<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH , 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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
agent for service)
------------------------
ANDREW C. FLORANCE
President and Chief Executive Officer
Realty Information Group, Inc.
7475 Wisconsin Avenue
Bethesda, Maryland 20814
(301) 215-8300
(Address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM R. GALEOTA, ESQ. BRUCE S. MENDELSOHN, ESQ.
MICHAEL K. ISENMAN, ESQ. PAUL A. BELVIN, ESQ.
SHEA & GARDNER AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1800 MASSACHUSETTS AVENUE, N.W. 1333 NEW HAMPSHIRE AVENUE, N.W.
WASHINGTON, D.C. 20036 WASHINGTON, D.C. 20036
(202) 828-2000 (202) 887-4000
FAX: (202) 828-2195 FAX: (202) 887-4288
</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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO PRICE PER OFFERING REGISTRATION
TO BE REGISTERED BE REGISTERED SHARE (2) PRICE (2) FEE
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.01 par value per share)......... 3,737,500 shares (1) $22.0625 $82,458,594 $22,923
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 487,500 shares of Common Stock which may be purchased by the
underwriters to cover overallotments, if any.
(2) Calculated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee on the basis of the average of the high and
low prices of the Common Stock as reported by the Nasdaq Stock Market on
March 17, 1999.
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> 2
SUBJECT TO COMPLETION -- MARCH , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS,
, 1999 [REALTY INFORMATION GROUP LOGO] [COSTAR LOGO]
3,250,000 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
REALTY INFORMATION GROUP, INC.:
- - Through the CoStar(TM) group of services, we are the largest digital provider
of commercial real estate information and analysis.
- - We are creating a digital marketplace for the commercial real estate and
related business community to exchange information, evaluate opportunities
using national standardized data, and interact with each other on a continuous
basis.
- - Realty Information Group, Inc.
7475 Wisconsin Avenue
Bethesda, Maryland 20814
(301) 215-8300
- - NASDAQ SYMBOL: RIGX
THE OFFERING:
- - We are offering 2,750,000 of the shares, and existing stockholders are
offering 500,000 of the shares.
- - The underwriters have an option to purchase an additional 487,500 shares from
us to cover over-allotments.
- - There is an existing trading market for these shares. The reported last sales
price on , 1999 was $ per share.
- - We plan to use the proceeds from this offering primarily for:
- development and distribution of new services;
- expansion of all existing services across our current markets;
- geographic expansion in the U.S. and international markets;
- strategic acquisitions; and
- working capital and general corporate purposes.
- - Closing: , 1999.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
- ----------------------------------------------------------------------------------
<S> <C> <C>
Public offering price:
Underwriting fees:
Proceeds to Realty Information Group:
Proceeds to selling stockholders:
</TABLE>
- --------------------------------------------------------------------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE BT ALEX. BROWN
ALLEN & COMPANY
INCORPORATED
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
The information in this prospectus is not complete and may change. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
securities, and we are not soliciting offers to buy these securities, in any
state that does not permit that offer or sale.
<PAGE> 3
DESCRIPTION OF ARTWORK
Graphics: Photographs of Office Buildings and Logo
Text: Information Solutions for Commercial Real Estate Success
Sales, Analytics, Leasing, Comparables, Marketplace
$25,000,000,000 in properties for sale
13,000,000,000 square feet tracked
2,000,000,000 square feet for lease
262,000 high-resolution digital images
100,000 transactions annually
20,000 professional users
Graphics: Global View and Logo
Text: Expanding Information Network
Current Markets [cities listed]
Potential New Markets [cities listed]
Graphics: Eight Photographs of Different Types of Users and Logo
Text: Community of Users in the CoStar Digital Marketplace
Brokers--Find dozens of spaces using accurate, up-to-date and comprehensive
information on building characteristics, space availability, properties for sale
and historical trends; create presentations that project a professional image;
track late-breaking regional and national news online.
Lenders---track key market supply and demand trends in addition to market
activity that may impact valuations in their portfolios.
REITS---discern trends and market performance; find investment properties
for sale; use the system to effectively market their properties to the brokerage
community.
Vendors---target sales to tenants based on their lease expirations, company
growth and industry type.
Owners---competitively position properties by reviewing the dynamics of the
marketplace with comparable rates; maximize the number of potential tenants
inspecting a property, optimize rents and keep properties leased.
Institutional Investors---analyze an entire market, define peer groups and
assess groups of buildings; export information and create graphs to showcase
market trends and efficiently appraise assets.
Appraisers---review most recent comparable sales; use 30+ standard
statistical reports to understand trends in the marketplace.
Government---use information to encourage economic development; evaluate
and meet facilities requirements.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Use of Proceeds............................................. 13
Price Range of Common Stock................................. 13
Dividend Policy............................................. 14
Corporate Information....................................... 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Consolidated Financial and Operating Data.......... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 27
Management.................................................. 39
Principal and Selling Stockholders.......................... 46
Certain Transactions........................................ 48
Description of Capital Stock................................ 48
Underwriting................................................ 50
Legal Matters............................................... 52
Experts..................................................... 53
Additional Information...................................... 53
Index to Consolidated Financial Statements.................. F-1
</TABLE>
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary highlights the key information contained in this
prospectus. It does not contain all the information that may be important to
you. You should read the entire prospectus, especially the discussion of "Risk
Factors" and the Consolidated Financial Statements and Notes, before deciding to
invest in shares of our common stock.
OUR BUSINESS
Realty Information Group, Inc. is the nation's largest digital provider of
commercial real estate information and analysis. We believe that the market for
commercial real estate information is vast based on the variety, volume, and
value of transactions related to commercial real estate, including, in 1998:
- leasing transactions with an aggregate value of more than $200 billion;
- sales transactions with an aggregate value of more than $250 billion; and
- commercial construction starts with an aggregate value of more than $50
billion.
To facilitate transactions, industry participants must have daily access to
current data such as rental rates, vacancy rates, and space availability to
carry out their businesses effectively. Historically, such data collection has
been time-consuming and inefficient. Therefore, there is a need to develop an
efficient marketplace, where members of the commercial real estate and related
business community can exchange information, evaluate opportunities using
national standardized data, and interact with each other on a continuous basis.
We are creating a digital marketplace where the members of the commercial
real estate and related business community can continuously interact and
facilitate transactions by efficiently exchanging accurate and standardized
information. In 1998 we facilitated 100,000 commercial lease and sales
transactions aggregating over $100 billion in value, according to our estimates.
We have three assets that provide a unique foundation for this marketplace:
- the only comprehensive, proprietary, national database in the industry;
- the largest research department in the industry; and
- the largest number of participating organizations.
We have spent over a decade constructing our database. Our research
department now makes over 1.8 million updates to the database each year. We also
have obtained and assimilated over 50 proprietary databases from other
companies. The database:
- covers 35 of the top 40 commercial real estate markets in the United
States;
- tracks over 13 billion square feet in over 272,000 properties, including
more than $25 billion in properties for sale, and over 310,000 tenants;
- allows approximately 36,000 participating companies to distribute
information on their properties; and
- services our approximately 2,800 clients, representing 20,000 end-users.
3
<PAGE> 6
We deliver substantially all our current services digitally, and about 65%
of our clients currently receive daily service updates via the Internet. We are
in the process of making substantially all our services accessible through a
standard Web-browser format. We currently offer or are developing the following
CoStar group of services:
- CoStar (Office and Industrial) provides the tools to research leasing
options, analyze market conditions and competitive property positions,
market properties, and produce multimedia client presentations.
- CoStar Tenant delivers detailed information profiling the tenants
occupying commercial buildings by tracking over 310,000 tenants in 23
U.S. markets.
- CoStar Advertising provides digital marketing opportunities to reach the
CoStar marketplace through premium high-exposure banner ads on CoStar and
our Website.
- CoStar News dispatches late-breaking commercial real estate news such as
major deals signed, acquisitions, ground breakings, and other features.
- CoStar Analytic will be an enhanced Web-based analytic tool providing
sophisticated market analysis. Jamison Advisory, CoStar, and CoStar
Tenant already provide a full line of detailed analytical tools and
reports.
- CoStar Exchange will distribute information on over 25,000 commercial
properties for sale with a combined asset value in excess of $25 billion
through a secure Web service.
- CoStar Comparables will be an enhanced Web-based service providing
confirmed commercial real estate sales information on properties which
have been sold in the major U.S. markets.
Our objective is to complete the development of the CoStar digital
marketplace for the commercial real estate and related business community across
the United States and in select international markets. The principal components
of our strategy to accomplish this are to:
- introduce new and upgraded services;
- increase penetration in current markets;
- enter new U.S. markets and develop national accounts;
- expand internationally;
- improve and enhance the CoStar marketplace; and
- pursue strategic acquisitions.
4
<PAGE> 7
THE OFFERING
The following information about shares outstanding is as of March 15, 1999.
The following information does not include:
- up to 487,500 shares of common stock issuable if the underwriters
exercise their option to cover over-allotments;
- approximately 2,056,000 shares reserved for issuance under our stock
plans, of which 1,042,494 are subject to outstanding options; or
- 45,450 shares reserved for issuance upon exercise of warrants at an
exercise price of $8.10.
Common stock offered:
By us.......................... 2,750,000 shares
By selling stockholders........ 500,000 shares
Total....................... 3,250,000 shares
Common stock to be outstanding
after this offering.............. 12,535,729 shares
Use of proceeds.................. We intend to use the net proceeds of
approximately $61.2 million that we will
receive from this offering primarily for:
- development and distribution of new
services;
- expansion of all existing services across
our current markets;
- geographic expansion in the U.S. and
international markets;
- strategic acquisitions; and
- working capital and general corporate
purposes.
Nasdaq National Market symbol.... RIGX
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER OPERATING DATA)
You should read the following summary consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and accompanying Notes
that appear later in this prospectus. As explained in the Notes to the
Consolidated Financial Statements that appear later in this prospectus, we
derive the financial data for 1994 through 1998 from audited financial
statements of us and of our predecessor companies for those years. The pro forma
1998 data reflects our January 1999 acquisitions of LeaseTrend, Inc. and Jamison
Research, Inc. The pro forma as adjusted balance sheet data further reflects the
application of the net proceeds from the sale of 2,750,000 shares of common
stock in this offering at an assumed offering price of $24 per share. See
"Capitalization" and "Use of Proceeds."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
PRO FORMA
1994 1995 1996 1997 1998 1998
------ ------ ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $1,420 $2,062 $ 4,336 $ 7,900 $13,900 $21,923
Cost of revenues...................... 591 931 2,188 3,413 4,562 8,210
------ ------ ------- ------- ------- -------
Gross margin.......................... 829 1,131 2,148 4,487 9,338 13,713
Operating expenses.................... 990 1,994 4,829 7,786 12,864 20,465
------ ------ ------- ------- ------- -------
Loss from operations.................. (161) (863) (2,681) (3,299) (3,526) (6,752)
Other income (expense), net........... (76) 79 49 33 341 96
------ ------ ------- ------- ------- -------
Net loss.............................. $ (237) $ (784) $(2,632) $(3,266) $(3,185) $(6,656)
====== ====== ======= ======= ======= =======
Net loss per share-basic and
diluted............................ $(0.09) $(0.22) $ (0.60) $ (0.57) $ (0.44) $ (0.76)
====== ====== ======= ======= ======= =======
Weighted average shares outstanding... 2,609 3,635 4,388 5,722 7,213 8,771
====== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $19,667 $ 9,664 $ 70,869
Working capital........................................... 16,900 5,561 66,766
Total assets.............................................. 27,541 38,439 99,644
Total liabilities......................................... 4,338 5,726 5,726
Stockholders' equity...................................... 23,203 32,713 93,918
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
PRO FORMA
1994 1995 1996 1997 1998 1998
------ ------ ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Markets Covered by Database.......... 3 4 9 14 19 40
Counties Covered by Database......... 16 42 56 120 136 302
Number of Clients.................... 88 204 542 1,123 1,731 2,441
Billions of Square Feet in
Database.......................... 1.3 2.2 3.3 6.5 9.1 12.7
Buildings in Database................ 12,775 24,822 43,520 112,335 175,471 261,108
Images in Database................... 15,459 24,926 47,308 90,545 178,827 227,598
</TABLE>
6
<PAGE> 9
RISK FACTORS
A purchase of our common stock involves risks. We list below some risks
that could harm our business, financial condition, operating results, and stock
price. Other risks that we cannot now foresee might also hurt us. You should
carefully consider these factors and the other information in this prospectus in
evaluating Realty Information Group, Inc. and deciding whether to purchase our
common stock.
This prospectus contains statements about the future regarding business
strategies, market potential, future financial performance, and other matters.
We also use in this prospectus the words "intends to", "anticipates", "expects",
and similar expressions to identify these types of "forward-looking" statements.
Many risks and uncertainties, including those described below, could cause our
actual results to differ materially from our forward-looking statements.
OUR FUTURE PROFITABILITY IS UNCERTAIN DUE TO CONTINUING OPERATING LOSSES
We have never recorded an overall operating profit because our investment
in geographic expansion and new services has exceeded the profits generated in
our established markets. Our accumulated deficit was $14.6 million as of
December 31, 1998. We intend to continue to invest in expansion and new services
and will therefore sustain substantial losses for the next several years. Our
ability to earn an overall profit will largely depend on our ability to generate
profits from services that exceed our investment in geographic expansion and new
services. We may not be able to generate revenues sufficient to earn a profit,
to maintain profits on a quarterly or annual basis, or to sustain or increase
our future revenue growth.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY
Our revenues and operating results may fluctuate with general economic
conditions and also for many other reasons, such as:
- our investments in geographic expansion;
- the timing of new service introductions and enhancements;
- the timing of investing the net proceeds from this offering;
- acquisitions of other companies or assets;
- sales and marketing promotional activities;
- loss of clients or revenues due to consolidation in the real estate
industry;
- changes in client budgets; or
- our investments in other corporate resources.
WE MAY NOT BE ABLE TO COMPLETE SUCCESSFULLY OUR PLANNED EXPANSION
Our future business and financial success will depend on our ability to
continue to expand the services we offer and the areas where we do business.
These expansion efforts must occur while information technology is rapidly
changing. These efforts impose additional burdens on our research, systems
development, sales, and general managerial resources. We may not be able to
manage this
7
<PAGE> 10
growth successfully. The continued expansion efforts on which our future growth
depends have inherent risks, such as the following:
- Any new or enhanced services we develop might not meet the increasingly
sophisticated needs of our current or potential clients.
- We might not succeed in developing new or enhanced services at all.
- We might not succeed in entering new geographical markets.
For example, our planned CoStar Exchange service may not be commercially
viable if we are unable to obtain key data on net operating income of buildings
in the database.
OUR BUSINESS COULD BE HARMED IF WE ARE UNABLE TO MAINTAIN THE INTEGRITY AND
RELIABILITY
OF OUR DATA
Our success greatly depends on our clients' confidence in the
comprehensiveness, accuracy, and reliability of the data we provide. We believe
that we take adequate precautions to safeguard the completeness and accuracy of
our data and that the information is generally current, comprehensive, and
accurate. But the task of establishing and maintaining such quality while we
grow is challenging. We cannot guarantee that we can sustain those efforts. If
we cannot maintain the quality of our data, we could experience reduced demand
for our services and could be exposed to lawsuits claiming damages resulting
from inaccurate data.
OUR INCREASING USE OF THE INTERNET AND THE WORLD WIDE WEB EXPOSES US TO
REGULATORY AND
OTHER UNCERTAINTIES
About 65% of our clients currently receive their CoStar data via the
Internet. We are in the process of making substantially all our services
accessible through a standard Web-browser format. This exposes us to various
uncertainties arising from the future course of development of the Internet and
the World Wide Web. Governments in the United States and abroad might adopt laws
or regulations applicable to Internet commerce that could harm our business by,
for example, regulating our transmissions over the Internet or exposing our
business to new taxes in various jurisdictions. User concerns about the privacy
and security of Internet-distributed communications might impede the growth of
our business. We may need to expend substantial resources to protect against
security breaches on our Website or in our Internet communications.
UNSATISFACTORY INTERNET PERFORMANCE, INTERRUPTION, OR FAILURE COULD ADVERSELY
AFFECT
OUR BUSINESS
Our business increasingly depends upon the satisfactory performance,
reliability, and availability of our Website, the Internet, and the World Wide
Web. Problems with the Internet or Web may impede the development of our
business for a number of reasons. If the number of Internet users or their use
of Internet resources continues to grow, it may overwhelm the existing Internet
infrastructure. Growth in Internet usage that is not matched by comparable
growth of the infrastructure supporting the Internet could result in slower
response time, cause outright failure of the Internet, or otherwise adversely
affect usage.
8
<PAGE> 11
TEMPORARY OR PERMANENT OUTAGES OF OUR COMPUTERS AND SOFTWARE OR
TELECOMMUNICATIONS
EQUIPMENT COULD ADVERSELY AFFECT OUR BUSINESS
Our operations depend on our ability to protect our database, computers and
software, telecommunications equipment, and facilities against damage from
potential dangers such as fire, power loss, and telecommunications failures. Any
temporary or permanent loss of one or more of these systems or facilities from
an accident, an equipment malfunction, or some other cause could harm our
business. Our core computer services and networking equipment are located in a
climate-controlled, fire and security-protected central location. We keep
off-site backup copies of all data contained in our database, maintain a back-up
power supply and equipment, and stockpile spare parts. Such measures may not,
however, adequately protect us.
WE MAY BE UNABLE TO ENFORCE OR DEFEND OUR OWNERSHIP AND USE OF INTELLECTUAL
PROPERTY
The success of our business depends in large part on the intellectual
property involved in our methodologies, database, and software. We rely on a
combination of trade secret and copyright laws, nondisclosure and other
contractual provisions, and technical measures to protect our intellectual
property rights. We believe we have succeeded to date in protecting our
intellectual property, but we cannot guarantee that we will continue to succeed
in that effort. Our business could be significantly harmed if we do not succeed
in protecting our intellectual property. The same would be true if a court
should find that our services infringe other persons' intellectual property
rights. Any intellectual property lawsuits in which we might become involved,
either as a plaintiff or as a defendant, could cost us much time and money.
INTERNATIONAL EXPANSION MAY RESULT IN NEW BUSINESS RISKS
Our planned international operations could subject us to new business
risks, including:
- adapting to the differing business practices in foreign commercial real
estate markets;
- difficulties in managing foreign operations;
- limited protection for intellectual property rights in some countries;
- difficulty in accounts receivable collection and longer collection
periods;
- cost of enforcement of contractual obligations;
- impact of recessions in economies outside the United States;
- currency exchange rate fluctuations; and
- potentially adverse tax consequences.
WE MAY NOT SUCCEED IN INTEGRATING ACQUISITIONS
We intend to continue to make strategic acquisitions as part of expansion
of our markets and service lines. Acquisitions involve many risks beyond the
inherent risks in entering new markets. For example:
- We may lose key employees or clients of the acquired companies.
- We may experience problems in integrating the employees of the acquired
companies.
- We may have difficulty in integrating the acquired companies' services.
9
<PAGE> 12
Any future acquisitions could also dilute the equity interests of our
stockholders, require us to borrow money, require us to write off assets for
accounting purposes, or create other undesirable accounting issues such as
significant expenses for amortization of goodwill or other intangible assets.
We recently completed two major acquisitions. We cannot guarantee that we
will be able to profitably manage or successfully integrate these acquired
businesses.
OUR BUSINESS DEPENDS ON RETAINING AND ATTRACTING HIGHLY CAPABLE MANAGEMENT AND
OPERATING
PERSONNEL
Our success depends in large part on whether we can retain and attract
management and operating personnel, including our President and Chief Executive
Officer, Andrew C. Florance. We require highly skilled technical, sales,
management, Web-development, marketing, and research personnel, who are in high
demand and are often subject to competing offers. Because we plan to expand
rapidly, we will continue to need an increased number of management and support
personnel. To retain and attract key personnel, we use various measures,
including multi-year employment agreements containing confidentiality and
non-competition agreements, a stock option plan, and incentive bonuses for key
executive officers. We are the beneficiary of a $1.0 million key person life
insurance policy on Mr. Florance. These measures may not be enough to retain and
attract the personnel we need or to offset the impact on our business of a loss
of Mr. Florance or other key employees.
COMPETITION COULD RENDER OUR SERVICES UNCOMPETITIVE
The market for information systems and services in general is highly
competitive and rapidly changing. We believe we do not currently face any
national competitor in providing our services to the commercial real estate and
related business community, although we do face such competition on a local and
regional basis. The new services we are developing will bring us into further
competition with various companies. Additional competitors may also enter the
market and competition may intensify. Although we believe our services are
better than those offered by our competitors, they may be able to narrow or
eliminate the differences.
CYCLICAL DOWNTURNS AND CONSOLIDATION IN THE COMMERCIAL REAL ESTATE INDUSTRY
COULD ADVERSELY
AFFECT OUR BUSINESS
Our business depends on conditions in the commercial real estate industry,
including businesses that supply or invest in that industry. Changes in the
commercial real estate market may affect demand for our services. The
traditional economic downturns in the commercial real estate industry could harm
our business. These changes could decrease our renewal rates, which could have a
material adverse impact on our operating results. Also, companies in this
industry are consolidating, often in order to reduce expenses. Consolidation
could reduce the number of our existing clients, reduce the size of our target
market, and increase our clients' bargaining power. Each of these factors could
adversely affect our business.
ADDITIONAL REQUIRED CAPITAL MAY NOT BE AVAILABLE
To date, we have financed our operations through cash from profitable
operations in our established markets, the sale of our stock, and by borrowing
money. If we do not generate enough cash from operations to finance our business
in the future, we will need to raise additional funds through public or private
financing. Selling additional stock could dilute the equity interests of our
stockholders. If we borrow more money, we will have to pay interest and may also
have to agree to
10
<PAGE> 13
restrictions that limit our operating flexibility. We may not be able to obtain
funds needed to finance our operations at all or may be able to obtain them only
on unattractive terms.
PROBLEMS WITH OUR SOFTWARE COULD IMPAIR USE OF OUR SERVICES
The software underlying our services is complex and may contain undetected
errors. We have previously discovered errors in the software that we have
developed. Despite testing we cannot be certain that errors will not be found in
current versions, new versions, or enhancements of that software. Any errors
could result in adverse publicity, impaired use of our services, loss of
revenues, cost increases, and legal claims by customers. All these factors could
seriously damage our business, operating results, and financial condition.
WE MAY BE ADVERSELY AFFECTED BY THE YEAR 2000 PROBLEM
We have identified certain Year 2000 risks with respect to our LeaseTrend,
Inc. and Jamison Research, Inc. subsidiaries, but believe efforts now underway
will resolve those issues. In addition, we expect to complete in the next
several months upgrades and replacements of various internal software
applications, operation systems, and hardware devices, which will provide
greater assurance of Year 2000 compliance. However, if any of our systems are
not Year 2000 compliant or if our clients, suppliers, or other persons with whom
we deal fail to achieve Year 2000 compliance, we may experience various adverse
consequences, such as the following:
- We may be unable to maintain and update the database on which our
services depend.
- We may experience difficulties in marketing our services to clients and
potential clients.
- Our clients may experience delays or outages in receiving our services.
For a description of our Year 2000 compliance efforts, you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance."
OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY MARKET VOLATILITY
The trading price of our common stock has fluctuated widely in the past
and, like most stocks, it will continue to fluctuate in the future. The price
could fluctuate widely based on numerous factors including:
- quarter-to-quarter variations in our operating results;
- changes in analysts' estimates of our earnings;
- announcements by us or our competitors of technological innovations or
new services;
- general conditions in the commercial real estate industry;
- 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 Internet-related and other technology companies in particular, have
experienced extreme price fluctuations. Such 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.
11
<PAGE> 14
THE NUMBER OF SHARES AVAILABLE FOR SALE AFTER THIS OFFERING COULD CAUSE OUR
STOCK
PRICE TO DECLINE
Sales of substantial amounts of our common stock after this offering by
persons who previously invested in us could cause the market price of our common
stock to decline. A total of 6,410,729 shares of common stock owned by our
directors, officers, and other stockholders will become potentially available
for sale in the public market when certain agreements between those stockholders
and the underwriters expire. Those sales would be subject to certain limits
under the federal securities laws. We have granted some of our stockholders
rights concerning the registration of their shares under the Securities Act.
Holders with these rights could cause a large number of shares to be registered
and to become freely tradeable.
STOCK OWNERSHIP BY EXECUTIVE OFFICERS AND DIRECTORS PROVIDES SUBSTANTIAL
INFLUENCE OVER
MATTERS REQUIRING A VOTE OF STOCKHOLDERS
Immediately after this offering is completed, our executive officers and
directors, and entities affiliated with them, will, in the aggregate,
beneficially own approximately 39.5% of our outstanding common stock. As a
result, these stockholders, if they act together, could exercise substantial
influence over the election of directors and other matters requiring a vote of
stockholders. This concentrated ownership might delay or prevent a change in
control and may impede or prevent transactions in which stockholders might
otherwise receive a premium for their shares.
OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD IMPEDE THIRD PARTY
ACQUISITIONS
Our governing corporate documents contain provisions that could discourage
potential takeover attempts and make attempts by our stockholders to change
management more difficult. These provisions include:
- a requirement that our stockholders give us advance notice of certain
nominations for our Board of Directors and of new business for any
stockholder meeting;
- a prohibition on stockholders' calling special meetings; and
- a prohibition on stockholder action by written consent.
Our certificate of incorporation also allows the Board to issue up to
2,000,000 shares of preferred stock and to fix the rights of those shares
without a vote by the stockholders. The rights of holders of common stock may be
harmed by the rights of the holders of any such "blank check" preferred stock.
We do not, at present, intend to issue any preferred stock but, if we do, an
outside party may find it more difficult to acquire a majority of our
outstanding voting stock. In addition, we are subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law. Applying
these provisions could delay or prevent a change in control of us, which could
adversely affect the market price of our common stock.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
The price of our common stock in the offering is substantially higher than
the book value per share of our outstanding common stock. As a result,
purchasers of common stock in the offering will experience immediate and
substantial dilution of $18.09 per share (assuming an offering price of $24.00
per share). Those purchasers will incur additional dilution if outstanding
options and warrants allowing purchase of common stock at prices below the
offering price are exercised.
12
<PAGE> 15
USE OF PROCEEDS
The net proceeds we will receive from the sale of the 2,750,000 shares of
common stock we are offering, assuming an offering price of $24 per share, will
be approximately $61.2 million ($72.2 million if the underwriters'
over-allotment option is exercised in full), after deducting estimated
underwriting discounts and commissions and our estimated offering expenses. We
expect to use these proceeds primarily for:
- development and distribution of new services;
- expansion of all existing services across our current markets;
- geographic expansion in the U.S. and international markets;
- strategic acquisitions; and
- working capital and general corporate purposes.
We will not receive any proceeds from the sale of common stock by existing
stockholders. The amounts actually spent by us may vary significantly and will
depend on a number of factors, including our future revenues and the various
uncertainties about our business described under "Risk Factors." Accordingly,
our management has broad discretion in the allocation of the net proceeds.
Pending such uses, the net proceeds of this offering will be invested in
short-term, interest-bearing investment-grade securities.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"RIGX." Public trading of our common stock began on July 1, 1998. Prior to that,
there was no public market for the common stock. The following table sets forth,
for the periods indicated, the high and low sale price per share of our common
stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Third Quarter (from July 1, 1998)......................... $10 7/8 $ 5 1/2
Fourth Quarter............................................ $14 $ 6
YEAR ENDED DECEMBER 31, 1999
First Quarter (through March 19, 1999).................... $25 1/8 $12 5/8
</TABLE>
As of March 15, 1999, there were 82 holders of record of our common stock.
On March 19, 1999, the last sale price reported on the Nasdaq National Market
for our common stock was $24 per share.
13
<PAGE> 16
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We do not
plan to do so for the foreseeable future. Instead, we intend to invest any
earnings in our business. The holders of our common stock are entitled to
receive ratably any dividends that the Board of Directors declares. The Board
will determine the payment of future dividends on the common stock and the rate
of dividends, if any, in light of:
- any applicable contractual restrictions limiting our ability to pay
dividends;
- our earnings;
- our financial condition;
- our capital requirements; and
- other factors that the Board deems relevant.
CORPORATE INFORMATION
Our headquarters is located at 7475 Wisconsin Avenue, Bethesda, Maryland
20814. Our telephone number is (301) 215-8300. Our Website is www.rig.com.
Information contained in our Website is not a part of this prospectus. We have
filed applications to register the CoStar mark. LeaseTrend and LeaseTrend, Inc.
are registered trademarks. We also claim CoStar Office, CoStar Industrial,
CoStar Tenant, CoStar Exchange, CoStar Analytic, CoStar Comparables, CoStar
Advertising, CoStar News, E-Brochure, Real-E News, and CrosTrac as our marks.
Other persons own other trademarks and trade names mentioned in this prospectus.
14
<PAGE> 17
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998:
- on an actual basis;
- on a pro forma basis reflecting our January 1999 acquisition of Jamison
Research, Inc. and LeaseTrend, Inc.; and
- on a pro forma basis as adjusted to give effect to our receipt of the net
proceeds from our sale of the 2,750,000 shares of common stock we offer
in this prospectus at an assumed offering price of $24 per share.
You should read this table together with the Consolidated Financial Statements
that we include later in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Common stock, $.01 par value; 30,000,000 shares
authorized; 8,771,027, 9,785,729, and 12,535,729
issued and outstanding on actual, pro forma, and
pro forma as adjusted basis, respectively.......... $ 88 $ 98 $ 126
Additional paid-in capital.............................. 37,727 47,227 108,404
Retained earnings (deficit)............................. (14,612) (14,612) (14,612)
-------- -------- --------
Total stockholders' equity.............................. 23,203 32,713 93,918
-------- -------- --------
Total capitalization.................................... $ 23,203 $ 32,713 $ 93,918
======== ======== ========
</TABLE>
15
<PAGE> 18
DILUTION
Our pro forma net tangible book value as of December 31, 1998 was $12.9
million or approximately $1.32 per share. "As adjusted pro forma net tangible
book value" per share represents the amount of our total pro forma tangible
assets less total pro forma liabilities, divided by the number of pro forma
shares of our common stock outstanding upon completion of our offering.
Our as adjusted pro forma net tangible book value as of December 31, 1998
would have been approximately $74.1 million, or $5.91 per share, after taking
into account the sale of 2,750,000 shares of common stock we are offering in
this prospectus at the assumed public offering price of $24.00 per share and
including the estimated net proceeds we would receive.
This represents an immediate increase in the as adjusted pro forma net
tangible book value of $4.59 per share to existing stockholders and an immediate
dilution of $18.09 per share to you if you purchase shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price............................... $24.00
Pro forma net tangible book value as of December
31, 1998......................................... 1.32
Increase attributable to new investors............ 4.59
----
Adjusted pro forma net tangible book value as of December
31, 1998.................................................. 5.91
------
Dilution to new investors................................... $18.09
======
</TABLE>
The following table summarizes, on an as adjusted pro forma basis as of
December 31, 1998, the difference between the number of shares of common stock
purchased from us, the total consideration paid, and the average price per share
paid by existing stockholders and by the new stockholders. This calculation is
made before deducting the estimated underwriting discounts and commissions and
estimated offering expenses we would pay from the assumed public offering price
of $24.00 per share.
The table excludes 877,494 shares subject to outstanding options as of
December 31, 1998 at a weighted average exercise price of $6.77 per share and
approximately 2,056,000 shares we have reserved for issuance under our stock
option plans. If option holders exercise their options, there will be further
dilution to new investors. See "Management -- Employee Benefit Plans" and Note
11 of the Notes to Consolidated Financial Statements.
In addition, sales by the existing stockholders in this offering will
reduce the number of shares held by existing stockholders to 9,285,729 or 74.1%
(71.3% if the underwriters' over-allotment option is exercised in full), and
will increase the number of shares held by new investors to 3,250,000, or 25.9%
(3,737,500, or 28.7%, if the underwriters' over-allotment option is exercised in
full), of the total number of shares of common stock outstanding after this
offering. See "Principal and Selling Stockholders."
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- PER SHARE
NUMBER PERCENT AMOUNT PERCENT AVERAGE PRICE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 9,785,729 78.1% $ 47,325,000 41.8% $ 4.84
New stockholders.............. 2,750,000 21.9 66,000,000 58.2 24.00
---------- ----- ------------ ----- ------
Totals.............. 12,535,729 100.0% $113,325,000 100.0% $ 9.04
========== ===== ============ ===== ======
</TABLE>
16
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER OPERATING DATA)
The following table provides selected financial data for the five years
ended December 31, 1998 and certain pro forma financial data for the year ended
December 31, 1998. The Statement of Operations Data and Balance Sheet Data we
show below for 1996 through 1998 derives from audited financial statements that
we include later in this prospectus. The financial data for 1994 and 1995
derives from audited financial statements for those years, which do not appear
in this prospectus. As explained in the Notes to the Consolidated Financial
Statements that appear later in this prospectus, the financial data for 1994
through 1998 is derived from the audited financial statements of us and of our
predecessor companies for those years. The 1998 pro forma data reflects our
January 1999 Jamison and LeaseTrend acquisitions. The pro forma 1998 as adjusted
data further reflects the application of net proceeds from the sale of 2,750,000
shares of common stock in this offering at an assumed offering price of $24 per
share.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
PRO FORMA
1994 1995 1996 1997 1998 1998
------ ------ ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $1,420 $2,062 $ 4,336 $ 7,900 $13,900 $21,923
Cost of revenues................... 591 931 2,188 3,413 4,562 8,210
------ ------ ------- ------- ------- -------
Gross margin....................... 829 1,131 2,148 4,487 9,338 13,713
Operating expenses................. 990 1,994 4,829 7,786 12,864 20,465
------ ------ ------- ------- ------- -------
Loss from operations............... (161) (863) (2,681) (3,299) (3,526) (6,752)
Other income (expense), net........ (76) 79 49 33 341 96
------ ------ ------- ------- ------- -------
Net loss........................... $ (237) $ (784) $(2,632) $(3,266) $(3,185) $(6,656)
====== ====== ======= ======= ======= =======
Net loss per share - basic and
diluted......................... $(0.09) $(0.22) $ (0.60) $ (0.57) $ (0.44) $ (0.76)
====== ====== ======= ======= ======= =======
Weighted average shares
outstanding..................... 2,609 3,635 4,388 5,722 7,213 8,771
====== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------------
PRO FORMA PRO FORMA 1998
1994 1995 1996 1997 1998 1998 AS ADJUSTED
----- ------ ------ ------- ------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................. $ 132 $1,328 $3,326 $ 1,069 $19,667 $ 9,664 $ 70,869
Working capital...... (332) 1,017 2,248 (1,547) 16,900 5,561 66,766
Total assets......... 790 3,015 7,670 6,581 27,541 38,439 99,644
Total liabilities.... 727 688 2,000 3,664 4,338 5,726 5,726
Stockholders'
equity............ 63 2,327 5,670 2,917 23,203 32,713 93,918
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
PRO FORMA
1994 1995 1996 1997 1998 1998
------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Markets Covered by Database.......... 3 4 9 14 19 40
Counties Covered by Database......... 16 42 56 120 136 302
Number of Clients.................... 88 204 542 1,123 1,731 2,441
Billions of Square Feet in
Database.......................... 1.3 2.2 3.3 6.5 9.1 12.7
Buildings in Database................ 12,775 24,822 43,520 112,335 175,471 261,108
Images in Database................... 15,459 24,926 47,308 90,545 178,827 227,598
</TABLE>
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This and other sections of this prospectus contain statements about the
future regarding business strategies, market potential, future financial
performance, and other matters. We also use in this prospectus the words
"intends", "anticipates", "expects", and similar expressions to identify these
types of "forward-looking" statements. Many risks and uncertainties, including
those described below, could cause our actual results to differ materially from
our forward-looking statements.
OVERVIEW
Realty Information Group is the nation's largest digital provider of
commercial real estate information and analysis. We are creating a digital
marketplace where the members of the commercial real estate and related business
community can continuously interact and facilitate transactions by efficiently
exchanging accurate and standardized information. Our wide array of digital
service offerings includes a leasing marketplace, a selling marketplace,
decision support, tenant information, property marketing, and industry news.
Substantially all our current services are digitally delivered and a majority of
our clients receive daily service updates over the Internet.
We completed our initial public offering in July 1998 and received net
proceeds of approximately $22.7 million. We primarily used those net proceeds to
fund the geographic and service expansion of our business, including three
strategic acquisitions, and to expand our sales and marketing organization.
From 1994 through 1998, we expanded the geographical coverage of our
existing services and developed new services. In addition to internal growth,
this expansion included the acquisitions of Chicago ReSource, Inc. in Chicago in
1996 and New Market Systems, Inc. in San Francisco in 1997. In August of 1998,
we expanded into the Houston region through the acquisition of Houston-based
real estate information provider C Data Services, Inc. In January of 1999, we
expanded further by acquiring LeaseTrend, Inc. and Jamison Research, Inc.,
discussed in detail later in this section.
We consider regions that have had ongoing operations for at least 18 months
to be established, and we currently generate positive cash flow from our
operations in each established region. As of December 31, 1998, the following
regions are those that have been in operation for more than 18 months and that
we consider to be established: Washington (includes Baltimore), Chicago, New
York (includes Northern New Jersey, Long Island, Westchester, and Connecticut),
Los Angeles (includes Orange County), San Francisco, and Philadelphia. These
regions provide us with substantial cash flow which we reinvest into the
business. Since its inception, the development of our business has required
substantial investments for the expansion of services and the establishment of
operating regions, which has resulted in substantial net losses on an overall
basis.
The incremental cost of introducing new services in an established region
in the future may reduce the profitability of a region or cause it to incur
losses. We expect to use a significant portion of the proceeds of this offering
for development and distribution of new services, expansion of all existing
services across current markets, and geographic expansion in the U.S. and
international markets. Therefore, while we expect operations in existing
established regions to remain profitable and provide substantial funding, we
expect our overall expansion plans to generate significant losses and negative
cash flow from operations for at least the next two years.
Although our services are expanding rapidly, our CoStar service currently
generates the largest portion of our revenue. The CoStar contracts range from
terms of one to three years and generally renew automatically. Upon renewal,
many of the contract rates increase automatically in accordance with contract
provisions or as a result of renegotiations. To encourage clients to use our
services
18
<PAGE> 21
regularly, we charge fixed amounts rather than fees based on actual system
usage. We charge our clients based on the number of sites, organization size,
and the number of services to which a client subscribes. Our contract renewal
rate currently exceeds 90% on an annual basis. Our clients pay contract fees on
an annual, quarterly, or monthly basis. We recognize this revenue over the life
of the contract on a straight line basis beginning with the installation or
renewal date. Annual and quarterly advance payments result in deferred revenue,
substantially reducing the working capital requirements generated by the growth
in our accounts receivable.
As explained in the Notes to the Consolidated Financial Statements that
appear later in this prospectus, the financial data for 1996 through 1998 is
derived from the audited financial statements of us and of our predecessor
companies for those years.
CONSOLIDATED RESULTS OF OPERATIONS
The following table provides our selected consolidated results of
operations (in thousands of dollars and as a percentage of total revenue) for
the indicated periods:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................. $ 4,336 100% $ 7,900 100% $13,900 100%
Cost of revenues......................... 2,188 50 3,413 43 4,562 33
------- --- ------- --- ------- ---
Gross margin............................. 2,148 50 4,487 57 9,338 67
Operating expenses
Selling and marketing............... 2,712 63 4,374 55 7,240 52
Software development................ 254 6 395 5 704 5
General and administrative.......... 1,863 43 3,017 38 4,920 35
------- --- ------- --- ------- ---
Total operating expenses....... 4,829 112 7,786 98 12,864 92
------- --- ------- --- ------- ---
Loss from operations..................... (2,681) (62) (3,299) (41) (3,526) (25)
Other income (expense), net.............. 49 1 33 0 341 2
------- --- ------- --- ------- ---
Net loss................................. $(2,632) (61)% $(3,266) (41)% $(3,185) (23)%
======= === ======= === ======= ===
</TABLE>
COMPARISON OF 1998 AND 1997
Revenues. Revenues grew 76% from $7.9 million in 1997 to $13.9 million in
1998. This increase resulted principally from growth in our client base in all
regions we served, expansion into new regions, and expansion of our services in
existing regions. Revenues from regions we considered established as of December
31, 1998 grew from $7.9 million in 1997 to $13.1 million in 1998, an increase of
66%. During 1998, we also expanded into Houston, Sacramento, Phoenix, and San
Diego. Our advertising revenues, which we generated primarily in our established
regions, increased 139% from $405,000 in 1997 to $969,000 in 1998.
Gross Margin. Gross margin increased from $4.5 million in 1997 to $9.3
million in 1998. This increase represented an improvement from 57% to 67% of
revenues. The increase resulted principally in established regions, where
revenue growth exceeded the growth of cost of revenues, which remained
relatively constant.
Selling and Marketing Expenses. Selling and marketing expenses increased
66% from $4.4 million in 1997 to $7.2 million in 1998, but decreased as a
percentage of revenues from 55% in 1997 to 52% in 1998. Selling and marketing
expenses increased as we expanded our sales organization into new regions and
began to enhance our selling and marketing capabilities on a national basis.
19
<PAGE> 22
Selling expenses declined as a percent of revenues due to sales growth during
the year and the growing renewable contract base.
General and Administrative Expenses. General and administrative expenses
increased 63% from $3.0 million in 1997 to $4.9 million in 1998, but decreased
as a percentage of revenues from 38% in 1997 to 35% in 1998. General and
administrative expenses increased because we hired new employees to support our
expanding organization and client base, and also in response to increases in our
occupancy and communication costs. General and administrative expenses decreased
as a percentage of revenues due to the continued leveraging of corporate
overhead costs over a larger organization with an expanding client base.
Other Income. Other income increased from $33,000 in 1997 to $341,000 in
1998. This increase resulted from an increase in interest income due to our
higher average cash balances in 1998, reflecting the net proceeds from our
initial public offering in July 1998.
COMPARISON OF 1997 AND 1996
Revenues. Revenues grew 82% from $4.3 million in 1996 to $7.9 million in
1997. This increase in revenues resulted principally from growth in our client
base in all regions of the country, expansion into new regions, and expansion of
services into existing regions. Revenues from regions we considered established
as of 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 we entered on April 1, 1996, by
acquiring Chicago Resource, Inc. In 1997, we entered San Francisco through the
purchase of 99.3% of the capital stock of NMS, Inc. We also entered Philadelphia
in the first quarter of the year and Boston in the fourth quarter. Our
advertising revenues, which we generated primarily in our established regions,
increased 232% from $122,000 in 1996 to $405,000 in 1997.
Gross Margin. Gross margin increased from $2.1 million in 1996 to $4.5
million in 1997, improving from 50% to 57% of revenues. This increase resulted
principally from the expanding revenues and profitability of established
regions, including Washington, D.C., New York, Los Angeles, and Chicago.
Selling and Marketing Expenses. Selling and marketing expenses increased
61% from $2.7 million in 1996 to $4.4 million in 1997, but decreased as a
percentage of revenues from 63% in 1996 to 55% in 1997. Selling and marketing
expenses increased as we expanded our sales organization into new markets and we
invested in the development of advertising sales. Selling expenses declined as a
percentage of revenues due to sales growth during the year and the growing
renewable contract base.
General and Administrative Expenses. General and administrative expenses
increased 62% from $1.9 million in 1996 to $3.0 million in 1997, but decreased
as a percentage of revenues from 43% in 1996 to 38% in 1997. General and
administrative expenses increased as we hired new employees to support our
expanding organization and client base, and as our occupancy and communication
costs increased. General and administrative expenses decreased as a percentage
of revenues due to the continued leveraging of corporate overhead costs over a
larger organization with an expanding client base.
20
<PAGE> 23
CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS
The following tables summarize our consolidated results of operations on a
quarterly basis for the indicated periods:
<TABLE>
<CAPTION>
1997 1998
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 30
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................................. $1,555 $ 1,858 $2,074 $2,413 $2,839 $3,254 $ 3,659 $ 4,148
Cost of revenues......................... 717 937 890 869 904 968 1,248 1,442
------ ------- ------ ------ ------ ------ ------- -------
Gross margin............................. 838 921 1,184 1,544 1,935 2,286 2,411 2,706
Operating expenses....................... 1,638 1,966 1,998 2,184 2,281 2,492 3,650 4,442
------ ------- ------ ------ ------ ------ ------- -------
Loss from operations..................... (800) (1,045) (814) (640) (346) (206) (1,239) (1,736)
Other income (expense), net.............. 31 17 3 (18) (38) (40) 202 218
------ ------- ------ ------ ------ ------ ------- -------
Net loss................................. $ (769) $(1,028) $ (811) $ (658) $ (384) $ (246) $(1,037) $(1,518)
====== ======= ====== ====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1998
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 30
------- ------- -------- ------- ------- ------- -------- -------
(AS A PERCENTAGE OF TOTAL REVENUE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................................. 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues......................... 46 50 43 36 32 30 34 35
--- --- --- --- --- --- --- ---
Gross margin............................. 54 50 57 64 68 70 66 65
Operating expenses....................... 105 106 96 91 81 77 100 107
--- --- --- --- --- --- --- ---
Loss from operations..................... (51) (56) (39) (27) (13) (7) (34) (42)
Other income (expense), net.............. 2 1 0 (1) (1) (0) 6 5
--- --- --- --- --- --- --- ---
Net loss................................. (49)% (55)% (39)% (28)% (14)% (7)% (28)% (37)%
=== === === === === === === ===
</TABLE>
LEASETREND, INC. ACQUISITION
On January 8, 1999, we acquired LeaseTrend, Inc., a Cincinnati-based
provider of commercial real estate information, in exchange for $4.5 million in
cash and 566,671 shares of our common stock. LeaseTrend provides information in
18 markets throughout the West, Midwest, and Florida. At the time we acquired
it, LeaseTrend served approximately 300 client firms and 3,000 users. Two
members of LeaseTrend's senior management have now joined us as Senior Vice
President and Vice President. The audited financial statements of LeaseTrend
appear later in this prospectus. For the year ended December 31, 1998,
LeaseTrend generated cash from operating activities of $211,000.
As a result of acquiring LeaseTrend, we will allocate $9.8 million of the
LeaseTrend purchase price to capitalized product development costs and
intangible assets, which we will amortize using estimated useful lives of two to
ten years. The estimated charges for amortization of the LeaseTrend capitalized
product development and intangible assets are approximately $1.3 million for
each of the first two years. We expect them to decline to approximately $1.0
million or less in subsequent years. Approximately $300,000 of the amortization
in each of the first two years relates to capitalized product development, and
we will charge this to cost of sales, reducing gross margins.
21
<PAGE> 24
We will make significant investments to integrate LeaseTrend into our
organization, including costs to:
- upgrade computer systems;
- establish network connections;
- convert database structures;
- train personnel; and
- migrate LeaseTrend clients to our services.
Results of LeaseTrend Operations
The following table provides LeaseTrend's selected results of operations
(in thousands of dollars and as a percentage of total revenue) for the indicated
periods:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998
------------------- -------------------
<S> <C> <C> <C> <C>
Revenues.................................................... $2,549 100% $3,445 100%
Cost of revenues............................................ 908 36 1,311 38
------ --- ------ ---
Gross margin................................................ 1,641 64 2,134 62
Operating expenses
Selling, general and administrative.................... 1,750 69 2,433 71
------ --- ------ ---
Total operating expenses.......................... 1,750 69 2,433 71
------ --- ------ ---
Loss from operations........................................ (109) (5) (299) (9)
Other income (expense), net................................. (369) (14) (433) (12)
------ --- ------ ---
Net loss.................................................... $ (478) (19)% $ (732) (21)%
====== === ====== ===
</TABLE>
Comparison of 1998 and 1997 -- LeaseTrend
Revenues. LeaseTrend's revenues grew 35% from $2.5 million in 1997 to $3.4
million in 1998. This increase in revenues resulted principally from growth in
LeaseTrend's client base and expansion into new regions, including Denver,
Florida, and Raleigh.
Gross Margin. Gross margin increased from $1.6 million in 1997 to $2.1
million in 1998 due to substantial revenue growth, but declined from 64% to 62%
of revenues as a result of additional research costs for new markets.
Selling, General, and Administrative. Selling, general, and administrative
expenses increased 39% from $1.8 million in 1997 to $2.4 million in 1998, and
increased from 69% to 71% of revenues. Selling and marketing expenses increased
as LeaseTrend expanded its sales organization into new markets.
JAMISON RESEARCH, INC. ACQUISITION
On January 22, 1999, we acquired Jamison Research, Inc., an Atlanta-based
provider of commercial real estate information, for $5.3 million in cash and
448,031 shares of our common stock. Jamison provides commercial real estate
information in the Atlanta and Dallas/Fort Worth areas.
22
<PAGE> 25
Jamison's audited financial statements appear later in this prospectus. In 1998,
Jamison generated cash from operating activities of $1.2 million before
compensation to stockholders.
As a result of acquiring Jamison, we will allocate the purchase price of
$10.7 million to capitalized product development costs and intangible assets,
which we will amortize using estimated useful lives of two to ten years. The
estimated charges for amortization of the Jamison capitalized product
development and intangible assets are approximately $1.4 million for each of the
first two years. We expect them to decline to approximately $1.1 million or less
in subsequent years. Approximately $400,000 of the amortization in each of the
first two years relates to capitalized product development, and we will charge
this to cost of sales, reducing gross margins.
We will make investments to integrate Jamison into our organization,
including costs to:
- upgrade computer systems;
- establish network connections;
- convert database structures;
- train personnel; and
- migrate Jamison clients to our services.
We anticipate that during this period, the positive cash flow we expect from the
Jamison operations will partially offset the costs of this conversion process.
Results of Jamison Operations
The following table provides Jamison's selected results of operations (in
thousands of dollars and as a percentage of total revenues) for the indicated
periods:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1998
------------------- -------------------
<S> <C> <C> <C> <C>
Revenues.................................................... $3,664 100% $4,578 100%
Cost of revenues............................................ 1,379 38 1,658 36
------ --- ------ ---
Gross margin................................................ 2,285 62 2,920 64
Operating expenses
Compensation to stockholders........................... 570 15 1,190 26
Selling, general and administrative.................... 1,682 46 1,887 41
------ --- ------ ---
Total operating expenses.......................... 2,252 61 3,077 67
------ --- ------ ---
Income (loss) from operations............................... 33 1 (157) (3)
Other income (expense), net................................. (35) (1) (10) (0)
Provision for income taxes.................................. (3) (0) 48 0
------ --- ------ ---
Net loss.................................................... $ (5) (0)% $ (119) (3)%
====== === ====== ===
</TABLE>
Comparison of 1998 and 1997 -- Jamison Research, Inc.
Revenues. Revenues grew 25% from $3.7 million in 1997 to $4.6 million in
1998. This increase in revenues resulted principally from growth in Jamison's
client base, primarily in the Dallas region.
23
<PAGE> 26
Gross Margin. Gross margin increased from $2.3 million in 1997 to $2.9
million in 1998, improving from 62% to 64% of revenues. This increase resulted
principally from the expanding revenues in Dallas, where revenue growth exceeded
the growth of costs, which are primarily fixed.
Selling, General, and Administrative. Selling, general, and administrative
expenses increased 12% from $1.7 million in 1997 to $1.9 million in 1998, but
decreased as a percentage of revenues from 46% in 1997 to 41% in 1998. Selling,
general, and administrative expenses increased as Jamison completed its
expansion into Dallas, and added sales and supporting staff to the market. Due
to the expanding revenues, this declined as a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
Our cash balance was $19.7 million as of December 31, 1998. This
represented an increase of $18.6 million over our cash balance of $1.1 million
as of December 31, 1997. Our increased cash balance resulted principally from
the net proceeds of our initial public offering in July 1998. During 1998, we
financed our operations and growth through cash flow from operating activities,
primarily from the established regions, short-term credit lines, and the
proceeds of our initial public offering. Net cash used in operations for 1998
was $293,000, compared to net cash used in operations of $2.2 million for 1997.
This change resulted from significant increases in revenues and profitability in
our established markets as of December 31, 1998. Additionally, we received
advance payments from clients on a number of contracts, resulting in the
generation of cash as reflected in deferred revenue balances of $903,000, and
$1.6 million as of December 31, 1997 and December 31, 1998, respectively. We
continue to experience overall operating losses as a result of our recent
expansion into new regions, while our established regions continue to generate
substantial cash flow from operations.
Net cash used in investing activities amounted to $2.3 million for 1998,
including capitalized product development costs, consisting principally of
building photography, and fixed-asset purchases, consisting principally of
computer and office equipment. We currently have no material commitments for
capital expenditures. During the third quarter of 1998, we acquired
Houston-based C Data Services, Inc. in exchange for 93,530 shares of our common
stock and $9,000 in cash. Also, as we described above, in January 1999, we
acquired LeaseTrend, Inc. and Jamison Research, Inc. for a total of $9.8 million
in cash and 1,014,702 shares of our common stock.
On July 8, 1998, we repaid the amount we owed on our line of credit and on
subordinated debt to a stockholder, for a total of $1.7 million out of the
proceeds of our initial public offering. Effective October 5, 1998, we renewed
our line of credit and increased it from $1.0 million to $5.0 million. The line
of credit contains certain restrictive and financial covenants, including
minimum net worth and current ratio requirements. As of December 31, 1998, we
had no borrowings outstanding against the line of credit.
To date, we have grown in part by acquiring other companies, and we may
continue to make acquisitions. Our acquisitions may vary in size and could be
material to our current operations. We expect to use cash, stock, or other means
of funding to make these acquisitions.
We expect to incur significantly higher costs, particularly as we introduce
new and upgraded services, expand geographically, and develop the infrastructure
to support the expanding organization and client base. Based on our current
plans, the proceeds of this offering combined with available cash and positive
cash flow from our established regions should be sufficient to fund our planned
operations and expansion for at least the next two years.
Through June 30, 1998, we operated as either a Subchapter S corporation or
a limited partnership, and we were not subject to corporate income taxes. After
June 30, 1998, we became a
24
<PAGE> 27
taxable entity. Although we have experienced losses to date, future profits, to
the extent not offset by the benefits of loss carryforwards, would result in
income tax liabilities. We do not expect to benefit substantially from tax loss
carryforwards generated prior to July 1998.
We do not believe the impact of inflation has significantly affected our
operations.
IMPACT OF THE YEAR 2000
We believe that we may be affected by computer problems associated with the
Year 2000. The Year 2000 issue arises because some computer hardware and
software will not work properly after 1999. That failure occurs because many
older systems express dates in a two-digit format. For example, under this
format the year 1999 is expressed as 99. As a result, these older systems may be
unable to distinguish between the year 1900 and the year 2000. That inability
may cause hardware system failures, software miscalculations, and disruptions of
data transmissions.
Our plans to resolve the Year 2000 issue involve the following steps:
assessment, remediation, and confirmation through testing. To date, we have
completed our preliminary assessment of the issue and approximately 60% of the
remediation phase. We have undertaken testing as particular aspects of the
remediation phase are completed.
Assessment
Our Year 2000 assessment has included:
- cataloging and evaluating internal hardware and software systems obtained
from third parties;
- testing the software we have developed ourselves; and
- contacting our clients, suppliers, and service providers.
Remediation and Testing Efforts
We have identified three areas that require evaluation and remediation:
internal infrastructure, our proprietary software, and impacts from systems of
vendors and our clients.
Internal Infrastructure. We are currently cataloging and evaluating our
hardware to determine its Year 2000 compliance. Our workstation supplier has
informed us that all workstations we have obtained from it are compliant. We
have successfully completed testing on 20% of those workstations. We have
purchased new, compliant servers to replace older hardware and expect those
servers to be operational by June 1999. We have scheduled our laptops for
compliance testing by June 1999.
We are also in the process of making the software used in our internal
infrastructure Year 2000 compliant. We have already installed a new, compliant
enterprise accounting system. We expect to convert all of our network server
operating systems to compliant software and to replace our non-compliant phone
and voice mail systems with compliant systems by August 1999.
Proprietary Software and Databases. Our commercial real estate information
systems use extensive proprietary software and databases. We performed Year 2000
compliance measures for much of this software in prior years since various
fields, like tenant lease expirations, required compliance in the early 1990's
to accommodate post-2000 dates. Since that time, we have assessed all our
proprietary commercial real estate information software to identify areas
vulnerable to these problems. This led us to recode common date routines,
functions, and methods so they would interpret both entered and stored dates
with a compliant approach. We believe that our proprietary
25
<PAGE> 28
systems are now compliant, but we might still encounter additional Year 2000
defects. In addition, we are upgrading our older internal software applications
with newer systems to provide greater assurance of Year 2000 compliance.
We have identified additional potential Year 2000 risks with respect to our
recently-acquired LeaseTrend and Jamison subsidiaries. We believe that a
significant percentage of their hardware and internal proprietary software are
non-compliant. We are currently upgrading these computer systems and are
converting the acquired databases into our centralized system to replace the
non-compliant products we acquired used by those subsidiaries. We plan to
complete this process in the next several months in the normal course of
business.
Client and Vendor Issues. Our assessment has also revealed that some of
our clients use hardware and software that is not Year 2000 compliant. As a
result, our clients' systems may not support the use of our software. We have
notified our clients of this potential issue. Where we have uncovered such
problems, we have attempted to ensure compatibility by coding our own
alternatives or replacements. Despite these efforts, our clients' success in
continuing to install and use our services depends significantly on their own
compliance efforts, which we do not control. If necessary, we will develop in
the next several months a contingency plan to address problems arising from our
clients' failure to have compliant computer equipment and software.
Third party Year 2000 compliance problems may also affect us by
interrupting services which we need to conduct our business. For example, most
of our data updates are delivered via the Internet. If Year 2000 problems result
in disruption of the Internet as a delivery system, we believe we could use
alternative delivery systems, which would mitigate to some extent the impact of
this disruption. We also rely on telecommunications providers for communication
services and distribution of our product data updates. Any compliance problems
by these providers could lead to extended loss of their services and significant
unanticipated expenses to remedy the situation.
Compliance Costs
Our incremental costs expended to date in connection with Year 2000
compliance have not been significant, as we have undertaken most of our
activities in the normal course of business. We estimate, however, that during
the remainder of 1999 we will spend $1,000,000 in connection with Year 2000
compliance. A large part of this cost will result from upgrading LeaseTrend and
Jamison equipment and software, much of which was planned independently of the
Year 2000 issue.
26
<PAGE> 29
BUSINESS
Realty Information Group is the nation's largest digital provider of
commercial real estate information and analysis. We are creating a digital
marketplace where the members of the commercial real estate and related business
community can continuously interact and facilitate transactions by efficiently
exchanging accurate and standardized information. According to our estimates, in
1998, we facilitated 100,000 commercial lease and sales transactions aggregating
over $100 billion in value. Our wide array of digital service offerings includes
a leasing marketplace, a selling marketplace, decision support, tenant
information, property marketing, and industry news. Substantially all our
current services are digitally delivered and a majority of our clients receive
daily service updates over the Internet.
We have three assets that provide a unique foundation for this marketplace:
the only comprehensive, proprietary, national database in the industry; the
largest research department in the industry; and, the largest number of
participating organizations. Our database has been constructed over more than a
decade by a research department that now makes over 1.8 million updates each
year to the database. In addition to our internal efforts, we have obtained and
assimilated over 50 proprietary databases. The database now covers 35 of the top
40 commercial real estate markets in the United States. It tracks over 13
billion square feet in over 272,000 properties, including more than $25 billion
in properties for sale, and over 310,000 tenants. We estimate that 36,000
participating companies use our marketplace to distribute information on their
properties. Of these participating companies, approximately 2,800 are clients,
representing 20,000 end-users, who subscribe to our services to facilitate
transactions, market services and properties, and conduct market research.
INDUSTRY OVERVIEW
We believe that the market for commercial real estate information is vast
based on the variety, volume, and value of transactions related to commercial
real estate. We believe that in 1998, the U.S. commercial real estate market had
hundreds of thousands of leasing transactions, with an aggregate value of more
than $200 billion, and had tens of thousands of sales transactions, with an
aggregate value of $285 billion. In the same year, lenders provided tens of
thousands of commercial real estate loans, with an aggregate net value of more
than $110 billion, according to the Federal Reserve Board. F.W. Dodge reports
that during 1998, construction commenced on 766 million square feet of
commercial properties with an aggregate value of $52 billion. Finally, last
year, vendors made $10 billion in sales to tenants who were moving to new
facilities, according to the Corporate Realty Design and Management Institute.
To facilitate transactions, industry participants must have extensive,
accurate, and current information. Members of the commercial real estate and
related business community require daily access to current data such as rental
rates, vacancy rates, tenant movements, supply, new construction, absorption
rates, and other important market developments to carry out their businesses
effectively. Such data collection is time-consuming, as shown by a 1996 study we
commissioned, which found that commercial real estate professionals spent 40% of
their workday collecting and analyzing information on the real estate market.
Therefore, there is a need to develop an efficient marketplace, where members of
the commercial real estate and related business community can exchange
information, evaluate opportunities using national standardized data, and
interact with each other on a continuous basis.
27
<PAGE> 30
A large number of parties involved in the commercial real estate and
related business community require extensive information, including:
<TABLE>
<S> <C>
- Sales and leasing brokers - Government agencies
- Property owners - Mortgage-backed security issuers
- Property management firms - Appraisers
- Design and construction firms - Media
- Real estate developers - Tenant vendors
- Real estate investment trusts - Building services vendors
- Investment banks - Communications providers
- Commercial banks - Insurance companies
- Investors and asset managers - Institutional advisors
</TABLE>
The commercial real estate and related business community has yet to
develop an efficient marketplace because of the fragmented approach to gathering
and exchanging information within the marketplace. Various organizations,
including hundreds of brokerage firms, directory publishers, and local research
companies, have attempted to collect data on specific territories and to develop
software to analyze the information they had independently gathered. This
fragmented approach resulted in duplication of effort in the collection and
analysis of information, excessive internal cost, non-standardized data with
varying degrees of accuracy and comprehensiveness, and a large information gap.
The creation of an efficient digital marketplace for commercial real estate
will require an infrastructure of a national, standardized database, accurate
and comprehensive research capabilities, and intensive, real-time participant
interaction. The Internet can help maximize interaction among participants in a
marketplace. The Internet has emerged as a mass communications and commerce
medium enabling millions of people worldwide to share information, create
community among individuals with similar interests, and conduct business
electronically. International Data Corporation projects that the number of
Internet users will grow from 100 million in 1998 to 320 million in 2002. In
addition to its emergence as a mass communications medium, the Internet has
features and functions that are unavailable in traditional media, which enable
users to:
- communicate or access enormous amounts of information at low cost and
without geographic limitation;
- access dynamic and interactive content on a real-time basis; and
- communicate and interact instantaneously with a single individual or with
entire groups of individuals.
Along with the impressive overall growth of the Internet,
business-to-business usage is also growing rapidly, as businesses are
increasingly leveraging the Internet's ability to reach clients globally,
deliver personalized content, and open new distribution channels.
Business-to-business electronic commerce, according to Forrester Research, is
projected to grow from $17 billion in 1998 to $327 billion in 2002.
28
<PAGE> 31
THE REALTY INFORMATION GROUP SOLUTION
The CoStar Marketplace. We are creating a digital commercial real estate
marketplace through CoStar, our Website, and our other related services. We
estimate that approximately 36,000 participating companies use our marketplace
to distribute information on their properties. Of these participating companies,
approximately 2,800 are clients, representing 20,000 end-users, who subscribe to
CoStar and our related services to facilitate transactions, market services and
properties, and conduct market research. We, our clients, and other members of
the commercial real estate and related business community continuously update
the marketplace data. Each day approximately 7,200 updates to the marketplace
database are made. Each night, the resulting information is distributed via the
Internet, creating a more dynamic and efficient market for transactions
involving the commercial real estate and related business community.
Comprehensive Service Offering. We have been able to capitalize on the
information accumulated in the CoStar marketplace to create a high value-added,
full-service solution for our clients. We have been able to package the
knowledge and resources of a nationwide commercial real estate and related
business community in a way that is accessible, interactive, standardized, and
comprehensive. As a result, we believe we are the only entity now capable of
providing the depth and breadth of the following services:
- Digital leasing marketplace -- provides the information required to
efficiently conduct commercial real estate leasing transactions, both
between brokers and between owners and brokers. We deliver this service
through CoStar and CoStar Tenant, which benefit our clients by providing
a more comprehensive solution with much higher data quality, at
substantially less time and cost.
- Digital selling marketplace -- provides the information required to
efficiently and securely conduct commercial real estate buy and sell
transactions. We currently deliver this service through CoStar and will
enhance this service through CoStar Exchange. This service benefits our
clients by allowing purchasers to make more-informed investments and
sellers to maximize realized property values.
- On-line decision support services -- allow members of the community to
perform analysis of underlying market conditions and trends when making
investment, leasing, purchase, sale, build, and marketing decisions
involving commercial real estate. We currently deliver these services
through Jamison Advisory, CoStar, and CoStar Tenant and will enhance
these services through CoStar Analytic and CoStar Comparables. These
services benefit our clients by providing more powerful, flexible,
time-efficient, and accurate analytic capabilities.
- Tenant information services -- enable members of the commercial real
estate and related business community to identify and market to the
tenants who are the most likely prospects for their goods and services.
We deliver these services primarily through CoStar Tenant. These services
benefit our clients by more precisely identifying and capturing viable
prospects at a lower cost.
- On-line property marketing -- provides a unique on-line means for the
commercial real estate and related business community to direct
advertising to the appropriate decision-makers. We currently deliver this
service through CoStar and via our Website and will enhance this offering
through a new service, E-Brochure. This service benefits our clients by
providing them increased distribution, higher visibility, and a more
cost-effective way to reach their targeted audience.
29
<PAGE> 32
- On-line industry news -- allows members of the commercial real estate and
related business community to remain current with developments in the
industry. We deliver these services through CoStar, www.rig.com, and
Real-E News, which benefit our clients by providing more timely and
in-depth news.
Internet and Web Access to CoStar Services. Substantially all our current
services are digitally delivered. About 65% of our clients currently receive
their CoStar data via the Internet. We are in the process of making our services
accessible through a standard Web-browser format. As a result, we expect to
generate an increasing portion of our revenues from Web-based services. The
increased availability of our services from a Web-based platform will allow the
commercial real estate and related business community real-time access to the
CoStar marketplace data and provide the opportunity for increased interaction
among community members. We believe this will lead to the development of a more
efficient commercial real estate marketplace.
Leveraging Leading Edge Technology. We use the latest technology to
continuously improve our data collection, enhance our sales efforts and our
service capabilities, and control costs as we build upon the CoStar marketplace
framework. For example:
- We use global satellite positioning and the Internet to coordinate remote
field research vehicles equipped with GPS transponders, laptop computers,
cellular communications, and laser measurement devices, to provide the
most precise and timely inventory of available buildings.
- We are integrating a proprietary enterprise-wide client and property
information management system with our telecommunications system and our
database, to allow the sales force, research staff, client-service staff,
and accounting department to develop a coordinated sales, research, and
account management effort. This enterprise-wide system will also assist
management in improving quality control and training.
- We now collect our architectural photographs digitally so that we can
move the images into our database substantially faster and at lower cost.
National, Standardized Presence. We are creating the first national and
standardized source for commercial real estate metrics that are comparable
between geographic territories. For example, the definitions of vacancy rates
and building classifications have varied among the different providers of real
estate information. Our national presence and the uniformity of our services and
data across all of our markets provides a foundation for members of the
commercial real estate and related business community to do business on a
national basis. Leading firms within the community conduct business efficiently
in multiple local markets by standardizing their internal systems on our
proprietary database. Currently 20% of our clients subscribe to services in
multiple markets.
THE COSTAR STRATEGY
Our objective is to complete the development of the CoStar digital
marketplace for the commercial real estate and related business community across
the United States and to introduce it in select international markets. The
principal components of our strategy to accomplish this are:
- Introduce New and Upgraded Services. We believe the CoStar marketplace
contains a wealth of information that we can enhance and package into an
array of new services. We intend to introduce the following new and
upgraded services over the course of the next 18 months:
- CoStar Exchange will be a Web-based marketplace to more efficiently
and securely facilitate the buying and selling of commercial
properties.
30
<PAGE> 33
- CoStar Comparables will be a Web-based service enabling our clients
to track and analyze sales comparables in a more timely and
comprehensive manner than is currently possible.
- E-Brochure will provide members of the commercial real estate and
related business community with more cost-effective Web-based and
CD/ROM-based brochures, replacing the millions of paper brochures
currently used to advertise buildings.
- CoStar Analytic will provide a Web-based analytic tool that will
assist the commercial real estate and related business community in
analyzing the important changing trends in market metrics such as
vacancy rates, rental rates, tenant demographics, new construction,
and absorption rates.
- Real-E News will be a free customized Internet-delivered and
Web-based service that will provide the subscriber's pre-selected
preference categories via spot news and analytical articles about
the commercial real estate industry. We plan to generate advertising
revenue from banner ads, mostly about available properties, that are
placed around the news stories.
The introduction of these new services, along with the expansion of our
CoStar Tenant service, will allow us to cross-sell a comprehensive suite of
services to our existing clients across the country. By contrast, to date,
we have primarily offered only one or two of our services in each of our
markets.
- Increase Penetration in Current Markets. We believe that we can
significantly expand our client base and increase revenues in our
established markets. Initially upon penetrating a new market, we
typically sign up leading commercial real estate brokerage firms within
six months of entry, which allows us to gain a strategic position in that
market's information flow. From there, we significantly expand our sales
and marketing efforts in these markets so that we can further penetrate
the broader client base. In 1998, for example, we doubled our sales force
in our established markets, which helped to increase revenues in those
markets by 66%. We intend to continue to significantly expand our sales
force and open new field sales offices to further penetrate established
markets.
- Enter New U.S. Markets and Develop National Accounts. We intend to
broaden our potential client base by entering new U.S. markets. Many of
our existing clients have offices in these targeted markets which will
enable us to accelerate our rate of market acceptance in these new
regions. This geographic expansion should also broaden our base of
national accounts. To date, we have been able to sell 30 national
accounts, which we believe constitutes a small portion of the universe.
By completing our geographic expansion within the U.S., we believe our
services will be more attractive to a much larger number of national
accounts who require comprehensive coverage of the major U.S. commercial
real estate markets.
- Expand Internationally. We plan to enter select international markets,
including Canada, the United Kingdom and Europe. Either independently or
in connection with strategic acquisitions, we intend to gain a foothold
in each new target market with one of our services developed for the
local market. Then, over time, we plan to develop all of our services for
that market. We also believe that there is significant demand in these
international markets for U.S. commercial real estate information.
- Improve and Enhance the CoStar Marketplace. We believe that CoStar is
the most comprehensive marketplace of information about the commercial
real estate and related business community. We intend to maintain that
leading position by continuously improving
31
<PAGE> 34
CoStar's comprehensiveness and quality. Our efforts will include adding
additional buildings to our database and improving our model for
collecting the data underlying CoStar. We also intend to continue our
technological leadership by continuing to move the distribution of our
services to the Internet and the Web, by increasing the interactivity of
our services with our clients, by continuing our evolution as the digital
marketplace for real estate transactions, and by increasing our community
presence via our Website.
- Pursue Strategic Acquisitions. We intend to continue making strategic
acquisitions to broaden our service offerings and to further expand our
geographic coverage. We actively search for services that complement our
existing suite of services. Additionally, we intend to actively explore
acquisitions abroad to help penetrate international markets.
SERVICES
The following table illustrates what we believe to be the relative need for
our current and proposed services by some of the members of the commercial real
estate and related business community, based upon our experience with demand for
our existing services as well as discussions with our clients and other industry
participants.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
COSTAR COSTAR COSTAR COSTAR COSTAR COSTAR COSTAR
(OFFICE & TENANT EXCHANGE ANALYTIC COMPARABLES ADVERTISING NEWS
INDUSTRIAL)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Brokerage H H H H M H H
- -----------------------------------------------------------------------------------------------------------
Owners, Developers M H H H M H H
- -----------------------------------------------------------------------------------------------------------
Property Managers M E E H E E H
- -----------------------------------------------------------------------------------------------------------
REITs H H H H M H H
- -----------------------------------------------------------------------------------------------------------
Lenders, Investment Banks M E M H M H M
- -----------------------------------------------------------------------------------------------------------
Vendors M H E E E M M
- -----------------------------------------------------------------------------------------------------------
Government Agencies H H M M M M M
- -----------------------------------------------------------------------------------------------------------
Appraisers M E M H H E H
- -----------------------------------------------------------------------------------------------------------
Institutional Advisors,
Asset Managers M E H H M E H
- -----------------------------------------------------------------------------------------------------------
H = High need M = Moderate need E = Empty grid indicates low or no need
</TABLE>
Our various services are described in detail in the following paragraphs.
CoStar. CoStar has fostered the development of the digital leasing
marketplace. Clients use CoStar to research leasing options, analyze market
conditions and competitive property positions, and produce multimedia client
presentations. Members of the broader commercial real estate community,
including non-CoStar subscribers, utilize CoStar extensively to market their
properties. The subscriber can query CoStar with any combination of pertinent
criteria, combining any of approximately one hundred data fields from categories
such as building size, location, building characteristics, space
32
<PAGE> 35
availability, ownership, or sales comparables. CoStar's search engine scans
through hundreds of millions of square feet of space in a specified market in
seconds to find all the properties meeting the search criteria. The user can
select from over 50 customizable reports, presenting space availability,
comparable sales, tenant activity, market statistics, photographs, and floor
plans. The user can export and edit reports, photos, and floor plans to help
determine feasibility of a specific space. Our clients also use CoStar to
analyze market conditions by calculating current vacancy rates, absorption
rates, or average rental rates. About 65% of our clients currently receive daily
service updates via the Internet.
CoStar Tenant. CoStar Tenant delivers detailed information profiling the
tenants occupying commercial buildings by tracking over 310,000 tenants in 23
U.S. markets. We expect to expand that coverage to more than 1 million tenants
over the next two years. A key service feature is accurate lease expiration
information. Clients use CoStar Tenant to:
- find information about particular tenants;
- identify and target the most likely tenants to lease space;
- identify all tenants in a particular building;
- understand trends and the underlying demand for commercial real estate;
- identify and target the tenants most likely to need representation for
their real estate requirements; and
- identify and target the tenants most likely to buy a particular vendor's
goods and services.
CoStar Exchange. We have developed a database of over 25,000 commercial
properties for sale with a combined asset value in excess of $25 billion. We
will distribute that information through a secure Web service, to be known as
CoStar Exchange. Sellers of properties will be able to list extensive
information about their properties for sale on the site at no cost. The site
will afford an efficient means for these sellers to reach a large universe of
potential buyers. Potential buyers will pay a subscription fee to access the
system. Sellers of investment-grade properties will have the additional option
of selecting limited, secure distribution of their properties in order to
address confidentiality requirements.
CoStar Analytic. We currently provide a full line of detailed analytical
tools and reports through Jamison Advisory, CoStar, and CoStar Tenant. These
tools provide strategic insight into the changing trends in vacancy rates,
tenant movements, supply, new construction, absorption rates, and other
important market metrics. We are enhancing these services through CoStar
Analytic. CoStar Analytic will provide a Web-based analytic tool that will allow
users to perform more sophisticated analyses of underlying market conditions and
trends when making investment, leasing, purchase, sale, construction, and
marketing decisions involving commercial real estate. We may also provide fee-
based customized reports and advisory services.
CoStar Comparables. We currently track tens of thousands of commercial
real estate sales. CoStar Comparables will be an enhanced Web-based service
providing confirmed commercial real estate sales information on properties which
have recently sold. We believe that CoStar currently contains more major office
and industrial properties for sale than any other single information source. As
transactions involving these properties in CoStar are consummated, frequently we
can obtain details of the transaction weeks before most traditional comparable
sale providers have access to the information. In addition, we are uniquely
positioned to provide other valuable information beyond the basic confirmed
comparable sale price, such as leasing information, detailed tenant rent rolls,
and local market conditions.
33
<PAGE> 36
CoStar Advertising. We estimate that the participants in the CoStar
marketplace will directly influence approximately $100 billion in leasing and
sales each year. We currently provide digital marketing opportunities to reach
this audience through premium high-exposure banner ads on CoStar and on our
Website. In addition, our new E-Brochure service will allow commercial real
estate professionals to replace the millions of costly print fliers produced
each year to direct market their properties with a cost-effective digital
version. We will distribute these E-Brochures via the Web, CoStar, and CD/ROM
distribution.
CoStar News. Our Website, CoStar, and our e-mail news dispatches have
become an accepted source of reliable industry news. In 1998, we authored over
3,000 news stories. These articles have been cited by numerous major news
organizations. Our newswire feature keeps clients informed of late-breaking
commercial real estate news such as deals signed, acquisitions, ground breakings
and other features. Web banner ads are prominently displayed on the site,
generating significant revenues. We plan to develop and deliver a free e-mail
system built around customized client profiles, with highly-targeted banner
advertising attached.
THE DATABASE BEHIND COSTAR
We believe that our proprietary database, actively tracking over 13 billion
square feet of U.S. commercial properties, is one of the largest in existence.
On an annual basis, over 270 researchers make 1.8 million updates to the
database. This highly complex database is comprised of hundreds of data fields,
tracking such categories as:
<TABLE>
<S> <C>
- - Location - Mortgage and deed information
- - Site and zoning information - For-sale information
- - Building characteristics - Income and expense histories
- - Space availability - Tenant names
- - Tax assessments - Lease expirations
- - Ownership - Contact information
- - Sales comparables - Historical trends
</TABLE>
The database includes over 262,000 high-resolution digital images,
including building photographs, aerial photographs, and floor plans. The
database tracks approximately 310,000 tenants occupying office and industrial
space in 23 U.S. markets. We expect to expand coverage to more than 1 million
tenants over the next two years, which will generate additional revenues and
create significant additional barriers to entry.
CLIENTS
We draw clients from across the commercial real estate and related business
community. Commercial real estate brokers have traditionally been the largest
portion of our clients, but recently,
34
<PAGE> 37
the fastest growing segments have been owners, lenders, and vendors. The
following chart provides representative clients in various categories.
<TABLE>
<CAPTION>
BROKERAGE OWNERS, DEVELOPERS PROPERTY MANAGERS
- --------- ------------------ -----------------
<S> <C> <C>
CB Richard Ellis Gale & Wentworth Kennedy-Wilson Properties
Grubb & Ellis Hines Leggat McCall Properties
Insignia/ESG Manulife Financial Lincoln Property Company
Julien J. Studley Trammel Crow Company PM Realty Group
The Staubach Company TrizecHahn Corporation U.S. Equities Realty
REITS LENDERS, INVESTMENT BANKERS VENDORS
- ------------------------------------ ---------------------------------- ----------------------------------
Boston Properties Bankers Trust IntelliSpace
CarrAmerica Donaldson, Lufkin & Jenrette Kastle Systems
Cornerstone Properties GMAC Commercial Mortgage RCN Corporation
Equity Office Properties Merrill Lynch Teligent
Prentiss Properties NationsBank WinStar Communications
INSTITUTIONAL ADVISORS,
GOVERNMENT AGENCIES APPRAISERS, ACCOUNTANTS ASSET MANAGERS
- ------------------------------------ ---------------------------------- ----------------------------------
County of Los Angeles Arthur Andersen AEW Capital Management
Fairfax County Development Authority E & Y Kenneth Leventhal Real Jones Lang LaSalle
Montgomery County Office of Economic Estate Group Legg Mason
Development Koeppel Tener Real Estate Services Lend Lease Real Estate
NYC Economic Development Corp. KPMG Investments
U.S. General Services Administration PricewaterhouseCoopers USAA Real Estate Company
</TABLE>
We currently have over 2,800 clients, including the majority of the
national commercial real estate brokerage firms. These national firms have
offices in markets we are expanding into, which enables us to accelerate our
rate of market acceptance in these new regions. No single client accounts for
more than 5% of our revenues. During the past five years, our contract renewal
rate has exceeded 90%.
SALES AND MARKETING
We have 55 sales and marketing employees, with the majority of our direct
sales force located in the field. Our sales teams are geographically focused and
located in 14 field sales offices in our largest U.S. markets. Our offices
typically serve as the platform for our in-market sales, client service, and
field research operations for their respective regions. The field sales offices
also work with our headquarters operation to coordinate sales to our
multi-market and national clients. In addition, we have 24 client service staff
members with responsibility for installing and training our client base,
ensuring high client satisfaction, renewing existing client contracts, and
identifying cross-selling opportunities. We use a proprietary enterprise-wide
client management system integrated with our database and telecommunications
system. This integrated system allows the sales force, research staff, client
service, and accounting department to develop a coordinated sales and account
management effort.
Our field sales people focus in one of two areas, Information Solutions or
Marketing Solutions. The Information Solutions sales personnel focus on existing
information services such as CoStar and CoStar Tenant, as well as new
information services such as CoStar Exchange and CoStar Analytic. The majority
have significant commercial real estate experience, allowing them to take a
consultative sales approach. The Marketing Solutions sales personnel sell
on-line advertising and new services such as E-Brochure. The majority have an
advertising sales background or experience in commercial real estate.
35
<PAGE> 38
Our sales strategy is to aggressively attract new clients, while providing
ongoing incentives for existing clients to subscribe to our newer services. To
help drive rapid growth in our sales force, we have established an in-house team
that is responsible solely for seeking out and recruiting quality sales people.
We seek to make our services essential to our clients' businesses. To
encourage clients to use our services regularly, we charge fixed monthly amounts
rather than fees based on actual system usage. Our clients' monthly charges are
based on the number of sites, organization size, and the number of services to
which a client subscribes.
Our primary marketing methods include: service demonstrations, direct
marketing, trade show and industry events, print advertising, and client
referrals. Direct marketing is the most cost effective means for us to find
prospective clients. Once we have identified a prospective client, we have found
the most effective sales method is a service demonstration. Our direct marketing
efforts include direct mail, e-mail, and telemarketing, and make extensive use
of our unique, proprietary database. Our advertising includes Internet banners,
private network banners, and traditional print advertising. This form of
advertising is used for brand identity, message reinforcement, and potential
client identification.
DATA COLLECTION
We have developed a sophisticated data collection organization, made up of
a combination of researchers, management systems, computer and communications
hardware, and software systems.
Research. We employ over 270 researchers to collect and analyze office and
industrial real estate information through over 400,000 phone calls and faxes a
year, in addition to e-mails, field inspections, news monitoring, and direct
mail. Every new research employee undergoes an extensive training program to
maintain a consistent research process. Because of the importance commercial
real estate professionals place on our data and our prominent position in the
industry, they frequently take the initiative to report transactions to our
researchers.
Management and Quality Control Systems. We use both automated and
non-automated controls to ensure the integrity of the data collection process. A
large number of automated data quality tests check for potential errors
including occupancy date conflicts, available square footage greater than
building area, typical floor greater than land area, and expired leases. Our
non-automated quality control procedures include:
- calling our information sources on recently-updated properties to
re-verify information;
- reviewing commercial real estate periodicals for transactions to
cross-check our research; and
- performing field checks to determine if we correctly canvassed all
buildings.
Finally, one of the most important and effective quality control measures is
feedback, garnered through regular client surveys taken from the commercial real
estate professionals using our data every day.
Computer and Communications Hardware. We maintain Novell and 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. We store full data
back-ups off site.
36
<PAGE> 39
Software Systems. We use client-server software to manage our internal
data collection. In addition, over the past decade we have developed and refined
our own software systems. This software has four primary functions:
- collection of building-specific data;
- tracking of commercial real estate companies and individuals;
- facilitating our operations; and
- distribution of data.
COMPETITION
The market for information systems and services generally is competitive
and rapidly changing. The principal competitive factors for commercial real
estate information are:
- the quality, depth, and timeliness of the underlying databases;
- the ease of use, flexibility, and functionality of the software;
- the perception that the service offered is the industry standard;
- the proprietary nature of methodologies and databases;
- the effectiveness of marketing and sales efforts;
- client service and support;
- breadth of geographic coverage and services offered;
- technical resources;
- capital resources; and
- price.
We do not believe that we presently face competition from any other company
on a national basis for our existing services. We do face competition on a
regional basis. For example, ReLocate, Inc. provides a product that competes
with us in New York City, Philadelphia, Dallas, and Boston. In a few
jurisdictions, third-party databases or print publications compete with us on a
purely local basis. Our primary competition comes indirectly, however, from the
in-house research departments still operated by some commercial real estate
brokers.
The new services that we are developing may bring us into competition from
various sources. For example, our E-Brochure and our other enhanced CoStar
Advertising services will compete for property marketing revenues with Web-based
bulletin boards such as Loopnet Venture, Inc. Our CoStar Comparables service
will compete with services from companies like Comps.com, Inc., which provide
enhanced versions of generally-available public record data.
As a digital real estate marketplace develops, additional competitors
(including companies having greater financial, product development, technical,
and marketing resources than we do) may enter the market and competition may
intensify. While we believe that we have successfully differentiated ourselves
from existing or potential competitors, competition could materially harm our
business.
37
<PAGE> 40
PROPRIETARY RIGHTS
To protect our proprietary rights in our methodologies, database, and
software, we depend upon a combination of:
- trade secret and copyright laws;
- nondisclosure and other contractual provisions; and
- technical measures.
We have not filed any patent applications covering our methodologies and
software.
We seek to protect our software's source code and our database as trade
secrets and under copyright law. Although copyright registration is not a
prerequisite for copyright protection, we have filed for copyright registration
for our CoStar software and user manuals. We have also filed for copyright
registration of the CoStar database. Under current law, the arrangement and
selection of data may be protected, but the actual data itself may not be.
Moreover, other people are free to try to independently create databases that
perform the same function as ours. We believe, however, that they would find it
very time-consuming and costly to create a competing database. We also intend to
take appropriate measures to protect our intellectual property rights in the
data and software obtained through our recent acquisitions of LeaseTrend, Inc.
and Jamison Research, Inc.
We distribute our software and services under agreements that grant our
clients non-exclusive licenses. These agreements restrict the disclosure and use
of our data and software. They prohibit the unauthorized reproduction or
transfer of the information and software we provide. In addition, we attempt to
protect the secrecy of our proprietary database and other trade secrets and
proprietary information through agreements with our employees and consultants.
Our services also include technical measures to discourage unauthorized copying.
We have filed applications to register the "CoStar" mark in the United
States, Canada, and the United Kingdom. We believe that we have developed
substantial goodwill in connection with this mark as an indicator of the quality
of our services.
EMPLOYEES
As of March 15, 1999, we employed 419 employees, including 272 researchers
and 55 sales and marketing employees. None of our employees is represented by a
labor union. We have experienced no work stoppages. We believe that our employee
relations are excellent.
FACILITIES
Our corporate offices occupy approximately 48,000 square feet in Bethesda,
Maryland, under leases and subleases expiring June 30, 2000. We also lease
office space in the following cities: New York; Los Angeles; Elmhurst, Illinois;
San Francisco; Boston; Newport Beach; Philadelphia; Houston; Cincinnati;
Atlanta; Phoenix; San Diego and Dallas. Our aggregate lease payments for 1998,
adjusted to include on a pro forma basis the lease payments made by LeaseTrend
and Jamison Research, were approximately $1.4 million.
LEGAL PROCEEDINGS
From time to time, we have been involved in lawsuits incidental to our
business. We are not currently subject to, and none of our properties is subject
to, any material legal proceedings.
38
<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Our executive officers, key employees, and directors are as follows:
<TABLE>
<CAPTION>
YEARS
NAME AGE OF SERVICE POSITION
---- --- ---------- --------
<S> <C> <C> <C>
Michael R. Klein.................. 57 12 Chairman of the Board of Directors
Andrew C. Florance*............... 35 12 Chief Executive Officer, President, and
Director
Frank A. Carchedi*................ 41 2 Chief Financial Officer
Curtis M. Ricketts*............... 36 4 Senior Vice President of Sales and Marketing
David M. Schaffel*................ 38 10 Vice President of Product Development
Fred A. Heitzman III*............. 49 10** Senior Vice President
Henry D. Jamison IV............... 42 18** President of Jamison Research, Inc.***
Dean Violagis..................... 32 9 Vice President of Research
Robert J. Caulfield, Jr. ......... 43 1 Vice President of Sales
Gregory Benkert................... 43 10* Vice President
David Bonderman................... 56 12 Director
Warren H. Haber................... 58 4 Director
John Simon........................ 56 3 Director
Lanning Macfarland III............ 46 3 Director
</TABLE>
- -------------------------
* Executive Officer
** Includes years of service with acquired companies.
*** Jamison Research, Inc. is one of our wholly-owned subsidiaries.
Michael R. Klein is one of our founders and has been Chairman of our Board
of Directors since 1987. He has been, since 1974, a partner of the law firm
Wilmer, Cutler & Pickering, based in Washington, D.C., and was a member of its
five-person management committee until July 1998. Over the past five years Mr.
Klein 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. He is also a director of SRA International, Inc. 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, Inc. (now
known as Republic Industries, Inc.).
Andrew C. Florance is also one of our founders and has served as our
President and as a Director since 1987 and as our Chief Executive Officer since
1995. Prior to founding Realty Information Group, Inc., Mr. Florance was
President of a 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 SEC form 13-D tracking service, which was later acquired by Dow
Jones. Mr. Florance was a co-founder of a commercial real estate information
trade association (REI-NEX) and served on its board from 1993-96. Mr. Florance
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. He received a B.A. in economics from Princeton University.
Frank A. Carchedi, our Chief Financial Officer, joined us in May 1997 from
ITC Learning Corporation, a publicly held publisher and distributor of
multi-media training products, where 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
39
<PAGE> 42
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, our Senior Vice President of Sales and Marketing,
joined us as the Vice President of Sales and Marketing in December 1994. Prior
to joining us, 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. Mr. Ricketts majored in
business at the University of Maryland.
David M. Schaffel, our Vice President of Product Development, has been with
us since 1989. Mr. Schaffel is responsible for the design, development, and
maintenance of our software services and products as well as any new services.
From 1987 until joining us, 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 M.S. -- Operations
Research/Statistics from the University of Miami and a B.S. in business from the
University of Florida.
Fred A. Heitzman III, Senior Vice President, joined us upon the acquisition
of LeaseTrend, Inc. in January 1999, where he had served as President since he
founded the company in 1988. Prior to that, he was the President of Ameristate,
Inc., a real estate information company providing ownership and comparable sales
information, which he founded in 1978. Mr. Heitzman is a member of the
Cincinnati Real Estate Roundtable, REEAC, CEO Roundtable, and a director of
Enerfab, Inc. Mr. Heitzman received a B.A. in economics from Denison University.
Henry D. Jamison IV, President of our Jamison Research, Inc. subsidiary,
joined us in January 1999 when we acquired Jamison Research, Inc., where he had
been Chairman since founding the firm in 1981. Prior to that, Mr. Jamison was
employed as a national accounts manager with his family's Nashville-based
manufacturing firm, Jamison Bedding and Furniture, Inc. Mr. Jamison majored in
business at the University of Colorado.
Dean Violagis, our Vice President of Research, is responsible for our
research department, of which he has been a manager since 1989. Mr. Violagis
received a B.A. in real estate finance from the American University in
Washington, D.C.
Robert J. Caulfield, Jr. serves as Vice President of Sales. Prior to
joining us in 1998, Mr. Caulfield was Director of Sales and Business Manager 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. Mr. Caulfield received a
B.S. in marketing from Villanova University and his M.B.A. in international
marketing from The George Washington University.
Gregory Benkert, who serves as Vice President, joined us upon the
acquisition of LeaseTrend, Inc. in January 1999, where he had been Vice
President since 1991. Prior to that, he was Vice President and Chief Financial
Officer of Ameristate, Inc. for five years, and prior to that an Audit Manager
with Arthur Andersen & Co. Mr. Benkert is a Certified Public Accountant and
received a B.A. and an M.B.A from Xavier University.
David Bonderman is 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.,
40
<PAGE> 43
Beringer Wine Estates, Denbury Resources, Inc., Ryanair, P.L.C., Washington
Mutual, Inc., Oxford Health Plans, Inc., and Virgin Entertainment, Ltd. He has
been one of our Directors since 1987.
Warren H. Haber has been, for more than twenty-five 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 their own
accounts. Mr. Haber currently serves on the boards of directors of Beverly Glen
Medical Systems, American Lifecare, Grand Charter, Ltd. and Warnex Pharma. He
has served as one of our Directors since 1995.
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, and Advanced Technical Products, Inc. Mr.
Simon has sat on our Board of Directors since 1996.
Lanning Macfarland III has been associated with the Law Bulletin Publishing
Company of Chicago since 1983, from which we 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 is responsible for all new product
development and on-line legal services. Prior to his association with LBPC, Mr.
Macfarland held sales and publishing positions with The New Yorker, Time, Inc.
and Bradley Printing. He has served as one of our Directors since 1996.
ELECTION OF DIRECTORS
All of our current directors serve for one-year terms or until their
successors are elected and qualified. Stockholders' agreements that included
provisions governing the composition, power, and election of the Board of
Directors terminated following our initial public offering in July 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has an Audit Committee that reviews the results and
scope of the annual audit and other services provided by our independent public
accountants. It also has a Compensation Committee that makes recommendations
concerning salaries and incentive compensation for our employees. The Board of
Directors has designated the Compensation Committee as the administrator of the
Stock Option Plan described below.
DIRECTOR COMPENSATION
Those members of our Board of Directors who do not also serve as an officer
or employee with us are entitled to their expenses for attending each meeting of
the Board of Directors and each meeting of any committee. Until May 1998,
Founders Equity Inc. received a monthly fee of $10,000 and Mr. Klein a monthly
fee of $6,667, but those fee arrangements have terminated. Since our initial
public offering last year, our non-employee directors have been entitled to
$15,000 annually payable in shares of our common stock.
41
<PAGE> 44
EXECUTIVE COMPENSATION
The following table provides the annual salary, bonuses, and all other
compensation awards and payouts to our Chief Executive Officer and President and
to our most highly compensated executive officers who earned more than $100,000
in salary and bonus in 1998 (collectively, the "Named Executive Officers") for
1996 through 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION AWARDS COMPENSATION
- -------------------------------------------------------------------------------------- --------------------- ------------
FISCAL OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------- ------ -------- -------- ------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
Andrew C. Florance.................... 1998 $166,346 -- -- 65,000 $ 2,309
Chief Executive Officer & President 1997 150,000 $100,000 $150,000(1) -- 2,122
1996 150,000 100,000 150,000(1) -- --
Frank A. Carchedi..................... 1998 117,096 27,029 -- 40,000 865
Chief Financial Officer 1997 70,654(2) 20,000 -- 15,150 --
1996 -- -- -- -- --
Curtis M. Ricketts.................... 1998 104,362 47,126 -- 25,000 2,108
Senior Vice President 1997 83,077 46,166 -- -- 1,700
of Sales and Marketing 1996 64,481 37,012 -- -- --
David M. Schaffel..................... 1998 136,871 3,044 -- 40,000 19,097
Vice President of 1997 117,898 3,000 -- -- 9,478
Product Development 1996 96,941 3,000 -- -- --
</TABLE>
- -------------------------
(1) In 1997, we paid Mr. Florance additional compensation in the form of shares
of a predecessor company valued at the equivalent of $4.62 per share for our
common stock.
(2) Mr. Carchedi joined us as Chief Financial Officer in May 1997. On an
annualized basis, his base salary was $110,000 per year in 1997.
EMPLOYMENT AGREEMENTS
We have employment agreements with Messrs. Florance, Carchedi, Ricketts,
and Schaffel. Each of these agreements is effective as of January 1, 1998. Each
entitles the executive to a specified base salary, a bonus award up to a
specified percentage of base compensation based upon achievement of performance
objectives, and an award of stock options vesting over time. The executive also
may participate in any insurance, medical, disability or pension plan generally
made available to our senior executive officers.
The agreements are for initial terms of two years (three in the case of Mr.
Florance) and are automatically renewable for successive one-year terms unless
we or the executive terminate the agreement. Each agreement contains a covenant
not to compete with us for the two years immediately following termination, but
applicable law may limit the term or scope of this covenant. The agreements
generally provide that, if we terminate the executive's employment without good
cause, the executive is entitled to his base salary for the greater of six
months or whatever period remains under the agreement, to a prorated share of
his bonus for the year in which termination occurred, and to the immediate
vesting of all stock options due to vest within the following 12 months.
The termination provisions of Mr. Florance's agreement differ in that they
also apply if he terminates the agreement for good cause; in that his
termination payments will be for the greater of 12 months or the remaining
period under the agreement; that he will receive a gross-up payment to cover any
taxes assessed under Section 4999 of the Internal Revenue Code; and in that all
his unvested stock options will vest.
42
<PAGE> 45
The following table gives specific economic terms of these agreements.
<TABLE>
<CAPTION>
MAXIMUM BONUS NUMBER AND
AS PERCENTAGE OF EXERCISE PRICE OF
NAME INITIAL BASE SALARY BASE COMPENSATION STOCK OPTIONS
---- -------------------- ----------------- -----------------
<S> <C> <C> <C>
Andrew C. Florance.................................. $175,000 100% 65,000
at $9
Frank A. Carchedi................................... 125,000 75 40,000
(as of July 1, 1998) at $9
Curtis M. Ricketts.................................. 110,000 100 25,000
(as of July 1, 1998) at $9
David M. Schaffel................................... 120,000 50 40,000
(as of July 1, 1998) at $9
</TABLE>
- ------------------
25% of the options vest on each of the following dates: July 1, 1998, and
December 31, 1998, 1999, and 2000.
OPTION GRANTS
The following table provides certain information regarding grants of stock
options to the Named Executive Officers during 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTION EMPLOYEES IN PRICE EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR ($/SHARE) DATE PRESENT VALUE(1)
---- ---------- ------------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Andrew C. Florance................ 65,000 12.0% $9 6/30/2008 $430,300
Frank A. Carchedi................. 40,000 7.4 9 6/30/2008 264,800
Curtis M. Ricketts................ 25,000 4.6 9 6/30/2008 165,500
David A. Schaffel................. 40,000 7.4 9 6/30/2008 264,800
</TABLE>
- ------------------
(1) The grant date present value is computed using the Black-Scholes
option-pricing model with the following assumptions: expected volatility of
94%, dividend yield of 0%, risk-free interest rate of 5%, and expected life
of 5 years.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides certain information regarding fiscal 1998
stock option exercises by, and unexercised options held as of December 31, 1998
by, the Named Executive Officers.
43
<PAGE> 46
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END 1998 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN THE MONEY
SHARES OPTIONS HELD OPTIONS AT FISCAL YEAR-
ACQUIRED AT DECEMBER 31, 1998 END(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrew C. Florance.......................... -- -- 200,604 32,500 1,660,361 117,813
Frank A. Carchedi........................... -- -- 25,050 30,100 118,840 165,179
Curtis M. Ricketts.......................... 48,480(1) $283,608(1) 24,620 12,500 156,528 45,313
David M. Schaffel........................... -- -- 32,120 20,000 183,715 72,500
</TABLE>
- ---------------
(1) In June 1998, Mr. Ricketts exercised unit options of one of our predecessors
equivalent to 48,480 shares of our common stock. The value realized by this
exercise is computed by subtracting the exercise price per equivalent share
of our common stock from our estimate of the fair value.
(2) Calculated based on the amount by which the fair market value of the
underlying security (assumed to be equal to its year-end closing price of
$12 5/8 per share) exceeds the option exercise price.
STOCK OPTION PLAN
Our Board of Directors adopted our 1998 Stock Option Plan prior to our
initial public offering. Our stockholders approved the plan at a specially
called meeting in June 1998. We have reserved 1,450,000 shares of our common
stock for issuance under the Stock Option Plan. Unless terminated sooner by the
Board of Directors, the Stock Option Plan will terminate in 2008.
Our Board of Directors' Compensation Committee administers the Stock Option
Plan. Subject to provisions of the Stock Option Plan the Committee can:
- select to whom to grant the options;
- designate the number of shares to be covered by options;
- specify the type of consideration someone exercising an option must
pay us; and
- establish all other terms and conditions of each option.
The Stock Option Plan provides for the grant of stock options to our
officers and employees including those of subsidiaries. Options granted under
the Plan may be incentive or non-qualified stock options. The exercise price for
an option may not be less than the fair market value of our common stock on the
date of grant. Options granted under the plan may not be transferred other than
by will or by the laws of descent and distribution. If a "change of control" as
defined in the Stock Option Plan occurs (essentially, if our ownership changes
in a certain way), all outstanding unexercisable options under the Stock Option
Plan immediately become exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors during
1998 were David Bonderman, Warren H. Haber, and Michael R. Klein, each of whom
serves as one of our non-employee directors.
From time to time, these directors, or entities with which they are
affiliated, have engaged in certain transactions with us and our predecessors,
OLD RIG, Inc. and a partnership, Realty Information Group, L.P., to provide
additional equity or debt financing to fund our growth. OLD RIG operated our
business until November 1994. At that point, the partnership was organized to
hold and operate our business. Pursuant to a contribution agreement consummated
following our initial public offering in July 1998, the limited partners of the
partnership (other than OLD RIG) and all
44
<PAGE> 47
the stockholders of OLD RIG received our common stock in exchange for their
limited partnership units or OLD RIG shares.
Mr. Haber is chairman and chief executive officer of Founders Equity, Inc.
("Founders"). On May 15, 1995, Founders/RIG, LLC ("FR LLC"), an affiliate of
Founders, acquired units of the limited partnership for a total purchase price
of $3.1 million, equivalent to 898,856 shares of our common stock at an
effective price per share of $3.45. As part of the contractual arrangements that
accompanied this investment, Mr. Haber became a director and we 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
additional units of the partnership for an aggregate purchase price of $1.06
million, equivalent to 259,521 shares of our common stock at an effective price
per share of $4.08. In addition, pursuant to the contribution agreement, FR
LLC's registration rights were amended. See "Description of Capital
Stock -- Registration Rights." FR LLC's right to designate a director terminated
upon consummation of the contribution agreement.
At the time of the Founders' investment in OLD RIG and the partnership in
May 1995, those entities were indebted to Mr. Klein 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
units of the partnership equivalent to 94,312 shares of our common stock at an
effective price per share of $3.45, the same effective price at which FR LLC
purchased its interest in that transaction. In connection with that same
transaction, our predecessors agreed to pay monthly fees to Founders of $10,000
and to Mr. Klein of $6,667. Both of those fee arrangements terminated in May
1998. During 1997, Mr. Klein committed to extend up to $1.0 million of credit to
OLD RIG, which in turn agreed to loan such amounts to the partnership to support
a $1.0 million credit facility the partnership secured with Silicon Valley Bank.
The OLD RIG loan to the partnership was contractually subordinated, and Mr.
Klein's loans to OLD RIG were structurally subordinated, to the bank loan,
interest on the balance was payable to OLD RIG and Mr. Klein at the same rate
(2% over prime) as the bank loan, and no principal could be repaid until the
bank loan was paid. This bank loan and the OLD RIG/Klein loan were repaid with
part of the proceeds of our initial public offering. As consideration for Mr.
Klein's commitment, a committee of three independent directors authorized the
issuance to Mr. Klein of warrants to purchase units of the partnership
equivalent to 45,450 shares of our stock at a price 10% less than the price at
which shares were offered in our initial public offering, exercisable during the
two years following the closing of that offering. We have, in the past, paid
legal fees to the law firm of which Mr. Klein is a partner. Under the policies
of his firm, Mr. Klein was not the partner responsible for supervising or
billing for the services provided to us.
Effective as of March 5, 1998, all of the limited and general partners of
the partnership and all of the stockholders of OLD RIG entered into the
contribution agreement. Pursuant to this agreement, each limited partner of the
partnership (other than OLD RIG) agreed to contribute all of its limited
partnership units to us, and all of the stockholders of OLD RIG agreed to
contribute all of their shares of OLD RIG to us, all in exchange for 3.03 shares
of our common stock for each limited partnership unit or share of common stock.
Consummation of the contribution agreement occurred in July, 1998, following our
initial public offering.
45
<PAGE> 48
PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides certain information regarding the beneficial
ownership of our shares as of March 15, 1999, and as adjusted to reflect the
sale of shares of common stock in this offering by:
- each person we know to be the beneficial owner of more than 5% of
the outstanding common stock;
- each of our directors;
- each Named Executive Officer;
- all of our executive officers and directors as a group; and
- all stockholders selling shares in this offering.
Except as indicated in the footnotes to the table, we believe that the persons
named in the table have sole voting and investment power with respect to the
indicated shares of stock:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING NUMBER OF OWNED AFTER OFFERING
---------------------- SHARES --------------------
NAME & ADDRESS(1) NUMBER PERCENT OFFERED NUMBER PERCENT
----------------- ----------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Michael R. Klein(2).................... 2,123,385 21.6% 100,000 2,023,385 16.1%
Andrew C. Florance(3).................. 516,762 5.2 40,000 476,762 3.7
Frank A. Carchedi(4)................... 34,100 * -- 34,100 *
Curtis M. Ricketts(5).................. 73,100 * 5,000 68,100 *
David M. Schaffel(6)................... 62,420 * -- 62,420 *
David Bonderman........................ 444,704 4.5 -- 444,704 3.5
Warren Haber(7)........................ 1,286,460 13.1 -- 1,286,460 10.3
John Simon(8).......................... 87,248 * -- 87,248 *
Lanning Macfarland III(9).............. 413,365 4.2 -- 413,365 3.3
All Ten Executive Officers and
Directors as a group(10)............. 5,242,297 51.7 145,000 5,097,297 39.5
Founders/RIG, L.L.C.................... 1,158,375 11.8 -- 1,158,375 9.2
Other selling shareholders(11)......... 1,242,443 12.7 355,000 887,443 7.1
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise noted, each listed person's address is c/o Realty
Information Group, Inc., 7475 Wisconsin Avenue, Bethesda, Maryland 20814.
(2) Includes 14,496 shares held as trustee for his nieces and 14,496 shares
held by others as trustee for his children. Also includes warrants for the
purchase of 45,450 shares of common stock. See "Certain Transactions."
(3) Includes 200,604 shares issuable upon options exercisable within 60 days.
Excludes 32,500 shares issuable upon options not exercisable within 60
days.
(4) Includes 30,100 shares issuable upon options exercisable within 60 days.
Excludes 25,050 shares issuable upon options not exercisable within 60
days.
(5) Includes 24,620 shares issuable upon options exercisable within 60 days.
Excludes 12,500 shares issuable upon options not exercisable within 60
days.
(6) Includes 32,120 shares issuable upon options exercisable within 60 days.
Excludes 20,000 shares issuable upon options not exercisable within 60
days.
(7) Includes 1,158,375 held by Mr. Haber and others as members of Founders/RIG,
L.L.C.
(8) Includes 177,752 shares held by Allen & Company Incorporated (of which Mr.
Simon is a Managing Director) and certain of its other officers and
affiliates; Mr. Simon disclaims personal beneficial ownership of such
shares. See "Certain Transactions." Mr. Simon's address is c/o Allen &
Company Incorporated, 711 Fifth Avenue, New York, New York 10022.
(9) Includes 410,335 shares held by Law Bulletin Publishing Company.
46
<PAGE> 49
(10) Includes 308,644 shares issuable upon options exercisable within 60 days.
Excludes 173,700 shares issuable upon options not exercisable within 60
days.
(11) Includes the following stockholders and, for each, the shares to be sold in
the offering: Frederick Beinecke (50,000), Brown University Third Century
Fund (45,970), Donald Carlin (75,000), David Horowitz (43,000), John Teeger
(23,196), Roderick Turner (27,787), and others who, in the aggregate, own
fewer than 1% of outstanding shares. None of the shares beneficially owned
prior to the offering by anyone in the prior list are issuable upon
exercise of options or warrants.
47
<PAGE> 50
CERTAIN TRANSACTIONS
Since January 1, 1996, some of our executive officers or directors have
engaged in the following transactions with us in addition to those described
above under "Management -- Compensation Committee Interlocks and Insider
Participation."
John Simon is a managing director of Allen & Company Incorporated (one of
the underwriters of this offering) and is one of our directors. On December 3,
1996, RIG Holdings, LLC ("RH LLC") acquired units of Realty Information Group
L.P. (the predecessor partnership that previously operated our business), for an
aggregate purchase price of $2.9 million, equivalent to 710,388 shares of our
common stock at an effective price per share of $4.08. RH LLC was granted the
right to designate one member of the board of directors of OLD RIG (a partner in
RIG LP), as well as certain registration rights in regards to the units it
purchased. Pursuant to the contribution agreement, RH LLC's registration rights
were amended. See "Description of Capital Stock -- Registration Rights." Prior
to our initial public offering, Allen & Company Incorporated was the Member-
Manager of RH LLC and, together with certain of its officers and affiliates, was
the owner of approximately 26% of RH LLC; as Member-Manager, Allen & Company
Incorporated was entitled to exercise voting power over all of the limited
partnership units of the partnership then held by RH LLC. For these reasons, RH
LLC may be deemed to have been an affiliate of Allen & Company Incorporated. RH
LLC's (and its members') right to designate a director of OLD RIG terminated
upon consummation of the contribution agreement, at which time RH LLC was
dissolved and its ownership interests (and the associated registration rights)
distributed pro rata to its members. At that time, Allen & Company Incorporated,
together with certain of its officers and affiliates, became the beneficial
owner of 183,721 shares of our stock. Prior to making this investment, on
November 5, 1996, Allen & Company Incorporated had loaned the partnership
$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 one of our directors. On March 29, 1996, the
partnership acquired all of the assets of Chicago ReSource from LBPC for units
of the partnership valued nominally at a price equivalent to 347,361 shares of
our common stock at an effective price per share of $3.45. Chicago ReSource was
a real estate information provider in the Chicago, Illinois area. On December 3,
1996, LBPC and certain of its affiliates acquired additional units of the
partnership for an aggregate purchase price of $288,000, equivalent to 70,548
shares of our common stock at an effective price per share of $4.08. In
addition, pursuant to the contribution agreement, LBPC's registration rights
were amended. See "Description of Capital Stock -- Registration Rights." LBPC's
right to designate a director of OLD RIG have terminated.
Fred A. Heitzman III was an officer, director, and beneficial stockholder
of LeaseTrend, Inc., which merged, effective January 8, 1999, with a subsidiary
we formed for that purpose. The total consideration we paid to LeaseTrend
stockholders in connection with the merger was $4.5 million in cash and 566,671
shares of our common stock. Of this consideration, a trust of which Mr. Heitzman
was the sole beneficiary received $1,684,074 in cash and 174,503 shares of our
common stock.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists 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.
48
<PAGE> 51
COMMON STOCK
We are authorized to issue 30,000,000 shares of common stock. As of March
15, 1999, we had outstanding 9,785,729 shares of common stock held of record by
a total of 82 holders. Upon the completion of this offering, we will have
12,535,729 shares of common stock outstanding. Each stockholder of record is
entitled to one vote for each outstanding share of common stock he or she owns.
The holders of common stock are entitled to receive ratably any dividends that
our Board of Directors declares. In the event of our liquidation, dissolution,
or winding up, holders of common stock will have the right to a ratable portion
of assets remaining after payment of liabilities. Holders of our common stock
have neither preemptive rights nor rights to convert their common stock into any
other securities. They are not subject to future calls or assessments by us.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and the shares offered in
this prospectus will be upon issuance and sale, fully paid and non-assessable.
PREFERRED STOCK
We are authorized to issue 2,000,000 shares of preferred stock in one or
more series. As of March 15, 1999, we 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 by our Board of Directors or its
duly authorized committee.
REGISTRATION RIGHTS
We have granted some of our stockholders rights concerning the registration
of their shares under the Securities Act. Holders of a total of 3,169,948 shares
have "piggyback" registration rights to request that we register any of their
shares if we propose to register any of our 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
applies). However, if these piggyback rights are exercised in connection with an
underwritten public offering of our common stock, the managing underwriter of
the offering has the right to exclude or otherwise limit the number of these
type of shares to be included. The former shareholders of Jamison Research,
Inc., which we acquired in January 1999, have rights that require us to register
their 448,031 shares in two registrations beginning in July 2000. Additionally,
the successors to Founders/RIG LLC and RIG Holdings, LLC share a "demand"
registration right to require us to prepare and file a registration statement to
permit a public offering and sale of their shares of common stock, if at least
20% of the shares covered by the registration rights demand that registration.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Section 203 of Delaware General Corporation Law. We are subject to certain
provisions of Delaware law that may discourage a third party from acquiring us.
Section 203 of the Delaware General Corporation Law ("DGCL") prohibits certain
transactions between a Delaware corporation and an "interested stockholder."
This term is defined as a person who, together with certain provisions of
Delaware law that may discourage a third party from acquiring us. Section 203
prohibits certain transactions between a Delaware corporation and an "interested
stockholder." This term is defined as a person who, together with any affiliates
or associates of that person, beneficially owns, directly or indirectly, 15% or
more of the outstanding voting shares of a Delaware corporation. This provision
prohibits certain business combinations between an interested stockholder and a
corporation for three years after the date the interested stockholder becomes an
interested stockholder, unless:
49
<PAGE> 52
- the business combination is approved by the corporation's board of
directors before the interested stockholder becomes an interested
stockholder;
- the interested stockholder acquired at least 85% of the voting stock of
the corporation in the transaction in which it became an interested
stockholder; or
- 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.
Anti-takeover Provisions. Our Certificate of Incorporation also contains
provisions that may discourage a third party from proposing to acquire us. Among
other things, it permits our Board of Directors, but not our stockholders, to
fill vacancies and newly-created directorships. It also provides that any action
to be taken by our stockholders must be taken at a meeting of stockholders and
not by any written stockholder consent. Only our Board of Directors may call
special meetings of stockholders. These provisions would make the removal of
incumbent directors more difficult and time-consuming. They may discourage a
tender offer or other takeover attempt not approved by our Board of Directors.
Indemnification and Limitation of Liability. Our Certificate of
Incorporation provides that we shall, subject to certain limitations, indemnify
our directors and officers against expenses (including attorneys' fees,
judgments, fines and certain settlements) reasonably incurred by them as a party
to any suit or proceeding involving their actions as our directors or officers.
They must have acted in good faith and in a manner they reasonably believed to
be in or not opposed to our best interests. If a criminal action or proceeding
is involved, they also must have 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 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.
Our Certificate of Incorporation includes a provision which eliminates, to the
fullest extent permitted, director liability for damages for breaches of
fiduciary duty.
Preferred Stock. We have the authority to issue up to 2,000,000 shares of
so-called "blank-check" preferred stock. The Board of Directors could give this
preferred stock voting or conversion rights that could adversely affect the
voting power of the holders of common stock and delay or prevent a change of
control of us. No shares of preferred stock are currently outstanding. We have
no current intention to issue any shares of preferred stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated as
of , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, BT Alex. Brown
Incorporated, and Allen & Company Incorporated, have severally
50
<PAGE> 53
agreed to purchase from Realty Information Group, Inc. and the Selling
Stockholders the respective number of shares of common stock set forth opposite
their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
BT Alex. Brown Incorporated.................................
Allen & Company Incorporated................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered in this prospectus are subject to approval by their counsel of certain
legal matters and to certain other conditions. The underwriters are obligated to
purchase and accept delivery of all the shares of common stock offered in this
prospectus (other than those shares covered by the over-allotment option
described below) if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the public offering price set forth on the cover
page of this prospectus and in part to certain dealers (including the
underwriters) at such price less a concession not in excess of $ per share.
The underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the common stock, the public offering price and other selling terms
may be changed by the representatives of the underwriters at any time without
notice.
Realty Information Group has granted to the underwriters an option,
exercisable within 30 days after the date of this prospectus, to purchase, from
time to time, in whole or in part, up to an aggregate of 487,500 additional
shares of common stock at the public offering price less underwriting discounts
and commissions. The underwriters may exercise such option solely to cover
overallotments, if any, made in connection with the offering. To the extent that
the underwriters exercise that option, each underwriter will become obligated,
subject to certain conditions, to purchase its pro rata portion of the
additional shares based on that underwriter's percentage underwriting commitment
as indicated in the preceding table.
Realty Information Group and the selling stockholders have agreed to
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments that the underwriters may
be required to make in respect thereof.
Each of Realty Information Group, its executive officers and directors, and
certain stockholders of Realty Information Group, including the selling
stockholders, has agreed, subject to certain exceptions, not to:
- offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for
common stock; or
- enter into any swap or other arrangement that transfers all or a
portion of the economic consequences associated with the ownership
of any common stock for a period of 90 days after the date of this
prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation.
In addition, during the 90 days after the date of this prospectus, Realty
Information Group has also agreed not to file any registration statement with
respect to, and each of its executive officers,
51
<PAGE> 54
directors and certain stockholders of Realty Information Group, including the
selling stockholders, has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without Donaldson, Lufkin & Jenrette Securities Corporation's prior written
consent.
Other than in the United States, no action has been taken by Realty
Information Group, the selling stockholders or the underwriters that would
permit a public offering of the shares of common stock offered in this
prospectus in any jurisdiction where action for that purpose is required. The
shares of common stock offered in this prospectus may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements in connection with the offer and sale of any of these shares
of common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. You should inform yourself about and observe
any restrictions relating to the offering of the common stock and the
distribution of this prospectus. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any shares of common stock offered in
this prospectus in any jurisdiction in which such an offer or a solicitation is
unlawful.
The underwriters and dealers may engage in passive market making
transactions in the common stock in accordance with Rule 103 of Regulation M
promulgated by the Securities and Exchange Commission. In general, a passive
market maker may not bid for or purchase shares of common stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the common stock during a specified two month prior period, or
200 shares, whichever is greater. A passive market maker must identify passive
market making bids as such on the Nasdaq electronic inter-dealer reporting
system. Passive market making may stabilize or maintain the market price of the
common stock above independent market levels. Underwriters and dealers are not
required to engage in passive market making and may end passive market making
activities at any time.
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may overallot the offering,
creating a syndicate short position. The underwriters may bid for and purchase
shares of common stock in the open market to cover such syndicate short position
or to stabilize the price of the common stock. These activities may stabilize or
maintain the market price of the common stock above independent market levels.
The underwriters are not required to engage in these activities, and may end any
of these activities at any time.
Allen & Company Incorporated, together with certain of its officers and
affiliates, beneficially owns an aggregate of 177,752 shares of common stock.
See "Certain Transactions." In addition, John Simon, a director of Realty
Information Group and a Managing Director of Allen & Company Incorporated,
together with his wife and trusts for the benefit of his children, beneficially
owns an aggregate of 87,248 shares of common stock. See "Principal and Selling
Stockholders." Because of his position as a Managing Director, Mr. Simon may be
deemed to be a beneficial owner of the shares of common stock owned by Allen &
Company Incorporated.
An officer of Donaldson, Lufkin & Jenrette Securities Corporation is the
beneficial owner of 54,620 shares of common stock.
LEGAL MATTERS
The validity of the common stock we are offering in this prospectus will be
passed upon for us by Shea & Gardner, Washington, D.C. Certain legal matters in
connection with the offering will be passed upon for the underwriters by Akin,
Gump, Strauss, Hauer & Feld, L.L.P., Washington, D.C.
52
<PAGE> 55
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and the financial statements of LeaseTrend, Inc. and
Jamison Research, Inc. included in this prospectus and registration statement
for the years ended December 31, 1998, as set forth in their reports, which
appear elsewhere in this prospectus. Our consolidated financial statements and
the financial statements of LeaseTrend, Inc. and Jamison Research, Inc. are
included in reliance of their reports, given on their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC"),
Washington, D.C. 20549, a registration statement on Form S-1 under the
Securities Act of 1933 with respect to shares of common stock offered in this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement, certain portions of which we have omitted as
permitted by the rules and regulations of the SEC. For further information about
us and the common stock offered in this prospectus, you may refer to that
registration statement and to the exhibits and schedules we filed with it.
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 the contract or other document filed
as an exhibit to the registration statement, and each such statement is
qualified in its entirety by that reference.
You may inspect the registration statement, including all exhibits and
schedules to it, without charge at the Public Reference Room 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 you may obtain copies of all or any part of
the registration statement from those offices upon the payment of the prescribed
fees. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, electronically filed
documents, including reports and other information about us, can be obtained
from the SEC's Website at: http://www.sec.gov. Our common stock is quoted on the
Nasdaq National Market. You may inspect reports and other information about us
at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C.
20006.
We are subject to the reporting requirements of the Securities Exchange Act
of 1934 and, in accordance with that Act, we file reports, proxy statements, and
other information with the SEC. We intend to furnish our stockholders with
annual reports containing financial statements audited by independent
accountants, quarterly reports containing unaudited financial statements for the
first three quarters of each fiscal year, and other periodic reports as we may
deem appropriate or as we may be required by law.
53
<PAGE> 56
REALTY INFORMATION GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REALTY INFORMATION GROUP, INC. UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Statements...................................... F-2
Unaudited Pro Forma Condensed Consolidated Statement of
Operations................................................ F-3
Unaudited Pro Forma Condensed Consolidated Balance Sheet.... F-4
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements...................................... F-5
REALTY INFORMATION GROUP, INC.
Report of Independent Auditors.............................. F-7
Consolidated Statements of Operations....................... F-8
Consolidated Balance Sheets................................. F-9
Consolidated Statements of Stockholders' Equity............. F-10
Consolidated Statements of Cash Flows....................... F-11
Notes to Consolidated Financial Statements.................. F-12
LEASETREND, INC.
Report of Independent Auditors.............................. F-23
Statements of Operations.................................... F-24
Balance Sheets.............................................. F-25
Statements of Stockholders' Equity (Deficit)................ F-26
Statements of Cash Flows.................................... F-27
Notes to Consolidated Financial Statements.................. F-28
JAMISON RESEARCH, INC.
Report of Independent Auditors.............................. F-32
Statements of Operations.................................... F-33
Balance Sheets.............................................. F-34
Statements of Stockholders' Equity (Deficit)................ F-35
Statements of Cash Flows.................................... F-36
Notes to Consolidated Financial Statements.................. F-37
</TABLE>
F-1
<PAGE> 57
REALTY INFORMATION GROUP, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements give effect to the acquisitions subsequent to December 31, 1998 by
Realty Information Group, Inc. (the "Company") of the common stock of
LeaseTrend, Inc. ("LTI") and Jamison Research, Inc. ("JRI") in exchange for cash
raised by the Company in its initial public offering on July 1, 1998 and common
stock of the Company.
The unaudited pro forma condensed consolidated balance sheet gives effect
to the acquisitions as if they had occurred on December 31, 1998. The unaudited
pro forma condensed consolidated statement of operations gives effect to the
acquisitions as if they had occurred on January 1, 1998.
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 information does 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 condensed
consolidated financial statements should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the other financial statements and notes thereto included
elsewhere in this Prospectus.
F-2
<PAGE> 58
REALTY INFORMATION GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
REALTY PRO FORMA
INFORMATION LEASETREND, JAMISON ADJUSTMENTS PRO FORMA
GROUP, INC. INC. RESEARCH, INC. (SEE NOTE 3) COMBINED
----------- ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues............................... $13,900,165 $3,444,969 $4,577,927 -- $21,923,061
Cost of revenues....................... 4,561,619 1,310,994 1,658,072 $ 680,000(a) 8,210,685
----------- ---------- ---------- ----------- -----------
Gross margin......................... 9,338,546 2,133,975 2,919,855 (680,000) 13,712,376
Operating expenses..................... 12,864,612 2,432,767 3,077,494 2,090,000(a) 20,464,873
----------- ---------- ---------- ----------- -----------
Income (loss) from operations........ (3,526,066) (298,792) (157,639) (2,770,000) (6,752,497)
Other income (expense)................. 340,653 (433,689) (9,263) 198,622(b) 96,323
Benefit from income taxes.............. -- -- 47,700 (47,700)(c) --
----------- ---------- ---------- ----------- -----------
Net loss............................. $(3,185,413) $ (732,481) $ (119,202) $(2,619,078) $(6,656,174)
=========== ========== ========== =========== ===========
Net loss per share -- basic and
diluted.............................. $ (0.44) $ (0.76)
=========== ===========
Weighted average shares outstanding.... 7,213,037 8,771,072
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 59
REALTY INFORMATION GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
REALTY JAMISON PRO FORMA
INFORMATION LEASETREND, RESEARCH, ADJUSTMENTS PRO FORMA
GROUP, INC. INC. INC. (SEE NOTE 3) COMBINED
----------- ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.... $19,666,887 $ 18,266 $ 50,548 $(10,071,409)(d) $ 9,664,292
Accounts receivable, net..... 1,245,579 12,316 32,426 -- 1,290,321
Prepaid expenses and other
current assets............. 325,629 6,786 173,900 (173,800)(d) 332,515
----------- ----------- -------- ------------ -----------
Total current
assets........... 21,238,095 37,368 256,874 (10,245,209) 11,287,128
Property and equipment,
net........................ 2,156,928 142,967 201,617 -- 2,501,512
Capitalized product
development costs, net..... 1,856,873 157,867 59,484 2,582,649(d) 4,656,873
Other assets, net............ 2,097,656 117,615 -- 17,582,385(d) 19,797,656
Deposits..................... 192,060 2,805 474 -- 195,339
----------- ----------- -------- ------------ -----------
Total assets....... $27,541,612 $ 458,622 $518,449 $ 9,919,825 $38,438,508
=========== =========== ======== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses................... $ 2,691,143 $ 291,958 $130,319 -- $ 3,113,420
Deferred revenue............. 1,647,165 560,463 404,741 -- 2,612,369
Accrued fees and
interest-related parties... -- 1,229,861 -- $ (1,229,861)(d) --
Line of credit............... -- -- 114,912 (114,912)(d) --
Subordinated debt to
partner.................... -- -- -- --
Advances from stockholders... -- 1,428,521 -- (1,428,521)(d) --
Current portion of long-term
debt....................... -- 66,401 26,114 (92,515)(d) --
----------- ----------- -------- ------------ -----------
Total current
liabilities...... 4,338,308 3,577,204 676,086 (2,865,809) 5,725,789
Long-term debt, net of
current portion............ -- -- 10,603 (10,603)(d) --
3,286,822(d)
Stockholders' equity......... 23,203,304 (3,118,582) (168,240) 9,509,415(d) 32,712,719
----------- ----------- -------- ------------ -----------
Total liabilities
and stockholders'
equity........... $27,541,612 $ 458,622 $518,449 $ 9,919,825 $38,438,508
=========== =========== ======== ============ ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 60
REALTY INFORMATION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The historical financial statements included in the unaudited pro forma
condensed consolidated balance sheet and statement of operations were derived
from the separate financial statements of the Company and its subsidiaries LTI
and JRI as of December 31, 1998 and for the year then ended. The related audited
historical financial statements are included elsewhere herein and should be read
in conjunction with these unaudited pro forma condensed consolidated financial
statements.
2. ACQUISITION OF LTI AND JRI
On January 8, 1999, the Company acquired all of the common stock of LTI, a
Cincinnati based provider of commercial real estate information, for $4,500,000
in cash and 566,671 shares of the Company's Common Stock. The transaction was
accounted for as a purchase and the consideration was valued for accounting
purposes at approximately $9,200,000 including acquisition expenses. On January
22, 1999, the Company acquired all of the common stock of JRI, an Atlanta based
provider of commercial real estate information, for $5,284,000 in cash and
448,031 shares of the Company's common stock. The transaction was accounted for
as a purchase and the consideration was valued for accounting purposes at
approximately $10,300,000 including acquisition expenses.
The Company will adjust the historical carrying value of the acquired
assets and liabilities of LTI and JRI to fair market value as discussed below.
The allocation amounts and classifications are estimates, based on the current
operations of LTI and JRI and the recorded book values of assets and liabilities
at December 31, 1998. The actual allocations may vary based on the carrying
value of the acquired assets and liabilities at the respective closing dates.
Working capital and property and equipment accounts of LTI and JRI are recorded
at book value, and represent an increase in amounts allocated to the accounts
shown below of approximately $600,000 and $400,000, respectively. The
approximate allocation of purchase price to capitalized product development
costs and intangible assets (including amounts previously capitalized by LTI and
JRI) is as follows:
<TABLE>
<CAPTION>
ESTIMATED VALUE
-------------------------------------- ESTIMATED
LTI JRI TOTALS LIFE
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Capitalized product development
Developed software products......... $ 200,000 $ 200,000 $ 400,000 2 years
Proprietary databases............... 1,100,000 1,300,000 2,400,000 5 years
Customer base............................ 8,100,000 8,800,000 16,900,000 10 years
Other intangible assets.................. 400,000 400,000 800,000 2 years
---------- ----------- -----------
Total.......................... $9,800,000 $10,700,000 $20,500,000
========== =========== ===========
</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. The
underlying proprietary databases are expected to continue in use beyond the
conversion period.
F-5
<PAGE> 61
REALTY INFORMATION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PRO FORMA ADJUSTMENTS
The pro forma adjustments reflect the consolidation of the Company and its
subsidiaries, LTI and JRI. The adjustments are as follows:
Pro forma condensed consolidated statement of operations:
(a) Estimated charges for amortization of the assets noted above,
amounting to $680,000 to cost of sales for product amortization and
$2,090,000 to operating expenses for the year ended December 31, 1998.
(b) Interest expense on borrowings of the subsidiaries of $448,622 is
eliminated as a result of the repayment of all current and long term debt.
Interest income of $250,000 is eliminated as a result of the cash used to
purchase LTI and JRI from the initial public offering proceeds on July 1,
1997.
(c) Tax benefits of JRI are eliminated due to ongoing operating losses
of the Company.
Pro forma condensed combined balance sheet:
(d) - Cash and cash equivalents. Reduction of cash for a total of
$10,071,409 comprised of amounts paid in cash for LTI and JRI
totalling $9,784,000, expenses of $135,780 and repayment of JRI
debt totalling $151,629;
- Prepaid expenses and other current assets. Deferred tax assets
totalling $173,800 are eliminated;
- Capitalized product development costs, net. Allocation of
$2,800,000 of capitalized product development, less amounts
recorded on LTI and JRI of $157,867 and $59,484;
- Other assets, net. Allocation of $17,700,000 for customer base
and other intangible assets of LTI and JRI, less amounts
recorded on LTI of $117,615.
- Accrued fees and interest and short and long term debt. Accrued
fees and interest, advances from stockholders, and current
portion of long term debt of LTI are repaid by the former
shareholders of LTI from the consideration of the acquisition.
Line of credit, current portion of long term debt and long term
debt of JRI are repaid by the Company at closing.
- Stockholders' equity. The deficits of LTI and JRI, totalling
$3,118,582 and $168,240, respectively, are eliminated for a
total increase in stockholders' equity of $3,286,822. The stock
portion of the consideration totalling $9,509,415 for both LTI
and JRI is recorded.
4. PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
Pro forma weighted average shares include 1,014,702 shares assumed
outstanding for the full year in connection with the LTI and JRI acquisitions
and 543,333 weighted average shares which reflects the assumed effect of using
cash raised in the initial public offering to acquire these entities on January
1, 1998. Stock options and warrants outstanding have been excluded from the
calculation because their effect is anti-dilutive.
F-6
<PAGE> 62
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Realty Information Group, Inc.
We have audited the accompanying consolidated balance sheets of Realty
Information Group. Inc. as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. 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 Realty Information
Group, Inc. at December 31, 1997 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Washington, D.C.
February 12, 1999
F-7
<PAGE> 63
REALTY INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues........................................... $ 4,335,966 $ 7,899,940 $13,900,165
Cost of revenues................................... 2,188,136 3,412,593 4,561,619
----------- ----------- -----------
Gross margin....................................... 2,147,830 4,487,347 9,338,546
Operating expenses:
Selling and marketing.............................. 2,711,823 4,373,914 7,240,442
Software development............................... 254,177 395,077 704,194
General and administrative......................... 1,863,236 3,017,439 4,919,976
----------- ----------- -----------
4,829,236 7,786,430 12,864,612
----------- ----------- -----------
Loss from operations............................... (2,681,406) (3,299,083) (3,526,066)
Other income (expense):
Interest expense................................... (2,323) (26,421) (119,716)
Interest income.................................... 29,642 48,743 460,369
Other income....................................... 21,858 11,215 --
----------- ----------- -----------
Loss before income taxes........................... (2,632,229) (3,265,546) (3,185,413)
Provision for income taxes......................... -- -- --
----------- ----------- -----------
Net loss........................................... $(2,632,229) $(3,265,546) $(3,185,413)
=========== =========== ===========
Net loss per share -- basic and diluted............ $ (0.60) $ (0.57) $ (0.44)
=========== =========== ===========
Weighted average common shares..................... 4,387,590 5,722,432 7,213,037
=========== =========== ===========
</TABLE>
See accompanying notes.
F-8
<PAGE> 64
REALTY INFORMATION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,068,835 $ 19,666,887
Accounts receivable, less allowance for doubtful accounts
of $151,000 and $326,000 as of December 31, 1997 and
1998................................................... 1,021,345 1,245,579
Prepaid expenses and other current assets................. 26,601 325,629
------------ ------------
Total current assets........................................ 2,116,781 21,238,095
Property and equipment:
Leasehold improvements.................................... 111,623 125,895
Furniture and equipment................................... 623,417 1,031,332
Computer hardware and software............................ 1,366,687 2,228,166
------------ ------------
2,101,727 3,385,393
Accumulated depreciation.................................... (799,763) (1,228,465)
------------ ------------
1,301,964 2,156,928
Capitalized product development costs, net of accumulated
amortization of $514,000 and $990,000 as of December 31,
1997 and 1998............................................. 1,261,974 1,856,873
Other assets................................................ 1,796,356 2,097,656
Deposits.................................................... 104,510 192,060
------------ ------------
Total assets................................................ $ 6,581,585 $ 27,541,612
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 355,416 $ 800,941
Accrued wages and commissions............................. 368,667 1,077,952
Accrued expenses.......................................... 387,428 812,250
Deferred revenue.......................................... 902,575 1,647,165
Line of credit............................................ 1,000,000 --
Subordinated debt to stockholder.......................... 650,000 --
------------ ------------
Total current liabilities................................... 3,664,086 4,338,308
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none outstanding........................... -- --
Common stock, $.01 par value; 30,000,000 shares
authorized; 5,754,017 and 8,771,027 issued and
outstanding as of December 31, 1997 and 1998........... 57,540 87,710
Additional paid-in capital................................ 14,286,297 37,727,345
Retained earnings (deficit)............................... (11,426,338) (14,611,751)
------------ ------------
Total stockholders' equity.................................. 2,917,499 23,203,304
------------ ------------
Total liabilities and stockholders' equity.................. $ 6,581,585 $ 27,541,612
============ ============
</TABLE>
See accompanying notes.
F-9
<PAGE> 65
REALTY INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
--------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995.... 4,031,657 $40,317 $ 7,814,987 $ (5,528,563) $ 2,326,741
Stock issued for
acquisition................ 347,361 3,473 1,196,527 1,200,000
Exercise of stock options for
note receivable............ 30,300 303 (45,974) (45,671)
Shares issued................. 1,235,201 12,352 4,808,454 4,820,806
Net loss...................... -- -- -- (2,632,229) (2,632,229)
--------- ------- ----------- ------------ -----------
Balance at December 31, 1996.... 5,644,519 56,445 13,773,994 (8,160,792) 5,669,647
Stock issued for
acquisition................ 44,571 446 205,494 205,940
Stock issued for
compensation............... 64,927 649 299,351 -- 300,000
Reduction of note receivable
from stockholder........... -- -- 7,458 -- 7,458
Net loss...................... -- -- -- (3,265,546) (3,265,546)
--------- ------- ----------- ------------ -----------
Balance at December 31, 1997.... 5,754,017 57,540 14,286,297 (11,426,338) 2,917,499
Exercise of stock options..... 48,480 485 79,515 -- 80,000
Stock issued for initial
public offering............ 2,875,000 28,750 22,708,689 -- 22,737,439
Stock issued for
acquisition................ 93,530 935 584,398 -- 585,333
Warrants...................... -- -- 50,000 -- 50,000
Reduction of note receivable
from stockholder........... -- -- 18,446 -- 18,446
Net loss...................... -- -- -- (3,185,413) (3,185,413)
--------- ------- ----------- ------------ -----------
Balance at December 31, 1998.... 8,771,027 $87,710 $37,727,345 $(14,611,751) $23,203,304
========= ======= =========== ============ ===========
</TABLE>
See accompanying notes.
F-10
<PAGE> 66
REALTY INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss........................................... $(2,632,229) $(3,265,546) $(3,185,413)
Adjustments to reconcile net loss to net cash
provided by (used in) in operating activities:
Depreciation..................................... 212,030 353,333 428,702
Amortization..................................... 266,986 487,144 705,806
Provision for losses on accounts receivable...... 30,000 61,343 174,720
Non cash compensation charges.................... -- 157,459 68,446
Changes in operating assets and liabilities:
Accounts receivable.............................. (470,117) (217,153) (398,955)
Prepaid expenses and other current assets........ (22,942) 29,838 (323,405)
Deposits......................................... (33,152) (6,691) (87,550)
Accounts payable and accrued expenses............ 667,649 230,530 1,579,633
Deferred revenue................................. 157,410 (66,668) 744,590
----------- ----------- -----------
Net cash used in operating activities............ (1,824,365) (2,236,411) (293,426)
Investing activities:
Purchases of property and equipment, net........... (631,385) (522,592) (1,283,666)
Capitalization of product development costs........ (347,065) (600,670) (985,262)
Acquisitions, net of acquired cash................. 25,924 (547,859) (7,033)
----------- ----------- -----------
Net cash used in investing activities............ (952,526) (1,671,121) (2,275,961)
Financing activities:
Net proceeds from capital contributions............ 4,775,135 -- --
Proceeds from (payment of) line of credit.......... -- 1,000,000 (1,000,000)
Proceeds from (payment of) subordinated debt to
stockholder...................................... -- 650,000 (650,000)
Net proceeds from initial public offering.......... -- -- 22,737,439
Net proceeds from exercise of stock options........ -- -- 80,000
----------- ----------- -----------
Net cash provided by financing activities........ 4,775,135 1,650,000 21,167,439
Net increase (decrease) in cash and cash
equivalents...................................... 1,998,244 (2,257,532) 18,598,052
Cash and cash equivalents at beginning of year..... 1,328,123 3,326,367 1,068,835
----------- ----------- -----------
Cash and cash equivalents at end of year........... $ 3,326,367 $ 1,068,835 $19,666,887
=========== =========== ===========
</TABLE>
See accompanying notes.
F-11
<PAGE> 67
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Realty Information Group, Inc. (the "Company") has created a comprehensive,
proprietary, national database of commercial real estate information for
metropolitan areas throughout the United States. Based on its unique database,
the Company provides information to the commercial real estate and related
business community and operates within one reportable business segment. The
information is 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
Realty Information Group, Inc. ("the Company") is a Delaware corporation
and was incorporated in February 1998 to succeed its predecessors, Realty
Information Group L.P. ("RIGLP") and OLD RIG, Inc. ("RIGINC"). RIGLP is an
operating entity, while RIGINC is a shell holding entity. In connection with the
Company's Initial Public Offering on July 1, 1998 ("the Offering"), RIGLP and
RIGINC merged with the Company pursuant to the RIG Contribution Agreement dated
March 5, 1998. The limited partners of RIGLP (other than RIGINC) and all of the
stockholders of RIGINC received 3.03 shares of Common Stock of the Company per
each limited partnership unit or share of common stock exchanged, for a total of
5,754,017 shares. As a result of the reorganization of these entities, the
Company owns (directly or indirectly) all of the capital stock of RIGINC and all
the equity of RIGLP.
The merger has been accounted for as a reorganization of entities under
common control similar to a pooling of interests. Following the merger, each
shareholder of the Company maintains their exact same ownership of the operating
entity, RIGLP, as before the merger. The transfer of assets and liabilities of
RIGLP and RIGINC have been recorded at the historical carrying values. The
financial statements are presented as if the Company was in existence throughout
all periods presented, as one operating entity. All share amounts have been
restated to reflect the conversion of partnership units to common stock of the
Company. On January 1, 1999, RIGLP and RIGINC were merged into a newly formed
corporation, CoStar Realty Information, Inc. a wholly owned subsidiary of the
Company.
Additionally, the consolidated financial statements of the Company include
the accounts of New Market Systems, Inc. ("NMS") acquired on March 1, 1997 (Note
3) and C Data Services, Inc. ("CDS") acquired on August 14, 1998 (Note 3). CDS
was merged into Costar Realty Information, Inc. on January 1, 1999.
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 for information is recognized on a
straight-line basis over the term of the license, which is typically from one to
three years.
F-12
<PAGE> 68
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
The Company's cash and cash equivalents include highly liquid instruments
purchased with an original maturity of less than three months. The cash is held
in several large financial institutions. At December 31, 1998, cash of $100,000
and $500,000 was held in escrow accounts under the conditions of a certain data
licensing agreement and the LeaseTrend, Inc. acquisition agreement (Note 12),
respectively. Both amounts were paid out of escrow subsequent to December 31,
1998.
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 Company's database and software
products, including direct labor, contractors and applicable overhead are
capitalized from the time technological feasibility is determined until initial
product release. Prior to technological feasibility, such costs are classified
as software development and expensed as incurred. Ongoing significant
enhancements of the product are capitalized subsequent to initial product
release. 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 initial
product release. Included in amortization is approximately $181,000, $287,000
and $476,000 of expense related to the capitalized product development costs for
the years ended December 31, 1996, 1997 and 1998, respectively.
Intangible Assets
The value assigned to the customer base acquired through the purchase of
CDS, 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. The Company continuously evaluates and
adjusts, if necessary, the net realizable value of these assets.
Income Taxes
Through June 30, 1998, the Company operated as a partnership for federal
income tax purposes under which income, losses, deductions and credits were
allocated to and reported by the partners on their individual income tax
returns. Accordingly, no provision for income tax was recorded in the financial
statements. Upon the effectiveness of the Registration Statement on Form S-1 in
connection with the Company's initial public offering, the partnership became
part of the Company and its taxable income (loss) flowed through to the Company.
Had the Company operated as a C-Corporation for the years ended December 31,
1996, 1997 and 1998, there would be no income taxes recorded as a result of the
losses for the periods. NMS and CDS are corporations, which provide for income
taxes under the provisions of Statement of Financial Accounting Standards No.
109. As of December 31, 1998, the Company, including NMS and CDS had net loss
carryforwards totaling approximately $2,200,000. A valuation allowance has been
established against the related net deferred tax assets in their entirety.
F-13
<PAGE> 69
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-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 Company'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. The Company 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 the Company.
Advertising Costs
Advertising costs are expensed as incurred. Such costs included in selling
and marketing expense totaled approximately $203,700, $398,000, and $904,600 for
the years ended December 31, 1996, 1997, and 1998, respectively.
Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company 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' Equity. For all periods
presented, the Company had no items of comprehensive income and, accordingly,
the Statement has no effect on the Company.
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 require those
companies to report selected segment information in interim financial reports to
stockholders. The adoption of SFAS 131 did not have any impact on the Company's
financial statements as the Company has determined that it has only one
reportable segment.
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 the Company. As of January 1, 1998 the Company adopted
AICPA SOP 97-2, Software Revenue Recognition, which was effective for
transactions that the Company
F-14
<PAGE> 70
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
entered into in 1998. Prior years were not restated. The effect of adopting SOP
97-2 was not material in the financial statements of the Company. In March 1998,
AcSEC issued SOP 98-4, which defers for one year the implementation of certain
provision of SOP 97-2. The issuance of SOP 98-4 had no effect on the Company. In
December 1998, the AICPA issued SOP 98-9, which extends the deferral date of
implementation of certain provisions of SOP 97-2 to 2000 for the Company and
amends the method of revenue recognition in some circumstances. The Company does
not anticipate the adoption of this SOP will have a significant effect on its
results of operations or financial position.
Loss Per Share
Loss per share information is presented as if the Company 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
earnings per share amounts for all periods have been presented to conform to the
Statement 128 requirements.
3. ACQUISITIONS
On April 1, 1996, the Company expanded to the Chicago area by purchasing
substantially all of the assets and liabilities of Chicago ReSource, Inc.
("CRI"), through the issuance of 347,361 shares of Common Stock valued at
$1,200,000. On March 1, 1997 the Company 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 44,571 shares of
Common Stock valued at $206,000 and payment of $550,000 in cash. On August 14,
1998, the Company expanded to the Houston area by purchasing the stock of C Data
Services, Inc. ("CDS") through the exchange of 93,530 shares of unregistered
Common Stock and approximately $9,000 in cash. The accompanying statements of
operations reflect the operating results of CRI, NMS and CDS 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, 1997 and 1998, assuming the purchase of NMS and CDS had been consummated as
of January 1 of each year, respectively, are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Revenues............................................. $ 7,960,000 $13,972,000
=========== ===========
Net loss............................................. $(3,386,000) $(3,248,000)
=========== ===========
Net loss per share................................... $ (0.58) $ (0.45)
=========== ===========
</TABLE>
F-15
<PAGE> 71
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OTHER ASSETS
Other assets consists of intangible assets as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Acquired contracts................................... $2,041,289 $2,545,717
Accumulated amortization............................. 301,912 498,406
---------- ----------
1,739,377 2,047,311
---------- ----------
Goodwill............................................. 79,979 79,979
Accumulated amortization............................. 23,000 29,634
---------- ----------
56,979 50,345
---------- ----------
$1,796,356 $2,097,656
========== ==========
</TABLE>
5. LINE OF CREDIT
In October 1997, the Company entered into a line of credit agreement with
Silicon Valley East (a Division of Silicon Valley Bank), and renewed the line in
October 1998. The new line provides for a total of $5,000,000 in borrowing
bearing an interest rate at the bank's prime rate plus 1%, and has a one-year
term. Borrowings of up to 50% of the cash portion of acquisitions may be
converted to long term borrowings with terms of 30 months. The assets of the
Company and its subsidiaries secure borrowings under the line. The Company is in
compliance at December 31, 1998, with the terms of the line of credit agreement,
which includes covenants requiring minimum working capital and equity amounts.
At December 31, 1998, no borrowings were outstanding under the line. Interest
paid in 1997 and 1998 totaled $17,760 and $63,263, respectively.
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 45,450 shares of Common Stock. The warrants have a two-year term
beyond the Company's initial public offering 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 the initial public offering. At December 31, 1998, no borrowings were
outstanding under the commitment. Interest paid in 1997 and 1998 totaled $8,055
and $28,235, respectively.
Commencing in May 1995 the Company agreed to pay an investor $10,000 per
month and the Chairman of the Company $6,667 per month for consulting services.
During 1996, 1997 and 1998, the Company incurred fees of approximately $200,000,
$200,000 and $82,912, respectively, related to such consulting services. These
agreements were terminated in connection with the Company's initial public
offering.
7. INCOME TAXES
The Company 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
F-16
<PAGE> 72
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and tax
purposes. Through June 30, 1998 the Company operated as a partnership for
federal income tax purposes. The Company paid no income taxes in 1997 or 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Deferred tax assets:
Reserve for bad debts.................................. $ 125,000
Accrued compensation................................... 414,000
Net operating losses................................... 927,000
Other liabilities...................................... 51,000
----------
Total deferred tax assets......................... 1,517,000
----------
Deferred tax liabilities:
Depreciation........................................... (299,000)
Product development costs.............................. (260,000)
----------
Total deferred tax liabilities.................... (559,000)
----------
Net deferred tax asset................................. 958,000
Valuation allowance.................................... (958,000)
----------
Net deferred tax assets..................................... $ --
==========
</TABLE>
The Company's provision for income taxes resulted in effective tax rates
that varied from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Expected federal income tax provision (benefit) at 34%...... $ (1,083,000)
State income taxes, net of federal benefit.................. (147,000)
Change in valuation allowance............................... 958,000
Expenses not deductible for tax purposes.................... 277,000
Other....................................................... (5,000)
------------
$ --
============
</TABLE>
8. COMMITMENTS
The Company leases office space and equipment under operating lease
agreements that expire at various dates through the year 2003. Lease agreements
provide for various renewal terms and reimbursement of taxes, maintenance,
insurance and other occupancy expenses applicable to the leased premises or
property.
F-17
<PAGE> 73
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, future minimum lease payments under operating leases
are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 830,302
2000........................................................ 546,964
2001........................................................ 180,906
2002........................................................ 124,541
2003 and thereafter......................................... 52,285
----------
$1,734,998
==========
</TABLE>
Rent expense was approximately $525,000, $766,000 and $1,031,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
9. SALES OF COMMON STOCK
On December 3, 1996, the Company completed a private placement (the
"Private Placement") in which the Company raised approximately $5.0 million
through the sale of 1,235,000 shares of Common Stock. The proceeds of the
transaction were used to fund Company's working capital needs and the NMS
acquisitions.
In May 1997, the Company issued 65,000 shares of common stock valued at
$300,000 to provide compensation to an officer, $150,000 of which had been
accrued at December 31, 1996.
On July 1, 1998, the Company completed an Initial Public Offering of
2,500,000 shares of common stock for $9.00 per share, and on August 9, 1998, the
Company's underwriter exercised its over-allotment option to purchase an
additional 375,000 shares of common stock (together, the "Offering"). Total
proceeds of the Offering including shares issued pursuant to the over-allotment
option were $22,737,000, after deducting underwriting discounts and commissions
of $1,811,000 and offering expenses of $1,326,000. The Company repaid the amount
owed on its line of credit and subordinated debt to stockholder, for a total
$1,650,000, out of the proceeds of the Offering.
10. NET LOSS PER SHARE
The following tables sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net loss.............................. $(2,632,229) $(3,265,546) $(3,185,413)
=========== =========== ===========
Denominator:
Denominator for basic earnings per
share -- weighted-average shares.... 4,387,590 5,722,432 7,213,037
Effect of dilutive securities:
Dilutive potential common shares...... -- -- --
----------- ----------- -----------
Denominator for diluted earnings per
share -- adjusted weighted-average
shares.............................. 4,387,590 5,722,432 7,213,037
=========== =========== ===========
Basic and diluted net loss per
share............................... $ (0.60) $ (0.57) $ (0.44)
=========== =========== ===========
</TABLE>
F-18
<PAGE> 74
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average number of shares does not include stock options and
warrants outstanding of 343,844, 398,384 and 922,944 as of December 1996, 1997
and 1998, respectively, as their effect would be anti-dilutive for the periods
presented.
11. EMPLOYEE BENEFIT PLANS
Option Plan
In March 1996 the Company adopted the 1996 Option and Purchase Plan (the
"1996 Plan"), under which 606,000 shares of Common Stock 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 1996 Plan. The Board of Directors of the Company administers the option
plan. Options are granted at prices, which the Board of believes approximate the
fair market value of its shares of Common Stock. 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.
In June 1998 the Company's Board of Directors adopted the Stock Option Plan
(the "1998 Plan") prior to consummation of the Offering. The 1998 Plan provides
for the grant of stock options to officers and employees of the Company or its
subsidiaries. Options granted under the 1998 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 1998 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 1998 Plan, all outstanding unexercisable
options under the 1998 Plan immediately become exercisable. The Company has
reserved 1,450,000 shares of Common Stock for issuance under the 1998 Plan.
Unless terminated sooner by the Board of Directors, the 1998 Plan will terminate
in 2008.
F-19
<PAGE> 75
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option activity was as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF PRICE PER AVERAGE
SHARES SHARE EXERCISE PRICE
---------------- --------------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1995............... 246,884 $2.87
Granted...................................... 127,260 $3.45 $3.45
Exercised.................................... (30,300) $1.65 $1.65
Canceled or expired.......................... --
-------
Outstanding at December 31, 1996............... 343,844 $3.19
Granted...................................... 69,690 $4.07-$ 4.62 $4.38
Exercised.................................... --
Canceled or expired.......................... (15,150) $3.45 $3.45
-------
Outstanding at December 31, 1997............... 398,384 $3.39
Granted...................................... 540,900 $5.63-$13.75 $8.70
Exercised.................................... (48,480) $1.65 $1.65
Canceled or expired.......................... (13,310) $9.00 $9.00
-------
Outstanding at December 31, 1998............... 877,494 $6.77
=======
Exercisable at December 31, 1998............... 425,944
=======
Exercisable at December 31, 1997............... 249,299
=======
Exercisable at December 31, 1996............... 174,952
=======
</TABLE>
During 1996 the Company adopted the disclosure 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 consistent with the provisions of SFAS No.
123, Company's pro forma net loss and net loss per share would have been
$2,690,009, $3,337,420 and $3,912,472, and $0.61, $0.58 and $0.54 as of December
31, 1996, 1997 and 1998, respectively. Such pro forma results are not
representative of the effects on operations for future years.
The fair value of the options granted during 1996 are estimated on the date
of grant using the minimum value option-pricing model with the following
assumptions: dividend yield 0%, risk-free interest rate of 6.00%, and expected
life of four years. The fair value of the options granted during 1997 are
estimated on the date of grant using the minimum value option-pricing model with
the following assumptions: dividend yield 0%, risk-free interest rate of 6.00%,
expected life of five years. The fair value of the options granted during 1998
are estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: expected volatility of 94%; dividend yield 0%,
risk-free interest rate of 5.7%, and expected life of five years.
F-20
<PAGE> 76
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information regarding options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- --------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
NUMBER OF CONTRACTUAL LIFE AVERAGE NUMBER OF AVERAGE
EXERCISE PRICE SHARES (IN YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
-------------- --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.45 - $ 4.62............ 349,904 4.9 $ 3.61 303,444 $3.52
$ 5.63 - $ 7.44............ 16,000 9.7 6.46 -- --
$ 8.13 - $ 9.00............ 508,090 9.6 8.91 122,500 8.92
$10.06 - $13.75............ 3,500 9.8 12.17 -- --
--------- --------
877,494 7.7 $ 6.77 425,944 $5.07
========= ========
</TABLE>
Employee 401(k) Plan
Effective January 1, 1997, the Company 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 l% and 15% of employees'
salaries, limited to a maximum annual amount as established by the Internal
Revenue Service. The Company matches 25% (50% after January 1, 1999) of employee
contributions up to a maximum of 6% of total compensation. Amounts contributed
to the 401(k) by the Company to match employee contributions were $27,808 and
$39,354 in 1997 and 1998, respectively.
12. SUBSEQUENT EVENTS
On January 8, 1999, the Company acquired all of the common stock of
LeaseTrend, Inc., a Cincinnati based provider of commercial real estate
information, for $4,500,000 in cash and 566,671 shares of the Company's Common
Stock. The purchase has been accounted for using purchase accounting and has
been valued at $9,200,000 for accounting purposes. The purchase price was
allocated primarily to capitalized product development costs and intangibles and
is being amortized over 2 - 10 years.
On January 22, 1999, the Company acquired all of the common stock of
Jamison Research, Inc., an Atlanta based provider of commercial real estate
information, for $5,284,000 in cash and 448,031 shares of the Company's Common
Stock. The purchase has been accounted for using purchase accounting and has
been valued at $10,300,000 for accounting purposes. The purchase price was
allocated primarily to capitalized product development costs and intangibles and
is being amortized over 2 - 10 years. Such purchase price is subject to
adjustment based on the final audit of the net worth.
The pro forma unaudited results of operations for the year ended December
31, 1998 assuming the purchase of LeaseTrend and Jamison had been consummated as
of January 1, 1998 and as
F-21
<PAGE> 77
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adjusted for the amortization of intangibles and the elimination of interest
charges, would be as follows:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Revenues................................... $21,923,061
===========
Net loss................................... $(6,656,174)
===========
Net loss per share......................... $ (0.76)
===========
</TABLE>
F-22
<PAGE> 78
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Realty Information Group, Inc.
We have audited the accompanying balance sheets of LeaseTrend, Inc. as of
December 31, 1997 and 1998, 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 LeaseTrend, Inc., at December
31, 1997 and 1998, 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, DC
February 5, 1999
F-23
<PAGE> 79
LEASETREND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Revenues.................................................... $2,548,576 $3,444,969
Costs of revenues........................................... 908,258 1,310,994
---------- ----------
Gross margin................................................ 1,640,318 2,133,975
Selling, general and administrative expenses................ 1,749,372 2,432,767
---------- ----------
Loss from operations........................................ (109,054) (298,792)
Other income (expense):
Interest expense.......................................... (369,794) (435,385)
Other income.............................................. 1,303 1,696
---------- ----------
Net loss.................................................... $ (477,545) $ (732,481)
========== ==========
Net loss per share -- basic and diluted..................... $ (562.68) $ (863.06)
========== ==========
Weighted average common shares.............................. 848.7 848.7
========== ==========
</TABLE>
See accompanying notes.
F-24
<PAGE> 80
LEASETREND, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................ $ -- $ 18,266
Accounts receivable, less allowance for doubtful accounts of
$23,100 and $16,900 as of December 31, 1997 and 1998,
respectively.............................................. 20,914 12,316
Prepaid expenses and other current assets................... 7,681 6,786
----------- -----------
Total current assets...................................... 28,595 37,368
Property and equipment:
Furniture and equipment................................... 121,046 152,499
Computer hardware and software............................ 175,500 234,369
----------- -----------
296,546 386,868
Accumulated depreciation.................................... (172,826) (243,901)
----------- -----------
123,720 142,967
Capitalized product development cost, net of accumulated
amortization of $141,230 and $207,960 as of December 31,
1997 and 1998, respectively............................... 177,137 157,867
Goodwill, net of accumulated amortization of $26,730 and
$42,768 as of December 31, 1997 and 1998, respectively.... 133,653 117,615
Deposits and other assets................................... 1,680 2,805
----------- -----------
Total assets.............................................. $ 464,785 $ 458,622
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank overdraft.............................................. $ 4,786 $ --
Accounts payable and accrued expenses....................... 259,028 291,958
Deferred revenue............................................ 297,635 560,463
Accrued consulting fees -- related parties.................. 215,007 295,011
Accrued interest -- related parties......................... 616,241 934,850
Notes payable, in default -- related parties................ 1,336,766 1,428,521
Note payable................................................ 121,423 66,401
----------- -----------
Total current liabilities................................. 2,850,886 3,577,204
Stockholders' deficit:
Common stock, no par value; 1,500 shares authorized; 848.7
issued and outstanding as of December 31, 1997 and 1998... -- --
Paid-in capital............................................. 581,862 581,862
Accumulated deficit......................................... (2,967,963) (3,700,444)
----------- -----------
Total stockholders' deficit............................... (2,386,101) (3,118,582)
----------- -----------
Total liabilities and stockholders' deficit............... $ 464,785 $ 458,622
=========== ===========
</TABLE>
See accompanying notes.
F-25
<PAGE> 81
LEASETREND, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON TOTAL
STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES CAPITAL DEFICIT DEFICIT
------ -------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996........... 848.7 $581,862 $(2,490,418) $(1,908,556)
Net loss............................... -- -- (477,545) (477,545)
------ -------- ----------- -----------
Balance at December 31, 1997........... 848.7 581,862 (2,967,963) (2,386,101)
Net loss............................... -- -- (732,481) (732,481)
------ -------- ----------- -----------
Balance at December 31, 1998........... 848.7 $581,862 $(3,700,444) $(3,118,582)
====== ======== =========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE> 82
LEASETREND, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Operating activities:
Net loss.................................................... $(477,545) $(732,481)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 60,940 71,075
Amortization.............................................. 73,331 82,767
Provision for losses on accounts receivable............... 16,084 (6,224)
Amortization of debt discount............................. 91,756 91,756
Changes in operating assets and liabilities:
Accounts receivable....................................... (11,640) 14,822
Prepaid expenses and other current assets................. 1,629 895
Other assets.............................................. (121) (1,125)
Bank overdraft............................................ 4,786 (4,786)
Accounts payable and accrued expenses..................... 50,138 32,931
Accrued consulting fees -- related parties................ 80,004 80,004
Accrued interest -- related parties....................... 257,163 318,609
Deferred revenue.......................................... (4,635) 262,828
--------- ---------
Net cash provided by operating activities.............. 141,890 211,071
Investing activities:
Purchase of property and equipment.......................... (78,387) (90,323)
Capitalized product development cost........................ (55,090) (47,460)
--------- ---------
Net cash used in investing activities.................. (133,477) (137,783)
Financing activities:
Payments on note payable.................................... (13,037) (55,022)
--------- ---------
Net cash used in financing activities.................. (13,037) (55,022)
--------- ---------
Net increase (decrease) in cash............................. (4,624) 18,266
Cash at beginning of year................................... 4,624 --
--------- ---------
Cash at end of year......................................... $ -- $ 18,266
========= =========
</TABLE>
See accompanying notes.
F-27
<PAGE> 83
LEASETREND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1998
1. ORGANIZATION
LEASETREND, INC. (the "Company"), incorporated in the state of Ohio on
August 17, 1988, develops and maintains a proprietary database of comprehensive
office, industrial and retail real estate information in eighteen metropolitan
areas primarily in the Midwestern United States and Florida. In addition, the
Company has developed 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 year in duration.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the associated amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of licenses to the proprietary
software and database on a straight-line basis over the term of the license
agreement which is typically one year or less.
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 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 future gross revenues for a product, or (b) the
straight-line method over the remaining estimated economic life of the product,
typically five years, after product release.
GOODWILL
The excess of the $150,000 purchase price over the fair value of net assets
acquired resulting from a purchase in 1996 is being amortized on a straight-line
basis over ten years. The Company continuously evaluates and adjusts, if
necessary, the net realizable value of these assets. (See Note 4).
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves for credit losses, and such
F-28
<PAGE> 84
LEASETREND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 fair value.
INCOME TAXES
The Company is an S corporation for federal income tax purposes under which
income, losses, deductions and credits are allocated to and reported by the
shareholders on their individual income tax returns. Accordingly, no provision
for income tax has been recorded in the financial statements.
LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share." All earnings per share amounts for all periods
have been presented to conform to the Statement 128 requirements. The effect of
the options outstanding are not included as their effect would be anti-dilutive
for all the periods presented.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Such costs included in selling
and marketing expense totaled approximately $21,200 and $48,900 for the years
ended December 31, 1997 and 1998, respectively.
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. For all periods
presented, the Company had no items of comprehensive income and, accordingly,
the Statement has no effect on the Company.
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 require those
companies to report selected segment information in interim financial reports to
stockholders. The adoption of SFAS 131 did not have any impact on the Company's
financial statements as the Company has determined that it has only one
reportable segment.
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 the Company. As of January 1, 1998 the Company adopted
AICPA SOP 97-2, Software Revenue Recognition, which was effective for
transactions that the Company entered into in 1998. Prior years were not
restated. The effect of adopting SOP 97-2 was not material in the financial
statements of the Company. In March 1998, AcSEC issued SOP 98-4, which defers
F-29
<PAGE> 85
LEASETREND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for one year the implementation of certain provision of SOP 97-2. The issuance
of SOP 98-4 had no effect on the Company. In December 1998, the AICPA issued SOP
98-9, which extends the deferral date of implementation of certain provisions of
SOP 97-2 to 2000 for the Company and amends the method of revenue recognition in
some circumstances. The Company does not anticipate the adoption of this SOP
will have a significant effect on its results of operations or financial
position.
3. COMMITMENTS
The Company leases office space in various locations under non-cancelable
operating lease agreements. The leases generally provide for renewal terms and
the Company is required to pay a portion of common area expenses including
maintenance, real estate taxes and other expenses. Rent expense for the years
ended December 31, 1997 and 1998 was $94,716 and $109,914, respectively. As of
December 31, 1998, payments due under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
1999........................................................ $ 98,400
2000........................................................ 98,400
2001........................................................ 98,400
2002........................................................ 98,400
2003 and thereafter......................................... 20,500
--------
$414,100
========
</TABLE>
4. RELATED PARTY TRANSACTIONS
At December 31, 1997 and 1998, the Company had notes payable to a venture
capital fund (the "Venture Fund") of $1,094,765 and $1,186,521, respectively.
The notes bear interest at 15.15% per annum, 17.15% per annum in the event of
default as defined in the notes. The notes were in default during 1998 and
accrued interest at 17.15%. The notes called for payments of principal and
interest beginning in 1997 through December 1999. During 1997 and 1998, no such
payments of principal or interest were made. As part of this transaction, the
Company entered into a consulting agreement with an affiliate of the Venture
Fund that called for the Company to pay a quarterly fee for consulting services
which has been accrued since the beginning of the agreement. All notes and
accrued consulting fees were paid January 8, 1999. (Note 5)
At the time of the Venture Fund financing, the stockholders of the Company
personally entered into an option agreement with the Venture Fund whereby they
agreed to grant an option to the Venture Fund to purchase an aggregate of 300.27
shares of their personal shares in the Company at $1.00 per share, for total of
$290,000 paid to the stockholders. Seventy-two thousand dollars of this amount
was then loaned by the shareholders back to the Company. The Company recorded a
discount to the debt financing of approximately $459,000 (representing the fair
value allocated to the options) to be amortized as interest expense over the
term of the debt, with a corresponding entry to additional paid-in capital.
The Company had notes payable to stockholders totaling $242,000 as of
December 31, 1997 and 1998. The notes are subordinated in right of payment to
the Venture Fund notes and bear interest at prime plus 1.5%, or 9.25% at
December 31, 1998.
The Company had a note payable to a former partner in a joint venture that
started the Company's Florida operations. The note arose from the purchase by
the Company of the partner's
F-30
<PAGE> 86
LEASETREND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
50% interest in the venture. The note bears interest at 8%. As of December 31,
1997 and 1998, the unpaid principal balance on this note was $121,423 and
$66,401, respectively.
5. SUBSEQUENT EVENTS
On January 8, 1999, the Company was acquired by Realty Information Group,
Inc. in exchange for $4.5 million in cash and 566,671 shares of Realty
Information Group, Inc. common stock. All notes payable and related interest of
the Company were repaid from the proceeds on January 8, 1999.
F-31
<PAGE> 87
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Realty Information Group, Inc.
We have audited the accompanying balance sheets of Jamison Research, Inc. as of
December 31, 1997 and 1998, 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, 1997 and 1998, 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.
February 5, 1999
F-32
<PAGE> 88
JAMISON RESEARCH, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Revenues.................................................... $3,664,198 $4,577,927
Costs of revenues........................................... 1,378,946 1,658,072
---------- ----------
Gross margin................................................ 2,285,252 2,919,855
Operating expenses:
Compensation to shareholders................................ 570,476 1,190,384
Selling, general and administrative expenses................ 1,681,687 1,887,110
---------- ----------
2,252,163 3,077,494
---------- ----------
Income (loss) from operations............................... 33,089 (157,639)
Other income (expense):
Interest income............................................. 1,755 --
Other income................................................ 5,883 3,974
Interest expenses........................................... (23,758) (13,237)
Other expense............................................... (18,670) --
---------- ----------
Loss before income taxes.................................... (1,701) (166,902)
Benefit (provision) for income taxes........................ (3,700) 47,700
---------- ----------
Net loss.................................................. $ (5,401) $ (119,202)
========== ==========
Net loss per share -- basic and diluted..................... $ (0.60) $ (13.24)
========== ==========
Weighted average common shares.............................. 9,000 9,000
========== ==========
</TABLE>
F-33
<PAGE> 89
JAMISON RESEARCH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
-------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................ $118,550 $ 50,548
Accounts receivable, less allowance for doubtful accounts of
$9,700 and $4,000 as of December 31, 1997 and 1998,
respectively.............................................. 84,730 32,426
Refundable income taxes..................................... 5,600 2,800
Prepaid expenses and other current assets................... 19,205 100
Deferred tax asset.......................................... 126,500 171,000
-------- ---------
Total current assets...................................... 354,585 256,874
Property and equipment:
Furniture and equipment..................................... 239,889 271,881
Computer hardware and software.............................. 265,494 302,063
-------- ---------
505,383 573,944
Accumulated depreciation.................................... (280,949) (372,327)
-------- ---------
224,434 201,617
Capitalized product development cost, net of accumulated
amortization of $61,580 and $91,846 as of December 31,
1997 and 1998, respectively............................... 89,750 59,484
Deposits.................................................... 474 474
-------- ---------
Total assets.............................................. $669,243 $ 518,449
======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses....................... $217,133 $ 130,319
Accrued income taxes payable................................ 3,200 --
Deferred revenue............................................ 320,385 404,741
Advances from stockholders.................................. 110,672 --
Bank line of credit......................................... -- 114,912
Current portion of long-term debt........................... 29,442 26,114
-------- ---------
Total current liabilities................................. 680,832 676,086
Long-term debt, net of current portion...................... 37,449 10,603
Stockholders' deficit:
Common stock, $0.10 par value; 500,000 shares authorized;
9,000 issued and outstanding as of December 31, 1997 and
1998...................................................... 900 900
Retained deficit............................................ (49,938) (169,140)
-------- ---------
Total stockholders' deficit............................... (49,038) (168,240)
-------- ---------
Total liabilities and stockholders' deficit............... $669,243 $ 518,449
======== =========
</TABLE>
See accompanying notes.
F-34
<PAGE> 90
JAMISON RESEARCH, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
------ ------ --------- -------------
<S> <C> <C> <C> <C>
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 loss..................................... -- -- (119,202) (119,202)
----- ---- --------- ---------
Balance at December 31, 1998................... 9,000 $900 $(169,140) $(168,240)
===== ==== ========= =========
</TABLE>
See accompanying notes.
F-35
<PAGE> 91
JAMISON RESEARCH, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Operating Activities:
Net loss.................................................... $ (5,401) $(119,202)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 113,681 93,991
Amortization.............................................. 30,266 30,266
Gain on sale of asset..................................... -- (2,709)
Provision for losses on accounts receivable............... 9,686 --
Deferred income taxes..................................... 500 (44,500)
Non-cash compensation to stockholders..................... 27,036 --
Changes in operating assets and liabilities:
Accounts receivable....................................... (10,237) 52,304
Prepaid expenses and other current assets................. (19,205) 19,105
Refundable income taxes................................... 3,200 (400)
Accounts payable and accrued expenses..................... 72,274 (86,815)
Deferred revenue.......................................... 44,518 84,356
--------- ---------
Net cash provided by operating activities.............. 266,318 26,396
Investing Activities:
Purchase of property and equipment.......................... (76,772) (71,919)
Proceeds from disposal of property.......................... -- 3,455
--------- ---------
Net cash used in investing activities.................. (76,772) (68,464)
Financing Activities:
Re-payments of advances from stockholders................... (69,418) (110,672)
Proceeds from bank line of credit........................... -- 114,912
Re-payments of long-term debt............................... (64,864) (30,174)
--------- ---------
Net cash used in financing activities.................. (134,282) (25,934)
--------- ---------
Net increase (decrease) in cash and cash equivalents........ 55,264 (68,002)
Cash at beginning of year................................... 63,286 118,550
--------- ---------
Cash at end of year......................................... $ 118,550 $ 50,548
========= =========
</TABLE>
See accompanying notes.
F-36
<PAGE> 92
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
1. ORGANIZATION
Jamison Research, Inc. (the "Company") was incorporated in the state of
Georgia on January 19, 1984. The Company 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 in the form of a multiple listing directory with sorting and reporting
capabilities. The database and software are distributed to its clients
principally under annual license agreements. The Company also provides various
market specific reports using its database of information which are sold on an
individual and subscription basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the associated amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
The Company 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.
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 (a) the ratio of current gross revenues to the sum of
current and anticipated gross revenues, or (b) the straight-line method over the
remaining estimated economic life of the product, typically five years, after
product release.
Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company 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 fair value.
F-37
<PAGE> 93
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The company 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. The company recognizes revenue
and expenses on a cash basis purpose for tax purposes while using the accrual
method for book purposes.
Loss Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share." Jamison has no dilutive options, warrants or
convertible securities. All earnings per share amounts for all periods have been
presented to conform to the Statement 128 requirements.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the Statements of Stockholders' Deficit. For all periods
presented, the Company had no items of comprehensive income and, accordingly,
the Statement has no effect on the Company.
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 require those
companies to report selected segment information in interim financial reports to
stockholders. The adoption of SFAS 131 did not have any impact on the Company's
financial statements as the Company has determined that it has only one
reportable segment.
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 the Company. As of January 1, 1998 the Company adopted
AICPA SOP 97-2, Software Revenue Recognition, which was effective for
transactions that the Company entered into in 1998. Prior years were not
restated. The effect of adopting SOP 97-2 was not material in the financial
statements of the Company. In March 1998, AcSEC issued SOP 98-4, which defers
for one year the implementation of certain provision of SOP 97-2. The issuance
of SOP 98-4 had no effect on the Company. In December 1998, the AICPA issued SOP
98-9, which extends the deferral date of implementation of certain provisions of
SOP 97-2 to 2000 for the Company and amends the method of revenue recognition in
some circumstances. The Company does not anticipate the adoption of this SOP
will have a significant effect on its results of operations or financial
position.
F-38
<PAGE> 94
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. COMMITMENTS
Operating Leases
The Company leases equipment and office space in Atlanta, Georgia and
Dallas, Texas under non-cancelable operating lease agreements. The leases
generally provide for renewal terms and the Company 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, 1997 and 1998 was
$128,529 and $235,014, respectively. As of December 31, 1998, payments due under
non-cancelable operating leases are as follows:
<TABLE>
<S> <C>
1999........................................................ $235,809
2000........................................................ 166,981
2001........................................................ 142,416
2002........................................................ 3,081
2003 and thereafter......................................... 3,081
--------
$551,368
========
</TABLE>
Employment Agreements
During 1991 the Company entered in an employment service termination
agreement with a former employee of the Company whereby the Company is required
to pay the former employee up to $25,000 upon a change in ownership of the
Company. As of December 31, 1998, no amount has been recorded in the financial
statements for this contingency.
In December 1997, the Company entered into a one year employment agreement
with an employee of the Company. Pursuant to this agreement, upon the sale of a
majority of the Company's outstanding shares to a third party, the Company 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, 1998, no amount has been
recorded in the financial statements for this contingency.
4. RELATED PARTY TRANSACTIONS
During 1996 the Company'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 the Company cash to
support operations and expansion. As of December 31, 1997 outstanding advances
due to the stockholders were approximately $111,000. The Company repays
principal and interest (approximately 8.25% annually), directly to the bank on
behalf of the stockholders. In December 1998, the Company repaid the advances
with proceeds from the line of credit (Note 5).
In December 1997, the Company transferred title of two vehicles with a net
book value of approximately $27,000 to the stockholders and recorded non-cash
compensation.
The Company paid interest of approximately $23,800 and $13,237 in 1997 and
1998, respectively.
5. LINE OF CREDIT
In December 1998, the Company entered into a $462,000 line of credit
agreement with a financial institution. The line of credit bears interest at the
bank's prime rate plus 1% (8.75% at
F-39
<PAGE> 95
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998) and has a maturity date of November 30, 1999. Borrowings
under the line are secured by the personal assets and guarantee of the Company's
stockholder's and all business assets of the Company. At December 31, 1998, the
Company is in compliance with the terms and covenants of the line of credit
agreement. At December 31, 1998, approximately $115,000 was outstanding under
the line of credit.
6. INCOME TAXES
The Company 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. The Company paid no income taxes in 1997 or
1998.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrual to cash adjustments....................... $154,000 $176,000
Capitalized product development cost.............. (33,500) (24,000)
Other liabilities................................. 6,000 19,000
-------- --------
Net deferred tax assets...................... $126,500 $171,000
======== ========
</TABLE>
The provision for income taxes at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1998
------ --------
<S> <C> <C>
Current................................................ $3,200 $ (3,200)
Deferred............................................... 500 (44,500)
------ --------
Total............................................. $3,700 $(47,700)
====== ========
</TABLE>
The Company's provision for income taxes resulted in effective tax rates
that varied from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Expected federal income tax benefit at 34%............. $ (600) $(56,800)
State income taxes, net of federal benefit............. (100) (7,600)
Expenses not deductible for tax purposes............... 7,100 16,700
Graduated tax rate difference.......................... (2,700) --
------- --------
$ 3,700 $(47,700)
======= ========
</TABLE>
7. NON CASH TRANSACTIONS
The Company enters into arrangements with various vendors and service
providers whereby they provide various office equipment, office space and
services in exchange for licenses to access the Company's commercial real estate
database. As a result of these transactions, the Company recorded property and
equipment of approximately $52,000 and $25,500 in 1997 and 1998, with a
F-40
<PAGE> 96
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
corresponding credit to deferred revenue to be recognized in accordance with the
Company's revenue recognition policies. Further, the Company recognized service
revenues and expenses of approximately $53,000 and $117,064 in 1997 and 1998.
The value of the licenses has been determined to equal the fair value of the
equipment or services received and office space used.
8. SUBSEQUENT EVENTS
On January 22, 1999, the Company was acquired by Realty Information Group,
Inc., in exchange for $5.28 million in cash and 448,031 shares of Realty
Information Group, Inc. Common stock.
F-41
<PAGE> 97
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[Realty Information Group Logo]
3,250,000 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
BT ALEX. BROWN
ALLEN & COMPANY
INCORPORATED
------------------------
DLJDIRECT INC.
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALES PERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL IMPLY THAT THE
INFORMATION CONTAINED IN THIS PROSPECTUS OR THE AFFAIRS OF REALTY INFORMATION
GROUP, INC. HAVE NOT CHANGED SINCE THAT DATE.
- --------------------------------------------------------------------------------
<PAGE> 98
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......... $ 22,923
National Association of Securities Dealers, Inc. filing
fee....................................................... 8,746
Nasdaq National Market listing fee.......................... 17,500
Legal fees and expenses..................................... 275,000
Accountants' fees and expenses.............................. 100,000
Printing and engraving expenses............................. 200,000
Transfer Agent and Registrar fees and expenses.............. 2,500
Miscellaneous............................................... 373,331
----------
Total..................................................... $1,000,000
==========
</TABLE>
The Registrant 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 listing 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 April 6, 1996, RIGLP, a limited partnership which previously operated
the business of the Company, acquired all of the assets of Chicago ReSource Inc.
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
II-1
<PAGE> 99
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.
2. 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.
Schaffel 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.
3. During June through October 1996, RIGINC, the general partner of RIGLP,
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
Equity, Inc.), 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 through the share issuances 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.
4. 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.
5. 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.
6. On July 7, 1998, the Company issued 5,754,017 shares of Common Stock to
the limited partners of RIGLP and the stockholders of RIGINC. The Company
received as consideration all of the outstanding equity interests of these
entities at a ratio of 3.03 shares of Common Stock for each RIGLP unit or RIGINC
Share. The shares of Common Stock obtained by limited partners of RIGLP and
stockholders of RIGINC upon the exchange of their units and shares continued to
be held 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.
7. On August 14, 1998, the Company acquired C Data Services, Inc. ("Core")
through a transaction in which John G. Redford, Keenan L. Reiney and Stuart
Schube (the shareholders and representative of Core) received 93,530 shares of
Common Stock and approximately $9,000 in cash. These shares were purchased for
investment purposes. The issuance of these shares was effected in reliance on
the exemption from registration under Section 4(2) of the Securities Act.
II-2
<PAGE> 100
8. On January 8, 1999, the Company acquired LeaseTrend, Inc., through a
transaction in which Blue Chip Capitol Fund Limited Partnership, Keith D. Sant,
and trusts established by Fred A. Heitzman III and Gregory Benkert (the
shareholders of LeaseTrend) received 566,671 shares of Common Stock and $4.5
million in cash. The shares were purchased for investment purposes. The issuance
of these shares was effected in reliance on the exemption from registration
under Section 4(2) of the Securities Act.
9. On January 22, 1999, the Company acquired Jamison Research, Inc., in a
transaction in which Henry D. Jamison IV, Leslie Lees Jamison, The Church of the
Apostles of Atlanta and David P. Evemy (the shareholders of Jamison Research and
their assignees) received 448,031 shares of Common Stock and $5,284,000 in cash.
These shares were purchased for investment purposes. The issuance of these
shares was effected in reliance on the exemption from registration under Section
4(2) of the Securities Act.
No underwriters were involved in any of the foregoing sales of securities
Explanatory Note: 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
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 provisions set forth in Item 14, 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> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bethesda,
State of Maryland, on the 23rd day of March, 1999.
REALTY INFORMATION GROUP, INC.
By: /s/
---------------------------------------
Andrew C. Florance
Chief Executive Officer and
President
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Andrew C. Florance and Frank A. Carchedi
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ Chairman of the Board March 23, 1999
- ---------------------------------------------------
Michael R. Klein
/s/ Chief Executive Officer and March 23, 1999
- --------------------------------------------------- President, and a Director
Andrew C. Florance (Principal Executive
Officer)
/s/ Chief Financial Officer (Chief March 23, 1999
- --------------------------------------------------- Financial and Accounting
Frank A. Carchedi Officer)
/s/ Director March 23, 1999
- ---------------------------------------------------
David Bonderman
/s/ Director March 23, 1999
- ---------------------------------------------------
Warren H. Haber
/s/ Director March 23, 1999
- ---------------------------------------------------
John Simon
/s/ Director March 23, 1999
- ---------------------------------------------------
Lanning Macfarland III
</TABLE>
II-4
<PAGE> 102
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
1.1* -- Form of Underwriting Agreement.
2.1 -- Acquisition and Reorganization Agreement by and among Realty
Information Group, Inc. and LeaseTrend, Inc. and the
Shareholder of LeaseTrend, Inc. dated January 8, 1999
(Incorporated by reference to Exhibit 2.1 to the report of
the Registrant on Form 8-K (File No. 0-24531) filed with the
Commission on January 22, 1999).
2.2 -- Agreement and Plan of Merger between LeaseTrend, Inc. and
LTI Acquisition Corp. dated January 8, 1999 (Incorporated by
reference to Exhibit 2.2 to the report of the Registration
on Form 8-K (File No. 0-24531) filed with the Commission on
January 22, 1999).
2.3 -- Agreement and Plan of Merger by and among Realty Information
Group, Inc., Jamison Research, Inc., Henry D. Jamison IV and
Leslie Lees Jamison dated January 6, 1999 (Incorporated by
reference to Exhibit 2.3 to the report of the Registrant on
Form 8-K (File No. 0-24531) filed with the Commission on
February 2, 1999).
2.4 -- Amendment to Agreement and Plan of Merger by and among
Realty Information Group, Inc., Jamison Research, Inc.,
Jamison Acquisition Corp., Henry D. Jamison IV and Leslie
Lees Jamison dated January 14, 1999 (Incorporated by
reference to Exhibit 2.4 to the report of the Registrant on
Form 8-K (File No. 0-24531) filed with the Commission on
February 2, 1999).
3.1 -- Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 to Amendment No. 4 to the
Registration Statement on Form S-1 of the Registrant (Reg.
No. 333-47953) filed with the Commission on June 30, 1998
(the "1998 Form S-1")).
3.2 -- Amended and Restated By-Laws (Incorporated by reference to
Exhibit 3.2 to the 1998 Form S-1).
4.1 -- Specimen Common Stock Certificate (Incorporated by reference
to Exhibit 4.1 to the 1998 Form S-1).
5.1** -- Opinion of Shea & Gardner.
10.1 -- Realty Information Group, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.1 to the 1998 Form
S-1).
10.2 -- Employment Agreement for Andrew C. Florance (Incorporated by
reference to Exhibit 10.2 to the 1998 Form S-1).
10.3 -- Employment Agreement for Frank A. Carchedi (Incorporated by
reference to Exhibit 10.3 to the 1998 Form S-1).
10.4 -- Employment Agreement for David M. Schaffel (Incorporated by
reference to Exhibit 10.4 to the 1998 Form S-1).
10.5 -- Employment Agreement for Curtis M. Ricketts (Incorporated by
reference to Exhibit 10.5 to the 1998 Form S-1).
10.6* -- Employment Agreement for Fred A. Heitzman III.
10.7 -- Registration Rights Agreement (Incorporated by reference to
Exhibit 10.7 to the 1998 Form S-1).
21.1* Subsidiaries of the Company.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
23.2** Consent of Shea & Gardner (Contained in Exhibit 5.1).
24.1 -- Powers of Attorney (Included in the Signature Pages to the
Registration Statement).
27 * Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith
** To be filed by Amendment
<PAGE> 1
EXHIBIT 1.1
__________ Shares
REALTY INFORMATION GROUP, INC.
Common Stock
UNDERWRITING AGREEMENT
__________, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN INCORPORATED
ALLEN & COMPANY INCORPORATED
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Realty Information Group, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several underwriters named in Schedule I
hereto (the "UNDERWRITERS"), and certain stockholders of the Company named in
Schedule II hereto (the "SELLING STOCKHOLDERS") severally propose to sell to the
several Underwriters, an aggregate of _______________ shares of the common
stock, $.01 par value per share, of the Company (the "FIRM SHARES"), of which
_____________ shares are to be issued and sold by the Company and _____________
shares are to be sold by the Selling Stockholders, each Selling Stockholder
selling the amount set forth opposite such Selling Stockholder's name in
Schedule II hereto. The Company also proposes to issue and sell to the several
Underwriters not more than an additional _______ shares of its common stock,
$.01 par value per share (the "ADDITIONAL SHARES") if requested by the
Underwriters as provided in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter referred to collectively as the "SHARES". The shares of
common stock of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "COMMON STOCK". The
Company and the Selling Stockholders are hereinafter sometimes referred to
collectively as the "SELLERS."
1
<PAGE> 2
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "REGISTRATION STATEMENT";
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "PROSPECTUS". If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"RULE 462(b) REGISTRATION STATEMENT"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
______________ Firm Shares, (ii) each Selling Stockholder agrees, severally and
not jointly, to sell the number of Firm Shares set forth opposite such Selling
Stockholder's name in Schedule II hereto and (iii) each Underwriter agrees,
severally and not jointly, to purchase from each Seller at a price per Share of
$______ (the "PURCHASE PRICE") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Firm Shares to be sold by such Seller as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedules I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of this Agreement. You shall give any
such notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
and the date for payment and delivery thereof, which date shall be a business
day (i) no earlier than two business days after such notice has been given
2
<PAGE> 3
(and, in any event, no earlier than the Closing Date (as hereinafter defined))
and (ii) no later than ten business days after such notice has been given. If
any Additional Shares are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase from the Company the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number of
Firm Shares.
Each Seller hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of ___ days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan and (ii) the Company may
issue shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof. The Company also agrees
not to file any registration statement with respect to any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock for a period of ___ days after the date of the Prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, each Selling Stockholder agrees that, for a period of
___ days after the date of the Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, it will not make any demand
for, or exercise any right with respect to, the registration of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock. The Company shall, prior to or concurrently with the execution
of this Agreement, deliver an agreement executed by (i) each Selling
Stockholder, (ii) each of the directors and officers of the Company who is not a
Selling Stockholder and (iii) each stockholder listed on Annex I hereto to the
effect that such person will not, during the period commencing on the date such
person signs such agreement and ending ____ days after the date of the
Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette
Corporation, (A) engage in any of the transactions described in the first
sentence of this paragraph or (B) make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible
3
<PAGE> 4
into or exercisable or exchangeable for Common Stock.
SECTION 3. Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Shares shall be delivered by or on behalf of the Sellers, with any transfer
taxes thereon duly paid by the respective Sellers, to Donaldson, Lufkin &
Jenrette Securities Corporation through the facilities of The Depository Trust
Company ("DTC"), for the respective accounts of the several Underwriters,
against payment to the Sellers of the Purchase Price therefore by wire transfer
of Federal or other funds immediately available in New York City. The
certificates representing the Shares shall be made available for inspection not
later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date, as the case may be, at the
office of DTC or its designated custodian (the "DESIGNATED OFFICE"). The time
and date of delivery and payment for the Firm Shares shall be 9:00 A.M., New
York City time, on ________, 1999 or such other time on the same or such other
date as Donaldson, Lufkin & Jenrette Securities Corporation and the Company
shall agree in writing. The time and date of delivery and payment for the Firm
Shares are hereinafter referred to as the "CLOSING DATE". The time and date of
delivery and payment for any Additional Shares to be purchased by the
Underwriters shall be 9:00 A.M., New York City time, on the date specified in
the applicable exercise notice given by you pursuant to Section 2 or such other
time on the same or such other date as Donaldson, Lufkin & Jenrette Securities
Corporation and the Company shall agree in writing. The time and date of
delivery and payment for any Additional Shares are hereinafter referred to as
the "OPTION CLOSING DATE".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 9 of this Agreement
shall be delivered at the offices of Akin, Gump, Strauss, Hauer & Feld, 1333 New
Hampshire Avenue, N.W., Washington, D.C. 20036, and the Shares shall be
delivered at the Designated Office, all on the Closing Date or such Option
Closing Date, as the case may be.
SECTION 5. Agreements of the Company The Company agrees with you:
4
<PAGE> 5
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you four signed copies of the Registration Statement
as first filed with the Commission and of each amendment to it, including all
exhibits, and to furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall
be satisfactory to you, and to file the Prospectus in such form with the
Commission within the applicable period specified in Rule 424(b) under the Act;
during the period specified in Section 5(d) below, not to file any further
amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you shall not previously have been advised
or to which you shall reasonably object after being so advised; and, during such
period, to prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or amendment or supplement
to the Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the
5
<PAGE> 6
Prospectus (and of any amendment or supplement to the Prospectus) as such
Underwriter or dealer may reasonably request.
e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if, in the
opinion of counsel for the Underwriters, it is necessary to amend or supplement
the Prospectus to comply with applicable law, forthwith to prepare and file with
the Commission an appropriate amendment or supplement to the Prospectus so that
the statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon
as practicable an earnings statement covering the twelve-month period ending
June 30, 2000 that shall satisfy the provisions of Section 11(a) of the Act, and
to advise you in writing when such statement has been so made available.
(h) During the period of three years after the date of this Agreement,
to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
6
<PAGE> 7
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Sellers' obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel, the Company's accountants and any Selling Stockholder's counsel (in
addition to the Company's counsel) in connection with the registration and
delivery of the Shares under the Act and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares, (iv) all
expenses in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several states and
all costs of printing or producing any Preliminary and Supplemental Blue Sky
Memoranda in connection therewith (including the filing fees and fees and
disbursements of counsel for the Underwriters in connection with such
registration or qualification and memoranda relating thereto), (v) the filing
fees and disbursements of counsel for the Underwriters in connection with the
review and clearance of the offering of the Shares by the National Association
of Securities Dealers, Inc., (vi) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to the listing of the Shares on
the Nasdaq National Market, (vii) the cost of printing certificates representing
the Shares, (viii) the costs and charges of any transfer agent, registrar and/or
depositary, and (ix) all other costs and expenses incident to the performance of
the obligations of the Company and the Selling Stockholders hereunder for which
provision is not otherwise made in this Section. The provisions of this Section
shall not supersede or otherwise affect any agreement that the Company and the
Selling Stockholders may otherwise have for allocation of such expenses among
themselves.
(j) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq
National Market for a period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
7
<PAGE> 8
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement filed
after the effectiveness of this Agreement will become effective no later than
10:00 P.M., New York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to
8
<PAGE> 9
the Company in writing by such Underwriter through you expressly for use
therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Prospectus and to own,
lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been duly
authorized and validly issued and are fully paid, non-assessable and not subject
to any preemptive or similar rights; and the Shares to be issued and sold by the
Company have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
9
<PAGE> 10
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiaries, taken as a whole, to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (iii) violate or
conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property or (iv) result
in the suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment of the
rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is or could be a
party or to which any of their respective property is or could be subject that
are required to be described in the Registration Statement or the Prospectus and
are not so described; nor are there any statutes, regulations, contracts or
other documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
10
<PAGE> 11
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole.
(m) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
11
<PAGE> 12
(o) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names ("INTELLECTUAL PROPERTY") currently
employed by them in connection with the business now operated by them except
where the failure to own or possess or otherwise be able to acquire such
intellectual property would not, singly or in the aggregate, have a material
adverse effect on the business, prospects, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole; and neither the
Company nor any of its subsidiaries has received any notice of infringement of
or conflict with asserted rights of others with respect to any of such
intellectual property which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse effect on
the business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole.
(p) No relationship, direct or indirect, exists between or among
the Company or any of its subsidiaries on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of its
subsidiaries on the other hand, which is required by the Act to be described in
the Registration Statement or the Prospectus which is not so described.
(q) This Agreement has been duly authorized, executed and delivered by
the Company.
(r) Ernst & Young L.L.P. are independent public accountants with
respect to the Company and its subsidiaries as required by the Act.
(s) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such
12
<PAGE> 13
financial statements and the books and records of the Company.
(t) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) have been
prepared on a basis consistent with the historical financial statements of the
Company and its subsidiaries, give effect to the assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
the historical and proposed transactions contemplated by the Registration
Statement and the Prospectus. Such pro forma financial statements have been
prepared in accordance with the applicable requirements of Rule 11-02 of
Regulation S-X promulgated by the Commission. The other pro forma financial and
statistical information and data set forth in the Registration Statement and the
Prospectus (and any supplement or amendment thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with the pro
forma financial statements.
(u) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(w) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(x) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not
13
<PAGE> 14
occurred any material adverse change or any development involving a prospective
material adverse change in the condition, financial or otherwise, or the
earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(y) Each certificate signed by any officer of the Company and delivered
to the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
SECTION 7. Representations and Warranties of the Selling Stockholders.
Each Selling Stockholder represents and warrants to each Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement and has, and on the
Closing Date will have, good and clear title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests, equities and
claims whatsoever.
(b) The Shares to be sold by such Selling Stockholder have been duly
authorized and are validly issued, fully paid and non-assessable.
(c) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement signed by
such Selling Stockholder and, as Custodian, relating to the deposit of the
Shares to be sold by such Selling Stockholder (the "CUSTODY AGREEMENT") and the
Power of Attorney of such Selling Stockholder appointing certain individuals as
such Selling Stockholder's attorneys-in-fact (the "ATTORNEYS") to the extent set
forth therein, relating to the transactions contemplated hereby and by the
Registration Statement and the Custody Agreement (the "POWER OF ATTORNEY") and
to sell, assign, transfer and deliver the Shares to be sold by such Selling
Stockholder in the manner provided herein and therein.
(d) This Agreement has been duly authorized, executed and delivered by
or on behalf of such Selling Stockholder.
(e) The Custody Agreement of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and
14
<PAGE> 15
binding agreement of such Selling Stockholder, enforceable in accordance with
its terms.
(f) The Power of Attorney of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding instrument of such Selling Stockholder, enforceable in accordance
with its terms, and, pursuant to such Power of Attorney, such Selling
Stockholder has, among other things, authorized the Attorneys, or any one of
them, to execute and deliver on such Selling Stockholder's behalf this Agreement
and any other document that they, or any one of them, may deem necessary or
desirable in connection with the transactions contemplated hereby and thereby
and to deliver the Shares to be sold by such Selling Stockholder pursuant to
this Agreement.
(g) Upon delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to this Agreement, good and clear title to such
Shares will pass to the Underwriters, free of all restrictions on transfer,
liens, encumbrances, security interests, equities and claims whatsoever.
(h) The execution, delivery and performance of this Agreement and the
Custody Agreement and Power of Attorney of such Selling Stockholder by or on
behalf of such Selling Stockholder, the compliance by such Selling Stockholder
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (i) require any consent,
approval, authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
organizational documents of such Selling Stockholder, if such Selling
Stockholder is not an individual, or any indenture, loan agreement, mortgage,
lease or other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any property of such Selling
Stockholder is bound or (iii) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over such Selling Stockholder or any property
of such Selling Stockholder.
(i) The information in the Registration Statement under the caption
"Principal and Selling Stockholders" which specifically relates to such Selling
Stockholder does not, and will not on the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
15
<PAGE> 16
(j) At any time during the period described in Section 5(d), if there
is any change in the information referred to in Section 7(i), such Selling
Stockholder will immediately notify you of such change.
(k) Each certificate signed by or on behalf of such Selling
Stockholder and delivered to the Underwriters or counsel for the Underwriters
shall be deemed to be a representation and warranty by such Selling Stockholder
to the Underwriters as to the matters covered thereby.
SECTION 8. Indemnification. (a) The Sellers, jointly and severally,
agree to indemnify and hold harmless each Underwriter, its directors, its
officers and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), from and against any and all losses,
claims, damages, liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action, that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), the Prospectus (or any amendment or
supplement thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished in writing to the Company by
such Underwriter through you expressly for use therein provided, however, that
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Underwriter who failed to deliver a
Prospectus, as then amended or supplemented, (so long as the Prospectus and any
amendment or supplement thereto was provided by the Company to the several
Underwriters in the requisite quantity and on a timely basis to permit proper
delivery on or prior to the Closing Date) to the person asserting any losses,
claims, damages, liabilities or judgments caused by any untrue statement or
alleged untrue statement of a material fact contained in such preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such material misstatement or omission or alleged
material misstatement or omission was cured in the Prospectus, as so amended or
supplemented, and such Prospectus was required by law to be delivered at or
prior to the written confirmation of sale to such person.
16
<PAGE> 17
Notwithstanding the foregoing, the aggregate liability of any Selling
Stockholder pursuant to this Section 8(a) shall be limited to an amount equal to
the total proceeds (before deducting underwriting discounts and commissions and
expenses) received by such Selling Stockholder from the Underwriters for the
sale of the Shares sold by such Selling Stockholder hereunder.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each Selling
Stockholder and each person, if any, who controls such Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Sellers to such Underwriter
but only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party
17
<PAGE> 18
shall not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for (i) the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all Underwriters, their
officers and directors and all persons, if any, who control any Underwriter
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act, (ii) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for the Company, its directors, its officers who
sign the Registration Statement and all persons, if any, who control the Company
within the meaning of either such Section and (iii) the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all Selling Stockholders and all persons, if any, who control any Selling
Stockholder within the meaning of either such Section, and all such fees and
expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriters, their officers and directors and such
control persons of any Underwriters, such firm shall be designated in writing by
Donaldson, Lufkin & Jenrette Securities Corporation. In the case of any such
separate firm for the Company and such directors, officers and control persons
of the Company, such firm shall be designated in writing by the Company. In the
case of any such separate firm for the Selling Stockholders and such control
persons of any Selling Stockholders, such firm shall be designated in writing by
the Attorneys. The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the
18
<PAGE> 19
indemnified party.
(d) To the extent the indemnification provided for in this Section 8
is unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 8(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(d)(i) above but also the
relative fault of the Sellers on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Sellers, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Sellers on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholders on the one hand or the Underwriters on the other hand and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions
19
<PAGE> 20
of this Section 8, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 8(d) are several in
proportion to the respective number of Shares purchased by each of the
Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) Each Selling Stockholder hereby designates Realty Information
Group, Inc., 7475 Wisconsin Avenue, Bethesda, Maryland 20814, as its authorized
agent, upon which process may be served in any action which may be instituted in
any state or federal court in the State of New York by any Underwriter, any
director or officer of any Underwriter or any person controlling any Underwriter
asserting a claim for indemnification or contribution under or pursuant to this
Section 8, and each Selling Stockholder will accept the jurisdiction of such
court in such action, and waives, to the fullest extent permitted by applicable
law, any defense based upon lack of personal jurisdiction or venue. A copy of
any such process shall be sent or given to such Selling Stockholder, at the
address for notices specified in Section 12 hereof.
SECTION 9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the
20
<PAGE> 21
Commission.
(c) You shall have received on the Closing Date a certificate dated
the Closing Date, signed by Andrew C. Florance and Frank A. Carchedi, in their
capacities as the President and Chief Financial Officer of the Company,
confirming the matters set forth in Sections 6(x), 9(a) and 9(b) and that the
Company has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied by the
Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(d)(i),
9(d)(ii) or 9(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) All the representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date and you shall
have received on the Closing Date a certificate dated the Closing Date from each
Selling Stockholder to such effect and to the effect that such Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied by
such Selling Stockholder on or prior to the Closing Date.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Shea & Gardner, counsel for the Company and the Selling Stockholders, to the
effect that:
(i) each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under
21
<PAGE> 22
the laws of its jurisdiction of incorporation and has the corporate
power and authority to carry on its business as described in the
Prospectus and to own, lease and operate its properties;
(ii) each of the Company and its subsidiaries is duly qualified
and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not have a material
adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a
whole;
(iii) all the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights;
(iv) the Shares to be issued and sold by the Company hereunder
have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement,
will be validly issued, fully paid and non-assessable, and the issuance
of such Shares will not be subject to any preemptive or similar rights;
(v) all of the outstanding shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable, and are owned by the Company,
directly or indirectly through one or more subsidiaries, free and clear
of any security interest, claim, lien, encumbrance or adverse interest
of any nature;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company and by or on behalf of each Selling
Stockholder;
(vii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the
Act, no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to the best of such counsel's
knowledge after due inquiry, pending before or contemplated by the
Commission;
22
<PAGE> 23
(ix) the statements under the captions "_______________",
"_______________", "_______________", "_______________",
"_______________", "_______________", "Description of Capital Stock"
and "Underwriting" in the Prospectus and Items 14 and 15 of Part II of
the Registration Statement, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to such
legal matters, documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and, to the best of such
counsel's knowledge after due inquiry, neither the Company nor any of
its subsidiaries is in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective property is
bound;
(xi) the execution, delivery and performance of this Agreement
by the Company, the compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not (A) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or
agency (except such as may be required under the securities or Blue Sky
laws of the various states), (B) conflict with or constitute a breach
of any of the terms or provisions of, or a default under, the charter
or by-laws of the Company or any of its subsidiaries or any indenture,
loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective property is
bound, (C) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Company, any of its
subsidiaries or their respective property or (D) result in the
suspension, termination or revocation of any Authorization of the
Company or any of its subsidiaries or any other impairment of the
rights of the holder of any such Authorization;
(xii) after due inquiry, such counsel does not know of any legal
or
23
<PAGE> 24
governmental proceedings pending or threatened to which the Company or
any of its subsidiaries is or could be a party or to which any of their
respective property is or could be subject that are required to be
described in the Registration Statement or the Prospectus and are not
so described, or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not so described or filed as required;
(xiii) neither the Company nor any of its subsidiaries has
violated any Environmental Law, any provisions of the Employee
Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations
promulgated thereunder, except for such violations which, singly or in
the aggregate, would not have a material adverse effect on the
business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole;
(xiv) each of the Company and its subsidiaries has such
Authorizations of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including, without
limitation, under any applicable Environmental Laws, as are necessary
to own, lease, license and operate its respective properties and to
conduct its business, except where the failure to have any such
Authorization or to make any such filing or notice would not, singly or
in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole; each such Authorization is
valid and in full force and effect and each of the Company and its
subsidiaries is in compliance with all the terms and conditions thereof
and with the rules and regulations of the authorities and governing
bodies having jurisdiction with respect thereto; and no event has
occurred (including, without limitation, the receipt of any notice from
any authority or governing body) which allows or, after notice or lapse
of time or both, would allow, revocation, suspension or termination of
any such Authorization or results or, after notice or lapse of time or
both, would result in any other impairment of the rights of the holder
of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or any of its
subsidiaries; except where such failure to be valid and in full force
and effect or to be in compliance, the occurrence of any such event or
the presence of any such restriction
24
<PAGE> 25
would not, singly or in the aggregate, have a material adverse effect
on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole;
(xv) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended;
(xvi) to the best of such counsel's knowledge after due inquiry, there
are no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement;
(xvii) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements
and other financial data included therein as to which no opinion need
be expressed) comply as to form with the Act, (B) such counsel has no
reason to believe that at the time the Registration Statement became
effective or on the date of this Agreement, the Registration Statement
and the prospectus included therein (except for the financial
statements and other financial data as to which such counsel need not
express any belief) contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (C) such
counsel has no reason to believe that the Prospectus, as amended or
supplemented, if applicable (except for the financial statements and
other financial data, as aforesaid) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(xviii) each Selling Stockholder is the lawful owner of the Shares
to be sold by such Selling Stockholder pursuant to this Agreement and
has good and clear title to such Shares, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and claims
whatsoever;
(xix) each Selling Stockholder has full legal right, power and
authority, and all authorization and approval required by law, to enter
into
25
<PAGE> 26
this Agreement and the Custody Agreement and the Power of Attorney of
such Selling Stockholder and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Stockholder in the manner provided
herein and therein;
(xx) the Custody Agreement of each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and
is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms;
(xxi) the Power of Attorney of each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and
is a valid and binding instrument of such Selling Stockholder,
enforceable in accordance with its terms, and, pursuant to such Power
of Attorney, such Selling Stockholder has, among other things,
authorized the Attorneys, or any one of them, to execute and deliver on
such Selling Stockholder's behalf this Agreement and any other document
they, or any one of them, may deem necessary or desirable in connection
with the transactions contemplated hereby and thereby and to deliver
the Shares to be sold by such Selling Stockholder pursuant to this
Agreement;
(xxii) upon delivery of and payment for the Shares to be sold by
each Selling Stockholder pursuant to this Agreement, good and clear
title to such Shares will pass to the Underwriters, free of all
restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever; and
(xxiii) the execution, delivery and performance of this Agreement
and the Custody Agreement and Power of Attorney of each Selling
Stockholder by such Selling Stockholder, the compliance by such Selling
Stockholder with all the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will
not (A) require any consent, approval, authorization or other order of,
or qualification with, any court or governmental body or agency (except
such as may be required under the securities or Blue Sky laws of the
various states), (B) conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the organizational
documents of such Selling Stockholder, if such Selling Stockholder is
not an individual, or any indenture, loan agreement, mortgage, lease or
other agreement or instrument to which such Selling Stockholder is a
party or by which any property of such Selling Stockholder is bound or
(C) violate or conflict
26
<PAGE> 27
with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having
jurisdiction over such Selling Stockholder or any property of such
Selling Stockholder.
The opinion of Shea & Gardner described in Section 9(f) above shall be
rendered to you at the request of the Company and the Selling Stockholders and
shall so state therein.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Akin, Gump, Strauss, Hauer & Feld, counsel for the
Underwriters, as to the matters referred to in Sections 9(f)(iv), 9(f)(vi) (but
only with respect to the Company), 9(f)(ix) (but only with respect to the
statements under the caption "Description of Capital Stock" and "Underwriting")
and 9(f)(xvii).
In giving such opinions with respect to the matters covered by Section
9(f)(xvii), counsel for the Company and the Selling Stockholders and counsel for
the Underwriters may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification except as
specified.
(h) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from Ernst & Young LLP,
independent public accountants, containing the information and statements of the
type ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(i) The Company shall have delivered to you the agreements specified
in Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(j) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(k) The Company and the Selling Stockholders shall not have failed on
or prior to the Closing Date to perform or comply with any of the agreements
herein contained and required to be performed or complied with by the Company or
the Selling Stockholders, as the case may be, on or prior to the Closing Date.
27
<PAGE> 28
(l) You shall have received on the Closing Date, a certificate of each
Selling Stockholder who is not a U.S. Person (as defined under applicable U.S.
federal tax legislation) to the effect that such Selling Stockholder is not a
U.S. Person, which certificate may be in the form of a properly completed and
executed United States Treasury Department Form W-8 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
SECTION 10. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
28
<PAGE> 29
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you,
the Company and the Selling Stockholders for purchase of such Firm Shares are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case which does not result in termination
of this Agreement, either you or the Sellers shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. If, on an Option Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased on such date, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
such Additional Shares or (ii) purchase not less than the number of Additional
Shares that such non-defaulting Underwriters would have been obligated to
purchase on such date in the absence of such default. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of any such Underwriter under this Agreement.
29
<PAGE> 30
SECTION 11. Agreements of the Selling Stockholders. Each Selling
Stockholder agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Stockholder to the Underwriters.
(b) To do and perform all things to be done and performed by such
Selling Stockholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold by
such Selling Stockholder pursuant to this Agreement.
SECTION 12. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to Realty
Information Group, Inc., 7475 Wisconsin Avenue, Bethesda, Maryland 20814, (ii)
if to the Selling Stockholders, to [NAME OF ATTORNEY-IN-FACT] c/o [ADDRESS OF
ATTORNEY-IN-FACT] and (iii) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company, any person controlling the
Company, any Selling Stockholder or any person controlling such Selling
Stockholder, (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Sellers agree, jointly and severally, to
reimburse the several Underwriters for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(i) hereof. The Sellers also
agree, jointly and
30
<PAGE> 31
severally, to reimburse the several Underwriters, their directors and officers
and any persons controlling any of the Underwriters for any and all fees and
expenses (including, without limitation, the fees disbursements of counsel)
incurred by them in connection with enforcing their rights hereunder (including,
without limitation, pursuant to Section 8 hereof).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
31
<PAGE> 32
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
REALTY INFORMATION
GROUP, INC.
By:
----------------------------------
Title:
THE SELLING STOCKHOLDERS
NAMED IN SCHEDULE II
HERETO, ACTING
SEVERALLY
By
-----------------------------------
Attorney-in-fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN INCORPORATED
ALLEN & COMPANY INCORPORATED
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
---------------------------
32
<PAGE> 33
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriters to be Purchased
<S> <C>
Donaldson, Lufkin & Jenrette Securities
Corporation
BT Alex. Brown Incorporated
Allen & Company Incorporated
Total
</TABLE>
<PAGE> 34
SCHEDULE II
Selling Stockholders
<TABLE>
<CAPTION>
Number of Firm
Name Shares Being Sold
<S> <C>
Total
</TABLE>
<PAGE> 35
Annex I
Founders/RIG, LLC
Law Bulleting Publishing Company
A-1
<PAGE> 36
ii
<PAGE> 1
Exhibit 10.6
LTI ACQUISITION CORP.
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") dated this 8th day of
January, 1999 (the "Effective Date") is by and between LTI Acquisition Corp. a
Delaware corporation (the "Company") and Fred A. Heitzman III (the
"Executive").
The Company desires to employ the Executive to devote full
time to the business of the Company, and the Executive desires to be so
employed on the terms and conditions outlined below.
The parties agree as follows:
1. Employment. The Company agrees to employ Executive
and Executive agrees to be so employed in the capacity of Senior Vice
President. Executive shall perform such functions and undertake such
responsibilities as are assigned from time to time by the President of the
Company or the Board of Directors, relating principally and initially to
maintaining Company operations, to the conversion of LeaseTrend data and
customer base to the Company's systems and forms of contract, and to the
expansion of the LeaseTrend database and customers. Executive shall not be
required to relocate from Cincinnati, OH as a condition of employment.
2. Term. The term of Executive's employment under this
Agreement shall commence on the date of this Agreement and shall continue for
the initial term of three (3) years (the "Initial Term"), and for automatic and
successive renewal terms of one (1) year each (each, a "Renewal Term" and
collectively, the "Renewal Terms"), unless either the Company or Executive
elects not to extend the term beyond the Initial Term or any Renewal Term
(herein, the Initial Term or a Renewal Term is sometimes referred to as the
"Current Term") and gives to the other party hereto written notice of
termination at least six (6) months prior to the end of the Initial Term or at
least three (3) months prior to the end of the Renewal Term.
3. Full time and efforts. Executive shall diligently
and conscientiously devote substantially his full time and exclusive attention
and best efforts to his duties under this contract.
4. Compensation.
(a) Commencing as of the Effective Date of this
Agreement, the Company shall pay Executive base compensation for his services
in the amount of $120,000 per year (the "Base Compensation"). The President of
the Company in consultation with the Compensation Committee of the Board of the
Company will review Executive's performance and determine any appropriate
increases annually thereafter. Base Compensation shall be payable in biweekly
or such other installments as shall be consistent with the Company's payroll
procedures for its senior executives.
<PAGE> 2
(b) In addition, Executive shall be eligible to
earn a quarterly performance bonus (the "Quarterly Bonus") of up to 75% of Base
Compensation payable for the quarter pursuant to criteria set forth on Exhibit
A. The Quarterly Bonus, if any, shall be paid within sixty (60) days of the
end of the quarter.
(c) In addition, Executive shall receive 105,000
stock options in Realty Information Group, Inc. ("RIG") (the "Initial
Options"), the Company's parent, vesting 25% on the Closing Date of the
Acquisition and Reorganization Agreement by and among Realty Information Group,
Inc., and LeaseTrend, Inc. and the Shareholders of LeaseTrend, Inc., and 25% on
each of the three subsequent anniversaries of that Closing Date. The Initial
Options were awarded by the Board of Directors of RIG on December 14, 1998,
when Executive was appointed an officer of RIG, and Option Pricing will be set
at 8 3/4, the fair market price of the stock as of that date. The Company will
make reasonable efforts to cause the Initial Options to be deemed Incentive
Stock Options in accordance with the RIG Incentive Stock Option Plan (the
"Stock Option Plan"), but shall not be required to amend the Stock Option Plan.
In the event of an irreconcilable inconsistency between the Stock Option Plan
and this Agreement, this Agreement shall control, and the options shall not be
deemed Incentive Stock Options under the Stock Option Plan. The Company shall
within ninety (90) days of the Effective Date of this Agreement provide the
Executive with an award agreement setting forth the options that have been
awarded to the Executive consistent with the provisions of this Agreement.
5. Benefits. Executive shall be entitled to participate
in, and receive benefits from any insurance, medical, disability, vacation or
pension plan of the Company for which Executive satisfies the generally
applicable criteria for eligibility, and to other perquisites which may be in
effect at any time during the term hereof that are generally available to
senior executive officers of the Company. With the exception of the Stock
Option Plan, the Company will make reasonable efforts to credit Executive, for
purposes of benefits, for the period Executive served as an employee of
LeaseTrend, Inc., but shall not be required to amend the terms of its
respective benefit plans.
6. Expense reimbursement. The Company shall reimburse
Executive for all categories of expenses incurred in carrying out his duties
under this Agreement that the Company's policies regard as reasonable and
necessary. Executive shall present to the Company from time to time an
itemized account of such expenses in any form generally required by the
Company.
7. Termination without cause.
(a) By the Company. The Company may terminate
this Agreement without cause upon sixty (60) days' written notice. In such an
event (i) any remaining Initial Options shall vest immediately, and (ii)
Executive will, as severance and liquidated damages and in consideration of his
execution of a complete and absolute release of the Company and its officers
from any and all further claims, receive (A) on a monthly basis, as if he had
not been
- 2 -
<PAGE> 3
terminated, all payments (other than bonus) he would have received for the
greater of (x) the term remaining under the Agreement had he not been
terminated or (y) six months, and (B) a pro rata share of any bonus based upon
that portion of such calendar quarter during which Executive was employed.
(b) Termination after merger or acquisition. In
the event of the merger of the Company or RIG, or the acquisition, directly or
indirectly, of all or substantially all of the Company's or RIG's assets or a
controlling interest in the voting shares of the Company or RIG by an
unaffiliated party (a "Change of Control"), Executive may elect to treat that
event as a termination by the Company without cause unless the new party: (a)
extends to him a reasonable offer to (i) be retained by the Company in an
executive position of responsibility, authority and compensation comparable in
material respects (including location) to the position of Executive immediately
prior to the Change of Control, (ii) retain all rights accorded under this
Agreement and (iii) be afforded all privileges accorded to other executives of
the Company; and (b) in fact retains Executive in such capacity for at least
twelve (12) months after the Change of Control.
(c) By Executive. Executive may without cause
terminate this Agreement, by giving one hundred eighty (180) days' written
notice during the Initial Term, or ninety (90) days' written notice during any
Renewal Term, to the Company. In such event, at the sole discretion of the
Company, Executive shall continue to render all services through the date of
termination. Executive shall be paid the base compensation, accrued bonus and
vested options as provided by Section 4 up to the date of termination, but
shall not receive any salary or bonus payment thereafter nor shall any stock
option that is not otherwise vested or nonforfeitable on the date of
termination become vested or nonforfeitable on such date.
8. Termination for Good Cause. The Company may
terminate the Executive for Good Cause, defined as failure to perform or
insubordination, only after the 1-year anniversary of the Effective Date of
this Agreement by providing 30 days written notice. In the event of a
termination of the Executive for Good Cause: (i) the Executive will be paid
salary, excluding bonus, through the date of termination, (ii) the Executive's
remaining Initial Options which would otherwise vest within 18 months of the
date of termination shall vest immediately, and (iii) the Executive shall
forfeit all other unvested options.
9. Termination for cause. The Company may terminate
this Agreement (a) for cause at any time by notifying Executive in writing of
such termination and the cause thereof or (b) in the event of Executive's death
or prolonged disability; provided, however, that the only grounds constituting
cause shall be: (i) Executive's gross negligence in the performance of his
duties hereunder, intentional nonperformance or mis-performance of such duties,
or refusal to abide by or comply with the reasonable, material and documented
directives of the Board, his superior officers, or the Company's material
policies and procedures (including without limitation the provisions of Section
10 hereof), which actions continue uncured for a period of at least thirty (30)
days after receipt by Executive of written notice of the need to cure or cease;
(ii) Executive's willful dishonesty, fraud, or misconduct with respect to the
business or affairs of the Company; (iii) Executive's indictment for,
conviction of, or guilty or nolo contendere plea to,
- 3 -
<PAGE> 4
a felony; and (iv) Executive's abuse of alcohol or drugs (legal or illegal),
other than legal drugs taken under the directions of a physician, that, in the
Company's reasonable judgment, materially impairs Executive's ability to
perform his duties hereunder. In any such event, Executive will forfeit all
unvested options and all claims to bonuses not yet awarded, and will be paid
salary, excluding bonus, through the date of the termination; provided,
however, that in the event of termination for death or prolonged disability,
all unvested options shall immediately vest.
10. Confidentiality, Invention and Non-Compete Agreement.
(a) During the term of this Agreement, and
thereafter for the duration of the period, if any, that Executive continues to
be employed by the Company and/or any other entity owned by or affiliated with
the Company or on an "at will" basis, and thereafter for the Non-Competition
Period (defined below), Executive shall not, directly or indirectly, for
himself or on behalf of or in conjunction with any other person, company,
partnership, corporation, business, group, or other entity (each, a "Person"):
(i) engage, as an officer, director,
shareholder, owner, partner, member, joint venturer, or in a managerial
capacity, whether as an employee, independent contractor, consultant, advisor,
or sales representative, in any business selling any products or services in
direct competition with the Company in the United States, Canada, the United
Kingdom, or other nations in which the Company is conducting or in which he was
aware the Company had plans to conduct business within the eighteen (18) months
following his termination (the "Territory"); provided, however, that the
foregoing covenant shall not be deemed to prohibit Executive from acquiring as
an investment not more than one percent (1%) of the capital stock of a
competing business whose stock is traded on a national securities exchange or
over-the-counter;
(ii) call upon any Person who is, at that
time, within the Territory, an employee of the Company for the purpose or with
the intent of enticing such employee away from or out of the employ of the
Company;
(iii) call upon any Person who or that is,
at that time, or has been, within one year prior to that time, a customer of
the Company within the Territory for the purpose of soliciting or selling
products or services in direct competition with the Company within the
Territory; or
(iv) on Executive's own behalf or on
behalf of any competitor, call upon any Person as a prospective acquisition
candidate for an entity other than the Company or its affiliates who or that,
during Executive's employment by the Company was, to Executive's knowledge,
either called upon by the Company as a prospective acquisition candidate or was
the subject of an acquisition analysis conducted by the Company. Executive, to
the extent lacking the knowledge described in the preceding sentence, shall
immediately cease all contact with any prospective acquisition candidate upon
being informed that the Company had called upon such candidate or made an
acquisition analysis thereof.
- 4 -
<PAGE> 5
(b) Executive acknowledges that during the course
of his employment, he may develop and obtain access to trade secrets,
proprietary software and other "confidential business information" of the
Company, such as its software systems, sources of data, databases and other
competitively sensitive information kept in confidence by the Company such as
selling and pricing information and procedures, research methodologies,
customer lists, business and marketing plans, and internal financial
statements. Executive agrees to not use or disclose any trade secrets,
proprietary software or confidential business information to which he is
exposed or has access in the course of his employment with the Company, even if
elements of any of them may belong to third parties, during his employment and
for so long afterwards as the Company seeks to maintain as confidential the
proprietary software, trade secrets or confidential business information,
whether or not the software, trade secrets and confidential business
information are in written or tangible form, except as required and authorized
during the performance of Executive's duties for and with the Company.
Executive agrees that, given the nature of the Company's business and business
plans there will never come a time when disclosure of the Company's proprietary
software, trade secrets or confidential information would not be seriously
injurious to the Company.
(c) Executive acknowledges that he has been
employed by the Company during its critical developmental and roll-out stages
and that leaving the employ of the Company to join any business competitor
would seriously hamper the business of the Company. Accordingly, Executive
agrees that the Company shall be entitled to injunctive relief to prevent him
from violating this Section 10, in addition to all remedies permitted by law,
to enforce the provisions of this Agreement. Executive further acknowledges
that his training, experience and technical skills are of such breadth that
they can be employed to Executive's advantage in other areas which are not in
direct competition with the business of the Company on the date of termination
of Executive's employment and consequently the foregoing obligations will not
unreasonably impair Executive's ability to engage in business activity after
the termination of Executive's employment.
(d) For purposes of this Section 10, the term
"Company" shall mean the Company, its parent, and each of its parent's direct
or indirect subsidiaries, and each of these entities' predecessors in interest
and successors; and the term "Non-Competition Period" shall mean the period
commencing on the date hereof to and including the second anniversary of the
Date on which Executive ceases to be employed by the Company (provided,
however, that the Non-Competition Period, during which the agreements and
covenants of Executive made in this Section 10 shall be effective, shall be
computed by excluding from such computation any time during which Executive is
in violation of any provision of this Section 10).
(e) The covenants in this Section 10 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. If any provision of this
Section 10 relating to the time period or geographic area of the restrictive
covenants shall be declared by a court of competent jurisdiction to exceed the
maximum time period or geographic area, as applicable, that such court deems
reasonable and enforceable, said time period or geographic area shall be deemed
to be, and thereafter shall
- 5 -
<PAGE> 6
become, the maximum time period or largest geographic area that such court
deems reasonable and enforceable and this Agreement shall automatically be
considered to have been amended and revised to reflect such determination.
Upon termination of this Agreement for any reason, the covenants specified in
this Section 10 shall survive for the term specified herein.
(f) All of the covenants in this Section 10 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of Executive
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of such covenants.
11. Notices. All notices required or permitted to be
given under this Agreement shall be given by certified mail, return receipt
requested, to the parties at the following addresses or to such other addresses
as either may designate in writing to the other party.
(a) If to the Company:
Andrew C. Florance
Chief Executive Officer
CoStar Realty Information, Inc.
7475 Wisconsin Avenue
Sixth Floor
Bethesda, Maryland 20814
Telefax: 301-718-2444
(b) If to Executive, to the address indicated
below Executive's name on the signature page.
12. Arbitration. The parties agree that any dispute
between the parties relating to this Agreement shall not be resolved in
litigation, but instead shall be resolved in final, binding arbitration by a
single arbitrator under the auspices of the American Arbitration Association
("AAA") in Washington, D.C. Any such arbitration shall be conducted in
accordance to the AAA's Employment Dispute Resolution Procedures.
13. Waiver of Breach. The waiver by either party of a
breach of any provisions of this Agreement by the other shall not operate or be
construed as a waiver of any subsequent breach. A delay or failure by either
party to exercise a right under this Agreement, or a partial or single exercise
of that right, shall not constitute a waiver of that or any other right.
14. Governing Law. The Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of
Delaware.
15. Binding Effect. This Agreement shall be binding upon
and share inure to the benefit of the Company and its respective successors and
assigns but the rights and
- 6 -
<PAGE> 7
obligations of Executive are personal and may not be assigned or delegated
without the Company's prior written consent.
16. Counterparts. This Agreement, for the convenience of
the parties, may be executed in any number of counterparts, all of which when
taken together shall constitute one and the same Agreement.
17. Entire Agreement Concerning Employment; Supremacy of
Employment Agreement. This Agreement constitutes the entire Agreement between
the parties as to Executive's employment and compensation therefor and
supersedes and replaces any and all agreements, written or oral, as to such
matters. This Agreement may not be modified or amended orally, but only by an
agreement in writing, signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. If there is
any conflict with respect to Executive between the provisions of this Agreement
and the provisions of either the bonus plan or the Stock Option Plan, as
applicable, the provisions of this Agreement shall govern.
18. Amendments. This Agreement may be amended only in
writing, signed by both parties.
In witness whereof, Company has by its appropriate officers,
signed and affixed its seal and Executive has signed and sealed this Agreement,
to be effective as of the last date noted below.
LTI ACQUISITION CORP. EXECUTIVE
By: /s/ /s/
---------------------------- ----------------------------------
Name: Fred A. Heitzman III
Date: 1/8/99 Date: 1/8/99
---------------------------- -----------------------------
Address:
7405 Rd.
----------------------------------
Cincinnati, Ohio 45243
----------------------------------
Telephone/Fax:
513/271-7890
----------------------------------
- 7 -
<PAGE> 8
EXHIBIT A
Criteria for Executive Bonus
YEAR ONE - 50% of the bonus shall be based upon maintaining existing
LeaseTrend operations, revenue levels, and EBIDTA levels. 50% of the
bonus will be based upon successfully working with Company management
to affect the integration of LeaseTrend databases, products, systems,
pricing, and personnel into RIG operations while maintaining continued
revenue growth.
YEAR TWO AND THREE - 100% of the bonus to be based upon operational
goals developed by the Chief Executive Officer of the Company with the
assistance of the Executive and approved by the Compensation Committee
of the Board of Directors of the Company.
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Registrant
The following companies are wholly-owned subsidiaries of the Registrant:
<TABLE>
<CAPTION>
Other Names Under Which
Name State of Incorporation Entity Does Business
- ---- ---------------------- --------------------
<S> <C> <C>
CoStar Realty Information, Inc. Delaware None
LeaseTrend, Inc. Delaware None
Jamison Research, Inc. Georgia None
</TABLE>
<PAGE> 1
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 February 12, 1999 for Realty Information Group, Inc.,
February 5, 1999 for LeaseTrend, Inc., and February 5, 1999 for Jamison
Research, Inc., in the Registration Statement (Form S-1 No. 333-00000) and
related Prospectus of Realty Information Group, Inc. for the registration of
2,750,000 shares of its common stock.
/s/ Ernst & Young LLP
Washington, D.C.
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REALTY
INFORMATION GROUP, INC.'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE YEAR ENDED DECEMBER 31, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,666,877
<SECURITIES> 0
<RECEIVABLES> 1,571,642
<ALLOWANCES> 326,063
<INVENTORY> 0
<CURRENT-ASSETS> 21,238,095
<PP&E> 3,385,393
<DEPRECIATION> 1,228,465
<TOTAL-ASSETS> 27,541,612
<CURRENT-LIABILITIES> 4,338,308
<BONDS> 0
0
0
<COMMON> 87,710
<OTHER-SE> 23,115,594
<TOTAL-LIABILITY-AND-EQUITY> 27,541,612
<SALES> 0
<TOTAL-REVENUES> 13,900,165
<CGS> 0
<TOTAL-COSTS> 4,561,619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,716
<INCOME-PRETAX> (3,185,413)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,185,413)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,185,413)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
