<PAGE>
As filed with the Securities and Exchange Commission on April 2, 1999
Registration No. 333-72901
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
Amendment No. 1
To
FORM S-1
REGISTRATION STATEMENT
Under the Securities Act of 1933
----------------
COMPS.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<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. [_]
----------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Title of Each Class of Maximum Proposed Maximum Amount of
Securities to be Amount to be Offering Price Aggregate Registration
Registered Registered(1) Per Share(2) Offering Price(2) Fee
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share........ 4,370,000 $13.00 $56,810,000 $13,900(3)
$ 1,894(4)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes 570,000 shares of common stock that the underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the
amount of the registration fee.
(3) Previously paid in connection with the February 24, 1999 filing of this S-1
registration statement.
(4) Paid in connection with this filing of Amendment No. 1 to the Form S-1
registration statement.
----------------
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 2, 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 7 to read about certain risks
that you should consider before buying shares of our common stock.
------------
PRICE $ PER SHARE
------------
<TABLE>
<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
, 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 and expense, unit mix, color photos,
lenders, capitalization rates and contact name. 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:
. $508 billion in sales transactions
.$143 billion in loan volume
.5.9 billion square feet of building space
.105 billion in square feet of land
.2.6 million apartment units
.829,000 buyer and seller records
.7 major 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
<TABLE>
<CAPTION>
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................................................................. 29
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 40
Certain Relationships and Related Transactions............................. 52
Principal and Selling Stockholders......................................... 54
Description of Securities.................................................. 55
Shares Eligible For Future Sale............................................ 59
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 facilitate commercial real estate transactions
on the Internet for a fixed fee by matching buyers to brokers' property
listings. 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 and 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 comprehensive sales information from a centralized source,
commercial real estate 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 methods resulted in high internal
costs and nonstandard data with varying degrees of comprehensiveness and
accuracy. In addition, there are currently no comprehensive, standardized
transaction support services that efficiently identify properties and bring
together brokers, buyers, lenders and insurers 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. Our expenses are primarily incurred 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;
. 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
4
<PAGE>
. 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 compliment 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
<TABLE>
<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>
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 exercise of options available for issuance under our
stock plans. For a description of our stock option plans, please see
"Management--Benefit Plans."
5
<PAGE>
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 as "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 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 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 $ 8,141 $ 10,450 $ 12,806 $13,029
Cost of revenues........ 2,674 3,488 4,357 5,054 5,746 5,791
-------- -------- -------- -------- -------- -------
Gross profit............ 3,356 3,228 3,784 5,396 7,060 7,238
Operating expenses:
Selling and marketing.. 2,306 2,072 2,813 3,408 4,182 4,182
Product development and
engineering........... -- -- 376 768 1,230 1,230
General and
administrative........ 1,743 2,527 2,835 2,525 2,936 3,637
-------- -------- -------- -------- -------- -------
Total operating
expenses............ 4,049 4,599 6,024 6,701 8,348 9,049
-------- -------- -------- -------- -------- -------
Loss from operations.... (693) (1,371) (2,240) (1,305) (1,288) (1,811)
Other income (expense),
net.................... (9) 12 (67) (252) (260) (260)
-------- -------- -------- -------- -------- -------
Net loss................ (702) (1,359) (2,307) (1,557) (1,548) (2,071)
Dividend accretion on
preferred stock........ 63 299 299 299 454 454
-------- -------- -------- -------- -------- -------
Net loss attributable to
common stockholders.... $ (765) $ (1,658) $ (2,606) $ (1,856) $ (2,002) $(2,525)
======== ======== ======== ======== ======== =======
Net loss per share
attributable to common
stockholders, basic and
diluted................ $ (0.16) $ (0.47) $ (0.74) $ (0.53) $ (0.57) $ (0.72)
======== ======== ======== ======== ======== =======
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................ $ (0.22) $ (0.29)
======== =======
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 millions).......... $ 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.......................................... 7,397 47,108
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) (8,888) 39,911
</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 $11.4 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
<PAGE>
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 include:
. the demand for and acceptance of real estate information services and
transaction support products on the Internet in general or on our Web
site;
. 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 or geographic coverage;
. 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.
Because we expect to be substantially dependent on revenues from our
information services and transaction support products offered on the Internet,
the demand for and acceptance of which is uncertain, our quarterly revenues are
difficult to forecast accurately. In addition, our operating expenses are based
on our expectations of our future revenues and are relatively fixed in the
short-term. We may be unable to adjust spending quickly enough to offset any
unexpected revenue shortfall. If we have a shortfall in revenues in relation to
our expenses, or if our expenses increase before our revenues do, then our
business for a particular quarter would be materially adversely affected. This
could affect the market price of our common stock. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
detailed information on our quarterly operating results.
We may need additional capital by the end of 2000.
We currently anticipate that the net proceeds of this offering, together with
available funds, will be sufficient to meet our anticipated needs until at
least the end of 2000. We may need to raise additional funds in
9
<PAGE>
the future in order to:
.fund more rapid expansion,
.develop new or enhanced services or products,
.respond to competitive pressures,
.acquire complementary businesses, technologies or services or
. conduct more aggressive brand promotions.
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, take advantage of acquisition
opportunities, develop or enhance our services or products, respond to
competitive pressures or successfully promote our brand name. Any such
inability could have a material adverse effect on our business.
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.
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.
10
<PAGE>
We may not be able to successfully develop our "COMPS.COM" brand name.
To be successful, we must strengthen awareness of our brand name. 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, 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 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 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. 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.
11
<PAGE>
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 six 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 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 amount 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. 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.
12
<PAGE>
We may not be able to adequately protect our proprietary rights.
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; such claims could harm our business regardless of their 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
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 and 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.
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 materially adversely
affect our business.
The Internet is relatively new and is 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.
13
<PAGE>
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.
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 from 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.
We may incur additional liabilities as a result of our fee arrangements.
We also enter into agreements with customers under which we are entitled to
receive a flat fee related to the support of purchase of commercial properties
through our Web site using REALBID or other transaction support products that
we offer. Such arrangements may expose us to additional legal risks and
uncertainties, including regulation by local, state, federal and foreign
authorities and 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.
14
<PAGE>
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 and risks regarding the number of shares eligible for public sale after
this offering.
The liquidity of our stock is uncertain, because it has never been publicly
traded.
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.
The stock market has experienced extreme price and volume fluctuations. The
market prices of the securities of Internet-related companies have been
especially volatile. 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.
In the past, companies that have experienced volatility in the market price
of their stock have been the object of securities class action litigation. If
we were the object of securities class action litigation, it could result in
substantial costs and a diversion of our management's attention and resources.
The interests of our controlling stockholders may conflict with your
interests.
We anticipate that the executive officers, directors and entities affiliated
with them will, in the aggregate, beneficially own approximately 67.08% 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 is in the
stockholder's 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 the stockholders
consider in their best interest, including an attempt that might result in a
premium over the market price for the shares held by the stockholders. Please
see "Description of Securities" for detailed information on these provisions.
15
<PAGE>
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.
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 $39.7 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 $2.1 million of the net proceeds of this
offering for repayment of debt with various maturity dates between April 1999
and January 2002. Approximately $1.5 million of this 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. Of the remaining approximately $600,000 of debt will bear
interest at 8% beginning December 1, 1999, net of repayments.
We have not yet determined the amount of net proceeds to be used specifically
for each of the foregoing purposes other than the repayment of debt.
Accordingly, management will have significant flexibility in applying the net
proceeds of this offering. 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 future earnings to support operations and to finance
the expansion of our business. 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. 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.
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; 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):
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; 11,464,181 shares
issued and outstanding on an as adjusted basis.... 30 109
Additional paid-in capital......................... 4,669 53,787
Warrants........................................... 398 --
Deferred compensation.............................. (2,539) (2,539)
Accumulated deficit................................ (11,446) (11,446)
----------- -----------
Total stockholders' equity (deficit)................. (8,888) 39,911
----------- -----------
Total capitalization............................. $ (756) $ 39,934
=========== ===========
</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 by us of the 3,800,000 shares
offered hereby at an assumed initial public offering price of $12.00 per share
and after deducting underwriting discounts and estimated offering expenses and
the application of the estimated net proceeds therefrom, the 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, 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% $ 6,197,574 12.0% $ 0.81
New investors.............. 3,800,000 33.1 45,600,000 88.0 12.00
---------- ----- ----------- -----
Total................... 11,464,181 100.0% $51,797,574 100.0%
========== ===== =========== =====
</TABLE>
The tables and calculations above assume no exercise of outstanding options
or warrants, other than those warrants exercisable for $0.01 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. 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 $ 8,141 $10,450 $12,806 $13,029
Cost of revenues......... 2,674 3,488 4,357 5,054 5,746 5,791
------ ------- ------- ------- ------- -------
Gross profit............. 3,356 3,228 3,784 5,396 7,060 7,238
Operating expenses:
Selling and marketing.. 2,306 2,072 2,813 3,408 4,182 4,182
Product development and
engineering........... -- -- 376 768 1,230 1,230
General and
administrative........ 1,743 2,527 2,835 2,525 2,936 3,637
------ ------- ------- ------- ------- -------
Total operating
expenses............ 4,049 4,599 6,024 6,701 8,348 9,049
------ ------- ------- ------- ------- -------
Loss from operations..... (693) (1,371) (2,240) (1,305) (1,288) (1,811)
Other income (expense),
net..................... (9) 12 (67) (252) (260) (260)
------ ------- ------- ------- ------- -------
Net loss................. (702) (1,359) (2,307) (1,557) (1,548) (2,071)
Dividend accretion on
preferred stock 63 299 299 299 454 454
------ ------- ------- ------- ------- -------
Net loss attributable to
common stockholders..... $ (765) $(1,658) $(2,606) $(1,856) $(2,002) $(2,525)
====== ======= ======= ======= ======= =======
Net loss per share
attributable to common
stockholders, basic and
diluted................. $(0.16) $ (0.47) $ (0.74) $ (0.53) $ (0.57) $ (0.72)
====== ======= ======= ======= ======= =======
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................. $ (0.22) $ (0.29)
======= =======
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 7,397
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) (8,888)
</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 $13.0 million and our pro forma operating expenses were $9.0
million, compared to our 1998 actual net revenues of $12.8 million and our
actual operating expenses of $8.3 million. The purchase price of the
acquisition totaled $2.3 million, which consisted of $163,000 in cash, stock
options granted to the principals valued at approximately $2.1 million and
acquisition costs of $54,000. Intangible assets of $2.2 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 $82,000 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--$489,000; 2000--$489,000; 2001--
$475,000; 2002--$396,000; and 2003--$313,000.
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 services. For the period of
November 6, 1998 through December 31, 1998, these revenues
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totaled approximately $17,000. The 1998 pro forma transaction support products
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 services 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 $11.4 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 $2.7 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 $118,000 in
compensation expense and expect to record the following amounts in the future:
1999--$606,000; 2000--$606,000; 2001--$606,000; 2002--$544,000; and 2003--
$176,000.
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............................... 54 48 45
------- ------- -------
Gross profit................................... 46 52 55
Operating expenses:
Selling and marketing........................ 34 33 32
Product development and engineering.......... 5 7 10
General and administrative................... 35 24 23
------- ------- -------
Total operating expenses................... 74 64 65
------- ------- -------
Loss from operations........................... (28) (12) (10)
Other expense, net............................. (0) (3) (2)
------- ------- -------
Net loss....................................... (28)% (15)% (12)%
</TABLE>
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<PAGE>
Comparison of Years Ended December 31, 1998, 1997 and 1996
Net Revenues
Our net revenues for 1998 were $12.8 million, an increase of $2.4 million or
22.5% from 1997. Our net revenues for 1997 were $10.4 million, an increase of
$2.3 million or 28.4% from $8.1 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 $5.7 million, an
increase of $700,000 or 13.7% from 1997. Cost of revenues for 1997 was $5.1
million, an increase of $700,000 or 16.0% from $4.4 million in 1996. Payroll
and related costs contributed to approximately 65% of the dollar increase in
1997 and to approximately 80% of the dollar increase in 1998. 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 48% for the year ended December 31, 1997 and from 54%
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 $800,000 or 22.7% from 1997. Our selling and marketing expenses for
1997 were $3.4 million, an increase of $600,000 or 21.2% from $2.8 million in
1996. In 1997, approximately 75% of the dollar increase was attributable to
salaries and commission expense relating to new business generated from the
conversion of our subscriber base. In 1998, approximately 60% 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. As a
percentage of net revenues, such expenses decreased to 32% for the year ended
December 31, 1998 from 33% for the year ended December 31, 1997 and 34% for the
year ended December 31, 1996. The percentage decreases were primarily due to
increased revenues during periods 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
$500,000 or 60.2% from 1997. Our product development and engineering expenses
for 1997 were $800,000, an increase of $400,000 or 104% from $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 5% for the year ended December 31, 1996. The dollar
and percentage increases were primarily due to the hiring of additional
software engineers and quality assurance personnel for development of new
Internet-related products.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation and
benefits for finance and administrative personnel, professional fees,
amortization expense, insurance expenses and charges relating to
23
<PAGE>
merchant credit card fees and bad debts. Our general and administrative
expenses for 1998 were $2.9 million, an increase of $400,000 or 16.3% from
1997. This dollar increase in general and administrative expenses was due to
efforts in connection with our acquisition strategy, increases in professional
fees, increased expenses incurred in connection with increase in our work force
and related payroll expenses and increases in bad debt. Professional fees
accounted for 26% of the increase in expenses over the prior year, while
payroll and related expenses attributed 45% to the increase. In 1998 we began
to charge bad debt expense for subscriptions, rather than netting them against
revenues. This method of recording bad debt expenses resulted in an increase of
general and administrative expenses of $128,367. Our general and administrative
expenses for 1997 were $2.5 million, a decrease of $300,000 or 10.9% from $2.8
million in 1996. As a percentage of net revenues, such expenses decreased to
23% for the year ended December 31, 1998 from 24% for the year ended December
31, 1997 and 35% 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 and professional fees.
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............ $2,181 $2,562 $2,632 $3,075 $2,947 $3,226 $3,316 $ 3,317
Cost of revenues........ 1,163 1,191 1,264 1,436 1,287 1,306 1,468 1,685
------ ------ ------ ------ ------ ------ ------ -------
Gross profit............ 1,018 1,371 1,368 1,639 1,660 1,920 1,848 1,632
Operating expenses:
Selling and
marketing............. 775 848 866 919 909 917 979 1,377
Product development
and engineering....... 156 179 190 243 212 318 395 305
General and
administrative........ 502 560 569 894 672 665 679 920
------ ------ ------ ------ ------ ------ ------ -------
Total operating
expenses............ 1,433 1,587 1,625 2,056 1,793 1,900 2,053 2,602
------ ------ ------ ------ ------ ------ ------ -------
Loss from operations... (415) (216) (257) (417) (133) 20 (205) (970)
Other expense, net..... (83) (85) (57) (27) (82) (73) (38) (67)
------ ------ ------ ------ ------ ------ ------ -------
Net loss................ $ (498) $ (301) $ (314) $ (444) $ (215) $ (53) $ (243) $(1,037)
====== ====== ====== ====== ====== ====== ====== =======
</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........ 53 46 48 47 44 40 44 51
---- ---- ---- ---- ---- ---- ---- ----
Gross profit............ 47 54 52 53 56 60 56 49
Operating expenses:
Selling and
marketing............. 36 33 33 30 31 28 30 41
Product development
and engineering....... 7 7 7 8 7 10 12 9
General and
administrative........ 23 22 22 29 23 21 20 28
---- ---- ---- ---- ---- ---- ---- ----
Total operating
expenses............ 66 62 62 67 61 59 62 78
---- ---- ---- ---- ---- ---- ---- ----
Loss from operations... (19) (8) (10) (14) (5) 0 (6) (29)
Other expense, net..... (4) (4) (2) (0) (2) (2) (1) (2)
---- ---- ---- ---- ---- ---- ---- ----
Net loss................ (23)% (12)% (12)% (14)% (7)% (2)% (7)% (31)%
==== ==== ==== ==== ==== ==== ==== ====
</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, sales and marketing expense increased over
the previous quarter by $73,000 or 9%, but decreased as a percentage of sales.
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 57% or $325,000 in the fourth
quarter of 1997 due to an impairment loss of $183,000 for intangibles assets
acquired in 1995, and $132,000 relating to the November 1997 acquisition of a
customer base.
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. Also
in the second quarter of 1998, we continued to realize increased revenues from
the license 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, sales 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.
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.
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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, included $513,505 for
operating leases, $49,343 in capital leases and $979,208 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. Following
the completion of the offering, selling and marketing expenses and research and
development are expected to increase by % as a percentage of sales.
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, $141,750 was
available for working capital and none is 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. 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.
In February 1999, we also entered into a letter of commitment with Silicon
Valley Bank for a $3.0 million senior secured subordinated loan facility.
Proceeds for this facility may be used for any legal corporate purpose.
Interest accrues at a rate of 13.0% and is payable on a monthly basis.
Principal is payable at the sooner of the maturity of the facility, not to
exceed April 15, 2001 or a liquidity event which yields at least $3.0 million
in net cash proceeds to us. In consideration for the facility we may issue to
Silicon Valley Bank up to 98,000 warrants to purchase our preferred stock, with
varying exercise prices ranging from $5.00 to $0.75 per share depending upon
when we repay the facility. All of the warrants have a term of five years.
While no assurances can be given with respect to the consummation of the
transaction we expect the funding to close in April 1999.
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. At such time, we may need to raise additional
funds in the future 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
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<PAGE>
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.
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
27
<PAGE>
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
the 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 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. We are currently evaluating the impact of SOP 98-1 on our
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. 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 SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. 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.
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Business
Overview
We are a leading national provider of comprehensive information on commercial
real estate properties to commercial real estate professionals both off line
and on the Internet. We have also begun facilitating commercial real estate
transactions on the Internet. 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 and 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. The Federal
Reserve has estimated the value of commercial real estate property in the
United States to be approximately $3.3 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 which had been independently verified
and which was available 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, there are currently no comprehensive, standardized transaction
support services that efficiently identify properties and bring together
brokers, lenders and insurers 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 should deter
competitors from entering into this market and create 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. 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. Our comprehensive database allows us to identify and
refer potential buyers of listed properties to brokers on REALBID and
electronically market these properties for brokers using our Internet-based
contact system. Our database includes the specific investment criteria of
pension fund managers, real estate investment trusts, opportunistic funds,
private investors, insurance companies and other potential buyers. 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
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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. During January 1999, more than 500 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 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
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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 sales 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 every
property. We currently cover nine property types: office, industrial, retail,
specialty, multi-family, mobile home, 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 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
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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 what the total market consists of, in addition to the confirmed
data, use this product.
. Spectrum. Spectrum, introduced in August 1998, allows our customers to
integrate their 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.
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-
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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,
and we expect to roll it out nationally by the end of 1999 with
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.
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>
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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 to build a centralized database which is
regularly synchronized.
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 a select number of 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.
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. Some vehicles
include Commercial Property News, National Real Estate Investor and Real Estate
Forum. We 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 those most likely to buy. Mail is used when
the message is detailed and color can be used to effectively illustrate the
marketing message.
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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
utilized 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 venues 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:
Atlanta
San Francisco
Austin Fresno Oakland [/R]
Jacksonville Orange County, CA San Jose
Baltimore Las Vegas Orlando Seattle
Boston Los Angeles Palm Beach County Stockton/Modesto,
Chicago Marin-North SF Philadelphia CA
Colorado Bay Area Phoenix Tampa/Saint
Springs Miami Portland Petersburg
Dallas/Fort New York City- Tucson
Worth Manhattan Riverside/San Ventura, CA
Denver
Bernardino, CA Washington,
Fort Lauderdale Newark [/R] D.C./
Sacramento
(Broward San Diego No. Virginia
County)
Infrastructure, Operations and Technology
Our Web site is hosted by servers located at our facilities in San Diego,
California, and is also hosted 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. Compaq multi-processor servers are used to host
our Web site.
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
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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 users straining our systems
and other systems malfunctions could materially adversely affect 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.
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. The custom client server 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.
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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, Inc., 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, Inc., 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.
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
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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 of 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 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. However, 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 37,352 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 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. 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 users straining our systems and other systems
malfunctions could materially adversely affect 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.
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<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
and 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 41 Director
(1)(2).....................
</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.
40
<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 six other publicly
traded companies: Powerwave Technologies, Inc.; Splash Technology Holdings,
Inc.; ClonTech Laboratories, Inc; Nxtrend Technology, Inc.; Ditech Corp.; and
Extended Systems, Inc. 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
Vice President of Commercial Listing
Herbert D. Steele................ 55 Services
Lori Reisinger................... 37 Regional Vice President
Vicki Ridley..................... 35 Regional Vice President
Assistant Vice President of Product
Bob Evatt........................ 42 Development
Assistant Vice President of Information
Donald Ward...................... 37 Technology
Robert A. Potter, Jr. ........... 44 President of REALBID Division
</TABLE>
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.
41
<PAGE>
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, Jr. has served as President of our REALBID Division since
we acquired REALBID in November 1998. In June 1992, Mr. Potter co-founded
REALBID, LLC and from June 1992 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.
42
<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 Mr. Potashner options to purchase 23,839 shares of our common stock at
an exercise price of $11.18 per share. The 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, and restrictions on competition and 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."
43
<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 the outstanding voting stock or by a change in the majority of the
board by reason of one or more contested elections for board membership; with
such vesting shall 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 our other four
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 and
Chief Financial Officer
</TABLE>
44
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain 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 pursuant to
our stock option plans. The options become exercisable at a rate of 20% per
year. To the extent not already exercisable, of these options may also
accelerate and 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
Individual Grants Value at Assumed
--------------------------------------------- Annual Rates Of
Number of % of Total Stock Price
Securities Options/SARs Appreciation
Underlying Granted to For Option Term
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 $ 2,547 $ 6,455
Michael Arabe........... 13,203 1.15% 1.36 06/29/08 11,320 28,687
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.
45
<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 the 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 of our common stock. 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 752,007 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 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.
46
<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
47
<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 the outstanding voting stock or by a change in the majority of
the 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
48
<PAGE>
will vest and become exercisable in a series of 12 equal monthly installments
over the calendar year for which the salary reduction is to be 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
49
<PAGE>
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.
50
<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 earlier 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.
51
<PAGE>
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; and 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. 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 agreement, 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.
52
<PAGE>
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."
53
<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 -- 52.67% 35.21%
499 Hamilton Avenue,
Suite 200
Palo Alto, CA 94301
Christopher A. Crane.... 2,923,712 -- 38.15% 25.50%
Gregory M. Avis......... 4,036,770 -- 52.67% 35.21%
Robert C. Beasley....... 656,145 -- 8.56% 5.72%
Kenneth F. Potashner.... -- -- *
Walter W. Papciak....... -- 50,612 * 0.44%
Michael Arabe........... -- 57,653 * 0.50%
Craig S. Farrington..... -- 57,653 * 0.50%
Karen Goodrum........... -- 57,653 * 0.50%
All directors and
executive officers as a
group (8 persons)...... 7,616,627 223,571 99.41% 67.08%
</TABLE>
- --------
* Less than 1% of total.
The 5,322,616 shares listed above as outstanding for Summit Partners and Mr.
Avis includes 4,728,437 shares beneficially owned by Summit Ventures III, L.P.
and 96,499 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 10,086 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.
54
<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 March 31, 1999, no
additional shares of common stock were issued. Based upon the number of shares
outstanding and giving 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 as "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, there will be 11,464,181 shares of common stock outstanding upon
the closing of this offering.
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 March 31, 1999 no additional shares of convertible
preferred stock were 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."
55
<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 a total of 2,800,000 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 $0.01 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. As of March 31, 1999, no additional
warrants were issued. 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,
and warrants to purchase 251,903 in February 2008.
Registration Rights
As of December 31, 1998, pursuant to the terms of an agreement with preferred
stock and warrantholders upon the closing of this offering, the holders of
4,286,933 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 428,693 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
56
<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 the
accomplishment of mergers or other takeover or change in control attempts 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 or 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; provided, that if no annual meeting of stockholders was held in
the previous year or 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 so 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 utilized 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 generally 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.
57
<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.
58
<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. This leaves 7,664,181 shares eligible for sale in the
public market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
--------- ----
<C> <S>
0 After the date of this prospectus
7,664,881 180 days after the date of this prospectus
(subject in some cases to volume limitations)
(lockup and rule 144)
</TABLE>
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 2,800,000 shares of common stock reserved for issuance
under our stock option 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
59
<PAGE>
lock-up agreements referred to below. 109,860 shares of common stock are
issuable upon exercise of options that were granted independent of any stock
option plan. These shares will be freely tradable pursuant to Rule 701 and
contractual obligations beginning 180 days after the date of this prospectus.
As of March 31, 1998 preferred stock 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. 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 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. Upon approval of the common stock for the quotation
on the Nasdaq National Market, such reports, proxy and information statements
and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
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 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 1, 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 2,162,350
Deposits and other assets........... 37,450 36,249
---------- -----------
Total assets........................ $4,090,836 $ 7,397,277
========== ===========
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........ -- 4,669,150 11,641,791
Warrants.......................... -- 398,000 398,000
Deferred compensation............. -- (2,538,421) (2,538,421)
Accumulated deficit............... (9,534,545) (11,446,102) (11,446,102)
---------- ----------- -----------
Total stockholders' deficit......... (9,505,326) (8,887,719) $(1,879,077)
---------- ----------- ===========
Total liabilities, redeemable
preferred stock and stockholders'
deficit............................ $4,090,836 $ 7,397,277
========== ===========
</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............................ $ 8,140,693 $10,449,936 $12,805,761
Cost of revenues........................ 4,356,973 5,053,998 5,746,180
----------- ----------- -----------
Gross profit............................ 3,783,720 5,395,938 7,059,581
Operating expenses:
Selling and marketing................. 2,812,596 3,407,906 4,181,945
Product development and engineering... 376,331 768,051 1,230,349
General and administrative............ 2,835,271 2,525,526 2,936,052
----------- ----------- -----------
Total operating expenses................ 6,024,198 6,701,483 8,348,346
----------- ----------- -----------
Loss from operations.................... (2,240,478) (1,305,545) (1,288,765)
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) (1,548,322)
Dividend accretion on preferred stock... 298,924 298,924 453,685
----------- ----------- -----------
Net loss attributable to common
stockholders........................... $(2,606,295) $(1,856,109) $(2,002,007)
=========== =========== ===========
Net loss per share attributable to
common stockholders, basic and
diluted................................ $ (0.74) $ (0.53) $ (0.57)
=========== =========== ===========
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................................ $ (0.22)
===========
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... -- -- -- -- 2,091,000 -- -- -- 2,091,000
Deferred compensation
related to grant of
certain stock
options............... -- -- -- -- 2,655,985 -- (2,655,985) -- --
Amortization of
deferred
compensation.......... -- -- -- -- -- -- 117,564 -- 117,564
Net loss............... -- -- -- -- -- -- -- (1,548,322) (1,548,322)
--------- ------- ------ ----- ---------- -------- ----------- ------------ -----------
Balance at December 31,
1998................... 3,501,626 $29,219 31,907 $ 435 $4,669,150 $398,000 $(2,538,421) $(11,446,102) $(8,887,719)
========= ======= ====== ===== ========== ======== =========== ============ ===========
</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) $(1,548,322)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization......... 1,020,029 913,781 803,998
Deferred compensation................. -- -- 117,564
Provision for bad debts............... -- 39,491 167,858
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................. (293,785) (529,824) (978,508)
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 45 major cities throughout the United States.
The Company anticipates that it will require additional funds to continue the
Company's product development activities; expand the Company's marketing and
sales and customer services and support capabilities; fund the Company's
capital expenditures to accommodate the anticipated increase in customers and
geographic expansion; and expand certain financial and administrative
functions. Management believes that the funds necessary to meet its capital
requirements for the next twelve months will be raised either from a public
offering or by private equity or debt financing. Without the additional funds,
the Company will reduce the scope of its product development projects and
reduce its expenditures on geographic expansion.
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.
F-7
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Intangible Assets
Intangible assets arose primarily from the acquisition of REALBID, LLC (see
Note 2). The excess of cost over the fair value of the net assets purchased has
been allocated to goodwill, customer base, database and web site technology,
trademark and trade name and assembled work force. These intangible assets are
being amortized over estimated useful lives ranging from three to five years.
Asset Impairment
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to
be Disposed Of (SFAS 121), the Company recognizes impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the estimated undiscounted cash flows to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. During
1997, the Company determined that the subscription base relating to its 1995
acquisitions was impaired because of lower than expected retention of the
purchased subscription base. Fair value of the assets was calculated based on
estimated future cash flows to be generated by the remaining subscriber,
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.
F-8
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
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
4,908,126 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.
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) $ 2,002,007
=========== =========== ===========
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) $ (0.57)
=========== =========== ===========
Antidilutive securities including
options, warrants, and preferred
stock, an as if converted to
common stock basis not included in
historical net loss per share
attributable to common
stockholders calculations......... 7,510,132 7,836,432 11,220,093
=========== =========== ===========
Pro forma net loss per share:
Net loss attributable to common
stockholders...................... $(2,002,007)
Less: dividend accretion on
redeemable convertible preferred
stock............................. 453,685
-----------
Pro forma net loss................. $(1,548,322)
===========
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........................ $ (0.22)
===========
</TABLE>
F-9
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 requires that all components of comprehensive income, including
net income, be reported in the financial statements in the period in which they
are recognized. SFAS 130 is effective for fiscal years beginning after December
15, 1997. There was no difference between the Company's net loss and its total
comprehensive loss for the years ended December 31, 1996, 1997 and 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, No. 131, Disclosures About Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 replace SFAS 14,
"Financial Reporting for Segments of a Business Enterprise" and changes the way
the public companies report segment information. SFAS 131 is effective for
fiscal years beginning after December 15, 1997 and has been adopted by the
Company for the year ending December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company is currently evaluating the impact of SOP 98-1
on its financial statements and related disclosures.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 Reporting for the Costs of Start-Up Activities (SOP
98-5). This standard requires companies to expense the cost of start-up
activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The Company
believes the adoption of SOP 98-5 will not have a material impact on its
results of operations.
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
F-10
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
2. Acquisitions (continued)
purchased. Experian RES is the successor-in-interest to TRW REDI and based on
the Company's 1995 acquisition of TRW REDI's investment property publishing
business, 50% of the subscription contracts were amortized in 1997 and the
remaining 50% were amortized in 1998.
REALBID
On November 6, 1998, the Company acquired the assets of REALBID, LLC
(REALBID) a real estate marketing services company which supports commercial
real estate transactions over the Internet. The transaction was accounted for
as a purchase. The purchase price consisted of cash payments of $163,000 and
the grant of stock options to the principals to acquire 399,473 shares of the
Company's 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 $5.24 per share as of the date of the acquisition.
As a result, the purchase price is calculated to be $2,308,400, 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................................................. 2,243,900
----------
Net purchase price................................................ $2,308,400
==========
</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 $13,028,927
=========== ===========
Net loss attributable to common stockholders..... $(2,362,860) $(2,525,361)
=========== ===========
Net loss per share attributable to common
stockholders.................................... $ (0.67) $ (0.72)
=========== ===========
</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>
F-12
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
4. Intangibles Assets
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Customer base.......................................... $ -- $1,791,100
Database and web site technology....................... -- 268,700
Assembled workforce.................................... -- 94,600
Trademark and trade name............................... -- 89,500
Subscription contracts................................. 141,426 --
-------- ----------
141,426 2,243,900
Less accumulated amortization.......................... (87,941) (81,550)
-------- ----------
$ 53,485 $2,162,350
======== ==========
</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.
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
</TABLE>
F-13
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
5. Long-Term Debt (continued)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Note payable to Venture Lending & Leasing, Inc.
Principal and interest of $2,555 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>
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>
F-14
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
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.
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.
F-15
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
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 379,869 shares of Class B
common stock at $.01 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 $.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
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. 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 306,097 shares of Class B
common stock and 37,329 shares of Class A common stock at $.01 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. Holders
of Series B preferred stock have a liquidation preference of $1.80 per share
plus all accumulated but unpaid dividends.
The Series A and Series B preferred stock is convertible at the option of the
holder into an equal number of shares of Class A common stock. The holders of
preferred and Class A common stock vote together as a class on all matters to
be voted on by the shareholders of the Company, with each holder of preferred
stock entitled to one vote for each share held.
A summary of the redeemable convertible preferred stock and the liquidation
and redemption values at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Liquidation Redemption
Shares Preference Value
--------- ----------- ----------
<S> <C> <C> <C>
Series A preferred stock................... 4,270,336 $5,000,000 $6,257,972
Series B preferred stock................... 637,790 1,150,000 1,214,311
--------- ---------- ----------
Total...................................... 4,908,126 $6,150,000 $7,472,283
========= ========== ==========
</TABLE>
9. Repurchase Agreement
As part of the issuance of Series A and Series B redeemable convertible
preferred stock and Class B common stock warrants, (see Note 10), the Company
granted the purchasers a "put option" in which the Company is required to
repurchase the shares held by the purchasers; the repurchase is required to
take place in October 2001 or earlier if an event such as a liquidation or
merger or acquisition occurs and there is a 50% change in the holders of voting
securities. The repurchase price is the greater of the original purchase price
plus accrued dividends or fair market value of the shares held. This put option
is terminated if the Company has a public offering of its shares in which the
Company's gross proceeds are at least $10 million and the per share price is
not less the $3.52 for the Series A preferred stock and $3.83 for the Series B
preferred stock.
F-16
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
9. Repurchase Agreement (continued)
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 $.01 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 $0.01 per share. The warrants to
purchase Class B common stock are exercisable at the earlier of (i) one day
prior to the closing or effective time of a liquidity event, as defined in the
warrant agreement, or (ii) October 14, 2001. The warrant to purchase Class A
Common Stock is immediately exercisable. All warrants issued in connection with
the Series B Preferred Stock expire on February 6, 2008. The Company estimated
the fair value of the warrants to be $398,000 using the minimum value option
pricing model with a risk-free interest rate of 5.5%, dividend yield of 0% and
a weighted average expected life of three years.
In connection with the loan agreement with Venture Lending & Leasing, Inc.
(see Note 5), the Company issued a warrant to purchase 156,285 shares of the
Company's Class B common stock at $2.40 per share, subject to antidilutive
adjustments. The warrant expires on September 24, 2003. The Company estimated
the fair value of the warrant using the minimum value option pricing model,
however, no value was allocated to the warrant as the estimated fair value was
nominal.
Stock Options
In November 1998, the Company replaced its amended and restated stock option
plan (Old Plan), under which options to purchase 739,368 shares of Class B
common stock were outstanding, with the 1998 Equity Participation Plan and the
1998 Supplemental Option Plan (the 1998 Plans). Under the 1998 Plans, both
incentive stock options and non-qualified stock options to purchase Class B
common stock may be issued to key employees, board members and consultants of
the Company. The aggregate number of shares which the Company is authorized to
issue under the 1998 Plans, together with the aggregate number of shares which
may be issued under the Old Plan, is 2,047,993. Options granted under the Plans
generally vest over five years, except for options issued to independent
directors under the 1998 Plans which vest over four years, and are exercisable
for a period of ten years from the date of grant. The board of directors may,
in its discretion, accelerate the period during which an option granted to an
employee or consultant vests. Generally, stock options are granted at a price
which approximates the fair value of the shares at the date of grant as
determined by the board of directors.
F-17
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
10. Stockholders' Deficit (continued)
Stock Options (continued)
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Weighted
Average
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
$2,655,985, which is being amortized over the vesting period of the related
options. Amortization during 1998 was $117,564.
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 $1.00
</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.
F-18
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
10. Stockholders' Deficit (continued)
Stock Options (continued)
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) $ (2,029,778)
Pro forma basic and diluted net
loss per share attributable to
common stockholders.............. $ (0.74) $ (0.53) $ (0.58)
</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.
Significant components of the Company's deferred tax assets at December 31,
1997 and 1998 are shown below. A valuation allowance of $1,652,000 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 $1,826,000
Other.............................................. 338,000 361,000
Amortization....................................... 464,000 463,000
---------- ----------
Total deferred tax assets............................ 2,145,000 2,650,000
Deferred tax liabilities:
Intangibles........................................ -- (998,000)
---------- ----------
Net deferred tax assets.............................. 2,145,000 1,652,000
Valuation allowance for deferred tax assets.......... (2,145,000) (1,652,000)
---------- ----------
Net deferred tax assets.............................. $ -- $ --
========== ==========
</TABLE>
F-19
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
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.
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..... $12,789,261 $ 16,500 $12,805,761
Intersegment revenues................ -- -- --
Interest expense..................... 302,152 -- 302,152
Depreciation and amortization
expense............................. 721,648 82,350 803,998
Segment profit (loss) before income
taxes............................... (1,180,704) (367,618) (1,548,322)
Other significant non cash item:
Deferred compensation on stock
options........................... 967,231 1,571,190 2,538,421
Segment assets
Fixed assets, net.................. 1,460,211 10,327 1,470,538
Intangible assets, net............. -- 2,162,350 2,162,350
Expenditures of long-lived assets.... 922,749 11,127 933,876
</TABLE>
F-20
<PAGE>
COMPS.COM, Inc.
Notes to Financial Statements (continued)
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.
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.
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 (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 March 1999, the Company accepted a letter of commitment from a bank under
which the bank agreed to provide a $3,000,000 senior subordinated non-revolving
loan facility, which the Company expects to close in April 1999. The loan
matures in April 2001 and bears interest at 13%. In connection with this loan,
the Company will issue warrants to purchase up to 98,000 shares of preferred
stock at prices ranging from $0.75 to $5.00 per share.
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 $2.3 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............. $12,805,761 $ 223,166 -- $13,028,927
Cost of revenues......... 5,746,180 44,988 -- 5,791,168
----------- --------- --------- -----------
Gross profit............. 7,059,581 178,178 -- 7,237,759
Operating expenses:
Selling and marketing... 4,181,945 -- -- 4,181,945
Product development..... 1,230,349 -- -- 1,230,349
General and
administrative......... 2,936,052 293,782 407,750 3,637,584
----------- --------- --------- -----------
Total operating
expenses................ 8,348,346 293,782 407,750 9,049,878
----------- --------- --------- -----------
Loss from operations..... (1,288,765) (115,604) (407,750) (1,812,119)
Other income (expense)... (259,557) -- -- (259,557)
----------- --------- --------- -----------
Net loss................. (1,548,322) (115,604) (407,750) (2,071,676)
Dividend accretion on
preferred stock......... 453,685 -- -- 453,685
----------- --------- --------- -----------
Net loss attributable to
common stockholders..... $(2,002,007) $(115,604) $(407,750) $(2,525,361)
=========== ========= ========= ===========
Net loss per share
attributable to common
stockholders, basic and
diluted................. $ (0.57) (0.72)
=========== ===========
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 common stock at $1.64 per share. The fair value of the
options was determined to be $5.24 per share as of the date of the acquisition.
As a result, the purchase price is calculated to be $2,308,400, 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................................................. 1,791,100
Database and website technology............................... 268,700
Assembled workforce........................................... 94,600
Trademark and trade name...................................... 89,500
----------
$2,308,400
</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.
II-1
<PAGE>
Reference is also made to Section of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the registrant against certain liabilities. The 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 (draft dated , 1999).................. 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 ):
(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.
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.
10.15+ 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>
II-3
<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* Commitment Letter between us and Silicon Valley Bank, dated February
25, 1999.
11.1* Statement re: Computation of Basic and Diluted Net Loss Per Share.
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>
- --------
* To be filed by amendment.
+ Previously filed.
++ We have sought confidential treatment pursuant to Rule 406 of portions of
the referenced exhibit.
(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.
II-4
<PAGE>
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 2nd
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 2, 1999:
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- ------- ----
<C> <S> <C>
/s/ Christopher A. Crane Chairman of the Board, President and April 2, 1999
____________________________________ Chief Executive Officer (principal
Christopher A. Crane executive officer)
/s/ Karen Goodrum Vice President of Finance and April 2, 1999
____________________________________ Administration and Chief Financial
Karen Goodrum Officer (principal financial and
accounting officer) and Secretary
* Director April 2, 1999
____________________________________
Gregory M. Avis
* Director April 2, 1999
____________________________________
Robert C. Beasley
*By: /s/ Christopher A. April 2, 1999
Crane
Christopher A. Crane
Attorney-In-Fact
</TABLE>
II-6
<PAGE>
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 February 22, 1999) and our report on the REALBID, LLC
financial statements dated February 17, 1999, in the Registration Statement
(Form S-1) and related Prospectus of COMPS.COM, Inc. dated February 24, 1999.
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
February 23, 1999
II-7
<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 -- 644,322 437,109 570,126
Year ended December 31,
1997..................... 570,126 39,491 1,238,593 463,968 1,384,242
Year ended December 31,
1998..................... 1,384,242 167,858 260,627 347,805 1,464,922
</TABLE>
- --------
(1) These amounts have been offset against deferred subscription revenue.
II-8
<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.
10.15+ 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* Commitment Letter between us and Silicon Valley Bank, dated February
25, 1999.
11.1* Statement re: Computation of Basic and Diluted Net Loss Per Share.
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>
- --------
* To be filed by amendment.
+ Previously filed.
++ We have sought confidential treatment pursuant to Rule 406 of portions of
the referenced exhibit.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION OF
COMPS.COM, INC.
COMPS.COM, INC., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That resolutions were duly adopted by the Board of Directors of the
Corporation setting forth a proposed amendment to the Restated Certificate of
Incorporation of the Corporation, and declaring said amendment to be advisable
and recommended for approval by the stockholders of the Corporation. The
resolutions setting forth the proposed amendment are as follows:
NOW, THEREFORE, BE IT RESOLVED, that the Restated Certificate of
Incorporation of the Corporation be amended by changing the initial recital
paragraph of ARTICLE IV thereof so that, as amended, said paragraph shall
----------
read in its entirety as follows:
"The Corporation is authorized to issue two classes of shares to be
designated respectively "Preferred Stock" and "Common Stock." The total
number of shares of Preferred Stock par value $.01 per share, which are
authorized is 5,100,000. The total number of shares of Common Stock, par
value $.01 per share, which are authorized is 25,000,000."
RESOLVED, FURTHER, that the Restated Certificate of Incorporation of the
Corporation be amended by changing initial paragraph of ARTICLE IV, Section
----------
B thereof so that, as amended, said paragraph shall read in its entirety as
follows:
"B. Preferred Stock. The first series of Preferred Stock shall be
---------------
comprised of 4,368,200 shares designated as "Series A Preferred Stock."
The second series of Preferred Stock shall be comprised of 731,800 shares
designated as "Series B Preferred Stock." The relative rights,
preferences, restrictions and other matters relating to the Series A
Preferred Stock and Series B Preferred Stock are as follows:"
SECOND: That, thereafter, the stockholders approved the foregoing
amendment by written consent in accordance with Section 228 of the Delaware
General Corporation Law.
<PAGE>
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
FOURTH: That the capital of said Corporation shall not be reduced under or
by reason of said amendment.
[Remainder of This Page Intentionally Left Blank]
-2-
<PAGE>
IN WITNESS WHEREOF, said COMPS.COM, INC. has caused this certificate to be
signed by Christopher A. Crane, its President and Chief Executive, this 30 day
--
of March, 1999.
By: /s/ CHRISTOPHER A. CRANE
------------------------------------
Christopher A. Crane, President and
Chief Executive Officer
-3-
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
COMPS INFOSYSTEMS, INC.
A DELAWARE CORPORATION
COMPS INFOSYSTEMS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
ONE: The name of this Corporation is COMPS INFOSYSTEMS, INC. The original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of Delaware on September 1, 1994. The Certificate of Incorporation was
later amended and restated and filed with the Delaware Secretary of State on
October 13, 1994.
TWO: Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Restated Certificate of
Incorporation of this Corporation.
THREE: The text of the Restated Certificate of Incorporation as heretofore
in effect is hereby restated and further amended to read in its entirety as
follows:
ARTICLE I
---------
The name of the Corporation is COMPS InfoSystems, Inc. (the "Corporation").
ARTICLE II
----------
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, Delaware. The name of the
registered agent at that address is The Prentice Hall Corporation System, Inc.,
County of New Castle.
ARTICLE III
-----------
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
----------
The Corporation is authorized to issue two classes of shares to be
designated respectively "Preferred Stock" and "Common Stock." The total number
of shares of Preferred Stock par value $.01 per share, which are authorized is
5,000,000. The total number of shares of Common Stock, par value $.01 per
share, which are authorized is 25,000,000.
A. Common Stock. The first series of Common Stock shall be comprised of
------------
22,500,000 shares designated "Class A Common Stock." The second series of
Common Stock shall be comprised of 2,500,000 shares of Common Stock designated
"Class B Common Stock."
1
<PAGE>
The Class A and Class B Common Stock shall have the same rights and privileges
except as provided below:
1. Voting. The Class B Common Stock shall not have any right to vote
------
unless otherwise required by law.
2. Conversion. Each share of Class B Common Stock shall automatically
----------
convert into one share of Class A Common Stock upon the earlier to occur of (i)
the time the consent of at least 66 2/3% of the outstanding Class A Common Stock
to such conversion is obtained, or (ii) closing of the sale of the Corporation's
securities pursuant to an underwritten public offering. Upon conversion of the
Class B Common Stock, the Class A Common Stock shall be renamed "Common Stock."
(a) In case the Corporation shall at any time (i) subdivide the
outstanding Class A Common Stock, or (ii) issue a stock dividend on its
outstanding Class A Common Stock, the number of shares of Class B Common Stock
issuable upon conversion of the Class B Common Stock immediately prior to such
subdivision or the issuance of such stock dividend shall be proportionately
increased by the same ratio as the subdivision or dividend. In case the
Corporation shall at any time combine its outstanding Class A Common Stock, the
number of shares of Class B Common Stock issuable upon conversion of the Class B
Common Stock immediately prior to such combination shall be proportionately
decreased by the same ratio as the combination. All such adjustments described
herein shall be effective at the close of business on the date of such
subdivision, stock dividend or combination, as the case may be.
(b) In case of any capital reorganization (other than in
connection with a merger or other reorganization which the Corporation is not
the continuing or surviving entity) or any reclassification of the Common Stock
of the Corporation, the Class B Common Stock shall thereafter be convertible
into that number of shares of stock or other securities or property to which a
holder of the number of shares of Class A Common Stock of the Corporation
deliverable upon conversion of the shares of Class B Common Stock immediately
prior to such reorganization or recapitalization would have been entitled upon
such reorganization or reclassification.
B. Preferred Stock. The first series of Preferred Stock shall be
---------------
comprised of 4,270,336 shares designated as "Series A Preferred Stock." The
second series of Preferred Stock shall be comprised of 637,790 shares designated
as "Series B Preferred Stock." The relative rights, preferences, restrictions
and other matters relating to the Series A Preferred Stock and Series B
Preferred Stock are as follows:
1. Dividend Rights of Preferred. The holders of Preferred Stock shall
----------------------------
be entitled to receive, out of any assets at the time legally available
therefor, cumulative non-compounded dividends from the date of issuance at the
rate per annum of $0.07025 per share (subject to adjustments for stock splits,
dividends, recapitalizations and the like) of Series A Preferred Stock and
$0.10808 per share (subject to adjustments for stock splits, dividends,
recapitalization and the like) of Series B Preferred Stock, payable immediately
prior to the effective time of (i) any repurchase of the Series A Preferred
Stock or Series B Preferred Stock; (ii) any liquidation pursuant to Section
B(2)(b) of this Article IV, or (iii) any sale of the
2
<PAGE>
Corporation's securities pursuant to an underwritten public offering, provided,
--------
however, that the right to receive such accrued and unpaid dividends shall
- -------
forfeit with respect to a particular Series of Preferred Stock in the event of
(x) a repurchase of all of the outstanding shares of a series of Preferred Stock
(each series with shares still outstanding retains such right) or a liquidation
pursuant to Section B(2)(b) of this Article IV, if the aggregate amount to be
received by the holders of the Series A Preferred Stock and Series B Preferred
Stock prior to the payment of such accrued and unpaid dividends would exceed
$3.52 and $3.83 per share, respectively, (as adjusted for stock-splits,
combinations, reorganizations and the like) or (y) with respect only to the
Series A Preferred Stock, an underwritten public offering of the Corporation's
securities if the Corporation receives gross proceeds of not less than
$10,000,000 at a purchase price of not less than $3.52 per share (as adjusted
for stock splits, stock dividends, reorganizations and the like), and with
respect only to the Series B Preferred Stock, an underwritten public offering of
the Corporation's securities of the Corporation receives gross proceeds of not
less than $10,000,000 at a purchase price of not less than $3.83 per share (as
adjusted for stock splits, stock dividends, reorganizations and the like). Upon
conversion of the Preferred Stock any accrued but unpaid dividends shall remain
accrued and shall remain payable pursuant to this Section B(1) of this Article
IV. In addition to the cumulative dividends specified above, no cash dividends
shall be paid on any Common Stock unless an equal dividend is paid with respect
to all outstanding shares of Preferred Stock in an amount for each such share of
Preferred Stock equal to the aggregate amount of such dividends for all Common
Stock into which each such share of Preferred Stock could then be converted.
2. Preference on Liquidation.
-------------------------
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, distributions to the stockholders of the Corporation shall be
made in the following manner:
(i) The holders of the Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Common Stock by reason of
their ownership of such stock, the amount of (A) $1.17087 per share for each
share of Series A Preferred Stock and $1.80310 per share for each share of
Series B Preferred Stock then held by them, adjusted for any stock split,
combination, consolidation, or stock distributions or stock dividends with
respect to such shares, and (B) an amount equal to all accumulated but unpaid
dividends on the Preferred Stock as provided in Subsection 1 above. If the
assets and funds thus distributed among the holders of the Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Preferred Stock, pari passu, in proportion to their aggregate
---- -----
preferential amounts.
(ii) The remaining assets of the Corporation, after payment
in full to the holders of Preferred Stock of all amounts exclusively payable on
or with respect to said shares, shall be distributed ratably among the holders
of the Common Stock.
(b) The following shall be deemed to be a liquidation, dissolution
or winding up within the meaning of this Subsection: (i) an acquisition,
consolidation or merger of
3
<PAGE>
this Corporation with or into any other corporation or corporations unless the
stockholders of the Corporation prior to such transaction directly or indirectly
own more than fifty percent (50%) of the voting stock of the surviving or
acquiring corporation or corporations; (ii) the sale, transfer or other
disposition of all or substantially all of the assets of this Corporation to a
person other than a corporation or partnership controlled by the Corporation or
its stockholders; and (iii) the effectuation by the Corporation of a transaction
or series of related transactions in which more than 50% of the outstanding
voting power of the Corporation prior to such transaction or series of related
transactions is disposed of.
(c) In the event the Corporation shall propose to take any action
of the type described in subsection (a) or (b) of this Subsection 2, the
Corporation shall, within ten (10) days after the date the Board of Directors
approves such action or twenty (20) days prior to any stockholders' meeting
called to approve such action, whichever is earlier, give each holder of shares
of the Preferred Stock written notice of the proposed action. Such written
notice shall describe the material terms and conditions of such proposed action,
including a description of the stock, cash and property to be received by the
holders of shares of the Preferred Stock upon consummation of the proposed
action and the proposed date of delivery thereof. If any material change in the
facts set forth in the notice shall occur, the Corporation shall promptly give
written notice to each holder of shares of the Preferred Stock of such material
change.
(d) The Corporation shall not consummate any proposed action of
the type described in subsection (a) or (b) of this Subsection 2 before the
expiration of thirty (30) days after the mailing of the initial written notice
or ten (10) days after the mailing of any subsequent written notice, whichever
is later; provided, however, that any such 30-day or 10-day period may be
-------- -------
shortened upon the written consent of the holders of a majority of the
outstanding shares of the Preferred Stock.
(e) If the Corporation shall propose to take any action of the
type described in subsection (a) or (b) of this Subsection 2 which will involve
the distribution of assets other than cash, the Corporation shall, if requested
by the holders of a majority of the Preferred Stock, promptly engage independent
competent appraisers to determine the value of the assets to be distributed to
the holders of shares of the Preferred Stock and the Common Stock. The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice of the appraiser's valuation to each holder of shares of the
Preferred Stock.
3. Voting.
------
(a) Except as set forth in paragraph (b) of this Subsection 3 and
in Subsection 6 hereof, or as otherwise required by law, the shares of the
Preferred Stock shall be voted together with the Corporation's Class A Common
Stock at any annual or special meeting of the stockholders of the Corporation,
or may act by written consent in the same manner as the Corporation's Class A
Common Stock; and shall have the voting rights and powers equal to the voting
right of the Class A Common Stock, upon the following basis: each holder of
shares of Preferred Stock shall be entitled to such number of votes for the
Preferred Stock held by him on the record date fixed for such meeting or, if no
record date is established, at the date such vote is taken or on the effective
date of any such written consent, as shall be equal to the nearest whole number
of shares of the Corporation's Common Stock into which his shares of Preferred
Stock
4
<PAGE>
are convertible immediately after the close of business on the record date fixed
for such meeting, the date of such vote or the effective date of such written
consent.
(b) The holders of Series A and Series B Preferred Stock, voting
together as a separate class, shall be entitled to elect one director. The
election of a director by the holders of the Preferred Stock shall occur at the
annual meeting of holders of Common Stock or at any special meeting of holders
of Preferred Stock called by holders of a majority of the outstanding shares of
Preferred Stock or by the written consent of all such holders. If the person
elected by the holders of Preferred Stock should cease to be a director for any
reason, the vacancy shall only be filled by the vote or written consent of
holders of a majority of the outstanding shares of Preferred Stock. The holders
of the Common Stock shall be entitled to elect the remaining directors.
4. Status of Converted or Redeemed Stock. In the event that any shares
-------------------------------------
of Preferred Stock shall be converted pursuant to Subsection 5 hereof or shall
be repurchased or otherwise acquired by the Corporation in any manner
whatsoever, such shares shall be retired and canceled promptly after the
acquisition thereof. Such shares shall not be reissued as shares of any series
of Preferred Stock. Upon such cancellation, and upon the filing of any
certificates required or appropriate under applicable law, the number of
authorized shares of Preferred Stock as set forth in Article IV, shall be
reduced by the number of such shares so canceled.
5. Conversion Rights. The holders of Preferred Stock shall have
-----------------
conversion rights as follows:
(a) Each share of Preferred Stock shall be convertible, at the
option of the holder thereof, at any time at the principal office of the
Corporation or any transfer agent for such shares, into fully paid and
nonassessable shares of Class A Common Stock of the Corporation. The number of
shares of Class A Common Stock into which each share of Preferred Stock may be
converted shall be determined by dividing $1.17087 for the Series A Preferred
Stock and $1.80310 for the Series B Preferred Stock by the Conversion Price
determined as hereinafter provided in effect at the time of the conversion. The
Conversion Price per share at which shares of Class A Common Stock shall be
initially issuable upon conversion of any shares of Preferred Stock shall be
$1.17087 for the Series A Preferred Stock and $1.80310 for the Series B
Preferred Stock, subject to adjustment as provided herein.
(b) Each share of Preferred Stock shall be converted into Class A
Common Stock automatically in the manner provided herein upon the earlier to
occur of (i) the time the consent of holders of at least 66-2/3% of the
outstanding Preferred Stock to such conversion is obtained, or (ii) the closing
of the sale of the Corporation's securities pursuant to an underwritten public
offering from which the Corporation receives gross proceeds of not less than
$10,000,000 at a purchase price of not less than $3.73 per share (as adjusted
for stock splits, stock dividends, reorganizations and the like).
(c) Before any holder of Preferred Stock shall be entitled to
convert the same into Common Stock, such holder shall surrender the certificate
or certificates therefor, duly endorsed in blank or accompanied by proper
instruments of transfer, at the principal office of the Corporation or of any
transfer agent for the Preferred Stock, and shall give written notice
5
<PAGE>
to the Corporation at such office that such holder elects to convert the same
and shall state in writing therein the name or names in which such holder wishes
the certificate or certificates for Common Stock to be issued. As soon as
practicable thereafter, the Corporation shall issue and deliver at such office
to such holder's nominee or nominees, certificates for the number of whole
shares of Common Stock to which such holder shall be entitled. No fractional
shares of Common Stock shall be issued by the Corporation and all such
fractional shares shall be disregarded. In lieu thereof, the Corporation shall
pay in cash the fair market value of such fractional share as determined by the
Board of Directors of the Corporation. Such conversion shall be deemed to have
been made as of the date of such surrender of the Preferred Stock to be
converted, and the person or persons entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Stock on said date.
(d) In case the Corporation shall at any time (i) subdivide (i.e.
stock split) the outstanding Common Stock, or (d) issue a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock issuable upon
conversion of the Preferred Stock immediately prior to such subdivision or the
issuance of such stock dividend shall be proportionately increased by the same
ratio as the subdivision or dividend (with appropriate adjustments in the
Conversion Price of the Preferred Stock). In case the Corporation shall at any
time combine (i.e. reverse stock split) its outstanding Common Stock, the number
of shares of Common Stock issuable upon conversion of the Preferred Stock
immediately prior to such combination shall be proportionately decreased by the
same ratio as the combination (with appropriate adjustments in the Conversion
Price of the Preferred Stock). All such adjustments described herein shall be
effective at the close of business on the date of such subdivision (i.e. stock
split), stock dividend or combination (i.e. reverse stock split), as the case
may be.
(e) In case of any capital reorganization (other than in
connection with a merger or other reorganization in which the Corporation is not
the continuing or surviving entity) or any reclassification of the Common Stock
of the Corporation, the Preferred Stock shall thereafter be convertible into
that number of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation deliverable upon
conversion of the shares of Preferred Stock immediately prior to such
reorganization or recapitalization would have been entitled upon such
reorganization or reclassification. In any such case, appropriate adjustment (as
determined by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interests thereafter
of the holders of Preferred Stock, such that the provisions set forth herein
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any share of stock or other property thereafter deliverable upon the conversion.
(f) In case:
(i) the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend, or any
other distribution, payable otherwise than in cash; or
6
<PAGE>
(ii) the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
any shares of stock of any class or to receive any other rights; or
(iii) the Corporation shall effect a capital reorganization of
the Corporation, reclassification of the capital stock of the Corporation (other
than a subdivision or combination of its outstanding Common Stock),
consolidation or merger of the Corporation (other than a merger or other
reorganization in which the Corporation is not the continuing or surviving
entity);
then, and in any such case, the Corporation shall cause to be mailed to the
holders of its outstanding Preferred Stock, at least twenty (20) days prior to
the date hereinafter specified, a notice stating the date on which a record is
to be taken for the purpose of such dividend, distribution or rights, or such
action is to be taken in connection with such reorganization, reclassification,
merger or consolidation.
(g) The Corporation shall at all times reserve and keep available
out of its authorized but unissued Common Stock, solely for the purpose of
effecting the conversion of the Preferred Stock, the full number of shares of
Common Stock deliverable upon the conversion of all Preferred Stock from time to
time outstanding. The Corporation shall from time to time (subject to obtaining
necessary director and stockholder action), in accordance with the laws of the
State of Delaware, increase the authorized amount of its Common Stock if at any
time the authorized number of shares of Common Stock remaining unissued shall
not be sufficient to permit the conversion of all of the shares of Preferred
Stock at the time outstanding.
(h) Upon the issuance by the Corporation of Common Stock, or any
right or option to purchase Common Stock, or any obligation or any shares of
stock convertible into or exchangeable for Common Stock for a consideration per
share less than the Conversion Price of a series of Preferred Stock in effect
immediately prior to the time of such issue or sale other than the issuance of
shares of Common Stock upon conversion of such series of Preferred Stock, then
forthwith upon such issue or sale, the Conversion Price of such series of
Preferred Stock shall be reduced to a price (calculated to nearest cent)
determined by dividing:
(i) an amount equal to the sum of (x) the number of shares of
Common Stock outstanding immediately prior to such issue or sale multiplied by
the then existing Conversion Price of the affected series of Preferred Stock,
(y) the number of shares of Common Stock issuable upon conversion of any shares
of stock of the Corporation outstanding immediately prior to such issue or sale
multiplied by the then existing Conversion Price of the affected series of
Preferred Stock, and (z) an amount equal to the aggregate consideration received
by the Corporation upon such issue or sale, by
(ii) the sum of the number of shares of Common Stock
outstanding immediately after such issue or sale and the number of shares of
Common Stock (without taking into account any adjustment in such number
resulting from such issue or sale) issuable upon conversion of any shares of
stock of the Corporation outstanding immediately after such issue or sale.
7
<PAGE>
For purposes of this subsection (h) the following provisions shall be
applicable:
(1) In the case of an issue or sale for cash of shares
of Common Stock, the consideration received by the Corporation therefor shall be
deemed to be the amount of cash received, before deducting therefrom any
commissions or expenses paid or incurred by the Corporation.
(2) In case of the issuance (otherwise than upon
conversion or exchange of obligations or shares of stock of the Corporation) of
additional shares of Common Stock for a consideration other than cash or a
consideration partly other than cash, the amount of the consideration other than
cash received by the Corporation for such shares shall be deemed to be the value
of such consideration as reasonably determined by the Board of Directors.
(3) In case of the issuance by the Corporation in any
manner of any rights to subscribe for or to purchase shares of Common Stock, at
a consideration per share (as computed below) less than the Conversion Price in
effect for a series of Preferred Stock immediately prior to the date of the
offering of such rights or the granting of such options, as the case may be, the
maximum number of shares of Common Stock to which the holders of such rights or
options shall be entitled to subscribe for or purchase pursuant to such rights
or options shall be deemed to be issued or sold as of the date of the offering
of such rights or the granting of such options, as the case may be, and the
minimum aggregate consideration named in such rights or options for the shares
of Common Stock covered thereby, plus the consideration, if any, received by the
Corporation for such rights or options, shall be deemed to be the consideration
actually received by the Corporation (as of the date of the offering of such
rights or the granting of such options, as the case may be) for the issuance of
such shares.
(4) In case of the issuance or issuances by the
Corporation in any manner of any obligations or of any shares of stock of the
Corporation that shall be convertible into or exchangeable for Common Stock, at
a consideration per share (as computed below) less than the Conversion Price in
effect for a series of Preferred Stock immediately prior to the date such
obligation or shares are issued, the maximum number of shares of Common Stock
issuable upon the conversion or exchange of such obligations or shares shall be
deemed issued as of the date such obligations or shares are issued, and the
amount of the consideration received by the Corporation for such additional
shares of Common Stock will be deemed to be the total of the amount of
consideration received by the Corporation upon the issuance of such obligations
or shares, as the case may be, plus the minimum aggregate consideration, if any,
other than such obligations or shares, receivable by the Corporation upon such
conversion or exchange, except in adjustment of dividends.
(5) The amount of the consideration received by the
Corporation upon the issuance of any rights or options referred to in subsection
(3) above or upon the issuance of any obligations or shares which are
convertible or exchangeable as describes in subsection (4) above, and the amount
of the consideration, if any, other than such obligations or shares so
convertible or exchangeable, receivable by the Corporation upon the exercise,
conversion or exchange thereof shall be determined in the same manner provided
in subsections (h)(1) and (2) above with respect to the consideration received
by the Corporation in
8
<PAGE>
case of the issuance of additional shares of Common Stock. On the expiration of
any rights or options referred to in subsection (3), or the termination of any
right of conversion or exchange referred to in subsection (4), the Conversion
Price then in effect for a series of Preferred Stock shall forthwith be
readjusted to such Conversion Price as would have obtained had the adjustments
made upon the issuance of such option, right or convertible or exchangeable
securities been made upon the basis of the delivery of only the number of shares
of Common Stock actually delivered upon the exercise of such rights or options
or upon the conversion or exchange of such securities.
(6) Anything herein to the contrary notwithstanding,
the Corporation shall not be required to make any adjustment of the Conversion
Price in the case of (A) the sale and issuance by the Corporation of up to
1,944,909 shares of Common Stock or rights or options to purchase shares of
Common Stock, net of repurchases and expired or canceled options, (as adjusted
for stock splits, stock dividends, reorganizations and the like) to officers,
directors, employees, consultants and equipment lessors to the Corporation; (B)
the issuance of Common Stock upon the conversion of outstanding Preferred Stock;
or (C) the issuance of up to 723,295 shares of Common Stock upon the exercise of
Warrants issued to the holders of Preferred Stock.
(i) Upon the occurrence of each adjustment or readjustment of the
Conversion Price for any series of Preferred Stock pursuant to this Subsection
5, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the reasonable written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, and (ii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of the Preferred Stock.
(j) In the event the Corporation at any time or from time to time
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive any distribution payable in securities or other property of
the Corporation other than Common Stock and other than as otherwise adjusted in
this Subsection 5, then and in each such event provision shall be made so that
the holders of Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities and other property of the Corporation which they would have
received had their shares of Preferred Stock been converted into shares of
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the date of conversion;
retained such securities and other property receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Subsection 5 with respect to the rights of the holders of
Preferred Stock.
(k) Any notices required by the provisions of this Subsection 5 to
be given to the holders of shares of Preferred Stock shall be deemed given if
deposited in the United States mail, first class, postage prepaid and addressed
to each holder of record at its address appearing on the books of the
Corporation.
9
<PAGE>
6. Changes. So long as shares of Preferred Stock are outstanding, the
-------
Corporation shall not, without first obtaining the approval by vote or written
consent, in the manner provided by law, of the holders of at least a majority of
the total number of shares of Series A and Series B Preferred Stock outstanding,
voting together as a single Class: (1) alter or change any of the powers,
preferences, privileges or rights of any series of Preferred Stock; (2) increase
the authorized number of shares of Preferred Stock; (3) amend the provisions of
this Section 6; (4) undertake or effect any consolidation or merger of the
Corporation with or into another corporation or any acquisition by or the
conveyance of all or substantially all of the assets of the Corporation to
another person; (5) create any new series of Preferred Stock; (6) amend this
Certificate of Incorporation of the Corporation; (7) declare or pay any
dividends on the Corporation's capital stock, (8) redeem or repurchase any
outstanding stock other than from employees, consultants or directors upon the
termination of their employment or services pursuant to agreements providing for
such repurchases; or (9) increase the size of the Board of Directors to more
than four directors.
ARTICLE V
---------
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Restated
Certificate of Incorporation or the By-laws of the Corporation, the directors
are hereby empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
ARTICLE VI
----------
A. The number of directors shall initially be four (4) and, thereafter,
subject to the rights of the holders of any outstanding series of Preferred
Stock, shall be fixed from time to time exclusively by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption). Subject to the rights of the holders of any series of Preferred Stock
then outstanding, a vacancy resulting from the removal of a director by the
stockholders as provided in Article VI, Section C below may be filled at a
special meeting of the stockholders held for that purpose in accordance with
Article IV, Section B.3(b). All directors shall hold office until the expiration
of the term for which elected, and until their respective successors are
elected, except in the case of the death, resignation, or removal of any
director.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation or other
10
<PAGE>
cause (other than removal from office by a vote of the stockholders) may be
filled only by a majority vote of the directors then in office, though less than
a quorum, and directors so chosen shall hold office for a term expiring at the
next annual meeting of stockholders at which the term of office of the class to
which they have been elected expires, and until their respective successors are
elected, except in the case of the death, resignation, or removal of any
director. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
C. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any directors, or the entire Board of Directors, may be
removed from office at any time, with or without cause, but only by the
affirmative vote of the holders of at least a majority of the voting power of
all of the then outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class. Vacancies in the Board of Directors resulting from such removal may be
filled by a majority of the directors then in office, though less than a quorum
or by the stockholders as provided in Article VI, Section A above. Directors so
chosen shall hold office for a term expiring at the next annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires, and until their respective successors are elected, except in
the case of the death, resignation or removal of any director.
ARTICLE VII
-----------
The Board of Directors is expressly empowered to adopt amend or repeal By-
laws of the Corporation. Any adoption, amendment or repeal of By-laws of the
Corporation by the Board of Directors shall require the approval of a majority
of the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directors at the time any resolution
providing for adoption, amendment or repeal is presented to the Board). The
stockholders shall also have power to adopt, amend or repeal the By-laws of the
Corporation. Any adoption, amendment or repeal of By-laws of the Corporation by
the stockholders shall require, in addition to any vote of the holders of any
class or series of stock of the Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
ARTICLE VIII
------------
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
If the Delaware General Corporation Law is hereafter amended to authorize
the further elimination or limitation of the liability of a director, then the
liability of a director of the
11
<PAGE>
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article VIII
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE IX
----------
The Corporation shall to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
ARTICLE X
---------
The Corporation reserves the right to amend or repeal any provision
contained in this Restated Certificate of Incorporation in the manner prescribed
by the laws of the State of Delaware and all rights conferred upon stockholders
are granted subject to this reservation; provided, however, that,
-------- -------
notwithstanding any other provision of this Restated Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any vote of the holders of any class or series of
the stock of this Corporation required by law or by this Restated Certificate of
Incorporation, the affirmative vote of the holders of at least 66-2/3% of the
voting power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal this Article X,
Article V, Article VI, Article VII, Article VIII, or Article IX.
The foregoing Restated Certificate of Incorporation has been approved by
the Board of Directors of the Corporation.
The foregoing Restated Certificate of Incorporation has been approved by
the outstanding shares of the Corporation in accordance with Sections 242 and
245 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
executed by the undersigned duly authorized officer of the Corporation on this
4th day of February, 1998.
/s/ CHRISTOPHER A. CRANE
--------------------------------------
Christopher A. Crane, President
12
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
COMPS INFOSYSTEMS, INC.
COMPS INFOSYSTEMS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the unanimous
written consent of its members, filed with the minutes of the Board, adopted a
resolution proposing and declaring advisable the following amendment to the
Restated Certificate of Incorporation of said corporation:
RESOLVED, that the Restated Certificate of Incorporation of COMPS
Infosystems, Inc. be amended by changing Article IV thereof so that, as amended,
said Article shall read in its entirety as follows:
"ARTICLE IV
The Corporation is authorized to issue two classes of shares to be
designated respectively "Preferred Stock" and "Common Stock." The total number
of shares of Preferred Stock, par value $.01 per share, which are authorized is
5,000.000. The total number of shares of Common Stock, par value $.01 per
share, which are authorized is 25,000,000.
A. Common Stock. The first series of Common Stock shall be comprised of
------------
22,500,000 shares designated "Class A Common Stock." The second series of Common
Stock shall be comprised of 2,500,000 shares of Common Stock designated "Class B
Common Stock." The Class A and Class B Common Stock shall have the same rights
and privileges except as provided below.
1. Voting. The Class B Common Stock shall not have any right to vote
------
unless otherwise required by law.
2. Conversion. Each share of Class B Common Stock shall automatically
----------
convert into one share of Class A Common Stock upon the earlier to occur of (i)
the time the consent of at least 66 2/3% of the outstanding Class A Common Stock
to such conversion is obtained, or (ii) closing of the sale of the Corporation's
securities pursuant to an underwritten public offering. Upon conversion of the
Class B Common Stock, the Class A Common Stock shall be renamed "Common Stock."
(a) In case the Corporation shall at any time (i) subdivide the
outstanding Class A Common Stock or (ii) issue a stock dividend on its
outstanding Class A Common Stock, the number of shares of Class B Common Stock
issuable upon conversion of the Class B Common Stock immediately prior to such
subdivision or the issuance of such stock
<PAGE>
dividend shall be proportionately increased by the same ratio as the subdivision
or dividend. In case the Corporation shall at any time combine its outstanding
Class A Common Stock, the number of shares of Class B Common Stock issuable upon
conversion of the Class B Common Stock immediately prior to such combination
shall be proportionately decreased by the same ratio as the combination. All
such adjustments described herein shall be effective at the close of business on
the date of such subdivision, stock dividend or combination, as the case may be.
(b) In case of any capital reorganization (other than in
connection with a merger or other reorganization which the Corporation is not
the continuing or surviving entity) or any reclassification of the Common Stock
of the Corporation, the Class B Common Stock shall thereafter be convertible
into that number of shares of stock or other securities or property to which a
holder of the number of shares of Class A Common Stock of the Corporation
deliverable upon conversion of the shares of Class B Common Stock immediately
prior to such reorganization or recapitalization would have been entitled upon
such reorganization or reclassification.
B. Preferred Stock. The first series of Preferred Stock shall be
---------------
comprised of 4,270,336 shares designated as "Series A Preferred Stock." The
second series of Preferred Stock shall be comprised of 637,790 shares designated
as "Series B Preferred Stock." The relative rights, preferences, restrictions
and other matters relating to the Series A Preferred Stock and Series B
Preferred Stock are as follows:
1. Dividend Rights of Preferred. The holders of Preferred Stock shall
----------------------------
be entitled to receive, out of any assets at the time legally available
therefor, cumulative non-compounded dividends from the date of issuance at the
rate per annum of $0.07025 per share (subject to adjustments for stock splits,
dividends, recapitalizations and the like) of Series A Preferred Stock and
$0.10808 per share (subject to adjustments for stock splits, dividends,
recapitalizations and the like) of Series B Preferred Stock, payable immediately
prior to the effective time of (i) any repurchase of the Series A Preferred
Stock or Series B Preferred Stock; (ii) any liquidation pursuant to Section
B(2)(b) of this Article IV; or (iii) any sale of the Corporation's securities
pursuant to an underwritten public offering; provided, however, that the right
-------- -------
to receive such accrued and unpaid dividends shall forfeit with respect to a
particular Series of Preferred Stock in the event of (x) a repurchase of all of
the outstanding shares of a series of Preferred Stock (each series with shares
still outstanding retains such right) or a liquidation pursuant to Section
B(2)(b) of this Article IV, if the aggregate amount to be received by the
holders of the Series A Preferred Stock and Series B Preferred Stock prior to
the payment of such accrued and unpaid dividends would exceed $3.52 and $3.83
per share, respectively, (as adjusted for stock splits, combinations,
reorganizations and the like) or (y) with respect only to the Series A Preferred
Stock, an underwritten public offering of the Corporation's securities if the
Corporation receives gross proceeds of not less than $10,000,000 at a purchase
price of not less than $3.52 per share (as adjusted for stock splits, stock
dividends, reorganizations and the like), and with respect only to Series B
Preferred Stock, an underwritten public offering of the Corporation's securities
if the Corporation receives gross proceeds of not less than $10,000,000 at a
purchase price of not less than $3.83 per share (as adjusted for stock splits,
stock dividends, reorganizations and the like). Upon conversion of the Preferred
Stock any accrued but unpaid dividends shall remain accrued and shall remain
payable pursuant to this Section B(l) of this Article IV. In addition to the
cumulative dividends specified above, no cash dividends shall be
<PAGE>
paid on any Common Stock unless an equal dividend is paid with respect to all
outstanding shares of Preferred Stock in an amount for each such share of
Preferred Stock equal to the aggregate amount of such dividends for all Common
Stock into which each such share of Preferred Stock could then be converted.
2. Preference on Liquidation.
-------------------------
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, distributions to the stockholders of the Corporation shall be
made in the following manner:
(i) The holders of Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Common Stock by reason of
their ownership of such stock, the amount of (A) $1.17087 per share for each
share of Series A Preferred Stock and $1.80310 per share for each share of
Series B Preferred Stock then held by them, adjusted for any stock split,
combination, consolidation, or stock distributions or stock dividends with
respect to such shares, and (B) an amount equal to all accumulated but unpaid
dividends on the Preferred Stock as provided in Subsection 1 above. If the
assets and funds thus distributed among the holders of the Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Preferred Stock, pari passu, in proportion to their aggregate preferential
---- -----
amounts.
(ii) The remaining assets of the Corporation, after payment
in full to the holders of Preferred Stock of all amounts exclusively payable on
or with respect to said shares, shall be distributed ratably among the holders
of the Common Stock.
(b) The following shall be deemed to be a liquidation, dissolution
or winding up within the meaning of this Subsection: (i) an acquisition,
consolidation or merger of this Corporation with or into any other corporation
or corporations unless the stockholders of the Corporation prior to such
transaction directly or indirectly own more than fifty percent (50%) of the
voting stock of the surviving or acquiring corporation or corporations, (ii) the
sale, transfer or other disposition of all or substantially all of the assets of
this Corporation to a person other than a corporation or partnership controlled
by the Corporation or its stockholders; and (iii) the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the outstanding voting power of the Corporation prior to such
transaction or series of related transactions is disposed of.
(c) In the event the Corporation shall propose to take any action
of the type described in subsection (a) or (b) of this Subsection 2, the
Corporation shall, within ten (10) days after the date the Board of Directors
approves such action or twenty (20) days prior to any stockholders' meeting
called to approve such action, whichever is earlier, give each holder of shares
of the Preferred Stock written notice of the proposed action. Such written
notice shall describe the material terms and conditions of such proposed action,
including a description of the stock, cash and property to be received by the
holders of shares of the Preferred Stock upon consummation of the proposed
action and the proposed date of delivery thereof. If any material
<PAGE>
change in the facts set forth in the notice shall occur, the Corporation shall
promptly give written notice to each holder of shares of the Preferred Stock of
such material change.
(d) The Corporation shall not consummate any proposed action of
the type described in subsection (a) or (b) of this Subsection 2 before the
expiration of thirty (30) days after the mailing of the initial written notice
or ten (10) days after the mailing of any subsequent written notice, whichever
is later; provided, however, that any such 30-day or 10-day period may be
-------- -------
shortened upon the written consent of the holders of a majority of the
outstanding shares of the Preferred Stock.
(e) If the Corporation shall propose to take any action of the
type described in subsection (a) or (b) of this Subsection 2 which will involve
the distribution of assets other than cash, the Corporation shall, if requested
by the holders of a majority of the Preferred Stock, promptly engage independent
competent appraisers to determine the value of the assets to be distributed to
the holders of shares of the Preferred Stock and the Common Stock. The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice of the appraiser's valuation to each holder of shares of the
Preferred Stock.
3. Voting.
------
(a) Except as set forth in paragraph (b) of this Subsection 3 and
in Subsection 6 hereof, or as otherwise required by law, the shares of the
Preferred Stock shall be voted together with the Corporation's Class A Common
Stock at any annual or special meeting of the stockholders of the Corporation,
or may act by written consent in the same manner as the Corporation's Class A
Common Stock, and shall have the voting rights and powers equal to the voting
rights of the Class A Common Stock, upon the following basis: each holder of
shares of Preferred Stock shall be entitled to such number of votes for the
Preferred Stock held by him on the record date fixed for such meeting, or, if no
record date is established, as the date such vote is taken or on the effective
date of any such written consent, as shall be equal to the nearest whole number
of shares of the Corporation's Common Stock into which his shares of Preferred
Stock are convertible immediately after the close of business on the record date
fixed for such meeting, the date of such vote or the effective date of such
written consent.
(b) The holders of Series A and Series B Preferred Stock, voting
together as a separate class, shall be entitled to elect one director. The
election of a director by the holders of the Preferred Stock shall occur at the
annual meeting of holders of Common Stock or at any special meeting of holders
of Preferred Stock called by holders of a majority of the outstanding shares of
Preferred Stock or by the written consent of all such holders. If the person
elected by the holders of Preferred Stock should cease to be a director for any
reason, the vacancy shall only be filled by the vote or written consent of
holders of a majority of the outstanding shares of Preferred Stock. The holders
of the Common Stock shall be entitled to elect the remaining directors.
4. Status of Converted or Redeemed Stock. In the event that any
-------------------------------------
shares of Preferred Stock shall be converted pursuant to Subsection 5 hereof or
shall be repurchased or otherwise acquired by the Corporation in any manner
whatsoever, such shares shall be retired and canceled promptly after the
acquisition thereof. Such shares shall not be reissued as shares
<PAGE>
of any series of Preferred Stock. Upon such cancellation, and upon the filing of
any certificates required or appropriate under applicable law, the number of
authorized shares of Preferred Stock as set forth in Article IV, shall be
reduced by the number of such shares so canceled.
5. Conversion Rights. The holders of Preferred Stock shall have
-----------------
conversion rights as follows:
(a) Each share of Preferred Stock shall be convertible, at the
option of the holder thereof, at any time at the principal office of the
Corporation or any transfer agent for such shares, into fully paid and
nonassessable shares of Class A Common Stock of the Corporation. The number of
shares of Class A Common Stock into which each share of Preferred Stock may be
converted shall be determined by dividing $1.17087 for the Series A Preferred
Stock and $1.80310 for the Series B Preferred Stock by the Conversion Price
determined as hereinafter provided in effect at the time of the conversion. The
Conversion Price per share at which shares of Class A Common Stock shall be
initially issuable upon conversion of any shares of Preferred Stock shall be
$1.17087 for the Series A Preferred Stock and $1.80310 for the Series B
Preferred Stock, subject to adjustment as provided herein.
(b) Each share of Preferred Stock shall be converted into Class A
Common Stock automatically in the manner provided herein upon the earlier to
occur of (i) the time the consent of holders of at least 66 2/3% of the
outstanding Preferred Stock to such conversion is obtained, or (ii) the closing
of the sale of the Corporation's securities pursuant to an underwritten public
offering from which the Corporation receives gross proceeds of not less than
$10,000,000 at a purchase price of not less than $3.73 per share (as adjusted
for stock splits, stock dividends, reorganizations and the like).
(c) Before any holder of Preferred Stock shall be entitled to
convert the same into Common Stock, such holder shall surrender the certificate
of certificates therefor, duly endorsed in blank or accompanied by proper
instruments of transfer, at the principal office of the Corporation or of any
transfer agent for the Preferred Stock, and shall give written notice to the
Corporation at such office that such holder elects to convert the same and shall
state in writing therein the name or names in which such holder wishes the
certificate or certificates for Common Stock to be issued. As soon as
practicable thereafter, the Corporation shall issue and deliver at such office
to such holder's nominee or nominees, certificates for the number of whole
shares of Common Stock to which such holder shall be entitled. No fractional
shares of Common Stock shall be issued by the Corporation and all such
fractional shares shall be disregarded. In lieu thereof, the Corporation shall
pay in cash the fair market value of such fractional share as determined by the
Board of Directors of the Corporation. Such conversion shall be deemed to have
been made as of the date of such surrender of the Preferred Stock to be
converted, and the person or persons entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Stock on said date.
(d) In case the Corporation shall at any time (i) subdivide (i.e.,
stock split) the outstanding Common Stock or (ii) issue a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock issuable upon
conversion of the Preferred Stock immediately prior to such subdivision or the
issuance of such stock dividend shall be
<PAGE>
proportionately increased by the same ratio as the subdivision or dividend (with
appropriate adjustments in the Conversion Price of the Preferred Stock). In case
the Corporation shall at any time combine (i.e. reverse stock split) its
outstanding Common Stock, the number of shares of Common Stock issuable upon
conversion of the Preferred Stock immediately prior to such combination shall be
proportionately decreased by the same ratio as the combination (with appropriate
adjustments in the Conversion Price of the Preferred Stock). All such
adjustments described herein shall be effective at the close of business on the
date of such subdivision (i.e. stock split), stock dividend or combination (i.e.
reverse stock split), as the case may be.
(e) In case of any capital reorganization (other than in
connection with a merger or other reorganization in which the Corporation is not
the continuing or surviving entity) or any reclassification of the Common Stock
of the Corporation, the Preferred Stock shall thereafter be convertible into
that number of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation deliverable upon
conversion of the shares of Preferred Stock immediately prior to such
reorganization or recapitalization would have been entitled upon such
reorganization or reclassification. In any such case, appropriate adjustment (as
determined by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interests thereafter
of the holders of Preferred Stock, such that the provisions set forth herein
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any share of stock or other property thereafter deliverable upon the conversion.
(f) In case:
(i) the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend, or any
other distribution payable otherwise than in cash; or
(ii) the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
any shares of stock of any class or to receive any other rights; or
(iii) the Corporation shall effect a capital reorganization of
the Corporation, reclassification of the capital stock of the Corporation (other
than a subdivision or combination of its outstanding Common Stock),
consolidation or merger of the Corporation (other than a merger or other
reorganization in which the Corporation is not the continuing surviving entity);
then, and in any such case, the Corporation shall cause to be mailed to the
holders of its outstanding Preferred Stock, at least twenty (20) days prior to
the date hereinafter specified, a notice stating the date on which a record is
to be taken for the purpose of such dividend, distribution or rights, or such
action is to be taken in connection with such reorganization, reclassification,
merger or consolidation.
(g) The Corporation shall at all times reserve and keep available,
out of its authorized but unissued Common Stock, solely for the purpose of
effecting the conversion of the Preferred Stock, the full number of shares of
Common Stock deliverable upon the
<PAGE>
conversion of all Preferred Stock from time to time outstanding. The Corporation
shall from time to time (subject to obtaining necessary director and stockholder
action), in accordance with the laws of the State of Delaware, increase the
authorized amount of its Common Stock if at any time the authorized number of
shares of Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of Preferred Stock at the time outstanding.
(h) Upon the issuance by the Corporation of Common Stock, or any
right or option to purchase Common Stock, or any obligation or any shares of
stock convertible into or exchangeable for Common Stock for a consideration per
share less than the Conversion Price of a series of Preferred Stock in effect
immediately prior to the time of such issue or sale other than the issuance of
shares of Common Stock upon conversion of such series of Preferred Stock, then
forthwith upon such issue or sale, the Conversion Price of such series of
Preferred Stock shall be reduced to a price (calculated to nearest cent)
determined by dividing:
(i) an amount equal to the sum of (x) the number of shares of
Common Stock outstanding immediately prior to such issue or sale multiplied by
the then existing Conversion Price of the affected series of Preferred Stock,
(y) the number of shares of Common Stock issuable upon conversion of any shares
of stock of the Corporation outstanding immediately prior to such issue or sale
multiplied by the then existing Conversion Price of the affected series of
Preferred Stock, and (z) an amount equal to the aggregate consideration received
by the Corporation upon such issue or sale, by
(ii) the sum of the number of shares of Common Stock
outstanding immediately after such issue or sale and the number of shares of
Common Stock (without taking into account any adjustment in such number
resulting from such issue or sale) issuable upon conversion of any shares of
stock of the Corporation outstanding immediately after such issue or sale.
For purposes of this subsection (h) the following provisions shall be
applicable:
(1) In the case of an issue or sale for cash of shares
of Common Stock, the consideration received by the Corporation therefor shall be
deemed to be the amount of cash received, before deducting therefrom any
commissions or expenses paid or incurred by the Corporation.
(2) In case of the issuance (otherwise than upon
conversion or exchange of obligations or shares of stock of the Corporation) of
additional shares of Common Stock for a consideration other than cash or a
consideration partly other than cash, the amount of the consideration other than
cash received by the Corporation for such shares shall be deemed to be the value
of such consideration as reasonably determined by the Board of Directors.
(3) In case of the issuance by the Corporation in any
manner of any rights to subscribe for or to purchase shares of Common Stock, at
a consideration per share (as computed below) less than the Conversion Price in
effect for a series of Preferred Stock immediately prior to the date of the
offering of such rights or the granting of such options, as the case may be, the
maximum number of shares of Common Stock to which the holders of
<PAGE>
such rights or options shall be entitled to subscribe for or purchase pursuant
to such rights or options shall be deemed to be issued or sold as of the date of
the offering of such right or the granting of such options, as the case may be,
and the minimum aggregate consideration named in such rights or options for the
shares of Common Stock covered thereby, plus the consideration, if any, received
by the Corporation for such rights or options, shall be deemed to be the
consideration actually received by the Corporation (as of the date of the
offering of such rights or the granting of such options, as the case may be) for
the issuance of such shares.
(4) In case of the issuance or issuances by the
Corporation in any manner of any obligations or of any shares of stock of the
Corporation that shall be convertible into or exchangeable for Common Stock, at
a consideration per share (as computed below) less than the Conversion Price in
effect for a series of Preferred Stock immediately prior to the date such
obligation or shares are issued, the maximum number of shares of Common Stock
issuable upon the conversion or exchange of such obligations or shares shall be
deemed issued as of the date such obligations or shares are issued, and the
amount of the consideration received by the Corporation for such additional
shares of Common Stock shall be deemed to be the total of the amount of
consideration received by the Corporation upon the issuance of such obligations
or shares, as the case may be, plus the minimum aggregate consideration, if any,
other than such obligations or shares, receivable by the Corporation upon such
conversion of exchange, except in adjustment of dividends.
(5) The amount of the consideration received by the
Corporation upon the issuance of any rights or options refereed to in subsection
(3) above or upon the issuance of any obligations or shares which are
convertible or exchangeable as described in subsection (4) above, and the amount
of the consideration, if any, other than such obligations or shares so
convertible or exchangeable, receivable by the Corporation upon the exercise,
conversion or exchange thereof shall be determined in the same manner provided
in subsections (h)(1) and (2) above with respect to the consideration received
by the Corporation in case of the issuance of additional shares of Common Stock.
On the expiration of any rights or options referred to in subsection (3), or the
termination of any right of conversion or exchange referred to in subsection
(4), the Conversion Price then in effect for a series of Preferred Stock shall
forthwith be readjusted to such Conversion Price as would have been obtained had
the adjustments made upon the issuance of such option, right or convertible or
exchangeable securities been made upon the basis of the delivery of only the
number of shares of Common Stock actually delivered upon the exercise of such
rights or options or upon the conversion or exchange of such securities.
(6) Anything herein to the contrary notwithstanding,
the Corporation shall not be required to make any adjustment of the Conversion
Price in the case of (A) the sale and issuance by the Corporation of up to
2,994,909 shares of Common Stock or rights or options to purchase shares of
Common Stock, net of repurchases and expired or canceled options, (as adjusted
for stock splits, stock dividends, reorganizations and the like) to officers,
directors, employees, consultants and equipment lessors to the Corporation; (B)
the issuance of Common Stock upon the conversion of outstanding Preferred Stock;
or (C) the issuance of up to 723,295 shares of Common Stock upon the exercise of
Warrants issued to the holders of Preferred Stock.
<PAGE>
(i) Upon the occurrence of each adjustment or readjustment of the
Conversion Price for any series of Preferred Stock pursuant to this Subsection
5, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the reasonable written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, and (ii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of the Preferred Stock.
(j) In the event the Corporation at any time or from time to time
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive any distribution payable in securities or other property of
the Corporation other than Common Stock and other than as otherwise adjusted in
this Subsection 5, then and in each such event provision shall be made so that
the holders of Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities and other property of the Corporation which they would have
received had their shares of Preferred Stock been converted into shares of
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the date of conversion,
retained such securities and other property receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Subsection 5 with respect to the rights of the holders of
Preferred Stock.
(k) Any notices required by the provisions of this Subsection 5 to
be given to the holders of shares of Preferred Stock shall be deemed given if
deposited in the United States mail, first class, postage prepaid and addressed
to each holder of record at its address appearing on the books of the
Corporation.
6. Changes. So long as shares of Preferred Stock are outstanding, the
-------
Corporation shall not without first obtaining the approval by vote or written
consent, in the manner provided by law, of the holders of at least a majority of
the total number of shares of Series A and Series B Preferred Stock outstanding,
voting together as a single class; (1) alter or change any of the powers,
preferences, privileges or rights of any series of Preferred Stock; (2) increase
the authorized number of shares of Preferred Stock; (3) amend the provisions of
this Section 6; (4) undertake or effect any consolidation or merger of the
Corporation with or into another corporation or any acquisition by or the
conveyance of all or substantially all of the assets of the Corporation to
another person; (5) create any new series of Preferred Stock; (6) amend this
Certificate of Incorporation of the Corporation; (7) declare or pay any
dividends on the Corporation's capital stock; (8) redeem or repurchase any
outstanding stock other than from employees, consultants or directors upon the
termination of their employment or services pursuant to agreements providing for
such repurchases; or (9) increase the size of the Board of Directors to more
than four directors."
SECOND: That in lieu of a meeting and vote of stockholders, a majority of
the outstanding stock entitled to vote on this amendment and a majority of the
outstanding stock of each class entitled to vote on this amendment as a class
have given their written consent to said
<PAGE>
amendment in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
Sections 242 and 228 of the General Corporation Law of the State of Delaware.
Dated: October 29, 1998 COMPS INFOSYSTEMS, INC.
By: /s/ CHRISTOPHER A. CRANE
---------------------------------
Christopher A. Crane, President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
COMPS INFOSYSTEMS, INC.
COMPS INFOSYSTEMS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the unanimous
written consent of its members, filed with the minutes of the Board, adopted a
resolution proposing and declaring advisable the following amendment to the
Restated Certificate of Incorporation of said corporation:
WHEREAS, it is deemed to be in the best interest of the Corporation
and its stockholders to amend the Corporation's Restated Certificate of
Incorporation.
THEREFORE, BE IT RESOLVED, that the Corporation's Restated Certificate
of Incorporation be amended by changing Article I thereof so that, as amended,
said Article I shall read as follows:
"ARTICLE I
The name of the Corporation is COMPS.COM, INC."
SECOND: That in lieu of a meeting and vote of stockholders, a majority of
the outstanding stock entitled to vote on this amendment and a majority of the
outstanding stock of each class entitled to vote on this amendment as a class
have given their written consent to said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
Sections 242 and 228 of the General Corporation Law of the State of Delaware.
Dated: December 31, 1998
COMPS INFOSYSTEMS, INC.
By: /s/ CHRISTOPHER A. CRANE
-------------------------------
Christopher A. Crane, President
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF BROBECK, PHLEGER & HARRISON LLP]
April 2, 1999
COMPS.COM, INC.
9888 Carroll Centre Road, Suite 100
San Diego, California 92126-4581
Re: COMPS.COM, INC. Registration Statement on Form S-1 for
4,370,000 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to COMPS.COM, INC., a Delaware corporation (the
"Company"), in connection with the proposed issuance and sale by the Company of
up to 4,370,000 shares of the Company's Common Stock (the "Shares"), including
570,000 Shares which the Underwriters have the option to purchase to cover over-
allotments, if any, pursuant to the Company's Registration Statement on Form S-1
(the "Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
<PAGE>
COMPS.COM, INC.
Page 2
This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 10.14
STANDARD INDUSTRIAL/COMMERCIAL MULTI-LESSEE LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This lease ("LEASE"), dated for reference purposes only,
January 31, 1999, is made by and between COMPS Plaza Associates, L.P. ("LESSOR")
and COMPS.COM, INC., a Delaware corporation ("LESSEE"), (collectively the
"PARTIES," or individually a "PARTY").
1.2 (a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 9888 Carroll Center Road, located in the
City of San Diego, County of San Diego, State of California, with zip code
92126, as outlined on Exhibit A attached hereto ("PREMISES"). The "BUILDING" is
that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): two story office building
containing approximately 52,425 rentable square feet; stucco exterior and
central courtyard. In addition to Lessee's rights to use and occupy the
Premises as hereinafter specified, Lessee shall have non-exclusive rights to the
Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but
shall not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as
the "INDUSTRIAL CENTER." (Also see Paragraph 2).
1.2 (b) PARKING: 112 unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES"); and 1 reserved vehicle parking spaces ("RESERVED PARKING
SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: Five (5) years and -0- months ("ORIGINAL TERM") commencing
February 1, 1999 ("COMMENCEMENT DATE") and ending January 31, 2004 ("EXPIRATION
DATE"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: not applicable ("EARLY POSSESSION DATE"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $32,718.75 per month ("BASE RENT"), payable on the first
day of each month commencing March 1, 1999 (Also see Paragraph 4). [ X ] If this
box is checked, this Lease provides for the Base Rent to be adjusted per
Addendum 1, attached hereto.
1.6 (a) BASE RENT PAID UPON EXECUTION: $ -0- as Base Rent for the period
not applicable.
1.6 (b) LESSEE'S SHARE OF OPERATING EXPENSES: See Addendum 1 percent (%)
("LESSEE'S SHARE") as determined by [ ] prorata square footage of the Premises
as compared to the total square footage of the Building or [ XX ] other criteria
as described in Addendum 1.
1.7 SECURITY DEPOSIT: $ 20,399.27 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: General office, all uses incidental thereto and all
other lawful uses permitted under applicable zoning laws ("PERMITTED USE").
(Also see Paragraph 6)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph
8.)
1.10 (a) Intentionally Deleted
1.12 ADDENDA and EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1 through 12 , Inserts to Lease pages 1-4 and Exhibits
A through C , all of which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Operating Expenses, is an
approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than full-
size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general non-
exclusive use of Lessor, Lessee and other lessees of the Industrial Center and
their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior
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written consent of Lessor or Lessor's designated agent, which consent may be
revoked at any time. In the event that any unauthorized storage shall occur then
Lessor shall have the right, without notice, in addition to such other rights
and remedies that it may have, to remove the property and charge the reasonable
cost to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable and non-discriminatory Rules and Regulations with respect
thereto in accordance with Paragraph 40. Lessee agrees to abide by and conform
to all such Rules and Regulations, and to cause its employees, suppliers,
shippers, customers, contractors and invitees to so abide and conform. Lessor
shall not be responsible to Lessee for the non-compliance with said rules and
regulations by other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas, walkways and utility raceways, provided that such
charges shall not unreasonably interfere with Lessee's business or access
thereto;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Industrial Center as Lessor may, in
the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent, and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 OPERATING EXPENSES. Lessee shall pay monthly to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph
1.6(b)) of all Operating Expenses, as hereinafter defined, during each calendar
year of the term of this Lease, in accordance with the following provisions:
(a) "OPERATING EXPENSES" are defined, for purposes of this Lease, as
all costs incurred by Lessor relating to the ownership and operation of the
Industrial Center, including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:
(aa) The Common Areas and the Building, including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
lighting, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas and the Building.
(iii) Trash disposal, property management and security services
and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas and the Building.
(v) Real Property Taxes (as defined in Paragraph 10.2).
(vi) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Operating Expense.
(b) Any Operating Expenses and Real Property Taxes that are
specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center. Insert 4.2(b)
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Operating
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each 12-month period of the Lease term, on the same day as the
Base Rent is due hereunder. Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each calendar year a reasonably detailed statement
showing Lessee's Share of the actual Operating Expenses incurred during the
preceding year. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year exceed Lessee's Share as indicated on said statement, Lessor
shall be credited the amount of such over-payment against Lessee's Share of
Operating Expenses next becoming due. If Lessee's payments under this Paragraph
4.2(d) during said preceding year were less than Lessee's Share as indicated on
said statement, Lessee shall pay to Lessor the amount of the deficiency within
ten (10) days after delivery by Lessor to Lessee of said statement. Insert
4.2(d)
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Lessor shall not be required to keep all or
any part of the Security Deposit separate from its general accounts. Lessor
shall, at the expiration or earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest except from and after the tenth (10) day
following the expiration or earlier termination of this Lease, the Security
Deposit shall accrue interest at the rate set forth in Paragraph 19 of this
Lease or other increment for its use, or to be prepayment for any monies to be
paid by Lessee under this Lease. Upon execution of each Amendment for expansion
space, Lessee shall deposit with Lessor a Security Deposit equal to the initial
monthly Base Rent for such expansion space.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted Use
set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
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6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under or about the Premises
(including, without limitation, through the plumbing or sanitary sewer system)
in violation of applicable laws.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement. Insert 6.2(c)
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, relating in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Insert 6.3 Lessee shall, within five (5) days after receipt of
Lessor's written request, provide Lessor with copies of all documents and
information, including but not limited to permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with any
Applicable Requirements reasonably specified by Lessor, and shall immediately
upon receipt, notify Lessor in writing (with copies of any documents involved)
of any threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving failure by Lessee or the Premises to comply
with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDERS") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise
with at least 24 hours prior notice, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, interior windows, doors, plate glass, but excluding any
items which are the responsibility of Lessor pursuant to Paragraph 7.2 below.
Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when reasonably necessary to keep
the Premises and all improvements thereon or a part thereof in good order,
condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or
Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to
Paragraph 4.2, shall keep in good order, condition and repair the foundations,
exterior walls, structural condition of interior bearing walls, roof, roof
membrane, skylights, smoke hatches, fire sprinkler and/or standpipes and hose
(if located in the Common Areas) or other automatic fire extinguishing system
including fire alarm and/or smoke detection systems and equipment, fire
hydrants, parking lots, walkways, parkways, driveways, irrigation systems,
exterior lighting, landscaping, fences, signs and utility systems serving the
Common Areas and all parts thereof, as well as providing the services for which
there is Operating Expense pursuant to Paragraph 4.2. Lessor shall not be
obligated to paint the interior surfaces of exterior walls nor shall Lessor be
obligated to maintain, repair or replace interior windows, doors or plate glass
of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair. Insert 7.2
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all air lines, power panels, electrical
distribution, security and fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent which shall not be unreasonably
withheld or delayed. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof) without
Lessor's consent but upon notice to Lessor, so long as they are not visible from
the outside of the Premises, do not involve puncturing, relocating or removing
the roof or any
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existing walls, or changing or interfering with the fire sprinkler or fire
detection systems and the cumulative cost thereof during the term of this Lease
as extended does not exceed $10,000.00 per year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consents, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's reasonable attorneys' fees
and costs in participating in such action if Lessor shall reasonably decide it
is to its best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal and
to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Unless otherwise instructed per Subparagraph 7.4(b) hereof, all
Lessee-Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
the Premises and be surrendered with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may (at the
time Lessor gives its consent to the installation of such Lessee-owned
Alterations or Utility Installations) require that any or all Lessee-Owned
Alterations or Utility Installations be removed by the expiration or earlier
termination of this Lease, notwithstanding that their installation may have been
consented to by Lessor. Lessor may require the removal at any time of all or any
part of any Alterations or Utility Installations made without the required
consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted and subject to Paragraph 9. Ordinary wear and
tear shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Lessee performing all of its
obligations under this Lease. Except as otherwise agreed or specified herein,
the Premises, as surrendered, shall include the Alterations and Utility
Installations. The obligation of Lessee shall include the repair of any damage
occasioned by the installation, maintenance or removal of Lessee's Trade
Fixtures, furnishings, equipment, and Lessee-Owned Alterations and Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Requirements and/or good practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease. Insert 7.4(c)
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the insurance policies
maintained by Lessor under this Paragraph 8 shall be an Operating Expense
pursuant to Paragraph 4.2 hereof. Premiums for policy periods commencing prior
to, or extending beyond, the term of this Lease shall be prorated to coincide
with the corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in
writing (as additional insureds) against claims for bodily injury, and property
damage based upon, involving or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $1,000,000 per occurrence with an "Additional Insured-Managers or
Lessors of Premises" endorsement and contain the "Amendment of the Pollution
Exclusion" endorsement for damage caused by heat, smoke or fumes from a hostile
fire. The policy shall not contain any intra-insured exclusions as between
insured persons or organizations, but shall include coverage for liability
assumed under this Lease as an "INSURED CONTRACT" for the performance of
Lessee's indemnity obligations under this Lease. The limits of said insurance
required by this Lease or as carried by Lessee shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance to be carried by Lessee shall be primary to and not contributory with
any similar insurance carried by Lessor, whose insurance shall be considered
excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Building required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered loss but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any co-insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force during the term
of this Lease a policy or policies in the name of Lessor, with loss payable to
Lessor and any Lender(s), insuring the loss of the full rental and other charges
payable by all lessees of the Building to Lessor for one year (including all
Real Property Taxes, insurance costs, all Operating Expenses and any scheduled
rental increases). Said insurance may provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income, Real
Property Taxes, insurance premium costs and other expenses, if any, otherwise
payable, for the next 12-month period. Operating Expenses shall include any
deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the premiums for
the property insurance of the Building and for the Common Areas or other
buildings in the Industrial Center if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the insuring Party, Lessor shall
not be required to insure Lessee-Owned Alterations and Utility Installations
unless the item in question has become the property of Lessor under the terms of
this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed
$10,000.00 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the reasonable cost thereof to Lessee, which amount
shall be payable by Lessee to Lessor upon demand.
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8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessor and Lessee each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's or Lessor's agents', employees', or
contractors' negligence, willful misconduct and/or breach of this Lease, Lessee
shall indemnify, protect, defend and hold harmless the Premises, Lessor and its
agents, Lessor's master or ground lessor, partners and Lenders, from and against
any and all claims, loss of rents and/or damages, costs, liens, judgments,
penalties, loss of permits, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the occupancy of
the Premises by Lessee, the conduct of Lessee's business, any act, omission or
neglect of Lessee, its agents, contractors, employees or invitees, and out of
any Default or Breach by Lessee in the performance in a timely manner of any
obligation on Lessee's part to be performed under this Lease. The foregoing
shall include, but not be limited to, the defense or pursuit of any claim or any
action or proceeding involved therein, and whether or not (in the case of claims
made against Lessor) litigated and/or reduced to judgment. In case any action
or proceeding is brought against Lessor by reason of any of the foregoing
matters, Lessee upon notice from Lessor, shall defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate
with Lessee in such defense. Lessor need not have first paid any such claim in
order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except for Lessor's negligence, gross
negligence, willful misconduct and/or breach of this Lease Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, Lessor shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within such ten (10) day period,
and if Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor acts to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or
satisfactory assurance thereof within thirty (30) days following such commitment
from Lessee. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
after the required funds are available. If Lessee does not give such notice and
provide the funds or assurance thereof within the times specified above, this
Lease shall terminate as of the date of the occurrence of such damage.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate as of the date of such
Premises Total Destruction, whether or not the damage or destruction is an
insured Loss or was caused by a negligent or willful act of Lessee. In the
event, however, that the damage or destruction was caused by Lessee, Lessor
shall have the right to recover Lessor's damages from Lessee except as released
and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last twelve (12)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, either party may,
terminate this Lease effective sixty (60) days following the date of occurrence
of such damage by giving written notice to the other party of its election to do
so within thirty (30) days after the date of occurrence of such damage.
Provided, however, if Lessee at that time has an exercisable option to extend
this Lease or to purchase the Premises, then Lessee may preserve this Lease by
(a) exercising such option, and (b) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the repairs on
or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Operating Expenses and other charges, if any, payable by Lessee hereunder for
the period during which such damage or condition, its repair, remediation or
restoration continues, shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired. Except for abatement of Base Rent,
Operating Expenses and other charges, if any, as aforesaid, all other
obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair, remediation or restoration except for damages due
to Lessor's negligence, willful misconduct or breach of this Lease.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
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shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may, at
Lessor's option either: (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twenty (20)
times the then monthly Base Rent, give written notice to Lessee within thirty
(30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as to
the date sixty (60) days following the date of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the excess costs
of (a) investigation and remediation of such Hazardous Substance Condition to
the extent required by Applicable Requirements, over (b) an amount equal to
twenty (20) times the then monthly Base Rent. Lessee shall provide Lessor with
the funds required of Lessee or satisfactory assurance thereof within thirty
(30) days following said commitment by Lessee. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
investigation and remediation as soon as reasonably possible after the requiring
funds are available. If Lessee does not give such notice and provide the
required funds or assurance thereof within the time period specified above, this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises and the
Building with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise
provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Operating Expenses in accordance with the provisions of Paragraph
4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term "REAL PROPERTY
TAXES" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Industrial Center by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Industrial Center or any portion thereof, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Industrial
Center or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common. Insert 10.2
10.3 ADDITIONAL IMPROVEMENTS. Operating Expenses shall not include Real
Property Taxes specified in the tax assessor's records and work sheets as being
caused by additional improvements placed upon the Industrial Center by Lessee or
by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding
Paragraph 10.1 hereof, Lessee shall, however, pay to Lessor at the time
Operating Expenses are payable under Paragraph 4.2, the entirety of any increase
in Real Property Taxes if assessed solely by reason of Alterations, Trade
Fixtures or Utility Installations placed upon the Premises by Lessee or at
Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Subject to Lessee's right to contest the
amount or application of such taxes Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) Insert 12.1(b)
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, nor (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone
else responsible for the performance of the Lessee's obligations under this
Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the
Initials: CM
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<PAGE>
intended use and/or required modification of the Premises, if any, together with
reimbursement of Lessor's legal fees and costs which shall not exceed $500.00.
Lessee agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's and Lessee's
prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
Insert 12.3(f)
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), Lessor may include the reasonable cost of such services
and costs in said notice as rent due and payable to cure said default. A
"DEFAULT" by Lessee is defined as a failure by Lessee to observe, comply with or
perform any of the terms, covenants, conditions or rules applicable to Lessee
under this Lease. A "BREACH" by Lessee is defined as the occurrence of any one
or more of the following Defaults, and, where a grace period for cure after
notice is specified herein, the failure by Lessee to cure such Default prior to
the expiration of the applicable grace period, and shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3;
(a) The vacating of the Premises without a Lessor authorized assignee
or sublessee or without the intention to reoccupy same, or the abandonment of
the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent, Lessee's Share of Operating
Expenses, or any other monetary payment required to be made by Lessee hereunder
within five (5) days of when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
seven (7) business days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or
of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false without a reasonable explanation from Lessee for such error.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency without notice), Lessor may at its option (but
without obligation to do so) perform such duty or obligation on Lessee's behalf,
including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments for a period of one (1) calendar year to
be made under this Lease by Lessee to be made only by cashier's check. In the
event of a Breach of this Lease by Lessee (as defined in Paragraph 13.1), with
or without further notice or demand, and without limiting Lessor in the exercise
of any right or remedy which Lessor may have by reason of such Breach, Lessor
may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises to the extent required by Paragraph
7.4(c), reasonable attorneys' fees, and that portion of any leasing commission
paid by Lessor in connection with this Lease applicable to the unexpired term of
this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the immediately preceding sentence shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco or the Federal Reserve Bank District in which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Default or Breach of this Lease shall not waive
Lessor's right to recover damages under this Paragraph 13.2. If termination of
this Lease is obtained through the provisional remedy of unlawful detainer,
Lessor shall have the right to recover in such proceeding the unpaid rent and
damages as are recoverable therein, or Lessor may reserve the right to recover
all or any part thereof in a separate suit for such rent and/or damages. If a
notice and grace period required under Subparagraph 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Subparagraph 13.1(b),(c) or (d). In such case,
the applicable grace period under the unlawful detainer statue shall run
concurrently after the one such
Initials: CM
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<PAGE>
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two (2) such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession (under
California Civil Code Section 1951.4) after Lessee's Breach and recover the rent
as it becomes due, provided Lessee has the right to sublet or assign, subject
only to reasonable limitations. Lessor and Lessee agree that the limitations on
assignment and subletting in this Lease are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under this Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If Lessee's business is materially affected
or more than ten percent (10%) of the floor area of the Premises, or more than
twenty-five percent (25%) of the portion of the Common Areas designated for
Lessee's parking is taken by condemnation, or Lessee may elect to continue this
Lease with Base Rent abated in proportion to the adverse effect of the
condemnation on Lessee's business in the Premises, as reasonably determined by
Lessee and Lessor. Lessee may, at Lessee's option, to be exercised in writing
within ten (10) days after Lessor shall have given Lessee written notice of such
taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of the
date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Base Rent shall be reduced in the same proportion as the rentable floor
area of the Premises taken bears to the total rentable floor area of the
Premises. No reduction of Base Rent shall occur if the condemnation does not
apply to any portion of the Premises. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution of value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or attributable to loss of
Lessee's Trade Fixtures and any Lessee owned Alterations and/or Utility
Installations which Lessee would be entitled to remove on expiration or earlier
termination of this Lease. In the event that this Lease is not terminated by
reason of such condemnation, Lessor shall to the extent of its net severance
damages received, over and above Lessee's Share of the legal and other expenses
incurred by Lessor in the condemnation matter, repair any damage to the Premises
caused by such condemnation authority. Lessee shall be responsible for the
payment of any amount in excess of such net severance damages required to
complete such repair.
15. BROKERS' FEES.
15.1
15.2
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined. Insert
17
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent with the exception of unused portion of the
Security Deposit.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party
beneficiary of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to either hereunder shall be
concurrently transmitted to such party or parties at such addresses as such
party may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return
receipt requested, shall be deemed given on the date of delivery shown on the
receipt card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail, the notice shall be deemed given seventy-two (72) hours after
Initials: CM
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<PAGE>
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or Breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to one hundred fifty
percent (150%) of the Base Rent applicable during the month immediately
preceding such expiration or earlier termination. Nothing contained herein
shall be construed as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessor or Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") in a
form reasonably acceptable to Lessee from the Lender that Lessee's possession
and this Lease, including any options to extend the term hereof, will not be
disturbed so long as Lessee is not in Breach hereof and attorns to the record
owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all reasonable attorneys' fees
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach, Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times upon 24 hours' prior notice for the
purpose of showing the same to prospective purchasers, lenders, or lessees
during the last 8 months of the lease term, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of
Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the Building) such signs as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and such signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions of
Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations). Unless otherwise expressly agreed herein, Lessor reserves air
rights to the use of the roof of the Building.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessee's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1
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<PAGE>
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "Option" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given three (3) or
more notices of separate Defaults under Paragraph 13.1 three (3) or more times
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option if after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due, or (ii) Lessor
gives to Lessee three (3) or more notices of separate Defaults under Paragraph
13.1 three (3) or more times during any twelve (12) month period, whether or not
the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable and non-discriminatory rules and regulations ("Rules and
Regulations") which Lessor may make from time to time for the management,
safety, care, and cleanliness of the grounds, the parking and unloading of
vehicles and the preservation of good order, as well as for the convenience of
other occupants or tenants of the Building and the Industrial Center and their
invitees. See attached Exhibit "C".
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property against the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this Lease
together with reasonable fees incurred in the recovery of such costs.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
Initials: CM
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<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: San Diego, California Executed at: San Diego, California
----------------------------------------------- -----------------------------------------------
on: 1/31/99 on: 1/31/99
--------------------------------------------------------- --------------------------------------------------------
By LESSOR: By LESSEE:
COMPS Plaza Associates, L.P. COMPS.COM, INC., a Delaware corporation
- ------------------------------------------------------------ ------------------------------------------------------------
By: Alden Properties, Inc., a California corporation
- ------------------------------------------------------------ ------------------------------------------------------------
By: /s/ CHRISTOPHER S. McKELLAR By: /s/ KAREN GOODRUM
- ------------------------------------------------------------ ------------------------------------------------------------
Name Printed: Christopher S. McKellar Name Printed: Karen Goodrum
---------------------------------------------- ----------------------------------------------
Title: Vice President Title: Chief Financial Officer
----------------------------------------------------- -----------------------------------------------------
By: ________________________________________________________ By: ________________________________________________________
Name Printed: ______________________________________________ Name Printed: ______________________________________________
Title: _____________________________________________________ Title: _____________________________________________________
Address: 12526 High Bluff Dr., Suite 100 Address: 9888 Carroll Center Road, #100
--------------------------------------------------- ---------------------------------------------------
San Diego, CA 92130 San Diego, CA 92126
- ------------------------------------------------------------ ------------------------------------------------------------
Telephone: (619) 793-2622 Telephone: (619) 578-3000
------------------------------------------- -------------------------------------------
Facsimile: (619) 793-7616 Facsimile: (619) 684-3288
------------------------------------------- -------------------------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071,
(213) 687-8777.
(C) 1993 by American Industrial Real Estate Association All rights reserved. No
part of these words may be reproduced in any form without permission in writing.
Initials: CM
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<PAGE>
Exhibit A
Outline of Floor Plan of Premises
First Floor
Initials: CM
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KG
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A-1
<PAGE>
Exhibit A
Outline of Floor Plan of Premises
Second Floor
Initials: CM
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KG
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A-2
<PAGE>
EXHIBIT B
TENANT IMPROVEMENT AGREEMENT
----------------------------
1. TENANT IMPROVEMENTS. Lessee shall cause to be performed the
-------------------
improvements (the "Tenant Improvements") in the Premises in accordance with
-------------------
plans and specifications approved by Lessee and Lessor (the "Plans"), which
-----
approvals shall not be unreasonably withheld or delayed. The Tenant
Improvements shall be performed at the Lessee's cost, subject to the Lessor's
Contribution (hereinafter defined).
Lessee shall cause the Plans to be prepared by a registered
professional architect and engineer acceptable to Lessor and Lessee. Lessee
shall furnish the initial draft of the Plans to Lessor for Lessor's review and
approval. Lessor shall within two (2) weeks after receipt either provide
comments to such Plans or approve the same. Lessor shall be deemed to have
approved such Plans if it does not timely provide comments on such Plans. If
Lessor provides Lessee with comments to the initial draft of the Plans, Lessee
shall provide revised Plans to Lessor incorporating Lessor's comments within one
week after receipt of Lessor's comments. Lessor shall within one week after
receipt then either provide comments to such revised Plans or approve such
Plans. Lessor shall be deemed to have approved such revised Plans if Lessor
does not timely provide comments on such Plans. The process described above
shall be repeated, if necessary, until the Plans have been finally approved by
Lessor. Lessee hereby agrees that the Plans for the Tenant Improvements shall
comply with all Applicable Laws. Lessor's approval of any of the Plans (or any
modifications or changes thereto) shall not impose upon Lessor or its agents or
representatives any obligation with respect to the design of the Tenant
Improvements or the compliance of such Tenant Improvements or the Plans with
Applicable Laws. A contractor acceptable to Lessor and Lessee ("Contractor")
----------
shall perform the construction of the Tenant Improvements. Lessee shall enter
into a contract with Contractor for the construction of the Tenant Improvements.
2. CHANGE ORDERS. If, prior to the Commencement Date, Lessee shall
-------------
require improvements or changes (individually or collectively, "Change Orders")
-------------
to the Premises in addition to, revision of or substitution for the Tenant
Improvements, Lessee shall deliver to Lessor for its approval plans and
specifications for such Change Orders. If Lessor does not approve of the plans
for Change Orders, Lessor shall advise Lessee of the revisions required. Lessee
shall revise and redeliver the plans and specifications to Lessor within five
(5) business days of Lessor's advice or Lessee shall be deemed to have abandoned
its request for such Change Orders. Lessee shall pay for all preparations and
revisions of plans and specifications, and the construction of all Change
Orders, subject to Lessor's Contribution.
3. CONTRIBUTION. Lessor shall contribute an amount up to $2.00 per
------------
rentable square foot for previously improved space and $22.00 per rentable
square foot for Suite 236 (not previously improved) ("Lessor's Contribution")
---------------------
toward the costs incurred for the Tenant Improvements and Change Orders.
Lessor's contribution to be made upon Substantial Completion as defined in
Section 4 of this Agreement. Lessor has no obligation to pay for costs of the
Tenant Improvements or Change Orders in excess of Lessor's Contribution. For
the purposes of this Lease, the costs incurred for the Tenant Improvements and
Change Orders shall include, without limitation, the preparation of the Plans,
hard construction costs, architectural and engineering fees, all governmental
and other regulatory fees and costs associated with the Tenant Improvements and
Change Orders, costs of utility connection and permitting.
4. SUBSTANTIAL COMPLETION. The Tenant Improvements shall be deemed
----------------------
to be "Substantially Completed", and "Substantial Completion" shall be deemed to
occur when the Contractor certifies in writing to Lessor and Lessee that (a)
Contractor has substantially performed all of the Tenant Improvement work
required to be performed under this Plans, other than decoration and minor
"punch list" items and adjustments which do not materially interfere with
Lessee's access to or use of the Premises; and, if required, and (b) Contractor
or Lessee has obtained a temporary certificate of occupancy or other required
approval from the local governmental authority permitting occupancy of the
Premises. The Contractor shall guaranty all work and Improvements for one (1)
year from the earlier of Substantial Completion of the Tenant Improvements or
the commencement of the warranty for those items covered by manufacturer's or
vendor's warranties and, to the extent possible, shall assign all warranties to
Lessee.
5. ARBITRATION.
-----------
A. Dispute Resolution. If any dispute arises in connection with
------------------
this Tenant Improvement Agreement, such dispute shall be resolved in accordance
with this Article. Such dispute shall be determined by a panel consisting of
one representative of Lessor, one of Lessee's construction representatives (or
another party designated by Lessee), and a third party with extensive
development and construction experience in the construction of commercial office
space in the San Diego County area selected in accordance with paragraph 5C of
this Tenant Improvement Agreement ("Construction Panel").
B. Notice. All disputes to be determined in accordance with this
------
Section 5 shall be raised by notice to the other party, which notice shall state
with particularity the nature of the dispute and the demand for relief, making
specific reference by paragraph number and title to the provision of this Tenant
Improvement Agreement alleged to give rise to the dispute. Such notice shall
also refer to this Section 5.
C. Selection of Third Party/Costs. Lessor and Lessee shall mutually
------------------------------
and promptly select a third party who meets the qualifications set forth in
paragraph 5A of this Tenant Improvement Agreement. In the event a selection is
not made within two (2) days after demand for resolution is made, the third
party shall, upon the request of
<PAGE>
either party, be appointed by the then-president of the Association of General
Contractors of San Diego County. All proceedings contemplated by this Section 5
shall take place at the locations for all job-site meetings, unless the
Construction Panel mutually agrees to another location. The cost for the third
party's services shall be paid by the non-prevailing party, unless the
Construction Panel determines otherwise.
D. Interpretation and Resolution. In determining any dispute, the
-----------------------------
Construction Panel shall apply the pertinent provisions of this Tenant
Improvement Agreement (and the Lease, if applicable) without departure therefrom
in any respect. The Construction Panel shall not have the power to add to,
modify or change any of the provisions of this Tenant Improvement Agreement, but
this provision shall not prevent in any appropriate case the interpretation,
construction and determination by the Construction Panel of the applicable
provisions of this Tenant Improvement Agreement to the extent necessary in
applying the same to the matters to be determined by the Construction Panel.
E. Continued Performance. During any proceedings pursuant to this
---------------------
Section 5, Lessor and Lessee shall, to the extent possible, continue to perform
and discharge all of their respective obligations under this Tenant Improvement
Agreement and the Lease.
F. Binding Resolution. The Construction Panel shall meet within two
------------------
(2) days of the third party being selected as a member of the Construction Panel
and the Construction Panel shall thereafter resolve the issue in dispute within
two (2) business days, unless it is mutually agreed among the Construction Panel
members that additional times is necessary to resolve the dispute, but in no
event shall such additional time exceed five (5) business days. Lessor and
Lessee agree that time and strict punctual performance are of the essence with
respect to each provision of this Tenant Improvement Agreement and that any and
all decisions of the Construction Panel as to the matter in dispute shall be
binding upon both Lessor and Lessee.
6. MISCELLANEOUS. Terms used in this Exhibit B shall have the
------------- ---------
meanings assigned to them in the Lease. The terms of this Exhibit B are subject
---------
to the terms of the Lease.
LANDLORD: TENANT:
COMPS PLAZA ASSOCIATES, L.P. COMPS.COM, INC.,
A CALIFORNIA LIMITED PARTNERSHIP A DELAWARE CORPORATION
By: Alden Properties, Inc.
By: /s/ CHRIS McKELLAR By: /s/ KAREN GOODRUM
---------------------------------- ---------------------------------
Name: Chris McKellar Name: Karen Goodrum
-------------------------------- -------------------------------
Title: Vice President Title: Chief Financial Officer
------------------------------- ------------------------------
2
<PAGE>
EXHIBIT C
---------
Rules and Regulations
1. Tenant must use window coverings approved by Landlord in all exterior or
atrium window offices. No awning shall be permitted on any part of the
Premises. Tenant shall not place anything against or near partitions, doors, or
windows which may appear unsightly from outside the Premises.
2. The halls, passages, exits, entrances, elevators, and stairways are not for
the use of the general public. Tenant shall not obstruct the hall, passages,
exits, entrances, elevators or stairways. Landlord shall in all cases retain
the right to control and prevent access thereto of all persons whose presence in
the reasonable judgment of Landlord would be prejudicial to the safety,
character, reputation, or interests of the Building and its tenants; provided
that nothing contained herein shall be construed to prevent access to persons
with whom any tenant normally deals in the ordinary course of its business,
unless such persons are engaged in illegal activities. No tenant and no
employee or invitee of any tenant shall go upon the roof of the Building or into
mechanical, electrical, or phone rooms without Landlord's consent. All common
areas and facilities forming a part of the Building shall be under the sole and
absolute control of Landlord with exclusive right to regulate and control these
areas.
3. Any directory of the Building will be provided, at Tenant's expense,
exclusively for the display of the name and location of tenants only and
Landlord reserves the right to limit the number of listings and exclude any
other names therefrom.
4. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord, at Tenant's expense, and except
with the written consent of Landlord, no person or persons other than those
approved by Landlord may be employed by Tenant or permitted to enter the
Building for the purpose of cleaning the same. Tenant shall not cause any
unnecessary labor by carelessness or indifference to the orderliness and
cleanliness of the Premises. Landlord shall not in any way be responsible to any
Tenant for any loss of property on the Premises, however occurring, or for any
damage to any Tenant's property by the janitor or any other employee or any
other person.
5.
6. Any freight elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord, in its sole
discretion, shall deem appropriate.
7. Tenant shall not place a load upon any floor of the Premises which exceeds
the load per square foot which such floor was designed to carry. Landlord shall
have the right to prescribe the weight, size, and position of all equipment,
materials, furniture, or other property brought into the Building. If heavy
objects are deemed necessary by Tenant, and are pre-approved by Landlord, said
objects shall stand on platforms to properly distribute the weight, the size and
thickness of which shall be in Landlord's sole discretion. Any mechanical
equipment or business machines which cause noise or vibration to be transmitted
to the structure of the Building or other tenant's space and is objectionable to
Landlord shall be placed on vibration eliminators or other devices sufficient to
eliminate noise or vibration. Said eliminators shall be installed and
maintained at Tenant's sole expense. The persons employed to move such
equipment in or out of the Building must be reasonably acceptable to Landlord.
Landlord will not be responsible for loss of, or damage to, any such equipment
or other affected property or any damage done to the Building or other tenants
by maintaining or moving such equipment or other property. Any such loss or
damage shall be Tenant's responsibility and/or repaired at Tenant's sole
expense.
8. Tenant shall not use or keep in the Premises any kerosene, gasoline, or
flammable or combustible fluid or material.
9. Tenant shall not use, or permit to be used, in the Premises any foul or
noxious gas or substance.
10. Tenant shall not permit or allow the premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the Building
by reason of noise, odors, or vibrations.
11. Tenant shall not bring or keep in or about the Premises any birds or
animals, except seeing-eye dogs when accompanied by their masters.
12. The building systems hours of operation shall be 7:00 a.m. to 6:00 p.m.
Monday through Friday, excluding legal holidays. Tenant shall not use any
method of heating or air conditioning other than that supplied or approved by
Landlord. Tenant shall not waste electricity, water, or air conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Building's heating and air conditioning and to comply with any
governmental energy-saving rules, laws, or regulations for which Tenant has
actual notice and shall refrain from attempting to adjust controls other than
room thermostats installed for Tenant's use. Tenant shall keep corridor and/or
exterior doors closed, and shall close window coverings at the end of each
business day.
13. Landlord reserves the right to exclude from the Building between the hours
of 6:00 p.m. and 7:00 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal holidays,
any persons unless that person is known to the person or employee in charge of
the Building and has a pass or is properly identified. Tenant shall be
responsible for all persons for whom its requests passes and shall be liable to
Landlord for all acts of such persons. Landlord shall not be liable for damage
or for any error with regard to the admission to or exclusion from the Building
of any person unless caused by the negligence or willful misconduct of Landlord
or Landlord's agents. Landlord reserves the right to prevent access to the
Building in case of invasion, mob, riot, public excitement, or other commotion
by closing the doors or by other reasonably appropriate action.
14. Tenant shall close and lock the doors of its Premises and entirely shut off
all water faucets or other water apparatus and, except with regard to Tenant's
computers and other equipment which must be run on a twenty-four hour basis, all
electricity, gas or air outlets before Tenant and its employees lease the
Premises. Tenant shall be
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responsible for any damage or injuries sustained by other tenants or occupants
of the Building or by Landlord resulting from noncompliance with this rule.
15.
16. The toilet rooms, toilet, urinals, wash bowls, and other apparatus shall
not be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein. The
expense of any breakage, stoppage, or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused it.
17. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any suite-to-suite
solicitation of business from other tenants in the Building. Tenant shall not
use the Premises for any business or activity other than that specifically
provided for in Tenant's Lease.
18. Tenant shall not mark, drive nails, screw, or drill into the partitions,
woodwork, or plaster or in any way deface the Premises or any part thereof,
except to install normal wall hangings. Landlord reserves the right to direct
electricians as to where and how telephones and telegraph wires are to be
introduced to the Premises. Tenant shall not cut or bore holes for wires.
19.
20. Canvassing, soliciting, or distribution of handbills or any other written
material and peddling in the Building or on the Site are prohibited and each
tenant shall cooperate to prevent same.
21. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence of
drugs or who is in violation of any of the Rules and Regulations of the
Building.
22. Tenant shall store all its trash and garbage within its Premises or deposit
in outside refuse containers intended for this purpose. Tenant shall not place
in any trash box or receptacle any material which cannot be disposed of in the
ordinary and customary manner of trash and garbage disposal. All garbage and
refuse disposal shall be made in accordance with directions issued from time to
time by Landlord. The outside areas immediately adjoining the Premises shall be
kept clean and free of rubbish by Tenant to the satisfaction of Landlord, and
Tenant shall not place or permit any obstruction or materials in such areas.
23. The Premises shall not be use for lodging nor shall the Premises be used
for any illegal purpose. No cooking shall be done or permitted by any tenant on
the Premises, except that use by Tenant of Underwriters' Laboratory-approved
equipment for brewing coffee, tea, hot chocolate and similar beverages shall be
permitted and the use of a microwave oven with all applicable federal, state,
county, and city laws, codes, ordinances, rules and regulations.
24. Tenant shall not use in any space or in the public halls of the Building
any mailcarts or hand trucks except those equipped with rubber tires and side
guards or such other material handling equipment as Landlord may approve.
Tenant shall not bring any vehicles of any kind into the Building. Carpet
stains caused by hand trucks shall be cleaned at Tenant's expense.
25. Tenant shall comply with all safety, fire protection, and evacuation
procedures and regulations established by Landlord or any governmental agency.
26. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery, or pilferage unless caused by Landlord's negligence or willful
misconduct.
27. Tenant shall address repair requests, concerns, etc., in writing to the
office of the Building. Employees of Landlord shall not perform on behalf of
Landlord or Tenant without express authority from Landlord.
28. Heat and air conditioning shall be furnished to the Premises by Landlord
(as part of the Operating Expenses to be reimbursed by Tenant) during normal
business hours of generally recognized business days, but not less than the
hours of 7:00 a.m. to 6:00 p.m. Monday through Friday (excluding in any event
Saturdays, Sundays and legal holidays).
29. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of Tenant or any
other tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
Parking Rules and Regulations
1. Tenant and authorized users shall not park vehicles in any parking areas
designated by Landlord as areas for parking by visitors to the Building.
2.
3. Tenant and authorized users shall not park any vehicle in the Building
parking areas other than automobiles, motorcycles, motor driven or non-motor
driven bicycles, or trucks. Landlord may, in its sole discretion, designate
separate areas for bicycles and motorcycles.
4. Cars must be parked entirely within the painted stall lines.
5. All directional signs and arrows must be observed.
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6. The speed limit shall be 5 miles per hour.
7. Parking is prohibited:
a. in areas not striped for parking;
b. in aisles;
c. where "No Parking" signs are posted;
d. on ramps;
e. in crosshatched areas; or
f. in such other areas as may be designated by Landlord, its agent,
lessee or licensee.
8. Parking stickers or any other device or form of identification that may be
supplied by Landlord shall remain the property of Landlord. Such parking
identification device must be displayed as requested and may not be mutilated in
any manner. The serial number of the parking identification device may not be
obliterated. Devices are not transferable, and any device in the possession of
an unauthorized holder will be void. There will be a reasonable replacement
charge to the Tenant or authorized user for any loss of any magnetic parking
card or other parking identification device.
9. Parking managers or attendants, if any, are not authorized to make or allow
any exception to these Parking Rules and Regulations.
10. Loss or theft of parking identification devices from automobiles must be
reported to the garage manager and/or Landlord immediately. Any parking
identification devices found on any unauthorized car will be confiscated. Lost
or stolen devices previously reported and then found must be reported to the
office of the garage and/or Landlord immediately.
11. Spaces are for the express purpose of one automobile per space. Washing,
waxing, cleaning, or servicing of any vehicle by the Tenant, authorized user
and/or its agents or representatives is prohibited.
12. The parking management, if any, and/or Landlord reserve the right to refuse
the issuance of monthly stickers or other parking identification devices to any
tenant, authorized user, or person and/or its agent or representative who
willfully refuse to comply with the above Parking Rules and Regulations or any
City, State, or Federal ordinance, law, or agreement.
13. Tenant, authorized users or its agents or representatives shall not load or
unload in areas other than those designated by Landlord for such activities.
14. Tenant, authorized users or agents or representatives therefor and
unauthorized users parked in prohibited areas, are subject to towing at tenant's
or owner's expense.
15. These Rules and Regulations are in addition to the terms, covenants,
agreements and conditions of any lease of premises in the Building. In the
event these Rules and Regulations conflict with any provision of the Lease, the
Lease shall govern.
16.
17. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees, and guests.
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INSERTS TO COMPS PLAZA ASSOCIATES, L.P./COMPS.COM, INC. LEASE
-------------------------------------------------------------
INSERT 4.2(B):
- -------------
The amount of any charges for any services provided by affiliates, related or
designated parties of Lessor, which are included in the Operating Expenses,
shall be reasonable, customary and competitive with charges for similar services
of independent contractors in the area where the Industrial Center is located.
Notwithstanding the provisions of this Paragraph 4, the following shall not
be included within Operating Expenses: (i) any depreciation on the Building or
Industrial Center, (ii) costs incurred due to Lessor's violation of any terms or
conditions of this Lease or any other lease relating to the Industrial Center,
(iii) all principal interest, loan fees, and other financing costs related to
any mortgage or deed of trust and all rental and other payable due under any
ground or underlying lease of the Industrial Center, (iv) advertising,
promotional, legal limit to leasing and marketing costs, space planning costs,
Lessee allowances and concessions and other costs and expenses incurred in
connection with any lease, sublease and/or assignment negotiations and
transactions with present or prospective Lessees or other occupants of the
Industrial Center (except as otherwise provided herein), (v) costs, including
permit, license and inspection costs, incurred with respect to the installation
of other Lessees or occupants in the Industrial Center, improvements made for
the premises of other lessees or other occupants in the Industrial Center or
incurred in renovating or otherwise improving, decorating, painting or
redecorating vacant space for lessees or other occupants of the Industrial
Center, (vi) any costs fines or penalties incurred due to violations by Lessor
or other Tenants of the Industrial Center (other than Lessee) of any
governmental rule or authority, this Lease or any other lease in the Industrial
Center, or due to Lessor's gross negligence or willful misconduct, (vii)
expenses incurred by Lessor in connection with services or other benefits which
are exclusively provided to one or more Lessees of the Industrial Center, other
than Lessee, without reimbursement, (viii) wages salaries, or other compensation
paid to any executive employees of Lessor above the grade of project manager,
(ix) Lessor's general corporate overhead and administrative expenses, (xii)
reserves for any Expenses, (xiii) costs of correcting defects, including
allowances for same, in the construction of the Building (including latent
defects) or equipment used therein (or the replacement of defective equipment)
and any associated Common Areas or other improvements, (xiv) costs directly
resulting from the negligence or willful misconduct of Lessor, its employees,
agents or contractors, (xv) all costs of initial construction and landscaping
within the Industrial Center, (xvi) costs or fees related to the defense of
Lessor's title to the Building and/or Industrial Center and (xvii) contributions
to charitable or political organizations. Notwithstanding the specific
itemization elsewhere in this Lease as to certain components of Operating
Expenses, Lessor shall not be entitled to recover from all Lessees of the
Industrial Center more than its actual costs and expenses of the Industrial
Center.
INSERT 4.2(D):
- -------------
At any time within three (3) months of Lessee's receipt of any statement from
Lessor relating to Operating Expenses, Lessor shall furnish Lessee following
Lessee's written request therefor, invoices and other source documents relating
to Operating Expenses. If it is determined from
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Lessee's audit of such Operating Expenses that Lessee was overcharged by more
than three percent (3%), such overcharge shall entitle Lessee to credit against
its next payment of Operating Expenses the amount of the overcharge and the
costs associated with the audit (and, if such credit occurs following the
expiration of the Term, Lessor shall promptly pay the amount of such credit to
Lessee). If the audit determines that the Lessee was overcharged less than three
percent (3%), such overcharge shall entitle Lessee to credit against its next
payment(s) of Operating Expenses in the amount of the overcharge and Lessee
shall pay for all costs associated with the audit. If the audit shall determine
that Lessee was undercharged for the Operating Expenses, Lessee shall promptly
pay the amount of such undercharge to Lessor and Lessee shall pay for all costs
associated with the audit. Notwithstanding anything to the contrary herein, any
Operating Expenses attributable to a period which falls only partially within
the term of this Lease shall be prorated between Lessor and Lessee so that
Lessee shall pay only that portion thereof which the part of such period within
the Lease term bears to the entire period.
INSERT 6.2(C):
- -------------
Lessor shall indemnify, protect, defend and hold Lessee, its agents, employees
and shareholders harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance existing in, under or about the Premises prior to the Commencement
Date of that certain Lease dated March 8, 1994 (as identified with more
particularity in Paragraph 1 of Addendum #1) or brought onto the Premises by or
for Lessor or by anyone under Lessor's control. No termination, cancellation or
release agreement entered into by Lessor and Lessee shall release Lessor from
its obligations under this Lease with respect to such Hazardous Substances,
unless specifically so agreed by Lessor in writing at the time of such
agreement.
INSERT 6.3:
- ----------
Notwithstanding the foregoing, Lessee's obligations under this Paragraph 6.3
shall not require Lessee to comply with Applicable Requirements with respect to
any Hazardous Substances or environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, which existed prior to the
Commencement Date of that certain Lease dated March 8, 1994 (as identified with
more particularity in Paragraph 1 of Addendum #1) or which were caused by Lessor
or any other lessee of the Industrial Center or their respective agents,
employees or contractors.
INSERT 7.2:
- ----------
If Lessor fails to perform any of its repair and maintenance obligations under
this Paragraph 7.2 or otherwise as required in this Lease, and such failure
materially affects Lessee's ability to use and occupy the Premises for the
purposes permitted herein, Lessee shall have the right, but not the obligation,
to perform such repairs and/or maintenance if such failure continues for more
than fifteen (15) days after written notice from Lessee; provided, however, that
if the nature of the repairs and/or maintenance to be completed by Lessor is
such that more than fifteen (15) days are required to complete such repairs
and/or maintenance, Lessor shall have such additional time
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as is reasonably necessary to complete such repairs and/or maintenance so long
as Lessor takes appropriate action to commence such repairs and/or maintenance
within such fifteen (15) day period and thereafter diligently pursues such
repairs and/or maintenance to completion. In such event, Lessor shall reimburse
Lessee for the reasonable costs incurred by Lessee to complete such repairs
and/or maintenance within thirty (30) days after receipt of Lessee's written
demand therefore, together with copies of the paid invoices evidencing the costs
incurred by Lessee. Any repairs and/or maintenance permitted herein shall be
performed in a good workmanlike manner by licensed contractors. If Lessor
objects to the repairs and/or maintenance performed or the expenses incurred by
Lessee in performing such work, Lessor shall deliver a written notice of
Lessor's objection to Lessee within thirty (30) days after Lessor's receipt of
Lessee's invoice evidencing the expenses incurred by Lessee. Lessor's notice
shall set forth in reasonable detail Lessor's reasons for its claim that such
repairs and/or maintenance were not required or were not Lessor's obligation in
the terms of this lease and/or the reasons for Lessor's dispute of the expenses
incurred by Lessee in performing such work.
INSERT 7.4(C):
- -------------
Any Trade Fixtures and Equipment purchased by Lessee and installed in the
Premises, which Lessee intends to remove from the Premises upon the expiration
or earlier termination of this Lease, shall be separately identified on a list
("Equipment List") to be compiled by Lessee for approval of Lessor, which
approval shall not be unreasonably withheld. The Lease shall be amended to
incorporate the Equipment List upon its completion. The Trade Fixtures and
Equipment on the Equipment List shall be and remain the sole property of Lessee.
Said Fixtures and Equipment may be removed form the Premises by Lessee at any
time during the term of this Lease.
INSERT 10.2:
- -----------
Notwithstanding the foregoing provisions of this Paragraph 10.2 to the contrary,
"real property taxes" shall not include (a) Lessor's federal or state income,
franchise, inheritance or estate taxes or (b) any taxes on Lessor's personal
property not located in or on the Industrial Center or (c) any taxes on the
personal property of other tenants in the Building. In the case of any
assessment which may be evidenced by improvement or other bonds or which may be
paid in annual or other periodic installments, Lessor shall elect to cause such
assessment to be paid in installments over the maximum period permitted by law.
INSERT 12.1(B):
- --------------
(b) Any provision in this Lease to the contrary notwithstanding, Lessor's
consent shall not be required for an assignment or subletting to: (i) any entity
who controls, is controlled by or is under common control with Lessee, (ii) any
successor corporation resulting from a merger, acquisition, consolidation or
reorganization or (iii) to any person or legal entity having a consolidated net
worth of at least $5 million which acquires all the assets of Lessee as a going
concern of the business being conducted on the Premises (each of the foregoing
is hereinafter referred to as a "PERMITTED TRANSFEREE"), provided that before
such assignment shall be
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effective (i) said Permitted Transferee shall assume, in full, the obligations
of Lessee under this Lease, (ii) Lessor shall be given written notice of such
assignment and assumption and (iii) the use of -the Premises by the Permitted
Transferee shall be for the Permitted Use only. For purposes of this paragraph,
the term "control" means possession, directly or indirectly, of the power to
direct or cause the direction of the management, affairs and policies of anyone,
whether through the ownership of voting securities, by contract or otherwise.
For purposes of this Lease, the sale or transfer of Lessee's capital stock,
including without limitation a private or public offering or a transfer in
connection with a merger, consolidation or reorganization of Lessee, shall not
be deemed an assignment, subletting or other transfer or encumbrance of the
Lease or the Premises. An assignment or subletting to a Permitted Transferee
shall not release the assigning Lessee from any of its duties and obligations
hereunder.
INSERT 12.3(F):
- --------------
(f) The parties agree that fifty percent (50%) of any amounts paid by an
assignee or subtenant in excess of (i) the Basic Rent payable by Lessee
hereunder or, in the case of a sublease of a portion of the Premises, in excess
of the Basic Rent reasonably allocated to such portion plus (ii) Lessee's out-
of-pocket costs for such assignment or subletting including, without limitation,
broker's commissions, attorney's fees, tenant improvements and any payment under
Paragraph 12.2(e), shall be the property of Lessor and such amounts shall, at
Lessee's option, be payable by Lessee or directly to Lessor by the assignee or
subtenant. At Lessor's request, a written agreement shall be entered into by
and between Lessor, Lessee and the proposed assignee or subtenant in a form
reasonably acceptable to each confirming the requirements of this subparagraph.
INSERT 17:
- ---------
Notwithstanding the foregoing, a Lessor whose interest in this Lease or the
Premises is foreclosed by a foreclosure or execution sale shall not be relieved
of liability unless the party who acquires the Lessor's interest agrees to
recognize Lessee's interest and rights in and under this Lease and not to
disturb Lessee's possession hereunder so long as Lessee is not in default beyond
any applicable cure period hereunder.
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ADDENDUM #1
COMPS PLAZA ASSOCIATES, L.P./COMPS.COM, INC.
LEASE DATED JANUARY 31, 1999
1. CANCELLATION OF PRIOR LEASE
That certain Lease dated March 8, 1994 by and between COMPS Plaza Associates,
L.P., (successor in interest to Plaza Associates, a joint venture partnership),
as Landlord and Business Real Estate Information Corp., a California
corporation, as Tenant, as amended by Amendment #One dated May 5, 1994;
Amendment of Lease dated September 15, 1994; Third Amendment to Lease dated
January 3, 1997; Fourth Amendment to Lease dated October 22, 1997; Fifth
Amendment to Lease dated July 29, 1998; Sixth Amendment to Lease dated September
1, 1998 and Seventh Amendment to Lease dated October 5, 1998 shall be canceled
upon the Commencement Date of this Agreement ( March 1, 1999) and neither Tenant
nor Landlord shall have any obligations under the prior lease beyond its
cancellation date.
2. PREMISES
The Premises consist of approximately 33,217 rentable square feet as specified
below and shown on the attached Exhibit "A".
SUITE RENTABLE SQUARE FEET
----- --------------------
100 8,813
101 2,747
111 1,383
116 1,518
120 1,279
200 6,432
212 2,387
222 2,105
225 3,510
235 905
236 2,138
3. EXPANSION SPACE
Lessee shall take possession of each suite specified below immediately upon the
vacating of each individual suite by its respective current tenant. The Base
Rent for each said expansion suite, which Lessee will be obligated to pay
starting on the date Lessee takes possession of each expansion suite, shall be
calculated by using the per square foot rental rate which is in effect at the
time Lessee takes possession of each expansion suite. The Base Rent for the
expansion suites shall be adjusted in accordance with Paragraph 4 of this
Addendum. Lessee shall be entitled to the tenant improvement allowance set
forth in this Paragraph 6 of this Addendum with respect to each expansion suite.
RENTABLE CURRENT TENANT
SUITE SQUARE FEET LEASE EXPIRATION
------ ----------- ----------------
115 2,042 Month to Month (14 day notice)
122 2,105 Month to Month (60 day notice)
214 852 5/31/99
216 769 5/31/99
218 871 3/31/99
220 1,159 3/31/99
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4. BASE RENT ADJUSTMENT
The monthly Base Rent shall be adjusted upward by three and one half percent (3
1/2%) on each anniversary of the Commencement Date during the five (5) years of
the Original Term.
Upon the Substantial Completion ( as defined in attached Exhibit "B", Tenant
Improvement Agreement) of Tenant Improvements in Suite 236, the then current
monthly Base Rent shall be increased $622.00 per month.
Upon the Commencement Date of each extension of the Term, monthly Base Rent
shall be adjusted to reflect the fair market rental value of such space as
determined according to Paragraph 5 below. Annual adjustments will thereafter
continue at three and one half percent (3 1/2%).
5. DETERMINATION OF FAIR MARKET VALUE
The fair market rental value of the Premises for purposes of the adjustment set
forth above shall be determined in accordance with the following procedure:
No later than sixty (60) days prior to the Adjustment Date, Lessor and Lessee
will attempt to agree on a fair market rental for the Premises. If Lessor and
Lessee fail to agree on the fair market rental value of the Premises by thirty
(30) days before the Adjustment Date, Lessor and Lessee shall each select,
within ten (10) days after such failure, an appraiser who is a member of a
nationally recognized society of appraisers (MAI) to render an opinion on the
fair market rental value of the Premises and each party shall notify the other,
in writing, of the name and qualifications of the appraiser selected. If either
party fails to designate an appraiser within the time required, the
determination of the fair market rental value made by the appraiser selected in
a timely manner shall be conclusively the fair market rental value for the
Premises and the rental for the period in question, subject to the ten percent
(10%) adjustment limitation set forth above.
The appraisers selected by the parties shall submit their opinions of the fair
market rental value of the Premises to both parties, in writing, within fifteen
(15) days after their selection. If the difference between the opinions of the
two (2) appraisers is ten percent (10%), the two appraisers shall, within ten
(10) days after the date that the later opinion of value is rendered to the
parties, designate a third similarly qualified appraiser. The sole
responsibility of the third appraiser shall be to determine which of the
opinions presented by the first two appraisers is most accurate. The third
appraiser shall have no right to propose a middle ground or any modification of
either of the opinions of the first two appraisers. The third appraiser's
choice shall be submitted to the parties within ten (10) days after his or her
designation. Such determination shall bind both the parties and shall establish
the fair market rental value of the Premises. Each party shall pay the fees and
expenses of the appraisers selected by it, and they shall pay equal shares of
the fees and expenses of the third appraiser.
If the rent for a particular period has not yet been established as herein above
provided at the commencement date of that period, Lessee shall continue to pay
the rent paid during the year immediately preceding the period until the rent
for the period in question has been established. Lessee shall (i) pay any
additional amount of Rent that may be due within fifteen (15) days after the
Rent for the period in question has been determined or (ii) receive a credit for
any over-payment to its next Rent payment.
"Fair market rental value" for the purpose of this Agreement shall mean the then
prevailing rent for properties (a.) in the general geographic vicinity as; (b.)
comparable in size and use to; (c.) improved to similar standards as; and (d.)
leased similarly to the Premises.
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6. TENANT IMPROVEMENTS
At the inception of this Lease, Lessor shall at its sole cost and expense paint
and clean the carpet in the Premises where needed as reasonably agreed by Lessee
and Lessor.
Lessor shall grant Lessee an allowance of $2.00 per rentable square foot for
tenant improvements made to previously improved expansion space and $22.00 per
rentable square foot for tenant improvements made to Suite 236 (which has not
previously been improved) as it is expended by Lessee. The allowance may not be
accumulated to be spent disproportionately amongst the suites.
All tenant improvements shall be made pursuant to the terms of the Tenant
Improvement Agreement attached hereto as Exhibit "B" (the "T.I. Agreement");
provided, however, that the parties may amend such T.I. Agreement to the extent
the anticipated improvements are to be made to space currently occupied by
Lessee. Lessor and Lessee agree to work together in good faith to ensure that
any tenant improvements to be made by Lessor do not unreasonably disturb
Lessee's business operations in the premises or access thereto.
7. RIGHT OF FIRST REFUSAL
Provided Lessee is not in default under all or any of the terms and conditions
of the Lease beyond any applicable cure period, Lessor agrees that it will not
enter into a new lease for any space in the building not occupied by Lessee
without first notifying Lessee in writing. If Lessee, within ten (10) business
days after receipt of Lessor's written notice, indicates and delivers in writing
to Lessor its agreement to lease such space, said space shall be leased to
Lessee for the same rate as that then payable by Lessee per square foot in
accordance with the Base Rent schedule of this Lease.
8. OPERATING EXPENSES
Notwithstanding anything to contrary in this Lease Operating Expenses for the
1999 calendar year will be billed at $.365 per rentable square foot per month
(based on 1998 actual Operating Expenses) and shall be due and payable on the
first day of each month commencing upon the Commencement Date of the Lease.
Operating Expenses will be increased no more than three and one half percent
(31/2 %) per year on a cumulative basis effective February 1 of each year of
the Term and any extension(s) thereof.
In addition to the costs defined in Section 4.2 of the Lease and not
withstanding anything to the contrary in this Lease, Operating Expenses shall
include the cost of (i) all utilities, including without limitation, water,
electricity and gas provided to Lessee's Premises; and (ii) five (5) day
janitorial service provided to Lessee's Premises.
9. RELOCATION OF TENANT IN SUITE 228
Lessor acknowledges that Lessee desires to occupy Suite 228 which is currently
occupied by Nowak-Meulmester. Lessor agrees to cooperate with Lessee to
relocate or buy Nowak-Meulmester out of its remaining lease term and will
diligently negotiate with Nowak-Meulmester in an effort to have them vacate
their premises so that Lessee may occupy Suite 228. Lessee shall cooperate with
Lessor in connection with such negotiations, participating in them where
reasonably necessary. Lessor's contribution toward actual costs of such
relocation or buy out shall not exceed $34,000.00.
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10. AFTER HOURS AIR CONDITIONING/HEATING/VENTILATION
Lessor shall furnish to the Premises ( as part of the Operating Expenses to be
reimbursed by Lessee to Lessor) heating, ventilation and air conditioning
("HVAC") during normal business hours which shall mean between the hours of 7:00
a.m. to 6:00 p.m., Monday through Friday, excluding Federal holidays. Should
Lessee request HVAC services outside normal business hours, Lessor shall use
reasonable efforts to provide such services and Lessee shall pay, as additional
rent, $15.00 per hour for each hour of service requested.
11. PARKING
Lessee shall be entitled to the use, on a nonexclusive and unreserved basis, of
one hundred twelve (112) parking spaces in the Building parking lot. In
addition, one space shall be designated for Lessee's "Employee of the Month" in
a location to be determined by Lessor in its sole discretion. Lessee shall pay
all costs incurred with respect to any sign or pavement stenciling to identify
the "Employee of the Month" parking space.
12. OPTION TO EXTEND
Lessee may extend the Term of the Lease for five (5) terms of two (2) years
each. The Term shall automatically extend for two (2) years upon the expiration
of the preceding Term unless Lessee provides to Lessor a six (6) month prior
written notice that states that Lessee will not extend the Term. Provided,
however, if Lessee is in default beyond any applicable cure period on the date
the extended term is to commence, at Lessor's option, the Lease shall expire at
the end of the then current Term. The options granted to Lessee in the Lease
are personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee or Permitted
Transferee. Lessee's Base Rent during said extended Terms shall be the then
"market rent" for the Premises as determined pursuant to Paragraph 5 of this
Addendum. Lessor and Lessee shall promptly execute an addendum to the Lease
memorializing the extension of the Terms and the Base Rent. Lessee's occupancy
during such extended Term shall be governed by all of the other terms,
conditions, covenants and provisions of the Lease, and all references to the
Term shall mean the Term as extended.
LESSOR: LESSEE:
COMPS Plaza Associates, L.P. COMPS.COM, Inc.,
By: Alden Properties, Inc., a Delaware corporation
a California corporation
Signature: /s/ CHRISTOPHER S. McKELLAR Signature /s/ KAREN GOODRUM
---------------------------- -----------------------
Christopher S. McKellar Karen Goodrum
Vice President Vice President and
Chief Financial Officer
Date: 1/31/99 Date: 3/24/99
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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 1, 1999) and our report on the REALBID, LLC financial
statements dated February 17, 1999, in Amendment No. 1 to the Registration
Statement (Form S-1) and related Prospectus of COMPS.COM, Inc. dated April 2,
1999.
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.
/s/ Ernst & Young LLP
San Diego, California
April 1, 1999
