<PAGE>
As filed with the Securities and Exchange Commission on April 14, 1999
Registration No. 333-72901
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
Amendment No. 2
To
FORM S-1
REGISTRATION STATEMENT
Under the Securities Act of 1933
----------------
COMPS.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
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<CAPTION>
Delaware 7375 33-0645337
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
----------------
9888 Carroll Centre Road, Suite 100
San Diego, California 92126-4581
(619) 578-3000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
----------------
Mr. Christopher A. Crane
President and Chief Executive Officer
COMPS.COM, INC.
9888 Carroll Centre Road, Suite 100
San Diego, California 92126-4581
(619) 578-3000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
----------------
Copies to:
<TABLE>
<S> <C>
Craig S. Andrews, Esq. Lawrence D. Levin, Esq.
Faye H. Russell, Esq. Katten Muchin & Zavis
Brobeck, Phleger & Harrison LLP 525 West Monroe Street, Suite 1600
550 West C Street, Suite 1300 Chicago, Illinois 60661
San Diego, California 92101 (312) 902-5200
(619) 234-1966
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
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 Commission, acting pursuant to
Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may +
+change. We and the selling stockholders may not sell these securities until +
+the registration statement filed with the SEC is effective. This preliminary +
+prospectus is not an offer to sell these securities, and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 14, 1999
3,800,000 Shares
[LOGO]
Common Stock
------------
COMPS.COM, INC. is offering shares of its common stock. This is our initial
public offering and no public market currently exists for our shares. We
anticipate that the initial public offering price will be between $11.00 and
$13.00 per share.
------------
We intend to list our common stock on the Nasdaq National Market under the
symbol "CDOT."
------------
Please see "Risk Factors" beginning on page 8 to read about certain risks
that you should consider before buying shares of our common stock.
------------
PRICE $ PER SHARE
------------
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<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Public offering price.................................... $ $
Underwriting discounts and commissions................... $ $
Proceeds, before expenses, to COMPS.COM.................. $ $
</TABLE>
The Securities and Exchange Commission and state securities commissions have
not approved or disapproved of these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The underwriters have an option to purchase 570,000 additional shares from us
and the selling stockholders to cover over-allotments of shares. We will not
receive any of the proceeds from the sale of shares by the selling
stockholders.
------------
Volpe Brown Whelan & Company
EVEREN Securities, Inc.
Needham & Company, Inc
The date of this Prospectus is , 1999
<PAGE>
Front Cover:
[The front cover will have a dark background and the text will be printed in
white.
[LOGO]
Inside Front Cover:
COMPREHENSIVE CONTENT VIA THE INTERNET
[The following text is placed in varying fonts and font sizes throughout the
recurring database wheel: buyers & sellers, phone numbers, square footage,
contact name, capitalization rates, comments on condition, confirmed sales
price, financing information, income & expense, unit mix, color photos and
lenders. Three screen shots of different pages from our Web site showing some
of our products are placed on parts of the database wheel. Text in a box
describes our database by stating:
Contained in COMPS.COM's Commercial Transaction database:
. $466 billion in sales transactions
. $143 billion in loan volume
. 400,000 property transactions
. 2,643,000 apartment units
. 780,000 buyer and seller records
. 9 property types.
[LOGO]
Inside Spread:
BUSINESS TO BUSINESS E-COMMERCE
[A two page spread of a city skyline. Our market segments are listed in a bar
down the left side of the screen under the heading "our customers." Each market
segment is underlined. In the main frame of the screen is (1) a picture of a
hand with a mouse, (2) the database wheel laid on top of a group of commercial
real estate buildings, (3) above the city skyline the following text appears:
COMPS.COM, conveniently accessed via the Internet, allows commercial real
estate professionals to respond quickly to client driven needs and (4) the
following text appears in uppercase letters on the database wheel: buyer,
brokers, lenders, insurers and transaction facilitation via the internet.]
2
<PAGE>
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Table of Contents
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Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 30
</TABLE>
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<CAPTION>
Page
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<S> <C>
Management................................................................. 41
Certain Relationships and Related Transactions............................. 53
Principal and Selling Stockholders......................................... 55
Description of Securities.................................................. 56
Shares Eligible For Future Sale............................................ 60
Underwriting............................................................... 61
Legal Matters.............................................................. 63
Experts.................................................................... 63
Where You Can Find More Information........................................ 63
Index to Financial Statements.............................................. F-1
</TABLE>
---------------
Until , 1999, all dealers selling shares of our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
3
<PAGE>
Prospectus Summary
This summary highlights some of the information in this prospectus. It may
not contain all of the information that is important to you. To understand this
offering fully, you should read the entire prospectus carefully, including the
risk factors and financial statements.
About COMPS
Our Business
We are a leading national provider of comprehensive commercial real estate
sales information both offline and on the Internet. We have also recently begun
using our extensive database to match buyers with brokers' property listings by
posting such listings on our Web site and sending summary announcements by fax
and e-mail to property owners and investors contained in our database. We
currently receive fees from listing brokers or the sellers who retain the
brokers and from sponsors whose messages and links are located on our Web site.
None of these fees are currently contingent upon the sale of the respective
properties. Over the last 17 years, we have developed a highly evolved data
collection and confirmation system to provide information on commercial real
estate properties. This information is verified by our researchers and includes
sale prices, income and expenses, capitalization rates, loan data, property
photographs, buyers, sellers, brokers and other key details. We believe we have
established the foundation to be the trusted online resource linking commercial
real estate brokers, lenders, appraisers, insurers and other professionals by
efficiently distributing market information on the Internet.
Our Market
The Internet has rapidly become a significant global medium for
communications, information and commerce. It has emerged as a primary business
channel alongside the telephone, paper-based communication and face-to-face
interaction. The Internet allows online providers to efficiently distribute
information with the potential for less infrastructure and overhead and greater
economies of scale. It also offers customers diverse options and unparalleled
convenience.
The commercial real estate market is large and fragmented. Prior to the
availability of information services which provide comprehensive sales
information from a centralized source, commercial real estate professionals
either maintained their own research departments to catalog market statistics
and other property-specific information, or aggregated such information, to the
limited extent available, from multiple third parties. These methods resulted
in high internal costs and nonstandard data with varying degrees of
comprehensiveness and accuracy. In addition, with respect to supporting real
estate transactions, there are currently no comprehensive, standardized
transaction support products that efficiently identify properties and bring
together lenders and insurers, as well as brokers and buyers, in commercial
real estate transactions.
Our Solution
The vast information sharing and communications power of the Internet creates
an opportunity to improve upon the inefficiencies in conducting commercial real
estate transactions. We provide comprehensive and reliable information services
and transaction support products that save industry professionals both time and
money. We generate revenue from our information services by licensing on a
subscription or per use basis, and from our transaction support products on a
fixed fee basis. We incur expenses primarily as a result of building our
database and developing and implementing new Internet-related products. To
date, we have:
. developed a comprehensive and standardized proprietary database of
approximately 400,000 commercial real estate transactions;
. migrated our database to the Internet, allowing our customers to receive
updated commercial real estate transaction information more frequently
and analyze the data more quickly and easily;
4
<PAGE>
. established an Internet-based matching service, allowing us to identify
and refer potential buyers of properties for sale to brokers and
electronically market these properties for brokers using our Internet-
based contact system; and
. introduced an Internet-based commercial real estate listing service,
enabling brokers to advertise their properties on the Internet and
increase a property's exposure to prospective buyers and their brokers.
Our Business Strategy
Our objective is to be the trusted online resource linking commercial real
estate professionals by efficiently distributing market information on the
Internet. Our business strategy to achieve this objective includes the
following key elements:
. continue to enhance our comprehensive historical database of commercial
real estate transactions;
. expand our online listing-broker/buyer matching service;
. create a comprehensive online national listing service for commercial
real estate to complement our database of sold properties;
. enhance our services and products to facilitate the online exchange of
commercial real estate market information;
. expand into new geographic markets; and
. continue to build our brand name.
Corporate Information
COMPS Incorporated was incorporated in California in January 1982. It was
purchased by Business Real Estate Information Corp. in 1992 and reincorporated
in Delaware in 1994 as COMPS InfoSystems, Inc. In January 1999, we changed our
name to COMPS.COM, INC. Our principal executive offices are located at
9888 Carroll Centre Road, Suite 100, San Diego, California 92126. Our telephone
number at that location is (619) 578-3000. Our Web site address is
www.comps.com. Information contained on our Web site does not constitute part
of this prospectus.
The Offering
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<C> <S>
Common stock offered by us.............. 3,800,000 shares
Common stock outstanding after this
offering............................... 11,464,181 shares
Use of proceeds......................... For working capital and other general
corporate purposes, including
expansion of our proprietary
database, enhancement and development
of existing and new information
services and transaction support
products, geographic expansion and
repayment of debt. We may also use a
portion of the proceeds for strategic
alliances and acquisitions. Please
see "Use of Proceeds."
Proposed Nasdaq National Market symbol.. CDOT
</TABLE>
5
<PAGE>
The information on our common stock outstanding after this offering is as of
December 31, 1998. In addition to the 11,464,181 shares of common stock to be
outstanding after this offering, we may issue the following additional shares
of common stock:
. 1,749,727 shares upon the exercise of options outstanding at a weighted
average exercise price of $1.17 per share;
. 156,285 shares upon the exercise of warrants outstanding at a weighted
average exercise price of $2.40 per share; and
. 376,219 shares upon the exercise of options available for issuance under
our stock plans. For a description of our stock option plans, please see
"Management--Benefit Plans."
In April 1999, we issued to a lender warrants exercisable for up to 71,882
shares of common stock, with an exercise price per share ranging from $1.59 to
$6.82, depending on when we repay the loan.
This offering is for 3,800,000 shares; however, the underwriters have a 30-
day option to purchase up to 570,000 additional shares from us and the selling
stockholders to cover over-allotments. Some of the disclosures in this
prospectus would be different if the underwriters exercise the option. Unless
we tell you otherwise, the information in this prospectus assumes that the
underwriters will not exercise the option.
Unless we tell you otherwise, all information in this prospectus relating to
our outstanding common stock:
. reflects the automatic conversion of each share of our Class B common
stock into shares of our Class A common stock and the renaming of Class
A common stock to "common stock" upon the closing of this offering;
. reflects the automatic conversion of each share of our preferred stock
into 0.7335 shares of our common stock upon the closing of this
offering;
. reflects the exercise of warrants outstanding to purchase 530,537 shares
at a weighted average exercise price of $0.0136 per share and
. reflects a 0.7335-for-1 stock split of our common stock to be effected
prior to the closing of this offering.
COMPS, COMPSLink, CallCOMPS, WinCOMPS, COMPS NET, REALBID, E COMPS and our
logo are our registered trademarks. Each other trademark, trade name or service
mark appearing in this prospectus belongs to its holder.
6
<PAGE>
Summary Financial And Operating Data
(dollars in thousands, except per share and other operating data)
The following table summarizes the financial data for our business. The 1998
statement of operations data includes the results of REALBID, LLC from November
6, 1998. The pro forma statement of operations data gives effect to our
acquisition of REALBID, LLC as if it had occurred on January 1, 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
Pro Forma
1994 1995 1996 1997 1998 1998
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ 6,030 $ 6,716 $ 8,707 $ 10,867 $ 12,900 $13,123
Cost of revenues........ 2,674 3,488 4,357 5,054 5,768 5,813
-------- -------- -------- -------- -------- -------
Gross profit............ 3,356 3,228 4,350 5,813 7,132 7,310
Operating expenses:
Selling and marketing.. 2,306 2,072 2,813 3,408 4,230 4,230
Product development and
engineering........... -- -- 376 768 1,233 1,233
General and
administrative........ 1,743 2,527 3,401 2,942 3,068 3,948
-------- -------- -------- -------- -------- -------
Total operating
expenses............ 4,049 4,599 6,590 7,118 8,531 9,411
-------- -------- -------- -------- -------- -------
Loss from operations.... (693) (1,371) (2,240) (1,305) (1,399) (2,101)
Other income (expense),
net.................... (9) 12 (67) (252) (260) (260)
-------- -------- -------- -------- -------- -------
Net loss................ (702) (1,359) (2,307) (1,557) (1,659) (2,361)
Dividend accretion on
preferred stock........ 63 299 299 299 454 454
-------- -------- -------- -------- -------- -------
Net loss attributable to
common stockholders.... $ (765) $ (1,658) $ (2,606) $ (1,856) $ (2,113) $(2,815)
======== ======== ======== ======== ======== =======
Net loss per share
attributable to common
stockholders, basic and
diluted................ $ (0.16) $ (0.47) $ (0.74) $ (0.53) $ (0.60) $ (0.80)
======== ======== ======== ======== ======== =======
Shares used in computing
net loss per share
attributable to common
stockholders, basic and
diluted................ 4,700 3,502 3,502 3,502 3,517 3,517
======== ======== ======== ======== ======== =======
Pro forma net loss per
share, basic and
diluted................ $ (0.23) $ (0.33)
======== =======
Shares used in computing
pro forma net loss per
share, basic and
diluted................ 7,067 7,067
======== =======
Other Operating Data:
Markets covered by
database.............. 16 24 24 25 34
Transactions in
database.............. 245,951 270,945 302,684 341,670 387,427
Value of transactions
in database (dollars
in billions).......... $ 191 $ 222 $ 272 $ 355 $ 460
Value of transactions
supported by REALBID
(dollars in
millions)............. -- -- -- $ 300 $ 3,800
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1998
------------------------
Actual As Adjusted
---------- ------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................. $ 378 $ 40,088
Working capital (deficit)............................. (4,354) 36,336
Total assets.......................................... 8,414 48,125
Deferred subscription revenue......................... 5,503 5,503
Long-term obligations, less current portion........... 1,123 23
Redeemable convertible preferred stock................ 7,009 --
Total stockholders' equity (deficit).................. (7,871) 40,928
</TABLE>
- --------
Please see Note 1 to our financial statements for an explanation of the
determination of the number of shares used in computing pro forma net loss per
share.
The as adjusted balance sheet data listed above reflects the sale of
3,800,000 shares of common stock offered at an assumed initial public offering
price of $12.00 per share after deducting the estimated underwriting discount,
estimated offering expenses payable by us and the application of proceeds from
this offering. Please see "Use of Proceeds" and "Capitalization" for a
discussion about how we intend to use the proceeds from this offering and about
our capitalization.
7
<PAGE>
Risk Factors
Any investment in our common stock involves a high degree of risk. You should
consider carefully the following information about these risks, together with
the other information contained in this prospectus, before you decide to buy
our common stock. If any of the following risks actually occur, our business
would likely suffer. In such case, the trading price of our common stock could
decline, and you may lose all or part of the money you paid to buy our common
stock.
Risks Related to Our Business
We may not achieve future profitability due to continued operating losses and
negative cash flows.
We have incurred significant net losses since our inception. As of December
31, 1998, we had an accumulated deficit of $11.6 million. We have incurred
substantial costs to expand into new markets, develop new products and create,
introduce and enhance our Web site. We expect operating losses and negative
cash flows to continue for the foreseeable future as we continue to incur
significant expenses. As a result, we will need to generate significant
revenues to achieve profitability. Even if we do become profitable, we cannot
assure you that we can sustain or increase profitability on a quarterly or
annual basis. If revenues grow more slowly than we anticipate, or if operating
expenses exceed our expectations or cannot be adjusted in response to slower
revenue growth, our business will be materially adversely affected. Please see
"Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements for
detailed information related to our uncertain profitability.
We have only been operating on the Internet since 1998 and cannot assure you
that our Internet products will achieve market acceptance.
We only recently began offering our services on the Internet. During 1998,
over 90% of our revenue was a result of our information services products
delivered on CD-ROM and other non-Internet media. Less than 10% of our revenues
in 1998 were a result of our services and products delivered on the Internet.
We intend to continue to increase our reliance on the Internet for delivery of
our services and products. As a result, our future profitability will
increasingly rely upon the use of our information services and transaction
support products on the Internet. Our ability to obtain market acceptance for
our Internet products will depend on the following factors:
. our ability to transition our customers from the use of our services and
products on CD-ROM to the use of these services and products on the
Internet in a timely and efficient manner;
. our customers' acceptance of, and their ability to adapt to the use of,
our existing and future services and products on the Internet; and
. our ability to anticipate and adapt to the changing Internet market.
If our Internet-based information services or transaction support products
are not received favorably by our current customers, it may negatively affect
their use of our other products or cause new customers to choose a competitive
service over ours.
If we do not successfully develop new and enhanced services and products, our
revenues could decrease.
We will not be financially successful if we are unable to meet the
increasingly sophisticated needs of our customers through timely developments
and new and enhanced versions of our services and products. Our planned
development and enhancement efforts have inherent risks. We may experience
financial or technical difficulties that could prevent us from introducing new
or enhanced information services or transaction support products. Furthermore,
these new or enhanced services and products may contain problems that are
discovered after the products are introduced. We may need to significantly
modify the design of these products to correct problems. Our business could be
materially adversely affected if we experience difficulties in introducing new
8
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or enhanced services and products or if these services or products are not
received favorably by our customers. Finally, development and enhancement of
our services and products will require significant additional expenses and
could strain our management, financial and operational resources. The lack of
market acceptance of our services or products or our inability to generate
satisfactory revenues from such development or enhancements to offset their
costs could have a material adverse effect on our business.
Fluctuations in our operating results may negatively affect our stock price.
Our quarterly operating results have fluctuated significantly and are
expected to continue to fluctuate in the future due to a variety of factors,
many of which are outside of our control. It is possible that in some future
periods our results of operations may be below the expectations of public
market analysts and investors. In this event, the price of our common stock is
likely to fall.
You should not rely on our results of operations during any particular
quarter as an indication of our results for a full year or any other quarter.
In addition to factors discussed elsewhere in this Risk Factors section, other
factors contributing to fluctuations in quarterly operating results include:
. changes in rates paid for information services or transaction support
products in the commercial real estate industry or related industries
resulting from competition or other factors;
. changes in customer budgets;
. the amount and timing of our costs related to our product development,
marketing efforts and other initiatives;
. fees we may pay for distribution or content or other costs we may incur
as we expand our operations;
. our costs related to acquisitions of businesses, technologies, services
and products;
. changes in the privacy laws that may hinder our ability to gather
information necessary for our information services or transaction
support products; or
. the seasonality of our revenues.
Due to all of these factors and the other risks discussed in this section,
you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of our future performance. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
detailed information on our past quarterly operating results.
If we do not expand our geographic coverage, our services and products could
become less desirable.
We believe our success is highly dependent on our ability to increase the
geographic coverage of our database. Currently our proprietary database
contains comprehensive sales comparable records in 35 of the 74 largest markets
in the U.S. If we are not able to expand the geographic coverage of our
database into other markets, our business could be materially adversely
affected. We also plan to expand into selected international markets. We expect
this geographic expansion effort to impose additional burdens on our research,
sales and administrative resources. Please see "Business--Our Business
Strategy" for a discussion of our geographic expansion strategy.
If we cannot maintain the integrity and reliability of our proprietary
database, we may not be successful.
We cannot assure you that the information in our database will be
comprehensive, accurate or timely, particularly as we grow. Our success is
highly dependent on our customers' confidence in the comprehensiveness,
accuracy and timeliness of our proprietary database of commercial real estate
transactions and the software used to access our database. We expect the task
of establishing and maintaining such comprehensiveness, accuracy and timeliness
during the growth of our business to require substantial effort and expense.
Please see "Business--Our Proprietary Database" for a discussion of how we
maintain our proprietary database.
9
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Cyclical economic swings in the real estate market could decrease demand for
our services and products.
The real estate industry traditionally has been subject to cyclical economic
swings which could materially adversely affect our business. Our business is
dependent on the real estate industry and related industries that supply goods
or services to, or invest in, the real estate industry. Changes in the real
estate market may affect demand for our services and products. These cyclical
economic swings may be caused by various factors, such as changes in interest
rates and changes in economic conditions.
When interest rates are high or general economic conditions are weak, there
may be less sales activity in commercial real estate and on the part of
mortgage brokers and lenders. These cyclical economic swings could materially
adversely affect our business.
Consolidation of the real estate industry could negatively impact our
business.
The real estate industry is undergoing a period of consolidation, motivated
in part by a desire to reduce expenses. Such consolidation poses a number of
risks and could materially adversely affect our business. These risks include:
. a decrease in our client base;
. reduction in the size of our target market;
. creation of competitors with sufficiently greater bargaining power which
could cause price erosion;
. creation of competitors with access or rights to, or ownership of,
sources that provide the data we need for our proprietary database; and
. reduction in the number of sources from whom we obtain data for our
proprietary database.
If we are not able to successfully develop our "COMPS.COM" brand name, it
could materially adversely affect our business.
We believe that establishing and maintaining our brand name is critical to
attracting and expanding our target Internet audience. The importance of
developing our brand name will increase due to the growing number of Internet
services. In order to build our brand name, we must succeed in our marketing
efforts, provide high-quality services and products and increase the number of
visitors to our Web site. If our marketing efforts are not successful or if we
cannot increase awareness of our brand name, we will not be able to attract and
retain Internet users and our business would be materially adversely affected.
If we are unable to continue to develop our direct sales force, it could
materially adversely affect our business.
In order to support our growth, we need to substantially increase the size of
our direct sales force. Our ability to increase our direct sales force involves
a number of risks, including:
. the competition we face from other companies in hiring and retaining
sales personnel;
. our ability to integrate and motivate additional sales and sales support
personnel;
. our ability to manage a multi-location sales organization; and
. the length of time it takes new sales personnel to become productive.
There would be a material adverse effect on our business if we do not
continue to develop and maintain an effective direct sales force.
Intense competition may render our services and products uncompetitive or
obsolete.
The market for our Internet-related and non-Internet-related information
services and transaction support products is competitive. We cannot assure you
that our competitors will not develop services or products that are equal or
superior to ours or that achieve greater market acceptance. We anticipate that
the number of direct
10
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and indirect competitors will increase in the future and could result in price
reductions, reduced margins, greater operating losses or loss of market share,
any of which would materially adversely affect our business. Please see
"Business--Competition" for further detail and risks regarding our competitive
market.
If we fail to be year 2000 compliant, it could harm our business.
We have not fully completed tests to assure that our information technology
systems will function properly in the year 2000. Our computer systems and
software programs may need to be upgraded in order to comply with year 2000
requirements, or we risk system failure or miscalculations causing disruptions
of normal business activities.
We estimate expenses to achieve year 2000 readiness will be $300,000,
$150,000 of which was expended prior to December 31, 1998. Until our testing is
complete, we will not be able to completely evaluate whether our information
technology systems or non-information technology systems will need to be
revised or replaced. If our efforts to address year 2000 risks are not
successful, or if suppliers or other third parties with whom we conduct
business do not successfully address such risks, it could have a material
adverse effect on our business. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Impact of the Year
2000" for detailed information on our state of readiness, potential risks and
contingency plans regarding the year 2000 issue.
If we do not effectively manage our growth, it could have a material adverse
effect on our business.
We have experienced growth in our business, which we expect to continue. Such
growth has placed, and will continue to place, a significant strain on our
management systems and resources. We will also need to continue to improve our
operational and financial systems and managerial controls and procedures. We
will need to continue to expand, train and manage our workforce. We expect that
our workforce will continue to increase for the foreseeable future. We will
have to maintain close coordination among our technical, accounting, finance,
marketing, sales and research departments. If we fail to effectively manage our
growth and address the above concerns, it could have a material adverse effect
on our business.
If we do not successfully integrate acquired businesses with our business, it
could have a material adverse effect on our business.
Since October 1993, we have acquired seven businesses and three product
lines. We may not be able to integrate our recent or any future acquisitions
successfully with our existing operations without substantial costs, delays or
other problems. As we integrate acquired businesses or product lines, we could
have difficulty in assimilating personnel and operations. In addition, the key
personnel of acquired companies may decide not to work for us. We could also
have difficulty in assimilating the acquired products, services or technologies
into our operations. These difficulties could disrupt our ongoing business,
distract our management and employees, increase our expenses and materially
adversely affect our results of operations due to accounting requirements such
as amortization of goodwill or other purchased intangibles. Furthermore, we may
incur debt or issue equity securities to pay for any future acquisitions. The
issuance of equity securities could be dilutive to our stockholders.
If we are unable to retain key personnel or attract new personnel, it could
have a material adverse effect on our business.
The loss of the services of any of our key personnel or our inability to
successfully attract and retain qualified personnel in the future would have a
material adverse effect on our business. Our future success depends on the
continued service of our key personnel including Christopher A. Crane, our
President and Chief Executive Officer, Emmett R. DeMoss, our Vice President and
the Chairman of our REALBID division, Karen Goodrum, our Vice President of
Finance and Administration, Chief Financial Officer and Secretary, Walter W.
Papciak, our Executive Vice President of Sales, Marketing and Product
Development, and Michael Arabe, our
11
<PAGE>
Senior Vice President of Sales. Mr. Crane is the only key person for whom we
maintain life insurance. The policy on Mr. Crane has a face value of
$2,000,000. Our future success also depends on our ability to attract, retain,
integrate and motivate highly skilled researchers and other employees.
Competition for researchers and other employees in our industry is intense,
particularly in the San Diego area, where our headquarters are located. Please
see "Management" for detailed information on our key personnel.
Increased usage could strain our systems and cause systems malfunctions which
could materially adversely affect our business.
The performance of our Web site is critical to our reputation, our ability to
attract customers and market acceptance of our Web site. All of our
communications and network infrastructure is hosted at our headquarters in San
Diego. We have, in the past, experienced system failures, including network,
software and hardware failures, that have interrupted or increased the response
time of our online services. Although, to date, none of our systems failures
have been material to our results of operations, in the future, the capacity of
our software and hardware could be strained by an increase in the use of our
products on the Internet as we migrate our customers to the Internet. Our
ability to provide uninterrupted, secure online services depends on our ability
to protect our facilities and equipment against damage from fire, earthquakes,
power loss, water damage, telecommunications failures, vandalism, computer
viruses, hacker attacks and other malicious acts, and similar unexpected
material adverse events. Customers may become dissatisfied if a system failure
interrupts our ability to provide access to our Web site. Because our insurance
policies have low coverage limits, our insurance may not adequately compensate
us for any losses that may occur due to system failures or interruptions.
Any problems with the integrity of the Internet's infrastructure or with third
party service providers could have a materially adverse effect on our business.
Our customers also depend on Internet service providers, online service
providers and other Web site operators for access to our Web site. Each of them
has experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
Moreover, the Internet infrastructure may not be able to support continued
growth in its use. Any of these problems could materially adversely affect our
business.
If we do not adequately protect our proprietary rights, it could harm our
business or competitive position.
It may be difficult to protect our proprietary rights. We regard our database
of commercial real estate transactions and the software used to operate our Web
site, as well as our various trademarks and copyrights, as proprietary. We will
continue to attempt to protect them under a combination of copyright, trade
secret and trademark laws, as well as by contractual restrictions on employees
and third parties. Despite these precautions, it may be possible for
unauthorized parties to copy our services or otherwise obtain and use
information that we regard as proprietary. Existing trade secrets and copyright
laws provide only limited protection. Other license and distribution agreements
that we intend to use include provisions protecting against unauthorized use,
copying, transfer and disclosure, which may be unenforceable under the laws of
some jurisdictions. Furthermore, we may be required to negotiate limits on
these provisions from time to time. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the U.S. The steps we take may not be adequate to deter
misappropriation of proprietary information. We also may not be able to detect
unauthorized use and take appropriate steps to enforce our intellectual
property rights. Significant and protracted litigation may be necessary to
protect our intellectual property rights, to determine the scope of the
proprietary rights of others or to defend against claims of infringement.
Various parties may accuse us of infringing on their intellectual property
rights, and any related litigation could harm our business regardless of its
merit.
Third parties may assert claims against us alleging infringement,
misappropriations or other violations of proprietary rights, whether or not
such claims have merit. Such claims can be time consuming and expensive to
12
<PAGE>
defend and could require us to cease the use and sale of allegedly infringing
services and products, incur significant litigation costs and expenses, develop
or acquire non-infringing technology or obtain licenses to the alleged
infringing technology. We may not be able to develop or acquire alternative
technologies or obtain such licenses on commercially acceptable terms.
We could be held liable for providing inaccurate or incomplete information,
which could harm our business.
If our 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 us, even if we are not responsible for such failure. The
limitations of liability set forth in customer contracts may not be enforceable
and may not otherwise protect us from liability for damages. The successful
assertion of one or more large claims against us that exceed available
insurance coverages, or changes in our insurance policies, such as premium
increases or the imposition of large deductibles or co-insurance requirements
could materially adversely affect our business.
Risks Related To Our Industry
If Internet usage does not continue to grow, it could have a material adverse
effect on our business.
The Internet is relatively new and rapidly evolving. Our business would be
materially adversely affected if Internet usage does not continue to grow.
We may not be able to adapt to the rapid technological changes to the Internet
and Internet products.
To be successful, we must adapt to the rapid technological changes to the
Internet and Internet products by continually enhancing our Web site and
introducing and integrating new services and products to capitalize on the
technological advances in the Internet. This process is costly and we cannot
assure you that we will be able to successfully integrate our 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. Our
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 by the computer and software industries. We could incur substantial
costs if we need to modify our services or infrastructure in order to adapt to
these changes. If we incurred significant costs without adequate results or we
were unable to adapt to rapid technological changes, it could have a material
adverse effect on our business.
Adoption of new laws and government regulations relating to the Internet could
harm our business.
Our business could be materially adversely affected by the adoption or
modification of laws or regulations in the U.S. or abroad relating to the
Internet. Laws and regulations directly applicable to Internet communications
and commerce are becoming more prevalent. Such legislation could dampen the
growth in use of the Internet generally and decrease the acceptance of the
Internet as a communications and commercial medium. The governments of states
or foreign countries might attempt to regulate our transmissions or levy sales
or other taxes relating to our activities. The laws governing the Internet,
however, remain largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing
laws such as those governing intellectual property, privacy, libel and taxation
apply to the Internet and Internet commerce. In addition, the growth and
development of the market for Internet commerce may prompt calls for more
stringent consumer protection laws, both in the U.S. and abroad, that may
impose additional burdens on companies conducting business over the Internet.
The growth and development of the market for Internet commerce may also prompt
calls for widening access on the Internet to public records, including records
concerning the commercial real estate industry.
13
<PAGE>
Internet security concerns could hinder Internet commerce and materially
adversely affect our business.
We may be required to expend significant capital and other resources to
protect against security breaches on our Web site or to alleviate problems
caused by such breaches. If any compromise of our security were to occur, it
could damage our reputation and expose us to a risk of loss, litigation and
possible liability. A significant barrier to online commerce and communications
is the need for secure transmission of confidential information over public
networks. Concerns over the security of transactions conducted on the Internet
and other online services, as well as user's desires for privacy, may also
inhibit the growth of the Internet and other online services, especially as a
means of conducting commercial transactions. Our services involve the storage
and transmission of proprietary information, such as credit card numbers and
other confidential information. We cannot assure you that our security measures
will prevent security breaches or that our failure to prevent such security
breaches will not have a material adverse effect on our business. Credit card
companies and others are in the process of developing anti-theft and anti-fraud
protections, and we are continually monitoring this problem. However, at the
present time, the real or perceived risk of theft and fraud could have a
material adverse effect on us. We cannot assure you that advances in computer
capabilities, new discoveries in the field of cryptography or other events or
developments will not result in a compromise or breach of the algorithms used
by us to protect customer transaction data. A party who is able to circumvent
our security measures could misappropriate confidential information or cause
interruptions in our operations.
We may be subject to legal liability for displaying or distributing
information on the Internet.
Because content on our Web site is distributed to others, we 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. We could also be
subject to claims based upon the content that is accessible from our Web site
through links to other web sites or information on our Web site supplied by
third parties. Our insurance may not adequately protect us against these types
of claims. Even to the extent such claims do not result in liability to us, we
could incur significant costs in investigating and defending against such
claims. Our potential liability for information carried on or disseminated
through our Web site could require us to implement measures to reduce our
exposure to such liability, which may require the expenditure of substantial
resources and limit the attractiveness of our service to users.
Our fee arrangements in various industries could lead to additional
liabilities.
We also enter into agreements with customers under which we are entitled to
receive fees related to the support of commercial real estate transactions
through our Web site using REALBID or other transaction support products that
we offer. We plan to increase our reliance on this aspect of our business. Such
arrangements may expose us to additional legal risks and uncertainties,
including regulation by local, state, federal and foreign authorities in
various industries which currently do not regulate us but may do so in the
future. Such industry regulation could include regulation by authorities in the
real estate, financing, and insurance industries, as well as other industries
which our business could impact. Such additional regulation could lead to
additional potential liabilities to property buyers, even if we are not selling
such properties. The indemnification provided to us in our agreements with
these parties, if available, may not be adequate to address such potential
regulatory expansion.
Risks Related To This Offering
The number of shares eligible for public sale after this offering could cause
our stock price to decline.
The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market after this offering or
the perception that such sales could occur. Such sales also might make it more
difficult for us to sell equity securities in the future at a price that we
deem appropriate. Please see "Shares Eligible for Future Sale" for further
details regarding the number of shares eligible for public sale after this
offering.
14
<PAGE>
The liquidity of our stock is uncertain because it has never been publicly
traded, and it could be difficult to sell your shares.
Prior to this offering, there has been no public market for our common stock.
We cannot predict if an active trading market in our common stock will develop
or how liquid that market might become. The market price of our common stock
may decline below the initial public offering price. The initial public
offering price for the shares will be determined by negotiations between us and
the representatives of the underwriters and may not be indicative of prices
that will prevail in the trading market. Please see "Underwriting" for more
information regarding how the initial public offering price was determined.
The market price of our stock may be materially adversely affected by market
volatility, which could result in litigation.
The market prices of the securities of Internet-related companies have been
especially volatile and have experienced extreme volume fluctuations. The
trading price of our common stock could be subject to wide fluctuations in
response to a number of factors, including:
. our quarterly results of operations;
. changes in earnings estimates by analysts and whether our earnings meet
or exceed such estimates;
. announcements of technological innovations by us or our competitors;
. additions or departures of key personnel;
. other matters discussed elsewhere in this prospectus; and
. other events or factors, which may be beyond our control.
Volatility in the market price of our stock could lead to claims against us.
If we were the object of such litigation, it could result in substantial costs
and a diversion of our management's attention and resources.
Our controlling stockholders may make decisions which you do not consider to
be in your best interest.
We anticipate that the executive officers, directors and entities affiliated
with them will, in the aggregate, beneficially own approximately 67.1% of our
outstanding common stock following the completion of this offering. These
stockholders will be able to exercise control over all matters requiring
approval by our stockholders, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of us. Please see
"Management" and "Principal and Selling Stockholders" for detailed information
on the beneficial ownership of our executive officers, directors and
affiliates.
Anti-takeover provisions in our charter documents and Delaware law could
delay, defer or prevent a tender offer or takeover attempt that you consider to
be in your best interest.
Certain anti-takeover provisions of our restated certificate of
incorporation, our restated bylaws and Delaware law could make it more
difficult for a third party to acquire us. As a result, we could delay, defer
or prevent a takeover attempt or third party acquisition that our stockholders
consider in their best interest, including an attempt that might result in a
premium over the market price for the shares held by our stockholders. Please
see "Description of Securities" for detailed information on these provisions.
You will suffer dilution in the value of your shares.
Investors purchasing shares in this offering will incur immediate and
substantial dilution in net tangible book value per share. To the extent
outstanding options to purchase common stock are exercised, there will be
further dilution. Please see "Dilution" for detailed information on dilution
resulting from this offering.
15
<PAGE>
Forward-Looking Statements
Many statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere may be forward-
looking statements that are not based on historical facts. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors." We are not obligated to update or revise these
forward-looking statements to reflect new events or circumstances.
16
<PAGE>
Use of Proceeds
We estimate that the net proceeds from the sale of the 3,800,000 shares
offered by us will be approximately $41.8 million, assuming an initial public
offering price of $12.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. If our portion of the underwriters' over-allotment is exercised in full,
we estimate that such net proceeds will be approximately $48.1 million.
We intend to use approximately $36.6 million of the net proceeds of this
offering for working capital and other general corporate purposes, including
expansion of our proprietary database, enhancement and development of existing
and new information services and transaction support products and geographic
expansion. We may also use a portion of the proceeds for strategic alliances
and acquisitions.
We intend to use the remaining $5.2 million of the net proceeds of this
offering for repayment of debt with various maturity dates between May 1999 and
January 2002. Approximately $1.6 million of our debt bears interest at an
annual rate of 8.75% during the term of the loan and a one-time 15% interest
balloon payment is due upon completion of the term. The loan proceeds from
$300,000 of this $1.5 million in debt loaned to us in October 1998 were used to
acquire REALBID, LLC. Approximately $600,000 of our debt will bear interest at
8% beginning December 1, 1999, net of repayments. Approximately $3.0 million of
our debt bears interest at an annual rate of 13% during the term of the loan.
Although we currently plan to use a significant portion of the net proceeds
of this offering for expansion of our proprietary database, enhancement and
development of existing and new information services and transaction support
products and geographic expansion, we have not yet made any material
commitments or specific allocations of net proceeds, if any, to each of these
purposes other than the repayment of debt. Accordingly, management will have
significant flexibility in applying the net proceeds of this offering to these
uses, as well as to other general corporate purposes. Our allocation of net
proceeds will depend upon developments and opportunities in our business, the
various geographic markets and the Internet industry in general. Pending any
such use, as described above, we intend to invest the net proceeds in interest-
bearing instruments. We will not receive any proceeds from the sale of shares
by the selling stockholders. Please see "Principal and Selling Stockholders"
for a description of shares to be sold by selling stockholders.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to support operations and to
finance the expansion of our business. Further, a loan agreement we entered
into with Silicon Valley Bank in April 1999 restricts our ability to pay any
dividends until we have fully repaid the loan. Any future determination to pay
cash dividends will be at the discretion of our board of directors and will be
dependent on financial condition, operating results, capital requirements and
other factors that our board deems relevant.
17
<PAGE>
Capitalization
The following table sets forth our capitalization as of December 31, 1998 on
an actual basis and as adjusted to give effect to the receipt by us of the
estimated net proceeds from the sale of 3,800,000 shares offered hereby at an
assumed initial public offering price of $12.00 per share and the exercise of
warrants outstanding to purchase 530,537 shares at a weighted average exercise
price of $0.0136 per share. This information should be read in conjunction with
our financial statements and the notes relating to such statements appearing
elsewhere in this prospectus. This information is based on the number of shares
of common stock outstanding on December 31, 1998. It excludes the following
shares that we may issue:
. 1,749,727 shares upon the exercise of options outstanding at a weighted
average exercise price of $1.17 per share and
. 156,285 shares upon the exercise of warrants outstanding at a weighted
average exercise price of $2.40 per share.
In April 1999, we entered into a $3.0 million loan agreement with Silicon
Valley Bank. This agreement provides $3.0 million for working capital.
Borrowings under this agreement will be due on the closing of this offering. In
connection with this loan, we issued warrants exercisable for up to 71,882
shares of common stock, with an exercise price per share ranging from $1.59 to
$6.82, depending on when we repay the loan.
Please see "Management--Benefit Plans," "Description of Securities" and the
more detailed financial statements and notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
December 31, 1998
-------------------------
Actual As Adjusted
----------- ------------
(dollars in thousands)
<S> <C> <C>
Current portion of long-term obligations............. $ 1,029 $ 49
=========== ===========
Long-term obligations, less current portion.......... 1,123 23
Redeemable convertible preferred stock:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized on an actual basis;
no shares authorized on an as adjusted basis;
4,908,126 shares issued and outstanding on an
actual basis; and no shares issued and outstanding
on an as adjusted basis........................... 7,009 --
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, no shares
authorized on an actual basis; 5,000,000 shares
authorized on an as adjusted basis; no shares
issued and outstanding on an actual and an as
adjusted basis.................................... -- --
Common stock, $0.01 par value, 16,503,750 shares of
Class A common stock and 1,833,750 shares of Class
B common stock authorized on an actual basis;
3,501,626 shares of Class A common stock and
31,907 shares of Class B common stock issued and
outstanding on an actual basis; 75,000,000 shares
authorized on an as adjusted basis; 11,464,181
shares issued and outstanding on an as adjusted
basis............................................. 30 109
Additional paid-in capital......................... 7,745 56,863
Warrants........................................... 398 --
Deferred compensation.............................. (4,487) (4,487)
Accumulated deficit................................ (11,557) (11,557)
----------- -----------
Total stockholders' equity (deficit)................. (7,871) 40,928
----------- -----------
Total capitalization............................. $ 261 $ 40,951
=========== ===========
</TABLE>
18
<PAGE>
Dilution
Our pro forma net tangible book value as of December 31, 1998 was a deficit
of $4,034,194, or $0.57 per share of common stock. Pro forma net tangible book
value per share is equal to the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding as of
December 31, 1998. Assuming the sale of the 3,800,000 shares offered hereby at
an assumed initial public offering price of $12.00 per share, the deduction of
underwriting discounts and estimated offering expenses and the application of
the estimated net proceeds therefrom, our pro forma net tangible book value as
of December 31, 1998 would have been $37,748,806, or $3.29 per share of common
stock. This represents an immediate increase in pro forma net tangible book
value of $3.86 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $8.71 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $12.00
Pro forma net tangible book value (deficit) per share as of
December 31, 1998............................................ $(0.57)
Increase attributable to new investors........................ 3.86
------
Pro forma net tangible book value per share after this
offering....................................................... 3.29
------
Pro forma dilution per share to new investors................... $ 8.71
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31, 1998,
after giving effect to the automatic conversion of all outstanding shares of
preferred stock into common stock and the exercise of warrants outstanding to
purchase 530,537 shares at a weighted average exercise price of $0.0136 per
share, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 7,664,181 66.9% $ 6,199,502 12.0% $ 0.81
New investors.............. 3,800,000 33.1 45,600,000 88.0 12.00
---------- ----- ----------- -----
Total................... 11,464,181 100.0% $51,799,502 100.0%
========== ===== =========== =====
</TABLE>
The tables and calculations above assume no exercise of outstanding options
or warrants, other than those warrants exercisable for $0.0136 per share. At
December 31, 1998, there were:
. 1,749,727 shares issuable upon the exercise of options outstanding at a
weighted average exercise price of $1.17 per share,
. 156,285 shares issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $2.40 per share and
. 376,219 shares available for issuance under our stock option plans.
To the extent that these options or warrants are exercised, there will be
further dilution to new investors. Please see "Management--Benefit Plans."
19
<PAGE>
Selected Financial Data
The following selected financial data should be read in conjunction with the
financial statements and the notes to such statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
three years ended December 31, 1998, and the consolidated balance sheet data at
December 31, 1997 and 1998, are derived from our financial statements which
have been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this prospectus. The statement of operations data for the two
years ended December 31, 1995, and the consolidated balance sheet data at
December 31, 1994, 1995 and 1996 are derived from audited financial statements
not included in this prospectus. The 1998 statement of operations includes the
results of REALBID, LLC from November 6, 1998. Historical results are not
necessarily indicative of the results to be expected in the future. The pro
forma statement of operations data gives effect to our acquisition of REALBID,
LLC as if it had occurred on January 1, 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
Pro Forma
1994 1995 1996 1997 1998 1998
------ ------- ------- ------- ------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............. $6,030 $ 6,716 $ 8,707 $10,867 $12,900 $13,123
Cost of revenues......... 2,674 3,488 4,357 5,054 5,768 5,813
------ ------- ------- ------- ------- -------
Gross profit............. 3,356 3,228 4,350 5,813 7,132 7,310
Operating expenses:
Selling and marketing.. 2,306 2,072 2,813 3,408 4,230 4,230
Product development and
engineering........... -- -- 376 768 1,233 1,233
General and
administrative........ 1,743 2,527 3,401 2,942 3,068 3,948
------ ------- ------- ------- ------- -------
Total operating
expenses............ 4,049 4,599 6,590 7,118 8,531 9,411
------ ------- ------- ------- ------- -------
Loss from operations..... (693) (1,371) (2,240) (1,305) (1,399) (2,101)
Other income (expense),
net..................... (9) 12 (67) (252) (260) (260)
------ ------- ------- ------- ------- -------
Net loss................. (702) (1,359) (2,307) (1,557) (1,659) (2,361)
Dividend accretion on
preferred stock 63 299 299 299 454 454
------ ------- ------- ------- ------- -------
Net loss attributable to
common stockholders..... $ (765) $(1,658) $(2,606) $(1,856) $(2,113) $(2,815)
====== ======= ======= ======= ======= =======
Net loss per share
attributable to common
stockholders, basic and
diluted................. $(0.16) $ (0.47) $ (0.74) $ (0.53) $ (0.60) $ (0.80)
====== ======= ======= ======= ======= =======
Shares used in computing
net loss per share
attributable to common
stockholders, basic and
diluted................. 4,700 3,502 3,502 3,502 3,517 3,517
====== ======= ======= ======= ======= =======
Pro forma net loss per
share, basic and
diluted................. $ (0.23) $ (0.33)
======= =======
Shares used in computing
pro forma net loss per
share, basic and
diluted................. 7,067 7,067
======= =======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
(in thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............. $2,866 $ 260 $ 578 $ 352 $ 378
Working capital (deficit)............. 1,225 (1,119) (2,056) (3,053) (4,354)
Total assets.......................... 4,687 4,714 4,224 4,091 8,414
Deferred subscription revenue......... 2,152 2,670 3,197 4,023 5,503
Long-term obligations, less current
portion.............................. 230 777 1,533 1,822 1,123
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)
</TABLE>
Please see Note 1 to the financial statements appearing elsewhere in this
prospectus for the determination of number of shares used in computing basic
and diluted loss per share.
20
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of our 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 prospectus.
Overview
In January 1982, we first began providing sales information on commercial
properties in San Diego County. From 1982 through 1985, we expanded our
coverage throughout Southern California to Orange, Riverside, San Bernardino
and Los Angeles counties and to Phoenix and Tucson, Arizona. We continued our
geographic expansion from 1987 through 1992 with coverage of Northern
California, Las Vegas and Seattle. During the period from June 1994 through
December 1998, we further broadened our 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.
We originally offered paper-based commercial real estate transaction
information. In 1986, we introduced our CallCOMPS service, which permitted
customers to call in and obtain sales transaction information, and, in 1990, we
introduced a DOS-based subscription product. Through 1996, the majority of our
revenues continued to come from print subscriptions. In October 1996, we began
to offer our services on CD-ROM, allowing for the computerized manipulation of
data to provide more customized reports. Most recently, in January 1998, we
began to offer our information services on the Internet. This has allowed our
customers to receive updated commercial real estate transaction information
more frequently and analyze the data more quickly and easily. Delivery of our
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 our 1998 revenues were derived
from delivery of our services and products on the Internet. We expect this
percentage to increase as more of our customers transition to using our
services and products on the Internet.
In November 1998, we acquired the assets of REALBID, LLC, a real estate
marketing services company which supports commercial real estate transactions
on the Internet. As a result of this acquisition, our 1998 pro forma net
revenues were $13.1 million and our pro forma operating expenses were $9.4
million, compared to our 1998 actual net revenues of $12.9 million and our
actual operating expenses of $8.5 million. The purchase price of the
acquisition totaled approximately $3.4 million, which consisted of $163,000 in
cash, stock options granted to the principals valued at approximately $3.1
million and acquisition costs of $54,000. Intangible assets of $3.3 million
were recorded as a result of this acquisition. These intangible assets will be
amortized over their estimated useful lives, ranging from three to five years,
and will be primarily allocated to general and administrative expenses. In
1998, we amortized $117,000 relating to the intangible assets of REALBID, LLC.
We currently expect to amortize the following amounts relating to the
intangible assets of REALBID, LLC in the future: 1999--$704,000; 2000--
$704,000; 2001--$688,000; 2002--$600,000; and 2003--$483,000.
Substantially all of our revenues have been derived from licensing our 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
our information licensing revenue was derived from subscription contracts and
approximately 25% 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. We
recognize 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.
Since our November 1998 acquisition of REALBID, LLC, we have also begun to
derive revenues from our transaction support products. For the period of
November 6, 1998 through December 31, 1998, these revenues
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<PAGE>
totaled approximately $17,000. The 1998 pro forma transaction support product
revenues totaled approximately $240,000. We derive all of our transaction
support product revenues from the delivery of products on the Internet. We
recognize these revenues as products are provided.
In order to expand our operations, we anticipate incurring additional
expenses to:
. implement new Internet-related products;
. develop new databases;
. continue the integration of our REALBID services with our database;
. further automate our data collection process;
. acquire other companies; and
. integrate acquired databases into our standardized format.
We also intend to hire additional programmers and research employees as
needed to implement our product development efforts and to continue to expand
our database of commercial real estate. In addition, we intend to further
expand our sales force and marketing team to develop new and existing strategic
relationships and strengthen our brand name as we enter new markets. Lastly, we
anticipate incurring additional costs related to being a public company,
including director's and officer's liability insurance, investor relation
programs and professional service fees. As a result of these expenditures and
other related factors, we expect to continue to incur losses for the forseeable
future.
We have incurred significant net losses since our inception. As of December
31, 1998, we had an accumulated deficit of $11.6 million. Also, in connection
with the grant of 744,200 stock options to employees from February through
November 1998, we recorded deferred compensation of approximately $4.7 million
for the year ended December 31, 1998, representing the difference between the
fair value of our 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 1998, we recorded $192,000 in
compensation expense and expect to record the following amounts in the future:
1999--$1,052,000; 2000--$1,052,000; 2001--$1,052,000; 2002--$955,000; and
2003--$377,000.
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>
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>
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<PAGE>
Comparison of Years Ended December 31, 1998, 1997 and 1996
Net Revenues
Our net revenues for 1998 were $12.9 million, an increase of $2.0 million or
18.7% from 1997. Our 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
expansion and further penetration of our existing markets. We had no customer
that accounted for more than 10% of our net revenues in 1998, 1997 or 1996.
Cost of Revenues
Cost of revenues consists of compensation and benefits for research personnel
and research supplies. Our 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 our direct sales
force. Our selling and marketing expenses for 1998 were $4.2 million, an
increase of approximately $800,000 or 24.1% from 1997. Our 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 our 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 our 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. Our product
development and engineering expenses for 1998 were $1.2 million, an increase of
approximately $400,000 or 60.6% from 1997. Our 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.
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<PAGE>
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. Our general and administrative expenses for
1998 were $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 our 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 our 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. Our 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 our debt less
the amount of interest we earn on our 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.
Quarterly Results Of Operations
The following table sets forth certain unaudited quarterly statement of
operations data for each of the eight quarters in the two year period ended
December 31, 1998. In the opinion of management, this information has been
prepared substantially on the same basis as the audited financial statements
appearing elsewhere in this prospectus, and all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the unaudited quarterly results of
operations data.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
March 31, June 30, Sept 30, Dec 31, March 31, June 30, Sept 30, Dec 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- -------- ------- --------- -------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $2,363 $2,656 $2,697 $3,151 $3,025 $3,340 $3,359 $ 3,176
Cost of revenues........ 1,163 1,191 1,264 1,436 1,287 1,306 1,468 1,707
------ ------ ------ ------ ------ ------ ------ -------
Gross profit............ 1,200 1,465 1,433 1,715 1,738 2,034 1,891 1,469
Operating expenses:
Selling and
marketing............. 775 848 866 919 909 917 979 1,425
Product development
and engineering....... 156 179 190 243 212 318 395 308
General and
administrative........ 674 644 624 1,000 708 737 680 943
------ ------ ------ ------ ------ ------ ------ -------
Total operating
expenses............ 1,605 1,671 1,680 2,162 1,829 1,972 2,054 2,676
------ ------ ------ ------ ------ ------ ------ -------
Loss from operations... (405) (206) (247) (447) (91) 62 (163) (1,207)
Other expense, net..... (83) (85) (57) (27) (82) (73) (38) (67)
------ ------ ------ ------ ------ ------ ------ -------
Net loss................ $ (488) $ (291) $ (304) $ (474) $ (173) $ (11) $ (201) $(1,274)
====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
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<PAGE>
The following table sets forth, for the periods indicated, the percentage of
net revenues represented by each item in our statement of operations.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
March 31, June 30, Sept 30, Dec 31, March 31, June 30, Sept 30, Dec 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- -------- ------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues........ 49 45 47 45 43 39 44 54
---- ---- ---- ---- ---- ---- ---- ----
Gross profit............ 51 55 53 55 57 61 56 46
Operating expenses:
Selling and
marketing............. 33 32 32 29 30 27 29 45
Product development
and engineering....... 7 7 7 8 7 10 12 10
General and
administrative........ 28 24 23 32 23 22 20 29
---- ---- ---- ---- ---- ---- ---- ----
Total operating
expenses............ 68 63 62 69 60 59 61 84
---- ---- ---- ---- ---- ---- ---- ----
Loss from operations... (17) (8) (9) (14) (3) 2 (5) (38)
Other expense, net..... (4) (3) (2) (1) (3) (2) (1) (2)
---- ---- ---- ---- ---- ---- ---- ----
Net loss................ (21)% (11)% (11)% (15)% (6)% 0% (6)% (40)%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
In the first quarter of 1997, gross profits were lower when compared to the
successive three quarters because revenues resulting from the conversion of our
subscriber base to higher margin electronic delivery was slower than expected.
In the remaining three quarters of the year, revenues from licensing of our
information through the higher margin electronic delivery were recognized from
the sale of annual subscriptions in previous quarters.
During the second quarter of 1997, selling and marketing expenses increased
over the previous quarter by $73,000 or 9%, but decreased as a percentage of
net revenues. The dollar increase was due to commission expense incurred as the
result of new and revised subscription contracts for the electronic delivery of
our information.
General and administrative expenses increased $376,000 or 60% in the fourth
quarter of 1997 over the previous quarter due to an impairment loss of $183,000
for intangible assets acquired in 1995, and $132,000 relating to the November
1997 acquisition of a customer base. The impairment loss of $183,000 was
recorded because we determined that our subscription base 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.
The increase in gross profit for the second quarter of 1998 resulted from an
increased demand for our per use services compared to the first quarter of
1998. Also in the second quarter of 1998, we continued to realize increased
revenues from the licensing of our higher margin electronic delivery
information.
In the fourth quarter of 1998, gross profit declined due to increased
expenses incurred in connection with our geographic expansion, including travel
expenses of our researchers necessary to accumulate and verify historical
commercial sales activity in new markets, as well as related personnel and
benefit costs. In addition, during the fourth quarter of 1998, selling and
marketing and general and administrative expenses increased as a result of our
acquisition of REALBID, LLC and the amortization of intangibles and deferred
compensation. The quarterly data should be read in conjunction with the
financial statements and the notes to such statements appearing elsewhere in
this prospectus. The operating results for any quarter are not necessarily
indicative of the operating results for any future period and are subject to
significant fluctuation.
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<PAGE>
Liquidity And Capital Resources
Since our inception, we have financed our operations primarily through the
private placement of equity securities, borrowing arrangements and cash flow
from operations. As of December 31, 1998, we had approximately $378,000 in cash
and cash equivalents.
Our capital requirements depend on numerous factors, including our geographic
and product expansions, investments in our Web site and other factors. We have
experienced a substantial increase in our capital expenditures and operating
expenses since our inception consistent with our growth in operations and
staffing, and anticipate that this trend will continue for the foreseeable
future. As of December 31, 1998, our capital commitments for 1999 included
approximately $513,500 for operating leases, $49,300 in capital leases and
$979,200 for current debt. We do not expect our capital commitments to exceed
$2.5 million in the next 12 months. We expect our expenses to continue to
increase as we continue to evaluate possible strategic acquisitions, products
and technologies, expand our 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.
We currently expect to use a significant portion of the net proceeds of this
offering for expansion of our proprietary database, enhancement and development
of existing and new information services and transaction support products and
geographic expansion. However, we have not yet made any material commitments or
specific allocations of net proceeds, if any, to each of these purposes.
Accordingly, our allocation of net proceeds may be to these uses, as well as to
other general corporate purposes, depending upon developments and opportunities
in our business, the various geographic markets and the Internet industry in
general.
In September 1996, we entered into a $3.0 million loan agreement with Venture
Lending & Leasing, Inc. This agreement provides $1.5 million for fixed asset
acquisition and $1.5 million for working capital. Borrowings for fixed asset
acquisition are due 48 months from the date of disbursement. 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 is due upon completion of the term. The notes issued
under this loan agreement are secured by either all of our fixed assets or all
of our business assets. In connection with this loan agreement, we issued to
Venture Lending & Leasing, Inc. a warrant to purchase 156,285 shares of our
common stock at an exercise price of $2.40 per share, subject to antidilutive
adjustments. The warrant may be exercised in whole or in part at any time. The
warrant expires on September 24, 2003. At March 31, 1999, approximately
$141,800 was available for working capital and none was available for fixed
asset acquisition. The loan agreement originally was set to expire on June 30,
1998, but was extended during 1998 to June 30, 1999.
In February 1999, we 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 our fixed assets or all of our business assets. In connection
with this loan agreement, we issued a warrant to Venture Lending & Leasing,
Inc. This warrant is exercisable for a number of shares determined by a formula
based on whether or not we close a new equity financing prior to August 2000.
The number of warrant shares will be equal to $225,000 divided by the exercise
price, which will be the average of $2.46 and the per share price of the new
equity financing. If no equity financing occurs by August 2000, the warrant
will be exercisable for 61,125 shares at $3.68 per share. Upon the closing of
this offering at an assumed initial public offering price of $12.00 per share,
the warrant will be exercisable for 31,120 shares at an exercise price of $7.23
per share and will be valued at $182,674. 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 on February 14, 2008. At
March 31, 1999, $1.8 million was available under this loan agreement. This loan
agreement expires on March 31, 2000.
26
<PAGE>
In April 1999, we entered into a $3.0 million loan agreement with Silicon
Valley Bank. This agreement provides $3.0 million for working capital.
Borrowings under this agreement are due on the earlier of receipt by us from an
equity offering of at least $5.0 million in net cash proceeds or April 2001.
This loan agreement requires payment of 13% interest during the term. The notes
issued under the agreement are secured by all of our assets. In connection with
this loan, we issued warrants exercisable for up to 71,882 shares of common
stock, with an exercise price per share ranging from $1.59 to $6.82, depending
on when we repay the loan. If this offering closes prior to May 15, 1999, the
total number of shares issuable upon exercise of the warrants will be 14,670
with an exercise price of $6.82 per share. If, however, this offering closes
between May 15, 1999 and August 15, 1999, the total number of shares issuable
will be 22,005 with an exercise price per share of $6.82. The warrants expire
on April 9, 2006.
We currently anticipate that the net proceeds of this offering, together with
available funds, will be sufficient to meet our anticipated needs and strategy
until at least the end of 2000. After such time, we may need to raise
additional funds in order to fund more aggressive brand name promotions or more
rapid expansion, to develop new or enhanced services and products, to respond
to competitive pressures or to acquire complementary businesses, technologies
or services. Additional financing may not be available on terms favorable to
us, if at all. If adequate funds are not available or not available on
acceptable terms, we may be unable to fund our expansion, successfully promote
our brand name, take advantage of unanticipated acquisition opportunities,
develop or enhance services and products or respond to competitive pressures.
Any such inability could have a material adverse effect on our business.
Impact of the Year 2000
We have not fully completed tests to assure that our 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 year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
State of Readiness. We have made an assessment of the year 2000 readiness of
our information technology systems, including the hardware and software that
operate our Web site and our non-information technology systems. We are in the
process of a year 2000 simulation to test our information technology systems'
readiness which we expect to complete by the end of June 1999. Based on the
results of our year 2000 simulation test, we intend to revise our proprietary
software as necessary to improve our year 2000 compliance. We believe that
substantially all of our applications, databases and infrastructure are year
2000 compliant. We have been informed by many of our vendors of material
hardware and software components of our information technology systems that
substantially all of the products we use are currently year 2000 compliant. We
will request vendors of the material hardware and software components of our
information technology systems to provide assurances of their year 2000
compliance. We plan to complete this process during the first half of 1999. We
are currently assessing our material non-information technology systems and
will seek assurances of year 2000 compliance from providers of these systems.
Until such testing is complete and such vendors and providers are contacted, we
will not be able to completely evaluate whether our information technology
systems or non-information technology systems will need to be revised or
replaced. If our efforts to address year 2000 risks are not successful, or if
suppliers or other third parties with whom we conduct business do not
successfully address such risks, it could have a material adverse effect on our
business.
Costs. We have identified approximately $300,000 in capital equipment and
software that required upgrading or replacement for year 2000 compliance. We
expended $150,000 prior to December 31, 1998 and still have an outstanding
balance of $150,000 in capital equipment and software to replace. These costs
have been included in our operating capital budget.
27
<PAGE>
Risks. We are not currently aware of any year 2000 compliance problems
relating to our proprietary software or our information technology or non-
information technology systems that would have a material adverse effect on our
business. We cannot assure that we will not discover year 2000 compliance
problems in our proprietary software that will require substantial revisions.
In addition, we cannot assure you that third-party software, hardware or
services incorporated into our material information technology and non-
information technology systems will not need to be revised or replaced, all of
which could be time consuming and expensive. Our failure to fix our 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 our business. Moreover, the failure to adequately
address year 2000 compliance issues in our proprietary software and our
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, we cannot assure you that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be year 2000 compliant. The failure by such entities
to be year 2000 compliant could result in a systemic failure beyond our
control, such as a prolonged Internet, telecommunications or electrical
failure, which could prevent us from delivering our Web site, could decrease
the use of the Internet or prevent users from accessing our Web site, which
could have a material adverse effect on our business.
Contingency Plan. In the event that year 2000-related problems materialize,
we have the ability to revert to a set of manual methods previously utilized in
the collection and distribution of data if necessary. We also maintain
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 and 1998, inflation
has not had a significant effect on our results of operations since our
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 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 our net loss and our 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 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 us 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. We are currently evaluating the impact of SOP 98-1 on our
financial statements and related disclosures.
28
<PAGE>
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. We believe the
adoption of SOP 98-5 will not have a material impact on our 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 us because we currently do not hold any derivative instruments or
conduct any hedging activities.
29
<PAGE>
Business
Overview
We are a leading national provider of comprehensive information on commercial
real estate properties to commercial real estate professionals both offline and
on the Internet. We have also begun facilitating commercial real estate
transactions on the Internet by using our extensive database to match brokers'
property listings with potential owners and investors contained in our
database. Over the last 17 years, we have developed a highly evolved data
collection and confirmation system to provide information on commercial real
estate properties. This information is verified by our researchers and includes
sales price, income and expenses, capitalization rates, loan data, property
photographs, buyers, sellers, brokers and other key details. We believe that we
are well-positioned to use our extensive database of information to support
brokers, lenders and insurers in their sales, finance and insurance
transactions involving commercial real estate on the Internet.
Industry Background
Growth of the Internet
International Data Corporation estimates that the number of Internet users
worldwide exceeded 95 million by the end of 1998, will exceed 170 million by
the end of 2000 and will grow to over 319 million by the end of 2002. Growth in
Internet usage has been fueled by a number of factors, including:
. a large and growing base of personal computers in the workplace and
home;
. advances in the performance of personal computers and modems;
. improvements in network systems and infrastructure;
. more readily available and lower cost access to the Internet;
. increased awareness of the Internet among businesses and consumers;
. increased volume of information and services offered on the Internet;
and
. reduced security risks involved in conducting transactions on the
Internet.
Growth in Internet usage is expected to continue as new technologies, such as
multimedia capabilities, are developed and adopted, as Internet access and
bandwidth increases, and as Internet content improves and becomes more dynamic.
The Internet as a New Medium for Business-to-Business Commerce
As the Internet has become more accessible and widely used, it has emerged as
a primary business channel alongside the telephone, paper-based communication
and face-to-face interaction. Forrester Research estimates that businesses
bought and sold $43 billion in goods over the Internet last year, as opposed to
$8 billion bought by consumers. In addition, they predict that by the year
2003, more than 90% of the projected $1.4 trillion of Internet commerce will be
business-to-business related. The Internet allows online providers to
efficiently distribute information with the potential for less infrastructure
and overhead and greater economies of scale. It also offers customers diverse
options and unparalleled convenience.
The Commercial Real Estate Industry
The commercial real estate industry is large and fragmented. Institutional
Real Estate, Inc., a research firm, has estimated the value of commercial real
estate property in the United States to be approximately $3.7 trillion. We
estimate that property valued at approximately $285 billion changed ownership
in 1998. However, we estimate that no commercial real estate brokerage firm was
involved in more than 5% of the value of these transactions. In addition,
approximately $200 billion of loans covering commercial real estate properties
were written in 1998, approximately half of which were refinancing
transactions.
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Comprehensive and reliable information is a critical component of virtually
all commercial real estate transactions. Prior to the availability of
commercial real estate sales information services which provide independently
verified and comprehensive sales information from a centralized source,
industry professionals either maintained their own research departments to
catalog comparable sales, market statistics and other property-specific
information or aggregated such information, to the limited extent available,
from multiple third parties. These firms have also traditionally spent
significant resources adapting or developing software to analyze such
information. These methods have resulted in high internal costs and nonstandard
data with varying degrees of comprehensiveness and accuracy.
In addition, with respect to supporting real estate transactions, there are
currently no comprehensive, standardized transaction support products that
efficiently identify properties and bring together lenders and insurers, as
well as brokers and buyers, in commercial real estate transactions. The lack of
such services results in higher internal costs and lost opportunities for
brokers, buyers, lenders and insurers.
The COMPS.COM Solution
The vast information sharing and communications power of the Internet creates
an opportunity to improve upon the inefficiencies in conducting commercial real
estate transactions. We provide comprehensive and reliable information
services, and transaction support products that save industry professionals
both time and money. We generate revenue from our information services by
licensing on a subscription or per use basis and from our transaction support
products on a fixed fee basis. Our expenses are primarily incurred as a result
of building our database and developing and implementing new Internet-related
products. We believe we have established the foundation to be the trusted
online resource linking commercial real estate brokers, lenders, appraisers,
insurers and other professionals. To date, we have:
. Developed a comprehensive and standardized proprietary database. Over the
last 17 years, we have developed a highly evolved data collection and
confirmation system to provide information on commercial real estate
properties. This system is based on a unique combination of our highly trained
research staff of over 155 researchers, management practices, proprietary
software systems, and computer and communications hardware. To build each of
our transaction records, our researchers conduct from 25 to 30 collection and
confirmation procedures. We generally confirm property sales over $250,000
within the markets that we cover. Since our inception, we have created a
historical database of approximately 400,000 commercial real estate
transactions. As a result, we believe that the cost, time and effort involved
in replicating our commercial real estate property database makes it difficult
for competitors to enter this market and creates a significant barrier to
entry.
. Migrated our database to the Internet. We started out as a paper-based
commercial real estate transaction information service in January 1982. In
October 1996, we began to offer our customers the service on CD-ROM, allowing
for the computerized manipulation of data to provide more customized reports.
In January 1998, we began to offer this service on the Internet. This allows
our customers to receive updated commercial real estate transaction information
more frequently and analyze the data more quickly and easily. We generate
revenues from our information services by licensing on a subscription or a per
use basis. On the date of this prospectus, approximately 35% of our customers
use the Internet along with traditional methods when obtaining our services,
and approximately 15% use our Internet services exclusively.
. Established an Internet-based listing-broker/buyer matching service. We
acquired REALBID, LLC in November 1998 in order to offer a listing-broker/buyer
matching service to commercial listing-brokers for properties with values
exceeding $5 million. As part of the REALBID service, we develop 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. In connection with this service we actively use our
comprehensive database to identify and refer potential buyers of listed
properties to brokers on REALBID and send summary announcements by fax and e-
mail to such potential investors. Our database includes the specific investment
criteria of pension fund managers, real estate investment trusts, opportunistic
funds, private investors, insurance
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companies and other potential buyers. We currently receive fees for this
service from listing brokers or the sellers who retain the brokers and from
sponsors whose messages and links are located at the Web site. None of these
fees are contingent upon the sale of the respective properties. In 1998,
REALBID was used to support approximately $3.8 billion in commercial real
estate transactions.
. Introduced a commercial real estate listing service. In January 1999, we
introduced our proprietary commercial real estate property listing service,
DealPoint, for San Diego County. DealPoint is our Internet-based, commercial
listing service enabling brokers to market their properties on the Internet.
This form of marketing provides the commercial property broker with an
opportunity to increase a property's exposure to prospective buyers and their
brokers. Posting may be accomplished by the broker's remote entry or by sending
the property information to us for manual entry. This service is intended to
attract Internet users to our Web site and is currently available at no cost.
During the first quarter of 1999, more than 650 for-sale commercial properties
were posted on the system by brokers in San Diego.
Our Business Strategy
Our objective is to be the trusted online resource linking commercial real
estate brokers, lenders, appraisers, insurers and other professionals by
efficiently distributing market information on the Internet. As a resource of
commercial real estate market information, we expect to have brokers, lenders,
insurers, appraisers and others come to our Web site to transact their business
because we can save them time and money. We generate revenue from our
information services by licensing on a subscription or per use basis and from
our transaction support services on a fixed fee basis. Our expenses are
primarily incurred as a result of building our database and developing and
implementing new Internet-related products. Our business strategy includes the
following key elements:
. Continue to enhance our comprehensive historical database of commercial
real estate transactions. We intend to maintain our position as a leading
provider of comprehensive, reliable commercial real estate transaction
information. We expect to do this by:
. expanding our information gathering processes across multiple
services and products;
. using technology to further automate the data collection process;
. integrating acquired databases into our standardized format; and
. continually improving our data collection and error detection
methods.
We believe that these efforts will permit us to build upon our current
comprehensive historical database of commercial real estate transactions and
maintain the competitive advantages it affords us in our industry.
. Expand our online listing-broker/buyer matching network. We intend to ex-
pand and enhance the listing-broker/buyer matching services of REALBID by fur-
ther integrating our REALBID service into our proprietary database. In addi-
tion, we plan to increase the number of commercial properties serviced through
the REALBID database by including commercial properties with sale prices as low
as $1 million. Our comprehensive investor database will allow brokers to more
easily identify prospective buyers and our Internet-based new listing notifica-
tion system allows brokers to more efficiently market commercial properties to
such buyers.
. Create a comprehensive online national listing service for commercial real
estate. We intend to expand the geographic coverage of our online listing
service, DealPoint, by soliciting commercial real estate listings throughout
the United States. We expect these efforts to result in a comprehensive online
national listing service for commercial real estate which will enhance our role
in the commercial real estate transaction process.
. Enhance our services and products to facilitate online exchange of key
commercial real estate market information. We believe that our Web site has the
potential to be an online forum for commercial real estate transactions. We
believe that commercial real estate industry professionals will be drawn to our
Web
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site because we provide the information necessary to complete transactions. We
initially plan to expand our existing services to match lenders, mortgage
bankers and brokers with borrowers, followed by matching insurers and agents
with property owners and lenders. Combined with our REALBID service, these
expanded services will allow buyers and, where applicable, existing property
owners, to find the appropriate broker-listed property and arrange financing
and insurance coverage for that property from a single source.
. Expand into new geographic markets. Since 1995, we have expanded our
geographic coverage by establishing commercial real estate information services
in 19 new markets through internal expansion and three additional markets
through acquisitions. We will continue to establish footholds in new geographic
markets by incorporating the commercial real estate sales information obtained
through internal development or acquisitions into our database. We plan to
expand into new geographic markets using our existing relationships with
national customers to gain market acceptance. This strategy will allow us to
add new customers and to more effectively service our existing customers,
particularly those with national or regional focus.
. Continue to build our brand name. We believe that commercial real estate
professionals in the markets we serve associate the COMPS brand name with
comprehensive, accurate and standardized commercial real estate sales
information. We intend to continue building and strengthening our brand name
by:
. maintaining a strong commitment to quality, accuracy and timeliness;
. increasing our marketing and advertising activities; and
. continuing to expand our presence on the Internet.
We expect these efforts to maintain and build upon the COMPS brand name for
quality commercial real estate sales information.
Our Proprietary Database
Our proprietary database of commercial real estate sales transactions is the
result of 17 years of research. We believe it to be the largest and most
sophisticated database covering all categories of commercial real estate
properties available today. In 1998, we researched nearly 46,000 transactions
totaling approximately $105 billion.
Our 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 the following current information and key value
indicators:
. buyers . income and expense information
. sellers . building characteristics and
. brokerage companies condition
. agents . prices per square foot
. lenders and mortgages . prices per unit
. sales prices . capitalization rates
. seller financing . gross income multipliers
. property uses or property
descriptions
Our database covers approximately 400,000 transactions totaling over $466
billion, including 1.8 million acres of land transactions, over 780,000 buyer
and seller records and over 300,000 brokerage and agent records.
We have developed a highly evolved data collection and confirmation system.
This system is based on a unique combination of our highly trained research
staff of over 155 researchers supported by management, computer and
communications hardware and software systems. Many of our researchers have
prior experience in the commercial real estate industry. Our research process
includes from 25 to 30 collection and confirmation procedures on most
properties. We currently cover 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. We also research properties to see if they have one of over
45 detrimental conditions, such as asbestos or earthquake damage. Our
proprietary software utilizes over 38 search
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categories to allow users to search the database efficiently and quickly. This
software enables us to provide commercial real estate professionals with
specific detailed and comprehensive coverage of virtually every commercial
property sale in excess of $250,000 in most of our covered markets.
We research real property transfers throughout the country to identify recent
commercial property transactions. Typically, we review multiple sources of
commercial real estate property information to identify transactions. Once a
potential transaction is identified, in order to increase accuracy, our
researchers inspect county courthouse records and extract pertinent information
directly from the recorded deed into our database. Our 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. Our
site inspections consist of photographing the building, measuring the building,
if necessary, counting parking spaces, assessing property condition and
construction and gathering tenant information. Our researchers then continue to
ensure the accuracy of our sales data by interviewing buyers, sellers and
brokers to confirm that the information we have collected is accurate and to
gather additional data pertinent to the property and transaction. Through the
telephone confirmation process, we are 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 sources.
Our Services and Products
We have developed advanced information services and products utilizing our
proprietary database. In addition, we have acquired and further developed
Internet transaction support products. These products use sophisticated
Windows-based programs with Internet connectivity to access our database and
present information in a variety of formats. Our 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.
Internet-Related
Information Services
Our information services allow our customers to use the Internet to access,
view and report information in our proprietary database of commercial real
estate sales transactions. The database contains over 400,000 sales comparable
records in 35 of the top 74 markets in the U.S.
. E-COMPS. E-COMPS, introduced in January 1998, provides a comprehensive
search engine to access and search our proprietary database. Typically,
commercial real estate professionals require the review of between four
and seven 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 our 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
our 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 our customers to
integrate their own data with our proprietary database information,
including our 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 our databases and their internal data housed at
our facilities. Spectrum includes easy-to-use query and report writing
functions including trend reporting and export features. Spectrum also
provides its subscribers access to PRO/FILES property reports. These
customized property reports can include confirmed sales and lease
comparables, property inspection, demographics and photographs.
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Transaction Support Products
Our 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.
. REALBID. REALBID, introduced in 1997 and acquired by us in November
1998, allows our customers to view properties using a listing-broker's
summary description. We then identify investors and match 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. We offer REALBID posting and
broadcasting at a fixed fee per property. In 1998, REALBID supported
approximately $3.0 billion in commercial real estate transactions.
. DealPoint. DealPoint, introduced in January 1999, is our free commercial
listing service whereby brokers can effectively market properties on the
Internet. This service is currently only available in San Diego County.
We expect to expand DealPoint nationally by the end of 1999 and to
provide extensive in-depth listings by the end of 2000. 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.
Products in Development
We are currently developing a product that will facilitate the financing of
commercial properties by efficiently matching prospective borrowers' loan
requirements with lenders' loan products. Prospective borrowers will be able to
complete and submit comprehensive applications online to those lenders of
choice. The prototype and product design work on this product is nearing
completion; and the coding is scheduled to be completed on the software this
year. We currently do not expect the remaining development costs relating to
this product to be material.
Non-Internet Related
We also offer services that do not rely on the Internet as a means of
delivery. While these services accounted for more than 90% of our revenue in
1998, we expect the percentage of our revenues represented by these products to
diminish as more of our customers transition to using our services and products
on the Internet.
. COMPS Reports. COMPS Reports, introduced in 1982, is a paper-based
service allowing customers to receive sales comparable reports.
. CallCOMPS. CallCOMPS, introduced in 1986, is our phone service allowing
customers to license sales comparable reports on a per use basis.
. COMPSLink Windows. COMPSLink Windows, introduced in 1996, is a desktop
product which provides access to our proprietary database through data
diskette or CD-ROM. COMPSLink Windows allowed us to migrate the customer
base from paper to electronic media during 1997 and 1998.
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Our Customers
As of the end of 1998, we had over 4,000 customers, none of which accounted
for more than 10% of our revenue. In 1998, our customers included:
<TABLE>
<S> <C>
Arthur Andersen, LLP Grubb & Ellis
Bank of America KPMG Peat Marwick, LLP
Bankers Trust Co. Los Angeles County Assessor
CB Richard Ellis Marcus & Millichap
Cushman & Wakefield PricewaterhouseCoopers
Deloitte & Touche, LLP Trammell Crow Co.
Fannie Mae Union Pacific Corporation
Federal Deposit Insurance Corporation Washington Mutual
First Nationwide Bank Wells Fargo Bank
GMAC World Savings and Loan
</TABLE>
Our Sales and Marketing Efforts
Sales
Our sales efforts have been designed to address the specific market needs of
our customers and prospective customers. We use a variety of tools and
techniques, including:
. face-to-face sales calls;
. telesales;
. direct mail;
. seminar marketing; and
. contact management software.
Our sales force focuses on subscription services for all products. There are
three teams involved in our sales efforts:
. Major Account Team. Our major account team is responsible for managing our
relationships with select customers and prospects meeting our pre-defined
criteria. Major account representatives are strategically located in key cities
across the country in order to serve the needs of our 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. We deploy our 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. Our telesales team is located in San Diego and assumes the
field sales role in our 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.
When we enter a new market we build a database of key prospects and then
execute a market opening campaign. Expansion into new markets is coordinated
among all sales teams. Prospects are 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 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 we have expanded and is designed to achieve the
fastest possible sales growth.
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Marketing
We use a multi-faceted marketing strategy, leveraging our own research to
effectively target both individual professionals and organizations. We employ 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. We advertise in
industry publications including, Commercial Property News, National Real Estate
Investor and Real Estate Forum. We also use regional real estate and business
journals to introduce products and new markets.
We also use direct mail, fax and e-mail programs to support new products and
market expansion. Through our prospect and customer database, we deliver a
highly tailored message directly to likely buyers. Mail is used when the
message is detailed and color can be effectively used to illustrate the
marketing message. E-mail and fax are used when communication needs to be swift
and when the message will not suffer because of the lack of resolution or
graphics. We augment our 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 our services.
In order to market our Web site, www.comps.com, we:
. market to industry associations;
. establish relationships with commercial real estate Web sites;
. use online advertising to drive traffic to our Web site; and
. provide discounts and limited free information to entice potential
customers to our Web site.
Public relations efforts are both national and regional. We use traditional
releases to communicate news regarding our company and to maintain brand
awareness. We also use public relations as a tool to educate editors on the
type of data we offer and are regarded as an information source by editors.
Speaking engagements are also used to communicate the expertise of our staff
and quality of our data.
Attendance at industry tradeshows and seminars reinforces relationships with
our core user groups. We also host our own seminars to promote good use of our
products and provide valuable customer service. These presentations allow for
the in-depth demonstration of our products to highly motivated, captive
audiences.
Our Markets
Our database currently covers the following 35 markets, which represent 102
counties and 48 of the 100 largest U.S. cities:
<TABLE>
<S> <C> <C> <C>
Atlanta Fresno Oakland San Diego San
Austin Jacksonville Orange County, CA Francisco
Baltimore Las Vegas Orlando San Jose
Boston Los Angeles Palm Beach County Seattle
Chicago Marin-North SF Philadelphia Stockton/Modesto,
Colorado Bay Area Phoenix CA
Springs Miami Portland Tampa/Saint
Dallas/Fort New York City- Riverside/San Petersburg
Worth Manhattan Bernardino, CA Tucson
Denver Sacramento Ventura, CA
Fort Lauderdale Washington,
(Broward County) Newark D.C./
No. Virginia
</TABLE>
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Infrastructure, Operations and Technology
Our Web site is hosted by Compaq multi-processor servers located at our
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. We maintain multiple Internet servers, which run Microsoft Windows
NT operating systems and use Microsoft Internet Information Server. We maintain
high-speed Internet access through both UUNET and VERIO, and we maintain back-
up connections with both of them to ensure our systems continue to work in case
of breakdowns or other problems.
We configure our 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 our 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 our 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, our operations are dependent on our
ability to protect our facilities and equipment against damage from fire,
earthquakes, power loss, water damage, telecommunications failures, vandalism,
computer viruses, hacker attacks and other malicious acts and similar
unexpected material adverse events. For further information regarding these
issues, please see "Risk Factors--Increased usage could strain our systems and
cause systems malfunctions which could have a material adverse effect on our
business."
We have developed a proprietary accounting system used to capture the revenue
generated by our transaction and subscription-based business. The system
maintains our list of customers and products and includes an installment-
billing module to provide the billing flexibility required by our customers.
The resulting revenue transaction details are summarized and fed into our
accounting system.
Rapidly changing technology, evolving standards, frequent new and upgraded
products and rapid expansion characterize our business. To be successful, we
must adapt to our market by continually improving the performance, features,
and reliability of our services.
Management Systems
As we enter new markets, we must integrate new and existing data into our
databases. Additionally, we must integrate automated and non-automated controls
to manage our 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
ensure data integrity by checking against a valid range of values as soon as
data is entered into input screens. These controls 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 ensures the information entered is logically related.
Computer and Communications Hardware
We maintain 24 Novell and/or Windows NT servers to support our corporate
databases, internal applications and Internet services. We also maintain a
national network that allows high speed access which gives remote researchers
up-to-the-minute access to our databases, internal applications and Internet
services. All servers are protected by secured firewalls. We also maintain
backup drive arrays and inventories of spare parts to minimize potential system
downtime. Finally, we store full data backups of servers off-site.
We currently keep our main property inventory related databases on Compaq
enterprise servers running Microsoft Windows NT. The database management
software is Microsoft Server. Databases are replicated on to additional Compaq
enterprise servers that are located outside the network firewall. This
configuration allows users of our applications to access relevant data without
gaining access to internal network systems. We maintain up-to-date copies of
primary databases for backup.
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Software Systems
Our software systems have kept pace with the evolution of technology. These
systems currently use client server architecture to optimize management of our
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. Our software enables us
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;
. 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.
We compete directly and indirectly for customers and content providers with
the following categories of companies:
. publishers and distributors of traditional information services, such as
national provider, Realty Information Group, regional providers such as Realty
Information Tracking Services, Databank, Dressco, Inc., Revac, Baca Landata 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 LoopNet, Commrex, Commercial Search,
American Real Estate Exchange, Association of Industrial Realtors, Property
Line, CLOAN, Datamerge, A Big Deal.com, Property First, First Realty Advisors,
and numerous small regional and local sites; and
. public record providers such as Experian, Acxiom DataQuick and
TransAmerica, though many of our customers view these public record providers
as complementary to our services and often subscribe to one of these services
as well as our service.
We believe our proprietary database and content compete favorably with our
competitors. However, many of our 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, we may elect to provide products at reduced
prices or at no cost. Our 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.
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Intellectual Property
We rely primarily on a combination of copyrights, trademarks, trade secret
laws, our subscriber agreements and restrictions on disclosure to protect our
intellectual property, such as our proprietary database, software, trademarks,
trade names and trade secrets. We enter into agreements with our customers that
grant our customers revocable, non-transferable, non-exclusive licenses to use
the information and the software on our Web site. These agreements also contain
confidentiality provisions and other provisions prohibiting our customers from
reproducing the information or software they access on our Web site. We also
enter into confidentiality agreements with our employees and consultants, and
seek to control access to and distribution of our other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the content on our Web site or our other
intellectual property without authorization. There can be no assurance that
these precautions will prevent misappropriation, infringement or other
violations of our intellectual property. A failure to protect our intellectual
property in a meaningful manner could have a material adverse effect on our
business. In addition, we may need to engage in litigation in order to enforce
our intellectual property rights in the future or to determine the validity and
scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of management and other resources, either of
which could have a material adverse effect on our business.
We also license data and content from public record providers such as
Experian, Acxiom DataQuick and TransAmerica. Experian has agreed to publish a
subset of our data as a stand-alone product and to make such data available
through its online services. Acxiom DataQuick has granted us a non-exclusive,
non-transferable license to their real property ownership data conveyed on
magnetic tape or by electronic transmission through any online system.
TransAmerica has granted us a limited non-exclusive, non-transferable license
to use its Metroscan CD-Rom database for certain localities, together with its
Metroscan software.
We believe that factors such as technical and creative skills of our
personnel and ongoing reliable product maintenance and support are critical
factors in establishing and maintaining our leadership position in the
commercial real estate industry due to the rapid pace of innovation within the
software and Internet industries.
Employees
As of March 31, 1999, we had approximately 265 employees of whom
approximately 45 were part-time employees. We have never had a work stoppage
and, as of the date of this prospectus, no personnel are represented under
collective bargaining agreements. We consider our employee relations to be
good. For further information regarding employees, please see "Risk Factors--If
we are unable to retain key personnel or attract new personnel, it could have a
material adverse effect on our business."
Facilities
Our principal administrative, sales, marketing, research and product
development facilities are located in approximately 37,000 square feet of
office space in San Diego, California. We lease our facility from a limited
partnership whose general partner is a company owned by Mr. Crane, our
President, Chief Executive Officer and Chairman of the Board. In addition, Mr.
Beasley, one of our directors, is a limited partner of this limited
partnership. Our lease is for a five-year term commencing in February 1999 with
five two-year extension options. For further information regarding this
transaction, please see "Certain Relationships and Related Transactions." We
also rent office space in Burlingame, California; Phoenix, Arizona; and Vienna,
Virginia. We believe our current facilities will be adequate to meet our needs
for the foreseeable future. However, please see "Risk Factors--Increased usage
could strain our systems and cause systems malfunctions which could have a
material adverse effect our business," for further information regarding our
facilities.
Legal Proceedings
As of the date of this prospectus, we are not a party to any material legal
proceedings.
40
<PAGE>
Management
Executive Officers and Directors
Set forth below is the name, age, position and a brief account of the
business experience of each of our executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
----------------------------- --- --------------------------------------------
<C> <C> <S>
Christopher A. Crane......... 47 Chairman of the Board, Chief Executive
Officer and President
Emmett R. DeMoss, Jr. ....... 63 Vice President and Chairman of REALBID
Division
Walter W. Papciak............ 60 Executive Vice President of Sales, Marketing
and Product Development
Michael Arabe................ 52 Senior Vice President of Sales
Craig S. Farrington.......... 40 Vice President of Product Marketing and
Development
Karen Goodrum................ 41 Vice President of Finance and
Administration, Chief Financial Officer and
Secretary
Joseph A. Mannina............ 34 Vice President of Operations
Robert C. Beasley (2)........ 61 Director
Gregory M. Avis (1)(2)....... 40 Director
Kenneth F. Potashner (1)(2).. 41 Director
</TABLE>
- --------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Christopher A. Crane has served as our President, Chief Executive Officer and
Chairman of the Board since August 1992. Prior to joining us, Mr. Crane served
as Group President and a director of Nitches, Inc., an apparel company, and as
Vice President of Corporate Development for Oster Communications, Inc., an
international financial database publishing company. Mr. Crane received his
B.S. in finance summa cum laude from Boston College and his M.B.A. from Harvard
University.
Emmett R. DeMoss, Jr. has served as our Vice President and Chairman of our
REALBID division since November 1998. In October 1994, Mr. DeMoss co-founded
REALBID, LLC, an Internet marketing services company specializing in
transactional support of high-end commercial property sales, and from June 1997
until November 1998, Mr. DeMoss served as a Manager of REALBID, LLC. From
October 1993 until September 1994, Mr. DeMoss served as President of Ironstone
Company, a real estate tax appeal service. Mr. DeMoss previously served for
over 10 years in a number of senior executive positions with Grubb & Ellis, a
real estate brokerage and property management firm, including Executive Vice
President, Chief Operating Officer, Senior Vice President, Chief Financial
Officer and as a director. Mr. DeMoss received his B.S. in engineering from
Princeton University and his M.B.A. from Stanford Business School.
Walter W. Papciak has served as our Executive Vice President of Sales,
Marketing and Product Development since August 1995. From October 1994 until
July 1995 Mr. Papciak served as Executive Vice President of QED, Inc., an
education database company. From May 1994 until September 1994, Mr. Papciak
worked as a consultant on various internet and database projects. From January
1985 until April 1994, Mr. Papciak was Senior Vice President of Computer
Intelligence, the computer and communications industry research and market
information division of Ziff-Davis. Mr. Papciak received his B.S. in physics
and his M.B.A. in information systems from Wayne State University.
Michael Arabe has been one of our senior executives since 1989 and has served
as our Senior Vice President of Sales since January 1996. Prior to joining us,
Mr. Arabe was a sales executive with Celluland, Inc. Mr. Arabe received his
B.S. in economics from Louisiana State University.
Craig S. Farrington has served as our Vice President of Product Marketing and
Development since September 1996 . Mr. Farrington previously served as Vice
President of our CallCOMPS division from January 1993 until August 1996 and has
held various other positions with us since 1983. Mr. Farrington received his
B.A. in business and economics from Westmont College.
41
<PAGE>
Karen Goodrum has served as our Vice President of Finance and Administration
since September 1993, and our Chief Financial Officer since January 1997 and
our Secretary since February 1999. Ms. Goodrum previously served as our Vice
President and Controller from October 1988 until August 1993. Ms. Goodrum
received her B.A. in education from the University of Maryland and her M.B.A.
from San Diego State University.
Joseph A. Mannina has served as our Vice President of Operations since August
1998. Mr. Mannina previously served as our Director of East Coast Operations
from January 1994 until July 1998 and has served in various other positions at
COMPS since 1988. Mr. Mannina received his B.S. in economics from the
University of California, Berkeley.
Robert C. Beasley is our founder and has served as as one of our directors
since August 1992. Mr. Beasley previously served as our Secretary from October
1984 until February 1989. Mr. Beasley founded COMPS, Inc., our predecessor, in
December 1981 and served as its President from December 1981 until March 1992.
Mr. Beasley has over 34 years of experience in commercial real estate as a
broker, researcher, lender and developer. Mr. Beasley received his B.A. in
Business Administration from Claremont McKenna College. He also graduated from
Westminster Theological Seminary.
Gregory M. Avis has served as one of our directors since October 1994. Mr.
Avis is currently a Managing General Partner of Summit Partners, a private
venture capital firm, and has held various positions at Summit Partners since
1984. Mr. Avis is a member of the board of directors of three other publicly
traded companies: Powerwave Technologies, Inc., a manufacturer of radio-
frequency power amplifiers; Splash Technology Holdings, Inc., a producer of
computer servers for digital color printers; and Extended Systems, Inc., a
provider of distributed and mobile computing solutions. He is also a director
of: ClonTech Laboratories, Inc.; Nxtrend Technology, Inc.; and Ditech Corp. Mr.
Avis received his B.A. in political economics cum laude from Williams College
and his M.B.A. with distinction from Harvard Business School.
Kenneth F. Potashner has served as one of our directors since February 1999.
Since November 1998, Mr. Potashner has served as the Chief Executive Officer of
S3 Incorporated, a manufacturer of embedded graphics accelerator chips. Since
April 1996, Mr. Potashner has served as the Chairman of the Board of Directors
of Maxwell Technologies, Inc., a developer of pulse power technologies. From
April 1996 until November 1998, Mr. Potashner served as the President, Chief
Executive Officer and Chief Operating Officer of Maxwell Technologies. From
November 1994 to April 1996, Mr. Potashner served as Executive Vice President
of Operations of Conner Peripherals, a designer and manufacturer of information
storage solution products for computer applications. From March 1991 to October
1994, Mr. Potashner was Vice President of Product Engineering for Quantum
Corporation, a designer and manufacturer of hard drives for computer systems.
Mr. Potashner received his B.S.E.E. from Lafayette College and his M.S.E.E.
from Southern Methodist University.
Other Key Employees
Set forth below is the name, age, position and a brief account of the
business experience of certain of our other key employees.
<TABLE>
<CAPTION>
Name Age Position
--------------------------------- --- ---------------------------------------
<C> <C> <S>
Christopher T. Fenton............ 43 Vice President of Corporate Development
Herbert D. Steele................ 55 Vice President of Commercial Listing
Services
Lori Reisinger................... 37 Regional Vice President
Vicki Ridley..................... 35 Regional Vice President
Bob Evatt........................ 42 Assistant Vice President of Product
Development
Donald Ward...................... 37 Assistant Vice President of Information
Technology
Robert A. Potter, Jr. ........... 44 President of REALBID Division
</TABLE>
42
<PAGE>
Christopher T. Fenton has served as our Vice President of Corporate
Development since August 1998. Mr. Fenton also served as our Vice President of
Operations from June 1990 until July 1998 and held various other positions with
us since 1985. Mr. Fenton received his B.S. in finance magna cum laude from San
Diego State University.
Herbert D. Steele has served as our Vice President of Commercial Listing
Services since June 1998. From April 1996 until May 1998, Mr. Steele was
Executive Vice President of REAL USA, LLC, an online, subscription-based
national listing service for commercial real estate. From November 1991 until
March 1996, Mr. Steele served as Executive Vice President of The Carlson
Company, an asset and property management company. Prior to that Mr. Steele
founded The Cornerstone Corporation, a commercial mortgage brokerage company,
and served as its President. Mr. Steele received his B.A. in english literature
from Duke University and his M.B.A. from the University of Connecticut.
Lori Reisinger has served as our Regional Vice President in Burlingame,
California since July 1994. Ms. Reisinger has held various positions with us
since 1986. Ms. Reisinger received her B.A. in political science from Southern
Oregon State College.
Vicki Ridley has served as our Regional Vice President in Phoenix, Arizona
since April 1997. Ms. Ridley has held various positions with us since 1987. Ms.
Ridley received her B.A. in finance from Arizona State University.
Bob Evatt has served as our Assistant Vice President of Product Development
since May 1996. From August 1986 until May 1996, Mr. Evatt was Assistant Vice
President of Product Development for Equifax National Decision Systems, an
information company. Mr. Evatt received his B.A. in geography from the
University of Arizona and his M.S. in urban planning from the University of
Washington.
Donald Ward has served as our Assistant Vice President of Information
Technology since March 1997. From October 1993 until March 1997, Mr. Ward was
the director of Technical Services for Equifax National Decision Systems, an
information company. Mr. Ward attended New Mexico State University and the
University of Texas.
Robert A. Potter has served as President of our REALBID Division since we
acquired REALBID in November 1998. In June 1997, Mr. Potter co-founded REALBID,
LLC and from June 1997 until November 1998, Mr. Potter served as a Manager of
REALBID, LLC. From January 1990 until December 1996, Mr. Potter served as Vice
President, Pacific Rim Country Manager and Western Regional Manager for MBIA, a
credit enhancement company. Mr. Potter received his B.A. in history from Santa
Clara University and his M.B.A. from the University of California, Berkeley.
Classes of the Board
Our board currently has four members. Under our bylaws, beginning at our next
annual meeting of stockholders, our board will be divided into two classes of
directors serving staggered two-year terms, with one class of directors to be
elected at each annual meeting of stockholders.
Board Committees
The audit committee of the board of directors was established in November
1997 and reviews, acts on and reports to the board of directors with respect to
various auditing and accounting matters, including the recommendation of our
auditors, the scope of the annual audits, fees to be paid to the auditors, the
performance of our independent auditors and our accounting practices. The
members of the audit committee are Messrs. Avis, Beasley and Potashner.
The compensation committee of the board of directors was established in
November 1994 and recommends, reviews and oversees the salaries, benefits and
stock option plans for our employees, consultants, directors and other
individuals compensated by us. The compensation committee also administers our
compensation plans. The members of the compensation committee are Messrs. Avis
and Potashner.
43
<PAGE>
Director Compensation
We reimburse our directors for the reasonable expenses of attending the
meetings of the board of directors or committees. Under our 1999 stock
incentive plan, each individual who first becomes a non-employee member of the
board of directors at any time after the completion of this offering will
receive an option to purchase 12,000 shares of common stock on the date such
individual joins the board of directors, provided such individual has not
previously been employed by us or any parent or subsidiary corporation. In
addition, on the date of each annual stockholders' meeting, beginning in 2000,
each non-employee member of the board of directors will automatically be
granted an option to purchase 2,000 shares of common stock, provided such
individual has served as a non-employee member of the board of directors for at
least six months. Please see "--Benefit Plans."
Upon Mr. Potashner's election to the board in February 1999, our board
granted him options to purchase 23,839 shares of our common stock at an
exercise price of $11.18 per share. These options vest on a yearly basis in
equal installments over a four-year period and are exercisable for a 10 year
term following the grant date. Mr. Potashner is paid $15,000 annually in
director's fees.
Compensation Committee Interlocks and Insider Participation
Our compensation committee currently consists of Messrs. Avis and Potashner.
Neither member of the compensation committee has been an officer or employee of
us at any time. None of our executive officers serves as a member of the board
of directors or compensation committee of any other company that has one or
more executive officers serving as a member of our board of directors or
compensation committee. Prior to the formation of the compensation committee in
November 1994, the board of directors as a whole made decisions relating to
compensation of our executive officers. Mr. Crane participated in all such
discussions and decisions, except those regarding his own compensation.
Employment and Severance Arrangements
Most of our current employees have entered into agreements with us which
contain certain restrictions and covenants. These provisions include covenants
relating to the protection of our confidential information, the assignment of
inventions, restrictions on competition and restrictions on soliciting our
clients, employees or independent contractors.
In November 1994, we entered into employment agreements with each of Messrs.
Arabe and Farrington, and in August 1995, we entered into an employment
agreement with Mr. Papciak. Under these agreements, each of these employee's
base salary may be increased or decreased from time-to-time, in the sole
discretion of our management. Each such employee is also eligible to receive an
incentive bonus determined by our compensation committee. If any of these
employees is terminated for reasons other than good cause, he will be entitled
to receive six months' salary and a pro-rata portion of his incentive bonus.
In October 1994, we entered into an employment agreement with Mr. Crane.
Under this agreement, Mr. Crane's base salary may be increased or decreased
from time-to-time, in the sole discretion of our compensation committee. Mr.
Crane is also eligible to receive an incentive bonus determined by our
compensation committee. If Mr. Crane's employment is terminated for reasons
other than good cause, he will be entitled to receive eight months' salary and
a pro-rata portion of his incentive bonus.
In November 1994, we entered into an employment with Ms. Goodrum. Under this
agreement, Ms. Goodrum's base salary may be increased or decreased from time-
to-time, at our sole discretion. Ms. Goodrum is also eligible to receive an
incentive bonus. If Ms. Goodrum is terminated for reasons other than good
cause, then she will be entitled to receive six months' salary and a pro-rata
portion of her incentive bonus. We may terminate any of these employees at any
time.
For specific salary information in connection with our employment
arrangements with the above individuals, please see "Management--Executive
Compensation."
44
<PAGE>
In addition, the compensation committee, as plan administrator of our 1999
stock incentive plan, will have the authority to grant options and to structure
repurchase rights under that plan so that the shares subject to those options
or repurchase rights will immediately vest in connection with a change in
control of us, whether by merger, asset sale, successful tender offer for more
than 50% of our outstanding voting stock or by a change in the majority of our
board by reason of one or more contested elections for board membership. Such
vesting will occur either at the time of such change in control or upon the
subsequent involuntary termination of the individual's service within a
designated period, not to exceed 18 months, following such change in control.
Executive Compensation
The following table sets forth all compensation received during the year
ended December 31, 1998 by our Chief Executive Officer and each of our four
other most highly compensated executive officers whose salary and bonus
exceeded $100,000 in 1998 for services rendered in all capacities to us during
1998. "All other compensation" represents matching payments under our 401(k)
plan.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
---------------- ------------
Shares
Underlying All Other
Name and Principal Position Salary Bonus Options/SARs Compensation
- --------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Christopher A. Crane................ $150,000 $65,000 -- $1,500
Chairman of the Board, Chief
Executive Officer
and President
Walter W. Papciak................... 150,000 22,653 6,602 --
Executive Vice President of Sales,
Marketing and
Product Development
Michael Arabe....................... 129,887 5,764 13,203 974
Senior Vice President of Sales
Craig S. Farrington................. 102,240 9,790 -- 850
Vice President of Product Marketing
and Development
Karen Goodrum....................... 81,167 21,500 -- 615
Vice President of Finance and
Administration,
Chief Financial Officer and
Secretary
</TABLE>
45
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information regarding options granted to our
executive officers listed in the Summary Compensation Table during the fiscal
year ended December 31, 1998. We have not granted any stock appreciation
rights.
Each option represents the right to purchase one share of common stock. The
options shown in this table are all incentive stock options granted under our
stock option plans. The options become exercisable at a rate of 20% per year.
To the extent not already exercisable, the vesting of these options may also
accelerate and the options become exercisable in the event of a merger in which
we are not the surviving corporation or upon the sale of substantially all of
our assets. Please see "--Benefit Plans" for more details regarding these
options. In the year ended December 31, 1998, we granted options to purchase an
aggregate of 1,143,672 shares of common stock.
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates Of
Stock Price
Appreciation
Individual Grants For Option Term
--------------------------------------------- ---------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees In Exercise Expiration
Name Granted 1998 Price Date 5% 10%
- ---- ------------ ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Christopher A. Crane.... -- -- -- -- -- --
Walter W. Papciak....... 6,602 * $0.61 02/11/08 $ 124,987 $ 201,421
Michael Arabe........... 13,203 1.15% 1.36 06/29/08 240,075 392,942
Craig S. Farrington..... -- -- -- -- -- --
Karen Goodrum........... -- -- -- -- -- --
</TABLE>
- --------
* Less than 1% of total
The potential realizable value at assumed annual rates of stock price
appreciation for the option term, represents hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices. These
amounts represent assumed rates of appreciation in the value of our common
stock from the fair market value on the date of grant. Actual gains, if any, on
stock option exercises are dependent on the future performance of the common
stock and overall stock market conditions. The amounts reflected in the table
may not necessarily be achieved.
46
<PAGE>
Aggregated Option Exercises in the Year Ended December 31, 1998 and Year-End
Option Values
The following table sets forth information concerning the number and value of
unexercised options held by each of the executive officers listed in the
Summary Compensation Table at December 31, 1998. These option share numbers
reflect the full acceleration of the vesting schedule of 96,822 options upon
completion of this offering. None of these executive officers exercised options
to purchase common stock during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1998 at December 31, 1998
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Christopher A. Crane........ -- -- -- --
Walter W. Papciak........... 49,291 23,325 $571,334 $269,014
Michael Arabe............... 49,291 29,927 571,334 334,282
Craig S. Farrington......... 49,291 16,724 571,334 193,846
Karen Goodrum............... 49,291 16,724 571,334 193,846
</TABLE>
There was no public trading market for our common stock as of December 31,
1998. Accordingly, the value of unexercised in-the-money options listed above
has been calculated on the basis of the assumed initial public offering price
of $12.00 per share, less the applicable exercise price per share, multiplied
by the number of shares underlying such options.
Benefit Plans
1999 Stock Incentive Plan
Our 1999 stock incentive plan is intended to serve as the successor equity
incentive program to our amended and restated stock option plan, 1998
supplemental option plan and 1998 equity participation plan. Our 1999 stock
incentive plan was adopted by the board and stockholders in February 1999. Our
1999 stock incentive plan will become effective on the date the underwriting
agreement is signed in connection with this offering. All outstanding options
under the predecessor plans will be incorporated into our 1999 stock incentive
plan on the date this plan is effective, and no further option grants will be
made under the predecessor plans after such date. The incorporated options will
continue to be governed by their existing terms, unless the plan administrator
elects to extend one or more features of our 1999 stock incentive plan to those
options. Except as otherwise noted below, the incorporated options will have
substantially the same terms as in effect for grants made under the
discretionary option grant program of our 1999 stock incentive plan.
An initial reserve of 2,800,000 shares of common stock has been authorized
for issuance under our 1999 stock incentive plan. Such share reserve consists
of:
. approximately the number of shares which will remain available for issuance
under the predecessor plans on the date our 1999 stock incentive plan
becomes effective, including the shares subject to outstanding options
thereunder, plus
. an additional increase of approximately 783,914 shares.
The number of shares of common stock reserved for issuance under our 1999
stock incentive plan will automatically increase on the first trading day in
January of each calendar year, beginning in calendar year 2000, by an amount
equal to 2.5% of the total number of shares of common stock outstanding on the
last trading day in December of the preceding calendar year, but in no event
will any such annual increase exceed 500,000 shares. In addition, no
participant in our 1999 stock incentive plan may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 700,000 shares of common stock in the aggregate per calendar year.
47
<PAGE>
Our 1999 stock incentive plan is divided into five separate components:
. the discretionary option grant program under which eligible individuals in
our employ or service, including officers, non-employee board members and
consultants, may, at the discretion of the plan administrator, be granted
options to purchase shares of common stock at an exercise price not less
than 100% of the fair market value of those shares on the grant date;
. the stock issuance program under which such individuals may, in the plan
administrator's discretion, be issued shares of common stock directly,
through the purchase of such shares at a price not less than 100% of their
fair market value at the time of issuance or as a bonus tied to the
performance of services;
. the salary investment option grant program which may, at the plan
administrator's sole discretion, be activated for one or more calendar years
and, if so activated, will allow executive officers and other highly
compensated employees the opportunity to apply a portion of their base
salary to the acquisition of special below-market stock option grants;
. the automatic option grant program under which option grants will
automatically be made at periodic intervals to eligible non-employee board
members to purchase shares of common stock at an exercise price equal to
100% of the fair market value of those shares on the grant date; and
. the director fee option grant program which may, in the plan administrator's
sole discretion, be activated for one or more calendar years and, if so
activated, will allow non-employee board members the opportunity to apply a
portion of the annual retainer fee otherwise payable to them in cash each
year to the acquisition of special below-market option grants.
The discretionary option grant program and the stock issuance program will be
administered by the compensation committee. The compensation committee, as plan
administrator, will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to
be made, the number of shares subject to each such grant or issuance, the
status of any granted option as either an incentive stock option or a non-
statutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. However, the board acting by
disinterested majority will have the exclusive authority to make any
discretionary option grants or stock issuances to members of the compensation
committee. The compensation committee will also have the exclusive authority to
select the executive officers and other highly compensated employees who may
participate in the salary investment option grant program in the event that
program is activated for one or more calendar years. Neither the compensation
committee nor the board will exercise any administrative discretion with
respect to option grants under the salary investment option grant program or
under the automatic option grant or director fee option grant program for the
non-employee board members. All grants under those latter three programs will
be made in strict compliance with the express provisions of each such program.
The exercise price for the shares of common stock subject to option grants
made under our 1999 stock incentive plan may be paid in cash or in shares of
common stock valued at fair market value on the exercise date. The option may
also be exercised through a same-day sale program without any cash outlay by
the optionee. In addition, the plan administrator may provide financial
assistance to one or more optionees in the exercise of their outstanding
options or the purchase of their unvested shares by allowing such individuals
to deliver a full-recourse, interest-bearing promissory note in payment of the
exercise price and any associated withholding taxes incurred in connection with
such exercise or purchase.
The plan administrator will have the authority to effect the cancellation of
outstanding options under the discretionary option grant program, including
options incorporated from the predecessor plans, in return for the grant of new
options for the same or different number of option shares with an exercise
price per share based upon the fair market value of our common stock on the new
grant date. Stock appreciation rights are authorized
48
<PAGE>
for issuance under the discretionary option grant program. Such rights will
provide the holders with the election to surrender their outstanding options
for an appreciation distribution from us equal to the excess of:
. the fair market value of the vested shares of common stock subject to
the surrendered option over
. the aggregate exercise price payable for those shares.
Such appreciation distribution may be made in cash or in shares of common
stock. None of the incorporated options from the predecessor plans contain any
stock appreciation rights.
In the event that we are acquired by merger or asset sale, each outstanding
option under the discretionary option grant program which is not to be assumed
by the successor corporation will automatically accelerate in full, and all
unvested shares under the discretionary option grant and stock issuance
programs will immediately vest, except to the extent our repurchase rights with
respect to those shares are to be assigned to the successor corporation. The
plan administrator will have complete discretion to grant one or more options
under the discretionary option grant program which will become fully
exercisable for all the option shares in the event those options are assumed in
the acquisition and the optionee's service with us or the acquiring entity
involuntarily terminates within a designated period not exceeding 18 months
following such acquisition. The vesting of outstanding shares under the stock
issuance program may be accelerated upon similar terms and conditions. The plan
administrator will also have the authority to grant options which will
immediately vest upon an acquisition of us, whether or not those options are
assumed by the successor corporation.
The plan administrator is also authorized under the discretionary option
grant and stock issuance programs to grant options and to structure repurchase
rights so that the shares subject to those options or repurchase rights will
immediately vest in connection with a change in ownership or control of us,
whether this change in ownership or control is by a successful tender offer for
more than 50% of our outstanding voting stock or by a change in the majority of
our board by reason of one or more contested elections for board membership.
Such accelerated vesting may occur either at the time of such change or upon
the subsequent involuntary termination of the individual's service within a
designated period, not to exceed 18 months, following such change in control.
The options incorporated from the predecessor plans may, in the plan
administrator's discretion, immediately vest in the event of:
. our merger or consolidation; or
. the acquisition by another corporation or person of all or substantially
all of our assets or 80% or more of our then outstanding voting stock,
unless those options are assumed or substituted in the acquisition of
us.
The plan administrator will have the discretion to extend the acceleration
provisions of our 1999 stock incentive plan to any or all of the options
outstanding under the predecessor plans.
In the event the plan administrator elects to activate the salary investment
option grant program for one or more calendar years, each of our executive
officers and other highly compensated employees selected for participation may
elect, prior to the start of the calendar year, to reduce his or her base
salary for that calendar year by a specified dollar amount not less than
$10,000 nor more than $50,000. Each selected individual who files such a timely
election will automatically be granted, on the first trading day in January of
the calendar year for which that salary reduction is to be in effect, a non-
statutory option to purchase that number of shares of common stock determined
by dividing the salary reduction amount by two-thirds of the fair market value
per share of common stock on the grant date. The option will be exercisable at
a price per share equal to one-third of the fair market value of the option
shares on the grant date. As a result, the total spread on the option shares at
the time of grant, which is the fair market value of the option shares on the
grant date less the aggregate exercise price payable for those shares, will be
equal to the amount of salary invested in that option. The option
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<PAGE>
will vest and become exercisable in a series of 12 equal monthly installments
over the calendar year for which the salary reduction is in effect and will be
subject to full and immediate vesting upon the changes in the ownership or
control of us described in the preceding paragraph.
Under the automatic option grant program, each individual who first becomes a
non-employee board member at any time after the completion of this offering
will automatically receive an option grant for 12,000 shares on the date such
individual joins the board, provided such individual has not been in our prior
employ. In addition, on the date of each annual stockholders meeting held after
the completion of this offering, each non-employee board member who is to
continue to serve as a non-employee board member will automatically be granted
an option to purchase 2,000 shares of common stock, provided such individual
has served on our board for at least six months.
Each automatic grant will have a term of 10 years, subject to earlier
termination following the optionee's cessation of board service. The option
will be immediately exercisable for all of the option shares; however, any
unvested shares purchased under the option will be subject to repurchase by us,
at the exercise price paid per share, should the optionee cease board service
prior to vesting in those shares. The shares subject to each 12,000-share
automatic option grant will vest in a series of eight successive equal semi-
annual installments upon the individual's completion of each six-month period
of board service over the four-year period measured from the option grant date.
Each 2,000-share automatic option grant will vest in two successive equal semi-
annual installments upon the individual's completion of each six month period
of board service over the one year period measured from the option grant date.
However, the shares subject to each automatic grant will immediately vest in
full upon the changes in control or ownership of us described above or upon the
optionee's death or disability while a board member.
Should the director fee option grant program be activated in the future, each
non-employee board member will have the opportunity to apply all or a portion
of any annual retainer fee otherwise payable in cash to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of common stock on the grant date. As a result,
the total spread on the option, which is the fair market value of the option
shares on the grant date less the aggregate exercise price payable for those
shares will be equal to the portion of the retainer fee invested in that
option. The option will vest and become exercisable for the option shares in a
series of 12 equal monthly installments over the calendar year for which the
election is to be in effect. However, the option will become immediately
exercisable and vested for all the option shares upon:
. changes in the ownership or control of us described above; or
. the death or disability of the optionee while serving as a board member.
The shares subject to each option under the salary investment option grant,
automatic option grant and director fee option grant programs will immediately
vest upon:
. an acquisition of us by merger or asset sale; or
. the successful completion of a tender offer for more than 50% of our
outstanding voting stock or a change in the majority of the board
effected through one or more contested elections for board membership.
Limited stock appreciation rights will automatically be included as part of
each grant made under the automatic option grant, salary investment option
grant and director fee option grant programs and may be granted to one or more
of our officers as part of their option grants under the discretionary option
grant program. Options with such a limited stock appreciation right may be
surrendered to us upon the successful
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completion of a hostile tender offer for more than 50% of our outstanding
voting stock. In return for the surrendered option, the optionee will be
entitled to a cash distribution from us in an amount per surrendered option
share equal to the excess of:
. the highest price per share of common stock paid in connection with the
tender offer over
. the exercise price payable for such share.
The board may amend or modify our 1999 stock incentive plan at any time,
subject to any required stockholder approval. Our 1999 stock incentive plan
will terminate on the earliest of:
. February 18, 2009;
. the date on which all shares available for issuance under our 1999 stock
incentive plan have been issued as fully-vested shares; or
. the termination of all outstanding options in connection with changes in
control or ownership of us described above.
1999 Employee Stock Purchase Plan
Our 1999 employee stock purchase plan was adopted by the board and
stockholders in February 1999 and will become effective immediately upon the
execution of the underwriting agreement for this offering. Our employee stock
purchase plan is designed to allow our eligible employees to purchase shares of
common stock, at semi-annual intervals, through their periodic payroll
deductions under our employee stock purchase plan.
An initial reserve of 300,000 shares of common stock has been authorized for
issuance under our employee stock purchase plan. The number of shares of common
stock reserved for issuance under our employee stock purchase plan will
automatically increase on the first trading day in January each calendar year,
beginning in calendar year 2000, by an amount equal to 2% of the total number
of shares of common stock outstanding on the last trading day in December of
the preceding calendar year, but in no event will any such annual increase
exceed 300,000 shares. Our employee stock purchase plan will be implemented in
a series of successive offering periods, each with a maximum duration for 24
months. However, the initial offering period will begin on the execution date
of the underwriting agreement and will end on the last business day in July
2001. The next offering period will commence on the first business day in
August 2001, and subsequent offering periods will commence as designated by the
plan administrator.
Individual employees who are scheduled to work more than 20 hours per week
for more than 5 calendar months per year on the start date of any offering
period may enter our employee stock purchase plan on that start date or on the
first business day of February or August after that start date. Individuals who
become eligible employees after the start date of the offering period may join
our employee stock purchase plan on any subsequent semi-annual entry date
within that offering period.
Payroll deductions may not exceed 10% of the participant's cash earnings, and
the accumulated payroll deductions of each participant will be applied to the
purchase of shares on his or her behalf on the last business day in January and
July each year at a purchase price per share equal to 85% of the lower of:
. the fair market value of the common stock on the participant's entry
date into the offering period; or
. the fair market value on the semi-annual purchase date.
In no event, however, may any participant purchase more than 1,500 shares on
any semi-annual purchase date nor may all participants in the aggregate
purchase more than 75,000 shares on any such semi-annual purchase date.
Should the fair market value per share of common stock on any purchase date
be less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day, with all
participants in the terminated offering to be automatically transferred to the
new offering period.
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<PAGE>
In the event we are acquired by merger or asset sale, all outstanding
purchase rights will automatically be exercised immediately prior to the
effective date of such acquisition. The purchase price will be equal to 85% of
the lower of:
. the fair market value per share of common stock on the participant's
entry date into the offering period in which such acquisition occurs; or
. the fair market value per share of common stock immediately prior to
such acquisition.
Our employee stock purchase plan will terminate on the earliest of:
. the last business day of July 2009;
. the date on which all shares available for issuance under our employee
stock purchase plan shall have been sold pursuant to purchase rights
exercised thereunder; or
. the date on which all purchase rights are exercised in connection with
an acquisition of us by merger or asset sale.
The board may at any time alter, suspend or discontinue our employee stock
purchase plan. However, amendments to our employee stock purchase plan may
require stockholder approval.
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Certain Relationships and Related Transactions
Certain Sales of Securities
We have issued the following securities in private placement transactions:
4,270,336 shares of Series A preferred stock and Class B common stock warrants
exercisable for 379,869 shares for an aggregate price of $5,000,000 in October
1994; 637,790 shares of Series B preferred stock, Class A common stock warrants
exercisable for 37,329 shares and Class B common stock warrants exercisable for
306,097 shares for an aggregate price of $1,150,000 in February 1998; and
Series A preferred stock warrants exercisable for up to 49,000 shares and
Series B preferred stock warrants exercisable for up to 49,000 shares in
connection with the Silicon Valley Bank loan agreement in April 1999. These
numbers do not reflect the 0.7335-for-1 stock split. The purchasers of such
securities include, among others, the following executive officers, directors
and holders of more than 5% of our outstanding stock and their affiliates:
<TABLE>
<CAPTION>
Preferred Stock Warrants
Executive Officer, Directors ------------------ --------------- Total
and 5% Stockholders Series A Series B Class A Class B Consideration
---------------------------- --------- -------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Christopher A. Crane......... -- 69,325 37,329 -- $ 125,000
Funds Affiliated with Summit
Partners(1)................. 4,270,336 554,600 -- 678,500 $6,000,000
</TABLE>
- --------
(1) Includes Summit Ventures III, L.P. and Summit Investors II, L.P. Mr. Avis,
one of our directors, 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.
For additional information regarding the sale of securities to executive
officers, directors and stockholders of more than 5% of our outstanding common
stock, please see "Principal and Selling Stockholders."
Holders of outstanding preferred stock and common stock issuable upon
exercise of warrants are entitled to registration rights with respect to the
common stock issued or issuable upon conversion or exercise of such preferred
stock or warrants. Please see "Description of Securities--Registration Rights."
Employment Agreements
We have entered into employment agreements with each of Messrs. Crane, Arabe,
Farrington and Papciak and Ms. Goodrum. Please see "Management--Employment and
Severance Arrangements" for more details regarding these agreements.
In November 1994, we entered into an employment agreement with Mr. Fenton.
Under this agreement, Mr. Fenton's base salary may be increased or decreased
from time-to-time, at our sole discretion. Mr. Fenton is also eligible to
receive an incentive bonus. If Mr. Fenton's employment is terminated for
reasons other than good cause, then he will be entitled to receive six months'
salary and a pro-rata portion of his incentive bonus. We may terminate Mr.
Fenton at any time. Mr. Fenton's current salary under the employment agreement
is $96,996 per year. In addition, Mr. Fenton's current potential quarterly
incentive bonuses, to be determined pursuant to the terms of the employment
agreement, are based upon 1.25% of Mr. Fenton's annual salary.
In November 1998, we entered into employment agreements with each of Messrs.
DeMoss and Potter. Under these agreements, both employees receive a base salary
of at least $225,000 per year and a bonus of up to $50,000 per year. In
addition, pursuant to the agreements, each employee was granted a fully vested
option to purchase 5,076 shares of our common stock and an additional option to
purchase 305,625 shares of our common stock 20% of which vested immediately and
80% of which vest over 48 months commencing on January 1, 1999. The term of
each agreement expires on January 1, 2003. If either employee is terminated
without cause prior to November 5, 2000, then he shall be entitled to receive
twelve months' salary in exchange for consulting services. If either employee
is terminated after November 5, 2000, then he shall receive his base salary for
a period equal to the shorter of six months or the remaining term of his
employment agreement in exchange for consulting services. During any period in
which the terminated employee provides consulting services to us, his options
will continue to vest. In any event, at least 75% of such terminated employee's
options will vest if he is terminated without cause prior to January 1, 2003.
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Corporate Headquarters Lease
We lease our corporate headquarters in San Diego, California from a limited
partnership whose general partner is a company owned by Mr. Crane, our
President, Chief Executive Officer and Chairman of the Board. In addition, Mr.
Beasley, one of our directors, is a limited partner of the limited partnership
from which we lease our facilities. Our lease is for a five-year term
commencing in February 1999 with five two-year extension options. We believe
that the terms of the lease are no less favorable to us than those that could
have been obtained from an independent third party lessor at the time the lease
was executed. For additional information regarding our facility leases, please
see "Business--Facilities."
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<PAGE>
Principal and Selling Stockholders
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 31, 1999 on a pre-split
basis and assuming the exercise of all warrants, and as adjusted to reflect the
sale of the shares of common stock offered hereby, by:
. each person (or group of affiliated persons) who we know owns
beneficially 5% or more of our common stock;
. each of our directors;
. our executive officers listed in the Summary Compensation Table; and
. all of our directors and executive officers as a group.
Percentage of ownership is calculated as required by Commission Rule 13d-
3(d)(1). Except as indicated below, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them. The number of shares underlying options includes
shares which are exercisable within 60 days from the date of this offering. The
address for those individuals for which an address is not otherwise indicated
is: 9888 Carroll Centre Road, Suite 100, San Diego, California 92126-4581. Mr.
Crane, Mr. Beasley and Summit Partners may sell shares in connection with the
exercise of the over-allotment option. Mr. Crane may sell up to 85,500 shares,
Mr. Beasley may sell up to 85,500 shares and Summit Partners may sell up to
114,000 shares. Any shares that may be sold by selling stockholders if the
underwriters exercise their over-allotment option have not been reflected in
this table. For further information regarding the selling stockholders'
relationship with us during the last three years, please see, "Management--
Executive Officers and Directors" and "Certain Relationships and Related
Transactions."
<TABLE>
<CAPTION>
Number of Percentage of Percentage of
Number of Shares Shares Beneficially Shares Beneficially
Shares Underlying Owned Prior Owned After
Beneficial Owner Outstanding Options to this Offering this Offering
- ---------------- ----------- ---------- ------------------- -------------------
<S> <C> <C> <C> <C>
Funds affiliated with
Summit Partners........ 4,036,770 -- 52.7% 35.2%
499 Hamilton Avenue,
Suite 200
Palo Alto, CA 94301
Christopher A. Crane.... 2,923,712 -- 38.2% 25.5%
Gregory M. Avis......... 4,036,770 -- 52.7% 35.2%
Robert C. Beasley....... 656,145 -- 8.6% 5.7%
Kenneth F. Potashner.... -- -- * *
Walter W. Papciak....... -- 50,612 * *
Michael Arabe........... -- 57,653 * *
Craig S. Farrington..... -- 57,653 * *
Karen Goodrum........... -- 57,653 * *
All directors and
executive officers as a
group (8 persons)...... 7,616,627 223,571 99.4% 67.1%
</TABLE>
- --------
* Less than 1% of total.
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 9,954 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.
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<PAGE>
Description of Securities
The following information describes our common stock and preferred stock and
anti-takeover and indemnification provisions of our certificate of
incorporation and our bylaws as will be in effect upon the closing of this
offering. This description is only a summary. You should also refer to the
certificate and bylaws which have been filed with the SEC as exhibits to our
registration statement, of which this prospectus forms a part. Where indicated
below, the descriptions of our common stock and preferred stock reflect changes
to our capital structure that will occur upon the approval of our board of
directors and stockholders and upon the closing of this offering in accordance
with the terms of the certificate.
Upon the completion of the offering our authorized capital stock will consist
of 70,000,000 shares of common stock, par value $0.01 per share, and 5,000,000
shares of preferred stock, par value $0.01 per share.
Common Stock
As of December 31, 1998, there were 3,533,534 shares of common stock
outstanding and held of record by three stockholders. As of April 12, 1999, no
additional shares of common stock had been issued. There will be 11,464,181
shares of common stock outstanding upon the closing of this offering, which
gives effect to:
. the automatic conversion of each share of our Class B common stock into
shares of our Class A common stock and the renaming of Class A common
stock to "common stock" upon the closing of this offering,
. the automatic conversion of each share of our preferred stock into
0.7335 shares of our common stock upon the closing of this offering,
. a 0.7335-for-1 stock split of our common stock to be effected prior to
the closing of this offering and
. the issuance of the 3,800,000 shares of common stock offered by us
hereby.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the board of directors out of
funds legally available therefor, subject to any preferential dividend rights
of any outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of common
stock are, and the shares offered by us in this offering will be, when issued
in consideration for payment thereof, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may
be materially adversely affected by, the rights of the holders of shares of any
series of preferred stock which we may designate and issue in the future. Upon
the closing of this offering, there will be no shares of preferred stock
outstanding.
Preferred Stock
As of December 31, 1998, there were 4,908,126 shares of convertible preferred
stock outstanding. As of April 12, 1999, no additional shares of convertible
preferred stock had been issued. Each outstanding share of convertible
preferred stock will be converted into 0.7335 shares of common stock upon the
closing of this offering and such shares of convertible preferred stock will no
longer be authorized, issued or outstanding.
Upon the closing of this offering, the board of directors will be authorized,
without further stockholder approval, to issue from time to time up to an
aggregate of 5,000,000 shares of preferred stock in one or more series and to
fix or alter the designations, powers, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption including sinking fund provisions,
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. We have no present
plans to issue any shares of preferred stock. Please see "--Anti-Takeover
Effects of Certain Provisions of Delaware Law and our Certificate of
Incorporation and Bylaws."
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<PAGE>
Options
As of December 31, 1998, options to purchase a total of 1,749,727 shares of
common stock were outstanding, all of which are subject to lock-up arrangements
under the terms of the option agreements. As of March 31, 1999, 69,683
additional options were outstanding. Upon completion of this offering, options
to purchase an additional 1,090,450 shares of common stock may be granted under
the 1999 stock incentive plan. Please see "Management--Benefit Plans" and
"Shares Eligible for Future Sale."
Common Stock Warrants
As of December 31, 1998, we have outstanding warrants to purchase a total of
530,537 shares of common stock, at an exercise price of $0.0136 per share and
warrants to purchase a total of 156,285 shares of common stock, at a weighted
average exercise price of $2.40 per share. On April 9, 1999, in connection with
a loan agreement, we issued additional warrants to purchase up to 71,882 shares
of common stock, at an exercise price ranging from $1.59 to $6.82 per share,
depending on when we repay a loan. The warrants contain anti-dilution
provisions providing for adjustments of the exercise price and the number of
shares underlying the warrants upon the occurrence of dilutive events,
including any recapitalization, reclassification, stock dividend, stock split,
stock combination or similar transaction. The warrants grant their holders
registration rights with respect to the common stock issuable upon their
exercise, which are described below. All of these warrants will be exercisable
immediately prior to this offering. Warrants to purchase 156,285 shares expire
in September 2003, warrants to purchase 278,634 shares expire in October 2004,
warrants to purchase 251,903 shares expire in February 2008, and warrants to
purchase up to 71,882 shares expire in April 2006.
Registration Rights
As of December 31, 1998, pursuant to the terms of an agreement, the holders
of 4,358,815 shares of outstanding or issuable common stock will be entitled to
demand registration rights with respect to the registration of their shares
under the Securities Act of 1933. The holders of 50% of such shares are
entitled to demand that we register their shares under the Securities Act of
1933, subject to limitations. We are not required to effect more than two such
registrations for such holders pursuant to such demand registration rights. In
addition, after the closing of this offering, these holders will be entitled to
piggyback registration rights with respect to the registration of such shares
of common stock under the Securities Act of 1933. In the event that we propose
to register any shares of common stock under the Securities Act of 1933 either
for our account or for the account of our other security holders, the holders
of shares having piggyback rights are entitled to receive notice of such
registration and are entitled to include their shares in any such registration,
subject to limitations. Further, at any time after we become eligible to file a
registration statement on Form S-3, the holders of 435,882 shares of common
stock may require us to file registration statements under the Securities Act
of 1933 on Form S-3 with respect to their shares of common stock. These
registration rights are subject to conditions and limitations, including the
right of the underwriters of an offering to limit the number of shares of
common stock held by securityholders with registration rights to be included in
such registration. We are generally required to bear all of the expenses of all
such registrations, including the reasonable fees of a single counsel acting on
behalf of all selling holders, except underwriting discounts and selling
commissions. Registration of any of the shares of common stock held by
securityholders with registration rights would result in such shares becoming
freely tradable without restriction under the Securities Act of 1933
immediately upon effectiveness of such registration.
Anti-Takeover Effects of Certain Provisions of Delaware Law and our Certificate
of Incorporation and Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. With limited exceptions, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed
manner. A
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<PAGE>
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. This statute could prohibit or delay a merger
or other takeover or change in control attempt with respect to us and,
accordingly, may discourage attempts to acquire us.
In addition, our certificate and bylaws, which will be in effect upon the
closing of this offering, contain provisions which may be deemed to have an
anti-takeover effect. These provisions, which are summarized in the following
paragraphs, may delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
stockholders.
Board of Directors Vacancies. Our bylaws authorize the board of directors to
fill vacant directorships or increase the size of the board of directors. This
may deter a stockholder from removing incumbent directors and simultaneously
gaining control of the board of directors by filling the vacancies created by
such removal with its own nominees.
Staggered Board. Our bylaws provide that our board will be classified into
two classes of directors beginning at the next annual meeting of stockholders.
Please see "Management--Classes of the Board" for more information regarding
the staggered board.
Stockholder Action; Special Meeting of Stockholders. Our certificate provides
that stockholders may not take action by written consent, but only at duly
called annual or special meetings of stockholders. Our bylaws further provide
that special meetings of our stockholders may be called only by the President,
Chief Executive Officer, Chairman of the board of directors or a majority of
the board of directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our bylaws provide that stockholders seeking to bring business
before our annual meeting of stockholders, or to nominate candidates for
election as directors at our annual meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, our principal executive offices not
less than 120 days prior to the first anniversary of the date of our notice of
annual meeting provided with respect to the previous year's annual meeting of
stockholders. However, if no annual meeting of stockholders was held in the
previous year, or if the date of the annual meeting of stockholders has been
changed to be more than 30 calendar days earlier than such anniversary, notice
by the stockholder, to be timely, must be received a reasonable time before the
solicitation is made. Our bylaws also specify requirements as to the form and
content of a stockholder's notice. These provisions may preclude stockholders
from bringing matters before our annual meeting of stockholders or from making
nominations for directors at our annual meeting of stockholders.
Authorized But Unissued Shares. Our authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval, subject to the limitations imposed by the Nasdaq National Market.
These additional shares may be used for a variety of corporate purposes,
including future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued and unreserved common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
Delaware law provides that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or bylaws, unless a corporation's certificate of incorporation
or bylaws, as the case may be, requires a greater percentage.
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<PAGE>
Limitation of Liability and Indemnification Matters
Our certificate provides that, except to the extent prohibited by Delaware
law, our directors shall not be personally liable to us or our stockholders for
monetary damages for any breach of their fiduciary duty as directors. Under
Delaware law, the directors have a fiduciary duty to us which is not eliminated
by this provision of our certificate and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of nonmonetary relief will
remain available. In addition, each director will continue to be subject to
liability under Delaware law for breach of their duty of loyalty to us for acts
or omissions which are found by a court of competent jurisdiction to be not in
good faith or which involve intentional misconduct, or knowing violations of
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Section 145 of the Delaware General Corporation Law allows a corporation to
indemnify its directors and officers and to purchase insurance with respect to
liability arising out of their capacity or status as directors and officers,
provided that the indemnification does not eliminate or limit the liability of
a director for the following:
. any breach of the director's duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock purchases or
redemptions; and
. any transaction from which the director derived an improper personal
benefit.
Delaware law further provides that the permitted indemnification shall not be
deemed exclusive of any other rights to which the directors and officers may be
entitled under our bylaws, any agreement, a vote of stockholders or otherwise.
Our certificate eliminates the personal liability of directors to the fullest
extent permitted by Delaware law. In addition, our certificate provides that we
may fully indemnify any person who was or is a party, or is threatened to be
made a party to, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was one of our directors or officers or is
or was serving at our request as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses, including attorney's fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding.
We have also entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. We
believe that these provisions and agreements are necessary to attract and
retain qualified directors and executive officers. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions, regardless of whether
Delaware law would permit indemnification. We have applied for liability
insurance for our officers and directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the certificate. We are not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
59
<PAGE>
Shares Eligible For Future Sale
Prior to this offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of our common stock or the availability of shares of our common
stock for sale will have on the market price of our common stock prevailing
from time to time. Nevertheless, sales of substantial amounts of our common
stock in the public market, or the perception that such sales could occur,
could adversely affect the market price of our common stock and could impair
our future ability to raise capital through the sale of our equity securities.
After this offering, we will have outstanding 11,464,181 shares of common
stock. Of these shares, the 3,800,000 shares being offered hereby are freely
tradable.
All of our directors and officers, stockholders, optionholders and
warrantholders, who, as of March 31, 1999, held a total of 9,639,876 shares of
our outstanding or issuable common stock have entered into lock-up agreements.
Under these lock-up agreements, they have agreed that they will not sell,
directly or indirectly, any shares of common stock without the prior written
consent of Volpe Brown Whelan & Company, LLC, for a period of 180 days from the
date of this prospectus. Of these shares, 7,664,881 become eligible for sale in
the public market 180 days after the date of this prospectus, subject in some
cases to volume limitations.
In general, under Rule 144, as currently in effect, a person or persons whose
shares are required to be aggregated, including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
. 1% of the then outstanding shares of common stock (approximately 115,000
shares immediately after this offering) or
. the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed,
subject to restrictions.
In addition, a person who is not deemed to have been our affiliate at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years would be entitled to sell
such shares under Rule 144(k) without regard to the requirements described
above. To the extent that shares were acquired from one of our affiliates, such
person's holding period for the purpose of effecting a sale under Rule 144
commences on the date of transfer from the affiliate.
As of March 31, 1999, options to purchase a total of 1,819,409 shares of
common stock were outstanding, of which options to purchase 482,547 shares were
exercisable. Of the options to purchase 1,336,862 shares of common stock that
were not exercisable, options to purchase 139,365 shares of common stock shall
immediately vest and become exercisable upon the closing of this offering. Upon
the closing of this offering, we intend to file a registration statement to
register for resale the 2,789,181 shares of common stock reserved for issuance
either under our stock option plans or underlying options granted outside of
our plans. We expect such registration statement to become effective
immediately upon filing. Shares issued upon the exercise of stock options
granted under our stock option plans will be eligible for resale in the public
market from time to time subject to vesting and the expiration of the lock-up
agreements referred to above. 31,907 shares have already been issued upon
exercise of options granted under our plans. These shares may be freely
tradable subject to the requirements of Rule 701 and contractual obligations
beginning 180 days after the date of this prospectus.
As of March 31, 1998, preferred stockholders and warrantholders holding
approximately 4,286,933 shares of outstanding or issuable common stock had the
right to include their shares in registration statements relating to our
securities. In addition, up to 71,882 shares of common stock issuable upon
exercise of warrants issued to Silicon Valley Bank in April of 1999 have
registration rights. By exercising their registration rights and causing a
large number of shares to be registered and sold in the public market, these
holders may cause the price of the common stock to fall. In addition, any
demand to include such shares in our future registration statements could have
a material adverse effect on our ability to raise needed capital. Please see
"Management--Benefit Plans," "Principal and Selling Stockholders," "Description
of Securities--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
60
<PAGE>
Underwriting
Under the terms and conditions contained in an underwriting agreement among
the underwriters and us, each of the underwriters, for whom Volpe Brown Whelan
& Company, LLC, EVEREN Securities, Inc. and Needham & Company, Inc., are acting
as representatives, have severally agreed to purchase from us the number of
shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Volpe Brown Whelan & Company, LLC..................................
EVEREN Securities, Inc. ...........................................
Needham & Company, Inc. ...........................................
---------
Total.......................................................... 3,800,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to approval of
certain legal matters by their counsel and to certain other conditions. Under
the terms and conditions of the underwriting agreement, all of the underwriters
are obligated to take and pay for all such shares of common stock if any are
taken.
The underwriters propose initially to offer the shares of common stock
directly to the public at the public offering price set forth on the cover page
of this prospectus and to certain dealers at such price, less a concession not
in excess of $ per share. The underwriters may allow, and such dealers
may reallow, concessions not in excess of $ per share of the common
stock to certain other dealers. After the initial public offering of the common
stock, the offering price of the common stock and other selling terms may be
changed by the underwriters. The underwriters expect to deliver the shares
against payment in San Francisco, California on , 1999.
Pursuant to the underwriting agreement, we, together with the selling
stockholders, have granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to 570,000 additional
shares of common stock on the same terms and conditions as set forth on the
cover page of this prospectus. The underwriters may exercise this option solely
to cover over-allotments. To the extent such option is exercised, each
underwriter will have a commitment, subject to certain conditions, to purchase
a number of additional shares of common stock proportionate to such
underwriter's initial commitment pursuant to the underwriting agreement.
From the date of this prospectus until 180 days after such date, we and all
of our stockholders, officers and directors have agreed not to offer, sell,
contract to sell, make any short sale, pledge or otherwise dispose of, directly
or indirectly, any shares of common stock or any options to acquire shares of
common stock or securities convertible into or exchangeable for any other
rights to purchase or acquire common stock or enter into any swap or other
agreements that transfers, in whole or in part, any of the economic
consequences or ownership of common stock, without the prior consent of Volpe
Brown Whelan & Company, LLC.
The underwriters have reserved for sale, at the initial public offering
price, 190,000 shares of common stock for certain of our directors, officers,
employees, friends and family who have expressed an interest in purchasing
shares of common stock in this offering. Such persons are expected to purchase,
in the aggregate, not more than 5% of the common stock offered in this
offering. The number of shares available for sale to the general public in this
offering will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not purchased will be offered by the underwriters
on the same basis as other shares offered hereby.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, losses and expenses, including liabilities under
the Securities Act of 1933, or to contribute to payments that the underwriters
may be required to make in respect thereof.
61
<PAGE>
Prior to this offering, there has been no public market for our common stock.
The initial public offering price for the shares of common stock in this
offering was determined by agreement between us and the underwriters. Among the
factors considered in making such determination were the history of, and the
prospects for, the industry in which we compete, an assessment of our
management, our present operations, our historical results of operations and
the trend of our revenues and earnings, our prospects for future earnings, the
general condition of the securities markets at the time of this offering and
the price of similar securities of generally comparable companies. We cannot
assure you that an active trading market will develop for our common stock or
that our common stock will trade in the public markets at or above the initial
public offering price.
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock during and after this offering.
Specifically, the underwriters may over-allot or otherwise create a short
position in the common stock for their own account by selling more shares of
common stock than have been sold to them by us. The underwriters may elect to
cover any such short position by purchasing shares of common stock in the open
market or by exercising the over-allotment option granted to the underwriters.
In addition, the underwriters may stabilize or maintain the price of the common
stock by bidding for or purchasing shares of common stock in the open market
and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price
at a level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the common stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
62
<PAGE>
Legal Matters
The validity of the shares of common stock offered hereby will be passed upon
for us by Brobeck, Phleger & Harrison LLP, San Diego, California and for the
underwriters by Katten Muchin & Zavis, Chicago, Illinois.
Experts
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule included in this prospectus as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998, as
set forth in their report, which is included in this prospectus. In addition,
Ernst & Young LLP have audited the financial statements of REALBID, LLC
included in this prospectus as of December 31, 1997 and for the period from its
inception on June 19, 1997 to December 31, 1997, as set forth in their report,
which is also included in this prospectus. Our financial statements and the
financial statements of REALBID, LLC are included in this prospectus in
reliance on Ernst & Young LLP's reports, given on their authority as experts in
accounting and auditing.
Where You Can Find More Information
We have filed with the SEC a registration statement on Form S-1 including the
exhibits, schedules and amendments to the registration statement under the
Securities Act of 1933 with respect to the shares of common stock to be sold in
this offering. This prospectus does not contain all the information set forth
in the registration statement. For further information with respect to COMPS
and the shares of common stock to be sold in this offering, please refer to the
registration statement. All material terms of each contract, agreement or other
document are described in this prospectus. However, statements contained in
this prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and in each instance reference is
made to the copy of such contract, agreement or other document filed as an
exhibit to the registration statement, each such statement being qualified by
such reference.
You may read and copy all or any portion of the registration statement or any
other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our SEC filings, including the registration statement,
are also available to you on the Commission's Web site: http://www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC.
We intend to furnish our stockholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing unaudited interim consolidated financial information.
63
<PAGE>
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<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
REALBID, LLC
Report of Ernst & Young LLP, Independent Auditors......................... F-22
Statements of Operations for the period from June 19, 1997 (inception) to
December 31, 1997 and the nine-month period ended September 30, 1998
(unaudited).............................................................. F-23
Statements of Members' Equity (Deficit) for the period from June 19, 1997
(inception) to December 31, 1997 and the nine-month period ended
September 30, 1998 (unaudited)........................................... F-24
Statements of Cash Flows for the period from June 19, 1997 (inception) to
December 31, 1997 and the nine-month period ended September 30, 1998
(unaudited).............................................................. F-25
Notes to Financial Statements............................................. F-26
Unaudited Pro Forma Condensed Statements of Operations
Unaudited Pro Forma Condensed Statement of Operations..................... F-28
Notes to Unaudited Pro Forma Condensed Statement of Operations............ F-29
</TABLE>
F-1
<PAGE>
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
April 12, 1999
F-2
<PAGE>
COMPS.COM, Inc.
Balance Sheets
<TABLE>
<CAPTION>
Pro Forma
December 31, Stockholders'
------------------------ Deficit at
1997 1998 December 31, 1998
---------- ------------ -----------------
(Unaudited)
<S> <C> <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 (7,133,643 pro forma--
unaudited)....................... 29,219 29,219 65,655
Class B common stock, par value
$.01 per share; 1,833,750 shares
authorized; 31,907 shares issued
and outstanding at December 31,
1998 (0 pro forma--unaudited).... -- 435 --
Additional paid-in capital....... -- 7,745,392 14,718,033
Warrants......................... -- 398,000 398,000
Deferred compensation............ -- (4,487,019) (4,487,019)
Accumulated deficit.............. (9,534,545) (11,556,735) (11,556,735)
---------- ------------ ------------
Total stockholders' deficit........ (9,505,326) (7,870,708) $ (862,066)
---------- ------------ ============
Total liabilities, redeemable
preferred stock and stockholders'
deficit........................... $4,090,836 $ 8,414,288
========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
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
=========== =========== ===========
Pro forma net loss per share, basic and
diluted................................ $ (0.23)
===========
Shares used in computing pro forma net
loss per share, basic and diluted...... 7,067,180
===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
COMPS.COM, Inc.
Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
Common Stock
------------------------------- Additional Total
Class A Class B Paid-In Deferred Accumulated Stockholders'
Shares Amount Shares Amount Capital Warrants Compensation Deficit Deficit
--------- ------- ------ ------ ---------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 3,501,626 $29,219 -- $ -- $ -- $ -- $ -- $ (5,072,141) $(5,042,922)
Accretion of preferred
stock redemption
value................. -- -- -- -- -- -- -- (298,924) (298,924)
Net loss............... -- -- -- -- -- -- -- (2,307,371) (2,307,371)
--------- ------- ------ ----- ---------- -------- ----------- ------------ -----------
Balance at December 31,
1996................... 3,501,626 29,219 -- -- -- -- -- (7,678,436) (7,649,217)
Accretion of preferred
stock redemption
value................. -- -- -- -- -- -- -- (298,924) (298,924)
Net loss............... -- -- -- -- -- -- -- (1,557,185) (1,557,185)
--------- ------- ------ ----- ---------- -------- ----------- ------------ -----------
Balance at December 31,
1997................... 3,501,626 29,219 -- -- -- -- -- (9,534,545) (9,505,326)
Issuance of stock upon
exercise of options... -- -- 31,907 435 12,615 -- -- -- 13,050
Accretion of preferred
stock redemption
value................. -- -- -- -- -- -- -- (363,235) (363,235)
Warrants issued in
connection with Series
B preferred stock..... -- -- -- -- -- 398,000 -- -- 398,000
Accretion of warrants.. -- -- -- -- (90,450) -- -- -- (90,450)
Grant of stock options
in connection with
REALBID acquisition... -- -- -- -- 3,143,853 -- -- -- 3,143,853
Deferred compensation
related to grant of
certain stock
options............... -- -- -- -- 4,679,374 -- (4,679,374) -- --
Amortization of
deferred
compensation.......... -- -- -- -- -- -- 192,355 -- 192,355
Net loss............... -- -- -- -- -- -- -- (1,658,955) (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) $(7,870,708)
========= ======= ====== ===== ========== ======== =========== ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
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>
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
F-7
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
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 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.
Subscription revenue, net of reserve for cancellations, is recognized over the
subscription term.
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 and Unaudited Pro Forma Stockholders' Deficit
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.
Pro forma net loss per share has been computed as described above and also
gives effect to common equivalent shares from preferred stock that will
automatically convert upon the closing of the Company's initial public offering
(using the as-if-converted method). If the offering contemplated is
consummated, all of the redeemable convertible preferred stock outstanding as
of the closing date will automatically be converted into an aggregate of
3,600,110 shares of common stock. Unaudited pro forma stockholders' deficit at
December 31, 1998, as adjusted for the conversion of redeemable convertible
preferred stock, is disclosed on the balance sheet.
F-8
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Net Loss Per Share and Unaudited Pro Forma Stockholders' Deficit (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
=========== =========== ===========
Pro forma net loss per share:
Net loss attributable to common
stockholders....................... $(2,112,640)
Less: dividend accretion on
redeemable convertible preferred
stock.............................. 453,685
-----------
Pro forma net loss.................. $(1,658,955)
===========
Shares used in computing net loss
attributable to common
stockholders, basic and diluted.... 3,517,056
Adjustment to reflect the effect of
the assumed conversion of weighted
average shares of redeemable
convertible preferred stock........ 3,550,124
-----------
Shares used in computing pro forma
net loss per share, basic and
diluted............................ 7,067,180
===========
Pro forma net loss per share, basic
and diluted......................... $ (0.23)
===========
</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
F-9
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Impact of Recently Issued Accounting Standards (continued)
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.
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.
F-10
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
2. Acquisitions (continued)
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 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.
F-11
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
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>
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.
F-12
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
5. Long-Term Debt (continued)
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
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>
F-13
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
5. Long-Term Debt (continued)
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.
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.
F-14
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
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 $3.52 per share (before 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 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 $3.83 per share (before 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>
F-15
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
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.
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.
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.
F-16
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
10. Stockholders' Deficit (continued)
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.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares 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.
F-17
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
10. Stockholders' Deficit (continued)
Stock Options (continued)
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 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>
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>
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 both
equipment and 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 a certain number of shares of Class B non-voting common stock with an
aggregate exercise price of $306,749. The exercise price per share will be
based on an amount equal to the median of i) $2.46 and ii) the per share price
in the next round of equity financing. If there is no new equity financing done
within 18 months of the date of the loan agreement (February 12, 1999) the
exercise price will be $3.68. The Company will account for this warrant in
accordance with SFAS 123.
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 is 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 will
be 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 are effective on the
date the underwriting agreement is signed in connection with the Company's
contemplated 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.
F-20
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
15. Subsequent Events (continued)
In March 1999, the Company's Board of Directors approved an increase in the
authorized number of shares of preferred stock to 5,100,000. On April 1, 1999,
the Company's Board of Directors authorized a 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. The loan matures
on the earlier to occur of April 2001 or the receipt by the Company of
$5,000,000 from an offering of its equity securities. This loan bears interest
at 13%. In connection with this loan, the Company issued warrants to purchase
up to 98,000 shares of preferred stock at prices ranging from $1.17 to $5.00
per share, depending on when the loan is repaid.
F-21
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Members
REALBID, LLC
We have audited the accompanying statements of operations, members' equity
(deficit) and cash flows of REALBID, LLC for the period from June 19, 1997
(inception) through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of REALBID, LLC
for the period from June 19, 1997 (inception) through December 31, 1997, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
San Diego, California
February 17, 1999
F-22
<PAGE>
REALBID, LLC
Statements of Operations
<TABLE>
<CAPTION>
For the
period from
June 19, 1997 For the nine-month
(inception) to period ended
December 31, 1997 September 30, 1998
----------------- ------------------
(unaudited)
<S> <C> <C>
Net revenues............................... $ 15,500 $ 196,666
Cost of revenues........................... 9,615 37,608
--------- ---------
Gross profit............................... 5,885 159,058
Operating expenses:
General and administrative............... 247,598 271,477
--------- ---------
Total operating expenses................... 247,598 271,477
--------- ---------
Net loss................................... $(241,713) $(112,419)
========= =========
</TABLE>
See accompanying notes.
F-23
<PAGE>
REALBID, LLC
Statements of Members' Equity (Deficit)
<TABLE>
<CAPTION>
Members' Total
Shares Members'
------------- Accumulated Equity
Shares Amount Deficit (Deficit)
------ ------ ----------- ---------
<S> <C> <C> <C> <C>
Issuance of members' shares.............. 8,000 $8,000 $ -- $ 8,000
Net loss for the period from June 19,
1997 (inception) to December 31, 1997... -- -- (241,713) (241,713)
----- ------ --------- ---------
Balance at December 31, 1997............. 8,000 8,000 (241,713) (233,713)
Net loss for nine-month period ended
September 30, 1998 (unaudited).......... -- -- (112,419) (112,419)
----- ------ --------- ---------
Balance at September 30, 1998
(unaudited)............................. 8,000 $8,000 $(354,132) $(346,132)
===== ====== ========= =========
</TABLE>
See accompanying notes.
F-24
<PAGE>
REALBID, LLC
Statements of Cash Flows
<TABLE>
<CAPTION>
For the
period from
June 19, 1997 For the nine-month
(inception) to period ended
December 31, 1997 September 30, 1998
----------------- ------------------
(unaudited)
<S> <C> <C>
Operating activities
Net loss................................. $(241,713) $(112,419)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation........................... -- 699
Provision for bad debts................ -- 10,000
Changes in operating assets and
liabilities:
Accounts receivable.................. -- (79,000)
Prepaid assets....................... -- (2,000)
Accounts payable..................... 1,797 13,331
Accrued liabilities.................. 150,000 187,000
--------- ---------
Net cash provided by (used in) operating
activities.............................. (89,916) 17,611
Financing activities
Payments on lease obligation............. -- (1,748)
Proceeds from member advances............ 83,510 12,704
Proceeds from issuance of members'
shares.................................. 8,000 --
--------- ---------
Net cash provided by financing
activities.............................. 91,510 10,956
--------- ---------
Net increase in cash and cash
equivalents............................. 1,594 28,567
Cash and cash equivalents at beginning of
period.................................. -- 1,594
--------- ---------
Cash and cash equivalents at end of
period.................................. $ 1,594 $ 30,161
========= =========
Supplemental disclosure of cash flow
information:
Interest paid............................ $ -- $ 176
Supplemental schedule of non cash
investing and financing activities:
Equipment financed under capital leases.. $ -- $ 8,713
</TABLE>
See accompanying notes.
F-25
<PAGE>
REALBID, LLC
Notes to Financial Statements
December 31, 1997
(Information subsequent to December 31, 1997 and pertaining to the nine-month
period ended September 30, 1998 is unaudited)
1. Organization and Summary of Significant Accounting Policies
Organization and Business Activities
REALBID, LLC (the "Company") is a California company with limited liability
status which was formed on June 19, 1997 and shall continue until June 30, 2047
or until dissolution in accordance with the terms of the Operating Agreement.
Each member's liability is limited pursuant to the Beverly-Killea Limited
Liability Company Act. The Company is a real estate marketing services company
which facilitates commercial property transactions using both the internet and
traditional communication technologies.
The Company's primary purpose is to provide computer on-line real estate
services, including market data, specific property information, buyer profiles
and a trading platform for private and public format transactions.
Basis of Presentation
The Company has an accumulated deficit at December 31, 1997 and has not yet
generated income from operations and thus needs to continue to raise cash to
fund future operations. Refer to Note 5 for subsequent event.
Unaudited Interim Financial Information
The financial statements for the nine months ended September 30, 1998 are
unaudited. The unaudited financial statements have been prepared on the same
basis as the audited financial statements, and in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial information set forth therein, in
accordance with generally accepted accounting principles.
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 of revenues and expenses reported during the period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a remaining maturity
of three months or less when acquired to be cash equivalents.
Equipment
Equipment is depreciated using the straight-line method over estimated useful
lives of three to five years.
Revenue Recognition
The Company recognizes revenue at the time of performance of services.
F-26
<PAGE>
REALBID, LLC
Notes to Financial Statements (continued)
(Information subsequent to December 31, 1997 and pertaining to the nine-month
period ended September 30, 1998 is unaudited)
1. Organization and Summary of Significant Accounting Policies (continued)
Profits and Losses and Distributions
Profits and losses of the Company are allocated to the members and
distributions are made in accordance with the Operating Agreement.
2. Commitments
During the nine months ended September 30, 1998, the Company leased its
facilities under two operating leases expiring on November 30, 1998 and
January 5, 1999, each of which was renewed for an additional six month term.
Rent expense totaled $8,490 for the period from June 19, 1997 through December
31, 1997 and $24,914 for the nine-month period ended September 30, 1998.
The Company leases certain equipment under capital leases obligations. The
leases expire on March 27, 2000 and August 23, 2000.
3. Related Party Transactions
Since inception and through the nine month period ended September 30, 1998,
two of the Company's members have loaned the Company funds to be used for
expenditures incurred by the Company in order to conduct business. At December
31, 1997 and at September 30, 1998, loan amounts due to members totaled $83,510
and $96,214, respectively.
4. Income Taxes
Under federal and California law, income or loss of limited liability
companies are passed through to the separate tax returns of the members.
Accordingly, no provision (benefit) for taxes based on income or losses is
shown in the accompanying financial statements.
5. Sale of Assets
On November 6, 1998, COMPS.COM Inc. purchased substantially all of the assets
of the Company for $163,000 and stock options granted to the members.
6. Year 2000 Compliance (Unaudited)
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies may need to be upgraded to
comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated
with compliance. Although the Company believes that it is year 2000 compliant,
there can be no assurance that coding errors or other defects will not be
discovered in the future. Any year 2000 compliance problem of the Company, its
service providers, its customers or the Internet infrastructure could result in
a material adverse effect on the Company's business, operating results and
financial condition.
F-27
<PAGE>
COMPS.COM, Inc.
Unaudited Pro Forma Condensed Statement of Operations
On November 6, 1998, the Company acquired REALBID, LLC (REALBID) for
approximately $3.4 million, including acquisition costs. The unaudited pro
forma condensed statement of operations for the year ended December 31, 1998
give effect to the acquisition of REALBID as if it had occurred on January 1,
1998. The pro forma condensed statement of operations is based on historical
results of operations of the Company for the year ended December 31, 1998 and
REALBID for the period from January 1, 1998 to November 5, 1998. The pro forma
condensed statement of operations should be read in conjunction with the
historical financial statements and notes thereto of the Company and REALBID.
The pro forma condensed statement of operations is presented for illustrative
purposes only and is not necessarily indicative of results of operations that
would have actually occurred had the acquisition of REALBID been effected on
January 1, 1998.
<TABLE>
<CAPTION>
COMPS.COM, REALBID, LLC
Inc. Period from
Year ended January 1, 1998
December 31, to November 5,
Pro Forma
1998 1998 Adjustments Pro Forma
------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues............. $12,899,746 $ 223,166 $ -- $13,122,912
Cost of revenues......... 5,767,812 44,988 -- 5,812,800
----------- --------- --------- -----------
Gross profit............. 7,131,934 178,178 -- 7,310,112
Operating expenses:
Selling and marketing... 4,230,006 -- -- 4,230,006
Product development..... 1,233,462 -- -- 1,233,462
General and
administrative......... 3,067,864 293,782 586,959 3,948,605
----------- --------- --------- -----------
Total operating
expenses................ 8,531,332 293,782 586,959 9,412,073
----------- --------- --------- -----------
Loss from operations..... (1,399,398) (115,604) (586,959) (2,101,961)
Other income (expense)... (259,557) -- -- (259,557)
----------- --------- --------- -----------
Net loss................. (1,658,955) (115,604) (586,959) (2,361,518)
Dividend accretion on
preferred stock......... 453,685 -- -- 453,685
----------- --------- --------- -----------
Net loss attributable to
common stockholders..... $(2,112,640) $(115,604) $(586,959) $(2,815,203)
=========== ========= ========= ===========
Net loss per share
attributable to common
stockholders, basic and
diluted................. $ (0.60) $ (0.80)
=========== ===========
Shares used in computing
net loss attributable to
common stockholders,
basic and diluted....... 3,517,056 3,517,056
=========== ===========
</TABLE>
See accompanying notes.
F-28
<PAGE>
COMPS.COM, Inc.
Notes to Unaudited Pro Forma Condensed
Statement Of Operations
Note 1.
On November 6, 1998, COMPS.COM, Inc. (the Company) acquired all of the assets
of REALBID, LLC (REALBID) for cash of $163,000 and options to acquire 399,473
shares of the Company's Class B non-voting common stock at $1.64 per share. 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 was
allocated as follows, based upon a valuation of the tangible and intangible
assets by an independent appraiser, as well as management's best estimates:
<TABLE>
<S> <C>
Current assets acquired....................................... $ 64,500
Customer base................................................. 2,000,000
Goodwill...................................................... 796,753
Database and website technology............................... 300,000
Assembled workforce........................................... 100,000
Trademark and trade name...................................... 100,000
----------
$3,361,253
</TABLE>
The intangible assets are being amortized over estimated useful lives ranging
from three to five years.
Note 2.
The accompanying unaudited pro forma condensed statement of operations for
the year ended December 31, 1998 gives effect to the acquisition of REALBID as
if it had occurred as of January 1, 1998. The pro forma adjustment reflects
twelve months of amortization expense.
F-29
<PAGE>
Inside Back Cover:
NATIONAL COVERAGE
[A map of the U.S. is shown. Seven icons are lined up across the top of the
map. Below each icon is the name of one of the seven property types that we
cover in our database. Each icon will have a picture of the property type that
it represents. White dots are placed on the map in cities representing our
current market. Red dots are placed on the map in cities representing the
markets in our expansion plan. A legend is provided explaining the meaning of
the dots.
[LOGO]
Outside back cover:
INTERNET SOLUTIONS FOR COMMERCIAL REAL ESTATE
[The back cover will consist of a dark background with white text. There will
be a picture of a database wheel resembling a radar screen with a picture of a
group of commercial real estate buildings inside the database wheel. The text
"Information and Services ONLINE" appears at the top of the database wheel.]
[LOGO]
www.comps.com
<PAGE>
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the registrant are as follows. All amounts other
than the SEC registration fee, the NASD filing fees and the Nasdaq National
Market listing fee are estimates.
<TABLE>
<CAPTION>
Amount
to
be Paid
--------
<S> <C>
SEC registration fee............................................... $ 15,794
NASD filing fee.................................................... 6,181
Nasdaq National Market listing fee................................. 5,000
Legal fees and expenses............................................ 250,000
Accounting fees and expenses....................................... 200,000
Printing and engraving............................................. 120,000
Blue sky fees and expenses (including legal fees).................. 5,000
Transfer agent fees................................................ 10,000
Miscellaneous...................................................... 13,025
--------
Total.......................................................... $625,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933.
As permitted by the Delaware General Corporation Law, the registrant's Second
Restated Certificate of Incorporation includes a provision that eliminates the
personal liability of its directors for monetary damages for breach of
fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to the registrant or its stockholders, (2) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (3) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (4) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the bylaws of the
registrant provide that (1) the registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (2) the registrant
may indemnify its other employees and agents as set forth in the Delaware
General Corporation Law, (3) the registrant is required to advance expenses, as
incurred, to its directors and executive officers in connection with a legal
proceeding to the fullest extent permitted by the Delaware General Corporation
Law, subject to certain very limited exceptions and (4) the rights conferred in
the bylaws are not exclusive.
The registrant has entered into indemnification agreements with each of its
directors and executive officers to give such directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
the registrant's Amended and Restated Certificate of Incorporation and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
registrant regarding which indemnification is sought, nor is the registrant
aware of any threatened litigation that may result in claims for
indemnification.
Reference is also made to Section 7 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the registrant against certain liabilities. The
II-1
<PAGE>
indemnification provision in the registrant's Certificate of Incorporation,
bylaws and the indemnification agreements entered into between the registrant
and each of its directors and executive officers may be sufficiently broad to
permit indemnification of the registrant's directors and executive officers for
liabilities arising under the Securities Act of 1933.
The registrant has applied for liability insurance for its officers and
directors.
Reference is made to the following documents filed as exhibits to this
registration statement regarding relevant indemnification provisions described
above and elsewhere in this prospectus:
<TABLE>
<CAPTION>
Exhibit
Document Number
-------- -------
<S> <C>
Underwriting Agreement.................................................. 1.1
Form of Second Restated Certificate of Incorporation of Registrant...... 3.2
Form of Restated Bylaws of Registrant................................... 3.4
Form of Indemnification Agreement....................................... 10.22
Form of Indemnification Agreement....................................... 10.23
</TABLE>
Item 15. Recent Sales of Unregistered Securities
The registrant has sold and issued the following securities since January 1,
1996 (such share numbers do not reflect the 0.7335-for-1 stock split of our
common stock to be effected prior to this offering):
(1) The registrant from time to time has granted stock options to employees and
consultants in reliance upon exemption from registration pursuant to either
(1) Section 4(2) of the Securities Act of 1933 or (2) Rule 701 promulgated
under the Securities Act of 1933. The following table sets forth certain
information regarding such grants:
<TABLE>
<CAPTION>
Number of Exercise
Shares Prices
--------- -----------
<S> <C> <C>
January 1, 1996 to December 31, 1996.................. 86,412 $0.41
January 1, 1997 to December 31, 1997.................. 244,872 $0.41
January 1, 1998 to December 31, 1998.................. 1,143,672 $0.61-$1.64
</TABLE>
For additional information concerning these transactions, please see
"Management--Benefit Plans" in the Prospectus included in this registration
statement.
(2) On September 24, 1996, we issued a warrant to purchase 156,285 shares of
Class B common stock to Venture Lending & Leasing, Inc. in consideration
for entering into a certain loan agreement.
(3) On February 9, 1998, we issued 637,790 shares of Series B preferred stock,
warrants to purchase 27,381 shares of Class A common stock and warrants to
purchase 224,522 shares of Class B common stock to various venture
capitalists and insiders for an aggregate consideration of $1,150,000.
(4) On May 18, 1998, we issued 24,572 shares of Class B common stock to a
director upon exercise of options for a consideration of $10,050.
(5) On December 28, 1998, we issued 7,335 shares of Class B common stock to a
director upon exercise of options for a consideration of $3,000.
(6) On February 15, 1999, we issued a warrant to purchase no more than 91,181
shares of Class B common stock to Venture Lending & Leasing, Inc. in
consideration for entering into a certain loan agreement.
(7) On April 9, 1999 we issued warrants exercisable for up to 98,000 shares of
preferred stock with an exercise price ranging from $5.00 to $1.17
depending on when we repay the loan.
The above securities were offered and sold by the registrant in reliance upon
exemptions from registration pursuant to either (1) Section 4(2) of the
Securities Act of 1933 as transactions not involving any public offering, or
(2) Rule 701 promulgated under the Securities Act of 1933. No underwriters were
involved in connection with the sales of securities referred to in this Item
15.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Restated Certificate of Incorporation, as amended.
3.2+ Form of Second Restated Certificate of Incorporation to be in effect
upon the closing of this offering.
3.3+ Bylaws.
3.4+ Form of Restated Bylaws to be in effect upon the closing of this
offering.
4.1 Specimen common stock certificate.
5.1+ Opinion of Brobeck, Phleger & Harrison LLP.
10.1+ Amended and Restated Investor Rights Agreement among us and certain of
our stockholders, dated February 9, 1998.
10.2+ Stock and Warrant Purchase Agreement among us and the purchasers
identified in Exhibit A to the Agreement, dated October 14, 1994.
10.3+ Stock and Warrant Purchase Agreement among us and the purchasers
identified in Exhibit A to the Agreement, dated February 9, 1998.
10.4+ Form of Class B Common Stock Warrant between us and the persons listed
on the attached schedule, dated October 14, 1994.
10.5+ Class A Common Stock Warrant issued to Christopher A. Crane, dated
February 9, 1998.
10.6+ Form of Class B Common Warrant between us and the persons listed on
the attached schedule, dated February 9, 1998.
10.7+ Warrant to Purchase 156,285 Shares of Class B Common Stock between us
and Venture Lending & Leasing, Inc., dated September 24, 1996.
10.8+ Loan Agreement between us and Venture Lending & Leasing, Inc., dated
September 24, 1996.
10.9+ Security Agreement between us and Venture Lending & Leasing, Inc.,
dated September 24, 1996.
10.10+ Trademark Collateral Assignment between us and Venture Lending &
Leasing, Inc., dated September 24, 1996.
10.11+ Patent Collateral Assignment between us and Venture Lending & Leasing,
Inc., dated September 24, 1996.
10.12+ Form of Promissory Note between us and Venture Lending & Leasing, in
such principal amounts as set forth on the attached schedule.
10.13+ Form of Promissory Note between us and Venture Lending & Leasing, in
such principal amounts as set forth on the attached schedule.
10.14+ Office Building Lease between us and Comps Plaza Associates, L.P.,
dated January 31, 1999.
10.14.1 First Amendment to Lease dated March 22, 1999
10.15+ Form of Employment and Incentive Compensation Agreement between us and
the employees listed on the attached schedule.
10.16+ Executive Employment Agreement between us and Christopher A. Crane,
dated October 14, 1994.
10.17+ Form of Employment Agreement between us and the employees listed on
the attached schedule, dated November 6, 1998.
10.18+ Covenant Not to Compete between us and Robert C. Beasley, dated
October 14, 1994.
10.19+ Form of Non-Competition and Non-Disclosure Agreement between us and
the parties listed on the attached schedule, dated November 6, 1998.
10.20+ Form of Non-Competition and Non-Disclosure Agreement between us and
the parties listed on the attached schedule, dated January 7, 1999.
10.21+ Form of Employee Confidentiality and Inventions Agreement.
10.22+ Form of Indemnification Agreement between us and each of our
directors.
10.23+ Form of Indemnification Agreement between us and each of our officers.
10.24+ Software License Agreement between us and Qualitative Marketing
Software, Inc., dated February 27, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ ---------------------------------------------------------------------
<C> <S>
10.25+ License and Subscription Agreement between us and Transamerica
Information Management Services, dated December 17, 1992.
10.26+ License Agreement between us and NCompass Labs Inc., dated December
2, 1998.
10.27+ Amended and Restated Stock Option Plan.
10.28+ Form of Amended and Restated Stock Option Plan Incentive Stock Option
Agreement.
10.29+ Form of Amended and Restated Stock Option Plan Non-Qualified Stock
Option Agreement.
10.30+ The 1998 Equity Participation Plan.
10.31+ Form of 1998 Equity Participation Plan Incentive Stock Option
Agreement.
10.32+ Form of 1998 Equity Participation Plan Non-Qualified Stock Option
Agreement.
10.33+ The 1998 Supplemental Option Plan.
10.34+ 1998 Supplemental Option Plan Form of Notice of Grant of Stock
Option.
10.35+ 1999 Stock Incentive Plan.
10.36 Form of 1999 Stock Incentive Plan Notice of Grant.
10.37 Form of 1999 Stock Incentive Plan Stock Option Agreement.
10.38+ Employee Stock Purchase Plan.
10.39+ Assignment and Assumption Agreement between us and REALBID LLC, dated
November 6, 1998.
10.40+ Intellectual Property Assignment between us and REALBID LLC, dated
November 6, 1998.
10.41+ Service Mark Assignment between us and REALBID LLC, dated November 6,
1998.
10.42+ Asset Purchase Agreement between us, The Land Sales Resource and
Kitty Layne, dated July 17, 1995.
10.43+** Purchase Agreement between us and TRW Redi Property Data, dated
August 31, 1995, as amended by the Addendum, dated November 20, 1997.
10.44+** Asset Purchase Agreement among us, REALBID LLC, Emmett DeMoss and
Robert Potter, dated November 6, 1998.
10.45+** Asset Purchase Agreement between us and AOBR, Inc., dated December 4,
1998.
10.46+ Loan and Security Agreement between us and Venture Lending & Leasing
II, Inc., dated February 12, 1999.
10.47+ Patent Collateral Assignment Agreement between us and Venture Lending
& Leasing II, Inc., dated February 12, 1999.
10.48+ Trademark Collateral Assignment between us and Venture Lending &
Leasing II, Inc., dated February 12, 1999.
10.49+ Warrant to Purchase an aggregate of $225,000 of Class B Shares of
Common Stock between us and Venture Lending & Leasing II, Inc., dated
February 12, 1999.
10.50 Loan and Security Agreement between us and Silicon Valley Bank, dated
April 9, 1999.
10.51 Intellectual Property Security Agreement between us and Silicon
Valley Bank, dated April 9, 1999.
10.52 Warrant Subscription Agreement between us, Silicon Valley Bank and
shareholders listed on the signature page, dated April 9, 1999.
10.53 Warrant Subscription Agreement between us, Silicon Valley Bank and
shareholders listed on the signature page, dated April 9, 1999.
10.54 Warrant to Purchase Stock issued April 9, 1999.
10.55 Warrant to Purchase Stock issued April 9, 1999.
10.56 Amendment No. 1 to Amended and Restated Investor Rights Agreement
between us, Silicon Valley Bank and each of the individuals and
entities listed on Schedule A, dated April 9, 1999.
23.1 Consent of Ernst & Young LLP
23.2+ Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)
24.1+ Powers of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
** We have sought confidential treatment pursuant to Rule 406 of portions of
the referenced exhibit.
II-4
<PAGE>
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts.
All other schedules are omitted because they are not required, are not
applicable or the information is included in our financial statements or notes
thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriter at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC 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 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 Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933 the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424 (b)(1) or (4), or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933 each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
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 San Diego, California, on this 14th
day of April, 1999.
COMPS.COM, INC.
By: /s/ Christopher A. Crane
----------------------------------
Name: Christopher A. Crane
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933 this Registration
Statement has been signed by the following persons in the capacities indicated
on April 9, 1999:
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- ------- ----
<C> <S> <C>
/s/ Christopher Crane Chairman of the Board, President and April 14, 1999
____________________________________ Chief Executive Officer (principal
Christopher Crane executive officer)
/s/ Karen Goodrum Vice President of Finance and April 14, 1999
____________________________________ Administration and Chief Financial
Karen Goodrum Officer (principal financial and
accounting officer) and Secretary
* Director April 14, 1999
____________________________________
Gregory M. Avis
* Director April 14, 1999
____________________________________
Robert C. Beasley
Director April , 1999
____________________________________
Kenneth F. Potashner
*By: /s/ Christopher A. Crane April 14, 1999
____________________________________
Christopher A. Crane
Attorney-In-Fact
</TABLE>
II-6
<PAGE>
Schedule II
COMPS.COM, Inc.
Valuation And Qualifying Accounts
<TABLE>
<CAPTION>
Additions
--------------------
Balance
at Charged to Balance
Allowance for Doubtful Beginning Costs and at End of
Accounts of Year Expenses Other (1) Deductions Year
- ---------------------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996.. 362,913 566,242 644,322 1,003,351 570,126
Year ended December 31, 1997.. 570,126 456,291 1,238,593 880,768 1,384,242
Year ended December 31, 1998.. 1,384,242 261,843 260,627 441,790 1,464,922
</TABLE>
- --------
(1) These amounts have been offset against deferred subscription revenue.
II-7
<PAGE>
Index to Exhibits
<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Restated Certificate of Incorporation, as amended.
3.2+ Form of Second Restated Certificate of Incorporation to be in effect
upon the closing of this offering.
3.3+ Bylaws.
3.4+ Form of Restated Bylaws to be in effect upon the closing of this
offering.
4.1 Specimen common stock certificate.
5.1+ Opinion of Brobeck, Phleger & Harrison LLP.
10.1+ Amended and Restated Investor Rights Agreement among us and certain of
our stockholders, dated February 9, 1998.
10.2+ Stock and Warrant Purchase Agreement among us and the purchasers
identified in Exhibit A to the Agreement, dated October 14, 1994.
10.3+ Stock and Warrant Purchase Agreement among us and the purchasers
identified in Exhibit A to the Agreement, dated February 9, 1998.
10.4+ Form of Class B Common Stock Warrant between us and the persons listed
on the attached schedule, dated October 14, 1994.
10.5+ Class A Common Stock Warrant issued to Christopher A. Crane, dated
February 9, 1998.
10.6+ Form of Class B Common Warrant between us and the persons listed on
the attached schedule, dated February 9, 1998.
10.7+ Warrant to Purchase 156,285 Shares of Class B Common Stock between us
and Venture Lending & Leasing, Inc., dated September 24, 1996.
10.8+ Loan Agreement between us and Venture Lending & Leasing, Inc., dated
September 24, 1996.
10.9+ Security Agreement between us and Venture Lending & Leasing, Inc.,
dated September 24, 1996.
10.10+ Trademark Collateral Assignment between us and Venture Lending &
Leasing, Inc., dated September 24, 1996.
10.11+ Patent Collateral Assignment between us and Venture Lending & Leasing,
Inc., dated September 24, 1996.
10.12+ Form of Promissory Note between us and Venture Lending & Leasing, in
such principal amounts as set forth on the attached schedule.
10.13+ Form of Promissory Note between us and Venture Lending & Leasing, in
such principal amounts as set forth on the attached schedule.
10.14+ Office Building Lease between us and Comps Plaza Associates, L.P.,
dated January 31, 1999.
10.14.1 First Amendment to Lease dated March 22, 1999
10.15+ Form of Employment and Incentive Compensation Agreement between us and
the employees listed on the attached schedule.
10.16+ Executive Employment Agreement between us and Christopher A. Crane,
dated October 14, 1994.
10.17+ Form of Employment Agreement between us and the employees listed on
the attached schedule, dated November 6, 1998.
10.18+ Covenant Not to Compete between us and Robert C. Beasley, dated
October 14, 1994.
10.19+ Form of Non-Competition and Non-Disclosure Agreement between us and
the parties listed on the attached schedule, dated November 6, 1998.
10.20+ Form of Non-Competition and Non-Disclosure Agreement between us and
the parties listed on the attached schedule, dated January 7, 1999.
10.21+ Form of Employee Confidentiality and Inventions Agreement.
10.22+ Form of Indemnification Agreement between us and each of our
directors.
10.23+ Form of Indemnification Agreement between us and each of our officers.
10.24+ Software License Agreement between us and Qualitative Marketing
Software, Inc., dated February 27, 1997.
10.25+ License and Subscription Agreement between us and Transamerica
Information Management Services, dated December 17, 1992.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ ---------------------------------------------------------------------
<C> <S>
10.26+ License Agreement between us and NCompass Labs Inc., dated December
2, 1998.
10.27+ Amended and Restated Stock Option Plan.
10.28+ Form of Amended and Restated Stock Option Plan Incentive Stock Option
Agreement.
10.29+ Form of Amended and Restated Stock Option Plan Non-Qualified Stock
Option Agreement.
10.30+ The 1998 Equity Participation Plan.
10.31+ Form of 1998 Equity Participation Plan Incentive Stock Option
Agreement.
10.32+ Form of 1998 Equity Participation Plan Non-Qualified Stock Option
Agreement.
10.33+ The 1998 Supplemental Option Plan.
10.34+ 1998 Supplemental Option Plan Form of Notice of Grant of Stock
Option.
10.35+ 1999 Stock Incentive Plan.
10.36 Form of 1999 Stock Incentive Plan Notice of Grant.
10.37 Form of 1999 Stock Incentive Plan Stock Option Agreement.
10.38+ Employee Stock Purchase Plan.
10.39+ Assignment and Assumption Agreement between us and REALBID LLC, dated
November 6, 1998.
10.40+ Intellectual Property Assignment between us and REALBID LLC, dated
November 6, 1998.
10.41+ Service Mark Assignment between us and REALBID LLC, dated November 6,
1998.
10.42+ Asset Purchase Agreement between us, The Land Sales Resource and
Kitty Layne, dated July 17, 1995.
10.43+** Purchase Agreement between us and TRW Redi Property Data, dated
August 31, 1995, as amended by the Addendum, dated November 20, 1997.
10.44+** Asset Purchase Agreement among us, REALBID LLC, Emmett DeMoss and
Robert Potter, dated November 6, 1998.
10.45+** Asset Purchase Agreement between us and AOBR, Inc., dated December 4,
1998.
10.46+ Loan and Security Agreement between us and Venture Lending & Leasing
II, Inc., dated February 12, 1999.
10.47+ Patent Collateral Assignment Agreement between us and Venture Lending
& Leasing II, Inc., dated February 12, 1999.
10.48+ Trademark Collateral Assignment between us and Venture Lending &
Leasing II, Inc., dated February 12, 1999.
10.49+ Warrant to Purchase an aggregate of $225,000 of Class B Shares of
Common Stock between us and Venture Lending & Leasing II, Inc., dated
February 12, 1999.
10.50 Loan and Security Agreement between us and Silicon Valley Bank, dated
April 9, 1999.
10.51 Intellectual Property Security Agreement between us and Silicon
Valley Bank, dated April 9, 1999.
10.52 Warrant Subscription Agreement between us, Silicon Valley Bank and
shareholders listed on the signature page, dated April 9, 1999.
10.53 Warrant Subscription Agreement between us, Silicon Valley Bank and
shareholders listed on the signature page, dated April 9, 1999.
10.54 Warrant to Purchase Stock issued April 9, 1999.
10.55 Warrant to Purchase Stock issued April 9, 1999.
10.56 Amendment No. 1 to Amended and Restated Investor Rights Agreement
between us, Silicon Valley Bank and each of the individuals and
entities listed on Schedule A, dated April 9, 1999.
23.1 Consent of Ernst & Young LLP
23.2+ Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)
24.1+ Powers of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
** We have sought confidential treatment pursuant to Rule 406 of portions of
the referenced exhibit.
<PAGE>
EXHIBIT 1.1
3,800,000 Shares/1/
COMPS.COM, Inc.
Common Stock
UNDERWRITING AGREEMENT
_________________, 1999
Volpe Brown Whelan & Company, L.L.C.
As Representative of the several Underwriters
c/o Volpe Brown Whelan & Company, L.L.C.
One Maritime Plaza, 11th Floor
San Francisco, California 94111
Dear Sirs and Madams:
COMPS.COM, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell 3,800,000 shares (the "Firm Shares") of its authorized but unissued
common stock, $0.01 par value (the "Common Stock"). The Company and certain
stockholders of the Company named in Schedule II hereto (collectively, the
"Selling Securityholders") propose to grant to the Underwriters (as defined
below) an option to purchase up to 570,000 additional shares of Common Stock
(the "Optional Shares" and, with the Firm Shares, collectively, the "Shares").
The Common Stock is more fully described in the Registration Statement and the
Prospectus hereinafter mentioned. Christopher A. Crane is also hereinafter
referred to as the "Principal Securityholder."
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Shares by the several
underwriters, for whom you are acting, named in Schedule I hereto (collectively,
the "Underwriters," which term shall also include any underwriter purchasing
Stock pursuant to Section 3(b) hereof). You represent and warrant that you have
been authorized by each of the other Underwriters to enter into this Agreement
on its behalf and to act for it in the manner herein provided.
- -------------------------------
/1/ Plus an option to purchase from the Company up to 285,000 additional shares
and from the Selling Securityholders up to 285,000 additional shares to cover
over-allotments.
<PAGE>
Section 1. Representations and Warranties of the Company and the Principal
Securityholder. The Company and the Principal Securityholder hereby represent
and warrant to the several Underwriters as of the date hereof and as of each
Closing Date (as defined below) that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (No. 333-72901),
including the related preliminary prospectus, for the registration under the
Securities Act of 1933, as amended (the "Securities Act") of the Shares. Copies
of such registration statement and of each amendment thereto, if any, including
the related preliminary prospectus (meeting the requirements of Rule 430A of the
rules and regulations of the Commission) heretofore filed by the Company with
the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the shares (a "Rule 462(b)
registration statement"), and, in the event of any amendment thereto after the
effective date of such registration statement (the "Effective Date"), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any Rule 462(b) registration statement). The
term Prospectus as used in this Agreement shall mean the prospectus relating to
the Shares first filed with the Commission pursuant to Rule 424(b) and Rule 430A
(or if no such filing is required, as included in the Registration Statement)
and, in the event of any supplement or amendment to such prospectus after the
Effective Date, shall also mean (from and after the filing with the Commission
of such supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
(b) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, has full
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement and the Prospectus and as
being conducted, and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which the character of the property owned or
leased or the nature of the business transacted by it makes qualification
necessary (except where the failure to be so qualified would not have a material
adverse effect on the business, properties, condition (financial or otherwise)
or results of operations of the Company.
2
<PAGE>
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity. The Company is in possession of, and
operating in compliance with, all material authorizations, licenses, permits,
consents, certificates and orders material to the conduct of its respective
businesses as described in the Prospectus, all of which are valid and in full
force and effect.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any materially
adverse change in the business, properties, condition (financial or otherwise)
or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, other than as set forth in the
Registration Statement and the Prospectus, and since such dates, except in the
ordinary course of business, the Company has not entered into any material
transaction not referred to in the Registration Statement and the Prospectus.
(e) The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Optional
Shares are to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
and did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on the
Effective Date the Prospectus did not and, on the Closing Date and any later
date on which Optional Shares are to be purchased, will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that none of the
representations and warranties in this subparagraph (e) shall apply to
statements in, or omissions from, the Registration Statement or the Prospectus
made in reliance upon and in conformity with information herein or otherwise
furnished in writing to the Company by or on behalf of the Underwriters for use
in the Registration Statement or the Prospectus.
(f) The Company has authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus. The issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company and the related notes thereto included in
the Prospectus, the Company has no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required by the Securities Act
and the rules and regulations to be shown with respect to such plans,
arrangements, options and rights.
3
<PAGE>
(g) The Shares are duly authorized, are (or, in the case of Shares to be
sold by the Company, will be, when issued and sold to the Underwriters as
provided herein) validly issued, fully paid and nonassessable and conform to the
description thereof in the Prospectus. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
transfer and sale of the Shares to be sold by the Selling Stockholders or the
issuance and sale of the Shares to be sold by the Company as contemplated
herein.
(h) The Shares are authorized for listing on the Nasdaq National Market
upon official notice of issuance.
(i) The Shares to be sold by the Company will be sold free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest,
and will conform to the description thereof contained in the Prospectus. No
preemptive right, co-sale right, registration right, right of first refusal or
other similar right to subscribe for or purchase securities of the Company
exists with respect to the issuance and sale of the Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been waived, or complied with, to require the Company to register the
sale of any shares owned by such stockholder under the Securities Act in the
public offering contemplated by this Agreement.
(j) The Company has full corporate power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company. The making and performance of
this Agreement by the Company and the consummation of the transactions
contemplated hereby (i) will not violate any provisions of the second restated
certificate of incorporation of the Company (the "Certificate of
Incorporation"), the restated bylaws of the Company (the "Bylaws") or other
organizational documents of the Company, and (ii) will not conflict with, result
in a material breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a material default under (A) any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company is a party or by which the Company or
any of its properties may be bound or affected, or (B) any statute or any
authorization, judgment, decree, order, rule or regulation of any court or any
regulatory body, administrative agency or other governmental body applicable to
the Company or any of its properties. No consent, approval, authorization or
other order of any court, regulatory body, administrative agency or other
governmental body that has not already been obtained is required for the
execution and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Securities Act,
the Blue Sky laws applicable to the public offering of the Common Shares by the
several Underwriters and the clearance of such offering with the NASD.
4
<PAGE>
(k) The financial statements and schedules of the Company and REALBID,
LLC, a California limited liability company ("REALBID") and the related notes
thereto included in the Registration Statement and the Prospectus present fairly
the financial position of the Company and REALBID, respectively as of the
respective dates of such financial statements and schedules, and the results of
operations and cash flows of the Company and REALBID, respectively for the
respective periods covered thereby. Such statements, schedules and related
notes have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods specified, as
certified by the independent accountants named in subsection 10(g). No other
financial statements or schedules are required to be included in the
Registration Statement. The selected financial data set forth in the Prospectus
under the captions "Capitalization" and "Selected Financial Data" fairly present
the information set forth therein on the basis stated in the Registration
Statement.
(l) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The representations and warranties given by the Company and its
officers to its independent public accountants for the purpose of supporting the
letters referred to in Section 10(f) are true and correct.
(m) The Company is not (i) in violation or default of any provision of
its Certificate of Incorporation, Bylaws or other organizational documents, or
(ii) in a 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 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.
(n) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have not
been described or filed as required. The contracts so described in the
Prospectus are in full force and effect on the date hereof.
(o) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the knowledge of the
Company or the Principal Securityholder, threatened to which the Company is or
is, to the knowledge of the Company or the Principal Securityholder, threatened
to be made a party or of which property owned or leased by the Company is or
is, to the knowledge of the Company or the Principal Securityholder, threatened
to be made the subject, which actions, suits or proceedings could, individually
or in the aggregate, prevent or adversely affect the transactions contemplated
by this Agreement or result in a material adverse change in the business,
properties, condition (financial or otherwise), or results of operations of the
Company;
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and no labor disturbance by the employees of the Company exists or is imminent
which could materially adversely affect the business, properties, condition
(financial or otherwise), or results of operations of the Company. The Company
is not a party or subject to the provisions of any material injunction,
judgment, decree or order of any court, regulatory body, administrative agency
or other governmental body. Except as disclosed in the Prospectus, there are no
material legal or governmental actions, suits or proceedings pending or, to the
Company's or the Principal Securityholder's knowledge, threatened against any
executive officers or directors of the Company.
(p) The Company has good and marketable title to all the properties and
assets reflected as owned in the financial statements hereinabove described (or
elsewhere in the Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such financial
statements (or elsewhere in the Prospectus), or (ii) those which are not
material in amount to the Company and do not adversely affect the use made and
proposed to be made of such property by the Company. The Company holds its
leased properties under valid and binding leases. Except as disclosed in the
Prospectus, the Company owns or leases all such properties as are necessary to
its operations as now conducted or as proposed to be conducted.
(q) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company has not (A)
incurred any liabilities or obligations, indirect, direct or contingent, or (B)
entered into any oral or written agreement or other transaction, which in the
case of (A) or (B) is not in the ordinary course of business; (ii) the Company
has not sustained any material loss or interference with their respective
businesses or properties from fire, flood, windstorm, accident or other
calamity, whether or not covered by insurance; (iii) the Company has not paid
or declared any dividends or other distributions with respect to its capital
stock and the Company is not in default in the payment of principal or interest
on any outstanding debt obligations; (iv) there has not been any change in the
capital stock of the Company (other than upon the sale of the Shares hereunder
or upon the exercise of any options or warrants disclosed in the Prospectus);
(v) there has not been any material increase in the short- or long-term debt of
the Company; and (vi) there has not been any material adverse change or any
development involving or which may reasonably be expected to involve a
prospective material adverse change, in the business, condition (financial or
otherwise), properties, or results of operations of the Company.
(r) The Company is conducting business in compliance with all applicable
laws, rules and regulations of the jurisdictions in which it is conducting
business, except where the failure to be so in compliance would not have a
material adverse effect on the business, business prospects, properties,
condition (financial or otherwise) or results of operations of the Company.
(s) The Company has filed all necessary federal, state and foreign
income and franchise tax returns, and all such tax returns are complete and
correct in all material respects, and the Company has not failed to pay any
taxes which were payable pursuant to said returns or any assessments with
respect thereto. Neither the Company nor the Principal Securityholder has any
knowledge of any tax deficiency which has been or is likely to be threatened or
asserted against the
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Company.
(t) The Company has not distributed, and will not distribute prior to
the later to occur of (i) completion of the distribution of the Shares, or (ii)
the expiration of any time period within which a dealer is required under the
Securities Act to deliver a prospectus relating to the Shares, any offering
material in connection with the offering and sale of the Shares other than the
Prospectus, the Registration Statement and any other materials permitted by the
Securities Act and consented to by the Underwriters.
(u) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
directors' and officers' insurance, insurance covering real and personal
property owned or leased by the Company against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect. The Company has not been refused any
insurance coverage sought or applied for, and the Company has no reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
adversely affect the business, properties, condition (financial or otherwise) or
results of operations of the Company.
(v) Neither the Company nor, to the best of the Company's or the
Principal Securityholder's knowledge, any of its employees or agents has 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.
(w) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares.
(x) The Company has caused (i) each of its executive officers and
directors as set forth in the Prospectus and (ii) each holder of the
outstanding Common Stock (including shares issuable upon the exercise or
conversion of any option, warrant or other security), other than those holders
listed on Schedule III hereto, to furnish to the Underwriters an agreement in
form and substance satisfactory to Volpe Brown Whelan & Company, L.L.C. pursuant
to which each such party has agreed that during the period of one hundred eighty
(180) days after the date the Registration Statement becomes effective, without
the prior written consent of Volpe Brown Whelan & Company, L.L.C., such party
will not (i) offer, sell, contract to sell, make any short sale (including
without limitation short against the box), pledge or otherwise dispose of,
directly or indirectly, any shares of Common Stock, options to acquire Common
Stock or securities convertible into or exchangeable for, or any other rights to
purchase or acquire, Common Stock (including, without limitation, Common Stock
which may be deemed to be beneficially owned in accordance with the rules and
regulations of the
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Commission) other than the exercise or conversion of outstanding options,
warrants or convertible securities; or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
or ownership of Common Stock, whether any such transaction described in (i) or
(ii) is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise provided, however, that bona fide gift transactions and
transfers which will not result in any change in beneficial ownership may be
permitted if the transferee enters into a lock-up agreement in substantially the
same form covering the remainder of the lock-up period.
(y) The Company has delivered to the Underwriters copies of valid and
binding stock option agreements (the "Stock Option Agreements") pursuant to
which each party listed on Schedule III hereto has agreed that during the period
of one hundred eighty (180) days after the Registration Statement becomes
effective, such party will not, directly or indirectly, sell, grant any option
for the sale of, or otherwise dispose of or transfer, any shares of Common Stock
issuable upon the exercise or conversion of the options granted pursuant to the
Stock Option Agreement.
(z) Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba.
(aa) Except as specifically disclosed in the Prospectus, the Company has
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals and governmental authorizations to conduct its businesses as now
conducted; the expiration of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the business, properties, condition (financial or
otherwise) or results of operations of the Company; neither the Company nor the
Principal Securityholder has any knowledge of any infringement by the Company of
trademark, trade name rights, patent rights, copyrights, licenses, trade secret
or other similar rights of others; and no claims have been made or, to the
Company's or the Principal Securityholder's knowledge, are threatened against
the Company regarding trademark, trade name, patent, copyright, license, trade
secret or other infringement which could have a material adverse effect on the
business, properties, condition (financial or otherwise) or results of
operations or prospects of the Company.
(bb) Except as disclosed in the Prospectus, (i) the Company is in
compliance in all material respects with all rules, laws and regulations
relating to the use, treatment, storage and disposal of toxic substances and
protection of health or the environment ("Environmental Laws") which are
applicable to its business, (ii) the Company has not received any notice from
any governmental authority or third party of an asserted claim under
Environmental Laws, (iii) no facts currently exist that will require the Company
to make future material capital expenditures to comply with Environmental Laws,
and (iv) to the knowledge of the Company and the Principal Securityholder, no
property which is or has been owned, leased or occupied by the Company has been
designated as a "Superfund" site pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. ' 9601,
et seq.), or otherwise designated as a contaminated site under applicable state
or local law.
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(cc) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
Section 2. Representations and Warranties, and Covenants, of the
Selling Securityholders.
Each of the Selling Securityholders, severally and not jointly,
represents and warrants and covenants to the several Underwriters as of the date
hereof and as of each date on which Optional Shares are purchased that:
(a) Such Selling Securityholder has reviewed the representations and
warranties of the Company and, although such Selling Securityholder has not
independently verified the accuracy of such representations and warranties, such
Selling Securityholder has no reason to believe that such representations and
warranties of the Company contained in Section 1 are not true and correct in all
respects.
(b) Such Selling Securityholder is the sole owner of the Shares to be
sold by such Selling Securityholder hereunder, free and clear of all liens,
encumbrances, equities, security interests and claims whatsoever, with full
right and authority to deliver the same hereunder, subject, in the case of each
Selling Securityholder, to the rights of _____________ , as Custodian (the
"Custodian"), and that upon the delivery of and payment for such Shares
hereunder, the several Underwriters will receive valid title thereto, free and
clear of all liens, encumbrances, equities, security interests and claims
whatsoever.
(c) Certificates in negotiable form for the Shares to be sold by such
Selling Securityholder have been placed in custody under a Custody Agreement for
delivery under this Agreement with the Custodian; such Selling Securityholder
specifically agrees that the Shares represented by the certificates so held in
custody for such Selling Securityholder are subject to the interests of the
several Underwriters and the Company, that the arrangements made by such Selling
Securityholder for such custody, including the Power of Attorney provided for in
such Custody Agreement, are to that extent irrevocable, and that the obligations
of such Selling Securityholder shall not be terminated by any act of such
Selling Securityholder or by operation of law, whether by the death or
incapacity of such Selling Securityholder (or, in the case of a Selling
Securityholder that is not an individual, the dissolution or liquidation of such
Selling Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur before the
delivery of such shares of the shares hereunder, certificates for the Shares
shall be delivered by the Custodian in accordance with the terms and conditions
of this Agreement as if such death, incapacity, dissolution, liquidation or
other event had not occurred, regardless of whether the Custodian shall have
received notice of such death, incapacity, dissolution, liquidation or other
event.
(d) Such Selling Securityholder has reviewed the Registration Statement
and Prospectus and, although such Selling Securityholder has not independently
verified the accuracy or completeness of all the information contained therein,
nothing has come to the attention of such Selling Securityholder that would lead
such Selling Securityholder to believe that (i) on the Effective Date, the
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<PAGE>
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and, (ii) on the Effective
Date the Prospectus contained and, on the Closing Date and any later date on
which Optional Shares are to be purchased contains, any untrue statement of a
material fact or omitted or omits to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(e) All information in the Registration Statement or the Prospectus, or
any amendment or supplement thereto, relating to such Selling Securityholder
which is set forth in the Prospectus under the caption "Management", "Certain
Relationships and Related Transactions" and "Principal and Selling
Stockholders," (the "Selling Securityholder Information") and all
representations and warranties of such Selling Securityholder in the Custody
Agreement are true and correct in all respects and do not 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 information in the light of the
circumstances under which they were made not misleading. The sale of the Shares
by such Selling Securityholder pursuant hereto is not prompted by such Selling
Securityholder's knowledge of any material information concerning the Company
which is not set forth in the Prospectus.
(f) Such Selling Securityholder has full power and authority to enter
into this Agreement and the Custody Agreement and perform the transactions
contemplated hereby and thereby. This Agreement and the Custody Agreement have
been duly authorized, executed and delivered by or on behalf of such Selling
Securityholder and the form of such Securityholder Agreement has been delivered
to you.
(g) The making and performance of this Agreement and the Custody
Agreement and the consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation by such Selling Securityholder
of any of the terms or provisions of, or constitute a default by such Selling
Securityholder under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Securityholder is a party or by
which such Selling Securityholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such Selling Securityholder or any of
its properties.
(h) Such Selling Securityholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(i) Each of the Selling Securityholders agrees that during the period of
one hundred and eighty (180) days after the date of the Registration Statement
becomes effective, without the prior written consent of Volpe Brown Whelan &
Company, L.L.C., such Selling Securityholder will not (i) offer, sell, make any
short sale (including without limitation short against the box), pledge or
otherwise dispose of, directly or indirectly, any of the Company's Common Stock,
options to acquire Common Stock or securities convertible into or exchangeable
for or any other rights to purchase or acquire the Company's Common Stock
(including without limitation, Common Stock of the Company which may
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<PAGE>
be deemed to be beneficially owned in accordance with the rules and regulations
of the Commission) other than the exercise or conversion of outstanding options,
warrants or convertible securities or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
or ownership of Common Stock, whether any such transaction described in (i) or
(ii) is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise; provided, however, that bona fide gift transactions and
transfers which will not result in any change in beneficial ownership may be
permitted if the transferee enters into a lock-up agreement in substantially the
same form covering the remainder of the lock-up period.
Notwithstanding the foregoing, it is understood and agreed by the
parties hereto that nothing in this Section 2 shall, in any way, limit the
representations and warranties and covenants of the Principal Securityholder
contained in Section 1 of this Agreement.
Section 3. Purchase of the Shares by the Underwriters.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
the Firm Shares to the several Underwriters and each of the Underwriters agrees
to purchase from the Company the respective aggregate number of Firm Shares set
forth opposite its name in Schedule I. The price at which such Firm Shares
shall be sold by the Company and purchased by the several Underwriters shall be
$___ per share. The obligation of each Underwriter to the Company shall be to
purchase from the Company that number of Firm Shares which represents the same
proportion of the total number of Firm Shares to be sold by the Company pursuant
to this Agreement as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto represents of the total number of shares
of the Firm Shares to be purchased by all Underwriters pursuant to this
Agreement, as adjusted by you in such manner as you deem advisable to avoid
fractional shares. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided in paragraphs (b) and (c) of this
Section 3, the agreement of each Underwriter is to purchase only the respective
number of shares of the Firm Shares specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 9 or 10 hereof) to purchase and
pay for the number of Shares agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of Shares which such defaulting Underwriter or
Underwriters agreed to purchase. If the non-defaulting Underwriters fail so to
make such arrangements with respect to all such shares and portion, the number
of Shares which each non-defaulting Underwriter is otherwise obligated to
purchase under this Agreement shall be automatically increased on a pro rata
basis to absorb the remaining shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase; provided, however, that the non-
defaulting Underwriters shall not be obligated to purchase the portion
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<PAGE>
which the defaulting Underwriter or Underwriters agreed to purchase if the
aggregate number of such Shares exceeds 10% of the total number of Shares which
all Underwriters agreed to purchase hereunder. If the total number of Shares
which the defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such Shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all of the Shares which the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company or the Selling
Securityholders to any non-defaulting Underwriter and without any liability on
the part of any non-defaulting Underwriter to the Company or the Selling
Securityholders. Nothing in this paragraph (b), and no action taken hereunder,
shall relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
and the Selling Securityholders grant an option to the several Underwriters to
purchase, severally and not jointly, up to 570,000 Optional Shares from the
Company and the Selling Securityholders at the same price per share as the
Underwriters shall pay for the Firm Shares. Said option may be exercised only
to cover over-allotments in the sale of the Firm Shares by the Underwriters and
may be exercised in whole or in part at any time on or before the thirtieth day
after the date of this Agreement upon written or telegraphic notice by you to
the Company setting forth the aggregate number of Optional Shares as to which
the several Underwriters are exercising the option. Delivery of certificates
for the Optional Shares, and payment therefor, shall be made as provided in
Section 5 hereof. The number of Optional Shares to be purchased by each
Underwriter shall be the same percentage of the total number of Optional Shares
to be purchased by the several Underwriters as such Underwriter is purchasing of
the Firm Shares, as adjusted by you in such manner as you deem advisable to
avoid fractional shares.
Section 4. Offering by Underwriters.
(a) The terms of the initial public offering by the Underwriters of the
Shares to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time increase or decrease the concessions and
discounts to dealers as they may determine.
(b) The third paragraph and the list of underwriters on page 61 and the
last two paragraphs on page 62 constitute the only information furnished by the
Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
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Section 5. Delivery of and Payment for the Shares.
(a) Delivery of certificates for the Firm Shares and the Optional Shares
(if the option granted by Section 3(c) hereof shall have been exercised not
later than 7:00 a.m., San Francisco time, on the date two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of Brobeck, Phleger & Harrison LLP, 550 West C Street, Suite 1300, San Diego,
California 92101, at 7:00 a.m., San Francisco time, on the fourth business day
after the date of this Agreement, or at such time on such other day, not later
than seven full business days after such fourth business day, as shall be agreed
upon in writing by the Company, the Selling Securityholders and you. The date
and hour of such delivery and payment (which may be postponed as provided in
Section 3(b) hereof) are herein called the "Closing Date".
(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Optional Shares, and
payment therefor, shall be made at the office of Brobeck, Phleger & Harrison
LLP, 550 West C Street, Suite 1300, San Diego, California 92101, at 7:00 a.m.,
San Francisco time, on the third business day after the exercise of such option.
(c) Payment for the shares purchased from the Company shall be made to
the Company or its order, and payment for the shares purchased from the Selling
Securityholders shall be made, in the discretion of the Underwriters, to them or
to the Custodian, for the account of the Selling Securityholders, in each case
by (i) one or more certified or official bank check or checks in next day funds
or (ii) federal funds wire transfer. Such payment shall be made upon delivery
of certificates for the shares to you for the respective accounts of the several
Underwriters (including without limitation by "full-fast" electronic transfer by
Depository Trust Company) against receipt therefor signed by you. Certificates
for the shares to be delivered to you shall be registered in such name or names
and shall be in such denominations as you may request at least one business day
before the Closing Date, in the case of Firm Shares, and at least one business
day prior to the purchase thereof, in the case of the Optional Shares. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of agent of Volpe Brown Whelan & Company's clearing
agent, Bear Sterns Securities Corp., on the business day prior to the Closing
Date or, in the case of the Optional Shares, by 3:00 p.m., New York time, on the
business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Optional Shares are purchased for the account of such Underwriter.
Any such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
Section 6. Covenants of the Company and the Selling Securityholders.
The Company and each of the Selling Securityholders covenants and agrees as
follows:
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(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A and
(ii) not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
shares for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company and
the Selling Securityholders will make every reasonable effort to prevent the
issuance of such a stop order and, if such an order shall at any time be issued,
to obtain the withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you a
signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each post-
effective amendment, if any, to the Registration Statement (together with, in
each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to supplement or amend the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser of the shares,
the Company will forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time such Prospectus
is delivered to such purchaser, not misleading. If, after the initial public
offering of the shares by the Underwriters and during such period, the
Underwriters shall
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<PAGE>
propose to vary the terms of offering thereof by reason of changes in general
market conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the Company or
of counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended prospectus
setting forth such variation. The Company authorizes the Underwriters and all
dealers to whom any of the shares may be sold by the several Underwriters to use
the Prospectus, as from time to time amended or supplemented, in connection with
the sale of the shares in accordance with the applicable provisions of the
Securities Act and the applicable rules and regulations thereunder for such
period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the shares for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time
to time, prepare and file such statements, reports, and other documents as are
or may be required to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the shares.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission (including disclosure required by Rule 463 of the Commission under
the Securities Act).
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its security holders an earnings statement in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) For a period of one year commencing with the date hereof, the
Company agrees, at the Company's expense, to cause the Company's regularly
engaged independent certified public accountant to review (but not audit) the
Company's financial statements in accordance with the procedures specified by
the American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement on Auditing Standards No. 71
"Interim Financial Information" for each of the three fiscal quarters prior to
the announcement of quarterly financial information, the filing of the Company's
Quarterly Report on Form 10-Q with the Commission and the mailing of quarterly
financial information to stockholders of the Company.
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(j) The Company and the Selling Securityholders jointly and severally
agree to pay all costs and expenses incident to the performance of their
obligations under this Agreement, including all costs and expenses incident to
(i) the preparation, printing and filing with the Commission and the National
Association of Securities Dealers, Inc. ("NASD") of the Registration Statement,
any Preliminary Prospectus and the Prospectus, (ii) the furnishing to the
Underwriters and the persons designated by them of copies of any Preliminary
Prospectus and of the several documents required by paragraph (c) of this
Section 6 to be so furnished, (iii) the printing of this Agreement and related
documents delivered to the Underwriters, (iv) the preparation, printing and
filing of all supplements and amendments to the Prospectus referred to in
paragraph (d) of this Section 6, (v) the furnishing to you and the Underwriters
of the reports and information referred to in paragraph (g) of this Section 6,
(vi) the printing and issuance of stock certificates, including the transfer
agent's fees and (vii) the fees incurred in connection with the listing of the
shares on the Nasdaq National Market. The Selling Securityholders will pay any
transfer taxes incident to the transfer to the Underwriters of the Shares being
sold by the Selling Securityholders.
(k) The Company and the Selling Securityholders jointly and severally
agree to reimburse you, for the account of the several Underwriters, for blue
sky fees and related disbursements (including counsel fees and disbursements and
cost of printing memoranda for the Underwriters) paid by or for the account of
the Underwriters or their counsel in qualifying the shares under state
securities or blue sky laws and in the review of the offering by the NASD.
(l) The provisions of paragraphs (j) and (k) of this Section are
intended to relieve the Underwriters from the payment of the expenses and costs
which the Company and the Selling Securityholders hereby agree to pay and shall
not affect any agreement which the Company and the Selling Securityholders may
make, or may have made, for the sharing of any such expenses and costs.
(m) The Company and each of the Selling Securityholders hereby agree
that, without the prior written consent of Volpe Brown Whelan & Company L.L.C.,
the Company or such Selling Securityholder, as the case may be, will not, for a
period of 180 days following the date the Registration Statement becomes
effective, (i) offer, sell, contract to sell, make any short sale (including
without limitation short against the box), pledge, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options to acquire
shares of Common Stock or securities convertible into or exchangeable or
exercisable for or any other rights to purchase or acquire Common Stock
(including without limitation, Common Stock of the Company which may be deemed
to be beneficially owned in accordance with the rules and regulations of the
Commission) other than the exercise or conversion of outstanding options,
warrants or convertible securities or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
or ownership of Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise; provided, however, that bona fide gift
transactions and transfers which will not result in any change in beneficial
ownership may be permitted if the transferee enters into a lock-up agreement in
substantially the same form covering the remainder of the lock-up period. The
foregoing sentence shall not apply to (A) the shares to be sold
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to the Underwriters pursuant to this Agreement, (B) shares of Common Stock
issuable by the Company upon the exercise of warrants outstanding on the date
hereof, (C) options to purchase Common Stock granted or to be granted under the
Company's stock option plans, as described under the caption "Capitalization"
and "Management - 1999 Stock Incentive Plan" in the Preliminary Prospectus, (D)
shares of Common Stock purchased pursuant to the 1999 Employee Stock Purchase
Plan and (E) those options to purchase Common Stock listed on Schedule IV
attached hereto.
(n) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price for the shares has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
consult with you concerning disseminating a press release or other public
statement commenting on such rumor, publication or event.
(o) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(p) The Company agrees to maintain directors' and officers' insurance
in amounts customary for the size and nature of the Company's business for a
period of two years from the date of this Agreement.
Section 7. Indemnification and Contribution.
(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company and the Selling Securityholders jointly and severally agrees to
indemnify and hold harmless each Underwriter and each person (including each
partner or officer thereof) who controls any Underwriter within the meaning of
Section 15 of the Securities Act from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Securities Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or the common law or otherwise,
and the Company and the Selling Securityholders jointly and severally agrees to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
17
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the statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the omission
or alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that (1) the indemnity agreements of
the Company and the Selling Securityholders contained in this paragraph (a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing to the
Company by or on behalf of any Underwriter for use in any Preliminary Prospectus
or the Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the shares which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof, and (3) each Selling
Securityholder, other than the Principal Securityholder, shall only be liable
under this paragraph with respect to (A) information pertaining to such Selling
Securityholder furnished by or on behalf of such Selling Securityholder
expressly for use in any Preliminary Prospectus or the Registration Statement or
the Prospectus or any such amendment thereof or supplement thereto (it being
understood and agreed that the only information furnished by or on behalf of
each Selling Securityholder is the Selling Securityholder Information) or (B)
facts that would constitute a breach of any representation or warranty of such
Selling Securityholder set forth in Section 2 hereof. The indemnity agreements
of the Company and the Selling Securityholders contained in this paragraph (a)
and the representations and warranties of the Company and the Selling
Securityholders contained in Sections 1 and 2 hereof shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any indemnified party and shall survive the delivery of and payment for the
shares.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Securityholders from and against any
and all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue
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statement of a material fact contained in the Registration Statement (including
the Prospectus as part thereof and any Rule 462(b) registration statement) or
any post-effective amendment thereto (including any Rule 462(b) registration
statement) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, if such statement or
omission was made in reliance upon and in conformity with information furnished
as herein stated or otherwise furnished in writing to the Company by or on
behalf of such indemnifying Underwriter for use in the Registration Statement or
the Prospectus or any such amendment thereof or supplement thereto. The
indemnity agreement of each Underwriter contained in this paragraph (b) shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any indemnified party and shall survive the delivery of
and payment for the shares.
(c) Each party indemnified under the provision of paragraphs (a) and (b)
of this Section 7 agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against, it in respect of which indemnity may be
sought on account of any indemnity agreement contained in such paragraphs, it
will promptly give written notice (the "Notice") of such service or notification
to the party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (the "Notice of Defense") to the indemnified party, to assume (alone or
in conjunction with any other indemnifying party or parties) the entire defense
of such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i) if
the indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled
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<PAGE>
to have counsel chosen by such indemnified party or parties participate in, but
not conduct, the defense. If, within a reasonable time after receipt of the
Notice, an indemnifying party gives a Notice of Defense and the counsel chosen
by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable
or insufficient to hold harmless an indemnified party under paragraph (a) or (b)
of this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 7, (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each indemnifying party in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Selling Securityholders on the one hand and the Underwriters on the other
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the shares received by the Company and the Selling
Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the shares. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the shares purchased by such
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Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Securityholders will, without
the prior written consent of each Underwriter, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit
or proceeding in respect of which indemnification may be sought hereunder
(whether or not such Underwriter or any person who controls such Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of such
Underwriter and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.
(f) The liability of each Selling Securityholder, other than the
Principal Securityholder, under such Selling Securityholder's representations
and warranties contained in paragraph (a) of Section 2 hereof and under the
indemnity and reimbursement agreements contained in the provisions of this
Section 7 and Section 8 hereof shall be limited to an amount equal to the total
net proceeds (before deducting expenses) received by such Selling
Securityholder from the Underwriters for the sale of the Optional Shares sold by
such Selling Securityholder under the Registration Statement. The Company and
the Selling Securityholders may agree, as among themselves and without limiting
the rights of the Underwriters under this Agreement, as to the respective
amounts of such liability for which they each shall be responsible.
Section 8. Reimbursement of Certain Expenses. In addition to their
other obligations under Section 7 of this Agreement (and subject, in the case of
a Selling Securityholder other than the Principal Securityholder, to the
provisions of paragraph (f) of Section 7), the Company and the Selling
Securityholders hereby jointly and severally agree to reimburse on a monthly
basis the Underwriters for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (a) of
Section 7 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 8 and the possibility that such payments might later be held to be
improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any
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refund, when and if due.
Section 9. Termination. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders in accordance with Section 10, or if after the date of
this Agreement trading in the Common Stock shall have been suspended, or if
there shall have occurred (i) the engagement in hostilities or an escalation of
major hostilities by the United States or the declaration of war or a national
emergency by the United States on or after the date hereof, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change in economic or political conditions in the financial markets of
the United States or the Company's industry sector would, in the Underwriters'
reasonable judgment, make the offering or delivery of the shares impracticable,
(iii) suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange, or The Nasdaq Stock Market, or limitations on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such exchange or system, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 9, there shall be no liability of the Company or the Selling
Securityholders to the Underwriters and no liability of the Underwriters to the
Company or the Selling Securityholders; provided, however, that in the event of
any such termination the Company and the Selling Securityholders agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (j) and (k) of Section 6 hereof.
Section 10. Conditions of Underwriters' Obligations. The obligations
of the several Underwriters to purchase and pay for the shares shall be subject
to the performance by the Company and by the Selling Securityholders of all
their respective obligations to be performed hereunder at or prior to the
Closing Date or any later date on which Optional Shares are to be purchased, as
the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the shares hereunder and
the validity and form of the certificates representing the shares, all corporate
proceedings and other legal matters incident to the foregoing, and the form of
the Registration Statement and of the Prospectus (except as
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to the financial statements contained therein), shall have been approved at or
prior to the Closing Date by Katten Muchin & Zavis, counsel for the
Underwriters.
(c) You shall have received from Brobeck, Phleger & Harrison LLP,
counsel for the Company, an opinion, addressed to the Underwriters and dated the
Closing Date, covering the matters set forth in Annex A hereto, and if Optional
Shares are purchased at any date after the Closing Date, additional opinions
from such counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in such opinions
remain valid as of such later date.
(d) If Optional Shares are purchased on the Closing Date, you shall have
received from Gray Cary Ware Freidenrich LLP, counsel for the Selling
Securityholders, an opinion, addressed to the Underwriters and dated the Closing
Date, covering the matters set forth in Annex B hereto, and if Optional Shares
are purchased at any date after the Closing Date, additional opinions from such
counsel, addressed to the Underwriters and dated such later date, confirming
that the statements expressed as of the Closing Date in such opinions remain
valid as of such later date.
(e) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct, and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading; (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment; (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, and, since such dates, except
in the ordinary course of business, the Company has not entered into any
material transaction not referred to in the Registration Statement in the form
in which it originally became effective and the Prospectus contained therein;
(iv) the Commission has not issued any order preventing or suspending the use of
the Prospectus or any Preliminary Prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending the effectiveness
of the Registration Statement has been issued; and to the best knowledge of the
respective signers, no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act; (v) the Company does not have
any material contingent obligations which are not disclosed in the Registration
Statement and the Prospectus; (vi) there are not any pending or known threatened
legal proceedings to which the Company is a party or of which property of the
Company is the subject which are material and which are not disclosed in the
Registration Statement and the Prospectus; (vii) there are not any franchises,
contracts, leases or other documents which are required to be filed as exhibits
to the Registration Statement which have not been filed as required; and (viii)
the representations and warranties of the Company herein are true and correct in
all material respects as of the Closing Date or any later date on which Optional
Shares are to be purchased, as the case may be.
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(f) You shall have received on the Closing Date and on any later date on
which Optional Shares are purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the Chief
Financial Officer of the Company, stating that the respective signers of said
certificate have carefully examined the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (viii) of paragraph (e) of this Section 10 are true and
correct.
(g) You shall have received from Ernst & Young LLP, a letter or letters,
addressed to the Underwriters and dated the Closing Date and any later date on
which Optional Shares are purchased, confirming that they are independent
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published rules and regulations thereunder and
based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (the "Original Letter"), but
carried out to a date not more than three business days prior to the Closing
Date or such later date on which Optional Shares are purchased (i) confirming,
to the extent true, that the statements and conclusions set forth in the
Original Letter are accurate as of the Closing Date or such later date, as the
case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company which, in your sole judgment, makes it
impractical or inadvisable to proceed with the public offering of the shares or
the purchase of the Optional Shares as contemplated by the Prospectus.
(h) You shall have received from Ernst & Young LLP (accountants) a
letter stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at December 31, 1998, did
not disclose any weakness in internal controls that they considered to be
material weaknesses.
(i) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(j) Prior to the Closing Date, the shares to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
(k) On or prior to the Closing Date, you shall have received from all
directors, officers, and beneficial holders of the outstanding Common Stock,
other than those persons listed on Schedule III hereto, agreements, in form
reasonably satisfactory to Volpe Brown Whelan & Company, L.L.C., stating that
without the prior written consent of Volpe Brown Whelan & Company, L.L.C., such
24
<PAGE>
person or entity will not, for a period of 180 days following the date the
Registration Statement became effective (i) offer, sell, contract to sell, make
any short sale (including without limitation short against the box), pledge, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
options to acquire shares of Common Stock or securities convertible into or
exchangeable or exercisable for or any other rights to purchase or acquire
Common Stock (including without limitation, Common Stock of the Company which
may be deemed to be beneficially owned in accordance with the rules and
regulations of the Commission) other than the exercise or conversion of
outstanding options, warrants or convertible securities or (ii) enter into any
swap or other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise; provided, however, that
bona fide gift transactions and transfers which will not result in any change in
beneficial ownership may be permitted if the transferee enters into a lock-up
agreement in substantially the same form covering the remainder of the lock-up
period.
(l) You shall have received from each Selling Securityholder a
certificate, dated as of each date on which Optional Shares are purchased, to
the effect that such Selling Securityholder has examined the Registration
Statement, the Prospectus, any supplements to the Prospectus and this Agreement
and that the representations and warranties of such Selling Securityholder are
true and correct in all material respects on and as of each date on which
Optional Shares are purchased with the same effect as if made on such date, and
such Selling Securityholder has complied with the agreements and satisfied the
conditions on its part to be performed or satisfied at or prior to such date.
(m) You shall have received from the Company and each Selling
Securityholder such further information, certificates and documents as you may
reasonably request.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Katten Muchin & Zavis, counsel for the Underwriters,
shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in paragraphs
(j) and (k) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company or the
Selling Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by reason
of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the transactions contemplated hereby.
Section 11. Conditions of the Obligation of the Company and the Selling
Securityholders. The obligation of the Company and the Selling Securityholders
to deliver the shares shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 11 shall not
be fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters
and without liability of the Underwriters to the Company or the Selling
25
<PAGE>
Securityholders; provided, however, that in the event of any such termination
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (j) and (k) of Section 6 hereof.
Section 12. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of the Company, the Selling Securityholders and the
several Underwriters and, with respect to the provisions of Section 7 hereof,
the several parties (in addition to the Company, the Selling Securityholders and
the several Underwriters) indemnified under the provisions of said Section 7,
and their respective personal representatives, successors and assigns. Nothing
in this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the shares from any of the several Underwriters.
Section 13. Notices. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Volpe Brown Whelan &
Company, L.L.C., One Maritime Plaza, 11th Floor, San Francisco, California
94111, Attention: Steven D. Piper; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, 9888 Carroll Centre Road, Suite
100, San Diego, California 92126, Attention: President, with a copy to Brobeck,
Phleger & Harrison LLP, 500 West C Street, Suite 1300, San Diego, California
92101, Attention: Craig S. Andrews; and if to the Selling Securityholders, shall
be mailed, telegraphed or delivered to the Selling Securityholders in care of
_____________ at _____________. All notices given by telegraph shall be
promptly confirmed by letter.
Section 14. Miscellaneous. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or the Selling Securityholders or their respective
directors or officers, and (c) delivery and payment for the shares under this
Agreement; provided, however, that if this Agreement is terminated prior to the
Closing Date, the provisions of paragraphs (m) and (n) of Section 6 hereof
shall be of no further force or effect.
Section 15. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
Section 16. Applicable Law. This Agreement shall be governed by and
construed in
26
<PAGE>
accordance with the internal laws (and not the laws pertaining to conflicts of
laws) of the State of California.
Section 17. General. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Securityholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Securityholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Securityholder pursuant to a
validly existing and binding Power of Attorney which authorizes such Attorney-
in-fact to take such action. Any action taken under this Agreement by any of
the Attorneys-in-fact will be binding on all of the Selling Securityholders.
27
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon,
when confirmed and accepted by the underwriters as evidenced by the signature of
Volpe Brown Whelan & Company, L.L.C. below, it will become a binding agreement
among the Company and the several Underwriters, including you, all in accordance
with its terms.
Very truly yours,
COMPS.COM, INC.
By:
---------------------------------------
Title:
------------------------------------
Selling Securityholders:
By:
---------------------------------------
Attorney-in-fact
Principal Securityholder:
__________________________________________
Christopher A. Crane
The foregoing Underwriting
Agreement is hereby confirmed
and accepted by us in San
Francisco, California as of
the date first above written.
Volpe Brown Whelan & Company, L.L.C.
Acting for ourselves and as
Representative of the several
Underwriters named in the
attached Schedule I
By:
------------------------------
Authorized Signatory
<PAGE>
Schedule I
UNDERWRITERS
Number of
Shares
to be
Underwriters Purchased
- --------------------------------------------------------------------------------
Volpe Brown Whelan & Company, L.L.C.............................
EVEREN Securities, Inc..........................................
Needham & Company, Inc..........................................
Total........................................................ 3,800,000
=========
<PAGE>
Schedule II
SELLING SECURITYHOLDERS
Number of
Shares
Name of Selling Securityholders to be Sold
--------------------------------------------------------------------
Christopher A. Crane 85,500
Robert C. Beasley 85,500
Summit Partners 114,000
Total......................................... 285,000
=======
<PAGE>
Schedule III
OPTION AGREEMENT LOCK-UPS
[TO COME]
<PAGE>
Schedule IV
ADDITIONAL OPTIONS
[TO COME]
<PAGE>
Annex A
Matters to be Covered in the Opinion of
Brobeck, Phleger & Harrison LLP
Counsel for the Company
[TO COME]
A-1
<PAGE>
Annex B
Matters to be Covered in the Opinion of
Gray Cary Ware Freidenrich LLP
Counsel for the Selling Securityholders
[TO COME]
____________________________________
B-1
<PAGE>
EXHIBIT 4.1
COMMON COMMON
STOCK STOCK
[NUMBER] [# OF SHARES]
[CT] CUSIP 204679
COMPS.COM
E-Marketplace for Commercial Real Estate
SEE REVERSE FOR STATEMENTS
RELATING TO RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS, IF ANY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
--------------------------
IS THE RECORD HOLDER OF
---------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $0.01 PAR VALUE, OF
COMPS.COM, INC.
Hereinafter called the "Corporation" transferable on the books of the
Corporation by the holder hereof in person or by a duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid
unless countersigned and registered by the Transfer Agent and Registrar. Witness
the facsimile seal of the Corporation and the facsimile signatures of its duly
authorized officers.
REGISTERED
DATED:
/s/ Karen Goodrum /s/ Christopher A. Crane
SECRETARY [SEAL] PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
AUTHORIZED SIGNATURE
<PAGE>
COMPS.COM, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUESTS MAY BE MADE TO THE CORPORATION'S SECRETARY AT THE
PRINCIPAL EXECUTIVE OFFICE OF THE CORPORATION.
Keep this Certificate in a safe place. If it is lost, stolen, or destroyed
the corporation will require a bond of indemnity as a condition to the issuance
of a replacement certificate.
The following abbreviations when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws of regulations:
<TABLE>
<S> <C>
TEN COM - as tenant in common UNIF TRAN MIN ACT - Custodian
-----------------------------------------
(Cust) (Minor)
TEN ENT - as tenant by the entireties under Uniform Transfers to Minors Act
JT TEN - as joint tenants with rights ----------------------------------------
of survivorship and not (State)
as (tenants in common )
UNIF GIFT MIN ACT - Custodian
----------------------------------------
(Cust) (Minor)
under Uniform Gifts to Minors Act
--------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
<PAGE>
For Value Received, hereby sell, assign and transfer unto
----------------------
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
---------------------------------------------
- ---------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated:
-----------------------------------------
-----------------------------------
NOTICE: The signature(s) to
this assignment must correspond
with the names(s)
SIGNATURES GUARANTEED: as written upon the face of this
Certificate in every
particular, without
By alteration or enlargement
---------------------------------- or any change whatsoever
The Signatures must be guaranteed
by an ELIGIBLE GUARANTOR
INSTITUTION (Bank, Stockbroker,
Savings and Loan Association and
Credit Union) with membership
in an APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
EXHIBIT 10.14.1
FIRST AMENDMENT TO LEASE
Dated: March 22, 1999
THAT CERTAIN LEASE dated January 31, 1999, by and between COMPS.COM, Inc., a
Delaware corporation, Lessee, and COMPS Plaza Associates, L.P., Lessor, for
Premises located at 9888 Carroll Center Rd., San Diego, California, is hereby
amended as follows:
EXPANSION SPACE (Addendum # 1, Paragraph 3);
- --------------------------------------------
OPERATING EXPENSES (Addendum #1, Paragraph 8);
- ---------------------------------------------
SECURITY DEPOSIT (Lease Paragraph 7)
- ------------------------------------
Lessee hereby takes possession of Suites 122, 218, 220 on the commencement dates
shown below and shall pay the monthly Base Rent and Operating Expense specified
below effective upon on the respective commencement dates. Lessee shall deposit
with Lessor a Security Deposit equal to the initial monthly Base Rent for the
Expansion Space as specified herein.
<TABLE>
<CAPTION>
Monthly Monthly
Rentable Commencement Base Rent Operating Expense
Suite Sq. Ft. Date ($.985/rsf) ($.365/rsf)
- ----- -------- ---- ----------- ----------
<S> <C> <C> <C> <C>
122 2,105 March 16, 1999 $2,073.43 $ 768.33
218 871 March 21, 1999 $ 857.94 $ 317.92
220 1,159 March 21, 1999 $1,141.62 $ 423.04
----- --------- ---------
Total 4,135 $4,072.99 $1,509.29
</TABLE>
Except as specifically modified herein, the Lease and its terms and conditions
shall remain in full force and effect. All capitalized terms used herein and
not otherwise defined shall have the meanings set forth in the Lease.
LESSOR: LESSEE:
COMPS Plaza Associates, L.P. COMPS.COM, INC.
By: Arden Properties, Inc., a a Delaware corporation
California corporation
By: /s/ Christopher S. McKellar By: /s/ Karen Goodrum
-------------------------------- -------------------------------
Christopher S. McKellar Karen Goodrum
Vice President Vice President & Chief
Financial Officer
Dated: 3/22/99 Dated: 4/13/99
----------------------------- -----------------------------
<PAGE>
EXHIBIT 10.36
COMPS.COM, INC.
NOTICE OF GRANT OF STOCK OPTION
-------------------------------
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of COMPS.COM, INC. (the "Corporation"):
Optionee:
-------- ____________________________________________________________
Grant Date:
---------- ___________________________________________________________
Vesting Commencement Date:
------------------------- ____________________________________________
Exercise Price: $ ________________________________________ per share
--------------
Number of Option Shares: _____________________________________ shares
-----------------------
Expiration Date:
--------------- _____________________________________________________
Type of Option: ________ Incentive Stock Option
--------------
________ Non-Statutory Stock Option
Exercise Schedule: The Option shall become exercisable for twenty-
-----------------
five percent (25%) of the Option Shares upon Optionee's completion of
one (1) year of Service measured from the Vesting Commencement Date
and shall become exercisable for the balance of the Option Shares in
thirty-six (36) successive equal monthly installments upon Optionee's
completion of each additional month of Service over the thirty-six
(36) month period measured from the first anniversary of the Vesting
Commencement Date. In no event shall the Option become exercisable
for any additional Option Shares after Optionee's cessation of
Service.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the COMPS.COM, INC. 1999 Stock Incentive
Plan (the "Plan"). Optionee further agrees to be bound by the terms of the Plan
and the terms of the Option as set forth in the Stock Option Agreement attached
hereto as Exhibit A. Optionee hereby acknowledges the receipt of a copy of the
---------
official prospectus for the Plan in the form attached hereto as Exhibit B. A
---------
copy of the Plan is available upon request made to the Corporate Secretary at
the Corporation's principal offices.
<PAGE>
Employment at Will. Nothing in this Notice or in the attached Stock
------------------
Option Agreement or in the Plan shall confer upon Optionee any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining Optionee) or of Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee's Service at any time for any
reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the
-----------
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
DATED:
-------------------------
COMPS.COM, INC.
By:
---------------------------------
Title:
------------------------------
------------------------------------
OPTIONEE
Address:
----------------------------
------------------------------------
ATTACHMENTS
- -----------
Exhibit A - Stock Option Agreement
Exhibit B - Plan Summary and Prospectus
2
<PAGE>
EXHIBIT A
---------
STOCK OPTION AGREEMENT
----------------------
<PAGE>
EXHIBIT B
---------
PLAN SUMMARY AND PROSPECTUS
---------------------------
<PAGE>
EXHIBIT 10.37
COMPS.COM, INC.
STOCK OPTION AGREEMENT
----------------------
RECITALS
- --------
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent
or Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Corporation's grant
of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning assigned
to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of the
---------------
Grant Date, an option to purchase up to the number of Option Shares specified in
the Grant Notice. The Option Shares shall be purchasable from time to time
during the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a maximum term of ten (10) years
-----------
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. Limited Transferability.
-----------------------
(a) This option shall be neither transferable nor assignable by Optionee
other than by will or by the laws of descent and distribution following
Optionee's death and may be exercised, during Optionee's lifetime, only by
Optionee. However, Optionee may designate one or more persons as the beneficiary
or beneficiaries of this option, and this option shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding such option. Such beneficiary or
beneficiaries shall take the transferred option subject to all the terms and
conditions of this Agreement, including (without limitation) the limited time
period during which this option may, pursuant to Paragraph 5, be exercised
following Optionee's death.
(b) If this option is designated a Non-Statutory Option in the Grant
Notice, then this option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during Optionee's lifetime to one or more members
of Optionee's immediate family or to a trust established for the exclusive
benefit of one or more such family members. The assigned portion shall be
exercisable only by the person or persons who acquire a proprietary interest in
the option pursuant to such assignment. The terms applicable to the assigned
portion shall be the same as those in effect for this option immediately prior
to such assignment.
<PAGE>
4. Dates of Exercise. This option shall become exercisable for the Option
-----------------
Shares in one or more installments as specified in the Grant Notice. As the
option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. Cessation of Service. The option term specified in Paragraph 2 shall
--------------------
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason (other
than death, Permanent Disability or Misconduct) while holding this option, then
Optionee shall have a period of three (3) months (commencing with the date of
such cessation of Service) during which to exercise this option, but in no event
shall this option be exercisable at any time after the Expiration Date.
(b) Should Optionee die while holding this option, then the personal
representative of Optionee's estate or the person or persons to whom the option
is transferred pursuant to Optionee's will or in accordance with the laws of
inheritance shall have the right to exercise this option. However, if Optionee
has designated one or more beneficiaries of this option, then those persons
shall have the exclusive right to exercise this option following Optionee's
death. Any such right to exercise this option pursuant to this Paragraph 5(b)
shall lapse, and this option shall cease to be outstanding, upon the earlier of
-------
(i) the expiration of the twelve (12)-month period measured from the date of
Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Permanent Disability
while holding this option, then Optionee shall have a period of twelve (12)
months (commencing with the date of such cessation of Service) during which to
exercise this option. In no event shall this option be exercisable at any time
after the Expiration Date.
(d) During the limited period of post-Service exercisability, this
option may not be exercised in the aggregate for more than the number of Option
Shares for which the option is exercisable at the time of Optionee's cessation
of Service. Upon the expiration of such limited exercise period or (if earlier)
upon the Expiration Date, this option shall terminate and cease to be
outstanding for any exercisable Option Shares for which the option has not been
exercised. However, this option shall, immediately upon Optionee's cessation of
Service for any reason, terminate and cease to be outstanding with respect to
any Option Shares for which this option is not otherwise at that time
exercisable.
(e) Should Optionee's Service be terminated for Misconduct, then this
option shall terminate immediately and cease to remain outstanding.
2
<PAGE>
6. Special Acceleration of Option.
------------------------------
(a) This option, to the extent outstanding at the time of a Corporate
Transaction but not otherwise fully exercisable, shall automatically accelerate
so that this option shall, immediately prior to the effective date of such
Corporate Transaction, become exercisable for all of the Option Shares at the
time subject to this option and may be exercised for any or all of those Option
Shares as fully vested shares of Common Stock. No such acceleration of this
option shall occur, however, if and to the extent: (i) this option is, in
connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) this option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on the Option Shares for which
this option is not otherwise at that time exercisable (the excess of the Fair
Market Value of those Option Shares over the aggregate Exercise Price payable
for such shares) and provides for subsequent payout in accordance with the same
option exercise/vesting schedule set forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
--------
(d) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common
---------------------------
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any
------------------
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
3
<PAGE>
9. Manner of Exercising Option.
---------------------------
(a) In order to exercise this option with respect to all or any part of
the Option Shares for which this option is at the time exercisable, Optionee (or
any other person or persons exercising the option) must take the following
actions:
(i) Execute and deliver to the Corporation a Notice of Exercise for
the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased shares in
one or more of the following forms:
(A) cash or check made payable to the Corporation;
(B) a promissory note payable to the Corporation, but only to
the extent authorized by the Plan Administrator in accordance with
Paragraph 13;
(C) shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date;
or
(D) through a special sale and remittance procedure pursuant
to which Optionee (or any other person or persons exercising the option)
shall concurrently provide irrevocable instructions (i) to a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (ii) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation that the
person or persons exercising the option (if other than Optionee) have the
right to exercise this option.
4
<PAGE>
(iv) Make appropriate arrangements with the Corporation (or Parent
or Subsidiary employing or retaining Optionee) for the satisfaction of all
Federal, state and local income and employment tax withholding requirements
applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation shall
issue to or on behalf of Optionee (or any other person or persons exercising
this option) a certificate for the purchased Option Shares, with the appropriate
legends affixed thereto.
(c) In no event may this option be exercised for any fractional shares.
10. Compliance with Laws and Regulations.
------------------------------------
(a) The exercise of this option and the issuance of the Option Shares
upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
11. Successors and Assigns. Except to the extent otherwise provided in
----------------------
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns, the legal representatives, heirs and legatees of
Optionee's estate and any beneficiaries of this option designated by Optionee.
12. Notices. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
13. Financing. The Plan Administrator may, in its absolute discretion and
---------
without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchased Option Shares by delivering a full-recourse promissory note
payable to the Corporation. The terms of any such promissory note (including
the interest rate, the requirements for collateral and the terms of repayment)
shall be established by the Plan Administrator in its sole discretion.
5
<PAGE>
14. Construction. This Agreement and the option evidenced hereby are made
------------
and granted pursuant to the Plan and are in all respects limited by and subject
to the terms of the Plan. All decisions of the Plan Administrator with respect
to any question or issue arising under the Plan or this Agreement shall be
conclusive and binding on all persons having an interest in this option.
15. Governing Law. The interpretation, performance and enforcement of this
-------------
Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
16. Excess Shares. If the Option Shares covered by this Agreement exceed,
-------------
as of the Grant Date, the number of shares of Common Stock which may without
stockholder approval be issued under the Plan, then this option shall be void
with respect to those excess shares, unless stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of the Plan.
17. Additional Terms Applicable to an Incentive Option. In the event this
--------------------------------------------------
option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax treatment as
an Incentive Option if (and to the extent) this option is exercised for one or
more Option Shares: (A) more than three (3) months after the date Optionee
ceases to be an Employee for any reason other than death or Permanent Disability
or (B) more than twelve (12) months after the date Optionee ceases to be an
Employee by reason of Permanent Disability.
(b) No installment under this option shall qualify for favorable tax
treatment as an Incentive Option if (and to the extent) the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for which such
installment first becomes exercisable hereunder would, when added to the
aggregate value (determined as of the respective date or dates of grant) of the
Common Stock or other securities for which this option or any other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. Should such One Hundred Thousand Dollar
($100,000) limitation be exceeded in any calendar year, this option shall
nevertheless become exercisable for the excess shares in such calendar year as a
Non-Statutory Option.
(c) Should the exercisability of this option be accelerated upon a
Corporate Transaction, then this option shall qualify for favorable tax
treatment as an Incentive Option only to the extent the aggregate Fair Market
Value (determined at the Grant Date) of the Common Stock for which this option
first becomes exercisable in the calendar year in which the Corporate
Transaction occurs does not, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock or other securities
for which this option
6
<PAGE>
or one or more other Incentive Options granted to Optionee prior to the Grant
Date (whether under the Plan or any other option plan of the Corporation or any
Parent or Subsidiary) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should the
applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded in the
calendar year of such Corporate Transaction, the option may nevertheless be
exercised for the excess shares in such calendar year as a Non-Statutory Option.
(d) Should Optionee hold, in addition to this option, one or more other
options to purchase Common Stock which become exercisable for the first time in
the same calendar year as this option, then the foregoing limitations on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
7
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify COMPS.COM, INC. (the "Corporation") that I elect to
purchase ____________ shares of the Corporation's Common Stock (the "Purchased
Shares") at the option exercise price of $__________ per share (the "Exercise
Price") pursuant to that certain option (the "Option") granted to me under the
Corporation's 1999 Stock Incentive Plan on ____________, ______.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
____________________, ________
Date
_____________________________
Optionee
Address:_____________________
_____________________________
Print name in exact manner it is
to appear on the stock certificate: _____________________________
Address to which certificate is to
be sent, if different from address above: _____________________________
Social Security Number: _____________________________
8
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean shares of the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
F. Corporation shall mean COMPS.COM, INC., a Delaware corporation, and any
-----------
successor corporation to all or substantially all of the assets or voting stock
of COMPS.COM, INC. which shall by appropriate action adopt the Plan.
G. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
H. Exercise Date shall mean the date on which the option shall have been
-------------
exercised in accordance with Paragraph 9 of the Agreement.
I. Exercise Price shall mean the exercise price per Option Share as
--------------
specified in the Grant Notice.
J. Expiration Date shall mean the date on which the option expires as
---------------
specified in the Grant Notice.
K. Fair Market Value per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
A-1
<PAGE>
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists, or
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
L. Grant Date shall mean the date of grant of the option as specified in
----------
the Grant Notice.
M. Grant Notice shall mean the Notice of Grant of Stock Option
------------
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
N. Incentive Option shall mean an option which satisfies the requirements
----------------
of Code Section 422.
O. Misconduct shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive
of all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of Optionee or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).
P. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
Q. Notice of Exercise shall mean the notice of exercise in the form
------------------
attached hereto as Exhibit I.
R. Option Shares shall mean the number of shares of Common Stock subject
-------------
to the option as specified in the Grant Notice.
A-2
<PAGE>
S. Optionee shall mean the person to whom the option is granted as
--------
specified in the Grant Notice.
T. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. Permanent Disability shall mean the inability of Optionee to engage in
--------------------
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
V. Plan shall mean the Corporation's 1999 Stock Incentive Plan.
----
W. Plan Administrator shall mean either the Board or a committee of the
------------------
Board acting in its capacity as administrator of the Plan.
X. Service shall mean the Optionee's performance of services for the
-------
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor.
Y. Stock Exchange shall mean the American Stock Exchange or the New York
--------------
Stock Exchange.
Z. Subsidiary shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-3
<PAGE>
EXHIBIT 10.50
COMPS.COM, INC.
LOAN AND SECURITY AGREEMENT
DATED AS OF APRIL 9, 1999
<PAGE>
This Loan And Security Agreement is entered into as of April 9, 1999, by
and between Silicon Valley Bank ("Bank") and Comps.com, Inc. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding) whether or not
suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
<PAGE>
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means any extension of credit by Bank for the
benefit of Borrower hereunder.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equity Documents" means the Warrant Subscription Agreement (Series A)
dated as of the date hereof, by and between Borrower and Bank, the Warrant to
Purchase Stock (Series A) dated as of the date hereof, and issued by Borrower in
favor of Bank, the Warrant Subscription Agreement (Series B) dated as of the
date hereof, by and between Borrower and Bank, the Warrant to Purchase Stock
(Series B) dated as of the date hereof, and issued by Borrower in favor of Bank
and the Amendment to Investor Rights Agreement dated as of the date hereof, by
and among Borrower, Bank and the holders of Borrower's capital stock listed on
the signature pages attached thereto.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means
(a) Copyrights, Trademarks, Patents, and Mask Works;
<PAGE>
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now
or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents, Trademarks, or Mask Works, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks, Patents, or Mask Works; and
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Intellectual Property Security Agreement" means that certain
Intellectual Property Security Agreement dated as of the date hereof by and
between Borrower and Bank.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Liquidity Event" means the receipt by Borrower of at least Five
Million Dollars ($5,000,000) in net cash proceeds from the occurrence of an
initial public offering, private equity placement or similar event.
"Loan Documents" means, collectively, this Agreement, the Equity
Documents and any other present or future agreement entered into between
Borrower and/or for the benefit of Bank in connection with this Agreement, all
as amended, extended or restated from time to time.
"Mask Works" means all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired;
<PAGE>
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means April 9, 2001.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Patents" means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"Payment Date" means the fourth calendar day of each month commencing
on the first such date after the Closing Date and ending on the Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness approved by Bank prior to the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt;
(d) Senior Debt;
(e) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(f) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) marketable direct obligations issued or unconditionally guaranteed
by the United States of America or any agency or any State thereof maturing
within one (1) year from the date of acquisition thereof, (ii) commercial paper
maturing no more than one (1) year from the date of creation thereof and
currently having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) certificates of
deposit maturing no more than one (1) year from the date of investment therein
issued by Bank;
(c) Investments in any Person or Persons engaged in the business of
transaction support services and in which Borrower shall have, directly or
indirectly, a majority ownership interest.
<PAGE>
(d) Cash Investments of $300,000 or less in any Person and where such
Person is engaged in business activities substantially similar to those
conducted or contemplated to be conducted in the future by Borrower at the time
of such investment.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens which secure indebtedness in favor of Senior Lenders under
the Senior Agreement not to exceed Four Million Dollars ($4,000,000) in the
aggregate; and
(c) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) and (b) above, provided that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Senior Agreement" means "Senior Agreement" as that term is defined in
the Subordination Agreement.
"Senior Debt" means all "Senior Debt" up to Four Million Dollars
($4,000,000), as that term is defined in the Subordination Agreement.
"Senior Lenders" means Venture Lending & Leasing, Inc. and Venture
Lending & Leasing II, Inc.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subordination Agreement" means that certain Subordination Agreement
dated as of the date hereof by and among the Senior Lenders, Bank and Borrower.
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Term Loan" means a Credit Extension of Three Million Dollars
($3,000,000).
<PAGE>
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
1.2 Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. Loan And Terms Of Payment. Borrower promises to pay to the order of Bank,
in lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1 Term Loan. Subject to and upon the terms and conditions of this
Agreement, Bank shall make a Term Loan available to Borrower. The entire
principal amount of Term Loan and all accrued interest not yet paid shall be due
and payable on the earlier to occur of (i) a Liquidity Event, or (ii) the
Maturity Date; provided, however, that the Term Loan may be prepaid at anytime
without penalty.
2.2 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.2(b), any Credit
Extensions shall bear interest, on the average daily balance thereof, at a per
annum rate equal to thirteen percent (13%) which interest shall be due and
payable monthly in arrears. All interest chargeable under the Loan Documents
shall be computed on the basis of a three hundred sixty (360) day year for the
actual number of days elapsed.
(b) Default Rate. All principal outstanding under the Term Loan shall
bear interest, from and after the occurrence of an Event of Default, at a rate
equal to five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on each
Payment Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number 3300035271 for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off.
2.3 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
<PAGE>
2.4 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. Borrower has paid, and Bank hereby acknowledges
receipt of, a facility fee equal to Ninety Thousand Dollars ($90,000), which fee
shall be fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's reasonable
customary fees and out-of-pocket expenses (up to $5,000 in the aggregate
annually) for Bank's audits of Borrower's Accounts and for each appraisal of
Collateral performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.5 Additional Costs. In case any change in any law, regulation, treaty
or official directive or the interpretation or application thereof by any court
or any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of principal or
interest or any other amounts payable hereunder by Borrower or otherwise with
respect to the transactions contemplated hereby (except for taxes on the overall
net income of Bank imposed by the United States of America, any state or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement;
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.6 Term. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Credit Extension. The obligation of Bank to
make the initial Credit Extension is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
<PAGE>
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) the Intellectual Property Security Agreement ;
(d) the Subordination Agreement;
(e) the Equity Documents;
(f) an opinion of Borrower's counsel;
(g) financing statements (Forms UCC-1);
(h) insurance certificate;
(i) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(j) a certificate of the Secretary of the State of Delaware stating
that Borrower is in good standing under the laws of the State of Delaware;
(k) a certificate of the Secretary of the State of California stating
that Borrower is in good standing under the laws of the State of California; and
(l) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:
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5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, in each jurisdiction in which the failure to so qualify could have
a Material Adverse Effect, excepting that no representation is made as to
Virginia.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound (either because a waiver was
obtained or otherwise). Borrower is not in default under any agreement to which
it is a party or by which it is bound, which default could have a Material
Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Merchantable Inventory. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.5 Intellectual Property. Borrower is the sole owner of the Intellectual
Property Collateral, except for non-exclusive licenses granted by Borrower to
its customers in the ordinary course of business. Each of the Patents is valid
and enforceable, and no part of the Intellectual Property Collateral has been
judged invalid or unenforceable, in whole or in part, and no claim has been made
that any part of the Intellectual Property Collateral violates the rights of any
third party. Except for and upon the filing with the United States Patent and
Trademark Office with respect to the Patents and Trademarks and the Register of
Copyrights with respect to the Copyrights and Mask Works necessary to perfect
the security interests created hereunder, and except as has been already made or
obtained, no authorization, approval or other action by, and no notice to or
filing with, any United States governmental authority or United States
regulatory body is required either (i) for the grant by Borrower of the security
interest granted hereby or for the execution, delivery or performance of Loan
Documents by Borrower in the United States or (ii) for the perfection in the
United States or the exercise by Bank of its rights and remedies hereunder.
5.6 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no actions
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.8 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not
been a material adverse change in the consolidated financial condition of
Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.9 Solvency. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and Borrower is able to pay its debts (including
trade debts) as they mature.
<PAGE>
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership interest
or other equity securities of any Person, except for Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect; provided, however,
that Borrower shall obtain qualification in the State of Virginia within thirty
(30) days of the date hereof. Borrower shall also maintain, and shall cause
each of its Subsidiaries to maintain, to the extent consistent with prudent
management of Borrower's business, in force all licenses, approvals and
agreements, the loss of which could have a Material Adverse Effect.
<PAGE>
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver
to Bank: (a) as soon as available, but in any event within thirty (30) days
after the end of each month, a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during such period,
in a form and certified by an officer of Borrower reasonably acceptable to Bank;
(b) as soon as available, but in any event within one hundred twenty (120) days
after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
within five (5) days of filing, copies of all statements, reports and notices
sent or made available generally by Borrower to its security holders or to any
holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed
with the Securities and Exchange Commission; (d) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; (e) prompt notice
of any material change in the composition of the Intellectual Property
Collateral, including, but not limited to, any subsequent ownership right of the
Borrower in or to any Copyright, Patent or Trademark not specified in any
intellectual property security agreement between Borrower and Bank or knowledge
of an event that materially adversely effects the value of the Intellectual
Property Collateral; and (f) such budgets, sales projections, operating plans,
capitalization tables or other financial information as Bank may reasonably
request from time to time.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts. So long as no Event of Default has occurred and is continuing, said
audits shall be limited to no more than two (2) in any fiscal year, and shall be
at Borrower's sole expense, which expense shall not exceed $5,000 in the
aggregate during any fiscal year. Upon the occurrence and during the
continuance of an Event of Default, the Bank may perform more numerous audits
than two per fiscal year, which audits shall be at Borrower's sole expense.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances,
if any, as between Borrower and its account debtors shall be on the same basis
and in accordance with the usual customary practices of Borrower, as they exist
at the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is (i) contested in good faith by
appropriate proceedings , (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6 Insurance.
<PAGE>
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered (to the extent
not already registered) with the United States Patent and Trademark Office or
the United States Copyright Office, as applicable, those intellectual property
rights listed on Exhibits A, B and C to the Intellectual Property Security
Agreement delivered to Bank by Borrower in connection with this Agreement within
thirty (30) days of the date of this Agreement. Borrower shall register or
cause to be registered with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Borrower from time to time in
connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional instruments and
documents from time to time as Bank shall reasonably request to perfect Bank's
security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents, Copyrights, and Mask Works, (ii) use
its best efforts to detect infringements of the Trademarks, Patents, Copyrights
and Mask Works and promptly advise Bank in writing of material infringements
detected and (iii) not allow any Trademarks, Patents, Copyrights, or Mask Works
to be abandoned, forfeited or dedicated to the public without the written
consent of Bank, which shall not be unreasonably withheld, unless Bank
determines that reasonable business practices suggest that abandonment is
appropriate.
(d) Bank shall have the right, but not the obligation, to take, at
Borrower's sole expense, any actions that Borrower is required under this
Section 6.8 to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.8.
<PAGE>
6.9 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. Negative Covenants. Borrower covenants and agrees that, so long as any
Credit Extension hereunder shall be available and until payment in full of the
outstanding Obligations, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business; (iii) of worn-out or
obsolete Equipment; (v) in connection with the acquisition of any business or
enterprise involving data to be employed in Borrower's business and which does
not involve more than $300,000 of Borrower's cash; and (vi) the contribution of
cash or other property for the purpose of participating in a joint venture,
limited liability company or other legal entity to provide transaction support
services and where Borrower shall have directly or indirectly a majority
ownership.
7.2 Changes in Business, Ownership, or Management, Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
businesses, other than the businesses currently engaged in by Borrower or its
Subsidiaries and any business substantially similar or related thereto (or
incidental thereto), or suffer a material change in Borrower's executive
management group or ownership of greater than 33%. Borrower will not, without
at least thirty (30) days prior written notification to Bank, relocate its chief
executive office or add any new offices or business locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person; provided,
however, that Borrower or any of its Subsidiaries may merge or consolidate with,
or acquire the capital stock or assets of, another Person whereby Borrower or
any Subsidiary acquires that data base or other similar information to be used
in Borrower's business and where the cash component of any merger, consideration
or acquisition does not exceed $300,000.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, except as approved by Bank prior to the Closing Date and disclosed on the
Schedule.
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
<PAGE>
7.9 Intellectual Property Agreements. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the definition
of the Intellectual Property Collateral acquired under such contracts.
7.10 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.11 Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof, in the Schedule and such other locations of which Borrower gives Bank
prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.12 Compliance. Become an "investment company" or a company controlled
by an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of the Term Loan for such purpose;
fail to meet the minimum funding requirements of ERISA; permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply
with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral; or permit any of its Subsidiaries to do any of the foregoing.
8. Events Of Default. Any one or more of the following events shall constitute
an Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Article 6 or
violates any of the covenants contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank,
and as to any such failure to perform or default that can be cured, has failed
to cure such failure to perform or default within ten (10) days after the
occurrence thereof; provided, however, that if the failure to perform or default
cannot by its nature be cured within the ten (10) day period or cannot after
diligent attempts by Borrower be cured within such ten (10) day period, and such
failure to perform or default is likely to be cured within a reasonable time,
then Borrower shall have an additional reasonable period (which shall not in any
case exceed thirty (30) days) to attempt to cure such failure to perform or
default, and within such reasonable time period the failure to have cured such
failure to perform or default shall not be deemed an Event of Default;
8.3 Attachment. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
<PAGE>
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.4 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 45 days;
8.5 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.6 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.7 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.8 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.4 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably considers
advisable;
(d) Without notice to or demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its security
interest in the Collateral. Borrower agrees to assemble the
<PAGE>
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's premises, Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge in order
to exercise any of Bank's rights or remedies provided herein, at law, in equity,
or otherwise;
(e) Without notice to Borrower set off and apply to the Obligations
any and all (I) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right, solely pursuant to the provisions of this Section 9.1, to use,
without charge, Borrower's labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank's exercise of its rights under this
Section 9.1, Borrower's rights under all licenses and all franchise agreements
shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Bank determines is
commercially reasonable, and apply the proceeds thereof to the Obligations in
whatever manner or order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
(j) Bank shall have a non-exclusive, royalty-free license to use the
Intellectual Property Collateral to the extent reasonably necessary to permit
Bank to exercise its rights and remedies upon the occurrence of an Event of
Default.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to modify, in its
sole discretion, any intellectual property security agreement entered into
between Borrower and Bank without first obtaining Borrower's approval of or
signature to such modification by amending Exhibit A, Exhibit B, Exhibit C, and
Exhibit D, thereof, as appropriate, to include reference to any right, title or
interest in any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower
after the execution hereof or to delete any reference to any right, title or
interest in any Copyrights, Patents, Trademarks, or Mask Works in which Borrower
no longer has or claims any right, title or interest; (g) to file, in its sole
<PAGE>
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and (h) to transfer the Intellectual Property Collateral
into the name of Bank or a third party to the extent permitted under the
California Uniform Commercial Code provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's attorney in fact, and each and every one of
Bank's rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully repaid and performed and Bank's
obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not expressly set forth herein as provided
under the Code, by law, or in equity. No exercise by Bank of one right or
remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. Notices. Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by facsimile to Borrower or to Bank, as the case may be, at its
addresses set forth below:
<PAGE>
If to Borrower: Comps.com, Inc.
9888 Carroll Centre Road, Suite 100
San Diego, CA 92126-4581
Attention: Karen Goodrum
Facsimile: 619/684-3292
If to Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
Attention: Mezzanine Finance, NC 475
Facsimile: 408/969-6501
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. Choice Of Law And Venue. The Loan Documents shall be governed by, and
construed in accordance with, the internal laws of the State of California,
without regard to principles of conflicts of law. each of borrower and bank
hereby submits to the exclusive jurisdiction of the state and Federal courts
located in the County of Santa Clara, State of California. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. General Provisions
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall , indemnify ,defend, protect and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
Notwithstanding anything to the contrary provided in this provided in this
Agreement or in any other Loan Document, upon the indefeasible payment in full
of all Obligations (excluding any Obligations arising solely under this Section
<PAGE>
12.2), the security interest granted hereby shall terminate and all rights to
the Collateral shall revert to Borrower. Upon any such termination Bank will, at
Borrower's expense, execute and deliver to Bank such documents as Borrower shall
reasonably request to evidence such termination.
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be amended
or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information Bank shall
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank, and (v) as Bank may deem
appropriate in connection with the exercise of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
<PAGE>
In Witness Whereof, the parties hereto have caused this Agreement to
be executed as of the date first above written.
Borrower Comps.com, Inc.,
a Delaware corporation
By: /s/ Christopher A. Crane
-------------------------------
Name: Christopher A. Crane
-----------------------------
Title: President and CEO
----------------------------
Bank Silicon Valley Bank
By: /s/ Laurita J. Hernandez
-------------------------------
Name: Laurita J. Hernandez
-----------------------------
Title: Vice President
----------------------------
<PAGE>
Schedule to
Loan and Security Agreement
This Schedule contains various disclosures and exceptions to
representations, warranties and other provisions of the Loan and Security
Agreement by and between Comps.com, Inc. as "Borrower" and Silicon Valley Bank
as "Bank." Listed below are various "Liens," "Investments," loans and
obligations which are permitted by Bank, notwithstanding any provision in the
Loan and Security Agreement to the contrary. The descriptions contained below
relating to whether a listed item is a "Lien," "Lease," "Investment" or other
obligation or charge on the Borrower's property is for convenience only. Should
an item listed below be categorized in one category, but it is later believed to
be more properly listed in a different category, the item should be deemed to
have been listed in the correct category or categories.
PERMITTED INDEBTEDNESS & INVESTMENTS (Definitions Section)
- ----------------------------------------------------------
Equipment Leases
- ----------------
1. Canon Financial Service
Lease No. 001-0050913-001
Term: 60 Months
Start: 09/20/94
Equipment: 3 Canon Copiers
Original Loan: $20,628.00
2. Canon Financial Service
Lease No. 001-0058622-001
Term: 60 Months
Start: 04/05/95
Equipment: 1 Canon Copier
Original Loan: $7,824.00
3. G.E. Capital
Lease No. 6519146-001
Term: 60 Months
Start: 5/16/94
Equipment: Executone Telephone Equipment
Original Loan: $64,805.00
4. G.E. Capital
Lease No. 6519146-002
Term: 48 Months
Start: 9/23/97
Equipment: Executone Telephone Equipment
Original Loan: $30,806.45
<PAGE>
Equipment Leases (continued)
- ----------------------------
5. Tokai Financial
Lease No. 24150393
Term: 60 Months
Start: 01/10/95
Equipment: Haworth Systems Furniture
Original Loan: $111,576.68
6. Avnet/AT&T Capital Corporation
Lease No. 424755
Term: 60 months
Start: 10/25/94
Equipment: HP 9000 Computer
Original Loan: $32,121.40
Notes Payable
- -------------
1. Note payable to First American Real Estate Solutions (EXPERIAN RES)/1/
under Addendum To and Amendmnet Of Purchase Agreement
dated August 31, 1995
between COMPS InfoSystems, Inc. and TRW REDI Property Data.
Security:_________________________
SENIOR SECURITY INTERESTS/LIENS ((P)4.1)
- ----------------------------------------
Secured Party: Venture Lending & Leasing, Inc.
Assignee: Fleet Bank, N.A., as Agent
Debtor: COMPS InfoSystems, Inc.
Collateral: Blanket, incl. IP
State of Filing: AZ
File No.: 943478
Filing Date: 11/13/96
- --------------------------------
/1/ First American Real Estate Solutions (EXPERIAN RES) Payment Schedule:
December 31, 1999 $ 405,800
December 31, 2000 $ 125,000 (plus accrued interest per Purchase Agreement)
December 31, 2001 $ 125,000 (plus accrued interest per Purchase Agreement)
<PAGE>
Secured Party: G.E. Capital Corp.
Assignee: N/A
Debtor: BREIC; Business Real Estate Information Corp.; COMPS
Collateral: Equipment
State of Filing: CA
File No.: 94102170
Filing Date: 05/23/94
Secured Party: AT&T Capital Leasing Services, Inc.
Assignee: N/A
Debtor: Business Real Estate Information Corp.; COMPS
Collateral: Equipment
State of Filing: CA
File No.: 9430760683
Filing Date: 10/12/94
Secured Party: Master Lease Div of Tokai Financial Services, Inc.
Assignee: N/A
Debtor: COMPS INFOSYSTEMS, Inc.
Collateral: Equipment
State of Filing: CA
File No.: 9510760241
Filing Date: 04/11/95
Secured Party: Venture Lending & Leasing, Inc.
Assignee: Fleet Bank, N.A., as Agent
Debtor: Business Real Estate Information Co.; Commercial Property
Information Services; COMPS Infosystems, Inc.; LSR/COMPS
Collateral: Blanket
State of Filing: CA
File No.: 9627460061
Filing Date: 09/27/96
Secured Party: Melon First United Leasing
Assignee: N/A
Debtor: COMPS Info Systems, Inc.
Collateral: Equipment
State of Filing: CA
File No.: 9829660967
Filing Date: 10/16/98
Secured Party: Venture Lending & Leasing, Inc.
Assignee: Fleet Bank, N.A.
<PAGE>
Debtor: COMPS Info Systems, Inc.
Collateral: Blanket, incl. IP
State of Filing: MA
File No.: 96429397
Filing Date: 11/13/96
Secured Party: Venture Lending & Leasing, Inc.
Assignee: N/A
Debtor: COMPS Info Systems, Inc.
Collateral: Blanket, incl. IP
State of Filing: VA
File No.: 9611137809
Filing Date: 11/13/98
Secured Party: Venture Lending & Leasing, Inc.
Assignee: Fleet Bank, N.A.
Debtor: COMPS Info Systems, Inc.
Collateral:
State of Filing: IL
File No.: 3611240
Filing Date: 11/13/96
OTHER NAMES UNDER WHICH BORROWER HAS DONE OR IS DOING BUSINESS ((P) 5.6)
- ------------------------------------------------------------------------
1. COMPS InfoSystems (1994 1999)/2/
2. Business Real Estate Information Corporation (1992-1994)
3. COMPS Incorporated
4. COMP-REALBID
PENDING ACTIONS OR PROCEEDINGS ((P) 5.7)
- ----------------------------------------
None.
OTHER LOCATIONS OF EQUIPMENT AND INVENTORY
- ------------------------------------------
5060 North 40th Street, Suite 106
Phoenix AZ
(Lessor: Realstar Inc. as successor to Mutual Benefit Life Ins. Co.)
- -------------------------------
/2/ Borrower reincorporated in Delaware on September 1, 1994.
<PAGE>
870 Mitten Road
Burlingame, CA 94010
(Lessor: Hugh W. Klebahn, as Trustee for the Jane K. Molyneux Trust)
8500 Leesburg Pike, Suite 7700
Vienna, VA 22182
(Lessor: 8500 CDC LP)
700 Larkspur Landing Circle, Ste. 199
Larkspur, CA 94939
(Lessor: Executive Business Network, Inc.)
421 Sweet Fern Lane
Sugar Hill, GA 30518
10 West Whitehall Road
Amesburg, MA 01913
300 Hillside Lane
Kennett Square, PA 19348
4507 East Chuckwalla Canyon
Phoenix, AZ 85044
3146 East Rock Wren Road
Phoenix, AZ 85048
<PAGE>
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment property,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<S> <C>
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
- ---------------------------------------------------------------------------------------------------------
FAX #: TIME:
- ---------------------------------------------------------------------------------------------------------
FROM: COMPS.COM, INC.
- ---------------------------------------------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME AND SIGNATURE:
- ---------------------------------------------------------------------------------------------------------
PHONE:
- ---------------------------------------------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL INCREASE (ADVANCE) $
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL PAYMENT (ONLY) $
- ---------------------------------------------------------------------------------------------------------
INTEREST PAYMENT (ONLY) $
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
- ---------------------------------------------------------------------------------------------------------
OTHER INSTRUCTIONS:
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---
- ---------------------------------------------------------------------------------------------------------
</TABLE>
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Advance
Request; provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
<TABLE>
- ------------------------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
- ------------------------------------------------------------------------------------------------
The following person is authorized to request the loan payment transfer/loan advance on the
advance designated account and is known to me.
- ------------------------------------------------------------------------------------------------
<S> <C>
Authorized Requester Authorized Signature (Bank)
Phone # __________________________________
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Comps.com, Inc. Bank: Silicon Valley Bank
LOAN TYPE. This is a Term Loan of a principal amount up to $3,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: general corporate
purposes.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
<TABLE>
<CAPTION>
Term Loan
---------
<S> <C>
Amount paid to Borrower directly: $3,000,000
Undisbursed Funds $0
Principal $3,000,000
</TABLE>
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
<TABLE>
<S> <C>
Prepaid Finance Charges Paid in Cash: $90,000
$90,000 Loan Fee
$0 Accounts Receivables Audit
Other Charges Paid in Cash: $ ___
$___ UCC Search Fees
$___ UCC Filing Fees
$___ Patent Filing Fees
$___ Trademark Filing Fees
$___ Copyright Filing Fees
$___ Outside Counsel Fees and Expenses
Total Charges Paid in Cash $ ___
</TABLE>
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered 3300035271 the amount of any loan payment. If
the funds in the account are insufficient to cover any payment, Bank shall not
be obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF MARCH 31, 1999.
BORROWER: COMPS.COM, INC.
/s/ Christopher A. Crane
- ------------------------
Authorized Officer
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
Grantor: Comps.com, Inc. Bank: Silicon Valley Bank
INSURANCE REQUIREMENTS. Comps.com, Inc. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Bank. These
requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be cancelled or diminished without
a minimum of twenty (20) days' prior written notice
to Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Bank. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of _________________, 19___, or earlier. Grantor acknowledges
and agrees that if Grantor fails to provide any required insurance or fails to
continue such insurance in force, Bank may do so at Grantor's expense as
provided in the Loan and Security Agreement. The cost of such insurance, at the
option of Bank, shall be payable on demand or shall be added to the indebtedness
as provided in the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION,
THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED APRIL 9,
1999.
GRANTOR: COMPS.COM, INC.
X /s/ Christopher A. Crane
- --------------------------
Authorized Officer
================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
------------------ ---------------------------
AGENT'S NAME:
-------------------------------------------------------------------
INSURANCE COMPANY:
-----------------------------------------------------------
POLICY NUMBER:
---------------------------------------------------------------
EFFECTIVE DATES:
-------------------------------------------------------------
COMMENTS:
--------------------------------------------------------------------
===============================================================================
<PAGE>
EXHIBIT 10.51
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of April
9, 1999 by and between Silicon Valley Bank ("Bank") and Comps.com, Inc.
("Grantor").
Recitals
A. Bank has agreed to make certain advances of money and to extend certain
financial accommodation to Grantor (the "Loans") in the amounts and manner set
forth in that certain Loan and Security Agreement by and between Bank and
Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks, Patents,
and Mask Works to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
Now, Therefore, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
Agreement
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents, Trademarks and Mask Works listed
on Schedules A, B, C, and D hereto), and including without limitation all
proceeds thereof (such as, by way of example but not by way of limitation,
license royalties and proceeds of infringement suits), the right to sue for
past, present and future infringements, all rights corresponding thereto
throughout the world and all re-issues, divisions continuations, renewals,
extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security interest
granted to Bank under the Loan Agreement. The rights and remedies of Bank with
respect to the security interest granted hereby are in addition to those set
forth in the Loan Agreement and the other Loan Documents, and those which are
now or hereafter available to Bank as a matter of law or equity. Each right,
power and remedy of Bank provided for herein or in the Loan Agreement or any of
the Loan Documents, or now or hereafter existing at law or in equity shall be
cumulative and concurrent and shall be in addition to every right, power or
remedy provided for herein and the exercise by Bank of any one or more of the
rights, powers or remedies provided for in this Intellectual Property Security
Agreement, the Loan Agreement or any of the other Loan
1
<PAGE>
Documents, or now or hereafter existing at law or in equity, shall not preclude
the simultaneous or later exercise by any person, including Bank, of any or all
other rights, powers or remedies.
2
<PAGE>
In Witness Whereof, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
Address of Grantor: Grantor:
9888 Carroll Centre Drive, Suite 100 Comps.com, Inc.,
San Diego, CA 92126 a Delaware corporation
By: /s/ Christopher A. Crane
--------------------------
Name: Christopher A. Crane
--------------------------
Title: President and CEO
-------------------------
Address of Bank: Bank:
3003 Tasman Drive Silicon Valley Bank
Santa Clara, CA 95054-1191
Attn: Mezzanine Finance, NC475
By: /s/ Laurita J. Hernandez
--------------------------
Name: Laurita J. Hernandez
--------------------------
Title: Vice President
-------------------------
<PAGE>
EXHIBIT A
COPYRIGHTS
<TABLE>
<CAPTION>
No. Title Physical Name of Date of Date of Eff. Date of Limitation
Description Claimant Creation Publication Registration Claim
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
4-182-197 Vacant Land Sales, Will 410 p. Comps 1995 10/15/95 12/26/95
Co.,IL, 1/95-9/95 Infosystems, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
4-201-814 Commercial & Industrial 280 p. Comps 1995 10/15/95 12/26/95
building sales, the City Infosystems, Inc.
of Chicago, 1/95-9/95
- ------------------------------------------------------------------------------------------------------------------------------------
4-201-815 Commercial & Industrial 1 v. Comps 1995 10/15/95 12/26/95
building sales, the City Infosystems, Inc.
of Chicago, year end 1994
- ------------------------------------------------------------------------------------------------------------------------------------
4-201-816 Vacant land sales, the 240 p. Comps 1995 1/15/95 12/26/95
City of Chicago, year end Infosystems, Inc.
1994
- ------------------------------------------------------------------------------------------------------------------------------------
4-201-817 Vacant land sales, the 303 p. Comps 1995 1/15/95 12/26/95
City of Chicago, 1/95-9/95 Infosystems, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
4-201-818 Vacant land sales- 133 p. Comps 1995 10/15/95 12/26/95
sketches, Will Co., IL, Infosystems, Inc.
year end 1994
- ------------------------------------------------------------------------------------------------------------------------------------
4-201-819 Commercial & industrial 62 p. Comps 1995 10/15/95 12/26/95
building sales, Will Co., Infosystems, Inc.
IL, 1/95-9/95
- ------------------------------------------------------------------------------------------------------------------------------------
4-201-820 Commercial & industrial 193 p. Comps 1995 10/15/95 12/26/95
building sales, No. Cook Infosystems, Inc.
Co., IL, 1/95-9/95
- ------------------------------------------------------------------------------------------------------------------------------------
4-201-821 Vacant land sales, No. 118 p. Comps 1995 1/15/95 12/26/95
Co., IL, 1/95-9/95 Infosystems, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
4-201-822 Vacant land sales, So. 257 p. Comps 1995 1/15/95 12/26/95
Co., IL, 1/95-9/95 Infosystems, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
4-201-823 Vacant land sales, So. 239 p. Comps 1995 1/15/95 12/26/95
Cook Co., IL, year end Infosystems, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
4-471-526 COMPSBase (group Comps 1996 12/31/96 1/21/97
registration for Infosystems, Inc.
automated database,
updates from
1/1/96-9/30/96
- ------------------------------------------------------------------------------------------------------------------------------------
4-709-358 COMPSBase (group Comps 1996 12/31/96 10/2/97
registration for Infosystems, Inc.
automated database,
updates from
10/1/96-12/31/96
- ------------------------------------------------------------------------------------------------------------------------------------
4-709-359 COMPSBase (group Comps 1997 12/31/97 10/2/97
registration for automated Infosystems, Inc.
database, updates from
1/1/97-3/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
4-709-360 COMPSBase (group Comps 1997 9/30/97 1/20/98
registration for automated Infosystems, Inc.
database, updates from
7/1/97-9/30/97
- ------------------------------------------------------------------------------------------------------------------------------------
4-715-252 COMPSBase (group 2 computer Comps 1997 12/31/97 2/2/98
registration for disk Infosystems, Inc.
automated database,
updates from 10/1/97-
12/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
4-715-524 COMPSBase (group Comps 1997 6/30/97 10/2/97
registration for automated Infosystems, Inc.
database, updates from
4/1/97-6/30/97
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A - 1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
u-682-577 Win Comps 2.0 computer Comps 1995 3/25/96
program Infosystems, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
103104 Commercial & industrial Land Sales 1994 10/15/95
building sales, So. Cook Resources, Inc.
Co., IL, year end 1992 (Comps Infosystems,
Inc.)
- ------------------------------------------------------------------------------------------------------------------------------------
115989 Vacant land sales data, Comps Infosystems, 1995 1/15/95
Will Co., IL, year end 1994 Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
PATENTS
- --------------------------------------------------------------------------------
NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B - 1
<PAGE>
EXHIBIT C
TRADEMARKS
<TABLE>
<CAPTION>
Mark Title Application Number Filing Date Owner of Record Assignment History
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMPS 75-451,196 March 16, 1998 COMPS
INFOSYSTEMS, INC.
- ------------------------------------------------------------------------------------------------------------------------
COMPS 75-440,873 February 26, 1998 COMPS
INFOSYSTEMS, INC.
- ------------------------------------------------------------------------------------------------------------------------
E COMPS 75-342,595 August 18, 1997 COMPS
INFOSYSTEMS, INC.
- ------------------------------------------------------------------------------------------------------------------------
COMPS NET 2,192,183 September 29, 1998 COMPS
INFOSYSTEMS, INC.
- ------------------------------------------------------------------------------------------------------------------------
WINCOMPS 2,047,151 March 25, 1997 COMPS Assigned to Venture
INFOSYSTEMS, INC. Lending & Leasing
- ------------------------------------------------------------------------------------------------------------------------
CALLCOMPS 1,957,864 February 20, 1996 COMPS Assigned to Venture
INFOSYSTEMS, INC. Lending & Leasing
- ------------------------------------------------------------------------------------------------------------------------
COMPSLINK 1,662,350 October 29, 1991 COMPS Assigned to Venture
INFOSYSTEMS, INC. Lending & Leasing
- ------------------------------------------------------------------------------------------------------------------------
COMPS 1,653,036 August 6, 1991 COMPS Assigned to Venture
INFOSYSTEMS, INC. Lending & Leasing
- ------------------------------------------------------------------------------------------------------------------------
REALBID 2,201,095 November 3, 1998 COMPS
INFOSYSTEMS, INC.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
C - 1
<PAGE>
EXHIBIT D
MASKWORKS
- --------------------------------------------------------------------------------
NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
D - 1
<PAGE>
EXHIBIT 10.52
WARRANT SUBSCRIPTION AGREEMENT
This Warrant Subscription Agreement (the "Agreement") is entered into as of
April 9, 1999 among Comps.com, Inc. (formerly COMPS Infosystems, Inc.), a
Delaware corporation (the "Company"), Silicon Valley Bank (the "Purchaser"), and
the Shareholders listed on the signature pages attached hereto and any permitted
transferees of such Shareholder (collectively, the "Shareholders").
Recitals
A. Pursuant to that certain Loan and Security Agreement dated as of the
date hereof (as the same may from time to time be amended, modified,
supplemented or restated, the "Loan Agreement"), by and among the Company and
the Purchaser, the Purchaser has agreed to extend credit to the Company (the
"Credit").
B. Purchaser was induced by the Company to make the Credit available to
the Company, in part by the Company's and the Shareholders' agreement to enter
into this Agreement and to grant rights of co-sale to the Purchaser, as
contained herein.
C. In connection with the foregoing, the Company is selling to Purchaser a
Warrant To Purchase Stock (the "Warrant") to purchase up to 49,000 shares of the
Company's Series A Preferred Stock (the "Preferred Stock") at an initial
exercise price of $5.00 per share ("Warrant Price") (the aggregate number of
shares for which the Warrant may be exercised collectively being referred to as
the "Warrant Shares"). The Warrant shall be substantially in the same form as
the Form of Warrant attached hereto as Exhibit A.
D. The Purchaser desires to subscribe for and purchase from the Company,
and the Company desires to sell to the Purchaser, the Warrant.
Agreement
In order to implement the foregoing and in consideration of the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Purchaser, the Company
and the Shareholders agree as follows:
1. Definitions.
The following terms shall have the meanings ascribed to such terms in the
Sections set forth below:
<TABLE>
<CAPTION>
Term Section
<S> <C>
Act 3.1
Agreement Recitals
Closing 2.2
Certificate 4.1(d)
Common Stock 4.1(d)
Company Recitals
Credit Recitals
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Investor Rights Agreement 2.4(b)
Loan Agreement Recitals
Exchange Act 4.3
Notice 7.1(a)
Options 4.1(e)
Piggyback Rights 5.1
Prohibited Transfer 7.3(a)
Purchaser Recitals
Put 6
Put Price 6.2
Qualified Financing 6.1
Refinancing 6.1
Regulated Purchaser 3.6
Rule 144 3.3(d)
SEC 4.3
Stock 7.1(a)
Shareholders Recitals
Transfer 3.1
Warrant Recitals
Warrant Shares Recitals
</TABLE>
2. Subscription for, Purchase and Exercise of Warrant; Original Issue
Discount.
2.1 Purchase of Warrant. Subject to the terms and conditions
hereinafter set forth, the Purchaser hereby subscribes for and purchases, and
the Company hereby sells to the Purchaser, for good and valuable consideration,
the receipt of which is hereby acknowledged, the Warrant.
2.2 The Time and Place of the Closing. The Closing of the transactions
provided for in this Agreement (the "Closing") shall be held at 10:00 a.m.,
local time, on April 9, 1999 at the offices of Cooley Godward LLP, Five Palo
Alto Square, Palo Alto, California 94306, or at such other time and place as the
Purchaser and the Company shall agree.
2.3 Closing of the Purchase of the Warrant. At the Closing, the
Company will deliver to Purchaser the Warrant, which shall be issued in
Purchaser's name.
2.4 Conditions to the Obligations of the Purchaser and the Company
Hereunder. The obligations of the Purchaser and the Company hereunder shall be
subject to the following conditions:
(a) The representations and warranties made herein to the
Purchaser or the Company by the other respective party shall be true and correct
in all material respects at and as of the date of the Closing; and
(b) The Purchaser and the Company shall have entered into the
Amendment to Investor Rights Agreement ("Amendment") which Amendment shall amend
the Amended and Restated Investor Rights Agreement dated as of February 9, 1998,
by and among the Company and the holders of Company's securities whose names are
set forth on the signature page attached thereto (collectively with the
Amendment, the "Investor Rights Agreement"), to add the Purchaser as a party
thereto.
2
<PAGE>
2.5 Original Issue Discount. The Company and Purchaser hereby
acknowledge and agree that the Warrant is part of an investment unit within the
meaning of Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended,
which investment unit includes all Credit Extensions (as defined in the Loan
Agreement) made pursuant to the Loan Agreement up to the maximum amount of the
Term Loan (as defined in the Loan Agreement). The Company and Purchaser agree
that the fair market value of the Warrant is less than the de minimis threshold
for reporting income and expense relating thereto on a current basis.
Therefore, the Company and Purchaser shall prepare their respective federal
income tax returns in a manner consistent with the foregoing agreement and,
pursuant to Treas. Reg. (S) 1.1273, the original issue discount on the Credit
Extensions shall be considered to be zero.
3. Purchaser's Representations, Warranties And Agreements. Purchaser
hereby represents, warrants and covenants to the Company as follows:
3.1 No Resales. The Purchaser is acquiring its Warrant for
investment solely for its own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof except in
compliance with the provisions of Rule 144A under the Securities Act of 1933, as
amended (the "Act"). The Purchaser agrees and acknowledges that it will not,
directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or
otherwise dispose of (referred to hereinafter as a "Transfer") its Warrant
Shares unless (i) such Transfer is pursuant to an effective registration
statement under the Act and complies with all applicable state securities laws,
or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable
to the Company) shall have furnished the Company with an opinion, reasonably
satisfactory in form and substance to the Company, to the effect that no such
registration is required because of the availability of an exemption from
registration under the Act and that the Transfer is exempt from all applicable
state securities laws except that no such opinion shall be required (y) in
connection with a Transfer by Purchaser to any affiliate of Purchaser or (z) in
connection with a Transfer where the transferee simultaneously becomes a lender
under the Loan Agreement and makes the representations and warranties contained
in this Section 3. No Transfer of the Warrant or the Warrant Shares in
violation of this Agreement shall be made or recorded on the books of the
Company, and any such Transfer shall be void and of no effect.
3.2 Legends. The Warrant, and the Warrant Shares issuable in respect
thereof, shall each bear legends in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, OR (B) THE COMPANY HAS BEEN FURNISHED WITH A
SATISFACTORY OPINION OF COUNSEL FOR THE PURCHASER THAT SUCH TRANSFER IS
EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE RULES AND
REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES LAWS."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN WARRANT SUBSCRIPTION AGREEMENT DATED AS OF
APRIL 9, 1999 BY AND BETWEEN THE WARRANT PURCHASER, THE COMPANY AND CERTAIN
PURCHASERS OF STOCK AND
3
<PAGE>
WARRANTS OF THE COMPANY (THE "WARRANT SUBSCRIPTION AGREEMENT"). COPIES OF
THE WARRANT SUBSCRIPTION AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO
THE SECRETARY OF THE COMPANY."
3.3 Warrant and Warrant Shares Unregistered. Purchaser acknowledges
with respect to Purchaser's Warrant and Warrant Shares that Purchaser has been
advised that:
(a) Neither the Warrant nor the Warrant Shares have been
registered under the Act or qualified under the applicable securities laws of
any state;
(b) Except as contemplated by Sections 6, 7 and 8 hereof, the
Warrant and the Warrant Shares must be held indefinitely and the Purchaser must
continue to bear the economic risk of the investment in the Warrant and the
Warrant Shares unless they are subsequently registered under the Act and
qualified under applicable state securities laws or an exemption from such
registration or qualification is available;
(c) it is not anticipated that there will be any public market
for the Warrant or the Warrant Shares;
(d) Rule 144 promulgated under the Act ("Rule 144") is not
presently available with respect to the sales of any securities of the Company,
and the Company has made no covenant to make Rule 144 available (except as
provided in Section 4.3 hereof);
(e) when and if the Warrant or the Warrant Shares may be
disposed of without registration in reliance on Rule 144, such disposition can
be made only in limited amounts in accordance with the terms and conditions of
Rule 144;
(f) if the Rule 144 exemption is not available, public sale
without registration will require compliance with Regulation A promulgated under
the Act or some other exemption under the Act and compliance with applicable
state securities laws;
(g) a restrictive legend in the form heretofore set forth shall
be placed on each of the Warrant and the Warrant Shares; and
(h) a notation shall be made in the appropriate records of the
Company indicating that the Warrant and the Warrant Shares are subject to
restrictions on transfer and, if the Company should at some time in the future
engage the services of a transfer agent, appropriate transfer restrictions will
be issued to such transfer agent with respect to the Warrant.
3.4 Compliance With Rule 144. If the Warrant or the related Warrant
Shares are disposed of in accordance with Rule 144 under the Act, the Purchaser
shall deliver to the Company at or prior to the time of such disposition an
executed copy of Form 144 (if required by Rule 144) and such other documentation
as the Company may reasonably require in connection with such sale.
3.5 Additional Representations. The Purchaser further represents and
warrants to Company that:
(a) it has been given the opportunity to obtain any information
or documents and to ask questions and receive answers about such documents, the
Company and the business and
4
<PAGE>
prospects of the Company which it deems necessary to evaluate the merits and
risks related to its investment in its Warrant;
(b) its financial condition is such that it can afford to bear
the economic risk of holding its unregistered Warrant and Warrant Shares for an
indefinite period of time and has adequate means of providing for its current
needs and contingencies;
(c) it can afford to suffer a complete loss of its investment in
the Warrant and Warrant Shares;
(d) all information which it has provided to the Company
concerning itself and its financial position is correct and complete as of the
date of this Agreement and, if there should be any material change in such
information prior to the Closing, the Purchaser will immediately furnish such
revised or corrected information to the Company;
(e) it understands and is cognizant of all risk factors related
to the purchase of the Warrant and Warrant Shares;
(f) it is an "Accredited Investor" as that term is defined in
Rule 501(a) of Regulation D promulgated under the Act;
(g) its knowledge and experience in financial and business
matters are such that it is capable of evaluating the merits and risks of its
purchase of the Warrant and Warrant Shares as contemplated by this Agreement;
(h) either (i) it has a pre-existing personal or business
relationship with the Company or any of its officers, directors or controlling
persons, or (ii) by reason of its business or financial experience or the
business or financial experience of its professional advisors who are
unaffiliated with, and who are not compensated by, the Company or any affiliate
of the Company, it has the capacity to protect its own interests in connection
with the investment in the Warrant and the Warrant Shares;
(i) it is an "excluded purchaser," as defined in Section
260.102.13 of the Corporate Securities Rules of the California Corporation
Commissioner, for purposes of Section 25102(f) of the California Corporate
Securities Law of 1968, as amended; and
(j) this Agreement has been executed and delivered by Purchaser
and is its valid and binding obligation, enforceable against Purchaser in
accordance with its terms, except for (i) the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally, and (ii) limitations
imposed by federal or state law or equitable principles upon the specific
enforceability of any of the remedies, covenants or other provisions of this
Agreement and upon the availability of injunctive relief or other equitable
remedies.
3.6 No Controlling Influence. In the event and so long as the
Warrant or the related Warrant Shares are held by Purchaser or any of its
affiliates or any person or entity to which Purchaser or any of its affiliates
shall have transferred the Warrant or the related Warrant Shares (any such
person or entity, a "Regulated Purchaser"), such Regulated Purchaser will
neither:
5
<PAGE>
(a) Exercise or attempt to exercise, directly or indirectly, a
controlling influence over the management or policies of the Company; nor
(b) Notwithstanding any other provision of this Agreement,
exercise the Warrant to the extent such exercise would result in such Regulated
Purchaser and its affiliates holding, directly or indirectly, in excess of 4.99%
of any class of the outstanding voting stock of the Company, except in
connection with (i) a widely dispersed public offering of the Warrant Shares,
(ii) a sale of the related Warrant Shares into the secondary market pursuant to
the transaction and volume limitations of Rule 144 (irrespective of holding
periods), or (iii) a private placement or sale, including pursuant to Rule 144A
under the Act, so long as the transferee and its affiliates do not collectively
acquire from Purchaser more than 2% of the voting stock of the Company pursuant
to such transfer.
3.7 Voting. Purchaser covenants that for so long as Purchaser owns
the Warrant Shares or any common stock issuable upon conversion of the Warrant
Shares, it shall not, to the extent that is entitled under any statute, rule,
regulation and/or the Certificate or the Company's Bylaws, exercise any voting,
consent or other approval rights, whether by written consent or otherwise,
arising from Purchaser's ownership of the Warrant Shares or any common stock
issuable upon conversion of the Warrant Shares, which it obtains through the
exercise of the Warrant.
4. Representations, Warranties and Agreements.
4.1 The Company's Representations and Warranties. The Company
represents and warrants, as of the date hereof, that:
(a) Organization, Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; has all requisite power and authority to own or lease
and operate its properties and to carry on its business as now conducted and as
proposed to be conducted after the funds are advanced under the Credit; and is
duly qualified or licensed to do business as a foreign corporation in good
standing in all jurisdictions in which it owns or leases property or in which
the conduct of its business requires it to so qualify or be licensed, except for
such jurisdictions where the failure to so qualify or be licensed would not have
a material adverse effect on the business or financial condition of the Company.
(b) Authority. The Company has all requisite power and
authority to enter into and perform all of its obligations under this Agreement,
to issue the Warrant and the Warrant Shares and to carry out the transactions
contemplated hereby.
(c) Due Authorization. The Company has taken all corporate
actions necessary to authorize it to enter into and perform its obligations
under this Agreement, to issue the Warrant and the Warrant Shares and to
consummate the transactions contemplated hereby. This Agreement is the legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except for (i) the effect upon this Agreement of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally and (ii) limitations
imposed by equitable principles or principles of public policy upon the specific
enforceability of any of the remedies, covenants or other provisions of this
Agreement and upon the availability of injunctive relief or other equitable
remedies.
(d) Capitalization of Company. The Company's capital stock is
divided into common stock ("Common Stock") and preferred stock. The authorized
capital stock of the Company
6
<PAGE>
consists of 4,368,200 shares of Series A Preferred Stock, of which, immediately
after the Closing Date, 4,270,336 shares are issued or outstanding, 731,800
shares of Series B Preferred Stock, of which, immediately after the Closing
Date, 637,790 shares are issued or outstanding, and 22,500,000 shares of Class A
Common Stock, of which, immediately after the Closing Date, 4,811,189 shares
will be outstanding on a fully diluted basis, and 2,500,000 shares of Class B
Common Stock, of which, immediately after the Closing Date, 3,422,983 shares
will be outstanding on a fully diluted basis (in each case taking into account
all outstanding warrants, options and other rights to purchase the Common Stock
and Preferred Stock). When the Warrant to be purchased by the Purchaser
hereunder has been delivered as provided herein, the Warrant Shares (i) together
with all outstanding shares of Common Stock, Preferred Stock and shares of
Common Stock issuable upon exercise of all outstanding Options (as defined
below) of the Company will not exceed the number of shares that have been
authorized by the Company's Restated Certificate of Incorporation
("Certificate"), (ii) will have been duly authorized to be issued by the
Company's board of directors, (iii) will, upon payment therefor in accordance
with the terms of the Warrant, be duly and validly issued, fully paid and
nonassessable and (iv) will have been reserved for issuance pursuant to the
terms of the Warrant.
(e) No Other Rights or Obligations to Purchase Stock of Company.
Except for the Put granted to the Purchaser pursuant to Section 6, the right of
first refusal granted to the Purchaser pursuant to Section 8.5, the registration
rights set forth in the Investor Rights Agreement and the options and rights
granted as fully described on Schedule 4.1(e), (i) there are no outstanding
subscriptions, warrants, options, calls, preemptive rights, commitments or
rights of first refusal of any character (collectively, "Options") relating to
or entitling any person to purchase or otherwise acquire any capital stock of
the Company, (ii) there are no obligations or securities convertible into or
exchangeable or exercisable for shares of any capital stock of the Company or
any commitments of any character relating to or entitling any person to purchase
or otherwise acquire any such obligations or securities, (iii) the Company has
no obligation to repurchase any of its capital stock, and (iv) the Company has
not entered into any agreement to register its securities under the Act.
(f) No Adjustment of Other Shares on Issuance. Neither the
issuance nor the exercise of the Warrant will cause the rate at which any of the
Company's outstanding securities are ultimately convertible into Common Stock to
change, nor will such issuance or exercise invoke any "antidilution" feature of
any of the Company's outstanding securities or rights to purchase securities.
4.2 Shareholders' Representations and Warranties. Each of the
Shareholders represents and warrants that it or the party signing this Agreement
on its behalf has all requisite power and authority to enter into this Agreement
and that each Shareholder has the power and authority to perform all of its
obligations under this Agreement and to carry out the transactions contemplated
hereby.
4.3 Rule 144. The Company agrees that after it has filed a
registration statement pursuant to the requirements of Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to
any class of equity securities of the Company, it will use its best efforts to
file in a timely manner all reports required to be filed by it pursuant to the
Exchange Act and, upon the request of Purchaser, will furnish Purchaser with
such reports so that the Purchaser may effect routine sales pursuant to Rule 144
and Rule 144A (if applicable) under the Act or any similar rule or regulations
hereafter adopted by the Securities and Exchange Commission (the "SEC").
4.4 Purchaser's Percentage Ownership. The Company hereby represents
and warrants that the initial 10,000 Warrant Shares in respect of the Warrant
currently represent that number of shares
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representing a seventy-six thousandths of one percent (0.076%) interest in the
Company's equity capital on a fully diluted basis (after giving effect to the
exercise of all options, warrants, and convertible securities assuming all
options authorized for grant, whether or not granted, have been granted).
5. Registration Rights.
5.1 Purchaser's Registration Rights. The Purchaser shall have
registration rights relating to its Warrant and the applicable Warrant Shares
set forth in the Investor Rights Agreement. The Company represents and warrants
that such registration rights are, in all material respects, at least as
favorable to the Purchaser with respect to the right to include the Warrant
Shares in any registration of the Company's securities for the Company's own
account in connection with an offering of such stock to the public for cash,
other than registrations relating solely to employee benefit plans ("Piggyback
Rights"), as have been granted to any other person with respect to the Company's
securities. The registration rights shall automatically be amended to conform
to any Piggyback Rights granted to any future person that are more favorable to
such person than to the Purchaser at the time of grant.
5.2 Shareholders' Registration Rights. Each of the Shareholders
agrees that it shall not be entitled to exercise any registration rights in its
favor now existing or hereafter arising if such Shareholder shall have received
notice from Purchaser that an Event of Default has occurred under the Loan
Agreement and no waiver of such Event of Default shall have been made.
6. Purchaser's Put Option.
The Company and the Purchaser agree that under certain circumstances as
more fully set forth below, Purchaser may elect to sell to the Company its
Warrant Shares or any portion of its Warrant Shares, and the Company agrees to
buy such Warrant Shares or any portion thereof when properly tendered by the
Purchaser. Purchaser's option as herein set forth (the "Put") to demand that
the Company purchase, from time to time, the Warrant Shares or any portion
thereof then held by Purchaser is subject to the following terms and conditions:
6.1 Time of Exercise. The Put (i) shall become exercisable on the
earliest to occur of (a) the closing of a Qualified Financing, (b) after three
years after the Closing if a Qualified Financing has not occurred, (c) a
liquidation, dissolution or winding up of the Company, (d) the closing of an
acquisition, merger, exchange of securities, sale of all or substantially all of
the assets of the Company, reorganization in which the Company is not the
surviving entity or a stock issuance or "reverse merger" in which the Company is
the surviving entity but under which the holders of the Company's securities
prior to such stock issuance or reverse merger do not hold more than fifty (50%)
of the voting securities of the Company following such stock issuance or reverse
merger, (e) immediately prior to the closing of a Qualified Public Offering, (f)
upon payment in full of the Obligations (as defined in the Loan Agreement), (g)
the date of any Event of Default (as defined in the Loan Agreement) that results
in acceleration of all or any of the Obligations (as defined in the Loan
Agreement) due thereunder and (h) the date of any Refinancing and (ii) shall
terminate on the earliest of (x) the closing of a Qualified Public Offering, (y)
the closing of an acquisition, merger, exchange of securities, sale of all or
substantially all of the assets of the Company, reorganization in which the
Company is not the surviving entity or a stock issuance or "reverse merger" in
which the Company is the surviving entity but under which the holders of the
Company's securities prior to such stock issuance or reverse merger do not hold
more than fifty (50%) of the voting securities of the Company following such
stock issuance or reverse merger; provided, however, that the Purchaser shall
have the right to exercise the option granted pursuant to this section
concurrently with such closing by delivering written notice of their intention
to so exercise at
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least ten (10) days prior to the date of such closing; provided, further, that
the Company shall provide the Purchaser with not less than thirty (30) days
written notice of the closing of a transaction contemplated by this Section 6.1;
or (z) the liquidation of the Company. For purposes of this Agreement, (1)
"Qualified Financing" shall mean an equity or subordinated debt investment in
the Company in which the Company receives net proceeds in excess of Three
Million Dollars ($3,000,000), (2) "Refinancing" shall mean any refinancing, by
other than the Purchaser pursuant to the Loan Agreement, whereby all obligations
under the Term Loan (as defined in the Loan Agreement) are repaid in full and
the commitment thereunder has terminated; provided, however, that a
"Refinancing" shall not include a refinancing of the Loan contemporaneous with
the sale of the Company or the sale of all or substantially all of the equity of
the Company to other than an affiliate of the Company, and (3) "Qualified Public
Offering" shall mean an underwritten public offering in which the Company
receives gross proceeds of not less than $10,000,000 at a purchase price per
share of not less than $3.73 (as adjusted for stock splits, dividends,
recapitalization and the like).
6.2 Put Price. Subject to Section 8.4, the price at which the Put
may be exercised (the "Put Price") shall be the greater of (i) the Warrant Price
(as defined in the Warrant) of the Warrant Shares for which the Put is being
exercised plus all accrued and unpaid dividends through the date of repurchase,
and (ii) the fair market value of the Warrant Shares for which the Put is being
exercised as agreed upon by the Company and the Purchaser.
6.3 Method of Exercise. To exercise the Put, any Purchaser shall
give written notice to the Company of its desire to so exercise and the Company
shall provide written notice to the Purchaser within twenty (20) business days
of receipt of the Purchaser's notice, setting forth the Company's calculation of
the Put Price pursuant to Section 6.2 and a proposed closing date, which shall
not be more than sixty (60) business days following such Company notice. Such
Purchaser shall then respond within twenty (20) business days of such Company
notice indicating whether it accepts the Company's calculation of the Put Price
or desires to submit the matter for appraisal in accordance with the provisions
of Section 6.4. If such Purchaser desires to accept the specified Put Price, it
shall tender to the Company, at the closing, the certificate representing its
Warrant Shares, duly endorsed in blank, free and clear of all liens, claims, and
encumbrances, and the Company shall pay at the closing the applicable purchase
price by cash or cash equivalent made payable to such Purchaser, and shall
issue to such Purchaser a new certificate of like tenor to the extent the Put
was not exercised with respect to all of such Purchaser's Warrant Shares.
6.4 Appraisal on Disagreement. If Purchaser and the Company do not
agree on the Put Price under the method of the calculation elected by Purchaser,
the Put Price shall be determined by appraisal. All appraisals shall be
undertaken by two appraisers, one selected by the Company and one selected by
the Purchaser. The fair market value shall be the fair market value arrived at
by those appraisers within sixty (60) days following the appointment of the last
appraiser to be appointed. In the event that the two appraisers cannot agree on
such fair market value within such a period of time, (i) if the appraisers'
valuations are within 10% of each other, the fair market value shall be the mean
of the two valuations and (ii) if the differences in the valuations are greater,
the appraisers shall elect a third appraiser who will calculate fair market
value independently, and, except as provided in the next sentence, the fair
market value of the Warrant Shares shall in each case be the average of the two
fair market values arrived at by the appraisers who are closest in amount. If
one appraiser's valuation is the mean of the other two valuations, the mean
valuation shall be the fair market value. In the event that the two original
appraisers cannot agree upon a third appraiser within thirty (30) days following
the end of the sixty (60) day period referred to above, then the third appraiser
shall be appointed by the American Arbitration Association upon the request of
either party. If, following the conclusion of any appraisal
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referred to above, a Purchaser shall choose not to sell any or all of the
Warrant Shares, then it shall so notify the Company, within twenty (20) days
following receipt of the appraisal. If the Purchaser chooses not to sell any or
all of the Warrant Shares and after the initiation of the procedures outlined in
Section 6.3, then its rights hereunder shall terminate with respect to all such
securities not offered to the Company. The expenses of the appraiser chosen by
the Company will be borne by it, the expenses of the appraiser chosen by the
Purchaser will be borne by the Purchaser and the expenses of the third appraiser
will be borne 50% of the Company and 50% by the Purchaser.
7. Co-Sale Agreement.
7.1 Tag-Along Rights.
(a) If any Shareholder proposes to sell or transfer any shares of
Common Stock or Preferred Stock owned by such Shareholder ("Stock") in one or
more related transactions which will result in (i) the transfer of five percent
(5%) or more shares of Stock held by such Shareholder or (ii) the transferee of
such shares increasing its ownership from less than five percent (5%) to more
than five percent (5%) of the Common Stock of the Company then outstanding
(taking into account any Preferred Stock held by such transferee which is
convertible into Common Stock), then such Shareholder shall promptly give
written notice (the "Notice") to the Company and each Purchaser at least twenty
(20) days prior to the closing of such sale or transfer. The Notice shall
describe in reasonable detail the proposed sale or transfer including, without
limitation, the number of shares of Stock to be sold or transferred, the nature
of such sale or transfer, the consideration to be paid, and the name and address
of each prospective purchaser or transferee. In the event that the sale or
transfer is being made pursuant to the provisions of Section 7.2(a) or 7.2(b)
hereof, the Notice shall state under which paragraph the sale or transfer is
being made.
(b) Each Purchaser shall have the right, exercisable upon written
notice to such Shareholder within fifteen (15) days after receipt of the Notice,
to participate in such sale of Stock on the same terms and conditions. To the
extent that a Purchaser exercises such right of participation in accordance with
the terms and conditions set forth below, the number of shares of Stock that the
Shareholder may sell in the transaction shall be correspondingly reduced.
(c) Each Purchaser may sell all or any part of that number of
shares of Stock equal to the product obtained by multiplying (i) the aggregate
number of shares of Common Stock and Preferred Stock (on a fully converted
basis) covered by the Notice by (ii) a fraction the numerator of which is the
number of shares of Common Stock and Preferred Stock (on a fully converted
basis) owned by the Purchaser at the time of the sale or transfer (including any
shares of Common Stock acquired by the Purchaser after receipt of the notice and
prior to the time of such sale or transfer) and the denominator of which is the
total number of shares of Common Stock and Preferred Stock (on a fully converted
basis) owned by the Shareholder and Purchaser at the time of the sale or
transfer (including any shares of Common Stock acquired by Purchaser after
receipt of the notice and prior to the time of such sale or transfer).
(d) Purchaser shall effect its participation in the sale by
promptly delivering to such Shareholder for transfer to the prospective
purchaser one or more certificates, properly endorsed for transfer, which
represent the number of shares of stock which the Purchaser elects to sell.
(e) The stock certificate or certificates that a Purchaser
delivers to such Shareholder pursuant to Section 7.1(d) shall be transferred to
the prospective purchaser in consummation
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of the sale of the Stock pursuant to the terms and conditions specified in the
Notice, and such Shareholder shall concurrently therewith remit to the Purchaser
that portion of the sale proceeds to which the Purchaser is entitled by reason
of its participation in such sale. To the extent that any prospective purchaser
or purchasers prohibits such assignment or otherwise refuses to purchase shares
or other securities from the Purchaser, such Shareholder shall not sell to such
prospective purchaser or purchasers any Stock unless and until, simultaneously
with such sale, such prospective purchaser or purchasers shall purchase such
shares or other securities from the Purchaser.
(f) The exercise or non-exercise of the rights of a Purchaser
hereunder to participate in one or more sales of Stock made by any Shareholder
shall not adversely affect its rights to participate in subsequent sales of
Stock subject to Section 7.1(a).
7.2 Exempt Transfers.
(a) Notwithstanding the foregoing, but subject to the notice
requirements in Section 7.1(a) above, the co-sale rights of a Purchaser shall
not apply to (i) any pledge of Stock made pursuant to a bona fide loan
transaction that creates a mere security interest, (ii) any transfer to the
ancestors, descendants or spouse, or to trusts for the benefit of such persons,
of a Shareholder; or (iii) any bona fide gift or charitable contribution;
provided that (A) such transferring Shareholder shall inform the Purchaser in
writing of such pledge, transfer or gift prior to effecting it and (B) the
pledgee, transferee or donee shall furnish the Purchaser with a written
agreement to be bound by and comply with all provisions of this Section 7. Such
transferred Stock shall remain "Stock" hereunder, and such pledgee, transferee
or donee shall be treated as a "Shareholder" for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 7.1
shall not apply to the sale or transfer of any Stock (i) to the public pursuant
to a registration statement filed with, and declared effective by, the SEC or
sales pursuant to Rule 144 under the Act or (ii) if prior to such sale or
transfer, the Shareholder (except for the Shareholders executing a signature
page to this Agreement) held less than ten percent (10%) of the Company's
outstanding shares.
7.3 Prohibited Transfers.
(a) In the event a Shareholder should sell any Stock in
contravention of the co-sale rights of the Purchaser under this Agreement (a
"Prohibited Transfer"), the Purchaser, in addition to such other remedies as may
be available at law, in equity or hereunder, shall have the put option provided
herein, and such Shareholder shall be bound by the applicable provisions of such
option.
(b) In the event of a Prohibited Transfer, the Purchaser shall
have the right to sell to the violating Shareholder the type and number of
shares of Stock equal to the number of shares the Purchaser would have been
entitled to transfer to the purchaser had the Prohibited Transfer been effected
pursuant to and in compliance with the terms hereof. The Purchaser shall
exercise such right and such sale shall be made on the following terms and
conditions:
(i) The price per share at which the shares are to be sold
to such Shareholder shall be equal to the price per share paid by the purchaser
to such Shareholder in the Prohibited Transfer. Such Shareholder shall also
reimburse the Purchaser for any and all fees and expenses, including legal fees
and expenses, incurred pursuant to the exercise or the attempted exercise of the
Purchaser's rights under Section 7.1 and under this Section 7.3.
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(ii) Within 90 days after the later of the dates on which the
Purchaser (A) receives notice of the Prohibited Transfer or (B) otherwise
becomes aware of the Prohibited Transfer, the Purchaser shall, if exercising the
option created hereby, deliver to such Shareholder the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(iii) Such Shareholder shall, upon receipt of the
certificate or certificates for the shares to be sold by Purchaser pursuant to
this Section 7.3, pay the aggregate purchase price therefor and the amount of
reimbursable fees and expenses, as specified in Section 7.3(b)(i), in cash or by
other means acceptable to the Purchaser.
(iv) To the extent a Shareholder transfers Stock in
violation of Section 7.1 hereof and the Purchaser has not exercised or waived in
writing its rights to sell Stock pursuant to this Section 7.3(b), any such
transfer shall be void and the Company agrees it will not effect such a
transfer, nor will it treat any alleged transferee as the purchaser of such
shares without the written consent of the Purchaser.
7.4 Amendment. Notwithstanding anything else contained in this
Agreement, any provision of this Section 7 may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of (a) as to the
Company, only the Company, (b) as to the Purchaser, only the Purchaser, and (c)
as to the Shareholders, purchasers of a majority in interest of the Stock held
by the Shareholder on the date hereof, provided that any Shareholder may waive
any of such Shareholder's rights hereunder without obtaining the consent of such
majority. Any amendment or waiver effected in accordance with clauses (a), (b)
and (c) of this paragraph shall be binding upon Purchaser, its successors and
assigns, the Purchasers of the Warrant, the Company and the Shareholders.
7.5 Term. This Section 7 shall terminate upon the closing of a
Qualified Public Offering.
7.6 Ownership. Each Shareholder represents and warrants that such
Shareholder is the sole legal owner of the shares of stock subject to this
Section 7, subject to community property laws (where applicable) and that no
other person has any interest in such shares.
7.7 Drag-Along Obligation.
(a) If one or more Shareholders intend to make a Control
Transfer (as defined below) for consideration to any person or entity or group
of related persons or entities, upon notice to each Purchaser, the transferring
Shareholder(s) (for purposes of this Section 7.7, the "Dragging Shareholder")
may cause Purchaser to sell the Warrant and Warrant Shares owned by it as
provided in this Section 7.7. The Dragging Shareholder will notify Purchaser in
writing (the "Drag-Along Notice") of such intended transfer and the exercise of
its rights hereunder at least ten (10) days prior to the proposed date for the
consummation of such transfer, which notice will contain all of the material
terms of the transfer, including, without limitation, the name and address of
the prospective purchaser(s), the type and number of shares of Stock to be sold,
the purchase price and other terms and conditions of payment (or the basis for
determining the purchase price and other terms and conditions). The maximum
number of shares of Stock which will be required to be sold under this Section
7.7 will be determined as of the date of consummation of such sale or transfer
and will equal (i) if the Dragging Shareholder sells less than all of its shares
in the Control Transfer, (A) a fraction, the numerator of which is the total
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number of shares of Common Stock and Preferred Stock owned by the Purchaser plus
the number of shares of stock issuable on exercise of Purchaser's Warrant and
the denominator of which is the sum of the total number of shares of Common
Stock and Preferred Stock owned by the Dragging Shareholders plus the total
number of shares of Common Stock and Preferred Stock owned by the Purchaser plus
the number of shares of stock issuable on exercise of the Warrant, multiplied by
(B) the total number of shares of Common Stock and Preferred Stock proposed to
be sold by the Dragging Shareholder, and (ii) if the Dragging Shareholder sells
all of its shares of Stock in the Control Transfer, all of the shares of Common
Stock and Preferred Stock owned by the Purchaser plus the number of shares of
Common Stock issuable on exercise of Purchaser's Warrant. All calculations under
the preceding sentence shall treat all Preferred Stock on a fully converted
basis. "Control Transfer" means a sale, exchange or other transfer by one or
more Shareholders pursuant to a private sale or other transaction or series of
transactions (other than pursuant to a registered public offering) of an
aggregate of more than 50% of the outstanding shares of the Company to any
person or entity.
(b) Any transfer by a Purchaser pursuant to this Section 7.7
will be on the same terms and conditions, and for the same consideration per
share, as the transfer by the Dragging Shareholder which is the subject matter
of the Drag-Along Notice.
(c) Notwithstanding the foregoing, no Shareholder may exercise
its drag-along rights under this Section 7.7 with respect to any outstanding
Warrant Shares in a transaction with an affiliate of such Shareholder unless the
purchase price for each Warrant Share is equal to that which could obtained in
an arms' length transaction.
8. MISCELLANEOUS.
8.1 Certain Restrictions. Until the Warrant has been fully exercised
or has expired in accordance with its terms, the Company shall not:
(a) Except in respect of the rights described in Schedule 4.1(e),
without the prior written consent of Purchaser, redeem, repurchase or otherwise
acquire for value (or pay into or set aside for a sinking fund for such
purpose), any equity securities of the Company except for those shares of Common
Stock of the Company repurchased from officers, directors or employees under
agreements providing for the purchase of such shares by the Company upon the
termination of employment by or service to the Company as a director, officer or
employee; or
(b) Without the prior written consent of each Purchaser, such
consent not to be unreasonably withheld, amend the Certificate if such amendment
would improve the rights, preferences or privileges of any class of shares of
the Company except as required by this Agreement.
8.2 No Change of Fiscal Year. Until the Warrant has been fully
exercised or has expired in accordance with its terms or the Put has been
exercised in full, the Company shall not change its fiscal year end from
December 31 without Purchaser's prior written consent, which consent shall not
unreasonably be withheld.
8.3 Financial Information. Until such time as the Company is
required to furnish annual reports to its shareholders pursuant to the Exchange
Act, the Company shall cause its quarterly and annual financial statements,
including any notes thereto (and, in the case of a fiscal year end, an auditors'
report by a firm of established national reputation), and all of the information
which the Company provides to its primary institutional lender from time to
time, to be mailed to the Purchaser
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within 30 days after the end of each month, within 45 days after the end of each
of its fiscal quarters, within 120 days after the end of each of its fiscal
years, respectively, and, until the Warrant has been fully exercised or has
expired in accordance with its terms, the Company, within 30 days prior to the
end of each of its fiscal years, shall provide financial projections covering
the period through at least the end of the next fiscal year; provided, however,
that the Company shall not be required to supply any information to the
Purchaser which duplicates information already supplied to the Purchaser under
other agreements. In addition, the Company shall provide the Purchaser with all
of the information which the Company provides purchasers of shares of each class
of stock as set forth in the Certificate, as then in effect. The Company shall
have met its obligation to supply information to any co-participant or assign of
the Purchaser hereunder by supplying a copy of such information to the single
largest Purchaser of the Warrant. Purchaser shall have standard inspection
rights until the Warrant has been fully exercised or has expired in accordance
with its terms.
8.4 Valuation of Publicly Traded Stock. Notwithstanding anything to
the contrary contained in Section 6, in the event of a Put pursuant to which a
Purchaser has elected a valuation of the Warrant Shares based on Fair Market
Value when the Common Stock of the Company is traded on a securities exchange or
actively traded over-the-counter, the price per share of the Warrant Shares
shall be determined on a fully converted basis according to trading in the
Common Stock as follows:
(a) if traded on a securities exchange, the per-share price
shall be deemed to be the average of the security's closing prices on such
exchange over the 30 day period ending three (3) days prior to the closing of
the Put; and
(b) if actively traded over-the-counter (at least 5,000 shares
per day on average over the 30-day period described below), the per-share price
shall be deemed to be the average of the security's closing bid or sale prices
(whichever is applicable) over the 30-day period ending three (3) days prior to
delivery of the initial notices delivered by the Purchaser and the Company under
Section 6.4.
8.5 Rights of First Refusal.
(a) Subsequent Offerings. The Purchaser shall have a right of
first refusal to purchase its pro rata share of all Equity Securities, as
defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement, other than the Equity Securities
excluded by Section 8.5(f) hereof. The Purchaser's pro rata share is equal to
the ratio of (A) the number of shares of the Common Stock of which such
Purchaser is deemed to be a Purchaser immediately prior to the issuance of such
the Equity Securities (which shall include, without limitation, all Common Stock
issued or issuable upon exercise of this Warrant in full and full conversion of
the Shares) to (B) the total number of shares of the Company's outstanding
Common Stock on a fully diluted basis (including all shares of Common Stock
issued or issuable upon exercise of this Warrant in full and full conversion of
the Shares) immediately prior to the issuance of the Equity Securities. The term
"Equity Securities" shall mean (i) any Common Stock, Preferred Stock or other
security of the Company, (ii) any security convertible, with or without
consideration, into any Common Stock, Preferred Stock or other security
(including any option to purchase such a convertible security), (iii) any
security carrying any warrant or right to subscribe to or purchase any Common
Stock, Preferred Stock or other security or (iv) any such warrant or right.
(b) Exercise of Rights. If the Company proposes to issue any Equity
Securities, it shall give Purchaser written notice of its intention, describing
the Equity Securities, the price and the
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terms and conditions upon which the Company proposes to issue the same. Each
Purchaser shall have fifteen (15) days from the giving of such notice to agree
to purchase its pro rata share of the Equity Securities for the price and upon
the terms and conditions specified in the notice by giving written notice to the
Company and stating therein the quantity of Equity Securities to be purchased.
If a Purchaser gives the Company notice that it desires to purchase any of the
Equity Securities offered by the Company, payment for the Equity Securities
shall be by check, or wire transfer, against delivery of the Equity Securities,
at the executive offices of the Company within ten (10) days after giving the
Company such notice, or, if later, the closing date for the sale of such Equity
Securities to third parties. Notwithstanding the foregoing, the Company shall
not be required to offer or sell such Equity Securities to any Purchaser who
would cause the Company to be in violation of applicable federal securities laws
by virtue of such offer or sale.
(c) Issuance of Equity Securities to Other Persons. If the
Purchaser fails to exercise in full the rights of first refusal, the Company
shall have ninety (90) days thereafter to sell the Equity Securities in respect
of which the Purchaser's rights were not exercised, at a price and upon general
terms and conditions materially no more favorable to the purchasers thereof than
specified in the Company's notice to the Purchaser pursuant to Section 8.5(b)
hereof. If the Company has not sold such Equity Securities within ninety (90)
days of the notice provided pursuant to Section 8.5(b), the Company shall not
thereafter issue or sell any Equity Securities, without first offering such
securities to the Purchaser in the manner provided above.
(d) Termination of Rights of First Refusal. The rights of first
refusal established by this Section 8.5 shall terminate upon the effective date
of the registration statement pertaining to a Qualified Public Offering
(e) Transfer of Rights of First Refusal. The rights of first
refusal of the Purchaser under this Section 8.5 may be transferred to the same
parties and subject to the same restrictions, as any transfer of the Warrant.
(f) Excluded Securities. The rights of first refusal established
by this Section 8.5 shall have no application to any of the following Equity
Securities: (A) shares of Common Stock (and/or options, warrants or other Common
Stock purchase rights issued pursuant to such options, warrants or other rights)
issued or to be issued to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors;
(B) stock issued pursuant to any rights or agreements outstanding as of the date
of this Warrant, options and warrants outstanding as of the date of this
Warrant; and stock issued pursuant to any such rights or agreements granted
after the date of this Warrant, provided that the rights of first refusal
established by this Section 8.5 applied with respect to the initial sale or
grant by the Company of such rights or agreements; (C) any Equity Securities
issued pursuant to a merger, consolidation, acquisition or similar business
combination; (D) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company; (E) shares of Common
Stock issued upon conversion of the Shares; and (F) any Equity Securities issued
pursuant to any equipment leasing arrangement, or bank financing.
8.6 State Securities Laws. The Company hereby agrees to comply with
all state securities or "blue sky" laws which might be applicable to the sale of
the Warrant.
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8.7 Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Purchaser, the Shareholders and the
Company and their respective heirs, legal representatives, successors and
assigns.
8.8 Amendment. This Agreement may be amended only by a written
instrument, signed by Purchaser, the Company, and Shareholders owning a majority
in interest of the Stock owned by the Shareholders, which specifically states
that it is amending this Agreement.
8.9 Applicable Law. The laws of the State of California shall govern
the interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be implied under principles of conflicts of
law.
8.10 Notices. All notices and other communications provided for
herein shall be in writing and shall be deemed to have been duly given if
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid, to the party to whom it is directed:
(a) If to the Company:
Comps.com, Inc.
9888 Carroll Centre Road, Suite 100
San Diego, CA 92126
Attn: Karen Goodrum
Fax: 619/684-3293
with a copy to:
---------------
Brobeck, Phleger & Harrsion llp
550 West C Street, Suite 1200
San Diego, CA 92101
Attn: Faye Russell
Fax: 619/234-3848
If to the Purchaser:
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
Attn: Mezzanine Finance, NC475
Fax: 408/969-6501
with a copy to:
--------------
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, California 94111
Attn: Joseph A. Scherer, Esq.
(b) If to a Shareholder, at such Shareholder's address set forth
below such Shareholder's signature hereto; or, as to any party hereto, at such
other address as any party shall have specified by notice in writing to each
other party.
16
<PAGE>
8.11 Expiration of Agreement. Except as otherwise set forth herein,
this Agreement (but not the Warrant) shall terminate and be of no further force
or effect with respect to any Warrant Shares which are sold by the Purchaser
pursuant to an effective registration statement filed by the Company pursuant to
the Registration Rights Agreement or in compliance with Rule 144. Except as
otherwise expressly provided herein, this Agreement shall terminate on the tenth
anniversary of this Agreement unless extended prior to that date.
8.12 Recapitalizations, Etc. The provisions of this Agreement shall
apply, to the full extent set forth herein with respect to the Warrant, to any
and all shares of capital stock of the Company or any capital stock, limited
liability company membership interests, partnership units or any other security
evidencing ownership interests in any successor or assign of the Company
(whether by merger, consolidation, sale of assets or otherwise) which may be
issued in respect of, in exchange for, or in substitution of any of the Warrant
Shares by reason of any stock dividend, split, reverse split, combination,
recapitalization, liquidation, reclassification, merger, consolidation or
otherwise and to any Warrant Shares.
8.13 Assignment. This Agreement and the rights and obligations of
the parties hereunder shall inure to the benefit of, and be binding upon, the
parties' respective successors, assigns and legal representatives.
Notwithstanding anything herein or in the Warrant to the contrary and without
regard to any limitations set forth herein or therein, the parties acknowledge
that the Purchaser may transfer all or any of its rights hereunder and under the
Warrant to any affiliate of the Purchaser (including, without limitation, the
officers, directors and employees of the Purchaser, or any partnership comprised
thereof or any corporation owned by any of them, the ancestors, descendants or
spouse, or to trusts for the benefit of such persons) and that for the purpose
of interpreting and enforcing this Agreement, all such assigns shall be
considered as one and the same person.
8.14 Integration. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement, the Warrant and the Investor Rights Agreement.
8.15 Personal Jurisdiction. The Company and the Purchaser hereby
agree that any legal action or proceeding with respect to this Agreement or any
of the agreements, documents or instruments delivered in connection herewith may
be brought in the courts of the State of California or of the United States of
America in any district in California as the Purchaser may elect, and, by
execution and delivery hereof, each of the Company and the Purchaser accepts and
consents to, for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts and agrees that such
jurisdiction shall be exclusive, unless waived by the Purchaser in writing, with
respect to any action or proceeding brought by the Company against the
Purchaser. Nothing herein shall limit the right of the Purchaser to bring
proceedings against the Company in the courts of any other jurisdiction. The
Company waives, to the full extent permitted by law, any right to stay or to
dismiss any action or proceeding brought before said courts on the basis of
forum non conveniens.
8.16 Jury Waiver. Each of the Company and the Purchaser waives any
right to have a jury participate in resolving any dispute, whether sounding in
contract, tort, or otherwise, between the Company and the Purchaser arising out
of, connected with, related to or incidental to the relationship established
between them in connection with this agreement or any other instrument, document
or agreement executed or delivered in connection herewith or therewith or the
transactions related hereto or thereto.
17
<PAGE>
8.17 Confidentiality. In handling any confidential information of the
Company, Purchaser shall exercise the same degree of care that it exercises
with respect to its own proprietary information of the same types to maintain
the confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Purchaser in connection with their
present or prospective business relations with the Company, (ii)to prospective
transferees or purchasers of any interest in the loans, provided that they have
entered into a comparable confidentiality agreement in favor of the Company and
have delivered a copy to the Company, (iii) as required by law, regulation, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Purchaser,
and (v) as Purchaser may deem appropriate in connection with the exercise of any
remedies hereunder. Confidential information hereunder shall not include
information that either: (a) is in the public domain or in the knowledge or
possession of Purchaser when disclosed to Bank, or becomes part of the public
domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to
Purchaser by a third party, provided Purchaser does not have actual knowledge
that such third party is prohibited from disclosing such information.
18
<PAGE>
In Witness Whereof, the Company, Purchaser and the Shareholders have
executed this Agreement as of the date first above written.
The Company: Comps.com, Inc.,
a Delaware corporation
By: /s/ Christopher A. Crane
------------------------------
Printed Name: Christopher A. Crane
--------------------
Title: President and CEO
---------------------------
The Purchaser: Silicon Valley Bank
By: /s/ Laurita J. Hernandez
------------------------------
Printed Name: Laurita J. Hernandez
--------------------
Title: Vice President
---------------------------
The Shareholders: (see attached page)
[Signature Page to Warrant Subscription Agreement]
<PAGE>
The Shareholders: Summit Ventures III, L.P.,
By: Summit Partners III, L.P.,
its general partner
By: Stamps, Woodsum & Co. III,
its general partner
By: /s/ Gregory M. Avis
---------------------------------
Printed Name: Gregory M. Avis
----------------------
Title: General Partner
-----------------------------
Summit Investors II, L.P.
By: /s/ Gregory M. Avis
---------------------------------
Printed Name: /s/ Gregory M. Avis
----------------------
Title: /s/ General Partner
-----------------------------
/s/ Christopher A. Crane
------------------------------------
Christopher A. Crane
/s/ Robert C. Beasley
------------------------------------
Robert C. Beasley
/s/ Merrill Oster
------------------------------------
Merrill Oster
[Signature Page to Warrant Subscription Agreement]
<PAGE>
Schedule 4.1(e)
LIST OF OPTIONS AND RIGHTS
Rights Related to Company Stock:
- -------------------------------
The Company filed a Form S-1 Registration Statement on February 25, 1999 and
related amendment on April 5, 1999 in connection with the underwritten public
offering of 4,370,000 shares of the Company's Common Stock, which includes
570,000 shares of Common Stock that the underwriters have the option to purchase
to cover over-allotments, if any.
Certain registration rights, the right of first refusal, repurchase rights and
certain other rights are set forth in the Amended and Restated Investors Rights
Agreement by and among the Company and certain stockholders dated February 9,
1998.
Certain co-sale rights and the right of first refusal are set forth in the
Amended and Restated Right of First Refusal and Co-Sale Agreement by and among
the Company and certain purchasers dated February 9, 1998.
Outstanding Options to Purchase Class B Common Stock.
- ----------------------------------------------------
2,480,449 shares of Class B Common Stock are issuable upon the exercise of
outstanding options.
Outstanding Warrants to Purchase Class A Common Stock:
- -----------------------------------------------------
37,329 shares of Class A Common Stock are issuable upon the exercise of an
outstanding warrant.
Outstanding Warrants to Purchase Class B Common Stock:
- -----------------------------------------------------
899,034 shares of Class B Common Stock are issuable upon the exercise of
outstanding warrants;
Venture Lending & Leasing II, Inc., holds a warrant to purchase a number of
shares of the Company's Class B Common Stock with an aggregate initial exercise
price of $225,000 and a per share exercise price that is halfway between the
last ($1.8031) and the next round of equity financing. If there is no new
equity financing done prior to August 12, 2000, then the warrant exercise price
will equal $2.70 until the warrant expires.
[Schedule 4.1(e)]
<PAGE>
Exhibit A
FORM OF WARRANT
[Exhibit A]
<PAGE>
EXHIBIT 10.53
WARRANT SUBSCRIPTION AGREEMENT
This Warrant Subscription Agreement (the "Agreement") is entered into as of
April 9, 1999 among Comps.com, Inc. (formerly COMPS Infosystems, Inc.), a
Delaware corporation (the "Company"), Silicon Valley Bank (the "Purchaser"), and
the Shareholders listed on the signature pages attached hereto and any permitted
transferees of such Shareholder (collectively, the "Shareholders").
Recitals
A. Pursuant to that certain Loan and Security Agreement dated as of the
date hereof (as the same may from time to time be amended, modified,
supplemented or restated, the "Loan Agreement"), by and among the Company and
the Purchaser, the Purchaser has agreed to extend credit to the Company (the
"Credit").
B. Purchaser was induced by the Company to make the Credit available to
the Company, in part by the Company's and the Shareholders' agreement to enter
into this Agreement and to grant rights of co-sale to the Purchaser, as
contained herein.
C. In connection with the foregoing, the Company is selling to Purchaser a
Warrant to Purchase Stock (the "Warrant") to purchase up to 49,000 shares of the
Company's Series B Preferred Stock (the "Preferred Stock") at an initial
exercise price of $5.00 per share (the "Warrant Price") (the aggregate number of
shares for which the Warrant may be exercised collectively being referred to as
the "Warrant Shares"). The Warrant shall be substantially in the same form as
the Form of Warrant attached hereto as Exhibit A.
D. The Purchaser desires to subscribe for and purchase from the Company,
and the Company desires to sell to the Purchaser, the Warrant.
Agreement
In order to implement the foregoing and in consideration of the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Purchaser, the Company
and the Shareholders agree as follows:
1. Definitions.
The following terms shall have the meanings ascribed to such terms in the
Sections set forth below:
<TABLE>
<CAPTION>
Term Section
<S> <C>
Act 3.1
Agreement Recitals
Certificate 4.1(d)
Closing 2.2
Common Stock 4.1(d)
Company Recitals
Credit Recitals
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Investor Rights Agreement 2.4(b)
Loan Agreement Recitals
Exchange Act 4.3
Notice 7.1(a)
Options 4.1(e)
Piggyback Rights 5.1
Prohibited Transfer 7.3(a)
Purchaser Recitals
Put 6
Put Price 6.2
Qualified Financing 6.1
Refinancing 6.1
Regulated Purchaser 3.6
Rule 144 3.3(d)
SEC 4.3
Stock 7.1(a)
Shareholders Recitals
Transfer 3.1
Warrant Recitals
Warrant Shares Recitals
</TABLE>
2. Subscription for, Purchase and Exercise of Warrant; Original Issue
Discount.
2.1 Purchase of Warrant. Subject to the terms and conditions
hereinafter set forth, the Purchaser hereby subscribes for and purchases, and
the Company hereby sells to the Purchaser, for good and valuable consideration,
the receipt of which is hereby acknowledged, the Warrant.
2.2 The Time and Place of the Closing. The Closing of the
transactions provided for in this Agreement (the "Closing") shall be held at
10:00 a.m., local time, on April 9, 1999 at the offices of Cooley Godward LLP,
Five Palo Alto Square, Palo Alto, California 94306, or at such other time and
place as the Purchaser and the Company shall agree.
2.3 Closing of the Purchase of the Warrant. At the Closing, the
Company will deliver to Purchaser the Warrant, which shall be issued in
Purchaser's name.
2.4 Conditions to the Obligations of the Purchaser and the Company
Hereunder. The obligations of the Purchaser and the Company hereunder shall be
subject to the following conditions:
(a) The representations and warranties made herein to the
Purchaser or the Company by the other respective party shall be true and correct
in all material respects at and as of the date of the Closing; and
(b) The Purchaser and the Company shall have entered into the
Amendment to Investor Rights Agreement ("Amendment") which Amendment shall amend
the Amended and Restated Investor Rights Agreement dated as of February 9, 1998,
by and among the Company and the holders of Company's securities whose names are
set forth on the signature page attached thereto
2
<PAGE>
(collectively with the Amendment, the "Investor Rights Agreement"), to add the
Purchaser as a party thereto.
2.5 Original Issue Discount. The Company and Purchaser hereby
acknowledge and agree that the Warrant is part of an investment unit within the
meaning of Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended,
which investment unit includes all Credit Extensions (as defined in the Loan
Agreement) made pursuant to the Loan Agreement up to the maximum amount of the
Term Loan (as defined in the Loan Agreement). The Company and Purchaser agree
that the fair market value of the Warrant is less than the de minimis threshold
for reporting income and expense relating thereto on a current basis.
Therefore, the Company and Purchaser shall prepare their respective federal
income tax returns in a manner consistent with the foregoing agreement and,
pursuant to Treas. Reg. (S) 1.1273, the original issue discount on the Credit
Extensions shall be considered to be zero.
3. Purchaser's Representations, Warranties and Agreements. Purchaser
hereby represents, warrants and covenants to the Company as follows:
3.1 No Resales. The Purchaser is acquiring its Warrant for
investment solely for its own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof except in
compliance with the provisions of Rule 144A under the Securities Act of 1933, as
amended (the "Act"). The Purchaser agrees and acknowledges that it will not,
directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or
otherwise dispose of (referred to hereinafter as a "Transfer") its Warrant
Shares unless (i) such Transfer is pursuant to an effective registration
statement under the Act and complies with all applicable state securities laws,
or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable
to the Company) shall have furnished the Company with an opinion, reasonably
satisfactory in form and substance to the Company, to the effect that no such
registration is required because of the availability of an exemption from
registration under the Act and that the Transfer is exempt from all applicable
state securities laws except that no such opinion shall be required (y) in
connection with a Transfer by Purchaser to any affiliate of Purchaser or (z) in
connection with a Transfer where the transferee simultaneously becomes a lender
under the Loan Agreement and makes the representations and warranties contained
in this Section 3. No Transfer of the Warrant or the Warrant Shares in
violation of this Agreement shall be made or recorded on the books of the
Company, and any such Transfer shall be void and of no effect.
3.2 Legends. The Warrant, and the Warrant Shares issuable in respect
thereof, shall each bear legends in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, OR (B) THE COMPANY HAS BEEN FURNISHED WITH A
SATISFACTORY OPINION OF COUNSEL FOR THE PURCHASER THAT SUCH TRANSFER IS
EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE RULES AND
REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES LAWS."
3
<PAGE>
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN WARRANT SUBSCRIPTION AGREEMENT DATED AS OF
APRIL 9, 1999, BY AND BETWEEN THE WARRANT PURCHASER, THE COMPANY AND
CERTAIN PURCHASERS OF STOCK AND WARRANTS OF THE COMPANY (THE "WARRANT
SUBSCRIPTION AGREEMENT"). COPIES OF THE WARRANT SUBSCRIPTION AGREEMENT MAY
BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY."
3.3 Warrant and Warrant Shares Unregistered. Purchaser acknowledges
with respect to Purchaser's Warrant and Warrant Shares that Purchaser has been
advised that:
(a) Neither the Warrant nor the Warrant Shares have been
registered under the Act or qualified under the applicable securities laws of
any state;
(b) Except as contemplated by Sections 6, 7 and 8 hereof, the
Warrant and the Warrant Shares must be held indefinitely and the Purchaser must
continue to bear the economic risk of the investment in the Warrant and the
Warrant Shares unless they are subsequently registered under the Act and
qualified under applicable state securities laws or an exemption from such
registration or qualification is available;
(c) it is not anticipated that there will be any public market
for the Warrant or the Warrant Shares;
(d) Rule 144 promulgated under the Act ("Rule 144") is not
presently available with respect to the sales of any securities of the Company,
and the Company has made no covenant to make Rule 144 available (except as
provided in Section 4.3 hereof);
(e) when and if the Warrant or the Warrant Shares may be
disposed of without registration in reliance on Rule 144, such disposition can
be made only in limited amounts in accordance with the terms and conditions of
Rule 144;
(f) if the Rule 144 exemption is not available, public sale
without registration will require compliance with Regulation A promulgated under
the Act or some other exemption under the Act and compliance with applicable
state securities laws;
(g) a restrictive legend in the form heretofore set forth shall
be placed on each of the Warrant and the Warrant Shares; and
(h) a notation shall be made in the appropriate records of the
Company indicating that the Warrant and the Warrant Shares are subject to
restrictions on transfer and, if the Company should at some time in the future
engage the services of a transfer agent, appropriate transfer restrictions will
be issued to such transfer agent with respect to the Warrant.
3.4 Compliance With Rule 144. If the Warrant or the related Warrant
Shares are disposed of in accordance with Rule 144 under the Act, the Purchaser
shall deliver to the Company at or prior to the time of such disposition an
executed copy of Form 144 (if required by Rule 144) and such other documentation
as the Company may reasonably require in connection with such sale.
4
<PAGE>
3.5 Additional Representations. The Purchaser further represents and
warrants to Company that:
(a) it has been given the opportunity to obtain any information
or documents and to ask questions and receive answers about such documents, the
Company and the business and prospects of the Company which it deems necessary
to evaluate the merits and risks related to its investment in its Warrant;
(b) its financial condition is such that it can afford to bear
the economic risk of holding its unregistered Warrant and Warrant Shares for an
indefinite period of time and has adequate means of providing for its current
needs and contingencies;
(c) it can afford to suffer a complete loss of its investment in
the Warrant and Warrant Shares;
(d) all information which it has provided to the Company
concerning itself and its financial position is correct and complete as of the
date of this Agreement and, if there should be any material change in such
information prior to the Closing, the Purchaser will immediately furnish such
revised or corrected information to the Company;
(e) it understands and is cognizant of all risk factors related
to the purchase of the Warrant and Warrant Shares;
(f) it is an "Accredited Investor" as that term is defined in
Rule 501(a) of Regulation D promulgated under the Act;
(g) its knowledge and experience in financial and business
matters are such that it is capable of evaluating the merits and risks of its
purchase of the Warrant and Warrant Shares as contemplated by this Agreement;
(h) either (i) it has a pre-existing personal or business
relationship with the Company or any of its officers, directors or controlling
persons, or (ii) by reason of its business or financial experience or the
business or financial experience of its professional advisors who are
unaffiliated with, and who are not compensated by, the Company or any affiliate
of the Company, it has the capacity to protect its own interests in connection
with the investment in the Warrant and the Warrant Shares;
(i) it is an "excluded purchaser," as defined in Section
260.102.13 of the Corporate Securities Rules of the California Corporation
Commissioner, for purposes of Section 25102(f) of the California Corporate
Securities Law of 1968, as amended; and
(j) this Agreement has been executed and delivered by Purchaser
and is its valid and binding obligation, enforceable against Purchaser in
accordance with its terms, except for (i) the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally, and (ii) limitations
imposed by federal or state law or equitable principles upon the specific
enforceability of any of the remedies, covenants or other provisions of this
Agreement and upon the availability of injunctive relief or other equitable
remedies.
5
<PAGE>
3.6 No Controlling Influence. In the event and so long as the
Warrant or the related Warrant Shares are held by Purchaser or any of its
affiliates or any person or entity to which Purchaser or any of its affiliates
shall have transferred the Warrant or the related Warrant Shares (any such
person or entity, a "Regulated Purchaser"), such Regulated Purchaser will
neither:
(a) Exercise or attempt to exercise, directly or indirectly, a
controlling influence over the management or policies of the Company; nor
(b) Notwithstanding any other provision of this Agreement,
exercise the Warrant to the extent such exercise would result in such Regulated
Purchaser and its affiliates holding, directly or indirectly, in excess of 4.99%
of any class of the outstanding voting stock of the Company, except in
connection with (i) a widely dispersed public offering of the Warrant Shares,
(ii) a sale of the related Warrant Shares into the secondary market pursuant to
the transaction and volume limitations of Rule 144 (irrespective of holding
periods), or (iii) a private placement or sale, including pursuant to Rule 144A
under the Act, so long as the transferee and its affiliates do not collectively
acquire from Purchaser more than 2% of the voting stock of the Company pursuant
to such transfer.
3.7 Voting. Purchaser covenants that for so long as Purchaser owns
the Warrant Shares or any common stock issuable upon conversion of the Warrant
Shares, it shall not, to the extent that is entitled under any statute, rule,
regulation and/or the Certificate or the Company's Bylaws, exercise any voting,
consent or other approval rights, whether by written consent or otherwise,
arising from Purchaser's ownership of the Warrant Shares or any common stock
issuable upon conversion of the Warrant Shares, which it obtains through the
exercise of the Warrant.
4. Representations, Warranties and Agreements.
4.1 The Company's Representations and Warranties. The Company
represents and warrants, as of the date hereof, that:
(a) Organization, Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; has all requisite power and authority to own or lease
and operate its properties and to carry on its business as now conducted and as
proposed to be conducted after the funds are advanced under the Credit; and is
duly qualified or licensed to do business as a foreign corporation in good
standing in all jurisdictions in which it owns or leases property or in which
the conduct of its business requires it to so qualify or be licensed, except for
such jurisdictions where the failure to so qualify or be licensed would not have
a material adverse effect on the business or financial condition of the Company.
(b) Authority. The Company has all requisite power and authority
to enter into and perform all of its obligations under this Agreement, to issue
the Warrant and the Warrant Shares and to carry out the transactions
contemplated hereby.
(c) Due Authorization. The Company has taken all corporate
actions necessary to authorize it to enter into and perform its obligations
under this Agreement, to issue the Warrant and the Warrant Shares and to
consummate the transactions contemplated hereby. This Agreement is the legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except for (i) the effect upon this Agreement of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally and (ii) limitations
imposed by equitable principles or principles of public policy upon the specific
6
<PAGE>
enforceability of any of the remedies, covenants or other provisions of this
Agreement and upon the availability of injunctive relief or other equitable
remedies.
(d) Capitalization of Company. The Company's capital stock is
divided into common stock ("Common Stock") and preferred stock. The authorized
capital stock of the Company consists of 4,368,200 shares of Series A Preferred
Stock, of which, immediately after the Closing Date, 4,270,336 shares are issued
or outstanding, 731,800 shares of Series B Preferred Stock, of which,
immediately after the Closing Date, 637,790 shares are issued or outstanding,
and 22,500,000 shares of Class A Common Stock, of which, immediately after the
Closing Date, 4,811,189 shares will be outstanding on a fully diluted basis, and
2,500,000 shares of Class B Common Stock, of which, immediately after the
Closing Date, 3,422,983 shares will be outstanding on a fully diluted basis (in
each case taking into account all outstanding warrants, options and other rights
to purchase the Common Stock and Preferred Stock). When the Warrant to be
purchased by the Purchaser hereunder has been delivered as provided herein, the
Warrant Shares (i) together with all outstanding shares of Common Stock,
Preferred Stock and shares of Common Stock issuable upon exercise of all
outstanding Options (as defined below) of the Company will not exceed the number
of shares that have been authorized by the Company's Restated Certificate of
Incorporation ("Certificate"), (ii) will have been duly authorized to be issued
by the Company's board of directors, (iii) will, upon payment therefor in
accordance with the terms of the Warrant, be duly and validly issued, fully paid
and nonassessable and (iv) will have been reserved for issuance pursuant to the
terms of the Warrant.
(e) No Other Rights or Obligations to Purchase Stock of Company.
Except for the Put granted to the Purchaser pursuant to Section 6, the right of
first refusal granted to the Purchaser pursuant to Section 8.5, the registration
rights set forth in the Investor Rights Agreement and the options and rights
granted as fully described on Schedule 4.1(e), (i) there are no outstanding
subscriptions, warrants, options, calls, preemptive rights, commitments or
rights of first refusal of any character (collectively, "Options") relating to
or entitling any person to purchase or otherwise acquire any capital stock of
the Company, (ii) there are no obligations or securities convertible into or
exchangeable or exercisable for shares of any capital stock of the Company or
any commitments of any character relating to or entitling any person to purchase
or otherwise acquire any such obligations or securities, (iii) the Company has
no obligation to repurchase any of its capital stock, and (iv) the Company has
not entered into any agreement to register its securities under the Act.
(f) No Adjustment of Other Shares on Issuance. Neither the
issuance nor the exercise of the Warrant will cause the rate at which any of the
Company's outstanding securities are ultimately convertible into Common Stock to
change, nor will such issuance or exercise invoke any "antidilution" feature of
any of the Company's outstanding securities or rights to purchase securities
except to the extent that the Warrant becomes exercisable to purchase Warrant
Shares at a Warrant Price of $1.17.
4.2 Shareholders' Representations and Warranties. Each of the
Shareholders represents and warrants that it or the party signing this Agreement
on its behalf has all requisite power and authority to enter into this Agreement
and that each Shareholder has the power and authority to perform all of its
obligations under this Agreement and to carry out the transactions contemplated
hereby.
4.3 Rule 144. The Company agrees that after it has filed a
registration statement pursuant to the requirements of Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to
any class of equity securities of the Company, it will use its best efforts to
7
<PAGE>
file in a timely manner all reports required to be filed by it pursuant to
the Exchange Act and, upon the request of Purchaser, will furnish Purchaser with
such reports so that the Purchaser may effect routine sales pursuant to Rule 144
and Rule 144A (if applicable) under the Act or any similar rule or regulations
hereafter adopted by the Securities and Exchange Commission (the "SEC").
4.4 Purchaser's Percentage Ownership. The Company hereby represents
and warrants that the initial 10,000 Warrant Shares in respect of the Warrant
currently represent that number of shares representing a seventy-six thousandths
of one percent (0.076%) interest in the Company's equity capital on a fully
diluted basis (after giving effect to the exercise of all options, warrants, and
convertible securities assuming all options authorized for grant, whether or not
granted, have been granted).
5. Registration Rights.
5.1 Purchaser's Registration Rights. The Purchaser shall have
registration rights relating to its Warrant and the applicable Warrant Shares
set forth in the Investor Rights Agreement. The Company represents and warrants
that such registration rights are, in all material respects, at least as
favorable to the Purchaser with respect to the right to include the Warrant
Shares in any registration of the Company's securities for the Company's own
account in connection with an offering of such stock to the public for cash,
other than registrations relating solely to employee benefit plans ("Piggyback
Rights"), as have been granted to any other person with respect to the Company's
securities. The registration rights shall automatically be amended to conform
to any Piggyback Rights granted to any future person that are more favorable to
such person than to the Purchaser at the time of grant.
5.2 Shareholders' Registration Rights. Each of the Shareholders
agrees that it shall not be entitled to exercise any registration rights in its
favor now existing or hereafter arising if such Shareholder shall have received
notice from Purchaser that an Event of Default has occurred under the Loan
Agreement and no waiver of such Event of Default shall have been made.
6. Purchaser's Put Option.
The Company and the Purchaser agree that under certain circumstances as
more fully set forth below, Purchaser may elect to sell to the Company its
Warrant Shares or any portion of its Warrant Shares, and the Company agrees to
buy such Warrant Shares or any portion thereof when properly tendered by the
Purchaser. Purchaser's option as herein set forth (the "Put") to demand that
the Company purchase, from time to time, the Warrant Shares or any portion
thereof then held by Purchaser is subject to the following terms and conditions:
6.1 Time of Exercise. The Put (i) shall become exercisable on the
earliest to occur of (a) the closing of a Qualified Financing, (b) after three
years after the Closing if a Qualified Financing has not occurred, (c) a
liquidation, dissolution or winding up of the Company, (d) the closing of an
acquisition, merger, exchange of securities, sale of all or substantially all of
the assets of the Company, reorganization in which the Company is not the
surviving entity or a stock issuance or "reverse merger" in which the Company is
the surviving entity but under which the holders of the Company's securities
prior to such stock issuance or reverse merger do not hold more than fifty (50%)
of the voting securities of the Company following such stock issuance or reverse
merger, (e) immediately prior to the closing of a Qualified Public Offering, (f)
upon payment in full of the Obligations (as defined in the Loan Agreement), (g)
the date of any Event of Default (as defined in the Loan Agreement) that results
in acceleration of all or any of the Obligations (as defined in the Loan
Agreement) due thereunder and (h)
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the date of any Refinancing and (ii) shall terminate on the earliest of (x) the
closing of a Qualified Public Offering, (y) the closing of an acquisition,
merger, exchange of securities, sale of all or substantially all of the assets
of the Company, reorganization in which the Company is not the surviving entity
or a stock issuance or "reverse merger" in which the Company is the surviving
entity but under which the holders of the Company's securities prior to such
stock issuance or reverse merger do not hold more than fifty (50%) of the voting
securities of the Company following such stock issuance or reverse merger;
provided, however, that the Purchaser shall have the right to exercise the
option granted pursuant to this section concurrently with such closing by
delivering written notice of their intention to so exercise at least ten (10)
days prior to the date of such closing; provided, further, that the Company
shall provide the Purchaser with not less than thirty (30) days written notice
of the closing of a transaction contemplated by this Section 6.1; or (z) the
liquidation of the Company. For purposes of this Agreement, (1) "Qualified
Financing" shall mean an equity or subordinated debt investment in the Company
in which the Company receives net proceeds in excess of Three Million Dollars
($3,000,000), (2) "Refinancing" shall mean any refinancing, by other than the
Purchaser pursuant to the Loan Agreement, whereby all obligations under the Term
Loan (as defined in the Loan Agreement) are repaid in full and the commitment
thereunder has terminated; provided, however, that a "Refinancing" shall not
include a refinancing of the Loan contemporaneous with the sale of the Company
or the sale of all or substantially all of the equity of the Company to other
than an affiliate of the Company, and (3) "Qualified Public Offering" shall mean
an underwritten public offering in which the Company receives gross proceeds of
not less than $10,000,000 at a purchase price per share of not less than $3.73
(as adjusted for stock splits, dividends, recapitalization and the like).
6.2 Put Price. Subject to Section 8.4, the price at which the Put
may be exercised (the "Put Price") shall be the greater of (i) the Warrant Price
(as defined in the Warrant) of the Warrant Shares for which the Put is being
exercised plus all accrued and unpaid dividends through the date of repurchase,
and (ii) the fair market value of the Warrant Shares for which the Put is being
exercised as agreed upon by the Company and the Purchaser.
6.3 Method of Exercise. To exercise the Put, any Purchaser shall
give written notice to the Company of its desire to so exercise and the Company
shall provide written notice to the Purchaser within twenty (20) business days
of receipt of the Purchaser's notice, setting forth the Company's calculation of
the Put Price pursuant to Section 6.2 and a proposed closing date, which shall
not be more than sixty (60) business days following such Company notice. Such
Purchaser shall then respond within twenty (20) business days of such Company
notice indicating whether it accepts the Company's calculation of the Put Price
or desires to submit the matter for appraisal in accordance with the provisions
of Section 6.4. If such Purchaser desires to accept the specified Put Price, it
shall tender to the Company, at the closing, the certificate representing its
Warrant Shares, duly endorsed in blank, free and clear of all liens, claims, and
encumbrances, and the Company shall pay at the closing the applicable purchase
price by cash or cash equivalent made payable to such Purchaser, and shall
issue to such Purchaser a new certificate of like tenor to the extent the Put
was not exercised with respect to all of such Purchaser's Warrant Shares.
6.4 Appraisal on Disagreement. If Purchaser and the Company do not
agree on the Put Price under the method of the calculation elected by Purchaser,
the Put Price shall be determined by appraisal. All appraisals shall be
undertaken by two appraisers, one selected by the Company and one selected by
the Purchaser. The fair market value shall be the fair market value arrived at
by those appraisers within sixty (60) days following the appointment of the last
appraiser to be appointed. In the event that the two appraisers cannot agree on
such fair market value within such a period of time, (i) if the appraisers'
valuations are within 10% of each other, the fair market value shall be the mean
of the
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two valuations and (ii) if the differences in the valuations are greater, the
appraisers shall elect a third appraiser who will calculate fair market value
independently, and, except as provided in the next sentence, the fair market
value of the Warrant Shares shall in each case be the average of the two fair
market values arrived at by the appraisers who are closest in amount. If one
appraiser's valuation is the mean of the other two valuations, the mean
valuation shall be the fair market value. In the event that the two original
appraisers cannot agree upon a third appraiser within thirty (30) days following
the end of the sixty (60) day period referred to above, then the third appraiser
shall be appointed by the American Arbitration Association upon the request of
either party. If, following the conclusion of any appraisal referred to above, a
Purchaser shall choose not to sell any or all of the Warrant Shares, then it
shall so notify the Company, within twenty (20) days following receipt of the
appraisal. If the Purchaser chooses not to sell any or all of the Warrant Shares
and after the initiation of the procedures outlined in Section 6.3, then its
rights hereunder shall terminate with respect to all such securities not offered
to the Company. The expenses of the appraiser chosen by the Company will be
borne by it, the expenses of the appraiser chosen by the Purchaser will be borne
by the Purchaser and the expenses of the third appraiser will be borne 50% of
the Company and 50% by the Purchaser.
7. Co-Sale Agreement.
7.1 Tag-Along Rights.
(a) If any Shareholder proposes to sell or transfer any shares
of Common Stock or Preferred Stock owned by such Shareholder ("Stock") in one or
more related transactions which will result in (i) the transfer of five percent
(5%) or more shares of Stock held by such Shareholder or (ii) the transferee of
such shares increasing its ownership from less than five percent (5%) to more
than five percent (5%) of the Common Stock of the Company then outstanding
(taking into account any Preferred Stock held by such transferee which is
convertible into Common Stock), then such Shareholder shall promptly give
written notice (the "Notice") to the Company and each Purchaser at least twenty
(20) days prior to the closing of such sale or transfer. The Notice shall
describe in reasonable detail the proposed sale or transfer including, without
limitation, the number of shares of Stock to be sold or transferred, the nature
of such sale or transfer, the consideration to be paid, and the name and address
of each prospective purchaser or transferee. In the event that the sale or
transfer is being made pursuant to the provisions of Section 7.2(a) or 7.2(b)
hereof, the Notice shall state under which paragraph the sale or transfer is
being made.
(b) Each Purchaser shall have the right, exercisable upon
written notice to such Shareholder within fifteen (15) days after receipt of the
Notice, to participate in such sale of Stock on the same terms and conditions.
To the extent that a Purchaser exercises such right of participation in
accordance with the terms and conditions set forth below, the number of shares
of Stock that the Shareholder may sell in the transaction shall be
correspondingly reduced.
(c) Each Purchaser may sell all or any part of that number of
shares of Stock equal to the product obtained by multiplying (i) the aggregate
number of shares of Common Stock and Preferred Stock (on a fully converted
basis) covered by the Notice by (ii) a fraction the numerator of which is the
number of shares of Common Stock and Preferred Stock (on a fully converted
basis) owned by the Purchaser at the time of the sale or transfer (including any
shares of Common Stock acquired by the Purchaser after receipt of the notice and
prior to the time of such sale or transfer) and the denominator of which is the
total number of shares of Common Stock and Preferred Stock (on a fully converted
basis) owned by the Shareholder and Purchaser at the time of the sale or
transfer (including
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<PAGE>
any shares of Common Stock acquired by Purchaser after receipt of the notice and
prior to the time of such sale or transfer).
(d) Purchaser shall effect its participation in the sale by
promptly delivering to such Shareholder for transfer to the prospective
purchaser one or more certificates, properly endorsed for transfer, which
represent the number of shares of stock which the Purchaser elects to sell.
(e) The stock certificate or certificates that a Purchaser
delivers to such Shareholder pursuant to Section 7.1(d) shall be transferred to
the prospective purchaser in consummation of the sale of the Stock pursuant to
the terms and conditions specified in the Notice, and such Shareholder shall
concurrently therewith remit to the Purchaser that portion of the sale proceeds
to which the Purchaser is entitled by reason of its participation in such sale.
To the extent that any prospective purchaser or purchasers prohibits such
assignment or otherwise refuses to purchase shares or other securities from the
Purchaser, such Shareholder shall not sell to such prospective purchaser or
purchasers any Stock unless and until, simultaneously with such sale, such
prospective purchaser or purchasers shall purchase such shares or other
securities from the Purchaser.
(f) The exercise or non-exercise of the rights of a Purchaser
hereunder to participate in one or more sales of Stock made by any Shareholder
shall not adversely affect its rights to participate in subsequent sales of
Stock subject to Section 7.1(a).
7.2 Exempt Transfers.
(a) Notwithstanding the foregoing, but subject to the notice
requirements of Section 7.1(a) above, the co-sale rights of a Purchaser shall
not apply to (i) any pledge of Stock made pursuant to a bona fide loan
transaction that creates a mere security interest, (ii) any transfer to the
ancestors, descendants or spouse, or to trusts for the benefit of such persons,
of a Shareholder; or (iii) any bona fide gift or charitable contribution;
provided that (A) such transferring Shareholder shall inform the Purchaser in
writing of such pledge, transfer or gift prior to effecting it and (B) the
pledgee, transferee or donee shall furnish the Purchaser with a written
agreement to be bound by and comply with all provisions of this Section 7. Such
transferred Stock shall remain "Stock" hereunder, and such pledgee, transferee
or donee shall be treated as a "Shareholder" for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 7.1
shall not apply to the sale or transfer of any Stock (i) to the public pursuant
to a registration statement filed with, and declared effective by, the SEC or
sales pursuant to Rule 144 under the Act or (ii) if prior to such sale or
transfer, the Shareholder (except for the Shareholders executing a signature
page to this Agreement) held less than ten percent (10%) of the Company's
outstanding shares.
7.3 Prohibited Transfers.
(a) In the event a Shareholder should sell any Stock in
contravention of the co-sale rights of the Purchaser under this Agreement (a
"Prohibited Transfer"), the Purchaser, in addition to such other remedies as may
be available at law, in equity or hereunder, shall have the put option provided
herein, and such Shareholder shall be bound by the applicable provisions of such
option.
(b) In the event of a Prohibited Transfer, the Purchaser shall
have the right to sell to the violating Shareholder the type and number of
shares of Stock equal to the number of shares the Purchaser would have been
entitled to transfer to the purchaser had the Prohibited Transfer been
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<PAGE>
effected pursuant to and in compliance with the terms hereof. The Purchaser
shall exercise such right and such sale shall be made on the following terms and
conditions:
(i) The price per share at which the shares are to be
sold to such Shareholder shall be equal to the price per share paid by the
purchaser to such Shareholder in the Prohibited Transfer. Such Shareholder shall
also reimburse the Purchaser for any and all fees and expenses, including legal
fees and expenses, incurred pursuant to the exercise or the attempted exercise
of the Purchaser's rights under Section 7.1 and under this Section 7.3.
(ii) Within 90 days after the later of the dates on which
the Purchaser (A) receives notice of the Prohibited Transfer or (B) otherwise
becomes aware of the Prohibited Transfer, the Purchaser shall, if exercising the
option created hereby, deliver to such Shareholder the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(iii) Such Shareholder shall, upon receipt of the
certificate or certificates for the shares to be sold by Purchaser pursuant to
this Section 7.3, pay the aggregate purchase price therefor and the amount of
reimbursable fees and expenses, as specified in Section 7.3(b)(i), in cash or by
other means acceptable to the Purchaser.
(iv) To the extent a Shareholder transfers Stock in
violation of Section 7.1 hereof and the Purchaser has not exercised or waived in
writing its rights to sell Stock pursuant to this Section 7.3(b), any such
transfer shall be void and the Company agrees it will not effect such a
transfer, nor will it treat any alleged transferee as the purchaser of such
shares without the written consent of the Purchaser.
7.4 Amendment. Notwithstanding anything else contained in this
Agreement, any provision of this Section 7 may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of (a) as to the
Company, only the Company, (b) as to the Purchaser, only the Purchaser, and (c)
as to the Shareholders, purchasers of a majority in interest of the Stock held
by the Shareholder on the date hereof, provided that any Shareholder may waive
any of such Shareholder's rights hereunder without obtaining the consent of such
majority. Any amendment or waiver effected in accordance with clauses (a), (b)
and (c) of this paragraph shall be binding upon Purchaser, its successors and
assigns, the Purchasers of the Warrant, the Company and the Shareholders.
7.5 Term. This Section 7 shall terminate upon the closing of a
Qualified Public Offering.
7.6 Ownership. Each Shareholder represents and warrants that such
Shareholder is the sole legal owner of the shares of stock subject to this
Section 7, subject to community property laws (where applicable), and that no
other person has any interest in such shares.
7.7 Drag-Along Obligation.
(a) If one or more Shareholders intend to make a Control
Transfer (as defined below) for consideration to any person or entity or group
of related persons or entities, upon notice to each Purchaser, the transferring
Shareholder(s) (for purposes of this Section 7.7, the "Dragging Shareholder")
may cause Purchaser to sell the Warrant and Warrant Shares owned by it as
provided in
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<PAGE>
this Section 7.7. The Dragging Shareholder will notify Purchaser in writing (the
"Drag-Along Notice") of such intended transfer and the exercise of its rights
hereunder at least ten (10) days prior to the proposed date for the consummation
of such transfer, which notice will contain all of the material terms of the
transfer, including, without limitation, the name and address of the prospective
purchaser(s), the type and number of shares of Stock to be sold, the purchase
price and other terms and conditions of payment (or the basis for determining
the purchase price and other terms and conditions). The maximum number of shares
of Stock which will be required to be sold under this Section 7.7 will be
determined as of the date of consummation of such sale or transfer and will
equal (i) if the Dragging Shareholder sells less than all of its shares in the
Control Transfer, (A) a fraction, the numerator of which is the total number of
shares of Common Stock and Preferred Stock owned by the Purchaser plus the
number of shares of stock issuable on exercise of Purchaser's Warrant and the
denominator of which is the sum of the total number of shares of Common Stock
and Preferred Stock owned by the Dragging Shareholders plus the total number of
shares of Common Stock and Preferred Stock owned by the Purchaser plus the
number of shares of stock issuable on exercise of the Warrant, multiplied by (B)
the total number of shares of Common Stock and Preferred Stock proposed to be
sold by the Dragging Shareholder, and (ii) if the Dragging Shareholder sells all
of its shares of Stock in the Control Transfer, all of the shares of Common
Stock and Preferred Stock owned by the Purchaser plus the number of shares of
Common Stock issuable on exercise of Purchaser's Warrant. All calculations under
the preceding sentence shall treat all Preferred Stock on a fully converted
basis. "Control Transfer" means a sale, exchange or other transfer by one or
more Shareholders pursuant to a private sale or other transaction or series of
transactions (other than pursuant to a registered public offering) of an
aggregate of more than 50% of the outstanding shares of the Company to any
person or entity.
(b) Any transfer by a Purchaser pursuant to this Section 7.7
will be on the same terms and conditions, and for the same consideration per
share, as the transfer by the Dragging Shareholder which is the subject matter
of the Drag-Along Notice.
(c) Notwithstanding the foregoing, no Shareholder may exercise
its drag-along rights under this Section 7.7 with respect to any outstanding
Warrant Shares in a transaction with an affiliate of such Shareholder unless the
purchase price for each Warrant Share is equal to that which could obtained in
an arms' length transaction.
8. Miscellaneous.
8.1 Certain Restrictions. Until the Warrant has been fully exercised
or has expired in accordance with its terms, the Company shall not:
(a) Except in respect of the rights described in Schedule
4.1(e), without the prior written consent of Purchaser, redeem, repurchase or
otherwise acquire for value (or pay into or set aside for a sinking fund for
such purpose), any equity securities of the Company except for those shares of
Common Stock of the Company repurchased from officers, directors or employees
under agreements providing for the purchase of such shares by the Company upon
the termination of employment by or service to the Company as a director,
officer or employee; or
(b) Without the prior written consent of each Purchaser, such
consent not to be unreasonably withheld, amend the Certificate if such amendment
would improve the rights, preferences or privileges of any class of shares of
the Company except as required by this Agreement.
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8.2 No Change of Fiscal Year. Until the Warrant has been fully
exercised or has expired in accordance with its terms or the Put has been
exercised in full, the Company shall not change its fiscal year end from
December 31 without Purchaser's prior written consent, which consent shall not
unreasonably be withheld.
8.3 Financial Information. Until such time as the Company is
required to furnish annual reports to its shareholders pursuant to the Exchange
Act, the Company shall cause its quarterly and annual financial statements,
including any notes thereto (and, in the case of a fiscal year end, an auditors'
report by a firm of established national reputation), and all of the information
which the Company provides to its primary institutional lender from time to
time, to be mailed to the Purchaser within 30 days after the end of each month,
within 45 days after the end of each of its fiscal quarters, within 120 days
after the end of each of its fiscal years, respectively, and, until the Warrant
has been fully exercised or has expired in accordance with its terms, the
Company, within 30 days prior to the end of each of its fiscal years, shall
provide financial projections covering the period through at least the end of
the next fiscal year; provided, however, that the Company shall not be required
to supply any information to the Purchaser which duplicates information already
supplied to the Purchaser under other agreements. In addition, the Company
shall provide the Purchaser with all of the information which the Company
provides purchasers of shares of each class of stock as set forth in the
Certificate, as then in effect. The Company shall have met its obligation to
supply information to any co-participant or assign of the Purchaser hereunder by
supplying a copy of such information to the single largest Purchaser of the
Warrant. Purchaser shall have standard inspection rights until the Warrant has
been fully exercised or has expired in accordance with its terms.
8.4 Valuation of Publicly Traded Stock. Notwithstanding anything to
the contrary contained in Section 6, in the event of a Put pursuant to which a
Purchaser has elected a valuation of the Warrant Shares based on Fair Market
Value when the Common Stock of the Company is traded on a securities exchange or
actively traded over-the-counter, the price per share of the Warrant Shares
shall be determined on a fully converted basis according to trading in the
Common Stock as follows:
(a) if traded on a securities exchange, the per-share price
shall be deemed to be the average of the security's closing prices on such
exchange over the 30 day period ending three (3) days prior to the closing of
the Put; and
(b) if actively traded over-the-counter (at least 5,000 shares
per day on average over the 30-day period described below), the per-share price
shall be deemed to be the average of the security's closing bid or sale prices
(whichever is applicable) over the 30-day period ending three (3) days prior to
delivery of the initial notices delivered by the Purchaser and the Company under
Section 6.4.
8.5 Rights of First Refusal.
(a) Subsequent Offerings. The Purchaser shall have a right of
first refusal to purchase its pro rata share of all Equity Securities, as
defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement, other than the Equity Securities
excluded by Section 8.5(f) hereof. The Purchaser's pro rata share is equal to
the ratio of (A) the number of shares of the Common Stock of which such
Purchaser is deemed to be a Purchaser immediately prior to the issuance of such
the Equity Securities (which shall include, without limitation, all Common Stock
issued or issuable upon exercise of this Warrant in full and full conversion of
the Shares) to (B) the total number of shares of the Company's outstanding
Common Stock on a fully diluted basis (including all
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<PAGE>
shares of Common Stock issued or issuable upon exercise of this Warrant in full
and full conversion of the Shares) immediately prior to the issuance of the
Equity Securities. The term "Equity Securities" shall mean (i) any Common Stock,
Preferred Stock or other security of the Company, (ii) any security convertible,
with or without consideration, into any Common Stock, Preferred Stock or other
security (including any option to purchase such a convertible security), (iii)
any security carrying any warrant or right to subscribe to or purchase any
Common Stock, Preferred Stock or other security or (iv) any such warrant or
right.
(b) Exercise of Rights. If the Company proposes to issue any
Equity Securities, it shall give Purchaser written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Purchaser shall have fifteen
(15) days from the giving of such notice to agree to purchase its pro rata share
of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. If a Purchaser gives
the Company notice that it desires to purchase any of the Equity Securities
offered by the Company, payment for the Equity Securities shall be by check, or
wire transfer, against delivery of the Equity Securities, at the executive
offices of the Company within ten (10) days after giving the Company such
notice, or, if later, the closing date for the sale of such Equity Securities to
third parties. Notwithstanding the foregoing, the Company shall not be required
to offer or sell such Equity Securities to any Purchaser who would cause the
Company to be in violation of applicable federal securities laws by virtue of
such offer or sale.
(c) Issuance of Equity Securities to Other Persons. If the
Purchaser fails to exercise in full the rights of first refusal, the Company
shall have ninety (90) days thereafter to sell the Equity Securities in respect
of which the Purchaser's rights were not exercised, at a price and upon general
terms and conditions materially no more favorable to the purchasers thereof than
specified in the Company's notice to the Purchaser pursuant to Section 8.5(b)
hereof. If the Company has not sold such Equity Securities within ninety (90)
days of the notice provided pursuant to Section 8.5(b), the Company shall not
thereafter issue or sell any Equity Securities, without first offering such
securities to the Purchaser in the manner provided above.
(d) Termination of Rights of First Refusal. The rights of first
refusal established by this Section 8.5 shall terminate upon the effective date
of the registration statement pertaining to a Qualified Public Offering.
(e) Transfer of Rights of First Refusal. The rights of first
refusal of the Purchaser under this Section 8.5 may be transferred to the same
parties and subject to the same restrictions, as any transfer of the Warrant.
(f) Excluded Securities. The rights of first refusal established
by this Section 8.5 shall have no application to any of the following Equity
Securities: (A) shares of Common Stock (and/or options, warrants or other Common
Stock purchase rights issued pursuant to such options, warrants or other rights)
issued or to be issued to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors;
(B) stock issued pursuant to any rights or agreements outstanding as of the date
of this Warrant, options and warrants outstanding as of the date of this
Warrant; and stock issued pursuant to any such rights or agreements granted
after the date of this Warrant, provided that the rights of first refusal
established by this Section 8.5 applied with respect to the initial sale or
grant by the Company of such rights or agreements; (C) any Equity Securities
issued
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pursuant to a merger, consolidation, acquisition or similar business
combination; (D) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company; (E) shares of Common
Stock issued upon conversion of the Shares; and (F) any Equity Securities issued
pursuant to any equipment leasing arrangement or bank financing.
8.6 State Securities Laws. The Company hereby agrees to comply with
all state securities or "blue sky" laws which might be applicable to the sale of
the Warrant.
8.7 Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Purchaser, the Shareholders and the
Company and their respective heirs, legal representatives, successors and
assigns.
8.8 Amendment. This Agreement may be amended only by a written
instrument, signed by Purchaser, the Company, and Shareholders owning a majority
in interest of the Stock owned by the Shareholders, which specifically states
that it is amending this Agreement.
8.9 Applicable Law. The laws of the State of California shall govern
the interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be implied under principles of conflicts of
law.
8.10 Notices. All notices and other communications provided for
herein shall be in writing and shall be deemed to have been duly given if
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid, to the party to whom it is directed:
(a) If to the Company:
Comps.com, Inc.
9888 Carroll Centre Road, Suite 100
San Diego, CA 92126
Attn: Karen Goodrum
Fax: 619/684-3292
with a copy to:
---------------
Brobeck, Phleger & Harrsion llp
550 West C Street, Suite 1200
San Diego, CA 92101
Attn: Faye Russell
Fax: 619/234-3848
If to the Purchaser:
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
Attn: Mezzanine Finance, NC475
Fax: 408/969-6501
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with a copy to:
--------------
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, California 94111
Attn: Joseph A. Scherer, Esq.
(b) If to a Shareholder, at such Shareholder's address set forth
below such Shareholder's signature hereto; or, as to any party hereto, at such
other address as any party shall have specified by notice in writing to each
other party.
8.11 Expiration of Agreement. Except as otherwise set forth herein,
this Agreement (but not the Warrant) shall terminate and be of no further force
or effect with respect to any Warrant Shares which are sold by the Purchaser
pursuant to an effective registration statement filed by the Company pursuant to
the Registration Rights Agreement or in compliance with Rule 144. Except as
otherwise expressly provided herein, this Agreement shall terminate on the tenth
anniversary of this Agreement unless extended prior to that date.
8.12 Recapitalizations, Etc. The provisions of this Agreement shall
apply, to the full extent set forth herein with respect to the Warrant, to any
and all shares of capital stock of the Company or any capital stock, limited
liability company membership interests, partnership units or any other security
evidencing ownership interests in any successor or assign of the Company
(whether by merger, consolidation, sale of assets or otherwise) which may be
issued in respect of, in exchange for, or in substitution of any of the Warrant
Shares by reason of any stock dividend, split, reverse split, combination,
recapitalization, liquidation, reclassification, merger, consolidation or
otherwise and to any Warrant Shares.
8.13 Assignment. This Agreement and the rights and obligations of
the parties hereunder shall inure to the benefit of, and be binding upon, the
parties' respective successors, assigns and legal representatives.
Notwithstanding anything herein or in the Warrant to the contrary and without
regard to any limitations set forth herein or therein, the parties acknowledge
that the Purchaser may transfer all or any of its rights hereunder and under the
Warrant to any affiliate of the Purchaser (including, without limitation, the
officers, directors and employees of the Purchaser, or any partnership comprised
thereof or any corporation owned by any of them, the ancestors, descendants or
spouse, or to trusts for the benefit of such persons) and that for the purpose
of interpreting and enforcing this Agreement, all such assigns shall be
considered as one and the same person.
8.14 Integration. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement, the Warrant and the Investor Rights Agreement.
8.15 Personal Jurisdiction. The Company and the Purchaser hereby agree
that any legal action or proceeding with respect to this Agreement or any of the
agreements, documents or instruments delivered in connection herewith may be
brought in the courts of the State of California or of the United States of
America in any district in California as the Purchaser may elect, and, by
execution and delivery hereof, each of the Company and the Purchaser accepts and
consents to, for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts and agrees that such
jurisdiction shall be exclusive, unless waived by the Purchaser in writing, with
respect to any action or proceeding brought by the Company against the
Purchaser. Nothing herein shall limit the right of the Purchaser to bring
proceedings against the Company in the courts of any other jurisdiction. The
17
<PAGE>
Company waives, to the full extent permitted by law, any right to stay or to
dismiss any action or proceeding brought before said courts on the basis of
forum non conveniens.
8.16 Jury Waiver. Each of the Company and the Purchaser waives any
right to have a jury participate in resolving any dispute, whether sounding in
contract, tort, or otherwise, between the Company and the Purchaser arising out
of, connected with, related to or incidental to the relationship established
between them in connection with this agreement or any other instrument, document
or agreement executed or delivered in connection herewith or therewith or the
transactions related hereto or thereto.
8.17 Confidentiality. In handling any confidential information of the
Company, Purchaser shall exercise the same degree of care that it exercises
with respect to its own proprietary information of the same types to maintain
the confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Purchaser in connection with their
present or prospective business relations with the Company, (ii) to prospective
transferees or purchasers of any interest in the loans, provided that they have
entered into a comparable confidentiality agreement in favor of the Company and
have delivered a copy to the Company, (iii) as required by law, regulation, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Purchaser,
and (v) as Purchaser may deem appropriate in connection with the exercise of any
remedies hereunder. Confidential information hereunder shall not include
information that either: (a) is in the public domain or in the knowledge or
possession of Purchaser when disclosed to Bank, or becomes part of the public
domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to
Purchaser by a third party, provided Purchaser does not have actual knowledge
that such third party is prohibited from disclosing such information.
18
<PAGE>
In Witness Whereof, the Company, Purchaser and the Shareholders have
executed this Agreement as of the date first above written.
The Company: Comps.com, Inc.,
a Delaware corporation
By: /s/ Chrisopher A. Crane
--------------------------------
Printed Name: Christopher A. Crane
----------------------
Title: President and CEO
-----------------------------
The Purchaser: Silicon Valley Bank
By: /s/ Laurita J. Hernandez
--------------------------------
Printed Name: Laurita J. Hernandez
----------------------
Title: Vice President
-----------------------------
The Shareholders: (see attached page)
<PAGE>
The Shareholders: Summit Ventures III, L.P.
By: Summit Partners III, L.P.,
its general partner
By: Stamps, Woodsum & Co. III,
its general partner
By: /s/ Gregory M. Avis
-----------------------------------------
Printed Name: Gregory M. Avis
-------------------------------
Title: General Partner
--------------------------------------
Summit Investors II, L.P.
By: /s/ Gregory M. Avis
-----------------------------------------
Printed Name: Gregory M. Avis
-------------------------------
Title: General Partner
--------------------------------------
/s/ Christopher A. Crane
--------------------------------------------
Christopher A. Crane
/s/ Robert C. Beasley
--------------------------------------------
Robert C. Beasley
/s/ Merrill Oster
--------------------------------------------
Merrill Oster
<PAGE>
Schedule 4.1(E)
LIST OF OPTIONS AND RIGHTS
Rights Related to Company Stock:
- -------------------------------
The Company filed a Form S-1 Registration Statement on February 25, 1999 and
related amendment on April 5, 1999 in connection with the underwritten public
offering of 4,370,000 shares of the Company's Common Stock, which includes
570,000 shares of Common Stock that the underwriters have the option to purchase
to cover over-allotments, if any.
Certain registration rights, the right of first refusal, repurchase rights and
certain other rights are set forth in the Amended and Restated Investors Rights
Agreement by and among the Company and certain stockholders dated February 9,
1998.
Certain co-sale rights and the right of first refusal are set forth in the
Amended and Restated Right of First Refusal and Co-Sale Agreement by and among
the Company and certain purchasers dated February 9, 1998.
Outstanding Options to Purchase Class B Common Stock.
- ----------------------------------------------------
2,480,449 shares of Class B Common Stock are issuable upon the exercise of
outstanding options.
Outstanding Warrants to Purchase Class A Common Stock:
- -----------------------------------------------------
37,329 shares of Class A Common Stock are issuable upon the exercise of an
outstanding warrant.
Outstanding Warrants to Purchase Class B Common Stock:
- -----------------------------------------------------
899,034 shares of Class B Common Stock are issuable upon the exercise of
outstanding warrants;
Venture Lending & Leasing II, Inc., holds a warrant to purchase a number of
shares of the Company's Class B Common Stock with an aggregate initial exercise
price of $225,000 and a per share exercise price that is halfway between the
last ($1.8031) and the next round of equity financing. If there is no new
equity financing done prior to August 12, 2000, then the warrant exercise price
will equal $2.70 until the warrant expires.
[Schedule 4.1(e)]
<PAGE>
Exhibit A
FORM OF WARRANT
[Exhibit A]
<PAGE>
EXHIBIT 10.54
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS AND
MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE
PURCHASER THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE
ACT, THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE
SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN WARRANT SUBSCRIPTION AGREEMENT DATED AS OF
APRIL 9, 1999, BY AND BETWEEN THE WARRANT PURCHASER, THE COMPANY AND CERTAIN
PURCHASERS OF STOCK AND WARRANTS OF THE COMPANY (THE "WARRANT SUBSCRIPTION
AGREEMENT"). COPIES OF THE WARRANT SUBSCRIPTION AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.
WARRANT TO PURCHASE STOCK
Issue Date: April 9, 1999
Expiration Date: April 9, 2006
This Warrant Certifies That, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder"), is
entitled to purchase from COMPS.COM, INC. (formerly COMPS Infosystems, Inc.), a
Delaware corporation (the "Company"), that number described in the next
succeeding paragraph of fully paid and nonassessable shares of the Company's
Series A Preferred Stock (collectively, the "Shares") at the initial exercise
price per Share described in the next-succeeding paragraph (the "Warrant Price")
all as adjusted pursuant to Articles 1 and 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth of this Warrant.
This Warrant is being issued by the Company in connection with that certain
Loan and Security Agreement by and between Company and Holder of even date
herewith (the "Loan Agreement") and shall be exercisable for 10,000 Shares at a
Warrant Price of $5.00; provided, however, that in the event that any portion of
the principal, interest, fees and other amounts payable under the Loan Agreement
remains unpaid during any of the periods set forth in the left column of the
table below, then this Warrant shall be exercisable during such period for the
aggregate (and not additional) number of Shares set forth in the table with
respect to such period (less any shares as to which the Warrant issued pursuant
to the Warrant Subscription Agreement and any warrants derived therefrom shall
have been previously exercised) at the Warrant Price set forth in the table with
respect to such period:
<PAGE>
<TABLE>
<CAPTION>
Period Number of Shares Warrant Price
- -------------------------------------------------------------------------------
<S> <C> <C>
May 15, 1999 through August 15,000 $5.00
15, 1999
- -------------------------------------------------------------------------------
August 16, 1999 through 20,000 $2.00
December 31, 1999
- -------------------------------------------------------------------------------
January 1, 2000, and thereafter 49,000 $1.17
- -------------------------------------------------------------------------------
</TABLE>
ARTICLE 1
EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form of Appendix 1,
attached hereto and incorporated herein by this reference, to the principal
office of the Company. Unless Holder is exercising the conversion right set
forth in Section 1.2, Holder shall also deliver to the Company a check for the
aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.3.
1.3 Fair Market Value. If the Shares (or the Company's stock into which
the Shares are convertible) are traded in a public market, the fair market value
of the Shares shall be the average of the Shares closing prices (or the closing
prices of the Company's stock into which the Shares are convertible multiplied
by the number of shares of such stock that one share is convertible into) in
such market over the 30 day period ending three (3) days prior to the business
day immediately before Holder delivers its Notice of Exercise to the Company.
If the Shares (or the Company's stock into which the Shares are convertible) are
not traded in a public market, the Board of Directors of the Company shall
determine fair market value in its reasonable good faith judgment. The
foregoing notwithstanding, if Holder advises the Board of Directors in writing
that Holder disagrees with such determination, then the Company and Holder shall
promptly agree upon a reputable investment banking firm to undertake such
valuation. If the valuation of such investment banking firm is greater than
that determined by the Board of Directors, then all fees and expenses of such
investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
2.
<PAGE>
1.4 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.5 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.6 Repurchase on Sale, Merger, or Consolidation of the Company.
(a) Acquisition. For the purpose of this Warrant, "Acquisition" means
any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting stock of the surviving
entity (or the parent of the surviving entity) after the transaction.
(b) Assumption of Warrant. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
(c) Nonassumption. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 immediately prior to such Acquisition and thereafter Holder shall
participate in the Acquisition on the same terms as other holders of the same
class of securities of the Company.
ARTICLE 2
ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been
3.
<PAGE>
entitled had Holder owned the Shares of record as of the date the dividend or
subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, or any reorganization, consolidation, or merger that
is not an Acquisition, Holder shall be entitled to receive, upon exercise or
conversion of this Warrant, the number and kind of securities and property that
Holder would have received for the Shares if this Warrant had been exercised
immediately before such reclassification, exchange, substitution, or such
reorganization, consolidation, or merger that is not an Acquisition, or other
event. Such an event shall include any automatic conversion of the outstanding
or issuable securities of the Company of the same class or series as the Shares
to common stock pursuant to the terms of the Company's Certificate of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or to successive reorganizations, consolidations, or mergers that
are not an Acquisition, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the number
of Shares issuable upon exercise of this Warrant or, if the Shares are Preferred
Stock, the number of shares of common stock issuable upon conversion of the
Shares, shall be subject to adjustment, from time to time in the manner set
forth on Exhibit A, attached hereto and incorporated herein by this reference,
in the event of Diluting Issuances (as defined on Exhibit A).
2.5 No Impairment. The Company shall not, by amendment of its Certificate
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article 2 against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
4.
<PAGE>
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder an amount
computed by multiplying the fractional interest by the fair market value of a
full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3
REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this
Warrant is not greater than (i) the price per share at which the Shares were
last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; or (d)
to merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
5.
<PAGE>
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within one hundred twenty (120) days after the
end of each fiscal year of the Company, the annual audited financial statements
of the Company certified by independent public accountants of recognized
standing, (c) within forty-five (45) days after the end of each of the first
three quarters of each fiscal year, the Company's quarterly, unaudited financial
statements and (d) within thirty (30) days after the end of each month, the
Company's monthly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B attached hereto and incorporated herein by this reference.
ARTICLE 4
MISCELLANEOUS.
4.1 Term; Notice of Expiration. This Warrant is exercisable, in whole or
in part at any time and from time to time on or before the Expiration Date set
forth above. The Company shall give Holder written notice of Holder's right to
exercise this Warrant in the form attached as Appendix 2, attached hereto and
incorporated herein by this reference, not more than 90 days and not less than
30 days before the Expiration Date. If the notice is not so given, the
Expiration Date shall automatically be extended until 30 days after the date the
Company delivers the notice to Holder.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THIS CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions
6.
<PAGE>
reasonably satisfactory to the Company, as reasonably requested by the Company).
The Company shall not require Holder to provide an opinion of counsel if the
transfer is to an affiliate of Holder or if there is no material question as to
the availability of current information as referenced in Rule 144(e), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Voting. Holder covenants that for so long as Holder owns the Shares
or any common stock issuable upon conversion of the Shares, it shall not, to the
extent that is entitled under any statute, rule, regulation and/or the
Certificate or the Company's Bylaws, exercise any voting, consent or other
approval rights, whether by written consent or otherwise, arising from Holders
ownership of the Shares or any common stock issuable upon conversion of the
Shares, which it obtains through the exercise of this Warrant.
4.6 Notices. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
4.7 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.8 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
7.
<PAGE>
4.9 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
COMPANY COMPS.COM, INC.,
a Delaware corporation
By: /s/ Christopher A. Crane
------------------------------
Name: Christopher A. Crane
------------------------------
Title: President and CEO
------------------------------
[WARRANT TO PURCHASE STOCK]
<PAGE>
Appendix 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of the
Series A Preferred Stock of COMPS.COM, INC. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to __________ of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
-------------------------------------
(Name)
-------------------------------------
(Address1)
-------------------------------------
(Address2)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
-------------------------------------
(Signature)
-------------------------------------
(Date)
<PAGE>
Appendix 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
_________________, 19__
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054-1191
Attn: Mezzanine Finance/NC475
Dear ___________:
This is to advise you that the Warrant issued to you described below will
expire on _____________, 19__.
Issuer: Comps.com, Inc.
Issue Date: April __, 2006
Class of Security Issuable: Series A Preferred Stock
Exercise Price per Share: $____________
Number of Shares Issuable: up to 49,000
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
COMPS.COM, INC.,
a Delaware corporation
By:-----------------------------
Its:----------------------------
<PAGE>
Exhibit A
ANTI-DILUTION PROVISIONS
In the event of the issuance (a "Diluting Issuance") by the Company, after
the Issue Date of the Warrant, of securities at a price per share less than the
Warrant Price, then the number of shares of common stock issuable upon
conversion of the Shares shall be adjusted in accordance with those provisions
(the "Provisions") of the Company's Restated Certificate of Incorporation which
apply to Diluting Issuances.
The Company agrees that the Provisions, as in effect on the Issue Date,
shall be deemed to remain in full force and effect during the term of the
Warrant notwithstanding any subsequent amendment, waiver or termination thereof
by the Company's shareholders; provided, however, that the foregoing shall not
apply if any such amendment, waiver or termination is in connection with the
Company's initial public offering.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
<PAGE>
Exhibit B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon conversion
of the Shares, shall be deemed "Registrable Securities" or otherwise entitled to
registration rights in accordance with Section II of the following agreement
(the "Agreement") between the Company and its investor(s):
COMPS Infosystems, Inc. Amended and Restated Investor Rights Agreement
dated February 9, 1998 by and between the Company and those holders of the
Company's securities whose names are set forth on the signature page
attached thereto.
By acceptance of the Warrant to which this Exhibit B is attached, Holder
shall be deemed to be a party to the Agreement.
<PAGE>
EXHIBIT 10.55
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS AND
MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE
PURCHASER THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE
ACT, THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE
SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN WARRANT SUBSCRIPTION AGREEMENT DATED AS OF
APRIL 9, 1999 BY AND BETWEEN THE WARRANT PURCHASER, THE COMPANY AND CERTAIN
PURCHASERS OF STOCK AND WARRANTS OF THE COMPANY (THE "WARRANT SUBSCRIPTION
AGREEMENT"). COPIES OF THE WARRANT SUBSCRIPTION AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.
WARRANT TO PURCHASE STOCK
Issue Date: April 9, 1999
Expiration Date: April 9, 2006
This Warrant Certifies That, for the agreed upon value of $1.00 and for
other good and valuable consideration, Silicon Valley Bank ("Holder"), is
entitled to purchase from Comps.com, Inc. (formerly COMPS Infosystems, Inc.), a
Delaware corporation (the "Company"), that number described in the next
succeeding paragraph of fully paid and nonassessable shares of the Company's
Series B Preferred Stock (collectively, the "Shares") at the initial exercise
price per Share described in the next-succeeding paragraph (the "Warrant Price")
all as adjusted pursuant to Articles 1 and 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth of this Warrant.
This Warrant is being issued by the Company in connection with that certain
Loan and Security Agreement by and between Company and Holder of even date
herewith (the "Loan Agreement") and shall be exercisable for 10,000 Shares at a
Warrant Price of $5.00; provided, however, that in the event that any portion of
the principal, interest, fees and other amounts payable under the Loan Agreement
remains unpaid during any of the periods set forth in the left column of the
table below, then this Warrant shall be exercisable during such period for the
aggregate (and not additional) number of Shares set forth in the table with
respect to such period (less any shares as to which the Warrant issued pursuant
to the Warrant Subscription Agreement and any warrants derived therefrom shall
have been previously exercised) at the Warrant Price set forth in the table with
respect to such period:
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Period Number of Shares Warrant Price
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
May 15, 1999 through August 15,000 $5.00
15, 1999
- --------------------------------------------------------------------------------------------------
August 16, 1999 through 20,000 $2.00
December 31, 1999
- --------------------------------------------------------------------------------------------------
January 1, 2000, and 49,000 $1.17
thereafter
- --------------------------------------------------------------------------------------------------
</TABLE>
ARTICLE 1
EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form of Appendix 1,
attached hereto and incorporated herein by this reference, to the principal
office of the Company. Unless Holder is exercising the conversion right set
forth in Section 1.2, Holder shall also deliver to the Company a check for the
aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.3.
1.3 Fair Market Value. If the Shares (or the Company's stock into which
the Shares are convertible) are traded in a public market, the fair market value
of the Shares shall be the the average of the Share's closing prices (or the
closing prices of the Company's stock into which the Shares are convertible
multiplied by the number of shares of such stock that one share is convertible
into) in such market over the 30 day period ending three (3) days prior to the
business day immediately before Holder delivers its Notice of Exercise to the
Company. If the Shares (or the Company's stock into which the Shares are
convertible) are not traded in a public market, the Board of Directors of the
Company shall determine fair market value in its reasonable good faith judgment.
The foregoing notwithstanding, if Holder advises the Board of Directors in
writing that Holder disagrees with such determination, then the Company and
Holder shall promptly agree upon a reputable investment banking firm to
undertake such valuation. If the valuation of such investment banking firm is
greater than that determined by the Board of Directors, then all fees and
expenses of such investment banking firm shall be paid by the Company. In all
other circumstances, such fees and expenses shall be paid by Holder.
2
<PAGE>
1.4 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.5 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.6 Repurchase on Sale, Merger, or Consolidation of the Company.
(a) Acquisition. For the purpose of this Warrant, "Acquisition" means
any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting stock of the surviving
entity (or the parent of the surviving entity) after the transaction.
(b) Assumption of Warrant. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
(c) Nonassumption. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 immediately prior to such Acquisition and thereafter Holder shall
participate in the Acquisition on the same terms as other holders of the same
class of securities of the Company.
ARTICLE 2
ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been
3
<PAGE>
entitled had Holder owned the Shares of record as of the date the dividend or
subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, or any reorganization, consolidation, or merger that
is not an Acquisition, Holder shall be entitled to receive, upon exercise or
conversion of this Warrant, the number and kind of securities and property that
Holder would have received for the Shares if this Warrant had been exercised
immediately before such reclassification, exchange, substitution, or such
reorganization, consolidation, or merger that is not an Acquisition, or other
event. Such an event shall include any automatic conversion of the outstanding
or issuable securities of the Company of the same class or series as the Shares
to common stock pursuant to the terms of the Company's Certificate of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or to successive reorganizations, consolidations, or mergers that
are not an Acquisition, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the number
of Shares issuable upon exercise of this Warrant or, if the Shares are Preferred
Stock, the number of shares of common stock issuable upon conversion of the
Shares, shall be subject to adjustment, from time to time in the manner set
forth on Exhibit A, attached hereto and incorporated herein by this reference,
in the event of Diluting Issuances (as defined on Exhibit A).
2.5 No Impairment. The Company shall not, by amendment of its Certificate
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article 2 against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
4
<PAGE>
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder an amount
computed by multiplying the fractional interest by the fair market value of a
full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3
REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this
Warrant is not greater than (i) the price per share at which the Shares were
last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; or (d)
to merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable
5
<PAGE>
upon the occurrence of such event); and (3) in the case of the matter referred
to in (e) above, the same notice as is given to the holders of such registration
rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within one hundred twenty (120) days after the
end of each fiscal year of the Company, the annual audited financial statements
of the Company certified by independent public accountants of recognized
standing, (c) within forty-five (45) days after the end of each of the first
three quarters of each fiscal year, the Company's quarterly, unaudited financial
statements and (d) within thirty (30) days after the end of each month, the
Company's monthly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B attached hereto and incorporated herein by this reference.
ARTICLE 4
MISCELLANEOUS.
4.1 Term; Notice of Expiration. This Warrant is exercisable, in whole or
in part at any time and from time to time on or before the Expiration Date set
forth above. The Company shall give Holder written notice of Holder's right to
exercise this Warrant in the form attached as Appendix 2, attached hereto and
incorporated herein by this reference, not more than 90 days and not less than
30 days before the Expiration Date. If the notice is not so given, the
Expiration Date shall automatically be extended until 30 days after the date the
Company delivers the notice to Holder.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THIS CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The
6
<PAGE>
Company shall not require Holder to provide an opinion of counsel if the
transfer is to an affiliate of Holder or if there is no material question as to
the availability of current information as referenced in Rule 144(e), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Voting. Holder covenants that for so long as Holder owns the Shares
or any common stock issuable upon conversion of the Shares, it shall not, to the
extent that is entitled under any statute, rule, regulation and/or the
Certificate or the Company's Bylaws, exercise any voting, consent or other
approval rights, whether by written consent or otherwise, arising from Holder's
ownership of the Shares or any common stock issuable upon conversion of the
Shares, which it obtains through the exercise of this Warrant.
4.6 Notices. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
4.7 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.8 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
7
<PAGE>
4.9 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
COMPANY Comps.com, Inc.,
a Delaware corporation
By: /s/ Christopher A. Crane
------------------------
Name: Christopher A. Crane
--------------------
Title: President and CEO
-----------------
[WARRANT TO PURCHASE STOCK]
<PAGE>
Appendix 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of
the Series B Preferred Stock of Comps.com, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
1. The undersigned hereby elects to convert the attached Warrant
into Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to __________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
-----------------------------------------
(Name)
-----------------------------------------
(Address1)
-----------------------------------------
(Address2)
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws.
-----------------------------------------
(Signature)
-----------------------------------------
(Date)
1
<PAGE>
Appendix 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
,19
---------------- --
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054-1191
Attn: Mezzanine Finance/NC475
Dear _______:
This is to advise you that the Warrant issued to you described below will
expire on , 19
----------- --.
Issuer: Comps.com, Inc.
Issue Date: April __, 2006
Class of Security Issuable: Series B Preferred Stock
Exercise Price per Share: $
Number of Shares Issuable: up to 49,000
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
Comps.com, Inc.,
a Delaware corporation
By:
-----------------------------------------
Its:
----------------------------------------
1
<PAGE>
Exhibit A
ANTI-DILUTION PROVISIONS
In the event of the issuance (a "Diluting Issuance") by the Company, after
the Issue Date of the Warrant, of securities at a price per share less than the
Warrant Price, then the number of shares of common stock issuable upon
conversion of the Shares shall be adjusted in accordance with those provisions
(the "Provisions") of the Company's Restated Certificate of Incorporation which
apply to Diluting Issuances.
The Company agrees that the Provisions, as in effect on the Issue Date,
shall be deemed to remain in full force and effect during the term of the
Warrant notwithstanding any subsequent amendment, waiver or termination thereof
by the Company's shareholders; provided, however, that the foregoing shall not
apply if any such amendment, waiver or termination is in connection with the
Company's initial public offering.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
1
<PAGE>
Exhibit B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon conversion
of the Shares, shall be deemed "Registrable Securities" or otherwise entitled to
registration rights in accordance with Section II of the following agreement
(the "Agreement") between the Company and its investor(s):
COMPS Infosystems, Inc. Amended and Restated Investor Rights Agreement
dated February 9, 1998 by and between the Company and those holders of the
Company's securities whose names are set forth on the signature page
attached thereto.
By acceptance of the Warrant to which this Exhibit B is attached, Holder
shall be deemed to be a party to the Agreement.
1
<PAGE>
EXHIBIT 10.56
COMPS.COM, INC.
AMENDMENT NO. 1 TO
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Amendment No. 1 (the "Amendment") to the Amended and Restated
Investor Rights Agreement dated as of February 9, 1998 (the "Agreement") is made
as of this 9th day of April, 1999 by and among COMPS.COM, Inc. (formerly COMPS
Infosystems, Inc.), a Delaware corporation (the "Company"), each of the
individuals and entities listed on Schedule A to the Agreement (the "Existing
----------
Purchasers"), and the entity listed as New Purchaser on the signature page to
this Amendment (the "New Purchaser"). Capitalized terms used herein which are
not defined herein shall have the definition ascribed to them in the Agreement.
RECITALS
--------
A. Pursuant to that certain Loan and Security Agreement dated as of April
9, 1999 (the "Loan Agreement") between the Company and the New Purchaser, the
New Purchaser has agreed to extend credit to the Company.
B. In connection with the Loan Agreement, the Company desires to sell to
the New Purchaser that certain Warrant dated as of April 9, 1999 to Purchase
Stock to purchase shares of the Company's Series A Preferred Stock and that
certain Warrant dated as of April 9, 1999 to Purchase Stock to purchase shares
of the Company's Series B Preferred Stock (collectively, the "Warrants").
C. The Existing Purchasers desire for the New Purchaser to extend credit
to the Company pursuant to the terms of the Loan Agreement and, as a condition
thereof and to induce the New Purchaser to extend such credit, the Existing
Purchasers and the Company are willing to enter into this Amendment to permit
the New Purchaser to become a party to the Agreement.
In consideration of the foregoing and the promises and covenants
contained herein and other good and valuable consideration the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. ADDITIONAL PARTY TO THE AGREEMENT.
---------------------------------
The New Purchaser hereby enters into and becomes a party to the
Agreement as if such New Purchaser had originally executed the signature page to
the Agreement and appeared on Schedule A thereto.
----------
2. AMENDMENTS TO AGREEMENT.
-----------------------
The New Purchaser and the Existing Purchasers are collectively
referred to as the "Purchasers" for the purposes of the Agreement.
<PAGE>
3. WAIVER AND CONSENT.
------------------
Each Existing Purchaser, pursuant to any rights such Existing
Purchaser may have under the Agreement, hereby, on behalf of itself and the
other Purchasers under the Agreement, (a) waives all rights under, and any
notice required by, Article III of the Agreement relating to any rights to
purchase or rights of first offer with respect to the sale of the Warrants, (b)
consents to adding the New Purchaser as a party to the Agreement, and (c)
consents to the registration rights hereby provided to the New Purchaser, which
consent is given pursuant to Article II, Section K of the Agreement.
4. EFFECT OF AMENDMENT.
-------------------
Except as amended and set forth above, the Agreement shall continue in
full force and effect.
5. COUNTERPARTS.
------------
This Amendment may be executed in any number of counterparts, each
which will be deemed an original, and all of which together shall constitute one
instrument.
6. SEVERABILITY.
------------
If one or more provisions of this Amendment are held to be
unenforceable under applicable law, such provision shall be excluded from this
Amendment and the balance of the Amendment shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7. ENTIRE AGREEMENT.
----------------
This Amendment, together with the Agreement, constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
8. GOVERNING LAW.
-------------
This Amendment shall be governed by and construed under the laws of
the State of California as applied to agreements among California residents
entered into and to be performed entirely within California.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
This Amendment is hereby executed as of the date first above written.
THE COMPANY: COMPS.COM, INC., a Delaware corporation
By: /s/ Christopher A. Crane
------------------------------------
Christopher A. Crane, President and
Chief Executive Officer
Address: 9888 Carroll Centre Road, Suite 100
San Diego, CA 92126
EXISTING PURCHASERS: SUMMIT VENTURES III, L.P.
By: Summit Partners III, L.P.,
its General Partner
By: Stamps, Woodsum & Co. III,
its General Partner
By: /s/ Gregory M. Avis
------------------------------------
Gregory M. Avis, General Partner
Address: 499 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
SUMMIT INVESTORS II, L.P.
By: /s/ Gregory M. Avis
------------------------------------
Gregory M. Avis, General Partner
Address: 499 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
<PAGE>
/s/ Christopher A. Crane
------------------------------------
Christopher A. Crane, in his
individual capacity
Address: c/o COMPS.COM, Inc.
9888 Carroll Centre Road, Suite 100
San Diego, CA 92126
/s/ Merrill Oster
-----------------------------------
Merrill Oster, in his individual
capacity
Address: c/o COMPS.COM, Inc.
9888 Carroll Centre Road, Suite 100
San Diego, CA 92126
NEW PURCHASER: SILICON VALLEY BANK
By: /s/ Laurita J. Hernandez
------------------------------------
Laurita J. Hernandez, Vice President
Address: 3003 Tasman Drive
Santa Clara, CA 95054
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report on the COMPS.COM,
Inc. financial statements dated February 5, 1999 (except for Note 15, as to
which the date is April 12, 1999) and our report on the REALBID, LLC financial
statements dated February 17, 1999, in Amendment No. 2 to the Registration
Statement (Form S-1 No. 333-72901) and related Prospectus of COMPS.COM, Inc.
Our audits also included the financial statement schedule of COMPS.COM, Inc.
for the three years ended December 31, 1998 listed in Item 16(b). This schedule
is the responsibility of the Company'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.
Ernst & Young LLP
San Diego, California
April 13, 1999
