at the Closing: (i) stock certificates representing the shares owned by such
persons, accompanied by stock powers duly executed in blank or duly executed
instruments of transfer, in each case with all necessary stock transfer and
other documentary stamps attached, and any other documents that are necessary to
transfer to Parent good and marketable title to such shares free and clear of
all Liens, and (ii) all other documents, certificates, instruments or writings
required to be delivered by the Contributing Stockholders or RIGINC at or prior
to the Closing pursuant to this Agreement or otherwise required in connection
herewith. Against delivery of such shares, Parent shall deliver to each
Contributing Stockholder at the Closing his, her or its pro rata share of the
Consideration and all documents, certificates, instruments or writings required
to be delivered by Parent at or prior to the Closing pursuant to this Agreement
or otherwise required in connection herewith.
(b) The Contributing Partners shall deliver to Parent the following at
the Closing: (i) limited partnership certificates representing the units owned
by such persons, accompanied by powers duly executed in blank or duly executed
instruments of transfer, in each case with all necessary transfer and other
documentary stamps attached, and any other documents that are necessary to
transfer to Parent good and marketable title to such units free and clear of all
Liens, and (ii) all other documents, certificates, instruments or writings
required to be delivered by the Contributing Partners or RIGLP at or prior to
the Closing pursuant to this Agreement or otherwise required in connection
herewith. Against delivery of such units, Parent shall deliver to each
Contributing Partner at the Closing his, her or its pro rata share of the
Consideration and all documents, certificates, instruments or writings required
to be delivered by Parent at or prior to the Closing pursuant to this Agreement
or otherwise required in connection herewith.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE
CONTRIBUTING PARTIES
To induce Parent to enter into this Agreement and consummate the
transactions contemplated hereby, each Contributing Party, solely as to himself,
herself or itself, represents and warrants to Parent as follows:
3.1 DUE ORGANIZATION. To the extent such Contributing Party is not a
natural person, such Contributing Party is an entity duly organized, validly
existing and is in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public
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<PAGE>
authorities to own, operate and lease its properties and to carry on its
business in the places and in the manner as now conducted.
3.2 AUTHORIZATION; VALIDITY. Such Contributing Party has all requisite
power and authority to enter into and perform its obligations pursuant to the
terms of this Agreement. Such Contributing Party has the full legal right, power
and authority to enter into this Agreement and the transactions contemplated
hereby. This Agreement is a legal, valid and binding obligation of such
Contributing Party, enforceable in accordance with its terms.
3.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) to the extent such Contributing Party is not a natural person,
conflict with, or result in a breach or violation of, any of the charter
documents of such person;
(b) conflict with, or result in a default (or would constitute a
default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which such Contributing Party is a
party or by which he, she or it is bound, or result in the creation or
imposition of any lien, charge or encumbrance on any his, her or its properties
pursuant to (i) any law or regulation to which he, she or it or any of his, her
or its property is subject, or (ii) any judgment, order or decree to which he,
she or it or any of his, her or its property is subject; or
(c) violate any law, order, judgment, rule, regulation, decree or
ordinance to which such Contributing Party is subject or by which he, she or it
is bound including, without limitation.
3.4 CAPITAL STOCK.
(a) All of the issued and outstanding shares of the capital stock of
RIGINC have been duly authorized and validly issued, are fully paid and
nonassessable and are owned of record and beneficially by the Contributing
Stockholders in the amounts set forth in Schedule 3.4(a) free and clear of all
Liens. There are no voting agreements or voting trusts with respect to any of
the outstanding shares of the capital stock of RIGINC.
(b) All of the issued and outstanding limited partnership units of
RIGLP have been duly authorized and validly issued, and are owned of record and
beneficially by the Contributing Partners in the amounts set forth in Schedule
3.4(b) free and clear of all Liens. There are no voting agreements or voting
trusts with respect to any of the outstanding partnership unuts of RIGLP.
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<PAGE>
3.5 ABSENCE OF CLAIMS AGAINST COMPANY. No Contributing Party has any claims
against RIGINC, RIGLP or Parent (except as provided in this Agreement).
3.6 SECURITIES REPRESENTATIONS. Each Contributing Party other than
Founders/RIG, L.L.C. is an "Accredited Investor" within the meaning of the
federal securities laws. Founders/ RIG, L.L.C. at the time it made its decision
to invest in RIGLP was an "Accredited Investor" within the meaning of the
federal securities laws (and does not know of any reason why it has ceased to be
an "Accredited Investor"). Each Contributing Party has either directly, and/or
through RIGINC or RIGLP, obtained sufficient information concerning Parent and
its business, present and proposed, to have made an informed investment decision
concerning this Agreement and the Transactions contemplated hereby, and has had
an adequate opportunity to ask questions and receive answers to his or her
satisfaction from the officers of RIGINC, RIGLP and Parent concerning the
business, operations and financial condition of RIGINC, RIGLP and Parent. Each
Contributing Party has such knowledge and experience in business and financial
matters as to be capable of evaluating the merits and risks of an investment in
shares of Parent Common Stock and protecting its own interest in connection with
the investment in such shares.
ARTICLE IV.
REPRESENTATIONS OF PARENT
To induce the Contributing Parties to enter into this Agreement and
consummate the transactions contemplated hereby, Parent represents and warrants
such persons as follows:
4.1 DUE ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on their
respective businesses in the places and in the manner as now conducted. Copies
of the Certificate of Incorporation and the Bylaws, each as amended, of Parent
(collectively, the "Parent Charter Documents") have been made available to the
Contributing Parties. Parent is not in violation of any Parent Charter Document.
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS. The representatives of Parent
executing this Agreement have all requisite corporate power and authority to
enter into and bind Parent to the terms of this Agreement, Parent has the full
legal right, power and corporate authority to enter into this Agreement and the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and the performance by each of Parent of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of
Parent, and this Agreement has been duly and validly authorized by all necessary
corporate action. This Agreement is a legal, valid and binding obligation of
Parent, enforceable in accordance with its terms.
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<PAGE>
4.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the Parent
Charter Documents;
(b) subject to compliance with any agreements between Parent and its
lenders, conflict with, or result in a default (or would constitute a default
but for a requirement of notice or lapse of time or both) under any document,
agreement or other instrument to which Parent is a party, or result in the
creation or imposition of any lien, charge or encumbrance on any of Parent's
properties pursuant to (i) any law or regulation to which either Parent or any
of its property is subject, or (ii) any judgment, order or decree to which
Parent is bound or any of its property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Parent; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which Parent is subject, or by which Parent is bound, (including,
without limitation, the HSR Act, together with all rules and regulations
promulgated thereunder).
4.4 CAPITALIZATION OF PARENT AND OWNERSHIP OF PARENT STOCK. The authorized
capital stock of Parent consists of 6,000,000 shares of Common Stock and no
shares of Preferred Stock. No shares of Parent Common Stock and no shares of
Preferred Stock were outstanding on the date of this Agreement. All of the
shares of Parent Common Stock to be issued to the Stockholders in accordance
herewith will be offered, issued, sold and delivered by Parent in compliance
with all applicable state and federal laws concerning the issuance of securities
and none of such shares was or will be issued in violation of the preemptive
rights of any stockholder of Parent. The Parent Common Stock constituting the
Consideration is duly authorized, validly issued, fully paid, non-assessable
and, as of the Closing, free and clear of all Liens (other than liens
specifically contemplated herein).
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<PAGE>
ARTICLE V.
COVENANTS
5.1 COOPERATION.
(a) The Contributing Parties and Parent shall each deliver or cause to
be delivered to the other on the Closing Date, and at such other times and
places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement.
(b) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby.
5.2 NOTIFICATION OF CERTAIN MATTERS. Each party hereto shall give prompt
notice to the other parties hereto of (a) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of it contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (b) any material failure of
such party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such party hereunder. The delivery of any notice
pursuant to this Section 5.3 shall not, without the express written consent of
the other parties be deemed to (x) modify the representations or warranties
hereunder of the party delivering such notice, (y) modify the conditions set
forth in Articles VI and VII, or (z) limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
5.3 TERMINATION OF CERTAIN AGREEMENTS. From and after the date hereof, the
agreements listed on Schedule 5.3 are no longer of any force or effect (except
to the extent that such termination is limited on Schedule 5.3).
5.4 AMENDMENT OF REGISTRATION RIGHTS. Realty Information Group, L.P.,
Realty Information Group, Inc., Founders/RIG, L.L.C., Law Bulletin Publishing
Company and RIG Holdings, LLC are parties to that certain Registration Rights
Agreement, dated December 3, 1996 (the "Registration Rights Agreements"), as
amended from time to time. The parties to the Registration Rights Agreement
hereby agree that, effective upon the closing of the IPO:
(a) the first sentence of Section 2.(a) of that agreement is hereby
amended and restated as follows: "At any time after six months after the closing
of the initial public offering for stock of the company that succeeds to the
assets and liabilities of the Company and the General Partner, any one or more
of Allen LLC, Founders LLC and/or the successors thereto holding, in aggregate,
at least 20 percent of the interests owned by such entities as of December 3,
1996, may request that the Company effect a Registration under the Securities
Act of all or part of its Registrable Securities on Form S-1 or any similar
long-form Registration (a
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<PAGE>
'Long-Form Demand Registration') or on Form S-3 or any similar short-form
Registration (a 'Short-Form Demand Registration'), if available."
(b) the first sentence of Section 2.(c) of that agreement is hereby
amended and restated as follows: "The Company shall not be required to effect
more than one Demand Registration pursuant to this Section 2."
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS
OF PARENT
The obligation of Parent to effect the transactions contemplated hereby is
subject to the satisfaction or waiver, at or before the Closing, of the
following conditions and deliveries:
6.1 NO LITIGATION. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or provision challenging the Transaction, or
limiting or restricting Parent's conduct or operation of the business of RIGINC
or RIGLP (or its own business) following the transactions contemplated hereby
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending.
6.2 CONSENTS AND APPROVALS. All necessary consents of, and filings with,
any governmental authority or agency or third party, relating to the
consummation by the Contributing Parties of the transactions contemplated
hereby, shall have been obtained and made.
6.3 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the Securities and Exchange Commission ("SEC") not later
than June 30, 1998 and the underwriters named therein shall have agreed to
acquire, subject to the conditions set forth in the underwriting agreement, the
shares of Parent Stock covered by such Registration Statement.
6.4 IPO. The board of RIGINC shall have approved of the organization of
Parent and the RIG Contributions to faciliate the IPO, and the IPO shall be
consummated simultaneously herewith or immediately hereafter.
6.5 TENDER. All of the capital stock of RIGINC and all of the partnership
units of RIGLP (other than the units owned by RIGINC) shall have been tendered
to Parent.
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<PAGE>
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
CONTRIBUTING PARTIES
The obligation of the Contributing Parties to effect the transactions
contemplated hereby are subject to the satisfaction or waiver, at or before the
Closing, of the following conditions and deliveries:
7.1 NO LITIGATION. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or provision challenging Parent's proposed
acquisition by Parent of the Contributing Stockholders' shares or the
Contributing Partners' units, or limiting or restricting Parent's conduct or
operation of the business of RIGINC or RIGLP (or its own business) following the
transactions contemplated hereby shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit, claim or proceeding of any nature
pending or threatened, against Parent, its properties or any of its officers or
directors, that could materially and adversely affect the business, assets,
liabilities, financial condition, results of operations or prospects of the
Parent and its subsidiaries taken as a whole.
7.2 CONSENTS AND APPROVALS. All necessary consents of, and filings with,
any governmental authority or agency or third party relating to the consummation
by Parent of the transactions contemplated herein, shall have been obtained and
made.
7.3 REGISTRATION STATEMENT. Parent shall have filed with the SEC the
Registration Statement. The Registration Statement shall have been declared
effective by the SEC not later than June 30, 1998 and the underwriters named
therein shall have agreed to acquire, subject to the conditions set forth in the
underwriting agreement, the shares of Parent Common Stock covered by such
Registration Statement.
7.4 IPO. The board of RIGINC shall have approved of the organization of
Parent and the RIG Contributions to faciliate the IPO, and the IPO shall be
consummated simultaneously herewith or immediately hereafter.
7.5 LEGAL OPINION. The Contributing Parties shall have received an opinion
of Wilmer, Cutler & Pickering, counsel to Parent, to the effect that the
Transaction is a transaction described in Section 351 of the Internal Revenue
Code of 1986, as amended, and the Contributing Parties will not recognize gain
on the exchange of Shares and Units solely in exchange for Parent Stock.
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<PAGE>
ARTICLE VIII.
GENERAL
8.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing Date solely:
(a) by mutual consent of the board of directors of Parent and the
Owners' Representative; or
(b) by the board of directors of Parent or the Owners' Representative,
if the Closing shall not have occurred on or before May 10, 1998; or
(c) by the board of directors of Parent or the Owners' Representative,
if there is or has been a material breach, failure to fulfill or default on the
part of the other party of any of the representations and warranties contained
herein or in the due and timely performance and satisfaction of any of the
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made or shall not reasonably be expected to occur
before the Closing Date; or
(d) by the board of directors of Parent or the Owners' Representative,
if there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the transactions contemplated hereby; or there
shall be any action taken, or any statute, rule regulation or order enacted,
promulgated or issued or deemed applicable to the transactions contemplated
hereby by any governmental entity which would make the consummation of the
transactions contemplated hereby illegal.
8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 10.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of this Section 8.2, shall remain in full
force and effect and survive any termination of this Agreement; (ii) each party
shall remain liable for any breach of this Agreement prior to its termination;
and (iii) in the event of termination of this Agreement pursuant to Section
8.1(c) above, then the breaching party shall be liable to the other party to the
extent of the expenses incurred by such other party in connection with this
Agreement and the transactions contemplated hereby, as well as any damages in
accordance with applicable law.
8.3 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Parent, and the heirs and legal representatives of the Contributing Parties.
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<PAGE>
8.4 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 8.5. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
8.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
8.6 BROKERS AND AGENTS. Parent and each Contributing Party represents and
warrants to the other that it has not employed any broker or agent in connection
with the transactions contemplated by this Agreement and agrees to indemnify the
other against all losses, damages or expenses relating to or arising out of
claims for fees or commission of any broker or agent employed or alleged to have
been employed by such party.
8.7 NOTICES. Any notice, request, claim, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given if delivered personally or sent by telefax
(with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
(a) If to Parent to:
Andrew C. Florance
President
Realty Information Group
7475 Wisconsin Avenue
Sixth Floor
Bethesda, Maryland 20814
(Telefax: (301) 718-2444)
with a required copy to:
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<PAGE>
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attn: Eric R. Markus, Esq.
(Telefax: (202) 663-6363)
(b) If to any Contributing Party, to the address shown on Exhibit
8.7(b);
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
8.8 GOVERNING LAW.
(a) This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the laws of Delaware.
(b) Any disputes arising out of, in connection with or with respect to
this Agreement, the subject matter hereof, the performance or non-performance of
any obligation hereunder, or any of the transactions contemplated hereby
("Disputes") that seek specific performance of any obligations hereunder or
injunctive relief shall be adjudicated in a court of competent civil
jurisdiction sitting in Wilmington, Delaware, and nowhere else. Each of the
parties hereto hereby irrevocably submits to the jurisdiction of such court for
the purposes of any suit, civil action or other proceeding arising out of, in
connection with or with respect to this Agreement, the subject matter hereof,
the performance or non-performance of any obligation hereunder, or any of the
transactions contemplated hereby (collectively, "Suit"). Each of the parties
hereto hereby waives and agrees not to assert by way of motion, as a defense or
otherwise in any such Suit, any claim that it is not subject to the jurisdiction
of the above courts, that such Suit is brought in an inconvenient forum, or that
the venue of such Suit is improper.
(c) Except as provided in Section 10.10(b), all Disputes shall be
resolved by binding arbitration administered by the American Arbitration
Association ("AAA") in Washington, D.C. and, except as expressly provided in
this Agreement, shall be conducted in accordance with the Expedited Procedures
under the Commercial Arbitration Rules of the AAA, as such rules may be amended
from time to time (the "Rules").
(i) The hearing locale shall be Washington, D.C. A single, neutral
arbitrator (the "Arbitrator") shall be appointed by the AAA, within thirty (30)
days after an Arbitrated Dispute is submitted for arbitration under this Section
10.10(c), to preside over the arbitration and resolve the Dispute. The
Arbitrator shall be selected from the AAA's Commercial Panel, and shall be
qualified to practice law in at least one jurisdiction in the United States and
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have expertise in the interpretation of commercial contracts. The parties shall
have ten (10) days to object in writing to the appointment of the Arbitrator,
the sole basis for such objection being an actual conflict of interest. The AAA,
in its sole discretion, shall determine within ten (10) days the validity of any
objection to the appointment of the Arbitrator based on an actual conflict of
interest.
(ii) The Arbitrator's decision (the "Decision") shall be binding,
and the prevailing party may enforce the Decision in any court of competent
jurisdiction.
(iii) The parties shall use their best efforts to cooperate with
each other in causing the arbitration to be held in as efficient and expeditious
a manner as practicable, including but not limited to, providing such documents
and making available such of their personnel as the Arbitrator may request, so
that the Decision may be reached timely. The Arbitrator shall take into account
the parties' stated goal of expedited proceedings in determining whether to
authorize discovery and, if so, the scope of permissible discovery and other
hearing and pre-hearing procedures.
(iv) The authority of the Arbitrator shall be limited to deciding
liability for, and the proper amount of, a Claim, and the Arbitrator shall have
no authority to award punitive damages. The Arbitrator shall have such powers
and establish such procedures as are provided for in the Rules, so long as such
powers and procedures are consistent with this Section 8.8(c) and are necessary
to resolve the Dispute within the time periods specified in this Agreement. The
Arbitrator shall render a Decision within sixty (60) days after being appointed
to serve as Arbitrator, unless the parties otherwise agree in writing or the
Arbitrator makes a finding that a party has carried the burden of showing good
cause for a longer period.
8.9 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
8.10 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
8.11 FURTHER REPRESENTATIONS. Each party further represents that it is
being independently advised as to the tax consequences of the transactions
contemplated by this Agreement and is not relying on any representation or
statements made by the other party as to such tax consequences.
- 14 -
<PAGE>
8.12 EFFECTIVENESS OF REPRESENTATIONS WARRANTIES. All representations and
warranties made by the Contributing Parties and Parent in or pursuant to this
Agreement or in any document delivered pursuant hereto shall be deemed to have
been made on the date of this Agreement (except as otherwise provided herein)
and, if a Closing occurs, as of the Closing Date.
[EXECUTION PAGE FOLLOWING]
- 15 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
REALTY INFORMATION GROUP,
INC.
BY:________________________________
STOCKHOLDERS OF OLD RIG, INC.:
- ---------------------------------- ----------------------------------
MICHAEL R. KLEIN DAVID BONDERMAN
- ---------------------------------- ----------------------------------
ANDREW C. FLORANCE WARREN H. HABER
- ---------------------------------- ----------------------------------
DON CARLIN COLDEN FLORANCE
- ---------------------------------- ----------------------------------
WENDY FLORANCE JOHN D. WHITE
- ----------------------------------
JOHN L. TEEGER
<TABLE>
<CAPTION>
LIMITED PARTNERS OF REALTY INFORMATION GROUP, L.P.:
<S> <C>
- ---------------------------------- ----------------------------------
HOROWITZ LIMITED PARTNERSHIP I FOUNDERS/RIG, L.L.C.
- ---------------------------------- ----------------------------------
MICHAEL R. KLEIN LAW BULLETIN PUBLISHING COMPANY
- ---------------------------------- ----------------------------------
MICHAEL R. KLEIN AND/OR STEPHANIE KLEIN, MICHAEL R. KLEIN AND/OR STEPHANIE KLEIN,
AS CUSTODIAN FOR SARAH KLEIN AS CUSTODIAN FOR HANNAH KLEIN
</TABLE>
- 16 -
<PAGE>
- ---------------------------------- ----------------------------------
PETER KLEIN AND/OR ROY FABRY, AS TRUSTEE ROY VICTOR FABRY
FOR NICHOLAS KLEIN
- ---------------------------------- ----------------------------------
PETER KLEIN AND/OR ROY FABRY, AS TRUSTEE DAVID SCHAFFEL
FOR ALEXANDER KLEIN
- ---------------------------------- ----------------------------------
LANNING MACFARLAND III BREWSTER J. MACFARLAND
- ---------------------------------- ----------------------------------
JEFFREY L. BOPE RIG HOLDINGS, L.L.C.
- ---------------------------------- ----------------------------------
CRAIG BROWN KERIN GARRETT
- ---------------------------------- ----------------------------------
NELLA SHAPIRO JAMES D. CARR
- 17 -
<PAGE>
SCHEDULE 5.3
TERMINATION OF CERTAIN AGREEMENTS
Agreement Extent of Survival
- --------- ------------------
Investors' Agreement, dated December 3, 1996, by and None.
among Realty Information Group, Inc., Realty Information
Group, L.P., Michael R. Klein, Andrew Florance, Law
Bulletin Publishing Company, Founders/RIG, L.L.C. and
RIG Holdings, L.L.C.
Agreement Relating to Investments in Realty Information None.
Group, Inc. and Its Affiliated Limited Partnership by
Founders Equity, Inc. and A Group of Co-Investors, dated
May 15, 1995
Agreement Relating to the Acquisition by Realty None.
Information Group, L.P. of Substantially all the Assets and
Liabilities of Chicago Re-Source, a Division of Law
Bulletin Publishing Company and the Investment by Law
Bulletin Publishing Company in Units of Realty
Information Group, L.P., including attached Schedules,
dated March 29, 1996
Purchase Agreement, dated December 3, 1996, by and None.
among Realty Information Group, Inc., Realty Information
Group, L.P., and RIG Holdings, L.L.C.
Purchase Agreement dated December 3, 1996, by and None.
among Realty Information Group Inc., Realty Information
Group, L.P., Founders/RIG, L.L.C., and Founders Equity,
Inc.
Purchase Agreement dated December 3, 1996, by and None.
among Realty Information Group, Inc., Realty Information
Group, L.P., Law Bulletin Publishing Company, Inc.,
Jeffrey Bope, Lanning Macfarland III, and Brewster
Macfarland.
Agreement, dated December 2, 1994, by and among None.
Michael R. Klein and the Horowitz Limited Partnership I.
- i -
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Limited Partnership Agreement of Realty Information All provisions survive except
Group, L.P., effective as of the August 9, 1994, as amended that ss. 7.8 (Put and Call) and
on or about May 15, 1995 the two provisions of
ss. 10.2(b)(iv) terminate.
</TABLE>
- ii -
EXECUTION COPY
AGREEMENT AND PLAN OF CONTRIBUTION
BY AND AMONG
REALTY INFORMATION GROUP (DELAWARE), INC.
AND
REALTY INFORMATION GROUP, INC.
AND
REALTY INFORMATION GROUP, L.P.
AND
JAMISON RESEARCH, INC.
AND
THE STOCKHOLDERS OF JAMISON RESEARCH, INC.
DATED FEBRUARY 17, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I.
PLAN OF CONTRIBUTION...........................................................2
1.1 THE CONTRIBUTION.............................................2
1.2 CONSIDERATION................................................2
1.3 POST-CLOSING ADJUSTMENT. ....................................3
1.4 PLEDGED ASSETS...............................................4
1.5 STOCKHOLDERS' REPRESENTATIVE.................................5
1.6 ACCOUNTING TERMS.............................................6
ARTICLE II.
CLOSING........................................................................6
2.1 LOCATION AND DATE............................................6
2.2 DELIVERIES...................................................6
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS...................................................................7
3.1 DUE ORGANIZATION.............................................7
3.2 AUTHORIZATION; VALIDITY......................................7
3.3 NO CONFLICTS.................................................8
3.4 CAPITAL STOCK OF THE COMPANY.................................8
3.5 TRANSACTIONS IN CAPITAL STOCK; ACCOUNTING TREATMENT..........8
3.6 SUBSIDIARIES STOCK...........................................9
3.7 COMPLETE COPIES OF MATERIALS.................................9
3.8 COMPANY FINANCIAL CONDITIONS.................................9
3.9 FINANCIAL STATEMENTS........................................10
3.10 LIABILITIES AND OBLIGATIONS.................................10
3.11 BOOKS AND RECORDS...........................................11
3.12 BANK ACCOUNTS; POWERS OF ATTORNEY...........................11
3.13 ACCOUNTS AND NOTES RECEIVABLE...............................11
3.14 PERMITS.....................................................12
3.15 REAL PROPERTY...............................................12
3.16 PERSONAL PROPERTY...........................................13
3.17 INTELLECTUAL PROPERTY.......................................13
3.18 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS...15
3.19 PREDECESSOR STATUS; ETC.....................................16
i
<PAGE>
3.20 INSURANCE...................................................16
3.21 ENVIRONMENTAL MATTERS.......................................16
3.22 LABOR AND EMPLOYMENT MATTERS................................17
3.23 EMPLOYEE BENEFIT PLANS......................................18
3.24 TAXES.......................................................19
3.25 CONFORMITY WITH LAW; LITIGATION.............................21
3.26 ABSENCE OF CLAIMS AGAINST COMPANY...........................22
3.27 ABSENCE OF CHANGES..........................................22
3.28 DISCLOSURE..................................................24
3.29 SECURITIES REPRESENTATIONS..................................24
3.30 NO KNOWLEDGE OF RIG PARTY BREACHES..........................24
ARTICLE IV.
REPRESENTATIONS OF THE RIG PARTIES...........................................25
4.1 DUE ORGANIZATION............................................25
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS......................25
4.3 NO CONFLICTS................................................25
4.4 CAPITALIZATION OF PARENT AND OWNERSHIP OF PARENT STOCK......26
4.5 FINANCIAL STATEMENTS........................................26
4.6 LIABILITIES AND OBLIGATIONS.................................27
4.7 PERMITS.....................................................27
4.8 INTELLECTUAL PROPERTY.......................................28
4.9 ENVIRONMENTAL MATTERS.......................................29
4.10 INSURANCE...................................................29
4.11 TAXES.......................................................30
4.12 CONFORMITY WITH LAW; LITIGATION.............................30
4.13 ABSENCE OF CHANGES..........................................31
4.14 NO KNOWLEDGE OF JAMISON BREACHES............................31
ARTICLE V.
COVENANTS.....................................................................31
5.1 TAX MATTERS. ...............................................31
5.2 EMPLOYEE BENEFIT PLANS......................................32
5.3 RELATED PARTY AGREEMENTS....................................33
5.4 COOPERATION.................................................33
5.5 ACCESS TO INFORMATION; PUBLIC DISCLOSURE....................33
5.6 CONDUCT OF BUSINESS PENDING CLOSING.........................34
5.7 PROHIBITED ACTIVITIES.......................................34
5.8 NOTIFICATION OF CERTAIN MATTERS.............................36
ii
<PAGE>
5.9 SALES OF PARENT COMMON STOCK; REGISTRATION RIGHTS. .........37
5.10 IPO.........................................................37
5.11 GUARANTEE...................................................37
5.14 GUARANTEED LOAN.............................................38
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE RIG PARTIES........................38
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS..38
6.2 NO LITIGATION...............................................39
6.3 NO MATERIAL ADVERSE CHANGE..................................39
6.4 CONSENTS AND APPROVALS......................................39
6.5 OPINION OF COUNSEL..........................................39
6.6 COMPANY CHARTER DOCUMENTS...................................39
6.7 OTHER AGREEMENTS............................................39
6.8 DUE DILIGENCE REVIEW........................................39
6.9 REGISTRATION STATEMENT......................................40
6.10 IPO.........................................................40
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY...............................................................40
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS..40
7.2 NO LITIGATION...............................................40
7.3 CONSENTS AND APPROVALS......................................41
7.4 OTHER AGREEMENTS............................................41
7.5 REGISTRATION STATEMENT......................................41
7.6 IPO.........................................................41
7.7 OTHER TRANSACTIONS..........................................41
7.8 LOAN ASSUMPTION.............................................41
ARTICLE VIII.
INDEMNIFICATION...............................................................42
8.1 INDEMNIFICATION BY THE STOCKHOLDERS AND THE COMPANY.........42
8.2 INDEMNIFICATION BY PARENT...................................42
8.3 LIMITATION AND EXPIRATION...................................43
8.4 INDEMNIFICATION PROCEDURES..................................44
8.5 EFFECTIVENESS OF REPRESENTATIONS WARRANTIES. ...............46
iii
<PAGE>
8.6 REMEDIES....................................................46
8.7 SET OFF.....................................................46
8.8 SPECIAL TAX PROVISION.......................................46
ARTICLE IX.
NONCOMPETITION................................................................47
9.1 PROHIBITED ACTIVITIES.......................................47
9.2 CONFIDENTIALITY.............................................47
9.3 DAMAGES.....................................................48
9.4 REASONABLE RESTRAINT........................................48
9.5 SEVERABILITY; REFORMATION...................................49
9.6 INDEPENDENT COVENANT........................................49
9.7 MATERIALITY.................................................49
ARTICLE X.
GENERAL.......................................................................49
10.1 TERMINATION.................................................49
10.2 EFFECT OF TERMINATION.......................................50
10.3 SUCCESSORS AND ASSIGNS......................................51
10.4 ENTIRE AGREEMENT; AMENDMENT; WAIVER.........................51
10.5 COUNTERPARTS................................................51
10.6 BROKERS AND AGENTS..........................................51
10.7 EXPENSES....................................................51
10.8 NOTICES.....................................................52
10.9 GOVERNING LAW...............................................53
10.10 SEVERABILITY................................................54
10.11 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS...................54
10.12 MUTUAL DRAFTING.............................................54
10.13 FURTHER REPRESENTATIONS.....................................54
iv
<PAGE>
AGREEMENT AND PLAN OF CONTRIBUTION
THIS AGREEMENT AND PLAN OF CONTRIBUTION (the "Agreement") is made and
entered into this 17th day of February, 1998, by and among Realty Information
Group (Delaware), Inc., a Delaware corporation ("Parent"), Realty Information
Group, Inc. a Delaware corporation ("RIGINC"), Realty Information Group, L.P., a
Delaware limited partnership ("RIGLP" and, together with Parent and RIGINC, the
"RIG Parties") and Jamison Research, Inc., a Georgia corporation (the
"Company"), Henry D. Jamison, IV and Leslie Lees Jamison (each a "Stockholder"
and collectively, the "Stockholders" and, together with the Company, the
"Jamison Parties").
BACKGROUND
A. Parent was incorporated on February 2, 1998 (the "Formation") under
the laws of the State of Delaware for the purpose of acquiring certain
commercial real estate information businesses; and
B. Parent intends to undertake an initial public offering of its common
stock (the "IPO") in March or April 1998 and in connection therewith intends to
file a Registration Statement on Form S-1 with the Securities and Exchange
Commission promptly following the execution of this Agreement; and
C. The shareholders of RIGINC intend to contribute their shares of
capital stock of RIGINC to Parent in exchange for Parent shares in connection
with the IPO (the "RIGINC Contribution");
D. The limited partners of RIGLP intend to contribute their partnership
units of RIGLP to Parent in exchange for Parent shares in connection with the
IPO (the "RIGLP Contribution" and, collectively with the RIGINC Contribution,
the "RIG Contributions");
E. The Stockholders are the owners of all of the issued and outstanding
shares (the "Shares") of the capital stock of the Company;
F. The Stockholders, the Company, and Parent deem it advisable and in
their respective best interests that the Stockholders contribute all of their
shares of capital stock of the Company to Parent in exchange for Parent shares
as set forth herein (the "Jamison Contribution");
G. The Formation, the IPO, the RIG Contributions, and the Jamison
Contribution are being undertaken pursuant to an integrated transaction intended
to qualify under Section 351 of the Internal Revenue Code of 1986, as amended
(the "Transaction"); and
H. Prior to, in connection with or following the Transaction, the board
of directors of RIGINC intend to rename RIGINC formally as "RIG, Inc." and,
immediately thereafter, the board of directors of Parent intend to rename Parent
formally as "Realty Information Group, Inc.";
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I.
PLAN OF CONTRIBUTION
1.1 THE CONTRIBUTION. Upon the terms and subject to the conditions
hereof, at the Closing (defined below), the Stockholders will contribute to
Parent all of the Shares free and clear of all Liens (defined below) in exchange
for the Consideration specified in Section 1.2. For the purposes of this
Agreement, "Lien" means any mortgage, security interest, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge, preference, priority or other security agreement, option, warrant,
attachment, right of first refusal, preemptive, conversion, put, call or other
claim or right, restriction on transfer (other than restrictions imposed by
federal and state securities laws), or preferential arrangement of any kind or
nature whatsoever (including any conditional sale or other title retention
agreement, any financing lease involving substantially the same economic effect
as any of the foregoing and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction).
1.2 CONSIDERATION.
(a) For purposes of this Agreement, the "Consideration" shall
be Ten Million Dollars ($10,000,000.00), as adjusted pursuant to Section 1.3.
The Consideration shall be paid in shares of common stock of Parent, par value
$0.01 (the "Parent Common Stock"), valued at the Share Price. The Share Price
shall be either (i) the price at which the underwriters named in the
registration statement on Form S-1 covering the offer and sale of shares of
Parent Common Stock (the "Registration Statement") in connection with the
Transaction and the IPO have agreed to purchase such shares, or (ii) if no such
IPO is accomplished by May 15, 1998, such other price (or alternative pricing
methodology) as the Stockholders' Representative (as defined in Section 1.5) and
the Parent may have agreed to on or prior to May 25, 1998. The Parent Common
Stock constituting the Consideration shall be validly issued, fully paid,
non-assessable and, as of the Closing, free and clear of all Liens (other than
liens specifically contemplated herein). Parent Common Stock constituting
sixty-five percent (65%) of the Consideration will be registered by Parent as
part of the IPO for immediate resale by the Stockholders (the "Registered
Shares"), twenty-five percent (25%) of the Consideration, which shall be
Consideration other than the Registered Shares, shall be restricted from sale
pursuant to Section 5.9 (the "Restricted Shares") and ten percent (10%) of the
Consideration, which shall be Consideration other than the Registered Shares,
shall be pledged pursuant to Section 1.4 (the "Pledged Shares").
(b) The Consideration has been calculated based upon several
factors, including the Company having a Net Worth (defined below) as of Closing
(the "Actual Net Worth") no less
2
<PAGE>
than the Net Worth of the Company reflected on the Audited Financials, which is
$(49,038) (the "Net Worth Target"). For purposes of this Agreement, "Net Worth"
shall mean the total shareholders' equity (deficit) as shown on the Company's
balance sheet in conformity with GAAP (defined below).
1.3 POST-CLOSING ADJUSTMENT. The Consideration shall be subject to
adjustment after the Closing Date as specified in this Section 1.3:
(a) Within one hundred twenty (120) days following the
Closing, Parent shall cause Ernst & Young LLP (the "Parent's Independent
Auditors") to audit the Company's books to determine the Net Worth of the
Company as of the Closing and the accuracy of the information set forth in
Section 3.8 (the "Post-Closing Audit"). The parties acknowledge and agree that
for purposes of determining the financial performance of the Company, all
financial calculations shall be done, except with the prior written consent of
Parent, as provided in Section 3.8. The Stockholders shall cooperate and shall
use their reasonable efforts to cause the officers and employees of the Company
to cooperate with Parent and Parent's Independent Auditors after the Closing
Date in furnishing information, documents, evidence and other assistance to
Parent's Independent Auditors to facilitate the completion of the Post-Closing
Audit within the aforementioned time period. In the event that Parent's
Independent Auditors determine that the Net Worth of the Company as of Closing
was less than the Net Worth Target, Parent shall promptly deliver a written
notice (the "Financial Adjustment Notice") to the Stockholders' Representative,
as defined in Section 1.5, setting forth (i) the determination made by Parent's
Independent Auditors of the Net Worth of the Company, (ii) the amount by which
the Net Worth Target exceeds the Net Worth determined by the Parent's
Independent Auditors (the "Proposed Consideration Adjustment") and (iii) the
amount by which the number of Shares issued as Consideration would have been
reduced at Closing had the Consideration been reduced at Closing by the Proposed
Consideration Adjustment.
(b) The Stockholders' Representative shall have fifteen (15)
days from the receipt of the Financial Adjustment Notice to notify Parent if the
Stockholders dispute such Financial Adjustment Notice. If Parent has not
received notice of such a dispute within such 15-day period, the Proposed
Consideration Adjustment shall be the Final Consideration Adjustment and Parent
shall be entitled to receive from the Stockholders the Final Consideration
Adjustment, subject to the provisions of Section 8.7 hereof. If, however, the
Stockholders' Representative has delivered notice of such a dispute to Parent
within such 15-day period (which such notice shall state the Stockholders'
calculation of Net Worth), then Parent's Independent Auditors shall select an
independent accounting firm that has not represented any of the parties hereto
within the preceding two (2) years to review the Company's books, the Financial
Adjustment Notice and the notice of dispute (and related information) to
determine the amount, if any, of the Final Consideration Adjustment (defined
below). Such independent accounting firm shall be confirmed by the Stockholders'
Representative and Parent within three (3) days of its selection, unless there
is an actual conflict of interest. The independent accounting firm shall be
directed to consider only those agreements, contracts, commitments or other
documents (or summaries thereof) that were either (i) delivered or made
available to Parent's Independent Auditors in connection with the transactions
contemplated hereby, (ii) reviewed by
3
<PAGE>
Parent's Independent Auditors during the course of the Post-Closing Audit or
(iii) supplemental information supplied by either party to the Independent
Accountant. The independent accounting firm shall make its determination of the
Actual Net Worth and the amount by which the Net Worth Target exceeds the Actual
Net Worth determined by the independent accounting firm (the "Final
Consideration Adjustment"), if any, within thirty (30) days of its selection.
The determination of the independent accounting firm shall be final and binding
on the parties hereto, and upon such determination, Parent shall be entitled to
receive from the Stockholders the Final Consideration Adjustment, subject to the
provisions of Section 8.7 hereof. The costs of the independent accounting firm
shall be borne by the party (either the RIG Parties or the Stockholders as a
group) whose determination of the Net Worth as of the Closing was further from
the determination of the Actual Net Worth by the independent accounting firm, or
equally by the RIG Parties and the Stockholders in the event that the
determination by the independent accounting firm is equidistant between the
determination of the Net Worth by the RIG Parties on one hand, and the
Stockholders' calculation of Net Worth, on the other.
1.4 PLEDGED ASSETS.
(a) As collateral security for the payment of any post-Closing
adjustment to the Final Consideration Adjustment under Section 1.3, or any
indemnification obligations of the Stockholders pursuant to Article VIII, the
Stockholders shall, and by execution hereof do hereby, transfer, pledge and
assign to Parent, for the benefit of Parent, a security interest in the
following assets (the "Pledged Assets"):
(i) each Stockholder's Pledged Shares and the
certificates and instruments, if any, representing or evidencing each such
Stockholder's Pledged Assets;
(ii) all securities hereafter delivered to such
Stockholder with respect to or in substitution for such Stockholder's Pledged
Shares, all certificates and instruments representing or evidencing such
securities, and all non-cash dividends and other property (other than cash
dividends) at any time received, receivable or otherwise distributed in respect
of or in exchange for any or all thereof; and in the event any Stockholder
receives any such property, such Stockholder shall hold such property in trust
for Parent and shall immediately deliver such property to Parent to be held
hereunder as Pledged Assets; and
(iii) all non-cash proceeds of all of the foregoing
property and all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
(b) Each certificate, if any, evidencing a Stockholder's
Pledged Assets issued in his or her name in the transactions contemplated
hereby, shall be delivered to Parent directly by the transfer agent, such
certificate bearing no restrictive or cautionary legend other than those
provided for by this Agreement or imprinted by the transfer agent at Parent's
request. Each Stockholder shall, at the Closing, deliver to Parent, for each
such certificate, a stock power duly signed in blank by him or her.
4
<PAGE>
(c) The Stockholders shall be entitled to retain cash proceeds
from, and exercise any voting powers incident to, the Pledged Assets that are
not applied to satisfy any Final Consideration Adjustment pursuant to Section
1.3 or any indemnification obligation of the Stockholders pursuant to Article
VIII.
(d) The Pledged Assets shall be available to satisfy any Final
Consideration Adjustment pursuant to Section 1.3 and any indemnification
obligations of the Stockholders pursuant to Article VIII until the date that is
one (1) year after the Closing (the "Release Date"). On the Release Date or the
first business day thereafter, Parent shall return or cause to be returned to
the Stockholders the Pledged Assets, less Pledged Assets having an aggregate
value equal to the amount of (i) any pending claim for a post-Closing adjustment
to the Consideration under Section 1.3 or any settled or finally-determined
claim for a post-Closing adjustment to the Consideration under Section 1.3, and
(ii) any pending claim for indemnification made by any Parent Indemnified Party
(as defined in Article VIII), or any settled or finally-determined claim for
indemnification made by any Parent Indemnified Party (as defined in Article
VIII), which such Pledged Assets shall be transferred to Parent. For purposes of
clause (i) of the preceding sentence, the Parent Common Stock held as Pledged
Assets shall be valued at the Share Price; and for purposes of clause (ii) of
the preceding sentence, the Parent Common Stock held as Pledged Assets shall be
valued at the average Closing Price of Parent Common Stock on the twenty (20)
trading days immediately preceding the date of settlement or final determination
of such claim. "Closing Price" on any trading day shall mean the closing sale
price of Parent Common Stock on NASDAQ (or such other principal quotation system
or national securities exchange on which the Parent Common Stock is admitted to
trading or quoted or listed) or, if not admitted to trading or quoted or listed
on any quotation system or national securities exchange, the average of the
closing bid and asked prices of the Parent Common Stock on the over-the-counter
market on the day in question as reported by the National Quotation Bureau
Incorporated, or a similarly generally accepted reporting service, or if not so
available in such manner, as reasonably determined by an independent accounting
firm designated by the parties that has not represented any of the parties
hereto, their affiliates, successors or assigns at any time during the two-year
period immediately preceding the day in question.
1.5 STOCKHOLDERS' REPRESENTATIVE.
(a) Each holder of Company Common Stock, by signing this
Agreement, designates Leslie Lees Jamison, or, in the event that Leslie Lees
Jamison is unable or unwilling to serve, Henry D. Jamison, IV to be the
Stockholders' Representative for purposes of this Agreement. The Stockholders
shall be bound by any and all actions taken by the Stockholders' Representative
on their behalf.
(b) Parent shall be entitled to rely upon any communication or
writings given or executed by the Stockholders' Representative. All notices to
be sent to Stockholders pursuant to this Agreement may be addressed to the
Stockholders' Representative and any notice so sent shall be deemed notice to
all of the Stockholders hereunder. The Stockholders hereby consent and agree
that
5
<PAGE>
the Stockholders' Representative is authorized to accept notice on behalf of the
Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Stockholders'
Representative; and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with this Agreement. This power of attorney and
all authority hereby conferred is granted subject to the interest of the other
Stockholders hereunder and in consideration of the mutual covenants and
agreements made herein, and shall be irrevocable and shall not be terminated by
any act of any Stockholder, by operation of law, whether by such Stockholder's
death or any other event.
1.6 ACCOUNTING TERMS. Except as otherwise expressly provided herein or
in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles ("GAAP") consistently
applied.
ARTICLE II.
CLOSING
2.1 LOCATION AND DATE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Wilmer, Cutler & Pickering on the date that the IPO is scheduled to close,
providing that all conditions to Closing shall have been satisfied or waived, or
at such other time and date as Parent, the Company and the Stockholders may
mutually agree, which date shall be no later than May 25, 1998 and shall be
referred to as the "Closing Date."
2.2 DELIVERIES. The Stockholders shall deliver to Parent the following
at the Closing: (a) stock certificates representing (i) the Shares, accompanied
by stock powers duly executed in blank or duly executed instruments of transfer,
in each case with signatures guaranteed by a national bank or member firm of the
New York Stock Exchange, and with all necessary stock transfer and other
documentary stamps attached, and any other documents that are necessary to
transfer to Parent good and marketable title to the Shares free and clear of all
Liens, and (ii) all the issued and then outstanding shares of capital stock of
the Company's subsidiaries, if any, free and clear of all Liens; (b)
resignations as directors of such directors of the Company (other than Henry D.
Jamison, IV) as Parent may request prior to the Closing Date; and (c) all other
documents, certificates, instruments or writings required to be delivered by the
Stockholders or the Company at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith. Against delivery of the
Shares, Parent shall deliver to the Stockholders at the Closing the
Consideration free and clear of all
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Liens (other than Liens specifically contemplated herein) and all documents,
certificates, instruments or writings required to be delivered by Parent at or
prior to the Closing pursuant to this Agreement or otherwise required in
connection herewith.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS
To induce Parent to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Company and the Stockholders,
jointly and severally, represents and warrants to Parent as follows (for
purposes of this Agreement, the phrases "knowledge of the Stockholders" or the
"Stockholders' knowledge," or words of similar import, mean the knowledge of
Henry D. Jamison, IV and Leslie Lees Jamison, including facts of which either,
in the reasonably prudent exercise of his or her duties as an officer, director
and/or stockholder of the Company, should be aware):
3.1 DUE ORGANIZATION.
(a) The Company is a corporation duly organized, validly
existing and is in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted. Schedule 3.l(a) hereto contains a list of
all jurisdictions in which the Company is authorized or qualified to do
business. The Company is in good standing as a foreign corporation in each
jurisdiction in which it does business.
(b) The Company has delivered to Parent true, complete and
correct copies of the Articles of Incorporation and Bylaws of the Company. Such
Articles of Incorporation and Bylaws are collectively referred to as the
"Company Charter Documents." The Company is not in violation of any Company
Charter Document. The minute books of the Company have been made available to
Parent (and at Closing shall be delivered, along with the Company's original
stock ledger and corporate seal, to Parent) and are correct and, except as set
forth in Schedule 3.1(b), complete in all material respects.
(c) Schedule 3.1(c) contains a complete and accurate list of
the directors and officers of the Company.
3.2 AUTHORIZATION; VALIDITY. The Company has all requisite corporate
power and authority to enter into and perform its obligations pursuant to the
terms of this Agreement. The Company has the full legal right, corporate power
and authority to enter into this Agreement and the transactions contemplated
hereby. Each Stockholder has the full legal right and authority to enter into
this Agreement and perform the transactions contemplated hereby. The execution
and delivery
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of this Agreement by the Company and the performance by the Company of the
transactions contemplated herein have been duly and validly authorized by the
Board of Directors of the Company and the Stockholders and this Agreement has
been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of the Company and each
Stockholder, enforceable in accordance with its terms.
3.3 NO CONFLICTS. Except as set forth on Schedule 3.3, the execution,
delivery and performance of this Agreement, the consummation of the transactions
contemplated hereby, and the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any
of the Company Charter Documents;
(b) conflict with, or result in a default (or would constitute
a default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Company or any Stockholder
is a party or by which the Company or any Stockholder is bound, or result in the
creation or imposition of any lien, charge or encumbrance on any of the
Company's properties pursuant to (i) any law or regulation to which the Company
or any Stockholder or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Company or any Stockholder is bound or
any of their respective property is subject;
(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which the Company or any Stockholder is subject or by which the
Company or any Stockholder is bound.
3.4 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists of 500,000 shares of common stock, $0.10 par value, of which
9,000 shares are issued and outstanding and no shares of preferred stock. All of
the issued and outstanding shares of the capital stock of the Company have been
duly authorized and validly issued, are fully paid and nonassessable and are
owned of record and beneficially by the Stockholders in the amounts set forth in
Schedule 3.4 free and clear of all Liens. All of the issued and outstanding
shares of the capital stock of the Company were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. Further, none of such shares was
issued in violation of any preemptive rights. There are no voting agreements or
voting trusts with respect to any of the outstanding shares of the capital stock
of the Company.
3.5 TRANSACTIONS IN CAPITAL STOCK; ACCOUNTING TREATMENT. Except as set
forth on Schedule 3.5, no option, warrant, call, subscription right, conversion
right or other contract or commitment of any kind exists of any character,
written or oral, which may obligate the Company to issue, sell or otherwise
become outstanding any shares of capital stock. The Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity
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securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. As a result of the Jamison Contribution, Parent
will be the record and beneficial owner of all outstanding capital stock of the
Company and rights to acquire capital stock of the Company.
3.6 SUBSIDIARIES STOCK
(a) Except as set forth on Schedule 3.6(a), the Company has no
subsidiaries.
(b) Except as set forth on Schedule 3.6(b), the Company does
not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other noncorporate entity.
3.7 COMPLETE COPIES OF MATERIALS. The Company has delivered to Parent
true and complete copies of each agreement, contract, commitment or other
document (or summaries thereof) that is referred to in the Schedules or that has
been requested by Parent, except for certain contracts for which representative
samples only have been provided to Parent.
3.8 COMPANY FINANCIAL CONDITIONS.
(a) The Net Worth (deficit) of the Company as of December 31,
1997 is not less than the Net Worth Target.
(b) The Company's revenues for the fiscal year ended December
31, 1997 were not less than $3,600,000.
(c) The Company's earnings before interest and taxes for the
fiscal year ended December 31, 1997 were not less than $20,000.
(d) The Company's Working Capital (Deficit) as of December 31,
1997 is not less than $(327,000).
(e) The sum of the Company's total outstanding long-term and
short-term indebtedness to banks, the Stockholders, and other financial
institutions and creditors as of December 31, 1997 (in each case including the
current portions of such indebtedness, but excluding trade payables and other
ordinary course accounts payable) is no greater than $178,000.
(f) The parties acknowledge and agree that for purposes of
determining the amounts in Sections 1.3 and 3.8: (i) the amount of any material
decrease or increase in intangible assets (including without limitation
goodwill, franchises and intellectual property) accounted for after the end of
Company's most recent fiscal year preceding the date hereof, shall be excluded,
and (ii) the effect of changes to GAAP on or after January 1, 1998 shall also be
excluded.
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3.9 FINANCIAL STATEMENTS. Schedule 3.9 includes true, complete and
correct copies of the Company's audited balance sheet as of December 31, 1997
(the end of its most recent completed fiscal year (the "Balance Sheet Date")),
and income statement for the year ended December 31, 1997 (collectively, the
"Audited Financials"). As noted on the auditors' report accompanying the Audited
Financials, the Audited Financials have been prepared in accordance with GAAP
consistently applied. The balance sheet included in the Audited Financials
presents fairly the financial condition of the Company as of the date indicated
thereon, and the income statement included in the Audited Financials presents
fairly the results of its operations for the periods indicated thereon. Since
the dates of the Audited Financials, there have been no material changes in the
Company's accounting policies other than as requested by Parent to conform the
Company's accounting policies to GAAP.
3.10 LIABILITIES AND OBLIGATIONS.
(a) To the Stockholders' knowledge, the Company is not liable
for or subject to any liabilities except for:
(i) those liabilities reflected on the Audited
Financials and Schedule 3.10(a) and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course
of its business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance
Sheet Date in the ordinary
course of business consistent with past practice, which liabilities are not,
individually or in the aggregate, material.
(b) Where so requested by Parent, the Company has delivered to
Parent, in the case of those liabilities which are not fixed or are contested, a
reasonable estimate of the maximum amount which may be payable.
(c) Schedule 3.10(c) includes a summary description of all
plans or projects presently in effect or contemplated by the Stockholders
involving the opening of new operations, expansion of any existing operations or
the acquisition of any real property or existing business, to which management
of the Company has made any material expenditure in the two-year period prior to
the date of this Agreement, which if pursued by the Company would require
additional material expenditures of capital.
(d) For purposes of this Section 3.10, the term "liabilities"
shall include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
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unmature or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured.
3.11 BOOKS AND RECORDS. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company (except for omissions that are not, individually or in
aggregate, material). The Company has not engaged in any transaction, maintained
any bank account, or used any corporate funds except for transactions, bank
accounts, and funds which have been and are reflected in its normally maintained
books and records.
3.12 BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 3.12 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the
Company has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
3.13 ACCOUNTS AND NOTES RECEIVABLE. Schedule 3.13 sets forth a complete
and accurate list, as of a date not more than forty-five (45) days prior to the
date hereof, of the accounts and notes receivable of the Company (including
without limitation receivables from and advances to employees and the
Stockholders), which includes an aging of all accounts and notes receivable
showing amounts due in 30-day aging categories (collectively, the "Accounts
Receivable"). All Accounts Receivable represent valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business. Subject to reserves shown on the Company's books and records (which
reserves are adequate and calculated consistent with past practice) each of the
Accounts Receivable is expected to be collected in full, without any set-off,
within one hundred twenty (120) days after the day on which it first became due
and payable. Except as set forth on Schedule 3.13, there is no material contest,
claim, or right of set-off, other than rebates and returns in the ordinary
course of business, under any contract with any obligor of a material Account
Receivable relating to the amount or validity of such Account Receivable.
3.14 PERMITS. To the Stockholders' knowledge, the Company owns or holds
all licenses, franchises, permits and other governmental authorizations,
including without limitation permits, titles (including without limitation motor
vehicle titles and current registrations), fuel permits, licenses and
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franchises necessary for the continued operation of its business as it is
currently being conducted (the "Company Permits"). To the Stockholders'
knowledge, the Company Permits are valid, and the Company has not received any
notice that any governmental authority intends to modify, cancel, terminate or
fail to renew any Company Permit. No present or former officer, manager, member
or employee of the Company or any affiliate thereof, or any other person, firm,
corporation or other entity, owns or has any proprietary, financial or other
interest (direct or indirect) in any Company Permits. To the Stockholders'
knowledge, the Company has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in the Company Permits and other applicable orders, approvals, variances, rules
and regulations and is not in violation of any of the foregoing, and the
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company, by any Company Permit.
3.15 REAL PROPERTY.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 3.15(b) contains a complete and accurate
description of all Real Property (including street address, legal description
(where known), owner, and Company's use thereof) and, to the Stockholder's
knowledge, any claims, liabilities, security interests, mortgages, liens,
pledges, conditions, charges, covenants, easements, restrictions, encroachments,
leases, or encumbrances of any nature thereon ("Encumbrances"). The Company does
not now own, nor has it ever owned, Real Property. The Real Property listed on
Schedule 3.15 includes all interests in real property necessary to conduct the
business and operations of the Company.
(c) All oral or written leases, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to which the
Company leases from any other party any real property, including all material
amendments, renewals, extensions, modifications or supplements to any of the
foregoing or substitutions for any of the foregoing (collectively, the "Leases")
are valid and in full force and effect. The Company has provided Parent with
true and complete copies of all of the Leases, all amendments, renewals,
extensions, modifications or supplements thereto, and all material
correspondence received or sent by the Company related thereto, including all
correspondence pursuant to which any party to any of the Leases declared a
default thereunder or provided notice of the exercise of any operation granted
to such party under such Lease. The Leases and the Company's interests
thereunder are free of all Liens. Except as set forth on Schedule 3.15(c), none
of the Leases requires the consent or approval of any party thereto in
connection with the consummation of the transactions contemplated hereby.
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3.16 PERSONAL PROPERTY.
(a) Schedule 3.16(a) sets forth a complete and accurate list
of all personal property included on the Audited Financials and all other
personal property owned or leased by the Company with a current book value in
excess of $2,500 both (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date, including in each case true, complete and correct copies
of leases for material equipment and an indication as to which assets are
currently owned, or were formerly owned, by any Stockholder or business or
personal affiliates of any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) To the Stockholders' knowledge, all of the property listed
on Schedule 3.16(a) is in good working order and condition, ordinary wear and
tear excepted. All leases set forth on Schedule 3.16(a) are in full force and
effect and constitute valid and binding agreements of the Company. The Company
is not in material breach of any of the leases set forth on Schedule 3.16(a).
All fixed assets used by the Company that are material to the operation of its
business are either owned by the Company or leased under an agreement listed on
Schedule 3.16(a).
3.17 INTELLECTUAL PROPERTY.
(a) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, the
registered and unregistered Marks listed on Schedule 3.17(a). Such schedule
lists (i) all of the Marks registered in the United States Patent and Trademark
Office ("PTO") or the equivalent thereof in any state of the United States or in
any foreign country by the Company or any affiliate thereof, and (ii) all of the
unregistered Marks, that the Company now owns or uses in connection with its
business (collectively, the "Company Marks"). Except with respect to those Marks
shown as licensed on Schedule 3.17(a), the Company owns all of the registered
and unregistered trademarks, service marks, and trade names that it uses. The
Marks listed on Schedule 3.17(a) will not cease to be valid rights of the
Company by reason of the execution, delivery and performance of this Agreement
or the consummation of the transactions contemplated hereby. For purposes of
this Section 3.17 and Section 4.8, the term "Marks" shall mean all right, title
and interest in and to any United States or foreign trademarks, service marks
and trade names now held by a party hereto, including any registration or
application for registration of any trademarks and services marks in the PTO or
the equivalent thereof in any state of the United States or in any foreign
country, as well as any unregistered marks used by a party hereto, and any trade
dress (including logos, designs, company names, business names, fictitious names
and other business identifiers) used by a party hereto in the United States or
any foreign country.
(b) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the Patents listed on Schedule 3.17(b)(i) (the "Company Patents") and in the
Copyright registrations listed on Schedule 3.17(b)(ii) (the "Company
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Copyrights"). Such Patents and Copyrights constitute all of the Company Patents
and Company Copyrights that the Company now owns or is licensed to use. The
Company owns or is licensed to practice under all Company Patents and Company
Copyrights that the Company now owns or uses in connection with its business.
For purposes of this Section 3.17 and Section 4.8, the term "Patent" shall mean
any United States or foreign patent to which a party hereto has title as of the
date of this Agreement, as well as any application for a United States or
foreign patent made by a party hereto; the term "Copyright" shall mean any
United States or foreign copyright owned by a party hereto as of the date of
this Agreement, including any registration of copyrights, in the United States
Copyright Office or the equivalent thereof in any foreign county, as well as any
application for a United States or foreign copyright registration made by a
party hereto.
(c) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the trade secrets, franchises, or similar rights (collectively, "Company Other
Rights") listed on Schedule 3.17(c). Those Company Other Rights constitute all
of the Company Other Rights that the Company now owns or is licensed to use. The
Company owns or is licensed to practice under all trade secrets, franchises or
similar rights that it owns, uses or practices under.
(d) For purposes of this Section 3.17, the Company Marks,
Company Patents, Company Copyrights, and Company Other Rights are referred to
collectively herein as the "Company Intellectual Property." The Company
Intellectual Property owned by the Company is referred to herein collectively as
the "Company Owned Intellectual Property." All other Company Intellectual
Property used by the Company is referred to herein collectively as the "Company
Third Party Intellectual Property." Except as indicated on Schedule 3.17(d), the
Company has no obligations to compensate any person for the use of any Company
Intellectual Property. Except as indicated on Schedule 3.17(d) or except in the
ordinary course of business, the Company has not granted to any person any
license, option or other rights to use in any manner any Company Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Company Third Party Intellectual Property
license, sublicense or agreement described in Schedule 3.17. No claims with
respect to the Company Owned Intellectual Property or Company Third Party
Intellectual Property are currently pending or, to the knowledge of the
Stockholders are threatened by any person, nor, to the Stockholder's knowledge,
do any grounds for any claims exist: (i) to the effect that the manufacture,
sale, licensing or use of any product as now used, sold or licensed or proposed
for use, sale or license by the Company infringes on any copyright, patent,
trademark, service mark or trade secret; (ii) against the use by the Company of
any trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the Company's
business as currently conducted by the Company; (iii) challenging the ownership,
validity or effectiveness of any of the Company Owned Intellectual Property or
other trade secret material to the Company; or (iv) challenging the Company's
license or legally enforceable right to use of the Company Third Party
Intellectual Property. To the Stockholders' knowledge, there is no
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unauthorized use, infringement or misappropriation of any of the Company Owned
Intellectual Property by any third party. Except as set forth in Schedule
3.17(e), neither the Company nor any of its subsidiaries (x) has been sued or
charged in writing as a defendant in any claim, suit, action or proceeding which
involves a claim or infringement of trade secrets, any patents, trademarks,
service marks, or copyrights and which has not been finally terminated or been
informed or notified by any third party that the Company may be engaged in such
infringement or (y) has knowledge of any infringement liability with respect to,
or infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service mark, or copyright of another.
3.18 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
(a) To the Stockholders' knowledge, Schedule 3.18(a) contains
a complete and accurate list of all contracts, commitments, leases, instruments,
agreements, licenses or permits, written or oral, to which the Company is a
party or by which it or its properties are bound (including without limitation
joint venture or partnership agreements, contracts with any labor organizations,
employment agreements, consulting agreements, loan agreements, indemnity or
guaranty agreements, bonds, mortgages, options to purchase land, liens, pledges
or other security agreements) (i) to which the Company and any affiliate of the
Company or any officer, director or stockholder of the Company are parties
("Related Party Agreements"); (ii) that may give rise to obligations or
liabilities exceeding, during the current term thereof, $5,000, or (iii) that
may generate revenues or income exceeding, during the current term thereof,
$5,000 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered to Parent true, complete and correct
copies of the Material Contracts, except for certain contracts for which
representative samples only have been provided to Parent.
(b) Except to the extent set forth on Schedule 3.18(b),to the
Stockholders' knowledge, (i) none of the Company's customers has canceled or
substantially reduced or, to the knowledge of the Stockholders, is currently
attempting or threatening to cancel or substantially reduce, any purchases from
the Company, (ii) none of the Company's suppliers has canceled or substantially
reduced or, to the knowledge of the Stockholders, is currently attempting to
cancel or substantially reduce, the supply of products or services to the
Company, (iii) the Company has complied with all of its commitments and
obligations and is not in default under any of the Material Contracts, and no
notice of default has been received with respect to any thereof, and (iv) other
than the Related Party Agreements, there are no Material Contracts that were not
negotiated at arm's length. The Company has not received any material customer
complaints concerning its products and/or services, nor has it had any of its
products returned by a purchaser thereof except for normal warranty returns
consistent with past history and those returns that would not result in a
reversal of any material revenue.
(c) To the Stockholders' knowledge, each Material Contract,
except those terminated pursuant to Section 5.6, is valid and binding on the
Company and is in full force and effect and is not subject to any default
thereunder by any party obligated to the Company pursuant thereto. The Company
will obtain prior to the Closing Date all necessary consents, waivers and
approvals of
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parties to any Material Contracts that are required in connection with any of
the transactions contemplated hereby, or are required by any governmental agency
or other third party in order that any such Material Contract remain in effect
without modification after the transactions contemplated hereby and without
giving rise to any right to termination, cancellation or acceleration or loss of
any right or benefit ("Third Party Consents"). All Third Party Consents are
listed on Schedule 3.18(c).
(d) The outstanding balance on all loans or credit agreements
either (i) between the Company and any person in which any of the Stockholders
owns a material interest, or (ii) guaranteed by the Company for the benefit of
any Person in which any of the Stockholders owns a material interest, are set
forth in Schedule 3.18(d).
3.19 PREDECESSOR STATUS; ETC. Schedule 3.19 sets forth a listing of all
legal names, trade names, fictitious names or other names (including, without
limitation, any names of divisions or operations) of the Company and all of its
predecessor companies during the five-year period immediately preceding the date
hereof, including without limitation the names of any entities from whom the
Company has acquired material assets. During the five-year period immediately
preceding the date hereof, the Company has operated only under the names set
forth on Schedule 3.19 in the jurisdiction or jurisdictions set forth on
Schedule 3.19 and has not been a subsidiary or division of another corporation
or a part of an acquisition which was later rescinded.
3.20 INSURANCE. Schedule 3.20 sets forth a complete and accurate list,
as of the Balance Sheet Date, of all insurance policies carried by the Company
and all insurance loss runs or workmen's compensation claims received for the
past two (2) policy years. The Company has delivered to Parent true, complete
and correct copies of all current insurance policies, all of which are in full
force and effect. All premiums payable under all such policies have been paid
and the Company is otherwise in full compliance with the terms of such policies.
Such policies of insurance are of the type and in amounts customarily carried by
persons conducting businesses similar to that of the Company. To the knowledge
of the Stockholders, there have been no threatened terminations of, or material
premium increases with respect to, any of such policies.
3.21 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. To the Stockholders' knowledge, other
than as set forth on Schedule 3.21(a), no underground storage tanks and no
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state, local or other applicable law to be radioactive,
toxic, hazardous or otherwise a danger to health or the environment, including,
without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, but excluding office and janitorial supplies properly and safely
maintained (a "Hazardous Material"), are present in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned,
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operated, occupied or leased. Schedule 3.21(a) identifies, to the knowledge of
the Stockholders, all underground and aboveground storage tanks, and the
capacity, age, and contents of such tanks, located on Real Property owned or
leased by the Company.
(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of or released, or exposed its
employees or others to, Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the Company disposed of, transported, sold,
or manufactured any product containing a Hazardous Material (collectively,
"Company Hazardous Materials Activities") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the knowledge of the Stockholders, threatened concerning any
Hazardous Material or any Company Hazardous Materials Activity. There are no
past or present actions, activities, circumstances, conditions, events, or
incidents that could involve the Company (or any person or entity whose
liability the Company has retained or assumed, either by contract or operation
of law) in any environmental litigation, or impose upon the Company (or any
person or entity whose liability the Company has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
3.22 LABOR AND EMPLOYMENT MATTERS. With respect to employees of and
service providers to the Company:
(a) the Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
(b) there is not now, nor within the past three (3) years has
there been, any unfair labor practice complaint against the Company pending or,
to the Stockholders' knowledge, threatened, before the National Labor Relations
Board or any other comparable authority;
(c) there is not now, nor within the past three (3) years has
there been, any labor strike, slowdown or stoppage actually pending or, to the
Stockholders' knowledge, threatened, against or directly affecting the Company;
(d) to the Stockholders' knowledge, no labor representation
organization effort exists nor has there been any such activity within the past
three (3) years;
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(e) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to the Stockholder's
knowledge, no claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) the Company and the Stockholders have a reasonable basis
for believing that all persons classified by the Company as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so.
3.23 EMPLOYEE BENEFIT PLANS.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit
arrangement, obligation, custom, or practice, whether or not legally
enforceable, to provide benefits, other than salary, as compensation for
services rendered, to present or former directors, employees, agents, or
independent contractors, other than any obligation, arrangement, custom or
practice that is an Employee Benefit Plan, including, without limitation,
employment agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, any plans subject to Section 125 of the
Code, and any plans providing benefits or payments in the event of a change of
control, change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion thereof, in each
case with respect to any present or former employees, directors, or agents.
(ii) "Company Benefit Arrangement" means any Benefit
Arrangement sponsored or maintained by the Company or with respect to which the
Company has or may have any liability (whether actual, contingent, with respect
to any of its assets or otherwise) as of the Closing Date, in each case with
respect to any present or former directors, employees, or agents of the Company.
(iii) "Company Plan" means, as of the Closing Date,
any Employee Benefit Plan for which the Company is the "plan sponsor" (as
defined in Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by
the Company or to which the Company is obligated to make payments, in each case
with respect to any present or former employees of the Company.
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(iv) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations and rules issued
thereunder, or any successor law.
(vi) "ERISA Affiliate" means any person that,
together with the Company, would be or was at any time treated as a single
employer under Section 414 of the Code or Section 4001 of ERISA and any general
partnership of which the Company is or has been a general partner.
(b) Schedule 3.23(b) contains a complete and accurate list of
all Company Benefit Arrangements. The Company does not now maintain, nor has it
ever maintained, any Company Plan.
(c) Schedule 3.23(c) hereto contains the most recent quarterly
listing of workers' compensation claims and a schedule of workers' compensation
claims of the Company for the last three (3) fiscal years.
(d) Schedule 3.23(d) hereto sets forth an accurate list, as of
the date hereof, of all employees of the Company who earned in 1997, or are
likely to earn in 1998, more than $75,000, all officers and all directors, and
lists all employment agreements with such employees, officers and directors and
the rate of compensation (and the portions thereof attributable to salary,
bonus, and other compensation respectively) of each such person as of (a) the
Balance Sheet Date and (b) the date hereof.
3.24 TAXES.
(a) (i) Except as set forth on Schedule 3.24, the Company has
timely filed all Tax Returns due on or before the date hereof, and all such Tax
Returns are true, correct, and complete in all respects.
(ii) Except as set forth on Schedule 3.24, the
Company has paid in full on a timely basis all Taxes owed by it, whether or not
shown on any Tax Return.
(iii) The amount of the Company's liability for
unpaid Taxes as of the Balance Sheet Date did not exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
included in the amounts shown on the balance sheet comprising the Audited
Financials, and the amount of the Company's liability for unpaid Taxes for all
periods or portions thereof ending on or before the Closing Date will not exceed
the amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes) as such accruals are reflected on the books and records of the
Company on the Closing Date.
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(iv) Except as set forth on Schedule 3.24, there are
no ongoing examinations or claims against the Company for Taxes, and no notice
of any audit, examination, or claim for Taxes, whether pending or threatened,
has been received.
(v) The Company has a taxable year ended on December
31, in each year commencing 1984.
(vi) The Company currently utilizes the cash method
of accounting for income Tax purposes and such method of accounting has not
changed in the past 13 years. The Company has not agreed to, and is not and will
not be required to, make any adjustments under Code Section 481(a) as a result
of a change in accounting methods.
(vii) The Company has withheld and paid over to the
proper governmental
authorities all Taxes required to have been withheld and paid over, and complied
with all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with amounts
paid to any employee, independent contractor, creditor, or other third party.
(viii) Copies of (A) any Tax examinations, (B)
extensions of statutory
limitations for the collection or assessment of Taxes and (C) the Tax Returns of
the Company for the last fiscal year have been delivered to Parent.
(ix) There are (and as of immediately following the
Closing there will be) no Liens on the assets of the Company relating to or
attributable to Taxes.
(x) To the Stockholder's knowledge, there is no basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Company or
otherwise have an adverse effect on the Company or its business.
(xi) None of the Company's assets are treated as "tax
exempt use property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xiii) The Company has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
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(xiv) The Company is not, and has not been at any
time, a party to a tax sharing, tax indemnity or tax allocation agreement, and
the Company has not assumed the tax liability of any other person under
contract.
(xv) The Company is not, and has not been at any
time, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xvi) The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income tax deductions is accurately reflected on the Company's tax books and
records.
(xvii) The Company has not been a member of an
affiliated group filing a consolidated federal income Tax Return and does not
have any liability for the Taxes of another person under Treas. Reg. ss.
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise.
(b) The Company has always been a C corporation.
(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return
(including any information return), report, statement, schedule, notice, form,
estimate, or declaration of estimated tax relating to or required to be filed
with any governmental authority in connection with the determination,
assessment, collection or payment of any Tax.
3.25 CONFORMITY WITH LAW; LITIGATION.
(a) To the Stockholders' knowledge, the Company has not
violated any law or regulation or any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it.
(b) Except as set forth on Schedule 3.24, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting the Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received.
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There are no judgments, orders, injunctions, decrees, stipulations or awards
(whether rendered by a court or administrative agency or by arbitration) against
the Company or against any of its properties or business.
3.26 ABSENCE OF CLAIMS AGAINST COMPANY. No Stockholder has any claims
against the Company.
3.27 ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
(including, without limitation, as contemplated in Section 7.8) or as set forth
on Schedule 3.27, there has not been:
(a) any change, by itself or together with other changes, that
has affected adversely, or is likely to affect adversely, the business,
operations, affairs, prospects, properties, assets, profits or condition
(financial or otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in
its outstanding securities or any change in its ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution
in respect of the capital stock, or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions
or fee arrangements payable or to become payable by the Company to any of its
officers directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice, nor has the Company entered into or amended any Company
Benefit Arrangement, Company Plan, employment, severance or other agreement
relating to compensation or fringe benefits;
(f) any work interruptions, labor grievances or claims filed,
or any similar event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
(g) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the Company to any person,
including without limitation the Stockholders and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without limitation any
indebtedness or obligation of the
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Stockholders and their affiliates, provided that the Company may negotiate and
adjust bills in the course of good faith disputes with customers in a manner
consistent with past practice;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company;
(k) any waiver of any material rights or claims of the
Company;
(l) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party (x) by the Company or (y) to the knowledge of the Stockholders, by any
other party;
(m) any transaction by the Company outside the ordinary course
of business;
(n) any capital commitment by the Company, either individually
or in the aggregate, exceeding $25,000;
(o) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by the Company or
the revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination
or non- renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Company in excess
of $25,000;
(r) any loan by the Company to any person or entity, incurring
by the Company, of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Stockholders, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs;
(t) any introduction of any promotional offer, including,
without limitation, discounted and free products or services or reduction of
standard pricing levels for the Company's
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goods or services with pricing that is less than 20% below the average pricing
for comparable clients; or
(u) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (t) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
3.28 DISCLOSURE. All written agreements, lists, schedules, instruments,
exhibits, documents, certificates, reports, statements and other writings
furnished to Parent pursuant hereto or in connection with this Agreement or the
transactions contemplated hereby, are and will be complete and accurate in all
material respects. No representation or warranty by the Stockholders or the
Company contained in this Agreement, in the Schedules attached hereto or in any
certificate furnished or to be furnished by the Stockholders or the Company to
Parent in connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary in order to make any statement contained herein or therein not
misleading. There is no fact known to any Stockholder that has specific
application to such Stockholder or the Company (other than general economic or
industry conditions) and that materially adversely affects or, as far as such
Stockholder can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Company that has
not been set forth in this Agreement or any Schedule hereto.
3.29 SECURITIES REPRESENTATIONS. Each Stockholder is an "Accredited
Investor" within the meaning of the federal securities laws. Each Stockholder
has either directly, and/or through the Company, obtained sufficient information
concerning RIGINC, RIGLP, Parent and their business, present and proposed, to
have made an informed investment decision concerning this Agreement and the
Transactions contemplated hereby, and has had an adequate opportunity to ask
questions and receive answers to his or her satisfaction from the officers of
RIGINC, RIGLP and Parent concerning the business, operations and financial
condition of RIGINC, RIGLP and Parent. Each Stockholder has such knowledge and
experience in business and financial matters as to be capable of evaluating the
merits and risks of an investment in shares of Parent Common Stock and
protecting its own interest in connection with the investment in such shares.
3.30 NO KNOWLEDGE OF RIG PARTY BREACHES. As of the date of this
Agreement, the Jamison Parties have no knowledge that any RIG Party is in
material breach of its representations or warranties under this Agreement.
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ARTICLE IV.
REPRESENTATIONS OF THE RIG PARTIES
For purposes of this Article IV, "the RIG Business" shall mean the
business of RIGLP and RIGINC prior to the RIG Contributions, and the business of
Parent from and after the RIG Contributions (but excluding the Jamison
Contribution). To induce the Company and the Stockholders to enter into this
Agreement and consummate the transactions contemplated hereby, each of the RIG
Parties represents and warrants to the Company and the Stockholders as follows
(for purposes of this Agreement the phrases "knowledge of the RIG Parties" or
"RIG Parties' knowledge," or words of similar import, mean the knowledge of
Andrew C. Florance and Michael R. Klein, including facts of which either, in the
reasonably prudent exercise of his duties as an officer, director and/or
beneficial owner of an interest in RIGINC and RIGLP, should be aware):
4.1 DUE ORGANIZATION. Each of RIGINC and Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities and to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted. RIGLP is a limited partnership validly
existing and in good standing under the laws of the state of Delaware and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities and to own, operate and
lease its properties and to carry on its business in the places and in the
manner as now conducted. True, complete and correct copies of the Certificate of
Incorporation and the Bylaws, each as amended, of Parent and RIGINC, and the
Partnership Agreement of RIGLP, (collectively, the "RIG Charter Documents") have
been made available to the Company. No RIG Party is in violation of any of the
RIG Charter Documents.
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS. The representatives of each
of the RIG Parties executing this Agreement have all requisite power and
authority to enter into and bind such party to the terms of this Agreement. Each
of the RIG Parties has the full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. The execution
and delivery of this Agreement by each of the RIG Parties and the performance by
each of the RIG Parties of the transactions contemplated herein have been duly
and validly authorized by the Board of Directors or the General Partner of each
such party, and this Agreement has been duly and validly authorized by all
necessary action. This Agreement is a legal, valid and binding obligation of
each of the RIG Parties, as the case may be, enforceable in accordance with its
terms.
4.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the
RIG Charter Documents;
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(b) subject to compliance with any agreements between any RIG
Party and its lenders and as indicated in Schedule 4.3(b), conflict with, or
result in a default (or would constitute a default but for a requirement of
notice or lapse of time or both) under any document, agreement or other
instrument to which a RIG Party is a party, or result in the creation or
imposition of any lien, charge or encumbrance on any properties of the RIG
Parties pursuant to (i) any law or regulation to which any RIG Party or any of
its property is subject, or (ii) any judgment, order or decree to which any RIG
Party is bound or any of its property is subject;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of any RIG
Party; or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which any RIG Party is subject, or by which any RIG Party is
bound.
4.4 CAPITALIZATION OF PARENT AND OWNERSHIP OF PARENT STOCK. As of the
date of this Agreement: (a) the authorized capital stock of Parent consists of
6,000,000 shares of Common Stock and no shares of Preferred Stock; (b) no of
Parent Common Stock and no shares of Preferred Stock were outstanding; (c)
1,023,030 shares of RIGINC Common Stock and no shares of Preferred Stock were
outstanding; and (d) 2,030,497 general and limited partnership units of RIGLP
were outstand ing. All of the shares of Parent Common Stock to be issued to the
Stockholders in accordance herewith will be offered, issued, sold and delivered
by Parent in compliance with all applicable state and federal laws concerning
the issuance of securities and none of such shares was or will be issued in
violation of the preemptive rights of any stockholder of Parent.
4.5 FINANCIAL STATEMENTS.
(a) Schedule 4.5(a) includes true, complete and correct copies
of RIGLP's audited balance sheets as of December 31, 1995, 1996 and 1997, and
income statements for the years ended December 31, 1995, 1996 and 1997
(collectively, the "RIGLP Audited Financials"). Except as noted on the auditors'
report accompanying the RIGLP Audited Financials, the RIGLP Audited Financials
have been prepared in accordance with GAAP consistently applied. Each balance
sheet included in the RIGLP Audited Financials presents fairly the financial
condition of RIGLP as of the date indicated thereon, and each of the income
statements included in the RIGLP Audited Financials presents fairly the results
of its operations for the periods indicated thereon. Since the date of the most
recent RIGLP Audited Financials, there has been no material changes in RIGLP's
accounting policies except as required in connection with the IPO and the
Contributions.
(b) Schedule 4.5(b) includes true, complete and correct copies
of RIGINC's unaudited balance sheets as of December 31, 1995, 1996 and 1997, and
unaudited income statements for the years ended December 31, 1995, 1996 and 1997
(collectively, the "RIGINC Unaudited Financials"). The RIGINC Unaudited
Financials have been prepared in accordance with GAAP consistently applied
subject (i) to normal year-end audit adjustments, which individually or in the
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aggregate will not be material and (ii) to the omission of footnote information.
Each balance sheet included in the RIGINC Unaudited Financials presents fairly
the financial condition of RIGINC as of the date indicated thereon, and each of
the income statements included in the RIGINC Unaudited Financials presents
fairly the results of its operations for the periods indicated thereon. Since
the date of the most recent RIGINC Unaudited Financials, there has been no
material changes in RIGINC's accounting policies except as required in
connection with the IPO and the Contributions.
4.6 LIABILITIES AND OBLIGATIONS.
(a) To the knowledge of the RIG Parties, the RIG Parties are
not liable for or subject to any liabilities except for:
(i) those liabilities reflected on financial
statements and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course
of their business consistent with past practice under any contract, commitment
or agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the December
31, 1997 in the ordinary
course of business consistent with past practice, which liabilities are not,
individually or in the aggregate, material.
(b) For purposes of this Section 4.6, the term "liabilities"
shall include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured.
4.7 PERMITS. To the knowledge of the RIG Parties, the RIG Parties own
or hold all licenses, franchises, permits and other governmental authorizations,
including without limitation permits, titles (including without limitation motor
vehicle titles and current registrations), fuel permits, licenses and franchises
necessary for the continued operation of the RIG Business as it is currently
being conducted ( "RIG Permits"). To the knowledge of the RIG Parties, the RIG
Permits are valid, and the RIG Parties have not received any notice that any
governmental authority intends to modify, cancel, terminate or fail to renew any
RIG Permit. No present or former officer, manager, member or employee of any RIG
Party or any affiliate thereof, or any other person, firm, corporation or other
entity, owns or has any proprietary, financial or other interest (direct or
indirect) in any RIG Permit. To the knowledge of the RIG Parties, the RIG
Business has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the RIG Permits
and other applicable orders, approvals, variances, rules and regulations and is
not in violation of any of the foregoing, and the transactions contemplated by
this Agreement will not result in a default
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under, or a breach or violation of, or adversely affect the rights and benefits
afforded to the RIG Business, by any RIG Permit.
4.8 INTELLECTUAL PROPERTY.
(a) One of the RIG Parties is the true and lawful owner of, or
is licensed or otherwise possesses legally enforceable rights to use, the
registered and unregistered Marks (the "RIG Marks") necessary for the RIG
Business as currently conducted. Except with respect to those RIG Marks which
are licensed by one of the RIG Parties from a third party, the RIG Parties own
all of the registered and unregistered trademarks, service marks, and trade
names used by the RIG Business. The RIG Marks will not cease to be valid rights
of one of the RIG Parties by reason of the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby.
(b) One of the RIG Parties is the true and lawful owner of, or
is licensed or otherwise possesses legally enforceable rights to use, all rights
in the Patents (the "RIG Patents") and Copyrights (the "RIG Copyrights")
necessary for the RIG Business as currently conducted.
(c) One of the RIG Parties is the true and lawful owner of, or
is licensed or otherwise possesses legally enforceable rights to use, all other
rights in trade secrets, franchises or similar rights that are necessary for the
RIG Business as currently conducted (the "RIG Other Rights").
(d) For purposes of this Section 4.8, the RIG Marks, RIG
Patents, RIG Copyrights, and RIG Other Rights are referred to herein
collectively as the "RIG Intellectual Property." The RIG Intellectual Property
owned by the RIG Parties is referred to as the "RIG Owned Intellectual
Property". All other RIG Intellectual Property used by the RIG Parties is
referred to herein collectively as the "RIG Third Party Intellectual Property."
Except as indicated on Schedule 4.8(d), the RIG Parties have no obligations to
compensate any person for the use of any RIG Intellectual Property. Except as
indicated on Schedule 4.8(d) or except in the ordinary course of business, the
RIG Parties have not granted to any person any license, option or other rights
to use in any manner any RIG Intellectual Property, whether requiring the
payment of royalties or not.
(e) No RIG Party is, nor will any RIG Party be, as a result of
the execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any material RIG Third Party Intellectual
Property license, sublicense or agreement. No claims with respect to the RIG
Owned Intellectual Property or RIG Third Party Intellectual Property are
currently pending or, to the knowledge of the RIG Parties are threatened by any
person, nor, to the knowledge of the RIG Parties, do any grounds for any claims
exist: (i) to the effect that the manufacture, sale, licensing or use of any
product as now used, sold or licensed or proposed for use, sale or license by
any RIG Party infringes on any copyright, patent, trademark, service mark or
trade secret; (ii) against the use by any RIG Party of any trademarks, trade
names, trade secrets, copyrights, patents, technology, know-how or computer
software programs and applications used in the RIG Business
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as currently conducted by the RIG Parties; (iii) challenging the ownership,
validity or effectiveness of any of the RIG Owned Intellectual Property or other
trade secret material to the RIG Business; or (iv) challenging the license or
legally enforceable right of the RIG Parties to use of the RIG Third Party
Intellectual Property. No RIG Party (x) has been sued or charged in writing as a
defendant in any claim, suit, action or proceeding which involves a claim or
infringement of trade secrets, any patents, trademarks, service marks, or
copyrights and which has not been finally terminated or been informed or
notified by any third party that any RIG Party may be engaged in such
infringement or (y) has knowledge of any infringement liability with respect to,
or infringement by, any RIG Party of any trade secret, patent, trademark,
service mark, or copyright of another.
4.9 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. Other than as set forth on Schedule
4.9(a), no Hazardous Materials are present in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that any RIG Party has at any time owned, operated, occupied or leased. Schedule
4.9(a) identifies, to the knowledge of the RIG Parties, all underground and
aboveground storage tanks, and the capacity, age, and contents of such tanks,
located on real property owned or leased by any RIG Party.
(b) Hazardous Materials Activities. The RIG Business has not
transported, stored, used, manufactured, disposed of or released, or exposed its
employees or others to, Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the RIG Business disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (collectively,
"RIG Hazardous Materials Activities") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the knowledge of the RIG Parties, threatened concerning any
Hazardous Material or any RIG Hazardous Materials Activity. There are no past or
present actions, activities, circumstances, conditions, events, or incidents
that could involve the RIG Business (or any person or entity whose liability any
RIG Party has retained or assumed, either by contract or operation of law) in
any environmental litigation, or impose upon the RIG Business (or any person or
entity whose liability the RIG Business has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
4.10 INSURANCE. The RIG Business is the beneficiary of insurance
policies of the type and in amounts customarily carried by persons conducting
businesses similar to that of the RIG Business. To the knowledge of the RIG
Parties, there have been no threatened terminations of, or material premium
increases with respect to, any of such policies. All premiums payable under all
such policies have been paid and the RIG Business is otherwise in full
compliance with the terms of such policies.
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4.11 TAXES.
(a) The RIG Parties have timely filed all Tax Returns due on
or before the Closing Date, and all such Tax Returns are true, correct, and
complete in all respects.
(b) The RIG Parties have paid in full on a timely basis all
Taxes owed by such Parties whether or not shown on any Tax Return.
(c) The amount of RIGLP's liability for unpaid Taxes as of the
Balance Sheet Date did not exceed the amount of the current liability accruals
for Taxes (excluding reserves for deferred Taxes) shown on the RIGLP Audited
Financials, and the amount of RIGLP's liability for unpaid Taxes for all periods
or portions thereof ending on or before the Closing Date will not exceed the
amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes) as such accruals are reflected on the books and records of RIGLP
on the Closing Date.
(d) RIGLP has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor, or other
third party.
(e) There are (and as of immediately following the Closing
there will be) no Liens on the assets of RIGLP relating to or attributable to
Taxes.
(f) Except as set forth on Schedule 4.11, there are no ongoing
examinations or claims against any of the RIG Parties for Taxes, and no notice
of any audit, examination, or claim for Taxes, whether pending or threatened,
has been received.
(g) To the knowledge of the RIG Parties, there is no basis for
the assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the RIG Business or
otherwise have an adverse effect on the RIG Business.
4.12 CONFORMITY WITH LAW; LITIGATION.
(a) To the knowledge of the RIG Parties, no RIG Party has
violated any law or regulation or any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it.
(b) Except as set forth on Schedule 4.12(b), there are no
claims, actions, suits or proceedings, pending or, to the knowledge of the RIG
Parties, threatened against or affecting any RIG Party at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
and no
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notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against any RIG Party or against any of their properties or
business.
4.13 ABSENCE OF CHANGES. Since the date of the RIG Interim Financial
Statements, the RIG Business has been conducted in the ordinary course and,
except as contemplated herein or as set forth on Schedule 4.13, there has not
been any change, by itself or together with other changes, that has affected
adversely, or is likely to affect adversely, the business, operations, affairs,
prospects, properties, assets, profits or condition (financial or otherwise) of
the RIG Business.
4.14 NO KNOWLEDGE OF JAMISON BREACHES. As of the date of this
Agreement, the RIG Parties have no knowledge that any Jamison Party is in
material breach of his, her or its representations or warranties under this
Agreement.
ARTICLE V.
COVENANTS
5.1 TAX MATTERS.
The following provisions shall govern the allocation of responsibility
as between the Company, on the one hand, and the Stockholders, on the other, for
certain tax matters following the Closing Date:
( a) Stockholders shall prepare or cause to be prepared and
file or cause to be filed, within the time and in the manner provided by law,
all Tax Returns of the Company (i) for all periods ending on or before the
Closing Date that are due after the Closing Date and (ii) for all state and
Federal Tax Returns, Tax Returns covering the stub period from January 1, 1998
until the date of Closing Date. Stockholders shall pay to the Company on or
before the due date of such Tax Returns the amount of all Taxes shown as due on
such Tax Returns to the extent that such Taxes are not reflected in the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Company's books and records as of the Closing Date. Such Returns shall be
prepared and filed in accordance with applicable law and in a manner consistent
with past practices and shall be subject to review and approval by Parent. To
the extent reasonably requested by the Stockholders or required by law, Parent
and the Company shall participate in the filing of any Tax Returns filed
pursuant to this paragraph.
(b) The Company shall prepare or cause to be prepared and file
or cause to be filed any Tax Returns for Tax periods which begin before the
Closing Date and end after the Closing Date (except as provided in Section
5.1(a)(ii)). The Stockholders shall pay to the Company within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the
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portion of such Taxes which relates to the portion of such taxable period ending
on the Closing Date to the extent such Taxes are not reflected in the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Company's books and records as of the Closing Date. For purposes of this
Section 5.1, in the case of any Taxes that are imposed on a periodic basis and
are payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire Taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company.
(c) Parent and the Company on one hand and Stockholders on the
other hand shall (A) cooperate fully, as reasonably requested, in connection
with the preparation and filing of Tax Returns pursuant to this Section 5.1 and
any audit, litigation or other proceeding with respect to Taxes; (B) make
available to the other, as reasonably requested, all information, records or
documents with respect to Tax matters pertinent to the Company for all periods
ending prior to or including the Closing Date; and (C) preserve information,
records or documents relating Tax matters pertinent to the Company that is in
their possession or under their control until the expiration of any applicable
statute of limitations or extensions thereof.
(d) The Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
Parent and the Company will join in the execution of any such Tax Returns and
other documentation.
5.2 EMPLOYEE BENEFIT PLANS. If reasonably requested by Parent, the
Company shall terminate any Company Plan or Company Benefit Arrangement
substantially contemporaneously with the Closing. Notwithstanding the foregoing,
with respect to any Company Plan or Company Benefit Arrangement that is not
terminated or merged into an existing Parent plan or benefit arrangement
substantially contemporaneously with the Closing, the Stockholders shall
cooperate (and shall use their reasonable efforts to cause the officers and
employees of the Company that are responsible to administering any such Company
Plan or Company Benefit Arrangement to cooperate) with Parent on and after the
Closing Date in continuing to administer and maintain such Company Plan or
Company Benefit Arrangement in accordance with its constituent documents and
with all applicable provisions of the Code, ERISA and other laws, including
applicable federal and state securities laws,
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until such time as the Company Plan or Company Benefit Arrangement are
terminated or merged into a Parent plan or benefit arrangement.
5.3 RELATED PARTY AGREEMENTS. The Company and/or the Stockholders, as
the case may be, shall terminate any Related Party Agreements which Parent
requests the Company or Stockholders to terminate.
5.4 COOPERATION.
(a) The Company, Stockholders and Parent shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other times
and places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the chairman and vice president of the Company shall
execute any documentation reasonably required by Parent's Independent Auditors
(in connection with such accountant's audit of the Company) or the Nasdaq
National Market.
(b) The Stockholders and the Company shall cooperate and use
their reasonable efforts to have the present officers, directors and employees
of the Company cooperate with Parent on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all
consents and approvals required under this Agreement to effect the transactions
contemplated hereby
5.5 ACCESS TO INFORMATION; PUBLIC DISCLOSURE.
(a) Between the date of this Agreement and the Closing Date,
the Company will provide to the officers and authorized representatives of
Parent (i) access to all of the sites, properties, books and records of the
Company, (ii) within thirty (30) days of the end of each calendar month starting
with February 1998, a copy of the Company's unaudited balance sheet and income
statements for such month on a cash basis and a statement of Accounts Receivable
with the detail set forth in Section 3.13, (iii) as promptly as reasonably but
in any event within thirty days of March 31, 1998 and the Closing, a copy of the
Company's unaudited balance sheet and income statements as of such dates on an
accrual basis, and (iv) such additional financial and operating data and other
information as to the business and properties of the Company as Parent may from
time to time reasonably request, including without limitation, access upon
reasonable request to the Company's employees, customers, vendors, suppliers and
creditors for due diligence inquiry. No information or knowledge obtained in any
investigation pursuant to this Section 5.5 shall affect or be deemed to modify
any representation or warranty contained in this Agreement or the conditions to
the obligations of the parties to consummate the transactions contemplated
hereby. Parent shall bear the cost of the preparation of accrual basis
statements pursuant to clause (iii) of this Section 5.5(a).
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(b) Prior to the Closing, neither the Company nor any
Stockholder shall make any disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement unless previously approved by Parent in
writing. Parent agrees to keep the Company and the Stockholders apprised in
advance of any disclosure of the subject matter of this Agreement by Parent
prior to the Closing.
5.6 CONDUCT OF BUSINESS PENDING CLOSING. Between the date hereof and
the Closing, the Company will (except to the extent approved in writing by
Parent, or except as requested or agreed by Parent in writing):
(a) carry on its business in substantially the same manner as
it has heretofore and not introduce any material new method of management,
operation or accounting (except for the conversion of the Company from the cash
to accrual method of accounting);
(b) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform all of its obligations under agreements relating
to or affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and
preserve its business organization intact, retain its present officers and key
employees and maintain its relationships with suppliers, vendors, customers,
creditors and others having business relations with it;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments (except as may be permitted in
connection with the performance of the provisions of Section 7.8); and
(h) maintain present salaries and commission levels for all
officers, directors, employees, agents, representatives and independent
contractors, except for ordinary and customary bonuses and salary increases for
employees (other than employees who are also Stockholders) in accordance with
past practice.
5.7 PROHIBITED ACTIVITIES. Between the date hereof and the Closing,
except as provided in Section 5.13, the Company will not, without the prior
written consent of Parent, which consent shall not be unreasonably withheld:
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(a) make any change in its Articles of Incorporation or
Bylaws, or authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution
(whether in cash, stock or property) in respect of its stock whether now or
hereafter outstanding, or split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, or guarantee any
indebtedness, except in the ordinary course of business and consistent with past
practice in an amount not to exceed, in aggregate, $50,000 (or except as may be
permitted in connection with the performance of the provisions of Section 7.8),
including contracts to provide services to customers;
(e) increase the compensation payable or to become payable to
any officer, director, Stockholder, employee, agent, representative or
independent contractor (for purposes of this clause, the current combined
compensation of Henry D. Jamison, IV and Leslie Lees Jamison, in whatever
capacities, shall be deemed not to exceed, in aggregate, $30,000 on a monthly
basis); make any bonus or management fee payment to any such person; make any
loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; grant any severance or termination pay; or hire any employees other
than clerical or secretarial employees who have annual salaries exceeding, in
aggregate, $50,000;
(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired (except as may be permitted in connection with the performance of the
provisions of Section 7.8);
(g) sell, assign, lease, pledge or otherwise transfer or
dispose of any property or equipment except in the ordinary course of business
consistent with past practice in an amount not to exceed, in aggregate, $10,000
(or except as may be permitted in connection with the performance of the
provisions of Section 7.8);
(h) except as permitted by Section 5.7(d), acquire or
negotiate for the acquisition of (by merger, consolidation, purchase of a
substantial portion of assets or otherwise) any business or the start-up of any
new business, or otherwise acquire or agree to acquire any assets;
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(i) merge or consolidate or negotiate or agree to merge or
consolidate with or into any other corporation;
(j) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material
agreement, permit, license or other right;
(l) enter into any transaction (i) that is not negotiated at
arm's length with a third party not affiliated with the Company or any officer,
director or Stockholder of the Company or (ii) outside the ordinary course of
business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of
bills;
(n) revalue any of its assets, including without limitation,
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of Parent;
(p) change the name of the Company, or operate under or use
any legal name, trade name, fictitious name or other name, other than the names
listed on Schedule 3.19 in the jurisdictions indicated;
(q) introduce any promotional offer, including, without
limitation, discounted and free products or services or reduce standard pricing
levels for the Company's goods or services with pricing that is less than 20%
below the average pricing for comparable clients; or
(r) take, or agree (in writing or otherwise) to take, any of
the actions described in Sections 5.10(a) through (q) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles VI and VII not being satisfied.
5.8 NOTIFICATION OF CERTAIN MATTERS. Each party hereto shall give
prompt notice to the other parties hereto of (a) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of it contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (b)
any material
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failure of such party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such party hereunder. The delivery
of any notice pursuant to this Section 5.12 shall not, without the express
written consent of the other parties be deemed to (x) modify the representations
or warranties hereunder of the party delivering such notice, (y) modify the
conditions set forth in Articles VI and VII, or (z) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
5.9 SALES OF PARENT COMMON STOCK; REGISTRATION RIGHTS.
(a) Neither Stockholder will, directly or indirectly, offer,
sell, contract to sell, pledge or otherwise dispose of the Restricted Shares
prior to the second anniversary of the Closing.
(b) The certificate or certificates evidencing the Restricted
Shares to be delivered to the Stockholders in the Transaction will be subject to
appropriate stop transfer instructions and bear the restrictive legends
described on Schedule 5.9. The Pledged Shares shall bear the restrictive legends
described on Schedule 5.9. The parties shall enter into a registration rights
agreement substantially in the form of the agreement attached hereto as Exhibit
5.9 (the "Registration Rights Agreement").
5.10 IPO. Parent shall exercise commercially reasonable efforts to
undertake and cause to become effective the IPO and register the Registered
Shares for resale by the Stockholders in the IPO.
5.11 GUARANTEE. RIGINC and RIGLP hereby guarantee the performance of
the obligations of Parent under this Agreement until completion of the RIG
Contributions. RIGINC and RIGLP shall be released from any and all obligations
under this Agreement, including without limitation obligations based on the
guarantee provided in this Section 5.11, upon completion of the RIG
Contributions.
5.12 STANDSTILL. Upon and after execution of this Agreement until the
Closing Date, the RIG Parties on the one hand, and the Jamison Parties on the
other, for themselves and on behalf their respective affiliates, successors and
assignees, agree not to (i) engage, directly or indirectly, in any business
providing real estate information services in the state of Florida or the city
of Houston, Texas, or (ii) enter into any discussions, negotiations or
agreements to engage in any such activity, without the prior written consent of
the Parent or the Stockholders' Representative for actions to be taken by the
Jamison Parties or the RIG Parties, respectively.
5.13 OTHER OBLIGATIONS. Notwithstanding any other provision of this
Agreement and except as provided in the following sentence, the Jamison Parties
agree to assume responsibility for, and indemnify and hold the RIG Parties
harmless from, any and all liabilities arising from or relating to the Company's
obligations set forth on Schedule 5.13. The Company may take actions described
in clauses (c), (d) or (e) of Section 5.7 and/or pay for the liabilities assumed
by the Jamison Parties pursuant to the preceding sentence of this Section 5.13
provided that the amounts so expended and
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liabilities so incurred do not exceed, in aggregate, fifty percent (50%) of the
amount, if any, by which (i) the Actual Net Worth as of the Closing Date plus
reasonable attorneys' fees paid by the Company in accordance with Section 10.7
hereof exceeds (ii) the Net Worth Target.
5.14 GUARANTEED LOAN. Prior to the Closing the Company and the
Stockholders will use, and after the Closing the Company and the Parent will
use, commercially reasonable efforts to obtain the release of any agreements of
the Stockholders guaranteeing amounts borrowed by and for the benefit of the
Company from Wachovia Bank, N.A (the "Guaranteed Loans"). If the release of such
guarantees are not obtained prior to Closing, Parent shall indemnify and hold
the Stockholders harmelss from any and all Damages (defined below) they may
incur in connection with the Guaranteed Loans (and no Indemnification Threshold
(defined below) shall apply to such indemnity).
5.15 JAMISON WEBSITE. Notwithstanding any other provision of this
Agreement, the Company shall be permitted to convey to one or both of the
Stockholders all of the Company's right, title and interest in and to the
"jamison.com" Internet Website; provided, however, that such conveyance shall be
subject to the Company's and, following the Closing, the RIG Parties',
royalty-free exclusive worldwide right to use the "jamison.com" Internet Website
address for a period of two years following the Closing; provided further,
however, that following the expiration of the Company's and the RIG Parties'
rights pursuant to the preceding proviso, the Stockholders shall have exclusive
rights to the "jamison.com" Internet Website address but shall use such address
solely for personal (and not commercial) use.
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
RIG PARTIES
The obligation of the RIG Parties to effect the transactions
contemplated hereby is subject to the satisfaction or waiver, at or before the
Closing, of the following conditions and deliveries:
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All of
the representations and warranties of the Stockholders and the Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date unless changes in the matters represented and
warranted herein are expressly permitted or provided herein, all of the terms,
covenants, agreements and conditions of this Agreement to be complied with,
performed or satisfied by the Company and the Stockholders on or before the
Closing Date shall have been duly complied with, performed or satisfied; and a
certificate to the foregoing effects dated the Closing Date and signed on behalf
of the Company and by each of the Stockholders shall have been delivered to
Parent.
6.2 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or
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provision challenging Parent's proposed acquisition of the Company, or limiting
or restricting Parent's conduct or operation of the business of the Company (or
its own business) following the transactions contemplated hereby shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending. There shall be no action, suit
claim or proceeding of any nature pending or threatened against Parent or the
Company, their respective properties or any of their officers or directors, that
could materially and adversely affect the business, assets, liabilities,
financial condition, results of operations or prospects of the Company.
6.3 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse changes in the business, operations, affairs, prospects, properties,
assets, existing and potential liabilities, obligations, profits or condition
(financial or otherwise) of the Company, taken as a whole, since the Balance
Sheet Date; and Parent shall have received a certificate signed by each
Stockholder dated the Closing Date to such effect.
6.4 CONSENTS AND APPROVALS. All necessary consents of, and filings
with, any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made.
6.5 OPINION OF COUNSEL. Parent shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to Parent.
6.6 COMPANY CHARTER DOCUMENTS. Parent shall have received (a) a copy of
the Articles of Incorporation of the Company certified by an appropriate
authority in the state of its incorporation and (b) a copy of the Bylaws of the
Company certified by the Secretary of the Company, and such documents shall be
in form and substance reasonably acceptable to Parent.
6.7 OTHER AGREEMENTS.
(a) Henry D. Jamison, IV shall have entered into an employment
agreement with the Company substantially in the form attached hereto as Exhibit
6.7(a).
(b) Henry D. Jamison, IV and Leslie Lees Jamison shall each
have entered into an Affiliate Agreement in a form reasonably satisfactory to
Parent.
(c) Leslie Lees Jamison shall have resigned as an employee,
officer and director of the Company with no further liability of the Company.
6.8 DUE DILIGENCE REVIEW. The Company shall have made such deliveries
as are called for hereby or reasonably requested by Parent. Parent shall be
fully satisfied in its sole discretion with the results of its review of all of
the Schedules, whether delivered before or after the execution hereof, and such
deliveries, and its review of, and other due diligence investigations with
respect to, the
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business, operations, affairs, prospects, properties, assets, existing and
potential liabilities, obligations, profits and condition (financial or
otherwise) of the Company.
6.9 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the Securities and Exchange Commission ("SEC") not later
than May 15, 1998 and the underwriters named therein shall have agreed to
acquire, subject to the conditions set forth in the underwriting agreement, the
shares of Parent Stock covered by such Registration Statement.
6.10 IPO. The IPO shall have been consummated or shall be consummated
simultaneously herewith, and shall have produced an implicit valuation for all
of Parent's equity (valued at the Share Price) equal to or exceeding $75
million. Notwithstanding the foregoing sentence, Parent agrees to waive the
condition set forth in this Section if the parties hereto agree on an
alternative pricing mechanism for Parent Common Stock pursuant to Section
1.2(a)(ii).
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDERS AND THE COMPANY
The obligation of the Stockholders and the Company to effect the
transactions contemplated hereby is subject to the satisfaction or waiver, at or
before the Closing, of the following conditions and deliveries:
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All of
the representations and warranties of Parent contained in this Agreement shall
be true, correct and complete on and as of the Closing Date with the same effect
as though such representations and warranties had been made as of such date; all
of the terms, covenants, agreements and conditions of this Agreement to be
complied with, performed or satisfied by Parent on or before the Closing Date
shall have been duly complied with, performed or satisfied; and a certificate to
the foregoing effects dated the Closing Date and signed by the President or any
Vice President of Parent shall have been delivered to the Company and the
Stockholders.
7.2 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Parent's proposed acquisition of the Company, or limiting or restricting
Parent's conduct or operation of the business of the Company (or its own
business) following the transactions contemplated hereby shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit, claim or proceeding of
any nature pending or threatened, against Parent or the Company, their
respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Parent and its subsidiaries
taken as a whole.
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7.3 CONSENTS AND APPROVALS. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by Parent of the transactions contemplated herein, shall have been
obtained and made.
7.4 OTHER AGREEMENTS. The Company shall have afforded Henry D. Jamison,
IV an opportunity to enter into an employment agreement with the Company
substantially in the form attached hereto as Exhibit 6.7(a), and the
Registration Rights Agreement with the Parent substantially in the form attached
hereto as Exhibit 5.9.
7.5 REGISTRATION STATEMENT. Parent shall have filed with the SEC the
Registration Statement. The Registration Statement shall have been declared
effective by the SEC not later than May 15, 1998 and the underwriters named
therein shall have agreed to acquire, subject to the conditions set forth in the
underwriting agreement, the shares of Parent Common Stock covered by such
Registration Statement.
7.6 IPO. The IPO shall have been consummated or shall be consummated
simultaneously herewith, and shall have produced a valuation for number of
shares of the Parent Common Stock to be issued to the Stockholders equal to or
exceeding the Consideration. The Registered Shares shall have been registered by
the Parent as part of the IPO for immediate resale by the Stockholders, and the
sale of such shares shall not be subject to any underwriter or other
restrictions except as provided by applicable federal or state securities laws.
Notwithstanding the foregoing sentence, the Stockholders agrees to waive the
condition set forth in this Section if the parties hereto agree on an
alternative pricing mechanism for Parent Common Stock pursuant to Section
1.2(a)(ii).
7.7 OTHER TRANSACTIONS. The RIG Contributions shall have occurred prior
to the Closing or shall occur simultaneously with the consummation of this
Agreement.
7.8 LOAN ASSUMPTION. The Company shall have assumed all obligations
under that certain loan by Wachovia Bank, N.A. to the Stockholders and shall
have obtained the release of the Stockholders from all obligations, duties and
liabilities related thereto; provided, however, that the liabilities assumed by
the Company shall not exceed $111,000; provided further, however, that the
Jamison Parties shall have cooperated fully with the RIG Parties in obtaining
such assumption and release.
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ARTICLE VIII.
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE STOCKHOLDERS AND THE COMPANY. Each
Stockholder and, if no Closing occurs, the Company, jointly and severally,
covenants and agrees to indemnify, defend, protect and hold harmless RIGINC and
RIGLP (prior to the RIG Contributions) and Parent (thereafter) and their
respective officers, directors, employees, stockholders, assigns, successors and
affiliates (individually, a "Parent Indemnified Party" and collectively, "Parent
Indemnified Parties") from, against and in respect of all liabilities, losses,
claims, damages, punitive damages, causes of action, lawsuits, administrative
proceedings (including informal proceedings), investigations, audits, demands,
assessments, adjustments, judgments, settlement payments, deficiencies,
penalties, fines, interest (including interest from the date of such damages)
and costs and expenses (including without limitation reasonable attorneys' fees
and disbursements of every kind, nature and description) (collectively,
"Damages") suffered, sustained, incurred or paid by the Parent Indemnified
Parties in connection with, resulting from or arising out of, directly or
indirectly:
(a) any breach of any representation or warranty of the
Stockholders or the Company set forth in this Agreement or any schedule or
certificate, delivered by or on behalf of any Stockholder or the Company in
connection herewith; or
(b) any nonfulfillment of any covenant or agreement by the
Stockholders or, prior to the Closing, the Company, under this Agreement; or
(c) any untrue statement of a material fact relating to the
Company or the Stockholders, and provided to Parent or its counsel by the
Company or the Stockholders, contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission to state therein a material fact relating to the Company or the
Stockholders required to be stated therein or necessary to make the statements
therein not misleading, and not provided to Parent or its counsel by the Company
or the Stockholders.
8.2 INDEMNIFICATION BY PARENT. RIGINC and RIGLP (prior to the RIG
Contributions) and Parent (thereafter) covenant and agree to indemnify, defend,
protect and hold harmless the Stockholders and, prior to the Closing (if any),
the Company, and their respective assigns, successors and affiliates
(individually, a "Stockholder Indemnified Party" and collectively, "Stockholder
Indemni fied Parties") from, against and in respect of all Damages suffered,
sustained, incurred or paid by the Stockholder Indemnified Parties in connection
with, resulting from or arising out of, directly or indirectly:
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(a) any breach of any representation or warranty of the RIG
Parties set forth in this Agreement or any schedule or certificate, delivered by
or on behalf of the RIG Parties in connection herewith; or
(b) any nonfulfillment of any covenant or agreement by the RIG
Parties under this Agreement; or
(c) any untrue statement or alleged untrue statement of a
material fact relating to any RIG Party contained in any preliminary prospectus,
the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to a RIG
Party required to be stated therein or necessary to make the statements therein
not misleading.
8.3 LIMITATION AND EXPIRATION. Notwithstanding anything herein to the
contrary:
(a) there shall be no liability for indemnification
(i) under Section 8.1 unless, and solely to the
extent that, the aggregate amount of Damages suffered by the Parent Indemnified
Parties under the applicable provisions exceeds $150,000.00 (an "Indemnification
Threshold"); or
(ii) under Section 8.2 unless, and solely to the
extent that, the aggregate amount of Damages suffered by the Jamison Indemnified
Parties under the applicable provisions exceeds $150,000.00 (an "Indemnification
Threshold");
provided, however, that neither Indemnification Threshold shall apply to (i)
Damages arising out of any breaches of the covenants of any Jamison Party or any
RIG Party, as the case may be, set forth in Article V of this Agreement, or
representations and warranties made in Sections 3.4 (capital stock of the
Company), 3.5 (transactions in capital stock of the Company), 3.24 (but solely
matters relating to the payment of past due sales taxes to the State of Texas by
the Company), and 4.4 (capital stock of Parent);
(b) (i) the aggregate amount of the Stockholders' and the
Company's (if any) liability under this Article VIII shall not exceed ten
percent (10%) of the Consideration (the "Stockholders' Cap"), provided, however,
that any liability arising from or in connection with any Final Consideration
Adjustment or the representations and warranties contained in Section 3.24
(taxes) and the covenants and agreements contained herein with respect to Taxes
shall not apply towards, nor be limited by, the Stockholders' Cap; and
(ii) the aggregate amount of the RIG Parties'
liability under this Article VIII shall not exceed ten percent (10%) of the
Consideration (the "RIG Cap"), provided, however, that any liability arising
from or in connection with the representations and warranties contained in
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Section 4.11 (taxes) and the covenants and agreements contained herein with
respect to Taxes shall not apply towards, nor be limited by, the RIG Cap;
(c) the indemnification obligations under this Section 8 or in
any certificate or writing furnished in connection herewith shall terminate on
the later of clause (i) or (ii) below:
(i) (1) except as to representations,
warranties, and covenants specified in clause (i)(2) of this Section 8.3(c), the
first anniversary of the Closing, or
(2) with respect to representations and
warranties contained in Sections 3.21 (environmental matters), 3.23 (employee
benefit plans), 3.17 (intellectual property), 3.24 (taxes) and 4.9 (taxes), on
(A) the date that is six (6) months after the expiration of the longest
applicable federal or state statute of limitation (including extensions
thereof), or (B) if there is no applicable statute of limitation, five (5) years
after the Closing; or
(ii) the final resolution of claims or demands (a
"Claim") pending as of the relevant dates described in clause (i) of this
Section 8.3(c) (such claims referred to as "Pending Claims").
8.4 INDEMNIFICATION PROCEDURES. All claims or demands for
indemnification under this Article VIII ("Claims") shall be asserted and
resolved as follows:
(a) In the event that any Parent Indemnified Party or
Stockholder Indemnified Party (an "Indemnified Party") has a Claim against any
party obligated to provide indemnification pursuant to Section 8.1 or 8.2 hereof
(the "Indemnifying Party") which does not involve a Claim being asserted against
or sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Indemnifying Party of such Claim, specifying
the nature of such Claim and the amount or the estimated amount thereof to the
extent then feasible (the "Claim Notice"). If the Indemnifying Party does not
notify the Indemnified Party within thirty (30) days after the date of delivery
of the Claim Notice that the Indemnifying Party disputes such Claim, with a
detailed statement of the basis of such position, the amount of such Claim shall
be conclusively deemed a liability of the Indemnifying Party hereunder. In case
an objection is made in writing in accordance with this Section 8.4(a), the
Indemnified Party shall respond in a written statement to the objection within
fifteen (15) days and, for sixty (60) days thereafter, attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
Claims (and, if the parties should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties).
(b) (i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Indemnifying Party . The Indemnifying
Party shall have fifteen (15) days from date of delivery of the Claim Notice to
notify the Indemnified Party (A) whether the Indemnifying Party disputes
liability to the Indemnified Party hereunder with respect to the Third Party
Claim, and, if so, the basis for such a dispute, and (B)
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if such party does not dispute liability, whether or not the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend
against the Third Party Claim, provided that the Indemnified Party is hereby
authorized (but not obligated), prior to and during the Notice Period, to file
any motion, answer or other pleading and to take any other action which the
Indemnified Party shall deem necessary or appropriate to protect the Indemnified
Party's interests.
(ii) In the event that the Indemnifying Party
notifies the Indemnified Party within the Notice Period that the Indemnifying
Party does not dispute the Indemnifying Party's obligation to indemnify with
respect to the Third Party Claim, the Indemnifying Party shall defend the
Indemnified Party against such Third Party Claim by appropriate proceedings,
provided that, unless the Indemnified Party otherwise agrees in writing, the
Indemnifying Party may not settle any Third Party Claim (in whole or in part) if
such settlement does not include a complete and unconditional release of the
Indemnified Party. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement the Indemnified Party may do so at its
sole cost and expense. If the Indemnifying Party elects not to defend the
Indemnified Party against a Third Party Claim, whether by failure of such party
to give the Indemnified Party timely notice as provided herein or otherwise,
then the Indemnified Party, without waiving any rights against such party, may
settle or defend against such Third Party Claim in the Indemnified Party's sole
discretion and the Indemnified Party shall be entitled to recover from the
Indemnifying Party the amount of any settlement or judgment and, on an ongoing
basis, all indemnifiable costs and expenses of the Indemnified Party with
respect thereto, including interest from the date such costs and expenses were
incurred.
(iii) If at any time, in the reasonable opinion of
the Indemnified Party, notice of which shall be given in writing to the
Indemnifying Party, any Third Party Claim seeks material prospective relief
which could have an adverse effect on any Indemnified Party or the Company or
any subsidiary, the Indemnified Party shall have the right to control or assume
(as the case may be) the defense of any such Third Party Claim and the amount of
any judgment or settlement and the reasonable costs and expenses of defense
shall be included as part of the indemnification obligations of the Indemnifying
Party hereunder. If the Indemnified Party elects to exercise such right, the
Indemnifying Party shall have the right to participate in, but not control, the
defense of such Third Party Claim at the sole cost and expense of the
Indemnifying Party.
(iv) If the Indemnifying Party is a Stockholder, then
any notice required to be given under this Section 8.4 shall be given to the
Stockholders' Representative.
(c) Nothing herein shall be deemed to prevent the Indemnified
Party from making a Claim, and an Indemnified Party may make a Claim hereunder,
for potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 8.3, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section 8.4
of any actual, threatened or possible claim
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or demand which may give rise to a right of indemnification hereunder shall not
relieve the Indemnifying Party of any liability which the Indemnifying Party may
have to the Indemnified Party except to the extent that failure to give such
notice materially and adversely prejudiced the Indemnifying Party.
8.5 EFFECTIVENESS OF REPRESENTATIONS WARRANTIES. All representations
and warranties made by the Company, the Stockholders, and each of the RIG
Parties in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein) and, if a Closing occurs, as of the Closing Date.
8.6 REMEDIES. Except for any liability based on a finding of fraud, the
exclusive remedy of any party hereto arising by reason of the breach of any
representation or warranty set forth herein or the default in or breach of any
covenant, condition, agreement or undertaking by any other party hereto shall be
limited to the indemnification rights set forth in this Article VIII.
8.7 SET OFF. Subject only to the limitations of this Article VIII, and
without limitation of any right of the Parent Indemnified Parties to
indemnification or payment under this Agreement or applicable law, the Parent
Indemnified Parties shall have the obligation to seek recovery of (a) any Final
Consideration Adjustment under Section 1.3 (but such obligation to seek set off
shall not exceed 25% of the value of the then existing Pledged Assets) or (b)
any Damages under Section 8.4, first by set-off against the Pledged Assets. To
the extent that the liability of the Stockholders hereunder exceeds the value of
the Pledged Assets, Parent agrees to accept from the Stockholders Restricted
Shares before seeking the delivery of any other shares or cash. For purposes of
the preceding two sentences, the Pledged Shares shall be valued as provided in
Section 1.4(d) above.
8.8 SPECIAL TAX PROVISION. If the Company or Parent receives any Tax
refund attributable to the period prior to the Closing, then the amount of such
refund shall reduce the amount of claims, if any, of Parent against the
Stockholders for breach of the representations and warranties in Section 3.24 or
of the covenants in Section 5.1.
ARTICLE IX.
NONCOMPETITION
9.1 PROHIBITED ACTIVITIES. No Stockholder will, for a period of two (2)
years following the Closing Date, for any reason whatsoever, directly or
indirectly, for himself, herself or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature:
(a) engage, as an officer, director, shareholder, owner,
partner, member, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant
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or adviser, or as a sales representative, in any business selling any products
or services in direct competition with Parent, in the United States, Canada, or
the United Kingdom, (the "Territory");
(b) call upon any person who is, at that time, within the
Territory, an employee of Parent in a managerial capacity for the purpose or
with the intent of enticing such employee away from or out of the employ of
Parent;
(c) call upon any person who is or entity that is, at that
time, or that has been, within one year prior to that time, a customer of Parent
within the Territory for the purpose of soliciting or selling products or
services in competition with Parent within the Territory; or
(d) call upon any prospective acquisition candidate that was,
to the knowledge of such Stockholder, either called upon by Parent as a
prospective acquisition candidate or was the subject of an acquisition analysis
by Parent. Each Stockholder, to the extent lacking the knowledge described in
the preceding sentence, shall immediately cease all contact with such
prospective acquisition candidate upon being informed that Parent had called
upon such candidate or made an acquisition analysis thereof.
For purposes of this Article IX, the term "Parent" includes all subsidiaries of
Parent (including without limitation the Company and any companies Parent has
resolved to acquire).
9.2 CONFIDENTIALITY.
(a) Each Stockholder recognizes that by reason of his or her
ownership of the Company and his or her employment by the Company, he or she has
acquired confidential information and trade secrets concerning the operation of
the Company, the use or disclosure of which could cause the Company or its
affiliates or subsidiaries substantial loss and damages that could not be
readily calculated and for which no remedy at law would be adequate.
Accordingly, each Stockholder covenants and agrees with the Company and Parent
that he or she will not for a period of two (2) years following the Closing Date
(or in the case of trade secrets (as defined under applicable law) for so long
as the information remains a trade secret) except in performance of
Stockholder's obligations to the Company or with the prior written consent of
the Company pursuant to authority granted by a resolution of the Board, directly
or indirectly, disclose any secret or confidential information that he or she
may learn or has learned by reason of his or her ownership of the Company or his
or her employment by the Company, or any of its subsidiaries and affiliates, or
use any such information in a manner detrimental to the interests of the Company
or Parent, unless (i) such information becomes known to the public generally
through no fault of any Stockholder, (ii) disclosure is required by law or the
order of any governmental authority under color of law, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, provided, that prior to
disclosing any information pursuant to clause (i), (ii) or (iii) above, the
Stockholder (as applicable) shall give prior written notice thereof to Parent
and provide Parent with the opportunity to contest such disclosure and shall
cooperate with efforts to prevent such disclosure. The term "confidential
information" includes, without limitation, information not
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previously disclosed to the public or to the trade by the Company's or Parent's
management with respect to the Company's or Parent's, or any of their
affiliates' or subsidiaries', products, facilities, and methods, trade secrets
and other intellectual property, software, source code, systems, procedures,
manuals, confidential reports, product price lists, customer lists, financial
information (including the revenues, costs, or profits associated with any of
the Company's products), business plans, prospects, or opportunities but shall
exclude any information already in the public domain.
(b) The RIG Parties and their affiliates on the one hand, and
the Jamison Parties and their affiliates on the other, shall not disclose the
existence or terms of this Agreement or the transactions contemplated hereby
(whether or not in response to any inquiry) without the prior written consent of
the other side; provided, however, that the parties and their respective
affiliates shall have the right to disclose in filings with the Securities and
Exchange Commission all information relating to the transactions contemplated
hereby required or deemed desirable to be disclosed in connection with the IPO.
9.3 DAMAGES. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Parent in the event of breach by such Stockholder,
by injunctions and restraining orders.
9.4 REASONABLE RESTRAINT. The parties agree that the foregoing
covenants in this Article IX impose a reasonable restraint on each Stockholder
in light of the activities and business of Parent on the date of the execution
of this Agreement, assuming the completion of the transactions contemplated
hereby, and the current plans of Parent; but it is also the intent of Parent and
each Stockholder that such covenants be construed and enforced in accordance
with the changing activities and business of Parent throughout the term of this
covenant. The parties further agree that so long as a Stockholder is not an
employee of the Company, in the event a Stockholder shall enter into a business
or pursue other activities not in competition with Parent or similar activities
or business in locations the operation of which, under such circumstances, does
not violate Section 9.1(a) or the terms of any employment agreement with Parent,
such Stockholder shall not be chargeable with a violation of this Article IX if
Parent shall thereafter enter the same, similar or a competitive (a) business,
(b) course of activities or (c) location, as applicable.
9.5 SEVERABILITY; REFORMATION. The covenants in this Article IX are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
9.6 INDEPENDENT COVENANT. All of the covenants in this Article IX shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim
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or cause of action of any Stockholder against Parent, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. The parties expressly acknowledge that the terms and
conditions of this Article IX are independent of the terms and conditions of any
other agreements including, but not limited to, any employment agreements
entered into in connection with this Agreement. It is specifically agreed that
the period of two (2) years stated at the beginning of this Article IX during
which the agreements and covenants of the Stockholder made in this Article IX
shall be effective, shall be computed by excluding from such computation any
time during which the Stockholder is found by a court of competent jurisdiction
to have been in violation of any provision of this Article IX. The covenants
contained in Article IX shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
9.7 MATERIALITY. The Company and each Stockholder hereby agree that the
covenants set forth in this Article IX are a material and substantial part of
the transactions contemplated by this Agreement, supported by adequate
consideration.
ARTICLE X.
GENERAL
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of Parent and
the Company; or
(b) by the Stockholders and the Company as a group, on the one
hand, or by Parent, on the other hand, if the Closing shall not have occurred on
or before May 25, 1998 and no alternative pricing methodology (as described in
Section 1.2(a)) has been agreed to; or
(c) by the Stockholders and the Company as a group, on the one
hand, or by Parent, on the other hand, if there is or has been a material
breach, failure to fulfill or default on the part of the other party (with the
Stockholders and the Company deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholders and the Company as a group, on the one
hand, or by Parent, on the other hand, if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
transactions contemplated hereby; or there shall be any action taken, or any
statute, rule regulation or order enacted, promulgated or issued or deemed
applicable
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to the transactions contemplated hereby by any governmental entity which would
make the consummation of the transactions contemplated hereby illegal.
10.2 EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement pursuant
to Section 10.1 for a Qualifying Purpose (defined below), this Agreement shall
forthwith become ineffective, and no party hereto or any of their officers,
directors or shareholders shall have any liability or obligation hereunder, and,
with respect to such termination for a Qualifying Purpose, the parties hereby
release and covenant and agree not to sue the other parties hereto for any
Damages suffered, sustained or incurred for such termination.
(b) In the event of the termination of this Agreement pursuant
to Section 10.1 for other than a Qualifying Purpose (including, without
limitation, termination by any party for the failure by the other party to close
the Transaction), then this Agreement shall become ineffective except that: (i)
the provisions of Articles VIII and X and Section 9.2 shall remain in full force
and effect and survive any termination of this Agreement and (ii) each party
shall remain liable to the other for such breach of this Agreement prior to its
termination.
(c) For purposes of this Section 10.2: (i) a "Qualifying
Purpose" means an "Equity Shortfall," a breach of the "Qualifying
Representations, Warranties or Covenants" or a "Non-Material Breach"; (ii) an
"Equity Shortfall" means that the underwriter has notified any of the parties
that it expects that the IPO will produce an implicit valuation for all of the
Parent's equity (valued at the Share Price) of less than $75 million, and none
of the RIG Parties has previously given written notice to the Jamison Parties
(acting in good faith) of a material breach of any of the representations,
warranties, covenants and agreements that are not Qualifying Representations,
Warranties or Covenants or are other than Non-Material Breaches; (iii)
"Qualifying Representations, Warranties or Covenants" means those
representations, warranties and/or covenants set forth in Sections 3.10 (but
only to the extent of litigation that was unknown and not reasonably foreseeable
as of the date hereof), 3.16(c) (but only to the extent relating to ordinary
wear and tear), 3.17 (but only to the extent of litigation that was unknown and
not reasonably foreseeable as of the date hereof), 3.22(g), 3.25(a), 3.27(a),
3.27(m), 3.28, 4.4(a), 4.4(b), 4.6 (but only to the extent of litigation that
was unknown and not reasonably foreseeable as of the date hereof), 4.8 (but only
to the extent of litigation that was unknown and not reasonably foreseeable as
of the date hereof), 4.12(a), 5.6(a), 5.6(b), 5.6(e) and 5.7(k) (provided,
however, Sections 5.6(a), 5.6(b), 5.6(e) and 5.7(k) shall constitute Qualifying
Representations, Warranties or Covenants only to the extent that the
Stockholders had no knowledge of the action(s) giving rise to the claim of
breach); and (iv) a "Non-Material Breach" means any breach of the
representations, warranties, covenants or agreements set forth herein that could
not reasonably be expected, individually or in aggregate, to be likely to lead
to the loss by any or all of the RIG Parties, on the one hand, or the Jamison
Parties, on the other, of greater than $150,000.
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10.3 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Parent, and the heirs and legal representatives of the
Stockholders.
10.4 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 9.5. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
10.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.6 BROKERS AND AGENTS. The RIG Parties on the one hand, and the
Jamison Parties on the other, each represent and warrant to the other that it
has not employed any broker or agent in connection with the transactions
contemplated by this Agreement and agrees to indemnify the other against all
losses, damages or expenses relating to or arising out of claims for fees or
commission of any broker or agent employed or alleged to have been employed by
such party.
10.7 EXPENSES. The RIG Parties have and will pay the fees, expenses and
disbursements of their agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement. The Stockholders (and
not the Company) have and will pay the fees, expenses and disbursements of the
Stockholders, the Company, and their agents, representatives, financial
advisers, accountants and counsel incurred in connection with the subject matter
of this Agreement, including, without limitation, personal legal expenses and
underwriting discounts and fees incurred in connection with the sale of the
Registered Shares. Notwithstanding the foregoing, the Company shall pay
reasonable attorneys' fees not in excess of thirty-five thousand dollars
($35,000) incurred by the Company in preparing the Company for the Transactions,
and the RIG Parties shall bear the expense of converting the financial
statements of the Company to the accrual method of accounting and the cost of
the audits of the Company required to effect the IPO and the Post-Closing Audit.
10.8 NOTICES. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
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If to Parent to:
Mr. Michael R. Klein, Chairman
Mr. Andrew Florance, President
Realty Information Group
7475 Wisconsin Avenue
Sixth Floor
Bethesda, Maryland 20814
(Telefax: (301) 718-2444)
with a required copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attn: Eric R. Markus, Esq.
(Telefax: (202) 663-6363)
If to any Stockholder to:
Leslie Lees Jamison
725 Tanglewood Trail, N.W.
Atlanta, Georgia 30327
(Telefax: (404) 256-3486)
with a required copy to:
Cushing, Morris, Armbruster & Jones, LLP
2110 Peachtree Center
International Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Roy M. Jones
(Telefax: (404) 658-9865)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
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10.9 GOVERNING LAW.
(a) This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of Delaware
(b) Any disputes arising out of, in connection with or with
respect to this Agreement, the subject matter hereof, the performance or
non-performance of any obligation hereunder, or any of the transactions
contemplated hereby ("Disputes") that seek specific performance of any
obligations hereunder or injunctive relief may be adjudicated in any court of
competent civil jurisdiction.
(c) Except as provided in Section 10.9(b), all Disputes shall
be resolved by binding arbitration administered by the American Arbitration
Association ("AAA") and, except as expressly provided in this Agreement, shall
be conducted in accordance with the Expedited Procedures under the Commercial
Arbitration Rules of the AAA, as such rules may be amended from time to time
(the "Rules").
(i) The hearing locale shall be determined in
accordance with the Rules. A single, neutral arbitrator (the "Arbitrator") shall
be appointed by the AAA, within thirty (30) days after an Arbitrated Dispute is
submitted for arbitration under this Section 10.9(c), to preside over the
arbitration and resolve the Dispute. The Arbitrator shall be selected from the
AAA's Commercial Panel, and shall be qualified to practice law in at least one
jurisdiction in the United States and have expertise in the interpretation of
commercial contracts. The parties shall have ten (10) days to object in writing
to the appointment of the Arbitrator, the sole basis for such objection being an
actual conflict of interest. The AAA, in its sole discretion, shall determine
within ten (10) days the validity of any objection to the appointment of the
Arbitrator based on an actual conflict of interest.
(ii) The Arbitrator's decision (the "Decision") shall
be binding, and the prevailing party may enforce the Decision in any court of
competent jurisdiction.
(iii) The parties shall use their best efforts to
cooperate with each other in causing the arbitration to be held in as efficient
and expeditious a manner as practicable, including but not limited to, providing
such documents and making available such of their personnel as the Arbitrator
may request, so that the Decision may be reached timely. The Arbitrator shall
take into account the parties' stated goal of expedited proceedings in
determining whether to authorize discovery and, if so, the scope of permissible
discovery and other hearing and pre-hearing procedures.
(iv) The authority of the Arbitrator shall be limited
to deciding liability for, and the proper amount of, a Claim, and the Arbitrator
shall have no authority to award punitive damages. The Arbitrator shall have
such powers and establish such procedures as are provided for in the Rules, so
long as such powers and procedures are consistent with this Section 10.9(c) and
are necessary to resolve the Dispute within the time periods specified in this
Agreement. The Arbitrator
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shall render a Decision within sixty (60) days after being appointed to serve as
Arbitrator, unless the parties otherwise agree in writing or the Arbitrator
makes a finding that a party has carried the burden of showing good cause for a
longer period.
10.10 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 9.5.
10.11 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
10.12 MUTUAL DRAFTING. This Agreement is the mutual product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not be
construed for or against any party hereto.
10.13 FURTHER REPRESENTATIONS. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights from such counsel. Each
party further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
[EXECUTION PAGE FOLLOWING]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
REALTY INFORMATION GROUP JAMISON RESEARCH, INC.
(DELAWARE), INC.
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
REALTY INFORMATION GROUP, STOCKHOLDERS:
INC.
----------------------------------
By: Henry D. Jamison, IV
------------------------------
Name:
Title:
----------------------------------
Leslie Lees Jamison
REALTY INFORMATION GROUP, L.P.
By:
------------------------------
Name:
Title:
55
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. 2
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.
May 14, 1998
