<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 5, 2000
REGISTRATION NO. 333-92579
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
COSTAR GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 52-2091509
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION
CODE NUMBER)
</TABLE>
------------------------
COSTAR GROUP, INC.
7475 WISCONSIN AVENUE
BETHESDA, MARYLAND 20814
(301) 215-8300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ANDREW C. FLORANCE
CHIEF EXECUTIVE OFFICER
COSTAR GROUP, INC.
7475 WISCONSIN AVENUE
BETHESDA, MARYLAND 20814
TEL. (301) 215-8300
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN I. GLOVER CRAIG S. ANDREWS
FRIED, FRANK, HARRIS, SHRIVER & BROBECK PHLEGER & HARRISON, LLP
JACOBSON 550 WEST "C" STREET, SUITE 1200
1001 PENNSYLVANIA AVE., NW, SUITE SAN DIEGO, CALIFORNIA 92101
800 (619) 234-1966
WASHINGTON, DC 20004
(202) 639-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement and the satisfaction or waiver of all other conditions to the merger
described in the enclosed proxy statement/prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(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. [ ]
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[COMPS LOGO]
JANUARY 5, 2000
DEAR COMPS.COM STOCKHOLDER:
I am pleased to send you this proxy statement/prospectus for a special
meeting of the stockholders of COMPS.COM to be held on February 10, 2000
beginning at 10:00 a.m. local time at 815 Connecticut Avenue, N.W., Washington,
D.C.
At the special meeting, you will be asked to adopt an Agreement and Plan of
Merger, dated as of November 3, 1999, by and among CoStar Group, Inc., Acq Sub,
Inc., a wholly-owned subsidiary of CoStar, and COMPS.COM. Under the merger
agreement, CoStar will acquire COMPS.COM. You will have the option of exchanging
each share of COMPS.COM stock you own for either $7.50 in cash or 0.31496 shares
of common stock of CoStar. According to the terms of the merger, your request
for cash or CoStar stock is subject to adjustment to ensure that 49.9% of the
COMPS.COM shares are exchanged for cash and 50.1% of the COMPS.COM shares are
exchanged for shares of CoStar common stock. If you do not provide a preference
of cash, CoStar common stock, or some combination of these, CoStar is entitled
to determine which of these you will receive. CoStar's common stock is quoted
under the symbol "CSGP" on the Nasdaq Stock Market.
After careful consideration, the COMPS.COM board of directors has approved
the merger, and has determined it to be fair to and in the best interests of
COMPS.COM and its stockholders. YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
ADOPTION OF THE MERGER AGREEMENT.
THE ATTACHED NOTICE OF SPECIAL MEETING AND PROSPECTUS/PROXY STATEMENT
EXPLAIN THE PROPOSED MERGER AND PROVIDE SPECIFIC INFORMATION ABOUT THE SPECIAL
MEETING. PLEASE READ THESE MATERIALS CAREFULLY, PARTICULARLY "RISK FACTORS"
BEGINNING ON PAGE 10.
Whether or not you plan to attend the special meeting, we urge you to
complete, sign, and promptly return the enclosed white proxy card to assure that
your shares will be voted at the special meeting. If you do not return a
properly executed proxy card or vote at the special meeting, this will have the
same effect as a vote against adoption of the merger agreement. YOUR VOTE IS
IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN.
Sincerely,
Christopher A. Crane
Chairman of the Board, Chief Executive
Officer and President
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR
DISAPPROVED THE SECURITIES TO BE ISSUED UNDER THIS PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS IS DATED JANUARY 5, 2000, AND IS FIRST BEING
MAILED TO STOCKHOLDERS ON OR ABOUT JANUARY 6, 2000.
<PAGE> 3
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 10, 2000 AT 10:00 A.M.
------------------------
To the Stockholders of COMPS.COM, Inc.:
We will hold a special meeting of the stockholders of COMPS.COM, Inc. at
815 Connecticut Ave., N.W., Washington, D.C. on February 10, 2000, beginning at
10:00 a.m., local time, for the following purposes:
1. To consider and vote on a proposal to adopt an Agreement and Plan
of Merger, dated as of November 3, 1999, between CoStar Group Inc., Acq
Sub, Inc., CoStar's wholly owned subsidiary, and COMPS.COM, Inc. This
agreement provides for the merger of COMPS.COM into Acq Sub with Acq Sub
being the surviving entity. In the merger, COMPS.COM stockholders will have
the right to receive $7.50 in cash, 0.31496 shares of common stock of
CoStar, or some combination of cash and shares, for each share of
COMPS.COM, as described in the attached proxy statement/prospectus.
2. To conduct any other business as may properly be brought before the
special meeting or any adjournment or postponement.
Please read the attached proxy statement/prospectus carefully for a
description of the merger agreement. Only stockholders of record at the close of
business on December 30, 1999 are entitled to notice of, and to vote at, the
meeting or any adjournment or postponement.
You are cordially invited to attend the special meeting. You may vote your
shares by completing, signing, dating and returning the enclosed white proxy
card as promptly as possible in the enclosed postage-paid envelope. If you
attend the special meeting, you may vote your shares in person even if you have
previously submitted a proxy. Also, you can revoke your proxy at any time before
it is voted. PLEASE DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR WHITE PROXY
CARD. YOUR STOCK CERTIFICATE SHOULD BE SENT WITH THE ENCLOSED BLUE ELECTION
FORM, ON WHICH YOU SHOULD INDICATE WHETHER YOU PREFER TO RECEIVE CASH, SHARES OR
A COMBINATION OF CASH AND SHARES.
By Order of the Board of Directors,
Christopher A. Crane
Chairman of the Board, Chief Executive
Officer
and President
San Diego, California
January 5, 2000
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
MERGER.............................. 1
SUMMARY............................... 3
Overview............................ 3
The Companies....................... 3
Recommendation to Comps
Stockholders..................... 4
Per Share Market Price
Information...................... 4
Opinion of Financial Advisor........ 4
Procedures for Cash Election and
Surrender of Certificates........ 4
Interests of Directors and Officers
in the Merger.................... 4
Record Date; Voting Power........... 4
Vote Required; Share Ownership by
Comps Management; Voting
Agreements....................... 4
Accounting Treatment of the
Merger........................... 5
Appraisal Rights.................... 5
Listing on Nasdaq Stock Market...... 5
The Merger Agreement................ 5
Your Rights as a Stockholder Will
Change........................... 6
Governmental and Regulatory
Matters.......................... 6
Three Stockholders have Entered into
a Pledge Agreement............... 6
Restrictions on the Ability to Sell
CoStar Stock..................... 6
SELECTED PRO FORMA AND HISTORICAL
CONSOLIDATED FINANCIAL DATA......... 7
Selected Pro Forma and Historical
Consolidated Financial Data of
CoStar........................... 7
Selected Historical Consolidated
Financial Data of Comps.......... 8
Comparative Per Share Data.......... 9
RISK FACTORS.......................... 10
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS.......... 20
THE SPECIAL STOCKHOLDERS MEETING...... 21
Date, Time and Place................ 21
Matters to be Considered at the
Special Stockholders Meeting..... 21
Record Date; Stock Entitled to Vote;
Quorum........................... 21
Votes Required...................... 21
Comps Board Recommendation.......... 21
Share Ownership of Management....... 21
How You Can Vote.................... 22
THE MERGER............................ 24
General............................. 24
Procedures for Cash Election and
Surrender of Certificates........ 24
Background of the Merger............ 25
CoStar's Reasons for the Merger..... 29
Recommendation of the Comps Board of
Directors; Comps' Reasons for the
Merger........................... 31
Opinion of Volpe Brown Whelan &
Company LLC...................... 32
Material Federal Income Tax
Consequences..................... 35
Regulatory Matters.................. 40
Listing of CoStar Common Stock...... 40
Accounting Treatment................ 40
Dissenters' Appraisal Rights........ 41
Federal Securities Laws
Consequences; Stock Transfer
Restrictions..................... 42
INTERESTS OF DIRECTORS AND OFFICERS IN
THE MERGER.......................... 43
Employment Agreement................ 43
Directors' and Officers' Liability
Insurance; Indemnification
Agreements....................... 43
Pledge Agreement.................... 43
MATERIAL TERMS OF THE MERGER
AGREEMENT........................... 45
General............................. 45
Closing; Effective Time............. 45
Consideration to be Received in the
Merger........................... 45
Representations and Warranties...... 46
Covenants........................... 46
Additional Agreements............... 47
Conditions to Completion of the
Merger........................... 48
No Solicitation..................... 49
Termination of the Merger
Agreement........................ 49
Termination Fee..................... 51
Amendments.......................... 51
MATERIAL TERMS OF THE VOTING
AGREEMENTS.......................... 52
MATERIAL EFFECTS OF THE MERGER ON
COMPS' STOCK OPTIONS, WARRANTS AND
OTHER EMPLOYEE BENEFIT PLANS........ 53
</TABLE>
i
<PAGE> 5
<TABLE>
<S> <C>
Stock Options......................... 53
1999 Employee Stock Purchase Plan... 53
Warrants............................ 54
Employee Benefit Plans.............. 54
PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION......................... 55
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
OF COSTAR GROUP, INC. .............. 56
Notes to Unaudited Pro Forma
Condensed Consolidated Financial
Statements....................... 60
COMPS' PRINCIPAL STOCKHOLDERS......... 66
COMPS' BUSINESS....................... 67
Overview............................ 67
Comps' Proprietary Database......... 67
Comps' Services and Products........ 68
Comps' Acquisitions................. 69
Comps' Customers.................... 70
Comps' Sales and Marketing
Efforts.......................... 70
Comps' Markets...................... 71
Infrastructure, Operations and
Technology....................... 71
Competition......................... 72
Intellectual Property............... 73
Employees........................... 74
Facilities.......................... 74
Legal Proceedings................... 74
COMPS' MANAGEMENT'S DISCUSSION AND
ANALYSIS............................ 75
Overview............................ 75
Results of Operations............... 76
Liquidity and Capital Resources..... 80
Litigation Related to the Merger.... 81
Impact of the Year 2000............. 81
Effects of Inflation................ 82
Impact of Recently Issued Accounting
Standards........................ 82
Quantitative and Qualitative
Disclosure About Market Risk..... 83
COMPARISON OF STOCKHOLDER RIGHTS...... 84
WHERE YOU CAN FIND MORE INFORMATION... 86
FUTURE STOCKHOLDER PROPOSALS.......... 89
EXPERTS............................... 89
LEGAL MATTERS......................... 89
INDEPENDENT AUDITORS.................. 89
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
LIST OF ANNEXES
<TABLE>
<S> <C> <C>
ANNEX A Agreement and Plan of Merger.............................. A-1
ANNEX B Opinion of Volpe Brown Whelan & Company................... B-1
ANNEX C Section 262 of the Delaware General Corporation Law....... C-1
</TABLE>
ii
<PAGE> 6
This document incorporates important business and financial information
about CoStar from documents it has filed with the SEC, but that we have not
included in or delivered with this document. CoStar will provide you with copies
of the information relating to CoStar, without charge, upon written or oral
request to:
CoStar Group, Inc.
7475 Wisconsin Avenue
Bethesda, Maryland 20814
Attention: Frank Carchedi
Telephone number: (301) 215-8300
TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE SPECIAL
STOCKHOLDERS MEETING, YOU SHOULD MAKE YOUR REQUEST NO LATER THAN FEBRUARY 3,
2000. If you request any incorporated documents, CoStar will mail them to you by
first class mail, or another equally prompt means, within one business day after
CoStar receives your request.
For more information on the matters incorporated by reference in this
document, see "Where You Can Find More Information" beginning on page 86.
CoStar and Comps have not authorized anyone to give any information or make
any representation about the merger that differs from, or adds to, the
information in this document or in CoStar's and Comps' documents that are
publicly filed with the SEC. Therefore, if anyone does give you different or
additional information, you should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange or
sell, or to ask for offers to exchange or buy, or to buy the securities offered
by this proxy statement/prospectus, or to ask for proxies, or if you are a
person to whom it is unlawful to direct these activities, then the offer
presented by this proxy statement/prospectus does not extend to you.
The information contained in this proxy statement/prospectus speaks only as
of its date unless the information specifically indicates that another date
applies. Information on the CoStar and Comps Web sites is not part of this proxy
statement/prospectus. CoStar has filed applications to register the CoStar mark.
LeaseTrend and LeaseTrend, Inc. are registered trademarks. CoStar also claims
CoStar Group, CoStar Property, CoStar Office, CoStar Industrial, CoStar Tenant,
CoStar Exchange, CoStar Analytic, CoStar Comparables, CoStar Advertising, CoStar
News, E-Brochure, CoStar Real-E News, Real-E News and CrosTrac as its marks.
Other persons own other trademarks mentioned in this proxy statement/prospectus.
CoStar has supplied all information contained in this proxy
statement/prospectus relating to it and Acq Sub, Inc. Comps has supplied all
information in this proxy statement/prospectus relating to it.
iii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE COSTAR AND COMPS PROPOSING TO MERGE?
A: CoStar is a leading provider of information services for the U.S. commercial
real estate industry and is 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.
Comps is a recognized leader in the provision of comparable real estate
sales data and has an extensive database of comparable information that it
has developed over 17 years. The comparable real estate sales data business
is a key component of CoStar's digital marketplace.
CoStar believes that the merger will allow CoStar to reduce the time,
expense and effort required to complete CoStar's near term vision of the
digital marketplace and allow CoStar to focus on the development of CoStar
Exchange, a web-based service providing the information required to
efficiently and securely conduct commercial real estate buy and sell
transactions. CoStar expects that this service will address the information
needs for the investment sale sector of the commercial real estate
community, and believes that the combined company, with its comprehensive
database and information flow through the digital marketplace, including
comparable sales information, will have a strong platform from which to
operate the CoStar Exchange service.
In addition, CoStar believes that by merging the two companies, CoStar would
be able to create additional value for its customers by offering a product
that serves as a complete source for commercial real estate information.
Q: ARE THERE ANY RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER?
A: In evaluating the merger, you should carefully consider the factors
discussed in the section entitled "Risk Factors" beginning on page 10.
Q: WHAT WILL COMPS STOCKHOLDERS RECEIVE IN THE MERGER?
A: In exchange for each of their Comps shares, Comps stockholders may elect to
receive (1) $7.50 in cash, (2) 0.31496 of a share of CoStar common stock, or
(3) a combination of cash and CoStar common stock, subject to limitations
described below.
Please read the more detailed description of the consideration to be issued
in the merger beginning on page 45.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: With respect to any inherent gain in your Comps stock, you may not be taxed
at all, may be fully taxed, or may be partially taxed, depending upon
whether you receive CoStar common stock, cash or a combination of both in
the merger. Tax matters are very complicated, and the tax consequences of
the merger to you will depend on your particular situation. You should
consult your tax advisor for a full understanding of the tax consequences of
the merger to you. The tax consequences are discussed in the section
entitled "Material Federal Income Tax Consequences" beginning on page 35.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this document, indicate on the enclosed white
proxy card whether you are voting in favor of or against adoption of the
merger agreement. Sign and mail the proxy card in the enclosed white prepaid
return envelope as soon as possible.
You should indicate your vote now even if you expect to attend the special
meeting and vote in person.
Please indicate on the enclosed blue election form how many shares you
intend to exchange for $7.50 in cash and how many shares you intend to
exchange for 0.31496 shares of common stock of CoStar.
The exchange agent must have received your completed and signed blue
election form by the deadline that CoStar will announce. The exchange agent
is:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, NY 10005
(212) 936-5100
1
<PAGE> 8
If you do not complete and submit a blue election form by the deadline,
CoStar will, in its sole discretion, determine how many of your shares will
be exchanged for cash and how many for stock.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: You may change your vote:
- by sending a written notice to the corporate secretary of Comps before the
special meeting stating that you would like to revoke your proxy;
- by signing a later-dated proxy card and returning it by mail before the
special meeting; or
- by attending the special meeting and voting in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: If you do not provide your broker with instructions on how to vote your
shares held in "street name," your broker will not be permitted to vote them
at the special meeting. This will have the same effect as a vote against the
merger agreement. If you want to vote for the adoption of the merger, you
should be sure to provide your broker with instructions on how to vote your
shares. You must provide your broker instructions as to how many of your
shares you wish to have converted into cash and how many into shares of
CoStar common stock.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES AT THIS TIME?
A: Yes. Your stock certificates should be sent to the exchange agent with the
blue election form.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working toward completing the merger as quickly as possible. We
expect to complete the merger immediately upon the approval of Comps
stockholders at the special meeting.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANIES?
A: CoStar and Comps file reports and other information with the SEC. You may
read and copy this information at the SEC's public reference facilities.
Please call the SEC at 1-800-SEC-0330 for information about these
facilities. This information is also available at the Internet Web site the
SEC maintains at www.sec.gov. You can also request copies of these documents
from us. See "Where You Can Find More Information" beginning on page 86.
Q: WILL I RECEIVE THE SPECIFIC AMOUNTS OF CASH AND STOCK THAT I ELECT?
A: You may not receive exactly the amount of cash, number of shares of CoStar
common stock, or combination of cash and CoStar common stock that you
request. This is because CoStar and Comps have agreed that 49.9% of the
Comps shares will be exchanged for cash and 50.1% of the Comps shares will
be exchanged for stock. For example, if Comps stockholders owning more than
49.9% of the Comps shares elect to receive cash, the number of Comps shares
converted into cash will be less than the number elected. Similarly, if
Comps stockholders owning more than 50.1% of Comps shares elect to receive
CoStar common stock, the number of CoStar shares converted into CoStar
common stock will be less than the number elected. Any adjustments will be
shared proportionally by all affected stockholders.
For example, if holders of 75% of the shares of Comps common stock choose to
receive cash for their shares, then for each stockholder who so chooses,
only 66.5% of their shares will be converted into cash because 66.5% of 75%
equals 49.9%, the agreed upon amount of cash consideration in the merger
agreement. The remaining 33.5% of the shares held by stockholders who chose
to receive cash would be converted into stock.
Q: WHO SHOULD I CALL WITH QUESTIONS?
A: Comps stockholders should call Karen Goodrum, Comps' Chief Financial
Officer, at (858) 578-3000.
2
<PAGE> 9
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. It does not contain all of the information that is
important to you. To understand the proposed transaction fully and its
consequences to you as a Comps stockholder, and for a more complete description
of the legal terms of the merger and related transactions, we urge you to read
carefully the entire proxy statement/prospectus and the documents we refer to in
this document. See "Where You Can Find More Information" beginning on page 86.
We have included page references directing you to a more complete description of
each item presented in this summary.
OVERVIEW
CoStar Group Inc., Acq Sub Inc., a wholly owned subsidiary of CoStar, and
COMPS.COM, Inc. entered into an agreement and plan of merger on November 3,
1999. Under the merger agreement, at the closing of the merger, Comps will merge
into Acq Sub and each share of Comps common stock will be converted into the
right to receive $7.50 in cash or 0.31496 shares of common stock of CoStar.
After the merger is completed, Comps' separate corporate existence will cease.
THE COMPANIES
COSTAR GROUP, INC.
7475 Wisconsin Avenue
Bethesda, Maryland 20814
(301) 215-8300
CoStar is the nation's largest digital provider of commercial real estate
information and analysis. CoStar facilitates commercial real estate transactions
by supplying industry participants with daily access to current data such as
rental rates, vacancy rates and space availability. By providing this
information, CoStar is creating an efficient digital marketplace where the
members of the commercial real estate and related business community can
continuously interact and facilitate transactions by exchanging accurate and
standardized information. According to its estimates, in 1998, CoStar
facilitated 100,000 commercial lease and sales transactions aggregating over
$100 billion in value. CoStar's digital service offerings include a leasing
marketplace, a selling marketplace, decision support, tenant information,
property marketing, and industry news. CoStar delivers substantially all of its
current services through digital means. Most of CoStar's clients receive daily
service updates over the Internet.
CoStar has three assets that it believes provide a unique foundation for
its business:
- a comprehensive, proprietary, national database,
- the largest research department in the industry, and
- a large number of participating organizations.
CoStar's 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 its internal efforts, CoStar has obtained and
assimilated over 50 proprietary databases. The database now covers 41 commercial
real estate markets in the United States. It tracks over 15.3 billion square
feet in over 326,000 properties, including more than 370,000 tenants. CoStar
estimates that more than 25,000 end-users use its services to facilitate
transactions, market services and properties, and conduct market research.
COMPS.COM, INC.
9888 Carroll Centre Road
Suite 100
San Diego, California 92126
(858) 578-3000
Comps is a leading national provider of comprehensive commercial real
estate comparable sales information both offline and on the Internet. Comps also
uses its database to match buyers with brokers' property listings by posting
them on its Web site and sending summary announcements by fax and e-mail to
property owners and investors. Comps has developed data collection and
confirmation systems to provide information on commercial real estate
properties. This information is verified by its researchers and includes sale
prices, income and expenses, capitalization rates, loan data, and other key
details. Comps links
3
<PAGE> 10
commercial real estate lenders, appraisers, insurers and other professionals by
distributing market information on the Internet. For further information about
Comps, see "Comps' Business" beginning on page 67.
RECOMMENDATION TO COMPS STOCKHOLDERS (PAGE 31)
The Comps board believes that the merger is fair to you and in the best
interests of both you and Comps, and unanimously recommends that you vote FOR
the adoption of the merger agreement.
PER SHARE MARKET PRICE INFORMATION (PAGE 55)
CoStar and Comps shares are traded on the Nasdaq Stock Market. The
following table presents trading information for CoStar common stock and Comps
common stock on November 3, 1999 and January 3, 2000. November 3, 1999 was the
last full trading day before our announcement of the signing of the merger
agreement. January 3, 2000 was the last practicable trading day for which
information was available before the date of this proxy statement/prospectus.
<TABLE>
<CAPTION>
COMPS COMMON STOCK
------------------------------
DATE HIGH LOW CLOSING
---- -------- -------- --------
<S> <C> <C> <C>
November 3, 1999....... $ 7.5625 $ 7.0625 $ 7.2813
January 3, 2000........ $ 8.0000 $ 7.2500 $ 7.2813
</TABLE>
<TABLE>
<CAPTION>
COSTAR COMMON STOCK
------------------------------
DATE HIGH LOW CLOSING
---- -------- -------- --------
<S> <C> <C> <C>
November 3, 1999....... $24.2500 $23.5000 $23.6250
January 3, 2000........ $35.4375 $30.8750 $31.3750
</TABLE>
The market prices of shares of CoStar common stock and Comps common stock
fluctuate. As a result, you should obtain current market quotations.
OPINION OF FINANCIAL ADVISOR (PAGE 32)
Comps retained Volpe Brown Whelan & Company LLC as its financial advisor in
connection with the merger to render a financial fairness opinion to the Comps
board of directors.
In deciding to approve the merger, the Comps board of directors considered
the Volpe Brown Whelan & Company opinion. This opinion states that, as of its
date and subject to the considerations described in the opinion, the
consideration to be received as a result of the merger is fair, from a financial
point of view, to Comps' stockholders. We have attached this opinion as Annex B
to this proxy statement/prospectus.
PROCEDURES FOR CASH ELECTION AND SURRENDER OF CERTIFICATES (PAGE 24)
You are entitled to choose how many of your shares of Comps common stock
you would like to be converted into cash or converted into CoStar common stock.
Your choice to receive either cash, CoStar common stock or a combination of cash
and stock in the merger may be adjusted to ensure that 49.9% of the Comps shares
are exchanged for cash and 50.1% of the Comps shares are exchanged for shares of
CoStar common stock.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER (PAGE 43)
When you consider the merger agreement and the recommendation of the Comps
board of directors that you vote in favor of adoption of the merger agreement,
you should be aware that officers and directors of Comps may have interests in
the merger that are different from, or in addition to, yours.
RECORD DATE; VOTING POWER (PAGE 21)
Comps stockholders may vote at the special meeting if they owned shares of
common stock at the close of business on December 30, 1999, the record date. At
the close of business on the record date, approximately 12,044,000 shares of
Comps common stock were outstanding. For each share of Comps common stock that
you owned on that date, you will have one vote at the special meeting on the
proposal to adopt the merger agreement.
VOTE REQUIRED; SHARE OWNERSHIP BY COMPS MANAGEMENT; VOTING AGREEMENTS (PAGE 21)
On December 30, 1999, the record date for the special meeting, Comps
directors and executive officers and their affiliates were entitled to vote
approximately 7,129,000 shares of Comps common stock. These shares represent
approximately 59.2% of the outstanding shares of Comps common stock. Six of
these persons have agreed to vote their shares of Comps common stock in favor of
the merger. These shares represent approximately 59.1% of the votes of the Comps
common stock on the record date, which is a sufficient number of shares to adopt
the merger agreement.
4
<PAGE> 11
ACCOUNTING TREATMENT OF THE MERGER
(PAGE 40)
The merger will be accounted for as a "purchase" under generally accepted
accounting principles. This means that, after the merger, Comps' combined
results of operations will be included in CoStar's consolidated results of
operations. For purposes of preparing consolidated financial statements, the
purchase price, including the fees and other costs associated with the merger at
the date of completion, will be allocated to Comps' assets and liabilities based
on their fair market values, with the excess allocated to goodwill to be
amortized over the estimated economic life of the assets.
APPRAISAL RIGHTS (PAGE 41)
If the merger is completed, Comps stockholders who file a written objection
with Comps before the stockholders meeting and do not vote for adoption of the
merger agreement are entitled to dissenters' appraisal rights under Delaware
law.
LISTING ON NASDAQ STOCK MARKET (PAGE 40)
It is a condition to completion of the merger that the CoStar common stock
to be issued to the Comps stockholders be registered under the Securities Act
and added to those CoStar shares already listed and trading on the Nasdaq Stock
Market under the symbol "CSGP." The Comps common stock will no longer be so
quoted or registered.
THE MERGER AGREEMENT (PAGE 45)
We have attached the merger agreement as Annex A to this proxy
statement/prospectus. We encourage you to read the merger agreement carefully in
its entirety because it is the legal document that governs the merger.
Conditions to the Merger
We will complete the merger only if a number of conditions are satisfied or
waived including:
- holders of a majority of Comps' outstanding common stock vote to adopt
the merger agreement;
- no law or court order prohibits the transaction;
- representations and warranties made by each party are materially accurate
as of the closing;
- the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
ends;
- the CoStar common stock to be issued in the merger is approved for
listing on the Nasdaq Stock Market; and
- attorneys for either CoStar or Comps issues an opinion that the merger
will be a reorganization for United States federal income tax purposes.
In addition, CoStar's obligation to complete the merger is subject to the
conditions that there has been no acceleration of Comps stock options other than
as it approves and that there are no litigation or liabilities that would
reasonably be expected to have a material adverse effect on Comps.
Termination of the Merger Agreement
Comps and CoStar can jointly agree to terminate the merger agreement at any
time without completing the merger. In addition, either Comps or CoStar can
terminate the merger agreement if any of the following occurs:
- we do not complete the merger on or before May 31, 2000;
- a majority of Comps' stockholders fail to adopt the merger agreement at
the special meeting;
- a government authority permanently restrains or prohibits the merger or
makes it illegal; or
- the other party breaches the agreement.
CoStar can also terminate the merger agreement if the Comps board of
directors no longer recommends that Comps stockholders vote to approve the
merger, or if Comps violates the protocol described in the merger agreement for
receiving and evaluating alternative acquisition proposals.
Comps can also terminate the merger agreement if it notifies CoStar of its
intention to enter into a business combination with a third party and CoStar
does not, within three business days, make a proposal on terms at least as
favorable as the
5
<PAGE> 12
third party proposal, in the good faith judgment of the Comps board of
directors. Comps can also terminate the agreement if its board of directors
withdraws its recommendation that stockholders vote to approve the merger, after
determining in good faith that the board's fiduciary duties likely require that
it do so.
Comps must pay CoStar a $2 million termination fee and reimburse CoStar for
up to $500,000 of its costs and expenses in connection with the merger if:
- Comps terminates the merger agreement after it notifies CoStar of a
proposed business combination with a third party and CoStar does not,
within three business days, make a proposal to Comps that is at least as
favorable, from a financial point of view, to Comps' stockholders, in the
good faith judgment of the board of directors of Comps;
- Comps terminates the merger agreement after its board determines in good
faith, after consulting financial and legal advisors, that the board's
fiduciary duties are likely to require the board to withdraw or modify,
in a manner adverse to CoStar, the board's recommendation of the merger
agreement, and the board does in fact withdraw or adversely modify its
recommendation of the merger agreement;
- CoStar terminates the merger agreement because the Comps board withdraws
or modifies, in a manner adverse to CoStar, the board's recommendation of
the merger, or fails to reconfirm its recommendation within seven
business days after CoStar's written request;
- CoStar terminates the merger agreement because Comps or its
representatives solicit a proposal for or participate in discussions
regarding a business combination, other than as permitted by the merger
agreement; or
- a third party makes a proposal to effect a business combination with
Comps or publicly announces an intention to make a proposal to effect a
business combination with Comps, and then CoStar or Comps terminate the
merger agreement because:
- the merger is not completed by May 31, 2000,
- the Comps stockholders do not approve the merger, or
- a government authority permanently restrains or prohibits completion
of the merger.
YOUR RIGHTS AS A STOCKHOLDER WILL CHANGE (PAGE 84)
Your rights as a Comps stockholder are determined by Delaware law and by
Comps' certificate of incorporation and bylaws. When the merger is completed,
your rights as a CoStar stockholder will be determined by Delaware law and by
the CoStar certificate of incorporation and bylaws.
GOVERNMENTAL AND REGULATORY MATTERS (PAGE 40)
We gave notice and information about the merger, Comps and CoStar to the
Federal Trade Commission and the Antitrust Division of the Department of Justice
on November 22, 1999. On December 7, 1999, we received notice of early
termination of the waiting period under the Hart-Scott-Rodino Act.
THREE STOCKHOLDERS HAVE ENTERED INTO A PLEDGE AGREEMENT (PAGE 43)
Comps stockholders Summit Ventures III, Summit Investors II, and
Christopher A. Crane have agreed to pay CoStar, out of proceeds received in the
merger, up to $5 million in the event that cash expenditures and increases in
liabilities exceed $3 million per month between November 3, 1999 and the date
the merger is completed.
RESTRICTIONS ON THE ABILITY TO SELL COSTAR STOCK (PAGE 42)
All shares of CoStar common stock received by Comps stockholders in the
merger will be freely transferable unless the holder is considered an affiliate
of either Comps or CoStar under the Securities Act.
6
<PAGE> 13
SELECTED PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA OF COSTAR
The following table provides selected consolidated financial data for
CoStar for the five years ended December 31, 1998, the nine months ended
September 30, 1998 and 1999, and certain pro forma financial data for the year
ended December 31, 1998 and the nine months ended September 30, 1999. We derived
the statement of operations data for 1996 through 1998 and balance sheet data
for 1997 and 1998 shown below from audited financial statements that we
incorporate by reference into this proxy statement/prospectus from our 1998
Annual Report on Form 10-K. We derived the statement of operations data for 1994
and 1995 and balance sheet data for 1994 through 1996 we show below from audited
financial statements not incorporated by reference in this proxy
statement/prospectus. We derived the statement of operations data for the nine
months ended September 30, 1998 and 1999 and balance sheet data as of September
30, 1999 shown below from unaudited financial statements that we incorporate by
reference into this proxy statement/prospectus from our Quarterly Report on Form
10-Q for the quarter ended September 30, 1999. As explained in the Notes to the
Consolidated Financial Statements that we incorporate by reference into this
proxy statement/prospectus from our 1998 Annual Report on Form 10-K and
Quarterly Report on Form 10-Q for the nine months ended September 30, 1999, we
derived the financial data for 1994 through 1998 from the financial statements
of CoStar and of its predecessor companies for those years. The 1998 and 1999
pro forma data reflects our January 1999 Jamison Research, Inc. and LeaseTrend,
Inc. acquisitions, our September 1999 ARES Development Group, LLC acquisition
and our proposed acquisition of Comps, as well as Comps' 1998 acquisition of
REALBID, LLC and 1999 acquisitions of Inside Prospects of California, The Baca
Information Group, Sendero Investments, Inc., Parramore, Inc. and Commercial
Brokers Network business of ARA-D/FW, Inc. The 1998 and 1999 pro forma
information should be read in conjunction with the pro forma condensed
consolidated financial statements included elsewhere in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, PRO FORMA
--------------------------------------------- ------------------------- YEAR ENDED
1994 1995 1996 1997 1998 1998 1999 DECEMBER 31, 1998
------ ------ ------- ------- ------- ----------- ----------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues............. $1,420 $2,062 $ 4,336 $ 7,900 $13,900 $ 9,752 $21,326 $ 37,283
Cost of revenues..... 591 931 2,188 3,413 4,562 3,120 9,279 18,982
------ ------ ------- ------- ------- ------- ------- --------
Gross margin......... 829 1,131 2,148 4,487 9,338 6,632 12,047 18,301
Operating expenses... 990 1,994 4,829 7,786 12,864 8,423 22,009 36,060
------ ------ ------- ------- ------- ------- ------- --------
Loss from
operations.......... (161) (863) (2,681) (3,299) (3,526) (1,791) (9,962) (17,759)
Other income
(expense), net...... (76) 79 49 33 341 124 1,913 (5,712)
------ ------ ------- ------- ------- ------- ------- --------
Net loss............. $ (237) $ (784) $(2,632) $(3,266) $(3,185) $(1,667) $(8,049) $(23,471)
====== ====== ======= ======= ======= ======= ======= ========
Net loss per share --
basic and diluted... $(0.09) $(0.22) $ (0.60) $ (0.57) $ (0.44) $ (0.25) $ (0.71) $ (2.26)
====== ====== ======= ======= ======= ======= ======= ========
Weighted average
shares
outstanding......... 2,609 3,635 4,388 5,722 7,213 6,693 11,331 10,390
====== ====== ======= ======= ======= ======= ======= ========
<CAPTION>
PRO FORMA
NINE MONTHS ENDED
SEPTEMBER 30, 1999
-------------------
(UNAUDITED)
<S> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues............. $ 35,192
Cost of revenues..... 19,356
--------
Gross margin......... 15,836
Operating expenses... 39,475
--------
Loss from
operations.......... (23,639)
Other income
(expense), net...... (907)
--------
Net loss............. $(24,546)
========
Net loss per share --
basic and diluted... $ (1.81)
========
Weighted average
shares
outstanding......... 13,545
========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------------------- ----------------------------
BALANCE SHEET DATA: 1994 1995 1996 1997 1998 1999 PRO FORMA 1999
------------------- ----- ------ ------ ------- ------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 132 $1,328 $3,326 $ 1,069 $19,667 $ 99,278 $ 83,594
Working capital............................ (332) 1,017 2,248 (1,547) 16,900 93,022 89,131
Total assets............................... 790 3,015 7,670 6,581 27,541 132,561 190,578
Total liabilities.......................... 727 688 2,000 3,664 4,338 9,478 22,764
Total stockholders' equity................. 63 2,327 5,670 2,917 23,203 123,083 167,814
</TABLE>
7
<PAGE> 14
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF COMPS
The following table provides selected consolidated financial data for Comps
for the five years ended December 31, 1998 and the nine months ended September
30, 1998 and 1999. We derived the statement of operations data for 1996 through
1998 and the balance sheet data for 1997 and 1998 shown below from audited
financial statements that are included later in this proxy statement/prospectus.
We derived the statement of operations data for 1994 and 1995 and balance sheet
data for 1994 through 1996 from audited financial statements which do not appear
in this proxy statement/prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
------ ------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $6,030 $ 6,716 $ 8,707 $10,867 $12,900 $9,724 $11,839
Cost of revenues........... 2,674 3,488 4,357 5,054 5,768 4,061 6,248
------ ------- ------- ------- ------- ------ -------
Gross margin............... 3,356 3,228 4,350 5,813 7,132 5,663 5,591
Operating expenses......... 4,049 4,599 6,590 7,118 8,531 5,855 13,160
------ ------- ------- ------- ------- ------ -------
Loss from operations....... (693) (1,371) (2,240) (1,305) (1,399) (192) (7,569)
Other income (expense),
net...................... (9) 12 (67) (252) (260) (193) 468
------ ------- ------- ------- ------- ------ -------
Net loss................... (702) (1,359) (2,307) (1,557) (1,659) (385) (7,101)
Dividend accretion on
preferred stock.......... (63) (299) (299) (299) (454) (334) (435)
------ ------- ------- ------- ------- ------ -------
Net loss attributed to the
common stockholders...... $ (765) $(1,658) $(2,606) $(1,856) $(2,113) $ (719) $(7,536)
====== ======= ======= ======= ======= ====== =======
Net loss per share -- basic
and diluted.............. $(0.16) $ (0.47) $ (0.74) $ (0.53) $ (0.60) $(0.20) $ (0.94)
====== ======= ======= ======= ======= ====== =======
Weighted average shares
outstanding -- basic and
diluted.................. 4,700 3,502 3,502 3,502 3,517 3,514 8,010
====== ======= ======= ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- -------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 2,866 $ 260 $ 578 $ 352 $ 378 $31,778
Working capital
(deficit)............... 1,225 (1,119) (2,056) (3,053) (4,354) 45,011
Total assets.............. 4,687 4,714 4,224 4,091 8,414 67,897
Long-term obligations,
less current portion.... 230 777 1,533 1,822 1,123 3,855
Redeemable convertible
preferred stock......... 4,919 5,218 5,517 5,816 7,009 --
Total stockholders'
(deficit) equity........ (3,414) (5,072) (7,678) (9,505) (7,871) 55,234
</TABLE>
8
<PAGE> 15
COMPARATIVE PER SHARE DATA
Shown separately below are the net loss and book value per common share
data for CoStar on a historical basis, for CoStar on a pro forma consolidated
basis, for Comps on a historical basis and for CoStar on a pro forma
consolidated basis per Comps equivalent share. The pro forma data are based on
the assumed conversion of 50.1% of the shares of Comps common stock into CoStar
common stock at an exchange ratio of 0.31496, and the conversion of 49.9% of the
shares of Comps common stock into cash at $7.50 per share.
The unaudited pro forma consolidated data below is for illustrative
purposes only. The companies may have performed differently had they been
combined at the assumed dates. You should not rely on this information as being
indicative of the historical results that would have been achieved had the
companies been combined at the assumed dates or the future results that CoStar
will experience after the merger.
You should read the information below together with the historical
financial statements of CoStar and Comps, the related notes, and the Unaudited
Pro Forma Condensed Consolidated Financial Information and related notes
starting on page 56.
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
COSTAR HISTORICAL PER COMMON SHARE DATA:
Net loss per common share................................. $(0.44) $(0.71)
Book value per share...................................... $ 2.65 $ 9.57
COSTAR PRO FORMA CONSOLIDATED PER COSTAR COMMON SHARE DATA:
Net loss per common share................................. $(2.26) $(1.81)
Book value per share...................................... $ 6.23 $11.19
COMPS PRO FORMA PER COMMON SHARE DATA:
Net loss per common share................................. $(0.23)(1) $(0.73)(1)
Book value per share...................................... $(0.12)(1) $ 4.63
COSTAR PRO FORMA CONSOLIDATED PER COMPS EQUIVALENT COMMON
SHARE DATA:
Net loss per common share................................. $(0.71) $(0.57)
Book value per share...................................... $ 1.96 $ 3.52
</TABLE>
- ---------------------
(1) Net loss per common share for the year ended December 31, 1998 and for the
nine months ended September 30, 1999 is computed using the weighted average
number of Comps' Class A and Class B common shares outstanding and gives
effect at the beginning of the period to the automatic conversion of
redeemable preferred stock to common stock in connection with Comps' initial
public offering in May 1999. The book value per share at December 31, 1998
is calculated by dividing total stockholders' equity (deficit) by shares of
common stock outstanding, with both the numerator and denominator adjusted
to give effect to the automatic conversion of redeemable preferred stock to
common stock in connection with Comps' initial public offering in May 1999.
Neither CoStar nor Comps paid a cash dividend during the year ended
December 31, 1998 or the nine months ended September 30, 1999.
9
<PAGE> 16
RISK FACTORS
By voting in favor of the merger, electing to receive CoStar common stock
and holding your Comps shares until the merger closes, you will be choosing to
invest in CoStar common stock. You may also receive CoStar common stock as a
result of the cash-stock election adjustment procedures in the merger. An
investment in CoStar common stock involves a high degree of risk. In addition to
the other information contained in or incorporated by reference into this proxy
statement/prospectus, you should carefully consider the following risk factors
before deciding whether to vote for the merger and whether to elect to receive
CoStar common stock in the merger. These may not be the only risks that CoStar
or Comps face.
RISK FACTORS RELATED TO THE MERGER
COSTAR MAY NOT ACHIEVE THE COST SAVINGS AND SALES ENHANCEMENTS THAT IT EXPECTS
TO RESULT FROM THE INTEGRATION OF COSTAR AND COMPS.
The merger may not be successful unless CoStar realizes significant cost
savings and increased sales. CoStar's success in realizing these cost savings
and increased sales, and the timing of this realization, depends on the quality
and speed of the integration of CoStar and Comps. CoStar and Comps have already
established an integration team that has identified specific areas for cost
savings and is continuing to plan the coordination of the two companies.
However, CoStar may not realize the cost savings and sales enhancements that it
anticipates from integrating operations following completion of the merger as
fully or as quickly as it expects for a number of reasons, including:
- errors in planning or integration;
- delays in implementing the integration plan; and
- unexpected events such as major changes in the markets in which it
operates.
THE EXCHANGE RATIO FOR COMPS COMMON STOCK TO BE ACQUIRED IN THE MERGER IS FIXED
AND WILL NOT BE ADJUSTED IF THERE IS ANY CHANGE IN COSTAR'S OR COMPS' STOCK
PRICE.
Under the merger agreement, each share of Comps' common stock will be
converted into the right to receive 0.31496 shares of CoStar common stock or
$7.50 in cash or a combination of stock and cash. This exchange ratio is a fixed
number and will not be adjusted if there is any increase or decrease in the
price of CoStar common stock or Comps common stock. The prices of CoStar common
stock and Comps common stock at the closing of the merger may vary from their
respective prices on the date of this prospectus/proxy statement and on the date
of the special meeting. These prices may vary because of various factors,
including:
- general market, industry and economic conditions;
- changes in the business, operations or prospects of CoStar or Comps; and
- market assessments of the timing and probability of achieving integration
cost savings and sales enhancements after the merger.
Because the date that the merger is completed may be later than the date of
the special meeting, the prices of CoStar common stock and Comps' common stock
on the date of the special meeting may not be indicative of their respective
prices on the date the merger is completed. We urge Comps stockholders to obtain
current market quotations for CoStar common stock and Comps common stock before
they choose which type of consideration to receive.
Neither CoStar nor Comps will have the right to terminate the merger
agreement as a result of changes in CoStar's common stock price, unless the
value of CoStar common stock to be issued in the merger drops below 40% of the
aggregate merger consideration. See " -- It is possible that the merger will not
be consummated because of a failure to qualify as a reorganization for federal
income tax purposes."
10
<PAGE> 17
THE TERMINATION FEE AND RELATED TERMS OF THE MERGER AGREEMENT MAY DISCOURAGE
OTHER COMPANIES FROM TRYING TO COMBINE WITH COMPS.
In the merger agreement, Comps agreed to pay a termination fee of $2
million to CoStar in specified circumstances, including where a third party
agrees to acquire Comps. This could discourage other companies from trying to
acquire Comps even if they would propose terms that are superior to the terms of
the merger.
If Comps pays the termination fee, it could have a material adverse effect
on Comps' financial condition and results of operations. This could discourage
other companies from trying to combine with Comps.
COSTAR WILL FACE TECHNICAL, OPERATIONAL AND STRATEGIC CHALLENGES THAT MAY
PREVENT IT FROM SUCCESSFULLY INTEGRATING COMPS.
The merger involves risks related to the integration and management of
acquired technology, operations and personnel. The integration of Comps will be
a complex, time consuming and expensive process and may disrupt CoStar's
business if not completed in a timely and efficient manner. Following the
merger, CoStar must operate as a combined organization using common information
and communication systems, operating procedures, financial controls and human
resources practices. CoStar may encounter substantial difficulties, costs and
delays involved in integrating the operations of Comps including:
- potential incompatibility of business cultures,
- perceived adverse changes in business focus,
- difficulties in integrating Comps' products and services,
- the loss of key employees or clients, and
- diversion of the attention of management from other ongoing business
concerns.
The integration of operations and technologies following the merger will
require the dedication of management and other personnel, which may distract
their attention from CoStar's day-to-day business, the development or
acquisition of new products, services and technologies, and the pursuit of other
business acquisition opportunities. The difficulties of integrating CoStar and
Comps may be increased by the necessity of coordinating organizations with
distinct cultures and widely disbursed operations. Successful integration of the
two companies' sales and marketing organizations will require CoStar's sales and
marketing personnel to learn about the products, services and technologies of
Comps.
OFFICERS AND DIRECTORS OF COMPS MAY HAVE CONFLICTS OF INTEREST THAT INFLUENCE
THEIR DECISION TO APPROVE THE MERGER.
The directors and officers of Comps may have interests in the merger and
participate in arrangements that are different from, or are in addition to,
those of Comps stockholders generally. These include:
- In connection with the merger, CoStar and Christopher A. Crane, Chairman,
Chief Executive Officer, and President of Comps, have agreed that Mr.
Crane will be employed by CoStar for 180 days after the merger for a
total salary of $75,000. If Mr. Crane's employment is terminated without
cause during this period, CoStar must still pay him the full $75,000.
Under the agreement, Mr. Crane has also agreed to release CoStar and
Comps from liability to him. Mr. Crane's duties on behalf of CoStar will
include making introductions and assisting with business relationships.
- One person chosen by mutual agreement of Comps and CoStar will serve on
CoStar's board of directors after the merger.
- CoStar has agreed to provide policies of directors' and officers'
liability insurance covering matters occurring at or before the closing
of the merger to the directors and officers of Comps.
11
<PAGE> 18
IT IS POSSIBLE THAT THE MERGER WILL NOT BE CONSUMMATED BECAUSE OF A FAILURE TO
QUALIFY AS A REORGANIZATION FOR FEDERAL INCOME TAX PURPOSES.
Completion of the merger is conditioned on the receipt by each of CoStar
and Comps of a legal opinion that the merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code. CoStar and
Comps intend that the merger qualify as a reorganization under Section 368(a) of
the Internal Revenue Code. To qualify as a reorganization, among other
requirements, the merger must satisfy a "continuity of interest" test, under
which a substantial part of the value of the proprietary interests in Comps must
be preserved in the merger. Generally, this test will be considered satisfied if
Comps stockholders in the aggregate exchange a substantial part of their Comps
common stock for CoStar common stock in the merger. For advance ruling purposes,
the Internal Revenue Service has provided a safe harbor under which the
continuity of interest test will be satisfied if the Comps stockholders in the
aggregate exchange at least 50% (by value) of the total outstanding Comps stock
for CoStar stock. The case law is less restrictive than the Internal Revenue
Service ruling guidelines.
The merger has been structured with the intent that 50.1% of the
consideration provided in the merger will consist of CoStar common stock in
order to satisfy the continuity of interest test safe harbor. It is possible,
however, that the value of the CoStar common stock issued at the time of the
merger could fall below this 50.1% threshold. Brobeck, Phleger & Harrison, LLP,
counsel to Comps, and Fried, Frank, Harris, Shriver & Jacobson, counsel to
CoStar, will issue opinions that the merger qualifies as a reorganization for
federal income tax purposes if the value of stock received by Comps stockholders
is at least 40% (and the amount of cash received, including payments to
dissenters and payments in lieu of fractional shares, is no more than 60%) of
the aggregate merger consideration. Brobeck, Phleger & Harrison, LLP, and Fried,
Frank, Harris, Shriver & Jacobson, will not issue opinions that the merger
qualifies as a reorganization for federal income tax purposes if the amount of
stock received by Comps stockholders is less than 40% (and the amount of cash
received, including payments to dissenters and payments in lieu of fractional
shares, is more than 60%) of the aggregate merger consideration. The last
reported sales price of CoStar common stock on January 3, 2000 was $31.3750. In
order for the stock received by Comps stockholders to be less than 40% of the
aggregate merger consideration, including payments to dissenters and payments in
lieu of fractional shares, the trading price per share of CoStar common stock
would generally have to decline below $16.
The condition that opinions be received that the merger qualifies as a
reorganization for federal income tax purposes can be waived, although the
Comps' board of directors has no present intention to waive this condition. If
the condition were waived, and if the merger did not qualify as a
reorganization, the merger would be deemed a sale of assets by Comps, and Comps
would recognize gain in an amount equal to the excess of the fair market value
of the merger consideration over the adjusted basis of the assets transferred to
CoStar. Comps would be required to pay taxes on any such gain, and the tax
liability could be material. Also, the Comps stockholders would recognize gain
to the extent the fair market value of the cash and stock they receive in the
merger exceeds their basis in their Comps' stock.
LAWSUITS FILED AGAINST COMPS COULD HAVE A MATERIAL ADVERSE EFFECT ON COMPS AND
COSTAR.
As of the date of this proxy statement/prospectus, two lawsuits have been
filed against Comps with respect to the proposed merger, claiming, among other
things, breach of fiduciary duties by members of the board of directors of Comps
and its larger stockholders. The plaintiffs in both of these lawsuits have
requested monetary damages and injunctive relief to prevent the consummation of
the merger. If these lawsuits are resolved adversely to Comps, they could have a
material adverse effect on Comps, and on CoStar after the merger is completed.
RISK FACTORS RELATED TO COSTAR
COSTAR'S FUTURE PROFITABILITY IS UNCERTAIN DUE TO ITS CONTINUING OPERATING
LOSSES.
CoStar has never recorded an overall operating profit because the
investment required for geographic expansion and new services has exceeded the
profits generated in its established markets. CoStar's
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accumulated deficit was $14.6 million as of December 31, 1998 and was $22.7
million as of September 30, 1999. CoStar intends to continue to invest in
expansion and new services and will therefore sustain substantial losses for at
least the next two years. Its ability to earn an overall profit will largely
depend on its ability to generate profits from services that exceed its
investment in geographic expansion and new services. CoStar 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 its future revenue growth.
COSTAR'S OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
CoStar's revenues and operating results may fluctuate with general economic
conditions and also for many other reasons, such as:
- its investments in geographic expansion;
- the timing of new service introductions and enhancements;
- the timing of investing the net proceeds from its offerings;
- 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
- its investments in other corporate resources.
COSTAR MAY NOT BE ABLE TO COMPLETE SUCCESSFULLY ITS PLANNED EXPANSION.
CoStar's future business and financial success will depend on its ability
to continue to expand its services and the areas where it does business. These
expansion efforts must occur while information technology is rapidly changing.
These efforts impose additional burdens on its research, systems development,
sales, and general managerial resources. CoStar may not be able to manage this
growth successfully. The continued expansion effort on which CoStar's future
growth depends has inherent risks, such as the following:
- any new or enhanced services it develops might not meet the increasingly
sophisticated needs of its current or potential clients;
- it might not succeed in developing new or enhanced services; and
- it might not succeed in entering new geographical markets.
IF COSTAR IS UNABLE TO MAINTAIN THE INTEGRITY AND RELIABILITY OF ITS DATA, ITS
BUSINESS COULD BE HARMED.
CoStar's success greatly depends on its clients' confidence in the
comprehensiveness, accuracy, and reliability of the data it provides. CoStar
believes that it takes adequate precautions to safeguard the completeness and
accuracy of its data and that the information is generally current,
comprehensive, and accurate. But the task of establishing and maintaining this
quality while CoStar grows is challenging. CoStar cannot guarantee that it can
sustain those efforts. If CoStar cannot maintain the quality of its data, it
could experience reduced demand for its services and could be exposed to
lawsuits claiming damages resulting from inaccurate data.
COSTAR MAY NOT BE ABLE TO ADAPT TO THE RAPID TECHNOLOGICAL CHANGES TO THE
INTERNET AND INTERNET PRODUCTS.
To be successful, CoStar must adapt to the rapid technological changes to
the Internet and Internet products by continually enhancing its Web site and
introducing and integrating new services and products to capitalize on the
technological advances in the Internet. This process is costly and CoStar cannot
assure
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you that it will be able to successfully integrate its services and products
with the Internet's technological advances. The collection, storage, management
and dissemination of commercial real estate information from a centralized
database on the Internet is a recent and evolving development. CoStar's market
is characterized by rapidly changing technologies, evolving industry standards,
increasingly sophisticated customer needs and frequent new product
introductions. These factors are exacerbated by the rapid technological change
experienced in the computer and software industries. CoStar could incur
substantial costs if it needs to modify its services or infrastructure in order
to adapt to these changes. If CoStar incurred significant costs without adequate
results or it is unable to adapt to rapid technological changes, it could have a
material adverse effect on its business.
COSTAR'S INCREASING USE OF THE INTERNET AND THE WORLD WIDE WEB EXPOSES IT TO
REGULATORY AND OTHER UNCERTAINTIES.
Most of CoStar's clients currently receive their CoStar data via the
Internet. CoStar is in the process of making substantially all its services
accessible through a standard Web-browser format. This exposes it 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 CoStar's business
by, for example, regulating CoStar's transmissions over the Internet or exposing
its business to new taxes in various jurisdictions. User concerns about the
privacy and security of Internet-distributed communications might impede the
growth of CoStar's business. CoStar may need to expend substantial resources to
protect against security breaches on its Web site or in its Internet
communications.
UNSATISFACTORY INTERNET PERFORMANCE, INTERRUPTION OR FAILURE COULD HAVE AN
ADVERSE EFFECT ON COSTAR'S BUSINESS.
CoStar's business increasingly depends upon the satisfactory performance,
reliability and availability of its Web site, the Internet and the World Wide
Web. Problems with the Internet or Web may impede the development of its
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.
COSTAR MAY BE SUBJECT TO LEGAL LIABILITY FOR DISPLAYING OR DISTRIBUTING
INFORMATION ON THE INTERNET.
Because content on CoStar's Web site is distributed to others, it may be
subject to claims for defamation, negligence or copyright or trademark
infringement or claims based on other theories. These types of claims have been
brought, sometimes successfully, against Internet services in the past. CoStar
could also be subject to claims based upon the content that is accessible from
its Web site through links to other Web sites or information on its Web site
supplied by third parties. CoStar's insurance may not adequately protect it
against these types of claims. Even to the extent these claims do not result in
liability to CoStar, CoStar could incur significant costs in investigating and
defending against any claims. CoStar's potential liability for information
carried on or disseminated through its Web site could require it to implement
measures to reduce its exposure to liability, which may require the expenditure
of substantial resources and limit the attractiveness of its service to users.
TEMPORARY OR PERMANENT OUTAGES OF COSTAR'S COMPUTERS AND SOFTWARE OR
TELECOMMUNICATIONS EQUIPMENT COULD HAVE AN ADVERSE EFFECT ON ITS BUSINESS.
CoStar's operations depend on its ability to protect its database,
computers and software, telecommunications equipment and facilities against
damage from potential dangers such as fire, power loss, security breaches, and
telecommunications failures. Any temporary or permanent loss of one or more of
these systems or facilities from an accident, equipment malfunction or some
other cause could harm CoStar's business. CoStar's core computer services and
networking equipment are located in a climate-
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controlled, fire and security-protected central location. CoStar keeps off-site
backup copies of all data contained in its database, maintains a back-up power
supply and equipment, and stockpiles spare parts. These measures may not,
however, adequately protect CoStar's business.
COSTAR MAY BE UNABLE TO ENFORCE OR DEFEND ITS OWNERSHIP AND USE OF INTELLECTUAL
PROPERTY.
The success of CoStar's business depends in large part on the intellectual
property involved in its methodologies, database and software. CoStar relies on
a combination of trade secret and copyright laws, nondisclosure and other
contractual provisions, and technical measures to protect its intellectual
property rights. CoStar believes that it has succeeded to date in protecting its
intellectual property, but it cannot guarantee that it will continue to succeed
in that effort. CoStar's business could be significantly harmed if it does not
succeed in protecting its intellectual property. The same would be true if a
court should find that CoStar's services infringe other persons' intellectual
property rights. Any intellectual property lawsuits in which CoStar might become
involved, either as a plaintiff or as a defendant, could cost CoStar much time
and money.
COSTAR'S PLANNED INTERNATIONAL EXPANSION MAY RESULT IN NEW BUSINESS RISKS.
CoStar's planned international operations could subject it 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.
COSTAR'S BUSINESS DEPENDS ON RETAINING AND ATTRACTING HIGHLY CAPABLE MANAGEMENT
AND OPERATING PERSONNEL.
CoStar's success depends in large part on its ability to retain and attract
management and operating personnel, including its President and Chief Executive
Officer, Andrew C. Florance. CoStar's business requires highly skilled
technical, sales, management, Web-development, marketing and research personnel,
who are in high demand and are often subject to competing offers. Because CoStar
is expanding rapidly, it continues to need an increased number of management and
support personnel. To retain and attract key personnel, CoStar uses various
measures, including multi-year employment agreements containing confidentiality
and non-competition agreements, a stock option plan and incentive bonuses for
key executive officers. CoStar is the beneficiary of a key person life insurance
policy on Mr. Florance. These measures may not be enough to retain and attract
the personnel CoStar needs or to offset the impact on its business of a loss of
Mr. Florance or other key employees.
IF COSTAR IS UNABLE TO CONTINUE TO DEVELOP COSTAR'S SALES FORCE, IT COULD HAVE A
MATERIAL ADVERSE EFFECT ON COSTAR'S BUSINESS.
In order to support its growth, CoStar needs to substantially increase the
size of its direct sales force. CoStar's ability to increase its direct sales
force involves a number of risks, including:
- the competition CoStar faces from other companies in hiring and retaining
sales personnel;
- its ability to integrate and motivate additional sales and sales support
personnel;
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- its ability to manage a multi-location sales organization; and
- the length of time it takes new sales personnel to become productive.
COMPETITION COULD RENDER COSTAR'S SERVICES UNCOMPETITIVE.
The market for information systems and services in general is highly
competitive and rapidly changing. CoStar believes that it does not currently
face any national competitor in providing electronic information services to the
commercial real estate and related business community, whose services are
similar to CoStar's, although it does face competition on a local and regional
basis. The new services CoStar is developing will bring it into further
competition with various companies. Additional competitors may also enter the
market and competition may intensify. Although CoStar believes that its services
are better than those offered by its competitors, they may be able to narrow or
eliminate the differences.
CYCLICAL DOWNTURNS AND CONSOLIDATION IN THE COMMERCIAL REAL ESTATE INDUSTRY
COULD HAVE AN ADVERSE EFFECT ON COSTAR'S BUSINESS.
CoStar's 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 CoStar's services.
The traditional economic downturns in the commercial real estate industry could
harm CoStar's business. These changes could decrease renewal rates, which could
have a material adverse impact on CoStar's operating results. Also, companies in
this industry are consolidating, often in order to reduce expenses.
Consolidation could reduce the number of CoStar's existing clients, reduce the
size of its target market and increase its clients' bargaining power. Any of
these factors could adversely affect CoStar's business.
IF COSTAR DOES NOT GENERATE SUFFICIENT CASH FLOWS FROM OPERATIONS, IT MAY NEED
ADDITIONAL CAPITAL.
To date, CoStar has financed its operations through cash from profitable
operations in its established markets, the sale of its stock and borrowing
money. If CoStar does not generate enough cash from operations to finance its
business in the future, it will need to raise additional funds through public or
private financing. Selling additional stock could dilute the equity interests of
its stockholders. If CoStar borrows money, it will have to pay interest and
agree to restrictions that may limit its operating flexibility. CoStar may not
be able to obtain funds needed to finance its operations at all or may be able
to obtain them only on unattractive terms.
PROBLEMS WITH COSTAR'S SOFTWARE COULD IMPAIR THE USE OF ITS SERVICES.
The software underlying CoStar's services is complex and may contain
undetected errors. CoStar previously discovered errors in the software that it
has developed. Despite testing, CoStar 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 Costar's services,
loss of revenues, cost increases and legal claims by customers. All these
factors could seriously damage CoStar's business, operating results and
financial condition.
THE YEAR 2000 PROBLEM MAY HAVE AN ADVERSE EFFECT ON COSTAR.
If any of CoStar's systems are not Year 2000 compliant or if its clients,
suppliers or other persons with whom it deals fails to achieve Year 2000
compliance, it may experience various adverse consequences, such as the
following:
- Costar may be unable to maintain and update the database on which its
services depend;
- it may experience difficulties in marketing its services to clients and
potential clients; and
- its clients may experience delays or outages in receiving its services.
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MARKET VOLATILITY MAY HAVE AN ADVERSE EFFECT ON COSTAR'S STOCK PRICE.
The trading price of CoStar's 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 CoStar's operating results;
- changes in analysts' estimates of CoStar's earnings;
- announcements by CoStar or its 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. This volatility has had a substantial
effect on the market prices of securities issued by many companies for reasons
unrelated to the operating performance of the specific companies.
STOCK OWNERSHIP BY EXECUTIVE OFFICERS AND DIRECTORS PROVIDES SUBSTANTIAL
INFLUENCE OVER MATTERS REQUIRING A VOTE OF STOCKHOLDERS.
Immediately after the merger, CoStar's executive officers and directors,
and entities affiliated with them, will beneficially own a sufficient number of
CoStar's outstanding common stock to 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.
COSTAR'S CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD IMPEDE THIRD PARTY
ACQUISITIONS.
CoStar's governing corporate documents contain provisions that could
discourage potential takeover attempts and make attempts by its stockholders to
change management more difficult. These provisions include:
- a requirement that stockholders give CoStar advance notice of certain
nominations for its 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.
CoStar's certificate of incorporation also allows its board of directors to
issue up to two million 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 this "blank check" preferred
stock. CoStar does not, at present, intend to issue any preferred stock but, if
it does, an outside party may find it more difficult to acquire a majority of
its outstanding voting stock. In addition, CoStar is 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, which
could adversely affect the market price of CoStar's common stock.
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RISK FACTORS RELATED TO COMPS
COMPS HAS ONLY BEEN OPERATING ON THE INTERNET SINCE 1998 AND CANNOT ASSURE YOU
THAT ITS INTERNET PRODUCTS WILL ACHIEVE MARKET ACCEPTANCE.
Comps only recently began offering its services on the Internet. During
1998, over 90% of its revenue was a result of its information services products
delivered on CD-ROM and other non-Internet media. Less than 10% of its revenues
in 1998 were a result of its services and products delivered on the Internet.
Comps intends to continue to increase its reliance on the Internet for delivery
of its services and products. As a result, its future profitability will
increasingly rely upon the use of its information services and transaction
support products on the Internet. Comps' ability to obtain market acceptance for
its Internet products will depend on the following factors:
- its ability to transition its customers from the use of its services and
products on CD-ROM to the use of these services and products on the
Internet in a timely and efficient manner;
- its customers' acceptance of, and their ability to adapt to the use of,
its existing and future services and products on the Internet; and
- its ability to anticipate and adapt to the changing Internet market.
If Comps' Internet-based information services or transaction support
products are not received favorably by its current customers, their use of
Comps' other products may be negatively affected or cause new customers to
choose a competitive service over Comps.
IF COMPS DOES NOT EXPAND ITS GEOGRAPHIC COVERAGE, ITS SERVICES AND PRODUCTS
COULD BECOME LESS DESIRABLE.
Comps' success is dependent on its ability to increase the geographic
coverage of its database. Currently Comps' proprietary database contains
comprehensive sales comparable records in 47 of the 74 largest markets in the
United States. If Comps is not able to expand the geographic coverage of its
database into other markets, its business could be materially adversely
affected. Comps expects this geographic expansion effort to impose additional
burdens on its research, sales and administrative markets.
IF COMPS CANNOT MAINTAIN THE INTEGRITY AND RELIABILITY OF ITS PROPRIETARY
DATABASE, COMPS MAY NOT BE SUCCESSFUL.
Comps cannot assure you that the information in its database will be
comprehensive, accurate or timely, particularly as Comps grows. Comps' success
is highly dependent on its customers' confidence in the comprehensiveness,
accuracy and timeliness of its property database of commercial real estate
transactions and the software used to access its database. Comps expects the
task of establishing and maintaining the comprehensiveness, accuracy and
timeliness during the growth of its business to require substantial effort and
expense.
IF COMPS FAILS TO BE YEAR 2000 COMPLAINT, IT COULD HARM ITS DATABASE.
Comps may discover year 2000 compliance problems in its proprietary
software that will require substantial revisions. In addition, third-party
software, hardware or services incorporated into its material information
technology and non-information technology systems may need to be revised or
replaced, all of which could be time consuming and expensive. Comps' failure to
fix its proprietary software or to fix or replace third-party software, hardware
or services on a timely basis could result in lost revenues, increased operating
costs, the loss of customers and other business interruptions, any of which
could have a material adverse effect on its business. Moreover, the failure to
adequately address year 2000 compliance issues in its proprietary software and
its information technology and non-information technology systems could result
in claims of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend.
In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside Comps' control may
not be year 2000 compliant. The failure by such entities
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to be year 2000 compliant could result in a systemic failure beyond Comps'
control, such as a prolonged Internet, telecommunications or electrical failure,
which could decrease the use of the Internet or prevent users from accessing its
Web site, which could have a material adverse effect on its business.
IF COMPS DOES NOT SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES WITH ITS BUSINESS,
IT COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS BUSINESS.
Since October 1993, Comps has acquired eleven businesses and three product
lines. Comps may not be able to integrate its recent acquisitions successfully
with its existing operations without substantial costs, delays or other
problems. Comps could also have difficulty in assimilating the acquired
products, services or technologies into its operations. These difficulties could
disrupt its ongoing business, distract its management and employees, increase
its expenses and materially adversely affect its results of operations due to
accounting requirements such as amortization of goodwill or other purchased
intangibles.
COMPS COULD BE HELD LIABLE FOR PROVIDING INACCURATE OR INCOMPLETE INFORMATION,
WHICH COULD HARM ITS BUSINESS.
If Comps' services or products yield inaccurate or incomplete information
which has a material adverse impact on a customer, the customer might bring a
claim for damages against Comps, even if Comps is not responsible for such
failure. The limitations of liability set forth in customer contracts may not be
enforceable and may not otherwise protect Comps from liability for damages. The
successful assertion of one or more large claims against Comps that exceed
available insurance coverages, or changes in Comps' insurance policies, such as
premium increases or the imposition of large deductibles or co-insurance
requirements could materially adversely affect its business.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
CoStar and Comps have made forward-looking statements in this document and
in documents that are incorporated by reference in this document that are
subject to risks and uncertainties. Forward-looking statements include
information that is not purely historic fact, including statements concerning
the financial outlook for 1999 and estimates for 2000, possible or assumed
future results of operations of Comps and CoStar generally, and other statements
and information more specifically regarding assumptions about earnings per
share, capital and other expenditures, financing plans, cash flow, capital
structure, pending legal proceedings and claims, future economic performance,
operating income, management's plans, goals and objectives for future operations
and growth and markets for stock of CoStar and Comps.
The sections of this document which contain forward-looking statements
include "Questions and Answers About the Merger" - "Summary" - "Summary Selected
Pro Forma and Historical Financial Data" - "The Merger -- Background of the
Merger" - "The Merger -- Comps' Reasons for the Merger" - "The Merger--CoStar's
Reasons for the Merger" - "Unaudited Pro Forma Condensed Combined Financial
Information" - "Opinion of Volpe Brown Whelan & Company LLC" - "Comps' Business"
- - "Management Discussion and Analysis of Comps." Our forward-looking statements
are also identified by words such as "believes," "expects," "anticipates,"
"intends," "estimates" or similar expressions. You should understand that these
forward-looking statements are necessarily estimates reflecting the judgment of
CoStar and Comps, not guarantees of future performance. They are subject to a
number of assumptions, risks and uncertainties that could cause actual results
to differ materially from those expressed or implied in the forward-looking
statements.
You should understand that the following important factors, in addition to
those discussed in "Risk Factors" and in the documents which are incorporated by
reference, could affect the future results of CoStar and Comps, and of CoStar
after the merger, and could cause those results or other outcomes to differ
materially from those expressed or implied in our forward-looking statements:
Economic and Industry Conditions
- competition and technological innovation by competitors
- sensitivity to general economic conditions and events that affect
commercial real estate in particular
- business combinations and strategic alliances by other industry
participants
- growth in commerce conducted over the Internet
Operating Factors
- changes in relationships with real estate brokers and other strategic
partners
- legal and regulatory issues
Transaction Factors
- the risk that CoStar may not be able to integrate CoStar and Comps
successfully
- the risk from litigation about the merger
Accordingly, you should not place undue reliance on forward-looking
statements, which speak only as of the date of this proxy statement/prospectus,
or, in the case of documents incorporated by reference, the date of those
documents.
All subsequent written and oral forward-looking statements attributable to
CoStar or Comps or any person acting on their behalf are expressly qualified in
their entirety by the cautionary statements contained or referred to in this
section. Neither CoStar nor Comps undertakes any obligation to release publicly
any revisions to these forward-looking statements to reflect events or
circumstances after the date of this proxy statement/prospectus or to reflect
the occurrence of unanticipated events.
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THE SPECIAL STOCKHOLDERS MEETING
DATE, TIME AND PLACE
The special meeting will be held at 815 Connecticut Ave., N.W., Washington,
D.C. beginning at 10:00 a.m., local time, on February 10, 2000.
MATTERS TO BE CONSIDERED AT THE SPECIAL STOCKHOLDERS MEETING
At the special meeting, holders of Comps common stock are being asked to
adopt the merger agreement and to transact the other business that may properly
come before the special meeting or any postponement or adjournment of the
special meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Holders of record of Comps common stock at the close of business on
December 30, 1999, the record date for the special meeting, are entitled to
receive notice of and to vote at the special meeting. On the record date,
approximately 12,044,000 shares of Comps common stock were issued and
outstanding and held by approximately 23 holders of record.
A majority of the shares of Comps common stock issued and outstanding and
entitled to vote on the record date must be represented in person or by proxy at
the special meeting in order for a quorum to be present for purposes of
transacting business at the meeting. In the event that a quorum is not
represented at the special meeting, the meeting may be adjourned or postponed to
solicit additional proxies. Holders of record of Comps common stock on the
record date are each entitled to one vote per share with respect to adoption of
the merger at the special meeting.
Comps does not expect any other matters to come before the special meeting.
However, if any other matters are properly presented at the special meeting for
consideration, the persons named in the enclosed form of proxy will have
discretion to vote or not vote on those matters in accordance with their
judgment, unless authorization to use that discretion is withheld. If a proposal
to adjourn the special meeting is properly presented, however, the persons named
in the enclosed form of proxy will not have discretion to vote in favor of the
adjournment proposal any shares which have been voted against the proposal to
adopt the merger agreement.
VOTES REQUIRED
The approval of the merger agreement requires the affirmative vote of the
holders of record of a majority of the shares of Comps common stock outstanding
on the record date.
Six shareholders of Comps, which control more than a majority of the Comps
common stock, have already entered into binding agreements to vote all their
shares in favor of the merger. See "Material Terms of the Voting Agreements" on
page 52.
COMPS BOARD RECOMMENDATION
THE COMPS BOARD HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF COMPS AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" ADOPTION OF THE MERGER AGREEMENT.
SHARE OWNERSHIP OF MANAGEMENT
On December 30, 1999, the record date for the special meeting, Comps
directors and executive officers and their affiliates were entitled to vote
approximately 7,129,000 shares of Comps common stock, representing approximately
59.2% of the outstanding shares of Comps common stock. Six of these persons have
agreed to vote their shares of Comps common stock in favor of the merger. These
shares represent
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approximately 59.1% of the votes of the Comps common stock on the record date,
which is a sufficient number of shares to adopt the merger agreement.
HOW YOU CAN VOTE
Attending Meeting or Submitting Proxies
You may vote either by:
- attending the special meeting and voting your shares in person at the
meeting, or
- completing the enclosed white proxy card, signing and dating it and
mailing it in the enclosed postage pre-paid envelope. If you sign a
written proxy card and return it without instructions, your shares will
be voted for each of the matters described on the proxy card.
If your shares are held in "street name," which means the shares are held
in the name of a broker, bank or other record holder, you must either direct the
record holder of your shares as to how to vote your shares or obtain a proxy
from the record holder to vote at the special stockholders meeting.
STOCKHOLDERS WHO SUBMIT PROXY CARDS VOTING IN FAVOR OF THE MERGER AGREEMENT
SHOULD ALSO SEND IN ANY STOCK CERTIFICATES TO THE EXCHANGE AGENT WITH THE BLUE
ELECTION FORM.
Revoking Proxies
If you are a stockholder of record, you may revoke your proxy at any time
before the time it is voted at the special stockholders meeting. To revoke your
proxy, you may:
- send written notice to the Corporate Secretary of Comps,
- sign and return a later-dated proxy by mail or telecopy to the Corporate
Secretary of Comps, or
- attend the special meeting and voting in person.
Attendance at Comps' special meeting will not in and of itself constitute a
revocation of a proxy. Any written notice of a revocation of a proxy must be
sent so that it is delivered before the taking of the vote at the special
meeting to:
COMPS.COM, Inc.
9888 Carroll Centre Road, Suite 100
San Diego, California 92126
Telecopy: (858) 684-3292
Attention: Corporate Secretary
General Proxy Information
Brokers who hold shares in street names for customers who are the
beneficial owners of those shares are prohibited from giving a proxy to vote on
non-routine matters, such as the proposal to be voted on at the special
stockholders meeting, unless they receive specific instructions from the
customer. These so-called broker non-votes will have the same effect as a vote
against the proposal to adopt the merger agreement.
Abstentions may be specified with respect to the proposal to adopt the
merger agreement. If you submit a proxy with an abstention, you will be treated
as present at the special stockholders meeting for purposes of determining the
presence or absence of a quorum for the transaction of all business. An
abstention will have the same effect as a vote against the proposal to adopt the
merger agreement.
Solicitation of Proxies; Expenses
Comps will bear the cost of solicitation of proxies. In addition to
solicitation by mail, the directors, officers and employees of Comps may also
solicit proxies from stockholders by telephone, telecopy,
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telegram or in person. Arrangements will also be made with brokerage houses and
other custodians, nominees and fiduciaries to send the proxy materials to
beneficial owners; and Comps will, upon request, reimburse those brokerage
houses and custodians for their reasonable expenses in so doing.
Election Forms
We have mailed a blue election form to each Comps stockholder of record on
the record date. You are entitled to choose how many of your shares of Comps
common stock you would like to have converted into cash and how many you would
like to have converted into CoStar common stock. Your choice to receive either
cash or CoStar common stock in the merger may be adjusted to ensure that 49.9%
of the Comps shares are exchanged for cash and 50.1% of the Comps shares are
exchanged for shares of CoStar common stock.
You must return a completed exchange form to American Stock Transfer &
Trust Company, the exchange agent, by the deadline that CoStar will announce no
later than five days before the merger is completed. If you do not submit an
election form by the deadline, CoStar will, in its sole discretion, determine
how many of your shares will be exchanged for cash and how many for stock.
If you submit a blue election form without also submitting a white proxy
card, your shares will not be voted at the special meeting.
The exchange agent is:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, NY 10005
(212) 936-5100
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THE MERGER
This section of the proxy statement/prospectus describes material aspects
of the proposed merger, including the merger agreement, and the procedures for
the cash election and the closing. While we believe that the description covers
the material terms of the merger and the related transactions, this section may
not contain all of the information that is important to you. You should
carefully read this entire document and the other documents we refer to for a
more complete understanding of the merger.
GENERAL
The Comps board of directors is using this proxy statement/prospectus to
solicit proxies from the holders of Comps common stock for use at its special
stockholders meeting.
The merger agreement provides for the merger of Comps into a wholly owned
subsidiary of CoStar. Upon completion of the merger, the separate existence of
Comps will cease and Comps stockholders will have the right to elect whether to
receive $7.50 in cash or 0.31496 shares of common stock of CoStar, subject to
adjustment to ensure that 49.9% of the Comps shares are exchanged for cash and
50.1% of the Comps shares are exchanged for shares of CoStar common stock. For a
description of the merger agreement, see "Material Terms of the Merger
Agreement" beginning on page 45.
PROCEDURES FOR CASH ELECTION AND SURRENDER OF CERTIFICATES
Election
A blue election form that contains instructions with respect to the
surrender of your Comps stock certificates is enclosed with this proxy
statement/prospectus. YOU SHOULD RETURN STOCK CERTIFICATES WITH THE BLUE
ELECTION FORM, NOT WITH THE WHITE PROXY CARD, ENCLOSED WITH THIS PROXY
STATEMENT/PROSPECTUS.
Subject to the adjustment described below, you should indicate on the
election form how many of your shares of Comps common stock should be:
- converted into cash at a rate of $7.50 per share; or
- converted into CoStar common stock at a rate of 0.31496 shares of CoStar
common stock for each share of Comps common stock.
You may choose to receive cash for some of your shares of Comps common
stock and stock for other of your shares. You may decide that you have no
preference between cash or stock with respect to some or all of your shares of
Comps common stock. In this case, CoStar may, in its sole discretion, determine
how many of your shares should be converted into cash and how many converted
into shares of CoStar common stock.
You may change your choice between cash and CoStar common stock by
notifying the exchange agent in writing before February 4, 2000.
Adjustment
Your choice to receive either cash or CoStar common stock in the merger is
subject to adjustment to ensure that 49.9% of the Comps shares are exchanged for
cash and 50.1% of the Comps shares are exchanged for shares of CoStar common
stock.
If holders of more than 49.9% of the shares of Comps common stock choose to
receive cash for those shares, then the number of shares held by each
stockholder who so chooses that are converted into cash will be proportionally
reduced so that only 49.9% of the shares are converted into cash.
For example, if holders of 75% of the shares of Comps common stock choose
to receive cash for their shares, then for each stockholder who so chooses, only
66.5% of their shares will be converted into cash.
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66.5 is equal to 49.9 divided by 75. The remaining 33.5% of the shares held by
stockholders who chose to receive cash would be converted into stock.
Also, if holders of more than 50.1% of the shares of Comps common stock
choose to receive CoStar stock for those shares, then the number of shares held
by each stockholder who so chooses that are converted into stock will be
proportionally reduced so that only 50.1% of the shares are converted into
stock.
For example, if holders of 75% of the shares of Comps common stock choose
to receive CoStar stock for those shares, then for each stockholder who so
chooses, only 66.8% of their shares will be converted into stock. 66.8 is equal
to 50.1 divided by 75. The remaining 33.2% of the shares held by stockholders
who chose to receive stock would be converted into cash.
If neither the 49.9% cash limit nor the 50.1% stock limit is exceeded,
then:
- all of the stockholders who chose to receive cash will receive cash,
- all of the stockholders who chose to receive stock will receive stock,
and
- the remaining shares will be divided between cash and stock so that the
49.9% cash and 50.1% stock limits are satisfied.
Fractional Shares
CoStar will not issue fractional shares of its common stock in the merger.
Each Comps stockholder otherwise entitled to receive a fractional share will
receive a check in an amount, rounded to the nearest one cent, equal to the
proportion represented by that fractional share in the proceeds that the
exchange agent receives from the sale of all of the fractional shares that
result from the merger. The exchange agent will conduct this sale within five
business days of receiving any Comps certificate that results, upon its
conversion in the merger, in the issuance of a fractional share of CoStar common
stock.
Exchange Procedures
If you surrender your stock certificates representing Comps shares in
accordance with the instructions in the blue election form, you will be entitled
to receive cash or stock certificates representing the shares of CoStar common
stock into which those Comps shares are converted in the merger.
After the merger, each certificate that previously represented shares of
Comps stock will represent only the right to receive the cash or shares of
CoStar common stock into which shares of Comps stock were converted in the
merger.
You will not be paid any dividends or distributions on the CoStar common
stock into which your Comps shares have been converted with a record date after
the merger until your Comps certificates are surrendered to the exchange agent.
When those certificates are surrendered, any unpaid dividends payable as
described below will be paid without interest.
We will close Comps' transfer books at the effective time of the merger and
no further transfers of shares will be recorded on the transfer books. If a
transfer of ownership of Comps stock that is not registered in the records of
Comps' transfer agent has occurred, then, so long as the Comps stock
certificates are accompanied by all documents required to evidence and effect
the transfer, as described in the transmittal letter and accompanying
instructions, and by evidence of payment of any applicable stock transfer taxes,
a certificate representing the proper number of shares of CoStar common stock
will be issued to a person other than the person in whose name the certificate
so surrendered is registered, together with payment of dividends or
distributions, if any.
BACKGROUND OF THE MERGER
The following describes events leading to the execution of the merger
agreement by CoStar and Comps.
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Mr. Crane first met Andrew Florance, chief executive officer of CoStar
(then named Realty Information Group, Inc.) in late 1994 when Mr. Crane was in
the Washington D.C. area visiting Comps' Virginia office. Mr. Crane and Mr.
Florance met for dinner in the area, where the prospect of a business
relationship between Comps and CoStar was first discussed but no proposals
resulted from that meeting. Messrs. Crane and Florance met again in mid 1996 in
San Diego, where the prospect of a merger between CoStar and Comps was again
discussed. The two discussed the benefits to each company of a merger, together
with possible valuations, but no proposals resulted from the meeting. Messrs.
Crane and Florance met again in 1997 in Laguna Niguel, California.
In early January 1998, Mr. Florance again contacted Mr. Crane and proposed
a meeting. On January 13, 1998, Messrs. Crane and Florance met again and Mr.
Florance raised the subject of CoStar acquiring Comps. The two discussed general
issues related to the potential Comps-CoStar combination. At the end of the
meeting, Mr. Florance stated that CoStar was going to pursue its initial public
offering and defer consideration of a combination with Comps.
In early January 1999, Mr. Florance phoned Mr. Crane and suggested a
meeting on January 14, 1999 in San Diego, California. At that meeting, Mr.
Florance suggested that a combination of the two companies would allow each
company to reach their respective goals faster than would be possible for either
separately. Discussion was held regarding the synergies of a combination between
CoStar and Comps, including the fact that the two companies' databases were
complementary and that offering both companies' databases from one source would
provide a significant market advantage. Potential operational efficiencies of
the combined entity were discussed. Mr. Florance and Mr. Crane agreed to
schedule another meeting the following week. After the January 14, 1999 dinner,
Mr. Crane informed members of Comps' board of directors of the matters discussed
with Mr. Florance.
On January 21, 1999, Mr. Crane and Stephen James, then a member of Comps'
board of directors, met with Mr. Florance and the chairman of CoStar's board of
directors, Michael Klein, in Denver, Colorado. Messrs. Florance, Klein, Crane
and James discussed the possibility of creating operating synergies, strategic
advantages, and a higher valuation for stockholders by combining the two
companies. Possible transaction structures were considered. The fact that both
Comps and CoStar were pursuing public offerings was also discussed and that, as
a result, if a merger was to be consummated, the parties would need to agree to
terms rapidly. No specific acquisition proposals were made at that meeting.
In late January and February 1999, several phone and e-mail conversations
were held regarding the strategic integration of the two companies and the price
CoStar would pay for Comps. Representatives of CoStar and Comps discussed
valuations for Comps. The board of directors of Comps concluded that it could
achieve a higher valuation in pursuing an initial public offering and informed
CoStar of this decision. Both companies concluded that an agreement could not be
reached at the time and each decided to terminate merger discussions and pursue
their own public offerings.
Comps and CoStar pursued their own public offerings and the prospect of a
combination was not discussed again until July 1999.
In early July 1999, Mr. Klein phoned Gregory Avis, a member of the Comps'
board, and suggested a meeting. At the meeting, Mr. Klein suggested a
combination of CoStar and Comps. Mr. Klein's proposal entailed a stock-for-stock
merger with Comps, but did not offer any premium over the then market price for
Comps shares. At the time of that proposal, CoStar's common stock was trading at
approximately $43 per share. After consulting with the remaining members of
Comps' board of directors, representatives of Comps informed CoStar that Comps
declined to accept Mr. Klein's proposal.
During the third quarter of 1999, Comps' board of directors reviewed its
strategic goals, future outlook, competitive position and ability to meet the
growth expectations of investors and industry analysts. During this review, the
board considered the new competitive pressures in the industry and noted that
some of Comps' competitors were raising capital. The board discussed Comps'
ability to continue as a stand-alone business and the strategic importance of a
business combination.
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In the beginning of September 1999, Mr. Avis received a telephone call from
Mr. Florance indicating his desire to resume discussions regarding a combination
of Comps and CoStar. Mr. Avis informed Mr. Crane of this call and, subsequently,
Mr. Crane phoned Mr. Florance and suggested a meeting on September 8, 1999 in
Washington D.C. Mr. Crane met with Mr. Florance as well as Curtis Ricketts, a
senior vice president of CoStar, and Henry Jamison, president of Jamison
Research, a subsidiary of CoStar. Discussions were held regarding how a
combination of the two companies could lead to building a fully integrated
information services and electronic commerce company. Mr. Crane suggested that
Mr. Florance present his vision for the combined companies to Mr. Avis in Palo
Alto. Mr. Florance made a presentation on September 20, 1999 at Summit Partners'
office in Palo Alto. Also in attendance at that meeting was Judd Heitzman, a
senior vice president of CoStar. Mr. Florance indicated CoStar's intention to
acquire Comps for a price of $8 per share, based on the then recent market price
of CoStar's shares, which had been approximately $30.
After Mr. Florance and Mr. Heitzman left, Mr. Crane and Mr. Avis analyzed
the prospect of a Comps-CoStar combination. Messrs. Crane and Avis considered
the likelihood that the Comps-CoStar combination would result in an enterprise
valued considerably higher than the sum of the values of CoStar and Comps as
separate, stand-alone enterprises. As part of their analysis, Messrs. Crane and
Avis considered the cost of duplicative efforts to capture the commercial real
estate desktop market, as well as competitive pressures in the industry. Mr.
Crane informed Messrs. Potashner and Beasley, directors of Comps, of the
conversations with CoStar and the analysis made by Messrs. Crane and Avis. Mr.
Crane also informed Douglas McIntyre, then a prospective Comps board member, of
the conversations that had occurred and the analysis made by Messrs. Crane and
Avis.
On September 23, 1999, Mr. Crane met in San Diego with representatives of
Volpe Brown Whelan & Company LLC to discuss the potential Comps-CoStar
combination. Also discussed were other possible acquirors.
During the period between September 1, 1999 and October 15, 1999, Mr. Crane
met with senior level representatives of other companies he believed might have
an interest in acquiring Comps. These companies indicated that they did not have
such an interest.
On September 28, 1999, Mr. Crane met in San Francisco with representatives
of Volpe. At the meeting, discussions were held concerning whether Comps should
pursue a merger given its future prospects as a stand-alone business and
negotiation and valuation strategies to be implemented in pursuing further
merger discussions.
On October 1, 1999, the Comps board of directors formed a merger committee,
comprised of Messrs. Crane, Avis and McIntyre. Mr. McIntyre's appointment was
provisional, pending his nomination as a Comps director, which occurred on
October 7, 1999.
A conference call of the Comps merger committee was held on October 1,
1999. Future prospects of Comps as a stand-alone business as well as a combined
entity were discussed. Among the issues discussed were competitive pressures on
Comps, Comps' cash expenditure levels and the likelihood Comps would accomplish
its strategic goals. Negotiation strategy was also discussed.
During the week of October 11, 1999, Mr. Florance placed a telephone call
to Mr. Crane, in which Mr. Florance proposed to Mr. Crane that CoStar acquire
Comps in a package comprised of 2/3 cash and 1/3 CoStar common stock, but with
no premium over the then market price for Comps shares. At the end of the
conversation, Mr. Crane indicated that he expected to be in New York City on
October 20, 1999 and Mr. Florance observed that he was also scheduled to be in
New York City on that day and proposed a meeting. Mr. Crane agreed. Mr. Crane
then informed the directors of Comps and representatives of Volpe of Mr.
Florance's offer. The Comps directors concluded that Mr. Florance's offer was
inadequate, but advised Mr. Crane to meet with CoStar to determine whether a
more acceptable offer could be negotiated.
On October 17, 1999, Messrs. Avis, Crane, McIntyre and Potashner held a
conference call to discuss a proposed transaction with CoStar as well as Comps
prospects of continuing on a stand-alone basis. Discussion was held regarding
negotiation strategy for the upcoming October 20, 1999 meeting.
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On October 19, 1999, Mr. Crane met Messrs. Florance and Klein for dinner
and discussed the synergies of a proposed combination of Comps and CoStar. Mr.
Klein proposed an offer for Comps comprised of 71.5% cash and 28.5% stock. Mr.
Crane responded that this combination of cash and stock was not acceptable to
Comps and proposed a purchase comprised of 50.1% stock and 49.9% cash. Mr. Klein
refused Mr. Crane's proposal.
On October 20, 1999, Messrs. Crane, McIntyre and James (as a consultant),
together with representatives of Volpe, met for breakfast to discuss negotiation
strategy. The group then proceeded to a meeting room at the Righa Royal Hotel in
New York to meet with Messrs. Florance and Klein, as well as Warren Haber, a
director of CoStar, and Carla Garrett, general counsel of CoStar. At this
meeting, Mr. Crane reiterated his proposal for an acquisition of Comps
structured so that 50.1% of the Comps' shares would be exchanged for CoStar
stock and 49.9% of the Comps' shares would be exchanged for cash, in a structure
that would be tax free to stockholders. Mr. Klein responded that CoStar would
evaluate this consideration package pending resolution of other terms, including
CoStar's requirement that it acquire shares without any premium over the then
market price for Comps shares. Comps' representatives declined Mr. Klein's
proposal of a transaction that did not provide some premium over the then
current market price for Comps shares. Messrs. Klein and Haber left the meeting
in the late morning, and subsequent negotiations between Comps and CoStar
continued through the entire day. In the evening, Mr. Florance consulted with
Mr. Klein regarding the status of the negotiations. After this consultation, Mr.
Florance proposed to Comps that CoStar would acquire Comps in exchange for
consideration valued at $7.50 per share of Comps common stock, structured so
that 50.1% of the Comps' shares would be exchanged for CoStar stock and 49.9% of
the Comps' shares would be exchanged for cash, as long as the parties could
agree upon the other terms of the merger. Comps' representatives responded that
they would consider the offer.
After the October 20, 1999, meeting, Mr. Crane met with Mr. Beasley and
informed him of the discussions held that day. Thereafter, CoStar's counsel
prepared a draft of a merger agreement reflecting the terms proposed on October
20, 1999.
On October 24, 1999 representatives of Comps and CoStar met in San Diego.
Mr. Florance, Ms. Garrett, Frank Carchedi, chief financial officer, Brian
Radecki, controller, Tom Chambers, information technology manager, as well as
other representatives of CoStar, attended on behalf of CoStar as did Mr. Crane
and Karen Goodrum, chief financial officer of Comps, and representatives of
Volpe. From October 24, 1999 through October 26, 1999, the parties convened in
San Diego and continued to negotiate the transaction and to carefully consider
the reasons for the merger. Messrs. Florance and Crane explored in detail the
rationale for the merger and the prospects for the combined company. In
addition, each of CoStar and Comps performed financial, legal and business due
diligence on the other party. On October 26, 1999, at the conclusion of the San
Diego meeting, Mr. Klein stated by telephone that, as a result of its due
diligence investigation of Comps, CoStar had learned that Comps had more shares
of common stock outstanding on a fully-diluted basis than originally thought,
and therefore CoStar's offer to acquire Comps was reduced to $7.25 per share.
Mr. Crane indicated that he would report Mr. Klein's offer to Comps' board of
directors.
Throughout late October 1999, CoStar and Comps continued to negotiate the
terms of the merger and each of CoStar and Comps continued its due diligence
review of the other.
On October 27, 1999, a regularly scheduled meeting of CoStar's board of
directors was held in New York city. All members of the CoStar board of
directors attended in person or by telephone. Mr. Florance reported on the terms
and structure of the proposed merger with Comps, and Mr. Carchedi made a
financial presentation regarding the proposed merger. After discussion of the
benefits and risks of the proposed merger, the CoStar board authorized the
acquisition of Comps by CoStar and delegated authority to Mr. Klein and Mr.
Florance to negotiate the final terms of the merger and to enter into the merger
agreement on behalf of CoStar.
On October 27, 1999, a meeting of Comps' board of directors was convened to
discuss the CoStar merger proposal. Ms. Goodrum reviewed Comps' financial
performance and projections. Other members of
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Comps' senior management team discussed Comps' stand-alone prospects and a
proposal for a strategic asset to be purchased by Comps. The Comps' board of
directors discussed the ability of Comps to meet its goals as a stand-alone
business. Comps' board of directors then analyzed the proposed combination with
CoStar and considered the impact on stockholder value of continuing
independently and, alternatively, of combining with CoStar. Comps' board of
directors also considered the status of negotiations with CoStar and evaluated
the transaction structure and value. Representatives of Volpe made a
presentation regarding market conditions, CoStar, Comps and the proposed
transaction. At the conclusion of the meeting, Mr. McIntyre placed a telephone
call to Mr. Klein informing him that the $7.25 per share price and certain other
terms of the merger were unacceptable. Mr. Klein replied that CoStar would not
increase its offer from $7.25 per share under the currently proposed terms of
the merger.
On October 28, 1999, Mr. Crane received an e-mail from Mr. Klein indicating
that CoStar was open to discussing alternatives to the $7.25 price with Comps,
as long as the parties could agree upon the other terms of the merger.
On October 29, 1999, a meeting of Comps' board of directors was convened.
At the meeting, the Comps' board of directors evaluated the CoStar proposal and
discussed the status of merger negotiations. Representatives of Volpe led the
board of directors in a quantitative analysis of the merger as then proposed and
counsel reviewed in detail the terms of the then current draft of the merger
agreement. During the meeting, Mr. Crane expressed a desire that CoStar agree to
accelerate option vesting for Comps' employees if the options were not assumed
by CoStar. Also during the meeting, the Comps' board of directors authorized a
representative of Volpe to contact Mr. Florance to negotiate a higher price per
share of Comps stock. The Volpe representative reported that Mr. Florance agreed
to pay $7.50 per share of Comps common stock, as long as the parties could agree
upon the other terms of the merger.
After the October 29, 1999 meeting, the parties continued to negotiate the
merger agreement.
On November 1, 1999, a telephonic meeting of the Comps' board of directors
was convened. The board discussed the status of negotiations with CoStar.
Representatives of Volpe made a presentation regarding market conditions,
CoStar, Comps and the proposed transaction. Mr. Crane reasserted his position
that Comps should require CoStar to accelerate option vesting for Comps'
employees if the options were not assumed by CoStar. The members of the board
expressed support for Mr. Crane's position, but indicated to Mr. Crane an
unwillingness to compromise stockholder value in favor of employee benefits.
On November 2, 1999 and November 3, 1999, Mr. Klein and Mr. Florance
reported to each member of the CoStar board on the status of the merger
negotiations with Comps and the final terms of the merger agreement and related
agreements.
On November 3, 1999, another telephonic meeting of Comps' board of
directors was convened. Representatives of Volpe presented an analysis
supporting Volpe's opinion. The Comps board of directors received Volpe's
opinion. See "-- Opinion of Volpe Brown Whelan & Company LLC." Comps' counsel
described the final merger agreement. After due deliberation, the board of
directors of Comps approved the merger agreement. Thereafter, the merger
agreement was executed and delivered. On November 4, 1999, Comps and CoStar
issued a joint press release announcing the merger agreement.
COSTAR'S REASONS FOR THE MERGER
In reaching its decision to approve the merger agreement and the merger,
the CoStar board of directors consulted with CoStar's senior management and
considered the proposed merger agreement. The CoStar board also considered the
following factors:
- The likelihood that the merger would reduce the time, expense and effort
required by CoStar to complete CoStar's near term vision of the digital
marketplace for the commercial real estate industry by enabling CoStar to
launch more quickly than anticipated its CoStar comparables service
component, which is a unique comparable building information product that
Comps has developed over many years. Additionally, the combination of
CoStar's existing core building data, property
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data and tenant data, with the Comps comparable building information,
would provide CoStar with a strong platform from which to launch the new
CoStar Exchange service, a Web-based service providing information about
commercial properties for sale.
- The expectation that by offering CoStar's and Comps' complementary
databases on one delivery platform and combining the two companies'
research staffs, CoStar would create additional value for its customers
by offering a comprehensive product that serves as a complete source for
commercial real estate information for CoStar's and Comps' customers.
- The possibility that by utilizing CoStar's strong sales and marketing
channels, including CoStar's regional sales offices throughout the United
States, CoStar would be able to penetrate Comps' existing markets more
thoroughly with Comps' products and possibly increase sales of Comps'
products.
- The expectation that the merger would allow the combined company to focus
on developing and improving CoStar's and Comps' core products and avoid
the need for each company to develop products in the other's primary
business sectors.
- The possibility that the merger would enable CoStar to attract new
customers and increase revenues through brand awareness. The CoStar board
considered that each company serves a large number of end users in the
commercial real estate profession and that CoStar believes that there is
a relatively small overlap of individual end users between CoStar and
Comps. As a result, CoStar may be able to attract new customers and
increase revenues after the merger through increased brand awareness of
CoStar throughout the commercial real estate profession in the United
States.
- The likelihood that by combining the two companies' databases and
research staffs, the combined entity would be able to serve its clients
better by providing more accurate and comprehensive information to its
customers on a more timely basis.
- The expectation that by combining the two companies' sales, research,
technology and administrative functions, the combined company could
accomplish cost savings and operating synergies.
- Historical information concerning CoStar's and Comps' financial
performance, results of operations, assets, liabilities, operations,
products, technology, management and competitive position.
- CoStar's management's view of the financial condition, results of
operations, assets, liabilities, operations, products, technology,
management, prospects and competitive position of CoStar and Comps after
giving effect to the merger. In making this determination, the CoStar
board took into account the results of CoStar's due diligence review of
Comps' business.
- Current market conditions and historical market prices, volatility and
trading information with respect to the CoStar and Comps common stock.
- The structure of the merger and the terms and conditions of the merger
agreement, the voting agreements and the pledge agreement, including the
conditions to closing, the covenants, the termination fee and the
representations and warranties.
The discussion of the information and factors considered by the CoStar
board of directors is not intended to be exhaustive, but includes many of the
material factors considered by the CoStar board. In reaching its determination
to approve the merger, the CoStar board did not assign any relative or specific
weights to these factors, and individual directors may have given differing
weights to different factors. However, after taking into consideration all of
the factors discussed above, and other relevant factors, CoStar's board
concluded that the merger agreement and the acquisition were fair to, and in the
best interests of, CoStar and its stockholders and that CoStar should proceed
with the merger. This discussion contains "forward looking statements." See
"Cautionary Statement Concerning Forward Looking Statements."
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RECOMMENDATION OF THE COMPS BOARD OF DIRECTORS; COMPS' REASONS FOR THE MERGER
The board of directors of Comps believes that the merger offers Comps'
stockholders an opportunity to receive stock in a combined company that is
better positioned to compete in a rapidly changing marketplace. The board of
directors of Comps has carefully considered the terms of and the conditions to
the proposed merger and has determined that the merger and the merger agreement
are fair to and in the best interests of Comps and its stockholders and
recommends that Comps' stockholders vote "FOR" adoption of the merger agreement.
In reaching its decision, Comps' board of directors consulted with its
financial and legal advisors and Comps' senior management and considered a
number of factors, including, among other things, the factors described below.
This list is not an exhaustive list of all of the factors considered by Comps'
board of directors. Each member of Comps' board of directors may have considered
different factors or assigned different weights to different factors and Comps'
board of directors evaluated these factors as a whole and did not quantify or
otherwise assign relative weights to the factors considered. Members of Comps'
board of directors may have evaluated some of the factors listed below to be
positive and some of the factors listed below to be negative.
- By offering Comps' and CoStar's numerous complementary databases on one
delivery platform and by combining the two companies' research staffs and
databases, the combined company would be in a better position to face
competitive pressures in the industry and reach the goal of becoming the
leading provider of commercial real estate information than either
company would be separately.
- By combining the two companies' databases, the combined entity would be
able to provide customers with faster and cheaper electronic commerce
capabilities than either company could provide separately.
- By combining the two companies' sales, research, technology and
administrative functions, cost savings and operating synergies could be
accomplished.
- The possible alternatives to the merger, including the possibility of
continuing to operate Comps as a stand-alone entity, and the range of
possible benefits and detriments to Comps' stockholders of these
alternatives.
- Comps' prospects if it were to remain independent, including the risks
inherent in remaining independent when a number of its competitors had
greater financial and other resources than Comps.
- The substantial costs that Comps would incur in order to compete with
CoStar's significant presence and the cost of competing in the race to
capture the desktop of commercial real estate professionals.
- Comps' REALBID product has not provided Comps with the growth in revenue
and market share that it had planned, and the expectation that the
combination would provide technical and marketing enhancements to the
REALBID product.
- Comp's financial condition, cash consumption rate, historical results of
operations and business and strategic objectives, as well as the risks
involved in achieving those objectives, particularly in light of new
competitive pressures in the industry.
- Other historical information about Comps' business, prospects, financial
performance and condition, operations, technology, database, management
and competitive position.
- The risk that Comps would not meet the expectations of investors and
industry analysts that follow its stock, particularly in light of the new
competitive pressures in the market for Comps' services.
- The expectations of industry research analysts for Comps' revenue growth
and the likely negative effect on Comps' stock price if Comps did not
grow more rapidly than it had historically grown or
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if it did not make significant investments in infrastructure and new
products that were immediately successful in the market.
- The amount of consideration to be received by Comps' stockholders in the
merger, including Comps stockholders' ability to receive shares of CoStar
common stock, as well as cash, in the merger, thereby giving them the
opportunity to continue as equity owners of the combined company after
the merger.
- Current financial market conditions, and historical market prices,
volatility and trading information with respect to the common stock of
CoStar and Comps.
- The significant growth of CoStar's revenues over recent successive
quarters.
- The advice of Volpe with respect to potential acquirors and the
relatively low likelihood of completing an alternate transaction given
Mr. Crane's earlier efforts to prompt other bidders.
- The financial presentations of Volpe at the October 27, 1999, October 29,
1999, November 1, 1999 and November 3, 1999 board meetings and the oral
opinion of Volpe delivered to the board on November 3, 1999, to the
effect that, as of that date and based upon and subject to limitations
and qualifications stated in the opinion, the consideration to be paid to
Comps' stockholders was fair, from a financial point of view, to Comps'
stockholders.
- The terms of the merger agreement, including, among other things:
- the ability of the Comps' board to consider alternative acquisition
proposals;
- the potential $5 million payment obligation of Mr. Crane and the
Summit funds;
- the termination fee of $2 million and reimbursement of up to $500,000
of expenses payable to CoStar if Comps elects to accept a superior
proposal from a third party.
The determination of Comps' board of directors involved judgments with
respect to, among other things, future economic, competitive and financial
market conditions and future business decisions which may not be realized and
are inherently subject to significant business, economic, competitive and other
uncertainties, all of which are difficult to predict and many of which are
beyond the control of Comps and CoStar. In deciding whether to adopt the merger
agreement, stockholders of Comps should not place undue reliance upon this
information. This discussion contains "forward looking statements." See
"Cautionary Statement Concerning Forward-Looking Statements."
OPINION OF VOLPE BROWN WHELAN & COMPANY LLC
Comps retained Volpe to render an opinion to the Comps board of directors
as to the fairness, from a financial point of view, of the consideration to be
received in the merger by the Comps stockholders. On November 3, 1999, Volpe
rendered its opinion to the Comps board of directors to the effect that, as of
that date and based on and subject to the matters stated in the opinion, the
consideration to be received by the stockholders of Comps in the merger was
fair, from a financial point of view, to the stockholders of Comps.
THE FULL TEXT OF VOLPE'S WRITTEN OPINION, DATED NOVEMBER 3, 1999, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B AND IS INCORPORATED IN THIS DOCUMENT
BY REFERENCE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION. HOLDERS OF COMPS STOCK ARE ENCOURAGED TO, AND SHOULD, READ
THIS OPINION CAREFULLY IN ITS ENTIRETY. THE ENGAGEMENT OF VOLPE AND ITS OPINION
ARE FOR THE BENEFIT OF THE COMPS BOARD. VOLPE'S OPINION ADDRESSES ONLY THE
FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF COMPS STOCK FROM
A FINANCIAL POINT OF VIEW TO THE HOLDERS OF COMPS STOCK AND IT DOES NOT ADDRESS
ANY OTHER ASPECT OF THE MERGER NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF COMPS STOCK AS TO HOW TO VOTE WITH RESPECT TO THE MERGER.
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In arriving at its opinion, Volpe:
- reviewed the merger agreement;
- interviewed management of Comps and CoStar concerning the companies'
respective business prospects, financial outlook and operating plans as
standalone concerns and as a combined enterprise;
- reviewed certain Comps and CoStar financial statements, financial data
and operating data prepared by the Comps and CoStar management teams,
respectively;
- reviewed the historical stock trading patterns of the common stock of
each of CoStar and Comps and analyzed implied historical exchange ratios;
- reviewed the premium of the per share consideration (which, for purposes
of the analysis, was based on the closing price of CoStar common stock on
November 3, 1999) in relation to comparable merger and acquisition
transactions;
- reviewed the valuation of publicly traded companies that Volpe deemed
comparable and relevant to Comps and CoStar;
- reviewed, to the extent publicly available, the financial terms of merger
and acquisition transactions that Volpe deemed comparable and relevant to
the merger;
- analyzed Comps' relative contribution, adjusted to reflect the difference
in capital structures of the two companies, to CoStar in terms of revenue
and gross profit;
- analyzed the discounted cash flow of Comps as a standalone entity through
December 2004, based upon financial projections provided by the Comps
management teams;
- analyzed the pro forma financial impact of the merger on the combined
entity, based upon financial projections provided by the Comps management
team; and
- performed other relevant studies, analyses and inquiries and considered
other relevant information.
In rendering its opinion, Volpe relied without independent verification on
the accuracy and completeness of all of the financial, accounting, legal, tax,
operating and other information that Comps provided to it. Volpe also relied on
Comps' assurances that all the information Comps provided is complete and
accurate in all material respects and that Comps knew of no additional material
information that would make any of the information given to Volpe either
incomplete or misleading. Comps retained outside legal, accounting and tax
advisors to advise on the merger. Accordingly, Volpe relied on these advisors
and did not review or express an opinion on these matters. Volpe did not conduct
a market survey to determine the interest of other potential acquirors in Comps.
With respect to projected financial data of Comps and CoStar, Volpe relied
on the assurances of Comps and CoStar that such projections were reasonable to
rely on with respect to their prospects separately and as a combined entity.
Volpe expressed no opinion on and made no investigation of the validity,
accuracy or completeness of the information provided to it and did not and does
not warrant any projections included in that information. Actual results that
Comps or CoStar might achieve in the future as stand alone entities or as a
combined company may vary materially from the results Volpe used in its
analysis. Volpe furthermore did not make any independent appraisals or
valuations of any assets of Comps or CoStar, nor was Volpe furnished with any
such appraisals or valuations. Volpe's opinion is necessarily based on market,
economic and other conditions that existed and could be evaluated as of November
3, 1999.
Volpe assumed in its analysis that:
- the merger will be completed in accordance with the terms of the merger
agreement without waiver of any of the conditions to the parties'
obligations under the merger agreement, and
- there will be no material changes to the merger agreement.
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The following is a brief summary of the material analyses performed by
Volpe in rendering its opinion to the Comps board of directors:
Stock Trading and Exchange Ratio Analysis. Volpe analyzed and compared the
past stock trading patterns of both Comps and CoStar. In this analysis, Volpe
assumed that the per share consideration to be received by Comps stockholders in
the merger would be $7.47, which was based on the sum of
- 50.1% of the closing price of CoStar common stock of $23.63 on November
3, 1999, multiplied by the exchange ratio of 0.31496, and
- 49.9% of the agreed upon cash per share price of $7.50.
From May 5, 1999 to November 3, 1999, the closing price of Comps stock
ranged from $14.25 during the week of the Comps initial public offering to $5.19
on September 23, 1999, with a median daily closing price of $7.16. The last time
the closing price of a share of Comps common stock exceeded $7.47 was August 2,
1999. The exchange ratio implied from dividing historical Comps share prices by
CoStar share prices was below 0.31496 before October 1, 1999, was generally
above 0.31496 between October 1, 1999 and October 20, 1999, and was below
0.31496 thereafter. From May 5, 1999 to November 3, 1999, the implied exchange
ratio ranged from 0.1653 to 0.4028, with a median of 0.2235. The implied
exchange ratio was 0.308 on November 3, 1999 and 0.339 on October 4, 1999.
Premium Analysis. Volpe analyzed the premiums paid in selected
transactions and in mergers and acquisitions generally, and compared them to the
premium represented by the per share consideration of $7.47. The per share
consideration represents a premium of 3% compared to Comps' stock price on
November 3, 1999. For comparable transactions, one day premiums were 8.5% and
one month premiums were 14.6%. These values would imply share prices based on a
one day premium of $7.90 and share prices based on a one month premium of $8.02.
For mergers and acquisitions between $50 million and $2 billion in value that
involved premiums and that were announced from January 1, 1997 through September
1, 1999, one day premiums ranged from 0.3% to 234.7% with a median of 24.5% and
one month premiums ranged from 1.0% to 309.7% with a median of 38.9%. These
values would imply share prices based on one day premiums ranging from $7.30 to
$24.37 with a median of $9.06 and share prices based on one month premiums
ranging from $7.07 to $28.68 with a median of $9.72.
Comparable Publicly-Traded Company Analysis. Volpe prepared a range of
values of selected publicly-traded companies it deemed comparable to Comps.
Volpe indicated that it is most relevant to use revenue and gross profit as the
key "topline" value indicators. The analysis of comparable companies yielded a
range of per share values for Comps of $4.03 to $36.80 with a median of $6.51.
Comparable Merger and Acquisition Transaction Analysis. Volpe valued Comps
based upon merger and acquisition transactions. The analysis yielded a range of
per share values for Comps of $3.63 to $11.78 with a median of $7.51.
Relative Contribution Analysis. Volpe analyzed the value of Comps based on
CoStar's and Comps' relative contributions to various measures of operational
activity. Volpe based this analysis on historical financial data as well as the
projections for each business as if each were operating independently. Volpe
also calculated contribution percentages on an adjusted basis to reflect the
differences in the capital structures of the two companies, as capital structure
affects such ratios. The analysis generated a range of implied values for Comps
as well as a range of implied Comps ownership levels of the combined company.
The analysis yielded a range of per share values for Comps of $6.00 to $8.49
with a median of $7.04.
Discounted Cash Flow Analysis. Volpe valued Comps based on the value of
its projected future cash flows, discounted to the present. Volpe used
projections provided by Comps management to prepare this analysis. Using the
capital asset pricing model, Volpe calculated a weighted average cost of capital
for Comps of 16.7%, which Volpe believes to be in the middle of a range of
relevant weighted average costs of capital, given Comps' past and projected
financial performance. As such, Volpe used a range of discount rates from 11.7%
to 21.7% in its discounted cash flow analysis. Given that the ratio of Comps'
current year enterprise value to its current year revenues was 1.9, Volpe
employed a range of exit multiples of between
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1.1 and 2.1. The discounted cash flow analysis yielded a range of per share
values for Comps of $2.82 to $5.28.
Pro Forma Financial Impact Analysis. Volpe also analyzed the pro forma
financial impact of the merger on the combined entity, based upon financial
projections that Comps management provided, and estimates of projected cost
savings resulting from the merger that CoStar management provided. Volpe
expressed no opinion on whether these projections and estimates would actually
occur.
The preparation of a fairness opinion is a complex process and is not
susceptible to a partial analysis or summary description. In arriving at its
opinion, Volpe considered the results of all of its analyses as a whole and did
not attribute any particular weight to any analysis or factor. Furthermore,
selecting portions of the analysis, without considering all of the analyses,
would create an incomplete view of the process underlying its opinion. In
addition, Volpe gave various analyses and factors more or less weight than other
analyses and factors, and deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Volpe's view of
the actual value of Comps.
The analyses performed by Volpe are not necessarily indicative of actual
value, which may be significantly more or less favorable than its analyses
suggest. Volpe prepared its analyses solely as part of its analysis of the
fairness of the consideration from a financial point of view to Comps
stockholders. The analyses do not purport to be appraisals or to reflect the
prices at which Comps might actually be sold. Because these estimates are
inherently subject to uncertainty, none of Comps, CoStar, Volpe nor any other
person assumes responsibility for their accuracy. Consequently, the Volpe
analyses described herein should not be viewed as determinative of the opinion
of the Comps board of directors with respect to the value of Comps or of whether
the CoStar board of directors or the Comps board of directors would have been
willing to agree to a different level of consideration.
Volpe is a nationally recognized investment banking firm and was selected
by Comps based on Volpe's experience and expertise. Volpe, as a customary part
of its investment banking business, engages in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate and other purposes. In the ordinary course of its
business, Volpe and its affiliates may actively trade the equity securities of
CoStar or Comps for its and their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in those
securities.
Volpe received an aggregate fee of $400,000 for rendering its opinion to
Comps. No portion of this fee was conditioned on the opinion being favorable.
Volpe has received fees for other services provided to Comps, including fees for
services as an underwriter in connection with Comps' initial public offering,
and will receive an additional fee contingent on the closing of the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material U.S. federal income tax
consequences of the merger applicable to you. This discussion is based upon the
provisions of the Internal Revenue Code, existing regulations, and
administrative and judicial interpretations of the Internal Revenue Code, all as
in effect as of the date hereof and all of which are subject to change (possibly
with retroactive effect). This discussion applies to you only if you hold your
Comps shares as capital assets within the meaning of Section 1221 of the
Internal Revenue Code. This discussion does not address all aspects of U.S.
federal income taxation that may be relevant to you in light of your particular
circumstances, including tax consequences that arise from rules of general
application to all taxpayers or to some classes of taxpayers or that generally
are assumed to be known by investors. This discussion also does not address all
aspects of U.S. federal income taxation that may be relevant to stockholders who
are subject to special provisions of U.S. federal income tax law, including:
- stockholders who received their Comps shares pursuant to the exercise of
employee stock options or similar securities or otherwise as
compensation;
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- stockholders who hold their Comps shares as part of a "straddle,"
"hedge," "conversion transaction," "synthetic security" or other
integrated investment;
- stockholders (including, without limitation, financial institutions,
insurance companies, tax-exempt organizations, dealers or traders in
securities, and stockholders subject to the alternative minimum tax) who
may be subject to special rules;
- stockholders whose functional currency is not the U.S. dollar; or
- stockholders who, for U.S. federal income tax purposes, are non-resident
alien individuals, foreign corporations, foreign partnerships, or foreign
estates or trusts.
This discussion also does not consider the effect of any state, local or
foreign laws or any U.S. federal laws other than those pertaining to the income
tax.
TAX ISSUES ARE VERY COMPLEX AND THE APPROPRIATE TAX TREATMENT FOR YOU MAY VARY
DEPENDING ON YOUR PARTICULAR CIRCUMSTANCES. ACCORDINGLY, YOU SHOULD CONSULT YOUR
TAX ADVISOR TO DETERMINE THE TAX EFFECT TO YOU OR THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF U.S. FEDERAL, STATE OR LOCAL OR FOREIGN OR OTHER TAX
LAWS.
Tax Opinions and Merger. The consummation of the merger is conditioned
upon the receipt by:
- CoStar of a legal opinion to the effect that the merger will be treated
as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, provided that this condition is satisfied if Comps'
attorneys furnish this opinion to CoStar; and
- Comps of a legal opinion to the effect that the merger will be treated as
a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code; provided that this condition is satisfied if CoStar's
attorneys furnish this opinion to Comps.
CoStar and Comps may agree to waive the condition that such opinions be
received. However, the Comps' board of directors has no present intention to
waive this condition. If the condition were waived and the merger were
consummated, the merger may not qualify as a reorganization for federal tax
purposes. If it were not treated as a reorganization, the transaction would be
treated as a taxable sale of assets by Comps, and Comps would recognize gain in
an amount equal to the sum of the fair market value of the merger consideration
plus the amount of Comps liabilities assumed by CoStar's wholly owned subsidiary
over the adjusted basis of the assets transferred to CoStar's wholly owned
subsidiary. Any such tax liability could be material. In addition, if this
condition were waived, and if the merger did not qualify as a reorganization,
you would recognize gain to the extent the fair market value of the cash and
stock you receive in the merger exceeds your basis in your Comps stock. If
either Comps or CoStar were to waive its condition and determine that the waiver
of its condition would materially change the merger, Comps would resolicit
proxies. The remainder of this discussion assumes that CoStar and Comps have not
waived the condition that such opinions be received.
The opinions will be based upon certain customary assumptions and
representations of fact, including representations of fact contained in
certificates of officers of CoStar, Comps and others. No ruling has been or will
be sought from the Internal Revenue Service as to the U.S. federal income tax
consequences of the merger, and the opinions of counsel are not binding upon the
Internal Revenue Service or any court. Accordingly, we cannot assure you that
the Internal Revenue Service will not contest the conclusions expressed in the
opinions or that a court will not sustain the Internal Revenue Service's
position.
To qualify as a reorganization, among other requirements, the merger must
satisfy a "continuity of interest" test, under which a substantial part of the
value of the proprietary interests in Comps must be preserved in the merger.
Under Internal Revenue Service regulations, for example a proprietary interest
in Comps is preserved in this context to the extent that:
- it is exchanged by the Comps stockholders for a proprietary interest in
CoStar,
- it is exchanged by CoStar for a direct interest in Comps, or
- it otherwise continues as a proprietary interest in Comps.
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In contrast, a proprietary interest in Comps is generally not preserved to
the extent that:
- CoStar or a person related to CoStar acquires the proprietary interest in
Comps in connection with the merger for consideration other than CoStar
stock,
- CoStar redeems, or a person related to CoStar acquires, the CoStar stock
furnished in the merger for consideration other than CoStar stock, and
the redemption or acquisition occurs in connection with the merger, or
- before and in connection with the merger, Comps redeems its stock or
makes an extraordinary distribution with respect to it, or a person
related to Comps acquires stock of Comps using consideration other than
stock of Comps or CoStar.
All facts and circumstances must be considered in determining whether, in
substance, a proprietary interest in the target corporation is preserved.
The continuity of interest test will be considered satisfied if Comps
stockholders in the aggregate exchange a substantial part of their Comps common
stock for CoStar common stock in the merger. For advance ruling purposes, the
Internal Revenue Service has provided a safe harbor with respect to the minimum
degree of continuity necessary to satisfy the continuity of interest
requirement. This safe harbor requires that taxpayers requesting a private
letter ruling from the Internal Revenue Service demonstrate that the historic
stockholders of the acquired entity will exchange at least 50%, by value
(measured generally at completion of the merger), of the total outstanding stock
of the acquired entity for stock of the acquiring entity. This safe harbor,
however, merely indicates the level of continuity required by the Internal
Revenue Service for the issuance of an advance ruling. It does not represent the
degree of continuity that is required to qualify as a reorganization. In fact,
the Internal Revenue Service has explicitly stated that the safe harbor is not
intended to define the lower limits of the continuity of interest requirement.
The case law is less restrictive than the Internal Revenue Service's ruling
guidelines in this area and, in one early case, the United States Supreme Court
held that the continuity of interest requirement was satisfied where the
stockholders of the acquired company received stock of the acquiring company
having a value of approximately 40% of the value of the formerly outstanding
stock of the acquired company.
The merger has been structured with the intent that 50.1% of the
consideration provided in the merger will consist of CoStar common stock. It is
possible, however, that because the number of CoStar shares to be issued in the
merger is fixed, the value of the CoStar common stock issued at the time of the
merger could fall below this 50.1% threshold. It is the opinion of Brobeck,
Phleger & Harrison, LLP, attorneys for Comps, and Fried, Frank, Harris, Shriver
& Jacobson, attorneys for CoStar, that the merger will qualify as a
reorganization for federal tax purposes if the value of stock received by Comps
stockholders is at least 40% (and the amount of cash received (including
payments to dissenters and payments in lieu of fractional shares) is no more
than 60%) of the aggregate value of consideration given in the merger. These
opinions will assume, consistent with the representations that have been made,
that as of the effective time of the merger:
- Comps did not make any redemptions or extraordinary distributions before,
and in connection with, the merger;
- no person related to Comps or CoStar acquired stock before the merger for
consideration other than Comps or CoStar stock;
- CoStar acquired all of the Comps stock in the merger solely in exchange
for the merger consideration; and
- neither CoStar nor any person related to CoStar will acquire CoStar stock
from a former Comps shareholder following the merger and in connection
with the merger.
Brobeck, Phleger & Harrison, LLP and Fried, Frank, Harris, Shriver &
Jacobson will not issue opinions that the merger qualifies as a reorganization
for federal tax purposes if the amount of stock received by Comps stockholders
is less than 40% (and the amount of cash received (including payments to
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dissenters and payments in lieu of fractional shares) is more than 60%) of the
aggregate value of consideration given in the merger.
Material Federal Income Tax Consequences to Comps Stockholders. The
following discussion of U.S. federal income tax consequences of the merger to
you assumes that the merger will qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code. As discussed below, the
U.S. federal income tax consequences of the merger to you depend on the form of
consideration you receive.
Stockholders Who Receive Solely CoStar Common Stock. If you exchange your
Comps shares solely for CoStar shares, you will not recognize any gain or loss
on that exchange (except to the extent you receive cash in lieu of fractional
shares of CoStar, as discussed below). The aggregate adjusted tax basis of
CoStar shares received will equal your aggregate adjusted tax basis in the Comps
shares surrendered. The holding period of the CoStar shares received pursuant to
the merger will include the holding period of the Comps shares surrendered.
Stockholders Who Receive Cash and CoStar Common Stock. If you exchange the
shares of Comps common stock you own for a combination of cash and shares of
CoStar common stock, you will not recognize any loss on the exchange. However,
you will recognize gain equal to the lesser of the amount of cash received or
the gain realized. The gain realized will be the excess of the sum of the fair
market value of CoStar common stock and the amount of cash received in the
exchange over the stockholder's adjusted tax basis in the Comps shares that were
surrendered. For this purpose, you must calculate gain or loss separately for
each identifiable block of shares of Comps common stock that you surrender in
the exchange, and you may not offset a loss recognized on one block of the
shares against gain recognized on another block of the shares.
Any gain you recognize as a result of receiving a combination of CoStar
common stock and cash will generally be treated as capital gain. However, if the
receipt of the cash has "the effect of the distribution of a dividend" for
federal income tax purposes, any gain you recognize will be treated as ordinary
dividend income to the extent of your ratable share of the accumulated earnings
and profits of Comps and/or CoStar. Neither Comps nor CoStar believes it has any
accumulated earnings and profits. Accordingly, it is unlikely that any gain will
be treated as a dividend. Any gain that is treated as capital gain will be long-
term capital gain if the holding period for shares of Comps common stock that
you surrender in the exchange is greater than one year as of the date of the
exchange.
BECAUSE THE DETERMINATION OF WHETHER A PAYMENT WILL BE TREATED AS HAVING
THE EFFECT OF THE DISTRIBUTION OF A DIVIDEND GENERALLY WILL DEPEND ON YOUR FACTS
AND CIRCUMSTANCES, YOU ARE STRONGLY ADVISED TO CONSULT YOUR OWN TAX ADVISOR
REGARDING THE TAX TREATMENT OF CASH RECEIVED IN THE MERGER, INCLUDING THE
APPLICATION OF THE CONSTRUCTIVE OWNERSHIP RULES OF THE INTERNAL REVENUE CODE AND
THE EFFECT OF ANY OF YOUR TRANSACTIONS IN COSTAR SHARES OR COMPS SHARES.
If you receive cash and CoStar shares in the merger, your basis in the
CoStar shares received will equal your adjusted basis in your Comps shares
increased by any gain you recognize as a result of the merger and reduced by the
amount of cash you receive in the merger. The holding period of the CoStar
shares you receive will include the holding period of the Comps shares you
surrender.
Stockholders Who Receive Solely Cash. Currently, the state of the law is
unclear as to the analysis that must be applied in determining the federal
income tax consequences to you if you exchange all of your shares of Comps
common stock solely for cash. You may be treated as:
- having sold your shares of Comps common stock in a taxable sale or
exchange;
- having received shares of CoStar common stock in the merger and having
had the shares redeemed by CoStar immediately after the merger; or
- having had your shares of Comps common stock redeemed by Comps before the
merger.
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However, in most circumstances, both the sales analysis and the redemption
analysis will yield the same tax result to you.
If the sales analysis is applied, you will recognize gain or loss, measured
by the difference between the amount of cash received and the adjusted tax basis
of the Comps common stock you surrender in exchange for the cash. Any gain or
loss you recognize will generally be treated as capital gain or loss.
If the redemption analysis is applied, you will be treated as having
exchanged your Comps stock for cash, rather than having received a dividend
distribution, if, after applying the attribution rules discussed above, the
redemption is:
- in complete redemption of all of your stock in either CoStar or Comps, as
the case may be;
- a substantially disproportionate reduction in your voting stock interest
in either CoStar or Comps, as the case may be; or
- not essentially equivalent to a dividend.
If the redemption qualifies as an exchange, you will recognize any gain or
loss realized on the exchange. Any gain or loss you recognize will generally be
treated as capital gain or loss. If the redemption does not qualify as an
exchange, the cash you receive will be treated as a dividend distribution, and
thus as ordinary income, to the extent of the current and accumulated earnings
and profits of the redeeming corporation. Neither Comps nor CoStar believes it
has any current or accumulated earnings and profits. Any excess will be treated
as gain from the sale or exchange of the Comps stock you held. However, under
those circumstances, you will not be permitted to recognize any loss.
Given the unclear state of the law with respect to the exchange of Comps
stock solely for cash, if you will receive solely cash, you are urged to consult
your own tax advisors.
Cash Received in Lieu of Fractional Shares. If you receive cash in lieu of
a fractional CoStar share, you will be treated as having first received such
fractional CoStar share in the merger and then as having received cash in
exchange for the fractional share interest. Thus, you generally will recognize
gain or loss in an amount equal to the difference between the amount of cash
received in lieu of the fractional CoStar share and the portion of the basis in
the Comps shares allocable to that fractional interest.
Special Rules for Stockholders that are Corporations. To the extent that
cash received in exchange for Comps shares is taxable as a dividend (as
described above) to a Comps stockholder that is a corporation, that stockholder
will be:
- eligible for a dividends received deduction (subject to applicable
limitations), and
- subject to the "extraordinary dividend" provisions of the Internal
Revenue Code.
Any such cash that is taxable as a dividend to a corporate stockholder may
constitute an extraordinary dividend. Consequently, the nontaxed portion of any
such dividend will reduce the adjusted tax basis of a Comps stockholder that is
a corporation in the CoStar shares received in the merger, but not below zero,
and will thereafter be taxable as capital gain.
Income Tax Rates. Capital gain you recognize in the merger if you are an
individual or one of certain other noncorporate entities, and if you held your
Comps shares for more than one year, generally will be subject to a U.S. federal
income tax rate of 20%. Gain or dividend income otherwise recognized by you
generally will be subject to:
- a maximum 39.6% U.S. federal income tax rate for individuals and certain
other noncorporate stockholders, or
- a maximum 35% U.S. federal income tax rate for corporations.
Material Federal Income Tax Consequences to CoStar, Comps and Acq Sub,
Inc. Assuming that the merger is treated as a reorganization, none of CoStar,
Comps or Acq Sub, Inc. will recognize gain or loss as a result of the merger.
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Backup Withholding. Payments in connection with the merger may be subject
"backup withholding" at a rate of 31%, unless you:
- provide a correct taxpayer identification number (which, for an
individual stockholder, is the stockholder's social security number) and
any required information to the paying agent, or
- are a corporation or come within certain exempt categories and, when
required, demonstrate that fact and otherwise comply with applicable
requirements of the backup withholding rules.
If you do not provide a correct taxpayer identification number, you may be
subject to penalties imposed by the Internal Revenue Service. Any amount you pay
as backup withholding does not constitute an additional tax and will be
creditable against your U.S. federal income tax liability. You should consult
with your own tax advisor as to your qualification for exemption from backup
withholding and the procedure for obtaining this exemption. YOU MAY PREVENT
BACKUP WITHHOLDING BY COMPLETING A SUBSTITUTE FORM W-9 (CONTAINED WITH THE
TRANSMITTAL LETTER TO BE FORWARDED TO COMPS STOCKHOLDERS) AND SUBMITTING IT TO
THE PAYING AGENT FOR THE MERGER WHEN YOU SUBMIT YOUR COMPS SHARE CERTIFICATES.
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
rules promulgated under the Act by the Federal Trade Commission, we cannot
complete the merger until we have given notification and furnish information
relating to the competitive nature of Comps and CoStar and the industries in
which they operate to the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice, and a specified waiting period expires
or is terminated. CoStar and Comps both filed notification and report forms
under the Hart-Scott-Rodino Act with the Federal Trade Commission and the
Antitrust Division on November 22, 1999. On December 7, 1999, we received notice
of early termination of the waiting period under the Hart-Scott-Rodino Act. Even
after the waiting period expires or is terminated, the Federal Trade Commission
and the Antitrust Division retain the authority to challenge the merger on
antitrust grounds. In addition, each state in which CoStar or Comps operates may
also seek to review the merger. It is possible that some of these authorities
may seek to challenge the merger.
Under the merger agreement, CoStar and Comps have each agreed to use
commercially reasonable efforts to take all actions to obtain all necessary
regulatory and governmental approvals necessary to complete the merger and to
address concerns of regulators and governmental officials.
LISTING OF COSTAR COMMON STOCK
It is a condition to the merger that the shares of CoStar common stock to
be issued in the merger be approved for trading on the Nasdaq Stock Market,
along with existing listed shares of CoStar, subject to official notice of
issuance. CoStar intends to file a supplemental listing application with the
Nasdaq Stock Market to cover the shares of CoStar common stock to be issued in
the merger. Following the merger, Comps stock will no longer be registered under
the Securities Act of 1933 or the Securities Exchange Act of 1934 or traded on
the Nasdaq Stock Market.
ACCOUNTING TREATMENT
The merger will be accounted for as a "purchase" under generally accepted
accounting principles. This means that after the merger, Comps' combined results
of operations will be included in the CoStar consolidated results of operations.
For purposes of preparing consolidated financial statements, the purchase price,
including the fees and other costs associated with the merger at the date of
completion, will be allocated to Comps' assets and liabilities based on their
fair market values, with the excess allocated to goodwill to be amortized over
the estimated economic life of the assets. CoStar has undertaken a study by an
independent third party to determine the allocation of the total purchase price
of the merger to the various assets acquired and liabilities assumed in the
merger.
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The purchase accounting adjustments made in connection with the development
of the pro forma combined financial information appearing in this proxy
statement/prospectus are preliminary and have been made solely for purposes of
developing this information to comply with the disclosure requirements of the
SEC. Although the final allocation of the purchase price to the fair values of
Comps' assets and liabilities may differ, the pro forma combined financial
information reflects CoStar management's best estimate based upon currently
available information.
DISSENTERS' APPRAISAL RIGHTS
Comps is organized under Delaware law. Comps stockholders have the right to
dissent from the merger and to receive payment for their shares in accordance
with the terms of Section 262 of the Delaware General Corporation Law. The
following discussion is a summary of the dissenters' rights law under the
Delaware law. The entire statute is reprinted in Annex C. ANY STOCKHOLDER THAT
WISHES TO EXERCISE DISSENTERS' RIGHTS OR PRESERVE THE RIGHT TO DO SO SHOULD
REVIEW THE STATUTE CAREFULLY. COMPS STOCKHOLDERS THAT DO NOT COMPLY WITH THE
PROCEDURES OF THE STATUTE WILL LOSE THEIR DISSENTERS' RIGHTS.
A Comps stockholder that wishes to dissent from the merger must satisfy
both of the following conditions, among others:
- Written Objection. The stockholder must file a written objection to the
merger with Comps at its offices at 9888 Carroll Centre Road, Suite 100
San Diego, California 92126, Attention: Corporate Secretary, before the
vote is taken at the special meeting.
- No Vote In Favor. The stockholder must not vote in favor of adoption of
the merger agreement.
Comps stockholders that file and do not withdraw a written objection to the
merger will not be entitled to elect between cash and CoStar common stock as
merger consideration. Any Comps stockholder in that circumstance that later
withdraws the stockholder's demand for appraisal will then receive the
combination of cash and CoStar common stock that is allocated to non-electing
Comps stockholders as a result of the proration procedure discussed in the
section titled "Material Terms of the Merger Agreement -- Consideration to be
Received in the Merger" on page 45.
A negative vote alone will not constitute the written objection required
before the meeting. The written objection should specify the stockholder's name
and mailing address, the number of shares of Comps common stock owned by the
stockholder and that the stockholder is demanding appraisal of his or her
shares.
If the Comps stockholders adopt the merger agreement, CoStar will send
written notice to each dissenting stockholder that has filed an objection and
not voted in favor of the adoption of the merger no later than 10 days after
completion of the merger. The notice will state the date that the merger
agreement has become effective.
Within 120 days after the effective time of the merger, any dissenting
stockholder who has complied with the conditions explained above and desires to
have his or her shares appraised should file a petition with the Delaware Court
of Chancery demanding a determination of the fair value of the shares of all the
dissenting stockholders. Within the same period, a dissenting stockholder may
also make a written request to CoStar demanding a statement of the number of
dissenting Comps stockholders and the aggregate number of dissenting shares of
Comps common stock. CoStar must mail the statement within 10 days after it
receives the request.
If a proper petition for appraisal is timely filed, the Chancery Court will
determine which Comps stockholders, if any, are entitled to appraisal rights.
The Chancery Court may require any stockholders demanding appraisal rights to
submit their certificates of Comps common stock to the Register in Chancery for
notation on these certificates of the pendency of the appraisal proceedings.
Where the proceedings are not dismissed, the Chancery Court will appraise the
shares of Comps common stock owned by the dissenting stockholders by determining
the fair value of the shares exclusive of any element of value arising out of
the accomplishment or expectation of the merger. It will also determine the fair
rate
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of interest, if any, on the amount determined to be the fair value. In making
this determination of fair value, the Chancery Court must consider all relevant
factors, which would include but not be limited to:
- market value;
- asset value;
- dividends;
- earnings prospects;
- the nature of the enterprise;
- the rate of interest CoStar would have had to pay to borrow money while
the appraisal proceedings were pending; and
- any other facts which could be ascertained as of the date of the merger
which would throw light on future prospects of the combined corporation.
Comps stockholders considering seeking appraisal should recognize that the
fair value of their shares determined under Section 262 could be more than, the
same as or less than the consideration they are entitled to receive pursuant to
the merger agreement if they do not seek appraisal of their shares. The Chancery
Court may, on a stockholder's application, determine the cost of the appraisal
proceedings and allocate the cost against the dissenting stockholders and Comps
as it deems equitable under the circumstances.
After the merger is complete, any Comps stockholder who has demanded
appraisal in compliance with Section 262 will not be entitled to vote for any
purpose any shares subject to the demand or to receive payment of dividends or
other distributions on the shares, except for dividends or distributions payable
to stockholders of record on a date before the effective time of the merger.
At any time within 60 days after the completion of the merger, any
dissenting stockholder will have the right to withdraw his or her demand for
appraisal and to accept the terms offered in the merger. After this period, the
stockholder may withdraw the demand only with the written consent of Comps. If
no petition is filed by any dissenting stockholder within 120 days after the
effective time of the merger, Comps stockholders' rights as to appraisal will
cease and dissenting stockholders will be entitled only to receive the
consideration offered pursuant to the merger agreement. These stockholders also
will not be able to elect between cash and CoStar common stock. Instead, they
will receive whatever consideration is available as a result of the proration
procedure discussed in the section titled "Material Terms of the Merger
Agreement -- Consideration to be Received in the Merger" on page 45.
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTIONS
This proxy statement/prospectus does not cover any resales of the CoStar
common stock you will receive in the merger, and no person is authorized to make
any use of this proxy statement/prospectus in connection with any such resale.
All shares of CoStar common stock you will receive in the merger will be
freely transferable, except that if you are deemed to be an "affiliate" of Comps
under the Securities Act of 1933 at the time of the special meeting, you may
resell those shares only in transactions permitted by Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act. Persons who
may be affiliates of Comps for those purposes generally include individuals or
entities that control, are controlled by, or are under common control with,
Comps, and would not include stockholders who are not officers, directors or
principal stockholders of Comps.
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INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER
When you consider the recommendation of the Comps board of directors that
you vote for the adoption of the merger agreement, you should be aware that some
of the directors and officers of Comps and their associates have interests in
the merger in addition to their interests solely as Comps stockholders, which
are described below. These interests may create potential conflicts of interest.
The board of directors of Comps was aware of each of these interests when it
considered and adopted and approved the merger agreement and the merger.
EMPLOYMENT AGREEMENT
To induce CoStar to enter into the merger agreement, CoStar, Comps and Mr.
Crane signed a separation and employment agreement on November 3, 1999. Under
that agreement, which is effective when the merger is completed, Mr. Crane will
resign his position as President and Chief Executive Officer of Comps when the
merger is completed and will be employed by CoStar for 180 days after the merger
is completed, for which he will be paid a total salary, equal to his current
base salary, of $75,000. Under the agreement, Mr. Crane will facilitate
introductions, assist with business relationships and provide other services to
help effect a smooth transition. Mr. Crane waived his right to severance pay of
$100,000, which is equal to eight months salary under his former employment
agreement with Comps, dated October 14, 1994. Mr. Crane also released CoStar and
Comps from any contractual liability to him arising out of his employment with
Costar or Comps. CoStar may terminate Mr. Crane's employment without cause at
any time but must still pay him his salary for the entire 180-day period.
However, if CoStar terminates him for causes specified in the separation and
employment agreement, Mr. Crane will only receive salary through the date of
termination.
CoStar, Comps and Mr. Crane also signed a non-competition and
non-disclosure agreement on November 3, 1999. In this agreement, Mr. Crane
agreed not to engage in activities in the United States that compete with the
combined company for a period of at least two years after the merger is
completed, unless he receives CoStar's consent.
One person chosen by mutual agreement of Comps and CoStar will serve on
CoStar's board of directors.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE; INDEMNIFICATION AGREEMENTS.
CoStar will be required to indemnify, to the fullest extent allowed under
law, each individual who is or was an officer, director or employee of Comps or
any of its subsidiaries for all actions taken by them in their capacities at
Comps, or taken at the request of Comps, at or before the completion of the
merger. CoStar will honor all of Comps' indemnification obligations to those
persons, whether created by agreement or by Comps' certificate of incorporation
or by-laws, and will not repeal or amend the certificate or bylaw provisions
regarding such indemnification for a period of six years in a manner that could
be adverse to the interests of the former directors, officers, agents or
employees of Comps.
For six years after completing the merger, CoStar will also provide
officers' and directors' liability insurance policies covering acts or omissions
before the completion of the merger for each individual covered under the
comparable Comps policy as of the date of the merger agreement. CoStar will not
be required to pay, in total, an annual premium for the insurance described in
this paragraph in excess of 200% of the annual premium paid by Comps for its
existing coverage before the merger. If the annual premiums of that insurance
coverage exceed that amount, CoStar will be obligated to provide a policy with
the best coverage available for a cost up to but not exceeding 200% of the
current annual premium.
PLEDGE AGREEMENT
To induce CoStar to enter into the merger agreement, Mr. Crane, Summit
Ventures III, L.P. and Summit Investors II, L.P. signed a pledge agreement with
CoStar. Under this agreement, Mr. Crane and the two Summit funds agreed to
pledge as collateral security 280,000, 380,000 and 6,667 shares of Comps
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stock, respectively, in the event that cash expenditures and increases in
liabilities incurred by Comps exceed $5 million during the period from November
3, 1999 to completion of the merger. For more information on the cash shortfall
provision, see "Material Terms of the Merger Agreement -- Additional Agreements"
beginning on page 47. Under the terms of the pledge agreement, Mr. Crane agreed
to cover cash shortfalls up to $2.1 million, Summit Ventures III, L.P. agreed to
cover cash shortfalls of up to $2.85 million, and Summit Investors II, L.P.
agreed to cover cash shortfalls of up to $50,000.
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MATERIAL TERMS OF THE MERGER AGREEMENT
GENERAL
The following summary of the merger agreement is qualified by reference to
the complete text of the merger agreement, which is incorporated by reference
and attached as Annex A to this document. We encourage you to read the merger
agreement carefully in its entirety because it is the legal document that
governs the merger.
Under the merger agreement, Comps will merge into a wholly owned subsidiary
of CoStar. As a consequence of the merger, the separate corporate existence of
Comps will cease and the subsidiary of CoStar will continue as the surviving
corporation.
CLOSING; EFFECTIVE TIME
We will complete the merger at 10:00 a.m., Eastern Time, on the first
business day after the conditions in the merger agreement have been satisfied or
waived, unless we agree to another date and time.
On the date of completion of the merger, we will file a certificate of
merger and other appropriate documents with the Secretary of State of Delaware
in accordance with the relevant provisions of Delaware law. The merger will
become effective when the certificate of merger is filed with the Secretary of
State of Delaware, or at such later time as we specify in the certificate of
merger.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At completion of the merger, each outstanding share of Comps common stock
will automatically convert into the right to receive $7.50 in cash or 0.31496
shares of common stock of CoStar. Comps stockholders may elect which type of
consideration they wish to receive and in what proportion, subject to
adjustment, as follows:
- Stockholders who elect to receive cash consideration will receive some
CoStar common stock in the event that the number of shares of Comps
common stock to be converted to cash would otherwise exceed 49.9% of the
number of Comps shares outstanding on completion of the merger. In that
case, an adjustment will be made on a pro rata basis among the
stockholders electing to receive cash and CoStar will distribute its
common stock to them, in lieu of cash, so that the aggregate number of
Comps shares converted to cash does not exceed the 49.9% limit.
- Stockholders who elect to receive stock consideration will receive some
cash in the event that the number of shares of Comps common stock to be
converted to stock would otherwise exceed 50.1% of the number of Comps
shares outstanding on completion of the merger. In that case, an
adjustment will be made on a pro rata basis among the stockholders
electing to receive stock and CoStar will distribute cash to them, in
lieu of stock, so that the aggregate number of Comps shares converted to
stock does not exceed the 50.1% limit.
Stockholders who indicate no preference between cash consideration and
stock consideration, and stockholders who assert appraisal rights but fail to
perfect or otherwise lose appraisal rights, will have their shares converted
into cash, stock or a combination of cash and stock, at CoStar's sole
discretion.
Any share of Comps common stock held by Comps as treasury stock or by
CoStar will be automatically canceled and retired in the merger and will cease
to exist. CoStar will not exchange those shares for any securities of CoStar or
other consideration.
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REPRESENTATIONS AND WARRANTIES
In the merger agreement, Comps represents and warrants to CoStar, and
CoStar represents and warrants to Comps, that:
- it is properly organized, existing and in good standing as a Delaware
corporation, and its share capital is as stated in the merger agreement;
- it has properly authorized, executed, delivered and performed the merger
agreement;
- the merger agreement is enforceable against it, and required consents,
approvals, orders and authorizations of governmental authorities relating
to the merger agreement have been, or will be, obtained;
- it will not contravene its articles, bylaws or other agreements as a
result of the merger agreement;
- the votes, if any, of its stockholders that are required in connection
with the merger are as stated in the merger agreement;
- documents it filed with the SEC do not contain untrue statements of
material fact or omit material facts;
- the material changes or events specified in the merger agreement have not
occurred since June 30, 1999;
- it has complied with all material applicable laws and has disclosed all
material litigation and liabilities; and
- its information systems are Year 2000 compliant to the extent disclosed
in the merger agreement.
In addition, Comps represents and warrants to CoStar that:
- financial statements it filed with the SEC and financial statements for
the three months ended September 30, 1999 provided to CoStar fairly
present its financial condition; and
- its employee benefit matters, labor matters, tax matters, intellectual
property matters, environmental matters and insurance matters all are as
stated in the merger agreement.
Also, CoStar represents and warrants to Comps that:
- financial statements it filed with the SEC fairly present its financial
condition; and
- it will have the funds required for completion of the merger.
The representations and warranties are of no further force or effect after
completion of the merger or termination of the merger agreement.
COVENANTS
The merger agreement requires that each party comply, from the date of the
merger agreement to the effective time of the merger, with agreements relating
to the conduct of its business, except as permitted by the merger agreement or
as consented to by the other party.
Requirements
Comps has agreed that it will:
- conduct its business, maintain its facilities and perform obligations in
the ordinary course consistent with past practice, and endeavor to
conserve cash;
- use its best efforts to maintain its existing relations and goodwill with
customers, suppliers, distributors, creditors, lessors, employees and
others having business dealings with it;
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- provide CoStar reasonable access to its properties, books and records,
and provide CoStar information about its business and personnel; and
- deliver monthly financial statements to CoStar.
In addition, each of CoStar and Comps has agreed that it will:
- provide accurate information for this proxy statement/prospectus;
- use commercially reasonable efforts to complete the merger as soon as
practicable, including by obtaining necessary consents and
authorizations; and
- cooperate in the preparation and filing of this proxy
statement/prospectus and use commercially reasonable efforts to cause the
registration statement on Form S-4 of which it is a part to be declared
effective by the SEC.
Prohibitions
The merger agreement prohibits each of CoStar and Comps from taking any
action which would prevent the merger from being a reorganization under the
Internal Revenue Code.
In addition, the merger agreement prohibits Comps from taking any action
outside of the parameters specified in the merger agreement relating to the
following matters:
- declaring or paying dividends, redeeming its stock or changing the terms
of its outstanding securities;
- issuing, selling or granting options to acquire any shares of its capital
stock;
- selling or buying assets or other business by merger, transfer of shares
of stock or otherwise;
- incurring additional debt or encumbering its stock or its assets;
- amending its organizational documents or material agreements;
- settling litigation;
- making any material tax election; and
- taking any action to change employee rights and benefits, to increase
salaries or to pay any bonus.
ADDITIONAL AGREEMENTS
Election to Board of Directors
CoStar and Comps will mutually agree on a person who, at the closing of the
merger, will be appointed as an additional member of CoStar's board of
directors. Subject to its fiduciary duties under applicable law, CoStar will use
its best efforts to cause this person to be elected as a CoStar director at the
first annual meeting of CoStar stockholders after the merger. As a condition to
his or her appointment to the board, this person will execute an irrevocable
resignation from the CoStar board of directors that will take effect when
Christopher A. Crane, Summit Ventures III, L.P. and Summit Investors II, L.P.
hold in the aggregate less than 70% of the shares of CoStar common stock issued
to them in the merger.
Payment of Cash Shortfall
Mr. Crane, Summit Ventures III, L.P. and Summit Investors II, L.P. have
agreed to pay CoStar the amount, if any, by which Comps' cash expenditures
between signature of the merger agreement and the closing of the merger exceed
$100,000 per day, up to a limit of $5 million. This amount is calculated as
follows.
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Comps' cash expenditures are calculated as:
- its cash spending between November 3, 1999 and the completion of the
merger, and increases in its accounts payable, accrued liabilities and
debt from its September 30, 1999 financial statements to the date of
completion, less
- the aggregate amount of severance payments it makes to its employees
between November 3, 1999 and the completion of the merger, up to a limit
of the severance payment described in any applicable employment agreement
or, for employees without an employment agreement, four weeks' salary.
At the completion of the merger, the amount of Comps' cash expenditures
will be compared to the following sum:
- $100,000 for each day between November 3, 1999 and the date of closing,
inclusive, plus
- the amount of Comps' actual costs in connection with the merger, to a
maximum of $2 million.
If Comps' cash expenditures exceed this sum, then Mr. Crane and the two
Summit funds will pay CoStar the amount of the excess, up to $5 million, out of
the proceeds they receive in connection with the merger as Comps stockholders.
Mr. Crane and the two Summit funds have pledged 280,000, 380,000 and 6,667
shares of Comps common stock, respectively, to CoStar as collateral security for
their obligation to pay the amount of excess cash expenditures, if any. Under
the terms of the pledge agreement, Mr. Crane agreed to cover cash shortfalls up
to $2.1 million, Summit Ventures III, L.P. agreed to cover cash shortfalls of up
to $2.85 million, and Summit Investors II, L.P. agreed to cover cash shortfalls
of up to $50,000.
Insurance and Indemnification
For six years after the merger, CoStar will maintain in effect Comps'
current directors' and officers' liability insurance, or policies containing no
less favorable coverage for acts or omissions occurring before the merger.
CoStar will not be required to pay, in total, an annual premium for the
insurance described in this paragraph in excess of 200% of the annual premium
Comps pays for its existing coverage before the merger. If the annual premiums
exceed that amount, CoStar will be obligated to obtain a policy with the best
coverage available for a cost up to but not exceeding that amount.
The indemnified parties will, for six years after the merger, be entitled
to the benefit of provisions that are substantially similar to the provisions of
Comps' certificate of incorporation and bylaws relating to indemnification.
Fees and Expenses
Whether or not the merger is completed, CoStar and Comps will share the
expense of this proxy statement/prospectus and the SEC registration statement of
which it is a part, and the expense of filings under the Hart-Scott-Rodino Act.
CoStar and Comps will each pay all of their other costs and expenses incurred in
connection with the merger and the merger agreement, subject to the expense
reimbursement and termination fee provisions described under "-- Termination
Fee" on page 51. Costs incurred by Comps will be taken into account in the
calculation of the cash expenditures described above.
CONDITIONS TO COMPLETION OF THE MERGER
Comps and CoStar are not obligated to complete the merger unless:
- the Comps stockholders adopt the merger agreement;
- the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 expires or terminates;
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- no court issues an order and no law is enacted which would make the
completion of the merger illegal or otherwise prohibited;
- the SEC declares effective the CoStar Form S-4 registration statement, of
which this proxy statement/prospectus is a part;
- the representations and warranties made by the other party are true and
correct in all material respects on the date of the merger, in each case
as if they were made on that date (unless they were expressly made as of
a specific date, in which case they need be true and correct only as of
that specific date);
- the other party has performed in all material respects all agreements and
covenants that the merger agreement requires it to perform on or before
the date of the merger;
- each has received an opinion from the other's legal counsel on specified
corporate law matters;
- each has received an opinion from legal counsel to the effect that the
merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code; and
- each has received comfort letters from its respective independent
auditors that address customary matters concerning its financial
statements.
In addition, CoStar's obligations to complete the merger is subject to the
further conditions that:
- it receives an agreement from each person whom it identifies as an
affiliate of Comps that the person will not sell the CoStar common stock
received in the merger other than in compliance with federal securities
laws, and that the person will waive any rights to registration of Comps
common stock or CoStar common stock that he or she may have;
- there has been no acceleration or other action with respect to Comps
stock options, other than as permitted by the merger agreement or by
CoStar;
- there is no litigation or liability that would reasonably be expected to
have a material adverse effect on Comps;
- each holder of warrants to purchase shares of Comps common stock has
consented to cancellation of the warrant in favor of payment of the
consideration specified in the merger agreement; and
- Comps has obtained all consents that are required by a material contract
of Comps.
NO SOLICITATION
The merger agreement provides that, except as described below, Comps may
not, directly or indirectly, participate in any discussion or negotiation
regarding any acquisition proposal.
If Comps receives an unsolicited proposal regarding a business combination
with Comps, it may furnish information to the person making the proposal in
accordance with a customary confidentiality agreement. Comps must immediately
notify CoStar of any confidentiality agreement that it executes, and inform
CoStar of the identity of the person making the proposal.
If the members of Comps' board who are not interested in the proposal
determine, in good faith, after consulting financial and legal advisors, that it
is reasonable to do so, Comps and its directors, officers and representatives
may negotiate regarding the proposal.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated:
- by mutual written consent of CoStar and Comps;
- by either CoStar or Comps:
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- if we do not complete the merger on or before May 31, 2000, except
that a party may not terminate the agreement if its failure to fulfill
its obligations is the cause of the merger not being completed by May
31, 2000;
- if the Comps stockholders do not adopt the merger agreement;
- if a law makes the merger illegal or a court or other government
authority issues a final non-appealable ruling that permanently
prohibits the completion of the merger; or
- if there has been a breach by the other party of any of its
representations, warranties, covenants or agreements contained in the
merger agreement, and the breach is incapable of being cured or, if
capable of being cured, has not been cured within 30 days after
written notice.
Comps may terminate the merger agreement if all of the following steps are
completed:
- it is not otherwise in breach of the agreement;
- its board determines in good faith, after consulting financial and legal
advisors, that
- a third party's proposal regarding a business combination with Comps
is likely to be completed, taking into account the party making the
proposal and all legal, financial and regulatory aspects of the
proposal; and
- if completed, the third party's proposal would result in a transaction
that is more favorable to Comps' stockholders than the merger, from a
financial point of view;
- its board authorizes it to enter into a binding agreement to complete the
business combination proposed by the third party;
- it notifies CoStar in writing of the proposed business combination and
provides CoStar a copy of the proposed agreement;
- it provides CoStar three business days to propose adjustments to the
terms and conditions of the merger agreement;
- its board determines in good faith, after consulting financial advisors,
that CoStar's adjusted terms and conditions are not at least as favorable
to Comps' stockholders as the third party proposal, from a financial
point of view; and
- it pays CoStar the termination fee described below.
Comps may also terminate the merger agreement if:
- its board determines in good faith, after consulting financial and legal
advisors, that the board's fiduciary duties are likely to require the
board to withdraw or modify, in a manner adverse to CoStar, the board's
recommendation of the merger agreement;
- the board does in fact withdraw or adversely modify its recommendation of
the merger agreement; and
- it pays CoStar the termination fee described below.
CoStar may also terminate the merger agreement if:
- Comps' board of directors withdraws or modifies, in a manner adverse to
CoStar, its recommendation of the merger agreement or fails to reconfirm
its recommendation within seven business days after CoStar's written
request; or
- Comps or its representatives solicit any proposal for a business
combination with Comps or participate in discussions regarding a business
combination other than as permitted by the merger agreement.
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TERMINATION FEE
Comps must pay CoStar a $2 million termination fee and reimburse CoStar for
up to $500,000 of its costs and expenses in connection with the merger if:
- Comps terminates the merger agreement after it notifies CoStar of a
proposed business combination with a third party and CoStar does not,
within three business days, make a proposal to Comps that is at least as
favorable, from a financial point of view, to Comps' stockholders, in the
good faith judgment of the Comps board;
- Comps terminates the merger agreement after its board determines in good
faith, after consulting financial and legal advisors, that the board's
fiduciary duties are likely to require the board to withdraw or modify,
in a manner adverse to CoStar, the board's recommendation of the merger
agreement, and the board does in fact withdraw or adversely modify its
recommendation of the merger agreement;
- CoStar terminates the merger agreement because the Comps board withdraws
or modifies, in a manner adverse to CoStar the board's recommendation of
the merger, or fails to reconfirm its recommendation within seven
business days after CoStar's written request;
- CoStar terminates the merger agreement because Comps or its
representatives solicit a proposal for or participate in discussions
regarding a business combination, other than as permitted by the merger
agreement; or
- a third party makes a proposal to effect a business combination with
Comps or publicly announces an intention to make a proposal to effect a
business combination with Comps, and then CoStar or Comps terminate the
merger agreement because:
- the merger is not completed by May 31, 2000,
- the Comps stockholders do not approve the merger, or
- a government authority prohibits issues an order prohibiting
completion of the merger.
AMENDMENTS
We may amend the merger agreement at any time before or after the Comps
stockholders adopt the merger agreement. After the Comps stockholders adopt the
merger agreement, we may not make any amendment that, by law or in accordance
with the rules of any stock exchange, requires further approval by Comps
stockholders or approval by CoStar stockholders, without the approval of those
stockholders.
51
<PAGE> 58
MATERIAL TERMS OF THE VOTING AGREEMENTS
To induce CoStar to enter into the merger agreement, the holders of Comps
common stock listed below have entered into voting agreements with CoStar. The
form of voting agreement is an exhibit to the merger agreement.
Stockholders who have signed voting agreements are:
- Christopher A. Crane, Chairman of the Board, Chief Executive Officer and
President of Comps
- Summit Ventures III, L.P.
- Summit Investors II, L.P.
- Robert C. Beasley, a director of Comps
- Karen Goodrum, Vice President of Finance and Administration, Chief
Financial Officer and Secretary of Comps
- Christopher T. Fenton, Senior Vice President and Chief Operating Officer
of Comps
As of October 31, 1999, the six stockholders named above owned 54.5% of the
common stock of Comps, assuming conversion of all outstanding options and
warrants that will vest before the merger. Under the voting agreements, the six
stockholders have agreed to vote all of the shares of Comps common stock owned
by them or over which they exercise voting control in favor of the merger
agreement and against any competing acquisition proposal.
However, the voting agreements do not restrict the persons listed above
from voting, either as directors or stockholders, in favor of a business
combination with a third party that the Comps board determines to be financially
more favorable to the Comps stockholders, provided the merger agreement has been
terminated. For further information on termination of the merger agreement, see
"Material Terms of the Merger Agreement -- Termination of the Merger Agreement"
beginning on page 49.
The voting agreements expire when the merger agreement has been adopted by
the Comps stockholders or upon termination of the merger agreement, whichever
comes first.
52
<PAGE> 59
MATERIAL EFFECTS OF THE MERGER ON COMPS' STOCK OPTIONS,
WARRANTS AND OTHER EMPLOYEE BENEFIT PLANS
STOCK OPTIONS
Comps currently has one stock option plan, the 1999 Stock Incentive Plan.
In the past, however, Comps granted stock options under three predecessor
plans -- an amended and restated stock option plan, a supplemental option plan
and an equity participation plan. Although all options under these predecessor
plans have been incorporated into the 1999 Stock Incentive Plan, they continue
to be governed by the terms of the predecessor plans. Therefore, not all of the
Comps' options have the same terms, and thus may be treated differently in the
merger. As of October 31, 1999 there were:
- 441,841 options issued under, and governed by the terms of, the 1999
Stock Incentive Plan. Of these options, 10,402 are vested and 431,439 are
unvested. Unvested options granted under the 1999 Stock Incentive Plan
vest immediately before the merger.
- 1,719,510 options issued under the predecessor plans. Of these options,
789,968 are vested and 929,542 are unvested. Except as described below,
none of the unvested options issued under the predecessor plans will vest
as a result of the merger.
Stock options that vest before the merger and are not exercised before the
effective time, in CoStar's sole discretion, may be (1) assumed by CoStar or (2)
replaced with an award under a cash incentive program that preserves the value
of the spread of the option existing on the date the merger becomes effective.
Any outstanding options that CoStar does not assume or replace with a cash
alternative will be cancelled if they are not exercised before the merger.
CoStar has agreed to accelerate the vesting of a limited portion of options
that do not vest automatically. The value of all of these options to be
accelerated will be $671,915. Based on this limitation, CoStar and Comps have
mutually agreed on which additional options will have accelerated vesting, and
will require each person whose options are accelerated to execute a release of
liability.
CoStar has agreed with Stephen James, a former member of the Comps board of
directors and a consultant to Comps, that all of the options to purchase Comps
common stock that he holds will vest immediately before the merger. The value of
these accelerated options does not count towards the $671,915 limitation.
1999 EMPLOYEE STOCK PURCHASE PLAN
As of October 31, 1999 there were 22,657 shares issued under the Comps 1999
Employee Stock Purchase Plan. The employee stock purchase plan permits
qualifying employees to contribute amounts through payroll deductions toward the
right to purchase shares of Comps' common stock at prices below the fair market
value of the stock. These purchase rights accumulate over designated offering
periods, and are then applied toward the purchase of stock.
Under the terms of the 1999 Employee Stock Purchase Plan, all outstanding
purchase rights will automatically be exercised immediately before the effective
date of the merger. The purchase price will be equal to 85% of the lower of (1)
the fair market value per share of common stock on the participant's entry date
into the offering period in which the merger occurs or (2) the fair market value
per share of common stock immediately before the merger.
The merger agreement provides that all employee contributions toward
purchase rights must cease after January 31, 2000, and that the 1999 Employee
Stock Purchase Plan will terminate upon completion of the merger.
53
<PAGE> 60
WARRANTS
Each outstanding warrant to purchase shares of Comps common stock will,
upon the consent of the warrant holder, be canceled and converted into the
following number of shares of CoStar common stock for each warrant held:
- the number of shares of Comps common stock purchasable under the warrant,
multiplied by 0.31496 minus
- the quotient of the aggregate exercise price of the warrant divided by
$23.8125.
EMPLOYEE BENEFIT PLANS
After the merger, Comps employees that continue their employment with
CoStar will be eligible to participate in the employee benefit plans of CoStar
on substantially the same terms and conditions of similarly situated employees
of CoStar.
Nothing in the merger agreement limits the power of CoStar to make changes
to any employee benefits to comply with applicable law, or to terminate the
employment of any person after the merger.
54
<PAGE> 61
PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
On December 30, 1999, the record date for the special stockholders meeting,
Comps estimates that there were approximately 23 holders of record and over
2,600 beneficial owners of Comps common stock.
Market Prices and Dividends
Comps common stock has been traded on the Nasdaq Stock Market under the
symbol "CDOT" since May 5, 1999, the date of its initial public offering.
CoStar's common stock has been traded on the Nasdaq Stock Market under the
symbol "CSGP" since August 2, 1999, the date that CoStar changed its name from
Realty Information Group, Inc. From July 1, 1998, the date of its initial public
offering, until August 1, 1999, CoStar's common stock was traded on the Nasdaq
Stock Market under the symbol "RIGX."
The table below sets forth, for the periods indicated, the high and low
closing bids for CoStar common stock and Comps common stock as reported on the
Nasdaq Stock Market, in each case based on published financial sources. Neither
Comps nor CoStar has ever declared or paid dividends on their common stock and
do not expect to do so in the foreseeable future.
<TABLE>
<CAPTION>
COMPS COSTAR
COMMON STOCK COMMON STOCK
-------------- --------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1998:
Third Fiscal Quarter........................................ $-- $-- $10 7/8 $ 5 1/2
Fourth Fiscal Quarter....................................... -- -- 14 6
1999:
First Fiscal Quarter........................................ -- -- 29 1/4 12 5/8
Second Fiscal Quarter....................................... 15 1/8 6 1/2 48 5/8 28 1/2
Third Fiscal Quarter........................................ 10 9/16 4 3/4 48 22 3/16
Fourth Fiscal Quarter....................................... 8 6/16 5 7/8 35 7/8 14 5/16
</TABLE>
The following table presents trading information for CoStar common stock
and Comps common stock on November 3, 1999, the last full trading day before our
announcement of the signing of the merger agreement and January 3, 2000, the
last practicable trading day for which information was available before the date
of this proxy statement/prospectus.
<TABLE>
<CAPTION>
COMPS COMMON STOCK COSTAR COMMON STOCK
--------------------------- ------------------------------
HIGH LOW CLOSING HIGH LOW CLOSING
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
November 3, 1999................... $7.5625 $7.0625 $7.2813 $24.2500 $23.5000 $23.6250
January 3, 2000.................... $8.0000 $7.2500 $7.2813 $35.4375 $30.8750 $31.3750
</TABLE>
The market price of shares of CoStar common stock and Comps common stock
fluctuates. As a result, you should obtain current market quotations.
Post-Merger Dividend Policy. CoStar has never declared or paid dividends
on its common stock. CoStar does not expect to pay dividends on its common stock
for the foreseeable future.
55
<PAGE> 62
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
OF COSTAR GROUP, INC.
The following unaudited pro forma condensed consolidated financial
statements give effect to the acquisition by CoStar of Comps in exchange for
cash and common stock of CoStar.
The unaudited pro forma condensed consolidated statement of operations for
the nine months ended September 30, 1999 gives effect to the acquisition of
Comps as if it had occurred on January 1, 1999. The unaudited pro forma
condensed consolidated statement of operations for the year ended December 31,
1998 gives effect to the acquisition of Comps as if it had occurred on January
1, 1998. The unaudited pro forma condensed consolidated balance sheet gives
effect to the acquisition of Comps as if it had occurred on September 30, 1999.
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 CoStar'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 audited
and unaudited financial statements and notes of CoStar incorporated by reference
from CoStar's 1998 Annual Report on Form 10-K and CoStar's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999 into this proxy
statement/prospectus. The Management's Discussion and Analysis of Financial
Condition and Results of Operations and the audited and unaudited financial
statements and related notes of Comps are included elsewhere in this proxy
statement/prospectus.
56
<PAGE> 63
COSTAR GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
COSTAR COMPS ADJUSTMENTS PRO FORMA
(SEE NOTE 4) (SEE NOTE 6) (SEE NOTE 3) CONSOLIDATED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues................................... $ 22,081 $13,111 $ -- $ 35,192
Cost of revenues........................... 9,666 6,615 3,075(a) 19,356
-------- ------- ------- --------
Gross margin............................... 12,415 6,496 (3,075) 15,836
Operating expenses......................... 22,794 14,671 2,010(a) 39,475
-------- ------- ------- --------
Loss from operations....................... (10,379) (8,175) (5,085) (23,639)
Interest and other income (expense)........ 1,913 342 (3,162)(b) (907)
-------- ------- ------- --------
Net loss................................... $ (8,466) $(7,833) $(8,247) $(24,546)
======== ======= ======= ========
Net loss per share attributable to common
stockholders, basic and diluted.......... $ (0.74) $ (1.81)
======== ========
Shares used in computing net loss per
share, basic and diluted................. 11,415 13,545
======== ========
</TABLE>
See accompanying notes.
57
<PAGE> 64
COSTAR GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
COSTAR COMPS ADJUSTMENTS PRO FORMA
(SEE NOTE 4) (SEE NOTE 6) (SEE NOTE 3) CONSOLIDATED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues................................... $22,635 $14,648 $ -- $ 37,283
Cost of revenues........................... 8,437 6,445 4,100(a) 18,982
------- ------- -------- --------
Gross margin............................... 14,198 8,203 (4,100) 18,301
Operating expenses......................... 21,003 11,464 3,593(a) 36,060
------- ------- -------- --------
Loss from operations....................... (6,805) (3,261) (7,693) (17,759)
Interest and other income (expense)........ (343) (476) (4,893)(b) (5,712)
------- ------- -------- --------
Net loss................................... $(7,148) $(3,737) $(12,586) $(23,471)
======= ======= ======== ========
Net loss per share attributable to common
stockholders basic and diluted........... $ (0.87) $ (2.26)
======= ========
Shares used in computing net loss per
share, basic and diluted................. 8,260 10,390
======= ========
</TABLE>
See accompanying notes.
58
<PAGE> 65
COSTAR GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
COSTAR COMPS (SEE NOTE 3) CONSOLIDATED
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents...................... $ 99,278 $31,778 $(47,462)(c) $ 83,594
Marketable securities.......................... -- 17,734 -- 17,734
Accounts receivable, net....................... 2,402 3,328 -- 5,730
Prepaid expenses and other current assets...... 820 906 -- 1,726
-------- ------- -------- --------
Total current assets...................... 102,500 53,746 (47,462) 108,784
Property and equipment, net.................... 5,051 2,521 -- 7,572
Other assets................................... 24,594 11,342 37,582(c) 73,518
Deposits....................................... 416 288 -- 704
-------- ------- -------- --------
Total assets.............................. $132,561 $67,897 $ (9,880) $190,578
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses.......... $ 6,824 $ 2,410 $ 2,000(c) $ 11,234
Deferred revenue............................... 2,654 5,263 -- 7,917
Current portion of long-term debt.............. -- 1,040 (560)(c) 480
Current portion of capital lease obligations... -- 22 -- 22
-------- ------- -------- --------
Total current liabilities................. 9,478 8,735 1,440 19,653
Long-term debt, less current portion........... -- 3,844 (744)(c) 3,100
Capital lease obligations, less current
portion...................................... -- 11 -- 11
Deferred rent.................................. -- 73 (73) --
-------- ------- -------- --------
Total liabilities......................... 9,478 12,663 623 22,764
Stockholders' equity........................... 123,083 55,234 (10,503)(c) 167,814
-------- ------- -------- --------
Total liabilities and stockholders'
equity.................................. $132,561 $67,897 $ (9,880) $190,578
======== ======= ======== ========
</TABLE>
See accompanying notes.
59
<PAGE> 66
COSTAR GROUP, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGE AMOUNTS)
1. GENERAL
The pro forma statements of operations of CoStar included in the unaudited
pro forma condensed consolidated statements of operations for the nine months
ended September 30, 1999 and the year ended December 31, 1998 were derived from
the separate historical statements of operations of CoStar for the nine months
ended September 30, 1999 and the year ended December 31, 1998, respectively, as
adjusted to give effect to CoStar's January 1999 acquisitions of LeaseTrend,
Inc. ("LTI"), Jamison Research, Inc. ("JRI") and ARES Development Group, LLC
("ARES"), (collectively "CoStar's 1999 Acquisitions"), as if they had all
occurred on January 1, 1999 and January 1, 1998, respectively. CoStar's 1999
Acquisitions are included in CoStar's financial statements from the respective
dates of acquisitions. The pro forma statement of operations of Comps included
in the unaudited pro forma condensed consolidated statements of operations for
the nine months ended September 30, 1999 and the year ended December 31, 1998
were derived from the separate historical statements of operations of Comps for
the nine months ended September 30, 1999 and the year ended December 31, 1998,
respectively, as adjusted to give effect to Comps' 1998 acquisition of REALBID,
LLC ("REALBID") and 1999 acquisitions of Inside Prospects of California ("Inside
Prospects"), The Baca Information Group ("BACA"), Sendero Investments, Inc.
("Sendero"), Parramore, Inc. ("Parramore"), and Commercial Brokers Network
business of ARA-D/FW, Inc. ("CBN"), collectively, "Comps' 1998 and 1999
Acquisitions," as if they had all occurred on January 1, 1999 and January 1,
1998, respectively. Comps' 1998 and 1999 Acquisitions are included in Comps'
financial statements from the respective dates of acquisitions. All of the
consummated 1998 and 1999 acquisitions of CoStar and Comps have been accounted
for using the purchase method of accounting. The historical financial statements
included in the unaudited pro forma condensed consolidated balance sheet were
derived from the separate financial statements of CoStar and Comps as of
September 30, 1999. The related historical financial statements of CoStar are
incorporated by reference from CoStar's Annual Report on Form 10-K and CoStar's
Quarterly Report on Form 10-Q for the nine months ended September 30, 1999 into
this proxy statement/prospectus and should be read in conjunction with these
unaudited pro forma condensed consolidated financial statements. The related
historical financial statements of Comps are included elsewhere in this proxy
statement/prospectus and should be read in conjunction with these unaudited pro
forma condensed consolidated financial statements.
2. ACQUISITION OF COMPS
On November 3, 1999, CoStar entered into a definitive agreement to acquire
Comps, which will be effected by the merger of Comps into a wholly owned
subsidiary of CoStar. The merger agreement provides that each holder of a share
of Comps common stock may elect to receive either $7.50 in cash or 0.31496
shares (not in thousands) of CoStar's common stock, but these elections will be
adjusted so that 50.1% of the Comps shares receive CoStar's common stock and
49.9% of the Comps shares receive cash. The transaction, which will be accounted
for as a purchase, is valued at approximately $102,000, which consists of cash
of $50,528, acquisition related costs of $750 and 2,130 shares of CoStar's
common stock valued at market price on the date when both CoStar and Comps
reached an agreement and the proposed transaction was announced. The merger is
subject to the approval of Comps stockholders, as well as various governmental
bodies. Therefore, there can be no assurance that the acquisition of Comps by
CoStar will be consummated.
CoStar will adjust the historical carrying value of the acquired assets and
liabilities of Comps to fair market value as discussed below. The allocation
amounts, lives and classifications are estimates, based on the current
operations of Comps and the recorded book values of assets and liabilities as of
September 30, 1999. The actual allocations may vary based on the carrying value
of the acquired assets and liabilities at the closing date. The approximate
allocation of the excess purchase price over net tangible assets to
60
<PAGE> 67
2. ACQUISITION OF COMPS -- (CONTINUED)
proprietary database assets and intangible assets (including amounts previously
capitalized by Comps) is as follows:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
VALUE LIFE
--------- ----------
<S> <C> <C>
Proprietary databases....................................... $10,000 2-5 years
Customer base............................................... 11,000 10 years
Other intangible assets, including goodwill, in place
workforce and tradename................................... 25,828 9-10 years
-------
Total assets................................................ 46,828
In-process research and development charge.................. 6,000
-------
Total allocation............................................ $52,828
=======
</TABLE>
3. PRO FORMA ADJUSTMENTS FOR ACQUISITION OF COMPS
The pro forma adjustments reflect the acquisition by CoStar of Comps. The
adjustments are as follows:
Pro forma condensed consolidated statements of operations:
(a) Estimated charges for amortization of the assets noted above,
amounting to $3,075 and $4,100 to cost of revenues for product technology
and database amortization, and $2,716 and $3,622 to operating expenses for
amortization of intangible assets for the nine months ended September 30,
1999 and the year ended December 31, 1998, respectively. Additionally, $706
and $29 of Comps historical goodwill and intangible assets' amortization
expense for the nine months ended September 30, 1999 and the year ended
December 31, 1998 has been eliminated.
(b) Interest expense on borrowings of Comps of $194 and $345 for the
nine months ended September 30, 1999 and the year ended December 31, 1998,
respectively, is recorded as a result of the assumed repayment by CoStar of
certain current and long-term debt at the assumed acquisition dates of
January 1, 1999 and January 1, 1998, respectively. The interest expense
amounts include the additional interest amounts (or balloon interest
amounts) and 2% penalty charge that are required to be paid regardless of
when the balance of the notes payable is repaid.
Interest expense of $1,705 and $4,548 for the nine months ended
September 30, 1999 and the year ended December 31, 1998, respectively, is
included as a pro forma adjustment to reflect assumed borrowing by CoStar
for acquisition capital at the assumed dates of acquisition of January 1,
1999 and January 1, 1998, respectively. Amounts were calculated based on
the cash consideration of $50,528 at an assumed interest rate of 9%. The
pro forma interest expense adjustment for the nine months ended September
30, 1999 reflects interest expense for the period from January 1, 1999
through May 5, 1999 (closing of CoStar's secondary offering, which
generated sufficient funds to pay the cash portion of the consideration).
Interest income of $1,263 is eliminated as a result of the proceeds of the
follow-on public offering completed by CoStar on May 5, 1999 used to
purchase Comps.
Pro forma condensed consolidated balance sheet:
(c) Cash and cash equivalents. Reduction of cash for a total of
$47,462 comprised of amounts paid in cash for Comps totaling $50,528,
acquisition related costs of $750, and repayment of Comps debt totaling
$1,304, offset by cash of $5,120 received by Comps for the exercises of
vested options and warrants by Comps' employees, which may occur prior to
the closing of the merger.
Other assets, net. Allocation of $46,828 for customer base,
proprietary database and other intangible assets, less intangible amounts
previously recorded by Comps at a carrying value of $9,246.
61
<PAGE> 68
3. PRO FORMA ADJUSTMENTS FOR ACQUISITION OF COMPS -- (CONTINUED)
Long-term debt. Certain of the long-term debt of Comps is assumed
to be repaid by CoStar at closing.
Stockholders' equity. The stockholders' equity balance of
$60,354, including $5,120 recorded to give effect to the exercise of vested
options and warrants by Comps employees that may occur prior to the closing
of the merger, is eliminated. The stock portion of the consideration
totaling $50,731 for Comps is recorded. Additionally, an in-process
research and development charge of $6,000 has been recorded.
4. ACQUISITIONS BY COSTAR
On January 8, 1999, CoStar acquired all of the common stock of LTI, a
Cincinnati based provider of commercial real estate information, for $4,500 in
cash and 567 shares of CoStar's common stock. The transaction was accounted for
as a purchase and the consideration was valued for accounting purposes at
approximately $9,200 including acquisition expenses. On January 22, 1999, CoStar
acquired all of the common stock of JRI, an Atlanta based provider of commercial
real estate information, for $5,284 in cash and 448 shares of CoStar's common
stock. The transaction was accounted for as a purchase and the consideration was
valued for accounting purposes at approximately $10,300 including acquisition
expenses. On September 15, 1999, CoStar acquired all of the membership interests
of ARES, Los Angeles based developers and distributors of ARES for ACT!, for
$250 in cash and 33 shares of CoStar's common stock. The transaction was
accounted for as a purchase and the consideration was valued for accounting
purposes at approximately $1,265 including acquisition costs.
Following are the pro forma statements of operations for the nine months
ended September 30, 1999 and the year ended December 31, 1998, assuming CoStar's
1999 acquisitions of JRI, LTI, and ARES occurred on January 1, 1999 and January
1, 1998, respectively:
PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 ACQUISITIONS PRO FORMA
OF LTI, JRI AND ADJUSTMENTS PRO FORMA
COSTAR ARES (SEE NOTE 5) COSTAR
------- ----------------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues............................... $21,326 $ 755 $ -- $ 22,081
Cost of revenues....................... 9,279 287 100(a) 9,666
------- ----- ----- --------
Gross margin........................... 12,047 468 (100) 12,415
Operating expenses..................... 22,009 681 104(a) 22,794
------- ----- ----- --------
Loss from operations................... (9,962) (213) (204) (10,379)
Interest and other income (expense).... 1,913 199 (199)(b) 1,913
------- ----- ----- --------
Net loss............................... $(8,049) $ (14) $(403) $ (8,466)
======= ===== ===== ========
Net loss per share, basic and
diluted.............................. $ (0.71) $ (0.74)
======= ========
Shares used in computing net loss per
share, basic and diluted............. 11,331 11,415
======= ========
</TABLE>
62
<PAGE> 69
4. ACQUISITIONS BY COSTAR -- (CONTINUED)
PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
COSTAR LTI JRI ARES (SEE NOTE 5) COSTAR
------- ------ ------ ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................................ $13,900 $3,445 $4,578 $712 $ -- $22,635
Cost of revenues........................................ 4,562 1,311 1,658 132 774(a) 8,437
------- ------ ------ ---- ------- -------
Gross margin............................................ 9,338 2,134 2,920 580 (774) 14,198
Operating expenses...................................... 12,864 2,433 3,078 440 2,188(a) 21,003
------- ------ ------ ---- ------- -------
Income (loss) from operations........................... (3,526) (299) (158) 141 (2,962) (6,805)
Interest and other income (expense)..................... 341 (433) (9) -- (242)(b) (343)
Benefit from taxes...................................... -- -- 48 -- (48)(c) --
------- ------ ------ ---- ------- -------
Net income (loss)....................................... $(3,185) $ (732) $ (119) $141 $(3,252) $(7,148)
======= ====== ====== ==== ======= =======
Net loss per share, basic and diluted................... $ (0.44) $ (0.87)
======= =======
Shares used in computing net loss per share, basic and
diluted............................................... 7,213 8,260
======= =======
</TABLE>
5. PRO FORMA ADJUSTMENTS FOR LTI, JRI, AND ARES
The pro forma adjustments reflect the acquisition by CoStar of LTI and JRI,
and ARES. The adjustments are as follows:
Pro forma statements of operations:
(a) Estimated charges for amortization of the assets noted above,
amounting to $100 and $774 to cost of revenues for product technology and
database amortization and $104 and $2,188 for amortization of intangible
assets to operating expenses for the nine months ended September 30, 1999
and the year ended December 31, 1998, respectively.
(b) Interest income of $199 for the nine months ended September 30,
1999 related to JRI and ARES is non-recurring and has been eliminated.
Interest expense on borrowings of LTI and JRI of $448 for the year
ended December 31, 1998 is eliminated as a result of the repayment of all
current and long-term debt.
Interest expense of $440 for the year ended December 31, 1998 is
included as a pro forma adjustment to reflect assumed borrowing by CoStar
for acquisition capital at the assumed date of acquisition of January 1,
1998. Amounts were calculated based on the cash consideration of the JRI
and LTI acquisitions at an assumed interest rate of 9%. The pro forma
interest expense adjustment for the year ended December 31, 1998 reflects
interest expense on the cash portion of the consideration for JRI and LTI
from January 1, 1998 through July 1998 (closing of CoStar's initial public
offering). Interest income of $250, for the year ended December 31, 1998,
is eliminated as a result of the cash used to purchase LTI and JRI.
(c) Tax benefits of JRI are eliminated due to ongoing operating losses
of CoStar.
6. ACQUISITIONS MADE BY COMPS
On November 6, 1998, Comps acquired the assets of REALBID, a real estate
marketing services company which supports commercial real estate transactions
over the Internet. The transaction was accounted for as a purchase. The purchase
price consisted of cash payments of $163 and the grant of stock options to the
principals to acquire 399 shares of Comps Class B non-voting common stock at
$1.64 per share. The options were valued using the minimum value method for
option pricing with a risk-free interest rate of 5%, dividend yield of 0% and an
expected life of five years. The fair value of the options was determined to be
$7.87 per share as of the date of the acquisition. As a result, the purchase
price was
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6. ACQUISITIONS MADE BY COMPS -- (CONTINUED)
calculated to be $3,361 which includes acquisition costs of $54. The purchase
price has been allocated based on a valuation by an independent appraiser which
was performed in conjunction with management's best estimate of expected future
results.
On June 16, 1999, Comps acquired all of the assets, excluding cash, of
Inside Prospects for cash of $1,650 and a subordinated convertible note of
$1,350. The note is payable in full on June 16, 2003, bears interest at 8% per
annum payable monthly during the term of the note, and may be converted at the
option of the note holder into common stock of Comps at any time after December
16, 2000 at $20 per share. The total purchase price of $3,180 included
acquisition costs of $53 and assumption of liability for deferred subscription
revenue of $127.
On August 9, 1999, Comps acquired substantially all of the assets of BACA.
Comps paid a total of $1,060 for the assets, which included $300 in cash and $60
of the purchase price as a hold back for any indemnity claims, assumption of
$173 of certain liabilities (including deferred subscription revenue of $17),
acquisition costs of $33 and stock options valued at $494.
On August 27, 1999, Comps acquired (a) all of the outstanding stock of
Sendero (b) all of the outstanding stock of Parramore, and (c) substantially all
of the assets pertaining to the operations of CBN. Comps paid a total of $2,749
for these investments, which included $843 in cash, four notes payable totaling
$1,657, assumption of deferred subscription revenue of $67 plus assumption of
other liabilities of $61 and acquisition costs of $121.
Following are the pro forma statements of operations for the nine months
ended September 30, 1999 and the year ended December 31, 1998 for Comps,
assuming their acquisitions of REALBID, Inside Prospects, BACA, Sendero,
Parramore, and CBN occurred on January 1, 1999 and January 1, 1998,
respectively.
PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
INSIDE ADJUSTMENTS PRO FORMA
COMPS PROSPECTS SENDERO PARRAMORE CBN BACA (SEE NOTE 7) COMPS
------- --------- ------- --------- ---- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $11,839 $503 $-- $408 $175 $186 $ -- $13,111
Cost of revenues.................... 6,248 188 179 -- -- 6,615
------- ---- -- ---- ---- ---- ----- -------
Gross margin........................ 5,591 315 -- 229 175 186 -- 6,496
Operating expenses.................. 13,160 196 -- 240 8 260 807(a) 14,671
------- ---- -- ---- ---- ---- ----- -------
Income (loss) from operations....... (7,569) 119 -- (11) 167 (74) (807) (8,175)
Interest and other income
(expense)......................... 468 -- -- 4 1 (1) (130)(b) 342
------- ---- -- ---- ---- ---- ----- -------
Net income (loss)................... $(7,101) $119 $-- $ (7) $168 $(75) $(937) $(7,833)
======= ==== == ==== ==== ==== ===== =======
</TABLE>
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<PAGE> 71
6. ACQUISITIONS MADE BY COMPS -- (CONTINUED)
PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
INSIDE ADJUSTMENTS PRO FORMA
COMPS REALBID PROSPECTS SENDERO PARRAMORE CBN BACA (SEE NOTE 7) COMPS
------- ------- --------- ------- --------- ---- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $12,900 $ 223 $857 $-- $555 $113 $-- $ -- $14,648
Cost of revenues......... 5,768 45 418 -- 211 3 -- -- 6,445
------- ----- ---- -- ---- ---- -- ------- -------
Gross margin............. 7,132 178 439 -- 344 110 -- -- 8,203
Operating expenses....... 8,531 294 360 -- 350 1 -- 1,928(a) 11,464
------- ----- ---- -- ---- ---- -- ------- -------
Income (loss) from
operations............. (1,399) (116) 79 -- (6) 109 -- (1,928) (3,261)
Interest and other income
(expense).............. (260) -- -- -- 14 -- -- (230)(b) (476)
------- ----- ---- -- ---- ---- -- ------- -------
Net income (loss)........ $(1,659) $(116) $ 79 $-- $ 8 $109 $-- $(2,158) $(3,737)
======= ===== ==== == ==== ==== == ======= =======
</TABLE>
7. PRO FORMA ADJUSTMENTS FOR ACQUISITIONS MADE BY COMPS
The pro forma adjustments reflect the acquisition by Comps of REALBID,
Inside Prospects, BACA, Sendero, Parramore, and CBN. The adjustments to the pro
forma statement of operations are as follows:
(a) Estimated charges for amortization of the assets noted above
amounting to $807 and $1,928 to operating expenses for the nine months
ended September 30, 1999 and the year ended December 31, 1998,
respectively.
(b) Reflects interest expense on the subordinated convertible notes of
$1,350 and $1,657 for the Inside Prospects and collectively, the Sendero,
Parramore and CBN acquisitions at an interest rate of 8%. The pro forma
adjustment for the nine months ended September 30, 1999 reflects interest
expense on the $1,350 and $1,657 notes payable for the period from January
1, 1999 through May 10, 1999 (closing of Comps' initial public offering),
plus a reduction of interest income on the cash expended on the
acquisitions from May 10, 1999 through June 16, 1999 and August 27, 1999
(respective dates of acquisition). The pro forma adjustment for the year
ended December 31, 1998 reflects twelve months of interest expense.
8. PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
Pro forma weighted average shares include 2,130 shares assumed outstanding
for the full nine months ended September 30, 1999 and year ended December 31,
1998, respectively, in connection with the pro forma completion of the merger on
January 1, 1998 and January 1, 1999, respectively. Stock options and warrants
outstanding have been excluded from the calculation because their effect is
anti-dilutive.
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<PAGE> 72
COMPS' PRINCIPAL STOCKHOLDERS
The following table contains information with respect to the beneficial
ownership of Comps common stock as of October 31, 1999 by:
- each person (or group of affiliated persons) known by Comps to
beneficially own 5% or more of Comps common stock,
- each director and executive officer of Comps, and
- all directors and executive officers of Comps as a group.
As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition of
any security. A person is considered the beneficial owner of securities that can
be acquired within 60 days from October 31, 1999 through the exercise of any
option, warrant or right. Shares of common stock subject to options, warrants or
rights that are currently exercisable or exercisable within 60 days of October
31, 1999 are considered outstanding for computing the ownership percentage of
the person holding such options or warrants, but are not considered outstanding
for computing the ownership percentage of any other person. The amounts and
percentages are based upon 11,926,647 shares of Comps common stock outstanding
as of October 31, 1999, and 14,743,899 shares of CoStar common stock assumed to
be outstanding immediately following the closing of the merger.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS NUMBER OF SHARES OF COSTAR COMMON PERCENTAGE OF
OF BENEFICIAL OF COMMON STOCK PERCENTAGE STOCK AFTER THE COSTAR OWNED
OWNERS(1) BEFORE THE MERGER OWNED MERGER(2) AFTER MERGER
---------------- ----------------- ---------- ------------------ ---------------
<S> <C> <C> <C> <C>
Funds affiliated with Summit
Partners(3).......................... 4,036,770 32.5% 636,981 4.3%
499 Hamilton Ave.
Suite 200
Palo Alto, CA 94301
Christopher A. Crane(4).............. 2,923,712 24.5% 461,347 3.1%
Gregory M. Avis(3)................... 4,036,770 32.5% 636,981 4.3%
Robert C. Beasley(5)................. 656,146 5.5% 103,536 *
Kenneth F. Potashner................. -- * -- *
Michael Arabe(6)..................... 60,295 * 9,514 *
Craig S. Farrington(7)............... 57,653 * 9,097 *
Karen Goodrum(8)..................... 57,653 * 9,097 *
Douglas A. McIntyre.................. -- * -- *
Christopher T. Fenton(9)............. 57,653 * 9,097 *
All directors and executive officers
as a group (9 persons)(10)......... 7,849,882 62.0% 1,238,669 8.4%
</TABLE>
- ---------------
* Less than 1% of total.
(1) Unless otherwise noted, the address of each of the persons listed is: 9888
Carroll Centre Road, Suite 100, San Diego, California 92126.
(2) Assumes that 50.1% of Comps shares held are converted into shares of CoStar
common stock in connection with the merger. Amounts are based on the number
of shares of Comps common stock beneficially owned by each stockholder on
October 31, 1999.
(3) The 4,036,770 shares listed above as outstanding for Summit Partners and
Mr. Avis includes 3,468,309 shares beneficially owned by Summit Ventures
III, L.P. and 70,782 shares beneficially owned by Summit Investors II, L.P.
This number also includes 487,726 shares issuable upon exercise of warrants
to purchase common stock beneficially owned by Summit Ventures III, L.P.
and 9,953 shares issuable upon exercise of warrants to purchase common
stock beneficially owned by Summit Investors II, L.P. Mr. Avis is a general
partner of Stamps, Woodsum & Co. III, a general partner of Summit Partners
III, L.P. Summit Partners III, L.P. is the general partner of Summit
Ventures III, L.P. Mr. Avis is also a general partner of Summit Investors
II, L.P. Mr. Avis disclaims beneficial ownership of all shares of common
stock issued or issuable to Summit Ventures III, L.P. and Summit Investors
II, L.P., except to the extent of his pecuniary interest, but exercises
shared voting and investment power with respect to all such shares.
(4) Includes 27,381 shares issuable upon exercise of warrants within 60 days of
October 31, 1999.
(5) The 656,146 shares listed above as outstanding for Mr. Beasley are held by
Mr. Beasley and Ms. Amy Lynn Archer Beasley as trustees of the Beasley
Family Trust dated October 27, 1994.
(6) Represents 60,295 shares issuable upon options exercisable within 60 days
of October 31, 1999.
(7) Includes 48,653 shares issuable upon options exercisable within 60 days of
October 31, 1999.
(8) Includes 47,653 shares issuable upon options exercisable within 60 days of
October 31, 1999.
(9) Includes 49,653 shares issuable upon options exercisable within 60 days of
October 31, 1999.
(10) Includes 731,314 shares issuable upon options and warrants exercisable
within 60 days of October 31, 1999.
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COMPS' BUSINESS
OVERVIEW
Comps is a leading national provider of comprehensive information on
commercial real estate properties to commercial real estate professionals both
offline and on the Internet. Comps has also begun facilitating commercial real
estate transactions on the Internet by using its database to match brokers'
property listings with potential owners and investors contained in its database.
Over the last 17 years, Comps has developed a highly evolved data collection and
confirmation system to provide information on commercial real estate properties.
This information is verified by its researchers and includes sales price, income
and expenses, capitalization rates, loan data, property photographs, buyers,
sellers, brokers and other key details.
COMPS' PROPRIETARY DATABASE
Comps' proprietary database of commercial real estate sales transactions is
the result of 17 years of research. In 1998, Comps researched nearly 46,000
transactions totaling approximately $105 billion. In the ten-months ended
October 31, 1999, Comps has researched nearly 52,000 transactions totaling
approximately $100 billion.
Comps' database is an online information system offering full-color
building photographs as well as more than 200 inter-related data fields of
information. These data fields include current information and key value
indicators.
Comps' database covers approximately 500,000 transactions totaling $600
billion, including 3 million acres of land transactions, over 780,000 buyer and
seller records and over 360,000 brokerage and agent records.
Comps has developed a highly evolved data collection and confirmation
system. This system is based on a combination of its highly trained research
staff of over 180 researchers supported by management, computer and
communications hardware and software systems. Many of its researchers have prior
experience in the commercial real estate industry. Comps' research process
includes approximately 25 collection and confirmation procedures on most
properties. Comps currently covers nine property types: office, industrial,
retail, specialty, multi-family, hotel/motel, residential land, commercial land
and industrial land. These property types are further categorized by nearly 150
specific use codes. Comps also researches properties to see if they have one of
over 45 detrimental conditions, such as asbestos or earthquake damage. Comps'
proprietary software utilizes over 38 search categories to allow users to search
the database efficiently and quickly. This software enables Comps to provide
commercial real estate professionals with specific detailed and comprehensive
coverage of commercial property sales in excess of $250,000 in most of its
covered markets.
Comps researches real property transfers throughout the country to identify
recent commercial property transactions. Typically, Comps reviews multiple
sources of commercial real estate property information to identify transactions.
Once a potential transaction is identified, in order to increase accuracy, its
researchers inspect county courthouse records and extract pertinent information
directly from the recorded deed into its database. Comps' researchers match the
legal description of the deed with a tax or plat map and then proceed to perform
a site inspection on the commercial properties, including land. Comps' site
inspections consist of photographing the building, measuring the building, if
necessary, counting parking spaces, assessing property condition and
construction and gathering tenant information. Comps' researchers then interview
buyers, sellers and brokers to seek to confirm that the information Comps has
collected is accurate and to gather additional data pertinent to the property
and transaction. Through the telephone confirmation process, Comps believes that
it is able to obtain additional property specific details including conditions
of the sale, income and expense data and other information not readily available
through public records or other traditional data sites.
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COMPS' SERVICES AND PRODUCTS
Comps has developed advanced information services and products utilizing
its proprietary database. In addition, Comps has acquired and further developed
Internet transaction support products and services. These products and services
use sophisticated Windows-based programs with Internet connectivity to access
its database and present information in a variety of formats. Comps' services
are used by brokers, lenders, appraisers, property owners, international
accounting firms, tax appeal professionals, public sector agencies, investment
banks and many others interested in the valuation of commercial real estate.
Non-Internet Related
Comps also offers services that do not rely on the Internet as a means of
delivery. These services accounted for more than 90% of its revenue in 1998, and
approximately 62% of its revenues for the nine months ended September 30, 1999.
- Comps Reports, introduced in 1982, is a subscription service allowing
customers to receive sales comparable reports on a regular delivery
schedule in the form of a bound paper manual.
- CallComps, introduced in 1986, is a phone service allowing customers to
contact experienced database researchers and to license sales comparable
reports in either paper, CD-ROM or other format, on a per use basis.
- CompsLink Windows, introduced in 1996, is a desktop product which
provides access to its proprietary database through data diskette or
CD-ROM. CompsLink Windows provided a substitute for Comps Reports and
allowed Comps to migrate the customer base from paper to electronic media
during 1997 and 1998 by delivering new benefits in the form of electronic
search, retrieval and report generation.
Internet-Related Information Services
Comps' information services allow its customers to use the Internet to
access, view and report information in its proprietary database of commercial
real estate sales transactions. In 1998, less than 10% of Comps' revenues were
attributable to the delivery of its services and products on the Internet. In
the nine-months ended September 30, 1999, approximately 26% of its revenues were
attributable to the delivery of its services and products on the Internet. The
primary purpose of its information services is to provide its customers with the
data necessary to analyze and value properties. The database contains
approximately 500,000 sales comparable records in 47 of the top 74 markets in
the United States.
- E-Comps. E-Comps, introduced in January 1998, provides a comprehensive
search engine to access and search Comps' proprietary database.
Typically, commercial real estate professionals require the review of
several sales comparable transactions to support a valuation decision. E-
Comps allows the customer to enter multiple search parameters, including
location, property type, square footage, price range and number of units.
Customers receive a summary report of all relevant properties in its
database, including photographs. Customers may also choose to receive
more detailed reports.
- Pipeline. Pipeline, introduced in September 1998, allows registered
customers to search, retrieve, view and print reports of properties in
its work-in-process research database which includes unconfirmed and
non-arms-length market sales transactions. Customers interested in
knowing the total market, including unconfirmed data, use this product.
- Spectrum. Spectrum, introduced in August 1998, allows Comps' customers
to integrate their own data with its proprietary database information,
including its sales comparables and for-sale listings. The customer may
use the system as an extranet with all of their user locations linked
through the Internet to its databases and their internal data housed at
its facilities. Spectrum includes query and report writing functions
including trend reporting and export features.
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Transaction Support Products
Comps' believes that its Internet-based transaction support products
enhance the productivity of industry professionals by deploying information and
tools necessary to support the sale, financing and insuring of commercial real
estate. These products are distinguished from its information services which
provide the data necessary for its customers to analyze and value properties by
going one step further into the actual transaction process by supporting selling
efforts and actively marketing properties to potential investors.
- REALBID. REALBID is an Internet broker/buyer matching service to
commercial listing brokers for properties with values exceeding $5
million. As part of the REALBID service, Comps develops a specific Web
site for each listed property using the listing-brokers' summary
description. This summary generally includes property information, maps,
site plans, pictures, summary financials and broker contact information
and also includes a confidentiality agreement. Comps then identifies
investors and matches them with the property using REALBID's buyer
profile database. Commercial listing- brokers can use REALBID as a
marketing tool to quickly identify, contact, inform and capture potential
investors by notifying them of new listings by e-mail or facsimile. These
brokers can also use REALBID to help organize competitive, efficient and
orderly sales by leveraging the real-time nature of the Internet.
- DealPoint. DealPoint, introduced in January 1999, is Comps' free
commercial listing service whereby brokers can effectively market
properties on the Internet. This service is currently only available in
San Diego County. Brokers and prospective buyers use DealPoint to
identify the properties for sale that meet their investment needs by
selecting relevant search criteria and then viewing selected property
information.
COMPS' ACQUISITIONS
In August 1999, Comps acquired The Baca Group. The Baca Group provides
commercial real estate inventory, occupancy, lease rates, and absorption for
office and industrial buildings in the greater Houston, Texas area. Data is
accessed through a software application loaded on the customers PC or hard copy
Office and Industrial Market Guides. Quarterly updates provide users with any
changes, additions, or deletions that may have occurred during that period.
In August 1999, Comps significantly expanded its operations in Texas by
acquiring the assets of the Flick Report and the COMMERCIAL Broker's Network of
Austin, Texas. The Flick Report is a bi-monthly print publication serving the
commercial real estate leasing and sales markets in the Austin and central Texas
area. The COMMERCIAL Broker's Network is an Internet marketing tool for various
aspects of the commercial property market place, including building inventory,
vacancy, absorption, space availability, tax records, sale transactions and
tenant information.
In June 1999, Comps acquired Inside Prospects, a provider of commercial
property tenant data for Southern California. Inside Prospects provides a
comprehensive database of commercial tenants for San Diego, Los Angeles, Santa
Barbara, San Bernardo, Orange, Riverside and Ventura counties in California.
This business data is compiled by local market researchers, who collect tenant
data used for a variety of marketing and analytical purposes. The database
contains over 600,000 Southern California firms. In addition to distributing
their tenant database, Inside Prospects works with a company's customer file to
profile their core customers based on SIC code, business size, and location. By
identifying key customer segments, the user of Inside Prospects' data can narrow
their selection of tenants and target particular tenants based on the profile
provided by Inside Prospects. In addition, pre-existing customer files can be
enhanced with data from Inside Prospects master file or Inside Prospects can be
used to identify tenants that aren't currently in the customer file.
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COMPS' CUSTOMERS
As of October 1999, Comps had over 5,000 customers, none of which accounted
for more than 10% of its revenue.
COMPS' SALES AND MARKETING EFFORTS
Sales
Comps' sales efforts have been designed to address the specific market
needs of its customers and prospective customers. Comps uses a variety of tools
and techniques, including:
- face-to-face sales calls;
- telesales;
- telemarketing.
Comps' sales force focuses on subscription services for all products. There
are four teams involved in its sales efforts:
- Major Account Team. Comps' major account team is responsible for
managing its relationships with select customers and prospects meeting
its pre-defined criteria. Major account representatives are located in
key cities across the country in order to serve the needs of its largest
and most strategic accounts. Account assignments for this group include
many of the country's key brokers, lenders, fee appraisers, tax appeal
professionals and governmental entities.
- Field Sales Team. Comps deploys its field sales team in strategic
locations across the country in order to meet the specific needs of a
local market. Field sales representatives are responsible for managing
accounts and prospects in a specific geographic area.
- Telesales Team. Comps' telesales team is located in San Diego and
assumes the field sales role in its established western markets. In this
capacity, they are also responsible for building and maintaining
relationships with a wide variety of subscription customers within a
specific geographic area. Additionally, this team provides telephone
prospecting and sales support for all markets nationally.
- Telemarketing Team. This team responds to direct mail and to user lists
generated from all our marketing sources. This team is responsible for
scheduling appointments for field sales and telesales.
When Comps enters a new market, Comps builds a database of key prospects
and then executes a market opening campaign. Expansion into new markets is
coordinated among all sales teams. Prospects are often notified via direct mail
and fax followed by a telesales blitz designed to qualify and invite prospects
to a seminar launching sales in the market. The seminar is generally followed by
face-to-face sales calls. This local activity is leveraged by agreements with
national customers which have been put in place by the major accounts team. The
process of opening new markets has been refined as Comps has expanded and is
designed to achieve rapid sales growth.
Marketing
Comps uses a multi-faceted marketing strategy, employing its own research
to effectively target both individual professionals and organizations. Comps
employs a combination of personal selling, telesales, online and off-line
advertising, direct mail, fax and e-mail programs, public relations and industry
trade shows to promote product sales.
Off-line advertising is focused on print media specifically concerned with
commercial real estate. Print advertising is used to build corporate image,
promote new products and announce new geographic coverage. Comps advertises in
industry publications including, Commercial Property News, National Real Estate
Investor and Real Estate Forum. Comps also uses regional real estate and
business journals to introduce products and new markets.
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Comps also uses direct mail, fax and e-mail programs to support new
products and market expansion. Through its prospect and customer database, Comps
strives to deliver a highly tailored message directly to likely buyers. Mail is
generally used when the message is detailed and color can be effectively used to
illustrate the marketing message. E-mail and fax are often used when
communication needs to be swift and when the message will not suffer because of
the lack of resolution or graphics. Comps augments its database by licensing or
purchasing lists and other sources to achieve the most comprehensive database of
all users of commercial real estate information and services. In all direct
marketing efforts, the Web site is used as a marketing tool to help explain its
services.
In order to market its Web site, www.comps.com, Comps:
- markets to industry associations;
- establishes relationships with commercial real estate Web sites;
- uses online advertising to drive traffic to its Web site; and
- provides discounts and limited free information to entice potential
customers to its Web site.
Public relations efforts are both national and regional. Comps uses
traditional releases to communicate news regarding its company and to maintain
brand awareness. Comps also uses public relations as a tool to educate editors
on the type of data Comps offers and is regarded as an information source by
editors. Speaking engagements are also used to communicate the expertise of its
staff and quality of its data.
Attendance at industry tradeshows and seminars reinforces relationships
with its core user groups. Comps also hosts its own seminars to promote good use
of its products and provide valuable customer service. These presentations allow
for the in-depth demonstration of its products.
COMPS' MARKETS
Comps' database currently covers 47 markets, including the following:
Atlanta
Austin
Baltimore
Boston
Chicago
Dallas/Fort Worth
Denver
Fort Lauderdale
Las Vegas
Los Angeles
Miami
New York City
Newark
Oakland
Orange County, CA
Orlando
Palm Beach County
Philadelphia
Phoenix
San Diego
San Francisco
Seattle
Washington, D.C.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
Comps' Web site is hosted by Compaq multi-processor servers located at its
facilities in San Diego, California and by UUNET and RealPage. All data and
applications are stored and executed from the facilities in San Diego,
California. Comps maintains multiple Internet servers, which run Microsoft
Windows NT operating systems and use Microsoft Internet Information Server.
Comps maintains high-speed Internet access through both UUNET and VERIO, and
Comps maintains back-up connections with both of them in case of breakdowns or
other problems.
Comps configures its servers to minimize downtime associated with hardware
failures. Additionally, all Internet and database servers have backup components
to ensure reliability. Backups of all servers are run daily and sent weekly to
an off-site data storage facility. All servers maintained in its San Diego,
California offices are kept in a secured facility with central air conditioning
and a centralized UPS system. All Internet traffic is logged and filtered by
dedicated servers whose purpose is to protect its computer systems from
unauthorized access. An anti-virus scanning solution is used on all computer
systems and servers to protect against computer viruses and monitor inbound and
outbound e-mail. Nonetheless, Comps' operations are dependent on its ability to
protect its facilities and equipment against damage from fire,
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earthquakes, power loss, water damage, telecommunications failures, vandalism,
computer viruses, hacker attacks and other malicious acts and similar unexpected
material adverse events.
Comps has developed a proprietary accounting system used to record the
revenue generated by its transaction and subscription-based business. The system
maintains its list of customers and products and includes an installment-
billing module to provide the billing flexibility required by its customers. The
resulting revenue transaction details are summarized and fed into its accounting
system.
Rapidly changing technology, evolving standards, frequent new and upgraded
products and rapid expansion characterize its business. To be successful, Comps
must adapt to its market by continually improving the performance, features, and
reliability of its services.
Management Systems
As Comps enters new markets, Comps must integrate new and existing data
into its databases. Additionally, Comps must integrate automated and
non-automated controls to manage its data collection process to ensure data
integrity. Automated data validation controls are used in both the initial
research worksheet application and the final data collection application. These
data validation controls seek to ensure data integrity by checking against a
valid range of values as soon as data is entered into input screens. These
controls seek to eliminate erroneous data in critical fields, such as recorded
date, sale price and appraisal values. The controls also ensure the use of
industry standard terminology. A final edit check feature seeks to ensure the
information entered is logically related.
Computer and Communications Hardware
Comps maintains 49 Novell and/or Windows NT servers to support its
corporate databases, internal applications and Internet services. Comps also
maintain a national network that allows high speed access which gives remote
researchers up-to-the-minute access to its databases, internal applications and
Internet services. All servers are protected by secured firewalls. Comps also
maintain backup drive arrays and inventories of spare parts to minimize
potential system downtime. Finally, Comps stores full data backups of servers
off-site.
Comps currently keeps its main property inventory related databases on
Compaq enterprise servers running Microsoft Windows NT. The database management
software is Microsoft Server. Databases are replicated on additional Compaq
enterprise servers that are located outside the network firewall. This
configuration allows users of its applications to access relevant data without
gaining access to internal network systems. Comps maintains up-to-date copies of
primary databases for backup.
Software Systems
Comps' software systems have kept pace with the evolution of technology.
These systems currently use client server architecture to optimize management of
its internal data collection. The custom client server applications facilitate
the data collection process. These applications span the entire data collection
process, from initial research to identification of potential records through
the collection of verified and value-added information. Comps' software enables
it to continuously enhance the process through: productivity, attaining superior
data quality and maintaining data integrity. Additionally, these custom
applications allow publication of finalized transactions meeting quality and
editing controls.
COMPETITION
The market for information systems and services is generally competitive
and rapidly changing. The market for Internet services and providers is
relatively new, intensely competitive and rapidly changing. In the commercial
real estate industry, the principal competitive factors are:
- quality and depth of the underlying databases;
- the proprietary nature of methodologies, databases and technical
resources;
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- the usefulness of the data and reports generated by the software;
- effectiveness of marketing and sales efforts;
- customer service and support;
- compatibility with the customer's existing information systems;
- vendor reputation;
- price;
- timeliness; and
- brand loyalty among customers and individual users.
Comps competes directly and indirectly for customers and content providers
with the following categories of companies:
- publishers and distributors of information services, such as CoStar and
regional providers such as Realty Information Tracking Services,
Databank, Dressco, Inc., Revac, and several smaller local providers, many
of which have or may establish Web sites;
- online services or Web sites targeted to commercial real estate brokers,
buyers and sellers of commercial real estate properties, insurance
companies, mortgage brokers and lenders, such as Propertyfirst.com,
LoopNet, Commrex, Commercial Search, American Real Estate Exchange,
Association of Industrial Realtors, Property Line, CLOAN, Datamerge, A
Big Deal.com, First Realty Advisors, and numerous small regional and
local sites; and
- public record providers such as First American RES, Acxiom DataQuick and
TransAmerica, though many of its customers view these public record
providers as complementary to Comps' services and often subscribe to one
of these services as well as Comps' service.
Comps believes its proprietary database and content compete favorably with
its competitors. However, many of its existing competitors, as well as a number
of potential new competitors, have longer operating histories in the Internet
market, greater name recognition, larger customer bases, greater user traffic
and significantly greater financial, technical and marketing resources. In order
to gain market acceptance, Comps may elect to provide products at reduced prices
or at no cost. Comps' competitors may be able to undertake more extensive
marketing campaigns, adopt more aggressive pricing policies, make more
attractive offers to potential employees, subscribers, distribution partners and
content providers and may be able to respond more quickly to new or emerging
technologies and changes in Internet user requirements.
INTELLECTUAL PROPERTY
Comps relies primarily on a combination of copyrights, trademarks, trade
secret laws, its subscriber agreements and restrictions on disclosure to protect
its intellectual property, such as its proprietary database, software,
trademarks, trade names and trade secrets. Comps enters into agreements with its
customers that grant its customers revocable, non-transferable, non-exclusive
licenses to use the information and the software on its Web site. These
agreements also contain confidentiality provisions and other provisions
prohibiting customers from reproducing the information or software they access
on Comps' Web site. Comps also enters into confidentiality agreements with its
employees and consultants, and seeks to control access to and distribution of
its other proprietary information. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use the content on Comps' Web
site or Comps' other intellectual property without authorization. There can be
no assurance that these precautions will prevent misappropriation, infringement
or other violations of its intellectual property. A failure to protect its
intellectual property in a meaningful manner could have a material adverse
effect on Comps' business. In addition, Comps may need to engage in litigation
in order to enforce its intellectual property rights in the future or to
determine the validity and scope of the proprietary rights of others. Any
litigation
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could result in substantial costs and diversion of management and other
resources, either of which could have a material adverse effect on its business.
Comps also licenses data and content from public record providers such as
First American RES, Acxiom DataQuick and TransAmerica. First American RES pays
Comps a license fee to publish a subset of Comps' data as a stand-alone product
and to make this data available through its online services.
EMPLOYEES
As of October 31, 1999, Comps had approximately 410 employees, of whom
approximately 60 were part-time employees. Comps has never had a work stoppage
and, as of the date of this prospectus, no personnel are represented under
collective bargaining agreements. Comps considers its employee relations to be
good.
FACILITIES
Comps' principal administrative, sales, marketing, research, and product
development facilities are located in approximately 43,000 square feet of office
space in San Diego, California. Comps leases its facility from a limited
partnership whose general partner is a company owned by Mr. Crane, its
President, Chief Executive Officer and Chairman of the Board. In addition, Mr.
Beasley, one of Comps' directors, is a limited partner of this limited
partnership. Comps' lease is for a five-year term commencing in February 1999
with five two-year non-assignable extension options. Comps recently leased an
additional 40,000 square feet of office space in San Diego, California, and also
rents an additional 2,100 square feet elsewhere in San Diego. Comps also rents
office space in Burlingame, California; Larkspur, California; Newport Beach,
California; Phoenix, Arizona; Vienna, Virginia; Springfield, Virginia; Houston,
Texas and Rollingwood, Texas.
LEGAL PROCEEDINGS
On November 5, 1999, a suit was filed in the Court of Chancery of the State
of Delaware in and for New Castle County under the caption Morris v. Avis, et
al. (C.A. 197554). The suit alleges breaches of fiduciary duties by members of
the board of directors of Comps and by Summit Partners. Comps believes the
allegations in the case are without merit and will vigorously defend this
action.
Further, on November 8, 1999 a suit was brought in the Superior Court of
the State of California of and for the County of San Diego captioned Berghoff v.
Comps.Com et al. (case no. GIC 738362). The allegations in that lawsuit are
similar to the allegations in the Delaware action and Comps similarly believes
the suit is without merit and intends to vigorously defend against it. The
plaintiffs in both of these lawsuits have requested monetary damages and
injunctive relief to prevent the consummation of the merger.
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COMPS' MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of Comps' financial condition and results of
operations should be read in conjunction with the financial statements and the
notes to those statements included elsewhere in this proxy statement/prospectus.
OVERVIEW
In January 1982, Comps first began providing sales information on
commercial properties in San Diego County. From 1982 through 1985, Comps
expanded its coverage throughout Southern California to Orange, Riverside, San
Bernardino and Los Angeles counties and to Phoenix and Tucson, Arizona. Comps
continued its geographic expansion from 1987 through 1992 with coverage of
Northern California, Las Vegas and Seattle. During the period from June 1994
through December 1998, Comps further broadened its geographic reach to cover
additional key markets including Washington D.C., New York, Chicago, Boston,
Atlanta, Denver, Baltimore, Dallas/Fort Worth and Miami. This expansion was
driven by both internal growth and acquisitions.
Comps originally offered paper-based commercial real estate transaction
information. In 1986, Comps introduced its CallComps service, which permitted
customers to call in and obtain sales transaction information, and, in 1990,
Comps introduced a DOS-based subscription product. Through 1996, the majority of
its revenues continued to come from print subscriptions. In October 1996, Comps
began to offer its services on CD-ROM, allowing for the computerized
manipulation of data to provide more customized reports. During 1997, Comps
discontinued almost all of its print subscriptions and converted its customers
to its CD-ROM services. As a result, Comps provided a larger provision for
cancellations in 1997 than in 1996. In 1998, its provision for cancellations was
reduced to a level that was more in line with its historical experience. Most
recently, in January 1998, Comps began to offer its information services on the
Internet. This has allowed its customers to receive updated commercial real
estate transaction information more frequently and analyze the data more quickly
and easily. Delivery of its information on the Internet and other electronic
media has provided additional value to customers, resulting in increased
revenues from subscriptions and one-time, fee-based transactions. Less than 10%
of Comps' 1998 revenues were derived from delivery of its services and products
on the Internet. For the nine month period ended September 30, 1999,
approximately 26% of Comps' revenues were a result of services and products
ordered or delivered on the Internet as compared to approximately 4% in the same
period of 1998. In addition, for the nine month period ended September 30, 1999
approximately 12% of revenues were derived from Internet-related transactions
such as file transfer protocol (FTP) downloading, resulting in total
Internet-related revenues of 38% of net revenues for the first nine months of
1999.
In November 1998, Comps acquired the assets of REALBID, LLC, a real estate
marketing services company that supports commercial real estate transactions on
the Internet. In June 1999, Comps acquired the assets of Inside Prospects of
California, a company that provides tenant database services in Southern
California. In August 1999, Comps acquired:
- the assets of The Baca Information Group, a company that provides real
estate information services in Houston, Texas,
- all of the outstanding stock of Sendero,
- all of the outstanding stock of Parramore, and
- all of the assets pertaining to the CBN operations of ARA-D/FW, Inc.
Sendero entered into a joint venture with ARA-D/FW to operate CBN. CBN is a
comprehensive, internet-delivered, interactive, commercial real estate research
and listings service subscribed to by members involved in the commercial real
estate business in Central Texas. Parramore is in the business of publishing and
selling the Flick Report, a bi-monthly Central Texas commercial real estate
trade journal.
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The purchase price of these acquisitions totaled approximately $10,577,000
of which $10,177,000 was allocated to intangible assets that are being amortized
over their estimated useful lives, ranging from three to five years. In the
first nine months of 1999, Comps amortized $864,000 relating to these intangible
assets. Comps currently expects to amortize the following amounts relating to
the intangible assets of these acquisitions in the future: the remainder of
1999 -- $576,000; 2000 -- $2,307,000; 2001 -- $2,169,000; 2002 -- $1,895,000;
2003 -- $1,631,000; 2004 -- $617,000.
Substantially all of Comps' revenues have been derived from licensing its
sales comparable information, either on a subscription or a per use basis, both
offline and, to a lesser extent, on the Internet. In 1998, approximately 75% of
its information licensing revenue was derived from subscription contracts and
approximately 25% was derived from fees paid on a per use basis. In the first
nine months of 1999, approximately 73% of its information licensing revenue was
derived from subscription contracts and approximately 27% was derived from fees
paid on a per use basis. The subscription licenses range from one to three years
and generally renew automatically for successive one-year terms. Many of the
license rates increase at the time of renewal. Subscribers pay contract license
fees on an annual, semi-annual, quarterly or monthly basis in advance of their
license term. Comps recognizes this revenue on a straight line basis over the
life of the contract. Accordingly, contract license fees which are invoiced from
a new contract or upon contract renewal result in deferred revenue.
Comps has incurred significant net losses since its inception. As of
September 30, 1999, Comps had an accumulated deficit of $18.8 million. Also, in
connection with the grant of 744,200 stock options to employees from February
through November 1998, Comps recorded deferred compensation of approximately
$4.7 million for the year ended December 31, 1998, representing the difference
between the fair value of its common stock for accounting purposes and the
exercise price of such options at the date of grant. Such amount is presented as
a reduction of stockholders' equity and amortized over the vesting period of the
applicable options, which is generally five years. In the first nine months of
1999, Comps recorded $765,000 in stock-based compensation expense related to
these stock options and expect to record the following amounts in the future:
the remainder of 1999 -- $256,000; 2000 -- $1,025,000; 2001 -- $1,025,000;
2002 -- $928,000; and 2003 -- $356,000.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data
expressed as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
---- ----
<S> <C> <C>
Net revenues................................................ 100% 100%
Cost of revenues............................................ 53% 42%
--- ---
Gross profit................................................ 47% 58%
Operating expenses:
Selling and marketing.................................. 46% 28%
Product development and engineering.................... 15% 9%
General and administrative............................. 36% 21%
Amortization of intangibles............................ 7% 1%
Stock-based charges.................................... 7% 1%
--- ---
Total operating expenses.......................... 111% 60%
--- ---
Loss from operations........................................ (64)% (2)%
Interest income (expense), net.............................. 4% (2)%
--- ---
Net loss.................................................... (60)% (4)%
=== ===
</TABLE>
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COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NET REVENUES
Comps' net revenues for the nine months ended September 30, 1999 were $11.8
million, an increase of approximately $2.1 million or 22% from the same period
in 1998. The increase was primarily due to an increase in subscriptions as a
result of geographic expansion and further penetration of its existing markets
and increased revenues from its Internet products, and the addition of revenues
from recent acquisitions. Comps had no customer that accounted for more than 10%
of its net revenues in the nine months ended September 30, 1999 or 1998.
COST OF REVENUES
Cost of revenues consists of compensation and benefits for research
personnel and research supplies. Comps' cost of revenues for the nine months
ended September 30, 1999 was $6.2 million, an increase of approximately $2.19
million or 54% from the same period in 1998. Payroll and related costs
contributed to approximately 66% of the dollar increase in the nine months ended
September 30, 1999 as compared to the same period of 1998. The increase in
dollar amount was due to an increase in sales transaction volume, geographic
expansion and the hiring of additional research employees. Cost of revenues as a
percentage of net revenues increased to 53% for the nine months ended September
30, 1999 from 42% for the nine months ended September 30, 1998. The percentage
increase was due to hiring of additional personnel for expansion into new
markets.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses consist of compensation and benefits for
sales and marketing personnel, as well as sales commissions to Comps' direct
sales force. Comps' selling and marketing expenses for the nine months ended
September 30, 1999 were $5.4 million, an increase of approximately $2.6 million
or 93% from the same period in 1998. Approximately 62% of the dollar increase
was attributable to salaries and wages for additional sales and marketing
employees, and 10% was attributable to promotion and marketing expense. As a
percentage of net revenues, such expenses increased to 46% for the nine months
ended September 30, 1999 from 29% for the nine months ended September 30, 1998.
The percentage increase in 1999 was primarily due to salaries and wages for
additional sales and marketing employees.
PRODUCT DEVELOPMENT AND ENGINEERING EXPENSES
Product development and engineering expenses consist primarily of
compensation and benefits for software engineers and quality assurance personnel
and expenses for contract programmers and developers. Comps' product development
and engineering expenses for the nine months ended September 30, 1999 were $1.7
million, an increase of approximately $800,000 or 86% from the same period in
1998. As a percentage of net revenues, product development and engineering
expenses increased to 15% for the nine months ended September 30, 1999 from 10%
for the nine months ended September 30, 1998. The dollar and percentage
increases were primarily due to the hiring of additional software engineers and
quality assurance personnel for development of new Internet-related products.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of compensation and
benefits for finance and administrative personnel, professional fees, insurance
expenses and charges relating to merchant credit card fees and bad debts. Comps'
general and administrative expenses for the nine months ended September 30, 1999
were $4.3 million, an increase of approximately $2.28 million or 112% from the
same period in 1998. This dollar increase in general and administrative expenses
was due to the hiring of additional personnel, an increase in legal and
accounting expenses related to acquisition activity, and an increase in expenses
relating to additional office space. As a percentage of net revenues, such
expenses increased to 36% for the nine months ended September 30, 1999 from 21%
for the nine months ended September 30, 1998. The
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increases in dollar expenses and expenses as a percentage of net revenues were
primarily due to increases in payroll expense and professional fees.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets consists of amortization expense related
to subscription contracts, databases, customer lists and goodwill of acquired
companies or operations. Amortization of intangible assets increased $792,000 in
the nine months ended September 30, 1999 compared to the same period in 1998.
The increase is primarily due to amortization of the intangible assets of
REALBID and Inside Prospects of California.
STOCK-BASED CHARGES
Stock-based charges consist of compensation expense related to the grant of
744,200 stock options to employees from February through November 1998. In
connection with this grant Comps recorded deferred compensation of approximately
$4.7 million for the year ended December 31, 1998, representing the difference
between the fair value of its common stock and the exercise price of such
options at the date of grant.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net consists primarily of interest income earned
on investments from the proceeds from the initial public offering offset by
interest expense on Comps' debt. Total interest income (expense), net for the
nine months ended September 30, 1999 was $468,000, an increase of $661,000 from
the same period in 1998. The increase in interest income (expense), net was
primarily due to interest earned on proceeds from the initial public offering.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
The following table sets forth statement of operations data expressed as a
percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................ 100% 100% 100%
Cost of revenues............................................ 50 47 45
--- --- ---
Gross profit................................................ 50 53 55
Operating expenses:
Selling and marketing.................................. 33 31 33
Product development and engineering.................... 4 7 10
General and administrative............................. 39 27 23
--- --- ---
Total operating expenses.......................... 76 65 66
--- --- ---
Loss from operations........................................ (26) (12) (11)
Other expense, net.......................................... (0) (2) (2)
--- --- ---
Net loss.................................................... (26)% (14)% (13)%
=== === ===
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NET REVENUES
Comps' net revenues for 1998 were $12.9 million, an increase of $2.0
million or 18.7% from 1997. Comps' net revenues for 1997 were $10.9 million, an
increase of $2.2 million or 24.8% from $8.7 million in 1996. In both years, the
increase was primarily due to an increase in subscriptions as a result of
geographic
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expansion and further penetration of its existing markets. Comps had no
customers that accounted for more than 10% of its net revenues in 1998, 1997 or
1996.
COST OF REVENUES
Cost of revenues consists of compensation and benefits for research
personnel and research supplies. Comps' cost of revenues for 1998 was $5.8
million, an increase of approximately $700,000 or 14.1% from 1997. Cost of
revenues for 1997 was $5.1 million, an increase of approximately $700,000 or
16.0% from $4.4 million in 1996. Payroll and related costs contributed to
approximately 95% of the dollar increase in 1998 and to approximately 65% of the
dollar increase in 1997. In both years, the increase in dollar amount was due to
an increase in sales transaction volume, and geographic expansion and the hiring
of additional research employees. In addition, cost of revenues increased in
1997 due to the conversion of print subscriptions to CD-ROM format, as well as
the write-off of the entire unamortized balance of a prepayment for assessors
information relating to a 1995 purchase agreement which was amended in November
1997. Cost of revenues as a percentage of net revenues decreased to 45% for the
year ended December 31, 1998 from 47% for the year ended December 31, 1997 and
from 50% for the year ended December 31, 1996. In each year, the percentage
decrease was due to increased revenues during periods when costs remained
relatively fixed.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses consist of compensation and benefits for
sales and marketing personnel, as well as sales commissions to its direct sales
force. Comps' selling and marketing expenses for 1998 were $4.2 million, an
increase of approximately $800,000 or 24.1% from 1997. Comps' selling and
marketing expenses for 1997 were $3.4 million, an increase of approximately
$600,000 or 21.2% from $2.8 million in 1996. In 1998, approximately 85% of the
dollar increase was attributable to salaries and wages for additional telesales
and marketing employees, approximately 5% of the increase was attributable to
sales-related travel expenses and approximately 10% resulted from increases in
marketing and promotional expenses, including training and technical support
costs pertaining to the promotion of its CompsLink/Windows product. In 1997,
approximately 95% of the dollar increase was attributable to salaries and wages
and commission expense relating to new business generated from the conversion of
its subscriber base. As a percentage of net revenues, such expenses increased to
33% for the year ended December 31, 1998 from 31% for the year ended December
31, 1997, a decrease from 33% for the year ended December 31, 1996. The
percentage increase in 1998 was primarily due to increased compensation expense
incurred as a result of the REALBID acquisition. The percentage decrease in 1997
was due to increased revenues during the year when costs remained relatively
fixed.
PRODUCT DEVELOPMENT AND ENGINEERING EXPENSES
Product development and engineering expenses consist primarily of
compensation and benefits for software engineers and quality assurance personnel
and expenses for contract programmers and developers. Comps' product development
and engineering expenses for 1998 were $1.2 million, an increase of
approximately $400,000 or 60.6% from 1997. Comps' product development and
engineering expenses for 1997 were approximately $800,000, an increase of
approximately $400,000 or 104% from approximately $400,000 in 1996. As a
percentage of net revenues, product development and engineering expenses
increased to 10% for the year ended December 31, 1998 from 7% for the year ended
December 31, 1997 and 4% for the year ended December 31, 1996. The dollar and
percentage increases were primarily due to the hiring of additional software
engineers and quality assurance personnel for development of new
Internet-related products.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of compensation and
benefits for finance and administrative personnel, professional fees,
amortization expense, insurance expenses and charges relating to merchant credit
card fees and bad debts. Comps' general and administrative expenses for 1998
were
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$3.1 million, an increase of approximately $100,000 or 4.3% from 1997. This
dollar increase in general and administrative expenses was due to indirect costs
incurred in connection with its acquisition strategy, including personnel and
consulting costs incurred to evaluate potential acquisitions, increases in
professional fees, increased expenses incurred in connection with an increase in
its work force and related payroll expenses, offset by a decrease in bad debt
expense due to a more comprehensive credit policy and increased collection
efforts. Comps' general and administrative expenses for 1997 were $2.9 million,
a decrease of approximately $500,000 or 13.5% from $3.4 million in 1996. As a
percentage of net revenues, such expenses decreased to 23% for the year ended
December 31, 1998 from 27% for the year ended December 31, 1997 and 39% for the
year ended December 31, 1996. The dollar decrease in 1997 and the decreases in
such expenses as a percentage of net revenues in both years were primarily due
to decreases in payroll expense, professional fees and bad debt expense.
OTHER EXPENSE, NET
Other expense, net consists primarily of interest expense on its debt less
the amount of interest Comps earns on its cash and short-term investments. Total
other expense, net for 1998 was $260,000, an increase of $8,000 or 3.2% from
1997. Total other expense, net for 1997 was $252,000, an increase of $185,000 or
276% from $67,000 in 1996. In both years, the increase in other expense was
primarily due to interest expense under a loan agreement.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Comps has financed its operations primarily through
the private placement of equity securities, borrowing arrangements and cash flow
from operations. In May 1999, Comps completed the sale of 4,500,000 shares of
common stock priced at $15.00 per share for an aggregate offering price of $67.5
million in an initial public offering. As of September 30, 1999, Comps had
approximately $51.6 million in cash, cash equivalents and marketable securities,
an increase of approximately $51.2 million from $378,000 at December 31, 1998.
The increase was attributable to the proceeds of the offering, after deducting
underwriting fees and offering expenses.
For the nine months ended September 30, 1999, net cash used in operating
activities was $5.4 million compared to net cash provided by operating
activities of $676,000 for the same period in 1998. Net cash used in operating
activities consisted mostly of loss from operations, increases in prepaid
expenses, deposits and other assets and accounts receivable, partially offset by
increases in accounts payable, accrued liabilities and non cash charges such as
depreciation and amortization, compensation expense related to stock options,
interest expense related to warrants, provision for bad debts and imputed
interest on notes payable.
Net cash used in investing activities was $24.7 million for the nine months
ended September 30, 1999 and $786,000 for the same period in 1998. In 1998,
Comps' investing activities consisted mostly of capital expenditures for
computer equipment and furniture. In 1999, Comps' investing activities included
capital expenditures of $1.6 million, investment in marketable securities of
$19.8 million, and the acquisition of the Real Estate Transaction Journal, AOBR,
Inc., Inside Prospects of California, The Baca Information Group, Sendero
Investments, Inc., Parramore, Inc., and ARA-D/FW, Inc. for an aggregate of $3.2
million.
Net cash provided by financing activities was $61.5 million for the nine
months ended September 30, 1999 and $711,000 for the same period in 1998. In
1998, net cash provided by financing activities resulted primarily from the
private placement of equity securities. Net cash provided by financing
activities in 1999 resulted almost entirely from the net proceeds relating to
Comps' initial public offering. In April 1999, Comps entered into a $3.0 million
loan agreement with Silicon Valley Bank. This agreement provided $3.0 million
for working capital. Borrowings under this agreement were repaid on the closing
of Comps' initial public offering. In connection with this loan, Comps issued
warrants exercisable for 14,670 shares of common stock with an exercise price of
$6.82 per share. The warrants expire in April 2006.
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Comps' capital requirements depend on numerous factors, including Comps'
geographic and product expansions, investments in Comps' Web site and other
factors. Comps has experienced a substantial increase in Comps' capital
expenditures and operating expenses since Comps' inception consistent with its
growth in operations and staffing, and anticipate that this trend will continue
for the foreseeable future. As of September 30, 1999, Comps' capital commitments
for the next twelve months included approximately $1,192,000 for operating
leases, $22,000 in capital leases and $1,040,000 for current debt. Comps had no
material commitments for capital expenditures at September 30, 1999, but Comps
expects these expenditures to be at least $1.0 million through the remainder of
1999. Such expenditures will be primarily for computer equipment, furniture and
fixtures and leasehold improvements. Comps expects its expenses to continue to
increase as Comps continues to evaluate possible strategic acquisitions,
products and technologies, expand its sales and marketing programs and conduct
aggressive brand promotions. Selling and marketing expenses and research and
development expenses are expected to increase in 1999 as a percentage of net
revenues.
In September 1996, Comps entered into a $3.0 million loan agreement with
Venture Lending & Leasing, Inc. In connection with this loan agreement, Comps
issued to Venture Lending & Leasing, Inc. a warrant to purchase 156,285 shares
of its common stock at an exercise price of $2.40 per share, subject to
anti-dilutive adjustments. The warrant may be exercised in whole or in part at
any time. The warrant expires in September 2003. On June 30, 1999, the loan
agreement expired, although approximately $1,304,976 continued to be outstanding
under the loan agreement as of September 30, 1999.
In February 1999, Comps entered into an additional $1.8 million loan
agreement with Venture Lending & Leasing, Inc. This agreement permits the use of
funds for either fixed asset acquisition or working capital. Under this loan
agreement, borrowings for fixed assets acquisition are due 48 months from the
date of disbursement and borrowings for working capital are due 36 months from
the date of disbursement. This loan agreement requires payment of 8.75% interest
during the term and a one-time 15% interest balloon payment upon completion of
the term. The notes issued under this loan agreement are secured by either all
of its fixed assets or all of its business assets. In connection with this loan
agreement, Comps issued a warrant to Venture Lending & Leasing, Inc. exercisable
for 25,773 shares of common stock at an exercise price of $8.73 per share. The
warrant was valued at $215,720. This amount will be amortized to interest
expense over the debt service period. The warrant may be exercised in whole or
in part at any time. The warrant expires in February 2008. At September 30,
1999, $1.8 million was available under this loan agreement. This loan agreement
expires on March 31, 2000.
LITIGATION RELATED TO THE MERGER
On November 5, 1999, a suit was filed in the Court of Chancery of the State
of Delaware in and for New Castle County under the caption Morris v. Avis, et
al. (C.A. 197554). The suit alleges breaches of fiduciary duties by members of
the board of directors of Comps and by Summit Partners. Comps believes the
allegations in the case are without merit and will vigorously defend this
action.
Further, on November 8, 1999, a suit was brought in the Superior Court of
the State of California of and for the County of San Diego captioned Berghoff v.
Comps.Com et al. (case no. GIC 738362). The allegations in that lawsuit are
similar to the allegations in the Delaware action and Comps similarly believes
the suit is without merit and intends to vigorously defend against it. The
plaintiffs in both of these lawsuits have requested monetary damages and
injunctive relief to prevent the consummation of the merger.
IMPACT OF THE YEAR 2000
Comps has substantially completed tests to assure that its information
technology systems will function properly in the year 2000. The computer systems
and software programs of many companies and governmental agencies are currently
coded to accept or recognize only two digit entries in the date code field.
These systems may recognize a date using "00" as the year 1900 rather than the
year 2000. As a result, these computer systems and/or software programs may need
to be upgraded to comply with such
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year 2000 requirements or risk system failure or miscalculations causing
disruptions of normal business activities.
State of Readiness. Comps has made an assessment of the year 2000
readiness of its information technology systems, including the hardware and
software that operate its Web site and its non-information technology systems.
Comps has completed a year 2000 simulation to test its information technology
systems' readiness. Based on the results of its year 2000 simulation test, Comps
has revised its proprietary software as necessary to improve its year 2000
compliance. Comps believes that substantially all of its applications, databases
and infrastructure are year 2000 compliant. Comps has been informed by many of
its vendors of material hardware and software components of its information
technology systems that substantially all of the products Comps uses are
currently year 2000 compliant. Comps has received assurances from substantially
all vendors of the material hardware and software components of its information
technology systems that these components are year 2000 compliant. Comps is
currently assessing its material non-information technology systems and has
received assurances of year 2000 compliance from all critical providers of these
systems. If its efforts to address year 2000 risks are not successful, or if
suppliers or other third parties with whom Comps conducts business do not
successfully address such risks, it could have a material adverse effect on its
business.
Costs. As of the date of this proxy statement/prospectus, Comps had
upgraded or replaced approximately $410,000 in capital equipment and software in
order to achieve year 2000 compliance. Comps has spent $175,000 with an outside
consultant to review its year 2000 project plans and assist with formalizing its
contingency plans.
Risks. Comps is not currently aware of any year 2000 compliance problems
relating to its proprietary software or its information technology or
non-information technology systems that would have a material adverse effect on
its business. Comps may discover year 2000 compliance problems in its
proprietary software that will require substantial revisions. In addition,
third-party software, hardware or services incorporated into its material
information technology and non-information technology systems may need to be
revised or replaced, all of which could be time consuming and expensive. Comps'
failure to fix its proprietary software or to fix or replace third-party
software, hardware or services on a timely basis could result in lost revenues,
increased operating costs, the loss of customers and other business
interruptions, any of which could have a material adverse effect on its
business. Moreover, the failure to adequately address year 2000 compliance
issues in its proprietary software and its information technology and non-
information technology systems could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside Comps' control may
not be year 2000 compliant. The failure by such entities to be year 2000
compliant could result in a systemic failure beyond Comps' control, such as a
prolonged Internet, telecommunications or electrical failure, which could
decrease the use of the Internet or prevent users from accessing its Web site,
which could have a material adverse effect on its business.
Contingency Plan. In the event that year 2000-related problems
materialize, Comps has the ability to revert to a set of manual methods
previously utilized in the collection and distribution of data if necessary.
Comps also maintains relationships with several suppliers of services and
products to mitigate the risks associated with suppliers who are not year 2000
compliant.
EFFECTS OF INFLATION
Due to relatively low levels of inflation in 1996, 1997, 1998 and 1999 to
date, inflation has not had a significant effect on Comps' results of operations
since its inception.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 requires that all
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components of comprehensive income, including net income, be reported in
financial statements in the period in which they are recognized. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. There was no
difference between Comps' net loss and its total comprehensive loss for the
years ended December 31, 1996, 1997 and 1998 and the nine months ended September
30, 1999.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 replaces SFAS 14,
Financial Reporting for Segments of a Business Enterprise and changes the way
public companies report segment information. SFAS 131 is effective for fiscal
years beginning after December 15, 1997 and has been adopted by Comps for the
year ended December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. Comps is currently evaluating the impact of SOP 98-1 on its
financial statements and related disclosures.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 Reporting for the Costs of Start-Up Activities
(SOP 98-5). This standard requires companies to expense the cost of start-up
activities and organization costs as incurred. In general, SOP 98-5 is effective
for fiscal years beginning after December 15, 1998. Comps believes the adoption
of SOP 98-5 will not have a material impact on its results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133). SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The statement is not expected to
affect Comps because Comps currently does not hold any derivative instruments or
conduct any hedging activities.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Comps does not have significant exposure to market risks associated with
the changes to interest rates related to its cash and cash equivalents,
marketable securities, debt and capital leases as of September 30, 1999.
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COMPARISON OF STOCKHOLDER RIGHTS
At the merger, the holders of Comps common stock will receive CoStar common
stock and become stockholders of CoStar. The following summary highlights the
material differences between the rights of holders of Comps common stock and the
rights of holders of CoStar common stock, and the material differences between
the second restated certificate of incorporation and restated bylaws of Comps
and the restated certificate of incorporation, as amended, and the amended and
restated bylaws of CoStar. This summary is not complete, and you should read
Comps' second restated certificate of incorporation and restated bylaws and
CoStar's restated certificate of incorporation and restated bylaws for more
information.
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF COMPS
STOCKHOLDERS AND RIGHTS THOSE STOCKHOLDERS WILL HAVE FOLLOWING THE MERGER
<TABLE>
<CAPTION>
COMPS COSTAR
----- ------
<S> <C>
CORPORATE GOVERNANCE
The rights of Comps stockholders are currently The rights of CoStar stockholders are governed by
governed by Delaware law and the certificate of Delaware law and the CoStar certificate of
incorporation and bylaws of Comps. incorporation and bylaws.
AUTHORIZED CAPITAL STOCK
75,000,000 shares of common stock, par value $.001 30,000,000 shares of common stock, par value $.01 per
per share. share.
5,000,000 shares of preferred stock, par value $.001 2,000,000 shares of preferred stock, par value $.01
per share. per share.
NUMBER OF DIRECTORS
Comps currently has five directors, with no less than CoStar currently has six directors, with no less than
four and no more than seven total directors permitted two and no more than seven total directors permitted
under its current bylaws. under its current bylaws. When the merger is
completed, the size of CoStar's board of directors
will be increased to seven.
TERMS AND CLASSIFICATION OF THE BOARD OF DIRECTORS
The Comps board of directors is classified into two CoStar's board of directors is not classified. All
equal classes. The initial class of directors for directors are elected at each annual stockholders
each of the two classes will be elected for terms meeting and serve until replaced by their successors,
expiring at each annual stockholders meeting in the or until their earlier resignation or removal.
years 2001 and 2002. At each annual stockholders
meeting starting with the 2001 annual meeting, the
successor of the class of directors whose terms
expire at that meeting will be elected to hold office
for a term of two years.
REMOVAL OF DIRECTORS; FILLING VACANCIES
Comps directors may be removed from office at any CoStar's directors may be removed from office, with
time only with cause, by a majority vote of or without cause, by a majority vote at any special
stockholders. Comps' bylaws provide that a vacancy on meeting of stockholders for which proper notice is
the board of directors may be filled only by a given. Any vacancies on the board may be filled by
two-thirds vote of the directors then in office. the affirmative vote of a majority of directors then
in office.
</TABLE>
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<TABLE>
<CAPTION>
COMPS COSTAR
----- ------
<S> <C>
SPECIAL MEETINGS OF STOCKHOLDERS
A special meeting of the Comps stockholders may be A special meeting of the CoStar stockholders may be
called by the Chairman of the Board, the Chief called by the Chairman of the Board or the President,
Executive Officer, the President or a majority of the and must be called by the President or Secretary upon
board of directors. written request of a majority of the directors.
ADVANCE NOTICE PROVISIONS
For a stockholder to nominate a person for election For a stockholder to nominate a person for election
as a director, the stockholder must deliver written as a director and properly bring other business
notice to Comps regarding the nomination no later before an annual meeting, the stockholder must
than the date specified in the corporation's proxy provide written notice to CoStar not less than 60
statement released to stockholders in connection with days nor more than 90 days before the first
the previous year's annual meeting of stockholders, anniversary of the preceding year's annual meeting.
which must be not less than 120 calendar days in If the date of the annual meeting is advanced by more
advance of the date of the proxy statement. If no than 30 days or delayed by more than 60 days from the
annual meeting was held in the previous year or the anniversary date of the preceding year's meeting,
date of the annual meeting has been changed by more then the stockholder must deliver notice no earlier
than 30 days from the date contemplated at the time than 90 days before the annual meeting and no later
of the previous year's proxy statement, notice by the than 60 days before the annual meeting or, if later,
stockholder to be timely must be received a 10 days after the public announcement of the meeting.
reasonable time before the solicitation is made.
LIABILITY OF DIRECTORS
The Comps certificate of incorporation provides that The CoStar certificate of incorporation provides that
a director will not be personally liable to Comps or a director will not be personally liable to CoStar or
its stockholders for monetary damages for breach of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for a breach of fiduciary duty as a director, except for a breach of
the duty of loyalty, for acts or omissions not in the duty of loyalty, for acts or omissions not in
good faith or involving intentional misconduct or a good faith or involving intentional misconduct or a
knowing violation of the law, for unlawful payment of knowing violation of the law, for payment of a
a dividend or approval of a stock redemption under dividend or approval of a stock repurchase or
Section 174 of the Delaware General Corporation Law, redemption prohibited by Section 174 of the Delaware
or for any transaction from which the director General Corporation Law, or for any transaction from
derives an improper personal benefit. If Delaware law which the director derives an improper personal
is further amended to reduce or to authorize further benefit.
reduction, with the approval of the stockholders, in
the personal liability of directors, then the
liability of the director of Comps will be eliminated
or limited to the fullest extent permitted under
Delaware law.
</TABLE>
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<TABLE>
<CAPTION>
COMPS COSTAR
----- ------
<S> <C>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Comps' bylaws require indemnification of its present The CoStar certificate of incorporation and bylaws
and former officers and directors and permits require indemnification of its present and former
indemnification of its employees and agents to the officers and directors and permits indemnification of
fullest extent and in the manner permitted by the its employees and agents to the fullest extent and in
Delaware law. Comps must advance expenses incurred by the manner permitted by Delaware law. CoStar's Board
a director or officer in defending any proceeding, must advance payments for indemnifiable expenses to
unless the board of directors determines or Comps' its officers and directors, if incurred in good
independent counsel furnishes clear and convincing faith, and may advance payments to employees and
evidence that the person acted in bad faith or agents.
against the best interests of Comps.
INSURANCE FOR DIRECTORS AND OFFICERS
Comps maintains insurance for present or former CoStar may provide and maintain insurance on behalf
directors, officers, employees or agents against any of any director or officer of CoStar, whether or not
liability, whether or not Comps would have the power CoStar would have the power to indemnify these
to indemnify these persons against such liability persons against such liability under Delaware law.
under the Delaware law.
AMENDMENT OF BYLAWS
The Comps bylaws may be amended by a majority vote of The CoStar bylaws may be amended or repealed, or new
the stockholders or the board of directors, as bylaws may be adopted, by a majority vote of the
permitted by the bylaws. The certificate of board of directors at any regular or special meeting.
incorporation further provides that conferring power The CoStar bylaws may also be amended or repealed, or
upon the board of directors to amend the bylaws shall new bylaws adopted, by a majority vote of the
not divest or limit the Comps stockholders of their stockholders at any annual or special meeting.
power to amend the bylaws.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Comps' certificate of incorporation may be amended in CoStar's restated certificate of incorporation may be
any manner permitted by statute. amended in any manner permitted under Delaware law.
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
CoStar has filed a registration statement on Form S-4 to register with the
SEC the shares of CoStar common stock to be issued to Comps stockholders as a
result of the merger. This proxy statement/prospectus is a part of that
registration statement and constitutes a prospectus of CoStar in addition to
being a proxy statement of Comps for the special meeting. As allowed by SEC
rules, this proxy statement/prospectus does not contain all the information you
can find in the registration statement or the exhibits to the registration
statement.
In addition, CoStar and Comps file reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934, as amended.
Please call the SEC at 1-800-SEC-0330 for
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further information on the public reference rooms. You may read and copy this
information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains a Web site that contains
reports, proxy statements and other information about issuers, including CoStar
and Comps, who file electronically with the SEC. The address of that Web site is
www.sec.gov. You can also inspect reports, proxy statements and other
information about CoStar and Comps at the office of the National Association of
Securities Dealers, 1735 K Street, N.W., Washington, D.C. 20036.
The SEC allows CoStar to "incorporate by reference" information into this
document. This means that the companies can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this
document, except for any information that is superseded by information that is
included directly in this document.
This document incorporates by reference the documents listed below that
CoStar has previously filed with the SEC. They contain important information
about CoStar and its financial condition. Some of these filings have been
amended by later filings, which are also listed.
COSTAR'S SEC FILINGS (FILE NO. 000-24531)
- ------------------------------------------------------
<TABLE>
<S> <C>
Description of CoStar's Capital Stock Registration Statement on Form 8-A filed with
the SEC on June 25, 1998
Annual Report Form 10-K Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Quarterly Report on Form 10-Q Quarter ended June 30, 1999
Quarterly Report on Form 10-Q Quarter ended September 30, 1999
Definitive Proxy Statement on Schedule 14A Definitive proxy statement relating to the
1999 annual meeting of Realty Information
Group, Inc. stockholders on July 13, 1999
Current Report on Form 8-K, filed with the Discloses the acquisition of LeaseTrend, Inc.
SEC on January 22, 1999
Amendment to Form 8-K on Form 8-K/A, filed Reflects the audited financial statements of
with the SEC on March 26, 1999 LeaseTrend, Inc. and Realty Information
Group, Inc.'s unaudited pro forma financial
information
Current Report on Form 8-K, filed with the Discloses the acquisition of Jamison
SEC on February 2, 1999 Research, Inc.
Amendment to Form 8-K on Form 8-K/A, filed Reflects the audited financial statements of
with the SEC on April 7, 1999 Jamison Research, Inc. and Realty Information
Group, Inc.'s unaudited pro forma financial
information
Current Report on Form 8-K, filed with the Discloses the acquisition of ARES Development
SEC on September 24, 1999 Group, LLC
Current Report on Form 8-K, filed with the Discloses the acquisition of Comps
SEC on November 17, 1999
</TABLE>
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CoStar incorporates by reference additional documents that it may file with
the SEC between the date of this document and the date of the special meeting.
These documents include periodic reports, including Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
You can obtain any of the documents incorporated by reference in this
document from CoStar or from the SEC through the SEC's Web site at the addresses
provided above. Documents incorporated by reference are available from CoStar
without charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this proxy
statement/prospectus. You can obtain documents incorporated by reference in this
proxy statement/prospectus by requesting them in writing or by telephone from
CoStar at the following address:
CoStar Group, Inc.
7475 Wisconsin Avenue
Bethesda, Maryland 20814
Attention: Frank Carchedi
Telephone No.: (301) 215-8300
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY FEBRUARY 3, 2000 TO
RECEIVE THEM BEFORE THE SPECIAL MEETING. If you request any incorporated
documents from CoStar, CoStar will mail them to you by first class mail, or
another equally prompt means, within one business day after CoStar receives your
request.
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<PAGE> 95
FUTURE STOCKHOLDER PROPOSALS
If the merger is not completed, Comps will hold an annual meeting in the
year 2000. If the annual meeting is held, stockholders' proposals will be
eligible for consideration for inclusion in the proxy statement for the 2000
annual meeting only if the proposals had been received by the corporate
secretary of COMPS.COM, Inc., 9888 Carroll Centre Road, Suite 100, San Diego,
California 92126, by January 1, 2000.
EXPERTS
Ernst & Young LLP, independent auditors, have audited CoStar's consolidated
financial statements included in CoStar's Annual Report on Form 10-K for the
year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. CoStar's consolidated financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited LeaseTrend, Inc.'s
financial statements included in CoStar's Annual Report on Form 10-K for the
year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. LeaseTrend's financial statements are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
Ernst & Young LLP, independent auditors, have audited Jamison Research,
Inc.'s financial statements included in CoStar's Annual Report on Form 10-K for
the year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Jamison's financial statements are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
Ernst & Young LLP, independent auditors, have audited Comp's financial
statements and schedule at December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, as set forth in their report.
Comp's financial statements and schedule in this prospectus and elsewhere in the
registration statement are included in reliance on Ernst & Young LLP's report,
given on their authority as experts in accounting and auditing.
LEGAL MATTERS
Legal matters relating to the validity of the shares of CoStar common stock
offered by this proxy statement/prospectus and federal income tax matters
relating to the merger will be passed upon for CoStar by Fried, Frank, Harris,
Shriver & Jacobson, a partnership including professional corporations,
Washington, D.C.
INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP will not be present at the special
meeting.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
COMPS.COM, INC.
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of December 31, 1997 and 1998............. F-3
Statements of Operations for the years ended December 31,
1996, 1997 and 1998....................................... F-4
Statements of Stockholders' Deficit for the years ended
December 31, 1996, 1997 and 1998.......................... F-5
Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998....................................... F-6
Notes to Financial Statements............................... F-7
Unaudited Condensed Consolidated Balance Sheet as of
September 30, 1999........................................ F-23
Unaudited Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1999 and 1998......... F-24
Unaudited Condensed Consolidated Statement of Cash Flows for
the nine months ended September 30, 1999 and 1998......... F-25
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-26
</TABLE>
F-1
<PAGE> 97
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
COMPS.COM, Inc.
We have audited the accompanying balance sheets of COMPS.COM, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' deficit 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 financial position of COMPS.COM, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
Ernst & Young LLP
San Diego, California
February 5, 1999,
except for Note 15, as to which the date is
November 8, 1999
F-2
<PAGE> 98
COMPS.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 351,621 $ 377,803
Accounts receivable, less allowance for bad debts and
cancellations of $1,384,242 and $1,464,922 at December
31, 1997 and 1998, respectively......................... 2,298,167 3,165,817
Prepaid expenses.......................................... 146,363 184,520
----------- ------------
Total current assets........................................ 2,796,151 3,728,140
Furniture and equipment, net................................ 1,203,750 1,470,538
Intangible assets, net...................................... 53,485 3,179,361
Deposits and other assets................................... 37,450 36,249
----------- ------------
Total assets................................................ $ 4,090,836 $ 8,414,288
=========== ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
DEFICIT
Current liabilities:
Accounts payable.......................................... $ 358,638 $ 530,860
Accrued liabilities....................................... 934,953 1,019,647
Current portion of long-term debt......................... 467,203 979,208
Current portion of capital lease obligations.............. 65,101 49,343
Deferred subscription revenue............................. 4,023,228 5,502,869
----------- ------------
Total current liabilities................................... 5,849,123 8,081,927
Long-term debt, less current portion........................ 1,750,372 1,100,628
Capital lease obligations, less current portion............. 71,955 22,612
Deferred rent............................................... 108,906 71,187
----------- ------------
Total liabilities........................................... 7,780,356 9,276,354
Commitments
Redeemable convertible preferred stock, par value $.01 per
share; 5,000,000 shares authorized:
Series A, 4,270,336 shares issued and outstanding at
December 31, 1997 and 1998.............................. 5,815,806 6,114,730
Series B, 637,790 shares issued and outstanding at
December 31, 1998....................................... -- 893,912
Stockholders' deficit:
Class A common stock, par value $.01 per share; 16,503,750
shares authorized; 3,501,626 shares issued and
outstanding (at stated value) at December 31, 1997 and
1998.................................................... 29,219 29,219
Class B common stock, par value $.01 per share; 1,833,750
shares authorized; 31,907 shares issued and outstanding
at December 31, 1998.................................... -- 435
Additional paid-in capital................................ -- 7,745,392
Warrants.................................................. -- 398,000
Deferred compensation..................................... -- (4,487,019)
Accumulated deficit....................................... (9,534,545) (11,556,735)
----------- ------------
Total stockholders' deficit................................. (9,505,326) (7,870,708)
----------- ------------
Total liabilities, redeemable preferred stock and
stockholders' deficit..................................... $ 4,090,836 $ 8,414,288
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 99
COMPS.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues.......................................... $ 8,706,935 $10,866,736 $12,899,746
Cost of revenues...................................... 4,356,973 5,053,998 5,767,812
----------- ----------- -----------
Gross profit.......................................... 4,349,962 5,812,738 7,131,934
Operating expenses:
Selling and marketing............................ 2,812,596 3,407,906 4,230,006
Product development and engineering.............. 376,331 768,051 1,233,462
General and administrative....................... 3,401,513 2,942,326 3,067,864
----------- ----------- -----------
Total operating expenses.............................. 6,590,440 7,118,283 8,531,332
----------- ----------- -----------
Loss from operations.................................. (2,240,478) (1,305,545) (1,399,398)
Other:
Gain from termination of covenant
not-to-compete................................. 58,396 -- --
Interest income.................................. 34,616 16,650 42,595
Interest expense................................. (159,905) (268,290) (302,152)
----------- ----------- -----------
Net loss.............................................. (2,307,371) (1,557,185) (1,658,955)
Dividend accretion on preferred stock................. 298,924 298,924 453,685
----------- ----------- -----------
Net loss attributable to common stockholders.......... $(2,606,295) $(1,856,109) $(2,112,640)
=========== =========== ===========
Net loss per share attributable to common
stockholders, basic and diluted..................... $ (0.74) $ (0.53) $ (0.60)
=========== =========== ===========
Shares used in computing net loss attributable to
common stockholders, basic and diluted.............. 3,501,626 3,501,626 3,517,056
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 100
COMPS.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN DEFERRED ACCUMULATED
COMMON STOCK CAPITAL WARRANTS COMPENSATION DEFICIT
------------------------------------- ---------- -------- ------------ ------------
CLASS A CLASS B
SHARES AMOUNT SHARES AMOUNT
--------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995........................ 3,501,626 $29,219 -- $ -- $ -- $ -- $ -- $ (5,072,141)
Accretion of preferred
stock redemption
value................... -- -- -- -- -- -- -- (298,924)
Net loss.................. -- -- -- -- -- -- -- (2,307,371)
--------- ------- ------ ---- ---------- -------- ----------- ------------
Balance at December 31,
1996...................... 3,501,626 29,219 -- -- -- -- -- (7,678,436)
Accretion of preferred
stock redemption
value................... -- -- -- -- -- -- -- (298,924)
Net loss.................. -- -- -- -- -- -- -- (1,557,185)
--------- ------- ------ ---- ---------- -------- ----------- ------------
Balance at December 31,
1997...................... 3,501,626 29,219 -- -- -- -- -- (9,534,545)
Issuance of stock upon
exercise of options..... -- -- 31,907 435 12,615 -- -- --
Accretion of preferred
stock redemption
value................... -- -- -- -- -- -- -- (363,235)
Warrants issued in
connection with Series B
preferred stock......... -- -- -- -- -- 398,000 -- --
Accretion of warrants..... -- -- -- -- (90,450) -- -- --
Grant of stock options in
connection with REALBID
acquisition............. -- -- -- -- 3,143,853 -- -- --
Deferred compensation
related to grant of
certain stock options... -- -- -- -- 4,679,374 -- (4,679,374) --
Amortization of deferred
compensation............ -- -- -- -- -- -- 192,355 --
Net loss.................. -- -- -- -- -- -- -- (1,658,955)
--------- ------- ------ ---- ---------- -------- ----------- ------------
Balance at December 31,
1998...................... 3,501,626 $29,219 31,907 $435 $7,745,392 $398,000 $(4,487,019) $(11,556,735)
========= ======= ====== ==== ========== ======== =========== ============
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT
-------------
<S> <C>
Balance at December 31,
1995........................ $(5,042,922)
Accretion of preferred
stock redemption
value................... (298,924)
Net loss.................. (2,307,371)
-----------
Balance at December 31,
1996...................... (7,649,217)
Accretion of preferred
stock redemption
value................... (298,924)
Net loss.................. (1,557,185)
-----------
Balance at December 31,
1997...................... (9,505,326)
Issuance of stock upon
exercise of options..... 13,050
Accretion of preferred
stock redemption
value................... (363,235)
Warrants issued in
connection with Series B
preferred stock......... 398,000
Accretion of warrants..... (90,450)
Grant of stock options in
connection with REALBID
acquisition............. 3,143,853
Deferred compensation
related to grant of
certain stock options... --
Amortization of deferred
compensation............ 192,355
Net loss.................. (1,658,955)
-----------
Balance at December 31,
1998...................... $(7,870,708)
===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 101
COMPS.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(2,307,371) $(1,557,185) $(1,658,955)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 1,020,029 913,781 839,840
Deferred compensation................................... -- -- 192,355
Provision for bad debts................................. 566,242 456,291 261,843
Impairment loss on acquired intangibles................. -- 183,233 --
Loss on disposal/write-off of assets.................... -- 97,011 --
Interest imputed on note payable to TRW REDI............ -- 48,619 49,252
Gain from covenant not-to-compete....................... (58,396) -- --
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable................................ (860,027) (946,624) (1,072,493)
Prepaid expenses................................... 50,916 (41,820) (27,969)
Deposits and other assets.......................... 23,414 3,767 (674)
Accounts payable................................... 82,033 (56,032) 172,222
Accrued liabilities................................ 334,016 326,864 84,694
Deferred rent...................................... 24,534 (19,172) (37,719)
Deferred subscription revenue...................... 527,010 667,801 1,479,641
----------- ----------- -----------
Net cash provided by (used in) operating activities......... (597,600) 76,534 282,037
INVESTING ACTIVITIES
Maturities of marketable securities, available-for-sale..... 459,645 243,645 --
Purchases of furniture and equipment........................ (592,278) (725,835) (933,876)
Purchase of TRW REDI and LSR................................ -- (80,000) --
Purchase of REALBID, net of cash acquired................... -- -- (209,900)
Loans to employees, net of repayments....................... 1,285 (6,715) (10,188)
----------- ----------- -----------
Net cash used in investing activities....................... (131,348) (568,905) (1,153,964)
FINANCING ACTIVITIES
Proceeds from notes payable................................. 1,411,879 742,800 300,000
Payments on notes payable................................... (264,851) (384,683) (486,991)
Payments on capital lease obligations....................... (100,286) (91,664) (65,101)
Proceeds from sale of preferred stock, net of issuance
costs..................................................... -- -- 1,137,151
Proceeds from issuance of common stock...................... -- -- 13,050
----------- ----------- -----------
Net cash provided by financing activities................... 1,046,742 266,453 898,109
----------- ----------- -----------
Net increase (decrease) in cash............................. 317,794 (225,918) 26,182
Cash at beginning of year................................... 259,745 577,539 351,621
----------- ----------- -----------
Cash at end of year......................................... $ 577,539 $ 351,621 $ 377,803
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid........................................... $ 143,024 $ 244,877 $ 251,527
=========== =========== ===========
Income taxes paid....................................... $ 5,563 $ 3,941 $ 3,712
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equipment financed under capital leases................. $ -- $ 30,806 $ --
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 102
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
COMPS.COM, Inc., formerly known as COMPS InfoSystems, Inc. (the Company),
compiles and maintains a national database of confirmed commercial real estate
information. The Company provides its customers with reports on sales of office,
industrial, retail, apartments, residential land, commercial land, hotels,
motels and other special use properties. As of December 31, 1998, national
coverage includes over 34 major markets throughout the United States.
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 amounts reported in financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The majority of sales and the related accounts receivable are from
companies dealing in the commercial real estate industry throughout the United
States. Credit is extended based upon an evaluation of the customer's financial
condition and generally collateral is not required. Reserves for doubtful
accounts are maintained by the Company. The Company has not experienced losses
in excess of its reserves.
FURNITURE AND EQUIPMENT
Furniture and equipment are depreciated using the double-declining-balance
method over estimated useful lives of five and seven years, respectively.
INTANGIBLE ASSETS
Intangible assets arose primarily from the acquisition of REALBID, LLC (see
Note 2). The excess of cost over the fair value of the net assets purchased has
been allocated to goodwill, customer base, database and web site technology,
trademark and trade name and assembled work force. These intangible assets are
being amortized over estimated useful lives ranging from three to five years.
ASSET IMPAIRMENT
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to
be Disposed Of (SFAS 121), the Company recognizes impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the estimated undiscounted cash flows to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. During
1997, the Company determined that the subscription base relating to its 1995
acquisitions was impaired because of lower than expected retention of the
purchased subscription base. Fair value of the assets was calculated based on
estimated future cash flows to be generated by the remaining subscribers,
discounted at a market rate of interest. This resulted in a write-down of the
F-7
<PAGE> 103
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
ASSET IMPAIRMENT -- (CONTINUED)
acquired intangibles of approximately $183,000, which is reflected in general
and administrative expense on the statement of operations. In 1996 and 1998, no
impairment losses were recorded.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25 Accounting for Stock Issued to Employees (APB 25) and related Interpretations
in accounting for its employee stock options.
REVENUE RECOGNITION
The Company recognizes product and related services revenue at the time of
shipment or performance of services. A substantial portion of the Company's
revenues come from subscription sales. Subscriptions are recorded as accounts
receivable and as deferred revenues at the time the customer is invoiced. The
Company provides an allowance for bad debts and cancellations when accounts
receivable and deferred revenues are recorded. Subscription revenue, net of
reserve for cancellations, is recognized over the subscription term.
In addition, the Company obtains fixed fees from its REALBID transaction
support services. The services provided include the development and hosting of a
specific Web site for a listed property and sending announcements via fax and
e-mail to potential buyers. The revenue from these services is recognized
ratably over the hosting period which typically is one to four months. Revenue
from sponsors whose messages and links are located on the Company's Web site or
contained in the broadcast e-mail or fax to potential buyers is recognized
ratably over the period that the messages or links are displayed or broadcast.
To the extent the minimum guaranteed impressions or broadcasts are not met, the
Company defers recognition of the corresponding revenue until guaranteed levels
are achieved.
SIGNIFICANT CUSTOMERS
During 1996, 1997 and 1998, no single customer accounted for more than 10%
of revenues.
PRODUCT DEVELOPMENT AND ENGINEERING
Costs incurred in the development of new software products and enhancements
to existing software products are expensed as incurred until technological
feasibility has been established. After technological feasibility is
established, any additional costs would be capitalized in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. Because the Company
believes that its current process for developing software is essentially
completed concurrently with the establishment of technological feasibility, no
software development costs have been capitalized to date. Other product
development and engineering costs are expensed in the period incurred.
NET LOSS PER SHARE
Historical basic and diluted net loss per share are computed using the
weighted average number of Class A and Class B common shares outstanding. The
Class B non-voting common stock will automatically convert into Class A common
stock upon the closing of the Company's initial public offering. Options,
warrants and preferred stock were not included in the computation of diluted net
loss per share because the effect would be antidilutive.
F-8
<PAGE> 104
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
NET LOSS PER SHARE -- (CONTINUED)
A reconciliation of shares used in the calculation of historical and pro
forma basic and diluted net loss per share attributable to common stockholders
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Historical net loss per share attributable to
common stockholders, basic and diluted:
Net loss attributable to common
stockholders........................... $(2,606,295) $(1,856,109) $(2,112,640)
=========== =========== ===========
Shares used in computing net loss
attributable to common stockholders,
basic and diluted...................... 3,501,626 3,501,626 3,517,056
=========== =========== ===========
Net loss per share attributable to common
stockholders, basic and diluted............. $ (0.74) $ (0.53) $ (0.60)
=========== =========== ===========
Antidilutive securities including options,
warrants, and preferred stock, on an
as-if-converted to common stock basis, not
included in historical net loss per share
attributable to common stockholders
calculations................................ 4,040,618 4,216,175 6,036,660
=========== =========== ===========
</TABLE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 requires that all components of comprehensive income, including
net income, be reported in the financial statements in the period in which they
are recognized. SFAS 130 is effective for fiscal years beginning after December
15, 1997. There was no difference between the Company's net loss and its total
comprehensive loss for the years ended December 31, 1996, 1997 and 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, No. 131, Disclosures About Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 replace SFAS 14,
"Financial Reporting for Segments of a Business Enterprise" and changes the way
the public companies report segment information. SFAS 131 is effective for
fiscal years beginning after December 15, 1997 and has been adopted by the
Company for the year ending December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company is currently evaluating the impact of SOP 98-1 on
its financial statements and related disclosures.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 Reporting for the Costs of Start-Up Activities
(SOP 98-5). This standard requires companies to expense the cost of start-up
activities and organization costs as incurred. In general, SOP 98-5 is effective
for fiscal years beginning after December 15, 1998. The Company believes the
adoption of SOP 98-5 will not have a material impact on its results of
operations.
F-9
<PAGE> 105
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RECLASSIFICATION
Reclassifications have been made to certain prior period amounts to conform
to the 1998 presentation.
2. ACQUISITIONS
EXPERIAN RES
On November 30, 1997, the Company acquired the Experian RES investment
property publishing business in Georgia and Florida for $80,000. The purchase
price has been allocated to the assets purchased and the liabilities assumed
based upon the fair values at the date of acquisition as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 114,244
Subscription contracts...................................... 124,198
Deferred revenues........................................... (158,442)
---------
$ 80,000
=========
</TABLE>
Deferred revenues represent liabilities assumed to fulfill subscription
contracts acquired from Experian. Deferred revenues will be recognized over the
subscription term as product is shipped. The subscription contracts represent
the estimated value of future revenue streams from renewals of subscription
contracts purchased. Experian RES is the successor-in-interest to TRW REDI and
based on the Company's 1995 acquisition of TRW REDI's investment property
publishing business, 50% of the subscription contracts were amortized in 1997
and the remaining 50% were amortized in 1998.
REALBID
On November 6, 1998, the Company acquired the assets of REALBID, LLC
(REALBID) a real estate marketing services company which supports commercial
real estate transactions over the Internet. The transaction was accounted for as
a purchase. The purchase price consisted of cash payments of $163,000 and the
grant of stock options to the principals to acquire 399,473 shares of the
Company's Class B non-voting common stock at $1.64 per share. The options were
valued using the minimum value method for option pricing with a risk-free
interest rate of 5%, dividend yield of 0% and an expected life of 5 years. The
fair value of the options was determined to be $7.87 per share as of the date of
the acquisition. As a result, the purchase price is calculated to be $3,361,253
which includes acquisition costs of $54,400. The purchase price has been
allocated based on a valuation by an independent appraiser which was performed
in conjunction with management's best estimate of expected future results. In
addition, employment and incentive compensation agreements were entered into
with the two principals of REALBID. The purchase price has been allocated as
follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 64,500
Intangible assets........................................... 3,296,753
----------
Net purchase price.......................................... $3,361,253
==========
</TABLE>
The accompanying statements of operations reflect the operating results of
REALBID since the date of the acquisition. The pro forma unaudited results of
operations for the years ended December 31, 1997
F-10
<PAGE> 106
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
REALBID -- (CONTINUED)
and 1998, assuming the purchase of REALBID has occurred on June 19, 1997 (date
of inception of REALBID) and January 1, 1998, respectively, are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Net revenues............................................... $10,465,436 $13,122,912
=========== ===========
Net loss attributable to common stockholders............... $(2,479,345) $(2,815,203)
=========== ===========
Net loss per share attributable to common stockholders..... $ (0.71) $ (0.80)
=========== ===========
</TABLE>
AOBR, INC.
On December 4, 1998, the Company agreed to acquire certain assets of AOBR,
Inc., subject to certain conditions, including completion of due diligence and
approval by the Company's Board of Directors. The transaction closed on January
7, 1999. The purchase price consisted of cash payments of $120,000 plus
acquisition costs of $9,200. The transaction will be recorded as a purchase and
the purchase price will be allocated to the acquired database, non-competition
agreement and goodwill. These intangibles will be amortized over two to five
years.
3. FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and consist of the following at
December 31:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Machinery and equipment.................................... $ 2,394,486 $ 3,200,644
Office furniture and fixtures.............................. 87,559 141,877
Leasehold improvements..................................... 150,553 223,953
----------- -----------
2,632,598 3,566,474
Accumulated depreciation................................... (1,428,848) (2,095,936)
----------- -----------
$ 1,203,750 $ 1,470,538
=========== ===========
</TABLE>
4. INTANGIBLES ASSETS
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Customer base............................................... $ -- $2,000,000
Goodwill.................................................... 796,753
Database and web site technology............................ -- 300,000
Assembled workforce......................................... -- 100,000
Trademark and trade name.................................... -- 100,000
Subscription contracts...................................... 141,426 --
-------- ----------
141,426 3,296,753
Less accumulated amortization............................... (87,941) (117,392)
-------- ----------
$ 53,485 $3,179,361
======== ==========
</TABLE>
F-11
<PAGE> 107
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLES ASSETS -- (CONTINUED)
Intangible assets are being amortized over the following useful lives:
goodwill, trademark and tradename -- five years; assembled workforce -- four
years; and customer base and database and web site technology -- 3 years.
Subscription contracts were amortized over two years.
During 1997, the Company determined that the subscription base relating to
the 1995 acquisitions of TRW REDI and The Land Sales Resource was impaired as a
result of lower than expected retention of the purchased subscription base. Fair
value of the assets was calculated based on estimated future cash flows to be
generated by the subscription base, discounted at a market rate of interest.
This resulted in a write-down of the acquired intangibles of $183,233, which is
reflected in general and administrative expense on the statement of operations.
5. LONG-TERM DEBT
In September 1996, the Company entered into a $3.0 million loan agreement
with Venture Lending & Leasing, Inc. The terms of the agreement provide $1.5
million for fixed asset acquisition and $1.5 million as working capital.
Borrowings for fixed assets acquisition and working capital are due forty-eight
months and thirty-six months, respectively, from the date of disbursement. At
December 31, 1998, $541,750 is available for draw for general operations and
none is available for fixed asset acquisitions. The loan agreement originally
expired on June 30, 1998, but was extended during 1998 to June 30, 1999.
Notes payable to Venture Lending & Leasing, Inc. bear interest at 8.75% per
annum during the term and a one-time balloon interest payment of 15% of the
original principal amount is due upon completion of the term. The notes payable
are secured by all fixed assets of the Company with the exception of two notes
payable which are secured by all business assets of the Company.
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Note payable to Venture Lending & Leasing, Inc.
Principal and interest of $18,458 are due monthly through
August 1, 1999 with additional balloon interest of
$86,250 due October 1, 1999............................ $ 378,636 $ 212,367
Note payable to Venture Lending & Leasing, Inc.
Principal and interest of $21,006 are due monthly through
August 1, 2000 with additional balloon interest of
$125,532 due October 1, 2000........................... 630,194 463,489
Note payable to Venture Lending & Leasing, Inc.
Principal and interest of $8,557 are due monthly through
February 1, 2001 with additional balloon interest of
$51,140 due April 1, 2001.............................. 286,960 224,051
Note payable to Venture Lending & Leasing, Inc.
Principal and interest of $2,555 are due monthly through
October 1, 2001 with additional balloon interest of
$15,268 due December 1, 2001........................... 96,356 79,851
Note payable to Venture Lending & Leasing, Inc.
Principal and interest of $2,595 are due monthly through
October 1, 2001 with additional balloon interest of
$15,505 due January 1, 2002............................ 98,180 82,494
</TABLE>
F-12
<PAGE> 108
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Note payable to Venture Lending & Leasing, Inc.
Principal and interest of $2,931 are due monthly through
November 1, 2001 with additional balloon interest of
$17,514 due January 1, 2002............................ 110,301 93,431
Note payable to Venture Lending & Leasing, Inc.
Principal and interest of $2,672 are due monthly through
November 1, 2000 with additional balloon interest of
$12,486 due December 1, 2001........................... 77,473 59,709
Note payable to Venture Lending & Leasing, Inc.
Principal and interest of $9,630 are due monthly through
September 1, 2001 with additional balloon interest of
$45,000 due November 1, 2001........................... -- 275,717
Unsecured note payable to TRW REDI, due as follows:
$405,800 on December 1, 1999; $145,000 on December 1,
2000; and $135,000 on December 31, 2001. Interest is
imputed at 10% through December 1, 1999. Note bears
interest at 8% subsequent to December 1, 1999............. 539,475 588,727
---------- ----------
2,217,575 2,079,836
Less current portion........................................ 467,203 979,208
---------- ----------
Total long-term debt........................................ $1,750,372 $1,100,628
========== ==========
</TABLE>
Future annual payments of long-term debt are as follows at December 31,
1998:
<TABLE>
<S> <C>
1999........................................................ $ 979,208
2000........................................................ 659,738
2001........................................................ 423,812
2002........................................................ 17,078
----------
Total....................................................... $2,079,836
==========
</TABLE>
6. COMMITMENTS
LEASES
The Company leases its offices under operating leases which expire at
various dates through June 2002. Under these operating leases, the Company pays
taxes, insurance and maintenance expenses related to the premises. Certain of
the leases provide for increasing minimum annual rental amounts. Rent payable
for the Company's corporate headquarters office during the period from July 2000
through June 2002 will be determined based upon fair market rental value at July
1, 2000. Rent expense is recorded evenly over the term of the lease.
Accordingly, deferred rent, as reflected on the accompanying balance sheets,
represents the difference between rent expense accrued and amounts paid under
the terms of the lease agreement. Rent expense for the years ended December 31,
1996, 1997 and 1998 totaled $410,705, $405,874 and $468,533, respectively.
The Company leases certain equipment under capital lease obligations. Cost
and accumulated depreciation of equipment under capital leases were $379,978 and
$321,854, respectively, at December 31, 1998.
F-13
<PAGE> 109
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS -- (CONTINUED)
LEASES -- (CONTINUED)
Future minimum lease payments under operating and capital leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1999........................................................ $513,505 $54,463
2000........................................................ 256,144 15,714
2001........................................................ 92,603 8,890
2002........................................................ 81,294 --
-------- -------
Total minimum lease payments................................ $943,546 79,067
========
Less amount representing interest........................... 7,112
-------
Present value of minimum lease payments..................... 71,955
Less current portion........................................ 49,343
-------
Noncurrent portion.......................................... $22,612
=======
</TABLE>
EMPLOYMENT, INCENTIVE COMPENSATION, AND STOCK AGREEMENTS
The Company has employment and incentive compensation agreements with key
employees which grant these employees the right to receive bonuses and incentive
compensation upon certain events and circumstances as defined in the agreements.
The agreements provide for severance pay of three to eight months in the event
of termination of employment.
7. INFORMATION SHARING AGREEMENT
The Company has agreements to license its database to other information
service providers for licensing through their computer networks. Under the
agreements, the Company receives a certain percentage of the related annual
gross receipts earned by these other service providers. In addition, neither the
Company nor the other service providers shall develop competing products during
the term of the agreement. The Company earned $307,381, $163,341 and $41,185
under the agreements during the years ended December 31, 1996, 1997 and 1998,
respectively.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
During 1994, the Company sold 4,270,336 shares of Series A convertible
redeemable preferred stock and warrants to purchase 278,634 shares of Class B
common stock at $0.0136 per share (Note 10), for $4,856,758, net of issuance
costs of $143,242. The holders of the Series A preferred stock are entitled to
receive cumulative dividends at an annual rate of $0.07 per share, payable at
the time of: 1) repurchase of Series A preferred stock; 2) liquidation of the
Company; or 3) sale of the Company's securities pursuant to an underwritten
public offering. The right to such dividends will be forfeited in the event of
either a repurchase of all of the outstanding shares of Series A preferred stock
or a liquidation if the holders of the Series A preferred stock are entitled to
receive in excess of $3.52 per share prior to the payment of dividends or upon a
public offering of not less than $10 million at a purchase price of not less
than $4.80 per share (after a 1-for-.7335 reverse stock split). Holders of
Series A preferred stock have a liquidation preference of $1.17 per share plus
all accumulated but unpaid dividends.
In February 1998, the Company sold 637,790 shares of Series B redeemable
convertible preferred stock and warrants to purchase 224,522 shares of Class B
common stock and 27,381 shares of Class A
F-14
<PAGE> 110
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK -- (CONTINUED)
common stock at $0.0136 per share (Note 10), for $1,137,151, net of issuance
costs of $12,849. The holders of the Series B preferred stock are entitled to
receive cumulative dividends at an annual rate of $0.11 per share, payable at
the time of 1) repurchase of Series A or Series B preferred stock; 2)
liquidation of the Company; or 3) sale of the Company's securities pursuant to
an underwritten public offering. The right to such dividends will be forfeited
in the event of a repurchase of all of the outstanding shares of Series B
preferred stock or a liquidation if the holders of the Series B preferred stock
are entitled to receive in excess of $3.83 per share prior to the payment of
dividends or upon a public offering of not less than $10 million at a purchase
price of not less than $5.22 per share (after a 1-for-.7335 reverse stock
split). Holders of Series B preferred stock have a liquidation preference of
$1.80 per share plus all accumulated but unpaid dividends.
The Series A and Series B preferred stock is convertible at the option of
the holder into an equal number of shares of Class A common stock. The holders
of preferred and Class A common stock vote together as a class on all matters to
be voted on by the shareholders of the Company, with each holder of preferred
stock entitled to one vote for each share held.
A summary of the redeemable convertible preferred stock and the liquidation
and redemption values at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
LIQUIDATION REDEMPTION
SHARES PREFERENCE VALUE
--------- ----------- ----------
<S> <C> <C> <C>
Series A preferred stock.......................... 4,270,336 $5,000,000 $6,257,972
Series B preferred stock.......................... 637,790 1,150,000 1,214,311
--------- ---------- ----------
Total............................................. 4,908,126 $6,150,000 $7,472,283
========= ========== ==========
</TABLE>
9. REPURCHASE AGREEMENT
As part of the issuance of Series A and Series B redeemable convertible
preferred stock and Class B common stock warrants, (see Note 10), the Company
granted the purchasers a "put option" in which the Company is required to
repurchase the shares held by the purchasers; the repurchase is required to take
place in October 2001 or earlier if an event such as a liquidation or merger or
acquisition occurs and there is a 50% change in the holders of voting
securities. The repurchase price is the greater of the original purchase price
plus accrued dividends or fair market value of the shares held. This put option
is terminated if the Company has a public offering of its shares in which the
Company's gross proceeds are at least $10 million and the per share price is not
less the $4.80 for the Series A preferred stock and $5.22 for the Series B
preferred stock (after a 1-for-.7335 reverse stock split).
The purchasers have also been granted registration rights in certain
conditions and a right of first refusal in the event the Company intends to sell
shares in a private transaction.
10. STOCKHOLDERS' DEFICIT
COMMON STOCK
The Class A and Class B common stock shall have the same rights and
privileges except that the Class B common stock shall not have any right to
vote. Additionally, each share of Class B common stock shall automatically
convert into one share of Class A common stock upon the earlier of the time of
consent of the holders of at least 66 2/3% of the outstanding Class A common
stock to the conversion is obtained or upon the closing of a public offering.
F-15
<PAGE> 111
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDERS' DEFICIT -- (CONTINUED)
WARRANTS
In connection with the issuance of the Series A redeemable preferred stock,
the Company issued warrants to purchase 278,634 shares of Class B common stock
at $.0136 per share. The warrants may be exercised in whole or in part on the
earlier to occur of one day prior to the closing of a liquidity event, as
defined in the agreement, or October 14, 2001. The warrants expire on October
14, 2004. The Company estimated the fair value of the warrant using the minimum
value option pricing model, however, no value was allocated to the warrant as
the estimated fair value was nominal.
In connection with the issuance of the Series B redeemable preferred stock,
the Company issued warrants to purchase 224,522 shares of Class B common stock
and 27,381 shares of Class A common stock at $0.0136 per share. The warrants to
purchase Class B common stock are exercisable at the earlier of (i) one day
prior to the closing or effective time of a liquidity event, as defined in the
warrant agreement, or (ii) October 14, 2001. The warrant to purchase Class A
Common Stock is immediately exercisable. All warrants issued in connection with
the Series B Preferred Stock expire on February 6, 2008. The Company estimated
the fair value of the warrants to be $398,000 using the minimum value option
pricing model with a risk-free interest rate of 5.5%, dividend yield of 0% and a
weighted average expected life of three years.
In connection with the loan agreement with Venture Lending & Leasing, Inc.
(see Note 5), the Company issued a warrant to purchase 156,285 shares of the
Company's Class B common stock at $2.40 per share, subject to antidilutive
adjustments. The warrant expires on September 24, 2003. The Company estimated
the fair value of the warrant using the minimum value option pricing model,
however, no value was allocated to the warrant as the estimated fair value was
nominal.
STOCK OPTIONS
In November 1998, the Company replaced its amended and restated stock
option plan (Old Plan), under which options to purchase 739,368 shares of Class
B common stock were outstanding, with the 1998 Equity Participation Plan and the
1998 Supplemental Option Plan (the 1998 Plans). Under the 1998 Plans, both
incentive stock options and non-qualified stock options to purchase Class B
common stock may be issued to key employees, board members and consultants of
the Company. The aggregate number of shares which the Company is authorized to
issue under the 1998 Plans, together with the aggregate number of shares which
may be issued under the Old Plan, is 2,047,993. Options granted under the Plans
generally vest over five years, except for options issued to independent
directors under the 1998 Plans which vest over four years, and are exercisable
for a period of ten years from the date of grant. The board of directors may, in
its discretion, accelerate the period during which an option granted to an
employee or consultant vests. Generally, stock options are granted at a price
which approximates the fair value of the shares at the date of grant as
determined by the board of directors.
F-16
<PAGE> 112
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDERS' DEFICIT -- (CONTINUED)
STOCK OPTIONS -- (CONTINUED)
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995........................... 520,718 $0.41
Granted............................................... 86,412 $0.41
Canceled.............................................. (133,723) $0.41
---------
Outstanding at December 31, 1996........................... 473,407 $0.41
Granted............................................... 244,872 $0.41
Canceled.............................................. (69,316) $0.41
---------
Outstanding at December 31, 1997........................... 648,963 $0.41
Granted............................................... 1,143,673 $1.57
Exercised............................................. (31,907) $0.41
Canceled.............................................. (11,002) $0.89
--------- -----
Outstanding at December 31, 1998........................... 1,749,727 $1.17
=========
</TABLE>
Included above are options to purchase a total of 109,860 shares of common
stock which were issued outside of the Plans, of which 88,772 shares were issued
to a principal of REALBID (Note 2). The remaining 21,088 were issued to a
consultant in February 1995. No value was assigned to the February 1995 options
as the estimated fair value was nominal. In addition, 139,365 of the options
granted in 1997 will become fully vested upon the closing of an initial public
offering.
At December 31, 1998, options to purchase 498,503 shares (including 101,425
shares related to options granted outside the Plans) are exercisable and 376,219
shares are available for future grant.
All options granted during 1998 had exercise prices below the deemed fair
value of the Company's common stock. Through December 31, 1998, the Company
recorded deferred compensation expense for the difference between the exercise
price and the fair value for financial statement presentation purposes of the
Company's common stock, as determined in part by an independent valuation, for
options granted during 1998. This deferred compensation aggregates to
$4,679,374, which is being amortized over the vesting period of the related
options. Amortization during 1998 was $192,355.
Following is a further breakdown of the options outstanding as of December
31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED AVERAGE EXERCISE PRICE OF
RANGE OF OPTIONS REMAINING LIFE WEIGHTED AVERAGE OPTIONS OPTIONS
EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE EXERCISABLE
- --------------------- ----------- ---------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$0.41-$0.61.......... 664,001 7.33 $0.42 256,955 $0.41
$1.36-$1.64.......... 1,085,726 9.82 $1.62 241,549 $1.64
---------- ---- ----- ------- -----
$0.41-$1.64.......... 1,749,727 8.93 $1.17 498,504 $1.01
</TABLE>
Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value of the options was
estimated at the date of grant, using the "minimum value" method for option
pricing with the following weighted-average assumptions for options granted in
1996, 1997 and 1998: risk-free interest rate of 6%, 6% and 5.5%, respectively;
dividend yield of 0%; and a weighted-average
F-17
<PAGE> 113
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDERS' DEFICIT -- (CONTINUED)
STOCK OPTIONS -- (CONTINUED)
expected life of options of five years. The weighted-average fair value of
options granted in 1996, 1997 and 1998 was $0.11, $0.11 and $0.38, respectively.
For purpose of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net loss attributable to common
stockholders.................................. $(2,615,089) $(1,867,929) $(2,140,411)
Pro forma basic and diluted net loss per share
attributable to common stockholders......... $ (0.75) $ (0.53) $ (0.61)
</TABLE>
COMMON STOCK RESERVED FOR ISSUANCE
At December 31, 1998, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Stock options............................................... 2,125,946
Preferred stock............................................. 4,908,126
Warrants.................................................... 686,823
---------
7,720,895
=========
</TABLE>
11. INCOME TAXES
At December 31, 1998, the Company had federal and state tax net operating
loss carryforwards of approximately $4,942,000 and $2,494,000, respectively. The
difference between the federal and California tax loss carryforwards is
primarily attributable to the 50% limitation on California loss carryforwards.
The federal and California tax loss carryforwards begin expiring in 2009 and
1999, respectively, unless previously utilized.
Pursuant to Internal Revenue Code Section 382, use of the Company's net
operating loss carryforwards may be limited if a cumulative change in ownership
of more than 50% occurs within a three-year period.
F-18
<PAGE> 114
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES -- (CONTINUED)
Significant components of the Company's deferred tax assets at December 31,
1997 and 1998 are shown below. A valuation allowance of $1,679,000 has been
recognized to offset the deferred tax assets as realization of such assets is
uncertain.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 1,343,000 $ 1,851,000
Other................................................. 338,000 361,000
Amortization.......................................... 464,000 463,000
----------- -----------
Total deferred tax assets.................................. 2,145,000 2,675,000
Deferred tax liabilities:
Intangibles........................................... -- (996,000)
----------- -----------
Net deferred tax assets.................................... 2,145,000 1,679,000
Valuation allowance for deferred tax assets................ (2,145,000) (1,679,000)
----------- -----------
Net deferred tax assets.................................... $ -- $ --
=========== ===========
</TABLE>
12. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution employee benefit plan (the
"Plan") for the benefit of eligible employees, generally those who have
completed one year of service. The Company is not required to contribute to the
Plan. In 1996, the Company did not contribute to the Plan. Contributions
totaling $14,956 and $34,130 were charged to expense in 1997 and 1998,
respectively.
13. RELATED PARTY TRANSACTIONS
The Company currently leases its corporate headquarters operating space
from a limited partnership whose general partner is a company owned by the
President and major stockholder of the Company. Another director and stockholder
is a limited partner of this limited partnership. Rent expense to this related
party of $253,684, $295,018 and $304,579 was incurred in 1996, 1997 and 1998,
respectively. The Company retains the consulting services of one of its board of
director members. Consulting expense to this related party of $57,000, $11,580
and $25,780 was incurred in 1996, 1997 and 1998, respectively.
14. REPORTABLE SEGMENTS
DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM WHICH EACH REPORTABLE
SEGMENT DERIVES ITS REVENUES
The Company has two reportable segments: information services and
transactions support products. Revenues for the Company's information services
division are derived from licensing commercial real estate sales comparable
information on a subscription and ad-hoc basis. Revenues of $16,500 for
transaction support products were derived from REALBID, a marketing services
company acquired in November 1998 which supports commercial real estate
transactions over the Internet.
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies.
F-19
<PAGE> 115
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. REPORTABLE SEGMENTS -- (CONTINUED)
FACTORS MANAGEMENT USED TO IDENTIFY THE ENTERPRISE'S REPORTABLE SEGMENTS
The Company's reportable segments are business units that offer different
products and services. The Company did not have reportable segments in prior
years, and therefore only the information for the year ended December 31, 1998
is included below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------
TRANSACTION
INFORMATION SUPPORT
SERVICES SERVICES TOTALS
----------- ----------- -----------
<S> <C> <C> <C>
Revenues from external customers............... $12,883,246 $ 16,500 $12,899,746
Intersegment revenues.......................... -- -- --
Interest expense............................... 302,152 -- 302,152
Depreciation and amortization expense.......... 721,648 118,192 839,840
Segment profit (loss) before income taxes...... (1,255,495) (403,460) (1,658,955)
Other significant non cash item:
Deferred compensation on stock options....... 2,061,206 2,618,168 4,679,374
Segment assets
Fixed assets, net............................ 1,460,211 10,327 1,470,538
Intangible assets, net....................... -- 3,179,361 3,179,361
Expenditures of long-lived assets.............. 922,749 11,127 933,876
</TABLE>
15. SUBSEQUENT EVENTS
In February 1999, the Company entered into a $1.8 million loan agreement
with Venture Lending & Leasing, Inc., under which the Company may purchase
equipment and obtain working capital. The borrowing base under the loan is
limited to $1.8 million or 80% of the Company's eligible accounts. The loan
agreement expires on March 31, 2000. Borrowings under the loan are due 36 months
from the date of disbursement.
In connection with the loan agreement, the Company issued a warrant to
purchase 25,773 shares of common stock at an exercise price of $8.73 per share.
The warrant was valued at $215,720, which is being amortized to interest expense
over the debt service period. The warrant may be exercised in whole or in part
and expires February 2008.
In February 1999, the Company entered into a new lease agreement for its
corporate headquarters. The new lease is with the same related party (see Note
13) and became effective February 1, 1999. The Company's prior lease, which was
due to expire in June 2002 and provided for monthly rent payments of $37,015 was
canceled upon commencement of the new lease. The term of the new lease is 5
years, with the option to extend for five terms of two years each. The initial
monthly rent payment of $44,843 will be increased by 3 1/2% each year during the
original five year term. Upon commencement of each extension of the term,
monthly base rent will be adjusted to reflect the fair market rental value.
In February 1999, the Board of Directors adopted the 1999 Stock Incentive
Plan and the 1999 Employee Stock Purchase Plan. The plans became effective on
the date the underwriting agreement was signed in connection with the Company's
initial public offering. Shares reserved for issuance under the 1999 Stock
Incentive Plan and the 1999 Employee Stock Purchase Plan total 2,800,000 and
300,000, respectively.
In March 1999, the Company's Board of Directors approved an increase in the
authorized number of shares of preferred stock to 5,000,000. On April 1, 1999,
the Company's Board of Directors authorized a
F-20
<PAGE> 116
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS -- (CONTINUED)
1-for-.7335 reverse stock split of the Company's common stock (unless otherwise
noted, all share and per share amounts included in the accompanying consolidated
financial statements and notes have been adjusted retroactively to give effect
to the stock split) and approved a decrease in the authorized number of common
stock to 18,337,500.
In April 1999, the Company borrowed $3,000,000 from a bank. Borrowings
under this loan were repaid on the closing of the Company's initial public
offering. In connection with this loan, the Company issued warrants exercisable
for 14,670 shares of common stock with an exercise price of $6.82 per share. The
warrants expire in April 2006.
In May 1999, the Company closed its initial public offering by selling to
the underwriters 4,500,000 shares of its common stock for aggregate net proceeds
of $61.3 million.
In June 1999, the Company acquired substantially all of the assets of
Inside Prospects of California. The Company paid a total of $3.2 million for the
assets, which included $1,650,000 in cash, $1,350,000 in the form of a
subordinated convertible note, assumption of liability for deferred subscription
revenue of $127,300, and acquisition costs of $52,700. The note is payable in
full on June 16, 2003, bears interest at 8% per annum payable monthly during the
term of the note, and may be converted at the option of the note holder into
common stock of the Company at any time after December 16, 2000 at $20 per
share. The intangible assets will be amortized over their estimated useful
lives, ranging from two to five years. The Company allocated the purchase price,
based upon management's best estimate as follows:
<TABLE>
<S> <C>
Current assets acquired..................................... $ 39,900
Furniture and equipment..................................... 24,200
Intangible assets........................................... 3,115,900
----------
Net purchase price.......................................... $3,180,000
==========
</TABLE>
In August 1999, the Company acquired substantially all of the assets of The
Baca Information Group. The Company paid a total of $1,060,000 for the assets,
which included $300,000 in cash at the closing and $60,000 of the purchase price
as a hold back for any indemnity claims, assumption of certain liabilities
(including deferred subscription revenue of $17,000) of $173,000, acquisition
costs of $33,000, and stock options valued at $494,000.
On August 27, 1999, the Company acquired (a) all of the outstanding stock
of Sendero Investments, Inc., (b) all of the outstanding stock of Parramore,
Inc., and (c) substantially all of the assets pertaining to the operations of
the Commercial Brokers Network business of ARA-D/FW, Inc. The Company paid a
total of $2,749,000 for these investments, which included $843,000 in cash, four
notes payable totaling $1,657,000, assumption of deferred subscription revenue
of $67,000, plus assumption of other liabilities of $61,000, and acquisition
costs of $121,000.
In November 1999, the Company and CoStar Group, Inc. ("CoStar") entered
into a definitive agreement for a strategic business combination between the
Company and CoStar which will be effected by the merger of the Company into a
wholly owned subsidiary of CoStar. The merger agreement provides that each
holder of a share of the Company's common stock may elect to receive either
$7.50 in cash or 0.31496 shares of CoStar common stock, but these elections will
be adjusted so that 50.1% of the Company's shares receive CoStar common stock
and 49.9% of the Company's shares receive cash. The merger agreement allows the
Company to consider unsolicited acquisition proposals and may be terminated in
the event the Company accepts a superior proposal and pays CoStar a $2,000,000
fee.
F-21
<PAGE> 117
COMPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS -- (CONTINUED)
In November 1999, a purported class action suit was initiated in the state
of Delaware and a similar class action suit was brought in the state of
California. The suits allege various breaches of fiduciary duties of certain
members of the board of directors of the Company and by Summit Partners, an
investor of the Company. The Company believes the allegations in the cases are
without merit and will vigorously defend itself against these actions. If these
lawsuits are resolved adversely to the Company, they could have a material
adverse effect on the Company.
F-22
<PAGE> 118
COMPS.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(NOTE)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 31,778 $ 378
Marketable securities..................................... 17,734 --
Accounts receivable....................................... 3,328 3,166
Prepaid expenses.......................................... 906 184
-------- --------
Total current assets.............................. 53,746 3,728
Furniture and equipment, net................................ 2,521 1,471
Intangible assets, net...................................... 9,246 3,179
Deposits and other assets................................... 2,384 36
-------- --------
Total assets...................................... $ 67,897 $ 8,414
======== ========
Current liabilities:
Accounts payable.......................................... $ 859 $ 531
Accrued liabilities....................................... 1,551 1,020
Current portion of long-term debt......................... 1,040 979
Current portion of capital lease obligations.............. 22 49
Deferred subscription revenue............................. 5,263 5,503
-------- --------
Total current liabilities......................... 8,735 8,082
Long-term debt, less current portion........................ 3,844 1,101
Capital lease obligations, less current portion............. 11 22
Deferred rent............................................... 73 71
-------- --------
Total liabilities................................. 12,663 9,276
Redeemable convertible preferred stock...................... -- 7,009
Stockholders' equity (deficit):
Common stock.............................................. 114 30
Additional paid-in capital................................ 76,981 7,745
Warrants.................................................. 514 398
Deferred compensation..................................... (3,590) (4,487)
Accumulated deficit....................................... (18,785) (11,557)
-------- --------
Total stockholders' equity (deficit).............. 55,234 (7,871)
-------- --------
Total liabilities and stockholders' equity
(deficit)....................................... $ 67,897 $ 8,414
======== ========
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
F-23
<PAGE> 119
COMPS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Net revenues................................................ $ 11,839 $ 9,724
Cost of revenues............................................ 6,248 4,061
--------- ---------
Gross profit................................................ 5,591 5,663
Operating expenses:
Selling and marketing..................................... 5,422 2,805
Product development and engineering....................... 1,725 925
General and administrative................................ 4,319 2,040
Amortization of intangible assets......................... 864 72
Stock-based charges....................................... 830 13
--------- ---------
Total operating expenses............................... 13,160 5,855
Loss from operations........................................ (7,569) (192)
Interest income (expense), net.............................. 468 (193)
--------- ---------
Net loss.................................................... (7,101) (385)
Dividend accretion on preferred stock....................... (435) (334)
--------- ---------
Net loss attributable to common stockholders................ $ (7,536) $ (719)
========= =========
Net loss per share attributable to common stockholders,
basic and diluted......................................... $ (.94) $ (.20)
========= =========
Shares used in computing net loss per share, basic and
diluted................................................... 8,009,578 3,513,867
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-24
<PAGE> 120
COMPS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1999 1998
-------- ------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (7,101) $ (385)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization............................. 1,488 519
Compensation expense related to stock options............. 830 13
Interest expense related to warrants...................... 115 --
Provision for bad debts................................... 84 235
Interest imputed on note payable.......................... 46 35
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable.................................... (444) (340)
Prepaid expenses....................................... (719) 33
Deposits and other assets.............................. (250) 4
Accounts payable....................................... 248 50
Accrued liabilities.................................... 395 (60)
Deferred subscription revenue.......................... (109) 596
Deferred rent.......................................... 2 (24)
-------- ------
Net cash (used in) provided by operating activities......... (5,415) 676
-------- ------
INVESTING ACTIVITIES
Investment in marketable securities (short and long-term)... (19,830) --
Purchases of furniture and equipment........................ (1,623) (786)
Purchases of various entities, net of cash acquired......... (3,202) --
-------- ------
Net cash used in investing activities....................... (24,655) (786)
-------- ------
FINANCING ACTIVITIES
Proceeds from notes payable................................. 3,400 --
Repayment of notes payable.................................. (3,648) (387)
Principal payments under capital lease obligations.......... (39) (49)
Proceeds from sale of preferred stock, net of issuance
costs..................................................... -- 1,137
Proceeds from exercise of common stock options and shares
issued in connection with Employee Stock Participation
Plan...................................................... 485 10
Proceeds from issuance of common stock, net of issuance
costs..................................................... 61,272 --
-------- ------
Net cash provided by financing activities................... 61,470 711
-------- ------
Net increase in cash and cash equivalents................... 31,400 601
Cash and cash equivalents at beginning of period............ 378 352
-------- ------
Cash and cash equivalents at end of period.................. $ 31,778 $ 953
======== ======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Notes payable issued in connection with various
acquisitions.............................................. $ 3,007 $ --
======== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-25
<PAGE> 121
COMPS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1) Basis of Presentation -- The accompanying unaudited condensed consolidated
financial statements of COMPS.COM, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999. These financial
statements should be read in conjunction with the financial statements and
notes thereto, together with management's discussion and analysis of
financial condition and results of operations, contained in CoStar's
Registration Statement on Form S-4.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the condensed consolidated financial
statements and related notes. Changes in those estimates may affect amounts
reported in future periods. Certain reclassifications have been made to
amounts included in the prior year's financial statements to conform to the
financial statement presentation for the three and nine month periods ended
September 30, 1999.
2) Revenue Recognition -- The Company recognizes product and related services
revenue at the time of shipment or performance of services. A substantial
portion of the Company's revenue come from subscription sales. Subscriptions
are recorded as accounts receivable and as deferred revenues at the time the
customer is invoiced. The Company provides an allowance for bad debts and
cancellations when accounts receivable and deferred revenue are recorded.
Subscription revenue, net of reserve for cancellations, is recognized over
the subscription term.
In addition, the Company obtains fixed fees from its transaction support
services. The services provided include the development and hosting of a
specific Web site for a listed property and sending announcements via fax and
e-mail to potential buyers. The revenue from these services is recognized
ratably over the hosting period, which typically is one to four months.
Revenue from sponsors whose messages and links are located on the Company's
Web site or contained in the broadcast e-mail or fax to potential buyers is
recognized ratably over the period that the messages or links are displayed
or broadcast, provided that no significant Company obligations remain. In
certain circumstances, the Company may be obligated to provide a minimum
number of broadcasts or impressions. In these circumstances, the Company
recognizes revenue at the lesser of the ratio of impressions or broadcasts
delivered over the total guaranteed impressions or broadcasts or the
straight-line basis over the term of the agreements.
F-26
<PAGE> 122
COMPS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4) Segment Information -- The Company's reportable segments are business units
that offer different products and services. The Company's transaction support
activity began in the third quarter of 1998, and therefore only the
information for the nine month periods ended September 30, 1999 is included
below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------
1999 1998
------------------------- -------------------------
TRANSACTION TRANSACTION
INFORMATION SUPPORT INFORMATION SUPPORT
SERVICES SERVICES SERVICES SERVICES
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue from external customers................... $11,727 $ 112 $ 9,724 $ --
Intersegment Revenues............................. -- -- -- --
Segment loss...................................... (4,973) (2,128) (355) (30)
Segment assets.................................... 9,050 2,717 1,524 --
</TABLE>
5) Loss Per Share Data -- Basic and diluted net loss per share are computed
using the weighted average number of Class A and Class B common shares
outstanding. The Class B non-voting common stock automatically converted into
Class A common stock upon the closing of the Company's initial public
offering, and was thereafter known as common stock. Options and warrants were
not included in the computation of diluted net loss per share because the
effects would be antidilutive.
Upon the closing of the Company's initial public offering, all the redeemable
convertible preferred outstanding as of the closing date was automatically
converted into an aggregate of 3,600,110 shares of common stock.
6) Initial Public Offering -- On May 10, 1999, the Company closed its initial
public offering by selling to the underwriters 4,500,000 shares of its common
stock for aggregate net proceeds of $61.3 million.
7) Acquisitions --
In June 1999, the Company acquired substantially all of the assets of Inside
Prospects of California. The Company paid a total of $3.2 million for the
assets, which included $1,650,000 in cash, $1,350,000 in the form of a
subordinated convertible note, assumption of liability for deferred
subscription revenue of $127,300, and acquisition costs of $52,700. The note
is payable in full on June 16, 2003, bears interest at 8% per annum payable
monthly during the term of the note, and may be converted at the option of
the note holder into common stock of the Company at any time after December
16, 2000 at $20 per share. The intangible assets will be amortized over their
estimated useful lives, ranging from two to five years. The Company allocated
the purchase price, based upon management's best estimate as follows:
<TABLE>
<S> <C>
Current assets acquired..................................... $ 39,900
Furniture and equipment..................................... 24,200
Intangible assets........................................... 3,115,900
----------
Net purchase price.......................................... $3,180,000
==========
</TABLE>
On August 9, 1999, the Company acquired substantially all of the assets of
The Baca Information Group. The Company paid a total of $1,060,000 for the
assets, which included $300,000 in cash at the closing and $60,000 of the
purchase price as a hold back for any indemnity claims, assumption of
$173,000 of certain liabilities (including deferred subscription revenue of
$17,000), acquisition costs of $33,000, and stock options valued at $494,000.
F-27
<PAGE> 123
COMPS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 27, 1999, the Company acquired a) all of the outstanding stock of
Sendero Investments, Inc., b) all of the outstanding stock of Parramore,
Inc., and c) substantially all of the assets pertaining to the operations of
the Commercial Brokers Network business of ARA-D/FW, Inc. The Company paid a
total of $2,749,000 for these investments, which included $843,000 in cash,
four notes payable totaling $1,657,000, assumption of deferred subscription
revenue of $67,000, plus assumption of other liabilities of $61,000 and
acquisition costs of $121,000.
8) Subsequent Events --
In November 1999, the Company and CoStar Group, Inc. ("CoStar") entered into
a definitive agreement for a strategic business combination between the
Company and CoStar which will be effected by the merger of the Company into a
wholly owned subsidiary of CoStar. The merger agreement provides that each
holder of a share of the Company's common stock may elect to receive either
$7.50 in cash or 0.31496 shares of CoStar common stock, but these elections
will be adjusted so that 50.1% of the Company's shares receive CoStar common
stock and 49.9% of the Company's shares receive cash. The merger agreement
allows the Company to consider unsolicited acquisition proposals and may be
terminated in the event the Company accepts a superior proposal and pays
CoStar a $2,000,000 fee.
In November 1999, a purported class action suit was initiated in the state of
Delaware and a similar class action suit was brought in the state of
California. The suits allege various breaches of fiduciary duties of certain
members of the board of directors of the Company and by Summit Partners, an
investor of the Company. The Company believes the allegations in the cases
are without merit and will vigorously defend itself against these actions. If
these lawsuits are resolved adversely to the Company, they could have a
material adverse effect on the Company.
F-28
<PAGE> 124
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
COMPS.COM, INC.,
COSTAR GROUP, INC.,
AND
ACQ SUB, INC.
DATED AS OF NOVEMBER 3, 1999
A-1
<PAGE> 125
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
RECITALS..................................................................... A- 5
ARTICLE I The Merger; Closing; Effective Time............................... A- 5
1.1. The Merger.................................................. A- 5
1.2. Closing..................................................... A- 5
1.3. Effective Time.............................................. A- 5
ARTICLE II Certificate of Incorporation and By-Laws of the Surviving
Corporation................................................................ A- 6
2.1. The Certificate of Incorporation............................ A- 6
2.2. By-Laws..................................................... A- 6
ARTICLE III Officers and Directors of the Surviving Corporation............. A- 6
3.1. Directors................................................... A- 6
3.2. Officers.................................................... A- 6
ARTICLE IV Effect of the Merger on Capital Stock; Exchange of
Certificates............................................................... A- 6
4.1. Effect on Capital Stock..................................... A- 6
(a) Merger Consideration.................................. A- 6
(b) Cancellation of Shares................................ A- 6
(c) Merger Sub............................................ A- 7
4.2. Cash Election Procedures.................................... A- 7
(a) Allocation............................................ A- 7
(b) Election Procedures................................... A- 7
(c) Distributions with Respect to Unexchanged Shares;
Voting.................................................... A- 9
(d) Transfers............................................. A- 9
(e) Fractional Shares..................................... A- 9
(f) Termination of Exchange Fund.......................... A-10
(g) Lost, Stolen, or Destroyed Certificates............... A-10
(h) Affiliates............................................ A-10
4.3. Dissenters' Rights.......................................... A-10
4.4. Adjustments to Prevent Dilution............................. A-11
4.5. Company Warrants............................................ A-11
ARTICLE V Representations and Warranties.................................... A-11
5.1. Representations and Warranties of the Company............... A-11
(a) Organization, Good Standing, and Qualification........ A-11
(b) Capital Structure..................................... A-12
(c) Corporate Authority; Approval and Fairness............ A-13
(d) Governmental Filings; No Violations................... A-13
(e) Company Reports; Financial Statements................. A-14
(f) Absence of Certain Changes............................ A-15
(g) Litigation and Liabilities............................ A-15
(h) Employee Benefits..................................... A-15
(i) Compliance with Laws; Permits......................... A-17
(j) Takeover Statutes..................................... A-17
(k) Environmental Matters................................. A-17
(l) Tax Matters........................................... A-18
(m) Taxes................................................. A-18
(n) Labor Matters......................................... A-19
</TABLE>
A-2
<PAGE> 126
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(o) Insurance............................................. A-19
(p) Intellectual Property................................. A-19
(q) Brokers and Finders................................... A-20
(r) Year 2000 Compliance.................................. A-20
(s) Unlawful Contribution/Payment......................... A-21
5.2. Representations and Warranties of Parent and Merger Sub..... A-21
(a) Capitalization of Merger Sub.......................... A-21
(b) Organization, Good Standing, and Qualification........ A-21
(c) Capital Structure..................................... A-22
(d) Corporate Authority................................... A-22
(e) Governmental Filings; No Violations................... A-23
(f) Parent Reports; Financial Statements.................. A-23
(g) Compliance with Laws; Permits......................... A-24
(h) Takeover Statutes..................................... A-24
(i) Tax Matters........................................... A-24
(j) Brokers and Finders................................... A-24
(k) Available Funds....................................... A-24
(l) Year 2000 Compliance.................................. A-24
(m) Absence of Certain Changes............................ A-25
(n) Litigation and Liabilities............................ A-25
ARTICLE VI Covenants........................................................ A-25
6.1. Interim Operations.......................................... A-25
6.2. Acquisition Proposals....................................... A-27
6.3. Information Supplied........................................ A-28
6.4. Stockholders Meeting........................................ A-28
6.5. Filings; Other Actions; Notification........................ A-28
6.6. Taxation.................................................... A-29
6.7. Access...................................................... A-29
6.8. Affiliates.................................................. A-29
6.9. Stock Exchange Listing and De-listing....................... A-30
6.10. Directors' and Officers' Indemnification.................... A-30
6.11. Publicity................................................... A-30
6.12. Benefits.................................................... A-30
(a) Stock Options......................................... A-30
(b) Employee Benefits..................................... A-31
(c) Limited Accelerated Vesting and Exercisability........ A-31
(d) New Options........................................... A-31
(e) Severance............................................. A-31
(f) ESPP.................................................. A-31
6.13. Election to Parent's Board of Directors..................... A-31
6.14. Expenses.................................................... A-31
6.15. Other Actions by the Company and Parent..................... A-32
(a) Takeover Statute...................................... A-32
(b) Dividends............................................. A-32
(c) Cash Expenditure Certificate.......................... A-32
ARTICLE VII Conditions...................................................... A-32
7.1. Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-32
(a) Stockholder Approval.................................. A-32
(b) Regulatory Consents................................... A-32
(c) Litigation............................................ A-32
(d) S-4................................................... A-32
</TABLE>
A-3
<PAGE> 127
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
7.2. Conditions to Obligations of Parent and Merger Sub.......... A-33
(a) Representations and Warranties........................ A-33
(b) Performance of Obligations of the Company............. A-33
(c) Consents Under Agreements............................. A-33
(d) Tax Opinion........................................... A-33
(e) Legal Opinion......................................... A-33
(f) Affiliates Letters.................................... A-33
(g) Accountant Letter..................................... A-33
(h) Stock Option Plan..................................... A-33
(i) Voting Agreement...................................... A-33
(j) Pledge Agreement...................................... A-34
(k) Calculation of Cash Expenditures...................... A-34
(l) Cash Shortfall........................................ A-34
(m) Employment/Non-competition Agreement.................. A-34
(n) Litigation and Liabilities............................ A-34
(o) Compensation and Benefit Plans........................ A-35
(p) Company Warrants...................................... A-35
7.3. Conditions to Obligation of the Company..................... A-35
(a) Representations and Warranties........................ A-35
(b) Performance of Obligations of Parent and Merger Sub... A-35
(c) Tax Opinion........................................... A-35
(d) Legal Opinion......................................... A-35
(e) Accountant Letter..................................... A-35
(f) Nasdaq National Market Listing........................ A-35
ARTICLE VIII Termination.................................................... A-35
8.1. Termination by Mutual Consent............................... A-35
8.2. Termination by Either Parent or the Company................. A-36
8.3. Termination by the Company.................................. A-36
8.4. Termination by Parent....................................... A-36
8.5. Effect of Termination and Abandonment....................... A-37
ARTICLE IX Miscellaneous and General........................................ A-37
9.1. Survival.................................................... A-37
9.2. Modification or Amendment................................... A-37
9.3. Waiver...................................................... A-37
9.4. Counterparts................................................ A-38
9.5. Governing Law and Venue; Waiver of Jury Trial............... A-38
9.6. Notices..................................................... A-38
9.7. Entire Agreement; No Other Representations.................. A-39
9.8. No Third Party Beneficiaries................................ A-39
9.9. Obligations of Parent and of the Company.................... A-39
9.10. Severability................................................ A-40
9.11. Interpretation.............................................. A-40
9.12. Assignment.................................................. A-40
9.13. Executive Officer........................................... A-40
</TABLE>
A-4
<PAGE> 128
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 3, 1999 (this
"Agreement"), by and among COMPS.COM, Inc., a Delaware corporation (the
"Company"), CoStar Group, Inc., a Delaware corporation ("Parent"), and Acq Sub,
Inc., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger
Sub," the Company and Merger Sub sometimes hereinafter collectively referred to
as the "Constituent Corporations").
RECITALS
WHEREAS, the respective boards of directors of each of Parent, Merger Sub
and the Company have approved the merger of the Company with and into Merger Sub
(the "Merger") and approved this Agreement and the Merger upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, it is intended that, for federal income tax purposes, the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code") and that this Agreement shall be, and is
hereby, adopted as a plan of reorganization for the purposes of Section 368 of
the Code; and
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants, and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the respective
representations, warranties, covenants, and agreements contained herein, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
1.1. The Merger. Upon the terms and subject to the satisfaction or waiver
of the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), the Company shall be merged with and into Merger Sub and the
separate corporate existence of the Company shall thereupon cease. Merger Sub
shall be the surviving corporation in the Merger (sometimes hereinafter referred
to as the "Surviving Corporation"). The Merger shall have the effects specified
in the General Corporation Law of the State of Delaware, as amended (the
"DGCL").
1.2. Closing. The closing of the Merger (the "Closing") shall take place
(i) at the offices of Shea & Gardner, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. at 10:00 A.M. on the first day that is not a Saturday, Sunday,
or a day when commercial banks in The City of New York are authorized by law,
rule, or regulation to be closed (each such day, a "Business Day") on which the
last to be fulfilled or waived of the conditions set forth in Article VII (other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to the fulfillment or waiver of those conditions) shall be satisfied
or waived in accordance with this Agreement or (ii) at such other place and time
and/or on such other date as the Company and Parent may agree in writing (such
date and time, the "Closing Date").
1.3. Effective Time. Concurrently with the Closing, the Company and Merger
Sub will cause a Certificate of Merger (the "Delaware Certificate of Merger") to
be executed, acknowledged, and filed with the Secretary of State of Delaware as
provided in Section 251 of the DGCL. The Merger shall become effective at the
time when the Delaware Certificate of Merger has been duly filed with the
Secretary of State of Delaware or such other date and time as agreed upon by the
Company and Merger Sub and specified in the Certificate of Merger (the
"Effective Time").
A-5
<PAGE> 129
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. The Certificate of Incorporation. The certificate of incorporation of
Merger Sub as in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation (the "Charter"), until
duly amended as provided therein or by applicable law, except that Article 1 of
the Charter shall be amended to read in its entirety as follows: "The name of
the Corporation is:
2.2. By-Laws. The by-laws of Merger Sub in effect at the Effective Time
shall be the by-laws of the Surviving Corporation, until thereafter amended as
provided therein or by applicable law.
ARTICLE III
OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION
3.1. Directors. The directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving Corporation
and shall hold office from the Effective Time until their respective successors
are duly elected or appointed and qualified in the manner provided in the
Charter and by-laws of the Surviving Corporation, or as otherwise provided by
law.
3.2. Officers. The officers of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the officers of the Surviving Corporation
and shall hold office from the Effective Time until removed or until their
respective successors are duly elected or appointed and qualified in the manner
provided in the Charter and by-laws of the Surviving Corporation, or as
otherwise provided by law.
ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
4.1. Effect on Capital Stock. At the Effective Time, as a result of the
Merger and without any action on the part of the holder of any capital stock of
the Company:
(a) Merger Consideration. Subject to Section 4.2, each share of the
Common Stock, par value $0.01 per share, of the Company (the "Shares"),
issued and outstanding immediately prior to the Effective Time (other than
Dissenting Shares (as defined in Section 4.3(a)), Shares owned by Parent,
Merger Sub, or any other direct or indirect subsidiary of Parent
(collectively, the "Parent Companies") or Shares that are owned by the
Company or any direct or indirect subsidiary of the Company and in each
case not held on behalf of third parties (collectively, "Excluded Shares"))
shall be converted into, and become exchangeable for the following (the
"Merger Consideration"): the right to receive (i) $7.50 in cash (the "Cash
Consideration"), without interest thereon, or (ii) 0.31496 shares of Common
Stock, par value $0.01 per share (the "Parent Common Stock"), of Parent
(the "Stock Consideration"). At the Effective Time, all Shares shall no
longer be outstanding and shall be canceled and retired and shall cease to
exist, and each certificate (a "Certificate") previously representing any
of such Shares (other than Excluded Shares and Dissenting Shares) shall
thereafter represent only the right to receive the Merger Consideration and
the right, if any, to receive pursuant to Section 4.2(e) cash in lieu of
fractional shares into which such Shares have been converted pursuant to
this Section 4.1(a) and any dividends or other distributions pursuant to
Section 4.2(c).
(b) Cancellation of Shares. Each Share issued and outstanding
immediately prior to the Effective Time and owned by any of the Parent
Companies or owned by the Company or any direct or indirect subsidiary of
the Company (other than Shares that are in each case owned on behalf of
A-6
<PAGE> 130
third parties), shall, by virtue of the Merger and without any action on
the part of the holder thereof, (i) cease to be outstanding, (ii) be
canceled and retired without payment of any consideration therefor, and
(iii) cease to exist.
(c) Merger Sub. At the Effective Time, each share of Common Stock,
par value $1 per share, of Merger Sub, issued and outstanding immediately
prior to the Effective Time, shall remain outstanding and each certificate
therefor shall continue to evidence one share of Common Stock, par value $1
per share, of the Surviving Corporation.
4.2. Cash Election Procedures.
(a) Allocation. Notwithstanding anything in this Agreement to the
contrary, the maximum number of Shares (the "Cash Election Number") to be
converted into the right to receive Cash Consideration in the Merger shall
be the largest whole number less than or equal to (i) 49.9 percent of the
number of Shares issued and outstanding immediately prior to the Effective
Time less (ii) the number of Shares to be canceled in accordance with
Section 4.1(b). The number of Shares to be converted into the right to
receive Stock Consideration in the Merger (the "Stock Election Number")
shall be equal to the number of Shares issued and outstanding immediately
prior to the Effective Time less the sum of (i) the Cash Election Number
and (ii) the number of Shares to be canceled in accordance with Section
4.1(b).
(b) Election Procedures.
(i) As of the Effective Time, Parent shall deposit, or shall cause
to be deposited, with an exchange agent selected by Parent, with the
Company's prior approval, which shall not be unreasonably withheld (the
"Exchange Agent"), for the benefit of the former holders of Shares,
certificates representing the shares of Parent Common Stock and any cash
and any dividends or other distributions with respect to the Parent
Common Stock to be issued or paid pursuant to Sections 4.1 and 4.2(c) in
exchange for outstanding Shares upon due surrender of the Certificates
pursuant to the provisions of this Article IV (such cash and
certificates for shares of Parent Common Stock, together with the amount
of any dividends or other distributions payable with respect thereto,
being hereinafter referred to as the "Exchange Fund").
(ii) Subject to allocation and proration in accordance with the
provisions of this Section 4.2, each record holder of Shares (other than
Excluded Shares and Dissenting Shares) issued and outstanding
immediately prior to the Election Deadline (as defined below) shall be
entitled (A) to elect to receive in respect of each such Share (x) Cash
Consideration (a "Cash Election") or (y) Stock Consideration (a "Stock
Election") or (B) to indicate that such record holder has no preference
as to the receipt of Cash Consideration or Stock Consideration for such
Shares (a "Non-Election"). Shares in respect of which a Non-Election is
made (including shares in respect of which such an election is deemed to
have been made pursuant to this Section 4.2 and Section 4.3
(collectively, "Non-Election Shares")) shall be deemed by Parent, in its
sole and absolute discretion, subject to Sections 4.2(b)(v)-(vii), to
be, in whole or in part, Shares in respect of which Cash Elections or
Stock Elections have been made.
(iii) Elections pursuant to Section 4.2(b)(ii) shall be made on a
form and with such other provisions to be reasonably agreed upon by the
Company and Parent (a "Form of Election") to be provided by the Exchange
Agent for that purpose to holders of record of Shares (other than
holders of Excluded Shares and Dissenting Shares), together with
appropriate transmittal materials, at the time of mailing to holders of
record of Shares of the Prospectus-Proxy Statement (as defined in
Section 6.3) in connection with the stockholders' meeting referred to in
Section 6.4. Elections shall be made by mailing to the Exchange Agent a
duly completed Form of Election. To be effective, a Form of Election
must be (x) properly completed, signed, and submitted to the Exchange
Agent at its designated office, by 5:00 p.m., New York City time, on the
Business Day that is two Business Days prior to the Closing Date (which
date shall be publicly announced by Parent as soon as practicable but in
no event less than five Business Days
A-7
<PAGE> 131
prior to the Closing Date) (the "Election Deadline") and (y) accompanied
by the Certificate(s) representing the Shares as to which the election
is being made (or by an appropriate guarantee of delivery of such
Certificate(s) by a commercial bank or trust company in the United
States or a member of a registered national security exchange or of the
National Association of Securities Dealers, Inc., provided that such
Certificates are in fact delivered to the Exchange Agent within three
Business Days after the date of execution of such guarantee of
delivery). The Company shall use commercially reasonable efforts to make
a Form of Election available to all persons who become holders of record
of Shares (other than Excluded Shares and Dissenting Shares) between the
date of mailing described in the first sentence of this Section
4.2(b)(iii) and the Election Deadline. Parent shall determine, in its
sole and absolute discretion, which authority it may delegate in whole
or in part to the Exchange Agent and whether Forms of Election have been
properly completed, signed, and submitted or revoked. The decision of
Parent (or the Exchange Agent, as the case may be) in such matters shall
be conclusive and binding. Parent shall make reasonable efforts to, or
shall make reasonable efforts to cause the Exchange Agent to, notify
holders of Shares of defects in any Form of Election submitted to the
Exchange Agent. A holder of Shares that does not submit an effective
Form of Election prior to the Election Deadline shall be deemed to have
made a Non-Election.
(iv) An election may be revoked, but only by written notice
received by the Exchange Agent prior to the Election Deadline. Any
Certificate(s) representing Shares that have been submitted to the
Exchange Agent in connection with an election shall be returned without
charge to the holder thereof in the event such election is revoked as
aforesaid and such holder requests in writing the return of such
Certificate(s). Upon any such revocation, unless a duly completed Form
of Election is thereafter submitted in accordance with paragraph
(b)(ii), such Shares shall be Non-Election Shares. In the event that
this Agreement is terminated pursuant to the provisions hereof and any
Shares have been transmitted to the Exchange Agent pursuant to the
provisions hereof, such Shares shall promptly be returned without charge
to the person submitting the same.
(v) In the event that the aggregate number of Shares in respect of
which Cash Elections have been made (collectively, the "Cash Election
Shares") exceeds the Cash Election Number, all shares in respect of
which Stock Elections have been made (the "Stock Election Shares") and
all Non-Election Shares in respect of which Stock Elections are deemed
to have been made (it being understood that in such case all
Non-Election Shares shall be deemed to be shares in respect of which
Stock Elections have been made) shall be converted into the right to
receive Stock Consideration, and all Cash Election Shares shall be
converted into the right to receive Stock Consideration or Cash
Consideration in the following manner:
(A) a cash proration factor (the "Cash Proration Factor") shall
be determined dividing the Cash Election Number by the total number
of Cash Election Shares; the quotient shall be carried to five
decimal places.
(B) the number of Cash Election Shares to be converted into the
right to receive cash shall be determined by multiplying the Cash
Proration Factor by the total number of Shares covered by each Cash
Election.
(C) each Share covered by a Cash Election and not converted into
a right to receive cash as set forth above shall be converted into
Stock Consideration in the Merger.
(vi) In the event that the aggregate number of Stock Election
Shares exceeds the Stock Election Number, all Cash Election Shares and
all Non-Election Shares in respect of which Cash Elections are deemed to
have been made (it being understood that in such case all Non-Election
Shares shall be deemed to be Shares in respect of which Cash Elections
have been made) shall be converted into the right to receive Cash
Consideration, and all Stock Election
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Shares shall be converted into the right to receive Stock Consideration
or Cash Consideration in the following manner:
(A) a stock proration factor (the "Stock Proration Factor")
shall be determined by dividing the Stock Election Number by the
total number of Stock Election Shares; the quotient shall be carried
to five decimal places.
(B) the number of Stock Election Shares to be converted into the
right to receive cash shall be determined by multiplying the Stock
Proration Factor by the total number of Shares covered by each Stock
Election.
(C) each Share covered by a Stock Election and not converted
into a right to receive Parent Common Stock as set forth above shall
be converted into the right to receive cash in the Merger.
(vii) In the event that neither clause (v) nor clause (vi) of this
Section 4.2(b) is applicable, (x) Non-Election Shares shall be deemed
Stock Election Shares such that the total number of Stock Election
Shares equals the Stock Election Number and any remaining Non-Election
Shares shall be deemed Cash Election Shares, (y) all Cash Election
Shares and all Non-Election Shares in respect of which Cash Elections
are deemed to have been made shall be converted into the right to
receive Cash Consideration, and (z) all Stock Election Shares and all
Non-Election Shares in respect of which Stock Elections are deemed to
have been made shall be converted into the right to receive Stock
Consideration (and cash in lieu of fractional interests).
(viii) The Exchange Agent, in consultation with Parent and the
Company, shall (A) periodically, upon request of Parent or the Company,
provide information with respect to Forms of Election received and (B)
make all computations to give effect to this Section 4.2.
(c) Distributions with Respect to Unexchanged Shares; Voting.
(i) All shares of Parent Common Stock to be issued pursuant to the
Merger shall be deemed issued and outstanding as of the Effective Time
and whenever a dividend or other distribution is declared by Parent in
respect of the Parent Common Stock, the record date for which is at or
after the Effective Time, that declaration shall include dividends or
other distributions in respect of all shares of Parent Common Stock
issuable pursuant to this Agreement. No dividends or other distributions
in respect of the Parent Common Stock shall be paid to any holder of any
unsurrendered Certificate until such Certificate is surrendered for
exchange in accordance with this Article IV. Subject to the effect of
applicable laws, following surrender of any such Certificate, there
shall be issued and/or paid to the holder of the certificates
representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (A) at the time of such surrender, the
dividends or other distributions with a record date after the Effective
Time theretofore payable with respect to such whole shares of Parent
Common Stock and not paid and (B) at the appropriate payment date, the
dividends or other distributions payable with respect to such whole
shares of Parent Common Stock with a record date after the Effective
Time but with a payment date subsequent to surrender.
(ii) Holders of unsurrendered Certificates shall be entitled to
vote, after the Effective Time, at any meeting of stockholders of
Parent, the number of whole shares of Parent Common Stock represented by
such Certificates, regardless of whether such holders have exchanged
their Certificates.
(d) Transfers. After the Effective Time, there shall be no transfers
on the stock transfer books of the Company of the Shares that were
outstanding immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock will be issued and
any holder of Shares entitled to receive a fractional share of Parent
Common Stock but for this Section 4.2(e) shall be entitled to receive a
cash payment in lieu thereof, which payment shall represent such holder's
proportionate interest in a
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net proceeds from the sale by the Exchange Agent on behalf of all such
holders of the aggregate fractional shares of Parent Common Stock that such
holders otherwise would be entitled to receive. Any such sale shall be made
by the Exchange Agent, at the market price, within five Business Days after
the date upon which the Certificate(s) (or affidavit(s) of loss in lieu
thereof) that would otherwise result in the issuance of such fractional
shares of Parent Common Stock have been received by the Exchange Agent. Any
costs, including, but not limited to, brokerage commissions of such sales
shall be borne by Parent.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any Parent Common
Stock) that remains unclaimed by the former stockholders of the Company for
180 days after the Effective Time shall be paid to Parent. Any stockholders
of the Company who have not theretofore complied with this Article IV shall
thereafter look only to Parent for payment of their shares of Parent Common
Stock and any cash, dividends, and other distributions in respect thereof
payable and/or issuable pursuant to Section 4.1 and Section 4.2(c) upon due
surrender of their Certificates (or affidavits of loss in lieu thereof), in
each case, with out any interest thereon. Notwithstanding the foregoing,
none of Parent, the Surviving Corporation, the Exchange Agent, or any other
person shall be liable to any former holder of Shares for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(g) Lost, Stolen, or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming such Certificate to be
lost, stolen, or destroyed and, if required by Parent, the posting by such
person of a bond in customary amount as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen, or destroyed Certificate the
shares of Parent Common Stock and any cash payable and any unpaid dividends
or other distributions in respect thereof pursuant to Section 4.2(c) upon
due surrender of and deliverable in respect of the Shares represented by
such Certificate pursuant to this Agreement.
(h) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "affiliate" (as determined
pursuant to Section 6.8) of the Company shall not be exchanged until Parent
has received a written agreement from such person as provided in Section
6.8.
4.3. Dissenters' Rights.
(a) Notwithstanding anything in this Agreement to the contrary, Shares
which were outstanding on the date for the determination of stockholders
entitled to vote on the adoption of this Agreement and which were not voted
in favor of or were voted against the adoption of this Agreement and the
holders of which have demanded that the Company purchase such shares at
their fair value in accordance with Section 262 of the DGCL and have not
failed to perfect or shall not have effectively withdrawn or lost their
rights to purchase for cash under the DGCL (the "Dissenting Shares") shall
not be converted into the Merger Consideration, but instead, the holders
thereof shall be entitled to have their shares purchased by the Company for
cash at the fair value of such Company Dissenting Shares as agreed upon or
determined in accordance with the provisions of Section 262 of the DGCL;
provided, however, that if any such holder shall have failed to perfect or
shall have effectively withdrawn or lost his, her, or its right to
appraisal and payment under the DGCL, such holder's Shares shall thereupon
be deemed to have been converted, at the Effective Time, as No Election
Shares, into the Merger Consideration set forth in Section 4.1, without any
interest thereon.
(b) The Company shall provide Parent (i) prompt notice of any demands
pursuant to Section 262 of the DGCL received by the Company, withdrawals of
such demands, and any other instruments served pursuant to the DGCL and
received by the Company and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands under Section 262 of the DGCL. The
Company shall not, except with the prior written consent of Parent, make
any payment with respect to any such demands for appraisal or offer to
settle or settle any such demands.
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(c) For purposes of Section 4.2, Dissenting Shares shall be deemed to
be Shares in respect of which Cash Elections have been made.
4.4. Adjustments to Prevent Dilution. In the event that the Company
changes the number of Shares or securities convertible into, exchangeable for,
or exercisable for Shares, or Parent changes the number of shares of Parent
Common Stock or securities convertible into, exchangeable for, or exercisable
for shares of Parent Common Stock, issued and outstanding prior to the Effective
Time as a result of a reclassification, stock split (including a reverse stock
split), stock dividend or distribution, recapitalization, merger, subdivision,
issuer tender or exchange offer, or other similar transaction, the Merger
Consideration shall be equitably adjusted to reflect such reclassification,
stock split (including a reverse stock split), stock dividend or distribution,
recapitalization, merger, subdivision, issuer tender or exchange offer, or other
similar transaction.
4.5 Company Warrants. At the Effective Time, each outstanding warrant to
purchase Shares shall, subject to the receipt of the consents referred to in
Section 7.2(p), be canceled in exchange for the issuance, at the Closing, of the
number of shares of Parent Common Stock equal to (a) the product of (i) the
aggregate number of Shares for which such warrant was immediately prior to the
Effective Time exercisable multiplied by (ii) 0.31496; minus (b) (i) the
quotient of (A) the aggregate exercise price of such warrant immediately prior
to the Effective Time divided by (B) $23.8125; provided that no fractional
interests in a share of Parent Common Stock shall be issued, and any holder of a
warrant entitled to a fractional share under this Section 4.5 shall be entitled
to a cash payment in lieu thereof, as provided in Section 4.2(e).
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company. Except as set forth in
the corresponding sections or subsections of the disclosure letter delivered to
Parent by the Company on or prior to entering into this Agreement (the "Company
Disclosure Letter"), the Company hereby represents and warrants to Parent and
Merger Sub that:
(a) Organization, Good Standing, and Qualification. Each of the
Company and its Subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of its respective
jurisdiction of organization and has all requisite corporate or similar
power and authority to own and operate its properties and assets and to
carry on its business as presently conducted and is qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction where the ownership or operation of its properties or conduct
of its business requires such qualification. The Company has made available
to Parent a complete and correct copy of the Company's and its
Subsidiaries' respective certificates of incorporation and by-laws, each as
amended to date. The Company's and its Subsidiaries' certificates of
incorporation and by-laws so delivered are in full force and effect.
Neither the Company nor any of its Subsidiaries (i) is in violation or
default of any provision of its certificate of incorporation, by-laws, or
other organizational documents, or (ii) (A) on the date of this Agreement
is in material breach of or default with respect to any provision of any
agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a
party or by which it or any of its properties are bound; and as of the date
of this Agreement there does not exist any state of facts which, with
notice or lapse of time or both would constitute such a breach or default
on the part of the Company and/or any of its Subsidiaries; or (B) on the
Closing Date will be in breach of or default with respect to any provision
of any agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a
party or by which it or any of its properties are bound other than such a
breach or default that, individually or in the aggregate, would not
reasonably expected to have a Company Material Adverse Effect; and as of
the Closing Date there will not exist any state of facts which, with notice
or lapse of time or both would constitute such a breach or default on the
part of the Company and/or any of its Subsidiaries. Section 5.1(a) of the
Company
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Disclosure Letter contains a correct and complete list of each jurisdiction
where the Company and each of its Subsidiaries is organized and qualified
to do business.
As used in this Agreement, the term (i) "Subsidiary" means, with
respect to the Company, or Parent, as the case may be, any entity, whether
incorporated or unincorporated, of which at least a majority of the
securities or ownership interests having by their terms ordinary voting
power to elect a majority of the board of directors or other persons
performing similar functions is directly or indirectly owned or controlled
by such party or by one or more of its respective Subsidiaries or by such
party and any one or more of its respective Subsidiaries and (ii) "Company
Material Adverse Effect" means a material adverse effect on the financial
condition, properties, business, or results of operations of the Company
and its Subsidiaries, taken as a whole; provided that no one or more of the
following shall be deemed to constitute in and of itself, or be taken into
account in determining, the occurrence of a Company Material Adverse
Effect: (A) any effect arising from or relating to general industry or
economic conditions, (B) any effect relating to, affecting, or with respect
to, the Internet business or the real estate business generally, (C) any
effect arising from transactions contemplated by this Agreement or the
public announcement thereof (excluding from the foregoing any pending or
threatened litigation or one or more events or circumstances which
otherwise would be a breach of any representation, warranty or covenant of
the Company contained in this Agreement), (D) any decline in trading prices
in financial markets generally or in the trading price of shares of Company
Common Stock (excluding from the foregoing any declines arising out of
public announcement of one or more events or circumstances which otherwise
would be a breach of any representation, warranty or covenant of Company
contained in this Agreement or otherwise constitute a Company Material
Adverse Effect), or (E) the failure of the Company to meet earnings
expectations published in analysts reports or in the financial projections
provided by the Company to Parent (excluding from the foregoing any effects
on earnings arising out of, related to, or otherwise by virtue of one or
more events or circumstances which otherwise would be a breach of any
representation, warranty or covenant of Company contained in this Agreement
or otherwise constitute a Company Material Adverse Effect).
(b) Capital Structure. The authorized capital stock of the Company
consists of 75,000,000 Shares of Common Stock, par value $0.01 per share,
of which 11,954,647 Shares were outstanding as of the close of business on
November 3, 1999, and 5,000,000 shares of Preferred Stock, par value $0.01
per share (the "Preferred Shares"), of which no shares were outstanding as
of the close of business on September 30, 1999. All of the outstanding
Shares have been duly authorized and are validly issued, fully paid, and
nonassessable. The Company has no Shares or Preferred Shares reserved for
issuance, except that, as of November 3, 1999, there were 2,800,000 Shares
reserved for issuance pursuant to the Stock Plan and 300,000 Shares
reserved for issuance pursuant to the Company's 1999 Employee Stock
Purchase Plan (the "ESPP"), of which 22,657 Shares have been issued as of
November 3, 1999. For the Purchase Interval (as defined in the ESPP) ending
January 31, 2000, a maximum of $232,500 can be contributed to the ESPP to
repurchase Shares. The Company Disclosure Letter contains a correct and
complete list of each outstanding option to purchase Shares under the Stock
Plan or under any other arrangement (each a "Company Option"), including
the holder, date of grant, exercise price, number of Shares subject
thereto, number of Shares underlying the exercisable portion of the option,
number of Shares underlying the unexercisable portion of the option, and
vesting schedule for the unexercisable portion of the option. The Company
Disclosure Letter contains a correct and complete list of each outstanding
warrant or similar right to purchase Shares, including the holder, date of
grant, exercise price, number of Shares underlying the warrant, and any
other rights associated with the warrant. Each of the outstanding shares of
capital stock or other securities of each of the Company's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable, and owned by
a direct or indirect wholly-owned subsidiary of the Company, free and clear
of any lien, pledge, security interest, claim, or other encumbrance. The
administrator of each stock option plan of the Company who has discretion
regarding acceleration of the exercisability of any option under such plan
or with respect to any aspect or provision of such plan relating to the
termination, exercise, amendment, cancellation, or change in any option or
other
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right under such plan in the event of a transaction of the kind
contemplated by this Agreement has not taken any action with respect to the
options or other rights, including without limitation, accelerating vesting
of options or rights. Except as set forth above, there are no preemptive or
other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, registration rights, rights of
first refusal, repurchase rights, agreements, arrangements, or commitments
to issue or sell any shares of capital stock or other securities of the
Company or any of its Subsidiaries or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any person a
right to subscribe for or acquire, any securities of the Company or any of
its Subsidiaries, and no securities or obligations evidencing such rights
are authorized, issued, or outstanding. Except as set forth in the Company
Disclosure Letter, the Company does not have outstanding any bonds,
debentures, notes, or other obligations the holders of which have the right
to vote (or convertible into or exercisable for securities having the right
to vote) with the stockholders of the Company on any matter ("Voting
Debt").
(c) Corporate Authority; Approval and Fairness.
(i) The Company has all requisite corporate power and authority and
has taken all corporate action necessary in order to execute, deliver,
and perform its obligations under this Agreement, and to consummate the
Merger, subject only to adoption of this Agreement by the holders of the
outstanding Shares (the "Company Requisite Vote"). This Agreement is a
valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles (the "Bankruptcy and Equity Exception").
(ii) The board of directors of the Company (A) on November 3, 1999,
unanimously approved this Agreement and the Merger and the other
transactions contemplated hereby and (B) has received the opinion of its
financial advisors, Volpe Brown Whelan & Company LLC ("Volpe"), to the
effect that, as of November 3, 1999, the consideration to be received by
the holders of the Shares in the Merger is fair to such holders (other
than Summit Ventures III, L.P., Summit Investors II, L.P., and
Christopher A. Crane), a copy of which opinion has been delivered to
Parent. It is agreed and understood that such opinion is for the benefit
of the Company's Board of Directors and may not be relied on by Parent
or Merger Sub.
(d) Governmental Filings; No Violations.
(i) Other than the filings and/or notices (A) pursuant to Section
1.3, (B) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the Securities Act of 1933, as amended (the
"Securities Act"), and (C) required to be made with the Nasdaq National
Market, no notices, reports, or other filings are required to be made by
the Company with, nor are any consents, registrations, approvals,
permits, or authorizations required to be obtained by the Company from,
any governmental or regulatory authority, agency, commission, body, or
other governmental entity ("Governmental Entity"), in connection with
the execution and delivery of this Agreement by the Company and the
consummation by the Company of the Merger and the other transactions
contemplated hereby, except those that the failure to make or obtain are
not, individually or in the aggregate, reasonably expected to have a
Company Material Adverse Effect or prevent, materially delay, or
materially impair the ability of the Company to consummate transactions
contemplated by this Agreement.
(ii) The execution, delivery, and performance of this Agreement by
the Company do not, and the consummation by the Company of the Merger
and the other transactions contemplated hereby will not, constitute or
result in a breach or violation of, or a default under, the respective
certificate of incorporation or by-laws of the Company or any of its
Subsidiaries. On the date of this Agreement, the execution, delivery,
and performance of this Agreement by the Company do not, and the
consummation by the Company of the Merger and the other transactions
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contemplated hereby will not, constitute or result in, (A) a breach or
violation of, or a default under, the acceleration of any obligations or
the creation of a lien, pledge, security interest, or other encumbrance
on the assets of the Company or any of its Subsidiaries (with or without
notice, lapse of time, or both) pursuant to any agreement, lease,
contract, note, mortgage, indenture, arrangement, or other obligation
("Contracts") binding upon the Company or any of its Subsidiaries or any
Law or governmental or non-governmental permit or license to which the
Company or any of its Subsidiaries is subject, or (B) any change in the
rights or obligations of any party under any of the Contracts.
On the Closing Date, the execution, delivery, and performance of this
Agreement by the Company will not, and the consummation by the Company of
the Merger and the other transactions contemplated hereby will not,
constitute or result in, (x) a breach or violation of, or a default under,
the acceleration of any obligations or the creation of a lien, pledge,
security interest, or other encumbrance on the assets of the Company or any
of its Subsidiaries (with or without notice, lapse of time, or both)
pursuant to any Contracts binding upon the Company or any of its
Subsidiaries or any Law or governmental or non-governmental permit or
license to which the Company or any of its Subsidiaries is subject, or (y)
any change in the rights or obligations of any party under any of the
Contracts, except, in the case of clause (x) or (y) above, for a breach,
violation, default, acceleration, creation, or change that, individually or
in the aggregate, would not reasonably be expected to have a Company
Material Adverse Effect. The Company Disclosure Letter sets forth a correct
and complete list of Contracts of the Company and its Subsidiaries pursuant
to which consents or waivers are required prior to consummation of the
transactions contemplated by this Agreement.
(e) Company Reports; Financial Statements.
(i) The Company has provided Parent with access to each
registration statement, report, proxy statement, or information
statement prepared by it since December 31, 1998 (the "Audit Date"),
including (A) the Company's registration statement on Form S-1 (File No.
333-72901) (as amended from time to time, the "S-1"), (B) the Company's
current reports on Form 8-K, and (C) the Company's Quarterly Reports on
Form 10-Q for the periods ended March 31, 1999 and June 30, 1999, each
in the form (including exhibits, annexes, and any amendments thereto)
filed with the Securities and Exchange Commission (the "SEC")
(collectively, including any such reports filed subsequent to the date
of this Agreement and as amended, the "Company Reports"). As of the date
the S-1 became effective under the Securities Act, the S-1 did 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. As of their respective dates (or, if
amended, as of the date of such amendment) the Company Reports (other
than the S-1) did not, and any Company Reports filed with the SEC
subsequent to the date of this Agreement 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 made therein,
in light of the circumstances in which they were made, not misleading.
Except as disclosed in the Company Disclosure Letter, the Company has
filed as exhibits to the Company Reports all contracts and other
documents that were required to be so filed by the Securities Act and
the rules and regulations promulgated thereunder, and, with respect to
contracts and other documents made subsequently to the most recently
filed Company Reports, would be required to be filed as exhibits to
Company Reports required to be filed in the future. The Company
Disclosure Letter includes a complete listing of all real property owned
or leased by the Company or any of its Subsidiaries. Except as set forth
in the Company Disclosure Letter, the contracts so described in the
Company Reports are in full force and effect on the date of this
Agreement.
(ii) The Company has furnished to Parent a consolidated balance
sheet and a consolidated statement of operations, each initialed by the
Company and by Parent, that each present the consolidated financial
position and results of operations of the Company and its subsidiaries
as of September 30, 1999 and for the three months then ended
(collectively, the "1999 Q3 Financials"). Each of the consolidated
balance sheets included in the Company Reports
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(including the related notes and schedules) and the 1999 Q3 Financials
fairly presents, or (with respect to Company Reports filed with the SEC
subsequent to the date of this Agreement) will fairly present, in all
material respects, the consolidated financial position of the Company
and its subsidiaries as of its date, and each of the consolidated
statements of operations and of cash flows included in the Company
Reports (including any related notes and schedules) and the 1999 Q3
Financials fairly presents, in all material respects, or (with respect
to Company Reports filed with the SEC subsequent to the date of this
Agreement) will, in all material respects, fairly present, the results
of operations, accumulated deficit, if any, and cash flows, as
applicable, of the Company and its subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to the
omission of notes and normal year-end audit adjustments that will not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles ("GAAP") consistently applied during the
periods involved, except as may be noted therein.
(f) Absence of Certain Changes. Except for transactions contemplated
by this Agreement or disclosed in the Company Disclosure Letter or the
Company Reports filed prior to the date of this Agreement, since June 30,
1999 (the "Interim Date"), the Company and its Subsidiaries have conducted
their respective businesses only in, and have not engaged in any material
transaction other than according to, the ordinary and usual course of such
businesses and there has not been: (i) any material change or any
development or combination of developments of which management of the
Company has knowledge in the financial condition, properties, business, or
results of operations of the Company and its Subsidiaries; (ii) any
material damage, destruction, or other casualty loss with respect to any
material asset or property owned, leased, or otherwise used by the Company
or any of its Subsidiaries, whether or not covered by insurance; (iii) any
declaration, setting aside or payment of any dividend or other distribution
in respect of the capital stock of the Company, except for dividends or
other distributions on its capital stock publicly announced prior to the
date of this Agreement; (iv) any change by the Company in accounting
principles, practices, or methods; (v) (A) any incurrence by the Company or
of its Subsidiaries of any liabilities or obligations, indirect, direct, or
contingent or (B) any entering into of any oral or written agreement or
other transaction, which in the case of (A) or (B) is not in the ordinary
course of business; (vi) any default, either by the Company or any of its
Subsidiaries, in the payment of principal or interest on any outstanding
debt obligations by the Company or its Subsidiaries; (vii) any change in
the capital stock of the Company or any of its Subsidiaries other than upon
the exercise of any options or warrants; or (viii) any increase in the
short- or long-term debt of the Company and/or any of its Subsidiaries.
Since the Interim Date, except as provided for herein or as disclosed in
the Company Reports filed prior to the date of this Agreement, there has
not been any increase in the compensation payable or that could become
payable by the Company or any of its Subsidiaries to officers or key
employees or any amendment of any of the Compensation and Benefit Plans (as
defined in Section 5.1(h)).
(g) Litigation and Liabilities. Except as disclosed in the Company
Reports filed prior to the date of this Agreement or as disclosed in the
Company Disclosure Letter, as of the date of this Agreement, there are no
(i) civil, criminal, or administrative actions, suits, claims, hearings,
investigations, or proceedings pending or, to the knowledge of the
executive officers of the Company, threatened against the Company or any of
its Subsidiaries or (ii) except as would not, individually or in the
aggregate, be reasonably expected to have a Company Material Adverse
Effect, obligations or liabilities, whether or not accrued, contingent or
otherwise and whether or not required to be disclosed, including those
relating to environmental and occupational safety and health matters,
except for liabilities and obligations incurred in the ordinary course of
business or related to the transactions contemplated by this Agreement.
(h) Employee Benefits.
(i) A copy of each bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, restricted stock, stock option,
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employment, termination, severance, compensation, medical, health, or
other plan, agreement, policy, or arrangement that covers employees,
directors, former employees, or former directors of the Company and its
Subsidiaries (the "Compensation and Benefit Plans") and any trust
agreement or insurance contract forming a part of such Compensation and
Benefit Plans has been made available to Parent prior to the date of
this Agreement. The Compensation and Benefit Plans are listed the
Company Disclosure Letter and any "change of control," severance, or
similar provisions therein are specifically identified in the Company
Disclosure Letter.
(ii) All Compensation and Benefit Plans are in substantial
compliance with all applicable law, including the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Each
Compensation and Benefit Plan that is an "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA (a "Pension Plan") and that
is intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue
Service (the "IRS"), and the Company is not aware of any circumstances
likely to result in revocation of any such favorable determination
letter. As of the date of this Agreement, there is no pending or, to the
knowledge of the officers of the Company, threatened litigation relating
to the Compensation and Benefit Plans. Neither the Company nor any of
its Subsidiaries has engaged in a transaction with respect to any
Compensation and Benefit Plan that, assuming the taxable period of such
transaction expired as of the date of this Agreement, would subject the
Company or any of its Subsidiaries to a material tax or penalty imposed
by either Section 4975 of the Code or Section 502 of ERISA.
(iii) As of the date of this Agreement, no liability under Subtitle
C or D of Title IV of ERISA has been or is expected to be incurred by
the Company or any Subsidiary with respect to any ongoing, frozen, or
terminated "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by any of them,
or the single-employer plan of any entity which is considered one
employer with the Company under Section 4001 of ERISA or Section 414 of
the Code (an "ERISA Affiliate"). The Company and its Subsidiaries have
not contributed, or been obligated to contribute, to a multiemployer
plan under Subtitle E of Title IV of ERISA at any time since September
26, 1980. No notice of a "reportable event," within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not
been waived, has been required to be filed for any Pension Plan or by
any ERISA Affiliate within the 12-month period ending on the date of
this Agreement or will be required to be filed in connection with the
transactions contemplated by this Agreement.
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan have been timely made. Neither any Pension
Plan nor any single-employer plan of an ERISA Affiliate has an
"accumulated funding deficiency" (whether or not waived) within the
meaning of Section 412 of the Code or Section 302 of ERISA. Neither the
Company nor its Subsidiaries has provided, or is required to provide,
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a single-employer plan, as of
the last day of the most recent plan year ended prior to the date of
this Agreement, the actuarially determined present value of all "benefit
liabilities," within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the
Pension Plan's most recent actuarial valuation), did not exceed the then
current value of the assets of such Pension Plan, and there has been no
material change in the financial condition of such Pension Plan since
the last day of the most recent plan year.
(vi) Neither the Company nor its Subsidiaries have any obligations
for retiree health and life benefits under any Compensation and Benefit
Plan, except as set forth in the Company Disclosure Letter. The Company
or its Subsidiaries may amend or terminate any such plan under the terms
of such plan at any time without incurring any liability thereunder.
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(vii) Except as set forth in the Company Disclosure Letter, the
consummation of the Merger and the other transactions contemplated by
this Agreement will not (x) entitle any employees of the Company or its
Subsidiaries to severance pay, (y) accelerate the time of payment or
vesting or trigger any payment of compensation or benefits under,
increase the amount payable, or trigger any other material obligation
pursuant to any of the Compensation and Benefit Plans, or (z) result in
any breach or violation of, or a default under, any of the Compensation
and Benefit Plans.
(i) Compliance with Laws; Permits. Except as set forth in the Company
Reports filed prior to the date of this Agreement, or as would not,
individually or in the aggregate, be reasonably expected to have a Company
Material Adverse Effect, the businesses of each of the Company and its
Subsidiaries have not been, and are not being, conducted in violation of
any federal, state, local, or foreign law, statute, ordinance, rule,
regulation, judgment, order, injunction, decree, arbitration award, agency
requirement, license, or permit of any Governmental Entity (collectively,
"Laws") applicable to such businesses. Except as set forth in the Company
Reports filed prior to the date of this Agreement, no investigation or
review by any Governmental Entity with respect to the Company or any of its
Subsidiaries is pending or, to the knowledge of the officers of the
Company, threatened, nor has any Governmental Entity indicated an intention
to conduct the same. To the knowledge of the executive officers of the
Company, and except as would not, individually or in the aggregate, be
reasonably expected to have a Company Material Adverse Effect, no change is
required in the Company's or any of its Subsidiaries' processes,
properties, or procedures in connection with any such Laws, and the Company
has not received any notice or communication of any noncompliance with any
such Laws that has not been cured as of the date of this Agreement. The
Company and its Subsidiaries each have all permits, licenses, franchises,
variances, exemptions, orders, and other governmental authorizations,
consents, and approvals necessary to conduct its business as presently
conducted, except those the absence of which would not, individually or in
the aggregate, reasonably expected to have a Company Material Adverse
Effect or prevent or materially burden or materially impair the ability of
the Company to consummate the Merger and the other transactions
contemplated by this Agreement. For purposes of this Section 5.1(i),
"Company Material Adverse Effect" shall include any effect that has, or is
reasonably expected to have, an adverse effect on the financial condition
of the Company or any of its Subsidiaries (individually or in the
aggregate) equal to or in excess of $50,000.
(j) Takeover Statutes. No "fair price," "moratorium," "control share
acquisition," or other similar anti-takeover statute or regulation (each, a
"Takeover Statute") or any anti-takeover provision in the Company's
certificate of incorporation or by-laws is, or at the Effective Time will
prevent or restrain the Merger, or the other transactions contemplated by
this Agreement.
(k) Environmental Matters. Except as disclosed in the Company Reports
prior to the date of this Agreement: (i) the Company and its Subsidiaries
have complied at all times with all applicable Environmental Laws (as
defined below); (ii) no property currently owned or operated by the Company
or any of its Subsidiaries (including soils, groundwater, surface water,
buildings, or other structures) is contaminated with any Hazardous
Substance (as defined below); (iii) no property formerly owned or operated
by the Company or any of its Subsidiaries was contaminated with any
Hazardous Substance during or prior to such period of ownership or
operation; (iv) neither the Company nor any of its Subsidiaries is subject
to liability for any Hazardous Substance disposal or contamination on any
third party property; (v) neither the Company nor any of its Subsidiaries
has been associated with any release or threat of release of any Hazardous
Substance; (vi) neither the Company nor any of its Subsidiaries has
received any notice, demand, letter, claim, or request for information
alleging that the Company or any of its Subsidiaries may be in violation of
or subject to liability under any Environmental Law; (vii) neither the
Company nor any of its Subsidiaries is subject to any order, decree,
injunction, or other arrangement with any Governmental Entity or any
indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; (viii)
there are no other circumstances or conditions involving
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the Company or any of its Subsidiaries that could reasonably be expected to
result in any claim, liability, investigation, cost, or restriction on the
ownership, use, or transfer of any property pursuant to any Environmental
Law; and (ix) the Company has delivered to Parent copies of all
environmental reports, studies, assessments, sampling data, and other
environmental information in its possession relating to Company or its
Subsidiaries or their respective current and former properties or
operations.
As used herein, the term "Environmental Law" means any federal, state,
local, or foreign statute, law, regulation, order, or decree relating to:
(A) the protection, investigation or restoration of the environment,
health, safety, or natural resources, (B) the handling, use, presence,
disposal, release, or threatened release of any Hazardous Substance, or (C)
noise, odor, indoor air, employee exposure, wetlands, pollution,
contamination, or any injury or threat of injury to persons or property
relating to any Hazardous Substance.
As used herein, the term "Hazardous Substance" means any substance
that is: (A) listed, classified, or regulated pursuant to any Environmental
Law; (B) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
material, or radon; and (C) any other substance which is the subject of
regulatory action by any Government Entity in connection with any
Environmental Law.
(l) Tax Matters. As of the date of this Agreement, neither the
Company nor any of its Affiliates as defined in Rule 12b-2 under the
Exchange Act has taken or agreed to take any action, nor do the officers of
the Company have any knowledge of any fact or circumstance, that would
prevent the Merger and the other transactions contemplated by this
Agreement from qualifying as a "reorganization" within the meaning of
Section 368(a) of the Code.
(m) Taxes. The Company and each of its Subsidiaries (i) have prepared
in good faith and duly and timely filed (taking into account any extension
of time within which to file) all Tax Returns (as defined below) required
to be filed by any of them and all such filed Tax Returns are complete and
accurate in all material respects; (ii) have paid all Taxes (as defined
below) that are required to be paid or that the Company or any of its
Subsidiaries are obligated to withhold from amounts owing to any employee,
creditor, or third party, except with respect to matters contested in good
faith, or as would not, individually or in the aggregate, have a Company
Material Adverse Effect; and (iii) have not waived any statute of
limitations with respect to Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency. As of the date of this
Agreement, there are not pending or, to the knowledge of the executive
officers of the Company, threatened in writing, any audits, examinations,
investigations, or other proceedings in respect of Taxes or Tax matters,
and as of the Closing Date, there will not be any pending or, to the
knowledge of the executive officers of the Company, threatened in writing,
any audits, examinations, investigations, or other proceedings in respect
of Taxes or Tax matters, other than those that would not, individually or
in the aggregate, be reasonably expected to have a Company Material Adverse
Effect. There are not, to the knowledge of the executive officers of the
Company, any unresolved questions or claims concerning the Company's or any
of its Subsidiaries' Tax liability. The Company has made available to
Parent true and correct copies of the United States federal and California
State income Tax Returns filed by the Company and its Subsidiaries for each
of the fiscal years ended December 31, 1996, 1997 and 1998. Neither the
Company nor any of its Subsidiaries has any liability with respect to
income, franchise, or similar Taxes that accrued on or before December 31,
1998 in excess of the amounts accrued with respect thereto that are
reflected in the financial statements included in the Company Reports filed
on or prior to the date of this Agreement.
As used in this Agreement, (i) the term "Tax" (including, with
correlative meaning, the terms "Taxes" and "Taxable") includes all federal,
state, local, and foreign income, profits, franchise, gross receipts,
environmental, customs duty, capital stock, severances, stamp, payroll,
sales, employment, unemployment, disability, use, property, withholding,
excise, production, value added, occupancy, and other taxes, duties, or
assessments of any nature whatsoever, together with all interest,
penalties, and additions imposed with respect to such amounts and any
interest in respect of such penalties and
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additions and (ii) the term "Tax Return" includes all returns and reports
(including elections, declarations, disclosures, schedules, estimates, and
information returns) required to be supplied to a Tax authority relating to
Taxes.
For purposes of this Section 5.1(m), "Company Material Adverse Effect"
shall include any effect that has, or is reasonably expected to have, an
adverse effect on the financial condition of the Company or any of its
Subsidiaries (individually or in the aggregate) equal to or in excess of
$50,000.
(n) Labor Matters. Neither the Company nor any of its Subsidiaries is
a party to or otherwise bound by any collective bargaining agreement,
contract, or other agreement or understanding with a labor union or labor
organization, nor is the Company or any of its Subsidiaries the subject of
any proceeding asserting that the Company or any of its Subsidiaries has
committed an unfair labor practice or is seeking to compel it to bargain
with any labor union or labor organization nor is there pending or, to the
knowledge of the officers of the Company, threatened, nor has there been
for the past five years, any labor strike, dispute, walk-out, work
stoppage, slow-down, or lockout involving the Company or any of its
Subsidiaries.
(o) Insurance. A list of each of the Company's and each of its
Subsidiaries' insurance policies is set forth in the Company Disclosure
Letter as of the date of this Agreement. Such policies are in full force
and effect as of the date of this Agreement.
(p) Intellectual Property.
(i) The Company and/or each of its Subsidiaries owns, or is
licensed or otherwise possesses legally enforceable rights to use all
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, technology, know-how, computer software programs
or applications, and tangible or intangible proprietary information or
materials that are material to the business of the Company and its
Subsidiaries as currently conducted, and to the knowledge of the
officers of the Company all patents, trademarks, trade names, service
marks, and copyrights held by the Company and/or its Subsidiaries are
valid and subsisting. A list of each of the Company's and each of its
Subsidiaries' patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, and computer software
programs or applications is set forth in the Company Disclosure Letter.
(ii) Except as disclosed in Company Reports filed prior to the date
of this Agreement or as disclosed in the Company Disclosure Letter:
(A) the Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any license, sublicense, or
other agreement as to which the Company is a party and pursuant to
which the Company is authorized to use any third-party patents,
trademarks, service marks, copyrights, trade secrets, or computer
software (collectively, "Third-Party Intellectual Property Rights");
(B) no claims with respect to (i) the patents, registered and
unregistered trademarks and service marks, copyrights, trade names,
and any applications therefor, trade secrets or computer software
owned by the Company or any of its Subsidiaries (collectively,
"Company Intellectual Property Rights") or (ii) Third-Party
Intellectual Property Rights are currently pending or, to the
knowledge of the officers of the Company, are threatened or pending
by any person;
(C) to the knowledge of the executive officers of the Company,
there are no grounds for any bona fide claims (i) to the effect that
the manufacture, sale, licensing, or use of any product as now used,
sold, or licensed or proposed for use, sale, or license by the
Company or any of its Subsidiaries, infringes on any copyright,
patent, trademark, service mark, or trade secret of any person, (ii)
against the use by the Company or any of its Subsidiaries, of any
Company Intellectual Property Right or Third-Party Intellectual
Property Right used in
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the business of the Company or any of its Subsidiaries as currently
conducted or as proposed to be conducted, (iii) challenging the
ownership, validity, or enforceability of any of the Company
Intellectual Property Rights, or (iv) challenging the license or
legally enforceable right to use of the Third-Party Intellectual
Rights by the Company or any of its Subsidiaries; and
(D) to the knowledge of the executive officers of the Company,
there is no unauthorized use, infringement, or misappropriation of
any of the Company Intellectual Property Rights by any third party,
including any employee or former employee of the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries (i)
has received notice that it has been sued or charged in writing as a
defendant in any claim, suit, action, or proceeding which involves a
claim of infringement of any trade secret, patent, trademark, service
mark, or copyright and which has not been finally terminated, or been
informed or notified by any third party that the Company and/or any
of its Subsidiaries may be engaged in such infringement, (ii) has
received notice that the Company and/or any of its Subsidiaries is
allegedly violating the intellectual property rights of any third
party, or (iii) has, to the knowledge of the Company's executive
officers, infringed any trade secret, patent, trademark, service
mark, or copyright of another.
(E) neither the Company nor any of its Subsidiaries has (i) any
obligation to compensate any person in connection with any Company
Intellectual Property Rights or (ii) any obligation to pay any third
party any royalties upon the sale or licensing of any of its
products. Except as set forth in the Company Disclosure Letter, or
except in the ordinary course of business, neither the Company nor
any of its Subsidiaries has granted to any person any rights to use,
under license or otherwise, any Company Intellectual Property Rights,
whether requiring the payment of royalties or not.
(q) Brokers and Finders. Neither the Company nor any of its officers,
directors, or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions, or finders fees in
connection with the Merger or the other transactions contemplated in this
Agreement except that the Company has employed Volpe as its financial
advisor, the arrangements with which have been disclosed to Parent prior to
the date of this Agreement.
(r) Year 2000 Compliance. Except as listed in the Company Disclosure
Letter, as to specific System Components (as defined below), all of the
computer hardware, software, networks, peripherals, and components used in
the Company's and its Subsidiaries' business are Year 2000 Compliant (as
defined below).
(i) To ensure Year 2000 Compliant status for its System Components:
(A) The Company has designed, modified, and tested its and its
Subsidiaries' product lines to ensure that each is fully Year 2000
Compliant;
(B) The Company: (x) has used commercially reasonable efforts to
obtain the latest Year 2000 related information from each of its and
its Subsidiaries' system vendors and manufacturers and (y) has put
into use all required system updates and made all other modifications
to systems and operating procedures recommended by said vendors or
manufacturers with regard to Year 2000 Compliance; and
(C) The Company has requested in writing that each of the
manufacturers and vendors of any System Components or other products
or services supplied by third party manufacturers or vendors and used
in the Company's or its Subsidiaries' products or services promptly
provide standard Year 2000 Compliance letters (and the Company is not
aware of any respect in which any of its System Components or
services supplied by third party suppliers and used in the Company's
or its Subsidiaries' products or services is not Year 2000
Compliant).
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(ii) For purposes of this Agreement, "Year 2000 Compliant" with
respect to a computer system or System Component means that both of the
following "A" and "B" are true of the computer system or System
Component:
(A) the system or System Component either:
(x) does not store, use, or operate upon date data at all
and is not affected by date data; or
(y) will not produce errors reading, storing, using,
communicating, outputting, or otherwise processing date data in
connection with the year change from 1999 to 2000, as long as (A)
the system is installed, configured, and used in accordance with
the documentation and recommendations circulated to the
purchasers/customers of such system or component by its supplier,
vendor, or manufacturer as of the date of this Agreement; (B)
accurate data is used in said processing; and (C) all of the
other customer-supplied systems used with said system correctly
supply and receive date data; and
(B) the computer system or System Component will operate without
loss of function or performance degradation related to storage, use,
calculation, or output of, or other operation with respect to, date
data, over its operational date range, including at least the date
range January 1, 1980 through December 31, 2035.
(iii) For purposes of this Agreement, the term "System Components"
means and includes all of the following: items and components of
computer hardware and software, hardware and software systems and
portions thereof, networks, peripherals, programming modules and
libraries, databases, and specific hardware and software features and
functions.
(s) Unlawful Contribution/Payment. To the knowledge of the Company's
executive officers, neither the Company, any of its Subsidiaries, nor any
of its or their employees or agents, in relation to their employment or
agency on behalf of the Company or its Subsidiaries, at any time during the
last five years (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in violation
of law or (ii) made any payment to any foreign, federal, or state
governmental officer or official or other person charged with similar
public or quasi-public duties, other than payments required or permitted by
the laws of the United States or any jurisdiction thereof.
5.2. Representations and Warranties of Parent and Merger Sub. Parent and
Merger Sub each hereby represent and warrant to the Company that:
(a) Capitalization of Merger Sub. The authorized capital stock of
Merger Sub consists of 1,000 shares of Common Stock, par value $1 per
share, all of which are validly issued and outstanding. All of the issued
and outstanding capital stock of Merger Sub is, and at the Effective Time
will be, owned by Parent, and there are (i) no other shares of capital
stock or voting securities of Merger Sub, (ii) no securities of Merger Sub
convertible into or exchangeable for shares of capital stock or voting
securities of Merger Sub, and (iii) no options or other rights to acquire
from Merger Sub, and no obligations of Merger Sub, to issue any capital
stock, voting securities, or securities convertible into or exchangeable
for capital stock or voting securities of Merger Sub. Merger Sub has not
conducted any business prior to the date of this Agreement and has no, and
prior to the Effective Time will have no, assets, liabilities, or
obligations of any nature other than those incident to its formation and
pursuant to this Agreement and the Merger and the other transactions
contemplated by this Agreement.
(b) Organization, Good Standing, and Qualification. Each of Parent
and its Subsidiaries is a corporation duly organized, validly existing, and
in good standing under the laws of its respective jurisdiction of
organization and has all requisite corporate or similar power and authority
to own and operate its properties and assets and to carry on its business
as presently conducted and is qualified to
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do business and is in good standing as a foreign corporation in each
jurisdiction where the ownership or operation of its properties or conduct
of its business requires such qualification.
As used in this Agreement, the term "Parent Material Adverse Effect"
means a material adverse effect on the financial condition, properties,
business, or results of operations of Parent and its Subsidiaries, taken as
a whole; provided that no one or more of the following shall be deemed to
constitute in and of itself, or be taken into account in determining, the
occurrence of a Parent Material Adverse Effect: (A) any effect arising from
or relating to general industry or economic conditions, (B) any effect
relating to or affecting, or with respect to, the Internet business or the
real estate business generally, (C) any effect arising from transactions
contemplated by this Agreement or the public announcement thereof
(excluding from the foregoing any pending or threatened litigation or one
or more events or circumstances which otherwise would be a breach of any
representation, warranty or covenant of Parent contained in this Agreement,
(D) any decline in trading prices in financial markets generally or in the
trading price of shares of Parent Common Stock (excluding from the
foregoing any declines arising out of public announcement of one or more
events or circumstances which otherwise would be a breach of any
representation, warranty or covenant of Parent contained in this Agreement
or otherwise constitute a Parent Material Adverse Effect), or (E) the
failure of Parent to meet earnings expectations published in analysts
reports or in the financial projections provided by Parent to the Company
or Volpe (excluding from the foregoing any effects on earnings arising out
of, related to, or otherwise by virtue of one or more events or
circumstances which otherwise would be a breach of any representation,
warranty or covenant of Parent contained in this Agreement or otherwise
constitute a Parent Material Adverse Effect).
(c) Capital Structure. The authorized capital stock of Parent
consists of 30,000,000 shares of Parent Common Stock, of which 12,873,447
shares were outstanding as of the close of business on October 31, 1999,
and 2,000,000 shares of Preferred Stock, par value $0.01 per share, of
which no shares were outstanding as of the close of business on October 31,
1999. All of the outstanding shares of Parent Common Stock have been duly
authorized and are validly issued, fully paid, and nonassessable. Parent
has no Parent Common Stock reserved for issuance, except that, as of
October 31, 1999, there were 2,050,000 shares of Parent Common Stock
reserved for issuance pursuant to the 1998 Stock Incentive Plan (the
"Parent Stock Plan") and an aggregate of 45,450 shares of Parent Common
Stock reserved for issuance under outstanding warrants. On October 31,
1999, there were outstanding options to acquire an aggregate of 1,359,458
shares of Parent Common Stock. Each of the outstanding shares of capital
stock of each of Parent's Subsidiaries is duly authorized, validly issued,
fully paid, and nonassessable and owned by a direct or indirect wholly-
owned subsidiary of Parent, free and clear of any lien, pledge, security
interest, claim, or other encumbrance. As of the date of this Agreement,
except as set forth above, and in Parent's registration statement filed on
Form S-1 and effective May 4, 1999, on the date of this Agreement, there
are no preemptive or other outstanding rights, options, warrants,
conversion rights, stock appreciation rights, redemption rights, repurchase
rights, agreements, arrangements, or commitments to issue or to sell any
shares of capital stock or other securities of Parent or any of its
Subsidiaries or any securities or obligations convertible or exchangeable
into or exercisable for, or giving any person a right to subscribe for or
acquire, any securities of Parent or any of its Subsidiaries, and no
securities or obligations evidencing such rights are authorized, issued, or
outstanding other than options outstanding under the Parent Stock Plan. As
of the date of this Agreement, Parent does not have outstanding any bonds,
debentures, notes, or other obligations the holders of which have the right
to vote (or convertible into or exercisable for securities having the right
to vote) with the stockholders of Parent on any matter ("Parent Voting
Debt").
(d) Corporate Authority.
(i) No vote of holders of capital stock of Parent is necessary to
approve this Agreement and the Merger and the other transactions
contemplated hereby. Each of Parent and Merger Sub has all requisite
corporate power and authority and, has taken all corporate action
necessary in order to execute, deliver, and perform its obligations
under this Agreement and to consummate the
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Merger. This Agreement is a valid and binding agreement of Parent and
Merger Sub, enforceable against each of Parent and Merger Sub in
accordance with its terms, subject to the Bankruptcy and Equity
Exception.
(ii) Parent has taken all necessary action to permit it to issue
the number of shares of Parent Common Stock required to be issued
pursuant to Article IV. The shares of Parent Common Stock, when issued
in the manner contemplated by this Agreement, will be validly issued,
fully paid, and nonassessable, and no person will have any preemptive
right of subscription or purchase in respect thereof. Such shares of
Parent Common Stock, when issued, will be registered under the
Securities Act and Exchange Act and registered or exempt from
registration under any applicable state securities or "blue sky" laws.
(e) Governmental Filings; No Violations.
(i) Other than the filings and/or notices (A) pursuant to Section
1.3, (B) under the HSR Act, the Securities Act and the Exchange Act, or
(C) required to be made with the Nasdaq National Market, no notices,
reports, or other filings are required to be made by Parent or Merger
Sub with, nor are any consents, registrations, approvals, permits, or
authorizations required to be obtained by Parent or Merger Sub from, any
Governmental Entity, in connection with the execution and delivery of
this Agreement by Parent and Merger Sub and the consummation by Parent
and Merger Sub of the Merger and the other transactions contemplated
hereby, except those that the failure to make or obtain are not,
individually or in the aggregate, reasonably be expected to have a
Parent Material Adverse Effect or prevent, materially delay, or
materially impair the ability of Parent or Merger Sub to consummate the
transactions contemplated by this Agreement.
(ii) The execution, delivery, and performance of this Agreement by
Parent and Merger Sub do not, and the consummation by Parent and Merger
Sub of the Merger and the other transactions contemplated hereby will
not, constitute or result in (A) a breach or violation of, or a default
under, the respective certificate of incorporation or by-laws of Parent
and Merger Sub or the comparable governing instruments of any of its
Subsidiaries, (B) a breach or violation of, or a default under, the
acceleration of any obligations or the creation of a lien, pledge,
security interest, or other encumbrance on the assets of Parent or any
of its Subsidiaries (with or without notice, lapse of time, or both)
pursuant to any Contracts binding upon Parent or any of its Subsidiaries
or any Law or governmental or non-governmental permit or license to
which Parent or any of its Subsidiaries is subject, or (C) any change in
the rights or obligations of any party under any of the Contracts,
except, in the case of clause (B) or (C) above, for breach, violation,
default, acceleration, creation, or change that, individually or in the
aggregate, would not reasonably be expected to have a Parent Material
Adverse Effect or prevent, materially delay, or materially impair the
ability of Parent or Merger Sub to consummate the transactions
contemplated by this Agreement.
(f) Parent Reports; Financial Statements. Parent has provided the
Company with access to each registration statement, report, proxy
statement, or information statement prepared by it since the Audit Date,
including (i) the Parent's registration statement on Form S-1 (File No.
333-74953) filed with the SEC (the "Parent S-1"), (ii) the Parent's current
reports on Form 8-K, (iii) the Parent's Annual Report on Form 10-K for the
year ended December 31, 1998, and (iv) the Parent's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999, all in
the form (including exhibits, annexes, and any amendments thereto) filed
with the SEC (collectively, including any such reports filed subsequent to
the date of this Agreement, the "Parent Reports"). As of the date the
Parent S-1 became effective under the Securities Act, the Parent S-1 did
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. As of their respective dates, the Parent
Reports (other than the S-1) did not, and any Parent Reports filed with the
SEC subsequent to the date of this Agreement will not, contain any untrue
statement of a material fact or omit to state a
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material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were
made, not misleading. Each of the consolidated balance sheets included in
the Parent Reports (including the related notes and schedules) fairly
presents, in all material respects, or will fairly present, in all material
respects, the consolidated financial position of Parent and its
Subsidiaries as of its date and each of the consolidated statements of
operations and of cash flows included in the Parent Reports (including any
related notes and schedules) fairly presents, in all material respects, or
will fairly present, in all material respects, the results of operations,
retained earnings, and changes in financial position, as the case may be,
of Parent and its Subsidiaries for the periods set forth therein (subject,
in the case of unaudited statements, to the omission of notes and normal
year-end audit adjustments that will not be material in amount or effect),
in each case in accordance with GAAP consistently applied during the
periods involved, except as may be noted therein.
(g) Compliance with Laws; Permits. Except as set forth in the Parent
Reports filed prior to the date of this Agreement, the businesses of each
of Parent and its Subsidiaries have not been, and are not being, conducted
in violation of any Laws applicable to the business, except for violations
or possible violations that, individually or in the aggregate, are not
reasonably expected to have a Parent Material Adverse Effect or prevent or
materially burden or materially impair the ability of Parent or Merger Sub
to consummate the transactions contemplated by this Agreement. Except as
set forth in the Parent Reports filed prior to the date of this Agreement,
no investigation or review by any Governmental Entity with respect to
Parent or any of its Subsidiaries is pending or, to the knowledge of the
executive officers of Parent, threatened, nor has any Governmental Entity
indicated an intention to conduct the same, except for those the outcome of
which are not, individually or in the aggregate, reasonably expected to
have a Parent Material Adverse Effect or prevent or materially burden or
materially impair the ability of Parent or Merger Sub to consummate the
transactions contemplated by this Agreement. To the knowledge of the
executive officers of Parent, and except as would not, individually or in
the aggregate, be reasonably expected to have a Parent Material Adverse
Effect, no change is required in Parent's or any of its Subsidiaries'
processes, properties, or procedures in connection with any such Laws, and
Parent has not received any notice or communication of any material
noncompliance with any such Laws that has not been cured as of the date of
this Agreement.
(h) Takeover Statutes. No Takeover Statute or any anti-takeover
provision in Parent's certificate of incorporation or by-laws is applicable
to Parent, the Parent Common Stock, the Merger, or the other transactions
contemplated by this Agreement.
(i) Tax Matters. As of the date of this Agreement, neither Parent nor
any of its Affiliates has taken or agreed to take any action, nor do the
executive officers of Parent have any knowledge of any fact or
circumstance, that would prevent the Merger and the other transactions
contemplated by this Agreement from qualifying as a "reorganization" within
the meaning of Section 368(a) of the Code.
(j) Brokers and Finders. Neither Parent nor any of its officers,
directors, or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions, or finders fees in
connection with the Merger or the other transactions contemplated by this
Agreement.
(k) Available Funds. Parent has, or will have available to it at the
Closing, all funds necessary to satisfy all of its obligations hereunder
and in connection with the Merger and the other transactions contemplated
by this Agreement.
(l) Year 2000 Compliance. Except as would not, individually or in the
aggregate, be reasonably expected to have a Parent Material Adverse Effect,
as to specific System Components, all of the computer hardware, software,
networks, peripherals, and components used in Parent's business are Year
2000 Compliant.
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To ensure Year 2000 Compliant status for its System Components:
(i) Parent has designed, modified and tested its and its
Subsidiaries' product lines to ensure that each is fully Year 2000
Compliant;
(ii) Parent (A) has used commercially reasonable efforts to obtain
the latest Year 2000 related information from each of its system vendors
and manufacturers and (B) has put into use all required system updates
and made all other modifications to systems and operating procedures
recommended by said vendors or manufacturers with regard to Year 2000
Compliance; and
(iii) Parent has requested in writing that each of the
manufacturers and vendors of any System Components or other products or
services supplied by third party manufacturers or vendors and used in
Parent's and its Subsidiaries products or services promptly provide
standard Year 2000 Compliance letters (and Parent is not aware of any
respect in which any of its System Components or services supplied by
third party suppliers and used in Parent's or its Subsidiaries' products
or services is not Year 2000 Compliant).
(m) Absence of Certain Changes. Except for transactions contemplated
by this Agreement or disclosed in the Parent Reports filed prior to the
date of this Agreement, between the Interim Date and the date of this
Agreement, Parent and its Subsidiaries, for as long as each such entity has
been a Subsidiary, have conducted their respective businesses only in, and
have not engaged in any material transaction other than according to, the
ordinary and usual course of such businesses and there has not been (i) any
material change or any development or combination of developments of which
management of Parent has knowledge in the financial condition, properties,
business, or results of operations of Parent and its Subsidiaries, taken as
a whole; (ii) any material damage, destruction, or other casualty loss with
respect to any material assets or property owned, leased, or otherwise used
by Parent or any of its Subsidiaries, whether or not covered by insurance;
(iii) any declaration, setting aside, or payment of any dividend or other
distribution in respect of the capital stock of Parent, except for
dividends or other distributions on its capital stock publicly announced
prior to the date of this Agreement; (iv) any material change by Parent in
accounting principles, practices, or methods; (v) (A) any incurrence by the
Company or any of its Subsidiaries of any liabilities or obligations,
indirect, direct, or contingent or (B) any entering into any oral or
written agreement or other transaction, which in the case of (A) or (B)
would not, individually or in the aggregate, be reasonably expected to have
a Parent Material Adverse Effect or was not incurred in the ordinary course
of business, or (vi) any default in the payment of principal or interest on
any outstanding debt obligations of Parent.
(n) Litigation and Liabilities. Except as previously disclosed to the
Company or as disclosed in the Parent Reports filed prior to the date of
this Agreement, or as would not, individually or in the aggregate, be
reasonably expected to have a Parent Material Adverse Effect, there are no
(i) civil, criminal, or administrative actions, suits, claims, hearings,
investigations, or proceedings pending, or, to the knowledge of the
executive officers of Parent, threatened against Parent or any of its
Subsidiaries or (ii) obligations or liabilities, whether or not accrued,
contingent or otherwise and whether or not required to be disclosed,
including those relating to environmental and occupational safety and
health matters, except for liabilities and obligations incurred in the
ordinary course of business or related to the transactions contemplated by
this Agreement, or any other facts or circumstances (other than facts or
circumstances related to the transactions contemplated by this Agreement)
of which any of the executive officers of Parent has knowledge that could
result in any claims against, or obligations or liabilities of, Parent or
any of its Subsidiaries.
ARTICLE VI
COVENANTS
6.1. Interim Operations. The parties intend that the following covenants
shall preserve the Company's business, finances, and operations as currently
conducted, and shall not be interpreted in such a
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manner as to transfer such control of operations to Parent prior to the
Effective Time. The Company covenants and agrees as to itself and its
Subsidiaries that, after the date of this Agreement and prior to the Effective
Time (unless Parent shall otherwise approve in writing, which approval shall not
be unreasonably withheld or delayed in light of Parent's plans for the Company's
and its Subsidiaries' business after the Closing Date, and except as otherwise
expressly contemplated by this Agreement):
(a) the business of it and its Subsidiaries, including commercially
reasonable efforts to bill and collect accounts receivable, shall be
conducted in the ordinary and usual course and, to the extent consistent
therewith, the Company and its Subsidiaries shall use their respective best
efforts to preserve its business organization intact and maintain its
existing relations and goodwill with customers, suppliers, distributors,
creditors, lessors, employees, and business associates; provided, however,
that the Company shall operate to conserve its cash and cash equivalents;
(b) it shall not (i) issue, sell, pledge, dispose of, or encumber any
capital stock owned by it in any of its Subsidiaries; (ii) amend its or its
Subsidiaries' certificate of incorporation or by-laws; (iii) split,
combine, or reclassify its outstanding shares of capital stock; (iv)
declare, set aside, or pay any dividend payable in cash, stock, or property
in respect of any capital stock other than dividends from its direct or
indirect wholly-owned Subsidiaries; or (v) repurchase, redeem, or otherwise
acquire, except in connection with the Stock Plans or permit any of its
Subsidiaries to purchase or otherwise acquire, any shares of its capital
stock or any securities convertible into or exchangeable or exercisable for
any shares of its capital stock;
(c) neither it nor any of its Subsidiaries shall (i) other than upon
exercise of securities outstanding on September 30, 1999, issue, sell,
pledge, dispose of, or encumber any shares of, or securities convertible
into or exchangeable or exercisable for, or options, warrants, calls,
commitments, or rights of any kind to acquire, any shares of its capital
stock of any class or any Voting Debt or any other property or assets, (ii)
other than in the ordinary and usual course of business, transfer, lease,
license, guarantee, sell, mortgage, pledge, dispose of, or encumber any
other property or assets (including capital stock of any of its
Subsidiaries) or incur or modify any indebtedness or other liability, (iii)
make or authorize or commit for any capital expenditures other than
pursuant to the year 1999/2000 capital appropriations/spending budgets
initialed by Parent and the Company and previously delivered to Parent or
(iv) by any means, make any acquisition of, or investment in, assets or
stock of any other person or entity, other than investments in cash
equivalents, and other than in the ordinary course of business, provided,
however that for purposes of this Section 6.1(c), acquisitions of all or
substantially all of the assets of a business shall not be considered as
done in the ordinary course of business regardless of previous activities
of the Company;
(d) neither it nor any of its Subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards under, amend, or otherwise
modify, any Compensation and Benefit Plans, pay or agree to pay any
bonuses, or increase the salary, wage, bonus, or other compensation of any
employees;
(e) neither it nor any of its Subsidiaries shall settle or compromise
any claims or litigation that, individually or in the aggregate, would have
an adverse effect on the Company's financial condition equal to or in
excess of $50,000, or, except in the ordinary and usual course of business,
modify, amend, or terminate any of its material Contracts, waive, release,
or assign any material rights or claims, or enter into any material
Contracts or agreements;
(f) neither it nor any of its Subsidiaries shall make any Tax election
or permit any insurance policy naming it as a beneficiary or loss-payable
payee to be canceled or terminated, except in the ordinary and usual course
of business;
(g) neither it nor any of its Subsidiaries shall take any action or
omit to take any action that would cause any of its representations and
warranties herein to become untrue in any material respect;
(h) neither it nor any of its Subsidiaries shall establish, adopt,
enter into, or make any new leases, capital leases, operating lease
commitments, or any renewals or extensions thereof;
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(i) neither it nor any of its Subsidiaries shall incur, authorize, or
enter into any short-term or long-term debt;
(j) it and its Subsidiaries shall (i) maintain their respective
properties and facilities, in as good working order and condition as at
present, ordinary wear and tear excepted, except as would not, individually
or in the aggregate, be reasonably expected to have a Company Material
Adverse Effect; and (ii) perform all of their respective material
obligations under material agreements relating to or affecting their
respective assets, properties or rights;
(k) it and its Subsidiaries shall not: (i) guarantee any indebtedness;
(ii) create or assume any mortgage, pledge or other lien or encumbrance
upon any assets or properties whether now owned or hereafter acquired;
(iii) sell, assign, lease, pledge or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent
with past practice; (iv) acquire or negotiate for the acquisition of (by
merger, consolidation, purchase of a substantial portion of assets, or
otherwise) any business or the start-up of any new business; (v) commence a
lawsuit other than for routine collection of bills; or (vi) except as
required by a change of Law, change any tax election, adopt any tax
accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any
Tax Return (other than any estimated tax returns, payroll tax returns or
sales tax returns or as required herein) or any amendment to a Tax Return,
enter into any closing agreement, settle any tax claim or assessment, or
consent to any tax claim or assessment;
(l) neither it nor any of its Subsidiaries will authorize or enter
into an agreement to do any of the foregoing; and
(m) it shall deliver to Parent a copy of its monthly financial
statements as soon as they are available but in no event later than 20 days
after the last day of each calendar month and at the same time will deliver
a certificate signed on behalf of the Company by the Chief Executive
Officer and Chief Financial Officer listing in reasonable detail its Cash
Expenditures (as defined in Section 7.2(l)) during the immediately
preceding month.
6.2. Acquisition Proposals. The Company may, directly or indirectly,
furnish information in response to unsolicited requests thereof to any
corporation, partnership, person, or other entity or group (each a "Bidder")
that expresses a bona fide interest in making a proposal or offer concerning any
merger, sale of assets, sale of shares of capital stock, similar transaction, or
other business combination involving the Company or any of its Subsidiaries
(each an "Acquisition Proposal") pursuant to an executed confidentiality
agreement on terms substantially similar to those contained in the
Confidentiality Agreement (as defined in Section 6.7). The Company shall notify
Parent immediately upon executing a confidentiality agreement with a Bidder,
including notifying Parent of the identity of the Bidder. The Company agrees
that it will immediately cease and cause to be terminated any existing
activities, discussions, or negotiations with any parties conducted heretofore
with respect to any of the Acquisition Proposals. The Company also agrees that
it will promptly request each person that has heretofore executed a
confidentiality agreement in connection with its consideration of acquiring it
or any of its Subsidiaries to return all confidential information heretofore
furnished to such person by or on behalf of it or any of its Subsidiaries,
consistent with the requirement of such confidentiality agreements. The Company
and its directors, officers, counsel, and other advisors and representatives
(collectively, the "Representatives") may participate in discussions and
negotiate with a Bidder concerning an Acquisition Proposal if the members of the
Company's board of directors who are not interested in such Acquisition Proposal
determine in good faith (after consultation with financial and legal advisers)
that such participation could reasonably lead to an Acquisition Proposal. Except
as set forth above and for discussion with Parent and its Affiliates, the
Company and its Representatives shall not, directly or indirectly, participate
in any discussions with respect to an Acquisition Proposal. Unless and until
this Agreement is terminated, Company shall not enter into any agreement of
merger, sale of assets or of shares of capital stock, similar transaction, or
other business combination, involving the Company or any of its subsidiaries.
Nothing in this Agreement shall prevent the Company from entering into
agreements, understandings, or arrangements with any Bidder providing for
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fees payable in the event that an offer by Parent, pursuant to Section 8.3(a) in
response to such Bidder's Acquisition Proposal, is accepted by the board of
directors of the Company; provided, that any such fees payable will increase by
like amount the Cash Expenditure Amount and corresponding Cash Shortfall, if
any, as calculated under Section 7.2(l) of this Agreement.
6.3. Information Supplied. The Company and Parent each agrees, as to
itself and its Subsidiaries, that none of the information supplied or to be
supplied by it or its respective Subsidiaries for inclusion in (i) the
Registration Statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger
(including the proxy statement and prospectus (the "Prospectus Proxy Statement")
constituting a part thereof) (the "S-4 Registration Statement") will, at the
time the S-4 Registration Statement becomes effective under the Securities Act,
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 light of the circumstances under which they were made, not misleading and
(ii) the Prospectus Proxy Statement and any amendment or supplement thereto
will, at the date of mailing to stockholders and at the times of the meeting of
stockholders of the Company to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
6.4. Stockholders Meeting. The Company will take, in accordance with
applicable law and its certificate of incorporation and by-laws, all action
necessary to convene a meeting of holders of Shares (the "Stockholders Meeting")
as promptly as practicable after the S-4 Registration Statement is declared
effective to consider and vote upon the adoption of this Agreement. Subject to
fiduciary obligations under applicable law, the Company's board of directors
shall (a) recommend such adoption and (b) take all lawful action to solicit such
approval.
6.5. Filings; Other Actions; Notification.
(a) Parent and the Company shall promptly prepare and file with the
SEC the Prospectus Proxy Statement. Parent shall, as promptly as
practicable, prepare and file with the SEC the S-4 Registration Statement.
Parent and the Company each shall use commercially reasonable efforts to
have the S-4 Registration Statement declared effective under the Securities
Act as promptly as practicable after such filing, and promptly thereafter
mail the Prospectus Proxy Statement to the stockholders of the Company.
Parent shall also use commercially reasonable efforts to obtain prior to
the effective date of the S-4 Registration Statement all necessary state
securities law or "blue sky" permits and approvals required in connection
with the Merger and to consummate the other transactions contemplated by
this Agreement and will pay all expenses incident thereto.
(b) The Company and Parent each shall use commercially reasonable
efforts to cause to be delivered to the other party and its directors a
letter of its independent auditors, dated (i) the date on which the S-4
Registration Statement shall become effective and (ii) the Closing Date,
and addressed to the other party and its board of directors, in form and
substance customary for "comfort" letters delivered by independent public
accountants in connection with registration statements similar to the S-4
Registration Statement.
(c) The Company and Parent shall cooperate with each other and use,
and shall cause their respective Subsidiaries to use, commercially
reasonable efforts to take or cause to be taken all actions, and do or
cause to be done all things, necessary, proper, or advisable on its part
under this Agreement and applicable Laws to consummate and make effective
the Merger and the other transactions contemplated by this Agreement as
soon as practicable, including preparing and filing as promptly as
practicable all documentation to effect all necessary notices, reports, and
other filings and to obtain as promptly as practicable all consents,
registrations, approvals, permits, and authorizations necessary or
advisable to be obtained from any third party and/or any Governmental
Entity in order to consummate the Merger or any of the other transactions
contemplated by this Agreement. Subject to applicable laws relating to the
exchange of information, Parent and the Company shall have the right to
review in advance, and to the extent practicable each will consult the
other on, all the information
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relating to Parent or the Company, as the case may be, and any of their
respective Subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party and/or any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement. In exercising the foregoing right, each of the Company and
Parent shall act reasonably and as promptly as practicable.
(d) The Company and Parent each shall, upon request by the other,
furnish the other with all available information concerning itself, its
Subsidiaries, directors, officers, and stockholders and such other matters
as may be reasonably necessary or advisable in connection with the
Prospectus Proxy Statement, the S-4 Registration Statement, or any other
statement, filing, notice, or application made by or on behalf of Parent,
the Company, or any of their respective Subsidiaries to any third party
and/or any Governmental Entity in connection with the Merger and the
transactions contemplated by this Agreement.
(e) The Company and Parent each shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notice or
other communications received by Parent or the Company, as the case may be,
or any of its Subsidiaries, from any third party and/or any Governmental
Entity with respect to the Merger and the other transactions contemplated
by this Agreement.
6.6. Taxation. Subject to Section 6.2, neither Parent nor the Company
shall take or cause to be taken any action, whether before or after the
Effective Time, that would disqualify the Merger as a "reorganization" within
the meaning of Section 368(a) of the Code or would materially increase the
possibility that the Merger would be so disqualified. In addition, Parent and
the Surviving Corporation shall file any and all tax returns and reports in a
manner consistent with the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code, to the extent that it is
consistent with the Code and regulations thereunder.
6.7. Access. Upon reasonable notice, and except as may otherwise be
required by applicable law, the Company shall, and shall cause its Subsidiaries
to, afford the Parent's Representatives reasonable access, during normal
business hours throughout the period prior to the Effective Time, to its
properties, books, contracts, and records and, during such period, the Company
shall, and shall cause its Subsidiaries to, furnish promptly to Parent all
information concerning its business, properties, and personnel as may reasonably
be requested, provided that no investigation pursuant to this Section shall
affect or be deemed to modify any representation or warranty made by the
Company, Parent, or Merger Sub, and provided, further, that the foregoing shall
not require the Company to permit any inspection, or to disclose any
information, that in the reasonable judgment of the Company would result in the
disclosure of any trade secrets of third parties or violate any of its
obligations with respect to confidentiality if the Company shall have used
commercially reasonable efforts to obtain the consent of such third party to
such inspection or disclosure. All requests for information made pursuant to
this Section 6.7 shall be directed to an executive officer of the Company or
such person as may be designated by its officers. All such information shall be
governed by the terms of the Confidentiality Agreement, dated January 21, 1999,
between the Company and Parent, as amended (the "Confidentiality Agreement").
6.8. Affiliates. Prior to the date of the Stockholders Meeting, the
Company shall deliver to Parent a list of names and addresses of those persons
who are, in the opinion of the Company, as of the time of the Stockholders
Meeting, "affiliates" of the Company within the meaning of Rule 145 under the
Securities Act. The Company shall provide to Parent such information and
documents as Parent shall reasonably request for purposes of reviewing such
list. There shall be added to such list the names and addresses of any other
person subsequently identified by either Parent or the Company as a person who
may be deemed to be such an affiliate of the Company; provided, however, that no
such person identified by Parent shall be added to the list of affiliates of the
Company if Parent shall receive from the Company, on or before the date of the
Stockholders Meeting, an opinion of counsel reasonably satisfactory to Parent to
the effect that such person is not such an affiliate. The Company shall use
commercially reasonable efforts to deliver or cause to be delivered to Parent,
from each affiliate of the Company who makes a Stock Election
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identified in the foregoing list (as the same may be supplemented as aforesaid),
a letter, dated as of the Closing Date, substantially in the form attached as
Exhibit A (the "Affiliates Letter"). Parent agrees to sign and return to the
Company a copy of each Affiliate Letter in a form reasonably satisfactory to
Parent. Parent shall not be required to maintain the effectiveness of the S-4
Registration Statement or any other registration statement under the Securities
Act for the purposes of resale of Parent Common Stock by such affiliates
received in the Merger. The certificates representing Parent Common Stock
received by such affiliates shall bear a customary legend for so long as
required under applicable Securities Act restrictions and the provisions of this
Section.
6.9. Stock Exchange Listing and De-listing. Parent shall use commercially
reasonable efforts to cause the shares of Parent Common Stock to be issued in
the Merger to be approved for inclusion on the Nasdaq National Market, subject
to official notice of issuance, prior to the Closing Date. The Surviving
Corporation shall use its best efforts to cause the Shares to be removed from
the Nasdaq National Market and de-registered under the Exchange Act as soon as
practicable following the Effective Time.
6.10 Directors' and Officers' Indemnification.
(a) The certificate of incorporation and by-laws of the Surviving
Corporation following the Merger shall contain provisions substantially
similar with respect to elimination of the personal liability and
indemnification to those set forth in the certificate of incorporation of
the Company immediately prior to the Effective Time and the by-laws of the
Company immediately prior to the Effective Time, respectively, and Parent
shall cause the Surviving Corporation not to amend, repeal, or otherwise
modify such provisions for a period of six years from the Effective Time in
any manner that would adversely affect the rights thereunder of individuals
who at the Effective Time were directors, officers, agents, or employees of
the Company or any of its Subsidiaries.
(b) Parent shall cause the Surviving Corporation to maintain in effect
for six years from the Effective Time policies of directors' and officers'
liability insurance containing terms and conditions which are not
materially less advantageous than those policies maintained by the Company
at the date of this Agreement, with respect to matters occurring at or
prior to the Effective Time, to the extent available, and having at least
the same amount of coverage as the current directors' and officers'
liability insurance of the Company, as provided by the Company to Parent;
provided that (i) the Surviving Corporation shall not be required to spend
an amount in any year in excess of 200% of the annual aggregate premiums
currently paid by the Company for such insurance; and provided further,
that if the annual premiums of such insurance coverage exceed such amount,
the Surviving Corporation shall be obligated to obtain a policy with the
best coverage available in the reasonable judgment of the board of
directors of Parent following the Merger, for a cost not exceeding such
amount; and (ii) such policies may in the sole discretion of the Surviving
Corporation be one or more "tail" policies for all or any portion of the
full six year period.
6.11. Publicity. The initial press release shall be a joint press release
and thereafter the Company and Parent each shall consult with each other prior
to issuing any press releases or otherwise making public announcements with
respect to the Merger and the other transactions contemplated by this Agreement
and prior to making any filings with any third party and/or any Governmental
Entity (including the Nasdaq National Market) with respect thereto, except as
may be required by law or by obligations pursuant to any listing agreement or
similar with or rules of the Nasdaq National Market; provided, however, that
Parent shall approve any press release made by the Company on or after the date
of this Agreement (which approval shall not be unreasonably withheld or
delayed).
6.12. Benefits.
(a) Stock Options. Except as otherwise provided in Section 6.12(c),
in the sole discretion of the Surviving Corporation, any option under any
stock option plan of the Company may be assumed by the Surviving
Corporation, or may be replaced with a cash incentive program of the
Surviving Corporation or Parent that preserves the spread existing at the
Effective Time on any Shares of the Company for which the option involved
is not then otherwise exercisable (without regard to any
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acceleration related to the Merger) and that provides for a subsequent cash
pay out in accordance with the same exercise/vesting schedule applicable to
the Company Shares subject to the option. Any outstanding option that is
neither assumed nor replaced with a cash alternative, as provided in this
Section 6.12(a), shall be canceled at the Effective Time.
(b) Employee Benefits. Parent agrees that, following the Effective
Time, the employees of the Company and its Subsidiaries will be eligible to
participate in the employee benefit plans of Parent on substantially the
same terms and conditions of similarly situated employees of Parent. Parent
shall, and shall cause the Surviving Corporation to, honor all employee
benefit obligations to current and former employees under the Compensation
and Benefit Plans and all employee severance plans (or policies) in
existence on the date of this Agreement and all employment or severance
agreements entered into by the Company or adopted by the board of directors
of the Company prior to the date of this Agreement.
(c) Limited Accelerated Vesting and Exercisability. Parent and Merger
Sub agree that, with respect to options issued by the Company under its
Stock Plans that will not be fully vested and exercisable at the Effective
Time, the Company and Parent shall mutually agree upon accelerating the
vesting and exercisability of certain of the unvested and unexercisable
options (in an amount agreed between the Company and Parent) of certain of
the Company's employees and consultants (as mutually agreed between Company
and Parent), as long as such employee or consultant agrees that he or she
will execute a release of liability in a form reasonably acceptable to
Parent and/or the Surviving Corporation if such employee is terminated by
Parent or Merger Sub after the Effective Date; provided, however, that in
no event shall the total value (calculated as $7.50 minus the exercise
price) of such options to be accelerated under this Section 6.12(c) exceed
$671,915.00.
(d) New Options. Parent agrees that, following the Effective Time,
certain employees of the Company, as determined by Parent in good faith,
shall be granted options to purchase shares of Parent Common Stock.
(e) Severance. The Company agrees that it shall pay no severance
benefits to any employee whose employment with the Company terminates
between the date of this Agreement and the Effective Time unless such
employee executes a release in a form approved by Parent, which approval
will not be unreasonably withheld or delayed.
(f) ESPP. The Company will take all such action permissible under the
ESPP so that participants in the ESPP may not purchase Shares under the
ESPP at any time between February 1, 2000 and the day on which the
Effective Time occurs, inclusive.
6.13. Election to Parent's Board of Directors. At the Effective Time,
Parent shall increase the size of its board of directors in order to cause a
person mutually acceptable to the Company and Parent (the "Company Director") to
be appointed to Parent's board of directors and, subject to fiduciary
obligations under applicable law, shall use its best efforts to cause the
Company Director to be elected as a director of Parent at the first annual
meeting of stockholders of Parent with a proxy mailing date after the Effective
Time; provided, however, that the foregoing commitments of Parent in this
Section 6.13 shall take effect only if and after the Company Director submits to
Parent an undated irrevocable resignation from Parent's Board of Directors to
take effect upon the earliest date on which Christopher A. Crane, Summit
Ventures III, L.P., and Summit Investors II, L.P., hold in the aggregate less
than 70% of the aggregate number of shares of Parent Common Stock issued to them
as a result of the Merger.
6.14. Expenses. Except as otherwise provided in Section 8.5(b), whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the Merger and the other transactions contemplated by
this Agreement shall be paid by the party incurring such cost or expense, except
that costs and expenses incurred in connection with filings under the HSR Act
and the filing of the S-4 Registration Statement and printing and mailing the
Prospectus Proxy Statement and the S-4 Registration Statement shall be shared
equally by Parent and the Company. All costs, fees, and expenses incurred by the
Company pursuant to the transactions contemplated by this Agreement must be
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paid or accrued by the Company prior to the Closing Date and taken into account
when calculating the Cash Expenditure Amount pursuant to Section 7.2(k) and (l).
Without limiting the foregoing, the Company shall bear the costs, fees, and
expenses of its attorneys, accountants, and financial advisors in connection
with this Agreement and any of other fees associated with this transaction
(collectively, the "Transaction Costs").
6.15. Other Actions by the Company and Parent.
(a) Takeover Statute. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, each of Parent and the Company and its board of directors shall
grant such approvals and take such actions as are necessary so that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement or by the Merger and otherwise act to
eliminate or minimize the effects of such statute or regulation on such
transactions.
(b) Dividends. The Company shall coordinate with Parent the
declaration and setting of record dates and payment dates of dividends on
Shares so that holders of Shares do not receive dividends on both Shares
and Parent Common Stock received in the Merger in respect of any calendar
quarter or fail to receive a dividend on either Shares or Parent Common
Stock received in the Merger in respect of any calendar quarter.
(c) Cash Expenditure Certificate. The Company covenants that the Cash
Expenditure Certificate described in Section 7.2(k) will be true, correct,
and accurate on the Closing Date in all material respects.
ARTICLE VII
CONDITIONS
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approval. The Company Requisite Vote shall have been
received in accordance with applicable law and the certificate of
incorporation and by-laws of the Company.
(b) Regulatory Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated and, other than the filing provided for in Section 1.3, all
notices, reports, and other filings required to be made prior to the
Effective Time by the Company or Parent or any of their respective
Subsidiaries with, and all consents, registrations, approvals, permits, and
authorizations required to be obtained prior to the Effective Time by the
Company or Parent or any of their respective Subsidiaries from, any
Governmental Entity (collectively, "Governmental Consents") in connection
with the execution and delivery of this Agreement and the consummation of
the Merger and the other transactions contemplated hereby by the Company,
Parent, and Merger Sub shall have been made or obtained (as the case may
be), except those that the failure to make or to obtain are not,
individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect or a Parent Material Adverse Effect.
(c) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced, or entered
any statute, law, ordinance, rule, regulation, judgment, decree,
injunction, or other order (whether temporary, preliminary, or permanent)
that is in effect and restrains, enjoins, or otherwise prohibits
consummation of the Merger or the other transactions contemplated by this
Agreement (collectively, an "Order").
(d) S-4. The S-4 Registration Statement shall have become effective
under the Securities Act. No stop order suspending the effectiveness of the
S-4 Registration Statement shall have been issued,
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and no proceedings for that purpose shall have been initiated or, to the
knowledge of the officers of either the Company or Parent, be threatened,
by the SEC.
7.2. Conditions to Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to effect the Merger are also subject to the
satisfaction or waiver by Parent at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement (including any
exhibits hereto) which contain a Material Adverse Effect qualifier shall be
true and correct in all respects, and which do not contain a Material
Adverse Effect qualifier shall be true and correct in all material
respects, as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent any such
representation or warranty expressly speaks as of a specific date), and
Parent shall have received a certificate signed on behalf of the Company by
the Chief Executive Officer and Chief Financial Officer of the Company to
such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement (including any exhibits hereto) at or prior to
the Closing Date, and Parent shall have received a certificate signed on
behalf of the Company by the Chief Executive Officer and Chief Financial
Officer of the Company to such effect.
(c) Consents Under Agreements. The Company shall have obtained the
consent or approval of each person whose consent or approval is required
under any material Contract to which the Company or any of its Subsidiaries
is a party.
(d) Tax Opinion. Parent shall have received the opinion of Shea &
Gardner, counsel to Parent, dated the Closing Date, to the effect that the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that each of Parent,
Merger Sub, and the Company will be a party to that reorganization within
the meaning of Section 368(b) of the Code; provided that if Brobeck,
Phleger & Harrison LLP shall render such an opinion to Parent, then this
condition shall be satisfied. For purposes of rendering such opinion,
counsel shall rely on reasonable assumptions and representations as to
factual matters to be provided by Parent, Merger Sub, and Company.
(e) Legal Opinion. Parent shall have received an opinion of Brobeck,
Phleger & Harrison LLP, counsel to the Company, dated the Closing Date,
substantially in the form attached as Exhibit B.
(f) Affiliates Letters. Parent shall have received an Affiliates
Letter from each person identified as an affiliate of the Company pursuant
to Section 6.8.
(g) Accountant Letter. Parent shall have received, in form and
substance reasonably satisfactory to Parent, from Ernst & Young LLP, San
Diego, California, the "comfort" letter described in Section 6.5(b).
(h) Stock Option Plan. Except as otherwise provided pursuant to
Section 6.12(c), the administrator of each stock option plan of the Company
who has discretion regarding acceleration of the exercisability of any
option under such plan or with respect to any aspect or provision of such
plan relating to the termination, exercise, amendment, cancellation, or
change in any option or other right under such plan in the event of a
transaction of the kind contemplated by this Agreement shall have exercised
such discretion in accordance with written recommendations with respect
thereto delivered by Parent to the Company, and if no recommendation is
made by Parent, then shall not take any action with respect to the options
or other rights, including without limitation, accelerating vesting of
options or rights. Furthermore, all repurchase rights under the Company's
1999 Stock Incentive Plan shall have been assigned to the Surviving
Corporation.
(i) Voting Agreement. Summit Ventures III, L.P., Summit Investors II,
L.P., Christopher A. Crane, Robert C. Beasley, Karen Goodrum and
Christopher Fenton shall have entered into an
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agreement concerning the voting of their Company Shares substantially in
the form attached as Exhibit C and shall be in full compliance with its
terms as of the Closing Date.
(j) Pledge Agreement. As collateral security for any Cash Shortfall
(as defined below) not in excess of $5,000,000.00, Summit Ventures III,
L.P., Summit Investors II, L.P., and Christopher A. Crane shall have
entered into an agreement substantially in the form attached as Exhibit D
(the "Pledge Agreement") transferring, pledging, and assigning to Parent,
for the benefit of Parent, a security interest in the assets specified in
the Pledge Agreement, and shall be in full compliance with its terms as of
the Closing Date.
(k) Calculation of Cash Expenditures. Parent shall have received a
certificate signed on behalf of the Company by the Chief Executive Officer
and Chief Financial Officer of the Company (the "Cash Expenditure
Certificate") calculating, as of the opening of business on the Closing
Date, (i) the aggregate amount of Cash Expenditures (as defined below) for
each calendar month or portion thereof between the date of signing this
Agreement and the Closing Date, (ii) the amount of the Cash Shortfall (as
defined below), (iii) the amount of the Transaction Costs, and (iv) the
Cash Expenditure Amount (as defined below).
(l) Cash Shortfall. There shall be included in the Pledge Agreement a
promise by Summit Ventures III, L.P., Summit Investors II, L.P., and
Christopher A. Crane to reimburse Parent for the Cash Shortfall (subject to
the auditing procedures provided in Section 8 of the Pledge Agreement), if
any, out of the proceeds they shall receive pursuant to this Agreement as
shareholders of the Company. For purposes of this Agreement, the "Cash
Shortfall" shall equal the excess, if any, of (i) the total Cash
Expenditures between the date of this Agreement and the Closing Date (the
"Cash Expenditure Amount") over (ii) the sum of (A) the product of
$100,000.00 multiplied by the number of days between the date of this
Agreement and the Closing Date (in each case exclusive of the date of this
Agreement and inclusive of the Closing Date) and (B) the actual amount of
the Transaction Costs, which for purposes of this subclause (B) are capped
at $2,000,000.00. "Cash Expenditures" shall mean the excess of (A) the sum
of (i) cash expenditures (paid by check, wire transfer or any other means),
(ii) any increase in accounts payable from the 1999 Q3 Financials to the
date of measurement, (iii) any increase in accrued liabilities from the
1999 Q3 Financials to the date of measurement, and (iv) any increase in
short-term or long-term debt (including, without limitation, any increase
in lease obligations) from the 1999 Q3 Financials to the date of
measurement, over (B) the aggregate amount of severance payments made by
the Company to its employees from the date of this Agreement through the
day immediately preceding the Closing Date in an amount not to exceed the
following amount: (x) with respect to employees that are employed by the
Company under an employment agreement in effect on the date of this
Agreement, the amount of severance payments to be paid under such
employment agreements; and (y) for all other employees terminated, an
amount equal to four weeks of the average of such other employees'
salaries.
(m) Employment/Non-competition Agreement. Christopher A. Crane shall
have entered into an employment agreement substantially in the form
attached as Exhibit E and a non-competition agreement substantially in the
form attached as Exhibit F.
(n) Litigation and Liabilities. As of the Closing Date, except (i) as
disclosed in the Company Reports filed prior to the date of this Agreement,
(ii) as disclosed in the Company Disclosure Letter, or (iii) as would not,
individually or in the aggregate (after allowing for any deductions to be
provided under any applicable insurance coverage) be reasonably expected to
have a Company Material Adverse Effect, there will be no (x) civil,
criminal, or administrative actions, suits, claims, hearings,
investigations, or proceedings pending or, to the knowledge of the officers
of the Company, threatened against the Company or any of its Subsidiaries
or (y) obligations or liabilities, whether or not accrued, contingent or
otherwise and whether or not required to be disclosed, including those
relating to environmental and occupational safety and health matters,
except for liabilities and obligations incurred in the ordinary course of
business or related to the transactions contemplated by this Agreement.
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(o) Compensation and Benefit Plans. As of the Closing Date, there
shall be no pending or, to the knowledge of the officers of the Company,
threatened litigation relating to the Compensation and Benefit Plans,
except (i) as disclosed in the Company Reports filed prior to the date of
this Agreement, (ii) as disclosed in the Company Disclosure Letter, or
(iii) as would not, individually or in the aggregate be reasonably expected
to have a Company Material Adverse Effect.
(p) Company Warrants. Each holder of outstanding warrants to purchase
Shares shall have consented to the cancellation of such warrant as provided
for in Section 4.5.
7.3. Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub set forth in this Agreement which
contain a Material Adverse Effect qualifier shall be true and correct in
all respects, and which do not contain a Material Adverse Effect qualifier
shall be true and correct in all material respects, as of the date of this
Agreement and as of the Closing Date as though made on and as of the
Closing Date (except to the extent any such representation and warranty
expressly speaks as of a specific date), and the Company shall have
received a certificate signed on behalf of Parent by the President and
Chief Financial Officer of Parent and on behalf of Merger Sub by the
President and Chief Financial Officer of Merger Sub to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Each of
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and the Company shall have received a certificate
signed on behalf of Parent by the President and Chief Financial Officer of
Parent and on behalf of Merger Sub by the President and Chief Financial
Officer of Merger Sub to such effect.
(c) Tax Opinion. The Company shall have received the opinion of
Brobeck, Phleger & Harrison LLP, counsel to the Company, dated the Closing
Date, to the effect that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code, and that each of Parent, Merger Sub, and the Company will be a party
to that reorganization within the meaning of Section 368(b) of the Code;
provided that if Shea & Gardner shall render such an opinion to the
Company, then this condition shall be satisfied. For purposes of rendering
such opinion, counsel shall rely on reasonable assumptions and
representations as to factual matters to be provided by Parent, Merger Sub,
and Company.
(d) Legal Opinion. The Company shall have received an opinion of Shea
& Gardner, counsel to Parent, dated the Closing Date, substantially in the
form attached as Exhibit G.
(e) Accountant Letter. The Company shall have received, in form and
substance reasonably satisfactory to the Company, from Ernst & Young LLP,
Washington, D.C., the "comfort" letter described in Section 6.5(b).
(f) Nasdaq National Market Listing. The shares of Parent Common Stock
issuable pursuant to this Agreement shall have been authorized for listing
on the Nasdaq National Market upon official notice of issuance.
ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, (whether
before or after the adoption of this Agreement by stockholders of the Company),
by mutual written consent of the Company and Parent by action of their
respective boards of directors.
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8.2. Termination by Either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the board of directors of either Parent or the Company if: (i)
the Effective Time shall not have occurred by 5:00 p.m. New York City Time on
May 31, 2000, whether such date is before or after the adoption of this
Agreement by the stockholders of the Company; provided, that the right to
terminate this Agreement pursuant to this clause (i) shall not be available to
any party that has breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the failure
of the Merger to be consummated; (ii) the approval of the Company's stockholders
required by Section 7.1(a) shall not have been obtained at a meeting duly
convened therefor or at any adjournment or postponement thereof; or (iii) any
Order permanently restraining, enjoining, or otherwise prohibiting consummation
of the Merger shall become final and non-appealable (whether before or after the
adoption of this Agreement by the stockholders of the Company).
8.3. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, (whether before
or after the adoption of this Agreement by stockholders of the Company), by
action of the board of directors of the Company in the following situations:
(a) if (i) the Company is not in material breach of any of the terms
of this Agreement, (ii) the board of directors of the Company determines in
good faith (after consultation with its financial and legal advisors) that
an Acquisition Proposal, if accepted, is reasonably likely to be
consummated, taking into account all legal, financial, and regulatory
aspects of the proposal and the person making the proposal and would, if
consummated, result in a transaction more favorable to the Company's
stockholders from a financial point of view than the transaction
contemplated by this Agreement (a "Superior Proposal"), and authorizes the
Company, subject to complying with the terms of this Agreement, to enter
into a binding written agreement concerning such Superior Proposal and the
Company notifies Parent in writing that it intends to enter into such an
agreement, attaching the most current version of such agreement to such
notice, (iii) Parent does not make, within three Business Days of receipt
of the Company's written notification of its intention to enter into a
binding agreement for a Superior Proposal, an offer that the Board of
Directors of the Company determines, in good faith after consultation with
its financial advisors, is at least as favorable, from a financial point of
view, to the stockholders of the Company as the Superior Proposal, and (iv)
the Company prior to such termination pays to Parent in immediately
available funds any fees required to be paid pursuant to Section 8.5. The
Company agrees (x) that it will not enter into a binding agreement referred
to in clause (ii) above until at least 12:01 a.m. on the fourth Business
Day after it has provided the notice to Parent required thereby and (y) to
notify Parent promptly if its intention to enter into a written agreement
referred to in a notice pursuant to this Section 8.3(a) shall change at any
time after giving such notification.
(b) if there has been a material breach by Parent or Merger Sub of any
representation, warranty, covenant, or agreement contained in this
Agreement that is not curable or, if curable, is not cured within 30 days
after written notice of such breach is given by the Company to Parent.
(c) if the Board of Directors of the Company, after consultation with
its financial and legal advisors, determines in good faith that it is
likely to be required by its fiduciary duties under applicable Law to
withdraw or adversely modify its approval or recommendation of this
Agreement and does so withdraw or adversely modify such approval or
recommendation, and if the Company, prior to terminating this Agreement,
pays to Parent in immediately available funds any fees required to be paid
pursuant to Section 8.5(b).
8.4. Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior (whether before or after adoption of
this Agreement by the stockholders of the Company) to the Effective Time by
action of the Board of Directors of Parent if (i) the board of directors of the
Company shall have with drawn or adversely modified its approval or
recommendation of this Agreement or failed to reconfirm its recommendation of
this Agreement within seven Business Days after
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a written request by Parent to do so, (ii) there has been a material breach by
the Company of any representation, warranty, covenant, or agreement contained in
this Agreement that is not curable or, if curable, is not cured within 30 days
after written notice of such breach is given by Parent to the Company, or (iii)
the Company or any Representatives of the Company shall take any of the actions
that would be proscribed by Section 6.2.
8.5. Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article VIII, this Agreement (other than as
set forth in Section 9.1) shall become void and of no effect with no
liability on the part of any party hereto (or of any of its directors,
officers, employees, agents, legal and financial advisors, or other
representatives) except as otherwise provided herein; provided, however,
that except as otherwise provided herein, no such termination shall relieve
any party hereto of any liability or damages resulting from any willful or
intentional material breach of this Agreement.
(b) In the event that (i) an Acquisition Proposal shall have been made
to the Company or any of its Subsidiaries or any of its stockholders or any
Person shall have publicly announced an intention (whether or not
conditional) to make an Acquisition Proposal with respect to the Company or
any of its Subsidiaries and thereafter this Agreement is terminated by
either Parent or the Company pursuant to Section 8.2 or (ii) this Agreement
is terminated (x) by the Company pursuant to Section 8.3(a) or 8.3(c) or
(y) by Parent pursuant to Section 8.4(a)(i) or (iii), then the Company
shall promptly, but in no event later than two Business Days after the date
of such termination, pay Parent a termination fee of $2,000,000.00 and
shall promptly, but in no event later than two days after being notified of
such by Parent, pay all of the reasonable out-of-pocket costs and expenses,
including without limitation those of the Exchange Agent, and Parent's and
Merger Sub's legal and accounting advisors, reasonably incurred by Parent
or Merger Sub in connection with this Agreement and the transactions
contemplated by this Agreement, up to a maximum of $500,000, payable by
wire transfer of same day funds. The Company acknowledges that the
agreements contained in this Section 8.5(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, Parent and Merger Sub would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the amount due pursuant
to this Section 8.5(b), and, in order to obtain such payment, Parent and/or
Merger Sub commences a suit which results in a judgment against the Company
for the fee set forth in this Section 8.5(b), the Company shall pay to
Parent or Merger Sub its costs and expenses (including attorneys' fees) in
connection with such suit, together with interest on the amount of the fee
at the prime rate of interest listed in The Wall Street Journal (absent
manifest error) published on the date such payment was required to be made.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. Survival. This Article IX and the agreements of the Company, Parent,
and Merger Sub contained in Sections 6.6, 6.9, 6.10, 6.12, 6.13, and 6.14 shall
survive the consummation of the Merger. This Article IX, the agreements of the
Company, Parent, and Merger Sub contained in Sections 6.14 and 8.5, and the
Confidentiality Agreement shall survive the termination of this Agreement. All
representations, warranties, and other covenants and agreements in this
Agreement shall not survive the consummation of the Merger or the termination of
this Agreement.
9.2. Modification or Amendment. Subject to the provisions of applicable
law, at any time prior to the Effective Time (whether or not the stockholder
approval referred to in Section 7.1 has been received), the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties.
9.3. Waiver. To the extent permitted by applicable law, at any time prior
to the Effective Time or the termination of this Agreement, any party to this
Agreement may (a) extend the time for performance
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of any of the obligations or other acts of the other parties to this Agreement,
(b) waive any inaccuracies in the representations and warranties of such other
parties in this Agreement or any other documents required to be delivered to
such party under this Agreement, or (c) waive compliance by any other party to
this Agreement with any of the agreements, covenants or conditions contained
herein.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS
SHALL BE INTERPRETED, CONSTRUED, AND GOVERNED BY AND IN ACCORDANCE WITH THE
LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the Federal courts
of the United States of America located in the State of Delaware solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement, and in
respect of the transactions contemplated hereby, and hereby waive, and
agree not to assert, as a defense in any action, suit, or proceeding for
the interpretation or enforcement hereof or of any such document, that it
is not subject thereto or that such action, suit, or proceeding may not be
brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement or any such document may not be
enforced in or by such courts, and the parties hereto irrevocably agree
that all claims with respect to such action or proceeding shall be heard
and determined in such a court of the State of Delaware or Federal court.
The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and
agree that mailing of process or other papers in connection with any such
action or proceeding in the manner provided in Section 9.6 or in such other
manner as may be permitted by law shall be valid and sufficient service
thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH
PARTY REPRESENTS THAT (i) NO REPRESENTATIVE, AGENT, OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF
THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH
PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL REPRESENTATIONS IN THIS SECTION 9.5.
9.6. Notices. Any notice, request, instruction, or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by nationally recognized overnight courier or by facsimile
and shall be deemed received when actually received or, in the case of facsimile
delivery, receipt of such facsimile is confirmed by telephone call:
if to Parent or Merger Sub:
CoStar Group, Inc.
7475 Wisconsin Avenue, Suite 600
Bethesda, MD 20814
Attention: President
Fax: (301) 718-2444
Phone: (301) 215-8300
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with a copy (which shall not constitute notice) to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037-1420
Attention: Michael R. Klein, Esq.
Fax: (202) 663-6363
Phone: (202) 663-6000
and
Shea & Gardner
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Attention: Michael K. Isenman, Esq.
Fax: (202) 828-2195
Phone: (202) 828-2000
if to the Company:
COMPS.COM, Inc.
9888 Carroll Centre Road, Suite 100
San Diego, California 92126
Attention: President and Chief Executive Officer
Fax: (619) 684-3292
Phone: (619) 578-3000
with a copy (which shall not constitute notice) to:
Brobeck, Phleger & Harrison LLP
550 South Hope Street
Los Angeles, CA 90071-2604
Attention: Richard S. Chernicoff
Fax: (213) 745-3345
Phone: (213) 489-4060
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. Entire Agreement; NO OTHER REPRESENTATIONS. This Agreement (including
any exhibits hereto), the Company Disclosure Letter, the Parent Disclosure
Letter, and the Confidentiality Agreement constitute the entire agreement, and
supersede all other prior agreements, understandings, representations, and
warranties both written and oral, among the parties, with respect to the subject
matter hereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER PARENT AND MERGER SUB NOR THE
COMPANY MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS
ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL, AND LEGAL ADVISORS OR OTHER
REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE
TO THE OTHER OR THE OTHER'S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER
INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING.
9.8. No Third Party Beneficiaries. Except as provided in Sections 6.10
(Directors' and Officers' Indemnification) and 6.12 (Benefits), this Agreement
is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
9.9. Obligations of Parent and of the Company. Whenever this Agreement
requires a Subsidiary of Parent to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause such Subsidiary
to take such action. Whenever this Agreement requires a Subsidiary of
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the Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and, after the Effective Time, on the part of the Surviving Corporation
to cause such Subsidiary to take such action.
9.10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable (a) a suitable and equitable provision
shall be substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
9.11. Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement, and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes," or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." All references to the singular shall include references to the
plural and vice versa and all references to the male, female, or neuter shall
all include references to any or all of them. For purposes of this Agreement,
the phrases "knowledge of the officers," "knowledge of the executive officers,"
or words of similar import mean the knowledge of such officers or executive
officers, as the case may be, including facts of which such officers or
executive officers, in the reasonably prudent exercise of their duties as an
officer or executive officer, should be aware.
9.12. Assignment. This Agreement shall not be assignable by operation of
law or otherwise; provided, however, that Parent may designate, by written
notice to the Company, another wholly-owned direct or indirect subsidiary to be
a Constituent Corporation in lieu of Merger Sub, in which event all references
herein to Merger Sub shall be deemed references to such other subsidiary, except
that all representations and warranties made herein with respect to Merger Sub
as of the date of this Agreement shall be deemed representations and warranties
made with respect to such other wholly-owned subsidiary as of the date of such
designation.
9.13. Executive Officer. For purposes of this Agreement, the term
"executive officer" with regard to any corporation shall mean the corporation's
president, principal financial officer, principal accounting officer (or, if
there is no such accounting officer, the controller), any vice-president of the
corporation in charge of a principal business unit, division, or function (such
as sales, administration or finance), any other officer who performs a
policy-making function, or any other person who performs similar policy-making
functions for the corporation. Executive officers of the corporation's
subsidiaries shall be deemed executive officers of the corporation if they
perform such policy-making functions for the corporation.
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<PAGE> 164
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
COMPS.COM, INC.
By: /s/ CHRISTOPHER A. CRANE
------------------------------------
Name: Christopher A. Crane
Title: Chairman of the Board, Chief
Executive Officer, and President
COSTAR GROUP, INC.
By: /s/ ANDREW C. FLORANCE
------------------------------------
Name: Andrew C. Florance
Title: President and Chief
Executive Officer
ACQ SUB, INC.
By: /s/ ANDREW C. FLORANCE
------------------------------------
Name: Andrew C. Florance
Title: President
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EXHIBIT A
CoStar Group, Inc.
7475 Wisconsin Avenue
Bethesda, Maryland 20814
Re: Rule 145 Affiliate Letter
Ladies and Gentlemen:
The undersigned is a holder of shares of Common Stock, par value $0.01 per
share, of COMPS.COM, Inc. ("COMPS.COM Common Stock"). The undersigned
acknowledges that the undersigned may be deemed an "affiliate" of COMPS.COM
within the meaning of Rule 145 promulgated under the Securities Act of 1933 (the
"Securities Act"), although nothing contained in this letter should be construed
as an admission of such fact.
As a result of the terms of an Agreement and Plan of Merger among CoStar
Group, Inc. ("CoStar Group"), Acq Sub. Inc. and COMPS.COM, Inc. dated November
3, 1999 (the "Merger Agreement"), COMPS.COM will be merged with and into Acq
Sub, Inc (the "Merger"). As a result of the Merger, the undersigned may receive
shares of Common Stock, par value $0.01 per share, of CoStar Group, Inc.
("CoStar Group Common Stock") in exchange for shares of COMPS.COM Common Stock.
A. In connection with the foregoing, the undersigned represents, warrants
and agrees as follows:
1. The undersigned will not make any sale, transfer or other disposition
of the CoStar Group Common Stock received in connection with the
Merger in violation of the Securities Act, including the rules and
regulations under the Securities Act.
2. The undersigned has been advised that the issuance of CoStar Group
Common Stock to the undersigned as a result of the Merger has been
registered under the Securities Act on a registration statement on
Form S-4. The undersigned has also been advised that, because at the
time the Merger was submitted for a vote of stockholders of
COMPS.COM, the undersigned may have been an "affiliate" of COMPS.COM
within the meaning of Rule 145 and that therefore the distribution by
the undersigned of the CoStar Group Common Stock received as a result
of the Merger must be held by the undersigned indefinitely unless (a)
such distribution has been registered under the Securities Act, (b)
such distribution is made in conformity with Rule 145, or (c) such
distribution is pursuant to a transaction which, in the opinion of
counsel for CoStar Group or other counsel reasonably satisfactory to
CoStar Group or as described in a "no-action" or interpretative
letter from the staff of the Securities and Exchange Commission
("SEC"), is not required to be registered under the Securities Act.
In the event of a sale or other disposition by the undersigned of
CoStar Group Common Stock pursuant to Rule 145, the undersigned will
supply CoStar Group with evidence of compliance with such Rule in the
form reasonably requested by CoStar Group, including, if requested, a
customary broker's certification, a customary seller's certification
and an opinion of counsel reasonably acceptable to CoStar Group.
3. The undersigned has carefully read this letter and the Merger
Agreement and has discussed the requirements of the Merger Agreement
and other limitations upon the sale, transfer or other disposition of
CoStar Group Common Stock to be received in connection with the
Merger, to the extent the undersigned has determined to be necessary
or appropriate, with counsel for the undersigned and/or counsel for
COMPS.COM.
4. If the undersigned is other than a natural person, the person
executing this letter is authorized to do so on behalf of the
undersigned.
B. Furthermore, in connection with the foregoing, the undersigned
understands and agrees as follows:
1. CoStar Group is under no obligation to maintain the effectiveness of
any registration statement under the Securities Act for purposes of
resale of CoStar Group Common Stock by the undersigned.
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<PAGE> 166
2. CoStar Group is under no obligation to take any action to make
available any exemption from registration to permit the resale of the
CoStar Group Common Stock (except as provided by A.2. above).
3. Stop transfer instructions will be given to the transfer agent for
CoStar Group with respect to the shares of CoStar Group Common Stock
received by the undersigned as a result of the Merger, and there will
be placed on the certificates representing such shares, or any
certificates delivered in substitution therefor, a legend stating in
substance the following: "The shares represented by this certificate
were issued in a transaction to which Rule 145 promulgated under the
Securities Act of 1933 applies. The shares represented by this
certificate may only be transferred in accordance with the terms of
an agreement dated , between the registered holder hereof
and CoStar Group, a copy of which agreement is on file at the
principal offices of CoStar Group."
4. Unless the transfer by the undersigned of CoStar Group Common Stock
has been registered under the Securities Act or is a sale made in
conformity with the provisions of Rule 145 and the terms hereof,
CoStar Group reserves the right to put the following legend on the
certificates issued to any transferee of the undersigned: "The shares
represented by this certificate have not been registered under the
Securities Act of 1933 and were acquired from a person who received
such shares in a transaction to which Rule 145 promulgated under the
Securities Act of 1933 applies. The shares have been acquired by the
holder not with a view to, or for resale in connection with, any
distribution thereof within the meaning of Securities Act of 1933 and
may not be sold, pledged or otherwise transferred except in
accordance with an exemption from the registration requirements of
the Securities Act of 1933."
5. The legends set forth above may be removed and substitute
certificates delivered without any such legends only if the
undersigned provides documentation reasonably requested by CoStar
Group, which may include an opinion of counsel reasonably
satisfactory to CoStar Group that the legend is not required by the
Securities Act.
6. The undersigned hereby agrees to waive any registration rights in
COMPS.COM Common Stock and/or CoStar Group Common Stock, including,
without limitation, any registration rights provided by the Amended
and Restated Investors Rights Agreement, dated February 9, 1998, or
any predecessor or successor agreement.
Very truly yours,
By signing below, CoStar Group agrees as follows:
From and after the Merger and for so long as is necessary in order to permit the
above signatory to this letter (the "Holder") to sell the CoStar Group Common
Stock held by the Holder pursuant to Rule 145 and, to the extent applicable,
Rule 144 under the Securities Act, CoStar Group will use its commercially
reasonable efforts to file on a timely basis all reports required to be filed by
it pursuant to Section 13 of the Securities Exchange Act of 1934, as amended,
referred to in paragraph (c)(1) of Rule 144 under the Securities Act, in order
to permit the Holder to sell the CoStar Group Stock held by it pursuant to the
terms and conditions of Rule 145 and the applicable provisions of Rule 144.
CoStar Group, Inc.
By:
--------------------------------------------------------
Name:
-------------------------------------------------------
Title:
-------------------------------------------------------
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<PAGE> 167
EXHIBIT B
[BROBECK PHLEGER & HARRISON LLP LETTERHEAD]
[Closing Date]
CoStar Group, Inc.
7475 Wisconsin Avenue, Suite 600
Bethesda, Maryland 20814
Ladies and Gentlemen:
We have acted as counsel for COMPS.COM, Inc. a Delaware corporation (the
"Company"), in connection with the merger (the "Merger") of the Company with and
into your wholly-owned subsidiary, Acq Sub, Inc., a Delaware corporation
("Merger Sub"), pursuant to the Agreement and Plan of Merger, dated as of
November , 1999 (the "Agreement"), by and among the Company, you and Merger
Sub. This opinion letter is being rendered to you pursuant to Section 7.2(e) of
the Agreement in connection with the closing of the Merger. Capitalized terms
not otherwise defined in this opinion letter have the respective meanings
ascribed to them in the Agreement.
In connection with the opinions expressed herein we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Agreement
and upon certificates and statements of government officials and of officers of
the Company. We have also examined originals or copies of such corporate
documents or records of the Company as we have considered appropriate for the
opinions expressed herein. We have assumed for the purposes of this opinion
letter the genuineness of all signatures, the legal capacity of natural persons,
the authenticity of the documents submitted to us as originals, the conformity
to the original documents of all documents submitted to us as certified,
facsimile or photostatic copies, and the authenticity of the originals of such
copies.
In rendering this opinion letter we have also assumed: (A) that the
Agreement has been duly and validly executed and delivered by you or on your
behalf and by Merger Sub or on its behalf, that each of you and Merger Sub has
the power to enter into and perform all of your respective obligations
thereunder, and that the Agreement constitutes valid, legal, binding and
enforceable obligations upon you and Merger Sub; (B) that the representations
and warranties made in the Agreement by you and by Merger Sub are true and
Correct; (C) that any wire transfers, drafts or checks tendered by you will be
honored; (D) that each of you and Merger Sub has filed any required state
franchise, income or similar tax returns and has paid any required state
franchise, income or similar taxes (E) that there are no extrinsic agreements or
understandings among the parties to the Agreement or any of the documents
described in Paragraph 4 below (the "Paragraph 4 Documents") that would modify
or interpret the terms of the Agreement, the Paragraph 4 Documents or the
respective rights or obligations of the parties thereunder; (F) that Section
2115 of the California Corporations Code does not apply to the Company, and (G)
that the Company's Board of Directors fulfilled its fiduciary duties with
respect to the approval of the Agreement and the transactions contemplated
therein.
As used in this opinion letter, the phrase "to our knowledge", or any
similar expression or phrase with respect to our knowledge of matters of fact,
means as to matters of fact that, based on the actual knowledge of individual
attorneys within the firm responsible for handling current matters for the
Company (and not including any constructive or imputed notice of any
information), and after an examination of documents referred to herein and after
inquiries of certain officers of the Company, no facts have been disclosed to us
that have caused us to conclude that the opinions expressed are factually
incorrect; but beyond that we have made no factual investigation for the
purposes of rendering this opinion letter. Specifically, but without limitation,
we have made no inquiries of securities holders or employees of the
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<PAGE> 168
CoStar Group, Inc. [date of closing]
Page 2
Company, other than such officers; and we have not searched the dockets of any
courts or government agencies.
This opinion letter relates solely to the laws of the State of California,
the General Corporation Law of the State of Delaware (the "DGCL") and the
federal law of the United States, and we express no opinion with respect to the
effect or application of any other laws. Special rulings of authorities
administering such laws or opinions of other counsel have not been sought or
obtained. We have not examined the question of, and express no opinion as to,
what law would govern the interpretation or enforcement of the Agreement, and
our opinions with regard to such matters are based upon the assumption that the
internal law of the State of California would govern the provisions thereof.
Based upon our examination of and reliance upon the foregoing and subject
to the limitations, exceptions, qualifications and assumptions set forth below
and except as set forth in the Agreement or the Company Disclosure Letter, we
are of the opinion that as of the date hereof:
1. The Company is a corporation duly incorporated, validly existing,
and in good standing under the laws of the State of Delaware, and the
Company has the requisite corporate power and authority to own its
properties and to conduct its business as such business is described in the
Company SEC Reports.
2. The Company has the requisite corporate power and authority to
execute, deliver, and perform the Agreement. The Agreement has been duly
and validly authorized by the Company, and duly executed and delivered by
an authorized officer of the Company. The Agreement has been duly executed
and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable by you against the Company according
to its terms.
3. The capitalization of the Company is as follows:
(a) Preferred Stock. 5,000,000 shares of Preferred Stock, par
value $0.01 ("Preferred Stock"), are authorized, of which no shares are
issued and outstanding.
(b) Common Stock. 75,000,000 shares of Common Stock, par value
$0.01 ("Common Stock") are authorized, of which were, to our
knowledge, outstanding as of [closing date]. All of such outstanding
shares of Common Stock have been duly authorized and are validly issued,
fully paid, and nonassessable and were not issued in violation of any
preemptive rights arising under the DGCL. Except for (i) options and
warrants to purchase an aggregate of shares of Common Stock
and (ii) rights under the ESPP.
4. The Company's execution and delivery of the Agreement, and its
performance of its obligations thereunder and compliance by the Company
with the terms of the Agreement, do not and will not violate any provision
of any federal or California law, statute, rule or regulation applicable to
the Company, the DGCL or any provision of the Company's Restated
Certificate of Incorporation, as currently in effect, or the Company's
Restated Bylaws, as currently in effect, and do not and will not conflict
with or constitute a default under the provisions of any judgment, writ,
decree or order specifically identified in the Company Disclosure Letter or
the material provisions of any material agreement specifically identified
in the Company Disclosure Letter.
5. We are not aware that there is any action, proceeding or
governmental investigation pending or overtly threatened in writing against
the Company, except as set forth in the Company SEC Reports, which (a)
questions the validity of the Agreement or the right of the Company to
enter into the Agreement or (b) would reasonably be expected to have a
material adverse effect on its business or properties, taken as a whole.
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<PAGE> 169
CoStar Group, Inc. [date of closing]
Page 3
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
A. We express no opinion as to the Company's compliance or
noncompliance with applicable federal or state antifraud or antitrust
statutes, laws, rules and regulations.
B. We express no opinion concerning the past, present or future fair
market value of any securities.
C. We express no opinion as to your compliance with any Federal or
state law relating to your legal or regulatory status or the nature of your
business.
D. With respect to our opinion in Paragraph 4, we have not conducted
any special investigation of laws, and such opinions are limited to the
DGCL and such California and United States laws as in our experience are of
general application to transactions of the sort contemplated by the
Agreement. Without limitation, such opinions do not extend to licenses,
permits, approvals, etc. necessary for the conduct of the Company's
business. Further, we express no opinion as to the effect of or compliance
with any state or federal laws or regulations applicable to the
transactions contemplated by the Agreement because of the nature of the
business of any party thereto other than the Company.
In addition, with respect to our opinion in Paragraph 4, we have
relied solely upon the representations of officers of the Company regarding
the existence of facts that may result in a material default, etc., except
to the extent that such material default, etc. would be apparent solely
from an examination of the agreements. We have made no analysis with
respect to the Company's compliance with any financial ratios and the like
set forth in any real property lease, equipment lease or other agreements
to which the Company is a party, and we express no opinion on the effect of
the consummation of the transactions covered by the Agreement on the
Company's compliance with such financial covenants.
E. With respect to our opinion in Paragraph 3(b) that the issued and
outstanding shares of Common Stock of the Company are fully paid, we have
relied solely upon the representations concerning receipt by the Company of
consideration for such shares made to us in certificates executed by
officers of the Company. With respect to our opinion in Paragraph 3 as it
relates to the valid issuance and the number of shares of outstanding
Preferred Stock and Common Stock, the number of outstanding options to
purchase shares of the Company's Common Stock and the existence of any
other options, warrants, conversion privileges or other rights, we have
relied solely on our review of corporate minutes and on written
representations of the officers of the Company.
F. We express no opinion as to the enforceability of Sections 6.2 or
8.5(b) in the Agreement or whether the enforceability of the
indemnification and contribution obligations referred to in Section 6.10 of
the Agreement may be limited by public policy underlying federal or state
securities laws.
G. We express no opinion as to limitations imposed by the DGCL,
California law, federal law or general equitable principles upon the
specific enforceability of any of the remedies, covenants or other
provisions of the Agreement and upon the availability of injunctive relief
or other equitable remedies, regardless of whether enforcement of the
Agreement is considered a proceeding in equity or at law.
H. We express no opinion as to the effect of California or Delaware
court decisions, invoking statutes or principles of equity, which have held
that certain covenants and provisions of agreements are unenforceable where
(i) the breach of such covenants or provisions imposes restrictions or
burdens upon a party, and it cannot be demonstrated that the enforcement of
such restrictions or burdens is reasonably necessary for the protection of
the other party, or (ii) the other party's enforcement of such covenants or
provisions under the circumstances would violate the other party's
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<PAGE> 170
CoStar Group, Inc. [date of closing]
Page 4
implied covenant of good faith and fair dealing, or (iii) the breach of
such covenants or provisions is not a material breach of a material
covenant or provision.
I. We express no opinion as to the effect of Section 1670.5 of the
California Civil Code or any other California law, federal law or equitable
principle which provides that a court may refuse to enforce, or may limit
the application of, a contract or any clause thereof which the court finds
to have been unconscionable at the time it was made or contrary to public
policy.
J. We express no opinion as to the [un]enforceability under certain
circumstances of provisions expressly or by implication waiving broadly or
vaguely stated rights, unknown future rights, or defenses to obligations or
rights granted by law, when such waivers are against public policy or
prohibited by law.
K. We express no opinion as to the [un]enforceability under certain
circumstances of provisions to the effect that rights or remedies are not
exclusive, that rights or remedies may be exercised without notice, that
every right or remedy is cumulative and may be exercised in addition to or
with any other right or remedy, that election of a particular remedy or
remedies does not preclude recourse to one or more remedies, or that
failure to exercise or delay in exercising rights or remedies will not
operate as a waiver of any such right or remedy.
L. We express no opinion as to the validity, binding effect or
enforceability of any provisions prohibiting waivers of any terms of the
Agreement other than in writing, or prohibiting oral modifications thereof
or modification by course of dealing.
This opinion letter is rendered as of the date first written above solely
for your benefit in connection with the Agreement and may not be delivered to,
quoted or relied upon by any person other than you, or for any other purpose,
without our prior written consent. Our opinion is expressly limited to the
matters set forth above and we render no opinion, whether by implication or
otherwise, as to any other matters relating to the Company. We assume no
obligation to advise you of facts, circumstances, events or developments which
hereafter may be brought to our attention and which may alter, affect or modify
the opinions expressed herein.
Very truly yours,
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EXHIBIT C-1
AGREEMENT OF CERTAIN SHAREHOLDERS OF COMPS.COM, INC.
TO VOTE SHARES IN FAVOR OF MERGER WITH ACQ SUB, INC.
(NOVEMBER 3, 1999)
VOTING AGREEMENT
To induce CoStar Group, Inc., a Delaware corporation ("Parent"), and Acq
Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (the
"Merger Sub"), to enter into an Agreement and Plan of Merger (the "Merger
Agreement") with COMPS.COM, Inc., a Delaware corporation (the "Company"),
providing for the merger (the "Merger") of the Company into Merger Sub, the
undersigned (the "Stockholder"), who is the holder of an aggregate of 3,539,091
shares of the Company's Common Stock, $0.01 par value per share (the "Company
Common Stock"), agrees as follows:
1. For the period (the "Agreement Period") beginning on the date hereof
and ending on the date on which the Merger Agreement terminates, the
undersigned shall not encumber, sell, transfer, assign, or otherwise
dispose of any shares of the Company Common Stock now owned or
hereafter acquired by the undersigned except in connection with the
Merger; and
2. During the Agreement Period, the undersigned agrees to vote all
shares of the Company Common Stock which the undersigned is then
entitled to vote to adopt the Merger Agreement at any meeting of the
Company's stockholders called for the purpose of considering and
voting upon the Merger Agreement, or, if so requested by Parent or
Merger Sub, to execute a written consent to adopt the Merger
Agreement in accordance with Section 228(a) of the General
Corporation Law of the State of Delaware;
3. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
4. Nothing in this Agreement shall (i) be deemed to restrict the ability
of any party to this Agreement to exercise voting rights as a member
of the board of directors of the Company with respect to matters
considered by the board of directors of the Company or (ii) restrict
(x) the Stockholder's ability to vote for a Superior Proposal (as
defined in the Merger Agreement) recommended by the board of
directors of the Company as contemplated by the Merger Agreement
provided that the Merger Agreement has theretofore been terminated or
(y) the Company's ability to negotiate for or accept a Superior
Proposal.
SUMMIT VENTURES III, L.P.
By: Summit Partners III, L.P., its
general partner
By
------------------------------------
Name:
Title:
SUMMIT INVESTORS II, L.P.
By: Stamps, Woodsum & Co. III, its
general partner
By
------------------------------------
Name:
Title:
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<PAGE> 172
EXHIBIT C-2
AGREEMENT OF CERTAIN SHAREHOLDERS OF COMPS.COM, INC.
TO VOTE SHARES IN FAVOR OF MERGER WITH ACQ SUB, INC.
(NOVEMBER 3, 1999)
VOTING AGREEMENT
To induce CoStar Group, Inc., a Delaware corporation ("Parent"), and Acq
Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (the
"Merger Sub"), to enter into an Agreement and Plan of Merger (the "Merger
Agreement") with COMPS.COM, Inc., a Delaware corporation (the "Company"),
providing for the merger (the "Merger") of the Company into Merger Sub, the
undersigned (the "Stockholder"), who is the holder of an aggregate of 2,896,331
shares of the Company's Common Stock, $0.01 par value per share (the "Company
Common Stock"), agrees as follows:
1. For the period (the "Agreement Period") beginning on the date
hereof and ending on the date on which the Merger Agreement terminates, the
undersigned shall not encumber, sell, transfer, assign, or otherwise
dispose of any shares of the Company Common Stock now owned or hereafter
acquired by the undersigned except in connection with the Merger; and
2. During the Agreement Period, the undersigned agrees to vote all
shares of the Company Common Stock which the undersigned is then entitled
to vote to adopt the Merger Agreement at any meeting of the Company's
stockholders called for the purpose of considering and voting upon the
Merger Agreement, or, if so requested by Parent or Merger Sub, to execute a
written consent to adopt the Merger Agreement in accordance with Section
228(a) of the General Corporation Law of the State of Delaware;
3. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
4. Nothing in this Agreement shall (i) be deemed to restrict the
ability of any party to this Agreement to exercise voting rights as a
member of the board of directors of the Company with respect to matters
considered by the board of directors of the Company or (ii) restrict (x)
the Stockholder's ability to vote for a Superior Proposal (as defined in
the Merger Agreement) recommended by the board of directors of the Company
as contemplated by the Merger Agreement provided that the Merger Agreement
has theretofore been terminated or (y) the Company's ability to negotiate
for or accept a Superior Proposal.
--------------------------------------
Christopher A. Crane
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<PAGE> 173
EXHIBIT C-3
AGREEMENT OF CERTAIN SHAREHOLDERS OF COMPS.COM, INC.
TO VOTE SHARES IN FAVOR OF MERGER WITH ACQ SUB, INC.
(NOVEMBER 3, 1999)
VOTING AGREEMENT
To induce CoStar Group, Inc., a Delaware corporation ("Parent"), and Acq
Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (the
"Merger Sub"), to enter into an Agreement and Plan of Merger (the "Merger
Agreement") with COMPS.COM, Inc., a Delaware corporation (the "Company"),
providing for the merger (the "Merger") of the Company into Merger Sub, the
undersigned (the "Stockholder"), who is the holder of an aggregate of 656,145
shares of the Company's Common Stock, $0.01 par value per share (the "Company
Common Stock"), agrees as follows:
1. For the period (the "Agreement Period") beginning on the date
hereof and ending on the date on which the Merger Agreement terminates, the
undersigned shall not encumber, sell, transfer, assign, or otherwise
dispose of any shares of the Company Common Stock now owned or hereafter
acquired by the undersigned except in connection with the Merger; and
2. During the Agreement Period, the undersigned agrees to vote all
shares of the Company Common Stock which the undersigned is then entitled
to vote to adopt the Merger Agreement at any meeting of the Company's
stockholders called for the purpose of considering and voting upon the
Merger Agreement, or, if so requested by Parent or Merger Sub, to execute a
written consent to adopt the Merger Agreement in accordance with Section
228(a) of the General Corporation Law of the State of Delaware;
3. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
4. Nothing in this Agreement shall (i) be deemed to restrict the
ability of any party to this Agreement to exercise voting rights as a
member of the board of directors of the Company with respect to matters
considered by the board of directors of the Company or (ii) restrict (x)
the Stockholder's ability to vote for a Superior Proposal (as defined in
the Merger Agreement) recommended by the board of directors of the Company
as contemplated by the Merger Agreement provided that the Merger Agreement
has theretofore been terminated or (y) the Company's ability to negotiate
for or accept a Superior Proposal.
--------------------------------------
Robert C. Beasley
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EXHIBIT C-4
AGREEMENT OF CERTAIN SHAREHOLDERS OF COMPS.COM, INC.
TO VOTE SHARES IN FAVOR OF MERGER WITH ACQ SUB, INC.
(NOVEMBER 3, 1999)
VOTING AGREEMENT
To induce CoStar Group, Inc., a Delaware corporation ("Parent"), and Acq
Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (the
"Merger Sub"), to enter into an Agreement and Plan of Merger (the "Merger
Agreement") with COMPS.COM, Inc., a Delaware corporation (the "Company"),
providing for the merger (the "Merger") of the Company into Merger Sub, the
undersigned (the "Stockholder"), who is the holder of an aggregate of 15,000
shares of the Company's Common Stock, $0.01 par value per share (the "Company
Common Stock"), agrees as follows:
1. For the period (the "Agreement Period") beginning on the date
hereof and ending on the date on which the Merger Agreement terminates, the
undersigned shall not encumber, sell, transfer, assign, or otherwise
dispose of any shares of the Company Common Stock now owned or hereafter
acquired by the undersigned except in connection with the Merger; and
2. During the Agreement Period, the undersigned agrees to vote all
shares of the Company Common Stock which the undersigned is then entitled
to vote to adopt the Merger Agreement at any meeting of the Company's
stockholders called for the purpose of considering and voting upon the
Merger Agreement, or, if so requested by Parent or Merger Sub, to execute a
written consent to adopt the Merger Agreement in accordance with Section
228(a) of the General Corporation Law of the State of Delaware;
3. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
4. Nothing in this Agreement shall (i) be deemed to restrict the
ability of any party to this Agreement to exercise voting rights as a
member of the board of directors of the Company with respect to matters
considered by the board of directors of the Company or (ii) restrict (x)
the Stockholder's ability to vote for a Superior Proposal (as defined in
the Merger Agreement) recommended by the board of directors of the Company
as contemplated by the Merger Agreement provided that the Merger Agreement
has theretofore been terminated or (y) the Company's ability to negotiate
for or accept a Superior Proposal.
--------------------------------------
Karen Goodrum
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EXHIBIT C-5
AGREEMENT OF CERTAIN SHAREHOLDERS OF COMPS.COM, INC.
TO VOTE SHARES IN FAVOR OF MERGER WITH ACQ SUB, INC.
(NOVEMBER 3, 1999)
VOTING AGREEMENT
To induce CoStar Group, Inc., a Delaware corporation ("Parent"), and Acq
Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (the
"Merger Sub"), to enter into an Agreement and Plan of Merger (the "Merger
Agreement") with COMPS.COM, Inc., a Delaware corporation (the "Company"),
providing for the merger (the "Merger") of the Company into Merger Sub, the
undersigned (the "Stockholder"), who is the holder of an aggregate of 13,000
shares of the Company's Common Stock, $0.01 par value per share (the "Company
Common Stock"), agrees as follows:
1. For the period (the "Agreement Period") beginning on the date
hereof and ending on the date on which the Merger Agreement terminates, the
undersigned shall not encumber, sell, transfer, assign, or otherwise
dispose of any shares of the Company Common Stock now owned or hereafter
acquired by the undersigned except in connection with the Merger; and
2. During the Agreement Period, the undersigned agrees to vote all
shares of the Company Common Stock which the undersigned is then entitled
to vote to adopt the Merger Agreement at any meeting of the Company's
stockholders called for the purpose of considering and voting upon the
Merger Agreement, or, if so requested by Parent or Merger Sub, to execute a
written consent to adopt the Merger Agreement in accordance with Section
228(a) of the General Corporation Law of the State of Delaware;
3. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
4. Nothing in this Agreement shall (i) be deemed to restrict the
ability of any party to this Agreement to exercise voting rights as a
member of the board of directors of the Company with respect to matters
considered by the board of directors of the Company or (ii) restrict (x)
the Stockholder's ability to vote for a Superior Proposal (as defined in
the Merger Agreement) recommended by the board of directors of the Company
as contemplated by the Merger Agreement provided that the Merger Agreement
has theretofore been terminated or (y) the Company's ability to negotiate
for or accept a Superior Proposal.
--------------------------------------
Christopher Fenton
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EXHIBIT D
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of November 3, 1999 (this "Pledge Agreement"),
between the persons named on Schedule I hereto ("Pledgors") and CoStar Group,
Inc., a Delaware corporation ("Parent").
RECITALS
WHEREAS, COMPS.COM, Inc., a Delaware corporation (the "Company"), Parent,
and Acq Sub, Inc. ("Merger Sub") have entered an Agreement and Merger Plan,
dated as of November 3, 1999 (the "Agreement"), whereby the Company will be
merged with and into Merger Sub (the "Merger") and the separate existence of the
Company will thereafter cease, so that Merger Sub shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation").
WHEREAS, a condition to the performance by Parent and Merger Sub of their
obligations to effect the Merger Sub under the Agreement is that Pledgors enter
into this Pledge Agreement, and Pledgors enter into this Pledge Agreement as an
inducement to Parent and Merger Sub to enter into the Agreement.
NOW, THEREFORE, in consideration of the promises, and of the covenants,
representations, warranties, and agreements contained herein, the parties hereto
further agree as follows.
SECTION 1. CERTAIN DEFINITIONS
1.1 Capitalized terms used herein but not defined herein shall have the
meaning ascribed to them in the Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES
2.1 Christopher A. Crane represents and warrants that as of the date of
this Pledge Agreement he is the record owner of 2,896,331 issued and outstanding
Shares.
2.2 Summit Ventures III, L.P., represents and warrants that as of the date
of this Pledge Agreement it is the record owner of 3,468,309 issued and
outstanding Shares.
2.3 Summit Investors II, L.P., represents and warrants that as of the date
of this Pledge Agreement it is the record owner of 70,782 issued and outstanding
Shares.
2.4 Each Pledgor represents and warrants, severally and not jointly, to
Parent that as of the date of this Pledge Agreement:
(a) The execution, delivery and performance of this Pledge Agreement
by such Pledgor will not result in a violation of the charter or bylaws of
the Company, the organizational documents of Pledgor, if applicable, or of
any mortgage, deed of trust, indenture, material contract, instrument,
agreement, judgment, decree, order, statute, law, rule or regulation to
which the Pledgor or the Company is subject, or be in conflict with, result
in a breach of or constitute (with due notice and/or lapse of time or both)
a default under any such mortgage, deed of trust, indenture, material
contract, instrument or agreement, or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
respective properties or assets of the Pledgor, except as contemplated by
the provisions of this Pledge Agreement.
(b) This Pledge Agreement constitutes the legal, valid and binding
obligation of such Pledgor, in accordance with the terms hereof, and the
Pledgor has good and lawful right and authority to execute
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the pledge provided for herein and to pledge the number of issued and
outstanding Shares set forth on Schedule I opposite such Pledgor's name.
(c) As to each of such Pledgor's issued and outstanding Shares:
(i) the Pledgor is the sole legal, record and beneficial owner
thereof, and the Pledgor has good and marketable title thereto,
(ii) each Share is validly issued, fully paid and non-assessable
and the holder thereof is not and will not be subject to any personal
liability as such holder,
(iii) each Share is and will remain free and clear of all security
interests, pledges, liens or other encumbrances, and restrictions on the
transfer and assignment thereof, except pursuant to this Pledge
Agreement, the Voting Agreement, and applicable securities laws, and
this Pledge Agreement is sufficient to convey to Parent a valid, first
priority, perfected and enforceable security interest in, and lien on,
any Collateral (as defined below) delivered to Parent hereunder,
(iv) any consent, approval or authorization of or designation or
filing with any governmental authority on the part of the Pledgor which
is required in connection with the pledge and security interest granted
under this Pledge Agreement has been obtained or effected,
(v) there are no outstanding options, warrants or other
requirements with respect to the Shares being pledged, and
(vi) no interest of any kind in the Shares being pledged will be
sold or otherwise transferred in any way to anyone prior to the
Effective Time or termination of the Merger Agreement.
2.4 So long as this Pledge Agreement is in effect, each Pledgor covenants
that it: (a) shall defend that Pledgor's Collateral against the claims and
demands of all other parties except the security interest created by this Pledge
Agreement, shall keep that Pledgor's Collateral free from all options, pledges,
liens, claims, mortgages, hypothecations, charges, security interests or other
encumbrances except restrictions on transfer imposed by applicable securities
laws, the security interest created by this Pledge Agreement, any security
interests or other encumbrances created by the Parent, and as provided under
applicable securities laws, and shall not sell, transfer, assign, deliver, or
otherwise dispose of, or grant any option with respect to any part of that
Pledgor's Collateral or any interest therein without the prior written consent
of the Parent; and (b) shall pay all taxes, assessments, and other charges of
every nature which may be imposed, levied, or assessed against or with respect
to that Pledgor's Collateral.
SECTION 3. PLEDGE OF SHARES
3.1 To provide collateral security for any Cash Shortfall, and to provide
security and collateral for the due performance and compliance by each Pledgor
of its obligations under this Pledge Agreement, each Pledgor hereby grants to
Parent a first priority continuing security interest in, and pledges to Parent,
all of the Pledgor's right, title and interest in and to the number of issued
and outstanding Shares set forth on Schedule I opposite such Pledgor's name (the
Pledgor's "Pledged Shares"), and as security agrees to deliver the certificates
representing ownership of the Pledgor's Pledged Shares, accompanied by stock
powers duly executed in blank and undated by the Pledgor, to Parent within ten
Business Days following the date of this Pledge Agreement. Each Pledgor's
Pledged Shares, together with any and all other securities and moneys received
by Parent as provided for or paid in connection with those Pledged Shares and
all cash and non-cash proceeds thereof while this Pledge Agreement is in effect
(sometimes referred to herein collectively as that Pledgor's "Collateral"),
shall be held by Parent upon the terms and conditions set forth in this Pledge
Agreement.
3.2 Upon the delivery of a Pledgor's Pledged Shares to Parent in accordance
with the preceding Section 3.1, Pledgor grants to Parent concerning that
Pledgor's Pledged Shares an irrevocable proxy coupled with an interest and power
of attorney pursuant to which proxy and power of attorney the Parent shall be
entitled to complete appropriately the stock powers executed in blank by the
Pledgor upon
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conveying the Pledged Shares to Parent and use these stock powers to exchange
the certificates representing the Pledged Shares for the cash and/or Parent
Common Stock payable in exchange for the Pledged Shares based on the Cash
Election, Stock Election, or No Election made or deemed to be made by the
Pledgor pursuant to the Agreement (hereinafter the "Election") and based on
other provisions of the Agreement. Each Pledgor's Election shall be made
pursuant to an Election Form to be delivered prior to the Closing by Pledgor.
3.3 Each Pledgor shall have the right to substitute $7.50 cash in lieu of
any Pledged Share and $23.8125 in cash in lieu of any Parent Common Stock held
by Parent as Pledgee under this Pledge Agreement (in which case, such cash shall
form part of that Pledgor's Collateral hereunder). Upon delivery to the Parent
of a wire transfer of such amount, Parent shall promptly, but in no event later
than two Business Days, deliver any Pledged Shares or Parent Common Stock with
respect to which $7.50 or $23.8125, as applicable, of cash collateral has been
substituted as provided in this Section 3.3.
SECTION 4. VOTING OF PLEDGED SHARES
4.1 Each Pledgor shall be entitled to vote that Pledgor's Pledged Shares
until the Effective Time, if the Merger is effected, or until the termination of
this Pledge Agreement, if the Agreement is terminated, subject to the provisions
of the Voting Agreement.
SECTION 5. EFFECT OF TERMINATION OF THE AGREEMENT
5.1 If the Agreement is terminated, Parent shall as soon as practicable
thereafter (but in no event later than three Business Days) deliver each
Pledgor's Collateral to that Pledgor, and this Pledge Agreement shall terminate.
If the Merger is effected, all the remaining provisions of this Pledge Agreement
shall apply.
SECTION 6. INITIALLY DETERMINED CONSIDERATION FOR PLEDGED SHARES
6.1 If the Cash Expenditure Certificate under Section 7.2(k) of the
Agreement indicates that there is no Cash Shortfall as calculated under Section
7.2(l) of the Agreement, Parent as Pledgee shall as soon as practicable after
the Effective Time exchange each Pledgor's Pledged Shares for the cash and/or
Parent Common Stock payable in exchange for that Pledgor's Pledged Shares based
on the Election made by that Pledgor under the Agreement and the terms of the
Agreement. The total consideration payable in exchange for the aggregate number
of the Pledgors' Pledged Shares based on the Pledgors' Elections and the terms
of the Agreement shall be the "Total Merger Agreement Consideration," and the
Pledged Shares shall be valued at $7.50 per Share in determining the dollar
value of the Total Merger Agreement Consideration.
6.2 If there is a Cash Shortfall as calculated on the Cash Expenditure
Certificate, the total consideration initially payable in exchange for all the
Pledged Shares (the "Total Initial Adjusted Consideration") shall be the Total
Merger Agreement Consideration reduced on a dollar for dollar basis of the Cash
Shortfall as calculated on the Cash Expenditure Certificate except that the
reduction shall not exceed $5,000,000.00. The Pledged Shares shall be valued at
$7.50 per Share in determining the dollar value of the Total Initial Adjusted
Consideration. In such event, the consideration initially payable in exchange
for each Pledgor's Pledged Shares (that Pledgor's "Initial Adjusted
Consideration") shall be the applicable percentage set forth on Schedule I of
the Total Initial Adjusted Consideration, and the Parent as Pledgee shall as
soon as practicable after the Effective Time exchange each Pledgor's Pledged
Shares for that Pledgor's Initial Adjusted Consideration. To the extent that,
pursuant to the Election made by a Pledgor under the Agreement and the terms of
the Agreement, Parent Common Stock would be payable in exchange for that
Pledgor's Pledged Shares, Parent Common Stock, valued at $23.8125 per share,
shall first be used to satisfy that Pledgor's Initial Adjusted Consideration;
provided, that in accordance with the provisions of Section 4.2(e) of the
Agreement, cash shall be paid instead of a fractional share of Parent Common
Stock that would otherwise be payable in accordance with this sentence. Cash
shall be used to
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satisfy any amount of a Pledgor's Initial Adjusted Consideration not satisfied
by Parent Common Stock in accordance with the preceding sentence and pursuant to
the terms of the Agreement.
6.3 After exchanging each Pledgor's Pledged Shares for the cash and/or
Parent Common Stock payable in exchange for those Pledged Shares under
Subsection 6.1 or Subsection 6.2 above, Parent shall thereafter hold such cash
and/or Parent Common Stock as that Pledgor's Collateral subject to this Pledge
Agreement.
SECTION 7. VOTING AND DIVIDENDS ON PARENT COMMON STOCK
HELD AS PART OF A PLEDGOR'S COLLATERAL
After Parent has exchanged a Pledgor's Pledged Shares for cash and/or
Parent Common Stock, the Pledgor shall be entitled to vote any Parent Common
Stock received in the exchange until the termination of this Pledge Agreement;
provided, that during such period, the Pledgor shall cast no vote that would
violate or interfere with the performance of any of the terms of the Agreement
or this Pledge Agreement. Any dividends paid on a Pledgor's Pledged Shares prior
to termination of this Pledge Agreement shall be held as part of that Pledgor's
Collateral.
SECTION 8. FINALLY DETERMINED CONSIDERATION FOR PLEDGED SHARES
8.1 (a) Within forty-five (45) calendar days following the Closing Date,
Parent may, or may cause an independent auditor selected by Parent ("Parent's
Independent Auditor") to, audit the Surviving Corporation's books and records to
determine whether the Cash Expenditure Amount and Cash Shortfall as shown in the
Cash Expenditure Certificate was accurate, such determination to be set forth in
a report (the "Post-Closing Audit Report"). If Parent or Parent's Independent
Auditor determines that the Cash Expenditure Amount or Cash Shortfall as shown
on the Cash Expenditure Certificate was inaccurate, and that as a result there
either was a Cash Shortfall although the Cash Expenditure Certificate did not
indicate a Cash Shortfall or the Cash Shortfall was larger than indicated by the
Cash Expenditure Certificate, Parent may within the above forty-five (45)
calendar day period deliver a written notice to Pledgors setting forth the Cash
Expenditure Amount and Cash Shortfall as determined by the Post-Closing Audit
Report and stating that Parent proposes an adjustment in the consideration
payable in exchange for the Pledged Shares, as determined under Subsection 6.1
or 6.2 above, based on the Post-Closing Audit Report (the "Notice of Proposed
Adjustment"). Parent shall also deliver to Pledgors a copy of such Post-Closing
Audit Report. If Parent does not deliver a Notice of Proposed Adjustment to
Pledgor during the above forty-five (45) calendar day period, no adjustment will
be made in the consideration payable in exchange for a Pledgor's Pledged Shares
as determined under Subsection 6.1 or Subsection 6.2 above.
(b) Pledgors (acting as a group) shall have nine (9) calendar days
from receipt of the Notice of Proposed Adjustment to deliver to Parent a
notice stating that the Pledgors dispute the determination of the Cash
Expenditure Amount and/or the Cash Shortfall by the Parent or the Parent's
Independent Auditor (a "Notice of Dispute"). During such nine (9) calendar
day period, Parent shall cause the Surviving Corporation to give an
independent auditor chosen collectively by the Pledgors (acting as a group)
(the "Pledgors' Independent Auditor") access to the Surviving Corporation's
books and records. Parent shall also give Pledgors' Independent Auditor
reasonable access to the work papers of Parent's Independent Auditor, if
any, that Parent's Independent Auditor is permitted to release with
Parent's consent (which Parent reasonably will provide) pursuant to
Parent's Independent Auditor's standard policies. If Parent has not
received a Notice of Dispute within the above nine (9) calendar day period,
the Cash Expenditure Amount as given in the Notice of Proposed Adjustment
shall be the basis for an adjustment in the consideration payable in
exchange for the Pledged Shares to be made in accordance with Subsection
8.2 below.
(c) If Pledgors have delivered a Notice of Dispute to Parent within
the above nine (9) calendar day period, an independent accounting firm
mutually acceptable to Parent and Pledgors (the
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"Independent Accounting Firm") shall perform any required procedures on the
Company's books and records, and shall review the Notice of Proposed
Adjustment, the Notice of Dispute, and the work papers of Parent's and
Pledgors' Independent Auditors, if any, that they are permitted to release
with their respective clients' permission (which will be reasonably
provided) pursuant to their standard policies, to determine independently
solely whether the Cash Shortfall and Cash Expenditure Amount set forth in
the Notice of Proposed Adjustment or in the Notice of Dispute most closely
represent the Cash Expenditure Amount and Cash Shortfall determined
pursuant to the Agreement. The Cash Expenditure Amount and Cash Shortfall
as determined by the Independent Accounting Firm shall then be the basis
for determining the amount, if any, of the adjustment in the compensation
for the Pledged Shares and for making such adjustment. The Independent
Accounting Firm shall give notice of such Cash Expenditure Amount and Cash
Shortfall to Parent and Pledgors. The cost of such Independent Accounting
Firm shall be borne equally by the Parent and the Pledgors.
8.2 If the determination of the Cash Shortfall that, under Subsection
8.1(b) or Subsection 8.1(c) above, is to be used to make any adjustment in the
consideration payable in exchange for the Pledged Shares is larger than the Cash
Shortfall, if any, shown in the Cash Expenditure Certificate, the dollar value
of the Total Merger Agreement Consideration shall be reduced, on a dollar for
dollar basis, to a "Total Final Adjusted Consideration" as follows:
-- if the Cash Expenditure Certificate did not indicate a Cash
Shortfall, the Total Merger Agreement Consideration shall be
reduced to the extent of the Cash Shortfall, if any, as determined
under Subsection 8.1(b) or Subsection 8.1(c), or
-- if the Cash Expenditure Certificate indicated a Cash Shortfall,
the Total Merger Agreement Consideration shall be reduced by the
sum of (x) the Cash Shortfall indicated on the Cash Expenditure
Certificate plus (y) the excess of (i) the Cash Shortfall as
determined under Subsection 8.1(b) or 8.1(c) above, over (ii) the
Cash Shortfall as indicated by the Cash Expenditure Certificate,
provided, that in neither case shall the dollar value of Total Final Adjusted
Consideration be $5,000,000.00 less than the dollar value of the Total Merger
Agreement Consideration. The consideration payable in exchange for each
Pledgor's Pledged Shares (the "Pledgor's Final Adjusted Consideration") shall be
the applicable percentage set forth on Schedule I multiplied by the Total Final
Adjusted Consideration.
8.3 Within five (5) calendar days after completion of the procedure in
Subsection 8.1 for determining whether there shall be any final adjustment in
the consideration for the Pledged Shares, whether such procedure is completed
pursuant to Subsection 8.1(a), Subsection 8.1(b), or Subsection 8.1(c), Parent
shall take one of the following two actions depending on whether there is to be
such an adjustment:
(a) If no adjustment in the consideration for Pledged Shares is to be
made pursuant to the preceding Subsection 8.2 and no adjustment in the
consideration for Pledged Shares was made pursuant to Subsection 6.2 above,
Parent shall deliver each Pledgor's entire then existing Collateral to that
Pledgor.
(b) If no adjustment in the consideration for Pledged Shares is to be
made pursuant to the preceding Subsection 8.2 but an adjustment in the
consideration for Pledged Shares was made pursuant to Subsection 6.2 above,
Parent shall pay each Pledgor from that Pledgor's then existing Collateral
that Pledgor's Initial Adjusted Consideration. Parent shall be entitled to
retain any part of a Pledgor's then existing Collateral not payable to the
Pledgor under the above provisions of this Subsection 8.3(b) as Parent's
property no longer subject to this Pledge Agreement, and Pledgor shall no
longer have any interest in or rights with respect to such property.
(c) If an adjustment in the consideration for Pledged Shares is to be
made pursuant to the preceding Subsection 8.2, Parent shall pay each
Pledgor from that Pledgor's then existing Collateral that Pledgor's Final
Adjusted Consideration. To the extent that Parent Common Stock was paid to
Parent as Pledgee in exchange for that Pledgor's Pledged Shares in
accordance with the provisions of Subsection 6.1 or Subsection 6.2 above,
Parent Common Stock, valued at $23.8125 per share, shall
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first be used to satisfy that Pledgor's Final Adjusted Consideration;
provided, that in accordance with the provisions of Section 4.2(e) of the
Agreement cash shall be paid instead of a fractional share of Parent Common
Stock that would otherwise be payable in accordance with this sentence.
Cash shall be used to satisfy any amount of a Pledgor's Final Adjusted
Consideration not satisfied by Parent Common Stock in accordance with the
preceding sentence. Any dividends paid on Parent Common Stock used to
satisfy a Pledgor's Final Adjusted Consideration while such Parent Common
Stock was held by Parent pursuant to this Pledge Agreement shall be
delivered by Parent to Pledgor along with, and in addition to, such
Pledgor's Final Adjusted Consideration. Parent shall be entitled to retain
any part of a Pledgor's then existing Collateral not payable to the Pledgor
under the above provisions of this Subsection 8.3(c) as Parent's property
no longer subject to this Pledge Agreement, and Pledgor shall no longer
have any interest in or rights with respect to such property.
SECTION 9. TERMINATION OF AGREEMENT IF THE MERGER IS EFFECTED
9.1 If the Merger is effected, this Pledge Agreement shall terminate when
each Pledgor has received the consideration that Pledgor is entitled to receive
under Subsection 8.3(a), Subsection 8.3(b), or Subsection 8.3(c) and Parent has
received any portion of the Pledgors' Collateral that Parent is entitled to
under the provisions of Subsection 8.3(b) or Subsection 8.3(c).
SECTION 10. MISCELLANEOUS AND GENERAL
10.1 Survival. This Section 10 and the representations and warranties by
Pledgors in Section 2 and the remedies in the event of an incorrect
representation or warranty by a Pledgor, shall survive the termination of this
Pledge Agreement for a period of one year. All other representations,
warranties, covenants and agreements in this Pledge Agreement shall not survive
the termination of this Pledge Agreement.
10.2 Modification or Amendment. Subject to the provisions of the
applicable law, at any time prior to the Effective Time, the parties hereto may
modify or amend this Pledge Agreement, by written agreement executed and
delivered by duly authorized officers of the respective parties.
10.3 Counterparts. This Pledge Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
10.4 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.
(A) THIS PLEDGE AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE
WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the Federal courts
of the United States of America located in the State of Delaware solely in
respect of the interpretation and enforcement of the provisions of this
Pledge Agreement, and in respect of the transactions contemplated hereby,
and hereby waive, and agree not to assert, as a defense in any action, suit
or proceeding for the interpretation or enforcement hereof, that it is not
subject thereto or that such action, suit or proceeding may not be brought
or is not maintainable in said courts or that the venue thereof may not be
appropriate or that this Pledge Agreement may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in such
a Delaware State or Federal court. The parties hereby consent to and grant
any such court jurisdiction over the person of such parties and over the
subject matter of such dispute and agree that mailing of process or other
papers in connection with any such action or proceeding in the manner
provided in Subsection 10.5 of this Pledge Agreement or in such other
manner as may be permitted by law shall be valid and sufficient service
thereof.
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(B) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS PLEDGE AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH
PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER
VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS PLEDGE
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL REPRESENTATIONS IN THIS
SUBSECTION 10.4(b).
10.5 Notices. Any notice, request, instruction, or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by nationally recognized overnight courier or by facsimile
and shall be deemed received when actually received or, in the case of facsimile
delivery, receipt of such facsimile is confirmed by telephone call:
if to Parent or Merger Sub:
CoStar Group, Inc.
7475 Wisconsin Avenue
Suite 600
Bethesda, MD 20814
Attention: Andrew C. Florance
Fax: (301) 718-2444
Phone: (301) 215-8300
with a copy (which shall not constitute notice) to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037-1420
Attention: Michael R. Klein, Esq.
Fax: (202) 663-6363
Phone: (202) 663-6000
and
Shea & Gardner
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Attention: Michael K. Isenman, Esq.
Fax: (202) 828-2195
Phone: (202) 828-2000
if to Summit Ventures III, L.P. and Summit Investors II,
L.P.:
499 Hamilton Avenue, Suite 260
Palo Alto, CA 94301
Attention: Gregory M. Avis
Fax: (650) 321-1188
Phone: (650) 321-1166
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if to Christopher A. Crane:
c/o COMPS.COM, Inc.
9888 Carroll Centre Road, Suite 100
San Diego, California 92126
Fax: (619) 684-3292
Phone: (619) 578-3000
with a copy (which shall not constitute notice) to:
Brobeck, Phleger & Harrison LLP
550 South Hope Street
Los Angeles, CA 90071-2604
Attention: Richard S. Chernicoff
Fax: (213) 745-3345
Phone: (213) 489-4060
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
10.6 Entire Agreement. This Pledge Agreement, along with the Agreement
(including any exhibits thereto), constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, with respect to the subject matter hereof.
10.7 No Third Party Beneficiaries. This Pledge Agreement is not intended
to confer upon any person other than the parties hereto any rights or remedies
hereunder.
10.8 Severability. The provisions of this Pledge Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Pledge Agreement, or the application thereof to any party or
any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Pledge Agreement and the application of
such provision to other parties or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
10.9 Interpretation. The headings herein are for convenience of reference
only, do not constitute part of this Pledge Agreement, and shall not be deemed
to limit or otherwise affect any of the provisions hereof. Where a reference in
this Pledge Agreement is made to a Section or Exhibit, such reference shall be
to a Section of or Exhibit to this Pledge Agreement unless otherwise indicated.
Whenever the words "include," "includes," or "including" are used in this Pledge
Agreement, they shall be deemed to be followed by the words "without
limitation." All references to the singular shall include references to the
plural and vice versa and all references to the male, female, or neuter shall
all include references to any or all of them.
10.10 Assignment. This Pledge Agreement shall not be assignable by
operation of law or otherwise.
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IN WITNESS WHEREOF, this Pledge Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
--------------------------------------
Christopher A. Crane
Summit Ventures III, L.P.
By: Summit Partners III, L.P., its
general partner
By: Stamps, Woodsum & Co. III, its
general partner
By:
--------------------------------------
Name:
Title:
Summit Investors II, L.P.
By: Summit Partners III, L.P., its
general partner
By: Stamps, Woodsum & Co. III, its
general partner
By:
--------------------------------------
Name:
Title:
CoStar Group, Inc.
By:
--------------------------------------
Name: Andrew C. Florance
Title: President and Chief Executive
Officer
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<PAGE> 185
SCHEDULE I
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
CASH PLEDGED NUMBER OF APPLICABLE
SHORTFALL SHARES SHARES OWNED PERCENTAGE
---------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Christopher A. Crane............................ $2,100,000 280,000 2,896,331 42%
Summit Ventures III, L.P........................ $2,850,000 380,000 3,468,309 57%
Summit Investors II, L.P........................ $ 50,000 6,667 70,782 1%
</TABLE>
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<PAGE> 186
EXHIBIT E
SEPARATION AND EMPLOYMENT AGREEMENT
This AGREEMENT, dated this 3rd day of November, 1999 (the "Agreement"), is
made and entered into by and between Christopher A. Crane ("Principal"),
COMPS.COM, Inc., a Delaware corporation ("Company"), and Acq Sub, Inc., a
Delaware corporation ("Merger Sub").
WHEREAS, Company, Merger Sub, and the parent corporation of Merger Sub,
CoStar Group, Inc., a Delaware corporation ("Parent"), have entered into an
Agreement and Plan of Merger, dated November 3, 1999 (the "Merger Agreement")
pursuant to which Company shall merge with and into Merger Sub and the separate
corporate existence of Company shall cease;
WHEREAS, Principal and Company have entered into an "Executive Employment
Agreement," dated October 14, 1994, pursuant to which Principal is employed as
President and Chief Executive Officer of Company;
WHEREAS, it is mutually agreed between Principal, Company, and Merger Sub
that Principal shall resign his employment as President and Chief Executive
Officer of Company, said resignation to take effect as of the date that the
Merger between Company and Merger Sub becomes effective (the "Merger Effective
Date");
WHEREAS, it is also mutually agreed between Principal, Company, and Merger
Sub that Principal shall be employed as an employee of Merger Sub for a period
of one hundred eighty (180) calendar days following the Merger Effective Date;
WHEREAS, Principal has beneficial ownership of over twenty (20) percent of
the common stock of Company, and will receive considerable financial benefit
when the Merger becomes effective;
WHEREAS, the Merger Agreement requires that Principal, Company, and Merger
Sub enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing, and of the respective
representations, warranties, covenants and agreements contained herein, the
parties agree as follows (unless otherwise defined herein, capitalized terms
used herein shall have the meanings given such terms in the Merger Agreement):
I. RESIGNATION OF PRINCIPAL AS PRESIDENT AND CEO OF COMPANY
1. Resignation. Principal hereby agrees to submit his resignation as
President and Chief Executive Officer of Company, with the resignation to take
effect as of the Merger Effective Date. Principal agrees that the terms of the
Executive Employment Agreement shall terminate as of the Merger Effective Date.
2. Waiver of Rights under Executive Employment Agreement. Principal waives
any rights he may have under his Executive Employment Agreement with Company,
with respect to his resignation, including any rights to receive severance pay
or any other compensation under the Executive Employment Agreement from either
Company or Merger Sub.
3. Release of Rights. Principal hereby irrevocably and unconditionally
releases, acquits, and forever discharges Company and Merger Sub, and their
assigns, agents, directors, officers, employees, representatives, attorneys,
parent companies, divisions, subsidiaries, affiliates (and agents, directors,
officers, employees, representatives, and attorneys of such parent companies,
divisions, subsidiaries, and affiliates), and all persons acting by, through,
under, or in concert with any of them (hereinafter "the Releasees"), from any
and all claims, demands, or liabilities whatsoever arising out of Principal's
employment and termination of such employment, whether known or unknown or
suspected to exist by Principal which Principal ever had or may now have against
the Releasees, or any of them, including, without limitation, any claims,
demands, or liabilities (including attorneys' fees and costs actually incurred)
under any state or federal law prohibiting discrimination in employment on the
basis of age or on any other basis prohibited
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by law. Principal acknowledges that he has had at least twenty-one (21) days to
consider the release of his rights under the Age Discrimination in Employment
Act ("ADEA"), and that he has seven (7) days following execution of this
Agreement to revoke his release of his rights under the ADEA.
4. COBRA Rights. Principal hereby acknowledges that Company has advised
him that under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") he has a right to elect continued coverage under Company's group
health plan, at his own expense, for a period of eighteen (18) months from the
date that his resignation is effective. This election must be made no later than
sixty (60) days after the date that his resignation is effective.
II. EMPLOYMENT ARRANGEMENT BETWEEN PRINCIPAL AND MERGER SUB
1. Duties. Principal agrees to assist Merger Sub primarily with regard to
(i) introductions and assistance with relationships, products and markets; (ii)
the transition following the Merger; and (iii) such other duties and
responsibilities as assigned from time to time by the Chief Executive Officer of
Merger Sub. Principal agrees that, subject to the terms and conditions of this
Agreement, he shall provide services to Merger Sub to the best of his ability.
2. Term. The term of this Employment Arrangement shall be one hundred
eighty (180) calendar days beginning on the Merger Effective Date.
3. Compensation. Principal shall receive a salary for his employment of
$75,000, which salary shall cover the entire term hereof and shall be payable in
accordance with Merger Sub's regular payroll.
4. Benefits. Principal shall be entitled to such health insurance coverage
as Merger Sub customarily makes available to its employees. Principal shall
further be entitled to ten (10) days paid vacation and five (5) days unpaid
vacation during the term of this Employment Arrangement. Except as otherwise
provided herein or as required by applicable law, Principal shall not be
entitled to participate in any other, or receive any other benefits from, any
insurance, medical, disability or pension plan of Parent or Merger Sub, or any
other perquisites, which may be in effect at any time during the term of this
Agreement.
5. Expense reimbursement. Merger Sub shall reimburse Principal for all
reasonable and necessary expenses incurred in carrying out his duties under this
Employment Arrangement. Principal shall present to Merger Sub from time to time
an itemized account of such expenses in the form reasonably required by Merger
Sub.
6. Termination without cause. Merger Sub may terminate this Employment
Arrangement at any time by notifying Principal of such termination, in which
event Principal will receive, as severance and as liquidated damages, in
consideration of his execution of a complete and absolute release of Parent,
Merger Sub, and their officers and directors from any and all further claims,
all payments he would have received had the Employment Arrangement not been
terminated.
7. Termination for cause. Merger Sub may terminate this Employment
Arrangement for cause at any time by notifying Principal of such termination;
provided, however, that the only grounds constituting "cause" shall be (i)
Principal'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 documented directives of the Chief Executive Officer
of Merger Sub, his superior officers, or Merger Sub's or Parent's documented
policies, which gross negligence, intentional nonperformance or refusal is not
cured within ten (10) days after written notice thereof is given to Principal;
(ii) Principal's willful dishonesty, fraud, or misconduct with respect to the
business or affairs of Merger Sub or Parent; (iii) Principal's indictment for,
conviction of, or guilty or nolo contendere plea to, a felony; (iv) Principal's
abuse of alcohol or drugs (legal or illegal), other than legal drugs taken under
the directions of a physician, that, in Merger Sub's reasonable judgment,
materially impairs Principal's ability to perform his duties hereunder; (v) a
breach by Principal of the Pledge Agreement; or (vi) a breach by Principal of
the Non-Competition and Non-Disclosure Agreement entered into by Principal,
Merger Sub and Parent on November 3, 1999. In any such event, Principal will be
paid his salary through the date of termination.
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III. GENERAL PROVISIONS
1. 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 such other addresses as any party may
designate in writing to the other parties:
If to Company:
COMPS.COM, Inc.
9888 Carroll Centre Road, Suite 100
San Diego, California 92126
Attention: President and Chief Executive Officer
Fax: (619) 684-3292
Phone: (619) 578-3000
with a copy (which shall not constitute notice) to:
Brobeck, Phleger & Harrison LLP
550 South Hope Street
Los Angeles, CA 90071-2604
Attention: Richard S. Chernicoff
Fax: (213) 745-3345
Phone: (213) 489-4060
If to Merger Sub:
CoStar Group, Inc.
7475 Wisconsin Avenue, Suite 600
Bethesda, MD 20814
Attention: President
Fax: (301) 718-2444
Phone: (301) 215-8300
with a copy (which shall not constitute notice) to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037-1420
Attention: Michael R. Klein, Esq.
Fax: (202) 663-6363
Phone: (202) 663-6000
and
Shea & Gardner
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Attention: Michael K. Isenman, Esq.
Fax: (202) 828-2195
Phone: (202) 828-2000
If to Principal:
Christopher A. Crane
c/o COMPS.COM, Inc.
9888 Carroll Centre Road, Suite 100
San Diego, California 92126
Fax: (619) 684-3292
Phone: (619) 578-3000
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<PAGE> 189
2. Governing law. This Agreement shall be deemed to made in and in all
respects shall be interpreted, construed, and governed by and in accordance with
the laws of the State of Delaware without regard to the conflicts of law
principles thereof.
3. Arbitration. Any and all disputes hereunder not resolved amicably shall
be resolved by binding arbitration before a single neutral arbitrator in
Washington, D.C. The arbitrator shall be selected from the American Arbitration
Association through its procedures. All rules governing the arbitration shall be
the rules as set forth by the American Arbitration Association. The arbitrator
is bound to rule only on whether or not there has been a violation of the terms
of this Agreement and to render an award, if any, that is consistent with the
terms of this Agreement. No party to this Agreement is entitled to any legal
recourse or rights or remedies other than those provided within this Agreement.
The arbitrator may apportion the costs of the arbitration, including
arbitrator's fees, among the parties, but shall have no power to award
attorneys' fees. Each party shall be responsible for its own attorneys' fees.
4. Amendments. This Agreement may be amended, supplemented, or modified
only in writing, duly executed by all of the parties hereto.
5. Non-waiver. A delay or failure by any 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.
6. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
7. Entire Agreement. This Agreement (including any exhibits hereto)
constitutes the entire agreement, and supersedes all other prior agreements,
understandings, representations, and warranties both written and oral, among the
parties, with respect to the subject matter hereof. Each party to this Agreement
acknowledges that no representations, inducements, promises or agreements,
orally or otherwise, have been made by any party or anyone acting on behalf of
any party which are not embodied herein.
8. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (i) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision; and (ii) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
9. Binding effect. Principal may not assign any of his rights or delegate
any of his duties or obligations under this Agreement. The rights and
obligations of Merger Sub and Company under this Agreement shall be binding upon
and inure to the benefit of their successors and assigns.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
each of the parties hereto as of the date first written above.
COMPS.COM, INC.
By:
--------------------------------------
Name:
Title:
ACQ SUB, INC.
By:
--------------------------------------
Name:
Title:
--------------------------------------
Christopher A. Crane
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<PAGE> 191
EXHIBIT F
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
This AGREEMENT dated this 3rd day of November, 1999 (the "Agreement"), is
made and entered into by and between Christopher A. Crane ("Principal"), CoStar
Group, Inc., a Delaware corporation ("Parent"), and its wholly-owned subsidiary
Acq Sub, Inc., a Delaware corporation ("Merger Sub").
WHEREAS, Parent, Merger Sub, and COMPS.COM, Inc., a Delaware corporation
("Company"), have entered into an Agreement and Plan of Merger, dated November
3, 1999 (the "Merger Agreement") pursuant to which Company shall merge with and
into Merger Sub and the separate corporate existence of Company shall cease;
WHEREAS, Principal and Company have entered into an "Executive Employment
Agreement," dated October 14, 1994, pursuant to which Principal is employed as
President and Chief Executive Officer of Company;
WHEREAS, it is mutually agreed between Principal, Company, and Merger Sub
that Principal shall resign his employment as President and Chief Executive
Officer of Company, said resignation to take effect as of the date that the
Merger between Company and Merger Sub becomes effective (the "Merger Effective
Date");
WHEREAS, it is also mutually agreed between Principal, Company, and Merger
Sub that Principal shall be employed as an employee of Merger Sub for a period
of one hundred eighty (180) calendar days following the Merger Effective Date,
and Principal, Company, and Merger Sub have accordingly entered into a
"Separation and Employment Agreement" dated November 3, 1999;
WHEREAS, Principal has beneficial ownership of over twenty (20) percent of
the common stock of Company, and will receive considerable financial benefit
when the Merger becomes effective;
WHEREAS, the Merger Agreement requires that Principal, Parent, and Merger
Sub enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing, and of the respective
representations, warranties, covenants and agreements contained herein, the
parties agree as follows (unless otherwise defined herein, capitalized terms
used herein shall have the meanings given such terms in the Merger Agreement):
1. Effective Date. This Agreement shall take effect on the Merger
Effective Date.
2. Non-Competition. In order to induce Parent and Merger Sub to enter
into the Merger Agreement and to pay the valuable consideration required
thereunder, to create a valuable independent asset of Merger Sub, to
preserve and protect the goodwill thereof, and to enhance the going concern
value and earnings of Merger Sub in future years, Principal undertakes and
agrees as follows:
(a) Commencing on the Merger Effective Date and for a period of
twenty-four (24) months after the Merger Effective Date (the "Term"),
Principal shall not, within the parts of the United States where Company
conducted business (the "Territory"), create, seek or accept employment
or compensation of any kind or character from any enterprise, or person
associated with such an enterprise, engaged or planning to engage,
directly or indirectly, in any activity that is the same or similar to,
or competitive with, any activity engaged in or proposed to be engaged
in by Company on the Merger Effective Date; provided, however, that
Principal may seek or accept such employment or compensation with the
prior consent of Merger Sub, which consent may be conditioned or
withheld by Merger Sub in its sole and absolute discretion.
(b) During the Term, neither Principal nor any entity in which
Principal may be not immaterially interested (as a principal, owner,
partner, joint venturer, trustee, director, officer,
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<PAGE> 192
employee, consultant, agent, shareholder, option holder, security
holder, lender, creditor, guarantor, independent contractor, advisor,
member, sales representative, or in any other capacity) shall, within
the Territory, engage, directly or indirectly, in any activity that,
directly or indirectly, is the same or similar to, or competitive with,
any activity engaged in or proposed to be engaged in by Company on the
Merger Effective Date; provided, however, that the foregoing shall not
be deemed to prevent Principal from investing in securities if such
class of securities in which the investment so made is listed on a
national securities exchange or is issued by a company registered under
Section 12(g) of the Securities Exchange Act of 1934, so long as such
investment holdings do not, in the aggregate, constitute more than five
percent (5%) of the voting power of any company's securities.
(c) During the Term, Principal shall not, either in his individual
capacity or as an agent for another: (i) hire or offer to hire any of
Company's, Parent's or Merger Sub's officers, employees, or agents; (ii)
entice away or in any other manner persuade or attempt to persuade any
of Company's, Parent's or Merger Sub's officers, employees, or agents to
discontinue their relationship with Company, Parent or Merger Sub; (iii)
contract, solicit, divert, or attempt to divert from Parent or Merger
Sub any business whatsoever by influencing or attempting to influence
any customer of Company, Parent or Merger Sub with whom Company, Parent
or Merger Sub has engaged in sales discussions prior to the termination
of this Agreement; or (iv) call upon any person or entity as a
prospective acquisition candidate for an entity other than Merger Sub or
Parent who or that, during Principal's employment by Company or
Principal's consulting relationship with Merger Sub was, to Principal's
knowledge, either called upon by Company, Merger Sub or Parent as a
prospective acquisition candidate or was the subject of an acquisition
analysis conducted by Company, Merger Sub or Parent. Principal, 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 Company, Merger Sub or Parent had called upon
such candidate or made an acquisition analysis thereof.
(d) The covenants set forth in this Section 2 shall be construed as
a series of separate covenants covering their subject matter in each of
the separate states where Company conducted business and, except for
geographic coverage, each such separate covenant shall be deemed
identical in terms to the covenant set forth above in this Section 2. To
the extent that any such covenant shall be judicially unenforceable in
any one or more of such states, such covenant shall not be affected with
respect to each of the other states in the Territory. Each covenant with
respect to each such state in the Territory shall be construed as
severable and independent.
(e) Parent, Merger Sub, and Principal acknowledge and recognize
that these covenants not to compete are integral to the Merger
Agreement, that without the protection of such covenants, Parent and
Merger Sub would not have entered into the Merger Agreement, that the
consideration paid by Parent and Merger Sub under the Merger Agreement
bears no relationship to the damages Parent and Merger Sub may suffer in
the event of any breach of the covenants, and that such covenants
contain reasonable limitations as to time, geographical area and scope
of activity to be restrained necessary to protect Parent's and Merger
Sub's business interests. If this Section 2 shall for any reason be held
excessively broad as to time, duration, geographical scope, activity or
subject, it shall be enforceable to the extent compatible with
then-applicable laws.
(f) Principal agrees that all references to Parent in Sections 2
and 3 shall be deemed to refer to Parent, its subsidiaries and
affiliates and that all references to Company in Sections 2 and 3 shall
be deemed to refer to Company, its subsidiaries and affiliates.
3. Confidential Information.
(a) The parties acknowledge and agree that:
(i) The Company assets being merged into Merger Sub pursuant to
the Merger Agreement include confidential and proprietary information
of Company and, in the course
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<PAGE> 193
of his employment for Merger Sub, Principal may develop and obtain
access to confidential and proprietary information of Parent and
Merger Sub (collectively, the "Confidential Information"), which
Confidential Information shall include, without limitation, all of
the following materials and information of Company, Parent, or Merger
Sub (whether or not reduced to writing and whether or not patentable
or protected by copyright): trade secrets, product specifications,
proprietary software systems, sources of data, databases, know-how,
formulae, inventions and ideas, designs, sketches, photographs,
graphs, drawings, samples, selling and pricing information and
procedures, research methodologies, customer lists, business and
marketing plans, current and anticipated customer requirements,
market studies, and internal financial statements. The parties hereto
agree that the failure of any Confidential Information to be marked
or otherwise labeled as confidential or proprietary information shall
not affect its status as Confidential Information.
(ii) The Confidential Information is confidential and
proprietary, and the development and protection of the Confidential
Information represents a substantial investment having a great
economic and commercial value to Parent and Merger Sub.
(iii) Parent and Merger Sub would be irreparably damaged if any
of the Confidential Information was disclosed to, or used or
exploited on behalf of, any person other than Parent or Merger Sub.
(b) Principal covenants and agrees that he shall not, at any time,
directly or indirectly, use, exploit, or disclose to any person or
entity, without the prior written consent of Parent or Merger Sub, any
Confidential Information, except as expressly authorized by Parent or
Merger Sub during the performance of Principal's duties for and with
Merger Sub. Principal agrees that, given the nature of Merger Sub's and
Parent's business and business plans there will never come a time when
disclosure of the Confidential Information would not be seriously
injurious to Merger Sub and Parent.
(c) Notwithstanding the foregoing, Principal may use, exploit, or
disclose Confidential Information, but only to the extent that such
Confidential Information
(i) is or becomes publicly known through no wrongful act of
Principal; or
(ii) is disclosed pursuant to the requirement of a governmental
agency or a court of law or otherwise required by operation of law,
provided that Principal gives Merger Sub and Parent prompt written
notice of such requirement prior to disclosure.
4. Reasonableness of Restrictions. PRINCIPAL HAS CAREFULLY READ AND
CONSIDERED THE PROVISIONS OF SECTIONS 2 AND 3 HEREOF AND, HAVING DONE SO,
HEREBY AGREES THAT THE RESTRICTIONS SET FORTH IN SUCH SECTIONS ARE FAIR AND
REASONABLE AND ARE REASONABLY REQUIRED FOR THE PROTECTION OF THE INTERESTS
OF PARENT AND MERGER SUB.
5. Injunctive Relief.
(a) Principal acknowledges and agrees that Parent and Merger Sub
will suffer irreparable harm in the event that Principal breaches any of
its obligations under this Agreement, and that monetary damages shall be
inadequate to compensate Parent and Merger Sub for any such breach.
Principal agrees that in the event of any breach or threatened breach by
Principal of the provisions of this Agreement, Parent and Merger Sub, or
either of them, shall be entitled to a temporary restraining order,
preliminary injunction, and permanent injunction in order to prevent or
restrain any such breach or threatened breach by Principal, or by any or
all of Principal's agents, representatives or other persons directly or
indirectly acting for, on behalf of, or with Principal.
(b) Notwithstanding the provisions set forth in Section 5(a) above,
or any other provision contained in this Agreement, the parties hereby
agree that no remedy conferred by any of the specific provisions of this
Agreement, including without limitation, this Section 5, is intended to
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<PAGE> 194
be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
6. Miscellaneous.
(a) 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 such other
addresses as any party may designate in writing to the other parties:
If to Parent or Merger Sub:
CoStar Group, Inc.
7475 Wisconsin Avenue, Suite 600
Bethesda, MD 20814
Attention: President
Fax: (301) 718-2444
Phone: (301) 215-8300
with a copy (which shall not constitute notice) to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037-1420
Attention: Michael R. Klein, Esq.
Fax: (202) 663-6363
Phone: (202) 663-6000
and
Shea & Gardner
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Attention: Michael K. Isenman, Esq.
Fax: (202) 828-2195
Phone: (202) 828-2000
If to Principal:
Christopher A. Crane
c/o COMPS.COM, Inc.
9888 Carroll Centre Road, Suite 100
San Diego, California 92126
Fax: (619) 684-3292
Phone: (619) 578-3000
(b) Governing Law and Venue. This Agreement shall be deemed to
made in and in all respects shall be interpreted, construed, and
governed by and in accordance with the laws of the State of Delaware
without regard to the conflicts of law principles thereof. The parties
hereby irrevocably submit to the jurisdiction of the courts of the State
of Delaware and the Federal courts of the United States of America
located in the State of Delaware solely in respect of the interpretation
and enforcement of the provisions of this Agreement, and hereby waive,
and agree not to assert, as a defense in any action, suit, or proceeding
for the interpretation or enforcement hereof that it is not subject
thereto or that such action, suit, or proceeding may not be brought or
is not maintainable in said courts or that the venue may not be
appropriate or that this Agreement may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in
such a court of the State of Delaware or Federal court. The parties
hereby consent to and grant any
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such court jurisdiction over the person of such parties and over the
subject matter of such dispute and agree that the mailing of process or
other papers in connection with any such action or proceeding in the
manner provided in Section 6(a) or in such other manner as may be
permitted by law shall be valid and sufficient service thereof.
(c) Amendments. This Agreement may be amended, supplemented, or
modified only in writing, duly executed by all of the parties hereto.
(d) Non-waiver. A delay or failure by any 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.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
(f) Entire Agreement. This Agreement constitutes the entire
agreement, and supersedes all other prior agreements, understandings,
representations, and warranties both written and oral, among the
parties, with respect to the subject matter hereof. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, orally or otherwise, have been made by any party or anyone
acting on behalf of any party which are not embodied herein.
(g) Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions
hereof. If any provision of this Agreement, or the application thereof
to any person or any circumstance, is invalid or unenforceable, (i) a
suitable and equitable provision shall be substituted therefor in order
to carry out, so far as may be valid and enforceable, the intent and
purpose of such invalid or unenforceable provision; and (ii) the
remainder of this Agreement and the application of such provision to
other persons or circumstances shall not be affected by such invalidity
or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
(h) Binding effect. Principal may not assign any of his rights or
delegate any of his duties or obligations under this Agreement. The
rights and obligations of Merger Sub and Company under this Agreement
shall be binding upon and inure to the benefit of their respective
successors and assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
each of the parties hereto as of the date first written above.
COSTAR GROUP, INC.
By:
--------------------------------------
Name:
Title:
ACQ SUB, INC.
By:
--------------------------------------
Name:
Title:
--------------------------------------
Christopher A. Crane
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ANNEX B
VOLPE BROWN WHELAN & COMPANY, LLC
INVESTMENT BANKERS
One Maritime Plaza, San Francisco, CA 94111
(415) 274-4400 FAX (415) 274-4468
PRIVATE AND CONFIDENTIAL
November 3, 1999
The Board of Directors
COMPS.COM, Inc.
9888 Carroll Centre Road
San Diego, CA 92126
Members the Board of Directors:
You have requested our opinion (the "Opinion") as to the fairness, from a
financial point of view, to the stockholders of COMPS.COM, Inc. ("Comps" or the
"Company"), of the consideration to be received by such stockholders pursuant to
the Agreement and Plan of Merger, dated as of November 3, 1999 (the "Merger
Agreement"), by and among Comps, CoStar Group Inc. ("CoStar"), and a wholly
owned subsidiary of CoStar established for purposes of the transaction ("Merger
Sub").
Under the terms of the Merger Agreement, Comps will be merged with and into
Merger Sub (the "Merger") and, in general, each outstanding share of Comps
Common Stock, par value $0.01 per share ("Comps Common Stock") will be
converted, at the option of the holder, into the right to receive either $7.50
in cash or 0.31496 shares of CoStar Common Stock, par value $0.01 per share
("CoStar Common Stock"); provided, however, that the maximum number of shares of
Comps Common Stock that may be converted into the right to receive cash may not
exceed 49.9% of the outstanding shares. If the holders of more than 49.9% of the
outstanding shares elect to receive cash, then a portion of the merger
consideration payable to them will be paid in shares, rather than cash,
determined on a pro rata basis.
For the purposes of formulating the Opinion, we have, among other things:
(i) reviewed the Merger Agreement;
(ii) interviewed management of Comps and CoStar concerning their
respective business prospects, financial outlook and operating plans as
standalone concerns and as a combined enterprise;
(iii) reviewed certain Comps and CoStar financial statements and other
relevant financial and operating data of Comps and CoStar prepared by Comps
and CoStar management teams respectively;
(iv) reviewed the historical stock trading patterns of both CoStar and
Comps and analyzed implied historical exchange ratios;
(v) reviewed the valuation of selected publicly traded companies we
deemed comparable and relevant to Comps and CoStar;
(vi) reviewed, to the extent publicly available, the financial terms
of selected merger and acquisition transactions that we deemed comparable
and relevant to the Merger;
(vii) performed an analysis of Comps' relative contribution, adjusted
to reflect the difference in capital structures of the two companies, to
CoStar in terms of revenue, and gross profit;
(viii) performed a discounted cash flow analysis of Comps as a
standalone entity based upon the preliminary financial information
regarding business prospects provided by Comps management through December
2004;
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(ix) performed a pro forma financial impact analysis of the combined
entity, based upon financial projections provided by the management teams;
and
(x) performed such other studies, analyses and inquiries and
considered such other information as we deemed relevant.
VBW&Co. relied without independent verification upon the accuracy and
completeness of all of the financial, accounting, legal, tax, operating and
other information provided to VBW&Co. by Comps and by CoStar and relied upon the
assurances of Comps and CoStar that all such information provided by them is
complete and accurate in all material respects and that there is no additional
material information known to them that would make any of the information made
available to VBW&Co. either incomplete or misleading. Comps has also retained
outside legal, accounting and tax advisors to advise on matters relating to the
Merger. Accordingly, VBW&Co. has relied on their advice and expresses no opinion
on such matters.
We were not requested to consider, and we are expressing no opinion as to,
the relative merits of the Merger as compared to any alternative business
strategies that might exist for Comps or the effect of any other transaction in
which Comps might engage.
With respect to the projected financial data of Comps, all of which has
been provided by or reviewed and approved by the management of Comps, VBW&Co.
has relied upon assurances of Comps that such data has been prepared in good
faith on a reasonable basis reflecting the best currently available estimates
and judgments of management as to the future financial performance of Comps
separately and as combined with CoStar. With respect to the projected financial
data of CoStar, all of which has been provided by the management of CoStar, as
well as CoStar's combined business plan (including projected synergies), VBW&Co.
has similarly assumed that all such data provided by management has been
prepared in good faith on a reasonable basis and reflects the best currently
available estimates and judgments of management as to the future financial
performance of CoStar. The Opinion is based, in large part, on these projected
financial data and estimates.
VBW&Co. is relying upon the information provided to it by Comps and CoStar
for the purposes of rendering the Opinion. VBW&Co. expresses no opinion and has
made no investigation with respect to the validity, accuracy or completeness of
the information provided to it and does not warrant any projections included in
such information. Actual results that Comps or CoStar might achieve in the
future as stand-alone entities or as a combined company may vary materially from
those used in VBW&Co.'s analysis.
VBW&Co. has assumed that the Merger will be consummated in accordance with
the terms of the Merger Agreement without waiver of any of the conditions to the
parties' obligations thereunder.
VBW&Co. has not made any independent appraisals or valuations of any assets
of Comps or CoStar, nor has VBW&Co. been furnished with any such appraisals or
valuations. VBW&Co. has performed no investigations relating to the
representations and warranties made by Comps or CoStar, including
representations made with respect to intellectual property or the status of any
litigation pending or threatened against either company. While VBW&Co. believes
that its review, as described herein, is an adequate basis for the Opinion it
has expressed, the Opinion is necessarily based upon historical and current
market, economic and other conditions that exist and can be evaluated as of the
date of the Opinion, and any change in such conditions would require a
re-evaluation of the Opinion.
The Opinion addresses only the financial fairness of the merger
consideration and does not address the relative merits of the Merger, any
alternatives to the Merger, the effect of the Merger, or any other aspect of the
Merger. No opinion is expressed herein as to the future trading price or range
of prices of any securities of CoStar issued prior to or in conjunction with the
Merger. Furthermore, the Opinion does not constitute a recommendation as to the
Board of Director's decision on whether to support the Merger and recommend it
to Comps stockholders and does not constitute a recommendation to stockholders
as to whether to vote in favor of the Merger. The Opinion and related materials
have been prepared for the use and benefit of the Board of Directors of Comps.
VBW&Co. assumes no obligation to update, revise or reaffirm the Opinion.
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The preparation of a fairness opinion involves various judgments as to
appropriate and relevant quantitative and qualitative methods of financial
analyses and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Accordingly, we believe our analyses and the factors utilized in
such analyses must be considered as a whole and that considering any portion of
such analyses or factors, without considering all analyses and factors could
create a misleading or incomplete view of the process underlying the Opinion. In
our analyses, we made numerous assumptions with respect to industry performance,
general business and other conditions and matters, many of which are beyond
Comps' or CoStar's control and are not susceptible to accurate prediction.
As a customary part of its investment banking business, VBW&Co. engages in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of its business, VBW&Co. and its affiliates may actively trade
the equity securities of Comps or CoStar for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, VBW&Co. currently holds approximately
250,000 shares of Comps Common Stock in a long-term investment account of the
Firm. Such shares were purchased by VBW&Co. in the open market in May 1999 at an
average price of $10.00 per share.
VBW&Co. will receive a fee of $400,000 for rendering its Opinion, no
portion of which is conditioned upon the Opinion being favorable. VBW&Co. has
received fees for other services provided to the Company, including fees for
services as an underwriter in connection with Comps initial public offering, and
will receive an additional fee contingent upon the closing of the Merger.
Based upon and subject to the foregoing limitations and restrictions and
after considering such other matters as we deem relevant, it is our opinion
that, as of the date hereof, the consideration to be received by the
stockholders of Comps pursuant to the Merger Agreement is fair, from a financial
point of view, to the stockholders of Comps.
Very truly yours,
VOLPE BROWN WHELAN & COMPANY, LLC
By: /s/ JAMES M.P. FEUILLE
----------------------------------
Date: November 3, 1999
----------------------------------------------
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ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SEC. 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated
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therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
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submitted such stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
for, among other things:
a. permissive indemnification for expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by designated
persons, including directors and officers of a corporation, in the event
such persons are parties to litigation other than stockholder derivative
actions if certain conditions are met;
b. permissive indemnification for expenses actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are parties to stockholder
derivative actions if certain conditions are met;
c. mandatory indemnification for expenses actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are successful on the merits or
otherwise in litigation covered by a. and b. above; and
d. that the indemnification provided for by Section 145 shall not be
deemed exclusive of any other rights which may be provided under any bylaw,
agreement, stockholder or disinterested director vote, or otherwise.
CoStar's restated certificate of incorporation provides that a director
shall not be personally liable to CoStar or its stockholders for monetary
damages for breach of fiduciary duty as a director except for liability (i) for
any breach of the director's duty of loyalty to CoStar or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) for paying a dividend or approving a stock
repurchase or redemption in violation of Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit. The
certificate of incorporation also provides that CoStar shall indemnify each
director and officer to the fullest extent permitted by law for all expenses,
liabilities and other matters referenced in Section 145 of the DGCL. Such
indemnification is exclusive of any other rights under any bylaw, agreement,
vote of stockholders, vote of disinterested directors or otherwise. CoStar may
also purchase and maintain insurance on behalf of any director or officer to the
extent permitted by Section 145 of the DGCL.
CoStar's restated bylaws provide that each person who was or is made a
party to, or is involved in, any action, suit or proceeding by reason of the
fact that he or she is or was a director or officer of CoStar (or was serving at
the request of CoStar as a director, officer, employee or agent for another
entity) shall be, and employees and agents may be, indemnified by CoStar, to the
fullest extent authorized by the DGCL, against all expense, liability or loss
reasonably incurred by the person in connection therewith, if the person acted
in good faith and in a manner he or she reasonably believed to be not opposed to
the best interests of CoStar and, in criminal matters, if the person had no
reasonable cause to believe his or her conduct was unlawful. When the action,
suit or proceeding is brought in favor of CoStar, such indemnification rights
extend only to expenses, and no indemnification rights apply to any adjudged
liability of the person to the CoStar unless the applicable court determines
that the person is fairly and reasonably entitled to indemnification for
expenses. The restated bylaws further provide that such indemnification rights
are contract rights, and indemnified directors and officers shall have the right
to be paid by CoStar for the expenses incurred in defending the proceedings
specified above, in advance of their final disposition, upon receipt from the
indemnified person of an undertaking to repay all amounts so advanced if it
shall ultimately be determined that the person is not entitled to be
indemnified. Such expenses, including attorneys' fees, may be paid with respect
to indemnified employees and agents, as the board of directors deems
appropriate. The restated bylaws provide that the right to indemnification and
to the advance payment of expenses shall not be exclusive of any other right
which any person may have or acquire under any agreement, statute, provision of
CoStar's restated bylaws, certificate of incorporation, or otherwise.
II-1
<PAGE> 204
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are to be filed as exhibits to this
registration statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of November 3, 1999,
among COMPS.COM, Inc., CoStar Group, Inc., and Acq Sub, Inc.
3.1 Restated Certificate of Incorporation
3.2 Amended and Restated By-Laws
3.3 Certificate of Amendment of Restated Certificate of
Incorporation
4.1 Form of Common Stock Certificate
5.1 Opinion of Fried, Frank, Harris, Shriver and Jacobson
regarding legality
8.1 Opinion of Fried, Frank, Harris, Shriver and Jacobson
regarding tax matters
9.1 Voting Agreements
10.1 CoStar Group, Inc. 1998 Stock Incentive Plan, as Amended
10.2 Employment Agreement for Andrew C. Florance
10.3 Employment Agreement for Frank A. Carchedi
10.4 Employment Agreement for David M. Schaffel
10.5 Employment Agreement for Curtis M. Ricketts
10.6 Employment Agreement for Fred A. Heitzmann, III
10.7 Registration Rights Agreement
10.8 Acquisition and Reorganization Agreement by and among Realty
Information Group, Inc., LeaseTrend, Inc. and the
Shareholders of LeaseTrend, Inc. dated January 8, 1999
10.9 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
10.10 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
10.11 Office Lease dated August 12, 1999 between CoStar Realty
Information, Inc. and Newlands Building Venture, LLC
21.1 Subsidiaries of CoStar Group, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Ernst & Young LLP, Independent Auditors
23.4 Consent of Ernst & Young LLP, Independent Auditors
23.5 Consent of Volpe Brown Whelan & Company LLC
24.1 Powers of Attorney
27.1 CoStar Financial Data Schedule
99.1 Form of Proxy
99.2 Letter of Transmittal/Form of Election
</TABLE>
(b) The following is a financial statement schedule.
Schedule II -- COMPS.COM Valuation and Qualifying Accounts
II-2
<PAGE> 205
COMPS.COM, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO BALANCE AT
ALLOWANCE FOR BAD DEBTS BEGINNING OF COSTS AND END OF
AND CANCELLATIONS YEAR EXPENSES OTHER(1) DEDUCTIONS YEAR
----------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowances deducted from accounts
receivable:
Allowance for bad debts............... $ 98,374 $566,242 $ -- $566,877 $ 97,739
Allowance for cancellations........... 264,539 -- 644,322 436,474 472,387
YEAR ENDED DECEMBER 31, 1997
Allowances deducted from accounts
receivable:
Allowance for bad debts............... 97,739 456,921 -- 364,660 190,000
Allowance for cancellations........... 472,387 -- 1,238,593 516,738 1,194,242
YEAR ENDED DECEMBER 31, 1998
Allowances deducted from accounts
receivable:
Allowance for bad debts............... 190,000 261,843 -- 231,843 220,000
Allowance for cancellations........... 1,194,242 -- 260,627 209,947 1,244,922
</TABLE>
- ---------------
(1) Transfer from deferred subscription revenue.
All other supporting schedules have been omitted because they are not
required or the information required to be set forth therein is included in the
consolidated financial statements or in the notes thereto.
II-3
<PAGE> 206
ITEM 22. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) under the Securities
Act, if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
registration statement or any material change to such
information in this Registration Statement;
provided, however, that the undertakings set forth in paragraphs
(1)(i) and (ii) above do not apply if the information required to
be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") that are incorporated by reference in
this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(B) The undersigned Registrant hereby undertakes, that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act)
that is incorporated by reference in the Registration Statement 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.
(C) The undersigned Registrant hereby undertakes:
(1) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items of
the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in
II-4
<PAGE> 207
connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment 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.
(D) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the 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.
(E) The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, 13 of
this Form S-4, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the
request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-5
<PAGE> 208
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Bethesda, State of Maryland, on
January 4, 2000.
COSTAR GROUP, INC.
By: /s/ ANDREW C. FLORANCE
------------------------------------
Andrew C. Florance
President and Chief Executive
Officer
II-6
<PAGE> 209
Pursuant to the requirements of the Securities Act of 1933 this amendment
to the registration statement has been signed by the following persons in the
capacities listed below on January 4, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ ANDREW C. FLORANCE President and Chief Executive Officer
- -------------------------------------------- (principal executive officer) and Director
Andrew C. Florance
* Chief Financial Officer (principal financial
- -------------------------------------------- officer and principal accounting officer)
Frank A. Carchedi
* Chairman of the Board of Directors
- --------------------------------------------
Michael R. Klein
* Director
- --------------------------------------------
David Bonderman
* Director
- --------------------------------------------
Warren H. Haber
* Director
- --------------------------------------------
Josiah O. Low III
* Director
- --------------------------------------------
John Simon
*By: /s/ ANDREW C. FLORANCE President and Chief Executive Officer
- -------------------------------------------- (principal executive officer) and Director
Andrew C. Florance
Attorney-in-fact
</TABLE>
II-7
<PAGE> 210
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of Incorporated by reference from Exhibit
November 3, 1999, among COMPS.COM, Inc., 2.1 to the Current Report on Form 8-K
CoStar Group, Inc. and Acq Sub, Inc. filed with the Commission on November 17,
1999, located under Securities and
Exchange Commission File No. 000-24531
3.1 Restated Certificate of Incorporation Incorporated by reference from Exhibit
3.1 to Amendment No. 4 to the
Registration Statement on Form S-1,
located under Securities and Exchange
Commission File 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 from Exhibit
3.2 to the 1998 Form S-1
3.3 Certificate of Amendment of Restated Incorporated by reference from Exhibit
Certificate of Incorporation 3.1 to the Quarterly Report for the
Period Ended June 30, 1999 on Form 10-Q,
filed with the Commission on August 11,
1999, located under Securities and
Exchange Commission Files No. 0-24531
4.1 Form of Common Stock Certificate Incorporated by reference from Exhibit
4.1 to the 1998 S-1
5.1 Opinion of Fried, Frank, Harris, and Filed herewith
Jacobson regarding legality
8.1 Opinion of Fried, Frank, Harris, and Filed herewith
Jacobson regarding tax matters
9.1 Voting Agreements Incorporated by reference from Exhibits
C-1 through C-5 to Exhibit 2.1 to the
Current Report on Form 8-K filed with the
Commission on November 17, 1999, located
under Securities and Exchange Commission
File No. 000-24531
10.1 CoStar Group, Inc. 1998 Stock Incentive Incorporated by reference from Exhibit
Plan, as Amended 10.1 to the Quarterly Report for the
Period Ended September 30, 1999 on Form
10-Q, filed with the Commission on
November 15, 1999, located under
Securities and Exchange Commission File
No. 000-24531
10.2 Employment Agreement for Andrew C. Incorporated by reference from Exhibit
Florance 10.2 to the 1998 Form S-1
10.3 Employment Agreement for Frank A. Incorporated by reference from Exhibit
Carchedi 10.3 to the 1998 Form S-1
10.4 Employment Agreement for David M. Incorporated by reference from Exhibit
Schaffel 10.4 to the 1998 Form S-1
10.5 Employment Agreement for Curtis M. Incorporated by reference from Exhibit
Ricketts 10.5 to the 1998 Form S-1
</TABLE>
<PAGE> 211
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
<C> <S> <C>
10.6 Employment Agreement for Fred A. Heitzman Incorporated by reference from Exhibit
III 10.6 to Amendment No. 1 to the
Registration Statement on Form S-1,
located under Securities and Exchange
Commission File No. 333-74953, filed with
the Commission on April 30, 1999
10.7 Registration Rights Agreement Incorporated by reference from Exhibit
10.7 to the 1998 Form S-1
10.8 Acquisition and Reorganization Agreement Incorporated by reference from Exhibit
by and among Realty Information Group, 2.1 to the Current Report on Form 8-K
Inc., LeaseTrend, Inc. and the filed with the Commission on January 22,
Shareholders of LeaseTrend, Inc. dated 1999, located under Securities and
January 8, 1999 Exchange Commission File No. 000-24531
10.9 Agreement and Plan of Merger by and among Incorporated by reference from Exhibit
Realty Information Group, Inc., Jamison 2.3 to the Current Report on Form 8-K
Research, Inc., Henry D. Jamison IV and filed with the Commission on February 2,
Leslie Lees Jamison dated January 6, 1999 1999, located under Securities and
Exchange Commission File No. 000-24531
10.10 Amendment to Agreement and Plan of Merger Incorporated by reference from Exhibit
by and among Realty Information Group, 2.4 to the Current Report on Form 8-K
Inc., Jamison Research, Inc., Jamison filed with the Commission on February 2,
Acquisition Corp., Henry D. Jamison IV 1999, located under Securities and
and Leslie Lees Jamison dated January 14, Exchange Commission File No. 000-24531
1999
10.11 Office Lease dated August 12, 1999 Incorporated by reference from Exhibit
between CoStar Realty Information, Inc. 10.2 to the Quarterly Report for the
and Newlands Building Venture, LLC Period Ending September 30, 1999 on Form
10-Q, filed with the Commission on
November 15, 1999, located under
Securities and Exchange Commission Files
No. 000-24531
21.1 Subsidiaries of CoStar Group, Inc. Filed herewith
23.1 Consent of Ernst & Young LLP, Independent Filed herewith
Auditors
23.2 Consent of Ernst & Young LLP, Independent Filed herewith
Auditors
23.3 Consent of Ernst & Young LLP, Independent Filed herewith
Auditors
23.4 Consent of Ernst & Young LLP, Independent Filed herewith
Auditors
23.5 Consent of Volpe Brown Whelan & Company Previously filed
LLC
24.1 Powers of Attorney Previously filed
27.1 CoStar Financial Data Schedule Previously filed
99.1 Form of Proxy Filed herewith
99.2 Letter of Transmittal/Form of Election Filed herewith
</TABLE>
<PAGE> 1
[FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LETTERHEAD]
EXHIBIT 5.1
January 4, 2000
Board of Directors
CoStar Group, Inc.
7475 Wisconsin Avenue
Bethesda, Maryland 20814
Ladies and Gentlemen:
We have acted as special counsel for CoStar Group, Inc., a Delaware
corporation (the "Company") and its wholly owned subsidiary, Acq Sub, Inc., a
Delaware corporation ("Merger Sub"), in connection with the merger into Merger
Sub of Comps.com pursuant to the Agreement and Plan of Merger, dated as of
November 3, 1999 (the "Merger Agreement"), by and among the Parent, Merger Sub
and the Comps.com. Under the terms of the Merger Agreement, the Company expects
to issue up to 2,242,000 shares of its common stock (the "Merger Shares") to
holders of common stock of Comps.com.
With your permission, all assumptions and statements of reliance herein
have been made without any independent investigation or verification on our part
except to the extent otherwise expressly stated, and we express no opinion with
respect to the subject matter or accuracy of such assumptions or items relied
upon.
In connection with this opinion, we have (i) investigated such questions
of law, (ii) examined originals or certified, conformed or reproduction copies
of such agreements, instruments, documents and records of the Company, such
certificates of public officials and such other documents, and (iii) received
such information from officers and representatives of the Company as we have
deemed necessary or appropriate for the purposes of this opinion. In all
examinations, we have assumed the legal capacity of all natural persons
executing documents, the genuineness of all signatures, the authenticity of
original and certified documents and the conformity to original or certified
copies of all copies submitted to us as conformed or reproduction copies. As to
various questions of fact relevant to the opinions expressed herein, we have
relied upon, and assume the accuracy of, representations and warranties
contained in the documents and certificates and oral or written statements and
other information of or from representatives of the Company and others and
assume compliance on the part of all parties to the documents with their
covenants and agreements contained therein.
Based upon the foregoing and subject to the limitations, qualifications
and assumptions set forth herein, we are of the opinion that the Merger Shares
registered under the Registration Statement, when issued, delivered, and paid
for in accordance with
<PAGE> 2
the terms of the Merger Agreement, will be duly authorized, legally issued,
fully paid and non-assessable.
The opinion expressed herein is limited to the General Corporation Law of
the State of Delaware, the Delaware Constitution and reported judicial decisions
interpreting those laws, each as currently in effect.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming part of the Registration Statement. In
giving such consent, we do not hereby admit that we are in the category of such
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/
----------------------------------------------
Stephen I. Glover
<PAGE> 1
EXHIBIT 8.1
[FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LETTERHEAD]
January 4, 2000
CoStar Group, Inc.
7475 Wisconsin Avenue
Bethesda, Maryland 20814
Dear Ladies and Gentlemen:
We are acting as your counsel in connection with the proposed acquisition
by CoStar Group, Inc. ("CoStar") of COMPS.COM, Inc. ("Comps") pursuant to the
proposed merger (the "Merger") of Comps with and into Acq Sub, Inc. ("Sub"), a
wholly owned subsidiary of CoStar, whereupon Sub will be the surviving
corporation and the separate existence of Comps will cease. The Merger will be
consummated pursuant to the Agreement and Plan of Merger dated as of November 3,
1999 by and among CoStar, Sub, and Comps (the "Merger Agreement").
CoStar has filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act"), a registration statement on
Form S-4 (the "Registration Statement"), with respect to the shares of CoStar
common stock to be issued to holders of shares of Comps common stock in
connection with the Merger. In addition, CoStar has prepared, and we have
reviewed, a Joint Proxy Statement/Prospectus (the "Joint Proxy Statement") which
is contained in and made a part of the Registration Statement, and the
Appendices thereto, including the Merger Agreement. In rendering the opinion set
forth below, we have relied upon the facts and representations stated in the
Joint Proxy Statement and upon such other documents as we have deemed
appropriate, including the representations of CoStar and Comps referred to in
the Joint Proxy Statement and set forth in certain officer's certificates from
CoStar and Comps.
We have assumed that (i) all parties to the Merger Agreement, and to any
other documents reviewed by us, have acted, and will act, in accordance with the
terms of the Merger Agreement and such other documents, (ii) all facts,
information, statements and representations qualified by the knowledge, belief,
expectation and/or intention of CoStar,
<PAGE> 2
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
CoStar Group, Inc.
January 4, 2000
Page 2
Comps or Sub will be complete and accurate as of the effective time as though
not so qualified, (iii) the merger will be consummated at the effective time
pursuant to the terms and conditions set forth in the Merger Agreement without
the waiver or modification of any such terms and conditions, and (iv) the Merger
is authorized by and will be effected pursuant to applicable state law.
Based upon and subject to the foregoing, and to the qualifications,
limitations, representations and assumptions contained in the portion of the
Joint Proxy Statement captioned "Material Federal Income Tax Consequences," the
portion of the Joint Proxy Statement captioned "Material Federal Income Tax
Consequences" is accurate in all material respects. No opinion is expressed on
any matters other than those specifically referred to herein.
This opinion is furnished to you for your use in connection with the
Registration Statement and may not be used for any other purpose without our
prior express written consent. We hereby consent to the filing of this opinion
as an annex to the Registration Statement and to the references to us contained
in the Registration Statement. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the 1933 Act.
Yours very truly,
/s/
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
(a) CoStar Realty Information, Inc., a Delaware corporation
(b) ARES Development Group, Inc., a California corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-4 No. 333-92579) and
related prospectus of CoStar Group, Inc. for the registration of 2,242,000
shares of its common stock, and to the incorporation by reference therein of our
report dated February 12, 1999, with respect to the consolidated financial
statements of CoStar Group, Inc. included in its Annual Report (Form 10-K) for
the year ended December 31, 1998, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
McLean, Virginia
January 3, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-4 No. 333-92579) and
related prospectus of CoStar Group, Inc. for the registration of 2,242,000
shares of its common stock, and to the incorporation by reference therein of our
report dated February 5, 1999, with respect to the financial statements of
LeaseTrend, Inc. included in CoStar Group, Inc's Annual Report (Form 10-K) for
the year ended December 31, 1998, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
McLean, Virginia
January 3, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-4 No. 333-92579) and
related prospectus of CoStar Group, Inc. for the registration of 2,242,000
shares of its common stock, and to the incorporation by reference therein of our
report dated February 5, 1999, with respect to the financial statements of
Jamison Research, Inc. included in CoStar Group, Inc.'s Annual Report (Form
10-K) for the year ended December 31, 1998, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
McLean, Virginia
January 3, 2000
<PAGE> 1
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 5, 1999, except for Note 15, as to which
the date is November 8, 1999, with respect to the financial statements of
COMPS.COM, Inc. for the year ended December 31, 1998 in Amendment No. 1 to the
Registration Statement (Form S-4 No. 333-92579) and related Prospectus of CoStar
Group, Inc. for the registration of 2,242,000 shares of its common stock.
Our audits also included the financial statement schedule of COMPS.COM,
Inc. listed in Item 21(b). This schedule is the responsibility of COMPS.COM
Inc.'s management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
San Diego, California
January 3, 2000
<PAGE> 1
EXHIBIT 99.1
- --------------------------------------------------------------------------------
COMPS.COM, INC.
PROXY FOR A SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 10, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF COMPS.COM, INC.
IF NO VOTE IS INDICATED, THIS PROXY WILL BE VOTED FOR THE ADOPTION OF THE
AGREEMENT AND PLAN OF MERGER, DATED AS OF NOVEMBER 3, 1999, BY AND AMONG
COMPS.COM, INC., COSTAR GROUP, INC., AND ACQ SUB, INC.
The undersigned hereby constitutes and appoints Christopher A. Crane the
attorney and proxy of the undersigned with full power of substitution to appear
and to vote all of the shares of common stock of COMPS.COM, Inc. held of record
by the undersigned on December 30, 1999 at the Special Meeting of Stockholders
to be held on February 10, 2000, or any adjournment or postponement thereof, as
designated on the reverse side.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL SET FORTH ON THE REVERSE SIDE.
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENTS/ADDRESS BOX ON REVERSE SIDE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
<PAGE> 2
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN AND DATE YOUR PROXY CARD
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
COMPS.COM, INC.
FEBRUARY 10, 2000
\/ PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED \/
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
__
A [X] Please mark your | |
votes as in this |_____
example.
FOR AGAINST ABSTAIN
PROPOSAL: To adopt the Agreement and Plan of [ ] [ ] [ ]
Merger, dated as of November 3, 1999, by
and among COMPS.COM, Inc., CoStar Group,
Inc., and Acq Sub, Inc.
You are urged to date, sign and return promptly this proxy in the envelope
provided. It is important for you to be represented at the meeting. The
execution of your proxy will not affect your right to vote in person if
you are present at the meeting.
Please Check One: I plan to attend meeting. [ ]
I do not plan to attend meeting. [ ]
COMMENTS/ADDRESS CHANGE
Please mark this box if you have written
comments/address change on the reverse side. [ ]
Signature _______________________________________ Signature _____________________________________ DATED: __________________, 2000
IMPORTANT: Please sign exactly as your name or names appear on this proxy, and when signing as an attorney, executor, administrator,
trustee or guardian, give your full title, as such. If the signatory is a corporation, sign the full corporate name by
duly authorized officer, or if a partnership, sign in partnership name by authorized person.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 99.2
FORM OF ELECTION
AND
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK
OF
COMPS.COM, INC.
IN CONNECTION WITH THE ACQUISITION
BY COSTAR GROUP, INC. OF COMPS.COM, INC.
PLEASE CAREFULLY FOLLOW THE INSTRUCTIONS CONTAINED BELOW
------------------------
SUBJECT TO PRORATION, YOU MAY ELECT TO EXCHANGE
YOUR SHARES OF COMPS.COM COMMON STOCK FOR:
- -- $7.50 in cash
- -- 0.31496 shares of CoStar common stock
- -- A combination of cash and CoStar common
stock
------------------------
EXCHANGE AGENT:
AMERICAN STOCK TRANSFER & TRUST
40 WALL STREET, 46TH FLOOR
NEW YORK, NEW YORK 10005
If By Mail or Overnight Courier:
American Stock Transfer & Trust
6201 15th Ave.
Third Floor
Brooklyn, NY 11219
SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
This letter of transmittal, the COMPS.COM common stock certificates and any
other required documents (collectively, the "Exchange Materials") should be sent
by each holder of COMPS.COM common stock to the Exchange Agent so that the
Exchange Materials are received by the Exchange Agent at or prior to 5:00 p.m.
(Eastern Time) on February 4, 2000 (the "Delivery Deadline"). Delivery of the
Exchange Materials (or any part of them) to an address other than as set forth
above will not constitute valid delivery. Copies of the Merger Agreement, this
Letter of Transmittal and the Proxy Statement/Prospectus previously provided to
stockholders of COMPS.COM may be requested from the Exchange Agent at the
addresses shown above. If you have any questions regarding this Letter of
Transmittal, please call the customer service department of American Stock
Transfer & Trust at (800) 937-5449.
Ladies and Gentlemen:
The undersigned hereby transfers the COMPS.COM common stock certificates,
subject to completion of the merger, identified in Column 1 of Box A below, with
the request that:
- the number of shares of COMPS.COM common stock listed in Column 3 of Box
A be converted into shares of CoStar common stock at the exchange ratio
provided in the Merger Agreement, subject to proration, and
- the number of shares of COMPS.COM common stock listed in Column 4 of Box
A be converted into $7.50 cash per share, subject to proration.
As used in this letter, all references to the Merger Agreement are to the
Agreement and Plan of Merger, dated as of November 3, 1999, by and among
COMPS.COM, INC., CoStar Group, Inc. and Acq Sub, Inc.
The undersigned represents and warrants that the undersigned has full power
and authority to surrender the COMPS.COM common stock certificate(s) surrendered
herewith, free and clear of any liens, claims, charges or
<PAGE> 2
encumbrances whatsoever. The undersigned understands and acknowledges that the
method of delivery of the certificate(s) and all other required documents is at
the option and risk of the undersigned and that the risk of loss of such
certificate(s) shall pass only after the Exchange Agent has actually received
the certificate(s). All questions as to the validity, form and eligibility of
any election and surrender of certificate(s) hereunder shall be determined by
the Exchange Agent, and such determination shall be final and binding. Upon
request, the undersigned shall execute and deliver all additional documents
deemed by the Exchange Agent to be necessary to complete the conversion,
cancellation and retirement of the shares of COMPS.COM common stock delivered
herewith. No authority hereby conferred or agreed to be conferred shall be
affected by, and all such authority shall survive, the death or incapacity of
the undersigned. All obligations of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
The undersigned understands that CoStar will pay to each former stockholder
of COMPS.COM who otherwise would be entitled to receive a fractional share of
CoStar common stock an amount in cash in lieu of any fractional share.
Unless otherwise indicated in Box B entitled "Special Issuance and Payment
Instructions," any check for cash in lieu of a fractional share, any check for
shares of COMPS.COM common stock converted into cash, and any certificate for
CoStar common stock will be issued in the name of the registered holder(s) of
the shares of COMPS.COM common stock appearing below. Similarly, unless
otherwise indicated in Box C entitled "Special Delivery Instructions," any check
for cash in lieu of a fractional share, any check for shares of COMPS.COM common
stock converted into cash, and any certificate for CoStar common stock will be
mailed to the registered holder(s) of the shares of COMPS.COM common stock at
the addresses of the registered holder(s) appearing below under Box A, entitled
"Election and Description of Shares Deposited." In the event that Box B,
entitled, "Special Issuance and Payment Instructions" and Box C entitled
"Special Delivery Instructions" both are completed, any check for cash in lieu
of a fractional share, any check for shares of COMPS.COM common stock converted
into cash, and any certificates for CoStar common stock will be issued in the
name(s) of the person(s), and such check and such certificate(s) will be mailed
to the address(es), indicated.
THE UNDERSIGNED UNDERSTANDS THAT COSTAR HAS AGREED TO PAY FOR 49.9% OF THE
OUTSTANDING SHARES OF COMPS.COM COMMON STOCK IN CASH AND TO PAY FOR THE
REMAINING 50.1% OF THE OUTSTANDING SHARES OF COMPS.COM COMMON STOCK IN SHARES OF
COSTAR COMMON STOCK. IF COMPS.COM STOCKHOLDERS ELECT AS A GROUP TO RECEIVE MORE
CASH OR MORE SHARES OF COSTAR COMMON STOCK THAN THE AMOUNT AVAILABLE, THOSE
STOCKHOLDERS WHO MAKE AN ELECTION IN THE OVERSUBSCRIBED CATEGORY WILL NOT
RECEIVE THE CONSIDERATION ENTIRELY IN THE FORM THAT THEY ELECT. INSTEAD, THEIR
ELECTION WILL BE PRORATED SO THAT, ON AN OVERALL BASIS, COSTAR WILL PAY THE
CONSIDERATION IN THE AGREED-UPON PERCENTAGES OF CASH AND SHARES OF COSTAR COMMON
STOCK.
<PAGE> 3
BOX A:
DESCRIBE IN BOX A BELOW, AND MAKE AN ELECTION WITH RESPECT TO, THE SHARES OF
COMPS.COM COMMON STOCK THAT YOU INTEND TO EXCHANGE WITH THIS ELECTION FORM.
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<TABLE>
<S> <C> <C> <C> <C>
ELECTION AND DESCRIPTION OF SHARES DEPOSITED
- ------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF HOLDER OF
RECORD
AS SHOWN ON THE RECORDS OF
COMPS.COM CERTIFICATES DEPOSITED AND ELECTION
- ------------------------------------------------------------------------------------------------------------------
COLUMN 2
COLUMN 1 NUMBER OF COLUMN 3 COLUMN 4
CERTIFICATE SHARES NUMBER OF SHARES NUMBER OF
NUMBER REPRESENTED BY TO BE CONVERTED SHARES TO BE
DELIVERED CERTIFICATES IN INTO SHARES OF CONVERTED INTO
HEREWITH COLUMN 1 COSTAR COMMON STOCK CASH
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(ATTACH SEPARATE SCHEDULE IF TOTAL
NECESSARY) SHARES
</TABLE>
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NO HOLDER OF SHARES OF COMPS.COM COMMON STOCK MAY ELECT TO HAVE A FRACTION OF A
SHARE CONVERTED INTO SHARES OF COSTAR COMMON STOCK. ALL ELECTIONS MUST BE MADE
WITH RESPECT TO WHOLE SHARES ONLY.
<PAGE> 4
BOX B:
SPECIAL ISSUANCE AND
PAYMENT INSTRUCTIONS
To be completed ONLY if the check for COMPS.COM common stock converted to cash,
cash in lieu of a fractional share, and/or the certificate(s) for CoStar common
stock are to be paid or issued in the name of someone other than the person(s)
in whose name(s) the Certificate(s) representing the shares of COMPS.COM common
stock listed in this Letter of Transmittal are registered. (Unless otherwise
indicated in Box C, the check and/or certificate(s) will be mailed to the
address indicated in this Box B.)
Issue check for COMPS.COM common stock converted to cash, cash in lieu of a
fractional share and/ or certificate(s) for CoStar common stock to:
Name:
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
(Please print)
Address:
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
(Include zip code)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
(Taxpayer Identification or Social Security No.)
(See Substitute Form W-9)
BOX C:
SPECIAL DELIVERY INSTRUCTIONS
(CHANGE OF ADDRESS)
To be completed ONLY if the following are to be mailed to an address other than
that indicated in Box A or Box B: (i) the check for COMPS.COM common stock
converted to cash; (ii) the check for cash in lieu of a fractional share and/or
(iii) the certificate(s) representing any CoStar common stock issued for any
shares of COMPS.COM common stock listed in this Letter of Transmittal.
Mail check and/or certificate(s) for CoStar common stock to:
Name:
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
(Please print)
Address:
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
(Include zip code)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
(Taxpayer Identification or Social Security No.)
(See Substitute Form W-9)
<PAGE> 5
The undersigned understands and agrees that the acceptance and delivery of
any Letters of Transmittal by or to the Exchange Agent will not of itself create
any right to receive cash or CoStar common stock in exchange for the shares of
COMPS.COM common stock listed in this Letter of Transmittal, and that such right
will arise only to the extent provided in the Merger Agreement.
SIGN HERE
(COMPLETE SUBSTITUTE FORM W-9 BELOW)
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- --------------------------------------------------------------------------------
Signature(s) of Owner(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name(s)
- --------------------------------------------------------------------------------
(Please Print)
Capacity (full title)
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
Tax Identification or Social Security Number:
- ----------------------------------------------------------------------
(See Substitute Form W-9)
Dated:
- -------------------- , 200--
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or by the person(s) authorized to become registered
holder(s) by certificates and documents transmitted herewith. If signature is by
an agent, attorney, administrator, executor, guardian, trustee, officer of a
corporation or any other person acting in a fiduciary or representative
capacity, please set forth full title and see Instruction 5.)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTION 4)
FOR USE BY FINANCIAL INSTITUTIONS ONLY.
PLACE MEDALLION GUARANTEE IN SPACE BELOW.
Authorized Signature(s)
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Name of Firm
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number
- --------------------------------------------------------------------------------
Dated
- ----------------------------
NOTE: A Guarantee of Signature is required ONLY if checks in payment of any cash
and/or new certificates of CoStar common stock are to be payable to the
order of and/or registered in names other than on the surrendered
certificates.
<PAGE> 6
INSTRUCTIONS FOR COMPLETION OF LETTER OF TRANSMITTAL
This Letter of Transmittal should be properly filled in, dated, signed and
delivered, together with the certificate(s) representing the shares of COMPS.COM
common stock currently held by you, to the Exchange Agent. Please read and
carefully follow the instructions regarding completion of this Letter of
Transmittal set forth below.
INSTRUCTIONS
1. EXECUTION AND DELIVERY
This Letter of Transmittal, or a photocopy of it, should be properly
completed, dated and signed, and should be delivered, together with the
certificate(s) representing your COMPS.COM common stock, to the Exchange Agent
at the appropriate address set forth on the cover page of this Letter of
Transmittal before the Delivery Deadline.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, AND THE
CERTIFICATE(S) FOR SHARES OF COMPS.COM COMMON STOCK IS AT THE OPTION AND RISK OF
THE STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. EXCEPT AS OTHERWISE PROVIDED,
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
2. SIGNATURES
The signature (or signatures, in the case of certificate(s) owned by two or
more joint holders) on this Letter of Transmittal must correspond exactly to the
name(s) on the face of the certificate(s) sent to the Exchange Agent, unless the
shares of COMPS.COM common stock represented by the certificate(s) have been
transferred by the holder(s) of record. If there has been any such transfer, the
signature(s) on the Letter of Transmittal should be signed in exactly the same
form as the name of the last transferee indicated on the accompanying stock
powers attached to or endorsed on the certificate(s) (see Instruction 4 below).
If shares of COMPS.COM common stock are registered in different names on
several certificates, it will be necessary to complete, sign and submit a
separate Letter of Transmittal for each different registration of certificates.
For example, if some certificates are registered solely in your name, some are
registered solely in your spouse's name and some are registered jointly in the
name of you and your spouse, three separate Letters of Transmittal should be
submitted.
3. CHECKS AND/OR CERTIFICATES IN SAME NAME
If checks in payment of any cash and/or any new certificates for shares of
CoStar common stock are to be payable to the order of and/or registered in
exactly the same name on the surrendered certificate(s), you will not be
required to endorse the surrendered certificate(s) or have your signature
guaranteed. For corrections in name or changes in name not involving changes in
ownership, see Instruction 4(c) below.
4. CHECKS AND/OR CERTIFICATES IN DIFFERENT NAMES
If checks in payment of any cash and/or any new certificates for shares of
CoStar common stock are to be payable to the order and/or registered in a
different name from the name on the surrendered certificate(s), or delivered to
a different address, please follow these instructions:
(a) Registered Holders. If the registered holder of certificate(s)
signs the Letter of Transmittal, the registered holder should complete Box
B and/or Box C and have signature(s) guaranteed on this Letter of
Transmittal. No endorsements or signature guarantees on certificate(s) or
stock powers are required in this case.
<PAGE> 7
(b) Transferees. If the Letter of Transmittal is signed by a
personother than the registered holder, the certificate(s) surrendered must
be properly endorsed or accompanied by appropriate stock power(s) properly
executed by the record holder of such certificate(s) to the person who is
to receive the check or certificate representing CoStar common stock. The
signature of the record holder on the endorsement(s) or stock power(s) must
correspond with the name that appears on the face of the certificate(s) in
every particular and must be guaranteed by a bank, broker, dealer, credit
union, savings association or other entity that is a member in good
standing of the Security Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (each of the foregoing an "Eligible Institution"). If
this Instruction 4(b) applies, please check with your financial institution
or brokerage firm immediately to determine whether it is an Eligible
Institution or will need to help you locate an Eligible Institution
(c) Correction of or Change in Name. For a correction in name which
does not involve a change in ownership, the surrendered certificate(s)
should be appropriately endorsed: for example, "John A. Doe, incorrectly
inscribed as John B. Doe," with the signature guaranteed by an Eligible
Institution. For a change in name by marriage, etc., the surrendered
certificate(s) should be appropriately endorsed: for example, "Mary Doe,
now by marriage Mary Jones," with the signature guaranteed by an Eligible
Institution.
5. SUPPORTING EVIDENCE
If any Letter of Transmittal, certificate, endorsement or stock power is
executed by an agent, attorney, administrator, executor, guardian, trustee or
any person in any other fiduciary or representative capacity, or by an officer
of a corporation on behalf of the corporation, there must be submitted (with the
Letter of Transmittal, surrendered certificate(s) and/or stock powers)
documentary evidence of appointment and authority to act in such capacity
(including court orders when necessary), as well as evidence of the authority of
the person making such execution to assign, sell or transfer the certificate(s).
Such documentary evidence of authority must be in a form satisfactory to the
Exchange Agent.
6. NOTICE OF DEFECTS; RESOLUTION OF DISPUTES
NEITHER COSTAR NOR THE EXCHANGE AGENT WILL BE UNDER ANY OBLIGATION TO
NOTIFY YOU THAT THE EXCHANGE AGENT HAS NOT RECEIVED A PROPERLY COMPLETED LETTER
OF TRANSMITTAL OR THAT THE LETTER OF TRANSMITTAL SUBMITTED IS DEFECTIVE IN ANY
WAY.
Any and all disputes with respect to Letters of Transmittal (including, but
not limited to, matters relating to time limits and defects or irregularities in
the surrender of any certificate) will be resolved by the Exchange Agent and its
decision will be final and binding on all parties concerned. The Exchange Agent
will have the absolute right, in its sole discretion, to reject any and all
Letters of Transmittal and surrenders of certificates which are deemed by it to
be not in proper form or to waive any immaterial irregularities in any Letter of
Transmittal or in the surrender of any certificate. Surrenders of certificates
will not be deemed to have been made until all defects or irregularities that
have not been waived have been cured.
7. FEDERAL TAX WITHHOLDING/SUBSTITUTE FORM W-9
Federal income tax law requires each stockholder to provide the Exchange
Agent with his/her current Taxpayer Identification Number ("TIN") on a
Substitute Form W-9 set forth below. If such stockholder is an individual, the
TIN is his/her social security number. If the Exchange Agent is not provided
with the correct TIN, the stockholder or other payee may be subject to a $50
penalty imposed by the Internal Revenue Service (the "IRS"). In addition,
reportable payments that are made to such stockholder or other payee who has not
provided a correct TIN may be subject to 31% backup withholding.
Certain persons (including, among others, tax-exempt organizations and
certain foreign persons) are not subject to these backup withholding
requirements. In order for a foreign person to qualify as an
<PAGE> 8
exempt recipient, that person must submit to the Exchange Agent a properly
completed IRS Form W-8, signed under penalties of perjury, attesting to that
person's exempt status. A Form W-8 can be obtained from the Exchange Agent. See
the enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any reportable payment made to the payee. Backup withholding is not an
additional tax. Rather, any amount of tax withheld will be credited against the
tax liability of the person subject to the withholding. If withholding results
in an overpayment of taxes, a refund may be obtained from the IRS.
If you have not been issued a TIN, but have applied for a TIN or intend to
apply for a TIN in the near future, write "Applied For" in the space for the TIN
in Part I of the Substitute Form W-9 and also complete the Certificate of
Awaiting Taxpayer Identification Number. If the Exchange Agent is not provided
with a TIN by the time of payment, 31% of all reportable payments made to you
will be withheld.
You are required to give the Exchange Agent the TIN (i.e., social security
number or employer identification number) of the record owner of the COMPS.COM
shares. If the shares are registered in more than one name or are not registered
in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS
Any checks representing cash consideration and any certificates
representing CoStar common stock will be mailed to the address of the holder of
record as indicated in Box A, or to the person identified in Box B (if
completed), unless instructions to the contrary are given in Box C.
9. LOST STOCK CERTIFICATES
If you are unable to locate the certificates representing your shares of
COMPS.COM common stock, contact the Exchange Agent at the address provided in
the Letter of Transmittal. The Exchange Agent will instruct you on the
procedures to follow.
10. OPTIONS
The percentage cash elected and the percentage stock elected in Box A shall
apply to all shares acquired as a result of exercise options between the
Delivery Deadline and the effective time of the merger.
11. MISCELLANEOUS
As soon as practicable, the Exchange Agent will begin mailing and
delivering checks and share certificates for CoStar common stock in exchange for
certificates that have been received by the Exchange Agent. There will be a
delay, however, if backup withholding pursuant to Instruction 7 applies.
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
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PAYOR'S NAME:
- ----------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN IN THE BOX AT THE TIN: -------------------------
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW Social security number OR
Employer identification number
------------------------------
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Department of the Treasury PART II--For Payees exempt from backup withholding, see the enclosed "Guidelines for
Internal Revenue Service Certification of Taxpayer Identification Number on Substitute Form W-9" and complete as
instructed therein.
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CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct TIN (or I am waiting for a number to be
PAYOR'S REQUEST FOR issued to me); and
TAXPAYER
IDENTIFICATION (2) I am not subject to backup withholding because
NUMBER (TIN) (a) I am exempt from backup withholding, or
AND CERTIFICATION (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject
to backup withholding as a result of a failure to report interest or dividends, or
(c) the IRS has notified me that I am no longer subject to backup withholding.
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CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by
the IRS that you are subject to backup withholding because of underreporting interest or
dividends on your tax return. However, if after being notified by the IRS that you were
subject to backup withholding, you received another notification from the IRS that you
were no longer subject to backup withholding, do not cross out item (2). (Also see
instructions in the enclosed Guidelines.)
SIGNATURE DATE
------------------------------------------------------ -------------------------
NAME (Please Print)
----------------------------------------------------------------------------------
ADDRESS (Please Print)
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</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY REPORTABLE PAYMENTS MADE TO YOU PURSUANT
TO THE MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN PART 1
OF THE SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to
me, and either (1) I have mailed or delivered an application to receive a
TIN to the appropriate IRS Center or Social Security Administration Office
or (2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a TIN by the time of payment, 31% of
all reportable payments made to me pursuant to the Merger will be
withheld.
<TABLE>
<S> <C>
Signature Date
- ------------------------------------------------------------ ------------------------------
Name (Please Print)
- ---------------------------------------------------------------------------------------------
Address (Please Print)
- ---------------------------------------------------------------------------------------------
</TABLE>
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