<PAGE>
As filed with the Securities and Exchange Commission on May 28, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HOMESTORE.COM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 6531 77-0442995
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Number) Identification No.)
incorporation or
organization)
225 West Hillcrest Drive, Suite 100
Thousand Oaks, California 91360
(805) 557-2300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Stuart H. Wolff
Chairman of the Board and Chief Executive Officer
HomeStore.com, Inc.
225 West Hillcrest Drive, Suite 100
Thousand Oaks, California 91360
(805) 557-2300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Gordon K. Davidson, Esq. Jeffrey D. Saper, Esq.
Laird H. Simons III, Esq. Kurt J. Berney, Esq.
Jeffrey R. Vetter, Esq. Anil P. Patel, Esq.
David A. Bell, Esq. WILSON SONSINI GOODRICH
Andrew J. Schultheis, Esq. & ROSATI, P.C.
FENWICK & WEST LLP 650 Page Mill Road
Two Palo Alto Square Palo Alto, California 94304
Palo Alto, California 94306 (650) 493-9300
(650) 494-0600
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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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 of 1933, 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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum
Securities to be Aggregate Offering Amount of
Registered Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $0.001 par
value per share....... $100,000,000 $27,800
</TABLE>
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(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating
the amount of the registration fee.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued May 28, 1999
Shares
[LOGO OF HOMESTORE.COM]
COMMON STOCK
-----------
HomeStore.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 have requested that the underwriters reserve up to shares to be
offered to the persons identified on page 85 of the prospectus. We anticipate
that the initial public offering price will be between $ and $ per
share.
-----------
We have applied to list our common stock on the Nasdaq National Market under
the symbol "HOMS."
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 8.
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PRICE $ A SHARE
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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions HomeStore.com
-------- ------------- -------------
<S> <C> <C> <C>
Per Share................... $ $ $
Total....................... $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
HomeStore.com has granted the underwriters the right to purchase up to an
additional shares of common stock to cover over-allotments. Morgan
Stanley & Co. Incorporated expects to deliver the shares of common stock to
purchasers on , 1999.
-----------
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
BANCBOSTON ROBERTSON STEPHENS
, 1999
<PAGE>
[INSIDE FRONT COVER ARTWORK]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 8
Special Note Regarding Forward-
Looking Statements................. 22
Use of Proceeds..................... 23
Dividend Policy..................... 23
Capitalization...................... 24
Dilution............................ 25
Selected Consolidated Financial
Data............................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 28
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business........................... 41
Management......................... 58
Certain Transactions............... 69
Principal Stockholders............. 76
Description of Capital Stock....... 78
Shares Eligible for Future Sale.... 83
Underwriters....................... 85
Legal Matters...................... 87
Experts............................ 87
Change in Independent Accountants.. 88
Additional Information............. 88
Index to Financial Statements...... F-1
</TABLE>
We are a Delaware corporation. Our principal executive offices are located
at 225 West Hillcrest Drive, Suite 100, Thousand Oaks, California 91360. Our
telephone number is (805) 557-2300. Our world wide web addresses are
"www.HomeStore.com," "www.REALTOR.com," "www.HomeBuilder.com,"
"www.CommercialSource.com" and "www.SpringStreet.com." The information on our
family of web sites is not incorporated by reference into this prospectus. We
were incorporated in July 1993 as InfoTouch, Inc. In February 1999, NetSelect,
Inc. and NetSelect LLC, both of which were holding companies, were merged into
InfoTouch and InfoTouch was renamed NetSelect, Inc. Our subsidiaries include
RealSelect, Inc., which operates the REALTOR.com web site, a subsidiary to be
formed to operate the SpringStreet.com web site, and National New Homes, which
operates the HomeBuilder.com web site.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different
from that contained in this prospectus. We are offering to sell shares of
common stock and seeking offers to buy shares of common stock only in
jurisdictions where offers and sales are permitted. The information contained
in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the
common stock.
For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or possession
or distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to
inform yourselves about and to observe any restrictions relating to this
offering and the distribution of this prospectus.
HomeStore.com(TM), REALTOR.com(TM), HomeBuilder.com(TM) and
CommercialSource.com(TM) are our trademarks or are exclusively licensed to us.
This prospectus contains trademarks of other companies and organizations.
Except as otherwise indicated, all information in this prospectus assumes:
. each outstanding share of preferred stock is converted into two shares of
common stock upon the closing of this offering, except for one share of
our new Series A preferred stock to be issued to the NAR;
. the changing of our name to HomeStore.com, Inc.; and
. no exercise of the underwriters' over-allotment option.
In this prospectus, unless the context indicates otherwise, references to
the National Association of REALTORS, or the NAR, refer to the National
Association of REALTORS(R), a not-for-profit organization, and its wholly-
owned for-profit subsidiary, REALTORS(R) Information Network, Inc. The NAR
does not make any endorsement or recommendation regarding any purchase of the
shares of common stock being sold in this offering.
Until , 1999, 25 days after commencement of this offering, all dealers
that buy, sell or trade the common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus, including
the more detailed information in our consolidated financial statements and
accompanying notes appearing elsewhere in this prospectus. In this prospectus,
unless the context indicates otherwise, "HomeStore.com," "we," "us," and "our"
refer to HomeStore.com, Inc. and all of its subsidiaries, including RealSelect,
Inc.
OUR COMPANY
We are the leading real estate destination on the Internet and are
pioneering the use of the Internet to bring the real estate industry online.
Our family of web sites, including HomeStore.com, REALTOR.com, HomeBuilder.com,
CommercialSource.com and, through our pending SpringStreet acquisition,
SpringStreet.com, provides the most comprehensive source of real estate
listings and content on the Internet. Through our family of web sites, we
provide a wide variety of information and communications tools for consumers,
real estate industry professionals, advertisers and providers of real estate
related products and services. To provide consumers with better information and
additional resources throughout the home and real estate life cycle, we have
established strategic relationships with key industry participants, including
real estate market leaders such as the National Association of REALTORS, or the
NAR, the National Association of Home Builders, the largest Multiple Listing
Services, real estate franchises, brokers, builders and agents. In order to
draw additional traffic to our family of web sites, we also have distribution
agreements with many leading Internet portals, including America Online, @Home,
Excite and Go Network/Infoseek, most of which have exclusivity features. We
currently generate revenues from several sources, including web hosting fees
from agents, brokers, home builders and, through our pending SpringStreet
acquisition, rental property owners and fees from advertisers.
OUR MARKET OPPORTUNITY
Buying a home is the largest financial decision and one of the most
difficult and complex processes most consumers will ever undertake. The process
of finding a home begins a lifelong cycle which most consumers will move
through once every seven to eleven years. A significant portion of the United
States economy has evolved around helping consumers as they navigate through
this home and real estate life cycle. An enormous network of support services
and products exists to assist consumers in finding a property, building a
property, renting or buying a property, moving, owning a property and selling a
property.
Every participant in the home and real estate life cycle faces a unique set
of challenges. Consumers are continually searching for a comprehensive,
convenient and integrated source of information to assist them in every aspect
of the real estate transaction. Real estate agents and brokers depend on
attracting and retaining customers in order to generate increasing numbers of
transactions and are looking for additional opportunities to market their
services, become more productive and compete more effectively for transactions.
Home building and real estate professionals also depend on attracting and
retaining customers in order to sell new properties in a timely manner and
continue to seek new ways to market their products and services as well as
inform prospective home buyers of the availability of new properties. To make
an informed decision, renters need access to comprehensive information about
available rental units, specific neighborhoods and rental prices in a given
geographic location. In addition, due to the high turnover rate in rental
units, property managers and owners must regularly attract new tenants to
minimize their vacancy rates and consequently continue to seek to market their
available units in a cost-effective manner. Finally, service providers and
retailers of real estate related products or services need an effective
mechanism or centralized location to reach consumers who are most interested in
their offerings.
4
<PAGE>
The emergence and acceptance of the Internet is fundamentally changing the
way that consumers and businesses communicate, obtain information, purchase
goods and services and transact business. Because of its size, fragmented
nature and reliance on the exchange of information, the real estate industry is
particularly well suited to benefit from the Internet. Traditional sources of
advertising and print media, including classifieds and other off-line sources,
are not interactive and are limited by incomplete and inaccurate data that is
local in scope and is typically disseminated on a weekly basis. These
traditional sources also lack searchable content, a centralized database of
information and the ability to conduct two-way communications. The Internet
offers a compelling means for consumers, real estate professionals, home
builders, renters, property managers and owners and ancillary service providers
to come together to improve the dissemination of information and enhance
communications.
OUR STRATEGY
Our objective is to extend our position as the leading real estate
destination on the Internet. The key elements of our strategy include:
Enhance Our Real Estate Content and Data. We will continue to focus on
connecting consumers and professional service providers by increasing the
number of new and existing home, rental property and commercial property
listings on, the number of professional service providers affiliated with, and
the amount of real estate-related content available on our family of web sites.
Increase Usage of Our Family of Web Sites. We seek to increase traffic to
and time spent on our family of web sites by building upon our strategic
distribution arrangements with leading Internet portals and significantly
increasing our marketing efforts in traditional media, such as newspaper
advertisements, radio and television promotions.
Continue to Form Strategic Relationships with Real Estate Industry
Professionals. We will seek to increase the breadth and depth of our strategic
alliances with key real estate industry professionals and professional
organizations in order to allow us to provide consumers with better information
and additional resources throughout the home and real estate life cycle.
Continue to Develop and Extend Our Brand Recognition. We plan to capitalize
upon our position as the leading real estate destination on the Internet and
expand our marketing efforts in order to build greater recognition for our
family of web sites.
Leverage Emerging Internet Technologies. We will seek to incorporate
emerging Internet technologies to provide enhanced functionality and overall
ease-of-use in order to increase traffic and time spent on our family of web
sites and to provide us with the opportunity to move more real estate related
information and activities onto the Internet.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............... shares
Common stock to be outstanding
after the offering................ shares
Use of proceeds.................... For general corporate purposes, including
capital expenditures, working capital and
approximately $8.7 million in accelerated
payments due under agreements. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol............................ HOMS
</TABLE>
The number of shares of our common stock to be outstanding immediately after
the offering is based on the number of shares outstanding at March 31, 1999.
This number does not take into account:
. 3,277,450 shares subject to options and warrants outstanding or reserved
for issuance under our stock plans;
. 340,955 shares issuable upon conversion of Series G convertible preferred
stock, which will be converted into an aggregate of 681,910 shares of
common stock;
. up to 494,538 shares subject to warrants being offered to Multiple
Listing Services concurrently with this offering;
. shares of common and convertible preferred stock issuable upon the
consummation of the pending SpringStreet acquisition which will represent
an aggregate of 2,123,000 shares of our common stock after this offering,
including 268,500 shares to be subject to assumed options;
. shares having an aggregate value of $3.0 million subject to warrants that
are contingent upon the purchase of our common stock by America Online in
this offering, at the per share price in this offering;
. 1,566,906 shares to be issued to the NAR upon the exchange of
substantially all of the shares of RealSelect common stock it currently
holds for shares of HomeStore.com common stock; and
. 75,000 shares of our common stock issuable to the NAR in satisfaction of
some of our payment obligations under the REALTOR.com operating
agreement.
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following table presents consolidated statement of operations data of
HomeStore.com. The pro forma net loss per share data below gives effect to (1)
the conversion of each outstanding share of preferred stock into two shares of
common stock upon the closing of the offering and (2) the pro forma basis of
presentation described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 32. See Note 2 of HomeStore.com's
Notes to Consolidated Financial Statements and Unaudited Pro Forma Condensed
Consolidated Financial Information.
<TABLE>
<CAPTION>
Actual Pro Forma
---------------------------------------- ----------------------------
Year Ended December Three Months
31, Ended March 31, Year Ended Three Months
---------------------- ---------------- December 31, Ended March 31,
1996 1997 1998 1998 1999 1998 1999
------ ------ ------ ------ -------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated statement
of operations data:
Revenues............... $1,360 $ 42 $ -- $ -- $ 5,570 $ 19,125 $ 8,872
Gross profit........... 1,318 36 -- -- 2,821 9,595 4,984
Loss from operations... (231) (16) (3) (1) (16,320) (68,374) (26,867)
Net loss............... $ (252) $ (17) $ (3) $ (1) $(16,391) $(68,034) $(26,904)
Net loss applicable to
common stockholders... $ (252) $ (17) $ (3) $ (1) $(16,805) $(75,761) $(26,904)
Net loss per share
applicable to common
stockholders:
Basic and diluted...... $ (.18) $ -- $ -- $ -- $ (2.53) $ (4.46) $ (1.24)
Weighted average
shares--basic and
diluted............... 1,391 3,461 3,669 3,461 6,645 16,992 21,720
</TABLE>
6
<PAGE>
The following table presents the consolidated balance sheet data of
HomeStore.com at March 31, 1999. The pro forma column in the consolidated
balance sheet data below gives effect to (1) the sale of 340,955 shares of
Series G convertible preferred stock in April 1999, (2) our pending
SpringStreet acquisition, (3) the conversion of each outstanding share of
preferred stock into two shares of common stock upon the closing of this
offering, except for the one share of our new Series A preferred stock to be
issued to the NAR and (4) the conversion of substantially all of the shares of
RealSelect held by the NAR for shares of HomeStore.com. The pro forma as
adjusted data gives effect to the sale of the shares of common stock that
we are offering under this prospectus at an assumed initial public offering
price of $ per share after deducting the estimated underwriting discounts and
commissions and estimated offering expenses. See "Use of Proceeds,"
"Capitalization" and Unaudited Pro Forma Condensed Consolidated Financial
Information.
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
<S> <C> <C> <C>
Consolidated balance sheet data:
Cash and cash equivalents...................... $ 4,840 $ 38,578 $
Working capital (deficit)...................... (10,635) 22,419
Total assets................................... 41,102 107,702
Notes payable, long-term and current portion... 5,070 5,070 4,137
Redeemable convertible preferred stock......... 5,016 -- --
Total stockholders' equity..................... 9,103 78,801
</TABLE>
RECENT DEVELOPMENTS
In May 1999, we agreed to acquire SpringStreet, Inc. SpringStreet developed
and operates the SpringStreet.com web site, a comprehensive search and
relocation service for consumers renting homes and apartments. The transaction
has been approved by the board of directors of each company and is subject to
approval by each company's stockholders. The transaction is also subject to a
number of other conditions before it may be completed. If completed,
stockholders and option holders of SpringStreet will receive, in the aggregate,
1,270,900 shares of our convertible preferred stock and common stock, or an
aggregate of 2,123,000 shares of common stock, including 268,500 shares of
common stock to be subject to assumed options, assuming two-for-one conversion
of our convertible preferred stock into common stock prior to this offering.
The acquisition cost is estimated to be $47.7 million, and the acquisition is
expected to close in Summer 1999 and will be accounted for as a purchase. The
unaudited pro forma condensed consolidated financial statements giving effect
to the pending SpringStreet acquisition are set forth beginning on page F-2 of
this prospectus.
7
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before buying
shares in this offering. The risks and uncertainties described below are not
the only risks we face. If any of the following risks actually occur, our
business, results of operations and financial condition could be materially
adversely affected, the trading price of our common stock could decline, and
you could lose all or part of your investment.
Risks Related to our Business
We have important agreements with the National Association of REALTORS,
which involve a number of risks and could restrict our operations.
One of our principal assets is our REALTOR.com web site. The REALTOR.com
trademark and domain name and the REALTOR trademark are owned by the National
Association of REALTORS, or the NAR. The NAR licenses these trademarks to our
RealSelect subsidiary under a license agreement, and RealSelect operates the
REALTOR.com web site under an operating agreement and other related agreements
with the NAR. Under these agreements, unless otherwise agreed to by the NAR,
REALTOR.com must be RealSelect's exclusive web site for real estate listings.
Although the REALTOR.com operating agreement is a lifetime agreement, the
NAR may terminate it for a variety of reasons. These include (1) a change in
control in us or RealSelect, (2) a substantial decrease in the number of
property listings on our REALTOR.com site or (3) a breach of any of our other
obligations under the agreement that we do not cure within 30 days of being
notified by the NAR of the breach.
Absent a breach by the NAR, the agreement does not contain provisions that
allow us to terminate.
These arrangements with the NAR include a number of other risks:
. we must make royalty payments to the NAR and the entities that provide us
the information for our real property listings, which we refer to as our
data content providers;
. we are restricted in the type and subject matter of, and the manner in
which we display, advertisements on the REALTOR.com web site;
. the NAR has the right to approve how we use its trademarks, and we must
comply with their quality standards for the use of these marks;
. we must also meet performance standards relating to the availability time
of the REALTOR.com web site;
. the NAR has the right to review, approve and request changes to the
content on the pages of our REALTOR.com web site; and
. we may be restricted in our ability to create additional web sites or
pursue other lines of business that engage in displaying real property
advertisements in electronic form by the terms of our agreements with the
NAR.
In addition, our operating agreement with the NAR contains restrictions on
how we can operate the REALTOR.com web site. For instance, we can only enter
into agreements with data content providers, such as multiple listing
services, or MLSs, on terms approved by the NAR. In addition, the NAR can
require us to include on REALTOR.com real estate related content it has
developed.
The NAR also jointly owns the software we use to run the REALTOR.com web
site and any enhancements to that software. If our operating agreement
terminates, we must transfer a copy of this software and assign our agreements
with data content providers, including MLSs, to the NAR. The NAR would then be
able to operate the REALTOR.com web site itself or with a third party. Many of
these data content agreements are exclusive, and we could be prevented from
obtaining listing data from the providers covered by these transferred
agreements until the exclusivity periods lapse.
8
<PAGE>
Our relationship with the NAR is important to our ability to attract and
retain customers. See "Certain Transactions--Operating Agreement with the
National Association of REALTORS" and "--Trademark License and Joint Ownership
of Software."
We Are Subject to Noncompetition Provisions with the NAR which could
adversely affect our business.
The REALTOR.com operating agreement with the NAR requires that our
REALTOR.com site be our exclusive web site for displaying real property
listings. Due to this requirement, we obtained the consent of the NAR prior to
launching our HomeBuilder.com and CommercialSource.com web sites as well as
our pending acquisition of SpringStreet, Inc. In the future, if we were to
acquire or develop another service which provides real estate listings on an
Internet site or through other electronic means, we will need to obtain the
prior consent of the NAR in order to complete the acquisition. Any future
consents from the NAR, if we are able to obtain them, could be conditioned on
our agreeing to certain operational conditions for the new web site or
service. These conditions could include paying fees to the NAR, limiting the
types of content or listings on the web sites or service or other terms and
conditions. Our business could be adversely affected if we do not obtain
consents from the NAR, or if a consent we obtain restrictive conditions. These
noncompetition provisions and any required consents, if accepted by us at our
discretion, could have the effect of restricting the lines of business we may
pursue.
We have an important agreement with the National Association of Home
Builders, which involves a number of risks and uncertainties.
Another of our principal assets is the HomeBuilder.com web site. We own the
HomeBuilder.com web address and also have an operating agreement with the
National Association of Home Builders, or the NAHB.
These arrangements with the NAHB include a number of risks and
restrictions:
. although the NAHB operating agreement runs through June 2003 with
automatic annual renewals after that date, starting in June 2000 the NAHB
can terminate this agreement with six months' prior notice;
. we are restricted in the type and subject matter of advertisements on the
pages of our HomeBuilder.com web site that contain new home listings; and
. the NAHB has the right to approve how we use its trademarks and we must
comply with their quality standards for the use of their marks.
Our relationship with the NAHB is important to our ability to attract and
retain customers. See "Certain Transactions--Agreements with the National
Association of Home Builders."
Our SpringStreet.com web site will also be subject to a number of
restrictions on how it may be operated.
In order to complete the SpringStreet acquisition, we were required to
obtain the consent of the NAR. In agreeing to our pending acquisition of
SpringStreet, the NAR imposed a number of important restrictions on how we can
operate the SpringStreet.com web site. These include:
. listings for rental units of smaller non-apartment properties generally
must be received from a REALTOR or REALTOR-controlled MLSs in order to be
listed on the web site;
. the consent to operate the web site can be terminated for reasons
substantially the same as those of our operating agreement with respect
to the REALTOR.com web site;
. if the consent terminates for any reason, we will have to transfer to the
NAR all data and content on the rental site that was provided by
REALTORS;
. if the consent is terminated we could be required to operate our rental
properties web site at a different web address;
. if the consent terminates for any reason, other than as a result of a
breach by the NAR, the NAR will be permitted to use the REALTOR-branded
web address, resulting in increased competition;
. without the consent of the NAR, prior to the time we are using a REALTOR-
branded web address, we cannot provide a link on the SpringStreet.com web
site linking to the REALTOR.com web site and vice versa;
. we cannot list properties for sale on the rental web site for the
duration of our REALTOR.com operating agreement and for an additional two
years;
. we are restricted in the type and subject matter of, and the manner in
which we display, advertisements on the rental web site;
9
<PAGE>
. we must make royalty payments based on the operating revenues of the
rental site to the NAR and our data content providers at the same rates
as under our REALTOR.com operating agreement, except that the amount
payable to data content providers in the aggregate will be
proportionately based on the percentage of the total content on the site
supplied by them; and
. we must offer REALTORS preferred pricing for home pages or enhanced
advertising on the rental web site.
The National Association of REALTORS has significant influence over aspects
of our RealSelect subsidiary's corporate governance.
The NAR will have significant influence over RealSelect's corporate
governance.
Board representatives. The NAR is entitled to have one representative as a
member of our board of directors and two representatives as members of our
RealSelect subsidiary's board of directors.
Approval rights. We cannot take certain actions without the approval of the
NAR. For example, RealSelect's certificate of incorporation contains a limited
corporate purpose, which purpose is the operation of the REALTOR.com web site
and real property advertising programming for electronic display and related
businesses. Without the consent of six of RealSelect's seven directors, which
would have to include at least one NAR appointed director, this limited
purpose provision cannot be amended.
RealSelect's bylaws also contain protective provisions which could restrict
portions of its operations or require us to incur additional expenses. For
instance, if the RealSelect board of directors cannot agree on an annual
operating budget for RealSelect, it would use as its operating budget that
from the prior year, adjusted for inflation. Any expenditures in excess of
that budget would have to be funded by HomeStore.com. In addition, if
RealSelect desired to incur debt or invest in assets in excess of $2.5 million
without the approval of a majority of its board, including an NAR
representative, we would also need to fund those expenditures.
RealSelect cannot take the following actions without the consent of at
least one of the NAR's representatives on its board of directors:
. amend its certificate of incorporation or bylaws;
. pledge its assets;
. approve transactions with affiliates, stockholders or employees in excess
of $100,000;
. change its executive officers;
. establish, or appoint any members to, a committee of its board of
directors; or
. issue or redeem any of its equity securities.
Restriction on Stockholders' Share Transfer. Stockholders holding
substantially all of our outstanding capital stock at March 31, 1999 have
agreed to restrict the sale of their shares of common stock. Without the prior
consent of the NAR, these stockholders may not transfer these shares of common
stock to a transferee, other than to each other, whose primary business is
"real estate-related" or to a transferee who will become a holder of more than
5% of our capital stock as a result of the transfer. Accordingly, a change of
control, even one favorable to common stock investors, cannot occur unless the
NAR consents to the change of control.
We are an early stage company which makes it difficult to evaluate our
current business.
Our REALTOR.com web site was launched in December 1996. HomeBuilder.com was
added to our family of web sites in July 1998 after our acquisition of
MultiSearch Solutions. Our CommercialSource.com web site
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was launched in October 1998. We agreed to acquire our SpringStreet.com web
site in May 1999. Therefore, we have only a limited operating history upon
which to base an evaluation of our current business and prospects. Moreover,
our business model is evolving and depends on our ability to generate revenues
from multiple sources, including revenues from our family of web sites. Before
investing, you should evaluate the risks, expenses and problems frequently
encountered by companies such as ours that are in the early stages of
development and that are entering new and rapidly changing markets like the
Internet. In particular, in addressing these risks we face the following
challenges:
. maintaining and increasing our base of web site users;
. maintaining and increasing our network of content providers, including
participating Multiple Listing Services, brokers, agents, home builders,
rental property owners and other content providers;
. generating increased revenues through our family of web sites, including
fees from brokers, agents, home builders and rental property owners and
managers, and advertising fees;
. renewing annual subscriptions for our products and services;
. developing awareness of and brand loyalty for HomeStore.com,
REALTOR.com, HomeBuilder.com, CommercialSource.com, SpringStreet.com and
our other web site offerings;
. managing our relationships with the NAR, the NAHB and other organizations
with significant interest and influence in the real estate industry and
related businesses;
. maintaining our current, and developing new, distribution relationships
with leading web portals;
. integrating all our entities, properties and web sites, many of which we
recently acquired or developed or are pending;
. continuing to develop our technology and operating infrastructure to
handle traffic on our family of web sites;
. broadening our product and service offerings and managing our expansion
into many new or planned lines of business;
. attracting and retaining qualified personnel; and
. anticipating and adapting to the evolving Internet market.
We may not successfully implement any of our strategies or successfully
address these risks and uncertainties. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We have a history of losses and expect losses for the foreseeable future.
We have experienced operating losses in each quarterly and annual period
since inception, and we incurred operating losses of $16.3 million in the
first quarter of 1999. On a pro forma basis, we incurred operating losses of
$68.4 million in 1998 and $26.9 million in the first quarter of 1999. As of
March 31, 1999, we had an accumulated deficit of $79.1 million, and we expect
to incur losses for the foreseeable future. The size of these losses will
depend, in part, on the rate of growth in our revenues from broker, agent,
home builder and rental property owner web hosting fees, advertising sales and
sales of other products and services. The size of our future losses will also
be impacted by non-cash stock-based charges relating to deferred compensation,
stock and warrant issuances and amortization of intangible assets. Upon
completion of this offering, we expect to incur substantial stock-based
charges in connection with the following warrants to acquire our common stock:
. warrants currently held by, and required to be granted to, America Online
if it exercises its right to acquire shares in this offering;
. warrants held by MLSs;
. warrants being offered to certain MLSs concurrently with this offering;
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. warrants or other securities which may be offered to brokers or other
real estate industry participants in the future; and
. warrants held by real estate brokers who participated in our Broker Gold
program.
These charges will be expensed each quarter over the term of the applicable
agreement. In addition to these charges, we also expect to incur a $3.8 million
charge when we complete the pending SpringStreet acquisition related to
unvested stock options we will assume in the transaction. This charge will be
amortized over the remaining term of these options.
It is critical to our success that we continue to devote financial, sales
and management resources to developing brand awareness for our HomeStore.com,
REALTOR.com, HomeBuilder.com, CommercialSource.com and SpringStreet.com web
sites as well as for any other products and services we may add. To accomplish
this, we will continue to develop our content and expand our marketing and
promotion activities, direct sales force and other services. As a result, we
expect that our operating expenses will increase significantly during the next
several years, especially in sales and marketing. With increased expenses, we
will need to generate significant additional revenues to achieve profitability.
As a result, we may never achieve or sustain profitability, and, if we do
achieve profitability in any period, we may not be able to sustain or increase
profitability on a quarterly or annual basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We must continue to obtain listings from real estate agents, brokers, home
builders, Multiple Listing Services and property owners in order to make our
products and services more attractive.
We believe that the success of our products and services, as measured by
consumer traffic on our family of web sites and fees earned from real estate
industry participants, depends on the number of real estate listings received
from agents, brokers, home builders, MLSs and residential, rental and
commercial property owners. Many of our agreements with MLSs, brokers and
agents covering a majority of the listings for residential real estate for sale
posted on the Internet are exclusive. However, most of these agreements have
fixed terms, typically 12 to 30 months. We have expended significant amounts to
secure both our exclusive and non-exclusive agreements for listings of real
estate for sale and may be required to spend additional large amounts or offer
other incentives in order to renew these agreements. At the end of the term of
each agreement, the other party may choose not to continue to provide listing
information to us on an exclusive basis or at all and may choose to provide
this information to one or more of our competitors instead. If owners of large
numbers of property listings, such as large brokers, MLSs, or property owners
in key real estate markets choose not to renew their relationship with us, our
family of web sites could become less attractive to other real estate industry
participants or consumers.
We must dedicate significant resources to attract and support our real
estate professional customer base.
We currently generate a majority of our revenues from sales of our products
and services to real estate professionals. Because the annual fee for our
products and services is relatively low, we depend on obtaining sales from a
large number of customers. It is difficult to reach and enroll new subscribers
cost-effectively. A large portion of our sales force targets real estate
professionals who are widely distributed across the United States. This results
in relatively high fixed costs associated with our sales activities. In
addition, our sales personnel generally cannot efficiently contact real estate
professionals on an individual basis and instead must rely on sales
presentations to groups of agents and/or brokers. Real estate agents are
generally independent contractors rather than employees of brokers. Therefore,
even if a broker uses our products and services, its affiliated agents are not
required to use them.
Since many real estate professionals are not sophisticated computer users
and often spend limited amounts of time in their offices, it is important that
these customers find that our products and services significantly enhance their
productivity and are easy to use. To meet these needs, we provide customer
training and have developed a customer support organization that seeks to
respond to customer inquiries as quickly as possible. If
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our real estate professional customer base grows, we may need to expand our
support organization further to maintain satisfactory customer support levels.
If we need to enlarge our support organization, we would incur higher overhead
costs. If we do not maintain adequate support levels, customers could choose
to discontinue using our service.
Our SpringStreet.com web site may not be able to retain its level of
subscribers for its upgraded services.
SpringStreet offers its services on a subscription basis. To establish its
subscriber base, during 1998 SpringStreet signed a number of subscribers for
its upgraded services on a discounted basis. We do not know what portion of
SpringStreet's current subscribers will renew their subscriptions to
SpringStreet's upgraded services on a fully paid basis.
Our quarterly financial results are subject to significant fluctuations.
Our results of operations could vary significantly from quarter to quarter.
We expect that over time our revenues will come from a variety of sources.
However, in the near term, we expect to be substantially dependent on fees
from real estate professionals that subscribe to our services. We also expect
to incur significant sales and marketing expenses to promote our brand and our
products and services. Therefore, our quarterly revenues and operating results
are likely to be particularly affected by the number of subscribers as well as
sales and marketing expenses for a particular period. If revenues fall below
our expectations, we will not be able to reduce our spending rapidly in
response to the shortfall.
Other factors that could affect our quarterly operating results include
those described below and elsewhere in this prospectus:
. the number of real estate listings and subscribers on our family of web
sites;
. the level of traffic on our family of web sites;
. the amount of advertising on our family of web sites and the timing of
payments for this advertising, whether these advertisements are sold by
us directly or on our behalf by America Online or other third parties;
. the level of renewals for real estate agent, broker and rental property
owner and manager subscriptions;
. the amount and timing of our operating expenses and capital expenditures;
. the amount and timing of non-cash stock-based charges, such as charges
related to deferred compensation or warrants issued to real estate
industry participants;
. the announcement or introduction of new competing web sites and expansion
of existing competing web sites;
. technical difficulties or other system downtime on our family of web
sites or the Internet generally; and
. costs related to acquisitions of businesses or technologies.
We will depend on a third party to sell advertising on some of our web
sites.
To date, we have developed only a small internal direct sales force to sell
advertising on our family of web sites. For at least the near term, we intend
to rely on America Online to sell the substantial majority of our advertising
on our REALTOR.com and HomeBuilder.com web sites. If we are required to
develop a large advertising sales force, our overhead would increase
significantly. Similarly, if we were to replace America Online as our
advertising representative, our revenues could be adversely impacted as we
sought a satisfactory replacement. While we are guaranteed minimum quarterly
payments, the amount of these guaranteed payments will be adjusted based on
traffic levels to our web sites. Therefore, we cannot estimate the amount or
the timing of any advertising or other payments we may receive from America
Online.
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Because we have expanded our operations, our success will depend on our
ability to manage our growth.
We have rapidly and significantly expanded our operations, both by
acquisition and organic growth, and expect to continue to expand our
operations. This growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational, financial and other
resources. For example, we have grown to 540 employees on March 31, 1999 from
79 employees on December 31, 1997. We have recently hired a number of
executive officers, including Mr. Michael Buckman, our President and Chief
Operating Officer, in February 1999. In addition, we recently added to our
sales force throughout the United States. We expect to hire additional new
employees to support our business and to implement and integrate new
accounting and control systems.
We depend on distribution agreements with a number of web portal companies
to generate traffic on our family of web sites.
We believe that a significant portion of our consumer traffic comes from
web portal sites with whom we have distribution agreements, including America
Online, @Home, Excite and Go Network / Infoseek. We intend to pursue
additional distribution relationships in the future. Many of these agreements
contain exclusivity features. For example, on some of these web portal sites
we are featured as the exclusive provider of home listings. To secure both our
exclusive and non-exclusive distribution relationships, we often pay
significant fees to these web portal sites. We may not experience sustained
increases in user traffic from these web portal sites.
There is intense competition for placement on these and other web portal
sites. Our distribution agreements have terms ranging from two to four years.
When they expire, we may be unable to renew our existing agreements or enter
into replacement agreements. If any of these agreements terminates without our
renewing it, we could experience a decline in the number of our users and our
competitive position could be significantly weakened. Even if we renew our
agreements or enter into agreements with new providers, we may be required to
pay significant fees to do so and may be unable to retain any exclusivity that
we may have enjoyed under these agreements.
Our family of web sites may not achieve the brand awareness necessary to
succeed.
In an effort to obtain additional consumer traffic, increase usage by the
real estate community and increase brand awareness, we intend to continue to
pursue an aggressive online and off-line brand enhancement strategy. These
efforts will involve significant expense. If our brand enhancement strategy is
unsuccessful, we may fail to attract new or retain existing consumers or real
estate professionals, which would have a material adverse impact on our
revenues.
The market for web-based services relating to real estate is intensely
competitive and we expect that competition will increase.
Our main existing and potential competitors for home buyers, sellers and
renters and related content include:
. web sites offering real estate listings together with other related
services, such as Apartments.com, CyberHomes, HomeHunter.com,
HomeSeekers, iOwn, LoopNet, Microsoft's HomeAdvisor, NewHomeNetwork.com
and RentNet;
. web sites offering real estate related content and services such as
mortgage calculators and information on the home buying, selling and
renting processes;
. general purpose consumer web sites such as AltaVista, Lycos and Yahoo!
that also offer real estate-related content on their site; and
. traditional print media such as newspapers and magazines.
Our main existing and potential competitors for advertisements include:
. general purpose consumer web sites such as AltaVista, America Online,
Excite, Lycos, Netscape's Netcenter and Yahoo!;
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. general purpose online services that may compete for advertising dollars;
. online ventures of traditional media, such as Classified Ventures; and
. traditional media such as newspapers, magazines and television.
The barriers to entry for web-based services and businesses are low, making
it possible for new competitors to proliferate rapidly. In addition, many of
our existing and potential competitors have longer operating histories in the
Internet market, greater name recognition, larger consumer bases and
significantly greater financial, technical and marketing resources than we do.
See "Business--Competition."
We must attract and retain personnel while competition for personnel in our
industry is intense.
We may be unable to retain our key employees or to attract, assimilate or
retain other highly qualified employees. We have from time to time in the past
experienced, and we expect in the future to continue to experience, difficulty
in hiring and retaining highly skilled employees with appropriate
qualifications as a result of our rapid growth and expansion. Attracting and
retaining qualified personnel with experience in the real estate industry, a
complex industry that requires a unique knowledge base, is an additional
challenge for us. In addition, there is significant competition for qualified
employees in the Internet industry. If we do not succeed in attracting new
personnel or retaining and motivating our current personnel, our business will
be adversely affected.
We need to continue to develop our content and our product and service
offerings.
To remain competitive we must continue to enhance and improve the ease of
use, responsiveness, functionality and features of our family of web sites,
including REALTOR.com, HomeBuilder.com, CommercialSource.com and, after the
completion of our proposed acquisition, SpringStreet.com. These efforts may
require us to develop internally or to license increasingly complex
technologies. Developing and integrating new products and services into our
family of web sites and other products and services could be expensive and
time consuming. Any new features, functions or services may not achieve market
acceptance or enhance our brand loyalty. If we fail to develop and introduce
or acquire new features, functions or services effectively and on a timely
basis, we may not continue to attract new users and may be unable to retain
our existing users.
We may experience difficulty integrating acquisitions.
In addition to our pending SpringStreet acquisition, we have completed two
major acquisitions since December 31, 1997. We will seek to continue to expand
our current offerings by acquiring additional businesses, technologies,
product lines or service offerings from third parties. We may be unable to
identify future acquisition targets and may be unable to complete the pending
SpringStreet acquisition or any other acquisition. Even if we complete an
acquisition, we may have difficulty in integrating it with our current
offerings, and any acquired features, functions or services may not achieve
market acceptance or enhance our brand loyalty. Integrating newly acquired
organizations and products and services could be expensive, time consuming and
a strain on our resources. See "Business--Strategy."
Our recent acquisitions, the pending SpringStreet acquisition and any
future acquisitions involve a number of risks that may result in our not
achieving the desired benefits of the transaction. These risks include:
. the difficulties in assimilating the operations of the acquired
businesses;
. the potential disruption of our existing businesses;
. the assumption of unknown liabilities and litigation;
. our inability to integrate, train, retain and motivate personnel of the
acquired businesses;
. the diversion of our management from our day-to-day operations;
. our inability to incorporate acquired technologies successfully into our
family of web sites;
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. the potential impairment of relationships with our employees, customers
and strategic partners; and
. the inability to maintain uniform standards, controls procedures and
policies.
Our inability to successfully address any of these risks could materially
harm our business.
We intend to pay for the pending SpringStreet acquisition by issuing shares
of our capital stock. In the future, we may effect other large or small
acquisitions by using stock, and this will dilute our stockholders. We may
also use cash to buy companies or technologies in the future. We may need to
incur debt to pay for these acquisitions. Acquisition financing may not be
available on favorable terms or at all. In addition, we will likely be
required to amortize significant amounts of goodwill and other intangible
assets in connection with future acquisitions, which would materially harm our
results of operations.
Our business is dependent on our key personnel.
Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, particularly Stuart
H. Wolff, Ph.D. The loss of the services of Dr. Wolff or other key employees
would likely have a significantly detrimental effect on our business.
We have no employment agreements that prevent any of our key personnel from
terminating their employment at any time. Although we have obtained "key-
person" life insurance for some of our personnel, we believe this coverage
will not be sufficient to compensate us for the loss of these personnel. See
"Management--Employment-Related Agreements."
We rely on intellectual property and proprietary rights.
We regard substantial elements of our family of web sites and underlying
technology as proprietary. We seek to protect our proprietary rights through a
combination of confidentiality agreements, trademarks, copyrights and a
patent. Despite our precautionary measures, third parties may copy or
otherwise obtain and use our proprietary information without authorization or
develop similar technology independently. We may not achieve the desired
protection from, and third parties may design around, our patent. In addition,
in any litigation or proceeding involving our patent, the patent may be
determined invalid or unenforceable. Any legal action that we may bring to
protect our proprietary information could be expensive and distract management
from day-to-day operations.
Other companies may own or obtain patents or other intellectual property
rights that could prevent or limit or interfere with our ability to provide
our products and services. Companies in the Internet market are increasingly
making claims alleging infringement of their intellectual property rights. For
example, in December 1997, we received a letter claiming that certain aspects
of our map technology infringe patents held by another person. We believe this
person may have instituted legal proceedings against two of our competitors.
We have received no further correspondence with respect to this issue and,
after discussions with our patent counsel, we do not believe any of our
technology infringes these patents. However, we could incur substantial costs
to defend against these or any other claims or litigation. If a claim was
successful, we could be required to obtain a license from the holder of the
intellectual property or redesign our products and services.
The REALTOR.com domain name and trademark and the REALTOR(R) trademark are
important to our business and are licensed to us by the NAR. If we were to
lose the REALTOR.com domain name or the use of these trademarks, our business
would be harmed and we would need to devote substantial resources towards
developing an independent brand identity.
We also hold other domain names that are important to our business. The
regulation of domain names is subject to change. Some proposed changes include
the creation of additional top-level domains in addition to the current top-
level domains, such as ".com," ".net" and ".org." It is also possible that the
requirements for holding a domain name could change. Therefore, we may not be
able to obtain or maintain relevant domain names for all of the areas of our
business. It may also be difficult for us to prevent third parties from
acquiring
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domain names that are similar to ours, that infringe our trademarks or that
otherwise decrease the value of our intellectual property.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and evolving, and we can give no assurance regarding the future
viability or value of any of our proprietary rights. See "Business--
Intellectual Property."
Real Estate Industry Risks:
Our business is dependent on the strength of the real estate industry, which
is both cyclical and seasonal.
The real estate industry traditionally has been cyclical. Since our
incorporation, sales of real estate in the United States have been at
historically high levels. Economic swings in the real estate industry may be
caused by various factors. When interest rates are high or general national and
global economic conditions are or are perceived to be weak, there is typically
less sales activity in real estate. A decrease in the current level of sales of
real estate and products and services related to real estate could adversely
affect demand for our family of web sites and products and services. In
addition, reduced traffic on our family of web sites would likely cause our
advertising revenues to decline, which would materially and adversely affect
our business.
We may experience seasonality in our business. The real estate industry
experiences a decrease in activity during the winter. However, because of our
limited operating history, we do not know if or when any seasonal pattern will
develop or the size or nature of any seasonal pattern in our business.
We may particularly be affected by general economic conditions.
Purchases of real property and related products and services are
particularly affected by negative trends in the general economy. The success of
our operations depends to a significant extent upon a number of factors
relating to discretionary consumer and business spending, and the overall
economy, as well as regional and local economic conditions in markets where we
operate, including:
. perceived and actual economic conditions;
. interest rates;
. taxation policies;
. availability of credit;
. employment levels; and
. wage and salary levels.
In addition, because a consumer's purchase of real property and related
products and services is a significant investment and is relatively
discretionary, any reduction in disposable income in general may affect us more
significantly than companies in other industries.
We have risks associated with changing legislation in the real estate
industry.
Real estate is a heavily regulated industry in the United States, including
regulation under the Fair Housing Act, the Real Estate Settlement Procedures
Act and state advertising laws. In addition, states could enact legislation or
regulatory policies in the future which could require us to expend significant
resources to comply. These laws and related regulations may limit or restrict
our activities. For instance, we are limited in the criteria upon which we may
base searches of our real estate listings such as age or race. As the real
estate industry evolves in the online environment, legislators, regulators and
industry participants may advocate additional legislative or regulatory
initiatives. Should existing laws or regulations be amended or new laws or
regulations be adopted, we may need to comply with additional legal
requirements and incur resulting costs, or we may be
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precluded from certain activities. For instance, SpringStreet recently
received an order from the California Department of Real Estate requiring it
to qualify and register as a real estate agent/broker, which it did. To date,
we have not spent significant resources on lobbying or related government
issues. Any need to significantly increase our lobbying or related activities
could substantially increase our operating costs.
Internet Industry Risks
We depend on increased use of the Internet to expand our real estate
related products and services.
If the Internet fails to become a viable marketplace for real estate
content and information, our business will not grow. Broad acceptance and
adoption of the Internet by consumers and businesses when searching for real
estate and related products and services will only occur if the Internet
provides them with greater efficiencies and improved access to information.
See "Business--Industry Background."
We derive a portion of our revenues from selling advertisements on our
family of web sites.
We expect to continue to derive a portion of our revenues from selling
advertising on our family of web sites. Our business would be adversely
affected if the market for web advertising fails to develop or develops more
slowly than expected. Our ability to generate advertising revenues will depend
on, among other factors, the development of the Internet as an advertising
medium, the amount of traffic on our family of web sites and our ability to
achieve and demonstrate user and member demographic characteristics that are
attractive to advertisers. Most potential advertisers and their advertising
agencies have only limited experience with the Internet as an advertising
medium and have not devoted a significant portion of their advertising
expenditures to Internet-based advertising. No standards have been widely
accepted to measure the effectiveness of web advertising. If these standards
do not develop, existing advertisers might reduce their current levels of
Internet advertising or eliminate their spending entirely. The widespread
adoption of technologies that permit Internet users to selectively block out
unwanted graphics, including advertisements attached to web pages could also
adversely affect the growth of the Internet as an advertising medium. In
addition, advertisers in the real estate industry have traditionally relied
upon other advertising media, such as newsprint and magazines, and have
invested substantial resources in other advertising methods. These advertisers
may be reluctant to adopt a new strategy and advertise on the Internet.
We face risks associated with government regulation and legal uncertainties
associated with the Internet.
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including online
content, user privacy, access charges, liability for third-party activities
and jurisdiction. Additionally, it is uncertain as to how existing laws will
be applied to the Internet. The adoption of new laws or the application of
existing laws may decrease the growth in the use of the Internet, which could
in turn decrease the usage and demand for our services or increase our cost of
doing business.
The tax treatment of the Internet and electronic commerce is currently
unsettled. A number of proposals have been made at the federal, state and
local level and by various foreign governments to impose taxes on the sale of
goods and services and other Internet activities. Recently, the Internet Tax
Information Act was signed into law placing a three-year moratorium on new
state and local taxes on Internet commerce. However, future laws may impose
taxes or other regulations on Internet commerce, which could substantially
impair the growth of electronic commerce.
Some local telephone carriers have asserted that the increasing popularity
and use of the Internet have burdened the existing telecommunications
infrastructure, and that many areas with high Internet use have begun to
experience interruptions in telephone service. These carriers have petitioned
the Federal Communications Commission to impose access fees on Internet
service providers and online service providers. If access fees are imposed,
the costs of communicating on the Internet could increase substantially,
potentially slowing the increasing use of the Internet. This could in turn
decrease demand for our services or increase our cost of doing business.
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We depend on continued improvements to our network infrastructure and the
infrastructure of the Internet.
We host and maintain our own web sites and services and maintain our own
network infrastructure. In addition, we host the web sites of some of our
subscribers. Any system or network failure that causes interruption or slower
response time of our services could result in less traffic to our family of
web sites and hosted web sites and, if sustained or repeated, could reduce the
attractiveness of our services to consumers, real estate professionals,
providers of real estate related products and services and advertisers.
Increases in the volume of our web site traffic could strain the capacity of
our existing technical infrastructure, which could lead to slower response
times or system failures. This would cause the number of real property search
inquiries, advertising impressions, other revenue producing offerings and our
informational offerings to decline, any of which could hurt our revenue growth
and our brand loyalty. We may need to incur additional costs to upgrade our
infrastructure in order to accommodate increased demand if our server and
networking systems cannot handle current or higher volumes of traffic.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, requiring Internet service providers and users of the
Internet to upgrade their infrastructures. Our ability to increase the speed
with which we provide services to consumers and to increase the scope of these
services is limited by and dependent upon the speed and reliability of the
Internet. Consequently, the emergence and growth of the market for our
services is dependent on the performance of and future improvements to the
Internet.
Our internal network infrastructure could be disrupted by a number of
different occurrences.
Our operations depend upon our ability to maintain and protect our computer
systems, most of which are located at our corporate headquarters in Thousand
Oaks, California and SpringStreet's web hosting facility in San Jose,
California. We currently do not have a redundant system for our family of web
sites and other services at an alternate site. Therefore, our systems are
vulnerable to damage from break-ins, unauthorized access, vandalism, fire,
floods, earthquakes, power loss, telecommunications failures and similar
events. Although we maintain insurance against fires, floods, earthquakes and
general business interruptions, the amount of coverage may not be adequate in
any particular case.
Experienced computer programmers, or hackers, may attempt to penetrate our
network security from time to time. A hacker who penetrates our network
security could misappropriate proprietary information or cause interruptions
in our services. We might be required to expend significant capital and
resources to protect against, or to alleviate, problems caused by hackers. We
are in the final stages of implementing a network firewall, and we do not
currently have a fully redundant system for our family of web sites. We also
may not have a timely remedy against a hacker who is able to penetrate our
network security. In addition to purposeful security breaches, the inadvertent
transmission of computer viruses could expose us to litigation or to a
material risk of loss.
Our industry is characterized by rapid technological changes and we will
need to adapt to these changes.
The market for Internet products and services is subject to rapid new
technological developments, evolving industry standards and consumer demands,
and frequent new product introductions and enhancements. These characteristics
are exacerbated by the emerging nature of the market and the fact that many
companies are continually introducing new Internet products and services in
the near future. Our future success will depend significantly on:
. our ability to continue to improve the experience for users;
. the addition of new and useful services and content to our family of web
sites;
. our effective promotion of new or enhanced products and services to
agents and brokers; and
. the performance and reliability of our family of web sites.
Furthermore, the widespread adoption of developing multimedia-enabling
technologies could require fundamental and costly changes in our technology.
See "Business--Product Development."
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We could face liability for information retrieved from or transmitted over
the Internet and liability for products and services sold over the Internet.
We provide third-party content on our family of web sites, particularly
real estate listings. We could be exposed to liability with respect to this
third-party information. Claimants might assert, among other things, that, by
directly or indirectly providing links to web sites operated by third parties,
we should be liable for copyright or trademark infringement or other wrongful
actions by the third parties operating those web sites. They could also assert
that our third party information contains errors or omissions, and consumers
could seek damages for losses incurred if they rely upon that information.
We enter into agreements with other companies under which we share with
these other companies revenues resulting from advertising or the purchase of
services through direct links to or from our family of web sites. These
arrangements may expose us to additional legal risks and uncertainties,
including local, state, federal and foreign government regulation and
potential liabilities to consumers of these services, even if we do not
provide the services ourselves. We cannot assure you that any indemnification
provided to us in our agreements with these parties, if available, will be
adequate.
Even if these claims do not result in liability to us, we could incur
significant costs in investigating and defending against these claims. Our
general liability insurance may not cover all potential claims to which we are
exposed and may not be adequate to indemnify us for all liability that may be
imposed.
We face Year 2000 related risks.
Our system could have failures or miscalculations resulting from issues
with respect to the Year 2000, causing disruptions of operations, including,
among other things, a temporary inability to process searches, post listings,
track advertising or engage in similar normal business activities. Any
significant Year 2000 failure could prevent us from operating our business,
prevent users from accessing our family of web sites or change the behavior of
advertisers, consumers or persons accessing our family of web sites.
In addition, certain of our content providers may not accurately provide
date data with respect to home and commercial real estate listings. For
example, during the year 2000, a home constructed in 1900 might inadvertently
be listed on our family of web sites as a newly built home. A significant
number of these failures could cause consumers to doubt the reliability of
information contained in our listings with a potential resulting reduction in
traffic on our family of web sites. Any of these eventualities could adversely
affect our business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
Offering Related Risks
Certain existing stockholders own a large percentage of our voting stock.
As of March 31, 1999, our officers, directors and 5% or greater
stockholders beneficially owned or controlled, directly or indirectly,
14,029,435 shares of common stock and/or preferred stock, which in the
aggregate represented approximately 76% of the outstanding shares of common
stock on an as converted to common stock basis. After this offering and
assuming no additional issuances of common stock, our officers, directors and
5% or greater stockholders will beneficially own or control, directly or
indirectly shares, which in the aggregate will represent approximately %
of the outstanding shares of common stock. As a result, if these persons act
together, they will have the ability to influence all matters submitted to our
stockholders for approval, including (1) the election and removal of
directors, other than the director appointed by the NAR, and (2) any merger,
consolidation or sale of all or substantially all of our assets. So long as
the NAR holds its one share of Series A preferred stock, it will be entitled
to elect one member to our board of directors. See "Principal Stockholders"
and "Description of Capital Stock."
20
<PAGE>
Our certificate of incorporation and bylaws, Delaware law and other
agreements contain provisions that could discourage a takeover.
Certain provisions of Delaware law, our certificate of incorporation and
bylaws, our operating agreement with the NAR and a stockholders agreement
could have the effect of delaying or preventing a third party from acquiring
us, even if a change in control would be beneficial to our stockholders. For
example, we will have a classified board of directors. In addition, our
stockholders are unable to act by written consent or to fill any vacancy on
the board of directors. Our stockholders cannot call special meetings of
stockholders for any purpose, including to remove any director or the entire
board of directors without cause. In addition, the NAR could terminate the
REALTOR.com operating agreement if there was a change in control in
HomeStore.com or RealSelect. These provisions and other provisions of Delaware
law could make it more difficult for a third party to acquire us, even if
doing so would benefit our stockholders. See "Description of Capital Stock."
The liquidity of our stock is uncertain and any public market for our
common stock may be volatile.
An active trading market for our common stock may never develop or be
sustained. As described under "Underwriters," up to shares are being
offered to members of the NAR and to our directors, officers, employees,
business associates and related persons, each at the public offering price. In
addition, $2.0 million in common stock to be sold in this offering will be
offered to America Online at the public offering price. Purchasers of most of
these shares will be subject to lock-up agreements with the underwriters.
Therefore, there will be a smaller amount of shares available for sale in the
public market after this offering, which could result in greater volatility of
our stock price. Furthermore, the market price of our common stock could
decline below the initial public offering price. Even if an active trading
market develops, the market price of our common stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors such
as:
. actual or anticipated variations in our quarterly operating results;
. announcements of new product or service offerings by us or our
competitors;
. technological innovations;
. competitive developments;
. changes in financial estimates by securities analysts;
. changes in the real estate industry;
. conditions and trends in the Internet and electronic commerce industries;
and
. general economic conditions.
Further, the stock markets, particularly the Nasdaq National Market on
which we have applied to have our common stock listed, have experienced
substantial price and volume fluctuations. These fluctuations have
particularly affected the market prices of equity securities of many
technology and Internet related companies and have often been unrelated or
disproportionate to the operating performance of those companies. The trading
prices of many technology companies' stocks are at or near historical highs.
These high trading prices may not be sustained. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has often been instituted against that company. Litigation,
if instituted, could result in substantial costs and a diversion of
management's attention and resources.
Future sales of our common stock may depress our stock price.
After this offering, we will have outstanding shares of common
stock. Sales of a substantial number of shares of common stock in the public
market following this offering could cause the market price of our common
stock to decline. All the shares sold in this offering will be freely
tradable. Of the remaining 20,578,486 shares of common stock outstanding after
this offering, calculated as of April 30, 1999:
. 4,747,676 shares will be eligible for sale in the public market beginning
181 days after the date of this prospectus;
21
<PAGE>
. 14,698,900 shares will become available for sale on February 4, 2000;
. 450,000 shares will become available for sale on February 18, 2000; and
. 681,910 shares will become available for sale on April 9, 2000.
In addition, there are currently outstanding options and warrants to
purchase up to 3,277,450 shares of common stock. See "Shares Eligible for
Future Sale" and "Underwriters."
We are uncertain of our ability to obtain additional financing for our
future capital needs.
We may need to raise additional funds in order to fund more rapid
expansion, to expand our marketing activities, to develop new or enhance
existing services or products, to respond to competitive pressures or to
acquire complementary services, businesses or technologies. We may also need
to raise funds in the future to meet our working capital needs. Banks and
other commercial lending institutions often require a parent company to pledge
as collateral for any loans the stock or assets of its subsidiary. The
protective provisions contained in RealSelect's bylaws and the restrictions on
transfer of shares contained in a stockholders' agreement for RealSelect could
deter these types of lenders from providing us loans. Additional financing may
not be available on terms favorable to us, or at all.
New investors will experience immediate and substantial dilution from this
offering.
Investors in this offering will experience an immediate dilution in the net
tangible book value of the common stock of $ per share, based on the
number of outstanding shares as of March 31, 1999 and an assumed initial
public offering price of $ per share. See "Dilution."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. In some cases, you can identify forward-looking statements
by terms such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential," or "continue," or the negative
of these terms or other comparable terminology. The forward-looking statements
contained in this prospectus involve known and unknown risks, uncertainties
and other factors that may cause our or our industry's actual results, level
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by these statements. These factors include, among others, those listed
under "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus.
22
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares
of common stock that we are offering will be approximately $ million, at
an assumed initial public offering price of $ per share and after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses of $ million. If the underwriters' over-allotment option is
exercised in full, we estimate that our net proceeds will be approximately
$ million.
Our agreements with America Online, the NAR, RE/MAX and The Enterprise of
America, Ltd. require that payments to these parties aggregating $8.7 million
are accelerated and become payable on the closing of this offering. These
amounts include $600,000 payable to the NAR. We intend to use the remainder of
the net proceeds for working capital, capital expenditures and other general
corporate purposes. We may also use a portion of the net proceeds from this
offering to acquire or invest in businesses, technologies or products that are
complementary to our business. Pending our use of the net proceeds, we intend
to invest them in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying any cash dividends in the foreseeable future.
Except for an $.08 annual dividend expected to be paid on the one share of our
new Series A preferred stock to be issued to the NAR upon the closing of this
offering, we do not anticipate paying any cash dividends in the foreseeable
future.
23
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. The
pro forma column reflects (1) the sale of 340,955 shares of Series G
convertible preferred stock in April 1999, (2) our pending SpringStreet
acquisition, (3) the conversion of each outstanding share of preferred stock
into two shares of common stock upon the closing of this offering, except for
the one share of our new Series A preferred stock to be issued to the NAR, and
(4) 1,566,906 shares to be issued to the NAR when it exchanges substantially
all the shares of RealSelect common stock it currently holds for shares of
HomeStore.com common stock.
The pro forma as adjusted column reflects the sale of the
shares of common stock that we are offering and the application of the net
proceeds we receive from this offering.
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Notes payable, long-term and current portion... $ 5,070 $ 5,070 $ 4,137
-------- -------- --------
Series E redeemable convertible preferred
stock, $.001 par value per share; actual--
325,000 shares authorized, issued and
outstanding; pro forma and pro forma as
adjusted--no shares authorized, issued or
outstanding................................... 5,016 -- --
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, $.001 par value
per share; actual--9,675,000 shares
authorized, 5,053,000 shares issued and
4,622,000 shares outstanding; pro forma and
pro forma as adjusted--5,000,000 shares
authorized, one share issued and
outstanding................................. 5 -- --
Common stock, $.001 par value per share;
actual--90,000,000 shares authorized,
9,641,000 shares issued and 8,478,000 shares
outstanding; pro forma--90,000,000 shares
authorized, 23,688,000 shares issued and
22,527,000 shares outstanding; pro forma as
adjusted--200,000,000 shares authorized,
shares issued and outstanding......... 9 21
Additional paid-in capital................... 119,856 193,384
Treasury stock............................... (13,676) (13,676) (13,676)
Notes receivable from stockholders........... (1,651) (1,651) (1,651)
Deferred stock compensation.................. (16,323) (20,160) (20,169)
Accumulated deficit.......................... (79,117) (79,117) (79,117)
-------- -------- --------
Total stockholders' equity................. 9,103 78,801
-------- -------- --------
Total capitalization..................... $ 19,189 $ 83,871 $
======== ======== ========
</TABLE>
The data in the table above excludes:
. 2,813,782 shares issuable upon the exercise of outstanding stock options
as of March 31, 1999, at a weighted average per share exercise price of
$2.96;
. 345,802 shares available as of that date for future grant under our
current stock plans and additional shares to be reserved for issuance
under our proposed stock plans described in this prospectus;
. 236,590 shares issuable upon the exercise of warrants outstanding as of
March 31, 1999, at a weighted average per share exercise price of $3.53;
. 227,078 shares subject to warrants outstanding as of March 31, 1999 with
an exercise price equal to the per share price in this offering;
. up to 494,538 shares subject to warrants being offered to Multiple
Listing Services concurrently with this offering with an exercise price
equal to the per share price in this offering;
.75,000 shares to be issued to the NAR prior to this offering;
. shares of common stock having an aggregate value of $3.0 million to be
subject to warrants with a weighted average exercise price of 137.5% of
the per share price in this offering, which warrants are contingent upon
the purchase of $2.0 million of our common stock by America Online in
this offering; and
. up to 170,000 shares subject to warrants, which are contingent upon
defined events occurring in the future. The exercise price will be the
fair value of our common stock when the warrants are issued.
You should read this table together with "Management--Director
Compensation," "Management--Employee Benefit Plans," "Description of Capital
Stock," Notes 12, 13, 14 and 20 of HomeStore.com's Notes to Consolidated
Financial Statements and Unaudited Pro Forma Condensed Consolidated Financial
Information.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was $30.2
million or $1.34 per share, assuming the conversion of all of the then
outstanding shares of preferred stock into shares of common stock. Pro forma
net tangible book value per share is determined by dividing the pro forma
number of outstanding shares of common stock into our net tangible book value,
which is our pro forma total tangible assets less total liabilities. After
giving effect to the receipt of the estimated net proceeds from this offering,
based upon an assumed initial public offering price of $ per share and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses, our pro forma net tangible book value as of March
31, 1999 would have been approximately $ million, or $ . per share.
This represents an immediate increase in pro forma net tangible book value of
$ . per share to existing stockholders and an immediate dilution of
$ . per share to new investors purchasing shares at the initial public
offering price. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $
Pro forma net tangible book value per share as of March
31, 1999................................................ $1.34
Increase per share attributable to new investors.........
-----
Pro forma net tangible book value per share after
offering..................................................
------
Dilution per share to new investors........................ $
======
</TABLE>
The following table summarizes as of March 31, 1999, on the pro forma basis
described above, the number of shares of common stock purchased from us, the
total consideration paid and the average price per share paid by existing
stockholders and by investors purchasing shares of common stock in this
offering at an assumed initial public offering price of $ per share and
before deducting the estimated underwriting discounts and commissions and
estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 18,373,996 % $61,771,073 % $3.36
New investors...........
---------- --- ----------- --- -----
Total................... 100% 100%
========== === =========== === =====
</TABLE>
An aggregate of 681,910 shares of common stock are issuable upon conversion
of Series G convertible preferred stock issued subsequent to March 31, 1999
and 1,566,906 shares common stock will be issued to the NAR immediately prior
to this offering when it exchanges substantially all of the shares of
RealSelect stock it currently holds for HomeStore.com common stock. Therefore,
new public investors will experience further dilution. As of March 31, 1999,
there were options and warrants outstanding to purchase a total of
3,277,450 shares of common stock. In addition,
. up to 494,538 shares of common stock will be subject to warrants being
offered to Multiple Listing Services concurrently with this offering;
. we will issue 75,000 shares of common stock to the NAR to satisfy
$600,000 of our payment obligations under our REALTOR.com operating
agreement;
. shares may become subject to warrants in the event that America Online
purchases $2.0 million of our common stock in this offering; and
. shares of common and convertible preferred stock are issuable upon
consummation of the pending SpringStreet acquisition which will represent
an aggregate of 2,123,000 shares of common stock, including 268,500
shares to be subject to assumed options.
To the extent that any of these options or warrants are exercised or shares
are issued, there will be further dilution to new public investors. See
"Capitalization," "Management--Employee Benefit Plans," "Description of
Capital Stock," Notes 9, 10, 11, and 17 of HomeStore.com's Notes to
Consolidated Financial Statements and Unaudited Pro Forma Condensed
Consolidated Financial Information.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data with the
consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this prospectus. The consolidated statement of
operations data for the years ended December 31, 1996, 1997 and 1998, and the
consolidated balance sheet data as of December 31, 1997 and 1998, are derived
from the audited consolidated financial statements of HomeStore.com included
elsewhere in this prospectus. The consolidated statement of operations data
for the years ended December 31, 1994 and 1995 and the three months ended
March 31, 1998 and 1999, and the consolidated balance sheet data as of
December 31, 1994, 1995 and 1996, and as of March 31, 1998 and 1999 have been
derived from our unaudited consolidated financial statements. The unaudited
consolidated financial statements have been prepared on substantially the same
basis as the consolidated audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of the financial position and results of
operations for the period. The unaudited pro forma net loss per share data for
the year ended December 31, 1998 and three months ended March 31, 1999, are
derived from unaudited pro forma condensed consolidated financial information
included elsewhere in this prospectus. As a result of the reorganization of
our holding company structure and due to the fact that our historical results
of operations, financial condition and cash flows were insignificant prior to
December 4, 1996, management believes that a pro forma presentation, which
includes a comparison of results of operations and financial condition of
NetSelect, Inc., NetSelect, LLC, InfoTouch and RealSelect on a combined basis
for 1997 and 1998 and the three months ended March 31, 1999 is the only
meaningful basis of presentation for investors in evaluating our historical
financial performance. See the basis of presentation described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The pro forma consolidated statement of operations data assume that the
following transactions occurred on January 1, 1998:
. our acquisition of The Enterprise for 210,000 shares of common stock
with an estimated fair value of $525,000, a note payable in the amount
of $2.2 million, and $705,000 in cash and other acquisition related
expenses;
. our acquisition of MultiSearch for 325,000 shares of our Series E
redeemable convertible preferred stock, which will be converted into an
aggregate of 650,000 shares of our common stock on the closing of this
offering, with an estimated fair value of $4.8 million, a note payable
in the amount of $3.6 million, and $875,000 in cash and other
acquisition related expenses;
. our pending acquisition of SpringStreet for 1,270,900 shares of our
convertible preferred stock and common stock with an estimated fair
value of $47.7 million or an aggregate of 2,123,000 shares of common
stock, including 268,500 shares of common stock to be subject to assumed
options, assuming two-for-one conversion of our convertible preferred
stock into common stock prior to this offering. In addition, we expect
to record deferred stock compensation of $3.8 million relating to
unvested stock options assumed in the transaction; and
. the reorganization of our holding company structure.
The pro forma consolidated balance sheet data as of March 31, 1999 gives
effect to (1) the sale of 340,955 shares of Series G convertible preferred
stock in April 1999, (2) our pending acquisition of SpringStreet, (3) the
conversion of each outstanding share of preferred stock into two shares of
common stock upon the closing of this offering, except for the one share of
our new Series A preferred stock to be issued to the NAR, and (4) 1,566,906
shares to be issued to the NAR when it exchanges substantially all of the
shares of RealSelect common stock it currently holds for shares of
HomeStore.com common stock.
26
<PAGE>
The consolidated pro forma data may not, however, be indicative of the
consolidated results of operations of HomeStore.com that actually would have
occurred had the transactions reflected in the consolidated pro forma results
of operations occurred at the beginning of the periods presented, or of the
consolidated results of operations that we may achieve in the future.
<TABLE>
<CAPTION>
Actual Pro Forma
-------------------------------------------------------- ----------------------------
Three Months
Year Ended December 31, Ended March 31, Year Ended Three Months
------------------------------------- ----------------- December 31, Ended March 31,
1994 1995 1996 1997 1998 1998 1999 1998 1999
------- ------ ------ ----- ----- ------- --------- ------------ ---------------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $ 416 $ 857 $1,360 $ 42 $ -- $ -- $ 5,570 $ 19,125 $ 8,872
Cost of revenues........ 63 58 42 6 -- -- 2,749 9,530 3,888
------- ------ ------ ----- ----- ------ --------- -------- --------
Gross profit........... 353 799 1,318 36 -- -- 2,821 9,595 4,984
Operating expenses:
Sales and marketing.... 956 559 479 14 -- -- 9,163 32,787 16,281
Product development.... 428 474 629 -- -- -- 331 5,252 1,499
General and
administrative........ 520 649 441 38 3 1 1,987 8,916 3,687
Amortization of
intangible assets..... -- -- -- -- -- -- 521 9,021 2,291
Stock-based charges.... -- -- -- -- -- -- 7,139 21,993 8,093
------- ------ ------ ----- ----- ------ --------- -------- --------
Total operating
expenses............. 1,904 1,682 1,549 52 3 1 19,141 77,969 31,851
------- ------ ------ ----- ----- ------ --------- -------- --------
Loss from operations.... (1,551) (883) (231) (16) (3) (1) (16,320) (68,374) (26,867)
Interest and other
income (expense), net.. (17) (30) (21) (1) -- -- (71) 118 (37)
------- ------ ------ ----- ----- ------ --------- -------- --------
Net loss before minority
interest............... (1,568) (913) (252) (17) (3) (1) (16,391) (68,256) (26,904)
Minority interest....... -- -- -- -- -- -- -- 222 --
------- ------ ------ ----- ----- ------ --------- -------- --------
Net loss................ (1,568) (913) (252) (17) (3) (1) (16,391) (68,034) (26,904)
Accretion of redemption
value and stock
dividends on
convertible preferred
stock.................. -- -- -- -- -- -- (414) -- --
Repurchase of
convertible preferred
stock.................. -- -- -- -- -- -- -- (7,727) --
------- ------ ------ ----- ----- ------ --------- -------- --------
Net loss applicable to
common stockholders.... $(1,568) $ (913) $ (252) $ (17) $ (3) $ (1) $(16,805) $(75,761) $(26,904)
======= ====== ====== ===== ===== ====== ========= ======== ========
Net loss per share
applicable to common
stockholders:
Basic and diluted...... $ (1.91) $ (.94) $ (.18) $ -- $ -- $ -- $ (2.53) $ (4.46) $ (1.24)
======= ====== ====== ===== ===== ====== ========= ======== ========
Weighted average
shares--basic and
diluted............... 821 974 1,391 3,461 3,669 3,461 6,645 16,992 21,720
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31, 1999
------------------------------- -------------------
1994 1995 1996 1997 1998 Actual Pro Forma
----- ----- ---- ----- ---- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............. $ 31 $ 5 $ 36 $ 155 $ 71 $ 4,840 $ 38,578
Working capital
(deficiency)............ (210) (200) (46) (37) 1 (10,635) 22,419
Total assets............. 550 181 77 155 71 41,102 107,702
Notes payable, long term
and current............. -- -- -- -- -- 5,070 5,070
Redeemable convertible
preferred stock......... -- -- -- -- -- 5,016 --
Total stockholders'
equity (deficit)........ 203 (150) (116) (133) (95) 9,103 78,801
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the unaudited
pro forma condensed consolidated financial statements and the consolidated
financial statements and related notes of HomeStore.com appearing elsewhere in
this prospectus. The following discussion contains forward-looking statements
that involve risk and uncertainties, including, among other things, statements
regarding anticipated costs and expenses, mix of revenues and plans for
addressing Year 2000 issues. Our actual results could differ materially from
the results contemplated by these forward-looking statements as a result of
certain factors, including those discussed below and elsewhere in this
prospectus.
Overview
We are the leading real estate destination on the Internet and are
pioneering the use of the Internet to bring the real estate industry online.
Our family of web sites, which includes REALTOR.com, HomeBuilder.com,
CommercialSource.com and, through our pending SpringStreet acquisition,
SpringStreet.com, provides the most comprehensive source of real estate
listings and content on the Internet. Through our family of web sites, we
provide a wide variety of information and communications tools for consumers,
real estate industry professionals, advertisers and providers of real estate
related products and services. To provide consumers with better information
and additional resources throughout the home and real estate life cycle, we
have established strategic relationships with key industry participants,
including real estate market leaders such as the National Association of
REALTORS, the National Association of Home Builders, the largest Multiple
Listing Services, real estate franchises, brokers, builders and agents. In
order to draw additional traffic to our family of web sites, we also have
distribution agreements with many leading Internet portals, including America
Online, @Home, Excite and Go Network/Infoseek, most of which have exclusivity
features. We currently generate revenues from several sources, including web
hosting fees from agents, brokers, home builders and, through our pending
SpringStreet acquisition, rental property owners and fees from advertisers.
Basis of Presentation
Initial Business and RealSelect Holding Structure. We were incorporated in
1993 under the name of InfoTouch Corporation, or InfoTouch, with the objective
of establishing an interactive network of real estate "kiosks" for consumers
to search for homes. In 1996, we began to develop the technology to build and
operate real estate related Internet sites. Effective December 4, 1996, we
entered into a series of agreements with the NAR and several investors. Under
these agreements, we transferred technology and assets relating to advertising
the listing of residential real estate on the Internet to a newly-formed
company, NetSelect LLC, or LLC, in exchange for a 46% ownership interest in
LLC. The investors contributed capital to a newly-formed company, NetSelect,
Inc., or NSI which owned 54% of LLC. LLC received capital funding from NSI and
in-turn contributed the assets, technology and the NSI capital to a newly
formed entity, RealSelect, Inc., or RealSelect, in exchange for common stock
representing an 85% ownership interest in RealSelect. Also effective
December 4, 1996, RealSelect entered into a number of agreements with and
issued cash and common stock representing a 15% ownership interest in
RealSelect to the NAR in exchange for the rights to operate the REALTOR.com
web site and pursue commercial opportunities relating to the listing of real
estate on the Internet.
The agreements governing RealSelect required us to terminate our remaining
activities, which were insignificant at that time, and dispose of our
remaining assets and liabilities, which we did in early 1997. Accordingly,
following the formation, NSI, LLC and InfoTouch were shell holding companies
for their investments in RealSelect.
Our initial operating activities primarily consisted of recruiting
personnel, developing our web site content and raising our initial capital. We
developed our first web site, REALTOR.com, in cooperation with the NAR and
actively began marketing our products and services to real estate
professionals in January 1997.
28
<PAGE>
Reorganization of Holding Structure. Under the formation agreements of
RealSelect, the reorganization of the initial holding structure was provided
for at an unspecified future date. On February 4, 1999, NSI stockholders
entered into a non-substantive share exchange with and were merged into us. We
refer to this transaction as the Reorganization. The share exchange lacked
economic substance and, therefore, was accounted for at historical cost. For a
further discussion relating to the accounting for the Reorganization, see Note
4 of HomeStore.com's Notes to Consolidated Financial Statements. We intend to
change our corporate name to HomeStore.com, Inc. prior to this offering.
Our consolidated financial statements reflect the financial position,
results of operations and cash flows of HomeStore.com, Inc., formerly
InfoTouch. Accordingly, the operations through December 4, 1996 reflect our
operations prior to the formation of RealSelect. The consolidated financial
statements for 1997 and 1998 primarily reflect our investment in LLC accounted
for under the equity method. The consolidated financial statements following
the date of the Reorganization on February 4, 1999 include the accounts of
RealSelect and its wholly-owned subsidiaries, of which we owned approximately
92% as of March 31, 1999.
As a result of the Reorganization and due to the fact that our historical
results of operations, financial condition and cash flows were insignificant
prior to December 4, 1996, management believes that a pro forma presentation,
which includes a comparison of results of operations and financial condition
of NSI, LLC, InfoTouch and RealSelect on a combined basis for 1997 and 1998
and the three months ended March 31, 1999, is the only meaningful basis of
presentation for investors in evaluating our historical financial performance.
The pro forma data may not, however, be indicative of the results of
operations of HomeStore.com that actually would have occurred had the
transactions reflected in the pro forma results of operations occurred at the
beginning of the periods presented, or of the results of operations that we
may achieve in the future.
Acquisitions. In March 1998, we acquired The Enterprise of America, Ltd.,
or The Enterprise, a provider of web hosting services for real estate brokers,
for $3.0 million in cash, notes and stock, less assumed liabilities. In July
1998, we acquired MultiSearch Solutions, Inc., or MultiSearch, the initial
developer of the HomeBuilder.com web site, for $8.7 million in cash, notes and
stock. In May 1999, we agreed to acquire SpringStreet for 1,270,900 shares of
convertible preferred stock and common stock, or an aggregate of 2,123,000
shares of common stock, including 268,500 shares of common stock to be subject
to assumed options, assuming two-for-one conversion of our convertible
preferred stock into our common stock prior to this offering. Each of these
acquisitions has been included in the pro forma results of operations as if
they occurred on January 1, 1997.
Accounting Policies
Revenues. We derive our revenues from the sale of products and services to
real estate agents and brokers, home builders, property owners and managers,
and from advertising sales. Substantially all of our agent products and many
of our property owner and manager products are sold in annual subscriptions
and, accordingly, we defer these revenues and recognize them ratably over the
life of the contract, generally 12 months. These prepayments appear on our
balance sheet as deferred revenues, totaling approximately $8.0 million as of
March 31, 1999. We also generate revenues from the sale of products and
services to real estate brokers and home builders that are sold on a monthly
subscription basis, with revenues being recognized on a monthly basis. In
addition, we generate banner advertising revenues on our family of web sites.
Substantially all of our advertising revenues are derived from short-term
advertising contracts in which we guarantee, for a fixed fee, a minimum number
of impressions or times that an advertisement appears in pages viewed by
users. Advertising revenues are recognized in the period in which the
advertisement is displayed, provided that no significant company obligations
remain and collection of the resulting receivable is probable. We signed an
agreement with America Online in March 1999, in which they agreed to act as
our exclusive third-party advertising sales agent on the REALTOR.com and
HomeBuilder.com web sites through March 2001. In connection with this
agreement, America Online has agreed to pay us minimum quarterly payments,
subject to adjustment based on the number of page views delivered on these web
sites.
29
<PAGE>
Cost of revenues. Cost of revenues consists of salaries, benefits, and
consulting fees related to our web site operations, credit card processing
fees, data aggregation costs and costs associated with printing our new home
directories. Cost of revenues also includes royalties paid to third-party data
content providers for revenues generated through the property listings they
provide to us. These royalties are capitalized and amortized over the related
contract period and are classified on our balance sheet as deferred royalties,
totaling approximately $1.7 million as of March 31, 1999.
Data content providers generally receive 10% to 12% of the gross revenues
that we generate from their listings. Certain data content providers have
entered into preferred national provider arrangements with us, under which we
have the exclusive right to list their properties on the Internet. The royalty
rate for agreements with these preferred national data content providers is
slightly higher than for non-preferred providers. We anticipate continuing
increases in cost of revenues in absolute dollars as our revenues increase. We
also expect that cost of revenues will increase as we continue to make
investments to increase the capacity and speed of our family of web sites.
Sales and marketing. Sales and marketing expenses include salaries, sales
commissions, including commissions under our America Online sales agent
arrangement, benefits, travel and related expenses for our direct sales force,
customer service, marketing, and sales support functions. Sales and marketing
expenses also include fees associated with our web portal distribution and
preferred alliance agreements. The web portal distribution and preferred
alliance fees are amortized on a pro rata basis over the respective terms of
the agreements. We expect to significantly increase the absolute dollar amount
of spending in sales and marketing activities over the next year in an effort
to drive consumer traffic to our family of web sites and to increase brand
awareness. We also anticipate that sales and marketing expenses may fluctuate
as a percentage of total revenues from period to period as new sales personnel
are hired and begin to achieve productivity.
Product development. Product development costs include expenses for the
development of new or improved technologies designed to enhance the
performance of our family of web sites, including salaries and related
expenses for our web site design staff, as well as costs for contracted
services, content, facilities and equipment. We believe that a significant
level of product development activity and expense is required in order to
remain competitive with new and existing web sites. Accordingly, we anticipate
that we will continue to devote substantial resources to product development
and that the absolute dollar amount of these costs will increase in future
periods.
General and administrative. General and administrative expenses include
salaries, benefits and expenses for our executive, finance, legal and human
resources personnel. In addition, general and administrative expenses include
occupancy costs, fees for professional service, and depreciation. We expect
general and administrative expenses to increase in absolute dollars as we
continue to expand our administrative infrastructure to support the
anticipated growth of our business, including costs associated with being a
public company.
Amortization of intangible assets. Amortization of intangible assets
consists of goodwill resulting from the acquisitions of The Enterprise and
MultiSearch. This goodwill is being amortized on a straight-line basis over
the estimated periods of benefit of five years. In addition, in connection
with our formation, we entered into an operating agreement with the NAR and
received intellectual property. Under the operating agreement with the NAR, we
made various payments in which we issued common stock to the NAR for the right
to use the REALTOR.com trademark and domain name and the "REALTOR" trademark
and for the exclusive use of the web site for real estate listings. The
intellectual property, the stock issued and payments made to the NAR, as well
as certain milestone-based amounts subsequently earned by the NAR have been
recorded as intangible assets and are being amortized on a straight-line basis
over the estimated period of benefit of 15 years. We expect amortization of
intangible assets to increase significantly in absolute dollars and as a
percentage of our revenues as a result of our pending acquisition of
SpringStreet.
Stock-based charges
Stock Options. In connection with the grant of stock options to employees
during 1997 and 1998 and the three months ended March 31, 1999, we recorded
aggregate deferred compensation of approximately
30
<PAGE>
$19.9 million. This deferred compensation represented the difference between
the deemed fair value of our common stock for accounting purposes and the
exercise price of these options at the date of grant. Deferred compensation is
presented as a reduction of stockholders' equity and amortized over the
vesting period of the applicable options, generally four years.
Warrants. In connection with entering into a distribution agreement with
America Online in April 1998, we issued a warrant to purchase 226,590 shares
of our common stock at an exercise price of $3.16 per share. If America Online
does not purchase any shares in this offering, this warrant will expire.
Additionally, if America Online exercises its right to purchase $2.0 million
of common stock in this offering, we will issue to it warrants to acquire
$3.0 million of common stock with a weighted average exercise price of 137.5%
of the initial public offering price. If warrants are issued in connection
with this offering, the fair value will be measured at the date of this
offering and amortized to sales and marketing expense over the remaining term
of the distribution agreement, approximately two years. Based on an assumed
initial public offering price of $ per share, we anticipate that the
aggregate amount of this charge will be approximately $ million.
During 1998 and early 1999, we issued warrants to purchase up to
83,752 shares of common stock to MLSs that agreed to provide their real estate
listings to us for publication on the Internet on a preferred national basis.
The issuance of these warrants is contingent upon this offering. The exercise
price will be equal to the initial public offering price per share in this
offering. The fair value of issuable warrants will be measured at the date
this offering is deemed to be probable and recognized as expense over the term
of the applicable MLS agreement, approximately one to two years. Based on an
assumed initial public offering price of $ per share, we anticipate the
aggregate amount of this charge will be approximately $ million.
In February 1999, we closed a private equity offering to real estate
brokers under our Broker Gold program. We also issued warrants to purchase up
to 143,326 shares of our common stock with an exercise price to be equal to
the per share price in this offering. The issuance of these warrants is
contingent upon this offering. The fair value of these warrants will be
measured at the date this offering is deemed to be probable. Based on an
assumed offering price of $ , we expect to incur an additional charge of
approximately $ which will be recognized as expense over the remaining term
of the initial two year Broker Gold program agreements.
Concurrently with this offering we are offering warrants to purchase up to
494,538 shares of common stock to MLSs that agree to provide us their listings
on a preferred national basis. With respect to the warrants offered
concurrently with this offering, upon completion of this offering, at an
assumed offering price of $ , we will incur an additional charge of
approximately $ , which will be recognized as expense over the remaining
terms of the applicable agreements.
In the future, we may offer up to 170,000 warrants to the Broker Gold
program members who elect to renew their existing listing agreements with us
after their original two year term expires. The broker must also maintain a
minimum number of property listings as well as continue to hold our
securities. If issued, these warrants would have an exercise price based upon
the average of the closing market price of the common stock for the ten
trading days preceding the date which is one day before the warrant is issued.
We would recognize the fair value of the warrants, when issued, as expense
over the term of the renewed agreement, approximately two years. This could
result in HomeStore.com incurring substantial additional charges in the
future.
We have only a limited operating history on which to base an evaluation of
our business and prospects. Our prospects must be considered in light of the
risks, uncertainties, expenses and difficulties frequently encountered by
companies in their early stages of development, particularly companies in new
and rapidly evolving markets such as the Internet. To address these risks, we
must, among other things, be able to continue to respond to highly competitive
developments, attract, retain and motivate qualified personnel, implement and
successfully execute our marketing plans, continue to upgrade our
technologies, develop new distribution channels, and improve operational and
financial systems. Although our revenues have grown significantly in recent
periods, we may be unable to sustain this growth. Therefore, you should not
consider our historical growth indicative of future revenue levels or
operating results. We may never achieve profitability or, if we do, we may not
be able to sustain it. A more complete description of other risks relating to
our business is set forth under the caption "Risk Factors."
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<PAGE>
Pro Forma Results of Operations
The following tables set forth certain pro forma consolidated statement of
operations data for the periods indicated and assume that the following
transactions occurred on January 1, 1997:
. our acquisition of The Enterprise for 210,000 shares of common stock
with an estimated fair value of $525,000, a note payable in the amount
of $2.2 million, and $705,000 in cash and other acquisition related
expenses.
. our acquisition of MultiSearch for 325,000 shares of our Series E
redeemable convertible preferred stock, which will be converted into an
aggregate of 650,000 shares of our common stock on the closing of this
offering, with an estimated fair value of $4.8 million, a note payable
in the amount of $3.6 million, and $875,000 in cash and other
acquisition related expenses.
. our pending acquisition of SpringStreet for 1,270,900 shares of our
convertible preferred stock and common stock, or an aggregate of
2,123,000 shares of common stock assuming two-for-one conversion of our
convertible preferred stock into common stock prior to this offering,
with an estimated fair value of $47.7 million. In addition, we expect to
record deferred stock compensation of $3.8 million relating to unvested
stock options assumed in the transaction.
. the reorganization of our holding company structure as previously
described.
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
------------------- ------------------
1997 1998 1998 1999
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues....................... $ 8,629 $ 19,125 $ 3,257 $ 8,872
Cost of revenues............... 4,205 9,530 1,752 3,888
-------- -------- ------- --------
Gross profit................. 4,424 9,595 1,505 4,984
Operating expenses:
Sales and marketing.......... 5,131 32,787 3,481 16,281
Product development.......... 753 5,252 514 1,499
General and administrative... 5,510 8,916 1,395 3,687
Amortization of intangible
assets...................... 8,987 9,021 2,247 2,291
Stock-based charges.......... 1,795 21,993 489 8,093
-------- -------- ------- --------
Total operating expenses.... 22,176 77,969 8,126 31,851
-------- -------- ------- --------
Loss from operations........... (17,752) (68,374) (6,621) (26,867)
Interest and other income
(expense), net................ (338) 118 6 (37)
-------- -------- ------- --------
Net loss before minority
interest...................... (18,090) (68,256) (6,615) (26,904)
Minority interest.............. 1,239 222 222 --
-------- -------- ------- --------
Net loss....................... $(16,851) $(68,034) $(6,393) $(26,904)
======== ======== ======= ========
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
------------------- ------------------
1997 1998 1998 1999
-------- -------- ------- --------
<S> <C> <C> <C> <C>
As a percentage of revenues:
Revenues....................... 100 % 100 % 100 % 100 %
Cost of revenues............... 49 50 54 44
-------- -------- ------- --------
Gross profit................. 51 50 46 56
Operating expenses:
Sales and marketing.......... 59 171 107 184
Product development.......... 9 27 16 17
General and administrative... 64 47 43 42
Amortization of intangible
assets...................... 104 47 68 26
Stock-based charges.......... 21 115 15 91
-------- -------- ------- --------
Total operating expenses.... 257 407 249 360
-------- -------- ------- --------
Loss from operations........... (206) (357) (203) (304)
Interest and other income
(expense), net................ (4) -- -- --
-------- -------- ------- --------
Net loss before minority
interest...................... (210) (357) (203) (304)
Minority interest.............. 14 1 7 --
-------- -------- ------- --------
Net loss....................... (195)% (356)% (196)% (304)%
======== ======== ======= ========
</TABLE>
32
<PAGE>
Pro Forma Three Months Ended March 31, 1998 and 1999
Revenues
Pro forma revenues increased to $8.9 million for the three months ended
March 31, 1999 from $3.3 million for the three months ended March 31, 1998.
The increase was primarily due to growth across our business, including the
number of agent and broker home pages sold and an increase in advertising
revenues.
Cost of Revenues
Pro forma cost of revenues increased to $3.9 million for the three months
ended March 31, 1999 from $1.8 million for the three months ended March 31,
1998. The increase was due primarily to our overall increased sales volume and
increased activity during the first three months of 1999 as compared to the
first three months of 1998.
Operating Expenses
Sales and marketing. Pro forma sales and marketing expenses increased to
$16.3 million for the three months ended March 31, 1999 from $3.5 million for
the three months ended March 31, 1998. The increase was primarily attributable
to an increase in web portal distribution and preferred alliance fees which we
entered into throughout 1998. The increase was also partially due to the
continued growth of our direct sales force and the building of a marketing
organization beginning in the third quarter of 1998.
Product development. Pro forma product development expenses increased to
$1.5 million for the three months ended March 31, 1999 from $514,000 for the
three months ended March 31, 1998. The increase was primarily due to salaries
and related expenses for staff, as well as costs for contracted services.
General and administrative. Pro forma general and administrative expenses
increased to $3.7 million for the three months ended March 31, 1999 from $1.4
million for the three months ended March 31, 1998. The increase was primarily
due to hiring key management personnel and increased staffing levels required
to support our expanded operations and significant growth. Facility costs
associated with our new corporate office also increased.
Amortization of intangible assets. Pro forma amortization of intangible
assets was $2.3 million for the three months ended March 31, 1999 as compared
to $2.2 million for the three months ended March 31, 1998.
Stock-based charges. During the years ended December 31, 1997 and 1998 and
the three months ended March 31, 1999, we recorded total pro forma deferred
compensation of $23.7 million in connection with stock option grants. We are
amortizing this amount over the vesting periods of the applicable options,
resulting in expense of $2.1 million for the three months ended March 31,
1999, as compared to $489,000 for the three months ended March 31, 1998.
In addition, in the three months ended March 31, 1999, we recognized the
$6.0 million difference between the deemed fair value of the stock sold in
connection with our Broker Gold program and the price paid as pro forma stock-
based charges.
Interest and Other Income (Expense), Net
Pro forma interest income consists of earnings on our cash and cash
equivalents. Pro forma interest expense consists primarily of interest expense
on the notes payable issued in connection with our acquisitions of The
Enterprise and MultiSearch. Interest income decreased to $115,000 for the
three months ended March 31, 1999 from $142,000 for the three months ended
March 31, 1998. The decrease was primarily due to lower average cash balances.
Pro forma interest expense decreased to $93,000 for the three months ended
March 31, 1999 from $136,000 for the three months ended March 31, 1998.
33
<PAGE>
Income Taxes
As a result of operating losses and our inability to recognize a benefit
from our deferred tax assets, we have not recorded a provision for income
taxes for the three months ended March 31, 1999 and 1998. As of December 31,
1998, we had $36.7 million of net operating loss carryforwards for federal
income tax purposes, which expire beginning in 2007. We have provided a full
valuation allowance on our deferred tax assets, consisting primarily of net
operating loss carryforwards, because of uncertainty regarding realizability.
Pro Forma Years Ended December 31, 1998 and 1997
Revenues
Pro forma revenues increased to $19.1 million for the year ended December
31, 1998 from $8.6 million for the year ended December 31, 1997. The increase
was primarily due to growth across our business, including the number of agent
and broker home pages sold and an increase in advertising sales.
Cost of Revenues
Pro forma cost of revenues increased to $9.5 million for the year ended
December 31, 1998 from $4.2 million for the year ended December 31, 1997. The
increase was primarily due to our overall increased sales volume and activity
during the year ended December 31, 1998.
Operating Expenses
Sales and marketing. Pro forma sales and marketing expenses increased to
$32.8 million for the year ended December 31, 1998 from $5.1 million for the
year ended December 31, 1997. The increase was primarily due to our overall
increased sales volume and activity during 1998. Specifically, sales and
marketing-related payroll, including commissions, increased as a result of the
increased sales volume and growth in our sales force in 1998. Costs related to
web portal distribution and preferred alliance agreements and increases in
public relations campaign, promotional material and trade show expenses also
contributed to the increase.
Product development. Pro forma product development expenses increased to
$5.3 million for the year ended December 31, 1998 from $753,000 for the year
ended December 31, 1997. The increase was primarily due to increases in site
design expenses, including salaries and related expenses, as well as costs for
contracted services. In addition, costs incurred in the redesign of our
REALTOR.com web site, which began in June 1998 and was completed in December
1998, contributed to the increase.
General and administrative. Pro forma general and administrative expenses
increased to $8.9 million for the year ended December 31, 1998 from $5.5
million for the year ended December 31, 1997. The increase was primarily due
to hiring key management personnel and additional staff to manage and support
our significant growth during 1998. Personnel-related costs, including
recruiting costs, legal and, to a lesser extent, consulting fees also
contributed to the increase. We also incurred costs associated with the
relocation of our corporate office.
Amortization of intangible assets. Pro forma amortization of intangible
assets was $9.0 million for the year ended December 31, 1998 as compared to
$9.0 million for the year ended December 31, 1997.
Stock-based charges. During the years ended December 31, 1997 and 1998, we
recorded total pro forma deferred compensation of $14.3 million in connection
with stock option grants. We are amortizing this amount over the vesting
periods of the applicable options, resulting in expense of $3.1 million in
1998, as compared to $1.8 million in 1997.
In connection with the August 1998 Series F financing, we sold
3,347,982 shares of common stock to certain investors and received gross
proceeds in the amount of $10.6 million. We recognized the $18.9 million
difference between the deemed fair value of the stock and the price paid by
investors as pro forma stock-based charges in 1998.
34
<PAGE>
Interest and Other Income (Expense), Net
Pro forma interest income increased to $772,000 for the year ended December
31, 1998 from $70,000 for the year ended December 31, 1997. The increase was
primarily due to higher average cash balances. Pro forma interest expense
increased to $557,000 for the year ended December 31, 1998 from $431,000 for
the year ended December 31, 1997.
Pro forma other expense in 1998 included a write-off of leasehold
improvements and a loss on disposal of certain office furniture and equipment
relating to the relocation of our corporate office.
Income Taxes
As of December 31, 1998, we had $36.7 million of net operating loss
carryforwards for federal income tax purposes, which expire beginning in 2007.
We have provided a full valuation allowance on our deferred tax assets,
consisting primarily of net operating loss carryforwards, because of
uncertainty regarding realizability.
35
<PAGE>
Selected Quarterly Pro Forma Results of Operations
The following table sets forth certain unaudited pro forma statement of
operations data for each quarter of 1998 and the first quarter of 1999, as
well as this data expressed as a percentage of our pro forma revenues for the
quarters presented. This unaudited quarterly pro forma information has been
prepared on the same basis as our pro forma financial statements and, in the
opinion of management, reflects all normal recurring adjustments that we
consider necessary for a fair presentation of the information for the periods
presented. The pro forma data may not, however, be indicative of the results
of operations of HomeStore.com that actually would have occurred had the
transactions reflected in the pro forma results of operations occurred at the
beginning of the periods presented, or of the results of operations that we
may achieve in the future. Operating results for any quarter are not
necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
Mar. Sept.
31, June 30, 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Pro Forma Statement of
Operations Data:
Revenues................ $ 3,257 $ 3,929 $ 4,900 $ 7,039 $ 8,872
Cost of revenues........ 1,752 2,190 2,448 3,140 3,888
------- -------- -------- -------- --------
Gross profit.......... 1,505 1,739 2,452 3,899 4,984
Operating expenses:
Sales and marketing... 3,481 5,887 10,535 12,884 16,281
Product development... 514 1,541 2,083 1,114 1,499
General and
administrative....... 1,395 1,935 2,088 3,498 3,687
Amortization of
intangible assets.... 2,247 2,247 2,258 2,269 2,291
Stock-based charges... 489 521 19,662 1,321 8,093
------- -------- -------- -------- --------
Total operating
expenses........... 8,126 12,131 36,626 21,086 31,851
------- -------- -------- -------- --------
Loss from operations.... (6,621) (10,392) (34,174) (17,187) (26,867)
Interest and other
income (expense), net.. 6 (5) 75 42 (37)
------- -------- -------- -------- --------
Net loss before minority
interest............... (6,615) (10,397) (34,099) (17,145) (26,904)
Minority interest....... 222 -- -- -- --
------- -------- -------- -------- --------
Net loss................ $(6,393) $(10,397) $(34,099) $(17,145) $(26,904)
======= ======== ======== ======== ========
As a Percentage of Pro
Forma Revenues:
Revenues................ 100% 100% 100% 100% 100%
Cost of revenues........ 54 56 50 45 44
------- -------- -------- -------- --------
Gross profit.......... 46 44 50 55 56
Operating expenses:
Sales and marketing... 107 150 215 183 184
Product development... 16 39 43 16 17
General and
administrative....... 43 49 43 50 42
Amortization of
intangible assets.... 68 57 46 32 26
Stock-based charges... 15 13 401 19 91
------- -------- -------- -------- --------
Total operating
expenses........... 249 309 748 300 360
------- -------- -------- -------- --------
Loss from operations.... (203) (265) (698) (245) (304)
Interest and other
income (expense), net.. -- -- 2 1 --
------- -------- -------- -------- --------
Net loss before minority
interest............... (203) (265) (696) (244) (304)
Minority interest....... 7 -- -- -- --
------- -------- -------- -------- --------
Net loss................ (196)% (265)% (696)% (244)% (304)%
======= ======== ======== ======== ========
</TABLE>
36
<PAGE>
We have experienced growth in pro forma revenues in all quarters presented
due primarily to an increase in the number of real estate broker and agent
products sold and an increase in advertising revenues due to increased
traffic. The increase in revenues was also due to price increases during the
second quarter of 1998. To establish its subscriber base, during 1998
SpringStreet signed a number of subscribers for its upgrade services on a
discounted basis. We do not know what portion of SpringStreet's current
subscribers will renew their subscriptions to SpringStreet's upgraded services
on a fully paid basis.
Pro forma cost of revenues increased for each quarter presented. In
addition, during 1998, we entered into arrangements with some of our data
content providers under which we paid a percentage of gross pro forma revenues
for property listings provided exclusively to us. This program resulted in
increased royalty fees for the period beginning in July 1998. In addition, we
incurred significant costs in the second and third quarter of 1998 due to the
redesign and upgrade of our REALTOR.com web sites.
Pro forma operating expenses, excluding pro forma stock-based charges and
pro forma product development, have increased in each of the quarters
presented reflecting the growth of our operations. Pro forma sales and
marketing expenses for each quarter in 1998 increased primarily due to the
addition of sales and marketing personnel and increased commissions associated
with higher sales. The increase was also attributable to an increase in web
portal distribution and preferred alliance fees which began in the second
quarter of 1998. Pro forma product development expenses increased during the
second and third quarters of 1998 due to an increase in our site design costs
resulting from our redesign of our REALTOR.com web site, which began in June
1998 and was completed in December 1998. These costs were expensed as incurred
during the development period. The increase in pro forma general and
administrative expenses for each of the quarters was due primarily to the
expansion of our corporate infrastructure and recruiting and relocation costs
related to the hiring of additional personnel. We also incurred costs related
to the move of our new corporate office during the fourth quarter of 1998.
Our results of operations could vary significantly from quarter to quarter.
We expect that over time our revenues will come from a variety of sources.
However, in the near term, we expect to be substantially dependent on fees
from real estate agents and brokers. We also expect to incur significant sales
and marketing expenses to promote our brand and our services. Therefore, our
quarterly revenues and operating results are likely to be particularly
affected by the number of subscribers as well as sales and marketing expenses
for a particular period. If revenues fall below our expectations, we will not
be able to reduce our spending rapidly in response to a shortfall.
Liquidity and Capital Resources
Since our inception, we have funded our operations and met our capital
expenditure requirements through the private sale of equity securities and
through cash generated from the sale of our products and services and, to a
lesser extent, equipment lease financing. Proceeds from the sale of common and
preferred stock through March 31, 1999 totaled approximately $75.0 million. In
April 1999, we sold 340,955 shares of Series G convertible preferred stock,
which will be converted into an aggregate of 681,910 shares of our common
stock on the closing of this offering, for approximately $17.0 million.
We have had negative cash flows from operating activities since 1997. Net
cash used in operating activities was $4.0 million in 1997, $28.2 million in
1998 and $6.3 million in the first three months of 1999. Net cash used in
operating activities in each of these periods was primarily the result of net
operating losses and payments required to be made relating to our web portal
distribution and preferred alliance agreements entered into in 1998. These
operating cash outflows were partially offset by increases in accounts
payable, accrued liabilities, deferred revenues and stock-based charges.
Net cash used in investing activities was $2.5 million in 1996, $1.6
million in 1997, and $5.3 million in 1998 and net cash provided by investing
activities was $1.1 million during the three months ended March 31, 1999. To
date, our investing activities have consisted of purchases of property and
equipment, acquisitions and
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strategic operating agreements. Capital expenditures for property and
equipment totaled $165,000 in 1996, $372,000 in 1997 and $3.9 million in 1998.
During the three months ended March 31, 1999, $3.0 million of our capital
expenditures were funded through an equipment lease financing arrangement. In
March 1998 and July 1998, we acquired The Enterprise and MultiSearch,
respectively for an aggregate purchase price of $11.7 million, of which $1.6
million represented cash payments.
Net cash provided by financing activities was $4.0 million in 1996, $7.2
million in 1997, and $45.0 million in 1998. Cash was provided primarily from
net proceeds from the sale of our common and preferred stock. We also
repurchased shares of our common and preferred stock in 1998 and during the
three months ended March 31, 1999.
As of December 31, 1998, our principal commitments consisted of a five-year
lease for our corporate offices, various web portal distribution and preferred
alliance agreements, and our equipment lease. Future cash payments under these
non-cancelable commitments are $70.1 million. We expect that our capital
expenditures will increase as our employee base continues to grow. We do not
have any material commitments for capital expenditures, although we anticipate
that our planned purchases of capital equipment and leasehold improvements
will require additional expenditures over the next 12 months.
As of March 31, 1999, we had $4.8 million in cash and cash equivalents. We
currently anticipate that our existing cash and cash equivalents, the net
proceeds from our Series G preferred stock financing and this offering, and
any cash generated from operations will be sufficient to fund our operating
activities, capital expenditures and other obligations through at least the
next 12 months. However, we may need to raise additional funds in order to
fund more rapid expansion, to expand our marketing activities, to develop new
or enhance existing services or products, to respond to competitive pressures
or to acquire complementary services, businesses or technologies. If we are
not successful in generating sufficient cash flow from operations, we may need
to raise additional capital through public or private financing, strategic
relationships or other arrangements. This additional funding, if needed, might
not be available on terms acceptable to us, or at all. Our failure to raise
sufficient capital when needed could have a material adverse effect on our
business, results of operations and financial condition. If additional funds
were raised through the issuance of equity securities, the percentage of our
stock owned by our then-current stockholders would be reduced. Furthermore,
such equity securities might have rights, preferences or privileges senior to
those of our common and preferred stock.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. The adoption of this statement of
position in the first quarter of fiscal 1999 did not have a material impact on
our consolidated financial position, consolidated results of operations or
consolidated cash flows.
In April 1998, the American Institute of Certified Public Accountants
issued statement of position No. 98-5, "Reporting on the Costs of Start-Up
activities." This statement of position requires that all start-up costs
related to new operations must be expensed as incurred. In addition, all
start-up costs that were capitalized in the past must be written off when this
statement of position is adopted. The adoption of this statement of position
in the first quarter of fiscal 1999 did not have a material impact on our
consolidated financial position, consolidated results of operations or
consolidated cash flows.
In June 1998, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The statement requires the recognition of
all derivatives as either assets or liabilities in the balance sheet and the
measurement of those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the planned use of the derivative
and the resulting designation. Because we do not currently hold any derivative
instruments and do not engage in hedging activities, we believe the impact of
adoption of SFAS No. 133 will
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not have a material impact on our consolidated financial position,
consolidated results of operations or consolidated cash flows. We will be
required to implement SFAS No. 133 in the first quarter of fiscal 2000.
Year 2000 Compliance
The Year 2000 Issue refers generally to the problems that some computer
systems may have in determining the correct century for the year. For example,
software with date-sensitive functions that is not Year 2000 compliant may not
be able to distinguish whether "00" means 1900 or 2000, which may result in
failures or the creation of erroneous results.
We have been actively involved in initiatives to reduce or eliminate our
exposure to Year 2000 issues. We intend to achieve remediation and compliance
for all our critical infrastructure components, systems, interfaces and key
suppliers by August 1999. We are following a methodology which includes six
phases: Inventory, Assessment, Planning, Remediation, Testing and
Implementation. The Inventory and Assessment Phases were complete at the end
of March 1999. The Planning through Testing Phases are planned for completion
by July 1999, with final implementation by the end of August 1999.
Internal Infrastructure. As a result of building a new data center in our
Thousand Oaks, California facility, we believe our computer network for
running our REALTOR.com and CommercialSource.com web sites is running on Year
2000 compliant hardware and software purchased within the previous six months.
Our tier-one Internet service providers have provided statements of compliance
for the networks. In addition, our equipment vendors have informed us that the
hardware and software components used for these web sites are Year 2000
compliant.
We host out HomeBuilder.com web site at a network facility in Dallas,
Texas. We have been informed by our vendors that the hardware and software
components used for the HomeBuilder.com web site are Year 2000 compliant.
We host broker home pages from our data center in Milwaukee, Wisconsin. We
have not yet been informed by our vendors that the hardware and software
components used to host these pages are Year 2000 compliant.
Except as described below, we have obtained representations from
SpringStreet and their principal stockholders that the computers and software
used to operate the SpringStreet.com web site are Year 2000 compliant.
SpringStreet has determined its database software program is not Year 2000
compliant. SpringStreet is in the process of replacing this software. However,
if the software is not timely replaced our business and operating results
could be materially adversely impacted. In addition, if these representations
are incorrect or if SpringStreet experiences unforseen problems with respect
to the Year 2000, we could incur substantial additional expenses to correct
these problems.
Internal Business Systems. Our primary management information and business
systems are running on third party software packages purchased and implemented
during the first quarter of 1999. The vendors of each of these packages have
provided Year 2000 compliance statements. For internally developed software,
we have supplemented our development staff with a third party consulting
company specializing in Year 2000 remediation. We work with hundreds of
Multiple Listing Services to obtain listings data for the REALTOR.com web
site. We are in the process of contacting each of these MLSs to determine
their state of readiness with respect to the Year 2000. The failure of an
MLS's system to be Year 2000 compliant would severely affect our ability to
download and receive listings data from them.
Suppliers and Vendors. During the inventory and assessment phases of our
Year 2000 Program, key vendors and suppliers were listed and prioritized based
on their importance to the business. We are validating compliance with all
vendors and have initiated communications to all priority suppliers and
vendors requesting compliance for their products and services.
Our Internet Service Providers have represented to us that their systems
are Year 2000 compliant.
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We have contacted our landlord to determine whether our building and
related systems are Year 2000 compliant. Our building and systems and
telephone, facsimile and other communications have been certified as being
Year 2000 compliant.
Costs. We believe that the total cost of our Year 2000 compliance efforts
will not be material to our business. In addition, the majority of these costs
are attributable to employee time spent in our Year 2000 compliance efforts as
compared to cash outlays. However, if we encounter unexpected problems with
respect to the Year 2000 issue, we could incur additional costs, including
significant cash outlays, which could be material.
Year 2000 Risks. Despite our investigations of the Year 2000 issue, we have
not received certifications from all of our third party suppliers and vendors
and it is possible that those certifications as well as the other
representations we have obtained could be erroneous. Failures of our or our
customers' systems to operate properly with regard to the Year 2000 could
result in one or more of our web sites being unavailable and our products and
services not functioning properly. Unavailability of our web sites due to a
lack of Year 2000 compliance could have a material adverse impact on our
revenues and operating expenses.
In addition, the Internet is a network of computer systems which depends on
the functioning of a number of parts such as communications connections,
Internet Service Providers and power supplies, all of which are beyond our
control. The failure of these companies to be Year 2000 compliant could result
in a variety of systems failures such as electrical outages, Internet outages
or slower response times or telecommunications failures. These events could
prevent users from accessing our products and services or prevent us from
updating our listings for a period of time, from delivering our services to
our subscribers or from selling advertising on our web sites for a period of
time. Any of these events could have a material adverse effect on our
business, operating results and financial condition.
Contingency Planning. We have not yet developed a formal contingency plan
for any Year 2000 problems, as our contingency plan depends in significant
part upon the results of our Year 2000 investigation. We expect to have a
contingency plan completed by August 1999.
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BUSINESS
Overview
We are the leading real estate destination on the Internet and are
pioneering the use of the Internet to bring the real estate industry online.
Our family of web sites, including REALTOR.com, HomeBuilder.com,
CommercialSource.com and, through our pending SpringStreet acquisition,
SpringStreet.com, provides the most comprehensive source of real estate
listings and content on the Internet. Through our family of web sites, we
provide a wide variety of information and communications tools for consumers,
real estate industry professionals, advertisers and providers of real estate
related products and services. To provide consumers with better information
and additional resources throughout the home and real estate life cycle, we
have established strategic relationships with key industry participants,
including real estate market leaders such as the National Association of
REALTORS, the National Association of Home Builders, the largest Multiple
Listing Services, real estate franchises, brokers, builders and agents. In
order to draw additional traffic to our family of web sites, we also have
distribution agreements with many leading Internet portals, including America
Online, @Home, Excite and Go Network/Infoseek, most of which have exclusivity
features. We currently generate revenues from several sources, including web
hosting fees from agents, brokers, home builders and, through our pending
SpringStreet acquisition, rental property owners and fees from advertisers.
Industry Background
The Real Estate Industry
The real estate industry accounts for approximately 15% of the gross
domestic product of the United States and is therefore one of the largest
sectors of the economy. The real estate industry is commonly divided into the
residential and commercial sectors. The residential sector includes the
purchase, sale, rental, remodeling and new construction of homes and
represents approximately $1 trillion per year. The commercial sector includes
the lease, resale, and new construction of property for businesses and
represents approximately $300 billion per year.
The Residential Real Estate Market
Buying a home is the largest financial decision, and represents one of the
most difficult and complex processes, most consumers will ever undertake. The
process of finding a home begins a lifelong cycle which most consumers will
move through once every seven to eleven years. This cycle tracks major life
events such as employment, marriage, children and retirement and is
illustrated below:
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A significant portion of the United States economy has evolved around
helping consumers as they navigate through this home and real estate cycle. An
enormous network of support services and products exists to assist consumers
in finding a property, building a property, renting or buying a property,
moving, owning a property and selling a property.
Find a Property. The following real estate professionals and organizations
assist consumers in finding a property:
. Real Estate Agents. Real estate agents are independent contractors that
are licensed to negotiate and transact the sale of real estate on behalf
of prospective buyers and sellers. There are over 1.0 million real
estate agents in the United States. Consumers spend in excess of $30
billion annually for assistance with the finding, buying and selling of
residential property.
. Real Estate Brokers. Real estate brokers are paid a commission to bring
buyers and sellers together and assist in negotiating contracts. Real
estate brokers often have their own independent offices and may employ
other licensed real estate agents. There are over 100,000 real estate
brokers in the United States.
. Residential Franchisers. There are six major residential franchisers in
the United States: Century 21, Coldwell Banker and ERA, which
collectively comprise the Cendant franchise; RE/MAX; Prudential; and
Better Homes & Gardens. These franchisers together represent thousands
of independently owned and operated real estate offices and hundreds of
thousands of real estate professionals in the United States.
. Multiple Listing Services. MLSs operate proprietary networks that
provide real estate professionals with listings of properties for sale,
and are regulated by a governing body of local brokers and/or agents.
There are approximately 800 MLSs nationwide that aggregate local
property listings by geographic location. We estimate that, as of March
31, 1999, MLSs provided approximately 1.35 million resale home listings
nationwide.
. National Association of REALTORS. The NAR is the largest trade
association in the United States that represents real estate
professionals. The NAR consists of residential and commercial REALTORS,
including brokers, agents, property managers, appraisers, counselors and
others engaged in all aspects of the real estate industry. "REALTOR(R)"
is a registered collective membership mark which may be used only by
real estate professionals who are members of the NAR and subscribe to
its code of ethics. The NAR has approximately 720,000 members.
Build a Property. In addition to the real estate professionals and
organizations involved in finding a home, the new home market is also served
by a large group of dedicated professionals including:
. Home Builders. New homes are built primarily by a limited number of
national home builders and a much larger number of local volume and
custom builders. In 1998, home builders built over 800,000 homes,
generating over $160 billion in sales.
. National Association of Home Builders. The NAHB is the second largest
real estate trade association in the United States. As of December 31,
1998, the NAHB's members include approximately 197,000 firms.
Approximately one-third of the NAHB's members are home builders and/or
remodelers, and the remainder work in closely related fields within the
residential real estate industry, such as mortgage, finance, building
products, and building services including subcontractors.
Rent a Property. Today, over 30 million households in the United States
reside in rental housing. In addition to real estate agents and brokers who
assist in the leasing of residential rental units, professionals serving this
segment of the market include the following:
. Property Owners. Property owners include owners of individual apartment
units, multi-family apartment complexes, individual single family rental
homes or other residential rental properties.
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Property owners may lease and operate their rental properties themselves
or outsource those functions to other real estate professionals, such as
property managers. The residential rental ownership market is highly
fragmented, with the 50 largest owners of multi-family apartment
complexes owning approximately 10% of all apartment rental units in the
United States.
. Property Managers. Property managers are typically responsible for
leasing available rental units, collecting rents, and maintaining the
property. Property managers typically manage a number of apartment
complexes, and will employ third party leasing agents to assist them
with the leasing function. The property manager market is also highly
fragmented, with the 50 largest property managers, many of whom also own
their properties, managing approximately 10% of all apartment rental
units in the United States.
Buy and Sell a Property. Because of the complexity and size of the purchase
or sale transaction, consumers buying or selling a home typically rely upon a
series of professionals, including real estate agents and ancillary service
providers, such as mortgage brokers, title agents, escrow agents, attorneys,
inspectors and appraisers. These professionals and ancillary service providers
offer products and services, such as mortgages, title insurance, credit
reports, appraisals and inspections, that generated in excess of $49 billion
in transactional fees in 1998.
Move. Every time consumers buy, sell or rent a home, they need assistance
with various relocation related services, such as insurance and moving
supplies and services. We estimate that consumers spend over $100 billion each
year for home and apartment moves including moving services and related
product purchases. In addition, real estate transactions often lead to
significant lifestyle changes for consumers, including changing neighborhoods,
schools, shopping malls, banks, grocers, cleaners and other retail
relationships. As a result, consumers need information about the wide range of
available product and service alternatives relating to all aspects of their
relocation.
Own a Property. Ownership represents the longest portion of the home and
real estate life cycle. Homeowners purchase a large number of household and
home related products including furniture, appliances, hardware and supplies.
During this phase of the home and real estate life cycle, homeowners also
require a number of ancillary services, relating to such activities as home
maintenance and repairs, refinancing, remodeling and landscaping. As a result,
homeowners are continuously seeking sources of information to assist them in
locating providers of these products and services.
Challenges in the Real Estate Market
Every participant in the home and real estate life cycle faces a unique set
of challenges:
Home Buyers. In order to dispel the fear of purchasing the wrong home or
paying too much for a home, consumers must be assured that they have
considered all available options. Therefore, home buyers require an extensive
amount of information and several decision tools to help bolster confidence
during the home buying process. To make an informed decision, consumers need
access to a comprehensive listing of homes for sale and require information
about specific neighborhoods and listed prices of comparable homes for sale in
a given geographic location.
Once a home has been selected, consumers must consider a broad range of
related services, including mortgage, title, escrow, insurance, moving and
relocation services as well as remodeling alternatives. As a result, consumers
are continually searching for additional information and resources to assist
them in every aspect of the real estate transaction and need a comprehensive,
convenient and integrated source of information that assists them in each step
of the process.
Real Estate Agents and Brokers. Real estate agents and brokers depend on
attracting and retaining customers in order to generate increasing numbers of
transactions. Due to its size and complexity, it is not uncommon for the real
estate transaction to take several months to complete. As a result, the job of
real estate agents and brokers
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is complicated by a variety of factors. Therefore real estate agents and
brokers are looking for additional opportunities to market their services,
become more productive and compete more effectively for transactions. In
addition, they seek greater efficiency in disseminating information to their
prospective clients and are looking for tools that can help them streamline
their current practices.
Home Builders. Home building and real estate professionals who focus on new
homes and new home developments also depend on attracting and retaining
customers in order to sell new properties in a timely manner. However, home
builders have not developed an infrastructure similar to an MLS to aggregate,
update and share data regarding available inventory. Nor do they have the
infrastructure to communicate this information to potential buyers. As a
result, home building and real estate professionals continue to seek new ways
to market their products and services and inform prospective home buyers of
the availability of new properties.
Renters, Property Managers and Owners. To make an informed decision,
renters need access to comprehensive information about available rental units,
specific neighborhoods and rental prices in a given geographic location.
Because of the high turnover rate in rental units, property managers and
owners must regularly attract new tenants to minimize their vacancy rates. We
estimate that approximately $1.8 billion was spent in 1998 to market
apartments and rental homes. The rental market has not developed a central
repository for comprehensive listings accessable by potential renters
nationwide and property managers and owners are continuously seeking to market
their available units in a cost-effective manner.
Ancillary Service Providers. Consumers require a variety of products and
services throughout the home and real estate life cycle. The real estate
transaction provides service providers and retailers the opportunity to target
consumers at a time when they are shifting their buying patterns. Providers
and retailers of these products or services need an effective mechanism to
reach consumers who are most interested in their offerings. Ideally, these
providers of products and services would have a centralized location where
they could advertise their offerings to a target group of consumers who are
engaged in the real estate process.
The Internet and Real Estate
The emergence and acceptance of the Internet is fundamentally changing the
way that consumers and businesses communicate, obtain information, purchase
goods and services and transact business. Because of its size, fragmented
nature and reliance on the exchange of information, the real estate industry
is particularly well suited to benefit from the Internet. The real estate
industry currently spends $3.5 billion a year on advertising and print media.
Traditional sources of advertising and print media, including classifieds and
other off-line sources, are not interactive and are limited by incomplete and
inaccurate data that is local in scope and is typically disseminated on a
weekly basis. These traditional sources also lack searchable content, a
centralized database of information and the ability to conduct two-way
communications. The Internet offers a compelling means for consumers, real
estate professionals, home builders, renters, property managers and owners and
ancillary service providers to come together to improve the dissemination of
information and enhance communications.
The HomeStore.com Solution
We are pioneering the use of the Internet to bring the real estate industry
online. We provide a wide variety of information dissemination and
communications tools for real estate industry participants. We focus
exclusively on the real estate industry and have also established strategic
relationships with key industry participants, including both Internet and real
estate market leaders. We currently operate the most frequently visited real
estate-focused family of web sites, including REALTOR.com, HomeBuilder.com and
SpringStreet.com, through our pending SpringStreet acquisition. We also
recently launched a web site, CommercialSource.com, which focuses on the
commercial real estate market. Our family of web sites allows searches of
information that previously had never been compiled as comprehensively in a
single location. Consumers and businesses can use our service offerings to
obtain information and evaluate the wide range of
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alternatives involved in the home and real estate life cycle, including
buying, selling and renting residential or commercial real estate. Real estate
professionals can use our service offerings to streamline their business, help
them find and retain new customers, differentiate themselves competitively and
access and disseminate information in a timely fashion. Furthermore, our
family of web sites offers ancillary real estate product or service providers
the ability to target consumers who are most interested in their offerings.
Key elements of our solution include the following:
Provide a Comprehensive Source of Real Estate Listings. Our family of web
sites provides the most comprehensive source of real estate listings on the
web. As of March 31, 1999, of the 1.35 million homes that we estimate are
listed for sale in the United States, our REALTOR.com web site had listings
for approximately 1.25 million. Our extensive coverage includes listings of
existing homes in 148 of the 150 largest real estate markets in the country.
In addition, we believe that we provide the most comprehensive source for new
home subdivisions, developments and new home listings through our
HomeBuilder.com web site. On this web site as of March 31, 1999, we aggregated
information on over 100,000 new homes and planned developments for sale
throughout the United States. We also provide the most comprehensive rental
property related listing information on the Internet through our
SpringStreet.com web site which includes listings for over 45,000 properties
with over 6.0 million rental units. Our property listings typically provide
information that is significantly more detailed and timely than that included
in alternative media channels, such as newspaper classified advertisements.
Capitalize on Industry Relationships. We have a number of key strategic
relationships which provide us a significant competitive advantage. We have
exclusive partnerships with, and operate the official web sites of the two
largest real estate trade organizations, the NAR and the NAHB. We also have
content arrangements with approximately 70 of the 200 largest brokers in the
United States through our Broker Gold program, nine of the ten largest home
builders in the United States, five of the six largest real estate franchises
and over 650 of the approximately 800 MLSs. Our close working relationships
with these organizations allows us to keep pace with the complicated and
evolving real estate industry. By working closely with individual REALTORS,
builders and property owners, we are able to offer relevant and up-to-date
content, features and services. In order to draw additional traffic to our
family of web sites, we have distribution agreements with many leading
Internet portals, including America Online, @Home, Excite and Go
Network/Infoseek, most of which have exclusivity features.
Provide Comprehensive Set of Products and Services for Consumers. We
provide consumers with access to real estate professionals and qualified,
accurate and timely nationwide listings. Through our family of web sites,
consumers can easily search through substantial amounts of real estate related
information at all stages of the home and real estate life cycle. For example,
we provide decision support information and tools, directories of real estate
professionals and financing options. By providing consumers with a
comprehensive and integrated information source for each stage of the home and
real estate life cycle, we allow them to be better informed and feel more
confident about their real estate decisions.
Enable Industry Professionals to Leverage the Internet. We provide a suite
of products and services to real estate professionals that allows them to
utilize the Internet to expand and grow their customer base. Through the broad
reach of our family of web sites, real estate professionals can significantly
increase their visibility among prospective buyers and sellers, especially
those outside of their region. Because educated buyers and sellers are more
likely to reach an informed purchase or sale decision and to close a
transaction in a shorter period of time, these qualified leads can improve the
efficiency of real estate professionals and shorten the sales cycle. As a
result, these real estate professionals have a significant advantage over
their competitors who rely on traditional methods and media to grow their
businesses.
Provide Attractive Demographic for Advertisers and Service Providers. Our
family of web sites draws an attractive target audience for advertisers and
providers of real estate related products and services. This target audience
tends to use our family of web sites for extended periods of time. According
to Media Metrix, in March 1999, the average time spent per visit to
REALTOR.com was 15.3 minutes, ranking it third among the top 200
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web sites as measured by unique visitors. Because we attract the consumers
interested in real estate before their buying decision, we provide businesses
with an efficient way to find and communicate with potential customers.
Highly Scalable Business Model Provides Multiple Sources of Revenue. Our
business model is designed to support continued growth in the utilization of
the Internet as a tool for all phases of the home and real estate life cycle.
We currently generate revenues from several sources, including agents and
brokers, home builders, advertisers and, through our pending SpringStreet
acquisition, rental property owners. We intend to capitalize on our position
as the leading source for real estate listings and related information over
the Internet in order to continue to broaden our product and service offerings
to new and existing customers.
Our Strategy
Our objective is to extend our position as the leading real estate
destination on the Internet. The key elements of our strategy include:
Enhance Our Real Estate Content and Data. We will continue to focus on
connecting consumers and professional service providers by increasing the
content and relevant data available on our family of web sites. To achieve
this objective, we will seek to increase the number of new and existing homes,
rental properties and commercial properties listed on our family of web sites,
the number of professional service providers affiliated with our offerings and
the available content on our family of web sites.
Increase Usage of Our Family of Web Sites. We seek to increase traffic to,
and time spent on, our family of web sites. To efficiently reach a wide user
base, we plan to build upon our strategic distribution arrangements with
leading Internet portals. We also expect to significantly increase our
marketing efforts in traditional media, such as newspaper advertisements,
radio and television promotions. We believe that these advertising efforts
will help increase consumer awareness of our products and service offerings.
Continue to Form Strategic Relationships with Real Estate Industry
Professionals. We believe that our strategic alliances with key real estate
industry professionals and professional organizations provide us with a
distinct competitive advantage. These relationships allow us to provide
consumers with better information and additional resources throughout the home
and real estate life cycle. We will seek to increase the breadth and depth of
these relationships.
Continue to Develop and Extend Our Brand Recognition. As more consumers and
real estate professionals utilize the Internet for their real estate needs, we
believe that brand awareness will provide us with a significant competitive
advantage. We plan to capitalize upon our position as the leading real estate
destination on the Internet and expand our marketing efforts in order to build
greater recognition for our family of web sites.
Leverage Emerging Internet Technologies. We will seek to incorporate
emerging Internet technologies to provide enhanced functionality and overall
ease-of-use. We believe that continuing to incorporate enhanced functionality
will be a key element in increasing traffic and time spent on our family of
web sites. We believe the evolution of the Internet will provide us with the
opportunity to move more real estate related information and activities onto
the Internet. We plan to make this process more efficient by continually
identifying and integrating advances in Internet technology in our product
offerings.
Products and Services
We offer a family of web sites including REALTOR.com, HomeBuilder.com,
CommercialSource.com and, after our pending acquisition, SpringStreet.com, as
well as related products and services.
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REALTOR.com
Our primary site, REALTOR.com, enables potential home buyers to browse,
free of charge, from our searchable database of approximately 1.25 million
homes as of March 31, 1999. We have content arrangements with over 650 of the
approximately 800 Multiple Listing Services across the United States to
provide the listings for REALTOR.com. More than half of these listings are
from MLSs that have agreed to provide listings exclusively to us for
publication on the Internet on a nationwide basis. Additionally, REALTOR.com
provides decision support tools, information concerning the home buying and
selling process and tools that aid users in evaluating the attributes of
particular neighborhoods or geographic locations.
Consumer Products
Our consumer products are offered free to REALTOR.com visitors and are
designed to help them throughout the home and real estate life cycle.
REALTOR.com, has sections representing the various stages of the home and real
estate life cycle, including Getting Started, Buying, Selling, Offer/Closing,
Moving and Owning. For example, at the beginning of the home and real estate
life cycle we offer Find a Home, Find a Neighborhood and Personal Planner. In
addition, we offer information and tools regarding mortgages and home
affordability as well as a specific guide to the home buying process. When
users have made their home selection, they can find information about the
offer process, applying for a loan, closing the purchase or planning the move.
As homeowners, users can find information about remodeling, refinancing and
other aspects of owning a home. When users are ready to sell their home, they
can use Find a REALTOR to find information regarding relocation planning,
pricing, accepting an offer and closing the sale. In addition, while they are
in the process of selling their homes, sellers can use our Find a Home, Find a
Neighborhood and Personal Planner tools to begin the search for their next
home. At all stages, users can visit our Resource Center, for links to a wide
variety of real estate information such as moving services, insurance, home
improvement and appliances.
Find a Home. Our Find a Home feature allows potential home buyers to search
our database of home listings. The user selects a geographic region or a
specific MLS property identification number. The user can refine their home
search by selecting neighborhood and home characteristics. Our search engine
returns a list of homes ranked by their conformity to the users' search
criteria. The search results provide pictures of the homes, if available,
descriptions of the properties, the name and contact information of the agent
that represents the home seller and, for certain homes, virtual tours. For
agents in our Agent Simple program, the consumer's search results also provide
a direct link to their personalized web site displaying each property listed
by the agent.
Find a REALTOR. Our Find a REALTOR feature allows a user to contact a
REALTOR to buy or sell a home in a given geographic area. The user can search
our Yellow Pages Directory for REALTORS who specialize in the cities or zip
codes specified by the user or have certain professional REALTOR designations.
Users can also search by keyword and/or by office name or name of the REALTOR.
Our Yellow Pages Directory provides a list of REALTORS meeting the search
criteria, which includes a link to each REALTOR's home page, their office
name, phone and fax numbers, their e-mail address and a brief description of
their specialty. We also have a White Pages Directory listing all REALTORS.
Resource Center. Our Resource Center provides potential home buyers access
to ancillary services that can be helpful at all stages of the home and real
estate life cycle. The services listed include:
. moving services, such as self-storage by Storage Locator;
. home improvement services, such as Improvement Center at Home Depot and
Improvement Encyclopedia by Sierra Home;
. insurance services, such as homeowner's insurance by Allstate and title
insurance by Stewart Title;
. household items, such as appliances by Whirlpool, furniture by Cort, home
products by Kmart and home office electronic products from IBM; and
. lifestyle products, such as child and elderly care by CareGuide, home
security by Protection One, and health and wellness by WebMD.
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Through the Resource Center, companies can sponsor new services and buy
targeted advertising for their products and services.
Find a Neighborhood. Our Find a Neighborhood feature enables users to
locate desired neighborhoods by searching information such as quality of
schools, crime rate, average home cost, and urban/rural profiles. Once a
profile has been established, our search engine returns a map ranking
geographic areas according to the user's criteria.
Personal Planner. Users can use our Personal Planner feature to save search
results, search criteria, and articles and related content from all areas of
REALTOR.com. Users can create their Personal Planner account by registering
their e-mail address and can choose to be notified via e-mail whenever new
listings match their saved search criteria.
Professional Products
We generate a substantial portion of our revenues from products we market
to real estate agents and brokers.
Agent Simple. Agent Simple, our primary product offering for the REALTOR,
is a customized web page that links a REALTOR's professional biography and
their inventory of listings to their web page. The home page and property
listing pages can contain:
. customized textual descriptions and banners on the REALTOR's listed
properties;
. multiple photographs of the properties;
. a personalized voice message from the REALTOR;
. the REALTOR's professional information, including name, photograph,
telephone number, significant accomplishments and mailing and e-mail
addresses; and
. the REALTOR's listing in our Yellow Pages Directory, which is linked to
Find a REALTOR.
We also offer as an upgrade, a personal web address that appears, for
example, as "WendyJones.REALTOR.com," and points directly to their home page.
Another upgrade is our Featured Homes service, that allows subscribers to
place a property description and photo from their inventory on top of sub-
regional map pages within the site on a weekly basis.
Office Simple. Our Office Simple product is targeted to individual real
estate brokerage offices. Office Simple provides real estate brokers the
opportunity to have their entire inventory of real estate properties linked to
the office's customized web page, whether or not their agents purchase our
Agent Simple product. The agents of the broker are listed on its web page with
Agent Simple subscribers receiving placement above those who do not use Agent
Simple. An embedded link to an office's web address is also available as an
upgrade to Office Simple users, as well as the display of their office logo on
every one of their listings for the entire year. Office Simple subscribers are
also listed in our Yellow Pages Directory of REALTORS.
One Place. Our One Place product integrates Agent Simple with an
interactive voice response system, linked to a pager network. With One Place,
REALTORS are immediately paged when a potential home buyer or seller inquires
about a specific house. In addition, if the buyer sees the telephone number on
the "for sale" sign posted in front of the property and calls the interactive
voice response system, the REALTOR is also paged. The pager message includes
caller ID and specific property information, which allows the REALTOR to
respond instantaneously and knowledgeably to interested consumers. One Place
is sold on an annual subscription basis, plus additional upgrades. One Place
is typically sold to brokers with at least 100 real estate professionals
and/or brokers who commit to obtaining a minimum agent participation rate.
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HomeBuilder.com
HomeBuilder.com is our web site focused on builder information, including
new homes, subdivisions and developments. We have developed a customized,
nationwide listing of builders' models, newly built homes, and housing plans,
which we aggregate directly from builders and organize in a similar fashion to
listings on REALTOR.com.
Consumer Products
HomeBuilder.com, like REALTOR.com, allows potential home buyers to browse,
free of charge, through our searchable database of new homes. Many of the
features available on the REALTOR.com web site, such as
mapping and community profiles, are also available on HomeBuilder.com. The
site's Lead Generation Program allows consumers to e-mail or fax the builder
with detailed requests for information on each property. Potential buyers can
search for new homes using the following features:
Find a New Home. Our Find a New Home feature allows potential home buyers
to search our database of new homes using criteria they select. A user
initiates a search by selecting Find a New Home on the HomeBuilder.com home
page and may refine the search by geographic location from a map or a list.
Market Level Searching. Users may search listings of models, newly built
homes and housing plans within a market as follows:
. New Homes. This feature enables the user to search by geographic location
within a given state with individual home details such as price, square
footage and number of bedrooms and bathrooms. Users can view other
details about the home such as the floor plan, elevation and picture
along with maps, school information and other demographic data pertaining
to the community. A text link from the builder's name to its web site is
also available.
. Builders. This feature enables users to search within the market for
homes built by a particular builder. The search offers the same criteria
as the New Homes search. By clicking on the builder's name, the user can
view a detailed list of the selected builder's homes.
. Custom Builders. This search produces a list of custom builders within a
specified geographic region. The list includes the name and phone number
of the builder, the price range of the builder's homes and a text link to
view the builder's inventory. A text link from the builders' name to its
web site is also available.
. Real Estate Agents. This search enables users desiring to find a REALTOR
to assist them in their new home search in a specified geographic area.
The results display a list of agents by real estate office. By clicking
on the agent's name, users go to the selected agent's home page. Real
estate office links are also available.
Professional Product Basic Services Package. HomeBuilder.com is an
integrated destination for builders of all sizes. We collect and store the
builder's information, display the information throughout our national and
local Internet distribution channels and train the builder's salespeople how
to respond to Internet leads.
Our Basic Services Package includes the following:
. collection, entry and periodic updating of the builder's inventory of
models, newly built homes and floor plans and community information;
. scanning and entry of the builder's floor plans, elevations and available
pictures;
. detailed property profiles with floor plans, descriptions, mapping,
photographs, specifications, elevations and virtual tours;
. our Home Builder Lead Generation Program;
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. direct links to the builder's web sites and home pages through our
Builder Link feature; and
. page header advertising banners with direct links to the builder's web
site.
SpringStreet.com
With our pending SpringStreet acquisition, we will provide consumers
interested in renting a home or apartment with a comprehensive search and
relocation service. On the SpringStreet.com web site, potential renters have
access to rental property listings, free of charge, just as home buyers have
for sale listings on our REALTOR.com and HomeBuilder.com web sites. Potential
renters can access listing information from more than 45,000 properties,
located in over 6,000 cities nationwide and containing over 6.0 million rental
units. Users can develop their own lists of favorite properties and store them
on the site. They can also access our comprehensive information resource
center which is designed to help make the relocation process easier, and
includes information relating to moving services, renter's insurance,
furnishings, and local content and statistics about a user's new neighborhood.
In addition, users can build and develop customized moving checklists, store
them on our site and receive reminder e-mails from us as each item on the
checklist is triggered over time.
SpringStreet.com, like our REALTOR.com and HomeBuilder.com web sites,
generates revenues primarily from products offered to real estate
professionals in return for generating qualified leads for those
professionals. These products are targeted to property owners who operate
their own rental properties and to property managers. Properties listed on our
web site include large multi-family apartment complexes as well as smaller,
single family homes.
Multi-Family Apartment Complexes. SpringStreet.com offers property owners
and managers of multi-family apartment complexes the opportunity to list basic
rental information free of charge. Basic listing information is a text-based
presentation of information which summarizes rental listings in a manner
similar to that which might be found in a local listing publication. Product
revenues are generated from an extensive basic listings database by selling
enhanced features to owners and managers for a monthly subscription fee. These
enhanced features can include:
. color photos and detailed property and rental unit descriptions for all
unit types, including monthly rental ranges;
. premium placement of listings at the top of rental search results
returned, as well as links to an owner or manager's web page;
. maps and driving instructions to the property;
. e-mails generated by renters inquiring about specific properties; and
. detailed monthly reports of web page and lead activity.
Single Family Homes. Owners of individual units or small buildings listed
with a REALTOR, and in some areas other real estate professionals, can list
their available rental units with the individual unit listing service. The
owner completes a form which contains up to 24 standard features about the
unit and its amenities. The owner can also designate special amenities about
the unit and have a photo of the unit posted for an additional fee.
The remainder of SpringStreet's revenues is derived from banner advertising
and sponsorship opportunities, as well as a fee-based consumer service. The
consumer service allows consumers to receive access to less widely
disseminated rental listings in markets where vacancies are very low, such as
in New York City, San Francisco and Seattle.
SpringStreet offers its services on a subscription basis. To establish its
subscriber base, during 1998 SpringStreet signed a number of subscribers for
its upgraded services on a discounted basis. We do not know what portion of
SpringStreet's current subscribers, if any, will renew their subscriptions to
SpringStreet's upgraded services on a fully paid basis.
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CommercialSource.com
CommercialSource.com serves as a portal site for commercial real estate and
includes an organized list of links to domestic and international commercial
property listings as well as other related sites of interest for industry
professionals. The site includes several channels of information including:
Property Listings. The property listings feature provides access to
commercial property listings by linking to a comprehensive collection of web
sites containing commercial property listings. By providing access to a
centralized resource for commercial property links, we enable commercial real
estate professionals to connect quickly and easily to web sites containing
listings that were not previously accessible from a single source.
CommercialSource.com also benefits listing brokers since the site provides a
platform where parties interested in completing commercial real estate
transactions can meet.
Finance. Our finance feature offers links to a number of financing sources
for commercial real estate such as general lending institutions, direct
lenders, brokers and key industry sites including Fannie Mae, GE Capital, and
GMAC. This allows parties in need of financing to research a number of
different providers and financing options to identify optimal financing terms.
Products and Services. CommercialSource.com also offers links to a number
of information service providers related to the commercial real estate
industry. These include providers of property valuation services, credit
services, demographic data and analytic services, environmental and flood
reports, market reports and insurance services. This area is designed to
provide users with an extensive reference source for commercial real estate
related services while at the same time giving providers access to a highly
targeted audience.
News. Our News area provides access to a group of industry news sources.
RealTimes is featured with their daily online overview of late breaking news
related specifically to the commercial real estate industry.
Advertising Services
We currently offer the following advertising options on our family of web
sites that may be purchased individually or in packages:
Banner Advertising. Advertisers can purchase banner advertisements on
various content areas of our family of web sites to reach consumers interested
in specific regions or in specific products or services relating to the home
and real estate life cycle.
Sponsorships. Sponsorships allow advertisers to maximize their exposure on
our family of web sites by featuring fixed "buttons" or other prominent
placements on certain pages to gain fixed positions on our sites and present a
user with the more opportunities to click-through directly to their site.
Sponsorships are typically sold for a fixed monthly fee over the life of the
contract and may include other advertising components such as content or
banner advertisements.
Content Centers. The Resource Centers of our REALTOR.com and
HomeBuilder.com web sites offer home buyers, sellers and owners a wide variety
of products and service information in categories such as home and family,
home improvements, moving services and insurance products and services.
Advertisers can sponsor a page of content featuring their products or services
or purchase pop-up ads that appear in a new window when the user enters the
Resource Center. Typically, these advertisers pay us a monthly fee to sponsor
the content page. These arrangements usually have a duration of six to twelve
months. We also offer Finance Centers and other content areas on our sites on
which advertisers can purchase banner advertisements or sponsorship buttons.
We typically charge premium rates for placement in these areas because of the
targeted nature of their content. Our operating agreement with the NAR
contains limitations on the types of advertisers from which we can accept
advertising for the real estate listings pages as well as the manner in which
advertisements can be displayed on the REALTOR.com web site. Our agreement
with the NAHB also contains limitations on the types of advertisers from which
we can accept advertising for the HomeBuilder.com web site.
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Strategic Relationships
We pursue strategic relationships to increase:
. access to Internet users;
. the number of property listings on our family of web sites;
. sales of Internet marketing products and services to real estate
professionals;
. advertising and electronic commerce revenues; and
. brand recognition and to expand our online presence.
Our principal strategic relationships include the following:
National Association of REALTORS. The NAR is the largest trade association
in the United States that represents real estate professionals. We have an
exclusive agreement with the NAR to operate REALTOR.com as well as a license
to use the "REALTOR.com" domain name and trademark and the "REALTORS"
trademark. As a result of our close relationship with the NAR, we are also
featured prominently for Internet-based REALTOR services in the NAR's
marketing activities, conventions and conferences.
National Association of Home Builders. The NAHB is the largest trade
organization of home builders in the United States. In 1998, we entered into
an agreement with the NAHB under which we became the exclusive provider of
Internet real estate related listing services to the NAHB and its members. We
also actively participate in and are prominently featured at their national
trade shows.
Web Portals. We believe that our Internet distribution relationships are an
important means of generating traffic on our family of web sites and building
brand recognition. For example, we have an agreement with America Online which
provides that our branding and content will be placed within primary real
estate related areas on AOL.com, CompuServe, America Online's Digital City and
America Online's proprietary service and that we will receive a number of
guaranteed impressions. We also have distribution agreements with other
leading web portals, including @Home, Excite and Go Network / Infoseek. We
receive exclusive branded placement in content areas of their real estate
channels and often sponsor real estate related areas on their web sites. In
most cases we develop a co-branded area for real estate on their web sites.
These agreements typically require us to pay a significant annual fee for
these arrangements.
Multiple Listing Services. As of March 31, 1999, we had agreements with
approximately 650 of the approximately 800 regional MLSs. These agreements
allow us to aggregate and display the MLS's property listings on our
REALTOR.com web site. As of that date, these agreements gave us access to
approximately 1.25 million of the 1.35 million homes that we estimate are
listed nationally. We have exclusive national Internet listing rights in key
real estate markets such as Boston, Cleveland, Dallas, Denver, Long Island,
Philadelphia, Pittsburgh and St. Louis. We also have preferred national
listing arrangements in other key markets such as Chicago, Detroit, many
portions of the greater Los Angeles area, many portions of the New York City
metropolitan area and Washington, D.C.
Residential Franchisers. We have agreements with five of the six major
residential franchisers--Century21, Coldwell Banker, ERA, RE/MAX and
Prudential, which together represent over 280,000 real estate professionals in
over 15,000 offices. These agreements enable us to become a preferred provider
of Internet marketing products to the real estate agents and brokers who are
affiliated with these franchisers. These franchisers give us a preferred
position at their national trade shows and promote our services to their
affiliated real estate professionals. In addition, we operate the RE/MAX and
Prudential web sites, providing the content, features and functionality for
each.
Real Estate Brokers and Agents. We have relationships with approximately 70
major brokers which allow us to exclusively list their properties on the
Internet on a national basis. We also operate over 100 web sites for brokers
not affiliated with the major residential franchisers. We believe that these
relationships provide us with additional listings and increase our brand
awareness among real estate professionals.
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Home Builders. We have agreements with nine of the ten largest home
builders in the United States including Centex, Pulte Home, The Ryland Group
and US Home. These agreements allow us to aggregate a critical mass of new
home listings on a national basis.
Our strategic relationships with these industry participants involve a
number of risks. You should read the risk factors on pages 8, 9, 10 and 11
which more fully describe risks relating to these relationships in more
detail.
Sales and Marketing
An important element of our business strategy is to build brand recognition
around our family of web sites and our products and services. Our sales and
marketing organizations are focused on three objectives:
. increasing consumer traffic and time spent, or "stickiness," on our
family of web sites;
. promoting sales of our products and services to real estate
professionals; and
. increasing advertising and ancillary sales on our family of web sites.
Consumer Marketing. We employ a variety of methods to promote our brands
and to attract consumer traffic to our family of web sites. In addition to our
distribution arrangements with a number of web portals and our online
advertising efforts, our internal public relations staff oversees a
comprehensive public relations program. We also engage in other off-line
advertising efforts, such as advertisements in targeted real estate industry
publications, on radio stations and in other traditional media. The NAR
currently highlights REALTOR.com in its television commercials as part of its
ongoing consumer awareness campaign. To support our marketing efforts, we
conduct focus group studies, consumer surveys and usability testing to help us
in designing new products and services as well as to ensure that our family of
web sites is easy to use and competitive.
Real Estate Professional Marketing. Our sales and marketing group promotes
and delivers our Internet solutions to the real estate professional market,
including residential and commercial REALTORS and home builders. We seek to
utilize our relationships with leading trade organizations, as well as our
relationships with major real estate franchisers and brokers, to build a
community of interest and to generate demand for our products and services. We
are regularly featured and endorsed as the premier provider of Internet
products and services in various real estate trade associations' publications
and at their conferences.
Our broad, national campaigns are complemented by the marketing efforts of
our sales force. Our account executives regularly host office-based seminars
and events coordinated with local real estate associations. We also regularly
take advantage of regional and local opportunities such as local real estate
professional publications, conventions and private functions to promote our
products and services.
Advertising. A group of our sales and marketing staff focuses on selling
advertising on our web sites. We generally seek to hire individuals with
significant experience in selling advertising and with pre-existing
advertising relationships in a variety of media. In instances where we develop
co-branded content for a web portal site, the portal's internal sales force is
typically responsible for selling advertisements on the co-branded areas.
Under our advertising agreement, America Online will act as our exclusive
advertising sales agent on the REALTOR.com and HomeBuilder.com web sites
through March 2001. In connection with this arrangement, America Online has
agreed to pay us minimum quarterly payments, subject to adjustments based on
the number of page views delivered on these web sites.
Since January 1, 1997, more than 130 companies have purchased advertising
on our family of web sites. General Motors, Home Depot, IBM, Kmart and Stewart
Title have each purchased in excess of $100,000 of advertising on our family
of web sites since January 1, 1997. No single advertising customer accounted
for more than 10% of our total revenues for any period since our formation.
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Product Development
We believe that it is important for us to continually enhance the
performance of, and features on, our family of web sites. Our development team
is focused on developing products and services for consumers and real estate
professionals that differentiate us from our competitors. We seek to maintain
and enhance our market position by building proprietary systems and features,
such as search engines for real estate listings and the technologies used to
aggregate real estate content. We expect that enhancements to our family of
web sites and to our products and services will come from both internally and
externally developed technologies.
Our current development activities relate to improving functionality,
performance and scalability of our family of web sites, extending our custom
developed web sites and products and services, as well as the development of
web sites supporting new business opportunities. Future delays or unforeseen
problems in these development efforts could delay the introduction of new
products, services or features on our family of web sites.
Our market is characterized by rapid technological developments, new
products and services and evolving industry standards. We will be required to
continually and timely improve the performance and features of our products
and services, particularly in response to competitive offerings. If we do not
develop new features, products or services in a timely manner or if our
introductions are not commercially successful, our web sites and products and
services might not be as attractive to consumers or real estate industry
professionals. In addition, the widespread adoption of new Internet,
networking or telecommunications technologies or standards or other
technological changes could render our products and services obsolete.
Infrastructure and Technology
Our family of web sites is designed to provide fast, secure and reliable,
high-quality access to our services, while minimizing the capital investment
needed for infrastructure. Our systems supporting our family of web sites must
accommodate a high volume of user traffic, store a large amount of listings
and other related data, process a significant number of user searches and
deliver frequently updated information. Any significant increases in these
could strain the capacity of our computer infrastructure, causing slower
response times or outages. We intend to pursue the development of a redundant
site for each of our web sites' servers to be located at a third party service
provider in order to help insure maximum disaster recovery and business
continuity. We host our REALTOR.com and CommercialSource.com web sites in
Thousand Oaks, California and custom broker web pages in our Milwaukee,
Wisconsin facility. Our HomeBuilder.com web site is hosted by a third party in
Dallas, Texas. The SpringStreet.com web site is hosted in San Jose,
California. Because substantially all of our computer and communications
hardware for each of our web sites is located at one location, our systems are
vulnerable to fire, floods, telecommunications failures, break-ins,
earthquakes and similar events. You should read the risk factors on pages 18,
19 and 20 which more fully describe risks relating to our computer
infrastructure and technology.
Customer Care
Our success depends in part on our ability to provide efficient and
personalized customer care for the real estate professional and the consumer.
Our customer care center has been designed to respond to substantially all
customer calls live. We believe this is critical as typical real estate
professionals primarily work outside of their offices and are difficult to
reach. We have developed a call tracking system to provide personalized and
timely customer care. This system allows us to be responsive to our real
estate professional's needs by tracking numerous quality control statistics.
In addition, customer care representatives respond to inquiries on how to
update and edit a real estate professional's web page. They also accept
inquiries from real estate professionals via e-mail and attempt to answer them
within 24 hours.
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Competition
We believe that the principal competitive factors in attracting consumers
to our family of web sites are:
. the total number of listings and the number of listings for the
consumer's specific geographic area of interest available on our web
sites;
. the quality and comprehensiveness of general real estate related,
particularly home-buying, information available on our web sites;
. the availability and quality of other real estate related products and
services available through our web sites; and
. the ease of use of our web sites.
We believe that the principal competitive factors in attracting
advertisers, content providers and real estate professionals to our family of
web sites are:
. the number of unique visitors to our web sites;
. the average length of time these visitors spend viewing pages on our web
sites;
. our relationships with, and support for our services by, the NAR and the
NAHB; and
. our relationships and national contracts with the major home builders and
rental property owners and managers in the United States.
Our main existing and potential competitors for home buyers, sellers and
renters and related content include:
. web sites offering real estate listings together with other related
services, such as Apartments.com, CyberHomes, HomeHunter.com,
HomeSeekers, iOwn, LoopNet, Microsoft's HomeAdvisor, NewHomeNetwork.com
and RentNet;
. web sites offering real estate related content and services such as
mortgage calculators and information on the home buying, selling and
renting processes;
. general purpose consumer web sites, such as AltaVista, Lycos and Yahoo!
that also offer real estate-related content; and
. traditional print media such as newspapers and magazines.
Our main existing and potential competitors for advertisements may include:
. general purpose consumer web sites such as AltaVista, America Online,
Excite, Lycos, Netscape's Netcenter and Yahoo!;
. general purpose online services that may compete for advertising dollars;
. online ventures of traditional media, such as Classified Ventures; and
. traditional media such as newspapers, magazines and television.
The barriers to entry for web-based services and businesses are low, making
it possible for new competitors to proliferate rapidly. In addition, many of
our existing and potential competitors have longer operating histories in the
Internet market, greater name recognition, larger consumer bases and
significantly greater financial, technical and marketing resources than we do.
Intellectual Property
We regard substantial elements of our family of web sites and underlying
technology as proprietary. We attempt to protect these elements and underlying
technology by relying on trademark, service mark, patent, copyright and trade
secret laws, restrictions on disclosure and other methods. We have been issued
a patent with
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respect to the technology we use to enable searches of the real estate
listings posted on our family of web sites. Despite our precautions, it may be
possible for a third party to copy or otherwise obtain and use our proprietary
information without authorization or to develop similar technology
independently.
Our REALTOR.com domain name and the REALTOR(R) trademark are licensed to us
by the NAR. If we were to lose the use of these trademarks or the
"REALTOR.com" domain name, our business would suffer, and we would need to
devote substantial resources towards developing an independent brand identity.
We also hold other domain names that are important to our business. The
regulation of domain names is subject to change. Some proposed changes include
the creation of additional top-level domains in addition to the current top-
level domains, such as ".com," ".net" and ".org." It is also possible that the
requirements for holding a domain name could change. Therefore, we may not be
able to obtain or maintain relevant domain names for all of the areas of our
business. It may also be difficult for us to prevent third parties from
acquiring domain names that are similar to ours, that infringe our trademarks
or that otherwise decrease the value of our intellectual property.
We currently license from third parties certain technologies and
information incorporated into our family of web sites. As we continue to
introduce new services that incorporate new technologies and information, we
may be required to license additional technology and information from others.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and we can give no assurance regarding the
future viability or value of any of our proprietary rights.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or trademarks or to determine
the validity and scope of the proprietary rights of others. Litigation could
result in substantial costs and diversion of resources and management
attention. Furthermore, other parties may assert infringement claims against
us, including claims that arise from directly or indirectly providing
hypertext links to web sites operated by third parties or claims based on the
content on our site. These claims and any resultant litigation, should it
occur, might subject us to significant liability for damages, might result in
invalidation of our proprietary rights and, even if not meritorious, might
result in substantial costs and diversion of resources and management
attention.
Employees
As of March 31, 1999, we had 540 full-time equivalent employees. We
consider our relations with our employees to be good. We have never had a work
stoppage, and none of our employees is represented by collective bargaining
agreements. We believe that our future success will depend in part on our
ability to attract, integrate, retain and motivate highly qualified personnel,
and upon the continued service of our senior management and key technical
personnel. None of our key personnel are bound by employment agreements that
prohibit them from ending their employment at any time. Competition for
qualified personnel in our industry and geographical locations is intense. We
cannot assure you that we will be successful in attracting, integrating,
retaining and motivating a sufficient number of qualified employees to conduct
our business in the future.
Facilities
Our principal executive and corporate offices and network operations center
are located in Thousand Oaks, California in approximately 50,000 square feet
of office space under a lease that expires in 2003. We also maintain
operations in Dallas, Texas and Milwaukee, Wisconsin in approximately 11,500
and 16,800 square feet of office space under leases that expire in 2000 and
2003, respectively. SpringStreet maintains operations in Scottsdale, Arizona
and San Francisco, California, in approximately 11,000 and 16,000 square feet
of office space under leases that expire in 2001 and 2004, respectively. In
addition we also maintain a sales support office in San Diego, California in
approximately 6,000 square feet of office space that is leased on a month-to-
month
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basis. We believe that our facilities are adequate for our current operations
and that additional space can be obtained if needed.
Legal Proceedings
From time to time, we are involved in legal proceedings and litigation
arising in the ordinary course of business. As of the date of this prospectus,
except as described below, we are not a party to any litigation or other legal
proceeding that, in our opinion, could have a material adverse effect on our
business, operating results or financial condition.
On March 19, 1999, John D. Molinare filed a lawsuit against us, MultiSearch
Solutions, New List Corporation, National New Homes Corporation and Fred
White. This case was filed in the Chancery Division of the Circuit Court of
Cook County, Illinois, case no. 99-04265. Mr. Molinare's claims arise out of
the proposed formation by MultiSearch and New List of a new venture
responsible for the delivery of information on new home construction projects
and services to the public and REALTORS. Mr. Molinare claims that he was to be
the President and Chief Executive Officer of the new venture under an alleged
employment agreement among him, MultiSearch and New List. Mr. Molinare claims
that this venture was never formed. In July 1998, we acquired MultiSearch.
Mr. Molinare alleges that:
. The other defendants breached an employment agreement with him, and Mr.
White, a principal MultiSearch shareholder, did so fraudulently;
. he was entitled to a 10% equity interest in the new venture;
. we interfered with his relationship with MultiSearch and New List; and
. we should be liable for damages caused by MultiSearch as a successor to
MultiSearch.
Mr. Molinare seeks damages of not less than $2.1 million, plus punitive
damages, as well as his costs incurred. He is also seeking to receive "a 10%
interest" in our company.
While this complaint was filed with the court on March 19, 1999, Mr.
Molinare has not yet properly served this complaint. Therefore, we have not
had to respond. Based on currently available information, we believe that we
have valid defenses to these claims and we intend to vigorously defend them.
If served with this complaint, we intend to raise a number of counterclaims.
Predicting the outcome of litigation is inherently uncertain and a court
could find in Mr. Molinare's favor. Defending and pursuing litigation is
costly and frequently diverts management's attention from day-to-day business
operations. If Mr. Molinare's claims are successful, we could be required to
pay the awarded amounts, which amounts could be material. However, the former
principal MultiSearch shareholders, could be required to indemnify us against
some or all of the costs or damages we incur as a result of this litigation.
57
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding our executive
officers and directors as of March 31, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Stuart H. Wolff, Ph.D... 36 Chairman of the Board and Chief Executive Officer
Michael A. Buckman...... 51 President and Chief Operating Officer
John M. Giesecke, Jr.... 38 Chief Financial Officer, Vice President and Secretary
Catherine Kwong Giffen.. 34 Vice President, Human Resources and Administration
David M. Rosenblatt..... 34 Vice President, Marketing and General Counsel
Joseph J. Shew.......... 33 Vice President, Finance
Peter B. Tafeen......... 30 Vice President, Business Development
Michael C. Brooks....... 54 Director
James G. Brown.......... 34 Director
L. John Doerr........... 49 Director
Joe F. Hanauer.......... 61 Director
Richard R. Janssen...... 50 Director
William E. Kelvie....... 51 Director
Kenneth K. Klein........ 55 Director
</TABLE>
Stuart H. Wolff, Ph.D. joined HomeStore.com in November 1996 as Chairman
and Chief Executive Officer. From September 1994 to September 1996, Dr. Wolff
was Vice President of Business Services at TCI Interactive and at AND
Interactive, subsidiaries of TCI Communications, Inc., a cable company. Prior
to his tenure at TCI Communications, Inc. Dr. Wolff was an engineer at IBM and
a research scientist at AT&T Bell Labs. In 1986 he was recognized by the
Japanese Ministry of Education and awarded the Monbushu Fellowship at the
Tokyo Institute of Technology. Dr. Wolff received a B.S. in electrical
engineering from Brown University and an M.E.E. and Ph.D. in electrical
engineering from Princeton University.
Michael A. Buckman joined HomeStore.com in February 1999 as President and
Chief Operating Officer. Prior to joining HomeStore.com, Mr. Buckman served as
Chief Executive Officer for Worldspan Travel Information Services, a worldwide
travel reservation and airline support services organization, since June 1995.
From January 1992 to June 1995, Mr. Buckman was Executive Vice President of
American Express Company. Prior to his tenure at American Express, he was
Chief Operating Officer of Lifeco Services Corporation, a travel services
company, and President of the Sabre Group Holdings, Inc., a travel
distribution company. Mr. Buckman received a B.B.A. from the University of
Texas and an M.B.A. from the University of Missouri.
John M. Giesecke, Jr. joined HomeStore.com in June 1998 as Vice President
of Finance, was appointed as Secretary in August 1998 and was promoted to
Chief Financial Officer in December 1998. From March 1994 to March 1998, Mr.
Giesecke was Vice President of Corporate Controllership in charge of worldwide
controllership activities for The Walt Disney Company. Prior to his tenure at
The Walt Disney Company, Mr. Giesecke spent eight years as a certified public
accountant with Price Waterhouse LLP, most recently as Senior Manager.
Mr. Giesecke received a B.S. in business and public administration from the
University of Arizona.
Catherine Kwong Giffen joined HomeStore.com in April 1998 as Vice President
of Human Resources and Administration. Prior to joining HomeStore.com, Ms.
Giffen served from April 1994 to April 1998 as Vice President of Human
Resources and Administration of Iwerks Entertainment, Inc., an entertainment
company. Previously she has served as Vice President of Human Resources for
the Real Estate Industries Division of BankAmerica Corporation and Vice
President of Human Resources for the Securities Lending and Mortgage-Backed
Securities Division of Security Pacific National Bank. Ms. Giffen received a
B.A. in political science from the University of California at Los Angeles.
58
<PAGE>
David M. Rosenblatt joined HomeStore.com in October 1998 as Vice President,
Marketing and General Counsel. Prior to joining us, Mr. Rosenblatt was Senior
Product Manager for Intuit Inc.'s QuickenMortgage from August 1997 to October
1998. Prior to his tenure at Intuit, Mr. Rosenblatt founded and served as
President of CyberSports, Inc., a software company, from January 1995 to
February 1999. He practiced corporate law for Weil, Gotshal & Manges LLP and
for Chadbourne & Parke LLP from 1990 to January 1996. Mr. Rosenblatt received
an M.B.A. from the Harvard University Graduate School of Business, a J.D. from
Northwestern University School of Law and a B.A. in accounting from
Pennsylvania State University.
Joseph J. Shew joined HomeStore.com in August 1998 as Controller and was
promoted to Vice President of Finance in January 1999. From October 1994 to
August 1998, Mr. Shew was Director of Corporate Controllership for The Walt
Disney Company. Prior to his tenure at Disney, Mr. Shew spent six years as a
certified public accountant with Price Waterhouse LLP, most recently as
Manager. Mr. Shew received a B.S. in accounting from Villanova University.
Peter B. Tafeen joined HomeStore.com in September 1997 as Vice President of
Business Development. From June 1995 to September 1997, Mr. Tafeen served as
Director of Business Development for PointCast Incorporated, an Internet
software company. Prior to his tenure at PointCast, from March 1993 to June
1995, Mr. Tafeen served as an Area Director for the Gartner Group, Inc., a
technology consulting company. Mr. Tafeen received a B.S. in political science
from the University of Massachusetts at Amherst.
Michael C. Brooks, has served as a director of HomeStore.com since
November 1996. He has been a General Partner of J. H. Whitney & Co., and a
managing member of the general partner of Whitney Equity Partners, L.P., two
venture capital investment partnerships, since January 1985. Mr. Brooks serves
as a director of Media Metrix, Inc., Pegasus Communications Corporation,
SunGard Data Systems Inc., USinternetworking, Inc., and several private
companies. Mr. Brooks received a B.A. from Yale University and an M.B.A. from
the Harvard University Graduate School of Business.
James G. Brown has served as a director of HomeStore.com since January
1998. He is a Senior Vice President and Industry Leader with GE Capital Equity
Capital Group, Inc., or GE Equity, the private investing arm of General
Electric Capital Corporation, or GE Capital, which he joined in 1995. From
December 1994 to August 1995, Mr. Brown was Vice President of Corporate
Planning for Lehman Brothers Holdings Inc. Prior to his tenure at Lehman
Brothers, Mr. Brown served at Bain & Company, Inc., a consulting firm. Mr.
Brown received a B.S. in marketing and decision sciences with honors from New
York University and an M.B.A. from the Wharton Business School of the
University of Pennsylvania.
L. John Doerr has served as a director of HomeStore.com since August 1998.
He has been a general partner of Kleiner Perkins Caufield & Byers since
September 1980. Prior to his tenure at Kleiner Perkins, Mr. Doerr was employed
by Intel Corporation for five years. He serves on the boards of directors of
Amazon.com, Inc., @Home Corporation, Intuit Inc., Platinum Software
Corporation and Sun Microsystems, Inc. Mr. Doerr received a B.S.E.E and an
M.E.E from Rice University and an M.B.A. from the Harvard University Graduate
School of Business.
Joe F. Hanauer has served as a director of HomeStore.com since November
1996. Since 1988, Mr. Hanauer, through Combined Investments, L.P., has
directed investments in companies primarily involved in real estate and
financial services. Mr. Hanauer is former Chairman of Grubb & Ellis Company
and former Chairman of Coldwell Banker Residential Group, Inc. Mr. Hanauer is
a director of Grubb & Ellis Company, MAF Bancorp, Inc. and Regit, Inc., a
national insurance broker. Mr. Hanauer is a member of the Executive Committees
of the National Association of REALTORS. Mr. Hanauer received a B.S. in
business administration from Roosevelt University.
Richard R. Janssen served as President and Chief Operating Officer of
HomeStore.com from December 1996 through March 1999. Mr. Janssen was a founder
of InfoTouch. He served as President and Chief Executive Officer, and was a
director of InfoTouch from July 1993 until February 1999, when InfoTouch
merged with NetSelect. Previously, Mr. Janssen was President of Janssen &
Associates, a consulting firm specializing in
59
<PAGE>
strategic planning, and co-founded Delphi Information Systems, Inc., an
insurance software company, holding various positions, including Chairman of
the Board, Chief Executive Officer, and President. Mr. Janssen received a B.S.
in mathematics and computer science and in economics from the University of
California at Los Angeles.
William E. Kelvie has served as a director of HomeStore.com since August
1998. He is Chief Information Officer responsible for information technology
systems at Fannie Mae, including its technology business and its internal
systems. Mr. Kelvie joined Fannie Mae in 1990 as Senior Vice President and
Chief Information Officer. Prior to his tenure at the Federal National
Mortgage Association, Mr. Kelvie was a partner with Nolan, Norton & Co., a
management consulting company specializing in information technology
strategies and plans and served in various capacities with The Dexter
Corporation, a specialized manufacturing company, and The Travelers Insurance
Company, an insurance and financial services company. Mr. Kelvie received a
B.S. in english literature from Tufts University and an M.S. in english
literature from Trinity College.
Kenneth K. Klein has served as a director of HomeStore.com since August
1998. He has served as President and Chief Executive Officer of Kleinco
Construction Services, Inc., a general contracting company, since 1980.
Mr. Klein is National Vice President and a member of the Executive Committee
of the National Association of Home Builders. Mr. Klein is a past Chairman of
the Board of the Home Builders Institute, a national organization that teaches
building-craft skills. Mr. Klein received a B.S. in accounting from Oklahoma
State University.
Under the stockholders agreement that we have with a number of our
stockholders, the following stockholders or their affiliated entities have
appointed a member to our board of directors:
. CDW Internet LLC, whose representative is Dr. Wolff;
. Whitney Equity Partners, whose representative is Mr. Brooks;
. the former stockholders of InfoTouch, whose representative is Mr.
Janssen;
. GE Capital, whose representative is Mr. Brown;
. Kleiner Perkins Caufield & Byers, whose representative is Mr. Doerr;
. the NAHB, whose representative is Mr. Klein;
. the Federal National Mortgage Association, whose representative is Mr.
Kelvie; and
. the NAR, whose representative is Mr. Hanauer.
These provisions of the stockholders agreement will terminate after this
offering.
Our bylaws provide, that, following the offering, our board of directors
will be divided into three classes as nearly equal in size as possible with
staggered three-year terms. The term of office of our Class I directors will
expire at the annual meeting of stockholders to be held in 2000; the term of
office of our Class II directors will expire at the annual meeting of
stockholders to be held in 2001; and the term of office of our Class III
directors will expire at the annual meeting of the stockholders to be held in
2002. The classification of our board of directors could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, control of HomeStore.com.
Board Committees
Our board has three committees, the audit committee, the compensation
committee and the nominations committee. The audit committee consists of
Messrs. Brown and Kelvie. The compensation committee and nominations committee
each consists of Messrs. Brooks, Doerr and Hanauer. The audit committee
reviews our financial statements and accounting practices, makes
recommendations to the board regarding the selection of independent auditors
and reviews the results and scope of the audit and other services provided by
our independent auditors. The compensation committee makes recommendations to
the board concerning salaries and incentive compensation for our officers and
employees and administers our stock plans and employee benefit plans. The
nominations committee makes recommendations to the board concerning board
composition and recruiting of new members.
60
<PAGE>
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee has at any time since the
formation of HomeStore.com been an officer or employee of HomeStore.com. No
executive officer of HomeStore.com serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving on our board or compensation committee.
Director Compensation
Our directors do not receive cash compensation for their services as
directors, but are reimbursed for their reasonable and necessary expenses for
attending board and board committee meetings.
We intend to adopt a Directors Stock Option Plan. The number of shares to
be reserved under this plan will be determined by the board, subject to
stockholder approval, prior to this offering. Members of the board who are not
our employees, or employees of any parent, subsidiary or affiliate of
HomeStore.com, will be eligible to participate in the plan unless they are
representatives of venture capital funds or corporate investors. The option
grants under the plan will be automatic and nondiscretionary, and the exercise
price of the options will be the fair market value of the common stock on the
date of grant.
Each eligible director who is or becomes a member of the board on or after
the effective date of the registration statement of which this prospectus
forms a part will be granted an option to purchase shares. Immediately
following each annual meeting of our stockholders, each eligible director will
automatically be granted an additional option to purchase shares if the
director has served continuously as a member of the board since the date of
the director's initial grant.
The options will have ten year terms, but will terminate seven months after
the date the director ceases to be a director or a consultant or 12 months
after a termination if the termination is due to death or disability.
All options granted under the directors plan will become exercisable over a
four year period at a rate of 2.083% per month, so long as the optionee
continues as a member of the board or as a consultant of HomeStore.com. In the
event of our dissolution or liquidation, or a "change in control" transaction,
options granted under the plan will become fully vested and immediately
exercisable.
Executive Compensation
The following table sets forth all compensation paid or accrued during 1998
to our Chief Executive Officer and our three other most highly compensated
executive officers whose salary and bonus for 1998 was more than $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-------------------- ------------
Securities
Underlying
Name and Principal Positions Salary ($) Bonus ($) Options (#)
- ---------------------------- ---------- --------- ------------
<S> <C> <C> <C>
Stuart H. Wolff, Ph.D.
Chairman of the Board and Chief Executive
Officer.................................... $185,538 $100,000 590,000
Richard R. Janssen
Former President and Chief Operating
Officer.................................... 183,603 40,000 -
John M. Giesecke, Jr.
Chief Financial Officer, Vice President and
Secretary(1)............................... 71,417 29,000 150,000
Peter B. Tafeen
Vice President, Business Development........ 156,442 52,500 50,000
</TABLE>
- --------
(1) Mr. Giesecke commenced his employment in June 1998.
61
<PAGE>
Option Grants in 1998
The following table sets forth grants of stock options to our Chief
Executive Officer and our three other most highly compensated executive
officers in 1998.
All options granted to these executive officers are immediately exercisable
and are either incentive stock options or nonqualified stock options and
generally vest over four years at the rate of 25% of the shares subject to the
option on the first anniversary of the date of grant and 2.083% each
subsequent month. Some of these options are subject to acceleration upon a
change of control of HomeStore.com or termination of the optionee's
employment. See "--Employment-Related Agreements." The options expire ten
years from the date of grant and were granted at an exercise price equal to
the fair market value of our common stock on the date of grant, as determined
by the board.
Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by the exercise price per
share, (b) assuming that the aggregate stock value derived from that
calculation compounds at the annual 5% or 10% rates shown in the table for the
entire ten year term of the option and (c) subtracting from that result the
aggregate option exercise price. The 5% and 10% assumed annual rates of stock
price appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of future common
stock prices.
<TABLE>
<CAPTION>
Potential
Realizable Value at
Percentage Assumed Annual
Number of of Total Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Expiration -------------------
Name Granted(#) in 1998(1) ($/Sh) Date 5% 10%
- ---- ---------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stuart H. Wolff, Ph.D... 150,000 7.8% $2.50 1/26/08 $235,835 $ 597,653
440,000 23.0 3.16 8/22/08 874,415 2,215,940
Richard R. Janssen...... -- -- -- -- -- --
John M. Giesecke, Jr. .. 70,000 3.7 3.00 6/15/08 132,068 334,686
80,000 4.2 4.00 12/18/08 201,246 509,998
Peter B. Tafeen......... 20,000 1.0 3.00 6/1/08 37,734 95,625
30,000 1.6 3.16 10/28/08 59,619 151,087
</TABLE>
- --------
(1) Based on options to purchase a total of 1,913,000 shares of common stock
of HomeStore.com granted during 1998.
Dr. Wolff's options vest monthly over four years. Mr. Giesecke's June 15,
1998 option vests over four years with 25% vesting on the first anniversary of
the date of grant and 2.083% vesting each subsequent month. Mr. Giesecke's
December 18, 1998 option vests monthly over four years. Mr. Tafeen's June 1,
1998 option vests over four years with 25% vesting on the first anniversary of
the date of grant and 2.083% vesting each month thereafter. Mr. Tafeen's
October 28, 1998 option vests monthly over four years.
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<PAGE>
Aggregate Option Exercises in 1998 and Values at December 31, 1998
The following table sets forth the number of shares acquired and the value
realized upon exercise of stock options during 1998 and the number of shares
of common stock subject to exercisable and unexercisable stock options held as
of December 31, 1998 by our Chief Executive Officer and each of our three most
highly compensated executive officers. Also reported are values of "in-the-
money" options, which represent the positive spread between the exercise
prices of outstanding stock options and an assumed initial public offering
price of $ per share.
The value received equals the fair market value of the purchased shares on
the option exercise date, less the exercise price paid for those shares. The
options are immediately exercisable to the extent it qualifies as an incentive
stock option for federal income tax purposes for all of the option shares, but
any shares acquired upon exercise of those options will be subject to
repurchase by HomeStore.com, at the original exercise price paid per share, if
the optionee ceases service with HomeStore.com before those shares are vested.
The heading "Vested" refers to shares that are no longer subject to
repurchase; the heading "Unvested" refers to shares subject to repurchase as
of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Number of Options at In-the-Money Options at
Shares December 31, 1998 December 31, 1998
Acquired Value ---------------------- -----------------------
Name on Exercise Realized(1) Vested Unvested Vested Unvested
- ---- ----------- ----------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stuart H. Wolff, Ph.D... 269,658 $724,519 57,052 611,526
Richard R. Janssen...... 346,855(1) 856,280 -- 87,058
John M. Giesecke, Jr. .. -- -- -- 150,000
Peter B. Tafeen......... -- -- 35,000 115,000
</TABLE>
- --------
(1) The number of shares acquired on exercise by Mr. Janssen include 172,737
shares of InfoTouch stock acquired when Mr. Janssen exercised options to
purchase shares of InfoTouch stock. These shares were converted into
shares of NetSelect stock in connection with the combination of InfoTouch
and NetSelect described in "Certain Transactions."
Employee Benefit Plans
1996 Stock Incentive Plan. As of March 31, 1999, options to purchase
543,970 shares of common stock granted under the plan had been exercised, and
options to purchase 2,404,228 shares of common stock at a weighted average
exercise price of $2.36 per share were outstanding.
This plan will terminate immediately prior to this offering. As a result,
no options will be granted under the plan after this offering. However, the
termination of this plan will not affect any outstanding options, all of which
will remain outstanding until exercised or until they terminate or expire.
Options granted under this plan are subject to terms substantially similar to
those described below with respect to options to be granted under the 1999
Stock Incentive Plan.
1999 Equity Incentive Plan. As of March 31, 1999, an option to purchase
300,000 unvested shares of common stock granted under the plan had been
exercised, options to purchase 406,000 shares of common stock at a weighted
average exercise price of $6.53 per share were outstanding under this plan and
345,802 shares of common stock remain available for issuance upon the exercise
of options that may be granted in the future under the plan. This plan will
terminate immediately prior to this offering, at which time HomeStore.com's
1999 Stock Incentive Plan will become effective. As a result, no options will
be granted under the plan after this offering. However, the termination of
this will not affect any outstanding options, all of which will remain
outstanding until exercised or until they terminate or expire. Options granted
under the plan are subject to terms substantially similar to those described
below with respect to options granted under the 1999 Stock Incentive Plan.
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<PAGE>
1999 Stock Incentive Plan. We intend to adopt the 1999 Stock Incentive Plan
prior to the completion of this offering. The number of shares to be reserved
under this plan will be determined by the board, subject to stockholder
approval, prior to this offering. Also reserved under this plan will be shares
reserved under the 1996 Stock Incentive Plan and the 1999 Equity Incentive
Plan not issued or subject to outstanding grants on the date of this
prospectus and any shares issued under these plans that are forfeited or
repurchased by HomeStore.com or that are issuable upon exercise of options
that expire or become unexercisable for any reason without having been
exercised in full. This plan will become effective on the date of this
prospectus. Shares that:
. are subject to issuance upon exercise of an option granted under the
1999 Stock Incentive Plan that cease to be subject to that option
for any reason other than exercise of the option;
. have been issued pursuant to the exercise of an option granted under
the 1999 Stock Incentive Plan that are subsequently forfeited or
repurchased by HomeStore.com at the original purchase price;
. are subject to an award granted pursuant to a restricted stock
purchase agreement under the 1999 Stock Incentive Plan that are
subsequently forfeited or repurchased by HomeStore.com at the
original issue price; or
. are subject to stock bonuses granted under the 1999 Stock Incentive
Plan that otherwise terminate without shares being issued,
will again be available for grant and issuance under the 1999 Stock Incentive
Plan.
This plan will terminate after ten years, unless it is terminated earlier
by the board. The plan will authorize the award of options, restricted stock
and stock bonuses. No person will be eligible to receive more than a specified
number of shares in any calendar year under the plan other than a new employee
of HomeStore.com who will be eligible to receive no more than a specified
number of shares in the calendar year in which the employee commences
employment. These amounts will be determined by the board prior to this
offering.
The plan will be administered by the compensation committee, which
currently consists of Messrs. Brooks, Doerr and Hanauer, all of whom are "non-
employee directors" under applicable federal securities laws and "outside
directors" as defined under applicable federal tax laws. The compensation
committee will have the authority to construe and interpret the plan, grant
awards and make all other determinations necessary or advisable for the
administration of the plan.
The plan will provide for the grant of both incentive stock options that
qualify under Section 422 of the Internal Revenue Code, and nonqualified stock
options. Incentive stock options may be granted only to employees of
HomeStore.com or of a parent or subsidiary of HomeStore.com. All other awards
other than incentive stock options may be granted to employees, officers,
directors, consultants, independent contractors and advisors of HomeStore.com
or any parent or subsidiary of HomeStore.com, provided the consultants,
independent contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. The exercise price of incentive stock options must be at least
equal to the fair market value of HomeStore.com's common stock on the date of
grant. The exercise price of incentive stock options granted to 10%
stockholders must be at least equal to 110% of that value. The exercise price
of non qualified stock options must be at least equal to 85% of the fair
market value of HomeStore.com's common stock on the date of grant.
Options may be exercisable only as they vest or immediately exercisable
with the shares issued subject to our right of repurchase that lapses as the
shares vest. In general, options will vest over a five-year period.
The maximum term of options granted under the plan is ten years.
Awards granted under the plan may not be transferred in any manner other
than by will or by the laws of descent and distribution. They may be exercised
during the lifetime of the optionee only by the optionee. The compensation
committee could determine otherwise and provide for these provisions in the
award agreement, but only with respect to awards that are not incentive stock
options. Options granted under the plan generally may be exercised for a
period of time after the termination of the optionee's service to
HomeStore.com or a
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<PAGE>
parent or subsidiary of HomeStore.com. Options will generally terminate
immediately upon termination of employment for cause.
The purchase price for restricted stock will be determined by the
compensation committee. Stock bonuses may be issued for past services or may
be awarded upon the completion of services or performance goals.
In the event of HomeStore.com's dissolution or liquidation or a "change in
control" transaction, outstanding awards may be assumed or substituted by the
successor corporation, if any. In the discretion of the compensation
committee, the vesting of these awards may accelerate upon one of these
transactions.
Employee Stock Purchase Plan. We intend to adopt an Employee Stock Purchase
Plan prior to the completion of this offering. The number of shares to be
reserved will be determined by the board, subject to stockholder approval,
prior to this offering. On each January 1, the aggregate number of shares
reserved for issuance under the plan will increase automatically by a number
of shares equal to 1% of our outstanding shares on the preceding December 31.
The aggregate number of shares reserved for issuance under the plan may not
exceed a specified number of shares, which the board will determine when
adopting this plan. The plan will be administered by the compensation
committee. The compensation committee will have the authority to construe and
interpret the plan, and its decision will be final and binding. The plan will
become effective on the first business day on which price quotations for the
common stock are available on the Nasdaq National Market.
Employees generally will be eligible to participate in the plan if they are
customarily employed by HomeStore.com, or its parent or any subsidiaries that
we designate, for more than 20 hours per week and more than five months in a
calendar year and are not, and would not become as a result of being granted
an option under the plan, 5% stockholders of HomeStore.com or its designated
parent or subsidiaries.
Under the plan, eligible employees will be permitted to acquire shares of
our common stock through payroll deductions. Eligible employees may select a
rate of payroll deduction between 2% and 10% of their compensation as defined
in the plan and are subject to certain maximum purchase limitations described
in the plan. Participation in the plan will end automatically upon termination
of employment for any reason.
Each offering period under the plan will be for two years and consist of
four six-month purchase periods. The first offering period is expected to
begin on the first business day on which price quotations for our common stock
are available on the Nasdaq National Market. The length of the first purchase
period may be more or less than six months. Subsequent offering periods and
purchase periods will begin on May 1 and November 1 of each year.
The plan will provide that, in the event of the proposed dissolution or
liquidation, each offering period that commenced prior to the closing of the
proposed event shall continue for the duration of the offering period,
provided that the compensation committee may fix a different date for
termination of the plan. The purchase price for our common stock purchased
under the plan is 85% of the lesser of the fair market value of our common
stock on the first or last day of the applicable offering period. A
participant may not purchase more than 1,000 shares in any purchase period.
The compensation committee will have the power to change the duration of
offering periods without stockholder approval, if the change is announced at
least 15 days prior to the beginning of the affected offering period.
The plan will be intended to qualify as an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code. Rights granted under the plan
will not be transferable by a participant other than by will or the laws of
descent and distribution.
The plan will terminate on the date ten years following its inception,
unless it is terminated earlier under the terms of the plan. The board will
have the authority to amend, terminate or extend the term of the plan, except
that no action may adversely affect any outstanding options previously granted
under the plan. Except for the annual increase of shares due to the automatic
increase provision described above, stockholder approval is required to
increase the number of shares that may be issued or to change the terms of
eligibility under the plan.
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The board may make the amendments to the plan as it determines to be advisable
if the financial accounting treatment for the plan is different from the
financial accounting treatment in effect on the date the plan was adopted by
the board.
401(k) Plan. HomeStore.com sponsors the HomeStore.com, Inc. 401(k)
Retirement Plan, a defined contribution plan intended to qualify under Section
401 of the Internal Revenue Code. Employees who are at least 21 years old and
who have been employed with us for at least 90 days are generally eligible to
participate and may enter the Plan as of the first day of any calendar
quarter. Participants may make pre-tax contributions to the plan of up to 15%
of their eligible earnings, subject to a statutorily prescribed annual limit.
Each participant is fully vested in his or her contributions and the
investment earnings. We may make matching contributions on a discretionary
basis to the plan, but we had not done so as of March 31, 1999. Contributions
by the participants or HomeStore.com to the plan, and the income earned on
these contributions, are generally not taxable to the participants until
withdrawn. Contributions by us, if any, are generally deductible by
HomeStore.com when made. Participant and company contributions are held in
trust as required by law. Individual participants may direct the trustee to
invest their accounts in authorized investment alternatives.
Employment-Related Agreements
Dr. Wolff
In August 1998, we entered into a three-year employment agreement with
Stuart H. Wolff, Ph.D. Under this agreement:
Compensation. Dr. Wolff initially received a base salary equal to $200,000
per year for the first year of the agreement. His salary can be increased by
the board in subsequent years. Dr. Wolff is also eligible to receive an annual
bonus in an amount up to 100% of his base salary for that year. He also
receives an automobile and cellular phone allowance of up to $4,800 per year.
Loan. We also loaned Dr. Wolff $300,000 for the purpose of exercising any
of the stock options he held or was to be granted at the time of the
agreement. This loan must be repaid within 180 days of when his employment
terminates or as he sells the shares of common stock he acquired when he
exercised his stock options. This loan is a full recourse loan and
collateralized by shares of our common stock.
Acceleration of stock option vesting. If we are acquired or if a change in
control of HomeStore.com occurs, 50% of his then unvested options will
immediately become vested.
Termination of employment. If Dr. Wolff's employment is terminated without
cause or if Dr. Wolff resigns for "good reason," he will be entitled to
receive an amount equal to his annual base salary and his stock options will
continue to vest for another 12 months. Good reason includes a material
reduction in his duties or responsibilities or a reduction in his salary.
Mr. Janssen
In August 1998, we entered into a one-year employment agreement with
Richard R. Janssen for him to serve as our interim President and Chief
Operating Officer. Under this agreement:
Compensation. Mr. Janssen initially received a base salary equal to
$190,000 per year. Mr. Janssen was also eligible to receive an annual bonus in
an amount up to 100% of his base salary. He also received an automobile and
cellular phone allowance of up to $4,800 per year.
Consulting option. Following Mr. Janssen's employment, we retained him as a
consultant for three months and pay him $15,833 per month for these services,
as provided in his employment agreement.
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Mr. Buckman
In February 1999, we entered into an at-will employment agreement with
Michael A. Buckman for him to serve as our President and Chief Operating
Officer. Under this agreement:
Compensation. Mr. Buckman initially received a base salary equal to
$200,000 per year. Mr. Buckman may also be eligible to receive an annual bonus
in an amount up to 125% of his base salary with a guaranteed first year bonus
of $250,000. In addition, we granted Mr. Buckman an option to purchase 300,000
shares of our common stock, subject to vesting requirements. Mr. Buckman will
also be entitled to receive a supplemental cash bonus based upon the market
price of our common stock during (1) the eight week period following the
anniversary of his employment agreement and (2) the year following the
anniversary of his employment agreement. The total amount of this supplemental
cash bonus will in no event exceed $450,000 for the first year or $700,000 for
the second year and is subject to downward adjustment for the first year based
on specified events occurring during the second year. Mr. Buckman will also
receive customary employee benefits and reimbursement of relocation and travel
expenses.
Termination of employment. If we terminate Mr. Buckman's employment without
cause prior to the first anniversary of his employment agreement, he will be
entitled to receive $250,000 and 75,000 shares of our common stock subject to
his option will immediately become vested. If we terminate Mr. Buckman's
employment without cause on or after the first anniversary of his employment
agreement, he will be entitled to receive a cash bonus based upon the price of
our common stock on the date of termination that will in no event exceed
$300,000.
Change in Control. In the event of a change in control of HomeStore.com, an
additional 30% of the then unvested shares subject to Mr. Buckman's stock
option will immediately become vested.
Mr. Giesecke
In June 1998, we entered into an at-will employment agreement with John M.
Giesecke, Jr. Under this agreement:
Compensation. Mr. Giesecke initially received a base salary of $130,000 per
year. Mr. Giesecke's current base salary is $160,000 per year. He is also
eligible to receive an annual bonus in an amount up to 30% of his base salary.
Termination. Upon termination other than for cause, Mr. Giesecke will
receive a severance payment equal to four months base salary.
Mr. Rosenblatt
In September 1998, we entered into an at-will employment agreement with
David M. Rosenblatt. Under this agreement:
Compensation. Mr. Rosenblatt initially received a base salary of $140,000
per year. Mr. Rosenblatt's current base salary is $155,000 per year. He is
also eligible to receive an annual bonus in an amount up to 30% of his base
salary.
Mr. Tafeen
In September 1997, we entered into an at-will employment agreement with
Peter B. Tafeen. Under this agreement:
Compensation. Mr. Tafeen will receive a base salary of $140,000 per year.
Mr. Tafeen's current base salary is $160,000 per year. He is also eligible to
receive an annual bonus in an amount up to 30% of his base salary.
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Termination. Upon termination other than for cause, death or disability,
Mr. Tafeen will receive a severance payment equal to three months base salary.
Indemnification of Directors and Executive Officers and Limitation of
Liability
Our certificate of incorporation includes a provision that eliminates the
personal liability of a director for monetary damages resulting from breach of
his fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to HomeStore.com or its
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
. we are required to indemnify our directors and officers to the fullest
extent permitted by Delaware law, subject to limited exceptions;
. we may indemnify our other employees and agents to the extent that we
indemnify our officers and directors, unless otherwise required by law,
our certificate of incorporation, our bylaws or agreements to which we
are party; and
. we are required to advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by Delaware law, subject to limited exceptions.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and officers to
give them additional contractual assurances regarding the scope of the
indemnification set forth in our certificate of incorporation and bylaws and
to provide additional procedural protections. At present, there is no pending
litigation or proceeding involving any of our directors, officers or employees
for which indemnification is sought. We are not aware of any threatened
litigation that may result in claims for indemnification.
We currently have liability insurance for our directors and officers and
intend to extend that coverage for public securities matters.
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CERTAIN TRANSACTIONS
Other than compensation agreements and other arrangements, which are
described as required in "Management," and the transactions described below,
since we were formed, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or will be a
party:
. in which the amount involved exceeded or will exceed $60,000, and
. in which any director, executive officer, holder of more than 5% of our
common stock on an as-converted basis or any member of their immediate
family had or will have a direct or indirect material interest.
Stock Financings
The share numbers and per share prices below are adjusted to reflect the
conversion of convertible preferred stock into common stock at a ratio of
one share of preferred stock to two shares of common stock.
Series A Preferred Stock Financing
In December 1996, we sold 3,294,118 shares of Series A preferred stock for
approximately $1.42 per share. The purchasers of the Series A preferred stock
included, among others:
. CDW Internet, LLC--823,530 shares;
. J.H. Whitney & Co., Inc.--658,822 shares; and
. Whitney Equity Partners, L.P.--988,236 shares.
Stuart H. Wolff, Ph.D., our Chairman of the Board and Chief Executive
Officer, was a co-manager of CDW Internet, LLC. Michael C. Brooks, one of our
directors, is a managing member of Whitney Equity Partners, L.P. and a general
partner of J.H. Whitney & Co., Inc. J. H. Whitney & Co., Inc. subsequently
transferred all of its Series A preferred stock to Whitney Equity Partners,
L.P., an affiliated entity.
Series B Preferred Stock Financing
In December 1996, we sold 705,882 shares of Series B preferred stock for
approximately $3.31 per share. The purchasers of the Series B preferred stock
included, among others:
. Daniel A. Koch--55,462 shares.
Daniel A. Koch holds more than 5% of our outstanding common stock on an as-
converted basis.
Series C Preferred Stock Financing
In September 1997, we sold 1,228,748 shares of Series C preferred stock for
approximately $3.66 per share. The purchasers of the Series C preferred stock
included, among others:
. CDW Internet, LLC--150,180 shares;
. Ingleside Interests, L.P.--191,138 shares; and
. Whitney Equity Partners, L.P.--245,750 shares.
Joe F. Hanauer, one of our directors, is a general partner of Ingleside
Interests, L.P.
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Series D Preferred Stock Financing
In January 1998, we sold 1,362,402 shares of our Series D preferred stock
for approximately $7.34 per share to GE Capital. James G. Brown, one of our
directors, is a Senior Vice President and Industry Leader with GE Equity, the
private investing arm of GE Capital.
Bridge Financing
In July 1998, we borrowed a principal amount of $12.0 million from, among
others, venture capital funds affiliated with Kleiner Perkins Caufield &
Byers. The lenders included:
. Kleiner Perkins Caufield & Byers VIII L.P.-- $6,635,520;
. KPCB VIII Founders Fund L.P.-- $384,480; and
. KPCB Information Sciences Zaibatsu Fund II, L.P.--$180,000.
All of these bridge loans, together with accrued interest, which accrued at
a rate of six percent per year, were converted into shares of our Series F
preferred stock as part of the purchase price for the Series F preferred stock
and the common stock described below. Kleiner Perkins Caufield & Byers VIII,
KPCB VIII Founders Fund and KPCB Information Sciences Zaibatsu Fund are
affiliated entities. L. John Doerr, one of our directors, is a general partner
of the general partner of these funds.
Series F Preferred Stock Financing
In August 1998, we sold 3,328,098 shares of Series F preferred stock at
$12.00 per share and 3,347,982 shares of common stock at a purchase price of
$3.16 per share. These shares were sold to a number of venture capital funds
as well as other corporate investors. The purchasers in this financing
included, among others:
<TABLE>
<CAPTION>
Series F
Preferred Common Aggregate
Shares Shares Purchase
Purchaser Purchased Purchased Price
--------- --------- --------- -----------
<S> <C> <C> <C>
Kleiner Perkins Caufield & Byers VIII.......... 452,562 2,660,300 $13,823,990
KPCB VIII Founders Fund........................ 26,224 154,148 801,025
KPCB Information Sciences Zaibatsu Fund II..... 12,276 72,164 374,989
Whitney Equity Partners, L.P. ................. 73,630 160,214 1,389,035
General Electric Capital Corporation........... 52,998 115,320 999,811
Fannie Mae..................................... 833,334 -- 10,000,008
National Association of REALTORS............... 53,008 115,342 1,000,000
Ingleside Interests, L.P. ..................... 7,436 16,178 140,274
</TABLE>
William Kelvie, one of our directors, is the Chief Information Officer of
Fannie Mae.
The shares received by the NAR were issued in satisfaction of our
obligation to make a payment of $1.0 million as our share of advertising costs
for the association's advertising program which also features our web site. In
addition, the NAR received 119,048 shares of RealSelect common stock to
satisfy one of our payment obligations to the NAR under the operating
agreement discussed below.
Operating agreement with the National Association of REALTORS
In November 1996, we entered into an operating agreement with the NAR which
governs how our RealSelect subsidiary operates the REALTOR.com web site on
behalf of the NAR. The agreement may be terminated if:
. the number of real estate listings on REALTOR.com falls below 500,000;
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. we breach any of our obligations under the agreement and do not cure that
breach within 30 days;
. a third party acquires more than 50% of HomeStore.com's or RealSelect's
voting stock; or
. The individuals on RealSelect's board of directors, as it was constituted
on November 1996, cease to constitute a majority of our board of
directors without the approval of the board or directors approved by the
board.
Restrictions on How We Operate the REALTOR.com Web Site
The operating agreement contains a number of restrictions on how our
RealSelect subsidiary can operate the REALTOR.com web site. These include:
. it cannot display any "for sale by owner" real estate listings;
. it can only enter into agreements with data content providers, such as
MLS, on terms approved by the NAR;
. there are specific provisions as to the types of information that the
real property listings may contain as well as the manner in which they
may be displayed;
. the NAR has the right to approve the design and layout of the REALTOR.com
home page;
. the NAR can require RealSelect to include on REALTOR.com real estate
related content it develops;
. RealSelect cannot provide links from listings of existing real property
listings to rental or new home listings with exceptions for our
HomeBuilder.com and SpringStreet.com web sites;
. we cannot market any data or information received from data content
providers such as real estate agents or brokers other than aggregate
statistical data without its consent; and
. although we can collect fees for enhanced Internet services, we cannot
charge fees to brokers or agents who provide us only basic real property
listing information.
We Are Subject to Noncompetition Provisions
The REALTOR.com operating agreement with the NAR requires that our
REALTOR.com site be our exclusive web site for displaying real property
listings. This required us to obtain the consent of the NAR prior to launching
our HomeBuilder.com and CommercialSource.com web sites as well as our pending
acquisition of SpringStreet, Inc. In the future, if we were to acquire or
develop another service which provides real estate listings on an Internet
site or through other electronic means, we will need to obtain the prior
consent of the NAR in order to complete the acquisition. Any future consents
from the NAR, if we are able to obtain them, could be conditioned on our
restricting the operations of the new web site or service. These conditions
could include paying fees to the NAR, limiting the types of content or
listings on the web sites or service or other terms and conditions. Our
business could be adversely affected if we do not obtain consents from the
NAR, or if a consent we obtain contains restrictive conditions.
Performance Requirements for the REALTOR.com Web Site
RealSelect must maintain adequate computer systems, communications and
capacity to accommodate all the real property listings on the REALTOR.com web
site. The computer system must also meet a number of other performance
requirements. If another means of displaying electronic advertisements for
real property emerges, and we do not adequately provide for the electronic
display of these advertisements in the new medium, the NAR is entitled to
select another real property listing provider for that new medium.
Restrictions on the Types of Advertising We May Display on the REALTOR.com
Site
RealSelect cannot display advertisements in connection with a real property
listing from many types of advertisers. For example, RealSelect cannot include
advertisements related to political issues, religion, alcoholic beverages or
adult-oriented products and services. Also, there are restrictions as to how
RealSelect displays advertisements from banks, loan brokers, mortgage bankers
and other participants in the real estate lending industry. For example, none
of these advertisers can occupy or reserve more than 25% of the available
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advertising space for a geographic location or be given an exclusive right to
advertise with respect to a particular business on the REALTOR.com web site.
Compensation to the NAR
Fixed Fees. We paid the NAR $1.0 million to fund advertising activities of
the NAR. This amount was paid by issuing shares of our Series F convertible
preferred stock and common stock described above. We also paid the NAR an
additional $1.0 million for advertising and for completion of goals specified
in the operating agreement. This amount was paid by issuing the NAR shares of
RealSelect common stock.
Additional Payment. Prior to the closing of this offering, we will issue to
the NAR 75,000 shares of common stock in cancellation of $600,000 of our $1.2
million outstanding obligation to the NAR. These additional amounts are
payable based upon completion of goals specified in the operating agreement.
The remaining $600,000 will be repaid from the net proceeds of this offering.
Variable Fees. Beginning in 1999, we are required to make quarterly
payments to the NAR based on its operating revenues for a particular quarter
derived from the REALTOR.com web site and our other web sites. These operating
revenues are our consolidated gross revenues under this agreement, less sales
commissions paid to third parties related to those revenues, less any revenues
from permitted marketing of information or data.
Protective Provisions in Agreements with Respect to RealSelect
The board of directors of our RealSelect subsidiary consists of seven
members, two of whom are appointed by the NAR. Without the consent of the
approval of six of its seven board members, RealSelect cannot (1) enter into a
merger or consolidation transaction, (2) sell substantially all of its assets,
or (3) change its business purpose from that specified in its certificate of
incorporation, which purpose is the operation of the REALTOR.com web site and
real property advertising programming for electronic display and related
businesses.
It also cannot engage in certain transactions without the approval of a
majority of its board members and at least one member nominated by the NAR.
These include:
. amending its certificate of incorporation or bylaws;
. establishing, or appointing any members to, a board committee;
.approving transactions with affiliates, stockholders or employees in
excess of $100,000;
. changing its executive officers;
. pledging its assets;
. issuing a number of shares of stock in excess of 10% of the 100 shares
outstanding as of November 1996; and
. declaring dividends or making other distributions to its stockholders.
The RealSelect bylaws also contain protective provisions which could
restrict portions of RealSelect's operations or require us to incur additional
expenses. For instance, if the RealSelect board of directors cannot agree on
an annual budget for RealSelect, it would use as its budget that from the
prior year adjusted for inflation. Any expenditures in excess of that budget
would have to be funded by HomeStore.com. In addition, if RealSelect desired
to incur debt or invest in assets in excess of $2.5 million or review salaries
for or award bonuses to executive officers of RealSelect without the approval
of a majority of its board, including an NAR representative, we would also
need to fund those expenditures.
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Conversion of RealSelect Stock into HomeStore.com Stock
Immediately prior to this offering, the NAR will convert all of their
shares of RealSelect for our common stock, except for one half of one share of
RealSelect, into an aggregate of 1,566,906 shares of our common stock. The NAR
can require that we convert the remaining one half share into an aggregate of
49,926 shares of our common stock if we merge NetSelect and RealSelect within
one year of this offering. Otherwise, the NAR can require that we redeem these
shares for $1.0 million, which can be paid with a promissory note which would
be payable upon demand of the NAR.
REALTOR.com Related Royalties
In 1999, RealSelect must pay the NAR the lesser of:
. 5% of RealSelect's operating revenues; or
. 12.5% of RealSelect's operating revenues less the percentage of our
operating revenues paid to data content providers.
In 2000 and each year after 2000, RealSelect must pay the NAR annually the
lesser of:
. 5% of RealSelect's operating revenues; or
. 15% of RealSelect's operating revenues less the percentage of our
operating revenues paid to data content providers.
Restrictions on How We Operate the SpringStreet.com Web Site
We were required to obtain the consent of the NAR in connection with our
pending SpringStreet acquisition. In agreeing to the proposed acquisition, the
NAR imposed a number of important restrictions on how we can operate the
SpringStreet.com web site. We must pay the NAR an annual royalty equal the
lesser of (1) 5% of the rental site's operating revenues and (2) 15% of the
rental site's operating revenues less the percentage of our operating revenues
paid to data content providers.
Under the consent, in addition to the SpringStreet.com web address, we must
use a REALTOR-branded rental web address. If the consent is terminated we
could be required to operate our rental properties web site at a different web
address.
Unless the consent is terminated as a result of a breach by the NAR, the
NAR would be entitled to use the REALTOR-branded web address. As a result, we
would face competition from the NAR. Other important restrictions include:
. we cannot display advertisements from the same types of advertisers that
we are prohibited from displaying on our REALTOR.com web site;
. we are subject to the same restrictions as we are on the REALTOR.com site
as to how we display advertisements from banks, loan brokers, mortgage
brokers and other participants in the real estate industry on pages
containing listings by a REALTOR;
. the site will be owned by or through our RealSelect subsidiary;
. we must offer REALTORS preferred pricing for home pages or enhanced
advertising on the rental web site;
. we must use our best efforts to ensure that operating the rental site
will not impact the quality or timeliness of how we perform our
obligations under the operating agreement for REALTOR.com;
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. without the consent of the NAR, prior to the time we are using only the
REALTOR-branded web address, we cannot provide a link on the
SpringStreet.com web site linking the REALTOR.com web site to the
SpringStreet.com web site and vice versa;
. we cannot display listings for rental of units in smaller properties
unless those units are listed with a REALTOR or listed on a REALTOR-
controlled MLS, unless the NAR agrees that in a particular market, fewer
than 50% of the listings are listed through REALTORS, in which case these
properties must be listed with other non-REALTOR real estate
professionals; and
. we cannot list properties for sale on this site for the duration of our
REALTOR.com operating agreement and for an additional two years.
Trademark License and Joint Ownership of Software
Under a trademark license agreement with the NAR, we are exclusively
authorized to use the NAR's federally registered REALTOR membership mark, the
domain name REALTOR.com and certain NAR logos in conjunction with our
REALTOR.com web site. Under a joint ownership agreement, the software we use
to run the REALTOR.com web site and any enhancements to that software are
jointly owned by the NAR and us. If the agreement under which we operate
REALTOR.com is terminated, we must transfer a copy of this software and assign
our agreements with data content providers, including MLSs, to the NAR. The
NAR would then be entitled to use the software for "real estate related
businesses" and could operate the REALTOR.com web site itself or through a
third party. Following any termination of the operating agreement, the NAR
could also terminate the trademark license agreement.
Right of First Refusal
RealSelect has a stockholders agreement with the NAR which provides that we
must give RealSelect a right of first refusal to invest in "real estate
related" business opportunities prior to our entry into any of these
businesses. "Real estate related" businesses include real estate brokerage,
real estate management, mortgage financing, appraising, counseling, land
development and building, title insurance, escrow services, franchising,
operation of an association comprised of real estate licensees and operation
of a Multiple Listing Service.
Board Representation
Upon consummation of this offering, we will issue to the NAR one share of
our New Series A Preferred Stock. As long as the REALTOR.com operating
agreement is in effect and the NAR continues to hold at least 20% of the
shares of common stock it owned immediately prior to this offering, through
its ownership of the one share of our New Series A Preferred Stock the NAR
will be entitled to nominate one member to our board. See "Description of
Capital Stock." Under our stockholders agreement, so long as our operating
agreement remains in effect, the NAR will have the right to nominate two
members to RealSelect's board of directors.
Mr. Hanauer, the NAR designee to our board, is a member of the Executive
Committee of the National Association of REALTORS.
Agreements with the National Association of Home Builders
Operating Agreement
In June 1998, we entered into an operating agreement with the NAHB. Under
this agreement, we agreed to display electronic ads for new residential
property.
The NAHB's agreement not to compete. The NAHB agreed it would not, during
the term of the operating agreement and for the one year period after the
agreement terminates:
. engage in the electronic display, other than through analog television,
of advertisements for new residential property;
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. develop, maintain or house home pages for members of the NAHB; or
. create Internet sites for persons affiliated with the sale or marketing
of new residential real estate.
Term of the agreement. This agreement runs through June 2003 and
automatically renews for successive one year periods. However, starting in
June 2000, the NAHB can terminate the agreement at any time, for any reason if
it provides us with six months' prior notice. If the NAHB chooses to terminate
the agreement in this manner, however, its non-competition obligation
described above will last for a period of three years after the agreement
terminates. In addition, if the termination occurs prior to June 2003, the
NAHB must surrender all the shares received by it upon its exercise of the
warrant described below. If the NAHB terminates the agreement between June
2003 and June 2008, it must surrender 50% of the shares it received upon its
exercise of that warrant. The operating agreement may also be terminated if
either of us materially breaches a term of the agreement or becomes bankrupt
or insolvent.
Warrant
In June 1998, we issued a warrant to purchase 226,576 shares of our common
stock to the NAHB at an exercise price of $.0005 per share. This warrant has
been exercised.
Restrictions on the NAHB's Ability to Sell Shares
The NAHB cannot transfer any of the shares it received upon exercise of the
warrant until June 2003. It cannot sell more than 50% of the shares unless the
transferee agrees to be bound by the surrender provisions described above.
Combination of InfoTouch and NetSelect
In February 1999, NetSelect and InfoTouch combined in a non-substantive
share exchange. Richard R. Janssen, a director of our company, owned 438,014
shares of InfoTouch, which represented approximately 2.19% of our outstanding
capital stock as of March 31, 1999. In August 1998, under a stock redemption
agreement that we entered into at the time of this combination, we repurchased
421,606 shares of InfoTouch common stock held by Mr. Janssen for cash at a
purchase price of $10.25 per share.
Loans to Executive Officers
In August 1998, Dr. Wolff exercised options to acquire 269,658 and Mr.
Janssen exercised options to acquire 174,118 shares of our common stock, for
an aggregate exercise price of $126,252 in the case of Dr. Wolff, and $24,377
in the case of Mr. Janssen. Dr. Wolff paid $126,117 and Mr. Janssen paid
$24,289 of the purchase price with promissory notes. In April 1999, Dr. Wolff
exercised options to acquire 668,578 shares, Mr. Giesecke exercised options to
acquire 66,664 shares, Mr. Rosenblatt exercised options to acquire
91,818 shares and Mr. Tafeen exercised options to acquire 150,000 shares of
our common stock for an aggregate exercise price of $1.7 million for Dr.
Wolff, $199,992 for Mr. Giesecke, $348,254 for Mr. Rosenblatt and $229,650 for
Mr. Tafeen. Dr. Wolff paid $1.7 million, Mr. Giesecke paid $199,959, Mr.
Rosenblatt paid $348,208 and Mr. Tafeen paid $229,575, of the purchase price
with promissory notes.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of March 31, 1999, as adjusted to
reflect the exchange by the NAR of substantially all its shares of RealSelect
common stock for shares of HomeStore.com common stock and the sale of our
common stock in this offering, by (1) each stockholder known by us to be the
beneficial owner of 5% or more of our common stock, (2) each of our directors,
(3) each executive officer listed in the summary compensation table, and (4)
all executive officers and directors as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless otherwise indicated below, to our knowledge, the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable. Shares of common stock subject to options that
are currently exercisable or exercisable within 60 days of March 31, 1999 are
deemed to be outstanding and to be beneficially owned by the person holding
the options for the purpose of computing the percentage ownership of that
person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Unless otherwise indicated, the
address for each listed stockholder is c/o HomeStore.com, Inc., 225 West
Hillcrest Drive, Suite 100, Thousand Oaks, CA 91360.
The number of shares of common stock outstanding after this offering
includes shares of common stock being offered and does not include the
shares that are subject to the underwriters' over-allotment option. The
percentage of common stock outstanding as of March 31, 1999 is based on
18,373,996 shares of common stock outstanding on that date, assuming that all
outstanding preferred stock has been converted into common stock.
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Shares Owned
Beneficially -----------------
Owned Prior Before After
Name of Beneficial Owner to Offering Offering Offering
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
L. John Doerr(1).............................. 3,377,674 18.4%
Kleiner Perkins Caufield & Byers
Michael C. Brooks(2).......................... 2,126,652 11.6%
Whitney Equity Partners, L.P.
Joe F. Hanauer(3)(4).......................... 2,025,008 11.0%
Ingleside Interests, L.P.
National Association of REALTORS(4)........... 1,810,256 9.9%
James G. Brown(5)............................. 1,530,720 8.3%
General Electric Capital Corporation
Stuart H. Wolff, Ph.D.(6)..................... 1,220,236 6.6%
Daniel A. Koch(7)............................. 1,086,292 5.9%
Independent Consultants, Inc.
William E. Kelvie(8).......................... 833,334 4.5%
Fannie Mae
Richard R. Janssen(9)......................... 699,190 3.8%
Kenneth K. Klein(10).......................... 226,576 1.2%
National Association of Home Builders
Peter B. Tafeen(11)........................... 203,750 1.1%
John M. Giesecke, Jr.(12)..................... 150,000 *
All 14 directors and executive officers as a
group(13).................................... 12,943,143 67.9%
</TABLE>
- --------
* Represents beneficial ownership of less than 1%
(1) Represents 3,112,862 shares held by Kleiner Perkins Caufield & Byers
VIII, 180,372 shares held by KPCB VIII Founders Fund and 84,440 shares
held by KPCB Information Sciences Zaibatsu Fund II. L. John
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<PAGE>
Doerr is a general partner of the general partner of these funds. Mr. Doerr
disclaims beneficial ownership of shares held by these entities except to
the extent of his pecuniary interest in these entities. The address of
Kleiner Perkins Caufield & Byers and Mr. Doerr is 2750 Sand Hill Road,
Menlo Park, CA 94025.
(2) Represents 2,126,652 shares held by Whitney Equity Partners, L.P. Michael
C. Brooks is a managing member of the general partner of this fund. Mr.
Brooks disclaims beneficial ownership of shares held by this entity
except to the extent of his pecuniary interest in these entities. The
address of Whitney Equity Partners, L.P. is 177 Broad Street, Stamford,
CT 06901.
(3) Includes 1,810,256 shares held by the NAR, of which Mr. Hanauer is a
member of the Executive Committees. Mr. Hanauer disclaims beneficial
ownership of shares held by this association. Also includes 214,752
shares held by Ingleside Interests, L.P. Mr. Hanauer is a general partner
of this entity. Mr. Hanauer disclaims beneficial ownership of shares held
by this entity except to the extent of his pecuniary interest in this
entity. The address for the NAR is 430 North Michigan Avenue, Chicago, IL
60611.
(4) Includes 75,000 shares to be issued to the NAR prior to the closing of
this offering.
(5) Represents shares held by GE Capital. Mr. Brown is Senior Vice President
and Industry Leader with GE Equity, the private investing arm of GE
Capital. Mr. Brown disclaims beneficial ownership of these shares. The
address of General Electric Capital Corporation is 120 Long Ridge Road,
Stamford, CT 06927.
(6) Includes 546,970 shares that are subject to our right to repurchase these
shares. This right of repurchase lapses with respect to 21,520 shares per
month.
(7) Includes 66,694 shares held by Independent Consultants, Inc., of which
Mr. Koch is Chief Executive Officer. Mr. Koch disclaims beneficial
ownership of shares held by this entity except to the extent of his
pecuniary interest in this entity. The address of Daniel A. Koch is 12905
Lafayette Ave., Omaha NE 68154.
(8) Represents shares held by Fannie Mae. Mr. Kelvie is the Chief Information
Officer of Fannie Mae. Mr. Kelvie disclaims beneficial ownership of any
shares held by Fannie Mae.
(9) Includes 87,058 shares subject to options exercisable through May 31,
1999.
(10) Represents 226,576 shares held by the NAHB, of which Mr. Klein is a
member of the Executive Committee. Mr. Klein disclaims beneficial
ownership of all shares held by this association.
(11) Includes 150,000 shares held by Mr. Tafeen, of which 105,625 are subject
to our right to repurchase these shares. This right of repurchase lapses
with respect to 3,125 shares per month. Also includes 53,750 shares
subject to options granted on April 22, 1999 and exercisable before May
31, 1999.
(12) Represents 150,000 shares subject to options exercisable before May 31,
1999.
(13) Includes the shares beneficially owned by the persons and entities
described in footnotes (1)-(6) and (8)-(11). Also includes an additional
550,000 shares, 300,000 of which are shares held by other officers and
250,000 of which are shares subject to options held by those other
officers that are exercisable before May 31, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized capital
stock of HomeStore.com will consist of shares of common stock, $.001 par
value per share, and 10,000,000 shares of undesignated preferred stock, $.001
par value per share. As of March 31, 1999, and assuming the conversion of all
outstanding preferred stock into common stock, there were outstanding
18,373,996 shares of common stock held of record by approximately 275
stockholders, one share of our new Series A preferred stock to be issued to
the NAR, options to purchase 2,813,782 shares of common stock and warrants to
purchase 463,668 shares of common stock.
Common Stock
Dividend Rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as the board may from time to time determine.
Voting Rights. Each common stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of
the shares voted can elect all of the directors then standing for election.
No preemptive or similar rights. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Preferred Stock
Upon the closing of this offering, each outstanding share of our existing
preferred stock will be converted into two shares of common stock, except our
new Series A preferred stock, which will not convert and will remain
outstanding. See Note 11 of Notes to Financial Statements for a description of
this preferred stock.
Upon completion of this offering, we will have authorized and outstanding
one share of our new Series A preferred stock which will be held by the NAR.
The rights of this stock are identical to our common stock, except:
. it is non voting, except that for so long as our operating agreement
with the NAR has not been terminated and the NAR holds 20% of its stock
owned prior to this offering, the NAR will be entitled to elect one
director;
. the holder of this stock is entitled to receive a non-cumulative, non-
mandatory dividend preference of $.08 per annum and liquidation
preference of $1.00 per share;
. this stock is automatically converted to one share of common stock upon
sale, transfer, pledge or other disposition of the share of Series A
preferred stock;
. this stock is subject to a right of first refusal at $1.00 in our favor
upon any proposed transfer by the NAR; and
. this stock is redeemable by us at $1.00 if the operating agreement is
terminated or if the NAR fails to hold 20% of its stock owned prior to
this offering.
Following the offering, HomeStore.com will be authorized, subject to
limitations prescribed by Delaware law, to issue preferred stock in one or
more series, to establish from time to time the number of shares to be
included in each series, to fix the rights, preferences and privileges of the
shares of each wholly unissued series and any of its qualifications,
limitations or restrictions. The board can also increase or decrease the
number of shares of any series, but not below the number of shares of that
series then outstanding, without any further vote
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<PAGE>
or action by the stockholders. The board may authorize the issuance of
preferred stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of the common stock. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
have the effect of delaying, deferring or preventing a change in control of
HomeStore.com and may adversely affect the market price of the common stock
and the voting and other rights of the holders of common stock. We have no
current plan to issue any shares of preferred stock.
Warrants
Warrants to purchase 463,668 shares of common stock were outstanding as of
March 31, 1999.
America Online. In connection with entering into a distribution agreement
with America Online in April 1998, we issued a warrant to purchase 226,590
shares of our common stock at an exercise price of $3.16 per share. If America
Online does not purchase any shares in this offering, the warrant will expire.
Additionally, if America Online exercises its right to purchase $2.0 million
of common stock in this offering, we will issue to it warrants to acquire
$3.0 million of common stock with a weighted average exercise price of 137.5%
of the initial public offering price.
Original MLSs. During 1998 and early 1999, we issued warrants to purchase up
to 83,752 shares of common stock to MLSs that agreed to provide their real
estate listings to us for publication on the Internet on a preferred national
basis. The issuance of these warrants is contingent upon this offering. The
exercise price will be equal to the initial public offering price per share
price in this offering. These warrants will expire at various times from May
2000 to January 2001.
Broker Gold. In February 1999, we closed a private equity offering to real
estate brokers under our Broker Gold program. We also issued warrants to
purchase up to 143,326 shares of our common stock with an exercise price to be
equal to the per share price in this offering. The issuance of these warrants
is contingent upon this offering.
Additional MLS Warrants. Concurrently with this offering, we intend to offer
warrants to purchase up to 494,538 shares of common stock to MLSs that agree
to provide us their listings on a preferred national basis.
Additional Broker Warrants. In the future, we may offer up to 170,000
warrants to the Broker Gold program members who elect to renew their existing
listing agreements with us after their original two year term expires. The
broker must also maintain a minimum number of property listings as well as
continue to hold our securities. If issued, we anticipate that these warrants
would have an exercise price based upon the average of the closing market
price of the common stock for the ten trading days preceding the date which is
one day before the warrant is issued.
Other. There is an additional outstanding warrant to purchase 10,000 shares
of our common stock at an exercise price of $12.00 per share. This warrant
expires on January 19, 2002.
Registration Rights
The holders of approximately 18,189,966 shares of common stock have the
right to require us to register their shares with the Securities and Exchange
Commission so that those shares may be publicly resold or to include their
shares in any registration statement we file.
Demand Registration
Right to demand registration. At any time six months after this offering,
these stockholders can request that we file a registration statement so they
can publicly sell their shares.
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<PAGE>
Who may make a demand. Either GE Capital or funds affiliated with Kleiner
Perkins Caufield & Byers can require that we file a registration statement.
Otherwise, holders of at least 10% of the shares having registration rights
must demand that we file a registration statement.
Number of times holders can make demands. We will only be required to file
two registration statements for GE Capital and no more than four total.
However, if we are eligible to file a registration statement on Form S-3,
there is no limit to the number of registration statements we could be asked
to file so long as the aggregate amount of securities to be sold in each
registration exceeds $1.0 million.
Postponement. We may postpone the filing of a registration statement for up
to 180 days once in a 12 month period if we determine that the filing would
interfere with corporate transactions or would require premature disclosure of
them.
Expenses. We will pay only the expenses for two registrations effected on
Form S-1 and two registrations effected on Form S-3. However, even with
respect to these registrations, we are not obligated to pay the sellers'
underwriting discounts or commissions.
Piggyback Registration
If we register any securities for public sale, these stockholders will have
the right to include their shares in the registration statement. However, this
right does not apply to a registration relating to securities to be sold under
one of our stock plans or to be issued in a merger, consolidation or
reorganization transaction. The underwriters of any underwritten offering will
have the right to limit the number of shares to be so included in a
registration statement.
We will pay all of the expenses relating to any piggyback registration,
other than underwriting discounts and commissions.
Expiration of Registration Rights
The registration rights described above will expire five years after this
offering is completed, or earlier with respect to a particular stockholder if
that holder can resell all of its securities in a three month period under
Rule 144 of the Securities Act or another exemption from the registration
requirements of the Securities Act.
In addition to the foregoing registration rights, if America Online
exercises its rights to acquire shares in this offering, it will have the
right to demand the registration of the shares of common stock issuable upon
the exercise of the warrants granted to it in connection with its share
purchase in this offering. See "-- Warrants."
NAR Put Right
The NAR will have the right to require us to redeem its remaining one half
of one shares of RealSelect common stock for $1.0 million, or if we merge with
RealSelect within one year after this offering, convert that stock into an
aggregate of 49,926 shares of our common stock. This right is described under
the section entitled "Certain Transactions--Conversion of RealSelect Stock
into HomeStore.com Stock."
Anti-Takeover Provisions
The provisions of Delaware law, our certificate of incorporation, our
bylaws, the NAR operating agreement and our stockholders agreement may have
the effect of delaying, deferring or discouraging another person from
acquiring control of our company. Our certificate of incorporation and bylaws
contain a number of provisions that could have the effect of delaying,
preventing or discouraging a change of control of our company. These include:
. We will have a classified board, which is divided into three classes with
staggered three-year terms;
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<PAGE>
. Our stockholders are unable to fill any interim vacancy on our board of
directors;
. Any action required or permitted to be taken by our stockholders at an
annual meeting or a special meeting of the stockholders may only be taken
if it is properly brought before that meeting and may not be taken by
written consent;
. Our stockholders are limited in their ability to remove any director or
the entire board of directors without cause;
. Our bylaws provide that special meetings of the stockholders may be
called at any time by the board of directors, and must be called upon the
request of the chairman of the board of directors, the chief executive
officer, the president, or by a majority of the members of the board of
directors and may not be called by stockholders; and
. Stockholders must follow specified procedures in order to properly submit
any business before a stockholder meeting.
These provisions are designed to reduce the vulnerability of HomeStore.com
to an unsolicited acquisition proposal and, accordingly, could discourage
potential acquisition proposals and could delay or prevent a change in control
of HomeStore.com. These provisions are also intended to discourage tactics
that may be used in proxy fights but could, however, have the effect of
discouraging others from making tender offers for our shares and,
consequently, may also inhibit fluctuations in the market price for our shares
that could result from actual or rumored takeover attempts. These provisions
may also have the effect of preventing changes in our management. See "Risk
Factors--Our certificate of incorporation and bylaws, Delaware law and other
agreements contain provisions that could discourage a takeover."
Delaware Law
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations from engaging, under certain circumstances, in a
"business combination," which includes a merger or sale of more than 10% of
the corporation's assets with any "interested stockholder," or a stockholder
who owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of stockholder, for three years following the date
that stockholder became an "interested stockholder" unless:
. the transaction is approved by the board prior to the date the
"interested stockholder" attained that status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced; or
. on or subsequent to such date the "business combination" is approved by
the board and authorized at an annual or special meeting of stockholders
by at least two-thirds of the outstanding voting stock that is not owned
by the "interested stockholder."
A Delaware corporation may "opt out" of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not "opted out" of this provision. The statute could prohibit
or delay mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.
NAR Operating Agreement
The NAR operating agreement is subject to termination if:
. a third party acquires 50% or more of our voting stock; or
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<PAGE>
. a majority of our board ceases to serve on that board and their
replacements have not been approved by the board or replacements approved
by them.
Stockholder Agreement
The stockholder agreement entered into among stockholders holding
substantially all of our capital stock at March 31, 1999, the NAR and us, will
limit a change of control or a sale of all or substantially all of our assets.
Under the agreement, without the prior consent of the NAR, which may not
unreasonably be withheld:
. the stockholders who are party to the agreement, including various
entities affiliated with Kleiner Perkins Caufield & Byers and Whitney
Equity Partners, are restricted from transferring in non-public market
sales, other than to any other stockholder party to the agreement or in
an underwritten public offering, their shares to any transferee whose
primary business is real estate related or who will become a holder of
more than 5% of our capital stock; and
. we may not sell, lease or exchange all or substantially all of our
assets.
Limitations on Liability and Indemnification of Officers and Directors
Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation and bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Delaware law. We intend to enter
into separate indemnification agreements with our directors and executive
officers that provide them indemnification protection in the event the
certificate of incorporation is subsequently amended.
Our certificate of incorporation and bylaws provide that we will indemnify
officers and directors against losses that they may incur in investigations
and legal proceedings resulting from their services to us, which may include
services in connection with takeover defense measures. These provisions may
have the effect of preventing changes in the management.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock including shares issued upon
exercise of outstanding warrants or options in the public market after this
offering could adversely affect market prices prevailing from time to time and
could impair our ability to raise capital through sale of equity securities.
Furthermore, as described below, 2,838,460 shares currently outstanding will
be available for sale after the expiration of contractual restrictions on
resale with us and/or the underwriters. Sales of substantial amounts of our
common stock in the public market after contractual restrictions lapse could
adversely affect the prevailing market price and our ability to raise equity
capital in the future.
Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants. Of these shares, the
shares sold in this offering will be freely tradable without restriction under
the Securities Act unless purchased by our "affiliates." Based on shares
outstanding as of April 30, 1999, the remaining shares will become eligible
for public sale as follows:
<TABLE>
<CAPTION>
Approximate
Number of
Shares
Eligible
For Future
Date Sale Comment
---- ----------- -------
<S> <C> <C>
Date of this
Prospectus............. 0
181 days after the date
of this Prospectus ....4,747,676 Lock-up released. These shares may be sold
under Rules 144, 144(k) or 701.
February 4, 2000........ 14,698,900 Restricted securities held for at least one
year that may be sold under Rule 144.
February 18, 2000....... 450,000 Restricted securities held for at least one
year that may be sold under Rule 144.
April 9, 2000........... 681,910 Restricted securities held for at least one
year that may be sold under Rule 144.
</TABLE>
Lock-Up Agreements with the Underwriters
Stockholders holding approximately 97% of our common stock on an as-
converted basis, including all of our officers and directors, have signed
lock-up agreements with the Underwriters under which they agreed not to sell,
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior consent of Morgan Stanley & Co. Incorporated
for a period of 180 days after the date of this prospectus.
Morgan Stanley & Co. Incorporated may choose to release some of these
shares from these restrictions prior to the expiration of this 180-day period,
although we are not aware of any current intention to request them to do so.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. 1% of the number of shares of Common Stock then outstanding, which will
equal approximately shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
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<PAGE>
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information
about HomeStore.com.
Rule 144(k)
Under Rule 144(k), a person who has not been one of our affiliates 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, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, 144(k) shares may be sold immediately upon the completion of this
offering.
Rule 701
Any employee, officer or director of, or consultant to, HomeStore.com who
purchased his or her shares under a written compensatory plan or contract may
be entitled to sell their shares in reliance on Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell these shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or
notice provisions of Rule 144. Under this rule, all holders of Rule 701 shares
are required to wait until 90 days after the date of this prospectus before
selling those shares. However, because all shares that we have issued under
Rule 701 are subject to lock-up agreements, they will only become eligible for
sale when the 180-day lock-up agreements expire. As a result, they may be sold
90 days after the offering only if the holder obtains the prior written
consent of Morgan Stanley & Co. Incorporated.
Registration Rights
Upon completion of this offering, the holders of 18,189,966 shares of
common stock, or their transferees, will be entitled to certain rights with
respect to the registration of those shares under the Securities Act. See
"Description of Capital Stock--Registration Rights." After these shares are
registered, they will be freely tradable without restriction under the
Securities Act.
Stock Options
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering shares of Common Stock reserved for issuance
under our stock option and employee stock purchase plans. As of March 31,
1999, options to purchase 2,813,782 shares of common stock were issued and
outstanding.
Upon the expiration of the lock-up agreements described above, at least
1,500,521 shares of common stock will be subject to vested options, based on
options outstanding as of March 31, 1999. This registration statement is
expected to be filed and become effective as soon as practicable after the
effective date of this offering. Accordingly, shares registered under this
registration statement will, subject to vesting provisions and Rule 144 volume
limitations applicable to our affiliates, be available for sale in the open
market immediately after the 180-day lock-up agreements expire.
Warrants
As of March 31, 1999, we had outstanding warrants to purchase 463,668
shares of common stock. If these warrants are exercised and the exercise price
is paid in cash, the shares must be held for one year before they can be sold
under Rule 144.
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date hereof, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and BancBoston
Robertson Stephens Inc. are acting as representatives, have severally agreed
to purchase, and we have agreed to sell to them, severally, the respective
number of shares of common stock set forth opposite the names of the
underwriters below:
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- ------
<S> <C>
Morgan Stanley & Co. Incorporated.................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
BancBoston Robertson Stephens Inc.................................
-----
Total...........................................................
=====
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept
delivery of the shares of common stock offered hereby are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered by this prospectus, other than those covered by
the over-allotment option described below, if any of the shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ a share under the public offering
price. Any underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ a share to other underwriters or to certain other
dealers. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
representatives of the underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of additional
shares of common stock at the public offering price set forth on the cover
page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise this option solely for the purpose of covering over-
allotments, if any, made in connection with this offering of the shares of
common stock. To the extent this option is exercised, each underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of the additional shares of common stock as the number set
forth next to that underwriter's name in the preceding table bears to the
total number of shares of common stock set forth next to the names of all
underwriters in the preceding table. If the underwriters' over-allotment
option is exercised in full, the total price to public would be $ , the
total underwriters' discounts and commissions would be $ , and the total
proceeds to us would be $ before deducting estimated offering expenses of
$ .
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At our request, the underwriters have reserved up to shares of common
stock to be sold in the offering for sale, at the public offering price, to
our directors, officers, employees, business associates and related persons
and also to members of the National Association of REALTORS. In addition, at
our request, the underwriters have reserved $2.0 million of common stock to be
sold in the offering, at the public offering price, to America Online if
America Online indicates an interest in purchasing shares in this offering.
The number of shares of common stock available for sale to the general public
will be reduced to the extent these individuals and entities purchase the
reserved shares. Any reserved shares which are not so purchased will be
offered by the underwriters to the general public on the same basis as the
other shares offered hereby.
We, our directors, officers and certain other of our stockholders have each
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, during the period ending 180 days
after the date of this prospectus, we will not:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, whether
the shares or any of those securities are then owned by that person or
are later acquired directly from us; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock,
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
. the sale to the underwriters of the shares of common stock under the
underwriting agreement;
. the issuance by HomeStore.com of shares of common stock upon the exercise
of an option or a warrant or the conversion of a security outstanding on
the date of this prospectus which is described in the prospectus;
. transactions by any person other than HomeStore.com relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering of the shares of common stock; or
. issuances of shares of common stock or options to purchase shares of
common stock under our employee benefit plans as in existence on the date
of the prospectus and consistent with past practices.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have submitted an application to have our common stock approved for
quotation on the Nasdaq National Market under the symbol: "HOMS."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
86
<PAGE>
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
In August 1998, we sold shares of our Series F preferred stock in a private
placement at a purchase price of $12.00 per share. In this private placement,
Morgan Stanley Dean Witter Equity Funding, Inc. purchased 166,666 shares of
Series F preferred stock, for approximately $2.0 million. Morgan Stanley
Venture Partners III, L.P. purchased 146,230 shares for approximately $1.8
million. Morgan Stanley Venture Investors III, L.P. purchased 14,040 shares
for approximately $168,000. Morgan Stanley Venture Partners Entrepreneur Fund,
L.P. purchased 6,398 shares for approximately $77,000. These funds purchased
these shares of Series F preferred stock on the same terms as the other
investors in the private placement. These funds are affiliated entities of
Morgan Stanley & Co. Incorporated, the lead representative of the underwriters
in this offering.
Pricing of this Offering
Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the public offering price for the shares of common
stock will be determined by negotiations between HomeStore.com and the
representatives of the underwriters. Among the factors to be considered in
determining the public offering price will be our record of operations, our
current financial position and future prospects, the experience of our
management, sales, earnings and certain of our other financial and operating
information in recent periods, the price-earnings ratios, price-sales ratios,
market prices of securities and certain financial and operating information of
companies engaged in activities similar to ours.
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus. Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California,
will pass upon certain legal matters in connection with this offering for the
Underwriters. Wilson Sonsini Goodrich & Rosati, Professional Corporation is
representing HomeStore.com in its acquisition of SpringStreet, Inc.
EXPERTS
The consolidated financial statements of HomeStore.com, Inc. and
subsidiaries as of December 31, 1997 and 1998 and for the years ended December
31, 1996, 1997 and 1998 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of NetSelect, Inc. and subsidiaries
as of December 31, 1997 and 1998 and for the period from October 28, 1996
(Inception) to December 31, 1996 and the years ended December 31, 1997 and
1998 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of NetSelect, LLC and subsidiaries as
of December 31, 1997 and 1998 and for the period from October 28, 1996
(Inception) to December 31, 1996 and the years ended December 31, 1997 and
1998 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of The Enterprise of America, Ltd. as of December
31, 1997 and March 31, 1998 and for the year ended December 31, 1997 and the
three months ended March 31, 1998 included in this prospectus statement have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
87
<PAGE>
The consolidated financial statements of MultiSearch Solutions, Inc. and
subsidiary as of December 31, 1997 and June 30, 1998 and for the year ended
December 31, 1997 and the six months ended June 30, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of SpringStreet, Inc. at December 31,
1998 and 1997, and for the year ended December 31, 1998 and for the period
from August 21, 1997 (commencement of operations) through December 31, 1997,
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective January 21, 1999, PricewaterhouseCoopers LLP was engaged as our
independent accountants. Prior to January 21, 1999, Deloitte & Touche LLP had
been our independent accountants. The decision to change independent
accountants was approved by our board of directors.
For the period from October 28, 1996 through December 31, 1998 and for the
period from January 1, 1999 through January 21, 1999, we and Deloitte & Touche
LLP did not have any disagreement on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
The report of Deloitte & Touche LLP on our financial statements for the
periods from October 28, 1996 through December 31, 1996 and January 1, 1997
through December 31, 1997 did not contain an adverse opinion or disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
with respect to us and the common stock, we refer you to the registration
statement and the exhibits and schedules filed as a part of the registration
statement. Statements contained in this prospectus concerning the contents of
any contract or any other document are not necessarily complete. If a contract
or document has been filed as an exhibit to the registration statement, we
refer you to the copy of the contract or document that has been filed. Each
statement in this prospectus relating to a contract or document filed as an
exhibit is qualified in all respects by the filed exhibit. The registration
statement, including exhibits and schedules, may be inspected without charge
at the SEC's principal office in Washington, D.C., and copies of all or any
part of it may be obtained from that office after payment of fees prescribed
by the SEC. The SEC maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC at http://www.sec.gov.
We intend to provide our stockholders with annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports containing unaudited consolidated financial data
for the first three quarters of each year.
88
<PAGE>
HOMESTORE.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Information
Overview................................................................. F-2
Pro Forma Condensed Consolidated Balance Sheet........................... F-4
Pro Forma Condensed Consolidated Statements of Operations................ F-5
Notes to Pro Forma Condensed Consolidated Financial Information.......... F-7
HomeStore.com, Inc. Consolidated Financial Statements
Report of Independent Accountants........................................ F-10
Consolidated Balance Sheets.............................................. F-11
Consolidated Statements of Operations.................................... F-12
Consolidated Statements of Stockholders' Equity (Deficit)................ F-13
Consolidated Statements of Cash Flows.................................... F-14
Notes to Consolidated Financial Statements............................... F-15
NetSelect, Inc. Consolidated Financial Statements
Report of Independent Accountants........................................ F-33
Consolidated Balance Sheets.............................................. F-34
Consolidated Statements of Operations.................................... F-35
Consolidated Statements of Stockholders' Equity.......................... F-36
Consolidated Statements of Cash Flows.................................... F-37
Notes to Consolidated Financial Statements............................... F-38
NetSelect, LLC Consolidated Financial Statements
Report of Independent Accountants........................................ F-51
Consolidated Balance Sheets.............................................. F-52
Consolidated Statements of Operations.................................... F-53
Consolidated Statements of Shareholders' Equity.......................... F-54
Consolidated Statements of Cash Flows.................................... F-55
Notes to Consolidated Financial Statements............................... F-56
The Enterprise of America, Ltd. Financial Statements
Report of Independent Accountants........................................ F-69
Balance Sheets........................................................... F-70
Statements of Operations................................................. F-71
Statements of Stockholders' Deficit...................................... F-72
Statements of Cash Flows................................................. F-73
Notes to Financial Statements............................................ F-74
MultiSearch Solutions, Inc. Consolidated Financial Statements
Report of Independent Accountants........................................ F-77
Consolidated Balance Sheets.............................................. F-78
Consolidated Statements of Operations.................................... F-79
Consolidated Statements of Stockholders' Deficit......................... F-80
Consolidated Statements of Cash Flows.................................... F-81
Notes to Consolidated Financial Statements............................... F-82
SpringStreet, Inc. Financial Statements
Report of Independent Accountants........................................ F-85
Balance Sheets........................................................... F-86
Statements of Operations................................................. F-87
Statements of Shareholders' Deficit...................................... F-88
Statements of Cash Flows................................................. F-89
Notes to Financial Statements............................................ F-90
</TABLE>
F-1
<PAGE>
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Overview
On February 4, 1999, NetSelect, Inc. ("NSI") was merged with and into the
Company pursuant to a non-substantive share exchange, which was provided for
in the agreements governing the formation and operation of RealSelect, Inc.
The share exchange lacked substance since both the Company and NSI were shell
companies for their respective investments in RealSelect, and because the
respective underlying ownership interests of individual investors were
unaffected. Accordingly, the non-substantive share exchange was accounted for
at historical cost. The share exchange between the Company and NSI is referred
to herein as the "Reorganization". See Note 1 of HomeStore.com, Inc. Notes to
Consolidated Financial Statements for further discussion about the
Reorganization.
In March 1998, NSI acquired The Enterprise for 210,000 shares of common
stock with an estimated fair value of $525,000, a note payable in the amount
of $2.2 million, and $705,000 in cash and other acquisition related expenses.
The acquisition has been accounted for as a purchase. The acquisition cost has
been allocated to the assets acquired and liabilities assumed based on
estimates of their respective fair values. The excess of purchase
consideration over net tangible assets acquired of $3.9 million has been
allocated to goodwill which is being amortized on a straight-line basis over
five years.
In July 1998, NSI acquired MultiSearch for 325,000 shares of Series E
redeemable convertible preferred stock with an estimated fair value of
approximately $4.8 million, a note payable in the amount of $3.6 million, and
$875,000 in cash and other acquisition related expenses. The acquisition has
been accounted for as a purchase. The acquisition cost has been allocated to
the assets acquired and liabilities assumed based on estimates of their
respective fair values. The excess of purchase consideration over net tangible
assets acquired of $9.4 million has been allocated to goodwill which is being
amortized on a straight-line basis over five years.
In April 1999, the Company sold 340,955 shares of Series G convertible
preferred stock for approximately $17 million. These shares will be converted
into an aggregate of 681,910 shares of common stock at the closing of an IPO.
In May 1999, the Company entered into a reorganization agreement with
SpringStreet in which the Company expects to acquire SpringStreet in a
transaction that will be accounted for as a purchase. The transaction has been
approved by the board of directors of each company and is subject to approval
by each company's stockholders. Stockholders and option holders of
SpringStreet will receive, in the aggregate, 1,270,900 shares of convertible
preferred stock and common stock or an aggregate of 2,123,000 shares of common
stock assuming two-for-one conversion of convertible preferred stock into
common stock, in exchange for all of the outstanding shares, including
employee stock options, of SpringStreet. The acquisition cost is estimated to
be $47.7 million which is based on the terms and preferences of the shares
issued in the transaction relative to the value received by the Company in the
April 1999 Series G financing. The preliminary allocation of the excess of
purchase consideration over net tangible assets acquired has been allocated to
goodwill which is expected to be amortized on a straight-line basis over five
years. In addition, the Company expects to record deferred stock compensation
of $3.8 million relating to unvested stock options assumed in the transaction.
The purchase allocation adjustments made in connection with the preparation of
the unaudited pro forma consolidated financial statements are preliminary and
have been made solely for the purpose of preparing such unaudited pro forma
consolidated financial statements.
The following unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1998 and the three months ended
March 31, 1999 give effect to the Reorganization and the acquisitions of The
Enterprise, MultiSearch and SpringStreet as if they had occurred on January 1,
1998.
The unaudited pro forma condensed consolidated balance sheet as of March
31, 1999 gives effect to the SpringStreet acquisition as if it had occurred on
March 31, 1999, by combining the balance sheet of SpringStreet as of March 31,
1999 with the Company's balance sheet as of the same date. In addition, the
pro forma condensed consolidated balance sheet gives effect to the issuance of
the Series G convertible preferred stock, the
F-2
<PAGE>
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Overview (Continued)
conversion of each outstanding share of convertible preferred stock into two
shares of common stock upon the closing of this offering and the exchange of
RealSelect common stock owned by the NAR for shares of Company common stock
upon the closing of this offering.
The unaudited pro forma condensed consolidated statement of operations is
not necessarily indicative of the operating results that would have been
achieved had the transactions been in effect as of the beginning of the period
presented and should not be construed as being representative of future
operating results.
The audited historical financial statements of the Company, NSI, The
Enterprise, MultiSearch and SpringStreet are included elsewhere in this
Prospectus and the unaudited pro forma financial information presented herein
should be read in conjunction with those financial statements and related
notes.
F-3
<PAGE>
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(in thousands)
<TABLE>
<CAPTION>
HomeStore.com SpringStreet Adjustments Pro Forma
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.. $ 4,840 $ 16,738 $ 17,000 (6) $ 38,578
Accounts receivable, net... 2,617 491 3,108
Current portion of prepaid
distribution expense...... 2,960 2,960
Deferred royalties......... 1,708 1,708
Other current assets....... 899 743 1,642
-------- -------- -------- --------
Total current assets........ 13,024 17,972 17,000 47,996
Prepaid distribution
expense.................... 7,234 7,234
Property and equipment,
net........................ 2,187 910 3,097
Intangible assets, net...... 18,372 30,252 (2) 48,624
Other assets................ 285 466 751
-------- -------- -------- --------
$ 41,102 $ 19,348 $ 47,252 $107,702
======== ======== ======== ========
Liabilities, Redeemable Convertible Preferred Stock and
Stockholders' Equity
Current liabilities:
Accounts payable........... $ 3,166 $ 824 $ $ 3,990
Accrued liabilities........ 9,576 1,094 10,670
Due to related parties..... 1,200 1,200
Deferred revenues.......... 7,971 1,169 (1,169)(4) 7,971
Current portion of notes
payable................... 1,746 1,746
-------- -------- -------- --------
Total current liabilities... 23,659 3,087 (1,169) 25,577
Notes payable 3,324 3,324
-------- -------- -------- --------
26,983 3,087 (1,169) 28,901
-------- -------- -------- --------
Redeemable convertible
preferred stock............ 5,016 13,774 (13,774)(5) --
(5,016)(7)
-------- -------- -------- --------
Stockholders' equity:
Convertible preferred
stock..................... 5 16,002 (16,002)(5)
(5)(7)
Common stock............... 9 4,031 (4,031)(5) 21
1 (1)
11 (7)
Additional paid-in
capital................... 119,856 47,681 (1) 193,384
3,837 (3)
17,000 (6)
5,016 (7)
(6)(7)
Treasury stock............. (13,676) (13,676)
Notes receivable from
stockholders.............. (1,651) (1,651)
Deferred stock
compensation.............. (16,323) (3,275) 3,275 (5) (20,160)
(3,837)(3)
Accumulated deficit........ (79,117) (14,271) 14,271 (5) (79,117)
-------- -------- -------- --------
Total stockholders' equity.. 9,103 2,487 67,211 78,801
-------- -------- -------- --------
$ 41,102 $ 19,348 $ 47,252 $107,702
======== ======== ======== ========
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Financial
Information
F-4
<PAGE>
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Adjust- Pro Forma Adjust-
HomeStore.com NSI ments HomeStore.com Enterprise MultiSearch SpringStreet ments
------------- -------- ------- ------------- ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........... $ -- $ 15,003 $ -- $ 15,003 $969 $2,054 $ 1,099 $ --
Cost of revenues... 7,338 7,338 524 947 721
------ -------- ------ -------- ---- ------ ------- -------
Gross profit....... -- 7,665 -- 7,665 445 1,107 378 --
------ -------- ------ -------- ---- ------ ------- -------
Operating expenses:
Sales and
marketing........ 25,560 25,560 174 544 6,509
Product
development...... 4,139 4,139 24 1,089
General and
administrative... 3 6,929 6,932 274 457 1,578 (325)(10)
Amortization of
intangible
assets........... 1,893 1,893 7,128 (9)
Stock-based
charges.......... 20,455 20,455 1,538 (8)
------ -------- ------ -------- ---- ------ ------- -------
Total operating
expenses....... 3 58,976 58,979 448 1,025 9,176 8,341
------ -------- ------ -------- ---- ------ ------- -------
Loss from
operations........ (3) (51,311) (51,314) (3) 82 (8,798) (8,341)
Interest income.... 583 583 207 (18)(11)
Interest expense... (365) (365) (32) (24) (136)(12)
Other expense...... (97) (97)
------ -------- ------ -------- ---- ------ ------- -------
Net loss before
minority
interest.......... (3) (51,190) (51,193) (35) 58 (8,591) (8,495)
Minority interest.. 222 222
------ -------- ------ -------- ---- ------ ------- -------
Net loss........... (3) (50,968) (50,971) (35) 58 (8,591) (8,495)
Accretion of
redemption value
and stock
dividends on
convertible
preferred stock... (1,659) 1,659 (13) --
Repurchase of
convertible
preferred stock... (7,727) (7,727)
------ -------- ------ -------- ---- ------ ------- -------
Net loss applicable
to common
stockholders...... $ (3) $(60,354) $1,659 $(58,698) $(35) $ 58 $(8,591) $(8,495)
====== ======== ====== ======== ==== ====== ======= =======
Historical basic
and diluted net
loss per share
applicable to
common
stockholders...... $ --
======
Shares used in the
calculation of
historical basic
and diluted net
loss per share
applicable to
common
stockholders...... 3,669
======
Pro forma basic and
diluted net loss
per share
applicable to
common
stockholders......
Shares used in the
calculation of pro
forma basic and
diluted net loss
per share
applicable to
common
stockholders......
<CAPTION>
Pro
Forma
-------------
<S> <C>
Revenues........... $ 19,125
Cost of revenues... 9,530
-------------
Gross profit....... 9,595
-------------
Operating expenses:
Sales and
marketing........ 32,787
Product
development...... 5,252
General and
administrative... 8,916
Amortization of
intangible
assets........... 9,021
Stock-based
charges.......... 21,993
-------------
Total operating
expenses....... 77,969
-------------
Loss from
operations........ (68,374)
Interest income.... 772
Interest expense... (557)
Other expense...... (97)
-------------
Net loss before
minority
interest.......... (68,256)
Minority interest.. 222
-------------
Net loss........... (68,034)
Accretion of
redemption value
and stock
dividends on
convertible
preferred stock... --
Repurchase of
convertible
preferred stock... (7,727)
-------------
Net loss applicable
to common
stockholders...... $(75,761)
=============
Historical basic
and diluted net
loss per share
applicable to
common
stockholders......
Shares used in the
calculation of
historical basic
and diluted net
loss per share
applicable to
common
stockholders......
Pro forma basic and
diluted net loss
per share
applicable to
common
stockholders...... $ (4.46)(13)
=============
Shares used in the
calculation of pro
forma basic and
diluted net loss
per share
applicable to
common
stockholders...... 16,992 (13)
=============
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Financial
Information
F-5
<PAGE>
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
HomeStore.com NSI Adjustments HomeStore.com SpringStreet Adjustments Pro Forma
------------- ------- ----------- ------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 5,570 $ 2,433 $ -- $ 8,003 $ 869 $ -- $ 8,872
Cost of revenues........ 2,749 798 3,547 341 3,888
-------- ------- ---- -------- ------- ------- --------
Gross profit............ 2,821 1,635 -- 4,456 528 -- 4,984
-------- ------- ---- -------- ------- ------- --------
Operating expenses:
Sales and marketing.... 9,163 4,064 13,227 3,054 16,281
Product development.... 331 174 505 994 1,499
General and
administrative........ 1,987 1,053 3,040 1,073 (426)(16) 3,687
Amortization of
intangible assets..... 521 261 782 1,509 (15) 2,291
Stock-based charges.... 7,139 569 7,708 385 (14) 8,093
-------- ------- ---- -------- ------- ------- --------
Total operating
expenses............ 19,141 6,121 25,262 5,121 1,468 31,851
-------- ------- ---- -------- ------- ------- --------
Loss from operations.... (16,320) (4,486) (20,806) (4,593) (1,468) (26,867)
Interest income......... 25 51 76 39 115
Interest expense........ (62) (31) (93) (93)
Other expense........... (34) (25) (59) (59)
-------- ------- ---- -------- ------- ------- --------
Net loss................ (16,391) (4,491) (20,882) (4,554) (1,468) (26,904)
Accretion of redemption
value and stock
dividends on
convertible preferred
stock.................. (414) (207) 621 (17) -- --
-------- ------- ---- -------- ------- ------- --------
Net loss applicable to
common stockholders.... $(16,805) $(4,698) $621 $(20,882) $(4,554) $(1,468) $(26,904)
======== ======= ==== ======== ======= ======= ========
Historical basic and
diluted net loss per
share applicable to
common stockholders.... $ (2.53)
========
Shares used in the
calculation of
historical basic and
diluted net loss per
share applicable to
common stockholders.... 6,645
========
Pro forma basic and
diluted net loss per
share applicable to
common stockholders.... $ (1.24)(17)
========
Shares used in the
calculation of pro
forma basic and diluted
net loss per share
applicable to common
stockholders........... 21,720 (17)
========
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Financial
Information
F-6
<PAGE>
HOMESTORE.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSEDCONSOLIDATED FINANCIAL INFORMATION
Pro forma adjustments giving effect to the SpringStreet acquisition, the
issuance of 340,955 shares of Series G convertible preferred stock and the
assumed conversion of each outstanding share of the Company's preferred stock
and the exchange of shares of RealSelect common stock owned by the NAR for
shares of the Company's common stock upon the closing of this offering in the
unaudited pro forma condensed consolidated balance sheet at March 31, 1999
reflect the following:
(1) Issuance of an aggregate of approximately 1,002,400 shares of
convertible preferred stock and common stock (1,854,500 shares assuming
a two-for-one conversion of convertible preferred stock), and fair
value assigned to vested stock options to acquire approximately 83,400
shares of common stock to be assumed by the Company. The actual
allocation between convertible preferred stock and common stock will
not be determined until the closing of the SpringStreet acquisition,
and accordingly, the allocation presented in the unaudited pro forma
condensed consolidated financial information is preliminary and has
been made solely for the purpose of developing such pro forma financial
information. Acquisition costs in the SpringStreet acquisition are not
expected to be material.
(2) Excess of purchase consideration over the fair value of net tangible
assets acquired.
(3) Deferred stock compensation assigned to unvested stock options to
acquire approximately 185,100 shares of common stock to be assumed by
the Company.
(4) Elimination of SpringStreet's deferred revenues.
(5) Elimination of SpringStreet's stockholders' equity, including
redeemable convertible preferred stock and deferred stock compensation.
(6) Sale of 340,955 shares of Series G convertible preferred stock and
receipt of aggregate proceeds of $17.0 million.
(7) Conversion of each outstanding share of the Company's preferred stock
into shares of the Company's common stock and the exchange of shares of
RealSelect common stock owned by the NAR for shares of the Company's
common stock upon the closing of the offering.
Pro forma adjustments giving effect to the Reorganization and the
acquisition of The Enterprise, MultiSearch and SpringStreet in the unaudited
pro forma condensed consolidated statements of operations for the year ended
December 31, 1998, reflect the following:
(8) Amortization of deferred stock compensation for SpringStreet over the
remaining vesting period of the assumed unvested options.
(9) Amortization of goodwill for The Enterprise, MultiSearch and
SpringStreet acquisitions of $188,000 $934,000 and $6.0 million,
respectively, on a straight-line basis over 5 years.
(10) Elimination of SpringStreet deferred stock compensation expense for
the year ended December 31, 1998.
F-7
<PAGE>
HOMESTORE.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSEDCONSOLIDATED FINANCIAL INFORMATION--
(Continued)
(11) Reduction in interest income related to interest earned on cash
consideration prior to the March 1998 acquisition of the Enterprise
and June 1998 acquisition of MultiSearch.
(12) Increase in interest expense related to interest imputed on the non-
interest bearing notes issued in connection with the acquisitions of
The Enterprise ($39,000) and MultiSearch ($97,000) from January 1,
1998 to the respective acquisition dates. The notes have been
discounted at a discount rate of 10%.
(13) The difference between the historical and pro forma basic and diluted
net loss per share applicable to common stockholders for the year
ended December 31, 1998, other than the adjustments discussed above,
is the result of the following:
Decrease in net loss applicable to common stockholders:
. Elimination of the accretion of redemption value and stock dividends
on convertible preferred stock of $1,659,000 resulting from the
assumed conversion of the Company's preferred stock into common
stock in connection with the IPO.
Increase in shares used in the calculation of pro forma net loss per
share applicable to common stockholders:
. Inclusion of shares issued in connection with the acquisitions of
The Enterprise, MultiSearch and SpringStreet as if such shares were
outstanding from January 1, 1998. The increase attributable to
shares issued in The Enterprise, MultiSearch and SpringStreet
acquisitions was 52,000, 332,000 and 1,854,500 shares, respectively.
. Exchange of RealSelect common stock owned by the NAR for shares of
the Company's common stock as of January 1, 1998 of 1,498,000
shares.
. Inclusion of shares of Company common stock issued to NSI
stockholders in the Reorganization from January 1, 1998 or the date
of original issuance by NSI, if later, of 2,329,000.
. Automatic conversion of the Company's convertible preferred stock
into shares of common stock as of January 1, 1998 or the date of
issuance by NSI or the Company, if later, was 7,257,000.
Pro forma adjustments giving effect to the Reorganization and the
acquisition of SpringStreet in the unaudited pro forma consolidated statement
of operations for the three months ended March 31, 1999, reflect the
following:
(14) Amortization of deferred stock compensation for SpringStreet over the
remaining vesting period of the assumed unvested options.
(15) Amortization of goodwill for The Enterprise, MultiSearch and
SpringStreet acquisitions.
(16) Elimination of SpringStreet deferred stock compensation expense of
$426,000 for the three months ended March 31, 1999.
(17 ) The difference between the historical and pro forma basic and diluted
net loss per share applicable to common stockholders for the three
months ended March 31, 1999, other than the adjustments discussed
above, is the result of the following:
Decrease in net loss applicable to common stockholders:
. Elimination of the accretion of redemption value and dividends on
convertible preferred stock of $621,000 resulting from the assumed
conversion of the Company's preferred stock into common stock in
connection with the IPO.
F-8
<PAGE>
HOMESTORE.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSEDCONSOLIDATED FINANCIAL INFORMATION--
(Continued)
Increase in shares used in the calculation of pro forma net loss per
share applicable to common stockholders:
. Increase resulting from inclusion from January 1, 1999 of the shares
issued in connection with the SpringStreet acquisition of 1,854,500.
. Increase resulting from the assumed conversion of RealSelect common
stock owned by the NAR into shares of the Company's common stock as
of January 1, 1999 or the date of issuance if later of 1,553,000
shares.
. Increase resulting from the inclusion of shares of Company common
stock issued to NSI stockholders in the Reorganization from January
1, 1999 or the date of original issuance by NSI if later of
1,873,000.
. Increase resulting from the assumed conversion of the Company's
redeemable and non-redeemable convertible preferred stock into
shares of common stock as of January 1, 1999 or the date of issuance
by NSI or the Company if later was 9,794,000.
F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
HomeStore.com, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of HomeStore.com, Inc. (the
"Company") 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. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Century City, California
March 31, 1999, except for
the effect of the stock split
described in Note 20, as to
which the date is April 5,
1999.
F-10
<PAGE>
HOMESTORE.COM, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
---------------- March 31, March 31,
1997 1998 1999 1999
------- ------- --------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........... $ 155 $ 71 $ 4,840
Accounts receivable, net of
allowance for doubtful accounts of
$458 at March 31, 1999............. 2,617
Current portion of prepaid
distribution expense............... 2,960
Deferred royalties.................. 1,708
Other current assets................ 899
------- ------- --------
Total current assets................. 155 71 13,024
Prepaid distribution expense......... 7,234
Property and equipment, net.......... 2,187
Intangible assets, net............... 18,372
Other assets......................... 285
------- ------- --------
Total assets....................... $ 155 $ 71 $ 41,102
======= ======= ========
Liabilities, Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable.................... $ -- $ -- $ 3,166
Accrued liabilities................. 49 9,576
Due to related party................ 143 70 1,200
Deferred revenue.................... 7,971
Current portion of notes payable.... 1,746
------- ------- --------
Total current liabilities............ 192 70 23,659
Notes payable........................ 3,324
Other non-current liabilities........ 96 96
------- ------- --------
288 166 26,983
------- ------- --------
Commitments and contingencies (Note
19).................................
Series E redeemable convertible
preferred stock, $.001 par value;
325 shares authorized, issued and
outstanding at March 31, 1999; and
no shares pro forma, redemption
value of $6,003..................... -- -- 5,016 --
------- ------- -------- --------
Stockholders' equity (deficit):
Convertible preferred stock, $.001
par value; 9,675 shares authorized;
5,053 shares issued and 4,622
shares outstanding at March 31,
1999, respectively; liquidation
preference of 65,287 at March 31,
1999; no shares pro forma.......... 5
Common stock, $.001 par value;
10,000 authorized at December 31,
1997 and 1998, 90,000 shares
authorized at March 31, 1999;
3,460, 3,992 and 9,641 shares
issued at December 31, 1997 and
1998, and March 31, 1999,
respectively; 3,460, 3,992 and
8,478 outstanding at December 31,
1997 and 1998, and March 31, 1999,
respectively; 18,373 shares pro
forma.............................. 3 4 9 19
Additional paid-in capital.......... 2,727 3,318 119,856 124,867
Treasury stock, at cost; 431 shares
of convertible preferred stock at
March 31, 1999; and 1,162 shares of
common stock at March 31, 1999..... (13,676) (13,676)
Notes receivable from stockholders.. (551) (1,651) (1,651)
Deferred stock compensation......... (16,323) (16,323)
Accumulated deficit................. (2,863) (2,866) (79,117) (79,117)
------- ------- -------- --------
Total stockholders' equity
(deficit)......................... $ (133) $ (95) $ 9,103 $ 14,119
------- ------- -------- ========
$ 155 $ 71 $ 41,102
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
HOMESTORE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December Three Months Ended
31, March 31,
---------------------- --------------------
1996 1997 1998 1998 1999
------ ------ ------ --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues......................... $1,360 $ 42 $ -- $ -- $ 5,570
Cost of revenues................. 42 6 2,749
------ ------ ------ -------- ----------
Gross profit..................... 1,318 36 -- -- 2,821
------ ------ ------ -------- ----------
Operating expenses:
Sales and marketing............ 479 14 9,163
Product development............ 629 331
General and administrative..... 441 38 3 1 1,987
Amortization of intangible
assets........................ 521
Stock-based charges............ 7,139
------ ------ ------ -------- ----------
Total operating expenses..... 1,549 52 3 1 19,141
------ ------ ------ -------- ----------
Loss from operations............. (231) (16) (3) (1) (16,320)
Interest income.................. 25
Interest expense................. (21) (1) (62)
Other expense.................... (34)
------ ------ ------ -------- ----------
Net loss......................... $ (252) $ (17) $ (3) $ (1) $ (16,391)
Accretion of redemption value and
stock dividends on convertible
preferred stock................. (414)
------ ------ ------ -------- ----------
Net loss applicable to common
stockholders.................... $ (252) $ (17) $ (3) $ (1) $ (16,805)
====== ====== ====== ======== ==========
Basic and diluted net loss per
share applicable to common
stockholders.................... $ (.18) $ -- $ -- $ -- $ (2.53)
====== ====== ====== ======== ==========
Shares used to calculate basic
and diluted net loss per share
applicable to common
stockholders.................... 1,391 3,461 3,669 3,461 6,645
====== ====== ====== ======== ==========
Pro forma basic and diluted net
loss per share applicable to
common stockholders............. $ (1.00)
==========
Shares used to calculate pro
forma basic and diluted net loss
per share applicable to common
stockholders.................... 16,439
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
HOMESTORE.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Notes Total
Stock Common Stock Additional Receivable Deferred Stockholders'
--------------- -------------- Paid-in Treasury From Stock Accumulated Equity
Shares Amount Shares Amount Capital Stock Stockholder Compensation Deficit (Deficit)
------ ------- ------ ------ ---------- -------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1996........... 532 $ 1,495 1,124 $ 1 $ 949 $ -- $ -- $ -- $ (2,594) $ (149)
Conversion of
preferred
stock.......... (532) (1,495) 2,246 2 1,493 --
Issuance of
common stock... 90 285 285
Net loss........ (252) (252)
------ ------- ------ --- -------- -------- ------- -------- -------- --------
Balance at
December 31,
1996........... -- -- 3,460 3 2,727 -- -- -- (2,846) (116)
Net loss........ (17) (17)
------ ------- ------ --- -------- -------- ------- -------- -------- --------
Balance at
December 31,
1997........... -- -- 3,460 3 2,727 -- -- -- (2,863) (133)
Exercise of
stock options
for notes
receivable..... 532 1 591 (551) 41
Net loss........ (3) (3)
------ ------- ------ --- -------- -------- ------- -------- -------- --------
Balance at
December 31,
1998........... -- -- 3,992 4 3,318 -- (551) -- (2,866) (95)
Reorganization
(unaudited)
(Note 1)....... 4,528 5 4,992 5 98,126 (1,770) (3,230) (10,079) (60,860) 22,197
Issuance of
common stock
and Series F
preferred stock
(unaudited).... 94 251 3,473 3,473
Issuance of
common stock to
minority
interest
(unaudited).... 1,000 1,000
Exercise of
stock options
(unaudited).... 405 1,608 (1,500) 108
Repurchase of
common stock
(unaudited).... (1,162) (11,906) 3,630 (8,276)
Deferred stock
compensation
(unaudited).... 7,383 (7,383) --
Stock-based
charges
(unaudited).... 6,000 1,139 7,139
Accretion of
Series E
redemption
value
(unaudited).... (52) (52)
Net loss
(unaudited).... (16,391) (16,391)
------ ------- ------ --- -------- -------- ------- -------- -------- --------
Balance at March
31, 1999
(unaudited).... 4,622 5 8,478 9 119,856 (13,676) (1,651) (16,323) (79,117) 9,103
Assumed
conversion of
convertible
preferred stock
(unaudited).... (4,622) (5) 9,245 9 (4) --
Assumed
conversion of
redeemable
convertible
preferred stock
(unaudited).... 650 1 5,015 5,016
------ ------- ------ --- -------- -------- ------- -------- -------- --------
Balance at March
31, 1999, pro
forma
(unaudited).... -- $ -- 18,373 $19 $124,867 $(13,676) $(1,651) $(16,323) $(79,117) $ 14,119
====== ======= ====== === ======== ======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
HOMESTORE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, March 31,
----------------- --------------------
1996 1997 1998 1998 1999
----- ---- ---- --------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(252) $(17) $ (3) $ (1) $ (16,391)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization......... 39 658
Provision for doubtful accounts....... 56
Amortization of discount on notes
payable.............................. 59
Other non-cash items.................. 6 590
Stock-based charges................... 7,139
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable................. (349) 2 (412)
Prepaid distribution expense........ 360
Deferred royalties.................. (310)
Other assets........................ (6) 14 2 276
Accounts payable and accrued
liabilities........................ 286 107 (122) 2,756
Deferred revenues................... 1,807
----- ---- ---- ------ -----------
Net cash provided by (used in)
operating activities................. (282) 112 (125) 1 (3,412)
----- ---- ---- ------ -----------
Cash flows from investing activities:
Purchases of property and equipment... (93) (164)
Proceeds from sale of property and
equipment............................ 19
----- ---- ---- ------ -----------
Net cash provided by (used in)
investing activities................. (93) 19 -- -- (164)
----- ---- ---- ------ -----------
Cash flows from financing activities:
Notes receivable from stockholders.... 3,631
Proceeds from exercise of stock
options.............................. 109
Net proceeds from issuance of common
stock................................ 41 1,242
Net proceeds from issuance of
preferred stock...................... 285 2,232
Proceeds from officer and director
loans................................ 164
Repurchases of preferred and common
stock................................ (11,906)
Repayment of capital lease
obligation........................... (43) (12)
----- ---- ---- ------ -----------
Net cash provided by (used in)
financing activities................. 406 (12) 41 -- (4,692)
----- ---- ---- ------ -----------
Change in cash and cash equivalents... 31 119 (84) 1 (8,268)
Cash assumed from NetSelect, Inc. .... 13,037
Cash and cash equivalents, beginning
of period............................ 5 36 155 36 71
----- ---- ---- ------ -----------
Cash and cash equivalents, end of
period............................... $ 36 $155 $ 71 $ 37 $ 4,840
===== ==== ==== ====== ===========
Supplemental disclosure of cash flow
activities
Cash paid during the year for
interest............................. $ 21 $ 1 $ -- $ -- $ --
===== ==== ==== ====== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business:
HomeStore.com, Inc. ("HomeStore.com" or "Company") offers a family of web
sites, which include REALTOR.com, HomeBuilder.com, CommercialSource.com and
through its pending SpringStreet acquisition, SpringStreet.com, providing the
most comprehensive source of real estate listings and content on the Internet.
Through its family of web sites, the Company provides a wide variety of
information and communications tools for consumers, real estate industry
professionals, advertisers and providers of real estate related products and
services. The Company has strategic relationships with key industry
participants, including real estate market leaders such as the National
Association of REALTORS, the National Association of Home Builders, Multiple
Listing Services, real estate franchises, brokers and agents. The Company
currently generates revenues from several sources, including web hosting fees
from agents, brokers, home builders and (through our pending SpringStreet
acquisition) rental property owners and fees from advertisers.
Company History
Initial Business--HomeStore.com, Inc. (the "Company") was incorporated in
the State of Delaware in 1993 under the name of InfoTouch Corporation
("InfoTouch") with the objective of establishing an interactive network of
real estate "kiosks" for consumers to search for homes. In 1996, the Company
began to develop the technology to build and operate high traffic Internet
sites with content related to real estate.
The RealSelect Venture--Effective December 4, 1996, the Company entered
into a series of agreements with the National Association of Realtors and its
wholly owned subsidiary Realtors Information Network (together referred to as
the "NAR") and several investors (the "Investors"). Under these agreements,
the Company transferred its recently developed technology and certain of its
assets relating to advertising the listing of residential real estate on the
Internet into NetSelect, LLC ("LLC"), a Delaware limited liability
corporation, in exchange for a 46% ownership interest. The Investors
contributed capital to a newly formed company, NetSelect, Inc. ("NSI"). LLC
received capital funding from NSI and in-turn contributed the assets,
intellectual property and the NSI capital to RealSelect, Inc. ("RealSelect"),
a Delaware corporation, in exchange for common stock representing an 85%
ownership interest.
Also effective December 4, 1996, RealSelect entered into a number of
agreements with and issued cash and RealSelect common stock representing a 15%
ownership interest to the NAR in exchange for the rights to operate the
website REALTOR.com and pursue commercial opportunities relating to the
listing of real estate on the internet.
Pursuant to the agreements governing RealSelect, the Company was required
to terminate its remaining activities, which were insignificant, and dispose
of its remaining assets and liabilities. Accordingly, following the formation
of RealSelect, NSI, LLC and the Company were only shell companies as they had
no liabilities and no assets other than their respective ultimate investments
in the RealSelect. In addition, under the agreements, NSI was the only entity
permitted to raise capital to support RealSelect which, once invested,
increased NSI's ownership interests and diluted the ownership interests of the
Company and the NAR.
Reorganization of RealSelect Holding Structure--Under the RealSelect
agreements, the reorganization of the initial holding structure was provided
for at an unspecified future date. On February 4, 1999, NSI stockholders
entered into a non-substantive share exchange with and were merged into the
Company (the "Reorganization"). The share exchange lacked economic substance
since both the Company and NSI were shell companies for their respective
investments in RealSelect, and because the respective underlying ownership
interests of individual investors were unaffected. Accordingly, the non-
substantive exchange was accounted for at historical cost. For further
discussion about accounting for the non-substantive exchange, see Note 4.
F-15
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Initial Public Offering and Unaudited Pro Forma Balance Sheet--In May 1999,
the Board of Directors authorized the filing of a registration statement with
the Securities and Exchange Commission ("SEC") that would permit the Company
to sell shares of the Company's common stock in connection with a proposed
initial public offering ("IPO"). If the IPO is consummated under the terms
presently anticipated, upon the closing of the proposed IPO all of the then
outstanding shares of the Company's convertible preferred stock will
automatically convert into shares of common stock on a two-for-one basis. The
conversion of the convertible preferred Stock has been reflected in the
accompanying unaudited pro forma stockholders' equity as if it had occurred on
March 31, 1999.
2. Summary of Significant Accounting Policies:
Basis of Presentation--The Company's consolidated financial statements
reflect the financial position, results of operations and cash flows of
HomeStore.com, Inc., formerly InfoTouch. Accordingly, the operations up
through December 4, 1996, reflect operations prior to the formation of
RealSelect. The consolidated financial statements for 1997 and 1998 primarily
reflect the Company's investment in LLC accounted for under the equity method
(Note 3). The consolidated financial statements following the date of the
Reorganization include the accounts of RealSelect and its wholly owned
subsidiaries, in which the Company held a 92% (unaudited) ownership interest
at March 31, 1999. Minority stockholder's interest has been eliminated to the
extent of the minority stockholder's investment in the Company. All material
intercompany transactions and balances have been eliminated in consolidation.
Unaudited Interim Financial Information--The interim consolidated financial
information of the Company for the three months ended March 31, 1998 and 1999
is unaudited. The unaudited interim financial information has been prepared on
the same basis as the annual consolidated financial statements and, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position,
results of operations and cash flows at March 31, 1999 and for the three
months ended March 31, 1998 and 1999.
Use of Estimates--The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent liabilities and the reported amounts
of revenues and expenses. Actual results could differ from those estimates.
Cash Equivalents--The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents. Cash
equivalents consist primarily of deposits in money market funds.
Concentration of Credit Risk--Financial instruments that potentially
subject the Company to a concentration of credit risk consist of cash and cash
equivalents and accounts receivable. Cash and cash equivalents are deposited
with high credit quality financial institutions. The Company's accounts
receivable are derived from revenue earned from customers located in the
United States. Accounts receivable balances are typically settled through
customer credit cards and, as a result, the majority of accounts receivable
are collected upon processing of credit card transactions. The Company
maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable.
During the years ended December 31, 1996, 1997 and 1998, and the three
months ended March 31, 1998 and 1999 (unaudited), no customers accounted for
more than 10% of net revenues or net accounts receivable.
Fair Value of Financial Instruments--The Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
and notes payable are carried at cost, which approximates
F-16
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
their fair value because of the short-term maturity of these instruments and
the relatively stable interest rate environment.
Prepaid Distribution--The Company has entered into various web portal
distribution and preferred alliance agreements, which are being amortized
ratably, over the term of the agreement, generally two to five years.
Property and Equipment--Property and equipment are stated at historical
cost. Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, generally three years or less,
or the shorter of the lease term or the estimated useful lives of the assets,
if applicable.
Intangible Assets--Intangible assets primarily consist of goodwill
resulting from the acquisitions of The Enterprise of America, Ltd. ("The
Enterprise") and MultiSearch Solutions, Inc. ("MultiSearch") acquired by NSI
prior to the Reorganization. This goodwill is being amortized on a straight-
line basis over the estimated periods of benefit of five years (Note 5). In
addition, in connection with its formation, RealSelect made various payments
and issued common stock to the NAR for the right to use the REALTOR.com
trademark and domain name, the "REALTORS" trademark and the exclusive rights
to use the web site for real estate listings under an exclusive lifetime
operating agreement. The stock issued and payments made to the NAR, as well as
certain milestone-based amounts subsequently earned by the NAR are being
amortized on a straight-line basis over the estimated period of benefit of 15
years.
The Company reviews its intangible assets for impairment whenever events or
changes in circumstances indicate the carrying amount of such assets may not
be recoverable. Impairment losses are recorded in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.
Revenue Recognition--Following the Reorganization, the Company's revenues
are derived principally from the sale of products and services to real estate
agents and brokers, home builders and from advertising sales. Revenues
associated with the sale of agent products are recognized ratably over the
term of the contract, generally 12 months. Royalties directly associated with
these revenues are deferred and amortized over the same period. The Company
also sells banner advertising pursuant to short-term contracts. Advertising
revenue is recognized ratably in the period in which the advertisement is
displayed, provided that no significant Company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include the guarantee of a minimum number of impressions or times
that an advertisement appears in pages viewed by the users of the Company's
online properties. Prior to the formation of RealSelect, the Company
recognized revenue from customers of its kiosk business at the time of the
advertisement placement. In addition, the Company recorded revenues totaling
$1.0 million in 1996 under its development contract with the NAR whereby the
NAR reimbursed the Company for costs of developing the Internet website.
Product Development Costs--Product development costs incurred by the
Company to develop, enhance, manage, monitor and operate the Company's web
sites are expensed as incurred.
Advertising Expense--Advertising costs are expensed as incurred and
totalled $1.3 million during the three months ended March 31, 1999
(unaudited). No advertising costs were incurred during the years ended
December 31, 1996, 1997 and 1998 and for the three months ended March 31,
1998.
Stock-Based Compensation--The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Under APB 25, compensation expense is recognized over the
vesting period based on the difference, if any, on the date of grant between
the
F-17
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
deemed fair value for accounting purposes of the Company's stock and the
exercise price on the date of grant. The Company accounts for stock issued to
non-employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force ("EITF") 96-18.
Income Taxes--Income taxes are accounted for under SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No.109, deferred tax assets and
liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities, and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Net Loss Per Share--Net loss per share is computed by dividing the net loss
applicable to common stockholders for the period by the weighted average
number of common shares outstanding. Shares associated with stock options,
warrants and convertible preferred stock are not included to the extent they
are anti-dilutive.
Pro Forma Net Loss Per Share (Unaudited)--Pro forma net loss per share is
computed by dividing the net loss for the period by the weighted average
number of common shares outstanding, including the pro forma effects of the
automatic conversion of the Company's convertible preferred stock into shares
of the Company's common stock effective upon the closing of the Company's
initial public offering as if such conversion occurred on January 1, 1999 or
at the date of original issuance, if later. The resulting pro forma adjustment
includes an increase in the weighted average shares used to compute basic and
diluted net loss per share of 9,794 for the three months ended March 31, 1999.
Comprehensive Income--Effective January 1, 1998, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources. To date, the
Company has not had any transactions that are required to be reported in
comprehensive income.
Segments--Effective January 1, 1998, the Company adopted the provisions of
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company has determined that it does
not have any separately reportable business segments as of December 31, 1998
and March 31, 1999.
Recent Accounting Pronouncements--In March 1998, the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position ("SOP")
No. 98-1, "Software for Internal Use," which provides guidance on accounting
for the cost of computer software developed or obtained for internal use. The
adoption of SOP 98-1 in the first quarter of 1999 did not have a significant
impact on financial position, results of operations or cash flows.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The adoption of SOP No. 98-5 during the first quarter of 1999 did not have a
significant impact on financial position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." The statement
requires the recognition of all derivatives as either assets or liabilities in
the balance sheet and the measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the
planned use of the derivative and the resulting designation.
F-18
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Because the Company does not currently hold any derivative instruments and
does not engage in hedging activities, the impact of adoption of SFAS No. 133
is not currently expected to have a material impact on financial position,
results of operations or cash flows. The Company will be required to implement
SFAS No. 133 in the first quarter of fiscal 2000.
3. Equity Investment in NetSelect, LLC:
At the formation of RealSelect the Investors agreed to invest $7.0 million
through NSI, which in turn was invested in LLC. For this investment, NSI
received an ownership interest of 54% in LLC. The Company received a 46%
interest in LLC for the transfer of substantially all of its assets,
liabilities and intellectual property relating to the concept of listing
residential real estate on the Internet. The book value of the net liabilities
transferred amounted to $96,000. LLC agreed to transfer $5.8 million and the
assets, liabilities and intellectual property contributed by the Company to
RealSelect, for an ownership interest of 85%. The NAR received a 15% ownership
interest in RealSelect. RealSelect received from the NAR the right to use
certain trademarks and an agreement not to compete. As part of this
transaction, RealSelect and the NAR entered into an operating agreement for
the Internet site REALTOR.COM, and RealSelect paid the NAR and its creditors
$3.4 million and forgave debt of approximately $266,000.
Pursuant to the terms contained in the RealSelect agreement, the Company
has ceased all operations other than it's LLC ownership interest.
The investment in LLC prior to the Reorganization is accounted for under
the equity method. The Company's share of losses is limited to the extent of
its investment since there are no obligations to support or provide further
financial assistance to LLC. Since these amounts exceed the equity in common
stock of LLC, the investment has been recorded at no value.
Summarized consolidated financial data for NetSelect, LLC and its
subsidiary, RealSelect at December 31, 1997 and 1998 and for the period from
October 28, 1996 (Inception of RealSelect) to December 31, 1996 and the years
ended December 31, 1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Current assets............................................ $ 3,671 $ 23,632
Total assets.............................................. 8,728 54,908
Current liabilities....................................... 2,580 20,685
Total liabilities......................................... 2,727 23,921
Redeemable preferred stock................................ 4,939
Accumulated deficit....................................... (5,380) (56,390)
Stockholders' equity...................................... 6,001 26,048
</TABLE>
<TABLE>
<CAPTION>
October 28,
1996
(Inception) Year Ended
to December 31,
December 31, ----------------
1996 1997 1998
------------ ------ --------
<S> <C> <C> <C>
Revenues..................................... $ -- $1,282 $ 15,003
Loss from operations......................... (391) (6,031) (51,278)
Net loss applicable to common stockholders... (248) (5,132) (60,396)
</TABLE>
F-19
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As a result of additional capital issued by NSI and NSI shares issued in
connection with certain acquisitions, all of which were invested in RealSelect
through LLC, the Company's ownership interest in LLC decreased to 34%, 21% and
21% (unaudited) at December 31, 1997, 1998 and February 4, 1999, respectively.
Immediately following the Reorganization, the Company's ownership interest in
RealSelect was 93%.
4. Reorganization of RealSelect:
As described in Note 1, on February 4, 1999, RealSelect was reorganized
through a non-substantive exchange of the Company's capital stock for all of
the outstanding capital stock of NSI including the assumption of warrants and
options to acquire common stock. Accordingly, the Company issued the following
capital stock to NSI stockholders in exchange for an equivalent number of
shares (in thousands, unaudited):
<TABLE>
<S> <C>
Common Stock........................................................ 4,992
Series A Convertible Preferred Stock................................ 1,378
Series B Convertible Preferred Stock................................ 191
Series C Convertible Preferred Stock................................ 614
Series D Convertible Preferred Stock................................ 681
Series E Redeemable Convertible Preferred Stock..................... 325
Series F Convertible Preferred Stock................................ 1,664
Options to purchase Common Stock.................................... 2,623
Warrants to purchase Common Stock................................... 310
Warrants to purchase Preferred Stock................................ 5
</TABLE>
F-20
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Because the exchange did not affect the economic interests of NSI and
Company stockholders, the Reorganization has been accounted for as a
combination of the historical assets and liabilities of the two individual
companies at February 4, 1999. At the date of the Reorganization, NSI assets,
liabilities and stockholders' equity were as follows (in thousands):
<TABLE>
<CAPTION>
February 4,
1999
-----------
(unaudited)
<S> <C>
Assets
Current assets:
Cash and cash equivalents....................................... $ 13,037
Other current assets............................................ 8,952
--------
Total current assets.............................................. 21,989
Prepaid distribution expense...................................... 7,072
Property and equipment, net....................................... 2,373
Intangible assets, net............................................ 19,463
Other............................................................. 286
--------
$ 51,183
========
Liabilities, Redeemable Convertible Preferred Stock and
Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities........................ $ 12,473
Deferred revenue................................................ 6,065
Current portion of notes payable................................ 1,746
--------
Total current liabilities......................................... 20,284
Notes payable..................................................... 3,265
--------
Total liabilities................................................. 23,549
--------
Redeemable convertible preferred stock............................ 4,963
--------
Convertible preferred stock....................................... 5
Common stock...................................................... 5
Additional paid-in capital........................................ 98,126
Treasury stock at cost............................................ (1,770)
Notes receivable from stockholders................................ (3,230)
Deferred stock compensation....................................... (10,079)
Accumulated deficit............................................... (60,386)
--------
Total stockholders' equity.................................... 22,671
--------
$ 51,183
========
</TABLE>
5.Acquisitions:
The following acquisitions were consummated by NSI prior to the
Reorganization.
TouchTech Corporation
Effective December 31, 1997, NSI acquired all the outstanding stock of
TouchTech Corporation, a Canadian company, in exchange for 58,764 shares of
common stock with a value of $53,000. The acquisition has been accounted for
as a purchase. The excess of fair value of purchase consideration over net
tangible assets has been allocated to goodwill and is being amortized on a
straight-line basis over five years.
F-21
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Enterprise
Effective March 31, 1998, NSI acquired all the outstanding stock of The
Enterprise in exchange for aggregate consideration consisting of 210,000
shares of common stock with an estimated fair value of $525,000, a note
payable in the amount of $2.2 million, $705,000 in cash and the assumption of
$946,000 of net liabilities. The acquisition has been accounted for as a
purchase. The excess of purchase consideration over net tangible assets of
$3.9 million has been allocated to goodwill which is being amortized on a
straight-line basis over five years. The purchase agreement also provides for
certain contingent payments in the event that predetermined levels of sales
are achieved. Such payments, if any, will be accounted for as compensation
expense in the period earned and in no event shall such aggregate payments
exceed $1.0 million. For the year ended December 31, 1998, no contingent
payments were required under the terms of the agreement.
MultiSearch
Effective July 1, 1998, NSI acquired all the outstanding stock of
MultiSearch, in exchange for issuing 325,000 shares of Series E redeemable
convertible preferred stock with a value of $4.8 million, a note payable in
the amount of $3.6 million, $875,000 in cash and the assumption of $657,000 of
net liabilities. The acquisition has been accounted for as a purchase. The
excess of total purchase consideration over net tangible assets acquired of
$9.4 million has been allocated to goodwill which is being amortized on a
straight-line basis over five years. The purchase agreement also provides for
certain contingent payments in the event that predetermined levels of sales
and earnings are achieved. Such payments, if any, will be accounted for as
compensation expense in the period earned. For the year ended December 31,
1998, $360,000 of expense was recognized under the terms of the agreement.
6. Pro Forma Financial Information (Unaudited):
The following summarized unaudited pro forma financial information assumes
the Reorganization and the Enterprise and MultiSearch acquisitions occurred at
the beginning of each period (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
----------------- -----------------
1997 1998 1998 1999
------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues............................. $ 8,505 $ 18,026 $ 3,182 $ 8,003
Net loss applicable to common
stockholders........................ (9,470) (61,969) (3,922) (21,503)
Net loss per share applicable to
common stockholders:
Basic and diluted.................. $ (2.16) $ (10.24) $ (.88) $ (2.52)
Weighted average shares............ 4,377 6,049 4,436 8,518
</TABLE>
7. Property and Equipment:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31,
1999
-----------
(unaudited)
<S> <C>
Computer equipment............................................... $1,854
Furniture and fixtures........................................... 592
Leasehold improvements........................................... 700
------
3,146
Less: Accumulated depreciation................................... (959)
------
$2,187
======
</TABLE>
F-22
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Depreciation expense for the year ended December 31, 1996 was $39,000 and
$137,000 for the three months ended March 31, 1999 (unaudited). The Company
held no depreciable assets in 1997 and 1998.
8. Intangible Assets:
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31,
1999
-----------
(unaudited)
<S> <C>
Goodwill......................................................... $13,243
NAR operating agreement.......................................... 6,745
Other............................................................ 1,356
-------
21,344
Less: Accumulated amortization................................... (2,972)
-------
$18,372
=======
</TABLE>
Amortization expense for the three months ended March 31, 1999 was $521,000
(unaudited).
9. Accrued Liabilities:
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1997 1998 1999
------------ ------------ -----------
(unaudited)
<S> <C> <C> <C>
Accrued payroll and related
benefits........................... $33 $-- $2,563
Accrued distribution fees........... 3,566
Accrued royalties................... 1,364
Other............................... 16 2,083
--- --- ------
$49 $-- $9,576
=== === ======
</TABLE>
10. Related-Party Transactions:
At March 31, 1999, the Company was indebted to an officer for $188,000
(unaudited). The loan is due on demand and bears interest at 10% per annum.
In March 1999, the NAR received shares of RealSelect common stock
convertible into 119,048 shares (unaudited) of Company common stock in
satisfaction of certain obligations under the NAR operating agreement totaling
$1.0 million. As of March 31, 1999, the Company was indebted to the NAR for
$1.2 million (unaudited) which bears interest at 9% and is payable on or
before the earlier of October 31, 1999 or thirty days after the closing of the
sale of the Company's common stock in connection with an initial public
offering.
In connection with a 1998 stock redemption agreement, NSI loaned $3.1
million to a stockholder. The non-interest bearing note, which is full
recourse and collateralized by shares of common stock was repaid in February
1999 following the Reorganization. At December 31, 1998, the note was
classified as a component of stockholders' equity.
At December 31, 1998, the Company and NSI held notes receivable from
employees and directors totalling $702,000 for the exercise of stock options.
The notes bear interest at 5.3% per annum and are due on or before August 21,
2003. The notes, which are classified as a component of stockholders' equity,
are full recourse and collateralized by shares of common stock owned by the
employees and directors. Following the Reorganization in February 1999,
$551,000 of the notes were repaid (unaudited).
F-23
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the first quarter of 1999, the Company received a note receivable
from an employee totalling $1.5 million (unaudited) representing amounts owed
to the Company from the exercise of stock options. The note is full recourse
and collateralized by shares of common stock of the Company and bears interest
at 4.7%. The note, which is classified as a component of stockholders' equity,
is due in 2005.
11. Notes Payable:
As part of the acquisition of The Enterprise, NSI issued a $2.2 million
non-interest bearing note payable which has been discounted at 10%. The note
is payable in four installments, and matures March 31, 2001.
As part of the acquisition of MultiSearch, NSI issued a $3.6 million non-
interest bearing note payable which has been discounted at 10%. The note is
payable in three installments, and matures April 1, 2001.
As of December 31, 1998, future payments under the notes are as follows (in
thousands):
<TABLE>
<CAPTION>
Year ending Principal
December 31, Payments
------------ ---------
<S> <C>
1999............................................................ $2,097
2000............................................................ 1,797
2001............................................................ 1,895
------
5,789
Less: Discount................................................... (807)
------
Present value of notes payable................................... 4,982
Less current portion............................................. 1,746
------
Long-term portion................................................ $3,236
======
</TABLE>
12. Stock Options:
Prior to the Reorganization, the Company granted stock options under the
InfoTouch 1994 Stock Incentive Plan. In connection with the formation of
RealSelect, options to purchase 530,000 shares of common stock, representing
all outstanding options granted prior to December 4, 1996, became fully
vested. In December 1996, the Company granted options to purchase 110,000
shares of common stock with an exercise price per share of $.14. In 1997,
options to purchase 103,000 shares at $1.13 per share were canceled. In 1998,
options to purchase 531,000 shares at a weighted average exercise price of
$1.12 were exercised. Accordingly, at December 31, 1998 and up through the
date of the Reorganization, options to purchase 6,000 shares were outstanding
with a weighted average exercise price of $1.59 per share.
In connection with the Reorganization, the Company assumed the NSI 1996
Stock Incentive Plan (the "Plan") which provides for the grant of options to
purchase up to 4,000,000 common shares. Under the terms of the plan, options
and other equity incentive awards may be granted to employees, officers,
directors and consultants at the then-current market value of the Company's
common shares, as determined by the Board of Directors. Options granted
generally vest over four years, 25% for the first year and monthly thereafter
over the remaining three years, and expire 10 years after the date of grant.
F-24
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes activity under the Plan (including the
InfoTouch options) for the period from October 28, 1996 (Inception of NSI) to
December 31, 1996, the years ended December 31, 1997 and 1998 and the three
months ended March 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Weighted
Average
Number of Price Per Exercise
Shares Share Price
--------- ------------ --------
<S> <C> <C> <C>
Outstanding at October 28, 1996 -- $ -- $ --
Outstanding InfoTouch options at December
4, 1996................................. 530 1.13 to 2.25 1.34
Granted.................................. 780 .14 .14
-----
Outstanding at December 31, 1996........... 1,310 .14 to 2.25 .63
Granted.................................. 574 .75 .75
Canceled................................. (103) 1.13 1.13
-----
Outstanding at December 31, 1997........... 1,781 .14 to 2.25 .64
Granted.................................. 1,913 2.50 to 4.00 3.01
Exercised................................ (974) .14 to 2.50 .76
Canceled................................. (170) .75 to 2.50 1.95
-----
Outstanding at December 31, 1998........... 2,550 .14 to 4.00 2.28
Granted (unaudited)...................... 706 5.00 to 7.50 5.88
Exercised (unaudited).................... (404) .14 to 5.00 3.97
Canceled (unaudited)..................... (38) .75 .75
-----
Outstanding at March 31, 1999 (unaudited).. 2,814 .14 to 7.50 2.96
=====
</TABLE>
NSI options granted during the years ended December 31, 1997 and 1998 and
the three months ended March 31, 1999 resulted in total compensation of $1.0
million, $9.5 million and $9.4 million (unaudited), respectively, and were
recorded as deferred stock compensation in stockholders' equity. The deferred
stock compensation is recognized as stock-based charges in the consolidated
statement of operations over the related vesting period of the options. Common
stock available for future grants at December 31, 1998 was 1,014,000 shares.
Additional information with respect to the outstanding options as of
December 31, 1998 is as follows (shares in thousands):
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------------- ---------------
Number Weighted Average Average Number Average
of Remaining Exercise of Exercise
Prices: Shares Contractual Life Price Shares Price
------- ------ ---------------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$.14........................ 226 7.90 $ .14 16 $ .14
.75......................... 520 8.70 .75 134 .75
2.25 to 2.50................ 434 9.20 2.50 42 2.46
3.00........................ 362 9.50 3.00 46 3.00
3.16........................ 842 9.70 3.16 54 3.16
4.00........................ 166 9.90 4.00 2 4.00
----- ---
2,550 294
===== ===
</TABLE>
F-25
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company calculated the minimum fair value of each option grant on the
date of the grant using the minimum value option pricing model as prescribed
by SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rates...................................... 6% 6% 5%
Expected lives (in years)..................................... 4 5 4
Dividend yield................................................ 0% 0% 0%
Expected volatility........................................... 0% 0% 0%
</TABLE>
The compensation expense associated with the stock-based compensation plans
did not result in a material difference from the reported net loss for the
years ended December 31, 1996, 1997 or 1998.
13. Warrants:
In connection with the Reorganization, the Company assumed warrants to
purchase common stock. The following describes the terms of and accounting for
the warrants assumed in the Reorganization and issued subsequently.
In connection with entering into a distribution agreement with America
Online in April 1998, the Company issued a warrant to purchase 226,590 shares
of the Company's common stock at an exercise price of $3.16 per share. The
warrant is contingent upon America Online exercising its right to purchase
$2.0 million of common stock in an IPO. Additionally, if America Online
exercises its right to purchase $2.0 million of common stock in an IPO, the
Company will issue warrants to America Online to acquire $3.0 million of
common stock with a weighted average exercise price of 137.5% of the initial
public offering price. If warrants are purchased in connection with an IPO,
the fair value will be measured at the date of the IPO and amortized to sales
and marketing expense over the remaining term of the distribution agreement.
Under the terms of an operating agreement entered into in 1998, the Company
issued an immediately exercisable warrant to purchase 226,576 shares of common
stock at an exercise price $0.0005 per share. The Company determined that the
fair value of the warrant approximated $1.4 million at the date of issuance
which is included in amortization of intangible assets over the estimated
useful life of the operating agreement. The warrant was exercised in November
1998.
During 1998, the Company issued warrants to purchase up to 83,752 shares of
common stock to Multiple Listing Services ("MLSs") that agreed to provide
their real estate listings to us for publication on the Internet on a
preferred national basis over an initial term of 18 months. The issuance of
these warrants is contingent upon completion of an IPO. The exercise price
will be equal to the IPO per share price. Concurrently with an IPO, the
Company will offer warrants to purchase up to 494,538 shares (unaudited) to
MLSs that agree to provide the Company their listings on a preferred national
basis. The fair value of issuable warrants will be measured at the date an IPO
is deemed to be probable and recognized as expense over the terms of the
applicable MLS agreement.
In February 1999, the Company closed a private equity offering to real
estate brokers under its Broker Gold program. The Company also issued warrants
to purchase up to 143,326 shares (unaudited) of its common stock at an
exercise price equal to the IPO per share price. The issuance of these
warrants is contingent upon the completion of an IPO. The fair value of these
warrants will be measured at the date an IPO is deemed to be probable and
recognized as expense over the remaining term of the initial two year Broker
Gold program agreements.
F-26
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the future, the Company may offer up to 170,000 warrants to the Broker
Gold program members who elect to renew their existing listing agreements with
the Company after their original two year term expires. The broker must also
maintain a minimum number of property listings as well as continue to hold the
Company's securities. If issued, these warrants would have an exercise price
based upon the average of the closing market price of the common stock for the
ten trading days preceding the date which is one day before the warrant is
issued. The Company would recognize the fair value of the warrants, as then
determined, as expense over the term of the renewed agreement.
14. Capitalization:
Convertible preferred stock at March 31, 1999 (unaudited) consists of the
following (in thousands):
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation
Authorized Outstanding Amount
---------- ----------- -----------
<S> <C> <C> <C>
Series A.................................. 1,647 1,378 $ 4,479
Series B.................................. 353 191 1,353
Series C.................................. 614 614 4,957
Series D.................................. 681 681 10,775
Series F.................................. 2,100 1,758 43,723
Undesignated.............................. 4,279 -- --
----- ----- -------
9,675 4,622 $65,287
===== ===== =======
</TABLE>
Voting--Each share of convertible preferred stock has a number of votes
equal to the number of shares of common stock then issuable upon its
conversion. The convertible preferred stock generally votes together with the
common stock and not as a separate class.
Dividends--The holders of each series of convertible preferred stock are
entitled to receive dividends when, as and if declared by the Board of
Directors at a rate of 6.5% of the respective issuance price per share per
annum. The holders of Series D and Series F are entitled to receive cumulative
dividends in preference to the holders of Series A, Series B, and Series C
preferred stock and Series E redeemable convertible preferred stock and the
common stock. In the event of a public offering of the Company's equity
securities meeting certain minimum size requirements and timing, as defined in
the Certificate of Incorporation, dividends declared, if any, will not be
payable and will lapse. The holders of the Series D and Series F convertible
preferred stock are entitled to dividends at their stated rate whether or not
earned which are payable upon conversion provided the Company's public
offering does not meet certain minimum size requirements and timing.
Accordingly, the Company has recorded accretion from the date of the
Reorganization of $362,000 (unaudited) for the three months ended March 31,
1999 related to the Series D and Series F dividends. No dividends have been
declared or paid from inception.
Liquidation--In the event of any liquidation or winding up of the Company,
the holders of each series of convertible preferred stock will be entitled to
receive, in preference to the holders of common stock, any distribution of
assets of the Company equal to the sum of the respective issuance price of
such shares plus any accrued and unpaid dividends. The holders of Series D and
Series F are entitled to receive any distribution of assets of the Company
before the holders of Series A, Series B, and Series C convertible preferred
stock and Series E redeemable convertible preferred stock. The holders of
Series A, Series B, Series C and Series E preferred stock are also entitled to
receive an amount equal to the dividend rate (6.5%) accruing on a quarterly
basis on the last day of each calendar quarter for the period from the
respective date of issuance of such shares to the date of liquidation.
After the full liquidation preference on all outstanding shares of
convertible preferred stock has been paid, any remaining funds and assets of
the Company will be distributed pro rata among the holders of the common
stock.
F-27
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Redemption--If a liquidation or initial public offering has not occurred by
June 30, 2002, the holders of Series E redeemable convertible preferred stock
are entitled to a redemption out of the assets of the Company equal to the
Series E liquidation preference. The Company has recorded accretion from the
date of the Reorganization of $52,000 (unaudited) for the three months ended
March 31, 1999 related to the Series E redeemable preferred stock redemption
value.
Conversion--Each share of convertible preferred stock is convertible at the
holder's option at any time into common stock, according to a ratio which is
two-for-one, subject to adjustment for dilution. Each share of convertible
preferred stock automatically converts into common stock at the then
applicable conversion rate for each upon (i) the closing of an underwritten
public offering pursuant to which the post-closing enterprise value is at
least $300 million of Company stock at a price of at least $24.93 per share,
(ii) the consent of at least two-thirds of the outstanding preferred stock, or
(iii) as to each series of convertible preferred stock, upon the date that
less than 100 shares of such series are outstanding.
15. Net Loss Per Share:
The following table sets forth the computation of basic and diluted net
loss per share applicable to common stockholders per share for the periods
indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
---------------------- ----------------
1996 1997 1998 1998 1999
------ ------ ------ ------ --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Historical Presentation
Numerator:
Net loss........................... $ (252) $ (17) $ (3) $ (1) $(16,391)
Accretion of redemption value and
stock dividends on convertible
preferred stock................... (414)
------ ------ ------ ------ --------
Net loss applicable to common
stockholders...................... $ (252) $ (17) $ (3) $ (1) $(16,805)
====== ====== ====== ====== ========
Denominator:
Weighted average shares............ 1,391 3,461 3,669 3,461 6,645
====== ====== ====== ====== ========
Basic and diluted net loss per share
applicable to common stockholders... $ (.18) $ -- $ -- $ -- $ (2.53)
====== ====== ====== ====== ========
Pro forma presentation
Numerator:
Net loss applicable to common
stockholders...................... $(16,805)
Accretion of redemption value and
stock dividends on convertible
preferred stock................... 414
--------
Net loss applicable to common
stockholders...................... $(16,391)
========
Denominator:
Shares used above.................... 6,645
Weighted average effect of
convertible securities:
Series A preferred stock......... 2,756
Series B preferred stock......... 381
Series C preferred stock......... 1,228
Series D preferred stock......... 1,362
Series E redeemable preferred
stock........................... 650
Series F preferred stock......... 3,417
--------
Denominator for pro forma calculation
(unaudited)......................... 16,439
========
Pro forma basic and diluted net loss
per share applicable to common
stockholders (unaudited)............ $ (1.00)
========
</TABLE>
F-28
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The per share computations exclude preferred stock, options and warrants
which are anti-dilutive. The number of such shares excluded from the basic and
diluted net loss per share computation were 640,000, 537,000 and 6,000 for the
years ended December 31, 1996, 1997 and 1998, respectively, and 537,000
(unaudited) and 13,171,000 (unaudited) for the three months ended March 31,
1998 and 1999, respectively. The number of such shares excluded from the
unaudited pro forma basic and diluted net loss per share computation was
3,277,000 for the three months ended March 31, 1999.
16. Supplemental Cash Flow Information:
During the three months ended March 31, 1999 (unaudited):
. The Company issued shares of RealSelect common stock convertible into
119,048 shares of Company common stock to the NAR in satisfaction of
certain obligations under the operating agreement totalling $1.0
million.
. The Company issued a note receivable to a stockholder for $1.5 million
in connection with exercise of stock options.
During the year ended December 31, 1998:
. The Company issued notes receivable to stockholders for $551,000 in
connection with the exercise of stock options.
17. Defined Contribution Plan:
The Company has a savings plan (the "Savings Plan") that qualifies as a
defined contribution plan under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 15%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. All full-time employees on the payroll of
the Company are eligible to participate in the Plan. The Company is not
required to contribute to the Savings Plan and has made no contributions since
the inception of the Savings Plan.
18. Income Taxes:
As a result of net operating losses, the Company has not recorded a
provision for income taxes. The components of the deferred tax assets and
related valuation allowance at December 31, 1997 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
December
31,
------------
1997 1998
----- -----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................. $ 838 $ 839
Other........................................................ 90 90
----- -----
928 929
Less: valuation allowance.................................... (928) (929)
----- -----
Net deferred taxes............................................. $ -- $ --
===== =====
</TABLE>
Due to the uncertainty surrounding the timing of the realization of the
benefits from its favorable tax attributes in future tax returns, the Company
has placed a valuation allowance against its otherwise recognizable deferred
tax assets.
F-29
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1998, the Company had net operating losses for federal and
state income tax purposes of approximately $2.3 million and $1.1 million,
respectively, which begin to expire in 2007 for federal and 2001 for state
income tax purposes. The net operating losses can be carried forward to offset
future taxable income. Utilization of the above carryforwards may be subject
to utilization limitations, which may inhibit the Company's ability to use
carryforwards in the future.
19. Commitments and Contingencies:
Operating Leases
The Company leases certain facilities and equipment under noncancellable
operating leases with various expiration dates through 2003. The leases
generally contain renewal options and payments that may be adjusted for
increases in operating expenses and increases in the Consumer Price Index.
In connection with the Reorganization, the Company assumed noncancellable
operating leases. Future minimum lease payments under these operating leases
as of December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................................... $ 2,295
2000............................................................... 2,686
2001............................................................... 2,553
2002............................................................... 1,636
2003............................................................... 1,365
-------
Total.......................................................... $10,535
=======
</TABLE>
Total NSI rental expense for operating leases was $7,000, $149,000 and
$749,000 for the period from October 28, 1996 (Inception of NSI) to December
31, 1996 and for the years ended December 31, 1997 and 1998, respectively.
Distribution Agreements
In connection with the Reorganization, the Company assumed various
distribution and preferred alliance agreements. Payments remaining over the
next five years for the distribution and preferred alliance agreements are as
follows (in thousands):
<TABLE>
<S> <C>
1999............................................................... $21,143
2000............................................................... 19,036
2001............................................................... 14,646
2002............................................................... 4,250
2003............................................................... 500
-------
Total.......................................................... $59,575
=======
</TABLE>
Contingencies
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in
the normal course of business. Based on the advice of counsel, management
believes that the resolution of these matters will not have a material adverse
effect on the Company's business, results of operations, financial condition
or cash flows.
F-30
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On March 19, 1999, John D. Molinare filed a lawsuit against the Company,
MultiSearch, New List Corporation ("New List") and Fred White in Cook County,
Illinois. Mr. Molinare's claims arise out of the proposed formation by
MultiSearch and New List of a new venture. Mr. Molinare claims that he was to
be the President and Chief Executive Officer of the new venture under an
alleged employment agreement among him, MultiSearch and New List. Mr. Molinare
alleges that (1) the other defendants breached an employment agreement with
him, (2) he was entitled to a 10% equity interest in the new venture, (3) the
Company interfered with his relationship between MultiSearch and New List, and
(4) that the Company should be liable for damages caused by MultiSearch as a
successor to MultiSearch.
Mr. Molinare is seeking damages of not less than $2.1 million, plus
punitive damages, as well as his costs incurred. He is also seeking to receive
a "10% interest" in the Company. While this complaint was filed with the
court, Mr. Molinare has not properly served this complaint. Therefore, the
Company has not responded to the complaint. The Company believes that based on
information currently available to it, it has valid defenses to these claims
and management intends to vigorously defend these claims.
20. Subsequent Events (unaudited):
Equipment Leasing Arrangement
In January 1999, NSI entered into an equipment leasing arrangement which
provided for the sale and leaseback of certain existing equipment and lease
financing for additional equipment needs. As of March 31, 1999, the Company
had leased $3.0 million of equipment, which covers the total availability
under the agreement. In addition, the agreement provides the lessor with
warrants to purchase up to 5,000 shares of Series F preferred stock at an
exercise price of $24.00 per share. The Company determined that the fair value
of the warrants approximated $115,000 on the date of grant.
Stock Options
In January 1999, the Board of Directors adopted, and in March 1999 the
Company's stockholders approved, the 1999 Equity Incentive Plan (the "Plan")
to replace the 1996 stock Incentive Plan ("1996 Plan"). The Plan provides for
the issuance of both non-statutory and incentive stock options to employees,
officers, directors and consultants of the Company. The total number of shares
of common stock reserved for issuance under the Plan is equal to that number
previously reserved and available for grant under the 1996 Plan. The Company
will not issue new options under the 1996 Plan. In April 1999, the Board of
Directors authorized, subject to stockholder approval, an increase in the
number of shares reserved for issuance under the Plan by an additional
1,193,000 shares.
Repurchase of Common Stock
In February 1999, the Company repurchased 1,161,546 shares of common stock
for $11.9 million.
Sale of Common Stock and Series F Convertible Preferred Stock
In February 1999, the Company closed a private equity offering to real
estate brokers under its Broker Gold program. In the aggregate, the Company
sold 94,248 shares of Series F convertible preferred stock and 251,504 shares
of common stock for approximately $3.5 million. The Company recognized the
$6.0 million difference between the deemed fair value of the stock for
accounting purposes and the price paid by the brokers as stock-based charges
during the three months ended March 31, 1999.
F-31
<PAGE>
HOMESTORE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising Sales Agreement
The Company signed an agreement with America Online in March 1999, in which
they agreed to act as the Company's exclusive third-party advertising sales
agent on the REALTOR.com and HomeBuilder.com web sites through March 2001. In
connection with this agreement, America Online has agreed to pay minimum
quarterly payments, subject to adjustment based on the number of page views
delivered on these web sites.
Sale of Series G Convertible Preferred Stock
In April 1999, the Company issued 340,955 shares of Series G convertible
preferred stock for $17.0 million. All holders of Series G shares have voting,
dividend and liquidation preferences substantially the same as holders of
Series D and Series F convertible preferred stock. There are no redemption
rights.
Stock Split
In April 1999, the Company's Board of Directors effected a two-for-one
stock split of the outstanding shares of common stock. All share and per share
information included in these consolidated financial statements have been
retroactively adjusted to reflect this stock split.
Note Receivable from Stockholder
In February 1999, the Company issued a promissory note to an employee of
the Company totaling $1.5 million for the exercise of stock options. The note
is full recourse and collateralized by common stock of the Company and bears
interest at 4.7% per annum. The note, which is classified as a component of
stockholders' equity, is due in 2005.
Acquisition
In May 1999, the Company and SpringStreet, Inc. ("SpringStreet") entered
into a reorganization agreement, pursuant to which the Company expects to
acquire SpringStreet in a transaction that will be accounted for as a
purchase. The transaction has been approved by the Board of Directors of each
company, and is subject to approval by each company's stockholders. Pursuant
to the reorganization agreement, stockholders of SpringStreet will receive, an
aggregate of 1,270,900 shares of convertible preferred stock and common stock,
or an aggregate of 2,123,000 shares of common stock assuming a two-for-one
conversion of convertible preferred stock of the Company in exchange for all
of the outstanding shares, including employee stock options, of SpringStreet.
The acquisition cost is estimated to be $47.7 million.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
NetSelect, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
NetSelect, Inc. and its subsidiaries (the "Company") at December 31, 1997 and
1998 and the results of their operations and their cash flows for the period
from October 28, 1996 (Inception) to December 31, 1996 and the years ended
December 31, 1997 and 1998 in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Century City, California
March 31, 1999, except for the
effect of the stock split
described in Note 17, as
to which to which the date is
April 5, 1999.
F-33
<PAGE>
NETSELECT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
----------------- February 4,
1997 1998 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................... $ 3,094 $ 14,690 $ 13,037
Accounts receivable, net of allowance for
doubtful accounts of $42, $378 and $455 at
December 31, 1997, 1998 and February 4, 1999,
respectively................................. 282 2,070 2,333
Current portion of prepaid distribution
expense...................................... 3,830 3,482
Deferred royalties............................ 137 1,327 1,398
Other current assets.......................... 158 1,674 1,739
------- -------- --------
Total current assets........................... 3,671 23,591 21,989
Prepaid distribution expense................... 7,742 7,072
Property and equipment, net.................... 397 4,118 2,373
Intangible assets, net......................... 5,019 19,724 19,463
Other assets................................... 169 187 286
------- -------- --------
Total assets................................. $ 9,256 $ 55,362 $ 51,183
======= ======== ========
Liabilities, Redeemable Convertible Preferred
Stock and Stockholders' Equity
Current liabilities:
Accounts payable.............................. $ 494 $ 5,499 $ 4,117
Accrued liabilities........................... 772 5,801 6,156
Due to related party.......................... 2,200 2,200
Deferred revenue.............................. 1,314 5,439 6,065
Current portion of notes payable.............. 1,746 1,746
------- -------- --------
Total current liabilities...................... 2,580 20,685 20,284
Notes payable.................................. 3,236 3,265
Minority interest.............................. 222
------- -------- --------
2,802 23,921 23,549
------- -------- --------
Commitments and contingencies (Note 16)........
Series E redeemable convertible preferred
stock, $.001 par value; 325 shares authorized,
issued and outstanding at December 31, 1998
and February 4, 1999; redemption value of
$6,003........................................ -- 4,939 4,963
------- -------- --------
Stockholders' equity:
Convertible preferred stock, $.001 par value;
9,675 shares authorized; 2,614, 4,959 and
4,959 shares issued at December 31, 1997 and
1998 and February 4, 1999, respectively;
2,614, 4,528 and 4,528 shares outstanding at
December 31, 1997 and 1998 and February 4,
1999, respectively; liquidation preference of
$62,048 at December 31, 1998................. 3 5 5
Common stock, $.001 par value; 90,000
authorized; 765, 4,992 and 4,992 issued and
outstanding at December 31, 1997 and 1998 and
February 4, 1999, respectively............... 1 5 5
Additional paid-in capital.................... 12,116 96,063 98,126
Treasury stock, at cost; 431 shares of
convertible preferred stock at December 31,
1998 and February 4, 1999.................... (1,770) (1,770)
Notes receivable from stockholders............ (3,230) (3,230)
Deferred stock compensation................... (739) (8,676) (10,079)
Accumulated deficit........................... (4,927) (55,895) (60,386)
------- -------- --------
Total stockholders' equity................... $ 6,454 $ 26,502 $ 22,671
------- -------- --------
$ 9,256 $ 55,362 $ 51,183
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
NETSELECT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
October 28, Three
1996 Year Ended Months January 1
(Inception) to December 31, Ended to
December 31, ----------------- March 31, February 4,
1996 1997 1998 1998 1999
-------------- ------- -------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ $ 1,282 $ 15,003 $ 1,244 $ 2,433
Cost of revenues........ 335 7,338 735 798
----- ------- -------- ------- -------
Gross profit............ -- 947 7,665 509 1,635
----- ------- -------- ------- -------
Operating expenses:
Sales and marketing... 9 3,200 25,560 2,110 4,064
Product development... 4 506 4,139 366 174
General and
administrative....... 348 2,687 6,929 708 1,053
Amortization of
intangible assets.... 30 360 1,893 88 261
Stock-based charges... 257 20,455 104 569
----- ------- -------- ------- -------
Total operating
expenses........... 391 7,010 58,976 3,376 6,121
----- ------- -------- ------- -------
Loss from operations.... (391) (6,063) (51,311) (2,867) (4,486)
Interest income......... 1 98 583 126 51
Interest expense........ (24) (365) (3) (31)
Other expense........... (97) (25)
----- ------- -------- ------- -------
Net loss before minority
interest............... (390) (5,989) (51,190) (2,744) (4,491)
Minority interest....... 213 1,239 222 222
----- ------- -------- ------- -------
Net loss................ (177) (4,750) (50,968) (2,522) (4,491)
Accretion of redemption
value and stock
dividends on
convertible preferred
stock.................. (1,659) (406) (207)
Repurchase of
convertible preferred
stock.................. (7,727)
----- ------- -------- ------- -------
Net loss applicable to
common stockholders.... $(177) $(4,750) $(60,354) $(2,928) $(4,698)
===== ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE>
NETSELECT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Notes
Stock Common Stock Additional Receivable Deferred Total
-------------- ------------- Paid-in Treasury from Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Stock Stockholders Compensation Deficit Equity
------ ------ ------ ------ ---------- -------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October
28, 1996
(inception)...... $-- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock............ 706 1 1
Issuance of Series
A preferred...... 918 1 2,353 2,354
Issuance of Series
B preferred...... 242 1,525 1,525
Net loss.......... (177) (177)
----- --- ----- ---- ------- ------- ------- -------- -------- --------
Balance at
December 31,
1996............. 1,160 1 706 1 3,878 -- -- -- (177) 3,703
Issuance of Series
A preferred...... 729 1 2,064 2,065
Issuance of Series
B preferred...... 111 686 686
Issuance of Series
C preferred...... 614 1 4,439 4,440
Issuance of common
stock for
acquisition of
TouchTech, Inc... 59 53 53
Deferred stock
compensation..... 996 (996) --
Stock-based
charges.......... 257 257
Net loss.......... (4,750) (4,750)
----- --- ----- ---- ------- ------- ------- -------- -------- --------
Balance at
December 31,
1997............. 2,614 3 765 1 12,116 -- -- (739) (4,927) 6,454
Issuance of Series
D preferred...... 681 1 9,999 10,000
Issuance of common
stock for
acquisition of
The Enterprise of
America, Ltd..... 210 525 525
Issuance of Series
F preferred...... 1,664 1 39,701 39,702
Issuance of common
stock............ 3,348 4 10,440 10,444
Exercise of stock
options for notes
receivable....... 442 151 (151) --
Note receivable
from
stockholder...... (3,079) (3,079)
Exercise of
warrants......... 227
Deferred stock
compensation..... 9,497 (9,497) --
Issuance of
warrants and
common stock..... 2,637 2,637
Stock-based
charges.......... 18,895 1,560 20,455
Accretion of
Series E
redemption
value............ (171) (171)
Repurchase of
Series A and B
preferred........ (431) (7,727) (1,770) (9,497)
Net loss.......... (50,968) (50,968)
----- --- ----- ---- ------- ------- ------- -------- -------- --------
Balance at
December 31,
1998............. 4,528 5 4,992 5 96,063 (1,770) (3,230) (8,676) (55,895) 26,502
Issuance of
warrants
(unaudited)...... 115 115
Deferred stock
compensation
(unaudited)...... 1,972 (1,972)
Stock-based
charges
(unaudited)...... 569 569
Accretion of
Series E
redemption value
(unaudited)...... (24) (24)
Net loss
(unaudited)...... (4,491) (4,491)
----- --- ----- ---- ------- ------- ------- -------- -------- --------
Balance at
February 4, 1999
(unaudited)...... 4,528 $ 5 4,992 $ 5 $98,126 $(1,770) $(3,230) $(10,079) $(60,386) $ 22,671
===== === ===== ==== ======= ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
NETSELECT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended Three months ended January 1 to
October 28, 1996 December 31, March 31, February 4,
(Inception) to ----------------- ------------------ ------------
December 31, 1996 1997 1998 1998 1999
----------------- ------- -------- ------------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss................ $ (177) $(4,750) $(50,968) $(2,522) $(4,491)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization........... 35 472 2,551 148 339
Provision for doubtful
accounts............... 267 416 68
Amortization of discount
on notes payable....... 215 29
Other non-cash items.... 961 206
Minority interest in
loss................... (213) (1,239) (222) (222)
Stock-based charges..... 257 20,455 104 569
Changes in operating
assets and liabilities,
net of acquisitions:
Accounts receivable... 149 (91) (1,638) (110) (330)
Prepaid distribution
expense.............. (11,228) (518) 1,018
Deferred royalties.... (137) (1,190) (71)
Due from affiliated
company.............. 7 (119) 74 2 (6)
Other assets.......... (18) (241) (3) (321) 178
Accounts payable and
accrued liabilities.. 282 441 8,350 1,771 (1,026)
Deferred revenues..... 24 1,290 4,125 741 626
------- ------- -------- ------- -------
Net cash provided by
(used in) operating
activities............. 356 (4,117) (28,102) (927) (2,891)
------- ------- -------- ------- -------
Cash flows from
investing activities:
Purchases of property
and equipment.......... (72) (372) (3,853) (217) (61)
Acquisition of The
Enterprise of America
Ltd., net of cash
acquired............... (705) (705)
Acquisition of
MultiSearch Solutions,
Inc., net of cash
acquired............... (761)
Proceeds from sale of
fixed assets........... 1,299
Payments made in
connection with
operating agreement.... (2,371) (1,260)
------- ------- -------- ------- -------
Net cash provided by
(used in) investing
activities............. (2,443) (1,632) (5,319) (922) 1,238
------- ------- -------- ------- -------
Cash flows from
financing activities:
Repayment of notes
payable................ (1,490) (836)
Proceeds from bridge
loan................... 12,000
Repayments on bridge
loan................... (1,325)
Note receivable from
stockholder............ (3,079)
Net proceeds from
issuance of common
stock.................. 9 8,066
Net proceeds from
issuance of preferred
stock.................. 3,730 7,191 40,342 9,995
Repurchase of preferred
stock.................. (9,497) --
------- ------- -------- ------- -------
Net cash provided by
financing activities... 3,730 7,200 45,017 9,159 --
------- ------- -------- ------- -------
Change in cash and cash
equivalents............ 1,643 1,451 11,596 7,310 (1,653)
------- ------- -------- ------- -------
Cash and cash
equivalents, beginning
of period.............. 1,643 3,094 3,094 14,690
------- ------- -------- ------- -------
Cash and cash
equivalents, end of
period................. $ 1,643 $ 3,094 $ 14,690 $10,404 $13,037
======= ======= ======== ======= =======
Supplemental disclosure
of cash flow activities
Cash paid during the
year for interest...... $ -- $ -- $ 170 $ -- $ --
======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business:
NetSelect, Inc. ("NSI" or the "Company") was incorporated in the state of
Delaware on October 28, 1996. The Company's primary business activity has been
managing its investment in NetSelect LLC ("LLC"). Effective December 4, 1996,
the Company made its initial investment in LLC (see Note 3--Investment in
NetSelect, LLC) along with InfoTouch Corporation ("InfoTouch"), the minority
stockholder in LLC. LLC is the majority stockholder of RealSelect, Inc.
("RealSelect"), which is an operating company created to establish an
Internet-based marketing service for real estate.
Pursuant to a number of agreements governing the formation of RealSelect,
both InfoTouch and the Company were required to remain shell companies for
their respective investments in LLC. On February 4, 1999, the Company entered
into a non-substantive share exchange and merged into InfoTouch, which then
changed its name to NetSelect. InfoTouch issued shares of preferred and common
stock and assumed all outstanding NSI options and warrants for InfoTouch
common and preferred stock pursuant to an exchange ratio equivalent to the
respective ownership in LLC of NSI and InfoTouch stockholders.
2. Summary of Significant Accounting Policies:
Unaudited Interim Financial Information--The interim consolidated financial
information of the Company for the three months ended March 31, 1998 and the
period from January 1, 1999 to February 4, 1999 is unaudited. The unaudited
interim consolidated financial information has been prepared on the same basis
as the annual consolidated financial statements and, in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows at and for the period from January 1, 1999 to
February 4, 1999 and for the three months ended March 31, 1998.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its majority owned subsidiaries. As a result
of net losses, minority stockholders' interests have been eliminated to the
extent of such minority stockholders' investments. All material intercompany
transactions and balances have been eliminated in consolidation.
Use of Estimates--The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities and the reported amounts
of revenues and expenses. Actual results could differ from those estimates.
Cash Equivalents--The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents. Cash
equivalents consist primarily of deposits in money market funds.
Concentration of Credit Risk--Financial instruments that potentially
subject the Company to a concentration of credit risk consist of cash and cash
equivalents and accounts receivable. Cash and cash equivalents are deposited
with high credit quality financial institutions. The Company's accounts
receivable are derived from revenue earned from customers located in the
United States. Accounts receivable balances are typically settled through
customer credit cards and, as a result, the majority of accounts receivable
are collected upon processing of credit card transactions. The Company
maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable.
During the period from October 28, 1996 (Inception) to December 31, 1996,
the years ended December 31, 1997 and 1998, and the three months ended March
31, 1998 (unaudited) and the period from January 1, 1999 to February 4, 1999
(unaudited), no customers accounted for more than 10% of net revenues or net
accounts receivable.
F-38
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments--The Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
and notes payable are carried at cost, which approximates their fair value
because of the short-term maturity of these instruments and the relatively
stable interest rate environment.
Prepaid Distribution--The Company has entered into various web portal
distribution and preferred alliance agreements, which are being amortized
ratably over the term of the agreements, generally two to five years.
Property and Equipment--Property and equipment are stated at historical
cost. Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, generally three years or less,
or the shorter of the lease term or the estimated useful lives of the assets,
if applicable.
Intangible Assets--Intangible assets primarily consist of goodwill
resulting from the acquisitions of The Enterprise of America, Ltd. ("The
Enterprise") and MultiSearch Solutions, Inc. ("MultiSearch"). This goodwill is
being amortized on a straight-line basis over the estimated periods of benefit
of five years. In addition, in connection with its formation, the Company
entered into an exclusive lifetime operating agreement with the NAR and
received intellectual property from InfoTouch. Pursuant to an operating
agreement, the Company made various payments and issued RealSelect common
stock to the National Association of REALTORS (the "NAR") for the right to use
the REALTOR.com trademark and domain name, the "REALTORS" trademark and the
exclusive use of the web site for real estate listings. The InfoTouch
intellectual property, the stock issued and payments made to the NAR, as well
as certain milestone-based amounts subsequently earned by the NAR have been
recorded as intangible assets and are being amortized on a straight-line basis
over the estimated period of benefit of 15 years.
The Company reviews its intangible assets for impairment whenever events or
changes in circumstances indicate the carrying amount of such assets may not
be recoverable. Impairment losses are recorded in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.
Revenue Recognition--The Company's revenues are derived principally from
the sale of products and services to real estate agents and brokers, home
builders and from advertising sales. Revenues associated with the sale of
agent products are recognized ratably over the term of the contract, generally
12 months. Royalties directly associated with these revenues are deferred and
amortized over the same period. The Company also sells banner advertising
pursuant to short-term contracts. Advertising revenue is recognized ratably in
the period in which the advertisement is displayed, provided that no
significant company obligations remain and collection of the resulting
receivable is probable. Company obligations typically include the guarantee of
a minimum number of impressions or times that an advertisement appears in
pages viewed by the users of the Company's online properties.
Product Development Costs--Product development costs incurred by the
Company to develop, enhance, manage, monitor and operate the Company's web
sites are expensed as incurred.
Advertising Expense--Advertising costs, including co-operative advertising
costs, are expensed as incurred and totalled $5,000, $818,000 and $3.3 million
during the period from October 28, 1996 (Inception) to December 31, 1996 and
for the years ended December 31, 1997 and 1998, respectively.
Stock-Based Compensation--The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statement of
Financial Accounting
F-39
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Under
APB 25, compensation expense is recognized over the vesting period based on
the difference, if any, on the date of grant between the fair value of the
Company's stock and the exercise price. The Company accounts for stock issued
to non-employees in accordance with the provisions of SFAS No. 123 and EITF
96-18.
Income Taxes--Income taxes are accounted for under SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No.109, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax basis of assets and liabilities, and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse.
Comprehensive Income--Effective January 1, 1998, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources. To date, the
Company has not had any transactions that are required to be reported in
comprehensive income.
Segments--Effective January 1, 1998, the Company adopted the provisions of
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company has determined that it does
not have any separately reportable business segments as of December 31, 1998
and February 4, 1999.
Recent Accounting Pronouncements--In March 1998, the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position ("SOP")
No. 98-1, "Software for Internal Use," which provides guidance on accounting
for the cost of computer software developed or obtained for internal use. The
adoption of SOP 98-1 during the first quarter of 1999 did not have a
significant impact on financial position, results of operations or cash flows.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The adoption of SOP No. 98-5 during the first quarter of 1999 did not have a
significant impact on financial position, results of operations or cash flows.
3. Investment in NetSelect, LLC:
Effective December 4, 1996, the Company entered into a series of agreements
with the National Associations of Realtors, and its wholly owned subsidiary
Realtors Information Network (together referred to as the "NAR"), InfoTouch
and several investors (collectively referred to as the "Investors") in
connection with the formation of RealSelect.
The Company sold $7.0 million of common and preferred stock to the
Investors which in turn was invested in LLC for an ownership interest of 54%
in LLC. InfoTouch received a 46% interest in LLC for the transfer of its
assets, liabilities and intellectual property relating to the concept of
listing residential real estate on the Internet. The book value of the net
liabilities transferred amounted to $96,000. LLC transfered $5.8 million and
the InfoTouch intellectual property to RealSelect, for an 85% ownership
interest in RealSelect. RealSelect received from the NAR the right to use
certain trademarks, an agreement not to compete and in return assumed certain
debt of the NAR. As part of this transaction, RealSelect and the NAR entered
into an operating agreement for the Internet site REALTOR.COM, an agreement
not to compete and certain trademark agreements. RealSelect paid the NAR and
its creditors $3.4 million, forgave debt of $266,000 and issued common stock
representing a 15% ownership interest to the NAR.
F-40
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Since inception, the Company has raised additional capital and issued
common and preferred stock in connection with acquisitions all of which has
been completely invested in RealSelect through LLC. As a result, the ownership
interests of the Company in LLC, and LLC's ownership interest in RealSelect,
increased to 66% and 87%, respectively, as of December 31, 1997, and 79% and
93%, respectively, as of December 31, 1998. The minority investments of
InfoTouch and the NAR in LLC and RealSelect, respectively, have been
eliminated in the consolidated financial statements as each stockholder's
share of the net investee losses have exceeded their investments and there is
no future funding requirements.
4. Acquisitions:
TouchTech Corporation
Effective December 31, 1997, the Company acquired all the outstanding stock
of TouchTech Corporation, a Canadian company, in exchange for 58,764 shares of
common stock with a value of $53,000. The acquisition has been accounted for
as a purchase. The excess of fair value of purchase consideration over net
tangible assets has been allocated to goodwill and is being amortized on a
straight-line basis over five years.
The Enterprise
Effective March 31, 1998, the Company acquired The Enterprise in exchange
for aggregate consideration consisting of 210,000 shares of Company common
stock with an estimated fair value of $525,000, a note payable in the amount
of $2.2 million, $705,000 in cash and the assumption of $946,000 of net
liabilities. Included in liabilities assumed were $836,000 of demand notes
payable that were paid by the Company on the effective date of the
acquisition. The acquisition has been accounted for as a purchase. The excess
of purchase consideration over net tangible assets acquired of $3.9 million
has been allocated to goodwill which is being amortized on a straight-line
basis over five years. The purchase agreement also provides for certain
contingent payments in the event that predetermined levels of sales are
achieved. Such payments, if any, will be accounted for as compensation expense
in the period earned and in no event shall such aggregate payments exceed $1.0
million. For the year ended December 31, 1998, no contingent payments were
required under the terms of the agreement.
MultiSearch
Effective July 1, 1998, the Company acquired MultiSearch, in exchange for
aggregate consideration consisting of 325,000 shares of Series E convertible
preferred stock with a value of $4.8 million, a note payable in the amount of
$3.6 million, $875,000 in cash and the assumption of $657,000 of net
liabilities. Included in liabilities assumed were $654,000 of demand notes
payable that were paid by the Company on the effective date of the
acquisition. The acquisition has been accounted for as a purchase. The excess
of total purchase consideration over net tangible assets acquired of $9.4
million has been allocated to goodwill which is being amortized on a straight-
line basis over five years. The purchase agreement also provides for certain
contingent payments in the event that predetermined levels of sales and
earnings are achieved. Such payments, if any, will be accounted for as
compensation expense in the period earned. For the year ended December 31,
1998, $360,000 of expense was recognized under the terms of the agreement.
The following summarized unaudited pro forma financial information assumes
The Enterprise and MultiSearch acquisitions occurred at the beginning of each
period (in thousands):
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1997 1998 1998
------------ ------------ ---------
<S> <C> <C> <C>
Revenues............................... $ 8,505 $ 18,026 $ 3,182
Net loss applicable to common
stockholders.......................... (9,470) (61,969) (3,922)
</TABLE>
F-41
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Property and Equipment:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Computer equipment................................. $ 394 $2,903
Furniture and fixtures............................. 77 1,337
Leasehold improvements............................. 50 700
----- ------
521 4,940
Less: Accumulated depreciation..................... (124) (822)
----- ------
$ 397 $4,118
===== ======
</TABLE>
Depreciation expense for the period from October 28, 1996 (Inception) to
December 31, 1996 and for the years ended December 31, 1997 and 1998 was
$5,000, $119,000 and $659,000, respectively.
6. Intangible Assets:
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Goodwill........................................... $ $13,243
RIN operating agreement............................ 4,745 6,745
Other.............................................. 656 2,012
------ -------
5,401 22,000
Less: Accumulated amortization..................... (382) (2,276)
------ -------
$5,019 $19,724
====== =======
</TABLE>
Amortization expense for the period from October 28, 1996 (Inception) to
December 31, 1996 and for the years ended December 31, 1997 and 1998 was
$30,000, $360,000 and $1.9 million, respectively.
7. Accrued Liabilities:
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Accrued payroll and related benefits.................. $ 442 $1,973
Accrued distribution fees............................. 1,366
Accrued royalties..................................... 979
Other................................................. 330 1,483
----- ------
$ 772 $5,801
===== ======
</TABLE>
F-42
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Related-Party Transactions:
At December 31, 1997 and 1998, the Company was indebted to an officer for
$168,000 and $188,000, respectively. The loan is due on demand and bears
interest at 10% per annum.
In August 1998, the Company issued 115,342 shares of common stock and
26,504 shares of Series F convertible preferred stock to the NAR in
satisfaction of a $1.0 million obligation for the Company's share of
advertising costs for a co-operative advertising program with the NAR. At
December 31, 1998, the Company was indebted to the NAR for $2.2 million
pursuant to certain provisions of the operating agreement.
In connection with a 1998 stock redemption agreement, the Company loaned
$3.1 million to a stockholder of InfoTouch. The note is non-interest bearing,
full recourse and collateralized by the shares of common stock. At December
31, 1998, the note was classified as a component of stockholders' equity.
At December 31, 1998, the Company held promissory notes from employees and
directors totaling $151,000 for the exercise of stock options. The notes bear
interest at 5.3% per annum and are due on or before August 21, 2003. The
notes, which are classified as a component of stockholders' equity, are full
recourse and collateralized by shares of common stock of the Company owned by
the employees and directors.
9. Notes Payable:
As part of the acquisition of The Enterprise, the Company issued a $2.2
million non-interest bearing note payable which has been discounted at 10%.
The unamortized balance of the discount at December 31, 1998 was $354,000. The
note is payable in four installments, and matures on March 31, 2001.
As part of the acquisition of MultiSearch, the Company issued a $3.6
million non-interest bearing note payable which has been discounted at 10%.
The unamortized balance of the discount at December 31, 1998 was $453,000. The
note is payable in three installments, and matures on April 1, 2001.
As of December 31, 1998, future payments under the notes are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ending Principal
December 31, Payments
------------ ---------
<S> <C>
1999.......................................................... $2,097
2000.......................................................... 1,797
2001.......................................................... 1,895
------
5,789
Less: Discount................................................. (807)
------
Present value of notes payable................................. 4,982
Less: Current portion.......................................... 1,746
------
Long-term portion.............................................. $3,236
======
</TABLE>
F-43
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Stock Options:
The Company's 1996 Stock Incentive Plan (the "Plan") provides for the grant
of options to employees, officers, directors and consultants at the then-
current market value of the Company's common stock, as determined by the Board
of Directors. Options granted generally vest over four years, 25% on the first
anniversary and monthly thereafter over the remaining three years, and expire
10 years from the date of grant.
The following table summarizes activity under the Plan for the period from
October 28, 1996 (Inception) to December 31, 1996, for the years ended
December 31, 1997 and 1998, and for the period from January 1, 1999 to
February 4, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Weighted
Average
Number of Price Exercise
Shares Per Share Price
--------- ------------ --------
<S> <C> <C> <C>
Outstanding at October 28, 1996 -- --
Granted................................ 669 $ .14 $.14
-----
Outstanding at December 31, 1996......... 669 .14 .14
Granted................................ 574 .75 .75
-----
Outstanding at December 31, 1997 1,243 .14 to .75 .42
Granted................................ 1,913 2.50 to 4.00 3.01
Exercised.............................. (442) .14 to 2.50 .34
Canceled............................... (170) .75 to 2.50 1.95
-----
Outstanding at December 31, 1998 2,544 .14 to 4.00 2.28
Granted (unaudited).................... 79 5.00 5.00
-----
Outstanding at February 4, 1999
(unaudited)............................. 2,623 .14 to 5.00 2.37
=====
</TABLE>
Options granted during the years ended December 31, 1997 and 1998 resulted
in total compensation of $1.0 million and $9.5 million, respectively and were
recorded as deferred stock compensation in stockholders' equity. The deferred
stock compensation amount will be recognized as compensation expense over the
vesting period. During the years ended December 31, 1997 and 1998, such stock-
based charges were $257,000 and $1.6 million, respectively. Options
outstanding at December 31, 1998 were exercisable for 288,000 shares of common
stock. Common stock available for future grants at December 31, 1998 was
1,014,000 shares.
Additional information with respect to the outstanding options as of
December 31, 1998 is as follows (shares in thousands):
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
--------------------------- ---------------
Weighted
Average
Number Remaining Average Number Average
of Contractual Exercise of Exercise
Prices: Shares Life Price Shares Price
------- ------ ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$.14............................. 226 7.90 $.14 16 $.14
.75............................. 500 8.70 .75 134 .75
2.50............................. 448 9.20 2.50 36 2.50
3.00............................. 362 9.50 3.00 46 3.00
3.16............................. 842 9.70 3.16 54 3.16
4.00............................. 166 9.90 4.00 2 4.00
----- ---
2,544 288
===== ===
</TABLE>
F-44
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company calculated the minimum fair value of each option grant on the
date of the grant using the minimum value option pricing model as prescribed
by SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Risk-free interest rates.............. 6% 6% 5%
Expected lives (in years)............. 4 5 4
Dividend yield........................ 0% 0% 0%
Expected volatility................... 0% 0% 0%
</TABLE>
The compensation expense associated with the stock-based compensation plans
did not result in a material difference from the reported net loss for the
period from October 28, 1996 (inception) to December 31, 1996 or years ended
December 31, 1997 and 1998.
11. Warrants:
In connection with entering into a distribution agreement with America
Online in April 1998, the Company issued a warrant to purchase 226,590 shares
of the Company's common stock at an exercise price of $3.16 per share. The
warrant is contingent upon America Online exercising its right to purchase
$2.0 million of common stock in an IPO. Additionally, if America Online
exercises its right to purchase $2.0 million of common stock in an IPO, the
Company will issue warrants to America Online to acquire $3.0 million of
common stock with a weighted average exercise price of 137.5% of the initial
public offering price. If warrants are purchased in connection with an IPO,
the fair value will be measured at the date of the IPO and amortized to sales
and marketing expense over the remaining term of the distribution agreement.
Under the terms of an operating agreement entered into in 1998, the Company
issued an immediately exercisable warrant to purchase 226,576 shares of common
stock at an exercise price $0.0005 per share. The Company determined that the
fair value of the warrant approximated $1.4 million at the date of issuance
which is included in amortization of intangible assets over the estimated
useful life of the operating agreement. The warrant was exercised in November
1998.
During 1998, the Company issued warrants to purchase up to 83,752 shares of
common stock to Multiple Listing Services ("MLSs") that agreed to provide
their real estate listings to us for publication on the Internet on a
preferred national basis over an initial term of 18 months. The issuance of
these warrants is contingent upon completion of an IPO. The exercise price
will be equal to the IPO per share price. The fair value of issuable warrants
will be measured at the date an IPO is deemed to be probable and recognized as
expense over the terms of the applicable MLS agreement.
F-45
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Capitalization:
Convertible preferred stock at December 31, 1998 consists of the following
(in thousands):
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation
Authorized Outstanding Amount
---------- ----------- -----------
<S> <C> <C> <C>
Series A................................. 1,647 1,378 $ 4,416
Series B................................. 353 191 1,334
Series C................................. 614 614 4,884
Series D................................. 681 681 10,543
Series F................................. 2,100 1,664 40,871
Undesignated............................. 4,280
----- ----- -------
9,675 4,528 $62,048
===== ===== =======
</TABLE>
Voting--Each share of convertible preferred stock has a number of votes
equal to the number of shares of common stock then issuable upon its
conversion. The convertible preferred stock generally votes together with the
common stock and not as a separate class.
Dividends--The holders of each series of convertible preferred stock are
entitled to receive dividends when, as and if declared by the Board of
Directors at a rate of 6.5% of the respective issuance price per share per
annum. The holders of Series D and Series F are entitled to receive cumulative
dividends in preference to the holders of Series A, Series B, and Series C
preferred stock and Series E redeemable convertible preferred stock and the
common stock. In the event of a public offering of the Company's equity
securities meeting certain minimum size requirements and timing, as defined in
the Certificate of Incorporation, dividends declared, if any, will not be
payable and will lapse. The holders of the Series D and Series F convertible
preferred stock are entitled to dividends at their stated rate whether or not
earned which are payable upon conversion provided the Company's public
offering does not meet certain minimum size requirements and timing.
Accordingly, the Company has recorded accretion of $1.5 million for the year
ended December 31, 1998 related to the Series D and Series F dividends.
No dividends have been declared or paid from inception through December 31,
1998.
Liquidation--In the event of any liquidation or winding up of the Company,
the holders of each series of convertible preferred stock will be entitled to
receive, in preference to the holders of common stock, any distribution of
assets of the Company equal to the sum of the respective issuance price of
such shares plus any accrued and unpaid dividends. The holders of Series D and
Series F are entitled to receive any distribution of assets of the Company
before the holders of Series A, Series B, and Series C convertible preferred
stock and Series E redeemable convertible preferred stock. The holders of
Series A, Series B, Series C and Series E preferred stock are also entitled to
receive an amount equal to the dividend rate (6.5%) accruing on a quarterly
basis on the last day of each calendar quarter for the period from the
respective date of issuance of such shares to the date of liquidation.
After the full liquidation preference on all outstanding shares of
convertible preferred stock has been paid, any remaining funds and assets of
the Company will be distributed pro rata among the holders of the common
stock.
F-46
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Redemption--If a liquidation or initial public offering has not occurred by
June 30, 2002, the holders of Series E redeemable convertible preferred stock
are entitled to a redemption out of the assets of the Company equal to the
Series E liquidation preference. The Company has recorded accretion of
$171,000 for the year ended December 31, 1998 related to the Series E
redeemable preferred stock redemption value.
Conversion--Each share of convertible preferred stock is convertible at the
holder's option at any time into common stock, according to a ratio which is
two-for-one, subject to adjustment for dilution. Each share of convertible
preferred stock automatically converts into common stock at the then
applicable conversion rate for each upon (i) the closing of an underwritten
public offering pursuant to which the post-closing enterprise value is at
least $300 million of Company stock at a price of at least $24.93 per share,
(ii) the consent of at least two-thirds of the outstanding preferred stock, or
(iii) as to each series of convertible preferred stock, upon the date that
less than 100 shares of such series are outstanding.
Repurchase of Preferred Stock--In November 1998, the Company repurchased
431,664 shares of Series A and Series B convertible preferred stock for $9.5
million. The difference of $7.7 million between the carrying value of the
preferred stock prior to repurchase and the price paid has been included in
net loss for the year ended December 31, 1998 in the computation of net loss
applicable to common stockholders.
Sale of Common Stock--In connection with the August 1998 Series F
financing, the Company sold an aggregate of 3,347,982 shares of common stock
to certain investors and received gross proceeds of approximately $10.6
million. The Company recognized the $18.9 million difference between the
estimated fair value of the stock and the price paid by investors as stock-
based charges in 1998.
13. Supplemental Cash Flow Information:
During the the period from January 1, 1999 to February 4, 1999 (unaudited):
. In connection with an equipment lease financing arrangement, the Company
sold $749,000 of net property and equipment in exchange for assumption
of third party payables.
During the year ended December 31, 1998:
. The Company issued common and convertible preferred stock valued at $1.9
million in connection with an advertising agreement.
. The Company incurred a $2.0 million payable to a related party in
connection with certain obligations under a lifetime operating
agreement.
. Convertible notes in the amount of $10.7 million, plus $64,000 in
accrued interest, were converted into Series F convertible preferred
stock.
. The Company issued notes receivable to stockholders for $151,000 in
connection with the exercise of stock options.
. The Company issued warrants with a fair value of $1.4 million.
. The Company issued 210,000 shares of common stock valued at $525,000, a
note payable of $2.2 million and assumed net liabilities of $946,000 as
part of the acquisition of The Enterprise.
. The Company issued 325,000 shares of Series E redeemable convertible
preferred stock valued at $4.8 million, a note payable of $3.6 million
and assumed net liabilities of $657,000 as part of the acquisition of
MultiSearch.
F-47
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the year ended December 31, 1997:
. The Company issued 58,764 shares of common stock with a value of $53,000
as part of the acquisition of TouchTech.
During the period from October 28, 1996 (Inception) to December 31, 1996:
. The Company issued common stock valued at $560,000 in exchange for
intellectual property.
. The Company issued common stock valued at $1.1 million in connection
with the right to use certain trademarks and an operating agreement.
. The Company assumed net liabilities totalling $1.2 million in exchange
for trademarks and an operating agreement.
14. Defined Contribution Plan:
The Company has a savings plan (the "Savings Plan") that qualifies as a
defined contribution plan under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 15%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. All full-time employees on the payroll of
the Company are eligible to participate in the Plan. The Company is not
required to contribute to the Savings Plan and has made no contributions since
the inception of the Savings Plan.
15. Income Taxes:
As a result of net operating losses, the Company has not recorded a
provision for income taxes. The components of the deferred tax assets and
related valuation allowance at December 31, 1997 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 2,036 $ 12,807
Other.................................................. 348 1,078
------- --------
2,384 13,885
Less: valuation allowance.............................. (2,384) (13,885)
------- --------
Net deferred taxes...................................... $ -- $ --
======= ========
</TABLE>
Due to the uncertainty surrounding the timing of the realization of the
benefits from its favorable tax attributes in future tax returns, the Company
has placed a valuation allowance against its otherwise recognizable deferred
tax assets.
NSI, LLC and RealSelect do not file income tax returns on a consolidated
basis. As a result, net operating losses of one entity may not be available to
offset future taxable income of another entity. NSI has net operating loss
carryforwards for federal and state income tax purposes of approximately
$161,000 and $80,000, respectively, which begin to expire in 2018 for federal
and 2003 for state purposes. RealSelect has net operating loss carryforwards
for federal and state purposes of approximately $34.4 million and $18.1
million, respectively, which begin to expire in 2007 for federal and 2001 for
state purposes. LLC is treated as a partnership for federal and state
purposes. As a result, all income and loss items flow through to its
investors. Utilization of the above carryforwards may be subject to
utilization limitations, which may inhibit the Company's ability to use
carryforwards in the future.
F-48
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Commitments and Contingencies:
Operating Leases
The Company leases certain facilities and equipment under noncancellable
operating leases with various expiration dates through 2003. The leases
generally contain renewal options and payments that may be adjusted for
increases in operating expenses and the Consumer Price Index. Future minimum
lease payments under noncancellable operating leases at December 31, 1998 are
(in thousands):
<TABLE>
<S> <C>
1999............................................................. $ 2,295
2000............................................................. 2,686
2001............................................................. 2,553
2002............................................................. 1,636
2003............................................................. 1,365
-------
Total.......................................................... $10,535
=======
</TABLE>
Total rental expense for operating leases was $7,000, $149,000 and $749,000
for the period from October 28, 1996 (Inception) to December 31, 1996 and the
years ended December 31, 1997 and 1998, respectively.
Distribution Agreements
The Company has entered into various distribution and preferred alliance
agreements. Payments remaining over the next five years for the distribution
and preferred alliance agreements are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................................. $21,143
2000............................................................. 19,036
2001............................................................. 14,646
2002............................................................. 4,250
2003............................................................. 500
-------
Total.......................................................... $59,575
=======
</TABLE>
Contingencies
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in
the normal course of business. Based on the advice of counsel, management
believes that the resolution of these matters will not have a material adverse
effect on the Company's business, results of operations, financial condition
or cash flows.
17. Subsequent Events (unaudited):
Equipment Leasing Arrangement
In January 1999, the Company entered into an equipment leasing arrangement
which provided for the sale and leaseback of certain of the Company's existing
equipment and lease financing for additional equipment needs. The total
availability under the agreement is $3.0 million. In addition, the agreement
provides the lessor with warrants to purchase up to 5,000 shares of Series F
convertible preferred stock at an exercise price of $24.00 per share. The
Company determined that the fair value of the warrants approximated $115,000
on the date of grant.
F-49
<PAGE>
NETSELECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Options
In January 1999, the Board of Directors adopted the 1999 Equity Incentive
Plan (the "Plan") to replace the 1996 Stock Incentive Plan ("1996 Plan"). The
Plan provides for the issuance of both non-statutory and incentive stock
options to employees, officers, directors and consultants of the Company. The
total number of shares of common stock reserved for issuance under the Plan is
equal to that number previously reserved and available for grant under the
1996 Plan. The Company will not issue new options under the 1996 Plan.
Stock Split
In April 1999, the Board of Directors of NetSelect effected a two-for-one
stock split of the outstanding shares of common stock. All share and per share
information included in these consolidated financial statements have been
retroactively adjusted to reflect the stock split.
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
NetSelect, LLC
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
NetSelect, LLC and its subsidiaries (the "Company") at December 31, 1997 and
1998 and the results of their operations and their cash flows for the period
from October 28, 1996 (Inception) to December 31, 1996 and the years ended
December 31, 1997 and 1998 in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Century City, California
March 31, 1999, except for the
effect of the stock split
described in Note 16, as to
which the date is April 5,
1999.
F-51
<PAGE>
NETSELECT, LLC
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, February 4,
----------------- -----------
1997 1998 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................... $ 3,094 $ 14,690 $ 13,037
Accounts receivable, net of allowance for
doubtful accounts of $42, $378 and $455 at
December 31, 1997, 1998 and February 4, 1999,
respectively................................. 282 2,070 2,333
Current portion of prepaid distribution
expense...................................... 3,830 3,482
Deferred royalties............................ 137 1,327 1,398
Other current assets.......................... 158 1,715 1,780
------- -------- --------
Total current assets........................... 3,671 23,632 22,030
Prepaid distribution expense................... 7,742 7,072
Property and equipment, net.................... 397 4,118 2,373
Intangible assets, net......................... 4,491 19,229 18,989
Other assets................................... 169 187 286
------- -------- --------
Total assets................................. $ 8,728 $ 54,908 $ 50,750
======= ======== ========
Liabilities, Redeemable Convertible Preferred
Stock and Stockholders' Equity
Current liabilities:
Accounts payable.............................. $ 494 $ 5,499 $ 4,117
Accrued liabilities........................... 772 5,801 6,156
Due to related party.......................... 2,200 2,200
Deferred revenue.............................. 1,314 5,439 6,065
Current portion of notes payable.............. 1,746 1,746
------- -------- --------
Total current liabilities...................... 2,580 20,685 20,284
Notes payable.................................. 3,236 3,265
Minority Interest.............................. 147
------- -------- --------
2,727 23,921 23,549
------- -------- --------
Commitments and contingencies (Note 15)........
Series E redeemable convertible preferred
stock, $.001 par value; 325 shares authorized,
issued and outstanding at December 31, 1998
and February 4, 1999; redemption value of
$6,003........................................ -- 4,939 4,963
------- -------- --------
Stockholders' equity:
Convertible preferred stock, $.001 par value;
9,675 shares authorized; 2,614, 4,959 and
4,959 shares issued at December 31, 1997 and
1998 and February 4, 1999, respectively;
2,614, 4,528 and 4,528 shares outstanding at
December 31, 1997 and 1998 and February 4,
1999, respectively; liquidation preference of
$62,048 at December 31, 1998................. 3 5 5
Common stock, $.001 par value; 90,000
authorized; 4,225, 8,984 and 8,984 issued and
outstanding at December 31, 1997 and 1998 and
February 4, 1999, respectively............... 1 6 6
Additional paid-in capital.................... 12,116 96,654 98,717
Treasury stock, at cost; 431 shares of
convertible preferred stock at December 31,
1998 and February 4, 1999.................... (1,770) (1,770)
Notes receivable from stockholders............ (3,781) (3,781)
Deferred stock compensation................... (739) (8,676) (10,079)
Accumulated deficit........................... (5,380) (56,390) (60,860)
------- -------- --------
Total stockholders' equity................... $ 6,001 $ 26,048 $ 22,238
------- -------- --------
$ 8,728 $ 54,908 $ 50,750
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-52
<PAGE>
NETSELECT, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
October 28, Three
1996 Year Ended Months January 1
(Inception) to December 31, Ended to
December 31, ----------------- March 31, February 4,
1996 1997 1998 1998 1999
-------------- ------- -------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ $ 1,282 $ 15,003 $ 1,244 $ 2,433
Cost of revenues........ 335 7,338 735 798
----- ------- -------- ------- -------
Gross profit............ -- 947 7,665 509 1,635
----- ------- -------- ------- -------
Operating expenses:
Sales and marketing... 9 3,200 25,560 2,110 4,064
Product development... 4 506 4,139 366 174
General and
administrative....... 348 2,687 6,929 708 1,053
Amortization of
intangible assets.... 30 328 1,860 81 240
Stock-based charges... 257 20,455 104 569
----- ------- -------- ------- -------
Total operating
expenses........... 391 6,978 58,943 3,369 6,100
----- ------- -------- ------- -------
Loss from operations.... (391) (6,031) (51,278) (2,860) (4,465)
Interest income......... 1 98 583 126 51
Interest expense........ (24) (365) (3) (31)
Other expense........... (97) (25)
----- ------- -------- ------- -------
Net loss before Minority
Interest............... $(390) $(5,957) $(51,157) $(2,737) $(4,470)
Minority Interest....... 142 825 147 147
----- ------- -------- ------- -------
Net loss................ (248) (5,132) (51,010) (2,590) (4,470)
Accretion of redemption
value and stock
dividends on
convertible preferred
stock.................. (1,659) (406) (207)
Repurchase of preferred
stock.................. (7,727)
----- ------- -------- ------- -------
Net loss applicable to
common stockholders.... $(248) $(5,132) $(60,396) $(2,996) $(4,677)
===== ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-53
<PAGE>
NETSELECT, LLC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Notes
Stock Common Stock Additional Receivable Deferred Total
-------------- ------------- Paid-in Treasury From Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Stock Stockholders Compensation Deficit Equity
------ ------ ------ ------ ---------- -------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October
28, 1996......... $-- $-- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock............ 4,166 1 1
Issuance of Series
A preferred...... 918 1 2,353 2,354
Issuance of Series
B preferred...... 242 1,525 1,525
Net loss.......... (248) (248)
----- --- ----- --- ------- ------- ------- -------- -------- --------
Balance at
December 31,
1996............. 1,160 1 4,166 1 3,878 -- -- -- (248) 3,632
Issuance of Series
A preferred...... 729 1 2,064 2,065
Issuance of Series
B preferred...... 111 686 686
Issuance of Series
C preferred...... 614 1 4,439 4,440
Issuance of common
stock for
acquisition of
TouchTech, Inc... 59 53 53
Deferred stock
compensation..... 996 (996) --
Stock-based
charges.......... 257 257
Net loss.......... (5,132) (5,132)
----- --- ----- --- ------- ------- ------- -------- -------- --------
Balance at
December 31,
1997............. 2,614 3 4,225 1 12,116 -- -- (739) (5,380) 6,001
Issuance of Series
D preferred...... 681 1 9,999 10,000
Issuance of common
stock for
acquisition of
The Enterprise of
America, Ltd..... 210 525 525
Issuance of Series
F preferred...... 1,664 1 39,701 39,702
Issuance of common
stock............ 3,348 4 10,440 10,444
Exercise of stock
options for notes
receivable....... 974 1 742 (702) 41
Note receivable
from
stockholder...... (3,079) (3,079)
Exercise of
warrants......... 227
Deferred stock
compensation..... 9,497 (9,497) --
Issuance of
warrants and
common stock..... 2,637 2,637
Stock-based
charges.......... 18,895 1,560 20,455
Accretion of
Series E
redemption
value............ (171) (171)
Repurchase of
Series A and B
preferred........ (431) (7,727) (1,770) (9,497)
Net loss.......... (51,010) (51,010)
----- --- ----- --- ------- ------- ------- -------- -------- --------
Balance at
December 31,
1998............. 4,528 5 8,984 6 96,654 (1,770) (3,781) (8,676) (56,390) 26,048
Issuance of
warrants
(unaudited)...... 115 115
Deferred stock
compensation
(unaudited)...... 1,972 (1,972) --
Stock-based
charges
(unaudited)...... 569 569
Accretion of
Series E
redemption value
(unaudited)...... (24) (24)
Net loss
(unaudited)...... (4,470) (4,470)
----- --- ----- --- ------- ------- ------- -------- -------- --------
Balance at
February 4, 1999
(unaudited)...... 4,528 $ 5 8,984 $ 6 $98,717 $(1,770) $(3,781) $(10,079) $(60,860) $ 22,238
===== === ===== === ======= ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-54
<PAGE>
NETSELECT, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
Three Months
October 28, 1996 Ended January 1 to
(Inception) to March 31, February 4,
December 31, 1996 1997 1998 1998 1999
----------------- ------- -------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss................ $ (248) $(5,132) $(51,010) $(2,590) $(4,470)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization........... 35 440 2,518 141 317
Provision for doubtful
accounts............... 267 416 68
Amortization of discount
on notes payable....... 215 29
Other non-cash items.... 961
Minority interest in
loss................... (142) (825) (147) (147)
Stock-based charges..... 257 20,455 104 569
Changes in operating
assets and liabilities,
net of acquisitions:
Accounts receivable.... 149 (91) (1,638) (110) (330)
Prepaid distribution
expense............... (11,228) (518) 1,018
Deferred royalties..... (137) (1,190) (71)
Due from affiliated
company............... 7 (119) 74 2
Other assets........... (18) (241) (3) (321) (82)
Accounts payable and
accrued liabilities... 282 441 8,350 1,771 (565)
Deferred revenues...... 24 1,290 4,125 741 626
------- ------- -------- ------- -------
Net cash provided by
(used in) operating
activities............. 356 (4,117) (28,102) (927) (2,891)
------- ------- -------- ------- -------
Cash flows from
investing activities:
Purchases of property
and equipment.......... (72) (372) (3,853) (217) (61)
Acquisition of The
Enterprise of America
Ltd., net of cash
acquired............... (705) (705)
Acquisition of
MultiSearch Solutions,
Inc., net of cash
acquired............... (761)
Proceeds from sale of
property and
equipment.............. 1,299
Payments made in
connection with
operating agreement.... (2,371) (1,260)
------- ------- -------- ------- -------
Net cash provided by
(used in) investing
activities............. (2,443) (1,632) (5,319) (922) 1,238
------- ------- -------- ------- -------
Cash flows from
financing activities:
Repayment of notes
payable................ (1,490) (836)
Proceeds from bridge
loan................... 12,000
Repayments on bridge
loan................... (1,325)
Note receivable from
stockholder............ (3,079)
Net proceeds from
issuance of common
stock.................. 9 8,066
Net proceeds from
issuance of preferred
stock.................. 3,730 7,191 40,342 9,995
Repurchase of preferred
stock.................. (9,497)
------- ------- -------- ------- -------
Net cash provided by
financing activities... 3,730 7,200 45,017 9,159 --
------- ------- -------- ------- -------
Change in cash and cash
equivalents............ 1,643 1,451 11,596 7,310 (1,653)
------- ------- -------- ------- -------
Cash and cash
equivalents, beginning
of period.............. 1,643 3,094 3,094 14,690
------- ------- -------- ------- -------
Cash and cash
equivalents, end of
period................. $ 1,643 $ 3,094 $ 14,690 $10,404 $13,037
======= ======= ======== ======= =======
Supplemental disclosure
of cash flow activities
Cash paid during the
year for interest...... $ -- $ -- $ 170 $ -- $ --
======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-55
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business:
NetSelect, LLC ("LLC" or the "Company") is a Delaware limited liability
corporation that was incorporated on October 28, 1996 between two corporate
partners, NetSelect, Inc. ("NSI") and InfoTouch Corporation ("InfoTouch"). The
Company's sole business activity has been managing its investment in
RealSelect, Inc. ("RealSelect"), a Delaware corporation. RealSelect is an
operating company created to establish an Internet-based marketing service for
real estate.
The RealSelect Venture--Effective December 4, 1996, InfoTouch entered into
a series of agreements with the National Association of Realtors and its
wholly owned subsidiary Realtors Information Network (together referred to as
the "NAR") and several investors (the "Investors"). Under these agreements,
InfoTouch transferred its recently developed technology and assets relating to
advertising the listing of residential real estate on the Internet into the
Company in exchange for a 46% ownership interest, including outstanding stock
options. The Investors contributed capital to NSI. The Company received
capital funding from NSI and in-turn contributed the InfoTouch assets,
intellectual property and the NSI capital to RealSelect in exchange for common
stock representing an 85% ownership interest.
Also effective December 4, 1996, RealSelect entered into a number of
agreements with and issued cash and RealSelect common stock representing a 15%
ownership interest to the NAR in exchange for the rights to operate the
website REALTOR.com and to pursue commercial opportunities relating to the
listing of real estate on the internet.
Pursuant to the agreements governing RealSelect, InfoTouch was required to
terminate its remaining activities, which were insignificant, and dispose of
its remaining assets and liabilities. Accordingly, following the formation,
NSI and InfoTouch were only shell companies as they had no liabilities and no
assets other than their respective investments in the Company. In addition,
under the agreements, NSI was the only entity permitted to raise capital to
support RealSelect which, once invested, increased NSI's ownership interest in
the Company and RealSelect and diluted the ultimate ownership interests of
InfoTouch and the NAR.
Reorganization of Holding Structure--Under the RealSelect agreements, the
reorganization of the initial holding structure was provided for at an
unspecified future date. On February 4, 1999, NSI stockholders entered into a
non-substantive share exchange with and were merged into InfoTouch (the
"Reorganization"). The Company was dissolved into InfoTouch in connection with
the Reorganization.
2. Summary of Significant Accounting Policies:
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its majority owned subsidiaries. All
intercompany transactions and balances have been eliminated in consolidation.
As a result of additional capital raised by NSI and NSI shares issued in
connection with certain acquisitions, all of which was invested in RealSelect
through the Company, the Company's ownership interest in RealSelect increased
to 87%, 93% and 93% (unaudited) at December 31, 1997, 1998 and February 4,
1999, respectively. Minority interest of the NAR in RealSelect net losses have
been eliminated to the extent of the NAR's net investment as the NAR has no
future funding commitment.
Unaudited Interim Financial Information--The interim financial information
of the Company for the three months ended March 31, 1998 and the period from
January 1 to February 4, 1999 is unaudited. The unaudited interim financial
information has been prepared on the same basis as the annual consolidated
financial statements and, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows at
and for the period from January 1 to February 4, 1999 and for the three months
ended March 31, 1998.
F-56
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates--The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities and the reported amounts
of revenues and expenses. Actual results could differ from those estimates.
Cash Equivalents--The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents. Cash
equivalents consist primarily of deposits in money market funds.
Concentration of Credit Risk--Financial instruments that potentially
subject the Company to a concentration of credit risk consist of cash and cash
equivalents and accounts receivable. Cash and cash equivalents are deposited
with high credit quality financial institutions. The Company's accounts
receivable are derived from revenue earned from customers located in the
United States. Accounts receivable balances are typically settled through
customer credit cards and, as a result, the majority of accounts receivable
are collected upon processing of credit card transactions. The Company
maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable.
During the period from October 28, 1996 (Inception) to December 31, 1996,
the years ended December 31, 1997 and 1998, and the three months ended March
31, 1998 (unaudited) and the period from January 1, 1999 to February 4, 1999
(unaudited), no customers accounted for more than 10% of net revenues or net
accounts receivable.
Fair Value of Financial Instruments--The Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
and notes payable are carried at cost, which approximates their fair value
because of the short-term maturity of these instruments and the relatively
stable interest rate environment.
Prepaid Distribution--The Company has entered into various web portal
distribution and preferred alliance agreements, which are being amortized
ratably over the term of the agreements, generally two to five years.
Property and Equipment--Property and equipment are stated at historical
cost. Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, generally three years or less,
or the shorter of the lease term or the estimated useful lives of the assets,
if applicable.
Intangible Assets--Intangible assets primarily consist of goodwill
resulting from the acquisitions of The Enterprise of America, Ltd. ("The
Enterprise") and MultiSearch Solutions, Inc. ("MultiSearch"). This goodwill is
being amortized on a straight-line basis over the estimated periods of benefit
of five years. In addition, in connection with its formation, the Company
entered into an exclusive lifetime operating agreement with the NAR. Pursuant
to our operating agreement, the Company made various payments and issued
RealSelect common stock to the NAR for the right to use the REALTOR.com
trademark and domain name, the "REALTORS" trademark and the exclusive use of
the web site for real estate listings. The RealSelect common stock issued and
payments made to the NAR, as well as certain milestone-based amounts
subsequently earned by the NAR have been recorded as intangible assets and are
being amortized on a straight-line basis over the estimated period of benefit
of 15 years.
The Company reviews its intangible assets for impairment whenever events or
changes in circumstances indicate the carrying amount of such assets may not
be recoverable. Impairment losses are recorded in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.
F-57
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition--The Company's revenues are derived principally from
the sale of products and services to real estate agents and brokers, home
builders and from advertising sales. Revenues associated with the sale of
agent products are recognized ratably over the term of the contract, generally
12 months. Royalties directly associated with these revenues are deferred and
amortized over the same period. The Company also sells banner advertising
pursuant to short-term contracts. Advertising revenue is recognized ratably in
the period in which the advertisement is displayed, provided that no
significant company obligations remain and collection of the resulting
receivable is probable. Company obligations typically include the guarantee of
a minimum number of impressions or times that an advertisement appears in
pages viewed by the users of the Company's online properties.
Product Development Costs--Product development costs incurred by the
Company to develop, enhance, manage, monitor and operate the Company's web
sites are expensed as incurred.
Advertising Expense--Advertising costs, including co-operative advertising
costs, are expensed as incurred and totalled $5,000, $818,000 and $3.3 million
during the period from October 28, 1996 (Inception) to December 31, 1996 and
for the years ended December 31, 1997 and 1998, respectively.
Stock-Based Compensation--The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Under APB 25, compensation expense is recognized over the
vesting period based on the difference, if any, on the date of grant between
the fair value of the Company's stock and the exercise price. The Company
accounts for stock issued to non-employees in accordance with the provisions
of SFAS No. 123 and EITF 96-18.
Income Taxes--Income taxes are accounted for under SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No.109, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax basis of assets and liabilities, and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse.
Comprehensive Income--Effective January 1, 1998, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources. To date, the
Company has not had any transactions that are required to be reported in
comprehensive income.
Segments--Effective January 1, 1998, the Company adopted the provisions of
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company has determined that it does
not have any separately reportable business segments as of December 31, 1998
and February 4, 1999.
Recent Accounting Pronouncements--In March 1998, the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position ("SOP")
No. 98-1, "Software for Internal Use," which provides guidance on accounting
for the cost of computer software developed or obtained for internal use. The
adoption of SOP 98-1 during the first quarter of 1999 did not have a
significant impact on financial position, results of operations or cash flows.
F-58
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The adoption of SOP No. 98-5 during the first quarter of 1999 did not have a
significant impact on financial position, results of operations or cash flows.
3. Acquisitions:
TouchTech Corporation
Effective December 31, 1997, the Company acquired all the outstanding stock
of TouchTech Corporation, a Canadian company, in exchange for 58,764 shares of
common stock with a value of $53,000. The acquisition has been accounted for
as a purchase. The excess of fair value of purchase consideration over net
tangible assets has been allocated to goodwill and is being amortized on a
straight-line basis over five years.
The Enterprise
Effective March 31, 1998, the Company acquired The Enterprise in exchange
for aggregate consideration consisting of 210,000 shares of Company common
stock with an estimated fair value of $525,000, a note payable in the amount
of $2.2 million, $705,000 in cash and the assumption of $946,000 of net
liabilities. Included in liabilities assumed were $836,000 of demand notes
payable that were paid by the Company on the effective date of the
acquisition. The acquisition has been accounted for as a purchase. The excess
of purchase consideration over net tangible assets acquired of $3.9 million
has been allocated to goodwill which is being amortized on a straight-line
basis over five years. The purchase agreement also provides for certain
contingent payments in the event that predetermined levels of sales are
achieved. Such payments, if any, will be accounted for as compensation expense
in the period earned and in no event shall such aggregate payments exceed $1.0
million. For the year ended December 31, 1998, no contingent payments were
required under the terms of the agreement.
MultiSearch
Effective July 1, 1998, the Company acquired MultiSearch, in exchange for
aggregate consideration consisting of 325,000 shares of Series E convertible
preferred stock with a value of $4.8 million, a note payable in the amount of
$3.6 million, $875,000 in cash and the assumption of $657,000 of net
liabilities. Included in liabilities assumed were $654,000 of demand notes
payable that were paid by the Company on the effective date of the
acquisition. The acquisition has been accounted for as a purchase. The excess
of total purchase consideration over net tangible assets acquired of $9.4
million has been allocated to goodwill which is being amortized on a straight-
line basis over five years. The purchase agreement also provides for certain
contingent payments in the event that predetermined levels of sales and
earnings are achieved. Such payments, if any, will be accounted for as
compensation expense in the period earned. For the year ended December 31,
1998, $360,000 of expense was recognized under the terms of the agreement.
The following summarized unaudited pro forma financial information assumes
The Enterprise and MultiSearch acquisitions occurred at the beginning of each
period (in thousands):
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1997 1998 1998
------------ ------------ ---------
<S> <C> <C> <C>
Revenues............................... $ 8,505 $ 18,026 $ 3,182
Net loss applicable to common
stockholders.......................... (9,470) (61,969) (3,922)
</TABLE>
F-59
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Computer equipment................................. $ 394 $2,903
Furniture and fixtures............................. 77 1,337
Leasehold improvements............................. 50 700
----- ------
521 4,940
Less: Accumulated depreciation..................... (124) (822)
----- ------
$ 397 $4,118
===== ======
</TABLE>
Depreciation expense for the period from October 28, 1996 (Inception) to
December 31, 1996 and for the years ended December 31, 1997 and 1998 was
$5,000, $119,000 and $659,000, respectively.
5. Intangible Assets:
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Goodwill........................................... $ -- $13,243
NAR operating agreement............................ 4,745 6,745
Other.............................................. 96 1,452
------ -------
4,841 21,440
Less: Accumulated amortization..................... (350) (2,211)
------ -------
$4,491 $19,229
====== =======
</TABLE>
Amortization expense for the period from October 28, 1996 (Inception) to
December 31, 1996 and for the years ended December 31, 1997 and 1998 was
$30,000, $328,000 and $1.9 million, respectively.
6. Accrued Liabilities:
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Accrued payroll and related benefits.................. $ 442 $1,973
Accrued distribution fees............................. 1,366
Accrued royalties..................................... 979
Other................................................. 330 1,483
----- ------
$ 772 $5,801
===== ======
</TABLE>
7. Related-Party Transactions:
At December 31, 1997 and 1998, the Company was indebted to an officer for
$168,000 and $188,000, respectively. The loan is due on demand and bears
interest at 10% per annum.
F-60
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In August 1998, the Company issued 115,342 shares of common stock and
26,504 shares of Series F convertible preferred stock to the NAR in
satisfaction of a $1.0 million obligation for the Company's share of
advertising costs for a co-operative advertising program with the NAR. At
December 31, 1998, the Company was indebted to the NAR for $2.2 million
pursuant to certain provisions of the operating agreement.
In connection with a 1998 stock redemption agreement, the Company loaned
$3.1 million to a stockholder of InfoTouch. The note is non-interest bearing,
full recourse and collateralized by the shares of common stock. At December
31, 1998, the note was classified as a component of stockholders' equity.
At December 31, 1998, the Company held promissory notes from employees and
directors totaling $702,000 for the exercise of stock options. The notes bear
interest at 5.3% per annum and are due on or before August 21, 2003. The
notes, which are classified as a component of stockholders' equity, are full
recourse and collateralized by shares of common stock of the Company owned by
the employees and directors.
8. Notes Payable:
As part of the acquisition of The Enterprise, the Company issued a $2.2
million non-interest bearing note payable which has been discounted at 10%.
The unamortized balance of the discount at December 31, 1998 was $354,000. The
note is payable in four installments, and matures on March 31, 2001.
As part of the acquisition of MultiSearch, the Company issued a $3.6
million non-interest bearing note payable which has been discounted at 10%.
The unamortized balance of the discount at December 31, 1998 was $453,000. The
note is payable in three installments, and matures on April 1, 2001.
As of December 31, 1998, future payments under the notes are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ending Principal
December 31, Payments
------------ ---------
<S> <C>
1999.......................................................... $2,097
2000.......................................................... 1,797
2001.......................................................... 1,895
------
5,789
Less: Discount................................................. (807)
------
Present value of notes payable................................. 4,982
Less: Current portion.......................................... 1,746
------
Long-term portion.............................................. $3,236
======
</TABLE>
9. Stock Options:
The Company's 1996 Stock Incentive Plan (the "Plan") provides for the grant
of options to employees, officers, directors and consultants at the then-
current market value of the Company's common shares, as determined by the
Board of Directors. Options granted generally vest over four years, 25% for
the first year and monthly thereafter over the remaining three years, and
expire 10 years from the date of grant.
In connection with the 1996 formation of the Company, options to purchase
530,000 shares of common stock at a weighted average exercise price of $1.34
per share from the former InfoTouch stock option plan were assumed and fully
vested.
F-61
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes activity under the Plan (including the
InfoTouch options assumed) for the period from October 28, 1996 (Inception) to
December 31, 1996, the years ended December 31, 1997 and 1998 and the period
from January 1, 1999 to February 4, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Weighted
Average
Number of Price Per Exercise
Shares Share Price
--------- ------------ --------
<S> <C> <C> <C>
Outstanding at October 28, 1996 -- $ -- $ --
Assumed.................................. 530 1.13 to 2.25 1.34
Granted.................................. 780 .14 .14
-----
Outstanding at December 31, 1996........... 1,310 .14 to 2.25 .63
Granted.................................. 574 .75 .75
Canceled................................. (103) 1.13 1.13
-----
Outstanding at December 31, 1997........... 1,781 .14 to 2.25 .64
Granted.................................. 1,913 2.50 to 4.00 3.01
Exercised................................ (974) .14 to 2.50 .76
Canceled................................. (170) .75 to 2.50 1.95
-----
Outstanding at December 31, 1998........... 2,550 .14 to 4.00 2.28
Granted (unaudited)...................... 79 5.00 5.00
-----
Outstanding at February 4, 1999
(unaudited)............................... 2,629 .14 to 5.00 2.36
=====
</TABLE>
Options granted during the years ended December 31, 1997 and 1998 resulted
in total compensation of $1.0 million and $9.5 million, respectively, and were
recorded as deferred stock compensation in stockholders' equity. The deferred
stock compensation is recognized as stock-based charges in the consolidated
statement of operations over the related vesting period of the options. During
the years ended December 31, 1997 and 1998, such stock-based charges were
$257,000 and $1.6 million, respectively. Common stock available for future
grants at December 31, 1998 was 1,014,000 shares.
Additional information with respect to the outstanding options as of
December 31, 1998 is as follows (shares in thousands):
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
--------------------------- ---------------
Weighted
Average
Number Remaining Average Number Average
of Contractual Exercise of Exercise
Prices: Shares Life Price Shares Price
------- ------ ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$.14............................. 226 7.90 $.14 16 $.14
.75............................. 520 8.70 .75 134 .75
2.25 to 2.50..................... 434 9.20 2.50 42 2.46
3.00............................. 362 9.50 3.00 46 3.00
3.16............................. 842 9.70 3.16 54 3.16
4.00............................. 166 9.90 4.00 2 4.00
----- ---
2,550 294
===== ===
</TABLE>
F-62
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company calculated the minimum fair value of each option grant on the
date of the grant using the minimum value option pricing model as prescribed
by SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Risk-free interest rates.............. 6% 6% 5%
Expected lives (in years)............. 4 5 4
Dividend yield........................ 0% 0% 0%
Expected volatility................... 0% 0% 0%
</TABLE>
The compensation expense associated with the stock-based compensation plans
did not result in a material difference from the reported net loss for the
period from October 28, 1996 (inception) to December 31, 1996 or years ended
December 31, 1997 and 1998.
10. Warrants:
In connection with entering into a distribution agreement with America
Online in April 1998, the Company issued a warrant to purchase 226,590 shares
of the Company's common stock at an exercise price of $3.16 per share. The
warrant is contingent upon America Online exercising its right to purchase
$2.0 million of common stock in an IPO. Additionally, if America Online
exercises its right to purchase $2.0 million of common stock in an IPO, the
Company will issue warrants to America Online to acquire $3.0 million of
common stock with a weighted average exercise price of 137.5% of the initial
public offering price. If warrants are purchased in connection with an IPO,
the fair value will be measured at the date of the IPO and amortized to sales
and marketing expense over the remaining term of the distribution agreement.
Under the terms of an operating agreement entered into in 1998, the Company
issued an immediately exercisable warrant to purchase 226,576 shares of common
stock at an exercise price $0.0005 per share. The Company determined that the
fair value of the warrant approximated $1.4 million at the date of issuance
which is included in amortization of intangible assets over the estimated
useful life of the operating agreement. The warrant was exercised in November
1998.
During 1998, the Company issued warrants to purchase up to 83,752 shares of
common stock to Multiple Listing Services ("MLSs") that agreed to provide
their real estate listings to us for publication on the Internet on a
preferred national basis over an initial term of 18 months. The issuance of
these warrants is contingent upon completion of an IPO. The exercise price
will be equal to the IPO per share price. The fair value of issuable warrants
will be measured at the date an IPO is deemed to be probable and recognized as
expense over the terms of the applicable MLS agreement.
F-63
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Capitalization:
Convertible preferred stock at December 31, 1998 consists of the following
(in thousands):
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation
Authorized Outstanding Amount
---------- ----------- -----------
<S> <C> <C> <C>
Series A................................. 1,647 1,378 $ 4,416
Series B................................. 353 191 1,334
Series C................................. 614 614 4,884
Series D................................. 681 681 10,543
Series F................................. 2,100 1,664 40,871
Undesignated............................. 4,280
----- ----- -------
9,675 4,528 $62,048
===== ===== =======
</TABLE>
Voting--Each share of convertible preferred stock has a number of votes
equal to the number of shares of common stock then issuable upon its
conversion. The convertible preferred stock generally votes together with the
common stock and not as a separate class.
Dividends--The holders of each series of convertible preferred stock are
entitled to receive dividends when, as and if declared by the Board of
Directors at a rate of 6.5% of the respective issuance price per share per
annum. The holders of Series D and Series F are entitled to receive cumulative
dividends in preference to the holders of Series A, Series B, and Series C
preferred stock and Series E redeemable convertible preferred stock and the
common stock. In the event of a public offering of the Company's equity
securities meeting certain minimum size requirements and timing, as defined in
the Certificate of Incorporation, dividends declared, if any, will not be
payable and will lapse. The holders of the Series D and Series F convertible
preferred stock are entitled to dividends at their stated rate whether or not
earned which are payable upon conversion provided the Company's public
offering does not meet certain minimum size requirements and timing.
Accordingly, the Company has recorded accretion of $1.5 million for the year
ended December 31, 1998 related to the Series D and Series F dividends.
No dividends have been declared or paid from inception through December 31,
1998.
Liquidation--In the event of any liquidation or winding up of the Company,
the holders of each series of convertible preferred stock will be entitled to
receive, in preference to the holders of common stock, any distribution of
assets of the Company equal to the sum of the respective issuance price of
such shares plus any accrued and unpaid dividends. The holders of Series D and
Series F are entitled to receive any distribution of assets of the Company
before the holders of Series A, Series B, and Series C convertible preferred
stock and Series E redeemable convertible preferred stock. The holders of
Series A, Series B, Series C and Series E preferred stock are also entitled to
receive an amount equal to the dividend rate (6.5%) accruing on a quarterly
basis on the last day of each calendar quarter for the period from the
respective date of issuance of such shares to the date of liquidation.
After the full liquidation preference on all outstanding shares of
convertible preferred stock has been paid, any remaining funds and assets of
the Company will be distributed pro rata among the holders of the common
stock.
Redemption--If a liquidation or initial public offering has not occurred by
June 30, 2002, the holders of Series E redeemable convertible preferred stock
are entitled to a redemption out of the assets of the Company equal to the
Series E liquidation preference. The Company has recorded accretion of
$171,000 for the year ended December 31, 1998 related to the Series E
redeemable preferred stock redemption value.
F-64
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Conversion--Each share of convertible preferred stock is convertible at the
holder's option at any time into common stock, according to a ratio which is
two-for-one, subject to adjustment for dilution. Each share of convertible
preferred stock automatically converts into common stock at the then
applicable conversion rate for each upon (i) the closing of an underwritten
public offering pursuant to which the post-closing enterprise value is at
least $300 million of Company stock at a price of at least $24.93 per share,
(ii) the consent of at least two-thirds of the outstanding preferred stock, or
(iii) as to each series of convertible preferred stock, upon the date that
less than 100 shares of such series are outstanding.
Repurchase of Preferred Stock--In November 1998, the Company repurchased
431,664 shares of Series A and Series B convertible preferred stock for $9.5
million. The difference of $7.7 million between the carrying value of the
preferred stock prior to repurchase and the price paid has been included in
net loss for the year ended December 31, 1998 in the computation of net loss
applicable to common stockholders.
Sale of Common Stock--In connection with the August 1998 Series F
financing, the Company sold an aggregate of 3,347,982 shares of common stock
to certain investors and received gross proceeds of approximately $10.6
million. The Company recognized the $18.9 million difference between the
estimated fair value of the stock and the price paid by investors as stock-
based charges in 1998.
12. Supplemental Cash Flow Information:
During the period from January 1, 1999 to February 4, 1999 (unaudited):
. In connection with an equipment lease financing arrangement, the Company
sold $749,000 of net property and equipment in exchange for assumption
of third party payables.
During the year ended December 31, 1998:
. The Company issued common and convertible preferred stock valued at $1.9
million in connection with an advertising agreement.
. The Company incurred a $2.0 million payable to a related party in
connection with certain obligations under a lifetime operating
agreement.
. Convertible notes in the amount of $10.7 million, plus $64,000 in
accrued interest, were converted into Series F convertible preferred
stock.
. The Company issued notes receivable to stockholders for $702,000 in
connection with the exercise of stock options.
. The Company issued warrants with a fair value of $1.4 million.
. The Company issued 210,000 shares of common stock valued at $525,000, a
note payable of $2.2 million and assumed net liabilities of $946,000 as
part of the acquisition of The Enterprise.
. The Company issued 325,000 shares of Series E redeemable convertible
preferred stock valued at $4.8 million, a note payable of $3.6 million
and assumed net liabilities of $657,000 as part of the acquisition of
MultiSearch.
During the year ended December 31, 1997:
. The Company issued 58,764 shares of common stock with a value of $53,000
as part of the acquisition of TouchTech.
F-65
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the period from October 28, 1996 (Inception) to December 31, 1996:
. The Company issued common stock valued at $1.1 million in connection
with the right to use certain trademarks and an operating agreement.
. The Company assumed net liabilities totalling $1.2 million in exchange
for trademarks and an operating agreement.
13. Defined Contribution Plan:
The Company has a savings plan (the "Savings Plan") that qualifies as a
defined contribution plan under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 15%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. All full-time employees on the payroll of
the Company are eligible to participate in the Plan. The Company is not
required to contribute to the Savings Plan and has made no contributions since
the inception of the Savings Plan.
14. Income Taxes:
LLC is treated as a partnership for federal and state income tax purposes.
Consequently, all income and loss items flow through to its investors.
Accordingly, the provision for income taxes is based on the operating results
of RealSelect.
As a result of net operating losses, RealSelect has not recorded a
provision for income taxes. The components of the deferred tax assets and
related valuation allowance at December 31, 1997 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 2,036 $ 12,747
Other.................................................. 348 1,078
------- --------
2,384 13,825
Less: valuation allowance.............................. (2,384) (13,825)
------- --------
Net deferred taxes...................................... $ -- $ --
======= ========
</TABLE>
Due to the uncertainty surrounding the timing of the realization of the
benefits from its favorable tax attributes in future tax returns, RealSelect
has placed a valuation allowance against its otherwise recognizable deferred
tax assets.
At December 31, 1998, RealSelect has net operating losses for both federal
and state income tax purposes of approximately $34.4 million and $18.1
million, respectively, which begin to expire in 2007 for federal and 2001 for
state income tax purposes. The net operating losses can be carried forward to
offset future taxable income. Utilization of the above carryforwards may be
subject to utilization limitations, which may inhibit RealSelect's ability to
use carryforwards in the future.
F-66
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Commitments and Contingencies:
Operating Leases
The Company leases certain facilities and equipment under noncancellable
operating leases with various expiration dates through 2003. The leases
generally contain renewal options and payments that may be adjusted for
increases in operating expenses and increases in the Consumer Price Index.
Future minimum lease payments under noncancellable operating leases at
December 31, 1998 are (in thousands):
<TABLE>
<S> <C>
1999............................................................. $ 2,295
2000............................................................. 2,686
2001............................................................. 2,553
2002............................................................. 1,636
2003............................................................. 1,365
-------
Total.......................................................... $10,535
=======
</TABLE>
Total rental expense for operating leases was $7,000, $149,000 and $749,000
for the period from October 28, 1996 (Inception) to December 31, 1996 and the
years ended December 31, 1997 and 1998, respectively.
Distribution Agreements
The Company has entered into various distribution and preferred alliance
agreements. Payments remaining over the next five years for the distribution
and preferred alliance agreements are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................................. $21,143
2000............................................................. 19,036
2001............................................................. 14,646
2002............................................................. 4,250
2003............................................................. 500
-------
Total.......................................................... $59,575
=======
</TABLE>
Contingencies
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in
the normal course of business. Based on the advice of counsel, management
believes that the resolution of these matters will not have a material adverse
effect on the Company's business, results of operations, financial condition
or cash flows.
16. Subsequent Events (unaudited):
Equipment Leasing Arrangement
In January 1999, the Company entered into an equipment leasing arrangement
which provided for the sale and leaseback of certain of the Company's existing
equipment and lease financing for additional equipment needs. The total
availability under the agreement is $3.0 million. In addition, the agreement
provides the lessor with warrants to purchase up to 5,000 shares of Series F
convertible preferred stock at an exercise price of $24.00 per share. The
Company determined that the fair value of the warrants approximated $115,000
on the date of grant.
F-67
<PAGE>
NETSELECT, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Options
In January 1999, the Board of Directors adopted the 1999 Equity Incentive
Plan (the "Plan") to replace the 1996 stock Incentive Plan ("1996 Plan"). The
Plan provides for the issuance of both non-statutory and incentive stock
options to employees, officers, directors and consultants of the Company. The
total number of shares of common stock reserved for issuance under the Plan is
equal to that number previously reserved and available for grant under the
1996 Plan. The Company will not issue new options under the 1996 Plan.
Stock Split
In April 1999, the Board of Directors of NetSelect effected a two-for-one
stock split of the outstanding shares of common stock. All share and per share
information included in these consolidated financial statements have been
retroactively adjusted to reflect the stock split.
F-68
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The Enterprise of America, Ltd.
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of The Enterprise of America, Ltd.
(the "Company") at December 31, 1997 and March 31, 1998, and the results of
its operations and its cash flows for the year ended December 31, 1997 and the
three months ended March 31, 1998, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Century City, California
March 31, 1999
F-69
<PAGE>
THE ENTERPRISE OF AMERICA, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ -----------
<S> <C> <C>
Assets
Current assets:
Cash............................................... $ 3,214 $ 414
Accounts receivable, net of allowance for doubtful
accounts of $100,000 for December 31, 1997 and
$125,000 for March 31, 1998....................... 367,607 429,402
----------- -----------
Total current assets................................. 370,821 429,816
Property and equipment, net.......................... 529,534 763,057
Other assets......................................... 34,533 16,394
----------- -----------
Total assets..................................... $ 934,888 $ 1,209,267
=========== ===========
Liabilities and Stockholders' Deficit:
Current liabilities:
Cash overdraft..................................... $ -- $ 126,332
Accounts payable................................... 355,631 544,305
Accrued liabilities................................ 333,764 334,230
Current portion of capital lease obligation........ 43,832 51,747
Related party notes payable........................ 809,678 821,468
----------- -----------
Total current liabilities............................ 1,542,905 1,878,082
Capital lease obligation............................. 122,279 108,503
Commitments (Note 6)
Stockholders' deficit:
Common stock, $1 par value; authorized 9,000
shares, issued and outstanding 100 shares at
December 31, 1997 and March 31, 1998.............. 100 100
Additional paid-in capital......................... 606,337 606,337
Note receivable from stockholder................... (294,108) (305,597)
Accumulated deficit................................ (1,042,625) (1,078,158)
----------- -----------
Total stockholders' deficit...................... (730,296) (777,318)
----------- -----------
Total liabilities and stockholders' deficit...... $ 934,888 $ 1,209,267
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE>
THE ENTERPRISE OF AMERICA, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1997 1998
------------ ------------
<S> <C> <C>
Net revenues.......................................... $4,182,776 $969,138
Cost of revenues...................................... 2,226,698 524,418
---------- --------
Gross profit...................................... 1,956,078 444,720
---------- --------
Operating expenses:
Sales and marketing................................. 551,183 174,094
General and administrative.......................... 1,428,630 273,905
Loss on disposal of assets.......................... 34,750
---------- --------
Total operating expenses.......................... 2,014,563 447,999
---------- --------
Loss from operations.................................. (58,485) (3,279)
Interest expense...................................... (29,227) (32,254)
---------- --------
Net loss.............................................. $ (87,712) $(35,533)
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE>
THE ENTERPRISE OF AMERICA, LTD.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional Note
------------- Paid-In Receivable Accumulated
Shares Amount Capital Stockholder Deficit Total
------ ------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 100 $100 $606,337 $ -- $ (954,913) $(348,476)
Note receivable issued
to stockholder......... (294,108) (294,108)
Net loss................ (87,712) (87,712)
--- ---- -------- --------- ----------- ---------
Balance at December 31,
1997................... 100 100 606,337 (294,108) (1,042,625) (730,296)
Note receivable issued
to stockholder......... (11,489) (11,489)
Net loss................ (35,533) (35,533)
--- ---- -------- --------- ----------- ---------
Balance at March 31,
1998................... 100 $100 $606,337 $(305,597) $(1,078,158) $(777,318)
=== ==== ======== ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
THE ENTERPRISE OF AMERICA, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (87,712) $ (35,533)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization....................... 206,269 46,245
Provision for doubtful accounts..................... 65,684 25,000
Loss on sale of fixed assets........................ 34,750
Changes in operating assets and liabilities:
Accounts receivable............................... 33,996 (86,795)
Other assets...................................... (22,677) 18,139
Cash overdraft.................................... (75,064) 126,332
Accounts payable.................................. (24,153) 187,808
Accrued liabilities............................... 109,430 1,332
--------- ---------
Net cash provided by operating activities........... 240,523 282,528
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment................. (124,105) (279,768)
Proceeds from sale of fixed asset................... 223,632
--------- ---------
Net cash provided by (used in) investing
activities......................................... 99,527 (279,768)
--------- ---------
Cash flows from financing activities:
Note receivable from stockholder.................... (294,108) (11,489)
Repayment of line of credit......................... (852,855)
Proceeds from related party notes payable........... 809,678 11,790
Payments on capital lease obligation................ (5,861)
--------- ---------
Net cash used in financing activities............... (337,285) (5,560)
--------- ---------
Change in cash...................................... 2,765 (2,800)
Cash, beginning of period........................... 449 3,214
--------- ---------
Cash, end of period................................. $ 3,214 $ 414
========= =========
Supplemental disclosure of cash flow activities:
Cash paid during the year for interest.............. $ 29,312 $ 32,254
========= =========
Cash paid during the year for income taxes.......... $ 807 $ 510
========= =========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1997, the Company acquired $166,110 of production equipment through a
capital lease.
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
THE ENTERPRISE OF AMERICA, LTD.
NOTES TO FINANCIAL STATEMENTS
1. The Company:
The Enterprise of America, Ltd. (the "Company") is a Wisconsin corporation
that was formed on November 1, 1990. The Company's primary business activity
is an Internet-based marketing service for real estate and television
production and editing of home real estate shows.
On March 31, 1998, NetSelect, Inc. acquired all of the Company's
outstanding shares of Common Stock, at which time the Company became a wholly
owned subsidiary of NetSelect, Inc. which was subsequently renamed
HomeStore.com, Inc.
2. Summary of Significant Accounting Policies:
Use Of Estimates--The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from these estimates.
Property And Equipment--Property and equipment are stated at historical
cost. Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, generally three years or less,
or the shorter of the lease term or the estimated useful lives of the assets,
if applicable.
Long-Lived Assets--The Company continually reviews the recoverability of
the carrying value of long-lived assets. The Company also reviews long-lived
assets for impairment whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. Impairment losses, if
any, are recognized when the expected nondiscounted future operating cash
flows derived from such assets are less than their carrying value.
Revenue Recognition--The Company's revenues are derived principally from
the sale of Internet-based marketing services and tools for real estate
professionals and production and editing of home real estate programs.
Revenues from Internet-based marketing services are recognized as such
services are rendered. Revenues associated with production and editing are
recognized upon delivery of the completed program to the television station.
Advertising Expense--Advertising costs are expensed as incurred and
totalled $9,000 during the year ended December 31, 1997 and $52,500 for the
three months ended March 31, 1998.
Income Taxes--Income taxes are accounted for under SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax basis of asssets and liabilities, and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse.
Concentration Of Credit Risk--Financial instruments that potentially
subject the Company to a concentration of credit risk consist of cash and
accounts receivable. Cash is deposited with high credit quality financial
institutions. The Company's accounts receivable are derived from revenue
earned from customers located in the United States. The Company maintains an
allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.
During the year ended December 31, 1997 and the three months ended March
31, 1998, no customers accounted for more than 10% of net revenues or net
accounts receivable.
F-74
<PAGE>
THE ENTERPRISE OF AMERICA, LTD.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Segments--Statement of Financial Accounting Standards No. 131 establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company has determined that it does not have any separately reportable
business segments.
3. Property And Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ----------
<S> <C> <C>
Computer and production equipment................... $ 607,033 $ 607,033
Office furniture and fixtures....................... 439,127 451,062
Leasehold improvements.............................. 36,616 304,449
---------- ----------
1,082,776 1,362,544
Accumulated depreciation............................ (553,242) (599,487)
---------- ----------
$ 529,534 $ 763,057
========== ==========
</TABLE>
4. Accrued Liabilities:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ---------
<S> <C> <C>
Accrued revenue sharing............................... $151,159 $142,583
Accrued compensation.................................. 80,484 81,314
Accrued legal......................................... 62,000 62,000
Accrued other......................................... 40,121 48,333
-------- --------
$333,764 $334,230
======== ========
</TABLE>
5. Related Party Notes Payable:
At December 31, 1997 and March 31, 1998, the Company was indebted to a
related party for $96,568 and $108,358, respectively.
At December 31, 1997 and March 31, 1998, the Company was indebted to a
related party for $713,110.
Notes payable and accrued interest to the related parties were subsequently
repaid in April of 1998 when the Company was acquired by NetSelect, Inc. (see
Note 1). Therefore, all amounts due to related parties are classified as
current liabilities.
6. Commitments:
Leases
The Company leases certain facilities and equipment under noncancellable
operating leases. The operating leases generally contain renewal options and
payments that may be adjusted for increases in operating expenses and
increases in the Consumer Price Index. The Company also leases production
equipment which is being accounted for as a capital lease.
F-75
<PAGE>
THE ENTERPRISE OF AMERICA, LTD.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under noncancellable capital and operating
leases as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
1999..................................................... $ 75,329 $127,634
2000..................................................... 75,329 137,854
2001..................................................... 50,219 137,859
2002..................................................... 141,135
2003..................................................... 141,135
Thereafter............................................... 5,678
-------- --------
Total minimum obligations............................ 200,877 $691,295
========
Less interest............................................ (40,627)
--------
Present value of minimum obligations..................... 160,250
Less current portion..................................... (51,747)
--------
Long-term obligations at March 31, 1998.................. $108,503
========
</TABLE>
Total rental expenses for operating leases was $13,159 for the three months
ended March 31, 1998 and $227,762 for the year ended December 31, 1997.
7. Note Receivable from Stockholder:
At December 31, 1997 and March 31, 1998, the Company held a note receivable
from its stockholder totaling $294,108 and $305,597, respectively. The note,
which is classified as a component of stockholders' equity, was forgiven by
NetSelect, Inc. (Note 1) as part of the purchase price of the acquisition.
8. Income Taxes:
The Company is a Subchapter S corporation for federal and state income tax
purposes. In accordance with federal and state provisions, corporate earnings
flow through to the stockholder and are taxed at the stockholder level.
Deferred income tax assets and liabilities are not considered material to the
financial position of the Company at December 31, 1997 and March 31, 1998. The
provision for income taxes is comprised of the minimum Wisconsin franchise tax
and is not material for the year ended December 31, 1997 and the three months
ended March 31, 1998. Due to the acquisition of the Company by NetSelect, Inc.
on March 31, 1998, the Company's Subchapter S status terminated (Note 1).
F-76
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
MultiSearch Solutions, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' deficit and of cash flows
present fairly, in all material respects, the financial position of
MultiSearch Solutions, Inc. and its subsidiary (the "Company") at December 31,
1997 and June 30, 1998, and the results of their operations and their cash
flows for the year ended December 31, 1997 and the six months ended June 30,
1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Century City, California
March 31, 1999
F-77
<PAGE>
MULTISEARCH SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ ----------
<S> <C> <C>
Assets:
Current assets:
Cash................................................. $ 43,141 $ 113,861
Accounts receivable, net of allowance for doubtful
accounts of $170,000 and $82,475 for December 31,
1997 and June 30, 1998, respectively................ 185,293 139,867
Prepaid expenses..................................... 10,664 922
---------- ----------
Total current assets.................................. 239,098 254,650
Property and equipment, net........................... 145,682 130,200
Other assets.......................................... 3,212 93,400
---------- ----------
Total assets....................................... $ 387,992 $ 478,250
========== ==========
Liabilities and Stockholders' Deficit:
Current liabilities:
Accounts payable..................................... $ 394,810 $ 322,125
Accrued liabilities.................................. 237,621 210,570
Due to stockholders and related parties.............. 322,637 454,390
Customer deposit..................................... 100,000 100,000
---------- ----------
Total current liabilities............................. 1,055,068 1,087,085
Commitments (Note 4)
Stockholders' deficit:
Common stock, $1.00 par value; authorized 1,000,000
shares, 1,000 shares issued and 409 shares
outstanding at December 31, 1997 and June 30, 1998.. 409 409
Additional paid-in capital........................... 138,180 138,180
Treasury stock....................................... (409,409) (409,409)
Accumulated deficit.................................. (396,256) (338,015)
---------- ----------
Total stockholders' deficit........................ (667,076) (608,835)
---------- ----------
Total liabilities and stockholders' deficit........ $ 387,992 $ 478,250
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-78
<PAGE>
MULTISEARCH SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1997 1998
------------ ----------
<S> <C> <C>
Net revenues........................................... $3,040,162 $2,054,055
Cost of revenues....................................... 1,563,969 947,265
---------- ----------
Gross profit........................................... 1,476,193 1,106,790
---------- ----------
Operating expenses:
Sales and marketing.................................. 725,478 543,853
Product development.................................. 73,519 23,621
General and administrative........................... 980,862 456,705
---------- ----------
Total operating expenses........................... 1,779,859 1,024,179
---------- ----------
Income (loss) from operations.......................... (303,666) 82,611
Interest expense....................................... (28,973) (24,370)
Other income........................................... 222,617 --
---------- ----------
Net income (loss)...................................... $ (110,022) $ 58,241
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-79
<PAGE>
MULTISEARCH SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Treassury Stock
------------- Additional ----------------
Paid-In Accumulated
Shares Amount Capital Shares Amount Deficit Total
------ ------ ---------- ------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.. 580 $580 $138,180 420 $(349,580) $(286,234) $(497,054)
Repurchase of stock........... (171) (171) 171 (59,829) (60,000)
Net loss...................... (110,022) (110,022)
---- ---- -------- --- --------- --------- ---------
Balance at December 31, 1997.. 409 409 138,180 591 (409,409) (396,256) (667,076)
Net income.................... 58,241 58,241
---- ---- -------- --- --------- --------- ---------
Balance at June 30, 1998...... 409 $409 $138,180 591 $(409,409) $(338,015) $(608,835)
==== ==== ======== === ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-80
<PAGE>
MULTISEARCH SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1997 1998
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $(110,022) $ 58,241
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization......................... 69,312 51,575
Provision for doubtful accounts....................... 170,000 (87,525)
Settlement of implied agreement....................... (200,000)
Gain on sale of assets................................ (5,100)
Changes in operating assets and liabilities:
Accounts receivable................................. (150,421) 132,951
Prepaid expenses.................................... (10,664) 9,742
Other assets........................................ 10,371 (90,188)
Accounts payable.................................... 38,564 (72,685)
Accrued liabilities................................. 144,651 (27,051)
--------- --------
Net cash used in operating activities................. (43,309) (24,940)
--------- --------
Cash flows from investing activities:
Purchases of property and equipment................... (146,799) (36,093)
Proceeds from sale of assets.......................... 5,100
--------- --------
Net cash used in investing activities................. (141,699) (36,093)
--------- --------
Cash flows from financing activities:
Net advances under line of credit agreement from
stockholders......................................... 153,553 158,004
Loan repayments to related parties.................... (33,815) (26,251)
--------- --------
Net cash provided by financing activities............. 119,738 131,753
--------- --------
Change in cash........................................ (65,270) 70,720
Cash, beginning of period............................. 108,411 43,141
--------- --------
Cash, end of period................................... $ 43,141 $113,861
========= ========
Supplemental disclosure of cash flow activities:
Cash paid during the year for interest................ $ 24,153 $ 24,340
========= ========
Cash paid during the year for income taxes............ $ 800 $ 800
========= ========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1997, the Company utilized $60,000 of its line of credit agreement
with its stockholders to repurchase 171 shares of its common stock.
The accompanying notes are an integral part of these consolidated financial
statements.
F-81
<PAGE>
MULTISEARCH SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company And Summary Of Significant Accounting Policies:
The Company--MultiSearch Solutions, Inc. (the "Company") is a Texas
corporation that was formed on May 27, 1993. The Company's primary business
activity is an Internet-based marketing and publishing service for newly
constructed real estate.
Effective June 30, 1998, NetSelect, Inc. acquired all of the Company's
outstanding shares of Common Stock, at which time the Company became a wholly
owned subsidiary of NetSelect, Inc. which was subsequently renamed
HomeStore.com, Inc.
Summary Of Significant Accounting Policies
Principles Of Consolidation--The consolidated financial statements include
the accounts of the Company and its subsidiary. All intercompany transactions
and balances have been eliminated in consolidation.
Use Of Estimates--The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.
Concentration Of Credit Risk--Financial instruments that potentially
subject the Company to a concentration risk consist of cash and accounts
receivable. Cash is deposited with high credit quality financial institutions.
The Company's accounts receivable are derived from revenue earned from
customers located in the United States. The Company maintains an allowance for
doubtful accounts based upon the expected collectibility of accounts
receivable.
During the year ended December 31, 1997 and the six months ended June 30,
1998, no customers accounted for more than 10% of net revenues or net accounts
receivable.
Property And Equipment--Property and equipment are stated at historical
cost. Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, generally three years or less,
or the shorter of the lease term or the estimated useful lives of the assets,
if applicable.
Long-Lived Assets--The Company continually reviews the recoverability of
the carrying value of long-lived assets. The Company also reviews long-lived
assets for impairment whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. Impairment losses, if
any, are recognized when the expected nondiscounted future operating cash
flows derived from such assets are less than their carrying value.
Revenue Recognition--The Company's revenues are derived principally from
the sale of advertising in its publications and web site hosting for new home
builders. Revenues are recognized ratably over the periods in which
advertisements are displayed and web site hosting and other services are
provided.
Product Development Costs--Product development costs include expenses
incurred by the Company to develop, enhance, manage, monitor and operate the
Company's web sites. Product development costs are expensed as incurred.
Advertising Expenses--Advertising costs are expensed as incurred and
totalled $44,000 during the year ended December 31, 1997 and $23,000 for the
six months ended June 30, 1998.
F-82
<PAGE>
MULTISEARCH SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes--Income taxes are accounted for under SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax basis of assets and liabilities, and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse.
Segments--Statement of Financial Accounting Standards No. 131 establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company has determined that it does not have any separately reportable
business segments.
2. Property And Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ ---------
<S> <C> <C>
Computer equipment................................... $ 189,148 $ 189,148
Office furniture and fixtures........................ 267,686 303,452
--------- ---------
456,834 492,600
Less: Accumulated depreciation....................... (311,152) (362,400)
--------- ---------
Total.............................................. $ 145,682 $ 130,200
========= =========
</TABLE>
3. Accrued Liabilities:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ --------
<S> <C> <C>
Accrued compensation.................................. $ 62,070 $158,499
Accrued sales taxes................................... 51,329 52,071
Accrued revenue sharing............................... 31,795
Accrued legal......................................... 92,427
-------- --------
$237,621 $210,570
======== ========
</TABLE>
4. Commitments:
The Company leases certain facilities and equipment. The leases generally
contain renewal options and payments that may be adjusted for increases in
operating expenses and increases in the Consumer Price Index. Future minimum
lease payments under noncancellable operating leases with original terms of
more than one year as of June 30, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................ $335,447
2000............................................................ 262,737
2001............................................................ 58,411
--------
$656,595
========
</TABLE>
Rent expense was $128,500 for the year ended December 31, 1997 and $86,000
for the six months ended June 30, 1998.
F-83
<PAGE>
MULTISEARCH SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Other Income:
During 1997, $200,000 in other income was recognized in connection with the
settlement of an implied agreement entered into in 1996.
6. Due to Stockholders and Related Parties:
At December 31, 1997 and June 30, 1998, the Company was indebted to certain
of its stockholders under a revolving line of credit agreement in the amounts
of $213,852 and $371,856, respectively. The line of credit is due on demand
and bears interest at 12% per annum.
At December 31, 1997 and June 30, 1998, the Company was indebted to a
related party for $28,315 and $10,956, respectively. The loan was made in
connection with the repurchase of the Company's common stock and is payable in
24 monthly installments of $2,307, bears interest at 10% per annum, and is due
on March 1, 1999.
At December 31, 1997 and June 30, 1998, the Company was indebted to a
related party for $80,470 and $71,578, respectively. The loan is payable in 48
monthly installments, bears interest at 5.25% per annum, and is due on March
1, 2001.
The amounts due to stockholders and related parties were subsequently
repaid in July of 1998 in connection with the acquisition of the Company by
NetSelect, Inc. (Note 1). Therefore, all amounts due to stockholders and
related parties have been classified as current liabilities.
7. Income Taxes:
As a result of the net operating losses, the Company has not recorded a
provision for income taxes. The components of the deferred tax assets and
related valuation allowance at December 31, 1997 and June 30, 1998 are as
follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ --------
<S> <C> <C>
Net operating loss carryforwards.................... $ 37,000 $ 49,000
Other............................................... 47,000 12,000
-------- --------
Deferred tax assets................................. 84,000 61,000
Valuation allowance................................. (84,000) (61,000)
-------- --------
$ -- $ --
======== ========
</TABLE>
Due to the uncertainty surrounding the timing of realizing the benefits of
its favorable tax attributes in future tax returns, the Company has recorded a
valuation allowance against its otherwise recognizable deferred tax assets.
At June 30, 1998, the Company has net operating losses for both federal and
state income tax purposes of approximately $120,000 expiring beginning in the
years 2007 for federal and 1998 for state purposes. The net operating losses
can be carried forward to offset future taxable income. Utilization of the
above carryforwards may be subject to utilization limitations, which may
inhibit the Company's ability to use carryforwards in the future.
F-84
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
SpringStreet, Inc.
We have audited the accompanying balance sheets of SpringStreet, Inc., as of
December 31, 1997 and 1998, and the related statements of operations,
shareholders' deficit and cash flows for the period from August 21, 1997
(commencement of operations) through December 31, 1997 and for the year 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 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 SpringStreet, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for the
period from August 21, 1997 (commencement of operations) through December 31,
1997 and for the year ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
San Francisco, California
April 12, 1999, except as to
Note 11, as to which the
date is May 19, 1999
F-85
<PAGE>
SPRINGSTREET, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
---------------- March 31,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents...................... $ 2,805 $ 4,686 $ 16,738
Accounts receivable, net of allowance for
doubtful accounts of $50 at December 31, 1998
and $88 at March 31, 1999..................... -- 970 491
Other current assets........................... 40 225 743
------- ------- --------
Total current assets............................. 2,845 5,881 17,972
Fixed assets, net................................ 280 721 910
Other assets..................................... 33 43 466
------- ------- --------
Total assets................................. $ 3,158 $ 6,645 $ 19,348
======= ======= ========
Liabilities, convertible preferred stock subject
to redemption and shareholders' equity (deficit)
Current liabilities:
Accounts payable and accrued expenses.......... $ 178 $ 236 $ 824
Accrued compensation and related expenses...... 158 729 1,094
Advance from shareholder....................... 245 -- --
Deferred revenue................................. -- 1,092 1,169
------- ------- --------
Total current liabilities........................ 581 2,057 3,087
Convertible preferred stock subject to
redemption:
Series B--no par value; 3,684,210 shares
authorized, issued and outstanding as of
December 31, 1998 and March 31, 1999.......... 3,500 3,500 3,500
Series C--no par value; 4,850,000 shares
authorized and 4,689,080 shares issued and
outstanding as of December 31, 1998 and March
31, 1999...................................... -- 10,274 10,274
------- ------- --------
Total convertible preferred stock subject to
redemption...................................... 3,500 13,774 13,774
Shareholders' equity (deficit):
Convertible preferred stock Series A--no par
value; 3,750,000 shares authorized, issued and
outstanding as of December 31, 1998 and
March 31, 1999................................ 202 202 202
Convertible preferred stock Series D--no par
value; 3,153,846 shares authorized and
2,430,772 issued and outstanding as of March
31, 1999...................................... -- -- 15,800
Common stock--no par value; 20,000,000 and
25,000,000 shares authorized, 1,281,562 and
1,298,374 shares issued and outstanding as of
December 31, 1998 and March 31, 1999,
respectively.................................. 1 1,959 4,031
Deferred stock compensation.................... -- (1,630) (3,275)
Accumulated deficit............................ (1,126) (9,717) (14,271)
------- ------- --------
Total shareholders' deficit.................. (923) (9,186) 2,487
------- ------- --------
Total liabilities, convertible preferred
stock subject to redemption and
shareholders' deficit....................... $ 3,158 $ 6,645 $ 19,348
======= ======= ========
</TABLE>
See accompanying notes.
F-86
<PAGE>
SPRINGSTREET, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Period through Year ended Quarter ended March 31,
December 31, December 31, -----------------------
1997 1998 1998 1999
-------------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Net revenue.............. $ 82 $ 1,099 $ 75 $ 869
Cost of net revenue...... 73 721 118 341
------- ------- ----------- -----------
Gross profit............. 9 378 (43) 528
------- ------- ----------- -----------
Operating expenses:
Selling and marketing.. 641 6,509 910 3,054
General and
administration........ 340 1,578 214 1,073
Research and
development........... 173 1,089 137 994
------- ------- ----------- -----------
Total operating
expenses............ 1,154 9,176 1,261 5,121
------- ------- ----------- -----------
Loss from operations..... (1,145) (8,798) (1,304) (4,593)
Interest income.......... 19 207 34 39
------- ------- ----------- -----------
Net loss................. $(1,126) $(8,591) $ (1,270) $ (4,554)
======= ======= =========== ===========
Net loss per share--basic
and diluted............. $ (1.77) $(11.00) $ (1.81) $ (4.78)
======= ======= =========== ===========
Number of shares used in
net loss per share
calculation--basic and
diluted................. 636,837 780,830 700,404 951,908
======= ======= =========== ===========
</TABLE>
See accompanying notes.
F-87
<PAGE>
SPRINGSTREET, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Shareholders' Equity (Deficit)
Convertible ----------------------------------------------------------------------
Preferred Convertible
Stock Subject Preferred
to Redemption Stock Common Stock Total
-------------- -------------- ------------- Deferred Accumulated Shareholders'
Shares Amount Shares Amount Shares Amount Compensation Deficit Equity (Deficit)
------ ------- ------ ------- ------ ------ ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
to founders............ -- $ -- -- $ -- 1,250 $ 1 $ -- $ -- $ 1
Issuance of Convertible
Preferred Stock--Series
A...................... -- -- 3,750 202 -- -- -- -- 202
Issuance of Convertible
Preferred Stock--Series
B, subject to
redemption............. 3,684 3,500 -- -- -- -- -- -- --
Net loss................ -- -- -- -- -- -- -- (1,126) (1,126)
----- ------- ----- ------- ----- ------ ------- -------- -------
Balances at December 31,
1997................... 3,684 3,500 3,750 202 1,250 1 -- (1,126) (923)
Issuance of common stock
upon exercise of stock
options................ -- -- -- -- 32 3 -- -- 3
Issuance of Convertible
Preferred Stock--Series
C, subject to
redemption............. 4,689 10,274 -- -- -- -- -- -- --
Deferred stock
compensation........... -- -- -- -- -- 1,955 (1,955) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 325 -- 325
Net loss................ -- -- -- -- -- -- -- (8,591) (8,591)
----- ------- ----- ------- ----- ------ ------- -------- -------
Balances at December 31,
1998................... 8,373 13,774 3,750 202 1,282 1,959 (1,630) (9,717) (9,186)
Issuance of common stock
upon exercise of stock
options (unaudited).... -- -- -- -- 16 1 -- -- 1
Issuance of Convertible
Preferred Stock--Series
D (unaudited).......... -- -- 2,431 15,800 -- -- -- -- 15,800
Deferred stock
compensation
(unaudited)............ -- -- -- -- -- 2,071 (2,071) -- --
Amortization of deferred
stock compensation
(unaudited)............ -- -- -- -- -- -- 426 -- 426
Net loss (unaudited).... -- -- -- -- -- -- -- (4,554) (4,554)
----- ------- ----- ------- ----- ------ ------- -------- -------
8,373 $13,774 6,181 $16,002 1,298 $4,031 $(3,275) $(14,271) $ 2,487
===== ======= ===== ======= ===== ====== ======= ======== =======
</TABLE>
See accompanying notes.
F-88
<PAGE>
SPRINGSTREET, INC.
For the period from August 21, 1997 (commencement of operations)
through December 31, 1997 and for the year ended December 31, 1998
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three months
Period through Year ended ended March 31,
December 31, December 31, ----------------
1997 1998 1998 1999
-------------- ------------ ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Cash used in operating
activities
Net loss........................ $(1,126) $(8,591) $(1,270) $(4,554)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization... 17 161 26 62
Amortization of deferred stock
compensation................... -- 325 8 426
Expenses paid through advance by
a shareholder.................. 232 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable............. -- (970) (31) 479
Other assets.................... (74) (201) (93) (572)
Accounts payable and accrued
expenses....................... 178 58 (87) 578
Accrued compensation and related
expenses....................... 158 571 144 365
Deferred revenue................ -- 1,092 -- 77
------- ------- ------- -------
Net cash used in operating
activities..................... (615) (7,555) (1,303) (3,139)
------- ------- ------- -------
Cash used in investing
activities
Purchases of fixed assets....... (93) (596) (116) (220)
Business purchase, net of broker
fees........................... -- -- -- (390)
------- ------- ------- -------
Net cash used in investing
activities..................... (93) (596) (116) (610)
------- ------- ------- -------
Cash provided in financing
activities
Proceeds from issuance of
Convertible Preferred Stock--
Series B....................... 3,500 -- -- --
Proceeds from issuance of
Convertible Preferred Stock--
Series C, net of issuance
costs.......................... -- 10,274 -- --
Proceeds from issuance of
Convertible Preferred Stock--
Series D, net of issuance
costs.......................... -- -- -- 15,800
Proceeds from exercise of common
stock options.................. -- 3 -- 1
Proceeds from advance from
shareholder.................... 100 -- -- --
Repayment of advance from
shareholder.................... (87) (245) (245) --
------- ------- ------- -------
Net cash provided by financing
activities..................... 3,513 10,032 (245) 15,801
------- ------- ------- -------
Net increase in cash and cash
equivalents.................... 2,805 1,881 (1,664) 12,052
Cash and cash equivalents at
beginning of period............ -- 2,805 2,805 4,686
------- ------- ------- -------
Cash and cash equivalents at end
of period...................... $ 2,805 $ 4,686 $ 1,141 $16,738
======= ======= ======= =======
Supplemental disclosure: non-
cash transaction
Issuance of Convertible
Preferred Stock--Series A in
exchange for fixed assets...... $ 202 $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-89
<PAGE>
SPRINGSTREET, INC.
NOTES TO FINANCIAL STATEMENTS
1. The Company:
SpringStreet Inc. (the "Company"), formerly AllApartments, Inc., provides a
comprehensive selection of rental listings throughout the United States as
well as links to relocation services including on-line change of address,
truck rental, insurance and credit reports on the Company's Web site,
www.springstreet.com. These services are packaged to assist individuals locate
and transition into new rental residences.
The Company commenced operations in its current form on October 13, 1997
upon the issuance of 1,250,000 shares of common stock to its two founding
officers and 3,750,000 shares of Series A Convertible Preferred Stock to
Marcus & Millichap Company ("M&M"). For the period from August 21, 1997
(commencement of operations) through October 12, 1997, the initial planning
and development activities of the business were conducted by M&M as a separate
division along with M&M's other businesses and such activity has been included
in these revenues and expenses for 1997. Activity prior to August 21, 1997 was
not separate or discrete and is not included here-in.
Consideration for the common and preferred stock issued on October 13, 1997
was in the form of fixed assets, assignments of technology and cancellation of
indebtedness which had stated values of $125,000 and $1,301,000, respectively.
For the purposes of these financial statements, the basis of the technology
and fixed assets transferred was the underlying basis to the shareholders:
$1,250 for the common shares and $202,000 for the preferred shares.
The Company has experienced operating losses to date and had an accumulated
deficit at December 31, 1998. Increasing and significant net losses are
expected for the foreseeable future. Since its formation, the Company has
raised significant capital through private placements of equity securities. At
March 31, 1999, the Company had $16,738,000 (unaudited) in cash and cash
equivalents. Future capital requirements are primarily dependent upon the
Company's ability to execute its business plan. There can be no assurance that
the Company, if necessary, will be able to raise additional financing, or that
such financing will be available on terms satisfactory to the Company. Failure
to raise additional funding when needed could adversely affect the ability of
the Company to implement its current business plan.
The financial statements of the Company reflect those of M&M's subsidiary
prepared on a stand alone basis until the issuance of preferred shares to
third party investors in amounts sufficient to provide for de-consolidation.
2. Summary of Significant Accounting Policies:
Unaudited Interim Financial Information--The interim financial information
of the Company for the three months ended March 31, 1998 and 1999 are
unaudited. The unaudited interim financial information have been prepared on
the same basis as the annual financial statements and, in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position at March 31,
1999 and the results of operations and cash flows for the three months ended
March 31, 1998 and 1999.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and the accompanying notes. These estimates are based upon
information available as of the date of the financial statements; therefore,
actual results could differ from these estimates, although management does not
believe that any differences would materially affect Springstreet's financial
position or results of operations.
Cash and Cash Equivalents--Cash and cash equivalents, which consist of cash
and highly liquid short-term investments with insignificant interest rate risk
and original maturities of three months or less at the date of purchase are
stated at cost which approximates fair value.
F-90
<PAGE>
SPRINGSTREET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Concentrations of Credit Risk and Credit Risk Evaluations--Financial
instruments which subject the Company to concentrations of credit risk consist
primarily of temporary cash investments and trade accounts receivable. Cash
equivalents consist principally of money market funds held with domestic
financial institutions with high credit standing.
The Company performs ongoing credit evaluations of its corporate customers
and generally does not require collateral. Reserves are maintained for
potential credit issues, and such losses to date have been within management's
expectations.
For the period August 21, 1997 (commencement of operations) through
December 31, 1997 and for the year ended December 31, 1998, no single customer
accounted for greater than 10% of net revenue.
Fixed Assets--Fixed assets are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets, which range from three to five
years. Leasehold improvements are amortized over the shorter of the assets'
useful life or the remaining lease term.
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"), which requires the use of the liability method in
accounting for income taxes. Under FAS 109, deferred tax assets and
liabilities are measured based on differences between the financial reporting
and tax bases of assets and liabilities using enacted tax rate and laws that
are expected to be in effect when the differences are expected to reverse.
Stock-Based Compensation--Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123"), encourages but
does not require companies to record compensation expense for stock-based
employee compensation plans at fair value. The Company has chosen to account
for stock-based compensation under the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25") and has adopted the disclosure-only alternative
provided by FAS 123.
Revenue Recognition--The Company's revenues are derived primarily from the
sale of "electronic brochure" listings to property owners, banner advertising
sales and transaction fees generated from on-line referrals.
The terms of electronic brochure contracts range from one month to one
year. Revenue on these contracts is recognized ratably over the contract term.
Deferred revenue is comprised of billings in excess of recognized revenue
related to these contracts.
Banner advertising revenue is recognized over the period in which the
advertisement is displayed, provided that no significant Company obligations
remain at the end of the period and collections are probable. To the extent
minimum guaranteed "impressions" are not met, the Company defers recognition
of the corresponding revenues until the remaining impression levels are
achieved.
Referral services generally involve Web site linking arrangements between
the Company and its strategic business partners. Revenues from referral
arrangements are recognized at the time the referral is completed or upon
notification from the partner that revenues have been earned by the Company.
Computation of Net Loss per Share--Basic and diluted net loss per common
share are presented in conformity with Financial Accounting Standards Board
Statement No. 128, "Earning Per Share", ("FAS 128") for all periods presented.
In accordance with FAS 128, basic and diluted net loss per share has been
computed
F-91
<PAGE>
SPRINGSTREET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
using the weighted-average number of shares of common stock outstanding during
the period, less shares subject to repurchase. For the purposes of this
computation, shares issued to the founders and to the Series A preferred
shareholders are assumed to be outstanding from the date of commencement of
operations. Shares associated with stock options and convertible preferred
stock are not included in the computation of diluted net loss per share
because their inclusion would be antidilutive. The total number of shares
excluded from the calculations of diluted net loss per common share are
4,567,309, 11,250,219 and 14,338,909 for the period from August 21, 1997
through December 31, 1997, for the year ended December 31, 1998 and for the
quarter ended March 31, 1999, respectively.
<TABLE>
<CAPTION>
Period Quarter
through Year ended Ended
December 31, December 31, March 31,
1977 1998 1999
------------ ------------ -----------
(unaudited)
<S> <C> <C> <C>
Net loss.......................... $(1,126,000) $(8,591,000) $(4,554,000)
=========== =========== ===========
Weighted-average shares of common
stock outstanding................ 1,250,000 1,258,000 1,295,467
Less: weighted-average shares
subject to repurchase............ (613,163) (477,170) (343,559)
----------- ----------- -----------
Weighted-average shares used in
computing basic and diluted net
loss per share................... 636,837 780,830 951,908
=========== =========== ===========
Basic and diluted net loss per
share............................ $ (1.77) $ (11.00) $ (4.78)
=========== =========== ===========
</TABLE>
Recent Accounting Pronouncements--As of January 1, 1998 the Company adopted
Financial Accounting Standards Board Statement No. 130 ("FAS 130"), "Reporting
Comprehensive Income," which establishes standards for reporting and
displaying comprehensive income and its components in full set of general-
purpose financial statements. The Company had no material components of
comprehensive income. The adoption of this standard has had no impact on the
Company's financial position, shareholders' equity, results of operations or
cash flows. Accordingly, the Company's comprehensive loss for the year ended
December 31, 1998 is equal to its reported loss.
Additionally, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("FAS 131") "Disclosure about Segments
of an Enterprise and Related Information," which establishes standards for the
way public business enterprises report information in annual statements and
interim financial reports regarding operating segments, products and services,
geographic areas, and major customers. This statement is effective for
financial statements for periods beginning after December 15, 1997. The
Company adopted FAS 131 in 1998. The Company operates in a single segment.
In March 1998, The American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which establishes
guidelines for accounting for the costs of all computer software developed or
obtained for internal use. The Company is required to adopt SOP 98-1 effective
January 1, 1999. The adoption of SOP 98-1 is not expected to have a material
impact on the Company's financial statements.
Fair Value of Financial Instruments--As of December 31, 1997 and 1998, the
respective carrying values of the Company's financial instruments approximated
their fair values. These financial instruments include cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and
certain other assets and liabilities that are considered financial
instruments. Carrying values were estimated to approximate fair value for
these financial instruments as they are short term in nature and are
receivable or payable on demand.
F-92
<PAGE>
SPRINGSTREET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Fixed Assets:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998 March 31, 1999
-------- --------- ----------------
(unaudited)
<S> <C> <C> <C> <C>
Computer equipment..................... $179,000 $ 430,000 $ 442,000
Computer software...................... 93,000 166,000 200,000
Leasehold improvements................. -- 95,000 119,000
Furniture and equipment................ 23,000 200,000 380,000
-------- --------- ----------
Total.................................. 295,000 891,000 1,141,000
Less: Accumulated depreciation......... (15,000) (170,000) (231,000)
-------- --------- ----------
Fixed assets, net...................... $280,000 $ 721,000 $ 910,000
======== ========= ==========
</TABLE>
4. Line of Credit:
At December 31, 1998 the Company has a line of credit agreement with a
financial institution for $750,000 bearing interest on the outstanding balance
at the bank's prime rate plus one half percent, 8.25% at December 31, 1998.
The Company has an outstanding letter of credit for a lease of office space
for $350,000 which reduces the availability of the line of credit. The net
amount available under the line of credit is $400,000 as of December 31, 1998.
5. Income Taxes:
The provision for income taxes results in an effective tax rate that
differs from the federal statutory rate primarily due to net operating losses
for which a valuation allowance has been established.
The following is a summary of deferred tax assets:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
--------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards................... $ 420,000 $ 3,500,000
Accruals and reserves.............................. 40,000 260,000
Other.............................................. -- 100,000
--------- -----------
Total deferred tax assets............................ 460,000 3,860,000
--------- -----------
Valuation allowance.................................. (460,000) (3,860,000)
--------- -----------
Net deferred tax assets.............................. $ -- $ --
========= ===========
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $8,700,000 which expire beginning
in the tax year 2012.
Realization of net operating losses is dependent on future earnings, if
any, the timing and the amount of which are uncertain. Accordingly, a
valuation allowance in an amount equal to the deferred tax assets as of
December 31, 1997 and 1998 has been established to reflect these
uncertainties. The valuation allowance increased by $460,000 and $3,400,000
during the period through December 31, 1997 and the year ended December 31,
1998, respectively.
F-93
<PAGE>
SPRINGSTREET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Because of the "change in ownership" provisions of the Internal Revenue
Code, a portion of the Company's net operating loss carryforwards and tax
credit carryforwards may be subject to an annual limitation regarding their
utilization against taxable income in future periods. As a result of the
annual limitation, a portion of these carryforwards may expire before
ultimately becoming available to reduce future income tax liabilities.
6. Commitments and Related Party Transactions:
The Company has entered into operating leases for certain office space and
equipment. Minimum lease payments by year and in the aggregate under lease
obligations with initial or remaining terms of one year or more consist of the
following:
<TABLE>
<S> <C>
1999.............................................................. $1,228,000
2000.............................................................. 1,352,000
2001.............................................................. 1,235,000
2002.............................................................. 489,000
2003.............................................................. 489,000
Thereafter........................................................ 40,000
----------
Total............................................................. $4,833,000
==========
</TABLE>
Rent expense for the period August 21, 1997 (commencement of operations)
through December 31, 1997 and for the year ended December 31, 1998 was $15,000
and $358,000, respectively.
The Company entered into an agreement with a shareholder to co-brand a Web
site and to share related revenue. This activity resulted in net revenues for
1998 of $58,000 and net receivables from the shareholder of $58,000 at
December 31, 1998.
7. Shareholders' Equity (Deficit):
The Company has two classes of authorized stock: common stock and preferred
stock.
Common Stock
The Company has authorized 20,000,000 and issued 1,250,000 and 1,281,562
shares of common stock as of December 31, 1997 and 1998, respectively. Of the
total shares, 1,250,000 shares were sold to founders of the Company on October
13, 1997 and are subject to the Company's right, but not its obligation, to
repurchase the shares at $0.10, if certain events occur. Fifty percent of this
right lapsed in October 1997 and the remaining portion lapses ratably over a
36 month period ending November 2000. In addition, these rights lapse in full
at such time as the Company merges with or is sold to another company. As of
December 31, 1997 and 1998, 590,278 and 381,946 shares, respectively were
subject to repurchase by the Company.
The Company is required to reserve and keep available out of its authorized
but unissued shares of common stock such number of shares sufficient to effect
the conversion of all outstanding shares of convertible preferred stock plus
shares granted and available for grant under the Company's stock option plan.
The amount of such shares of common stock reserved for these purposes is as
follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998 March 31, 1999
--------- ---------- ---------------
(unaudited)
<S> <C> <C> <C>
Conversion of Convertible Preferred
Stock................................ 7,434,210 12,123,290 14,554,062
Outstanding stock options............. 623,634 1,642,801 2,047,779
Additional shares available for grant
under the Company's stockoption
plan................................. 1,001,366 450,637 28,847
--------- ---------- ----------
Total common stock reserved for
issuance............................. 9,059,210 14,216,728 16,630,688
========= ========== ==========
</TABLE>
F-94
<PAGE>
SPRINGSTREET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Preferred Stock
The Company is authorized to issue 12,284,210 shares of convertible
preferred stock in one or more series. Dividends on each series of convertible
preferred stock are non cumulative and are payable when and if declared by the
Company.
Convertible preferred stock issued and outstanding is as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998 March 31, 1999
---------------------- ----------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
----------- ---------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Series A................ 3,750,000 $ 202,000 3,750,000 $ 202,000 3,750,000 $ 202,000
Series B................ 3,684,210 3,500,000 3,684,210 3,500,000 3,684,210 3,500,000
Series C................ -- -- 4,689,080 10,274,000 4,689,080 10,274,000
Series D................ -- -- -- -- 2,430,772 15,800,000
--------- ---------- ---------- ----------- ---------- -----------
Total................... 7,434,210 $3,702,000 12,123,290 $13,976,000 14,554,062 $29,776,000
========= ========== ========== =========== ========== ===========
</TABLE>
Holders of Series B and C Convertible Preferred Stock are entitled to
receive a liquidation preference prior and in preference to any distribution
to the holders of Series A Convertible Preferred Stock and the common
shareholders in the amount equal to all declared but unpaid dividends, if any,
attributable to the Series B and C Convertible Preferred Stock, plus $0.95 and
$2.20 per share, respectively, adjusted for any combinations, consolidations,
stock distributions or dividends. The liquidation preference for the holders
of Series B Convertible Preferred Stock was $3,500,000 at December 31, 1997
and 1998. The liquidation preference for the holders of Series C Convertible
Preferred Stock was $10,315,800 at December 31, 1998.
After payment of the prior liquidation preference to Series B and C
Convertible Preferred Stock, holders of Series A Convertible Preferred Stock
are entitled, prior and in preference to any distribution to the common
shareholders to receive an amount equal to all declared but unpaid dividends,
if any, attributable to the Series A Convertible Preferred Stock plus $0.347
per share, as adjusted for any combinations, consolidations, stock
distributions or dividends. The aggregate liquidation preference for holders
of Series A Convertible Preferred Stock at December 31, 1997 and 1998 was
$1,301,250.
If the distributable assets are insufficient to permit payment to the
Series B and C preferred shareholders of their preferential amount, then the
entire amount of distributable assets shall be distributed pro rata among the
Series B and C preferred shareholders in proportion to their respective
preferential amounts. Similarly, if the remaining distributable assets after
payment of the Series B and C preferred shareholders' initial liquidation
amount is insufficient to permit payment to the Series A preferred
shareholders of their preferred amount, then the remaining distributable
assets shall be distributed pro rata among the Series A preferred shareholders
in proportion to their respective preferential amounts.
Following payment of such liquidation preference, the remaining assets, if
any, will be available for distribution to the holders of the Company's common
stock and convertible preferred stock pro ratably based the number of shares
of common stock and common stock into which the shares of convertible
preferred stock could be converted at the time the remaining assets are
distributed. However, the holders of the Series B and C Convertible Preferred
Stock are not entitled to participate with the holders of the Company's common
stock after holders of Series B Convertible Preferred Stock have received a
total of $3.80 per share and the holders of Series C Convertible Preferred
Stock have received a total of $8.80 per share. The holders of Series A
Convertible Preferred Stock are not entitled to participate with the holders
of common stock after the holders of Series A Convertible Preferred Stock have
received an aggregate amount per share of Series A Convertible Preferred Stock
equal to the Series A preference discussed above plus eighteen percent of the
Series A preference, compounded annually from the date of issuance through the
fifth anniversary of the date of issuance.
F-95
<PAGE>
SPRINGSTREET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Each share of Series A, B and C Convertible Preferred Stock ("Voting
Preferred") carries voting rights. Each holder of Voting Preferred is entitled
to the number of votes equal to the number of shares of common stock into
which such shares of Voting Preferred held by such preferred shareholder could
then be converted.
Each share of Voting Preferred is convertible at the option of the holder
into shares of common stock equal to the number of preferred shares multiplied
by the then effective Conversion Rate. At December 31, 1997 and 1998, the
conversion rate for each series of Convertible Preferred Stock was one share
of common stock for each share of preferred stock.
In addition, each share of Voting Preferred shall automatically be
converted into shares of common stock at the then effective Conversion Rate
for such share immediately prior to the consummation of a firmly underwritten
public offering of common stock, provided that the price per share (prior to
underwriter's discounts or commissions and offering expenses) is not less than
$6.60 (subject to appropriate adjustment for stock splits, stock dividends,
reclassifications, recapitalizations and the like) and the aggregate gross
proceeds to the Company are not less than $20 million after deduction of
underwriters' commissions and expenses.
Series B and C Convertible Preferred Stock are redeemable after September
30, 2002 by the holders of Series B and C Convertible Preferred Stock at such
time that sixty-six and two-thirds percent of the then outstanding Series B
Convertible Preferred Stock and fifty percent of the then outstanding Series C
Convertible Preferred Stock provide written notice to the Company. The
redemption price shall be an amount equal to $0.95 and $2.20 per share, plus
any dividends declared but unpaid, for the Series B and C Convertible
Preferred Stock, respectively. In the event that the funds of the Company are
insufficient to redeem the total number of shares of Series B and C
Convertible Preferred Stock, those funds which are legally available will be
used to ratably redeem the Series B and C Convertible Preferred Stock.
Stock Option Plan
Under the 1997 Incentive Stock Plan (the "Plan"), the Company offers
options to purchase shares of common stock to employees and consultants. At
December 31, 1997, the Company had reserved 1,625,000 shares of common stock
for issuance through the Plan. At December 31, 1998 and March 31, 1999
(unaudited) the Company had reserved 2,125,000 shares of common stock for
issuance through the Plan.
The following summarizes stock option activity and related information
since the Company's inception:
<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Shares Price per Share
--------- ---------------
<S> <C> <C>
Granted (exercise price of $0.10)............... 623,634 $0.10
--------- -----
Outstanding at December 31, 1997................ 623,634 0.10
Granted (exercise price ranging from $0.10 to
$0.20)....................................... 1,486,005 0.17
Exercised..................................... (31,562) 0.10
Canceled...................................... (435,276) 0.12
---------
Outstanding at December 31, 1998................ 1,642,801 0.15
Granted (exercise price ranging from $0.20 to
$1.00) (unaudited)........................... 503,000 0.43
Exercised (unaudited)......................... (16,812) 0.11
Canceled (unaudited).......................... (81,210) 0.30
---------
Outstanding as of March 31, 1999 (unaudited).... 2,047,779 $0.21
========= =====
Options exercisable at December 31, 1997........ -- --
========= =====
Options exercisable at December 31, 1998........ 138,328 $0.10
========= =====
Options exercisable at March 31, 1999........... 182,566 $0.10
========= =====
</TABLE>
F-96
<PAGE>
SPRINGSTREET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Exercise prices for stock options outstanding as of December 31, 1997 and
1998 and March 31, 1999 (unaudited) and the weighted-average remaining
contractual life are as follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Remaining Shares
Exercise Price Outstanding Contractual Life Exercisable
-------------- ----------- ---------------- -----------
<S> <C> <C> <C>
December 31, 1997
$0.10............................ 623,634 9.9 years --
December 31, 1998
$0.10............................ 744,196 9.0 years 138,328
$0.20............................ 898,605 9.7 years --
--------- --------- -------
Total.............................. 1,642,801 9.3 years 138,328
========= ========= =======
March 31, 1999 (unaudited)
$0.10............................ 712,274 8.7 years 182,566
$0.20............................ 1,019,005 9.5 years --
$0.40............................ 244,500 9.9 years --
$1.00............................ 72,000 9.9 years --
--------- --------- -------
Total.............................. 2,047,779 9.3 years 182,566
========= ========= =======
</TABLE>
As discussed in Note 2, the Company has elected to follow APB Opinion No.
25 and related interpretations in accounting for its employee stock-based
awards because, as discussed below, the alternative fair value accounting
provided for under FAS 123 requires use of option valuation models that were
not developed for use in valuing employee stock-based awards. Under APB
Opinion No. 25, the Company does not recognize compensation expense with
respect to such awards if the exercise price equals or exceeds the fair value
of the underlying security on the date of grant and other terms are fixed.
The fair value of these awards for the purpose of the alternative fair
value disclosures required by FAS 123 was estimated as of the date of grant
using the minimum value option pricing model. This model was developed for use
in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected
life of the options. Because the Company's stock-based awards have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock-
based awards. For the purposes of the Company's pro forma disclosures, the
fair value of options granted during the period ended December 31, 1997, and
the year ended December 31, 1998 was determined using the minimum value method
with a risk-free interest rate of approximately 6.0%, an expected life of four
years, and a dividend yield of zero.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
Period
through Year ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Net loss, as reported............................ $(1,126) $(8,591)
Net loss, pro forma.............................. (1,126) (8,600)
Net loss per share--basic and diluted, as
reported........................................ (1.77) (11.00)
Net loss per share--basis and diluted, pro
forma............................................ (1.77) (11.01)
</TABLE>
F-97
<PAGE>
SPRINGSTREET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The compensation expense associated with the Company's stock-based
compensation plans determined using the minimum value method prescribed above
did not result in a material difference from the reported net income for the
period from August 21, 1997 (commencement of operations) through December 31,
1997 and the year ended December 31, 1998. Future pro forma statement of
operations results may be materially different from actual amounts reported.
Deferred Compensation
The Company has recorded deferred stock compensation charges of $1,955,000
for the year ended December 31, 1998 for the difference between the exercise
price and the deemed fair value of certain stock options granted by the
Company. Such amount is included as an increase in shareholders' deficit and
is being amortized by charges to operations, using an accelerated method, over
the vesting periods of the individual stock options, which range from one
month to four years. Amortization of deferred stock compensation totaled
$325,000 for the year ended December 31, 1998.
8. Retirement Plan:
The Company established a 401(k) Profit Plan (the "401(k) Plan") which is
available to all employees who meet the Plan's eligibility requirements.
Employees may elect to contribute up to 15% of their eligible earnings to the
401(k) Plan subject to certain limitations. This defined contribution plan
provides that the Company may, at its discretion, make contributions to the
401(k) Plan on a periodic basis.
9. Subsequent Events:
In March 1999, the Company authorized 3,153,846 shares of Series D
Convertible Preferred Stock and issued 2,430,772 shares at $6.50 per share for
net proceeds of $15,800,000 to new and existing investors. In addition, the
Company authorized an additional 5,000,000 shares of common stock.
In February and March 1999, the Company entered into co-branding agreements
with several Internet services companies under which the Company is obligated
to pay approximately $1,630,000 over a twelve month period.
In March 1999, the Company entered into an Asset Purchase Agreement to
purchase the assets of a rental listing service, for $420,000.
10. Year 2000 Risks (Unaudited):
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products 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 and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. We are in the process of reviewing the Year 2000
compliance of our internally developed proprietary software, which includes
substantially all of the systems for the operation of our website, such as our
instant online approval system, customer interaction and transaction systems
and our security, monitoring and back-up capabilities, including development
of contingency plans. Our information technology systems also depend on
information technology and services supplied by third parties. We are
currently assessing the Year 2000 readiness of these third party vendors. Year
2000 problems experienced by us or any of such third parties could materially
adversely affect our business. Additionally, the Internet could face serious
disruptions arising from the Year 2000 problem.
F-98
<PAGE>
SPRINGSTREET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
11. Agreement and Plan of Reorganization:
On May 19, 1999, the Company entered into an Agreement and Plan of
Reorganization (the Agreement) under which the Company will be acquired by
NetSelect, Inc. (the Merger). The Merger is intended to be accomplished in a
stock for stock exchange which management of the Company understands will be
accounted for using the purchase method for financial reporting purposes. The
Merger is subject to a number of conditions which are described in the
Agreement.
F-99
<PAGE>
[LOGO OF HOMESTORE.COM, INC.]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses to be paid by
HomeStore in connection with the sale of the shares of common stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 27,800
NASD filing fee................................................. 10,500
Nasdaq National Market initial listing fee...................... 1,000
Accounting fees and expenses.................................... *
Legal fees and expenses......................................... *
Road show expenses.............................................. *
Printing and engraving expenses................................. *
Blue sky fees and expenses...................................... *
Transfer agent and registrar fees and expenses.................. *
Miscellaneous................................................... *
--------
Total......................................................... $
========
</TABLE>
- --------
* To be supplied by amendment.
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 amended (the
"Securities Act").
As permitted by the Delaware General Corporation Law, the Registrant's
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:
. for any breach of the director's duty of loyalty to the Registrant or
its stockholders,
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases); or
. for any transaction from which the director derived an improper
personal benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
Bylaws provide that:
. 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;
. the Registrant may indemnify its other employees and agents as set
forth in the Delaware General Corporation Law;
. the Registrant is required to advance expenses, as incurred, to its
directors and 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
. the rights conferred in the Bylaws are not exclusive.
II-1
<PAGE>
The Registrant intends to enter into Indemnification Agreements with each
of its current directors and officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification
set forth in the Registrant's Certificate of Incorporation and to provide
additional procedural protections. At present, there is no pending litigation
or proceeding involving a director, officer or employee of the Registrant
regarding which indemnification is sought, nor is the Registrant aware of any
threatened litigation that may result in claims for indemnification.
Reference is also made to Section 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
Indemnity Agreements entered into between the Registrant and each of its
directors and officers may be sufficiently broad to permit indemnification of
the Registrant's directors and officers for liabilities arising under the
Securities Act.
The Registrant maintains directors' and officers' liability insurance and
expects to obtain a rider to such coverage for securities matters.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit Document Number
---------------- ------
<S> <C>
Underwriting Agreement (draft dated June , 1999)................ 1.01
Registrant's Certificate of Incorporation.......................... 3.01
Registrant's Bylaws................................................ 3.02
Amended and Restated Rights Agreement dated October 16, 1998....... 4.02
Form of Indemnity Agreement........................................ 10.01
</TABLE>
Item 15. Recent Sales of Unregistered Securities.
The following table sets forth information regarding all securities sold by
the Registrant in the past three years.
<TABLE>
<CAPTION>
Aggregate
Class of Date Title of Number of Purchase Form of
Purchaser of Sale Securities Securities (1) Price Consideration
- --------- --------- -------------------- ------------- ----------- ---------------------
Sales by (Pre-InfoTouch-
NetSelect Merger)
NetSelect, Inc.
<S> <C> <C> <C> <C> <C>
CDW Internet, L.L.C. ... 12/4/96 Class A Common Stock 472,940 236 Cash
CDW Internet, L.L.C. ... 12/4/96 Class B Common Stock 232,940 116 Cash
Allen & Co., CDW
Internet, L.L.C., J.H.
Whitney and Whitney 12/4/96-
Equity Partners........ 1/31/97 Series A Preferred 3,294,118 $ 4,677,648 Cash
Michael N. Flannery, 12/12/96- Series B Preferred 705,882 $ 2,336,469 Cash and
Daniel A. Koch and John 5/15/97 cancellation of
F. Petrick, Jr. ....... indebtedness
Jason Chapnik and Glen 3/31/97 Common Stock 58,764 -- -- Exchange of
Graff.................. shares in
connection with
TouchTech acquisition
Broadview Partners
Group, CDW Internet,
L.L.C., GeoCapital IV,
L.P., Ingleside
Interests and Daniel A. 9/29/97-
Koch................... 12/15/97 Series C Preferred 1,228,746 $ 4,497,210 Cash
General Electric Capital 1/12/98 Series D Preferred 1,362,402 $10,000,031 Cash
Corporation............
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Class of Date Title of Number of Purchase Form of
Purchaser of Sale Securities Securities (1) Price Consideration
- --------- -------- -------------------------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Roger Scommegna......... 3/31/98 Common Stock 210,000 -- -- Exchange of
shares in
connection with
The Enterprise
of America
Acquisition
AOL Warrants............ 4/8/98 Warrant to purchase Common Stock 226,590 As part of
advertising
agreement
Charles Ingrum, Fred
White and R. Fred
White, III............. 7/7/98 Series E Preferred 650,000 -- -- Exchange of
shares in
connection with
merger of
National New
Homes Co.,
Inc., a wholly-
owned
subsidiary, and
MultiSearch
Solutions, Inc.
9 investors............. 8/21/98 Common Stock 3,347,982 $10,579,623 Cash and
cancellation of
indebtedness
17 investors, including
the NAR................ 8/21/98 Series F Preferred 3,328,098 $39,937,176 Cash and
cancellation of
indebtedness
Equipment Lease
Warrants............... 1/11/99 Warrants to purchase 10,000 -- -- As partial
Series F Preferred consideration
for lease
<CAPTION>
Sales by InfoTouch, Inc.
<S> <C> <C> <C> <C> <C>
Daniel A. Koch.......... 11/25/96 Common Stock 25,934 $ 87,500 Cash
Michael S. Luther....... 11/25/96 Common Stock 25,934 $ 87,500 Cash
Nussbaum Family Trust... 11/25/96 Common Stock 14,820 $ 50,000 Cash
William Spazante........ 11/25/96 Common Stock 7,410 $ 25,000 Cash
Employee option
exercises, as a group.. 8/16/98 Common Stock 530,506 $ 594,039 Cash and
promissory notes
<CAPTION>
Sales made in connection
with
NetSelect-InfoTouch
merger:
<S> <C> <C> <C> <C> <C>
NetSelect Common Stock
Shareholders........... 2/4/99 Common Stock 4,992,978 -- -- Exchanged for
Common Stock
of pre-NetSelect-
InfoTouch
merger
NetSelect ("Old
NetSelect")
NetSelect Series A
Preferred
Shareholders........... 2/4/99 Series A Preferred 2,756,000 -- -- Exchanged for
Series A
Preferred of
Old NetSelect
NetSelect Series B
Preferred
Shareholders........... 2/4/99 Series B Preferred 380,676 -- -- Exchanged for
Series B
Preferred of
Old NetSelect
NetSelect Series C
Preferred
Shareholders........... 2/4/99 Series C Preferred 1,228,746 -- -- Exchanged for
Series C
Preferred of
Old NetSelect
NetSelect Series D
Preferred
Shareholders........... 2/4/99 Series D Preferred 1,362,402 -- -- Exchanged for
Series D
Preferred of
Old NetSelect
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Class of Date Title of Number of Purchase Form of
Purchaser of Sale Securities Securities (1) Price Consideration
- --------- --------- ------------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
NetSelect Series E
Preferred
Shareholders........... 2/4/99 Series E Preferred 650,000 -- -- Exchanged for
Series E
Preferred of
Old NetSelect
NetSelect Series F
Preferred
Shareholders........... 2/4/99 Series F Preferred 3,328,098 -- -- Exchanged for
Series F
Preferred of
Old NetSelect
<CAPTION>
Sales by (Post-
InfoTouch-NetSelect
Merger) NetSelect, Inc.
<S> <C> <C> <C> <C> <C>
Broker Gold
Shareholders, as a
group.................. 2/18/99 Common Stock 257,212 $2,012,032 Cash
Broker Gold
Shareholders, as a
group.................. 2/18/99 Series F Preferred 192,788 $1,507,968 Cash
Broker Gold Warrants.... Warrant to purchase 143,326 -- -- As partial
Common Stock consideration
for data content
agreements
ATGF II................. 4/9/99 Series G Preferred 150,762 $7,516,993 Cash
Litton Master Trust..... 4/9/99 Series G Preferred 22,500 $1,121,850 Cash
James Stableford........ 4/9/99 Series G Preferred 1,000 $ 49,860 Cash
Anthony Ciulla.......... 4/9/99 Series G Preferred 1,000 $ 49,860 Cash
Ralph H. Cechettini 1995
Trust.................. 4/9/99 Series G Preferred 6,000 $ 299,160 Cash
Pivotal Partners........ 4/9/99 Series G Preferred 14,000 $ 698,040 Cash
Marc Weiss.............. 4/9/99 Series G Preferred 5,000 $ 249,300 Cash
Dana Smith.............. 4/9/99 Series G Preferred 300 $ 14,958 Cash
Integral Capital
Partners IV, L.P....... 4/9/99 Series G Preferred 99,828 $4,977,424 Cash
Integral Capital
Partners IV MS Side
Fund, L.P.............. 4/9/99 Series G Preferred 453 $ 22,587 Cash
Cox Interactive Media... 4/9/99 Series G Preferred 40,112 $1,999,984 Cash
Employee option
exercises, as a group.. 2/12/99- Common Stock 1,909,216 $4,276,537 Cash and
4/30/99 promissory
notes
Gold Alliance Warrants.. 5/98-3/99 Warrant to purchase 83,752 -- -- As partial
Common Stock consideration
for data content
agreements
</TABLE>
- --------
(1) Each share of Series A, Series B, Series C, Series D, Series E, Series F
and Series G Preferred Stock will convert automatically into two shares of
common stock, respectively, upon the consummation of this offering.
(2) All sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act or on Section
4(2) of the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were
made without general solicitation or advertising. Each purchaser was a
sophisticated investor with access to all relevant information necessary to
evaluate the investment and represented to the Registrant that the shares were
being acquired for investment.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
1.01 Form of Underwriting Agreement (draft dated June , 1999).*
2.01 Agreement and Plan of Merger dated December 31, 1998, between
NetSelect, Inc. and InfoTouch Corporation.
2.02 Agreement and Plan of Reorganization dated June 20, 1998, among
NetSelect, Inc., National New Homes Co., Inc., MultiSearch
Solutions, Inc., Fred White, and R. Fred White III.
2.03 Exchange Agreement dated March 31, 1998, among NetSelect, Inc., The
Enterprise of America, Ltd., and Roger Scommegna.
2.04 Agreement and Plan of Reorganization/Merger between NetSelect, Inc.
and SpringStreet.com*
3.01 Registrant's Amended and Restated Certificate of Incorporation
dated February 2, 1999.*
3.02 Registrant's Amended and Restated Certificate of Incorporation to
be filed immediately after the closing of this offering.*
3.03 Registrant's Amended and Restated Bylaws dated February 4, 1999.*
3.04 Registrant's Amended and Restated Bylaws to be filed immediately
after the closing of this offering.*
3.05.1 RealSelect, Inc.'s Certificate of Incorporation dated October 25,
1996.
3.05.2 RealSelect, Inc.'s Certificate of Amendment to Certificate of
Incorporation dated November 25, 1996.*
3.06 RealSelect, Inc.'s Bylaws dated November 26, 1996.
4.01 Form of Specimen Certificate for Registrant's common stock.*
4.02.1 NetSelect, Inc. Second Amended and Restated Stockholders Agreement
dated January 28, 1999.
4.02.2 Amendment No. 1 to NetSelect, Inc. Second Amended and Restated
Stockholders Agreement dated January 28, 1999.
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.*
10.01 Form of Indemnity Agreement between Registrant and each of its
directors and executive officers.
10.02 Operating Agreement dated November 26, 1996, between REALTORS(R)
Information Network, Inc. and RealSelect, Inc.
10.03 Master Agreement dated November 26, 1996, among NetSelect, Inc.,
NetSelect, L.L.C., RealSelect, Inc., CDW Internet, L.L.C., Whitney
Equity Partners, L.P., Allen & Co., InfoTouch Corporation, and
REALTORS(R) Information Network, Inc.*
10.04 Joint Ownership Agreement dated November 26, 1996, among the
National Association of REALTORS(R), NetSelect, L.L.C., and
NetSelect, Inc.
10.05 Trademark License dated November 26, 1996, between the National
Association of REALTORS(R) and RealSelect, Inc.
10.06 Stock and Interest Purchase Agreement (NetSelect Series A and B
Preferred) dated November 26, 1996, among NetSelect, Inc.,
NetSelect L.L.C., and InfoTouch Corporation.
10.07 GeoCapital IV, L.P. Subscription Agreement (NetSelect Series C
Preferred) dated September 29, 1997.
10.08 Broadview Partners Group Subscription Agreement (NetSelect Series C
Preferred) dated September 29, 1997.
10.09 Ingleside Interests Subscription Agreement (NetSelect Series C
Preferred) dated September 29, 1997.
10.10 Daniel Koch Subscription Agreement (NetSelect Series C Preferred)
dated September 29, 1997.
10.11 Whitney Equity Partners Subscription Agreement (NetSelect Series C
Preferred) dated September 29, 1997.
10.12 CDW Internet Subscription Agreement (NetSelect Series C Preferred)
dated September 29, 1997.
10.13 NetSelect Series D Preferred Stock Purchase Agreement dated January
12, 1998.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
10.14 NetSelect Series F Preferred Stock Purchase Agreement dated August
21, 1998.
10.15 NetSelect Series G Preferred Stock Purchase Agreement dated April
9, 1999.
10.16 NetSelect, Inc. 1996 Stock Incentive Plan.
10.17 NetSelect, Inc. 1999 Equity Incentive Plan.
10.18 HomeStore.com, Inc. 1999 Stock Incentive Plan.*
10.19 HomeStore.com, Inc. 1999 Employee Stock Purchase Plan.*
10.20 InfoTouch Corporation 1994 Stock Incentive Plan.*
10.21 Employment Agreement between NetSelect, Inc. and Stuart H. Wolff,
Ph.D.
10.22 Employment Agreement between NetSelect, Inc. and Richard Janssen.
10.23 Employment Agreement between NetSelect, Inc. and Michael A.
Buckman.
10.24.1 Office Lease dated September 18, 1998 between RealSelect, Inc. and
WHLNF Real Estate Limited Partnership for 225 West Hillcrest,
Suite 100, Thousand Oaks, California
10.24.2 First Amendment to Office Lease dated March 31, 1999 between
RealSelect, Inc. and WHLNF Real Estate Limited Partnership for 225
West Hillcrest, Suite 100, Thousand Oaks, California
10.25 401(k) Plan.*
10.26.1 Employment Agreement between NetSelect, Inc. and Peter Tafeen.*
10.26.2 Amendment to Employment Contract between NetSelect, Inc. and
Peter Tafeen.*
10.27 Employment Agreement between NetSelect, Inc. and John M. Giesecke.
10.28 Employment Agreement between NetSelect, Inc. and David Rosenblatt.
10.29 Agreement dated August 21, 1998 among RealSelect, RIN, the NAR,
NetSelect and NetSelect L.L.C.
21.01 Subsidiaries of Registrant.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.03 Consent of PricewaterhouseCoopers LLP, independent accountants
23.04 Consent of PricewaterhouseCoopers LLP, independent accountants
23.05 Consent of PricewaterhouseCoopers LLP, independent accountants
23.06 Consent of PricewaterhouseCoopers LLP, independent accountants
23.07 Consent of Ernst & Young LLP, independent auditors
24.01 Power of Attorney (see page II-8).
27.01 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
(b) Financial Statement Schedules
Financial statement schedules are omitted because the information called
for is not required or is shown either in the financial statements or the
notes thereto.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of
II-6
<PAGE>
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Thousand Oaks, State of
California, on the 28th day of May, 1999.
HomeStore.com, Inc.
/s/ Stuart H. Wolff
By:__________________________________
Stuart H. Wolff
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Stuart H. Wolff, Ph.D., John M.
Giesecke, Jr. and David M. Rosenblatt, and each of them, his or her true and
lawful attorneys-in-fact and agents with full power of substitution, for him
or her and in his or her name, place and stead, in any and all capacities, to
sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to sign any registration statement for the same
offering covered by the Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or his, her or their substitute or substitutes, may lawfully do or cause
to be done or by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
Principal Executive Officer:
<S> <C> <C>
/s/ Stuart H. Wolff Chairman of the Board, Chief May 28, 1999
____________________________________ Executive Officer and
Stuart H. Wolff Director
Principal Financial Officer and
Principal Accounting Officer:
/s/ John M. Giesecke, Jr. Chief Financial Officer and May 28, 1999
____________________________________ Secretary
John M. Giesecke, Jr.
Additional Directors:
/s/ Richard R. Janssen Director May 28, 1999
____________________________________
Richard R. Janssen
/s/ Michael C. Brooks Director May 28, 1999
____________________________________
Michael C. Brooks
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James G. Brown Director May 20, 1999
____________________________________
James G. Brown
/s/ L. John Doerr Director May 4, 1999
____________________________________
L. John Doerr
/s/ Joe F. Hanauer Director May 28, 1999
____________________________________
Joe F. Hanauer
/s/ William E. Kelvie Director May 19, 1999
____________________________________
William E. Kelvie
/s/ Kenneth K. Klein Director May 21, 1999
____________________________________
Kenneth K. Klein
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
2.01 Agreement and Plan of Merger dated December 31, 1998, between
NetSelect, Inc. and InfoTouch Corporation.
2.02 Agreement and Plan of Reorganization dated June 20, 1998, among
NetSelect, Inc., National New Homes Co., Inc., MultiSearch
Solutions, Inc., Fred White, and R. Fred White III.
2.03 Exchange Agreement dated March 31, 1998, among NetSelect, Inc., The
Enterprise of America, Ltd., and Roger Scommegna.
3.05.1 RealSelect, Inc.'s Certificate of Incorporation dated October 25,
1996.
3.06 RealSelect, Inc.'s Bylaws dated November 26, 1996.
4.02.1 NetSelect, Inc. Second Amended and Restated Stockholders Agreement
dated January 28, 1999.
4.02.2 Amendment No. 1 to NetSelect, Inc. Second Amended and Restated
Stockholders Agreement dated April 9, 1999.
10.01 Form of Indemnity Agreement between Registrant and each of its
directors and executive officers.
10.02 Operating Agreement dated November 26, 1996, between REALTORS(R)
Information Network, Inc. and RealSelect, Inc.
10.04 Joint Ownership Agreement dated November 26, 1996, among the National
Association of REALTORS(R), NetSelect, L.L.C., and NetSelect, Inc.
10.05 Trademark License dated November 26, 1996, between the National
Association of REALTORS(R) and RealSelect, Inc.
10.06 Stock and Interest Purchase Agreement (NetSelect Series A and B
Preferred) dated November 26, 1996, among NetSelect, Inc., NetSelect
L.L.C., and InfoTouch Corporation.
10.07 GeoCapital IV, L.P. Subscription Agreement (NetSelect Series C
Preferred) dated September 29, 1997.
10.08 Broadview Partners Group Subscription Agreement (NetSelect Series C
Preferred) dated September 29, 1997.
10.09 Ingleside Interests Subscription Agreement (NetSelect Series C
Preferred) dated September 29, 1997.
10.10 Daniel Koch Subscription Agreement (NetSelect Series C Preferred)
dated September 29, 1997.
10.11 Whitney Equity Partners Subscription Agreement (NetSelect Series C
Preferred) dated September 29, 1997.
10.12 CDW Internet Subscription Agreement (NetSelect Series C Preferred)
dated September 29, 1997.
10.13 NetSelect Series D Preferred Stock Purchase Agreement dated January
12, 1998.
10.14 NetSelect Series F Preferred Stock Purchase Agreement dated August
21, 1998.
10.15 NetSelect Series G Preferred Stock Purchase Agreement dated April 9,
1999.
10.16 NetSelect, Inc. 1996 Stock Incentive Plan.
10.17 NetSelect, Inc. 1999 Equity Incentive Plan.
10.21 Employment Agreement between NetSelect, Inc. and Stuart H. Wolff,
Ph.D.
10.22 Employment Agreement between NetSelect, Inc. and Richard Janssen.
10.23 Employment Agreement between NetSelect, Inc. and Michael A. Buckman.
10.24.1 Office Lease dated September 18, 1998 between RealSelect, Inc. and
WHLNF Real Estate Limited Partnership for 225 West Hillcrest, Suite
100, Thousand Oaks, California.
10.24.2 First Amendment to Office Lease dated March 31, 1999 between
RealSelect, Inc. and WHLNF Real Estate Limited Partnership for 225
West Hillcrest, Suite 100, Thousand Oaks, California.
10.27 Employment Agreement between NetSelect, Inc. and John M. Giesecke.
10.28 Employment Agreement between NetSelect, Inc. and David Rosenblatt.
10.29 Agreement dated August 21, 1998 among RealSelect, RIN, the NAR,
NetSelect and NetSelect L.L.C.
21.01 Subsidiaries of Registrant.
23.02 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.03 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.04 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.05 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.06 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.07 Consent of Ernst & Young LLP, independent auditors.
24.01 Power of Attorney (see page II-8).
27.01 Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 2.01
Agreement and Plan of Merger
by and between
NetSelect, Inc.
and
InfoTouch Corporation
Dated as of
DECEMBER 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Plan Of Reorganization..................................................... 2
1.1 The Merger............................................................. 2
1.2 Fractional Shares...................................................... 3
1.3 NetSelect Options...................................................... 3
1.4 NetSelect Warrants..................................................... 4
1.5 Escrow Agreement....................................................... 4
1.6 Effects of the Merger.................................................. 5
1.7 Further Assurances..................................................... 6
1.8 Information Statement.................................................. 6
1.9 Tax Free Reorganization................................................ 6
1.10 Accounting Treatment.................................................. 7
2. Representation and Warranties of InfoTouch................................. 7
2.1 Organization and Good Standing......................................... 7
2.2 Power, Authorization and Validity...................................... 7
2.3 Capitalization......................................................... 8
2.4 Subsidiaries........................................................... 9
2.5 No Violation of Existing Agreements.................................... 9
2.6 Litigation............................................................. 10
2.7 Taxes.................................................................. 10
2.8 InfoTouch Financial Statements......................................... 10
2.9 Books and Records...................................................... 11
2.10 Title to Properties................................................... 11
2.11 Absence of Certain Changes............................................ 11
2.12 Intellectual Property................................................. 12
2.13 Compliance with Laws.................................................. 13
2.14. Employees, ERISA and Other Compliance................................ 13
2.15 Corporate Documents................................................... 14
2.16 No Brokers............................................................ 15
2.17 Disclosure............................................................ 15
2.18 Information Supplied.................................................. 15
2.19 Contracts and Commitments............................................. 15
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.20 Insurance............................................................. 16
2.21 Environmental Matters................................................. 16
2.22 Interested Party Transactions......................................... 17
3. Representations and warranties of NetSelect................................ 17
3.1 Organization and Good Standing......................................... 17
3.2 Power, Authorization and Validity...................................... 17
3.3 No Violation of Existing Agreements.................................... 18
3.4 No Brokers............................................................. 18
3.5 Capitalization......................................................... 18
3.6 Subsidiaries........................................................... 19
3.7 Litigation............................................................. 19
3.8 Taxes.................................................................. 20
3.9 NetSelect Financial Statements......................................... 20
3.10 Books and Records..................................................... 20
3.11 Title to Properties................................................... 21
3.12 Absence of Certain Changes............................................ 21
3.13 Intellectual Property................................................. 22
3.14 Compliance with Laws.................................................. 22
3.15 Corporate Documents................................................... 23
3.16 Disclosure............................................................ 23
2.17 Information Supplied.................................................. 23
4. InfoTouch Preclosing Covenants............................................. 23
4.1 Advice of Changes...................................................... 23
4.2 Maintenance of Business................................................ 24
4.3 Conduct of Business.................................................... 24
4.4 Stockholders Approval.................................................. 24
4.5 Information Statement.................................................. 24
4.6 Regulatory Approvals................................................... 24
4.7 Litigation............................................................. 24
4.8 No Other Negotiations.................................................. 24
4.9 Access to Information.................................................. 25
4.10 Satisfaction of Conditions Precedent; Necessary Consents.............. 25
4.11 InfoTouch Dissenting Shares........................................... 25
4.12 Blue Sky Laws......................................................... 25
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
4.13 Resignations of InfoTouch Officers and Directors...................... 25
4.14 Amendment of InfoTouch Bylaws......................................... 25
4.15 Reverse Stock Split and RealSelect Stock Transfer..................... 26
5. NetSelect Preclosing Covenants............................................. 26
5.1 Advice of Changes...................................................... 26
5.2 Maintenance of Business................................................ 26
5.3 Litigation............................................................. 26
5.4 Regulatory Approvals................................................... 26
5.5 Satisfaction of Conditions Precedent; Necessary Consents............... 26
5.6 Stockholders Approval.................................................. 27
5.7 Information Statement.................................................. 27
5.8 Blue Sky Laws.......................................................... 27
5.9 NetSelect Stockholder Investment Representation Letter................. 27
4.9 Access to Information.................................................. 27
4.9 RealSelect Stock Transfer.............................................. 27
6. closing matters............................................................ 27
6.1 The Closing............................................................ 27
6.2 Exchange of Certificates............................................... 28
6.3 Assumption of NetSelect Options and Warrants........................... 29
7. Conditions To Obligations of InfoTouch.................................... 29
7.1 Accuracy of Representations and Warranties............................. 30
7.2 Covenants.............................................................. 30
7.3 Compliance with Law.................................................... 30
7.4 Government Consents.................................................... 30
7.5 Opinion of NetSelect's Counsel......................................... 30
7.6 Documents.............................................................. 30
7.7 Stockholder Approval................................................... 30
7.8 No Litigation.......................................................... 30
7.9 InfoTouch Dissenting Shares............................................ 30
7.10 Consents.............................................................. 31
7.11 Stock Redemption Agreement............................................ 31
7.12 NetSelect Stockholder Investment Representation Letter................ 31
7.13 Amendment of NetSelect Stockholders' Agreement and RealSelect
Stockholders' Agreement............................................... 31
7.14 Absence of Material Adverse Change.................................... 31
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
8. Conditions To Obligations of NetSelect..................................... 31
8.1 Accuracy of Representations and Warranties............................. 31
8.2 Covenants.............................................................. 31
8.3 Absence of Material Adverse Change..................................... 32
8.4 Compliance with Law.................................................... 32
8.5 Government Consents.................................................... 32
8.6 Opinion of InfoTouch's Counsel......................................... 32
8.7 Consents............................................................... 32
8.8 No Litigation.......................................................... 32
8.9 Stockholder Approvals.................................................. 32
8.10 Dissenting Shares..................................................... 32
8.11 Termination of InfoTouch Stockholder Agreement........................ 33
8.12 Amendment of NetSelect Stockholders' Agreement and RealSelect
Stockholders' Agreement............................................... 33
8.13 NetSelect Stockholder Investment Representation Letter................ 33
8.14 Escrow Agreement...................................................... 33
8.15 Stock Redemption Agreement............................................ 33
8.16 Termination of Rights................................................. 33
8.17 Satisfactory Form of Legal and Accounting Matters..................... 33
8.18 Resignations of InfoTouch Officers and Directors...................... 33
8.19 Amendment of InfoTouch Bylaws......................................... 33
9. Termination of Agreement................................................... 34
9.1 Termination Prior to Closing........................................... 34
9.3 No Liability........................................................... 34
10. Survival of Representations and Warranties; Indemnification............... 35
10.1 Survival of Representations........................................... 35
10.2 Agreement to Indemnify................................................ 35
10.3 Indemnification Procedure............................................. 35
11. Post Closing Covenants of the Parties..................................... 36
11.1 Merger of InfoTouch and NS LLC........................................ 36
11.2 Redemption of Certain InfoTouch Stockholders.......................... 36
11. MISCELLANEOUS............................................................. 36
12.1 Governing Law; Consent to Jurisdiction................................ 36
12.2 Assignment; Binding Upon Successors and Assigns....................... 37
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
12.3 Severability.......................................................... 37
12.4 Counterparts.......................................................... 37
12.5 Other Remedies........................................................ 37
12.6 Amendment and Waivers................................................. 37
12.7 No Waiver............................................................. 38
12.8 Expenses.............................................................. 38
12.9 Attorneys' Fees....................................................... 38
12.10 Notices.............................................................. 38
12.11 Construction of Agreement............................................ 39
12.12 No Joint Venture..................................................... 39
12.13 Further Assurances................................................... 39
12.14 Absence of Third Party Beneficiary Rights............................ 40
12.15 Confidentiality...................................................... 40
12.16 Entire Agreement..................................................... 40
</TABLE>
EXHIBITS
- --------
Exhibit A Form of Certificate of Merger
Exhibit B Form of LLC Merger Agreement
Exhibit C Form of Stock Redemption Agreement
Exhibit D Form of Escrow Agreement
Exhibit E Amended Bylaws
Exhibit F Form of NetSelect Investment Representation Letter
Exhibit G Form of Opinion of Counsel of NetSelect
Exhibit H Form of Restated NetSelect Stockholders' Agreement
Exhibit I Form of Restated RealSelect Agreement
Exhibit J Form of Opinion of Counsel of InfoTouch
Exhibit K Form of Termination Agreement
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into as of
December 31, 1998, by and between NetSelect, Inc., a Delaware corporation
("NetSelect"), and InfoTouch Corporation, a Delaware corporation ("InfoTouch").
Recitals
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, NetSelect merge with and into InfoTouch in a statutory
merger (the "Merger"), with InfoTouch to be the Surviving Company in the Merger
and renamed "NetSelect, Inc." (such Surviving Company sometimes referred to
herein as the "Surviving Company") all pursuant to the terms and conditions of
this Agreement and a Certificate of Merger substantially in the form of Exhibit
A (the "Certificate of Merger") and the applicable provisions of the laws of the
State of Delaware. Upon the effectiveness of the Merger, all outstanding
capital stock of NetSelect ("NetSelect Stock") will be converted into capital
stock of InfoTouch ("InfoTouch Stock"), and InfoTouch will assume all
outstanding options and warrants to purchase shares of capital stock of
NetSelect, as provided in this Agreement and the Certificate of Merger.
B. Subject to the terms and conditions of this Agreement, as soon as
practicable after the Effective Time (as such term is defined below), NetSelect,
L.L.C., a Delaware limited liability company ("NS LLC"), will merge with and
into the Surviving Company in a statutory merger (the "LLC Merger"), with the
Surviving Company as the Surviving Company, all pursuant to the terms and
conditions of a Merger Agreement substantially in the form attached hereto as
Exhibit B (the "LLC Merger Agreement") and a Certificate of Merger substantially
in the form attached to the LLC Merger Agreement (the "LLC Certificate of
Merger") and the applicable provisions of the laws of the State of Delaware.
C. Pursuant to the terms and conditions of this Agreement and the Stock
Redemption Agreement, substantially in the form attached hereto as Exhibit C
(the "Stock Redemption Agreement"), InfoTouch has agreed as soon as practicable
after the Effective Time to repurchase, and certain of the holders of InfoTouch
Stock listed on Exhibit A to the Stock Redemption Agreement (the "Redeeming
Stockholders") have agreed to sell certain of their shares of the Surviving
Company Common Stock (the "InfoTouch Stockholder Redemption").
D. The Merger is intended to be treated as a tax-free reorganization
pursuant to the provisions of Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
<PAGE>
NOW, THEREFORE, the parties hereto hereby agree as follows:
Agreement
1. Plan Of Reorganization
1.1 The Merger. Subject to the terms and conditions of this
Agreement, NetSelect will be merged with and into InfoTouch pursuant to this
Agreement and the Certificate of Merger and in accordance with applicable
provisions of the laws of the State of Delaware as follows:
1.1.1 Conversion of Shares. Each share of Class A Common Stock,
par value $0.001 per share, of NetSelect ("NetSelect Class A Common Stock"), and
each share of Class B Common Stock, par value $0.001 per share, of NetSelect
("NetSelect Class B Common Stock")(collectively, the "NetSelect Common Stock")
issued and outstanding immediately prior to the filing of the Certificate of
Merger with the Secretary of State of Delaware (with the time of such filing
being referred to herein as, the "Effective Time") other than shares, if any,
for which appraisal rights have been or will be perfected in compliance with
applicable law, will by virtue of the Merger and at the Effective Time, and
without further action on the part of any holder thereof, be converted into the
right to receive one fully paid and nonassessable share of Common Stock, par
value $0.001 per share, of InfoTouch (the "Surviving Company Common Stock"). All
shares of any class of capital stock held by NetSelect as treasury shares shall
be canceled, and all shares of any class of capital stock of NetSelect held by
InfoTouch shall be canceled.
Each share of NetSelect Series A Convertible Preferred Stock ($0.001 par
value per share), Series B Convertible Preferred Stock ($0.001 par value per
share), Series C Convertible Preferred Stock ($0.001 par value per share),
Series D Convertible Preferred Stock ($0.001 par value per share), Series E
Convertible Preferred Stock ($0.001 par value per share) and Series F Preferred
Stock Convertible Preferred Stock ($0.001 par value per share) (collectively,
"NetSelect Preferred Stock") that is issued and outstanding immediately prior to
the filing of the Certificate of Merger with the Secretary of State of Delaware,
other than shares, if any, for which appraisal rights have been or will be
perfected in compliance with applicable law, will, by virtue of the Merger and
at the Effective Time and without further action on the part of any holder
thereof, be converted into and represent the right to receive a fully paid and
nonassessable share of the corresponding Series A Convertible Preferred Stock
($0.001 par value per share), Series B Convertible Preferred Stock ($0.001 par
value per share), Series C Convertible Preferred Stock ($0.001 par value per
share), Series D Convertible Preferred Stock ($0.001 par value per share),
Series E Convertible Preferred Stock ($0.001 par value per share) or Series F
Convertible Preferred Stock ($0.001 par value per share), of the Surviving
Company ("Surviving Company Preferred Stock"), as the case may be.
2
<PAGE>
1.1.2 Adjustments for Capital Changes. Except for the Reverse
Stock Split (as defined in Section 4.15 hereof), if before the Effective Time
InfoTouch or NetSelect recapitalizes through a split-up of its outstanding
shares into a greater number, or a combination of its outstanding shares into a
lesser number, reorganizes, reclassifies or otherwise changes its outstanding
shares into the same or a different number of shares of other classes (other
than through a split-up or combination of shares provided for in the previous
clause), or declares a dividend on its outstanding shares payable in shares or
securities convertible into shares, then the number of shares of Surviving
Company Common Stock and/or Surviving Company Preferred Stock into which the
shares of NetSelect Stock are to be converted will be adjusted appropriately so
as to maintain the proportionate interests of the holders of shares of InfoTouch
Stock and the holders of shares of NetSelect Stock (based on the Applicable
Multiple).
1.1.3 Dissenting Shares. Holders of shares of NetSelect Stock
("NetSelect Stockholders") and holders of shares of InfoTouch Stock who have
complied with all requirements for perfecting stockholders' rights of appraisal,
as set forth in Section 262 of the Delaware General Corporation Law ("Delaware
Law"), shall be entitled to their rights under the Delaware Law with respect to
such shares ("Dissenting Shares").
1.2 Fractional Shares. No fractional shares of Surviving Company
Common Stock and/or Surviving Company Preferred Stock will be issued in
connection with the Merger.
1.3 NetSelect Options. At the Effective Time, each holder of an
outstanding option to purchase NetSelect Common Stock granted by NetSelect (the
"NetSelect Options"), including under the NetSelect 1996 Stock Incentive Plan,
as amended, and the NetSelect 1999 Equity Incentive Plan (the "NetSelect
Plans"), shall be entitled, in accordance with the terms of such option, to
purchase after the Effective Time the same number of shares of Surviving Company
Common Stock as could be purchased under each such NetSelect Option immediately
prior to the Effective Time, the exercise price per share for each such option
will equal the exercise price of the NetSelect Option immediately prior to the
Effective Time, and such NetSelect Options will be assumed by the Surviving
Company. If the foregoing calculation results in an assumed option being
exercisable for a fraction of a share, then the number of shares of Surviving
Company Common Stock subject to such option will be rounded down to the nearest
whole number, with no cash being payable for such fractional share. The term,
exercisability, vesting schedule, status as an "incentive stock option" under
Section 422A of the Code, if applicable, and all other terms of the NetSelect
Options will otherwise be unchanged. Continuous employment with NetSelect or
RealSelect, Inc., a Delaware corporation ("RealSelect"), will be credited to an
optionee for purposes of determining the number of shares subject to exercise
after the Effective Time.
3
<PAGE>
1.4 NetSelect Warrants. At the Effective Time, each of the then
outstanding warrants, exchangeable or convertible securities or other rights or
agreements to purchase or otherwise acquire any NetSelect equity securities
("NetSelect Warrants") shall by virtue of the Merger, and without any further
action on the part of any holder thereof, be assumed by InfoTouch and converted
into a warrant or like security or agreement ("Surviving Company Warrants") to
purchase the same number of shares of Surviving Company Common Stock and/or
Surviving Preferred Stock or other equity security, as the case may be, as is
reflected in the NetSelect Warrant immediately prior to the Effective Time, and
InfoTouch shall assume all of the obligations of the NetSelect under such
NetSelect Warrants. If the foregoing calculation results in a Surviving Company
Warrant being exercisable for a fraction of a share of Surviving Company Common
Stock and/or Surviving Company Preferred Stock or other equity security, as the
case may be, then the number of shares of Surviving Company Common Stock and/or
Surviving Company Preferred Stock, as the case may be, subject to such Warrant
shall be rounded down to the nearest whole number of shares of Surviving Company
Common Stock and/or Surviving Company Preferred Stock, as applicable. The
exercise price of each Surviving Company Warrant shall be equal to the exercise
price of the NetSelect Warrant immediately prior to the Effective Time. The
exercisability period and other terms and conditions of the NetSelect Warrants
will be unchanged.
1.5 Escrow Agreement. At the Effective Time, InfoTouch will have
authorized and reserved two hundred thousand (200,000) shares of Surviving
Company Common Stock (the "Escrow Shares") until the end of the Escrow Period
(defined below) as security for performance of the InfoTouch indemnification
obligations under Section 10 hereof and pursuant to the provisions of an escrow
agreement in substantially the form of attached hereto as Exhibit D (the "Escrow
Agreement"). A record of the authorized and reserved Escrow Shares will made in
the form of a written ledger or other record, to be held and maintained by
Joseph Shew (the "Escrow Agent"), as escrow agent under the Escrow Agreement.
The Escrow Shares for each NetSelect Stockholder will not be considered issued
or outstanding, no dividends or other distributions will be declared and/or paid
on any Escrow Shares and such shares will have no voting rights until such time
as they are released from escrow and issued to the holder. The Escrow Shares
which are not subject to any unresolved Claims (as defined under the Escrow
Agreement) and which remain unissued as of the earlier of (i) the closing of a
underwritten registered public offering of shares of Surviving Company Common
Stock under the Securities Act of 1933, as amended (the "Securities Act"), or
(ii) the earlier of (x) date upon which the Surviving Company's auditors deliver
to the Surviving Company the audited consolidated financial statements of the
Surviving Company for the 1998 fiscal year or (y) June 30, 1999 (the "Escrow
Period"), will be released from escrow, and thereafter returned to the status of
authorized and unreserved Surviving Company Common Stock. To the extent that
Claims (as defined in the Escrow Agreement) are resolved in favor of the
NetSelect Stockholders, then the appropriate number of Escrow Shares shall be
released from escrow and issued in the form of one or more certificates and
delivered pro rata to each NetSelect Stockholder (based upon the number of
shares of Surviving Company Common Stock and Preferred Stock received by such
holder in the
4
<PAGE>
Merger) in accordance with the terms of the Escrow Agreement. If the Merger is
approved by the NetSelect Stockholders as provided herein, the NetSelect
Stockholders shall, without any further act of any NetSelect Stockholder, be
deemed to have consented to and approved (i) the use of the Escrow Shares as
collateral for the InfoTouch indemnification obligations under Section 10 hereof
in the manner set forth in the Escrow Agreement, (ii) the appointment of John
Giesecke as the representative of the NetSelect Stockholders (the "N/S
Representative") under the Escrow Agreement and as the attorney-in-fact and
agent for and on behalf of the NetSelect Stockholders (other than holders of
Dissenting Shares), and the taking by the N/S Representative of any and all
actions and the making of any decisions required or permitted to be taken by him
under the Escrow Agreement (including, without limitation, the exercise of the
power to: authorize delivery to the NetSelect Stockholders of the Escrow Shares
in satisfaction of Claims; agree to, negotiate, enter into settlements and
compromises of and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims; resolve any claim made
pursuant to Section 10 hereof; and take all actions necessary in the judgment of
the N/S Representative for the accomplishment of the foregoing), and (iii) to
all of the other terms, conditions and limitations in the Escrow Agreement. If
the Merger is approved by the InfoTouch Stockholders as provided herein, the
InfoTouch Stockholders shall, without any further act of any InfoTouch
Stockholder, be deemed to have consented to and approved (i) the use of the
Escrow Shares as collateral for the InfoTouch indemnification obligations under
Section 10 hereof in the manner set forth in the Escrow Agreement, (ii) the
appointment of Richard Janssen, as the representative of the InfoTouch
Stockholders (the "I/T Representative") under the Escrow Agreement and as the
attorney-in-fact and agent for and on behalf of the InfoTouch Stockholders
(other than holders of Dissenting Shares), and the taking by the I/T
Representative of any and all actions and the making of any decisions required
or permitted to be taken by him under the Escrow Agreement (including, without
limitation, the exercise of the power to: authorize delivery to the NetSelect
Stockholders of the Escrow Shares in satisfaction of Claims; agree to,
negotiate, enter into settlements and compromises of and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims; resolve any claim made pursuant to Section 10 hereof; and take all
actions necessary in the judgment of the I/T Representative for the
accomplishment of the foregoing), and (iii) to all of the other terms,
conditions and limitations in the Escrow Agreement. Any securities received by
the Escrow Agent in respect of any Escrow Shares held in escrow as a result of
any change of Surviving Company Common Stock into any other securities pursuant
to or as a part of a merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation of the Surviving Company, or
otherwise, shall be held by the Escrow Agent as, and shall be included within
the definition of, Escrow Shares.
1.6 Effects of the Merger. At the Effective Time: (a) the separate
existence of NetSelect will cease and NetSelect will be merged with and into
InfoTouch, and InfoTouch will be the Surviving Company, pursuant to the terms of
the Certificate of Merger and Delaware Law, (b) the Certificate of Incorporation
and Bylaws of the Surviving Company will be the Amended and Restated Certificate
of
5
<PAGE>
Incorporation attached as Attachment 1 to the Certificate of Merger, and the
------------
Amended Bylaws substantially in the form attached hereto as Exhibit E (the
"Amended Bylaws"), of the Surviving Company, (c) each share of InfoTouch Common
Stock and each InfoTouch Option outstanding immediately prior to the Effective
Time will be unchanged and be an identical outstanding share or option (as the
case may be) of the Surviving Company, (d) the Board of Directors and officers
of the Surviving Company will consist of the persons who were officers and
directors of NetSelect immediately prior to the Effective Time of the Merger,
(e) each share of NetSelect Stock, and each NetSelect Option and NetSelect
Warrant outstanding immediately prior to the Effective Time, will be converted
and/or assumed (as the case may be) as provided in Sections 1.1, 1.2, 1.3 and
1.4, (f) the Surviving Company will assume the NetSelect 1999 Equity Incentive
Plan, and (g) the Merger will, from and after the Effective Time, have all of
the effects provided by applicable law.
1.7 Further Assurances. The parties agree that if, at any time before or
after the Effective Time, if either party reasonably considers or is advised
that any further deeds, assignments or assurances are reasonably necessary or
desirable to vest, perfect or confirm in InfoTouch title to any property or
rights of NetSelect, each party and its proper officers and directors may
execute and deliver all such proper deeds, assignments and assurances and do all
other things necessary or desirable to vest, perfect or confirm title to such
property or rights in InfoTouch and otherwise to carry out the purposes of this
Agreement.
1.8 Information Statement. As promptly as practicable after the date of
this Agreement, NetSelect and InfoTouch shall prepare a joint information
statement (the "Information Statement") to be provided to the NetSelect
Stockholders and the InfoTouch Stockholders in connection with soliciting the
approval of the Merger and the Merger Agreement by such stockholders. Each
party hereto shall furnish all information concerning such party and its
stockholders as may be reasonably requested in connection with preparing and
distributing the Information Statement.
1.9 Tax Free Reorganization. The parties intend to adopt this Agreement
as a tax-free plan of reorganization and to consummate the Merger in accordance
with the provisions of Section 368(a)(1)(A) of the Code. The parties believe
that the value of the Surviving Company Common Stock and/or Surviving Company
Preferred Stock to be received in the Merger is equal, in each instance, to the
value of the NetSelect Stock to be surrendered in exchange therefor. Except for
cash paid in lieu of fractional shares or for Dissenting Shares and cash paid
under the InfoTouch Stockholder Redemption, no consideration that could
constitute "other property" within the meaning of Section 356 of the Code is
being paid by InfoTouch for the NetSelect Stock in the Merger. The parties shall
not take a position on any tax returns inconsistent with this Section. In
addition, InfoTouch represents now, and as of the Closing Date (as defined in
Section 6.1 hereof), that it presently intends to continue NetSelect's historic
business or use a significant portion of NetSelect's business assets
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in a business. The provisions and representations contained or referred to in
this Section shall survive until the expiration of the applicable statute of
limitations.
1.10 Accounting Treatment. The parties intend that the Merger be
treated as a consolidation of related entities for accounting purposes.
2. Representation and Warranties of InfoTouch
InfoTouch hereby represents and warrants to NetSelect that (a) as of
May 1, 1997 it had terminated all its of operating activities and that its sole
activity since that time has been to own certain membership interests in NS LLC;
and (b) as of September 30, 1998 and immediately before the Closing (as defined
in Section 6.1 hereof) the stockholders' equity of InfoTouch was and will be not
less than a negative $80,000 and the total liabilities (including contingent
liabilities) of InfoTouch were and will not be greater than $100,000 (excluding
costs and expenses incurred by InfoTouch in connection with the Merger, negative
goodwill reflected on the InfoTouch balance sheet dated as of September 30, 1998
and amounts due to RealSelect as of September 30, 1998 as reflected on such
balance sheet), as reflected on the balance sheet of InfoTouch dated as of the
Closing. InfoTouch hereby further represents and warrants to NetSelect, except
as set forth on the InfoTouch Disclosure Schedule and separately delivered by
InfoTouch to NetSelect herewith (the "InfoTouch Disclosure Schedule"), as
follows:
2.1 Organization and Good Standing. InfoTouch is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted, and is qualified as a foreign corporation in each jurisdiction in
which a failure to be so qualified could reasonably be expected to have a
material adverse effect on its present or expected operations or financial
condition.
2.2 Power, Authorization and Validity.
2.2.1 InfoTouch has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and
all agreements contemplated hereby to which InfoTouch is or will be a party or
that it is required to execute pursuant to this Agreement (the "InfoTouch
Ancillary Agreements"). The execution, delivery and performance of this
Agreement and the InfoTouch Ancillary Agreements have been duly and validly
approved and authorized by InfoTouch's Board of Directors.
2.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable InfoTouch to enter into, and to perform its
obligations under, this Agreement and the InfoTouch Ancillary Agreements, except
for (a) the
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filing of the Certificate of Merger with the Delaware Secretary of State, the
recording of the Certificate of Merger in the office of the Recorder of the
Delaware county in which InfoTouch's registered office is located, and the
filing of appropriate documents with the relevant authorities of other states in
which InfoTouch is qualified to do business, if any, (b) such filings as may be
required to comply with federal and state securities laws, and (c) the approval
of and adoption by the holders of InfoTouch Stock of the Agreement and all
transaction contemplated by the Agreement, as provided under applicable law, the
InfoTouch Certificate of Incorporation, the InfoTouch Bylaws and any other
charter document of InfoTouch (the "InfoTouch Stockholder Approval"), (d) all
consents approvals and filings required to consummate the LLC Merger, and the
InfoTouch Stockholder Redemption, (e) the (i) termination, as contemplated by
this Agreement, of that certain InfoTouch Stockholder Agreement dated as of
December __, 1996, by and among InfoTouch and certain InfoTouch Stockholders
(the "InfoTouch Stockholder Agreement"), (ii) the amendment and restatement, as
contemplated by this Agreement, of that certain NetSelect, Inc. Amended and
Restated Stockholders' Agreement, dated as of August 21, 1998, by and among
NetSelect and certain NetSelect Stockholders, as amended by that certain
Amendment to Amended and Restated NetSelect Stockholders' Agreement dated
October 22, 1998 (the "NetSelect Stockholders' Agreement"), and (iii) the
amendment and restatement, as contemplated by this Agreement, of that certain
RealSelect, Inc. Stockholders' Agreement, dated as of November 26, 1996, by and
among NS LLC, RealSelect, and the National Association of REALTORS(R) (the
"NAR"), an Illinois not for profit corporation and the assignee of the interests
of the REALTORS(R) Information Network, Inc., an Illinois corporation ("RIN"),
as amended by that certain Amendment No. 2 To RealSelect, Inc. Stockholders'
Agreement dated as of August 21, 1998, and as amended by that certain Amendment
No. 3 To RealSelect Stockholders' Agreement dated October 22, 1998 (the
"RealSelect Stockholders' Agreement") and (f) all consents, approvals and
filings that will be obtained prior to the Effective Time.
2.2.3 This Agreement and the InfoTouch Ancillary Agreements are, or
when executed by InfoTouch will be, valid and binding obligations of InfoTouch
enforceable in accordance with their respective terms, except as to the effect,
if any, of (a) applicable bankruptcy and other similar laws affecting the rights
of creditors generally, and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies; provided, however, that the
Certificate of Merger will not be effective until filed with the Delaware
Secretary of State.
2.3 Capitalization. As of the date of this Agreement, the authorized
capital stock of InfoTouch consists of 5,000,000 shares of InfoTouch Common
Stock, of which 4,489,138 shares are issued and outstanding, and 1,000,000
shares of Preferred Stock, 400,000 shares of which are designated Series A
Convertible Preferred Stock (of which no shares are outstanding), 200,000 shares
of which are designated as Series B Convertible Preferred Stock (of which no
shares are issued and outstanding), and 400,000 shares of which are undesignated
Preferred Stock. An
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aggregate of 1,000,000 shares of InfoTouch Common Stock are reserved and
authorized for issuance pursuant to exercise of options granted pursuant to the
InfoTouch 1994 Stock Incentive Plan ("InfoTouch Options"), of which options to
purchase a total of 9,000 shares of InfoTouch Common Stock are outstanding. All
issued and outstanding shares of InfoTouch Stock, and all granted and
outstanding InfoTouch Options, have been duly authorized and validly issued, are
fully paid and nonassessable, and are not subject to any right of rescission or
redemption (except as provided in the Voting and Recapitalization Agreement
dated as of August 21, 1998 by and among NetSelect, InfoTouch and the Selling
Stockholders (as such term is defined therein), as the same may have been
amended (the "Voting Agreement")), and have been offered, issued, sold and
delivered by InfoTouch in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws. Except for InfoTouch Stock and InfoTouch Options listed
on the InfoTouch Disclosure Schedule, as of immediately prior to the Effective
Time, InfoTouch will have no authorized or outstanding capital stock, options,
warrants, exchangeable or convertible securities or commitments or other rights
or agreements to purchase or otherwise acquire any InfoTouch Stock. A list of
all holders of InfoTouch Stock and InfoTouch Options, and the number of shares
and options held by each such holder, is included on the InfoTouch Disclosure
Schedule. Except as set forth in this Section and on the InfoTouch Disclosure
Schedule, there are no options, warrants, calls, commitments, conversion
privileges or preemptive or other rights or agreements outstanding to purchase
from InfoTouch any of InfoTouch's authorized but unissued capital stock or any
securities convertible into or exchangeable for shares of InfoTouch Stock or
obligating InfoTouch to grant, extend, or enter into any such option, warrant,
call, right, commitment, conversion privilege or other right or agreement, and
there is no liability for dividends accrued but unpaid. Except for the InfoTouch
Stockholder Agreement and the Voting Agreement, there are no voting agreements,
rights of first refusal or other restrictions (other than normal restrictions on
transfer under applicable federal and state securities laws) applicable to any
of InfoTouch's outstanding securities, and InfoTouch is not under any obligation
to register under the Securities Act any of its presently outstanding securities
or any securities that may be subsequently issued.
2.4 Subsidiaries. Except for its membership interest in NS LLC,
InfoTouch does not have any subsidiaries or hold any interest, direct or
indirect, in any corporation, partnership, joint venture or other business
entity.
2.5 No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement nor any InfoTouch Ancillary Agreement, nor the
consummation of the transactions contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach, impairment or violation of (a) any provision of the Certificate of
Incorporation or Bylaws of InfoTouch, as amended and as currently in effect, (b)
in any material respect, any instrument or contract to which InfoTouch is a
party or by which it is bound, or (c) any
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federal, state, local or foreign judgment, writ, decree, order, statute, rule or
regulation applicable to InfoTouch or its assets or properties. The consummation
of the Merger and the LLC Merger (and the transaction contemplated hereby) and
the assumption by InfoTouch of all material rights, licenses, franchises, leases
and agreements of NetSelect and NS LLC in connection with the Merger and the LLC
Merger will not require the consent of any third party under any instrument or
contract to which InfoTouch is a party or by which it is bound.
2.6 Litigation. There is no action, proceeding, claim or investigation
pending against InfoTouch before any court or administrative agency, nor, to the
best of InfoTouch's knowledge, has any such action, proceeding, claim or
investigation been threatened. There is, to the best of InfoTouch's knowledge,
no reasonable basis for any stockholder or former stockholder of InfoTouch, or
any other person, firm, corporation, or entity, to assert a claim against
NetSelect or InfoTouch based upon: (a) ownership or rights to ownership of any
shares of InfoTouch Stock, the InfoTouch Options or any other securities of
InfoTouch (except for dissenter's rights with respect to shares of NetSelect
Stock issuable by virtue of the Merger), (b) any rights as an InfoTouch
Stockholder, including any option or preemptive rights or rights to notice or to
vote, or (c) any rights under any agreement by and between InfoTouch and any of
its stockholders.
2.7 Taxes. InfoTouch has filed all federal, state, local and foreign tax
returns required to be filed, has paid all taxes required to be paid in respect
of all periods for which returns have been filed, has established an adequate
accrual or reserve for the payment of all taxes payable in respect of the
periods subsequent to the periods covered by the most recent applicable tax
returns, has made all necessary estimated tax payments, and has no liability for
taxes in excess of the amount so paid or accruals or reserves so established.
InfoTouch is in no way delinquent in the payment of any tax or delinquent in the
filing of any tax returns, and no deficiencies for any tax have been threatened,
claimed, proposed or assessed. No tax return of InfoTouch has ever been audited
by the Internal Revenue Service or any state taxing agency or authority. For the
purposes of this Section, the terms "tax" and "taxes" include all federal,
state, local and foreign income, gains, franchise, excise, property, sales, use,
employment, license, payroll, occupation, recording, value added or transfer
taxes, governmental charges, fees, levies or assessments (whether payable
directly or by withholding), and, with respect to such taxes, any estimated tax,
interest and penalties or additions to tax and interest on such penalties and
additions to tax.
2.8 InfoTouch Financial Statements. InfoTouch has delivered to NetSelect
a true and correct copy of InfoTouch's audited balance sheets dated as of
December 31, 1996 and 1997, respectively, and its audited statements of
operations and of cash flows for the fiscal years ended December 31, 1997, 1996
and 1995, respectively, and its interim unaudited balance sheet (the "InfoTouch
Balance Sheet") as of September 30, 1998 (the "InfoTouch Balance Sheet Date")
and an interim unaudited
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statement of operations and of cash flows for the nine months then ended (all of
the foregoing referred to collectively as the "InfoTouch Financial Statements").
The InfoTouch Financial Statements (a) are in accordance with the books and
records of InfoTouch, (b) fairly present the financial condition of InfoTouch at
the dates therein indicated and the results of operations for the periods
therein specified and (c) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis. InfoTouch has no
debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not reflected
or reserved against in the InfoTouch Financial Statements, except for those that
may have been incurred after the InfoTouch Balance Sheet Date in the ordinary
course of its business, consistent with past practice and that are not in excess
of $10,000 either individually or collectively.
2.9 Books and Records. The books, records and accounts of InfoTouch
(a) are in all material respects true, complete and correct, (b) have been
maintained in accordance with good business practices on a basis consistent with
prior years, (c) are stated in reasonable detail and accurately and fairly
reflect the transactions and dispositions of the assets of InfoTouch, and (d)
accurately and fairly reflect the basis for the InfoTouch Financial Statements.
2.10 Title to Properties. InfoTouch has good and marketable title to
all of its assets as shown on the Balance Sheet, free and clear of all liens,
charges, restrictions or encumbrances (other than for taxes not yet due and
payable). All leases of real or personal property to which InfoTouch is a
party are fully effective and afford InfoTouch peaceful and undisturbed
possession of the subject matter of the lease. InfoTouch is in no way in
material violation of any zoning, building, safety or environmental ordinance,
regulation or requirement or other law or regulation applicable to the operation
of owned or leased properties, and has not received any notice of violation with
which it has not complied.
2.11 Absence of Certain Changes. Since the InfoTouch Balance Sheet
Date, there has not been with respect to InfoTouch:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations thereof, whether or not arising in the
ordinary course of business, that has had or will have a material adverse effect
on InfoTouch;
(b) any contingent liability incurred by InfoTouch as guarantor
or otherwise with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the
properties of InfoTouch;
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(d) any obligation or liability incurred by InfoTouch (except as
incurred in the ordinary course of InfoTouch's business);
(e) any purchase or sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of InfoTouch (except for non-material purchases or sales in
the ordinary course of InfoTouch's business, and except for the acquisition of
shares of RealSelect Common Stock held by NS LLC pursuant to the RealSelect
Stock Transfer Agreement in a form reasonably acceptable to the parties and
their respective counsel (the "RealSelect Stock Transfer Agreement");
(f) any damage, destruction or loss, whether or not covered by
insurance, adversely affecting the properties, assets or business of InfoTouch;
(g) any declaration, setting aside or payment of any dividend
on, or the making of any other distribution in respect of, the capital stock of
InfoTouch, any split, combination or recapitalization of the capital stock of
InfoTouch or any direct or indirect redemption, purchase or other acquisition of
the capital stock of InfoTouch;
(h) any payment or discharge of a lien or liability of InfoTouch
which lien or liability was not reflected on the Balance Sheet; or
(i) any obligation or liability incurred by InfoTouch to any of
its officers, directors or stockholders or any loans or advances made by
InfoTouch to any of its officers, directors or stockholders.
2.12 Intellectual Property. InfoTouch owns, or has the right to use,
sell or license all Intellectual Property Rights (as defined below) that are
necessary or required for the conduct of its business as presently conducted
(such Intellectual Property Rights being referred to as the "InfoTouch IP
Rights") and such rights to use, sell or license are sufficient for such conduct
of its business. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any InfoTouch IP Rights (the
"InfoTouch IP Rights Agreements"). There are no royalties, honoraria, fees or
other payments payable by InfoTouch to any person by reason of the ownership,
use, license, sale or disposition of the InfoTouch IP Rights. There is no
pending or, to the best knowledge of InfoTouch, threatened claim or litigation
contesting the validity, ownership or right to use, sell, license or dispose of
any InfoTouch IP Rights, nor is there any basis for any such claim, nor has
InfoTouch received any notice asserting that any InfoTouch IP Rights or the
proposed use, sale, license or disposition thereof conflicts or will conflict
with the rights of any other party. The InfoTouch Disclosure Schedule contains
a list of all applications, registrations, filings and other formal actions made
or taken pursuant to federal, state and foreign laws by InfoTouch to perfect or
protect its interest in InfoTouch IP Rights, including,
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without limitation, all patents, patent applications, trademarks, trademark
applications and service marks. As used herein, the term "Intellectual Property
Rights" shall mean all worldwide industrial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark applications, trade names, service marks, service mark
applications, copyright, copyright applications, franchises, licenses,
inventories, know-how, trade secrets, customer lists, proprietary processes and
formulae, all source and object code, algorithms, architecture, structure,
display screens, layouts, inventions, development tools and all documentation
and media constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records.
2.13 Compliance with Laws. InfoTouch has complied, or prior to the
Closing Date will have complied, and is or will be at the Closing Date in full
compliance, with all applicable laws, ordinances, regulations, and rules, and
all orders, writs, injunctions, awards, judgments, and decrees applicable to it
or its assets, properties, and business thereof, including, without limitation:
(a) all applicable federal and state securities laws and regulations, (b) to
InfoTouch's knowledge, all applicable federal, state, and local laws,
ordinances, regulations, and all orders, writs, injunctions, awards, judgments,
and decrees pertaining to (i) the sale, licensing, leasing, ownership, or
management of its owned, leased or licensed real or personal property, products
and technical data, (ii) employment and employment practices, terms and
conditions of employment, and wages and hours and (iii) safety, health, fire
prevention, environmental protection, toxic waste disposal, building standards,
zoning and other similar matters (c) to InfoTouch's knowledge, the Export
Administration Act, as amended, and regulations promulgated thereunder and all
other laws, regulations, rules, orders, writs, injunctions, judgments and
decrees applicable to the export or re-export of controlled commodities or
technical data and (d) to InfoTouch's knowledge, the Immigration Reform and
Control Act, as amended.
2.14. Employees, ERISA and Other Compliance.
2.14.1 InfoTouch has no employees or consultants or independent
contractors, and is not a party to bound by and has no liability under any
employment contracts or consulting agreements (other than agreements with the
sole purpose of providing for the confidentiality of proprietary information or
assignment of inventions).
2.14.2 InfoTouch does not have any (i) "employee benefit plan,"
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or (ii) any other written or formal plans or
agreements involving direct or indirect compensation or benefits (including any
employment agreements entered into between InfoTouch and any current or former
employee of InfoTouch, but excluding workers' compensation, unemployment
compensation and other government-mandated programs) currently or previously
maintained, contributed to or entered into
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by InfoTouch or any ERISA Affiliate (as defined below) thereof has any present
or future obligation or liability (collectively, the "InfoTouch Employee
Plans"). For purposes of this Section 2.14, "ERISA Affiliate" shall mean any
entity which is a member of (A) a "controlled group of corporations," as defined
in Section 414(b) of the Code, (B) a group of entities under "common control,"
as defined in Section 414(c) of the Code, or (C) an "affiliated service group,"
as defined in Section 414(m) of the Code, or treasury regulations promulgated
under Section 414(o) of the Code, any of which includes InfoTouch. InfoTouch or
any ERIS Affiliate (or any officer or director thereof) has no present or future
obligation or liability under the InfoTouch Employee Plans or any statutes,
orders, rules and regulations, including, without limitation, ERISA and the
Code, which are applicable to such InfoTouch Employee Plans.
2.14.3 InfoTouch is not a party to or obligated under any
employment, severance, settlement or other similar contract, arrangement or
policy and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' benefits, vacation
benefits, severance benefits, disability benefits, death benefits,
hospitalization benefits, retirement benefits, deferred compensation, profit-
sharing, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits for employees, consultants or directors.
2.14.4 InfoTouch has complied with all applicable laws,
agreements and contracts relating to employment, employment practices, wages,
hours, and terms and conditions of employment, including, but not limited to,
employee compensation matters, but not including ERISA. To InfoTouch's
knowledge, no employee or former employee of InfoTouch is in violation of any
term of any employment contract, patent disclosure agreement, noncompetition
agreement, or any other contract or agreement, or any restrictive covenant
relating to the right of any such employee to be employed thereby, or to use
trade secrets or proprietary information of others, and the employment of such
employees does not subject InfoTouch to any liability.
2.14.5 InfoTouch is not a party to or in any way bound by any
(a) agreement with any executive officer or director or other key employee
thereof or (b) agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan.
2.15 Corporate Documents. InfoTouch has made available to NetSelect
or its counsel for examination all documents and information listed in the
InfoTouch Disclosure Schedule or other schedules called for by this Agreement
which have been requested by NetSelect's legal counsel, including, without
limitation, the following: (a) copies of InfoTouch's Certificate of
Incorporation and Bylaws as currently in effect; (b) its Minute Book containing
all records of all proceedings, consents, actions, and meetings of the
stockholders, the board of directors and any committees thereof; (c) its
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stock ledger and journal reflecting all stock issuances and transfers; (d) all
permits, orders, and consents issued by any regulatory agency with respect to
InfoTouch, or any securities of InfoTouch, and all applications for such
permits, orders, and consents, and all material agreements, arrangements or
obligations to which InfoTouch is bound or is a party.
2.16 No Brokers. InfoTouch is not in any way obligated for the payment of
fees or expenses of any investment banker, broker or finder in connection with
the origin, negotiation or execution of this Agreement or the Certificate of
Merger or in connection with any transaction contemplated hereby or thereby.
2.17 Disclosure. Neither this Agreement, its exhibits and schedules, nor
any of the certificates or documents to be delivered by InfoTouch to NetSelect
or its counsel under this Agreement, taken together, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which such statements were made, not misleading.
2.18 Information Supplied. None of the information supplied or to be
supplied by InfoTouch for inclusion in the Information Statement or to holders
of its capital stock in connection with obtaining the InfoTouch Stockholder
Approval, at the date such information is supplied and at the date of such
Information Statement, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
2.19 Contracts and Commitments. Except as contemplated herein, InfoTouch
is not a party to or in any way bound by any oral or written contract,
obligation or commitment which is material to the business of InfoTouch or which
involves a potential commitment (after the date hereof) in excess of $10,000 or
any stock redemption or purchase agreement, financing agreement, license, lease
or franchise, including, but not limited to any:
(a) contracts providing for payments by or to InfoTouch in an
aggregate amount of $10,000 or more;
(b) agreements for the lease of real or personal property;
(c) joint venture contracts or arrangements or any other agreement
that involves a sharing of profits with other persons;
(d) instrument evidencing or related in any way to indebtedness for
borrowed money by way of direct loan, sale of debt securities,
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purchase money obligation, conditional sale, guarantee, or otherwise, except as
is disclosed in the InfoTouch Financial Statements; or
(e) contracts containing covenants purporting to limit
InfoTouch's freedom to compete in any line of business in any geographic area.
All agreements, contracts, plans, leases, instruments, arrangements,
licenses and commitments listed in the InfoTouch Disclosure Schedule are valid
and in full force and effect. InfoTouch is in no way, nor to the knowledge of
InfoTouch, is any other party thereto, in breach or default in any material
respect under the terms of any such agreement, contract, plan, lease,
instrument, arrangement, license or commitment set forth on the InfoTouch
Disclosure Schedule.
2.20 Insurance. InfoTouch maintains and at all times during the prior
three years has maintained insurance which it believes to be reasonably prudent
for similarly sized and similarly situated businesses.
2.21 Environmental Matters.
2.21.1 During the period that InfoTouch has leased or owned its
properties or owned or operated any facilities, there have been no disposals,
releases or threatened releases of Hazardous Materials (as defined below) on,
from or under such properties or facilities. InfoTouch has no knowledge of any
presence, disposals, releases or threatened releases of Hazardous Materials on,
from or under any of such properties or facilities, which may have occurred
prior to InfoTouch having taken possession of any of such properties or
facilities. For the purposes of this Agreement, the terms "disposal," "release,"
and "threatened release" shall have the definitions assigned thereto by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. (S) 9601 et seq., as amended ("CERCLA"). For the purposes of this
Agreement "Hazardous Materials" shall mean any hazardous or toxic substance,
material or waste which is or becomes prior to the Closing regulated under, or
defined as a "hazardous substance," "pollutant," "contaminant," "toxic
chemical," "hazardous materials," "toxic substance" or "hazardous chemical"
under (1) CERCLA; (2) any similar federal, state or local law; or (3)
regulations promulgated under any of the above laws or statutes.
2.21.2 To InfoTouch's knowledge, none of the properties or
facilities of InfoTouch is in violation of any federal, state or local law,
ordinance, regulation or order relating to industrial hygiene or to the
environmental conditions on, under or about such properties or facilities,
including, but not limited to, soil and ground water condition.
2.22 Interested Party Transactions. Except for the InfoTouch Stockholder
Agreement and the Voting Agreement, no officer or director of InfoTouch or any
"affiliate" or "associate" (as those terms are defined in Rule 405 promulgated
under
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the Securities Act) of any such person has had, either directly or indirectly, a
material interest in: (i) any person or entity which purchases from or sells,
licenses or furnishes to InfoTouch any goods, property, technology or
intellectual or other property rights or services; or (ii) any contract or
agreement to which InfoTouch is a party or by which it may be bound or affected.
3. Representations and warranties of NetSelect
NetSelect, Inc. as a separate corporate entity, hereby represents and
warrants to the InfoTouch (only with respect to NetSelect, Inc. as a separate
corporate entity, and not with respect to any subsidiary of NetSelect, including
without limitation NS LLC or RealSelect, Inc.), except as set forth on the
NetSelect Disclosure Schedule separately delivered to InfoTouch by NetSelect
herewith (the "NetSelect Disclosure Schedule"), as follows:
3.1 Organization and Good Standing. NetSelect is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted and is qualified as a foreign corporation in each jurisdiction in
which a failure to be so qualified could reasonably be expected to have a
material adverse effect on its present or expected operations or financial
condition.
3.2 Power, Authorization and Validity.
3.2.1 NetSelect has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and
all agreements contemplated hereby to which NetSelect is or will be a party that
are required to be executed pursuant to this Agreement (the "NetSelect Ancillary
Agreements"). The execution, delivery and performance of this Agreement and the
NetSelect Ancillary Agreements have been duly and validly approved and
authorized by NetSelect's Board of Directors.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable NetSelect to enter into, and to perform its
obligations under, this Agreement and the NetSelect Ancillary Agreements, except
for (a) the filing of the Certificate of Merger with the Delaware Secretary of
State, the recording of the Certificate of Merger in the office of the Recorder
of the Delaware county in which NetSelect's registered office is located, and
the filing of appropriate documents with the relevant authorities of other
states in which NetSelect is qualified to do business, if any, (b) such filings
as may be required to comply with federal and state securities laws, (c) the
approval of and adoption by the holders of NetSelect Stock of this Agreement and
all transactions contemplated by this Agreement, as provided under applicable
law, the NetSelect Certificate of Incorporation, the Bylaws of NetSelect and any
other
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charter document of NetSelect (the "NetSelect Stockholder Approval"), (d) the
(i) termination, as contemplated by this Agreement, of the InfoTouch Stockholder
Agreement, (ii) the amendment and restatement, as contemplated by this
Agreement, of the NetSelect Stockholders' Agreement, and (iii) the amendment and
restatement, as contemplated by this Agreement, of the RealSelect. Stockholders'
Agreement, and (e) those consents, approvals and filings which will be obtained
prior to the Effective Time.
3.2.3 This Agreement and the NetSelect Ancillary Agreements, when
executed by NetSelect will be, valid and binding obligations of NetSelect
enforceable in accordance with their respective terms, except as to the effect,
if any, of (a) applicable bankruptcy and other similar laws affecting the rights
of creditors generally, and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies; provided, however, that the
Certificate of Merger and the LLC Certificate of Merger will not be effective
until filed with the Delaware Secretary of State.
3.3 No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement nor any NetSelect Ancillary Agreement, nor the
consummation of the transactions contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach, impairment or violation of (a) any provision of the Certificate of
Incorporation or Bylaws of NetSelect, as currently in effect, (b) in any
material respect, any material instrument or contract to which NetSelect is a
party or by which NetSelect is bound, or (c) any federal, state, local or
foreign judgment, writ, decree, order, statute, rule or regulation applicable to
NetSelect or its assets or properties. The consummation of the Merger (and the
transactions contemplated hereby) and the assumption by InfoTouch of all
material rights, licenses, franchises, leases and agreements of NetSelect in
connection with the Merger will not require the consent of any third party under
any instrument or contract to which NetSelect is a party or by which it is
bound.
3.4 No Brokers. NetSelect is not obligated for the payment of fees or
expenses of any investment banker, broker or finder in connection with the
origin, negotiation or execution of this Agreement or the Certificate of Merger
or in connection with any transaction contemplated hereby or thereby.
3.5 Capitalization. The authorized capital stock of NetSelect
consists of: (i) 35,000,000 shares of Class A Common Stock, par value $0.001 per
share, of which 2,380,019 shares are issued and outstanding; (ii) 10,000,000
shares of Class B Common Stock, par value $0.001 per share, of which 116,470
shares are issued and outstanding; and (iii) 10,000,000 shares of Convertible
Preferred Stock, par value $0.001 per share, of which 1,647,059 shares have been
designated as Series A Convertible Preferred Stock, of which 1,378,000 shares
are outstanding; 352,941 shares have been designated as Series B Convertible
Preferred Stock, of which 190,336 shares are outstanding; 614,374 shares
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have been designated as Series C Convertible Preferred Stock, of which 614,374
shares are outstanding; 681,201 shares have been designated as Series D
Convertible Preferred Stock, of which 681,201 shares are outstanding; 325,000
shares have been designated as Series E Convertible Preferred Stock, of which
325,000 shares are outstanding; and 2,100,000 shares have been designated as
Series F Convertible Preferred Stock, of which 1,664,049 shares have been issued
(together with the Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock, the Series C Convertible Preferred Stock, Series D
Convertible Preferred Stock and the Series E Convertible Preferred Stock, the
"NetSelect Preferred Stock"). An aggregate of 2,000,000 shares of NetSelect
Common Stock are reserved and authorized for issuance pursuant to exercise of
NetSelect Options granted pursuant to the NetSelect Plans, of which options to
purchase a total of 1,245,962 shares of NetSelect Common Stock are outstanding.
An aggregate of 638,717 shares of NetSelect Stock are reserved and authorized
for issuance pursuant to outstanding NetSelect Warrants. All issued and
outstanding shares of NetSelect Stock, and NetSelect Options and NetSelect
Warrants, have been duly authorized and validly issued, are fully paid and
nonassessable, are not subject to any right of rescission or redemption (except
as provided in the Voting Agreement, and have been offered, issued, sold and
delivered by NetSelect in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws. Except as set forth in this Section, the NetSelect
Stockholders' Agreement and NetSelect Disclosure Schedule, there are no options,
warrants, calls, commitments, conversion privileges or preemptive or other
rights or agreements outstanding to purchase from NetSelect any of NetSelect's
authorized but unissued capital stock or any securities convertible into or
exchangeable for shares of NetSelect Stock or obligating NetSelect to grant,
extend, or enter into any such option, warrant, call, right, commitment,
conversion privilege or other right or agreement, and there is no liability for
dividends accrued but unpaid. Except for the NetSelect Stockholders' Agreement
and the Voting Agreement, there are no voting agreements, rights of first
refusal or other restrictions (other than normal restrictions on transfer under
applicable federal and state securities laws) applicable to any of NetSelect
outstanding securities. Except for the NetSelect Stockholders' Agreement,
NetSelect is not under any obligation to register under the Securities Act any
of its presently outstanding securities or any securities that may be
subsequently issued.
3.6 Subsidiaries. Except for its membership interest in NS LLC, and
its interests in RealSelect, Inc., Enterprise of America Ltd., National New
Homes Co., Inc. and TouchTech Corporation, NetSelect does not have any
subsidiaries or hold any interest, direct or indirect, in any corporation,
partnership, joint venture or other business entity.
3.7 Litigation. There is no action, proceeding, claim or
investigation pending against NetSelect before any court or administrative
agency, nor, to the best of NetSelect's knowledge, has any such action,
proceeding, claim or investigation been threatened. There is, to the best of
NetSelect's knowledge, no reasonable basis for any
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stockholder or former stockholder of NetSelect, or any other person, firm,
corporation, or entity, to assert a claim against NetSelect or InfoTouch based
upon: (a) ownership or rights to ownership of any shares of NetSelect Stock,
NetSelect Options or NetSelect Warrants (except for dissenter's rights with
respect to shares of NetSelect Stock issuable by virtue of the Merger), (b) any
rights as a NetSelect stockholder, including any option or preemptive rights or
rights to notice or to vote, or (c) any rights under any agreement among
NetSelect and its stockholders.
3.8 Taxes. NetSelect has filed all federal, state, local and foreign
tax returns required to be filed, has paid all taxes required to be paid in
respect of all periods for which returns have been filed, has established an
adequate accrual or reserve for the payment of all taxes payable in respect of
the periods subsequent to the periods covered by the most recent applicable tax
returns, has made all necessary estimated tax payments, and has no liability for
taxes in excess of the amount so paid or accruals or reserves so established.
For the purposes of this Section, the terms "tax" and "taxes" include all
federal, state, local and foreign income, gains, franchise, excise, property,
sales, use, employment, license, payroll, occupation, recording, value added or
transfer taxes, governmental charges, fees, levies or assessments (whether
payable directly or by withholding), and, with respect to such taxes, any
estimated tax, interest and penalties or additions to tax and interest on such
penalties and additions to tax.
3.9 NetSelect Financial Statements. NetSelect has delivered to
InfoTouch a true and correct copy of NetSelect's audited balance sheets dated as
of December 31, 1996 and 1997, respectively, its audited statements of
operations and of cash flows for the period from December 4, 1996 (inception) to
December 31, 1996, and the year ended December 31, 1997, respectively, and its
interim unaudited balance sheet (the "NetSelect Balance Sheet") as of September
30, 1998 (the "NetSelect Balance Sheet Date") and interim unaudited statement of
operations and of cash flows for the nine months ended September 30, 1998 (all
of the foregoing referred to collectively as, the "NetSelect Financial
Statements"). The NetSelect Financial Statements (a) are in accordance with the
books and records of NetSelect, (b) fairly present the financial condition of
NetSelect at the dates therein indicated and the results of operations for the
periods therein specified and (c) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis.
NetSelect has no debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, that is not
reflected or reserved against in the NetSelect Financial Statements, except for
those that may have been incurred after the NetSelect Balance Sheet Date in the
ordinary course of its business, consistent with past practice and that are not
in excess of $100,000 either individually or collectively.
3.10 Books and Records. The books, records and accounts of NetSelect
(a) are in all material respects true, complete and correct, (b) have been
maintained in accordance with good business practices on a basis consistent with
prior
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years, (c) are stated in reasonable detail and accurately and fairly reflect the
transactions and dispositions of the assets of NetSelect, and (d) accurately and
fairly reflect the basis for the NetSelect Financial Statements.
3.11 Title to Properties. NetSelect has good and marketable title to
all of its assets as shown on the NetSelect Balance Sheet, free and clear of all
material liens, charges, restrictions or encumbrances (other than for taxes not
yet due and payable). All leases of real or personal property to which NetSelect
is a party are fully effective and afford NetSelect peaceful and undisturbed
possession of the subject matter of the lease. NetSelect is in no way in
material violation of any zoning, building, safety or environmental ordinance,
regulation or requirement or other law or regulation applicable to the operation
of owned or leased properties, and has not received any notice of violation with
which it has not complied.
3.12 Absence of Certain Changes. Since the NetSelect Balance Sheet
Date, there has not been with respect to NetSelect:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations thereof, whether or not arising in the
ordinary course of business, that has had or will have a material adverse effect
on NetSelect;
(b) any contingent liability incurred by NetSelect as guarantor
or otherwise with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the
properties of NetSelect;
(d) any obligation or liability incurred by NetSelect (except as
incurred in the ordinary course of NetSelect's business);
(e) any purchase or sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of NetSelect (except non-material purchases or sales in the
ordinary course of NetSelect's business, and except for the acquisition of
shares of RealSelect Common Stock held by NS LLC pursuant to the RealSelect
Stock Transfer Agreement);
(f) any damage, destruction or loss, whether or not covered by
insurance, adversely affecting the properties, assets or business of NetSelect;
(g) any declaration, setting aside or payment of any dividend
on, or the making of any other distribution in respect of, the capital stock of
NetSelect, any split, combination or recapitalization of the capital stock of
NetSelect or any direct or indirect redemption, purchase or other acquisition of
the capital stock of NetSelect;
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(h) any payment or discharge of a material lien or liability of
NetSelect which lien or liability was not reflected on the NetSelect Balance
Sheet; or
(i) any obligation or liability incurred by NetSelect to any of
its officers, directors or stockholders or any loans or advances made by
NetSelect to any of its officers, directors or stockholders.
3.13 Intellectual Property. NetSelect owns, or has the right to use,
sell or license all Intellectual Property Rights (as defined below) that are
necessary or required for the conduct of its business as presently conducted
(such Intellectual Property Rights being referred to as the "NetSelect IP
Rights") and such rights to use, sell or license are sufficient for such conduct
of its business. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any NetSelect IP Rights (the
"NetSelect IP Rights Agreements"). There is no pending or, to the best knowledge
of NetSelect, threatened claim or litigation contesting the validity, ownership
or right to use, sell, license or dispose of any NetSelect IP Rights, nor is
there any basis for any such claim, nor has NetSelect received any notice
asserting that any NetSelect IP Rights or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party. As used herein, the term "Intellectual Property Rights" shall mean all
worldwide industrial and intellectual property rights, including, without
limitation, patents, patent applications, patent rights, trademarks, trademark
applications, trade names, service marks, service mark applications, copyright,
copyright applications, franchises, licenses, inventories, know-how, trade
secrets, customer lists, proprietary processes and formulae, all source and
object code, algorithms, architecture, structure, display screens, layouts,
inventions, development tools and all documentation and media constituting,
describing or relating to the above, including, without limitation, manuals,
memoranda and records.
3.14 Compliance with Laws. NetSelect has complied, or prior to the
Closing Date will have complied, and is or will be at the Closing Date in full
compliance, with all applicable laws, ordinances, regulations, and rules, and
all orders, writs, injunctions, awards, judgments, and decrees applicable to it
or its assets, properties, and business thereof, including, without limitation:
(a) all applicable federal and state securities laws and regulations, (b) to
NetSelect's knowledge, all applicable federal, state, and local laws,
ordinances, regulations, and all orders, writs, injunctions, awards, judgments,
and decrees pertaining to (i) the sale, licensing, leasing, ownership, or
management of its owned, leased or licensed real or personal property, products
and technical data, (ii) employment and employment practices, terms and
conditions of employment, and wages and hours and (iii) safety, health, fire
prevention, environmental protection, toxic waste disposal, building standards,
zoning and other similar matters, (c) to NetSelect's knowledge, the Export
Administration Act, as amended, and regulations promulgated thereunder and all
other laws, regulations, rules, orders, writs, injunctions, judgments and
decrees applicable to the export or re-export
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of controlled commodities or technical data and (d) to NetSelect's knowledge,
the Immigration Reform and Control Act, as amended.
3.15 Corporate Documents. NetSelect has made available to InfoTouch
or its counsel for examination all documents and information listed in the
NetSelect Disclosure Schedule or other schedules called for by this Agreement
which has been requested by InfoTouch's legal counsel, including, without
limitation, the following: (a) copies of NetSelect's Certificate of
Incorporation and Bylaws as currently in effect; (b) its Minute Book containing
all records of all proceedings, consents, actions, and meetings of the
stockholders, the board of directors and any committees thereof; (c) its stock
ledger and journal reflecting all stock issuances and transfers; (d) all
permits, orders, and consents issued by any regulatory agency with respect to
NetSelect, or any securities of NetSelect, and all applications for such
permits, orders, and consents, and all material agreements, arrangements or
obligations to which NetSelect is bound or is a party.
3.16 Disclosure. Neither this Agreement, its exhibits and schedules,
nor any of the certificates or documents to be delivered by NetSelect to
InfoTouch or its counsel under this Agreement, taken together, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein and therein, in light
of the circumstances under which such statements were made, not misleading.
3.17 Information Supplied. None of the information supplied or to be
supplied by NetSelect for inclusion in the Information Statement or to holders
of its capital stock in connection with obtaining the NetSelect Stockholder
Approval, at the date such information is supplied and at the date of such
Information Statement, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
4. InfoTouch Preclosing Covenants
During the period from the date of this Agreement until the Effective
Time, InfoTouch covenants and agrees as follows:
4.1 Advice of Changes. InfoTouch will promptly advise NetSelect in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of InfoTouch contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect, and (b) of any material adverse
change in InfoTouch's business, results of operations or financial condition.
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4.2 Maintenance of Business. InfoTouch will carry on and preserve its
business the same manner as it has prior to the date hereof.
4.3 Conduct of Business. InfoTouch will take no actions other than
such actions as may be required in connection with its ownership of membership
interests in NS LLC, and will not (other than as expressly contemplated by this
Agreement or agreed to in writing by the parties): (i) incur any liability, lien
or debt with respect to any of its assets, (ii) alter in any way its current
authorized and outstanding equity securities, or issue, grant or agree to issue
or grant any additional capital stock, options, warrants, convertible notes or
other equity instruments, (iii) enter into or undertake any obligation with
respect to any business or transaction, and (iv) sell or otherwise transfer any
of its assets.
4.4 Stockholders Approval. InfoTouch will solicit at the earliest
practicable date the InfoTouch Stockholder Approval, either at a duly noticed
meeting or by action by written consent pursuant to section 228 of the Delaware
Law, which approval will be recommended by the Board of Directors of InfoTouch.
4.5 Information Statement. In connection with the solicitation of the
InfoTouch Stockholder Approval, InfoTouch will send to the InfoTouch
Stockholders the Information Statement and any other information and materials
to be supplied by InfoTouch to its stockholders for the purpose of considering
the approval of the Merger, and if necessary, notice pursuant to section 228(d)
of the Delaware Law.
4.6 Regulatory Approvals. InfoTouch will execute and file, or join in
the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign which may be reasonably
required, or which NetSelect may reasonably request, in connection with the
consummation of the transactions contemplated by this Agreement. InfoTouch will
use its best efforts to obtain all such authorizations, approvals and consents.
4.7 Litigation. InfoTouch will notify NetSelect in writing promptly
after learning of any actions, suits, proceedings or investigations by or before
any court, board or governmental agency, initiated by or against it or NS LLC,
or known by it to be threatened against it or NS LLC.
4.8 No Other Negotiations. From the date hereof until the earlier of
termination of this Agreement or consummation of the Merger, InfoTouch will not,
and will not authorize or permit any officer, director, employee or affiliate of
InfoTouch, or any other person, on its behalf to, directly or indirectly,
solicit or encourage any offer from any party or consider any inquiries or
proposals received from any other party, participate in any negotiations
regarding, or furnish to any person any information with respect to, or
otherwise cooperate with, facilitate or encourage any effort or attempt by
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any person (other than NetSelect), concerning the possible disposition of all or
any substantial portion of its business, assets or capital stock by merger, sale
or any other means. InfoTouch will promptly notify NetSelect orally and in
writing of any such inquiries or proposals.
4.9 Access to Information. Until the Closing, InfoTouch will allow
NetSelect and its agents reasonable access to the files, books, records and
offices of InfoTouch, including, without limitation, any and all information
relating to InfoTouch's taxes, commitments, contracts, leases, licenses, and
real, personal and intangible property and financial condition. InfoTouch will
cause its accountants to cooperate with NetSelect and its agents in making
available all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
4.10 Satisfaction of Conditions Precedent; Necessary Consents.
InfoTouch will use its best efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Section 7, and InfoTouch will use
its best efforts to cause the transactions contemplated by this Agreement to be
timely consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all filings
with, and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
4.11 InfoTouch Dissenting Shares. As promptly as practicable after
the date of the InfoTouch Stockholder Approval and prior to the Closing Date,
InfoTouch shall furnish NetSelect with the name and address of each InfoTouch
Dissenting Stockholder and the number of InfoTouch Dissenting Shares owned by
such InfoTouch Dissenting Stockholder.
4.12 Blue Sky Laws. InfoTouch shall use its best efforts to assist
NetSelect to the extent necessary to comply with the securities and Blue Sky
laws of all jurisdictions which are applicable in connection with the Merger.
4.13 Resignations of InfoTouch Officers and Directors. Before the
Closing, InfoTouch will obtain the resignations of all of the directors and
officers of InfoTouch, effective as of the Effective Time.
4.14 Amendment of InfoTouch Bylaws. InfoTouch will amend and restate
its Bylaws in the form of the Amended Bylaws attached hereto, conditioned upon
and effective as of the Effective Time.
4.15 Reverse Stock Split and RealSelect Stock Transfer. InfoTouch
will effect a 1 to .444628866 reverse stock split of its outstanding capital
stock (the "Reverse Stock Split"), effective as of immediately before the
Effective Time, such that as of the Effective Time, the number of issued and
outstanding shares of InfoTouch Common
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Stock, plus the number of shares of InfoTouch Common Stock issuable upon the
exercise of outstanding InfoTouch Options (and any other rights to acquire
equity securities of InfoTouch, or which InfoTouch represents there are none),
equals 2,000,002 shares of Surviving Company Common Stock. Effective immediately
before the Effective Time, InfoTouch will have acquired from NS LLC 40.08 shares
of RealSelect Common Stock pursuant to the RealSelect Stock Transfer Agreement
5. NetSelect Preclosing Covenants
During the period from the date of this Agreement until the Effective
Time, NetSelect covenants and agrees as follows:
5.1 Advice of Changes. NetSelect will promptly advise InfoTouch in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of NetSelect contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (b) of any material adverse
change in NetSelect's business, results of operations or financial condition.
5.2 Maintenance of Business. NetSelect will carry on and preserve
its business the same manner as it has prior to the date hereof.
5.3 Litigation. NetSelect will notify InfoTouch in writing promptly
after learning of any actions, suits, proceedings or investigations by or before
any court, board or governmental agency, initiated by or against it or NS LLC,
or known by it to be threatened against it or NS LLC
5.4 Regulatory Approvals. NetSelect will execute and file, or join
in the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which InfoTouch may reasonably request, in connection with the
consummation of the transactions contemplated by this Agreement. NetSelect will
use its best efforts to obtain all such authorizations, approvals and consents.
5.5 Satisfaction of Conditions Precedent; Necessary Consents.
NetSelect will use its best efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Section 8, and NetSelect will use
its best efforts to cause the transactions contemplated by this Agreement to be
timely consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all filings
with, and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
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5.6 Stockholders Approval. NetSelect will solicit at the earliest
practicable date the NetSelect Stockholder Approval, either at a duly noticed
meeting of the stockholders or by action by written consent pursuant to section
228 of the Delaware Law which approval will be recommended by the Board of
Directors of NetSelect.
5.7 Information Statement. In connection with the solicitation of
the NetSelect Stockholder Approval, NetSelect will send to its stockholders the
Information Statement and any other information and materials to be supplied by
NetSelect to its stockholders for the purpose of considering the approval of the
Merger and, if necessary, notice pursuant to section 228(d) of the Delaware Law.
5.8 Blue Sky Laws. NetSelect shall take such steps as may be
necessary to comply with the securities and Blue Sky laws of all jurisdictions
which are applicable in connection with the Merger.
5.9 NetSelect Stockholder Investment Representation Letter.
NetSelect will promptly send to and have received from each NetSelect
Stockholder, who is exchanging NetSelect Stock in the Merger, the NetSelect
Stockholder Investment Representation Letter, in substantially the form attached
hereto as Exhibit F (the "NetSelect Investment Representation Letter") duly
executed by each such holder.
5.10 Access to Information. Until the Closing, NetSelect will allow
InfoTouch and its agents reasonable access to the files, books, records and
offices of NetSelect, including, without limitation, any and all information
relating to NetSelect's taxes, commitments, contracts, leases, licenses, and
real, personal and intangible property and financial condition. NetSelect will
cause its accountants to cooperate with InfoTouch and its agents in making
available all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
5.11 RealSelect Stock Transfer. Effective immediately before the
Effective Time, NetSelect will have acquired from NS LLC 147.19 shares of
RealSelect Common Stock pursuant to the RealSelect Stock Transfer Agreement
6. closing matters
6.1 The Closing. Subject to termination of this Agreement as
provided in Section 9 below and the satisfaction or waiver of all of the pre-
closing covenants set forth in Sections 7 and 8, the closing of the Merger (the
"Closing") will take place at the offices of Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, California 94306 at 9:00 a.m., San Francisco time on a date
mutually agreed to by NetSelect and InfoTouch, but in all events no later than
ten (10) days after the effectiveness of the NetSelect Stockholder Approval and
the InfoTouch Stockholder Approval or such later date as is specified by
NetSelect and InfoTouch (the "Closing Date"). Concurrently with the
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Closing, the Certificate of Merger will be filed in the office of the Secretary
of State of the State of Delaware.
6.2 Exchange of Certificates.
6.2.1 As of the Effective Time, all shares of NetSelect Common
Stock and NetSelect Preferred Stock that are outstanding immediately prior
thereto (other than shares, if any, for which appraisal rights have been or will
be perfected and in compliance with applicable law) will, by virtue of the
Merger and without further action, cease to exist and will be converted into the
right to receive from InfoTouch the number of shares of Surviving Company Common
Stock and Surviving Company Preferred Stock determined as set forth in Section
1.1, subject to Section 1.2.
6.2.2 As soon as practicable after the Effective Time, each
holder of shares of NetSelect Common Stock and NetSelect Preferred Stock that
are not Dissenting Shares, and each Holder of InfoTouch Common Stock will
surrender the original certificate(s) for such shares (the "Certificates"), duly
endorsed as requested by the Surviving Company, to the Surviving Company for
cancellation. Promptly after the Effective Time and receipt of such
Certificates, subject to Section 1.5 hereof with respect to the NetSelect
Stockholders, the Surviving Company will issue to each tendering holder a
certificate for the number of shares of Surviving Company Common Stock and/or
Surviving Company Preferred Stock to which such holder is entitled pursuant to
Section 1.1.1 hereof. In the event that any certificates representing shares of
NetSelect Stock or InfoTouch Common Stock shall have been lost, stolen,
destroyed or were never issued to such holder by NetSelect or InfoTouch, as the
case may be, upon the making of an affidavit of that fact by the holder of such
NetSelect Stock or InfoTouch Stock claiming such certificate to be lost, stolen,
destroyed or that such certificate was never issued to such holder, subject to
Section 1.5 hereof with respect to the NetSelect Stockholders, the Surviving
Company shall issue in exchange for such lost, stolen or destroyed or never
issued certificate the shares of Surviving Company Common Stock and/or Surviving
Company Preferred Stock that such holder is entitled to receive pursuant to
Section 1.1.1 hereof; provided, however, that the Surviving Company may in its
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discretion and as a condition precedent to the issuance thereof, require such
holder to provide the Surviving Company with an indemnity agreement against any
claim that may be made against the Surviving Company with respect to the
certificate alleged to have been lost, stolen or destroyed or never issued to
such holder by NetSelect or InfoTouch.
6.2.3 No dividends or distributions payable to holders of
record of NetSelect Stock after the Effective Time, or cash payable in lieu of
fractional shares, will be paid to the holder of any unsurrendered NetSelect
Certificate(s) until the holder of the NetSelect Certificate(s) surrenders such
NetSelect Certificate(s), or in the case of lost, stolen, destroyed or never
issued certificates, the affidavit and indemnity required under Section 6.2.2.
above. Subject to the effect, if any, of applicable escheat and
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other laws, following surrender of any NetSelect Certificate(s), there will be
delivered to the person entitled thereto, without interest, the amount of any
dividends and distributions therefor paid with respect to Surviving Company
Common Stock and/or Surviving Company Preferred Stock so withheld as of any date
subsequent to the Effective Time and prior to such date of delivery.
6.2.4 All Surviving Company Common Stock and/or Surviving
Company Preferred Stock delivered upon the surrender of NetSelect Stock or
InfoTouch Common Stock in accordance with the terms hereof will be deemed to
have been delivered in full satisfaction of all rights pertaining to such
NetSelect Stock or InfoTouch Common Stock. There will be no further registration
of transfers on the stock transfer books of NetSelect or its transfer agent of
the NetSelect Stock. If, after the Effective Time, Certificates are presented
for any reason, they will be canceled and exchanged as provided in this Section
6.2.
6.2.5 Until the Certificates representing NetSelect Stock or
InfoTouch Common Stock outstanding immediately prior to the Merger are
surrendered pursuant to Section 6.2.2 above, such certificates will be deemed,
for all purposes, to evidence ownership of the number of shares of Surviving
Company Common Stock and/or Surviving Company Preferred Stock into which such
NetSelect Stock will have been converted or such InfoTouch Common Stock
reclassified.
6.3 Assumption of NetSelect Options and NetSelect Warrants. Promptly
after the Effective Time, the Surviving Company will notify in writing each
holder of a NetSelect Option and a NetSelect Warrant of the assumption of such
NetSelect Option and/or NetSelect Warrant by the Surviving Company, and the
number of shares of Surviving Company Common Stock and/or Surviving Company
Preferred Stock or other Surviving Company equity that are then subject to such
option and/or warrant and the exercise price of such option and/or warrant, as
determined pursuant to Sections 1.1, 1.3 and 1.4 hereof.
7. Conditions To Obligations of InfoTouch
InfoTouch's obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by InfoTouch, but only in a writing signed by
InfoTouch):
7.1 Accuracy of Representations and Warranties. The representations
and warranties of NetSelect set forth in Section 3 shall be true and accurate in
every material respect on and as of the Closing with the same force and effect
as if they had been made at the Closing, and InfoTouch shall receive a
certificate to such effect executed by NetSelect's Chief Executive Officer or
Chief Financial Officer.
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7.2 Covenants. NetSelect shall have performed and complied in all
material respects with all of its covenants contained in Section 5 on or before
the Closing, and InfoTouch shall receive a certificate to such effect signed by
NetSelect's Chief Executive Officer or Chief Financial Officer.
7.3 Compliance with Law. There shall be no order, decree, or ruling
by any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
7.4 Government Consents. There shall have been obtained at or prior
to the Closing Date such permits or authorizations, and there shall have been
taken such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to requirements under applicable
federal and state securities laws.
7.5 Opinion of NetSelect's Counsel. InfoTouch shall have received
from counsel to NetSelect an opinion substantially in the form of Exhibit G.
7.6 Documents. InfoTouch shall have received all written consents,
assignments, waivers, authorizations or other certificates reasonably deemed
necessary by InfoTouch's legal counsel for InfoTouch to consummate the
transactions contemplated hereby.
7.7 Stockholder Approval. The InfoTouch Stockholder Approval and
NetSelect Stockholder Approval shall have been obtained.
7.8 No Litigation. No litigation or proceeding shall be threatened
or pending for the purpose or with the probable effect of enjoining or
preventing the consummation of any of the transactions contemplated by this
Agreement, or which could be reasonably expected to have a material adverse
effect on the present or future operations or financial condition of NetSelect.
7.9 InfoTouch Dissenting Shares. The InfoTouch Dissenting
Stockholders shall not own in the aggregate more than five percent (5%) of all
of the InfoTouch Stock outstanding immediately prior to the Effective Time of
the Merger.
7.10 Consents. InfoTouch shall have received duly executed copies of
all material third-party consents and approvals contemplated by this Agreement
or the InfoTouch Disclosure Schedule and NetSelect Disclosure Schedule, in form
and substance reasonably satisfactory to InfoTouch, except for such consents and
approvals as InfoTouch and NetSelect shall have agreed shall not be obtained.
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7.11 Stock Redemption Agreement. InfoTouch shall have received the
Stock Redemption Agreement executed by InfoTouch and the Redeeming Stockholders,
providing for the repurchase of certain of the Surviving Company Common Stock
held by such Redeeming Stockholder after the Merger.
7.12 NetSelect Stockholder Investment Representation Letter. Each
NetSelect Stockholder who is exchanging NetSelect Stock in the Merger shall have
executed and delivered to InfoTouch and NetSelect the NetSelect Investment
Representation Letter.
7.13 Amendment of NetSelect Stockholders' Agreement and RealSelect
Stockholders' Agreement. As of the Closing, (i) the NetSelect Stockholders'
Agreement shall have duly amended and restated pursuant to the Amended and
Restated NetSelect Stockholders' Agreement substantially in the form attached
hereto as Exhibit H (the "Restated NetSelect Stockholders' Agreement"), shall be
assumed by the Surviving Company and shall be in full force and effect, and (ii)
the RealSelect Stockholders' Agreement shall have been duly amended and restated
pursuant to the Amended and Restated RealSelect Stockholders' Agreement
substantially in the form attached hereto as Exhibit I (the "Restated RealSelect
Stockholders' Agreement") and be in full force and effect.
7.14 Absence of Material Adverse Change. There shall not have been,
in the reasonable judgment of the Board of Directors of InfoTouch, any material
adverse change in the business or financial condition of NetSelect.
8. Conditions To Obligations of NetSelect
The obligations of NetSelect hereunder are subject to the fulfillment
or satisfaction on, and as of the Closing, of each of the following conditions
(any one or more of which may be waived by NetSelect, but only in a writing
signed by NetSelect):
8.1 Accuracy of Representations and Warranties. The representations
and warranties of InfoTouch set forth in Section 2 shall be true and accurate in
every material respect on and as of the Closing with the same force and effect
as if they had been made at the Closing, and NetSelect shall receive a
certificate to such effect executed by InfoTouch's President or Chief Financial
Officer.
8.2 Covenants. InfoTouch shall have performed and complied in all
material respects with all of its covenants contained in Section 4 on or before
the Closing, and NetSelect shall receive a certificate to such effect signed by
InfoTouch's President or Chief Financial officer.
8.3 Absence of Material Adverse Change. There shall not have been,
in the reasonable judgment of the Board of Directors of NetSelect, any material
adverse change in the business or financial condition of InfoTouch.
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8.4 Compliance with Law. There shall be no order, decree, or ruling
by any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.5 Government Consents. There shall have been obtained at or prior
to the Closing Date such permits or authorizations, and there shall have been
taken such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to requirements under applicable
federal and state securities laws.
8.6 Opinion of InfoTouch's Counsel. NetSelect shall have received
from counsel to InfoTouch an opinion substantially in the form of Exhibit J.
8.7 Consents. NetSelect shall have received duly executed copies of
all material third-party consents, approvals, assignments, waivers,
authorizations or other certificates contemplated by this Agreement or the
InfoTouch Disclosure Schedule and NetSelect Disclosure Schedule or reasonably
deemed necessary by NetSelect's legal counsel to provide for the continuation in
full force and effect of any and all material contracts and leases of InfoTouch
and NetSelect and for NetSelect to consummate the transactions contemplated
hereby in a form and substance reasonably satisfactory to NetSelect, except as
InfoTouch and NetSelect shall have otherwise agreed shall not be obtained.
8.8 No Litigation. No litigation or proceeding shall be threatened
or pending for the purpose or with the probable effect of enjoining or
preventing the consummation of any of the transactions contemplated by this
Agreement, or which could be reasonably expected to have a material adverse
effect on the present or future operations or financial condition of InfoTouch.
8.9 Stockholder Approvals. The InfoTouch Stockholder Approval and
NetSelect Stockholder Approval shall have been obtained.
8.10 Dissenting Shares. NetSelect Dissenting Stockholders shall not
own in the aggregate more than five percent (5%) of the shares of NetSelect
Stock immediately prior to the Effective Time.
8.11 Termination of InfoTouch Stockholder Agreement. At the Closing,
the Termination Agreement by and among NetSelect, InfoTouch, the NAR, RIN and
certain of the InfoTouch Stockholders, substantially in form attached hereto as
Exhibit K (the "Termination Agreement"), terminating the InfoTouch Stockholder
Agreement, shall have been duly executed, delivered and in full force and
effect.
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8.12 Amendment of NetSelect Stockholders' Agreement and RealSelect
Stockholders' Agreement. As of the Closing, (i) the Restated NetSelect
Stockholders' Agreement shall have been duly executed and delivered, and shall
be assumed by the Surviving Company and shall be in full force and effect, and
(ii) the Restated RealSelect Stockholders' Agreement shall have been duly
executed and delivered and in full force and effect.
8.13 NetSelect Stockholder Investment Representation Letter. Each
NetSelect Stockholder who is exchanging NetSelect Stock in the Merger shall have
executed and delivered to InfoTouch and NetSelect the NetSelect Investment
Representation Letter.
8.14 Escrow Agreement. InfoTouch and NetSelect shall have received
the Escrow Agreement executed by all parties thereto.
8.15 Stock Redemption Agreement. InfoTouch and NetSelect shall have
received the Stock Redemption Agreement executed by InfoTouch and the Redeeming
Stockholders, providing for the repurchase of certain of the Surviving Company
Common Stock held by such Redeeming Stockholders after the Merger.
8.16 Termination of Rights. Any registration rights, rights of
refusal, rights to any liquidation preference, or redemption rights of any
InfoTouch Stockholder shall have been terminated or waived as of the Closing.
8.17 Satisfactory Form of Legal and Accounting Matters. The form,
scope and substance of all legal and accounting matters contemplated hereby and
all closing documents and other papers delivered hereunder shall be acceptable
to NetSelect's counsel.
8.18 Resignations of InfoTouch Officers and Directors. The persons
who were the directors and officers of InfoTouch immediately prior to the
Effective Time shall have resigned as directors and officers of InfoTouch
effective as of the Effective Time, and immediately after such time the
directors and the officers of the Surviving Company shall be the persons who
were the directors and officers of NetSelect immediately prior to the Effective
Time.
8.19 Amendment of InfoTouch Bylaws and Reverse Stock Split. At the
Effective Time, the Bylaws of the Surviving Company shall be amended and
restated in the form of the Amended Bylaws attached hereto and in full force and
effect, and immediately before the Effective Time, InfoTouch shall have effected
the Reverse Stock Split.
9. Termination of Agreement
9.1 Termination Prior to Closing.
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9.1.1 This Agreement may be terminated at any time prior to the
Closing by the mutual written consent of NetSelect and InfoTouch.
9.1.2 Unless otherwise agreed by the parties hereto, this
Agreement will be terminated if all conditions to the Closing have not been
satisfied or waived on or before February 28, 1999.
9.1.3. By NetSelect if any of the conditions precedent to
NetSelect's obligations set forth in Section 8 above have not been fulfilled or
waived at and as of the Closing; or
9.1.4. By InfoTouch if any of the conditions precedent to
InfoTouch's obligations set forth in Section 7 above have not been fulfilled or
waived at and as of the Closing.
9.1.5. This Agreement may be terminated prior to the Closing, by
NetSelect, if there has been a breach by InfoTouch of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of
InfoTouch, or if any representation or warrant of InfoTouch shall have become
untrue, in either case, which InfoTouch fails to cure within a reasonable time,
not to exceed 5 days, after written notice thereof.
9.1.6. This Agreement may be terminated prior to the Closing, by
InfoTouch, if there has been a breach by NetSelect of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of
NetSelect, or if any representation or warrant of NetSelect shall have become
untrue, in either case, which NetSelect fails to cure within a reasonable time,
not to exceed 5 days, after written notice thereof.
Any termination of this Agreement under this Section 9.1 will be
effective by the delivery of notice of the terminating party to the other party
hereto.
9.2 No Liability. Any termination of this Agreement pursuant to this
Section 9 will be without further obligation or liability upon any party in
favor of the other party hereto, provided, however, that nothing herein will
limit the obligation of NetSelect and InfoTouch to use their best efforts (prior
to termination of this Agreement) to cause the Merger to be consummated, as set
forth in Sections 4.10 and 5.5 hereof, respectively.
10. Survival of Representations and Warranties; Indemnification
10.1 Survival of Representations. All representations and warranties
of InfoTouch contained in this Agreement or in any other agreement, document or
certificate delivered in connection with the Merger will remain operative and in
full force and effect, regardless of any investigation made or knowledge
acquired by or on behalf of the parties to this Agreement, until the earlier of
(i) the closing of an
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underwritten registered public offering of shares of Surviving Company Common
Stock under the Securities Act, or (ii) the earlier of (x) the date upon which
the Surviving Company's auditors deliver to the Surviving Company the audited
consolidated financial statements of the Surviving Company for the 1998 fiscal
year, or (y) June 30, 1999; provided that any claim based upon fraud or
intentional misrepresentation shall survive the Closing Date for the applicable
statutory limitations period and shall otherwise not be limited to the Escrow
Shares. The covenants and agreements contained in this Agreement or in any other
document or certificate delivered in connection with the Merger which are to be
performed after the Closing Date shall survive the Closing Date and shall
continue until all obligations with respect thereto shall have been performed or
satisfied or shall have been terminated in accordance with their terms. All
representations and warranties of NetSelect contained in this Agreement or in
any other agreement, document or certificate delivered in connection with the
Merger will remain operative and in full force and effect until the earlier of
the Closing or the termination of this Agreement, after which time all such
representations and warranties will expire; provided that any claim based upon
fraud or intentional misrepresentation shall survive the Closing Date for the
applicable statutory limitations period.
10.2 Agreement to Indemnify. Subject to the limitations set forth in
this Section 10, InfoTouch will indemnify, defend and hold harmless, each
NetSelect Stockholder (hereinafter referred to individually as an "Indemnified
Person" and collectively as "Indemnified Persons") from and against any and all
claims, demands, actions, causes of actions, losses, costs, damages, liabilities
and expenses including, without limitation, reasonable legal fees and costs
(hereinafter referred to as "Damages"), arising out of any inaccuracy,
misrepresentation or breach of or default in connection with any of the
representations, warranties and covenants given or made by InfoTouch in this
Agreement, the InfoTouch Disclosure Schedule or any agreement, certificate,
document or instrument delivered by or on behalf of InfoTouch pursuant hereto.
10.3 Indemnification Procedure. In seeking indemnification for
Damages under Section 10.2 hereof, the Indemnified Persons, acting through the
N/S Representatives, shall only exercise their remedies with respect to the
Escrow Shares; and no such claim for Damages will be asserted after the
expiration of the Escrow Period. Except for liability based on a claim of fraud
or intentional misrepresentation, or liabilities or damages of NetSelect
described in Section 9.2 hereof in connection with the termination of the
Agreement prior to the Closing, (x) the Surviving Company shall have no
liability to an Indemnified Person under this Agreement, except to the extent of
the Escrow Shares and any other assets deposited under the Escrow Agreement, (y)
the remedies set forth in this Section 10 shall be the exclusive remedies of the
NetSelect Stockholders and the other Indemnified Persons under this Agreement
against the Surviving Company, and (z) the Indemnified Persons shall act only
through the N/S Representative as provided in the Escrow Agreement. The
indemnification provided in this Section 10 shall not apply until the aggregate
Damages for which such Indemnified
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Persons would be otherwise entitled to receive indemnification exceed $100,000
(the "Threshold"). Once such aggregate Damages exceed the Threshold, such
Indemnified Parties shall be entitled to indemnification for the aggregate
amount of all Damages to the extent such Damages exceed the Threshold.
11. Post Closing Covenants of the Parties.
11.1 Merger of Surviving Company and NS LLC. The Surviving Company
agrees that it will use its best efforts to consummate LLC Merger as soon as
possible after the Closing Date pursuant to the terms and conditions of the LLC
Merger Agreement. NetSelect and InfoTouch each agree to cooperate fully with
the other and to execute, deliver and/or file such further instruments,
documents and agreements and to give such further written assurances, and to
take any other action as may be reasonably requested by any other party to
evidence, reflect and effect the LLC Merger described herein and contemplated
hereby and to carry into effect the intent and purpose of the LLC Merger
Agreement.
11.2 Redemption of Certain InfoTouch Stockholders. The Surviving
Company and the Redeeming Stockholders (defined in Recital C hereof) who execute
and deliver the Redemption Agreement agree to use their best efforts to
consummate, as soon as is practicable after the Closing Date, the InfoTouch
Redemption under the terms of the Stock Redemption Agreement. InfoTouch and
each Redeeming Stockholder agree to cooperate fully with the other and to
execute, deliver and/or file such further instruments, documents and agreements
and to give such further written assurances, and to take any other action as may
be reasonably requested by any other party to evidence, reflect and effect the
repurchase of the Surviving Company Common Stock pursuant to the Stock
Redemption Agreement.
12. MISCELLANEOUS
12.1 Governing Law; Consent to Jurisdiction. The internal laws of
the State of Delaware (irrespective of its choice of law principles) will govern
the validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
The parties agree that, except for indemnity claims covered under the Escrow
Agreement, all actions or proceedings arising in connection with this Agreement
shall be tried and litigated exclusively in the state and federal courts located
in the County of Los Angeles, state of California, and each party hereby
stipulates that the state and federal courts located in the County of Los
Angeles, state of California shall have in personal jurisdiction and venue over
each such party for the purpose or litigating any dispute, controversy or
proceeding arising out of or related to this Agreement.
12.2 Assignment; Binding Upon Successors and Assigns. No party
hereto may assign any of its rights or obligations hereunder without the prior
written
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consent of the other party hereto; provided that NetSelect may assign this
--------
Agreement in connection with a merger or consolidation of NetSelect or the sale
of all or substantially all of its assets. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
12.3 Severability. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
12.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
the parties reflected hereon as signatories.
12.5 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
12.6 Amendment and Waivers. Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof will
not be deemed to constitute a waiver of any other default or any succeeding
breach or default. The Agreement may be amended by the parties hereto at any
time before or after the NetSelect Stockholder Approval or the InfoTouch
Stockholder Approval, but, after such approval, no amendment will be made which
by applicable law requires the further approval of the NetSelect Stockholders or
InfoTouch Stockholders without obtaining such further approval.
12.7 No Waiver. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
12.8 Expenses. Each party will bear its respective expenses and legal
fees incurred with respect to this Agreement and the transactions contemplated
hereby;
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provided, however, that the InfoTouch will bear the fees and expenses of Troop,
Meisinger, Steuber & Pasich LLP, special counsel to InfoTouch.
12.9 Attorneys' Fees. Should suit be brought to enforce or interpret
any part of this Agreement, the prevailing party will be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys' fees
to be fixed by the court (including without limitation, costs, expenses and fees
on any appeal). The prevailing party will be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
12.10 Notices. Any notice or other communication required or
permitted to be given under this Agreement will be in writing and will be
delivered personally, by facsimile, by nationally reputable overnight courier
service or by registered or certified mail, postage prepaid, and will be deemed
given upon delivery, if delivered personally, upon mechanical confirmation of
receipt, if delivered by facsimile, the next following business day, if by
overnight courier, or three days after deposit in the mails, if mailed, to the
following addresses:
(i) If to NetSelect:
NetSelect, Inc.
225 W. Hillcrest Drive, Suite 100
Thousand Oaks, California 91360
Attention: Chief Executive Officer
Telecopy no: 805-557-2680
with a copy to
Mark C. Stevens
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Telecopy no.: 650-494-1417
(ii) If to InfoTouch or the Surviving Company:
InfoTouch Corporation
225 W. Hillcrest Drive, Suite 100
Thousand Oaks, California 91360
Attention: President
Telecopy no: 805-557-2680
With a copy to:
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Troop, Steuber, Pasich, Reddick & Tobey LLP
2029 Century Park East
24th Floor
Los Angeles, CA 90067
Attn: Scott Galer, Esq.
Fax No. (310) 728-2200
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 12.10.
12.11 Construction of Agreement. This Agreement has been negotiated
by the respective parties hereto and their attorneys and the language hereof
will not be construed for or against either party. A reference to a Section or
an Exhibit will mean a Section in, or Exhibit to, this Agreement unless
otherwise explicitly set forth. The titles and headings herein are for reference
purposes only and will not in any manner limit the construction of this
Agreement which will be considered as a whole.
12.12 No Joint Venture. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. Except as otherwise expressly set forth herein, no party is
by virtue of this Agreement authorized as an agent, employee or legal
representative of any other party. No party will have the power to control the
activities and operations of any other and their status is, and at all times,
will continue to be, that of independent contractors with respect to each other.
No party will have any power or authority to bind or commit any other. No party
will hold itself out as having any authority or relationship in contravention of
this Section.
12.13 Further Assurances. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.
12.14 Absence of Third Party Beneficiary Rights. No provisions of
this Agreement are intended, nor will be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
12.15 Confidentiality. The parties hereto recognize that they have
received and will receive confidential information concerning the other during
the course of the Merger negotiations and preparations, including but not
limited to the terms of this Agreement, the Merger and the other agreements to
be executed in
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connection with the Merger and information and disclosures contained in the
Information Statement. Accordingly, the parties each agree (a) to use its
respective best efforts to prevent the unauthorized disclosure of any
confidential information concerning the other that was or is disclosed during
the course of such negotiations and preparations, and is clearly designated in
writing as confidential at the time of disclosure, and (b) to not make use of or
permit to be used any such confidential information other than for the purpose
of effectuating the Merger and related transactions. The obligations of this
section will not apply to information that (i) is or becomes part of the public
domain, (ii) is disclosed by the disclosing party to third parties without
restrictions on disclosure, (iii) is received by the receiving party from a
third party without breach of a nondisclosure obligation to the other party or
(iv) the disclosing party reasonably believes is required to be disclosed by
law. If this Agreement is terminated, all copies of documents containing
confidential information shall be returned by the receiving party to the
disclosing party.
12.16 Entire Agreement. This Agreement and the exhibits hereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto. The express terms
hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
[Execution Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"NetSelect" "InfoTouch"
NETSELECT, INC. INFOTOUCH CORPORATION
By: /s/ Stuart Wolff By: /s/ Richard Janssen
---------------------------- ---------------------------------------
Its: Chief Executive Officer Its: President and Chief Executive Officer
--------------------------- --------------------------------------
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EXHIBIT 2.02
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of June 20, 1998 (the "Effective Date") by and among NETSELECT,
INC., a Delaware corporation ("NetSelect"), NATIONAL NEW HOMES CO, INC., a
Delaware corporation and a wholly-owned subsidiary of NetSelect ("NNH"),
MULTISEARCH SOLUTIONS, INC., a Texas corporation, and FRED WHITE, an individual,
and R. FRED WHITE III (TREY), an individual (collectively, the "Shareholders").
RECITALS
A. Subject to and in accordance with the terms of this Agreement, and
pursuant to the terms of the Merger Agreement (as defined below), the respective
Board of Directors of NetSelect, NNH and MSS and NetSelect, as the sole
stockholder of NNH, have approved the merger of MSS with and into NNH (the
"Merger") whereby all of the outstanding shares of capital stock of MSS will be
converted into shares of NetSelect Preferred Stock (as defined below).
B. For federal income tax purposes, it is intended that the transaction
qualify as a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
C. The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms will
have the meanings set forth below:
"California Law" means the California Corporations Code of 1968, as
amended.
"Delaware Law" means the Delaware General Corporations Law, as amended.
"Encumbrances" means any lien, security interest, claim, charge,
encumbrance or other restriction.
"Material Adverse Effect" means any event, change or effect that is (or
will with the passage of time be) materially adverse to the condition (financial
or otherwise), properties, assets, liabilities, business, operations, results of
operations or prospects of the MSS, NetSelect or NNH, as applicable in context.
<PAGE>
"MSS" means MultiSearch Solutions, Inc., a Texas corporation, and all of
its 50% or more owned subsidiaries, taken together (unless the context otherwise
requires, in which case MSS shall refer only to MultiSearch Solutions, Inc.).
"MSS Ancillary Agreements" means, collectively, each agreement, certificate
or document (other than this Agreement) which MSS is to enter into as a party
thereto, or is to otherwise execute and deliver, pursuant to or in connection
with this Agreement.
"MSS Certificates" means the share certificates representing all the
Shareholders' shares of MSS Stock.
"MSS Stock" means all shares of MSS capital stock, $1.00 par value per
share, or securities convertible or exercisable into shares of such capital
stock, owned directly or indirectly by the Shareholders comprising the
authorized capital of MSS, as constituted immediately prior to the Closing.
"NNH Common Stock" means the Common Stock, $0.001 par value per share, of
NNH.
"NetSelect Ancillary Agreements" means, collectively, each agreement,
certificate or document (other than this Agreement) which NetSelect is to enter
into as a party thereto, or is to otherwise execute and deliver, pursuant to or
in connection with this Agreement.
"NetSelect Preferred Stock" means the Series E Preferred Stock, $0.001 par
value per share, of NetSelect.
"Newhouse" means Newhouse Publishing, Inc., a Texas corporation and which,
immediately prior to Closing, will be a wholly owned subsidiary of MSS.
"Note" means the promissory note of NetSelect to the Shareholders in
substantially the form of Exhibit 2.3.1 attached hereto, evidencing NetSelect's
-----
promise to pay the Shareholders $3,589,000 pursuant to the terms set forth
therein, as part of the purchase price for the MSS Stock.
"Shareholder Ancillary Agreements" means, collectively, the Stock Power, a
Form W-8 and each other agreement, certificate or document (other than this
Agreement) to which the Shareholders is to enter into as a party thereto, or is
to otherwise execute and deliver pursuant to or in connection with this
Agreement.
"Stockholders Agreement" means, the NetSelect, Inc. Stockholders Agreement
dated as of November 26, 1996, as amended as of September 29, 1997 and December
31, 1997, by and among NetSelect and certain Stockholders of NetSelect.
"Texas Law" means the Texas Business Corporation Act, as amended
"1933 Act" means the Securities Act of 1933, as amended.
Other capitalized terms defined elsewhere in this Agreement and not defined
in this Section 1 shall have the meanings assigned to such terms in this
Agreement.
2
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2. PLAN OF REORGANIZATION
2.1 The Merger. Subject to the terms and conditions of this Agreement and
----------
the Agreement of Merger, MSS shall be merged with and into NNH in accordance
with the applicable provisions of the laws of the States of Delaware and Texas
and with the terms and conditions of this Agreement and the Agreement of Merger,
so that:
(a) At the Effective Time (as defined below), MSS shall be merged with
and into NNH. As a result of the Merger, the separate corporate existence of
MSS shall cease and NNH shall continue as the surviving corporation (sometimes
referred to herein as the "Surviving Corporation") and shall succeed to and
assume all of the rights and obligations of MSS in accordance with the laws of
Delaware.
(b) The Certificate of Incorporation and Bylaws of NNH in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation and Bylaws, respectively, of Surviving Corporation after the
Effective Time unless and until further amended as provided by law.
(c) The directors and officers of the Surviving Corporation after the
Effective Time shall be as set forth in the Agreement of Merger. Such directors
and officers shall hold their position until the election and qualification of
their respective successors or until their tenure is otherwise terminated in
accordance with the Bylaws of Surviving Corporation.
2.2 Conversion of Shares. By virtue of the Merger and at the Effective
--------------------
Time, and without further action on the part of any holder of MSS Stock, all of
the issued and outstanding shares of MSS capital stock shall be converted into
an aggregate of 315,250 shares of fully paid and nonassessable NetSelect
Preferred Stock (the shares of NetSelect Preferred Stock issued pursuant hereto
shall also be referred to as the "Merger Shares") in the ratios set forth in
Schedule A. The number of shares of NetSelect Preferred Stock actually issued
- ----------
in the Merger will be modified proportionately for any stock splits, stock
dividends, recapitalizations and the like (each event, a "Capital Change"). No
fractional shares of NetSelect Preferred Stock will be issued in connection with
the Merger
2.3 Non-Stock Consideration. Subject to the terms and conditions of this
------------------------
Agreement, at the Closing:
(a) NetSelect shall pay the Shareholders the aggregate sum of Six
Hundred Seventy Three Thousand One Hundred Thirty Six Dollars ($673,136); and
(b) NetSelect shall execute and deliver the Note in the form of
Exhibit 2.3.1. The Note shall be secured by one hundred percent (100%) of the
- -------------
outstanding capital shares of NNH, certain assets and capital stock of MSS
pursuant to a Security Agreement with the Shareholders in the form of Exhibit
-------
2.3.2.
- -----
(c) the cash payable and Note issuable pursuant to Sections 2.4(a) and
(b) above shall be issued to the Shareholders in the ratios set forth on
Schedule A.
- ----------
3
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2.4 The Closing. Subject to termination of this Agreement as provided in
-----------
Section 10 below, the closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Fenwick & West LLP, Two Palo
Alto Square, Palo Alto, California, as soon as possible upon the satisfaction or
waiver of all conditions set forth in Section 8 and Section 9 hereof on or
before fourteen (14) days from the Effective Date (the "Closing Date"), or such
other time and place as is mutually agreeable to the parties.
2.5 Effective Time. Simultaneously with the Closing, the Agreement of
--------------
Merger shall be filed in the office of the Secretary of State of the States of
Delaware and Texas. The Merger shall become effective immediately upon the
filing of the Agreement of Merger with such office. The date and time of the
effectiveness of the Merger under the laws of Delaware and Texas is referred to
herein as the "Effective Time."
2.6 Tax Free Reorganization. The parties intend to adopt this Agreement
-----------------------
as a tax-free plan of reorganization and to consummate the Merger in accordance
with the provisions of Section 368(a) of the Code. Each party agrees that it
will not take or assert any position on any tax return, report or otherwise
which is inconsistent with the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code, except as may be required by
law. The NetSelect Preferred Stock issued in the Merger will be issued solely
in exchange for the MSS Stock and the consideration described in Section 2.4
hereof, and no other transaction other than the Merger represents, provides for
or is intended to be an adjustment to the consideration paid for the MSS Stock.
Except for the consideration described in Section 2.4 hereof, no consideration
that could constitute "other property" within the meaning of Section 356 of the
Code is intended to be paid by NetSelect for the MSS Stock in the Merger. In
addition, NetSelect represents now, and as of the Closing Date, that it
presently intends to continue MSS' historic business or use a significant
portion of MSS' business assets in a business.
2.7 Exemption from Registration. The parties hereto expect that the
---------------------------
NetSelect Preferred Stock to be issued in connection with the Merger will be
issued in a transaction exempt from registration under the 1933 Act by reason of
Section 4(2) thereof, and that the NetSelect Preferred Stock hereunder will be
exempt from qualification under California Law or Texas Law.
2.8 Restricted Securities. The NetSelect Preferred Stock will bear
---------------------
customary legends imposing certain restrictions on transferability by federal
and state securities laws, a true and correct copy of which is attached hereto
as Exhibit 2.8.
3. REPRESENTATIONS AND WARRANTIES OF MSS AND THE SHAREHOLDERS
MSS and the Shareholders hereby jointly and severally represent and warrant
to NetSelect that, except as set forth in the MSS Schedule of Exceptions
attached hereto as Exhibit 3 (the "MSS Schedule of Exceptions"), each of the
following representations and statements in this Section 3 is true and correct.
For purposes of this Agreement, phrases such as "the knowledge of MSS and the
Shareholders," "to the best knowledge of MSS and the Shareholders," or similar
phrases shall mean, and shall be limited to, the actual knowledge of Fred White
and Trey White after having made reasonable investigation and inquiry of the
4
<PAGE>
directors, officers or employees of MSS who could reasonably be expected to have
knowledge of the matters to which the statement relates.
3.1 Organization and Good Standing.
------------------------------
(a) Each of MSS and Newhouse is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. Each of MSS
and each Subsidiary has the corporate power and authority to own, operate and
lease its properties and to carry on its business as now conducted and as
proposed to be conducted, and is duly qualified to transact business as a
foreign corporation in each jurisdiction in which its failure to be so qualified
would have a Material Adverse Effect.
(b) Newhouse is the only direct or indirect subsidiary of MSS
("Subsidiary"). Except for Newhouse, MSS does not have any subsidiaries or any
interests, direct or indirect, in any corporation, partnership, joint venture or
other business entity. At the Closing Date, all issued and outstanding shares
of the capital stock of Newhouse will be owned by MSS and will be validly
issued, fully paid and nonassessable and are free and clear of any Encumbrances.
There are no outstanding options, warrants, rights or other securities that,
directly or indirectly, would entitle or enable any person or entity to
ultimately purchase or otherwise acquire any shares of the capital stock of any
Subsidiary.
3.2 Power, Authorization and Validity.
---------------------------------
3.2.1 MSS has the right, power, legal capacity and authority to enter
into, execute, deliver and perform its obligations under this Agreement and all
MSS Ancillary Agreements, and MSS has all requisite corporate power and
authority to consummate the Merger. The execution, delivery and performance of
this Agreement and each of the MSS Ancillary Agreements by MSS have been duly
and validly approved and authorized by all necessary corporate action on the
part of the Board of Directors and the shareholders of MSS. The Shareholders
have the right, power, legal capacity and authority to enter into, execute,
deliver and perform the Shareholders' obligations under all Shareholder
Ancillary Agreements.
3.2.2 No filing, authorization, consent, approval or order,
governmental or otherwise, is necessary or required to be made or obtained by
MSS or the Shareholders to enable MSS and the Shareholders to lawfully enter
into, and to perform their respective obligations under, this Agreement, the MSS
Ancillary Agreements, and/or the Shareholder Ancillary Agreements.
3.2.3 Except to the extent this Agreement and the MSS Ancillary
Agreements create obligations of the Shareholders and not MSS, this Agreement
and the MSS Ancillary Agreements are, or when executed by MSS will be, valid and
binding obligations of MSS enforceable against MSS in accordance with their
respective terms. Except to the extent they create obligations of MSS and not
the Shareholders, this Agreement and the Shareholder Ancillary Agreements are,
or when executed by the Shareholders will be, valid and binding obligations of
the Shareholders enforceable against the Shareholders in accordance with their
respective terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors'
5
<PAGE>
rights and (ii) the remedy of specific performance and injunctive relief and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
3.3 Capitalization of MSS.
---------------------
3.3.1 Outstanding Stock. The authorized capital stock of MSS
-----------------
consists entirely of 1,000,000 shares of common stock, $1.00 par value per
share, of which a total of 409 shares are issued and outstanding, all of which
are now owned and held (and all of which at the Closing will be owned and held)
by the Shareholders and in the amounts as follows: Fred White 290 shares and
Trey White 119 shares. No other shares of the capital stock of MSS are (or will
at Closing be) authorized, issued or outstanding. No fractional shares of MSS
Stock are (or will at Closing be) issued or outstanding. All issued and
outstanding shares of MSS Stock have been duly authorized and validly issued,
are fully paid and nonassessable, are not subject to any claim, lien, preemptive
right, or right of rescission, and have been offered, issued, sold and delivered
by MSS (and, if applicable, transferred) in compliance with all registration or
qualification requirements (or applicable exemptions therefrom) of all
applicable securities laws, Articles of Incorporation of MSS and other charter
documents and all agreements to which MSS is a party.
3.3.2 No Options, Warrants or Rights. There are no options,
------------------------------
warrants, convertible or other securities, calls, commitments, conversion
privileges, preemptive rights or other rights or agreements outstanding to
purchase or otherwise acquire (whether directly or indirectly) any shares of
authorized but unissued capital stock of MSS or any securities convertible into
or exchangeable for any shares of capital stock of MSS or obligating MSS to
grant, issue, extend, or enter into, any such option, warrant, convertible or
other security, call, commitment, conversion privilege, preemptive right or
other right or agreement, and MSS has no liability for any dividends accrued but
unpaid. No person or entity holds or has any option, warrant or other right to
acquire any issued and outstanding shares of the capital stock of MSS from any
record or beneficial holder of shares of the capital stock of MSS. No shares of
MSS Stock are reserved for issuance under any stock purchase, stock option or
other benefit plan.
3.3.3 No Voting Arrangements or Registration Rights. There are no
---------------------------------------------
voting agreements, voting trusts, rights of first refusal or other restrictions
(other than normal restrictions on transfer under applicable securities laws)
applicable to any of MSS' outstanding securities. MSS is not under any
obligation to register under the 1933 Act or otherwise any of its currently
outstanding securities or any securities that may be subsequently issued.
3.4 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement or any MSS Ancillary Agreement, nor the consummation
of the Merger or any of the other transactions contemplated hereby, nor
discussion of MSS or negotiation with NetSelect or NNH of the Merger or any
other transaction contemplated hereby, will conflict with, or (with or without
notice or lapse of time, or both) result in a termination, breach, impairment or
violation of: (i) any provision of the charter documents of MSS as currently in
effect; (ii) any federal, state, local or foreign judgment, writ, decree, order,
statute, rule or regulation applicable to MSS or its assets or properties; or
(iii) any material instrument, agreement, contract, letter of intent or
commitment to which MSS is a party or by which MSS or its assets or properties
are or were bound. The consummation of the Merger by MSS will not require the
consent of any third party
6
<PAGE>
other than the approval of the Shareholders, and no agreement to which MSS is a
party requires that any other party thereto consent to the Merger, whether as a
condition to the assignment or transfer of such agreement, or otherwise.
3.5 Litigation. There is no action, suit, arbitration, mediation,
----------
proceeding, claim or investigation pending against MSS (or to the knowledge of
MSS and the Shareholders, against any officer or director of MSS or, to the
knowledge of MSS and the Shareholders, against any employee or agent of MSS, in
their capacity as such or relating to their employment, services or relationship
with MSS) before any court, administrative agency or arbitrator that, if
determined adversely to MSS (or any such officer, director, employee or agent)
may reasonably be expected to have a Material Adverse Effect on MSS, nor, to the
best of MSS' knowledge, has any such action, suit, proceeding, arbitration,
mediation, claim or investigation been threatened. To the knowledge of MSS and
the Shareholders, there is no basis for any person, firm, corporation or other
entity, to assert a claim against MSS or NetSelect based upon: (a) MSS'
entering into this Agreement or consummating the Merger; (b) any claims of
ownership, rights to ownership, or options, warrants or other rights to acquire
ownership, of any shares of the capital stock of MSS; or (c) any rights as the
Shareholders. There is no judgment, decree, injunction, rule or order of any
governmental entity or agency, court or arbitrator outstanding against MSS.
3.6 Taxes. Neither MSS nor Newhouse, nor their shareholders, has ever
-----
filed any election to be taxed as an S Corporation. MSS has filed all national,
state, local and foreign tax returns required to be filed, has paid all taxes
required to be paid in respect of all periods for which returns have been filed,
has established what it believes is an adequate accrual or reserve for the
payment of all taxes payable in respect of the periods subsequent to the periods
covered by the most recent applicable tax returns, has made all necessary
estimated tax payments, and has no material liability for taxes in excess of the
amount so paid or accruals or reserves so established. MSS is not delinquent in
the payment of any tax or in the filing of any tax returns, and to the knowledge
of MSS and the Shareholders no deficiencies for any tax are threatened, claimed,
proposed or assessed. MSS has not received any notification that any issues
have been raised (and are currently pending) by any taxing authority (including
but not limited to any franchise, sales or use tax authority) regarding MSS and
no tax return of MSS has ever been audited by any national, state, local or
foreign taxing agency or authority. There are no tax liens against any assets of
MSS. MSS is not a "personal holding company" within the meaning of Section 542
of the Code. MSS is not a "U.S. Real Property Holding Company" as defined in
the Code.
For the purposes of this Section, the terms "tax" and "taxes" include all
national, state, local and foreign income, alternative or add-on minimum income,
gains, franchise, excise, property, sales, use, employment, license, payroll
(including any taxes or similar payments required to be withheld from payments
of salary or other compensatory payments), ad valorem, payroll, stamp,
occupation, recording, value added or transfer taxes, governmental charges,
fees, customs duties, levies or assessments (whether payable directly or by
withholding), and, with respect to such taxes, any estimated tax, interest and
penalties or additions to tax and interest on such penalties and additions to
tax.
3.7 MSS Financial Statements.
------------------------
7
<PAGE>
(a) MSS has delivered to NetSelect MSS' unaudited consolidated balance
sheet basis as of December 31, 1996 and 1997, its unaudited consolidated income
statement and statement of cash flows for the years then ended, and MSS'
unaudited consolidated balance sheet (the "Balance Sheet Date") as of March 31,
1998 (the "Most Recent Balance Sheet") and its unaudited consolidated income
statement and statement of cash flows for the three months then ended (the "MSS
Financial Statements"). The MSS Financial Statements (a) are in accordance with
the books and records of MSS, (b) fairly present the financial condition of MSS
at the respective dates therein indicated and the results of operations for the
respective periods therein specified and (c) have been prepared according to
generally accepted accounting principles, applied on a consistent basis. MSS,
on a consolidated basis, has no material debt, liability or obligation of any
nature, whether accrued, absolute, contingent or otherwise, and whether due or
to become due, that is not reflected, reserved against or disclosed in the MSS
Financial Statements, except for (i) those that are not required to be reported
in accordance with generally accepted accounting principles and are disclosed by
MSS in writing to NetSelect and (ii) those that may have been incurred after
March 31, 1998 in the ordinary course of its business, consistent with past
practice, in amounts which are not material, either individually or in the
aggregate.
(b) The financial projections of MSS that MSS or the Shareholders have
delivered to NetSelect or its representatives before the date of this Agreement
have been prepared in good faith and represent the Shareholders' best estimate
of future performance of MSS, and neither MSS nor the Shareholders are currently
aware of any circumstance that could reasonably be expected to result in actual
results being materially and adversely different from the results reflected in
such projections.
3.8 Title to Properties. MSS has good and marketable title to all of its
-------------------
assets (including but not limited to those shown on the Balance Sheet), free and
clear of all liens, mortgages, security interests, claims, charges, restrictions
or encumbrances. All machinery, vehicles, equipment and other tangible personal
property included in such assets and properties are in good condition and
repair, normal wear and tear excepted, and all leases of real or personal
property to which MSS is a party are fully effective and afford MSS peaceful and
undisturbed possession of the real or personal property that is the subject of
the lease. MSS does not own any real property. To the knowledge of MSS and the
Shareholders, MSS is not in violation of any zoning, building, safety or
environmental ordinance, regulation or requirement or other law or regulation
applicable to the operation of owned or leased properties, the violation of
which would have a Material Adverse Effect on MSS, nor has MSS received any
notice of such violation with which it has not complied.
3.9 Absence of Certain Changes. Since the Balance Sheet Date, there has
--------------------------
not been with respect to MSS any:
(a) material adverse change in the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations, results of operations
or prospects of MSS, except for an increase of Fifty Thousand Dollars
($50,000.00) to a Line of Credit loan from Fred White to MSS occurring on April
26, 1998;
(b) amendments or changes in the charter documents of MSS;
8
<PAGE>
(c) (i) incurrence, creation or assumption by MSS of any mortgage,
security interest, pledge, lien or other encumbrance on any of the assets or
properties of MSS or any material obligation or liability or any indebtedness
for borrowed money in excess of Ten Thousand Dollars ($10,000); or (ii) issuance
or sale of, or change with respect to the rights of, any debt or equity
securities of MSS or any options or other rights to acquire from MSS, directly
or indirectly, any debt or equity securities of MSS;
(d) payment or discharge of a lien or liability in excess of Ten
Thousand Dollars ($10,000) which lien or liability was not either shown on the
Balance Sheet or incurred in the ordinary course of business after the Balance
Sheet Date;
(e) purchase, license, sale or other disposition, or any agreement or
other arrangement for the purchase, license, sale or other disposition, of any
of the assets, properties or goodwill of MSS in excess of Ten Thousand Dollars
($10,000) other than in the ordinary course of its business consistent with its
past practice;
(f) damage, destruction or loss, whether or not covered by insurance,
having a Material Adverse Effect on MSS;
(g) declaration, setting aside or payment of any dividend on, or the
making of any other distribution in respect of, the capital stock of MSS, any
split, combination or recapitalization of the capital stock of MSS or any direct
or indirect redemption, purchase or other acquisition of the capital stock of
MSS or any change in any rights, preferences, privileges or restrictions of any
outstanding security of MSS;
(h) change or increase in the compensation payable or to become
payable to any of the officers, employees, consultants or agents of MSS, or any
bonus or pension, insurance or other benefit payment or arrangement (including,
without limitation, stock awards, stock appreciation rights or stock option
grants) made to or with any of such officers, employees, consultants or agents
except in connection with normal salary or performance reviews, pursuant to
arrangements of which NetSelect has been informed, or otherwise in the ordinary
course of business consistent with the past practice of MSS, all of which are
set forth on the MSS Schedule of Exceptions;
(i) change with respect to the management, supervisory or other key
personnel of MSS;
(j) obligation or liability incurred by MSS to any of its officers,
directors or shareholders except normal compensation and expense allowances
payable to officers in the ordinary course of business consistent with the past
practice of MSS;
(k) making by MSS of any loan, advance or capital contribution to, or
any investment in, any officer, director or record or beneficial shareholder of
MSS;
(l) entering into, amendment of, relinquishment, termination or non-
renewal by MSS of any contract, lease, transaction, commitment or other right or
obligation which by its terms calls for annual payments in excess of Ten
Thousand Dollars ($10,000) (a "Section 3.9 Contract") other than in the ordinary
course of its business consistent with its past practice or
9
<PAGE>
any written or oral indication or assertion by the other party thereto of
problems with MSS' services or performance under Section 3.9 Contract or such
other party's desire to so amend, relinquish, terminate or not renew any Section
3.9 Contracts;
(m) material change in the manner in which MSS extends discounts or
credits to customers or otherwise deals with its customers;
(n) entering into by MSS of any transaction, contract or agreement or
the conduct of business or operations other than in the ordinary course of its
business consistent with its past practices;
(o) transfer or grant of a right under any MSS IP Rights (as defined
in Section 3.12 below), other than those transferred or granted in the ordinary
course of MSS' business consistent with the past practice of MSS; or
(p) agreement or arrangement made by MSS to take any action which, if
taken prior to the date of this Agreement, would have made any representation or
warranty of MSS and the Shareholders set forth in this Agreement untrue or
incorrect.
3.10 Contracts and Commitments. To the best of MSS' and MSS Shareholder's
-------------------------
knowledge, Exhibit 3.10 sets forth a list of each of the following written or
------------
oral contracts, agreements, commitments or other instruments to which MSS is a
party or to which it or any of its assets or properties is bound which calls for
or requires payments or the provision of goods or services by any party in
excess of Ten Thousand Dollars ($10,000) per year (each a "Material Contract")
(For purposes of this Section and Section 3.9, an agreement which provides for
an initial payment or obligation less than Ten Thousand Dollars ($10,000), but
which provides for possible future payments or obligations, shall be deemed to
be in excess of $10,000 if MSS or the Shareholders reasonably expect that the
agreement will involve amounts in excess of Ten Thousand Dollars ($10,000) over
the term of the agreement.):
(a) consulting or similar agreement under which MSS provides any
advice or services to a customer of MSS;
(b) continuing contract for the future purchase, sale, license,
provision or manufacture of products, material, supplies, equipment or services
which is not terminable on ninety (90) days' or less notice without cost or
other liability to MSS or in which MSS has granted or received manufacturing
rights, most favored customer pricing provisions or exclusive marketing rights
relating to any product or services, group of products or services or territory;
(c) contract providing for the acquisition of software by MSS, for the
development of software for MSS, or the license of software to MSS, which
software is used or incorporated in any products currently distributed by MSS or
services currently provided by MSS or is contemplated to be used or incorporated
in any products to be distributed or services to be provided by MSS (other than
software generally available to the public at a per copy license fee of less
than One Thousand Dollars ($1,000));
10
<PAGE>
(d) joint venture or partnership contract or agreement or other
agreement which has involved or is reasonably expected to involve a sharing of
profits or losses in excess of Ten Thousand Dollars ($10,000) per annum with any
other party;
(e) contract or commitment for the employment of any officer, employee
or consultant of MSS or any other type of contract or understanding with any
officer, employee or consultant of MSS which is not immediately terminable by
MSS without cost or other liability;
(f) indenture, mortgage, trust deed, promissory note, loan agreement,
guarantee or other agreement or commitment for the borrowing of money, for a
line of credit or for a leasing transaction of a type required to be capitalized
in accordance with United States Statement of Financial Accounting Standards No.
13 of the Financial Accounting Standards Board;
(g) lease or other agreement under which MSS is lessee of or holds or
operates any items of tangible personal property or real property owned by any
third party and under which payments to such third party exceed Ten Thousand
Dollars ($10,000) per annum;
(h) agreement or arrangement for the sale of any assets, properties,
services or rights, other than in the ordinary course of business consistent
with past practice;
(i) agreement which restricts MSS from engaging in any aspect of its
business or competing in any line of business in any geographic area;
(j) MSS IP Rights Agreements (as defined in Section 3.12 below);
(k) agreement relating to the sale, issuance, grant, exercise, award,
purchase, repurchase or redemption of any shares of capital stock or other
securities of MSS or any options, warrants or other rights to purchase or
otherwise acquire any such shares of stock, other securities or options,
warrants or other rights therefor;
(l) contract with or commitment to any labor union; or
(m) other agreement, contract, commitment or instrument that is
material to the business of MSS or that involves a commitment by MSS in excess
of Ten Thousand Dollars ($10,000).
A copy of each Material Contract, or if such Material Contract is not in
writing a written summary of the material terms thereof, which is required by
this Section to be listed on Exhibit 3.10 has been delivered to NetSelect.
(Where several Material Contracts that are not in writing contain material terms
that do not differ in significant respects from each other, MSS may summarize
once the material terms of such Material Contracts and then simply identify the
various parties to such Material Contracts.) No consent or approval of any
third party is required to ensure that, following the Closing, any Material
Contract shall continue to be in full force and effect without any breach or
violation thereof caused by virtue of the Merger or by any other transaction
called for by this Agreement.
11
<PAGE>
3.11 No Default. To the best knowledge of MSS and the Shareholders, MSS is
----------
not in breach or default of, and has not breached or been in default of, any
Material Contract, and MSS is not a party to any contract, agreement or
arrangement which has had, or is reasonably expected to have, a Material Adverse
Effect on MSS. To the best knowledge of MSS and the Shareholders, MSS does not
have any material liability for renegotiations of government contracts or
subcontracts, if any.
3.12 Intellectual Property.
---------------------
3.12.1 MSS owns, or has the irrevocable right to use, sell or license
all Intellectual Property Rights (as defined below) necessary or required for
the conduct of its business as presently conducted and as presently proposed to
be conducted (such Intellectual Property Rights being hereinafter collectively
referred to as the "MSS IP Rights"), and such rights to use, sell or license are
sufficient for such conduct of its business. MSS is the legal and beneficial
owner of all rights, including all copyright and worldwide distribution rights,
to those certain computer software programs set forth on Exhibit 3, including
all object code, source code, configurations, routines and algorithms contained
therein with annotations and related documentation, together with all
alterations, modifications and reconfigurations thereof in all forms of
expression, including but not limited to, the source code, object code,
flowcharts, block diagrams, manuals and all other documentation no matter how
stored, transmitted, read or utilized and all copyrights, trade secrets,
patents, inventions (whether patentable or not), proprietary rights and
intellectual property rights associated therewith (collectively the "Software").
The term "MSS IP Rights" includes, without limitation, the Software.
3.12.2 The execution, delivery and performance of this Agreement and
the consummation of the Merger and the other transactions contemplated hereby
will not constitute a material breach of or default under any instrument,
contract, license or other agreement governing any MSS IP Right (the "MSS IP
Rights Agreements") and will not cause the forfeiture or termination, or give
rise to a right of forfeiture or termination, of any MSS IP Right or materially
impair the right of MSS to use, sell, license, provide or otherwise commercially
exploit any MSS IP Right or portion thereof (except where such breach,
forfeiture or termination would not have a Material Adverse Effect on MSS).
There are no royalties, honoraria, fees or other payments payable by MSS to any
person by reason of the ownership, use, license, sale, exploitation or
disposition of the MSS IP Rights.
3.12.3 Neither the manufacture, marketing, license, sale, furnishing
or intended use of any product or service currently licensed, utilized, sold,
provided or furnished by MSS or currently under development by MSS has violated
or now violates any license or agreement between MSS and any third party or
infringes or misappropriates any Intellectual Property Right of any other party;
and there is no pending or, to the best knowledge of MSS and the Shareholders,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any MSS IP Right nor is there any basis for any
such claim, nor has MSS received any notice asserting that any MSS IP Right or
the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, nor is there any basis for any such
assertion. To the knowledge of MSS and the Shareholders, no employee or agent
of or consultant to MSS is in violation of any term of any employment contract,
patent disclosure agreement, noncompetition agreement, non-solicitation
agreement or any other
12
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contract or agreement, or any restrictive covenant relating to the right of any
such employee, agent or consultant to be employed thereby, or to use trade
secrets or proprietary information of others, and the employment of such
employees or engagement of such agents and consultants does not subject MSS to
any liability.
3.12.4 MSS has taken reasonable and practicable steps, in accordance
with prevailing industry standards, designed to protect, preserve and maintain
the secrecy and confidentiality of all material MSS IP Rights and all MSS'
proprietary rights therein; provided, however, that NetSelect acknowledges that
MSS does not have any registered patents, trademarks or copyrights, and has not
filed any patent, trademark or copyright registrations. All officers, employees
and consultants of MSS have executed and delivered to MSS an agreement regarding
the protection of such proprietary information and the assignment of inventions
to MSS in the form attached hereto as Exhibit 5.12, which was provided to
counsel for NetSelect. Copies of all such agreements, executed by all such
persons, have been delivered to NetSelect's counsel.
3.12.5 Exhibit 3 contains a list of all MSS IP Rights and all
worldwide applications, registrations, filings and other formal actions made or
taken pursuant to federal, state and foreign laws by MSS to secure, perfect or
protect its interest in MSS IP Rights, including, without limitation, all
patents, patent applications, copyrights (whether or not registered), copyright
applications, trademarks, service marks and trade names (whether or not
registered) and trademark, service mark and trade name applications.
3.12.6 As used herein, the term "Intellectual Property Rights" means,
collectively, all worldwide industrial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark applications, trade dress rights, trade names, service
marks, service mark applications, copyrights, copyright applications, mask work
rights, mask work registrations, franchises, licenses, inventions, trade
secrets, know-how, customer lists, proprietary processes and formulae, software
source and object code, algorithms, architecture, structure, display screens,
layouts, inventions, development tools and all documentation and media
constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records.
3.13 Compliance with Laws; Franchise Matters.
---------------------------------------
(a) MSS is now and at the Closing Date will be in compliance in all
material respects with all applicable national, state, local or foreign laws,
ordinances, regulations, and rules, and all orders, writs, injunctions, awards,
judgments, and decrees applicable to MSS or to MSS' assets, properties, and
business, where failure to be in such compliance would have a Material Adverse
Effect on MSS. To the knowledge of MSS and the Shareholders, MSS holds all
permits, licenses and approvals from, and has made all filings with, third
parties, including government agencies and authorities, that are necessary in
connection with MSS' present business, except those where failure to do so would
not have a Material Adverse Effect on MSS.
(b) To the knowledge of MSS and the Shareholders, no agreement to
which MSS or any Subsidiary is a party, and no actions or omissions by MSS or
any Subsidiary, (i) constitute a "franchise," "franchise agreement" or otherwise
establish any franchise relationship
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or (ii) will subject NetSelect or NNH to any liability under any "business
opportunity" or "baby FTC" statutes, each as defined under applicable state
laws.
3.14 Certain Transactions and Agreements. To the knowledge of MSS and the
-----------------------------------
Shareholders, (i) none of the officers or directors of MSS, nor any member of
their immediate families, has any direct or indirect ownership interest in any
firm or corporation that competes with, or does business with, or has any
contractual arrangement with MSS (except with respect to any interest in less
than five percent (5%) of the stock of any corporation whose stock is publicly
traded), (ii) none of said officers, directors, employees or shareholders or any
member of their immediate families, is directly or indirectly interested in any
contract or informal arrangement with MSS, except for normal compensation for
services as an officer, director or employee thereof that have been disclosed to
NetSelect, and (iii) none of said officers, directors, employees or shareholders
or family members has any interest in any property, real or personal, tangible
or intangible (including but not limited to any MSS IP Rights or any other
Intellectual Property Rights) that is used in or that pertains to the business
of MSS, except for the normal rights of a shareholder.
3.15 Employees, ERISA and Other Compliance.
-------------------------------------
3.15.1 MSS is in compliance in all material respects with all
applicable laws, agreements and contracts relating to employment, employment
practices, wages, hours, and terms and conditions of employment, including, but
not limited to, employee compensation matters in each of the jurisdictions in
which it conducts business. A list of all employees, officers and consultants
of MSS, their title, date of hire, employer entity and current compensation is
set forth on Exhibit 3, which has been delivered to NetSelect. MSS does not
have any employment contracts or consulting agreements currently in effect that
are not terminable at will (other than agreements with the sole purpose of
providing for the confidentiality of proprietary information or assignment of
inventions).
3.15.2 MSS (i) has not previously been and is not now subject to a
union organizing effort, (ii) is not subject to any collective bargaining
agreement with respect to any of its employees, (iii) is not subject to any
other contract, written or oral, with any trade or labor union, employees'
association or similar organization, and (iv) does not have any current labor
disputes. MSS has good labor relations, and has no knowledge of any facts
indicating that the consummation of the transactions contemplated hereby will
have a Material Adverse Effect on such labor relations. Neither MSS nor the
Shareholders has any knowledge that any key employee of MSS intends to leave the
employ of MSS.
3.15.3 MSS does not have any "employee benefit plan," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). MSS has no pension plan which constitutes, or has since the
enactment of ERISA constituted, a "multi-employer plan" as defined in Section
3(37) of ERISA. No MSS pension plans are subject to Title IV of ERISA.
3.15.4 There exists no employment, severance or other similar
contract, arrangement or policy, each "employee benefit plan" as defined in
Section 3(3) of ERISA (if any) and each plan or arrangement (written or oral)
providing for insurance coverage (including
14
<PAGE>
any self-insured arrangements), workers' benefits, vacation benefits, severance
benefits, disability benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
for employees, consultants or directors which is entered into, maintained or
contributed to by MSS and covers any employee or former employee or consultant
or former consultant of MSS. Such contracts, plans and arrangements are as
described in this Section 3.15.4 are hereinafter collectively referred to as the
"MSS Benefit Arrangements." Each MSS Benefit Arrangement has been maintained in
compliance in all material respects with its terms and with the requirements
prescribed by any and all laws, statutes, orders, rules and regulations that are
applicable to such MSS Benefit Arrangement. MSS has delivered to NetSelect and
its counsel, Fenwick & West LLP, a complete and correct copy and summary
description of each MSS Benefit Arrangement.
3.15.5 There has been no amendment to, written interpretation or
announcement (whether or not written) by MSS relating to, or change in employee
participation or coverage under, any MSS Benefit Arrangement that would increase
materially the expense of maintaining such MSS Benefit Arrangement above the
level of the expense incurred in respect thereof for MSS' fiscal year ended
December 31, 1997.
3.15.6 The group health plans (as defined in Section 4980B(g) of the
Code) that benefit employees of MSS are in compliance, in all material respects,
with the continuation coverage requirements of Section 4980B of the Code as such
requirements affect MSS and its employees. As of the Closing Date, there will
be no material outstanding, uncorrected violations under the Consolidation
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), with respect to
any of the MSS Benefit Arrangements, covered employees, or qualified
beneficiaries that could result in a Material Adverse Effect on MSS, or in a
material adverse effect on the business, operations or financial condition of
NetSelect as its successor. MSS has provided, or shall have provided prior to
the Closing, to individuals entitled thereto, all required notices and coverage
pursuant to Section 4980B of COBRA, with respect to any "qualifying event" (as
defined in Section 4980B(f)(3) of the Code) occurring prior to and including the
Closing Date, and no material amount payable on account of Section 4980B of the
Code has been incurred with respect to any current or former employees of MSS
(or their beneficiaries).
3.15.7 No benefit payable or which may become payable by MSS pursuant
to any MSS Benefit Arrangement or as a result of or arising under this Agreement
shall constitute an "excess parachute payment" (as defined in Section 280G(b)(1)
of the Code) which is subject to the imposition of an excise tax under Section
4999 of the Code or which would not be deductible by reason of Section 280G of
the Code. MSS is not a party to any (a) agreement (other than as described in
(b) below) with any executive officer or other key employee thereof (i) the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving MSS in the nature of any of the
transactions contemplated by this Agreement, (ii) providing any term of
employment or compensation guarantee, or (iii) providing severance benefits or
other benefits after the termination of employment of such employee regardless
of the reason for such termination of employment, or (b) agreement or plan,
including, without limitation, any stock option plan, stock appreciation rights
plan or stock purchase plan, any of the benefits of which will be materially
increased, or the vesting of benefits of which will
15
<PAGE>
be materially accelerated, by the occurrence of the Merger or any of the other
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
3.16 Corporate Documents. MSS has delivered to NetSelect for examination
-------------------
all documents and information listed in the MSS Schedule of Exceptions or other
Exhibits called for by this Agreement, including, without limitation, the
following: (a) copies of the charter documents as currently in effect of MSS;
(b) the Minute Book containing all records of all proceedings, consents,
actions, minutes, and meetings of MSS, including (but not limited to) actions of
shareholders, board of directors and any committees thereof; (c) the stock
ledger and journal reflecting all stock issuances and transfers of MSS; (d) all
material permits, orders, and consents issued by any regulatory agency with
respect to MSS, or any securities of MSS, and all applications for such permits,
orders, and consents; and (e) all Material Agreements required to be disclosed
pursuant to Section 3.10.
3.17 No Brokers. Neither MSS nor the Shareholders nor any affiliate of MSS
----------
is obligated for the payment of any fees or expenses of any investment banker,
broker or finder in connection with the origin, negotiation or execution of this
Agreement or in connection with the Merger or any other transaction contemplated
hereby.
3.18 Books and Records. The books, records and accounts of MSS (a) are in
-----------------
all material respects true, complete and correct, (b) are stated in reasonable
detail and in all material respects fairly reflect the transactions and
dispositions of the assets of MSS, and (c) fairly reflect the basis for the MSS
Financial Statements.
3.19 Insurance. Exhibit 3 hereto lists all insurance maintained by MSS,
---------
including, without limitation, fire and casualty, general liability, business
interruption, product liability, errors and omissions, and sprinkler and water
damage insurance.
3.20 Environmental Matters.
---------------------
3.20.1 During the period that MSS has leased or owned its respective
properties or owned or operated any facilities, to the best knowledge of MSS and
the Shareholders, there have been no disposals, releases or threatened releases
of Hazardous Materials (as defined below) on, from or under such properties or
facilities that resulted from any act or omission of MSS or any of its
employees, agents or invitees. MSS has no knowledge of any presence, disposals,
releases or threatened releases of Hazardous Materials on, from or under any of
such properties or facilities, which may have occurred prior to MSS having taken
possession of any of such properties or facilities. For the purposes of this
Agreement, the terms "disposal," "release," and "threatened release" shall have
the definitions assigned thereto by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA"). For the purposes of this Agreement "Hazardous Materials" shall mean
any hazardous or toxic substance, material or waste which is or becomes prior to
the Closing regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous materials," "toxic substance" or
"hazardous chemical" under (a) CERCLA; (b) any similar federal, state or local
law; or (c) regulations promulgated under any of the above laws or statutes.
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<PAGE>
3.20.2 To the best knowledge of MSS and the Shareholders, none of the
properties or facilities of MSS is in violation of any federal, state or local
law, ordinance, regulation or order relating to industrial hygiene or to the
environmental conditions on, under or about such properties or facilities,
including, but not limited to, soil and ground water condition. During the time
that MSS has owned or leased its properties and facilities, neither MSS nor, to
the best knowledge of MSS and the Shareholders, any third party, has used,
generated, manufactured or stored on, under or about such properties or
facilities or transported to or from such properties or facilities any Hazardous
Materials, other than MSS' lawful use of standard office supplies customarily
used in office environments that contain legally permitted amounts of Hazardous
Materials that would have no Material Adverse Effect.
3.20.3 During the time that MSS has owned or leased its properties
and facilities, there has been no litigation brought or threatened against MSS,
or, to the best knowledge of MSS and the Shareholders, against any lessor or
owner of real property leased by MSS, or any settlement reached by MSS or the
Shareholders with any party or parties alleging the presence, disposal, release
or threatened release of any Hazardous Materials on, from or under any of such
properties or facilities.
3.21 Tax Advice. Shareholders have been advised by their own advisers
----------
concerning the tax treatment of the Merger and the other transactions
contemplated by this Agreement, and is not relying on NetSelect or any of its
agents for any advice concerning such tax consequences.
3.22 Contracts Assignable. Upon the Effective Date, all instruments,
--------------------
agreements, contracts, letter of intent or commitments to which MSS is a party
or by which MSS or its assets or properties are bound shall be assigned to NNH
without any action on the part of any party hereto.
3.23 Tax Free Reorganization.
-----------------------
(a) Neither MSS nor, to its knowledge, any MSS shareholder has taken
or agreed to take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code.
(b) Immediately following the Merger, NNH will hold at least 90% of
the fair market value of MSS' net assets and at least seventy percent (70%) of
the fair market value of MSS' gross assets held immediately prior to the Merger.
For purposes of this representation, amounts used by MSS to pay merger expenses
and all redemptions and distributions (except for regular, normal dividends)
made by MSS will be included as assets of MSS immediately prior to the Merger.
(c) MSS is not an investment company as defined in Section 368(a) of
the Code.
3.24 Shareholders Investment Representations. Each Shareholder understands
---------------------------------------
that the Merger Shares have not been registered under the 1933 Act, and that
they are being offered and sold pursuant to an exemption from registration
contained in the 1933 Act based in part upon the representations of the
Shareholders contained herein. Each Shareholder hereby, severally and not
jointly, represents and warrants to and agrees with the Company as follows:
17
<PAGE>
(a) The Merger Shares are being acquired for such Shareholder's own
account, for investment and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the 1933
Act, Texas Law or California Law or the securities laws of any other state
applicable to such Shareholder. If such Shareholder is an entity, such
Shareholder represents that it was not formed for the purpose of acquiring the
Merger Shares.
(b) Such Shareholder understands that the Merger Shares have not been
registered under the 1933 Act by reason of their issuance in a transaction
exempt from the registration and prospectus delivery requirements of the 1933
Act, that the Company has no present intention of registering the Merger Shares,
that the Merger Shares must be held by such Shareholder indefinitely, and that
such Shareholder must therefore bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
1933 Act or is exempt from registration. Such Shareholder further understands
that the Merger Shares have not been qualified under the Texas Law or California
Law by reason of their issuance in a transaction exempt from the qualification
requirements of the California Law pursuant to Section 25102(f) thereof, which
exemption depends upon, among other things, the bona fide nature of such
Shareholder's investment intent expressed above.
(c) During the negotiation of the transactions contemplated herein,
such Shareholder and its representatives have been afforded access as requested
by such Shareholder and its representatives to corporate books, records,
contracts, documents and other information concerning the Company and to its
offices and facilities, have been afforded an opportunity to ask such questions
of the Company's officers, employees, agents and representatives concerning the
Company's business, operations, financial condition, assets, liabilities and
other relevant matters as they have deemed necessary or desirable, and have been
given all such information as has been requested in order to evaluate the merits
and risks of the prospective investments contemplated herein.
(d) Such Shareholder and such Shareholder's representatives have been
solely responsible for such Shareholder's own "due diligence" investigation of
the Company and the Company's management and business, for such Shareholder's
own analysis of the merits and risks of this investment, and for such
Shareholder's own analysis of the fairness and desirability of the terms of the
investment. In taking any action or performing any role relative to the
arranging of the proposed investment, such Shareholder has acted solely in such
Shareholder's own interest, and neither such Shareholder (nor any of such
Shareholder's agents or employees) has acted as an agent of the Company. Such
Shareholder has such knowledge and experience in financial and business matters
that such Shareholder is capable of evaluating the merits and risks of the
purchase of the Merger Shares pursuant to the terms of the Agreement and of
protecting such Shareholder's interests in connection therewith.
(e) Such Shareholder is able to bear the economic risk of the purchase
of the Merger Shares pursuant to the terms of the Agreement, including a
complete loss of such Shareholder's investment in the Merger Shares.
18
<PAGE>
(f) Such Shareholder knows of no public solicitations or
advertisements made by any Shareholder or prospective purchaser in connection
with the offer and sale of the Merger Shares.
(g) Such Shareholder has not retained any person to act on its behalf,
nor has any person contended that such person was so retained, to assist the
Company as its broker or finder in connection with the transactions contemplated
by the Agreement.
3.25 Ability to Conduct Business. To the knowledge of MSS and the
---------------------------
Shareholders, there are currently no restrictions, contractual or otherwise,
that would impair the ability of NetSelect or any of its subsidiaries other than
NNH from providing Internet services to consumers for new homes in any
jurisdiction in the United States as was provided by MSS in the state of Texas
prior to the Effective Date.
3.26 Disclosure. To the best knowledge of MSS and the Shareholders,
----------
neither this Agreement, its exhibits and schedules, nor any of the certificates
or documents to be delivered by MSS and/or the Shareholders to NetSelect under
this Agreement, taken together, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which such
statements were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF NETSELECT AND NNH
NetSelect and NNH each represent and warrant, that each of the following
representations and statements in this Section 4 is true and correct. For
purposes of this Agreement, phrases such as "the knowledge of NetSelect or NNH,"
"to the best knowledge of NetSelect or NNH" or similar phrases shall mean, and
shall be limited to, the actual knowledge of the Chief Executive Officers of
NetSelect after having made reasonable investigation and inquiry of the
respective directors, officers or employees of NetSelect who could reasonably be
expected to have knowledge of the matters to which the statement relates.
4.1 Organization and Good Standing. NetSelect and NNH are corporations
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and each has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now conducted
and as proposed to be conducted, and is duly qualified to transact business as a
foreign corporation in each jurisdiction in which its failure to be so qualified
would have a Material Adverse Effect.
4.2 Power, Authorization and Validity.
---------------------------------
4.2.1 Upon obtaining the approval of its stockholders in accordance
with sections 9.15 and 9.16 hereof, each of NetSelect and NNH has the right,
power, legal capacity and authority to enter into, execute, deliver and perform
its obligations under this Agreement and the NetSelect Ancillary Agreements, and
will have all requisite corporate power and authority to consummate the Merger.
The execution, delivery and performance of this Agreement and the NetSelect
Ancillary Agreements by NetSelect and NNH have been duly and validly approved
19
<PAGE>
and authorized by all necessary corporate action on the part of the Board of
Directors and shareholders of NetSelect and NNH.
4.2.2 Except for obtaining the approval of its stockholders in
accordance with Sections 9.15 and 9.16 hereof, no filing, authorization,
consent, approval or order, governmental or otherwise, is necessary or required
to enable NetSelect or NNH to lawfully enter into, and to perform its
obligations under, this Agreement and the NetSelect Ancillary Agreements except
for such filings as may be required to comply with applicable securities laws in
connection with the Merger itself.
4.2.3 This Agreement and the NetSelect Ancillary Agreements are, or
when executed by NetSelect and NNH will be, valid and binding obligations of
NetSelect and NNH, respectively, enforceable in accordance with their respective
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and (ii) the remedy of specific performance
and injunctive relief and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
4.3 Capital Structure.
-----------------
4.3.1 Stock.
-----
(a) The authorized capital stock of NetSelect consists of 35,000,000
shares of Class A Common Stock, $0.001 par value per share, 10,000,000 shares of
Class B Common Stock, par value $0.001 per share, and 5,000,000 shares of
Preferred Stock, par value $0.001 per share, of which 1,647,059 shares have been
designated as Series A Convertible Preferred Stock, 352,941 shares have been
designated as Series B Convertible Preferred Stock, 700,000 shares have been
designated as Series C Convertible Preferred Stock, and 681,201 shares have been
designated as Series D Convertible Preferred Stock. On the Effective Date,
265,852 shares of Class A Common Stock were issued and outstanding, 116,470
shares of Class B Common Stock were issued and outstanding, and 3,370,665 shares
of NetSelect's Preferred Stock were issued and outstanding. All outstanding
shares of NetSelect's Preferred Stock and NetSelect's Common Stock are validly
issued, fully paid and nonassessable and not subject to preemptive rights.
NetSelect has provided to the Shareholders, and their counsel, copies of (i)
NetSelect's Certificate of Incorporation, as amended to date, (ii) Bylaws, as
amended to date, and (iii) a true and correct list of the shareholders of
NetSelect and the number of shares of Common Stock and Preferred Stock held by
each such person.
(b) The authorized capital stock of NNH consists of 1,000 shares of
Common Stock, $0.001 par value per share. On the Effective Date, 100 shares of
Common Stock were issued and outstanding, all of which are owned by NetSelect.
All outstanding shares of NNH Common Stock are validly issued, fully paid and
nonassessable and not subject to preemptive rights. NNH has provided to the
Shareholders, and their counsel, copies of (i) NNH's Certificate of
Incorporation and (ii) bylaws.
20
<PAGE>
4.3.2 Options. Options to purchase a total of 893,588 shares are
-------
outstanding, including options granted pursuant to the NetSelect 1996 Stock
Option Plan, (the "NetSelect Option Plan").
4.3.3 No Other Commitments. Except for (i) the NetSelect stock
--------------------
options (whether granted or ungranted) described in Section 4.3.2 above, (ii)
the conversion privileges of the NetSelect Preferred Stock, and (iii) the right
of first offer provided for in the NetSelect, Inc. Stockholder's Agreement,
dated as of November 26, 1996, as amended, as of the Effective Date, there are
no options, warrants, convertible or other securities, calls, commitments,
conversion privileges or preemptive or other rights or agreements of any
character to which NetSelect is a party or by which NetSelect is bound
obligating NetSelect to issue, deliver or sell, or cause to be issued, delivered
or sold, any shares of capital stock of NetSelect or securities convertible into
or exchangeable for shares of capital stock of NetSelect, or obligating
NetSelect to grant, extend or enter into any such option, warrant, call, right,
commitment, conversion right or agreement.
4.4 No Violation of Existing Agreements. Neither the execution and
------------------------------------
delivery of this Agreement or any NetSelect Ancillary Agreement, nor the
consummation of the Merger or any of the other transactions contemplated hereby,
nor NetSelect's discussion or negotiation with MSS of the Merger or any other
transaction contemplated hereby, will conflict with, or (with or without notice
or lapse of time, or both) result in a termination, breach, impairment or
violation of: (i) any provision of the charter documents of NetSelect or NNH as
currently in effect; (ii) any federal, state, local or foreign judgment, writ,
decree, order, statute, rule or regulation applicable to NetSelect or NNH or
either such company's assets or properties; or (iii) any material instrument,
agreement, contract, letter of intent or commitment to which NetSelect or NNH is
a party or by which NetSelect, NNH or either such company's assets or properties
are or were bound. The consummation of the Merger by NetSelect and NNH will not
require the consent of any third party pursuant to the terms of any agreement to
which NetSelect or NNH is a party or by which NetSelect, NNH or either such
company's assets or properties are bound.
4.5 Validity of Shares. The shares of NetSelect Preferred Stock to be
------------------
issued pursuant to the Merger and the shares of NetSelect's Common Stock to be
issued upon the conversion of the NetSelect Preferred Stock in accordance with
NetSelect's Certificate of Incorporation, as amended through such date, shall,
when issued: (a) be duly authorized, validly issued, fully paid and
nonassessable and free of liens and encumbrances created by any person other
than the Shareholders, and (b) be free and clear of any transfer restrictions,
liens and encumbrances except for restrictions on transfer under applicable
federal securities laws, including Rule 144 promulgated under the 1933 Act and
except for restrictions contemplated by this Agreement.
4.6 Litigation. There is no action, suit, arbitration, mediation,
----------
proceeding, claim or investigation pending against NetSelect or NNH (or to the
knowledge of NetSelect or NNH, against any of their respective officers,
directors or employees or agents, in their capacity as such or relating to their
employment, services or relationship with NetSelect or National) before any
court, administrative agency or arbitrator that, if determined adversely to
NetSelect or NNH (or any such respective officer, director, employee or agent)
may reasonably be expected to have a Material Adverse Effect on NetSelect or
NNH, nor, to NetSelect's or NNH's knowledge, has any such action, suit,
proceeding, arbitration, mediation, claim or investigation been threatened. To
NetSelect's and NNH's knowledge, there is no basis for any person, firm,
corporation or other
21
<PAGE>
entity, to assert a claim against NetSelect or NNH based upon: (a) NetSelect and
NNH entering into this Agreement or consummating the Merger; or (b) any claims
of ownership, rights to ownership, or options, warrants or other rights to
acquire ownership, of any material amount of shares of the stock of NetSelect
(except pursuant to agreements between such persons and NetSelect or pursuant to
the rights of outstanding Preferred Stock of NetSelect). There is no judgment,
decree, injunction, rule or order of any governmental entity or agency, court or
arbitrator outstanding against NetSelect.
4.7 No Default. To the knowledge of NetSelect and NNH, neither NetSelect
----------
nor NNH is in breach or default of any agreement to which NetSelect is a party,
which breach or default is reasonably likely to have a Material Adverse Effect
on NetSelect or NNH.
4.8 Absence of Certain Changes. Since March 31, 1998, there has not been
--------------------------
with respect to NetSelect any:
(a) material adverse change in the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations, results of operations
or prospects of NetSelect or NNH;
(b) damage, destruction, or loss, whether or not covered by insurance,
having a Material Adverse Effect on NetSelect or NNH;
(c) transfer of a material intellectual property right of NetSelect,
other than those (if any) transferred in the ordinary course of NetSelect's and
NNH's business consistent with NetSelect's and NNH's respective past practice;
(d) amendments or changes in the certificate of incorporation of
NetSelect or NNH, each as amended (including any certificates of designation);
or
(e) agreement or arrangement made by NetSelect or NNH to take any
action which, if taken prior to the date of this Agreement, would have made any
representation or warranty of NetSelect or NNH set forth in this Agreement
untrue or incorrect in any material respect.
4.9 Compliance with Laws. To the knowledge of NetSelect and NNH,
--------------------
NetSelect and NNH each are now and at the Closing Date will be in compliance in
all material respects with all applicable national, state, local or foreign
laws, ordinances, regulations, and rules, and all orders, writs, injunctions,
awards, judgments, and decrees applicable to their respective assets,
properties, and business, where failure to be in such compliance would have a
Material Adverse Effect on NetSelect or NNH. To the knowledge of NetSelect and
NNH, NetSelect and NNH hold all permits, licenses and approvals from and have
made all filings for third parties, including government agencies and
authorities, that are necessary in connection with NetSelect's and NNH's present
business, except where a failure to have such permits, licenses or approvals or
failure to make such filings would not have a Material Adverse Effect on
NetSelect and NNH.
4.10 Disclosure. To the knowledge of NetSelect and NNH, neither this
----------
Agreement, its exhibits and schedules, nor any of the certificates or documents
to be delivered by NetSelect or NNH to MSS or the Shareholders under this
Agreement, taken together, contains any untrue
22
<PAGE>
statement of material fact or omits to state any material fact necessary in
order to make the statements contained herein and therein in light of the
circumstances under which such statements were made, not misleading.
4.11 NetSelect Financial Information. The NetSelect Financial Information
-------------------------------
is unaudited and has not otherwise been reviewed by any independent accountant.
The NetSelect Financial Information has been prepared in good faith. However,
NetSelect does not represent or warrant that the NetSelect Financial Information
has been prepared in accordance with generally accepted accounting principles or
that the NetSelect Financial Information is accurate in all material respects;
and application of generally accepted accounting principles, or further review
of such NetSelect Financial Information and NetSelect's financial records by
NetSelect or an independent accountant, may result in differences (some of which
could be material) in the information presented in the NetSelect Financial
Information. The line item entitled "Cash and Cash Equivalents" in the balance
sheet information as of March 31, 1998, accurately sets forth in all material
respects NetSelect's cash and cash equivalents as of that date. In a
transaction completed in January 1998, NetSelect sold shares of Series D
Preferred Stock at a per share price of $14.57 per share, and received gross
proceeds of $10,000,000.
4.12 Stockholder Agreements. Other than compensatory plans, arrangements
----------------------
or agreements, those agreements referenced in connection with the organization
and formation of NetSelect and NNH, those agreements referenced in the closing
documents relating to NetSelect's Preferred Stock financings, and those
agreements made available by NetSelect for review by the Shareholders before the
Closing Date, there are no agreements between NetSelect and holders of NetSelect
Preferred Stock ("Holders") that grant such Holders materially superior rights
or preferences by virtue of their ownership of shares of NetSelect Preferred
Stock, than the rights and preferences of holders of NetSelect Preferred Stock
generally or that provide materially superior economic rights or relationships
among NetSelect and such holders.
4.13 Tax Free Reorganization.
-----------------------
(a) Neither NetSelect nor, to its knowledge, any NetSelect stockholder
has taken or agreed to take any action that would prevent the Merger from
constituting a reorganization qualifying under the provisions of Section 368(a)
of the Code.
(b) NetSelect is not an investment company as defined in Section
368(a) of the Code.
5. COVENANTS OF MSS AND THE SHAREHOLDERS
During the period from the Effective Date until the earlier to occur of (i)
the Closing, or (ii) the termination of this Agreement in accordance with
Section 10, MSS and the Shareholders hereby jointly and severally covenant and
agree with NetSelect as follows:
5.1 Advice of Changes. MSS or the Shareholders, as the case may be, will
-----------------
use all reasonable efforts to promptly advise NetSelect in writing (a) of any
event occurring subsequent to the date of this Agreement that would render any
representation or warranty of MSS and the Shareholders contained in Section 3 of
this Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (b) of any material adverse
23
<PAGE>
change in MSS' assets, business, results of operations, financial condition or
prospects. MSS shall deliver to NetSelect within thirty (30) days after the end
of each calendar month ending after the Effective Date and before the Closing
Date, an unaudited balance sheet and statement of operations, which financial
statements shall be prepared in the ordinary course of business consistent with
the past practice of MSS (according to generally accepted accounting principles
applied on a consistent basis, except for the absence of footnotes and subject
to normal year-end adjustments, none of which are expected to be material in
amount), in accordance with MSS' books and records and shall fairly present the
financial position of MSS as of their respective dates and the results of MSS'
operations for the periods then ended.
5.2 Maintenance of Business. MSS will uses its best efforts to carry on
-----------------------
and preserve its business and its relationships with customers, suppliers,
employees, consultants and others in substantially the same manner as it has
prior to the date hereof. If MSS becomes aware of a material deterioration in
the relationship with any customer, supplier, key employee, consultant or
business partner (including, without limitation, the Shareholders), it will
promptly bring such information to the attention of NetSelect in writing and, if
requested by NetSelect, will exert its best efforts to restore the relationship.
5.3 Conduct of Business. MSS will continue to conduct its business and
-------------------
maintain its business relationships in the ordinary and usual course and will
not, without the prior written consent of NetSelect (which consent shall not be
unreasonably withheld):
(a) borrow or lend any money in excess of Ten Thousand Dollars
($10,000), other than advances to employees for travel and expenses that are
incurred in the ordinary course of MSS' business consistent with the past
practice of MSS;
(b) accelerate the payment of account receivables or delay the payment
of account payables other than in the ordinary course of business with persons
or entities, and in amounts, consistent with prior practice;
(c) purchase or sell shares or other equity interests in any
corporation or other business or enter into any transaction or agreement not in
the ordinary course of MSS' business consistent with the past practice of MSS;
(d) encumber, or permit to be encumbered, its assets with debt in
excess of Ten Thousand Dollars ($10,000);
(e) sell, transfer or dispose of any of its assets except in
immaterial amounts and in the ordinary course of MSS' business consistent with
the past practice of MSS;
(f) enter into any material lease or contract for the purchase or sale
of any property, whether real or personal, tangible or intangible for an amount
in excess of Ten Thousand Dollars ($10,000);
(g) pay any bonus, increased salary or special remuneration to any
officer, employee or consultant (except for normal salary increases consistent
with past practices not to exceed five percent (5%) of such officer's,
employee's or consultant's base annual compensation,
24
<PAGE>
except pursuant to existing arrangements previously disclosed to and approved in
writing by NetSelect) or enter into any new employment or consulting agreement
with any such person;
(h) change any of its accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of any of its capital stock, redeem, repurchase or
otherwise acquire any of its capital stock or other securities, pay or
distribute any cash or property to the Shareholders or make any other cash
payment to the Shareholders that is unusual, extraordinary, or not made in the
ordinary course of MSS' business consistent with the past practice of MSS;
(j) amend or terminate any contract, agreement or license to which it
is a party except those amended or terminated in the ordinary course of MSS'
business, consistent with the past practice of MSS, and which are not material
in amount or effect;
(k) guarantee or act as a surety for any obligation of any third
party;
(l) waive or release any material right or claim except in the
ordinary course of business, consistent with past practice, or agree to any
audit assessment by any tax authority or file any federal or state income or
franchise tax return unless copies of such returns have been delivered to
NetSelect for its review prior to filing;
(m) issue, sell, create or authorize any shares of its capital stock
of any class or series or any other of its securities, or issue, grant or create
any warrants, obligations, subscriptions, options, convertible securities, or
other commitments to issue shares of its capital stock or securities ultimately
exchangeable for, or convertible into, shares of its capital stock;
(n) subdivide or split or combine or reverse split the outstanding
shares of its capital stock of any class or enter into any recapitalization
affecting the number of outstanding shares of its capital stock of any class or
affecting any other of its securities;
(o) merge, consolidate or reorganize with, or acquire, any entity or
enter into any negotiations, discussions or agreement for such purpose;
(p) amend its charter documents;
(q) license any of its technology or Intellectual Property Rights
except in the ordinary course of business consistent with past practice;
(r) change any insurance coverage or issue any certificates of
insurance;
(s) purchase or otherwise acquire, or sell or otherwise dispose of (i)
any shares of NetSelect Preferred Stock or other NetSelect securities or (ii)
any securities whose value is derived from or determined with reference to, in
whole or in part, the value of NetSelect stock or other NetSelect securities;
(t) agree to do any of the things described in the preceding clauses
5.3(a) through 5.3(s).
25
<PAGE>
5.4 Regulatory Approvals. MSS and the Shareholders will promptly execute
--------------------
and file, or join in the execution and filing, of any application or other
document that may be necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state, local or foreign, which may be
reasonably required, or which NetSelect may reasonably request, in connection
with the consummation by MSS and the Shareholders of the transactions
contemplated by this Agreement. MSS, its officers, directors and employees and
the Shareholders will use their respective best efforts to promptly obtain, and
to cooperate with NetSelect to promptly obtain, all such authorizations,
approvals and consents.
5.5 Necessary Consents. MSS, its officers, directors and employees and
------------------
the Shareholders will use their respective best efforts to promptly obtain such
written consents and take such other actions as may be reasonably necessary or
appropriate in addition to those set forth in Section 5.4 to allow the
consummation of the transactions contemplated hereby and to allow NetSelect to
carry on MSS' business after the Closing.
5.6 Litigation. MSS will notify NetSelect in writing promptly after
----------
learning of any action, suit, arbitration, mediation, proceeding or
investigation by or before any court, arbitrator or arbitration panel, board or
governmental agency, initiated by or against it, or known by it to be threatened
against it or any of its directors, officers, employees or consultant in their
capacity as such.
5.7 No Other Negotiations. From the Effective Date until the earlier of
---------------------
the termination of this Agreement in accordance with Section 10 or the
consummation of the Merger, MSS, its officers, directors and employees and the
Shareholders will not, and will not authorize, encourage or permit, any officer,
director, employee or affiliate of MSS, or any other person, on its or their
behalf to, directly or indirectly, solicit or encourage any offer from any party
or consider any inquiries or proposals received from any other party,
participate in any negotiations regarding, or furnish to any person any
information with respect to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any person (other than NetSelect), concerning
any agreement or transaction regarding the possible disposition of all or any
substantial portion of the business, assets or capital stock of MSS by merger,
consolidation, reorganization, sale of assets, sale of stock, exchange, tender
offer or any other form of business combination ("Alternative Transaction").
MSS will promptly notify NetSelect orally and in writing of any such inquiries
or proposals. In addition, neither MSS, nor the Shareholders, shall execute,
enter into or become bound by (a) any letter of intent or agreement or
commitment between MSS and/or the Shareholders, on the one hand, and any third
party, on the other hand, that is related to an Alternative Transaction or (b)
any agreement or commitment between MSS and/or the Shareholders, on the one
hand, and a third party, on the other hand, providing for an Alternative
Transaction.
5.8 Access to Information. Until the Closing, MSS will allow NetSelect
---------------------
and its agents reasonable access to the files, books, records and offices of
MSS, including, without limitation, any and all information relating to MSS'
taxes, commitments, contracts, leases, licenses, and real, personal and
intangible property and financial condition, subject to the terms of the Mutual
Nondisclosure Agreement between MSS and NetSelect dated as of August 20, 1997
(the "Confidentiality Agreement"). MSS will cause its accountants to reasonably
cooperate with NetSelect and its agents in making available all financial and
tax information
26
<PAGE>
reasonably requested, including, without limitation, the right to examine all
working papers pertaining to all financial statements and tax returns, prepared
or audited by such accountants.
5.9 Satisfaction of Conditions Precedent. MSS, and its directors and
------------------------------------
officers and the Shareholders will use their respective best efforts to satisfy
or cause to be satisfied all the conditions precedent which are set forth in
Section 9, and MSS, its directors and officers, and the Shareholders will use
their respective best efforts to cause the transactions contemplated by this
Agreement to be consummated; and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties that may be
necessary or reasonably required on MSS' part in order to effect the
transactions contemplated hereby.
5.10 Securities Laws. MSS and the Shareholders shall each use all
---------------
reasonable efforts to assist NetSelect to the extent necessary to comply with
the securities and Blue Sky laws of all jurisdictions which are applicable in
connection with the Merger.
5.11 Termination of Registration and Voting Rights. All registration
---------------------------------------------
rights agreements and voting agreements applicable to or affecting any
outstanding shares or other securities of MSS (if any) shall be duly terminated
and canceled by no later than the Closing.
5.12 Invention Assignment and Confidentiality Agreements. MSS and the
---------------------------------------------------
Shareholders shall use their respective best efforts to obtain, before the
Closing, from each officer, employee, agent and consultant providing significant
services to MSS who has had access to any proprietary software, technology or
copyrightable, patentable or other proprietary works or intellectual property
owned or developed by MSS or other Intellectual Property Rights, or to any other
confidential or proprietary information of MSS or its clients, an invention
assignment and confidentiality agreement in substantially the form of the
agreement attached hereto as Exhibit 5.12, duly executed by such officer,
------------
employee, agent or consultant (unless, with respect to consultants, the written
agreement between MSS and the consultant provides for retention by the
consultant of intellectual property rights relating to inventions developed by
consultant) and delivered to MSS (with MSS as a beneficiary of such agreement).
5.13 Closing of Merger. MSS and the Shareholders shall not refuse to
-----------------
effect the Merger if, on or before the Closing Date, all of the conditions
precedent to their obligations to effect the Merger under Section 8 hereof have
been satisfied, or in their sole discretion, waived by them.
5.14 Insurance. MSS shall, if requested by NetSelect, cause the
---------
cancellation of any outstanding life insurance policies on the life of the
Shareholders; provided, however, that MSS may, before or after the Closing, with
the consent of NetSelect transfer to the Shareholders one or more life insurance
policies with the Shareholders as the beneficiary. After the Closing, the
Shareholders shall cooperate with NetSelect and MSS if NetSelect desires, at its
expense, to acquire additional or other insurance on the life of the
Shareholders.
27
<PAGE>
6. NETSELECT COVENANTS
6.1 Terminating Covenants. During the period from the Effective Date
---------------------
until the earlier to occur of (i) the Closing or (ii) the termination of this
Agreement in accordance with Section 10, NetSelect covenants and agrees as
follows:
(a) NetSelect Financial Information. No later than one business day
-------------------------------
before the Closing, NetSelect will make available for inspection by MSS and the
Shareholders true and complete copies of the NetSelect Financial Information.
(b) Advice of Changes. NetSelect will use all reasonable efforts to
-----------------
promptly advise MSS in writing (i) of any event occurring subsequent to the date
of this Agreement that would render any representation or warranty of NetSelect
contained in this Agreement, if made on or as of the date of such event or the
Closing Date, untrue or inaccurate in any material respect and (ii) of any
material adverse change in NetSelect's business, results of operations or
financial condition.
(c) Regulatory Approvals. NetSelect will execute and file, or join in
--------------------
the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state or local, which may be reasonably required, in
connection with the consummation by NetSelect of the transactions contemplated
by this Agreement in accordance with the terms of this Agreement. NetSelect
will use its best efforts to obtain all such authorizations, approvals and
consents.
(d) Satisfaction of Conditions Precedent. NetSelect will use its best
------------------------------------
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Section 8, and NetSelect will use its best efforts to cause the
transactions contemplated by this Agreement to be consummated in accordance with
the terms of this Agreement, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties that may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
(e) Securities Laws. NetSelect shall take such steps as may be
---------------
necessary to comply with the securities and Blue Sky laws of all jurisdictions
which are applicable in connection with the Merger, with the cooperation and
assistance of MSS and the Shareholders.
6.2 Continuing Covenants.
--------------------
(a) [Reserved].
(b) Employee Benefits. As soon as practicable after the Effective
-----------------
Date, NetSelect and MSS shall confer and work in good faith to agree upon a plan
under which MSS employees will be covered either by (a) NetSelect's employee
benefits plans or (b) MSS' employee benefit plans, with such decision to be made
no later than six (6) months following the Closing, in a manner that results in
minimal disruption to the continuing operations of MSS, and minimal cost to
NetSelect.
28
<PAGE>
6.3 Advice of Changes. NetSelect shall use all reasonable efforts to
-----------------
promptly advise MSS and the Shareholders in writing (a) of any event occurring
after the Effective Date and before the Closing or termination of this Agreement
that would render any representation or warranty of NetSelect contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (b) of any event that NetSelect
believes will have a Material Adverse Effect on NetSelect.
6.4 Satisfaction of Conditions Precedent. NetSelect, and its officers,
------------------------------------
and directors will use their respective best efforts to satisfy or cause to be
satisfied all the conditions precedent to NetSelect's obligation to consummate
the transactions contemplated hereby which are set forth in Section 8, and
NetSelect, its officers and directors, will use their respective reasonable best
efforts to cause the transactions contemplated by this agreement to be
consummated.
6.5 Future Funding of NNH. Immediately after the Closing Date, NetSelect
----------------------
and/or one or more of its subsidiaries shall provide at least $653,240 to NNH
for use for the immediate payment of the "Long Term Debt" and "Other
Disbursements" as is listed on the attached Exhibit 6.5. On or before August 1,
1998, NetSelect and/or one or more of its subsidiaries shall provide an
additional $250,000 to fund the future growth of NNH and thereafter up to an
additional $250,000 as required to fund the growth of the business.
7. CLOSING MATTERS
7.1 Filing of Agreement of Merger. On the date of the Closing, but not
-----------------------------
prior to the Closing, the Agreement of Merger shall be filed with the offices of
the Secretary of State of the States of Delaware and Texas and the merger of MSS
with and into NNH shall be consummated.
7.2 Exchange of Certificates. Promptly after the Effective Time of the
------------------------
Merger, NetSelect shall make available for exchange in accordance with the
Merger Agreement the shares of NetSelect Preferred Stock issuable pursuant to
the Merger Agreement, in exchange for the outstanding shares of MSS Stock. Upon
surrender of a Certificate for cancellation together with a customary letter of
transmittal reasonably satisfactory to NetSelect, duly executed, the holder of
such Certificate shall be entitled to receive the number of shares of NetSelect
Preferred Stock to which such holder is entitled pursuant to this Agreement and
the Merger Agreement. The Certificate so surrendered shall immediately be
canceled. Until surrendered as contemplated by this Section 7.2, each
Certificate shall be deemed at any time after the Effective Time of the Merger
to represent the right to receive upon such surrender the number of shares of
NetSelect Preferred Stock as provided by this Section 7.2 and by Delaware Law.
8. CONDITIONS TO OBLIGATIONS OF MSS AND THE SHAREHOLDERS
The obligations of MSS and the Shareholders to consummate the Merger are
subject to the fulfillment or satisfaction, on and as of the Closing, of each of
the following conditions (any one or more of which may be waived by MSS and the
Shareholders in their sole discretion, but only in a writing signed by MSS and
the Shareholders):
8.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of NetSelect and NNH set forth in Section 4 shall be true and
accurate in every material respect on and as of the Closing with the same force
and effect as if they had been made at the Closing,
29
<PAGE>
and MSS shall have received a certificate to such effect executed by the Chief
Executive Officer or President of NetSelect and NNH.
8.2 Covenants. NetSelect and NNH shall have performed and complied in all
---------
material respects with all of its covenants contained in Section 6 on or before
the Closing, and MSS shall have received a certificate to such effect signed by
the Chief Executive Officer or President of NetSelect and NNH.
8.3 Compliance with Law; No Legal Restraints. There shall not be
----------------------------------------
outstanding or threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action, proceeding or any judgment or ruling by any court, arbitrator,
governmental agency, authority or entity, or any other fact or circumstance
(other than any such matter initiated by MSS, its officers or directors or the
Shareholders), that, directly or indirectly, challenges, threatens, prohibits,
enjoins, restrains, suspends, delays, conditions or renders illegal or imposes
limitations on (or is likely to result in a challenge, threat to, or a
prohibition, injunction, restraint, suspension, delay or illegality of, or to
impose limitations on) the Merger or any other transaction contemplated by this
Agreement.
8.4 Government Consents. There shall have been obtained at or prior to
-------------------
the Closing Date such permits and/or authorizations, and there shall have been
taken such other action by any regulatory authority having jurisdiction over the
parties and the actions herein proposed to be taken, as may be required to
lawfully consummate the Merger, including but not limited to requirements under
applicable U.S. securities and corporations laws.
8.5 Opinion of NetSelect and NNH's Counsel. MSS shall have received from
--------------------------------------
counsel to NetSelect and NNH, an opinion substantially in the form of Exhibit
-------
8.5.
- ---
8.6 Documents. NetSelect, and NNH to the extent required, shall have
---------
executed and delivered to MSS and/or the Shareholders, as applicable, the
NetSelect Ancillary Agreements. MSS shall have received all written consents,
assignments, waivers, authorizations or other certificates reasonably deemed
necessary by MSS' legal counsel for MSS to lawfully consummate the transactions
contemplated hereby.
8.7 No Litigation. No litigation or proceeding (other than any litigation
-------------
or proceeding initiated by MSS, any member of its Board of Directors, any
employee of MSS or the Shareholders) shall be threatened or pending for the
purpose or with the probable effect of enjoining or preventing the consummation
of the Merger or any of the other transactions contemplated by this Agreement,
or which could be reasonably expected to have a Material Adverse Effect on
NetSelect or NNH.
8.8 No Material Adverse Change. There shall not have been any Material
--------------------------
Adverse Effect in the financial condition, properties, assets, liabilities,
business, results of operations, operations or prospects of NetSelect and NNH,
taken as a whole.
8.9 Satisfactory Form of Legal Matters. The form, scope and substance of
----------------------------------
all legal and accounting matters contemplated hereby and all closing documents
and other papers delivered hereunder shall be reasonably acceptable to MSS'
counsel.
30
<PAGE>
8.10 Ancillary Agreements. NetSelect, and NNH to the extent required,
--------------------
shall have delivered to MSS and the Shareholders fully executed copies of each
NetSelect Ancillary Agreement (including, without limitation, the Employment
Agreements described in Exhibits 9.8A, 9.8B and 9.8C).
-------------- ---- ----
8.11 Stockholders Agreement. Each of the Shareholders shall have become
----------------------
parties to the Stockholders Agreement.
9. CONDITIONS TO OBLIGATIONS OF NETSELECT
The obligations of NetSelect hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by NetSelect in its sole discretion, but only
in a writing signed by NetSelect):
9.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of MSS and the Shareholders set forth in Section 3 (as qualified by
the MSS Schedule of Exceptions) shall each be true and accurate in every
material respect on and as of the Closing with the same force and effect as if
they had been made at the Closing, and NetSelect shall have received
certificates to such effect executed by MSS' President and by the Shareholders.
9.2 Covenants. MSS and the Shareholders shall have performed and complied
---------
in all material respects with all of their respective covenants contained in
Section 5 on or before the Closing, and NetSelect shall have received
certificates to such effect signed by MSS' President and by the Shareholders.
9.3 Compliance with Law; No Legal Restraints. There shall not be
----------------------------------------
outstanding or threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action, proceeding or any judgment or ruling by any court, arbitrator,
governmental agency, authority or entity, or any other fact or circumstance
(other than any such matter initiated by NetSelect or its officers or
directors), that, directly or indirectly, challenges, threatens, prohibits,
enjoins, restrains, suspends, delays, conditions, or renders illegal or imposes
limitations on (or is likely to result in a challenge, threat to, or a
prohibition, injunction, restraint, suspension, delay or illegality of, or to
impose limitations on): (i) the Merger or any other transaction contemplated by
this Agreement; (ii) NetSelect's payment for, or acquisition or purchase of,
some or all of the shares of MSS Stock or any material part of the assets of
MSS; (iii) the ownership or operation by NetSelect or MSS of all or any material
portion of the business or assets of MSS, including (but not limited to) MSS'
Intellectual Property Rights; or (iv) NetSelect's ability to exercise full
rights of ownership with respect to MSS, and its respective assets and shares,
including but not limited to restrictions on NetSelect's ability to vote all the
shares of MSS.
9.4 Government Consents. There shall have been obtained at or prior to
-------------------
the Closing Date such permits or authorizations from, and there shall have been
taken such other action, as may be required to lawfully consummate the Merger
by, any governmental or regulatory authority having jurisdiction over any of the
parties and/or the actions herein proposed to be taken, including but not
limited to requirements under applicable U.S. and foreign securities and
corporate laws.
31
<PAGE>
9.5 Opinion of MSS' Counsel. NetSelect shall have received from counsel
-----------------------
to MSS, an opinion in substantially the form of Exhibit 9.5.
-----------
9.6 Documents and Consents. MSS and the Shareholders shall have executed
----------------------
and delivered to NetSelect all the MSS Ancillary Agreements and all the
Shareholder Ancillary Agreements, as applicable. The Shareholders shall have
delivered to NetSelect MSS Certificates representing the MSS Stock together with
the other deliverables specified in Section 2.1 hereof. NetSelect shall have
received (or waived receipt of) duly executed copies of all third-party
consents, approvals, assignments, waivers, authorizations or other certificates
contemplated by this Agreement or the MSS Schedule of Exceptions or reasonably
deemed necessary by NetSelect's legal counsel to provide for the continuation in
full force and effect of any and all material contracts, agreements and leases
of MSS and the preservation of MSS' IP Rights and other assets and properties
and for NetSelect to consummate the transactions contemplated hereby, in form
and substance reasonably satisfactory to NetSelect, except for such thereof (if
any) as NetSelect and MSS shall have agreed in writing need not be obtained.
9.7 No Litigation. No litigation or proceeding shall be threatened or
-------------
pending for the purpose or with the probable effect of enjoining or preventing
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, or which could be reasonably expected to have a Material Adverse
Effect on the present or future operations or financial condition of MSS or
NetSelect or which asserts that MSS' or NetSelect's or the Shareholders'
negotiations regarding this Agreement, NetSelect's or MSS' or the Shareholders'
entering into this Agreement or MSS' or NetSelect's or the Shareholders'
consummation of the Merger or other transactions contemplated hereby, breaches
or violates any law, rule, order or judgment, or any agreement or commitment of
MSS or the Shareholders or constitutes tortious conduct on the part of
NetSelect, MSS or the Shareholders.
9.8 Employment Agreements. NetSelect shall have received from the
---------------------
Shareholders a fully executed copy of an Employment Agreement in the forms of
Exhibit 9.8A and Exhibit 9.8B and Exhibit 9.8C, respectively.
- ------------ ------------ ------------
9.9 No Material Adverse Effect. There shall not have been any Material
--------------------------
Adverse Effect as to MSS.
9.10 Satisfactory Form of Legal and Accounting Matters. The form, scope
-------------------------------------------------
and substance of all legal and accounting matters contemplated hereby and all
closing documents and other papers delivered hereunder shall be reasonably
acceptable to NetSelect's counsel and independent public accountants.
9.11 Closing Indebtedness. Each person entitled to receive payments of
--------------------
Closing Indebtedness shall have executed and delivered to NetSelect and MSS
instruments in form and substance reasonably satisfactory to counsel for MSS and
NetSelect, evidencing receipt of full payment for the Closing Indebtedness owed
to such person.
9.12 Form of Licensee Agreement. The form of the Licensee Agreement for
--------------------------
the sale of Internet products by existing MSS Licensees shall have been mutually
agreed upon by NetSelect and MSS.
32
<PAGE>
9.13 Stockholders Agreement. Each of the Shareholders shall have become
----------------------
parties to the Stockholders Agreement.
9.14 Purchase of Capital Stock of Newhouse. The Shareholders shall
-------------------------------------
acquire all outstanding securities of Newhouse that they did not already hold as
of the date of this Agreement.
9.15 Stockholder Approval. NetSelect shall obtain the approval of its
--------------------
stockholders of the Certificate of Designation attached as Exhibit 9.15 hereto.
------------
9.16 Consents Obtained. MSS shall have obtained consents for the
-----------------
assignment of the agreements listed on Exhibit 9.16 hereto in a form approved by
------------
NetSelect or its counsel.
10. TERMINATION OF AGREEMENT
10.1 Prior to or at the Closing.
--------------------------
10.1.1 This Agreement may be terminated at any time prior to or at
the Closing by the mutual written consent of NetSelect and MSS, approved by
their respective Boards of Directors.
10.1.2 MSS and/or the Shareholders may terminate this Agreement at
any time prior to or at the Closing if any of the representations and warranties
of NetSelect in Section 4 of this Agreement were incorrect, untrue or false in
any material respect as of the Effective Date or are incorrect, untrue or false
in any material respect as of the proposed Closing Date or NetSelect has
materially breached any of its covenants under Section 6 of this Agreement, and
NetSelect has not cured such breach prior to the Closing.
10.1.3 NetSelect may terminate this Agreement at any time prior to or
at the Closing if any of the representations and warranties of MSS and/or the
Shareholders in Section 3 of this Agreement were incorrect, untrue or false in
any material respect as of the Effective Date or are incorrect, untrue or false
in any material respect as of the proposed Closing Date or MSS and/or the
Shareholders have materially breached any of their respective covenants under
Section 5 of this Agreement, and MSS and/or the Shareholders have not cured such
breach prior to the Closing.
Any termination of this Agreement under this Section 10 will be effective
by the delivery by certified mail of notice of the terminating party to the
other party hereto.
10.2 No Liability for Proper Termination. Any termination of this
-----------------------------------
Agreement in accordance with this Section 10 will be without further obligation
or liability upon any party in favor of the other party hereto or to its
stockholders, directors or officers, other than the obligations provided in the
Confidentiality Agreement; provided, however, that nothing herein will limit the
-------- -------
obligation of MSS, the Shareholders, NetSelect or NNH for any willful breach
hereof or failure to use their best efforts to cause the Merger to be
consummated, as set forth in Sections 5.9 and 6.1(c) hereof, respectively. In
the event of the termination of this Agreement pursuant to this Section 10, this
Agreement shall thereafter become void and have no effect and each party shall
be responsible for its own expenses incurred in connection herewith.
33
<PAGE>
10.3 Automatic Termination. This Agreement shall terminate unless a
---------------------
closing occurs on or before the Closing Date; provided that, in any event, the
Closing Date may be extended by written instrument signed and executed by all
parties hereto.
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
11.1 Survival of Representations. All representations, warranties and
---------------------------
covenants of MSS and the Shareholders, and NetSelect, contained in this
Agreement will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of NetSelect, until that date which is the
earlier of (i) the termination of this Agreement or (ii) the expiration of the
applicable statute of limitations (including extensions) for those matters set
forth in Sections 3.6, 3.12, and 3.13 and the expiration of two (2) years after
the Closing as to all other representations, warranties and covenants of MSS and
the Shareholders, and NetSelect ("Release Date").
11.2 Agreement to Indemnify.
----------------------
(a) Subject to the limitations set forth in Section 11.3 below, the
Shareholders agree to indemnify and hold harmless NetSelect and its officers,
directors, agents, stockholders and employees, and each person, if any, who
controls or may control NetSelect within the meaning of the 1933 Act (such
persons, together with persons entitled to indemnity under paragraph (b) below,
as applicable in context, referred to individually as an "Indemnified Person"
and collectively as "Indemnified Persons") from and against any and all claims,
demands, suits, actions, causes of actions, losses, costs, damages, liabilities
and reasonable expenses including, without limitation, reasonable attorneys'
fees, other professionals' and experts' reasonable fees and court or arbitration
costs (hereinafter collectively referred to as "Damages") incurred and arising
out of (i) any inaccuracy, misrepresentation, breach of, or default in, any of
the representations, warranties or covenants given or made by MSS and/or the
Shareholders in this Agreement or in the MSS Schedule of Exceptions or in any
certificate delivered by or on behalf of MSS pursuant hereto (if such
inaccuracy, misrepresentation, breach or default existed at the Closing Date) or
(ii) the facts described in the third paragraph of the MSS Schedule of
Exceptions ("Exceptions to Section 3.10") or the fourth paragraph of the MSS
--------------------------
Schedule of Exceptions ("Exceptions to Section 3.17"). Any claim of indemnity
--------------------------
made by an Indemnified Person under this Section 11.2 must be asserted no later
than the Release Date.
(b) NetSelect agrees to indemnify and hold harmless the Shareholders
from and against any and all Damages incurred and arising out of any inaccuracy,
misrepresentation, breach of, or default in, any of the representations,
warranties or covenants given or made by NetSelect in this Agreement or in any
certificate delivered by or on behalf of NetSelect pursuant hereto (if such
inaccuracy, misrepresentation, breach or default existed at the Closing Date),
provided, however, that no payment pursuant to this Section 11.2(b) shall be
made without the prior written consent of each of the Shareholders if such
payment could result in the failure of the Merger and the transactions
contemplated hereby to constitute a tax-free Reorganization under the provisions
of 368(a) of the Code.
34
<PAGE>
11.3 Limitation.
----------
(a) Except as provided herein, the Shareholders' indemnification
liability under Section 11.2 shall be limited to the aggregate amount of
consideration paid or payable (and issued or issuable) to the Shareholders
hereunder (including any Shareholder Ancillary Agreement) (the "Cap"), and such
amounts shall be the exclusive remedies of NetSelect and the other Indemnified
Persons under this Agreement or in any cause of action based thereon (subject to
the exceptions in the last sentence of this Section) against the Shareholders
for any inaccuracy, misrepresentation, breach of, or default in, any of the
representations, warranties or covenants given or made by MSS or the
Shareholders in this Agreement or in any certificate, document or instrument
delivered by or on behalf of MSS pursuant hereto, the facts described in the
third paragraph of the MSS Schedule of Exceptions or in any cause of action
based thereon (subject to the exception in the last sentence of this Section).
No Damages may be recovered, however, until the aggregate Damages for which one
or more Indemnified Persons seeks or has sought indemnification against the
Shareholders (i) pursuant to Section 11.2(a)(ii) exceeds a cumulative aggregate
of Thirty Seven Thousand Five Hundred Dollars ($37,500) hereunder or (ii)
exceeds a cumulative aggregate of Seventy Five Thousand Dollars ($75,000) from
any Damages arising for any other reason (the "Basket"), in which case the
Shareholders shall be liable to indemnify the Indemnified Persons for only
Damages in excess of the Basket. The limitations on the indemnification
obligations set forth in this Section shall not be applicable to Misconduct
---
Damages (as defined below). As used herein, "Misconduct Damages" means Damages
resulting from fraudulent conduct of MSS or the Shareholders.
(b) Notwithstanding anything else herein to the contrary, a party may
withhold or set off against any amounts otherwise due from another party any
amount as to which such party is obligated to such withholding party under this
Agreement, or under any NetSelect Ancillary Agreement, MSS Ancillary Agreement
or Shareholder Ancillary Agreement.
11.4 Notice. Promptly after an Indemnified Person becomes aware of the
------
existence of any claim by an Indemnified Person for indemnity from an Indemnitor
based on any action, suit or proceeding commenced by a third party, the
Indemnified Person will notify the Indemnitor of such potential claim (in the
case of third party claims, such notice shall in any event be given within
twenty (20) days of filing or assertion of any claim against the person claiming
indemnification, stating the nature and basis of such claim) and will, to the
extent that it can reasonably do so without materially impairing its ability to
adequately defend and respond to any such claim, permit the Indemnitor the
option to assume the defense of such claim. The Indemnified Person will
cooperate with the Indemnitor in obtaining copies of any records or other
information which is relevant to the defense of such claim. Delay in giving
such notice shall not affect any rights or remedies of an Indemnified Person or
the Indemnitor hereunder with respect to indemnification for Damages unless such
delay renders the Indemnified Person or the Indemnitor unable to defend the
claim. If the Indemnitor shall assume the defense of a claim, it shall promptly
notify the other parties that it has elected to assume such defense, and shall
have the right and obligation (i) to conduct any proceedings or negotiations in
connection therewith and necessary or appropriate to defend the indemnified
person, (ii) to take all other required steps or proceedings to settle or defend
any such claims and (iii) to employ counsel reasonably satisfactory to the
Indemnified Person to contest any such claim or liability in the name of the
Indemnified Person or otherwise. If and only if the Indemnitor shall not assume
the defense of
35
<PAGE>
any such claim, the Indemnified Person may defend against any such claim or
litigation in such manner as it may deem appropriate and the Indemnified Person
may settle such claim or litigation on such terms as it may deem appropriate. In
addition to the foregoing, the Indemnified Person shall have the right to
participate (at its own expense and with counsel of its choice) in the defense,
compromise or settlement of the action, suit, proceeding, claim or demand. The
Indemnitor will not compromise or settle any such action, suit, proceeding,
claim or demand without the prior written consent of the Indemnified Person,
which consent will not be unreasonably withheld or delayed. So long as the
Indemnitor is defending in good faith any such action, suit, proceeding, claim
or demand asserted by a third party against the Indemnified Person, the
Indemnified Person shall not settle or compromise such action, suit, proceeding,
claim or demand without the prior written consent of the Indemnitor, which
consent will not be unreasonably withheld or delayed. If the Indemnitor shall
fail to promptly and adequately defend any such action, suit, proceeding, claim
or demand, or if the Indemnified Person has been advised by counsel that there
may be additional or different defenses available to the Indemnified Person or
that a conflict of interest may exist between Indemnitor and the Indemnified
Person, then the Indemnified Person may defend, through counsel of its own
choosing, such action, suit, proceeding, claim or demand and (so long as the
Indemnified Person gives Indemnitor at least ten (10) days notice of the terms
of the proposed settlement thereof and permits the Indemnitor to then undertake
the defense thereof if the Indemnitor objects to the proposed settlement) to
settle such action, suit, proceeding, claim or demand and to recover from the
Indemnitor the amount of any resulting Damages, with the attorney's fees and
expenses of counsel to the Indemnified Person to be paid by the Indemnitor.
11.5 Further Procedures. (a) If an Indemnified Person intends to assert
------------------
a claim for indemnification, it must first notify the Indemnitor in writing. If
the Indemnitor disputes the claim, it shall deliver a notice of dispute within
30 days of the date on which the Indemnified Person's notice was delivered, and
the dispute ("Dispute") shall be resolved by binding arbitration in Los Angeles,
California, under the commercial arbitration rules of the American Arbitration
Association ("AAA") (subject to the provisions set forth below) (and, if AAA is
unable or unwilling to resolve the Dispute as provided below, then under the
auspices of Judicial Arbitration and Mediation Services, Inc.). Any judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction over the subject matter thereof. The arbitrators shall have the
authority to grant any equitable and legal remedies that could be available in
any judicial proceeding instituted to resolve a Dispute. The parties shall use
their best efforts to select an arbitrator within 30 days and to resolve the
Dispute within 60 days. Notwithstanding anything expressed or implied to the
contrary in this Section 11.5 or elsewhere in this Agreement, any extraordinary
relief requiring immediate action, such as injunctive relief or attachment may
be sought form a court of competent jurisdiction having jurisdiction over the
parties and the subject matter thereof, and such a court of competent
jurisdiction shall have the power, authority and jurisdiction to grant such
extraordinary relief as may be necessary under the circumstances to maintain the
status quo or otherwise protect against dissipation or waste.
(b) Each party shall select one arbitrator, and the two arbitrators so
selected shall appoint the third arbitrator. The parties shall each pay one-
half of the costs of the arbitrators. The arbitrators shall be compensated at a
rate to be determined by the parties or by AAA, but based upon reasonable hourly
or daily consulting rates for the arbitrators in the event the parties are not
able to agree upon rates of compensation.
36
<PAGE>
(c) Shareholders and NetSelect will each pay 50% of the initial
compensation to be paid to the arbitrators in any such arbitration and 50% of
the costs of transcripts and other normal and regular expenses of the
arbitration proceedings. The parties shall pay their own attorneys' fees and
costs.
(d) For any Dispute submitted to arbitration, the burden of proof will
be as it could be if the claim were litigated in a judicial proceeding.
(e) Upon the conclusion of any arbitration proceedings hereunder, the
arbitrators will render findings of fact and conclusions of law and a written
opinion setting forth the basis and reasons for any decision reached and will
deliver such documents to each party to this Agreement along with a signed copy
of the award.
(f) The arbitrators chosen in accordance with these provisions will
not have the power to alter, amend or otherwise affect the terms of these
arbitration provisions or the provisions of this Agreement.
12. [Reserved]
13. MISCELLANEOUS
13.1 Governing Law; Consent to Jurisdiction. The laws of the State of
--------------------------------------
California (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
Each party to this Agreement hereby consents to exclusive personal jurisdiction
and venue of the federal and state courts for Los Angeles, California, and
agrees that service of process in any such action may be made in the manner
provided in this Agreement for the delivery of notices.
13.2 Assignment; Binding Upon Successors and Assigns. Neither party
-----------------------------------------------
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other party hereto, except that NetSelect may assign its
respective rights and/or obligations to any wholly-owned subsidiary of
NetSelect; and except that after the Closing, NetSelect may assign its rights
and obligations hereunder without the prior written consent of MSS or the
Shareholders in connection with a merger, consolidation or sale of all or
substantially all of NetSelect's assets, provided that the acquiring or
surviving corporation agrees to assume all of NetSelect's obligations under this
Agreement. This Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
13.3 Severability. If any provision of this Agreement, or the application
------------
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
37
<PAGE>
13.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
both parties reflected hereon as signatories.
13.5 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
13.6 Amendment and Waivers. Any term or provision of this Agreement may
---------------------
be amended prior to the Closing by the written consent of NetSelect, MSS and the
Shareholders, and, after the Closing by NetSelect and the Shareholders (or their
successors in interest). The observance of any term, condition or provision of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) only by a writing signed by the party to
be bound thereby or for whose benefit such condition was provided. The waiver
by a party of any breach hereof or default in the performance hereof will not be
deemed to constitute a waiver of any other default or any succeeding breach or
default. In addition, at any time prior to the Closing, the Shareholders and
each of MSS and NetSelect (by action taken by its respective Board of Directors)
may, to the extent legally allowed: (i) extend the time for the performance of
any of the obligations or other acts of the other; (ii) waive any inaccuracies
in the representations and warranties made to it contained herein or in any
document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions for its benefit contained herein. No such waiver or
extension shall be effective unless signed in writing by the party against whom
such waiver or extension is asserted. The failure of any party to enforce any
of the provisions hereof will not be construed to be a waiver of the right of
such party thereafter to enforce such provisions or any other provisions.
13.7 Expenses. Each party will bear its respective expenses and legal
--------
fees incurred with respect to this Agreement, and the transactions contemplated
hereby; provided, however, that the Shareholders shall pay all of the expenses
-------- -------
and legal, accounting and other fees incurred by MSS with respect to this
Agreement and transactions contemplated hereby.
13.8 Attorneys' Fees. Should suit be brought to enforce or interpret any
---------------
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including, without limitation, costs, expenses and fees
on any appeal). The prevailing party will be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
13.9 Notices. All notices and other communications required or permitted
-------
under this Agreement will be in writing and will be either hand delivered in
person, sent by telecopier, sent by certified or registered first class mail,
postage pre-paid, or sent by nationally recognized express courier service.
Such notices and other communications will be effective upon receipt if hand
delivered or sent by telecopier, five (5) days after mailing if sent by mail,
and one (l) day after dispatch if sent by express courier, to the following
addresses, or to such other addresses or fax number as any party may notify the
other parties in accordance with this Section:
38
<PAGE>
(i) If to NetSelect or NNH:
NetSelect, Inc.
5655 Lindero Canyon Road, Suite 120
Westlake Village, CA 91362
Attention: Stuart Wolff, Chairman and Chief Executive Officer
with a copy to:
Mark Stevens, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Fax Number: (650) 494-1417
(ii) If to MSS:
MultiSearch Systems, Inc.
17120 North Dallas Parkway, Suite 175
Dallas, TX 75248
Attention: Fred White, President
Fax Number: (800) 600-3903
with a copy to:
Ronald G. Houdyshell
Ford, Ferraro, Fritz, Byrne, Rhea & Head, L.L.P.
98 San Jacinto Blvd., Suite 2000
Austin, Texas 78701-4286
Fax Number: (512) 477-5267
(iii) If to the Shareholders:
Fred White
17120 North Dallas Parkway, Suit 175
Dallas, Texas 75248
Fax Number: (800) 600-3903
Trey White
17120 North Dallas Parkway, Suite 175
Dallas, Texas 75248
Fax Number: (800) 600-3903
39
<PAGE>
with a copy to:
Ronald G. Houdyshell
Ford, Ferraro, Fritz, Byrne, Rhea & Head, L.L.P.
98 San Jacinto Blvd., Suite 2000
Austin, Texas 78701-4286
Fax Number: (512) 477-5267
13.10 Construction of Agreement. This Agreement has been negotiated by
-------------------------
the respective parties hereto and their attorneys and the language hereof will
not be construed for or against either party. A reference to a Section or an
exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
13.11 No Joint Venture. Nothing contained in this Agreement will be
----------------
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other party and their
status is, and at all times will continue to be, that of independent contractors
with respect to each other. No party will have any power or authority to bind
or commit any other. No party will hold itself out as having any authority or
relationship in contravention of this Section.
13.12 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
13.13 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner, employee, agent, consultant or any
party hereto or any other person or entity unless specifically provided
otherwise herein, and, except as so provided, all provisions hereof will be
personal solely between the parties to this Agreement.
13.14 Confidentiality. MSS, the Shareholders, and NetSelect each confirm
---------------
that they have entered into the Confidentiality Agreement and that they are each
bound by, and will abide by, the provisions of such Confidentiality Agreement
(except that NetSelect will cease to be bound by the Confidentiality Agreement
after the Merger becomes effective). If this Agreement is terminated, all
copies of documents containing confidential information of a disclosing party
shall be returned by the receiving party to the disclosing party or be
destroyed, as provided in the Confidentiality Agreement.
13.15 Entire Agreement. This Agreement and the exhibits hereto constitute
----------------
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and
40
<PAGE>
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto other than the Confidentiality Agreement. The
express terms hereof control and supersede any course of performance or usage of
the trade inconsistent with any of the terms hereof.
13.16 Withholding. All amounts payable to the Shareholders hereunder
-----------
shall be reduced by all federal, state, local and other withholding, employment
and similar taxes and payments on such amounts (e.g., if required, social
security, Medicare, Medicaid, etc.) that NetSelect determines in good faith are
required by applicable law. In connection herewith, the parties acknowledge
that payments and deliveries to the Shareholders pursuant to Section 2 of this
Agreement are intended as consideration in exchange for the transfer of the MSS
Stock. The parties agree to report the transactions contemplated under this
Agreement consistent with that understanding and will not take an inconsistent
position in connection therewith in connection with any tax filing or reporting.
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
NETSELECT, INC. MULTISEARCH SYSTEMS, INC.
a Delaware corporation a Texas corporation
By: /s/ Stuart Wolff By: /s/ Fred White
----------------------------------- -------------------------------
Stuart Wolff Fred White, President
Chairman and Chief Executive Officer
NATIONAL NEW HOMES CO, INC. SHAREHOLDERS
a Delaware corporation
FRED WHITE
By: /s/ Stuart Wolff /s/ Fred White
---------------------------------- ----------------------------------
Stuart Wolff Fred White, individually
Chairman and Chief Executive Officer
R. FRED WHITE III (TREY)
/s/ R. Fred White III
----------------------------------
R. Fred White III, individually
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
42
<PAGE>
Schedule A
- ----------
Allocation of Consideration
Shareholder Stock Allocation Cash Allocation Note Allocation
- ----------- ---------------- --------------- ---------------
Fred White 50.0% 70.9% 70.9%
Trey White 50.0% 29.1% 29.1%
<PAGE>
EXHIBIT 2.03
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement") is made and entered into as of
March 31, 1998 (the "Effective Date") by and among NETSELECT, INC., a Delaware
corporation ("NetSelect"), THE ENTERPRISE OF AMERICA, LTD., a Wisconsin
corporation ("Enterprise"), and ROGER SCOMMEGNA, the only shareholder of
Enterprise (the "Enterprise Shareholder").
RECITALS
A. The parties intend that, subject to the terms and conditions of this
Agreement, NetSelect will acquire one hundred percent (100%) of the outstanding
share capital of Enterprise from the Enterprise Shareholder pursuant to the
terms and conditions set forth herein in exchange for cash and shares of
NetSelect Common Stock, in a transaction not intended to constitute a
reorganization within the meaning of the Internal Revenue Code of 1986, as
amended.
B. Upon the effectiveness of the Exchange (as defined below), all the
outstanding shares of Enterprise will be transferred to NetSelect in exchange
for cash and shares of NetSelect Common Stock, as provided in this Agreement.
C. The representations and warranties of Enterprise and the Enterprise
Shareholder herein are a material inducement to NetSelect to enter into this
Agreement.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms will
have the meanings set forth below:
1.1 "Closing Indebtedness" means, collectively, (i) the indebtedness
represented by the Scommegna Obligations as defined in Section 2(c) below, and
(ii) the indebtedness of Enterprise to the Zetley & Cohn Loan Trust, with
aggregate principal and accrued interest of such indebtedness collectively
aggregating $836,433.68 as of the Closing Date.
1.2 "Enterprise Ancillary Agreements" means, collectively, each agreement,
certificate or document (other than this Agreement) which Enterprise is to enter
into as a party thereto, or is to otherwise execute and deliver, pursuant to or
in connection with this Agreement.
1.3 "Enterprise Certificates" means the share certificates representing
all the Enterprise Shareholder's shares of Enterprise Stock.
<PAGE>
1.4 "Enterprise Net Sales" means net revenues after the Closing Date from
the business activities that were conducted by Enterprise as of the Closing Date
as described in the business plan delivered by Enterprise to NetSelect before
the Closing Date, but not from new lines of business conducted by Enterprise or
NetSelect after the Closing Date or other new or additional business activities
conceived or engaged in by the Enterprise Shareholder or other persons who were
employees of Enterprise before the Closing Date. The foregoing notwithstanding,
the term "Enterprise Net Sales" shall include all revenues from the pager
operations and print operations (as defined in Exhibit 1.4 attached hereto)
-----------
either conducted by Enterprise prior to the Closing Date or under development by
Enterprise prior to the Closing Date; provided, however, that with respect to
print operations, only revenues from transactions or sales with gross margins of
20% or more (or from transactions which, although having a gross margin of less
than 20%, the Chief Executive Officer of NetSelect expressly approves or
directs, or otherwise agrees will be included in the definition of "Enterprise
Net Sales") shall count as "Enterprise Net Sales."
1.5 "Enterprise Stock" means the shares of Enterprise, $1.00 par value per
share, comprising the authorized capital of Enterprise, as constituted
immediately prior to the Closing, as defined in Section 7.1 below.
1.6 "Exchange" means, collectively, the exchange of all of the outstanding
Enterprise Stock for cash and the Exchange Shares.
1.7 "Exchange Shares" means the one hundred five thousand (105,000) shares
of NetSelect Common Stock that will be issued under this Agreement.
1.8 "Material Adverse Effect" means any event, change or effect that is
(or will with the passage of time be) materially adverse to the condition
(financial or otherwise), properties, assets, liabilities, business, operations,
results of operations or prospects of the Enterprise or NetSelect, as applicable
in context.
1.9 "NetSelect Ancillary Agreements" means, collectively, each agreement,
certificate or document (other than this Agreement) which NetSelect is to enter
into as a party thereto, or is to otherwise execute and deliver, pursuant to or
in connection with this Agreement.
1.10 "NetSelect Common Stock" means the Class A Common Stock, $0.001 par
value per share, of NetSelect.
1.11 "NetSelect Financial Information" means the unaudited, consolidated
income statement of NetSelect for the twelve months ending December 31, 1997 and
the month ended January 31, 1998, and certain consolidated balance sheet
information of NetSelect as of January 31, 1998, to be made available by
NetSelect to Enterprise and the Enterprise Shareholder as provided in Section
6.1(a).
1.12 "Schmidt Receivable Amount" means the amount of indebtedness of Robert
Schmidt to Enterprise, which amount is $23,139.63 as of the Closing Date, and
the balance of
2
<PAGE>
which as of January 31, 1998 is accrued on the balance sheet as of January 31,
1998 included in the Enterprise Financial Statements.
1.13 "Shareholder Ancillary Agreements" means, collectively, the
Investment Representation Letter, the Stock Power, Form W-8 and each other
agreement, certificate or document (other than this Agreement) to which the
Enterprise Shareholder is to enter into as a party thereto, or is to otherwise
execute and deliver pursuant to or in connection with this Agreement.
Other capitalized terms defined elsewhere in this Agreement and not defined
in this Section 1 shall have the meanings assigned to such terms in this
Agreement.
2. THE EXCHANGE
(a) Subject to the terms and conditions of this Agreement, at the
Closing:
(1) the Enterprise Shareholder shall irrevocably assign and transfer
to NetSelect all of his shares of Enterprise Stock, the amount of which is set
forth beside his name on Exhibit A hereto, and in exchange therefor NetSelect
---------
shall issue to the Enterprise Shareholder the Exchange Shares; and
(2) in addition, NetSelect shall pay the Enterprise Shareholder the
aggregate sum of $1,445,000 minus the amount of the Closing Indebtedness, and
minus the Schmidt Receivable Amount, in cash (or by wire transfer of immediately
available funds), and shall execute a note (the "Note") attached hereto as
Exhibit 2(a), which Note shall evidence NetSelect's promise to pay the
- ------------
Enterprise Shareholder (i) $633,333.33 (without a stated interest rate) each
year for three additional years beginning on the first anniversary of the
Closing Date, as defined in Section 7.1 below, and continuing on the second and
third anniversaries of the Closing Date, subject to the provisions of Section 11
below, and (ii) $300,000 (without a stated interest rate) on the earlier to
occur of (i) the closing of NetSelect's initial public offering of its equity
securities or (ii) January 1, 1999 (the "Additional Deferred Amount"). The Note
shall be secured by certain assets of Enterprise pursuant to a Security
Agreement with the Enterprise Shareholder in the form of Exhibit 2(b).
------------
(b) Subject to the terms and conditions of this Agreement, NetSelect shall
pay to the Enterprise Shareholder the "Earn-Out," as defined below. The parties
acknowledge that NetSelect and the Enterprise Shareholder intend, at the
Closing, to enter into an Employment Agreement dated the Closing Date in
substantially the form of Exhibit 9.9A attached hereto (the "Scommegna
------------
Employment Agreement"). For each calendar year during the period from the
Closing Date through December 31, 2000 (in other words, calendar years 1998,
1999 and 2000), if the Enterprise Shareholder has remained employed as an
employee of NetSelect for the entire calendar year (with respect to 1998 from
the Closing Date through the end of the calendar year), then subject to Section
11 below, NetSelect shall pay the Enterprise Shareholder, within ninety (90)
days after the end of each such calendar year, an amount in cash equal to five
percent (5%) of the excess of the dollar amount of Enterprise Net Sales for such
year (as reflected in NetSelect's financial statements) over Four Million
Dollars ($4,000,000). In no event, however,
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shall aggregate Earn-Out Payments exceed One Million Dollars ($1,000,000). If
the Enterprise Shareholder's employment is terminated by NetSelect during such
period in a Termination Without Cause or if the Enterprise Shareholder
terminates employment for Good Reason, as defined in Section 6 of the Scommegna
Employment Agreement, then the Enterprise Shareholder shall be entitled to
receive the Earn-Out payments for each of the three calendar years, at the times
and in the amounts that he would have been entitled to if he had remained
employed by NetSelect during the entire Earn-Out period; and if the Enterprise
Shareholder's employment is terminated during such period in a Termination "For
Cause" (as defined in Section 6 of the Scommegna Employment Agreement) by reason
of the Enterprise Shareholder's death (other than by suicide) or disability (as
defined in Section 6 of the Scommegna Employment Agreement), then the Enterprise
Shareholder shall be entitled to receive the Earn-Out payment for the calendar
year in which such event occurred (in the case of disability the year in which
such disability commenced), but not for subsequent years.
(c) Exhibit 2(c) attached hereto sets forth certain obligations owed by
------------
Enterprise to Lillian and/or Antonio Scommegna (the "Scommegnas"), including the
principal and accrued interest owed with respect to each such obligation as of
the Closing, a brief description of the material terms of such notes and/or
other obligations, and the instruments pursuant to which such obligations were
created (the "Scommegna Obligations"). Before the Closing, Enterprise shall
deliver to NetSelect copies of all instruments reflecting the Scommegna
Obligations.
(d) At or immediately after the Closing, NetSelect shall infuse such funds
as are reasonably necessary to cause Enterprise to pay, or NetSelect shall on
Enterprise's behalf pay the Closing Indebtedness (by wire transfer of
immediately available funds to an account specified by the person entitled to
receive such funds).
2.1 Exchange of Shares. At the Closing, all of the shares of Enterprise
------------------
Stock that are issued and outstanding immediately prior to the Closing will be
exchanged for the Exchange Shares and other consideration payable under this
Agreement. Subject to surrender and delivery to NetSelect by the Enterprise
Shareholder of the applicable Enterprise Certificates at the Closing and an
accompanying Stock Power (in a form approved by counsel to NetSelect and
NetSelect's transfer agent) and Form W-8, the Enterprise Shareholder shall
receive a stock certificate for the Exchange Shares at the Closing.
2.2 Adjustments for Capital Changes. Notwithstanding the provisions of
-------------------------------
Section 2.1 above, if at any time after the Effective Date and prior to the
Closing, NetSelect recapitalizes, either through a subdivision (or stock split)
of any of its outstanding shares into a greater number of shares, or a
combination (or reverse stock split) of any of its outstanding shares into a
lesser number of shares, or reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number of shares of other
classes (other than through a subdivision or combination of shares provided for
in the previous clause), or declares a dividend on its outstanding shares
payable in shares or securities convertible into shares of NetSelect Common
Stock (each event, a "Capital Change"), then the number of shares of NetSelect
Common Stock for which shares of Enterprise Stock are to be exchanged in the
Exchange shall be appropriately, equitably and proportionately adjusted so as to
maintain the proportionate interests of the Enterprise Shareholder contemplated
by this Agreement.
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2.3 Further Assurances. If, at any time after the Closing, NetSelect or
------------------
the Enterprise Shareholder are advised by counsel that any further instruments,
deeds, assignments or assurances are reasonably necessary or desirable to
consummate the Exchange at or after the Closing, then Enterprise or NetSelect
(as the case may be) and its officers and directors, and the Enterprise
Shareholder, shall execute and deliver such proper deeds, assignments,
instruments and assurances and do all other things that NetSelect or the
Enterprise Shareholder have been so advised is reasonably necessary or desirable
to consummate the Exchange.
2.4 Securities Laws Issues. NetSelect shall issue the Exchange Shares
----------------------
pursuant to an exemption from registration under Section 4(2) and/or Regulation
D promulgated under the Securities Act of 1933, as amended (the "1933 Act").
Concurrently with execution of this Agreement, the Enterprise Shareholder will
execute and deliver to NetSelect an Investment Representation Letter in the form
of Exhibit 2.4A hereto (the "Investment Representation Letter"), and if
------------
immediately after the Closing the Enterprise Shareholder transfers to Cleary (as
defined below) 10,000 of the Exchange Shares as described in Section 2.6 below,
then Cleary will execute and deliver to NetSelect an investment representation
letter in substantially the form of Exhibit 2.4B hereto.
------------
2.5 Put Option Agreement. In addition, NetSelect, the Enterprise
--------------------
Shareholder, and Cleary shall enter into an agreement at Closing in the form of
Exhibit 2.5 providing for the right to "put" the Exchange Shares and shares of
- -----------
NetSelect Common Stock that are issued pursuant to the exercise of the stock
options to be granted to the Enterprise Shareholder pursuant to the Employment
Agreement attached hereto as Exhibit 9.9A.
-------------
2.6 Consent to Transfer of Certain Shares. NetSelect acknowledges that
-------------------------------------
the Enterprise Shareholder intends, immediately after the Closing, to transfer
10,000 of the Exchange Shares to Cleary, Gull, Reiland & McDevitt, Inc. and/or
certain persons affiliated with such firm (collectively, "Cleary"). Upon
receipt of appropriate instruments of transfer from the Enterprise Shareholder
and Cleary's agreement in writing to be bound by all of the provisions of this
Agreement applicable to such shares and making appropriate investment
representations, in form and substance reasonably satisfactory to NetSelect,
NetSelect will transfer 10,000 of the Exchange Shares to Cleary.
2.7 [Reserved]
3. REPRESENTATIONS AND WARRANTIES OF ENTERPRISE AND THE ENTERPRISE SHAREHOLDER
Enterprise and the Enterprise Shareholder hereby jointly and severally
represent and warrant to NetSelect that, except as set forth in the Enterprise
Schedule of Exceptions attached hereto as Exhibit 3 (the "Enterprise Schedule of
---------
Exceptions"), each of the following representations and statements in this
Section 3 is true and correct. For purposes of this Agreement, phrases such as
"the knowledge of Enterprise and the Enterprise Shareholder," "to the best
knowledge of Enterprise and the Enterprise Shareholder," or similar phrases
shall mean, and shall be limited to, the actual knowledge of Roger Scommegna and
Kevin Malloy after
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having made reasonable investigation and inquiry of the directors, officers or
employees of Enterprise who could reasonably be expected to have knowledge of
the matters to which the statement relates.
3.1 Organization and Good Standing. Enterprise is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Wisconsin. Enterprise has the corporate power and authority to own, operate and
lease its properties and to carry on its business as now conducted and as
proposed to be conducted, and is duly qualified to transact business as a
foreign corporation in each jurisdiction in which its failure to be so qualified
would have a Material Adverse Effect.
3.2 Power, Authorization and Validity.
---------------------------------
3.2.1 Enterprise has the right, power, legal capacity and authority
to enter into, execute, deliver and perform its obligations under this Agreement
and all Enterprise Ancillary Agreements, and Enterprise has all requisite
corporate power and authority to consummate the Exchange. The execution,
delivery and performance of this Agreement and each of the Enterprise Ancillary
Agreements by Enterprise have been duly and validly approved and authorized by
all necessary corporate action on the part of Enterprise's Board of Directors.
The Enterprise Shareholder has the right, power, legal capacity and authority to
enter into, execute, deliver and perform the Enterprise Shareholder's
obligations under this Agreement and all Shareholder Ancillary Agreements and
has the requisite power and authority to consummate the Exchange.
3.2.2 No filing, authorization, consent, approval or order,
governmental or otherwise, is necessary or required to be made or obtained by
Enterprise or the Enterprise Shareholder to enable Enterprise and the Enterprise
Shareholder to lawfully enter into, and to perform their respective obligations
under, this Agreement, the Enterprise Ancillary Agreements, and/or the
Shareholder Ancillary Agreements.
3.2.3 Except to the extent this Agreement and the Enterprise
Ancillary Agreements create obligations of the Enterprise Shareholder and not
Enterprise, this Agreement and the Enterprise Ancillary Agreements are, or when
executed by Enterprise will be, valid and binding obligations of Enterprise
enforceable against Enterprise in accordance with their respective terms.
Except to the extent they create obligations of Enterprise and not the
Enterprise Shareholder, this Agreement and the Shareholder Ancillary Agreements
are, or when executed by the Enterprise Shareholder will be, valid and binding
obligations of the Enterprise Shareholder enforceable against the Enterprise
Shareholders in accordance with their respective terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and (ii) the remedy of specific performance and injunctive relief and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
3.2.4 All representations, warranties and other statements made by
the Enterprise Shareholder in the Investment Representation Letter executed and
delivered to
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NetSelect by the Enterprise Shareholder pursuant hereto (a) is now, and at the
Closing shall be, true and correct, and (b) shall be deemed to be
representations and warranties made pursuant to this Section 3 for all purposes
of this Agreement (including but not limited to Section 11 hereof).
3.3 Capitalization of Enterprise.
----------------------------
3.3.1 Outstanding Stock. The authorized capital stock of Enterprise
-----------------
consists entirely of 9,000 shares of common stock, $1.00 par value per share, of
which a total of 100 shares are issued and outstanding, all of which are now
owned and held (and all of which at the Closing will be owned and held) only by
the Enterprise Shareholder. No other shares of the capital stock of Enterprise
are (or will at Closing be) authorized, issued or outstanding. No fractional
shares of Enterprise Stock are (or will at Closing be) issued or outstanding.
All issued and outstanding shares of Enterprise Stock have been duly authorized
and validly issued, are fully paid and nonassessable, except for assessment
under the Wisconsin employee compensation statute (Wis. Stat. (S)
180.0622(2)(b)), are not subject to any claim, lien, preemptive right, or right
of rescission, and have been offered, issued, sold and delivered by Enterprise
(and, if applicable, transferred) in compliance with all registration or
qualification requirements (or applicable exemptions therefrom) of all
applicable securities laws, Enterprise's Articles of Incorporation and other
charter documents and all agreements to which Enterprise is a party.
3.3.2 No Options, Warrants or Rights. There are no options,
------------------------------
warrants, convertible or other securities, calls, commitments, conversion
privileges, preemptive rights or other rights or agreements outstanding to
purchase or otherwise acquire (whether directly or indirectly) any shares of
Enterprise's authorized but unissued capital stock or any securities convertible
into or exchangeable for any shares of Enterprise's capital stock or obligating
Enterprise to grant, issue, extend, or enter into, any such option, warrant,
convertible or other security, call, commitment, conversion privilege,
preemptive right or other right or agreement, and Enterprise has no liability
for any dividends accrued but unpaid. No person or entity holds or has any
option, warrant or other right to acquire any issued and outstanding shares of
the capital stock of Enterprise from any record or beneficial holder of shares
of the capital stock of Enterprise. No shares of Enterprise Stock are reserved
for issuance under any stock purchase, stock option or other benefit plan.
3.3.3 No Voting Arrangements or Registration Rights. There are no
---------------------------------------------
voting agreements, voting trusts, rights of first refusal or other restrictions
(other than normal restrictions on transfer under applicable securities laws)
applicable to any of Enterprise's outstanding securities. Enterprise is not
under any obligation to register under the 1933 Act or otherwise any of its
currently outstanding securities or any securities that may be subsequently
issued.
3.4 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement or any Enterprise Ancillary Agreement, nor the
consummation of the Exchange or any of the other transactions contemplated
hereby, nor Enterprise's discussion or negotiation with NetSelect of the
Exchange or any other transaction contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach, impairment or
7
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violation of: (i) any provision of the charter documents of Enterprise as
currently in effect; (ii) any federal, state, local or foreign judgment, writ,
decree, order, statute, rule or regulation applicable to Enterprise or its
assets or properties; or (iii) any material instrument, agreement, contract,
letter of intent or commitment to which Enterprise is a party or by which
Enterprise or its assets or properties are or were bound. The consummation of
the Exchange by Enterprise will not require the consent of any third party other
than the approval of the Enterprise Shareholder, and no agreement to which
Enterprise is a party requires that any other party thereto consent to the
Exchange, whether as a condition to the assignment or transfer of such
agreement, or otherwise.
3.5 Litigation. There is no action, suit, arbitration, mediation,
----------
proceeding, claim or investigation pending against Enterprise (or to the
knowledge of Enterprise and the Enterprise Shareholder, against any officer or
director of Enterprise or, to the knowledge of Enterprise and the Enterprise
Shareholder, against any employee or agent of Enterprise, in their capacity as
such or relating to their employment, services or relationship with Enterprise)
before any court, administrative agency or arbitrator that, if determined
adversely to Enterprise (or any such officer, director, employee or agent) may
reasonably be expected to have a Material Adverse Effect on Enterprise, nor, to
the best of Enterprise's knowledge, has any such action, suit, proceeding,
arbitration, mediation, claim or investigation been threatened. To the
knowledge of Enterprise and the Enterprise Shareholder, there is no basis for
any person, firm, corporation or other entity, to assert a claim against
Enterprise or NetSelect based upon: (a) Enterprise's entering into this
Agreement or consummating the Exchange; (b) any claims of ownership, rights to
ownership, or options, warrants or other rights to acquire ownership, of any
shares of the capital stock of Enterprise; or (c) any rights as the Enterprise
Shareholder. There is no judgment, decree, injunction, rule or order of any
governmental entity or agency, court or arbitrator outstanding against
Enterprise.
3.6 Taxes. Enterprise has filed all national, state, local and foreign
-----
tax returns required to be filed, has paid all taxes required to be paid in
respect of all periods for which returns have been filed, has established what
it believes is an adequate accrual or reserve for the payment of all taxes
payable in respect of the periods subsequent to the periods covered by the most
recent applicable tax returns, has made all necessary estimated tax payments,
and has no material liability for taxes in excess of the amount so paid or
accruals or reserves so established. Enterprise is not delinquent in the
payment of any tax or in the filing of any tax returns, and to the knowledge of
Enterprise and the Enterprise Shareholder no deficiencies for any tax are
threatened, claimed, proposed or assessed. Enterprise has not received any
notification that any issues have been raised (and are currently pending) by any
taxing authority (including but not limited to any franchise, sales or use tax
authority) regarding Enterprise and no tax return of Enterprise has ever been
audited by any national, state, local or foreign taxing agency or authority.
There are no tax liens against any assets of Enterprise. Enterprise is not a
"personal holding company" within the meaning of Section 542 of the Internal
Revenue Code of 1986, as amended (the "Code"). Enterprise is not a "U.S. Real
Property Holding Company" as defined in the Code.
For the purposes of this Section, the terms "tax" and "taxes" include all
national, state, local and foreign income, alternative or add-on minimum income,
gains, franchise, excise,
8
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property, sales, use, employment, license, payroll (including any taxes or
similar payments required to be withheld from payments of salary or other
compensatory payments), ad valorem, payroll, stamp, occupation, recording, value
added or transfer taxes, governmental charges, fees, customs duties, levies or
assessments (whether payable directly or by withholding), and, with respect to
such taxes, any estimated tax, interest and penalties or additions to tax and
interest on such penalties and additions to tax.
3.7 Enterprise Financial Statements. Enterprise was incorporated in
-------------------------------
Wisconsin. Enterprise's fiscal year ends on December 31. Enterprise has
delivered to NetSelect (i) Enterprise's balance sheet as of December 31, 1996,
(ii) Enterprise's income statements for the years ended December 31, 1996 and
1997, and (iii) Enterprise's balance sheet (the "Balance Sheet") as of December
31, 1997 (the "Balance Sheet Date"), and (iv) Enterprise's balance sheet, and
income statement for the month ended January 31, 1998, copies of which are
attached as Exhibit 3.7 hereto (all such financial statements of Enterprise are
-----------
hereinafter collectively referred to as the "Enterprise Financial Statements").
To the knowledge of Enterprise and the Enterprise Shareholder, the Enterprise
Financial Statements (a) are in accordance with the books and records of
Enterprise and (b) fairly present the financial condition of Enterprise at the
dates therein indicated and the results of operations for the periods therein
specified. To the knowledge of Enterprise and the Enterprise Shareholder,
Enterprise has no material debt, liability or obligation of any nature (whether
intercompany or owed to third parties), whether accrued, absolute, contingent or
otherwise, and whether due or to become due, except for (i) those shown on the
Balance Sheet, and (ii) those that may have been incurred after the Balance
Sheet Date in the ordinary course of Enterprise's business consistent with past
practice, and that are not material in amount, either individually or
collectively. To the knowledge of Enterprise and the Enterprise Shareholder, (i)
all reserves established by Enterprise and set forth in the Balance Sheet are
reasonably adequate, and (ii) at the Balance Sheet Date, there were no material
loss contingencies (as such term is used in United States Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards Board in
March 1975) which are not adequately provided for in the Balance Sheet as
required by said Statement No. 5. Enterprise has no obligation to any employee,
officer or director of Enterprise to reimburse such person for expenses incurred
by such person on behalf of Enterprise, except for such unreimbursed obligations
as (i) are reflected in the Enterprise balance sheet as of January 31, 1998
which is included in the Enterprise Financial Statements, or (ii) have been
incurred after January 31, 1998 in the ordinary course of Enterprise's business
consistent with Enterprise's past practices and in immaterial amounts.
3.8 Title to Properties. Enterprise has good and marketable title to all
-------------------
of its assets (including but not limited to those shown on the Balance Sheet),
free and clear of all liens, mortgages, security interests, claims, charges,
restrictions or encumbrances. All machinery, vehicles, equipment and other
tangible personal property included in such assets and properties are in good
condition and repair, normal wear and tear excepted, and all leases of real or
personal property to which Enterprise is a party are fully effective and afford
Enterprise peaceful and undisturbed possession of the real or personal property
that is the subject of the lease. Enterprise does not own any real property. To
the knowledge of Enterprise and the Enterprise Shareholder, Enterprise is not in
violation of any zoning, building, safety or environmental ordinance, regulation
or requirement or other law or regulation applicable to the operation of owned
or
9
<PAGE>
leased properties, the violation of which would have a Material Adverse Effect
on Enterprise, nor has Enterprise received any notice of such violation with
which it has not complied.
3.9 Absence of Certain Changes. Since the Balance Sheet Date, there has
--------------------------
not been with respect to Enterprise any:
(a) material adverse change in the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations, results of operations
or prospects of Enterprise;
(b) amendments or changes in the charter documents of Enterprise;
(c) (i) incurrence, creation or assumption by Enterprise of any mortgage,
security interest, pledge, lien or other encumbrance on any of the assets or
properties of Enterprise or any material obligation or liability or any
indebtedness for borrowed money in excess of Ten Thousand Dollars ($10,000); or
(ii) issuance or sale of, or change with respect to the rights of, any debt or
equity securities of Enterprise or any options or other rights to acquire from
Enterprise, directly or indirectly, any debt or equity securities of Enterprise;
(d) payment or discharge of a lien or liability in excess of Ten Thousand
Dollars ($10,000) which lien or liability was not either shown on the Balance
Sheet or incurred in the ordinary course of business after the Balance Sheet
Date;
(e) purchase, license, sale or other disposition, or any agreement or
other arrangement for the purchase, license, sale or other disposition, of any
of the assets, properties or goodwill of Enterprise in excess of Ten Thousand
Dollars ($10,000) other than in the ordinary course of its business consistent
with its past practice;
(f) damage, destruction or loss, whether or not covered by insurance,
having a Material Adverse Effect on Enterprise;
(g) declaration, setting aside or payment of any dividend on, or the
making of any other distribution in respect of, the capital stock of Enterprise,
any split, combination or recapitalization of the capital stock of Enterprise or
any direct or indirect redemption, purchase or other acquisition of the capital
stock of Enterprise or any change in any rights, preferences, privileges or
restrictions of any outstanding security of Enterprise;
(h) change or increase in the compensation payable or to become payable to
any of the officers, employees, consultants or agents of Enterprise, or any
bonus or pension, insurance or other benefit payment or arrangement (including,
without limitation, stock awards, stock appreciation rights or stock option
grants) made to or with any of such officers, employees, consultants or agents
except in connection with normal salary or performance reviews, pursuant to
arrangements of which NetSelect has been informed, or otherwise in the ordinary
course of business consistent with Enterprise's past practice, all of which are
set forth on the Enterprise Schedule of Exceptions;
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(i) change with respect to the management, supervisory or other key
personnel of Enterprise;
(j) obligation or liability incurred by Enterprise to any of its
officers, directors or shareholders except normal compensation and expense
allowances payable to officers in the ordinary course of business consistent
with Enterprise's past practice;
(k) making by Enterprise of any loan, advance or capital contribution to,
or any investment in, any officer, director or record or beneficial shareholder
of Enterprise;
(l) entering into, amendment of, relinquishment, termination or non-
renewal by Enterprise of any contract, lease, transaction, commitment or other
right or obligation which by its terms calls for annual payments in excess of
Ten Thousand Dollars ($10,000) (a "Section 3.9 Contract") other than in the
ordinary course of its business consistent with its past practice or any written
or oral indication or assertion by the other party thereto of problems with
Enterprise's services or performance under Section 3.9 Contract or such other
party's desire to so amend, relinquish, terminate or not renew any Section 3.9
Contracts;
(m) material change in the manner in which Enterprise extends discounts
or credits to customers or otherwise deals with its customers;
(n) entering into by Enterprise of any transaction, contract or agreement
or the conduct of business or operations other than in the ordinary course of
its business consistent with its past practices;
(o) transfer or grant of a right under any Enterprise IP Rights (as
defined in Section 3.12 below), other than those transferred or granted in the
ordinary course of Enterprise's business consistent with Enterprise's past
practice; or
(p) agreement or arrangement made by Enterprise to take any action which,
if taken prior to the date of this Agreement, would have made any representation
or warranty of Enterprise and the Enterprise Shareholder set forth in this
Agreement untrue or incorrect.
3.10 Contracts and Commitments. To the best of Enterprise's and
-------------------------
Enterprise Shareholder's knowledge, Exhibit 3.10 sets forth a list of each of
------------
the following written or oral contracts, agreements, commitments or other
instruments to which Enterprise is a party or to which it or any of its assets
or properties is bound which calls for or requires payments or the provision of
goods or services by any party in excess of Ten Thousand Dollars ($10,000) per
year (each a "Material Contract") (For purposes of this Section and Section 3.9,
an agreement which provides for an initial payment or obligation less than
$10,000, but which provides for possible future payments or obligations, shall
be deemed to be in excess of $10,000 if Enterprise or the Enterprise Shareholder
reasonably expect that the agreement will involve amounts in excess of $10,000
over the term of the agreement.):
(a) consulting or similar agreement under which Enterprise provides any
advice or services to a customer of Enterprise;
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<PAGE>
(b) continuing contract for the future purchase, sale, license, provision
or manufacture of products, material, supplies, equipment or services which is
not terminable on ninety (90) days' or less notice without cost or other
liability to Enterprise or in which Enterprise has granted or received
manufacturing rights, most favored customer pricing provisions or exclusive
marketing rights relating to any product or services, group of products or
services or territory;
(c) contract providing for the acquisition of software by Enterprise, for
the development of software for Enterprise, or the license of software to
Enterprise, which software is used or incorporated in any products currently
distributed by Enterprise or services currently provided by Enterprise or is
contemplated to be used or incorporated in any products to be distributed or
services to be provided by Enterprise (other than software generally available
to the public at a per copy license fee of less than One Thousand Dollars
($1,000));
(d) joint venture or partnership contract or agreement or other agreement
which has involved or is reasonably expected to involve a sharing of profits or
losses in excess of Ten Thousand Dollars ($10,000) per annum with any other
party;
(e) contract or commitment for the employment of any officer, employee or
consultant of Enterprise or any other type of contract or understanding with any
officer, employee or consultant of Enterprise which is not immediately
terminable by Enterprise without cost or other liability;
(f) indenture, mortgage, trust deed, promissory note, loan agreement,
guarantee or other agreement or commitment for the borrowing of money, for a
line of credit or for a leasing transaction of a type required to be capitalized
in accordance with United States Statement of Financial Accounting Standards No.
13 of the Financial Accounting Standards Board;
(g) lease or other agreement under which Enterprise is lessee of or holds
or operates any items of tangible personal property or real property owned by
any third party and under which payments to such third party exceed Ten Thousand
Dollars ($10,000) per annum;
(h) agreement or arrangement for the sale of any assets, properties,
services or rights, other than in the ordinary course of business consistent
with past practice;
(i) agreement which restricts Enterprise from engaging in any aspect of its
business or competing in any line of business in any geographic area;
(j) Enterprise IP Rights Agreements (as defined in Section 3.12 below);
(k) agreement relating to the sale, issuance, grant, exercise, award,
purchase, repurchase or redemption of any shares of capital stock or other
securities of Enterprise or any options, warrants or other rights to purchase or
otherwise acquire any such shares of stock, other securities or options,
warrants or other rights therefor;
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(l) contract with or commitment to any labor union; or
(m) other agreement, contract, commitment or instrument that is material
to the business of Enterprise or that involves a commitment by Enterprise in
excess of Ten Thousand Dollars ($10,000).
A copy of each Material Contract, or if such Material Contract is not in
writing a written summary of the material terms thereof, which is required by
this Section to be listed on Exhibit 3.10 has been delivered to NetSelect.
------------
(Where several Material Contracts that are not in writing contain material terms
that do not differ in significant respects from each other, Enterprise may
summarize once the material terms of such Material Contracts and then simply
identify the various parties to such Material Contracts.) No consent or
approval of any third party is required to ensure that, following the Closing,
any Material Contract shall continue to be in full force and effect without any
breach or violation thereof caused by virtue of the Exchange or by any other
transaction called for by this Agreement.
3.11 No Default. To the best knowledge of Enterprise and the Enterprise
----------
Shareholder, Enterprise is not in breach or default of, and has not breached or
been in default of, any Material Contract, and Enterprise is not a party to any
contract, agreement or arrangement which has had, or is reasonably expected to
have, a Material Adverse Effect on Enterprise. To the best knowledge of
Enterprise and the Enterprise Shareholder, Enterprise does not have any material
liability for renegotiation of government contracts or subcontracts, if any.
3.12 Intellectual Property.
---------------------
3.12.1 Enterprise owns, or has the irrevocable right to use, sell or
license all Intellectual Property Rights (as defined below) necessary or
required for the conduct of its business as presently conducted and as presently
proposed to be conducted (such Intellectual Property Rights being hereinafter
collectively referred to as the "Enterprise IP Rights"), and such rights to use,
sell or license are sufficient for such conduct of its business. Enterprise is
the legal and beneficial owner of all rights, including all copyright and
worldwide distribution rights, to those certain computer software programs set
forth on Exhibit 3.12, including all object code, source code, configurations,
------------
routines and algorithms contained therein with annotations and related
documentation, together with all alterations, modifications and reconfigurations
thereof in all forms of expression, including but not limited to, the source
code, object code, flowcharts, block diagrams, manuals and all other
documentation no matter how stored, transmitted, read or utilized and all
copyrights, trade secrets, patents, inventions (whether patentable or not),
proprietary rights and intellectual property rights associated therewith
(collectively the "Software"). The term "Enterprise IP Rights" includes,
without limitation, the Software.
3.12.2 The execution, delivery and performance of this Agreement and
the consummation of the Exchange and the other transactions contemplated hereby
will not constitute a material breach of or default under any instrument,
contract, license or other agreement governing any Enterprise IP Right (the
"Enterprise IP Rights Agreements") and will not cause the forfeiture or
termination, or give rise to a right of forfeiture or termination, of any
13
<PAGE>
Enterprise IP Right or materially impair the right of Enterprise to use, sell,
license, provide or otherwise commercially exploit any Enterprise IP Right or
portion thereof (except where such breach, forfeiture or termination would not
have a Material Adverse Effect on Enterprise). There are no royalties,
honoraria, fees or other payments payable by Enterprise to any person by reason
of the ownership, use, license, sale, exploitation or disposition of the
Enterprise IP Rights.
3.12.3 Neither the manufacture, marketing, license, sale, furnishing
or intended use of any product or service currently licensed, utilized, sold,
provided or furnished by Enterprise or currently under development by Enterprise
has violated or now violates any license or agreement between Enterprise and any
third party or infringes or misappropriates any Intellectual Property Right of
any other party; and there is no pending or, to the best knowledge of Enterprise
and the Enterprise Shareholder, threatened claim or litigation contesting the
validity, ownership or right to use, sell, license or dispose of any Enterprise
IP Right nor is there any basis for any such claim, nor has Enterprise received
any notice asserting that any Enterprise IP Right or the proposed use, sale,
license or disposition thereof conflicts or will conflict with the rights of any
other party, nor is there any basis for any such assertion. To the knowledge of
Enterprise and the Enterprise Shareholder, no employee or agent of or consultant
to Enterprise is in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, non-solicitation agreement or
any other contract or agreement, or any restrictive covenant relating to the
right of any such employee, agent or consultant to be employed thereby, or to
use trade secrets or proprietary information of others, and the employment of
such employees or engagement of such agents and consultants does not subject
Enterprise to any liability.
3.12.4 Enterprise has taken reasonable and practicable steps, in
accordance with prevailing industry standards, designed to protect, preserve and
maintain the secrecy and confidentiality of all material Enterprise IP Rights
and all Enterprise's proprietary rights therein; provided, however, that
NetSelect acknowledges that Enterprise does not have any registered patents,
trademarks or copyrights, and has not filed any patent, trademark or copyright
registrations. All officers, employees, agents and consultants of Enterprise
having access to proprietary information have executed and delivered to
Enterprise an agreement regarding the protection of such proprietary information
and the assignment of inventions to Enterprise in the form attached hereto as
Exhibit 3.12.4, which was provided to counsel for NetSelect. Copies of all such
- --------------
agreements, executed by all such persons, have been delivered to NetSelect's
counsel.
3.12.5 Exhibit 3.12 contains a list of all Enterprise IP Rights and
------------
all worldwide applications, registrations, filings and other formal actions made
or taken pursuant to federal, state and foreign laws by Enterprise to secure,
perfect or protect its interest in Enterprise IP Rights, including, without
limitation, all patents, patent applications, copyrights (whether or not
registered), copyright applications, trademarks, service marks and trade names
(whether or not registered) and trademark, service mark and trade name
applications.
3.12.6 As used herein, the term "Intellectual Property Rights" means,
collectively, all worldwide industrial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark applications, trade dress rights, trade names, service
marks, service mark applications, copyrights, copyright
14
<PAGE>
applications, mask work rights, mask work registrations, franchises, licenses,
inventions, trade secrets, know-how, customer lists, proprietary processes and
formulae, software source and object code, algorithms, architecture, structure,
display screens, layouts, inventions, development tools and all documentation
and media constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records.
3.13 Compliance with Laws. To the knowledge of Enterprise and the
--------------------
Enterprise Shareholder, Enterprise is now and at the Closing Date will be in
compliance in all material respects with all applicable national, state, local
or foreign laws, ordinances, regulations, and rules, and all orders, writs,
injunctions, awards, judgments, and decrees applicable to Enterprise or to
Enterprise's assets, properties, and business, where failure to be in such
compliance would have a Material Adverse Effect on Enterprise. To the knowledge
of Enterprise and the Enterprise Shareholder, Enterprise holds all permits,
licenses and approvals from, and has made all filings with, third parties,
including government agencies and authorities, that are necessary in connection
with Enterprise's present business, except those where failure to do so would
not have a Material Adverse Effect on Enterprise.
3.14 Certain Transactions and Agreements. To the knowledge of Enterprise
-----------------------------------
and the Enterprise Shareholder, (i) none of the officers or directors of
Enterprise, nor any member of their immediate families, has any direct or
indirect ownership interest in any firm or corporation that competes with, or
does business with, or has any contractual arrangement with Enterprise (except
with respect to any interest in less than five percent (5%) of the stock of any
corporation whose stock is publicly traded), (ii) none of said officers,
directors, employees or shareholders or any member of their immediate families,
is directly or indirectly interested in any contract or informal arrangement
with Enterprise, except for normal compensation for services as an officer,
director or employee thereof that have been disclosed to NetSelect, and (iii)
none of said officers, directors, employees or shareholders or family members
has any interest in any property, real or personal, tangible or intangible
(including but not limited to any Enterprise IP Rights or any other Intellectual
Property Rights) that is used in or that pertains to the business of Enterprise,
except for the normal rights of a shareholder.
3.15 Employees, ERISA and Other Compliance.
-------------------------------------
3.15.1 Enterprise is in compliance in all material respects with all
applicable laws, agreements and contracts relating to employment, employment
practices, wages, hours, and terms and conditions of employment, including, but
not limited to, employee compensation matters in each of the jurisdictions in
which it conducts business. A list of all employees, officers and consultants
of Enterprise, their title, date of hire, employer entity and current
compensation is set forth on Exhibit 3.15.1, which has been delivered to
--------------
NetSelect. Enterprise does not have any employment contracts or consulting
agreements currently in effect that are not terminable at will (other than
agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
3.15.2 Enterprise (i) has not previously been and is not now subject
to a union organizing effort, (ii) is not subject to any collective bargaining
agreement with respect to any of its employees, (iii) is not subject to any
other contract, written or oral, with any trade or labor
15
<PAGE>
union, employees' association or similar organization, and (iv) does not have
any current labor disputes. Enterprise has good labor relations, and has no
knowledge of any facts indicating that the consummation of the transactions
contemplated hereby will have a Material Adverse Effect on such labor relations.
Neither Enterprise nor the Enterprise Shareholder has any knowledge that any key
employee of Enterprise intends to leave the employ of Enterprise.
3.15.3 Enterprise does not have any "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). Enterprise has no pension plan which constitutes, or has
since the enactment of ERISA constituted, a "multiemployer plan" as defined in
Section 3(37) of ERISA. No Enterprise pension plans are subject to Title IV of
ERISA.
3.15.4 Exhibit 3.15.4 lists each employment, severance or other
--------------
similar contract, arrangement or policy, each "employee benefit plan" as defined
in Section 3(3) of ERISA (if any) and each plan or arrangement (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' benefits, vacation benefits, severance benefits, disability benefits,
death benefits, hospitalization benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock purchase, phantom
stock, stock appreciation or other forms of incentive compensation or post-
retirement insurance, compensation or benefits for employees, consultants or
directors which is entered into, maintained or contributed to by Enterprise and
covers any employee or former employee or consultant or former consultant of
Enterprise. Such contracts, plans and arrangements are as described in this
Section 3.15.4 are hereinafter collectively referred to as the "Enterprise
Benefit Arrangements." Each Enterprise Benefit Arrangement has been maintained
in compliance in all material respects with its terms and with the requirements
prescribed by any and all laws, statutes, orders, rules and regulations that are
applicable to such Enterprise Benefit Arrangement. Enterprise has delivered to
NetSelect and its counsel, Fenwick & West LLP, a complete and correct copy and
summary description of each Enterprise Benefit Arrangement.
3.15.5 There has been no amendment to, written interpretation or
announcement (whether or not written) by Enterprise relating to, or change in
employee participation or coverage under, any Enterprise Benefit Arrangement
that would increase materially the expense of maintaining such Enterprise
Benefit Arrangement above the level of the expense incurred in respect thereof
for Enterprise's fiscal year ended December 31, 1997.
3.15.6 The group health plans (as defined in Section 4980B(g) of the
Code) that benefit employees of Enterprise are in compliance, in all material
respects, with the continuation coverage requirements of Section 4980B of the
Code as such requirements affect Enterprise and its employees. As of the
Closing Date, there will be no material outstanding, uncorrected violations
under the Consolidation Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), with respect to any of the Enterprise Benefit Arrangements, covered
employees, or qualified beneficiaries that could result in a Material Adverse
Effect on Enterprise, or in a material adverse effect on the business,
operations or financial condition of NetSelect as its successor. Enterprise has
provided, or shall have provided prior to the Closing, to individuals entitled
thereto, all required notices and coverage pursuant to Section 4980B of COBRA,
with respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the
Code) occurring prior
16
<PAGE>
to and including the Closing Date, and no material amount payable on account of
Section 4980B of the Code has been incurred with respect to any current or
former employees of Enterprise (or their beneficiaries).
3.15.7 No benefit payable or which may become payable by Enterprise
pursuant to any Enterprise Benefit Arrangement or as a result of or arising
under this Agreement shall constitute an "excess parachute payment" (as defined
in Section 280G(b)(1) of the Code) which is subject to the imposition of an
excise tax under Section 4999 of the Code or which would not be deductible by
reason of Section 280G of the Code. Enterprise is not a party to any (a)
agreement (other than as described in (b) below) with any executive officer or
other key employee thereof (i) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving Enterprise in the nature of any of the transactions contemplated by
this Agreement, (ii) providing any term of employment or compensation guarantee,
or (iii) providing severance benefits or other benefits after the termination of
employment of such employee regardless of the reason for such termination of
employment, or (b) agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be materially increased, or the vesting of benefits of
which will be materially accelerated, by the occurrence of the Exchange or any
of the other transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
3.16 Corporate Documents. Enterprise has delivered to NetSelect for
-------------------
examination all documents and information listed in the Enterprise Schedule of
Exceptions or other Exhibits called for by this Agreement, including, without
limitation, the following: (a) copies of the charter documents as currently in
effect of Enterprise; (b) the Minute Book containing all records of all
proceedings, consents, actions, minutes, and meetings of Enterprise, including
(but not limited to) actions of shareholders, board of directors and any
committees thereof; (c) the stock ledger and journal reflecting all stock
issuances and transfers of Enterprise; (d) all material permits, orders, and
consents issued by any regulatory agency with respect to Enterprise, or any
securities of Enterprise, and all applications for such permits, orders, and
consents; and (e) all Material Agreements required to be disclosed pursuant to
Section 3.10.
3.17 No Brokers. Neither Enterprise nor the Enterprise Shareholder nor
----------
any affiliate of Enterprise is obligated for the payment of any fees or expenses
of any investment banker, broker or finder in connection with the origin,
negotiation or execution of this Agreement or in connection with the Exchange or
any other transaction contemplated hereby.
3.18 Books and Records. The books, records and accounts of Enterprise (a)
-----------------
are in all material respects true, complete and correct, (b) are stated in
reasonable detail and in all material respects fairly reflect the transactions
and dispositions of the assets of Enterprise, and (c) fairly reflect the basis
for the Enterprise Financial Statements.
3.19 Insurance. Exhibit 3.19 hereto lists all insurance maintained by
--------- ------------
Enterprise, including, without limitation, fire and casualty, general liability,
business interruption, product liability, errors and omissions, and sprinkler
and water damage insurance.
17
<PAGE>
3.20 Environmental Matters.
---------------------
3.20.1 During the period that Enterprise has leased or owned its
respective properties or owned or operated any facilities, to the best knowledge
of Enterprise and the Enterprise Shareholder, there have been no disposals,
releases or threatened releases of Hazardous Materials (as defined below) on,
from or under such properties or facilities that resulted from any act or
omission of Enterprise or any of its employees, agents or invitees. Enterprise
has no knowledge of any presence, disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such properties or facilities,
which may have occurred prior to Enterprise having taken possession of any of
such properties or facilities. For the purposes of this Agreement, the terms
"disposal," "release," and "threatened release" shall have the definitions
assigned thereto by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as amended ("CERCLA"). For
the purposes of this Agreement "Hazardous Materials" shall mean any hazardous or
toxic substance, material or waste which is or becomes prior to the Closing
regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous materials," "toxic substance" or
"hazardous chemical" under (a) CERCLA; (b) any similar federal, state or local
law; or (c) regulations promulgated under any of the above laws or statutes.
3.20.2 To the best knowledge of Enterprise and the Enterprise
Shareholder, none of the properties or facilities of Enterprise is in violation
of any federal, state or local law, ordinance, regulation or order relating to
industrial hygiene or to the environmental conditions on, under or about such
properties or facilities, including, but not limited to, soil and ground water
condition. During the time that Enterprise has owned or leased its properties
and facilities, neither Enterprise nor, to the best knowledge of Enterprise and
the Enterprise Shareholder, any third party, has used, generated, manufactured
or stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials, other than
Enterprise's lawful use of standard office supplies customarily used in office
environments that contain legally permitted amounts of Hazardous Materials that
would have no Material Adverse Effect.
3.20.3 During the time that Enterprise has owned or leased its
properties and facilities, there has been no litigation brought or threatened
against Enterprise, or, to the best knowledge of Enterprise and the Enterprise
Shareholder, against any lessor or owner of real property leased by Enterprise,
or any settlement reached by Enterprise or the Enterprise Shareholder with any
party or parties alleging the presence, disposal, release or threatened release
of any Hazardous Materials on, from or under any of such properties or
facilities.
3.21 Tax Advice. Enterprise Shareholder has been advised by his own
----------
advisers concerning the tax treatment of the Exchange and the other transactions
contemplated by this Agreement, and is not relying on NetSelect or any of its
agents for any advice concerning such tax consequences.
3.22 Disclosure. To the best knowledge of Enterprise and the Enterprise
----------
Shareholder, neither this Agreement, its exhibits and schedules, nor any of the
certificates or documents to be
18
<PAGE>
delivered by Enterprise and/or the Enterprise Shareholder to NetSelect under
this Agreement, taken together, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which such
statements were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF NETSELECT
NetSelect hereby represents and warrants, that, except as set forth in the
Schedule of Exceptions attached hereto as Exhibit 4 (the "NetSelect Schedule of
---------
Exceptions"), each of the following representations and statements in this
Section 4 is true and correct. For purposes of this Agreement, phrases such as
"the knowledge of NetSelect," "to the best knowledge of NetSelect" or similar
phrases shall mean, and shall be limited to, the actual knowledge of the Chief
Executive Officer of NetSelect after having made reasonable investigation and
inquiry of the directors, officers or employees of NetSelect who could
reasonably be expected to have knowledge of the matters to which the statement
relates.
4.1 Organization and Good Standing. NetSelect is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted.
4.2 Power, Authorization and Validity.
---------------------------------
4.2.1 NetSelect has the right, power and authority to enter into,
execute and perform its obligations under this Agreement and the NetSelect
Ancillary Agreements. The execution, delivery and performance of this Agreement
and the NetSelect Ancillary Agreements by NetSelect have been duly and validly
approved and authorized by NetSelect's Board of Directors.
4.2.2 No filing, authorization, consent, approval or order,
governmental or otherwise, is necessary or required to enable NetSelect to enter
into, and to perform its obligations under, this Agreement and the NetSelect
Ancillary Agreements except for such filings as may be required to comply with
applicable securities laws in connection with the Exchange itself.
4.2.3 This Agreement and the NetSelect Ancillary Agreements are, or
when executed by NetSelect will be, valid and binding obligations of NetSelect,
enforceable in accordance with their respective terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and (ii) the remedy of specific performance and injunctive relief and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
4.3 Capital Structure.
-----------------
19
<PAGE>
4.3.1 Stock. The authorized capital stock of NetSelect consists of
-----
35,000,000 shares of Class A Common Stock, $0.001 par value per share,
10,000,000 shares of Class B Common Stock, par value $0.001 per share, and
5,000,000 shares of Preferred Stock, par value $0.001 per share, of which
1,647,059 shares have been designated as Series A Convertible Preferred Stock,
352,941 shares have been designated as Series B Convertible Preferred Stock,
700,000 shares have been designated as Series C Convertible Preferred Stock, and
681,201 shares have been designated as Series D Convertible Preferred Stock
(such Preferred Stock referred to as the "NetSelect Preferred Stock"). On the
Effective Date, 265,852 shares of Class A Common Stock were issued and
outstanding, 116,470 shares of Class B Common Stock were issued and outstanding,
and 3,295,575 shares of NetSelect Preferred Stock were issued and outstanding.
All outstanding shares of NetSelect Common Stock are validly issued, fully paid
and nonassessable and not subject to preemptive rights. NetSelect has provided
to the Enterprise Shareholder, and his counsel, copies of (i) NetSelect's
Articles of Incorporation, (ii) By-Laws, and (iii) a true and correct list of
the shareholders of NetSelect and the number of shares of Common Stock and
Preferred Stock held by each such person.
4.3.2 Options. Options to purchase a total of 741,588 shares are
-------
outstanding, including options granted pursuant to the NetSelect 1996 Stock
Option Plan, (the "NetSelect Option Plan").
4.3.3 No Other Commitments. Except for (i) the NetSelect stock
--------------------
options (whether granted or ungranted) described in Section 4.3.2 above, (ii)
the conversion privileges of the NetSelect Preferred Stock, and (iii) the right
of first offer provided for in the NetSelect, Inc. Stockholder's Agreement,
dated as of November 26, 1996, as amended, as of the Effective Date, there are
no options, warrants, convertible or other securities, calls, commitments,
conversion privileges or preemptive or other rights or agreements of any
character to which NetSelect is a party or by which NetSelect is bound
obligating NetSelect to issue, deliver or sell, or cause to be issued, delivered
or sold, any shares of capital stock of NetSelect or securities convertible into
or exchangeable for shares of capital stock of NetSelect, or obligating
NetSelect to grant, extend or enter into any such option, warrant, call, right,
commitment, conversion right or agreement.
4.3.4 Other Entities. NetSelect and Infotouch, Inc. are the only
--------------
members of NetSelect LLC. NetSelect LLC and the National Association of
Realtors are the only beneficial owners of equity securities of RealSelect, Inc.
4.4 No Violation of Existing Agreements. Neither the execution and
------------------------------------
delivery of this Agreement or any NetSelect Ancillary Agreement, nor the
consummation of the Exchange or any of the other transactions contemplated
hereby, nor NetSelect's discussion or negotiation with Enterprise of the
Exchange or any other transaction contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach, impairment or violation of: (i) any provision of the charter documents
of NetSelect as currently in effect; (ii) any federal, state, local or foreign
judgment, writ, decree, order, statute, rule or regulation applicable to
NetSelect or its assets or properties; or (iii) any material instrument,
agreement, contract, letter of intent or commitment to which NetSelect is a
party or by which NetSelect or its assets or properties are or were bound. The
consummation of the Exchange by NetSelect will
20
<PAGE>
not require the consent of any third party pursuant to the terms of any
agreement to which NetSelect is a party or by which NetSelect or its assets or
properties are bound.
4.5 Validity of Shares. The shares of NetSelect Common Stock to be issued
------------------
pursuant to the Exchange shall, when issued: (a) be duly authorized, validly
issued, fully paid and nonassessable and free of liens and encumbrances created
by NetSelect, and (b) be free and clear of any transfer restrictions, liens and
encumbrances except for restrictions on transfer under applicable federal
securities laws, including Rule 144 promulgated under the 1933 Act and except
for restrictions contemplated by this Agreement.
4.6 Litigation. There is no action, suit, arbitration, mediation,
----------
proceeding, claim or investigation pending against NetSelect (or to the
knowledge of NetSelect, against any officer, director or employee or agent of
NetSelect, in their capacity as such or relating to their employment, services
or relationship with NetSelect) before any court, administrative agency or
arbitrator that, if determined adversely to NetSelect (or any such officer,
director, employee or agent) may reasonably be expected to have a Material
Adverse Effect on NetSelect, nor, to NetSelect's knowledge, has any such action,
suit, proceeding, arbitration, mediation, claim or investigation been
threatened. To NetSelect's knowledge, there is no basis for any person, firm,
corporation or other entity, to assert a claim against NetSelect based upon:
(a) NetSelect's entering into this Agreement or consummating the Exchange; or
(b) any claims of ownership, rights to ownership, or options, warrants or other
rights to acquire ownership, of any material amount of shares of the stock of
NetSelect (except pursuant to agreements between such persons and NetSelect or
pursuant to the rights of outstanding Preferred Stock of NetSelect). There is
no judgment, decree, injunction, rule or order of any governmental entity or
agency, court or arbitrator outstanding against NetSelect.
4.7 No Default. To the knowledge of NetSelect, NetSelect is not in breach
----------
or default of any agreement to which NetSelect is a party which breach or
default is reasonably likely to have a Material Adverse Effect on NetSelect.
4.8 Absence of Certain Changes. Since December 31, 1997, there has not
--------------------------
been with respect to NetSelect any:
(a) material adverse change in the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations, results of operations
or prospects of NetSelect;
(b) damage, destruction, or loss, whether or not covered by insurance,
having a Material Adverse Effect on NetSelect;
(c) transfer of a material intellectual property right of NetSelect, other
than those (if any) transferred in the ordinary course of NetSelect's business
consistent with NetSelect's past practice;
(d) amendments or changes in the certificate of incorporation of
NetSelect, as amended (including any certificates of designation), except
pursuant to the issuance of shares of Series D Preferred Stock of NetSelect in
January 1998; or
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<PAGE>
(e) agreement or arrangement made by NetSelect to take any action which,
if taken prior to the date of this Agreement, would have made any representation
or warranty of NetSelect set forth in this Agreement untrue or incorrect in any
material respect.
4.9 Compliance with Laws. To the knowledge of NetSelect, NetSelect is
--------------------
now and at the Closing Date will be in compliance in all material respects with
all applicable national, state, local or foreign laws, ordinances, regulations,
and rules, and all orders, writs, injunctions, awards, judgments, and decrees
applicable to NetSelect or to NetSelect's assets, properties, and business,
where failure to be in such compliance would have a Material Adverse Effect on
NetSelect. To the knowledge of NetSelect, NetSelect holds all permits, licenses
and approvals from and has made all filings for third parties, including
government agencies and authorities, that are necessary in connection with
NetSelect's present business, except where a failure to have such permits,
licenses or approvals or failure to make such filings would not have a Material
Adverse Effect on NetSelect.
4.10 Disclosure. To the knowledge of NetSelect, neither this Agreement,
----------
its exhibits and schedules, nor any of the certificates or documents to be
delivered by NetSelect to Enterprise or the Enterprise Shareholder under this
Agreement, taken together, contains any untrue statement of material fact or
omits to state any material fact necessary in order to make the statements
contained herein and therein in light of the circumstances under which such
statements were made, not misleading.
4.11 NetSelect Financial Information. The NetSelect Financial Information
-------------------------------
is unaudited and has not otherwise been reviewed by any independent accountant.
The NetSelect Financial Information has been prepared in good faith. However,
NetSelect does not represent or warrant that the NetSelect Financial Information
has been prepared in accordance with generally accepted accounting principles or
that the NetSelect Financial Information is accurate in all material respects;
and application of generally accepted accounting principles, or further review
of such NetSelect Financial Information and NetSelect's financial records by
NetSelect or an independent accountant, may result in differences (some of which
could be material) in the information presented in the NetSelect Financial
Information. The line item entitled "Cash and Cash Equivalents" in the balance
sheet information as of January 31, 1998, accurately sets forth in all material
respects NetSelect's cash and cash equivalents as of that date.
4.12 Shareholder Agreements. Other than compensatory plans, arrangements
----------------------
or agreements, those agreements referenced in connection with the organization
and formation of NetSelect, RealSelect, Inc. and NetSelect LLC, those agreements
referenced in the closing documents relating to NetSelect's Preferred Stock
financings, and those agreements made available by NetSelect for review by the
Enterprise Shareholder before the Closing Date, there are no agreements between
NetSelect and holders of NetSelect Common Stock ("Holders") that grant such
Holders materially superior rights or preferences by virtue of their ownership
of shares of NetSelect Common Stock, than the rights and preferences of holders
of NetSelect Common Stock generally or that provide materially superior economic
rights or relationships among NetSelect and such Holders.
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<PAGE>
5. COVENANTS OF ENTERPRISE AND THE ENTERPRISE SHAREHOLDER
During the period from the Effective Date until the earlier to occur of (i)
the Closing, or (ii) the termination of this Agreement in accordance with
Section 10, Enterprise and the Enterprise Shareholder hereby jointly and
severally covenant and agree with NetSelect as follows:
5.1 Advice of Changes. Enterprise or the Enterprise Shareholder, as the
-----------------
case may be, will use all reasonable efforts to promptly advise NetSelect in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Enterprise and the Enterprise
Shareholder contained in Section 3 of this Agreement, if made on or as of the
date of such event or the Closing Date, untrue or inaccurate in any material
respect and (b) of any material adverse change in Enterprise's assets, business,
results of operations, financial condition or prospects. Enterprise shall
deliver to NetSelect within thirty (30) days after the end of each calendar
month ending after the Effective Date and before the Closing Date, an unaudited
balance sheet and statement of operations, which financial statements shall be
prepared in the ordinary course of business consistent with Enterprise's past
practice (and in accordance with United States generally accepted accounting
principles, except for the absence of footnotes and subject to normal year-end
adjustments, none of which are expected to be material in amount), in accordance
with Enterprise's books and records and shall fairly present the financial
position of Enterprise as of their respective dates and the results of
Enterprise's operations for the periods then ended.
5.2 Maintenance of Business. Enterprise will uses its best efforts to
-----------------------
carry on and preserve its business and its relationships with customers,
suppliers, employees, consultants and others in substantially the same manner as
it has prior to the date hereof. If Enterprise becomes aware of a material
deterioration in the relationship with any customer, supplier, key employee,
consultant or business partner (including, without limitation, the Enterprise
Shareholder or Kevin Malloy), it will promptly bring such information to the
attention of NetSelect in writing and, if requested by NetSelect, will exert its
best efforts to restore the relationship.
5.3 Conduct of Business. Enterprise will continue to conduct its business
-------------------
and maintain its business relationships in the ordinary and usual course and
will not, without the prior written consent of NetSelect (which consent shall
not be unreasonably withheld):
(a) borrow or lend any money in excess of Ten Thousand Dollars ($10,000),
other than advances to employees for travel and expenses that are incurred in
the ordinary course of Enterprise's business consistent with Enterprise's past
practice;
(b) accelerate the payment of account receivables or delay the payment of
account payables other than in the ordinary course of business with persons or
entities, and in amounts, consistent with prior practice;
23
<PAGE>
(c) purchase or sell shares or other equity interests in any corporation or
other business or enter into any transaction or agreement not in the ordinary
course of Enterprise's business consistent with Enterprise's past practice;
(d) encumber, or permit to be encumbered, its assets with debt in excess of
Ten Thousand Dollars ($10,000);
(e) sell, transfer or dispose of any of its assets except in immaterial
amounts and in the ordinary course of Enterprise's business consistent with
Enterprise's past practice;
(f) enter into any material lease or contract for the purchase or sale of
any property, whether real or personal, tangible or intangible for an amount in
excess of Ten Thousand Dollars ($10,000);
(g) pay any bonus, increased salary or special remuneration to any officer,
employee or consultant (except for normal salary increases consistent with past
practices not to exceed five percent (5%) of such officer's, employee's or
consultant's base annual compensation, except pursuant to existing arrangements
previously disclosed to and approved in writing by NetSelect) or enter into any
new employment or consulting agreement with any such person;
(h) change any of its accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of any of its capital stock, redeem, repurchase or
otherwise acquire any of its capital stock or other securities, pay or
distribute any cash or property to the Enterprise Shareholder or make any other
cash payment to the Enterprise Shareholder that is unusual, extraordinary, or
not made in the ordinary course of Enterprise's business consistent with
Enterprise's past practice;
(j) amend or terminate any contract, agreement or license to which it is a
party except those amended or terminated in the ordinary course of Enterprise's
business, consistent with Enterprise's past practice, and which are not material
in amount or effect;
(k) guarantee or act as a surety for any obligation of any third party;
(l) waive or release any material right or claim except in the ordinary
course of business, consistent with past practice, or agree to any audit
assessment by any tax authority or file any federal or state income or franchise
tax return unless copies of such returns have been delivered to NetSelect for
its review prior to filing;
(m) issue, sell, create or authorize any shares of its capital stock of any
class or series or any other of its securities, or issue, grant or create any
warrants, obligations, subscriptions, options, convertible securities, or other
commitments to issue shares of its capital stock or securities ultimately
exchangeable for, or convertible into, shares of its capital stock;
24
<PAGE>
(n) subdivide or split or combine or reverse split the outstanding shares
of its capital stock of any class or enter into any recapitalization affecting
the number of outstanding shares of its capital stock of any class or affecting
any other of its securities;
(o) merge, consolidate or reorganize with, or acquire, any entity or enter
into any negotiations, discussions or agreement for such purpose;
(p) amend its charter documents;
(q) license any of its technology or Intellectual Property Rights except
in the ordinary course of business consistent with past practice;
(r) change any insurance coverage or issue any certificates of insurance;
(s) purchase or otherwise acquire, or sell or otherwise dispose of (i) any
shares of NetSelect Common Stock or other NetSelect securities or (ii) any
securities whose value is derived from or determined with reference to, in whole
or in part, the value of NetSelect stock or other NetSelect securities;
(t) agree to do any of the things described in the preceding clauses
5.3(a) through 5.3(s).
5.4 Regulatory Approvals. Enterprise and the Enterprise Shareholder will
--------------------
promptly execute and file, or join in the execution and filing, of any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any governmental body, federal, state,
local or foreign, which may be reasonably required, or which NetSelect may
reasonably request, in connection with the consummation by Enterprise and the
Enterprise Shareholder of the transactions contemplated by this Agreement.
Enterprise, its officers, directors and employees and the Enterprise Shareholder
will use their respective best efforts to promptly obtain, and to cooperate with
NetSelect to promptly obtain, all such authorizations, approvals and consents.
5.5 Necessary Consents. Enterprise, its officers, directors and employees
------------------
and the Enterprise Shareholder will use their respective best efforts to
promptly obtain such written consents and take such other actions as may be
reasonably necessary or appropriate in addition to those set forth in Section
5.4 to allow the consummation of the transactions contemplated hereby and to
allow NetSelect to carry on Enterprise's business after the Closing.
5.6 Litigation. Enterprise will notify NetSelect in writing promptly
----------
after learning of any action, suit, arbitration, mediation, proceeding or
investigation by or before any court, arbitrator or arbitration panel, board or
governmental agency, initiated by or against it, or known by it to be threatened
against it or any of its directors, officers, employees or consultant in their
capacity as such.
5.7 No Other Negotiations. From the Effective Date until the earlier of
---------------------
the termination of this Agreement in accordance with Section 10 or the
consummation of the
25
<PAGE>
Exchange, Enterprise, its officers, directors and employees and the Enterprise
Shareholder will not, and will not authorize, encourage or permit, any officer,
director, employee or affiliate of Enterprise, or any other person, on its or
their behalf to, directly or indirectly, solicit or encourage any offer from any
party or consider any inquiries or proposals received from any other party,
participate in any negotiations regarding, or furnish to any person any
information with respect to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any person (other than NetSelect), concerning
any agreement or transaction regarding the possible disposition of all or any
substantial portion of the business, assets or capital stock of Enterprise by
merger, consolidation, reorganization, sale of assets, sale of stock, exchange,
tender offer or any other form of business combination ("Alternative
Transaction"). Enterprise will promptly notify NetSelect orally and in writing
of any such inquiries or proposals. In addition, neither Enterprise, nor the
Enterprise Shareholder, shall execute, enter into or become bound by (a) any
letter of intent or agreement or commitment between Enterprise and/or the
Enterprise Shareholder, on the one hand, and any third party, on the other hand,
that is related to an Alternative Transaction or (b) any agreement or commitment
between Enterprise and/or the Enterprise Shareholder, on the one hand, and a
third party, on the other hand, providing for an Alternative Transaction.
5.8 Access to Information. Until the Closing, Enterprise will allow
---------------------
NetSelect and its agents reasonable access to the files, books, records and
offices of Enterprise, including, without limitation, any and all information
relating to Enterprise's taxes, commitments, contracts, leases, licenses, and
real, personal and intangible property and financial condition, subject to the
terms of the Mutual Nondisclosure Agreement between Enterprise and RealSelect,
Inc. dated as of August 20, 1997 (the "Confidentiality Agreement"). Enterprise
will cause its accountants to reasonably cooperate with NetSelect and its agents
in making available all financial and tax information reasonably requested,
including, without limitation, the right to examine all working papers
pertaining to all financial statements and tax returns, prepared or audited by
such accountants.
5.9 Satisfaction of Conditions Precedent. Enterprise, and its directors
------------------------------------
and officers and the Enterprise Shareholder will use their respective best
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Section 9, and Enterprise, its directors and officers, and the
Enterprise Shareholder will use their respective best efforts to cause the
transactions contemplated by this Agreement to be consummated; and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on
Enterprise's part in order to effect the transactions contemplated hereby.
5.10 Securities Laws. Enterprise and the Enterprise Shareholder shall
---------------
each use all reasonable efforts to assist NetSelect to the extent necessary to
comply with the securities and Blue Sky laws of all jurisdictions which are
applicable in connection with the Exchange.
5.11 Termination of Registration and Voting Rights. All registration
---------------------------------------------
rights agreements and voting agreements applicable to or affecting any
outstanding shares or other securities of Enterprise (if any) shall be duly
terminated and canceled by no later than the Closing.
26
<PAGE>
5.12 Invention Assignment and Confidentiality Agreements. Enterprise
---------------------------------------------------
shall obtain, before the Closing or within ten (10) days thereafter, from each
employee, and consultant providing significant services to Enterprise who has
had access to any proprietary software, technology or copyrightable, patentable
or other proprietary works or intellectual property owned or developed by
Enterprise or other Intellectual Property Rights, or to any other confidential
or proprietary information of Enterprise or its clients, an invention assignment
and confidentiality agreement in substantially the form of the agreement
attached hereto as Exhibit 5.12, duly executed by such employee or consultant
------------
(unless, with respect to consultants, the written agreement between Enterprise
and the consultant provides for retention by the consultant of intellectual
property rights relating to inventions developed by consultant) and delivered to
Enterprise (with Enterprise as a beneficiary of such agreement).
5.13 Non-Competition and Non-Solicitation and Employment Agreements. The
--------------------------------------------------------------
Enterprise Shareholder shall execute and deliver to NetSelect at the Closing the
Non-Competition and Non-Solicitation Agreement in the form attached hereto as
Exhibit 9.8 (the "Non-Competition and Non-Solicitation Agreement") and an
- -----------
Employment Agreement in the form attached hereto as Exhibit 9.9A (the "Scommegna
------------
Employment Agreement"). The Scommegna Employment Agreement shall provide, among
other things, that the Enterprise Shareholder will initially have a title of
President of Realtor.com. Enterprise shall use its best efforts to cause Kevin
Malloy to execute and deliver to NetSelect at the Closing an Employment
Agreement (the "Malloy Employment Agreement") in the form attached hereto as
Exhibit 9.9B.
- ------------
5.14 Closing of Exchange. Enterprise and the Enterprise Shareholder shall
-------------------
not refuse to effect the Exchange if, on or before the Closing Date, all of the
conditions precedent to their obligations to effect the Exchange under Section 8
hereof have been satisfied, or in their sole discretion, waived by them.
5.15 Consultants to Become Employees. Enterprise and its officers shall
-------------------------------
use all reasonable efforts to cause those persons designated on Exhibit 5.15 to
------------
become employees of Enterprise at or prior to the Closing on terms and
conditions satisfactory to NetSelect.
5.16 Insurance.
---------
(a) Enterprise shall, if requested by NetSelect, cause the cancellation
of any outstanding life insurance policies on the life of the Enterprise
Shareholder; provided, however, that Enterprise may, before or after the
Closing, with the consent of NetSelect transfer to the Enterprise Shareholder
one or more life insurance policies with the Enterprise Shareholder as the
beneficiary. After the Closing, the Enterprise Shareholder shall cooperate with
NetSelect and Enterprise if NetSelect desires, at its expense, to acquire
additional or other insurance on the life of the Enterprise Shareholder.
5.17 Certain Indebtedness. On the date which is the earlier to occur of
--------------------
(i) the day before the closing of the initial public offering of equity
securities by NetSelect or (ii) December 31, 1998, Enterprise will forgive the
indebtedness owed by Roger Scommegna to Enterprise, evidenced by the written
materials (such as book entries, checks, etc.) delivered by Enterprise and/or
the Enterprise Shareholder to NetSelect before the Closing, which is reflected
in the
27
<PAGE>
Enterprise Financial Statements, with principal and accrued interest as of the
Closing Date equal to $300,000. At the time such indebtedness is forgiven, the
amount (reasonably determined by NetSelect) required to be withheld by
Enterprise (or other applicable entity) under applicable federal, state and
local tax laws and other required withholdings (e.g., social security, Medicare,
Medicaid, etc.) with respect to such forgiveness of indebtedness shall be paid
by Enterprise Shareholder by means of a reduction in the Additional Deferred
Amount. In addition, NetSelect agrees that after the Closing it shall forgive
the principal and accrued interest of indebtedness owed by a certain employee of
Enterprise, which is identified in the Schedule of Exceptions (Exhibit 3), in
---------
the approximate amount of $11,000 (with the precise amount of outstanding
principal and accrued interest to be specified in the document delivered by
Enterprise to NetSelect), less any required taxes and other withholdings as
described in the preceding sentence.
5.18. Tax Returns. As soon after the Closing as is practicable, NetSelect
-----------
shall cause Enterprise to make a closing of the books election under Section
1362(e)(3) of the Code as of the Closing Date. NetSelect and the Enterprise
Shareholder shall cooperate in good faith with respect to preparation of
Enterprise's federal and state tax returns (which returns shall be reasonably
satisfactory to the Enterprise Shareholder) for the short tax year ending on the
Closing Date (and any other tax returns filed by Enterprise with respect to
periods before the Closing Date), and the costs of preparing such returns
(including reasonable fees of NetSelect's auditors) shall be paid by the
Enterprise Shareholder, up to a maximum of $7,000. The tax returns filed for
periods prior to the Closing Date must be reasonably satisfactory to the
Enterprise Shareholder. For purposes of this Section 5.18, the term "tax
return" shall include any and all returns and amended returns for "taxes" (as
defined in Section 3.6).
6. NETSELECT COVENANTS
6.1 Terminating Covenants. During the period from the Effective Date
---------------------
until the earlier to occur of (i) the Closing or (ii) the termination of this
Agreement in accordance with Section 10, NetSelect covenants and agrees as
follows:
(a) NetSelect Financial Information. No later than one business day
-------------------------------
before the Closing, NetSelect will make available for inspection by Enterprise
and the Enterprise Shareholder true and complete copies of the NetSelect
Financial Information.
(b) Advice of Changes. NetSelect will use all reasonable efforts to
-----------------
promptly advise Enterprise in writing (i) of any event occurring subsequent to
the date of this Agreement that would render any representation or warranty of
NetSelect contained in this Agreement, if made on or as of the date of such
event or the Closing Date, untrue or inaccurate in any material respect and (ii)
of any material adverse change in NetSelect's business, results of operations or
financial condition.
(c) Regulatory Approvals. NetSelect will execute and file, or join in
--------------------
the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state or local, which may be reasonably required, in
connection with the consummation by NetSelect of the transactions
28
<PAGE>
contemplated by this Agreement in accordance with the terms of this Agreement.
NetSelect will use its best efforts to obtain all such authorizations, approvals
and consents.
(d) Satisfaction of Conditions Precedent. NetSelect will use its best
------------------------------------
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Section 8, and NetSelect will use its best efforts to cause the
transactions contemplated by this Agreement to be consummated in accordance with
the terms of this Agreement, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties that may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
(e) Securities Laws. NetSelect shall take such steps as may be necessary
---------------
to comply with the securities and Blue Sky laws of all jurisdictions which are
applicable in connection with the Exchange, with the cooperation and assistance
of Enterprise and the Enterprise Shareholder.
6.2 Continuing Covenants.
--------------------
(a) Financial Data. During the period that the Enterprise Shareholder is
--------------
employed pursuant to the Scommegna Employment Agreement, NetSelect covenants and
agrees to provide the Enterprise Shareholder with the same financial data of
NetSelect that is provided to executive officers of NetSelect, with the
exception of data provided to the Chief Executive Officer that is not provided
to other executive officers.
(b) Continued Operations in Milwaukee. As long as the Enterprise
---------------------------------
Shareholder is employed by Enterprise, NetSelect or RealSelect, Inc. pursuant to
the Scommegna Employment Agreement, NetSelect will cause Enterprise (and/or
successors to the business operations of Enterprise) to continue to maintain its
principal business office in Milwaukee, Wisconsin for at least four (4) years
from the Closing Date.
(c) Office Space and Resources for the Enterprise Shareholder. As long as
---------------------------------------------------------
the Enterprise Shareholder is an employee of Enterprise, NetSelect or
RealSelect, Inc. pursuant to the Scommegna Employment Agreement, NetSelect will
cause Enterprise (and/or successors to the business operations of Enterprise) to
provide the Enterprise Shareholder appropriate office space and resources to
perform his duties.
(d) Employee Benefits. As soon as practicable after the Effective Date,
-----------------
NetSelect and Enterprise shall confer and work in good faith to agree upon a
plan under which Enterprise employees will be covered either by (a) NetSelect's
employee benefits plans or (b) Enterprise's employee benefit plans, with such
decision to be made no later than six (6) months following the Closing, in a
manner that results in minimal disruption to the continuing operations of
Enterprise, and minimal cost to NetSelect.
6.3 Advice of Changes. NetSelect shall use all reasonable efforts to
-----------------
promptly advise Enterprise and the Enterprise Shareholder in writing (a) of any
event occurring after the Effective Date and before the Closing or termination
of this Agreement that would render any representation or warranty of NetSelect
contained in this Agreement, if made on or as of the date
29
<PAGE>
of such event or the Closing Date, untrue or inaccurate in any material respect
and (b) of any event that NetSelect believes will have a Material Adverse Effect
on NetSelect.
6.4 Satisfaction of Conditions Precedent. NetSelect, and its officers, and
------------------------------------
directors will use their respective best efforts to satisfy or cause to be
satisfied all the conditions precedent to NetSelect's obligation to consummate
the transactions contemplated hereby which are set forth in Section 8, and
NetSelect, its officers and directors, will use their respective reasonable best
efforts to cause the transactions contemplated by this agreement to be
consummated.
7. CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as provided in
-----------
Section 10 below, the closing of the transactions for consummation of the
Exchange (the "Closing") will take place at the offices of Fenwick & West LLP,
Two Palo Alto Square, Palo Alto, California 94306 on March 31, 1998 (with such
closing to be effective as of the close of business on such day) or on such
other date on or before the Termination Date (as defined in Section 10.1.2) as
NetSelect and Enterprise may mutually agree upon in writing after which the
satisfaction or waiver of the conditions to Closing set forth in Sections 8 and
9 hereof have been satisfied and/or waived in accordance with this Agreement
(the "Closing Date").
7.2 Exchanges at the Closing.
------------------------
7.2.1 At the Closing, (a) the Enterprise Certificates shall be
exchanged for the Exchange Shares as provided in Section 2 hereof and (b) the
Enterprise Shareholder shall be paid the amounts described in Section 2 hereof.
7.2.2 The Enterprise Shareholder understands and agrees that stop
transfer instructions will be given to NetSelect's transfer agent with respect
to certificates evidencing the Exchange Shares to assure compliance with the
provisions of the Investment Representation Letter and that there will be placed
on the certificates evidencing such Exchange Shares legends as specified in the
Investment Representation Letter.
7.2.3 After the Closing there will be no further registration of
transfers on the stock transfer books of Enterprise or its transfer agent of the
Enterprise Stock that was outstanding immediately prior to the Closing. If,
after the Closing, Enterprise Certificates are presented for any reason, they
will be canceled.
30
<PAGE>
8. CONDITIONS TO OBLIGATIONS OF ENTERPRISE AND THE ENTERPRISE SHAREHOLDER
The obligations of Enterprise and the Enterprise Shareholder to consummate
the Exchange are subject to the fulfillment or satisfaction, on and as of the
Closing, of each of the following conditions (any one or more of which may be
waived by Enterprise and the Enterprise Shareholder in their sole discretion,
but only in a writing signed by Enterprise and the Enterprise Shareholder):
8.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of NetSelect set forth in Section 4 (as qualified by the NetSelect
Schedule of Exceptions, if any) shall be true and accurate in every material
respect on and as of the Closing with the same force and effect as if they had
been made at the Closing, and Enterprise shall have received a certificate to
such effect executed by NetSelect's Chief Executive Officer or President.
8.2 Covenants. NetSelect shall have performed and complied in all
---------
material respects with all of its covenants contained in Section 6 on or before
the Closing, and Enterprise shall have received a certificate to such effect
signed by NetSelect's Chief Executive Officer or President.
8.3 Compliance with Law; No Legal Restraints. There shall not be
----------------------------------------
outstanding or threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action, proceeding or any judgment or ruling by any court, arbitrator,
governmental agency, authority or entity, or any other fact or circumstance
(other than any such matter initiated by Enterprise, its officers or directors
or the Enterprise Shareholder), that, directly or indirectly, challenges,
threatens, prohibits, enjoins, restrains, suspends, delays, conditions or
renders illegal or imposes limitations on (or is likely to result in a
challenge, threat to, or a prohibition, injunction, restraint, suspension, delay
or illegality of, or to impose limitations on): (i) the Exchange or any other
transaction contemplated by this Agreement; or (ii) NetSelect's payment for, or
acquisition or purchase of, some or all of the shares of Enterprise Stock or any
material part of the assets of Enterprise.
8.4 Government Consents. There shall have been obtained at or prior to
-------------------
the Closing Date such permits and/or authorizations, and there shall have been
taken such other action by any regulatory authority having jurisdiction over the
parties and the actions herein proposed to be taken, as may be required to
lawfully consummate the Exchange, including but not limited to requirements
under applicable U.S. securities and corporations laws.
8.5 Opinion of NetSelect's Counsel. Enterprise shall have received from
------------------------------
counsel to NetSelect, an opinion substantially in the form of Exhibit 8.5.
-----------
8.6 Documents. NetSelect shall have executed and delivered to Enterprise
---------
and/or the Enterprise Shareholder, as applicable, the NetSelect Ancillary
Agreements. Enterprise shall have received all written consents, assignments,
waivers, authorizations or other certificates reasonably deemed necessary by
Enterprise's legal counsel for Enterprise to lawfully consummate the
transactions contemplated hereby.
31
<PAGE>
8.7 No Litigation. No litigation or proceeding (other than any litigation
-------------
or proceeding initiated by Enterprise, any member of its Board of Directors, any
employee of Enterprise or the Enterprise Shareholder) shall be threatened or
pending for the purpose or with the probable effect of enjoining or preventing
the consummation of the Exchange or any of the other transactions contemplated
by this Agreement, or which could be reasonably expected to have a Material
Adverse Effect on NetSelect.
8.8 No Material Adverse Change. There shall not have been any Material
--------------------------
Adverse Effect in the financial condition, properties, assets, liabilities,
business, results of operations, operations or prospects of NetSelect, taken as
a whole.
8.9 Instructions to Transfer Agent; Deliveries. NetSelect shall have made
------------------------------------------
the deliveries contemplated by Section 2 hereof.
8.10 Satisfactory Form of Legal Matters. The form, scope and substance of
----------------------------------
all legal and accounting matters contemplated hereby and all closing documents
and other papers delivered hereunder shall be reasonably acceptable to
Enterprise's counsel.
8.11 Ancillary Agreements. NetSelect shall have delivered to Enterprise,
--------------------
the Enterprise Shareholder and Kevin Malloy, as applicable, fully executed
copies of each NetSelect Ancillary Agreement (including, without limitation, the
Employment Agreements described in Exhibits 9.9A and 9.9B).
------------- ----
9. CONDITIONS TO OBLIGATIONS OF NETSELECT
The obligations of NetSelect hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by NetSelect in its sole discretion, but only
in a writing signed by NetSelect):
9.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of Enterprise and the Enterprise Shareholder set forth in Section 3
(as qualified by the Enterprise Schedule of Exceptions) and in the Investment
Representation Letter shall each be true and accurate in every material respect
on and as of the Closing with the same force and effect as if they had been made
at the Closing, and NetSelect shall have received certificates to such effect
executed by Enterprise's President and by the Enterprise Shareholder.
9.2 Covenants. Enterprise and the Enterprise Shareholder shall have
---------
performed and complied in all material respects with all of their respective
covenants contained in Section 5 on or before the Closing, and NetSelect shall
have received certificates to such effect signed by Enterprise's President and
by the Enterprise Shareholder.
9.3 Compliance with Law; No Legal Restraints. There shall not be
----------------------------------------
outstanding or threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action, proceeding or any judgment or ruling by any court, arbitrator,
governmental agency, authority or entity, or any other fact or
32
<PAGE>
circumstance (other than any such matter initiated by NetSelect or its officers
or directors), that, directly or indirectly, challenges, threatens, prohibits,
enjoins, restrains, suspends, delays, conditions, or renders illegal or imposes
limitations on (or is likely to result in a challenge, threat to, or a
prohibition, injunction, restraint, suspension, delay or illegality of, or to
impose limitations on): (i) the Exchange or any other transaction contemplated
by this Agreement; (ii) NetSelect's payment for, or acquisition or purchase of,
some or all of the shares of Enterprise Stock or any material part of the assets
of Enterprise; (iii) the ownership or operation by NetSelect or Enterprise of
all or any material portion of the business or assets of Enterprise, including
(but not limited to) Enterprise's Intellectual Property Rights; or (iv)
NetSelect's ability to exercise full rights of ownership with respect to
Enterprise, and its respective assets and shares, including but not limited to
restrictions on NetSelect's ability to vote all the shares of Enterprise.
9.4 Government Consents. There shall have been obtained at or prior to
-------------------
the Closing Date such permits or authorizations from, and there shall have been
taken such other action, as may be required to lawfully consummate the Exchange
by, any governmental or regulatory authority having jurisdiction over any of the
parties and/or the actions herein proposed to be taken, including but not
limited to requirements under applicable U.S. and foreign securities and
corporate laws.
9.5 Opinion of Enterprise's Counsel. NetSelect shall have received from
-------------------------------
counsels to Enterprise, opinions in substantially the form of Exhibit 9.5.
-----------
9.6 Documents and Consents. Enterprise and the Enterprise Shareholder
----------------------
shall have executed and delivered to NetSelect all the Enterprise Ancillary
Agreements and all the Shareholder Ancillary Agreements, as applicable. The
Enterprise Shareholder shall have delivered to NetSelect Enterprise Certificates
representing one hundred percent (100%) of the outstanding shares of Enterprise
together with the other deliverables specified in Section 2.1 hereof. NetSelect
shall have received (or waived receipt of) duly executed copies of all third-
party consents, approvals, assignments, waivers, authorizations or other
certificates contemplated by this Agreement or the Enterprise Schedule of
Exceptions or reasonably deemed necessary by NetSelect's legal counsel to
provide for the continuation in full force and effect of any and all material
contracts, agreements and leases of Enterprise and the preservation of
Enterprise's IP Rights and other assets and properties and for NetSelect to
consummate the transactions contemplated hereby, in form and substance
reasonably satisfactory to NetSelect, except for such thereof (if any) as
NetSelect and Enterprise shall have agreed in writing need not be obtained.
9.7 No Litigation. No litigation or proceeding shall be threatened or
-------------
pending for the purpose or with the probable effect of enjoining or preventing
the consummation of the Exchange or any of the other transactions contemplated
by this Agreement, or which could be reasonably expected to have a Material
Adverse Effect on the present or future operations or financial condition of
Enterprise or NetSelect or which asserts that Enterprise's or NetSelect's or the
Enterprise Shareholder's negotiations regarding this Agreement, NetSelect's or
Enterprise's or the Enterprise Shareholder's entering into this Agreement or
Enterprise's or NetSelect's or the Enterprise Shareholder's consummation of the
Exchange or other transactions contemplated hereby, breaches or violates any
law, rule, order or judgment, or any agreement or commitment
33
<PAGE>
of Enterprise or the Enterprise Shareholder or constitutes tortious conduct on
the part of NetSelect, Enterprise or the Enterprise Shareholder.
9.8 Non-Competition and Non-Solicitation Agreement. NetSelect shall have
----------------------------------------------
received from the Enterprise Shareholder a fully executed copy of a Non-
Competition and Non-Solicitation Agreement in the form of Exhibit 9.8.
-----------
9.9 Employment Agreement. NetSelect shall have received from the
--------------------
Enterprise Shareholder and Kevin Malloy, a fully executed copy of an Employment
Agreement in the forms of Exhibits 9.9A and 9.9B, respectively.
----------------------
9.10 Appointment of New Directors and Officers. The directors and
-----------------------------------------
officers of Enterprise in office immediately prior to the Closing of the
Exchange shall have resigned effective as of the Closing, unless otherwise
directed by NetSelect.
9.11 No Material Adverse Effect. There shall not have been any Material
--------------------------
Adverse Effect as to Enterprise.
9.12 Satisfactory Form of Legal and Accounting Matters. The form, scope
-------------------------------------------------
and substance of all legal and accounting matters contemplated hereby and all
closing documents and other papers delivered hereunder shall be reasonably
acceptable to NetSelect's counsel and independent public accountants.
9.13 Closing Indebtedness. Each person entitled to receive payments of
--------------------
Closing Indebtedness shall have executed and delivered to NetSelect and
Enterprise instruments in form and substance reasonably satisfactory to counsel
for Enterprise and NetSelect, evidencing receipt of full payment for the Closing
Indebtedness owed to such person.
10. TERMINATION OF AGREEMENT
10.1 Prior to or at the Closing.
--------------------------
10.1.1 This Agreement may be terminated at any time prior to or at
the Closing by the mutual written consent of NetSelect and Enterprise, approved
by their respective Boards of Directors.
10.1.2 This Agreement may be terminated after the Termination Date,
as defined below, by NetSelect if the conditions precedent set forth in Section
9 shall have not been complied with, waived or performed and such noncompliance
or nonperformance shall not have been cured or eliminated (or by its nature
cannot be cured or eliminated) by Enterprise and/or the Enterprise Shareholder
on or before 11:59 p.m., Pacific Time on April 15, 1998 (the "Termination
Date").
10.1.3 This Agreement may be terminated after the Termination Date
by Enterprise and the Enterprise Shareholder if the conditions precedent set
forth in Section 8 shall
34
<PAGE>
have not been complied with, waived or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature cannot
be cured or eliminated) by NetSelect on or before the Termination Date.
10.1.4 NetSelect may terminate this Agreement at any time prior to
or at the Closing if any of the representations and warranties of Enterprise
and/or the Enterprise Shareholder in Section 3 of this Agreement were incorrect,
untrue or false in any material respect as of the Effective Date or are
incorrect, untrue or false in any material respect as of the proposed Closing
Date or Enterprise and/or the Enterprise Shareholder have materially breached
any of their respective covenants under Section 5 of this Agreement, and
Enterprise and/or the Enterprise Shareholder have not cured such breach prior to
the earlier of (i) the Closing, (ii) thirty (30) days after NetSelect has given
Enterprise written notice of its intention to terminate this Agreement pursuant
to this subsection or (iii) the Termination Date.
10.1.5 Enterprise and the Enterprise Shareholder may terminate this
Agreement at any time prior to or at the Closing if any of the representations
and warranties of NetSelect in Section 4 of this Agreement were incorrect,
untrue or false in any material respect as of the Effective Date or are
incorrect, untrue or false in any material respect as of the proposed Closing
Date or NetSelect has materially breached any of its covenants under Section 6
of this Agreement, and NetSelect has not cured such breach prior to the earlier
of (i) the Closing, (ii) thirty (30) days after Enterprise and the Enterprise
Shareholder have given NetSelect written notice of their intention to terminate
this Agreement pursuant to this subsection or (iii) the Termination Date.
Any termination of this Agreement under this Section 10 will be effective
by the delivery of notice of the terminating party to the other party hereto.
10.2 No Liability for Proper Termination. Any termination of this
-----------------------------------
Agreement in accordance with this Section 10 will be without further obligation
or liability upon any party in favor of the other party hereto or to its
stockholders, directors or officers, other than the obligations provided in the
Confidentiality Agreement; provided, however, that nothing herein will limit the
-------- -------
obligation of Enterprise, the Enterprise Shareholder and NetSelect for any
willful breach hereof or failure to use their best efforts to cause the Exchange
to be consummated, as set forth in Sections 5.9 and 6.1(c) hereof, respectively.
In the event of the termination of this Agreement pursuant to this Section 10,
this Agreement shall thereafter become void and have no effect and each party
shall be responsible for its own expenses incurred in connection herewith.
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
11.1 Survival of Representations. All representations, warranties and
---------------------------
covenants of (i) Enterprise and the Enterprise Shareholder and (ii) NetSelect,
contained in this Agreement will remain operative and in full force and effect,
regardless of any investigation made by or on behalf of NetSelect, until that
date which is the earlier of (iii) the termination of this Agreement or (iv)
three (3) years after the Closing Date, except that the representations and
warranties of
35
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Enterprise and the Enterprise Shareholder in Section 3.6 of this Agreement shall
survive until the expiration of the applicable statute of limitations (including
extensions) ("Release Date").
11.2 Agreement to Indemnify. (a) Subject to the limitations set forth in
----------------------
Section 11.3 below, the Enterprise Shareholder agrees to indemnify and hold
harmless NetSelect and its officers, directors, agents, stockholders and
employees, and each person, if any, who controls or may control NetSelect within
the meaning of the 1933 Act (such persons, together with persons entitled to
indemnity under paragraph (b) below, as applicable in context, referred to
individually as an "Indemnified Person" and collectively as "Indemnified
Persons") from and against any and all claims, demands, suits, actions, causes
of actions, losses, costs, damages, liabilities and expenses including, without
limitation, reasonable attorneys' fees, other professionals' and experts'
reasonable fees and court or arbitration costs (hereinafter collectively
referred to as "Damages") incurred and arising out of any inaccuracy,
misrepresentation, breach of, or default in, any of the representations,
warranties or covenants given or made by Enterprise and/or the Enterprise
Shareholder in this Agreement or in the Enterprise Schedule of Exceptions or in
any certificate delivered by or on behalf of Enterprise pursuant hereto (if such
inaccuracy, misrepresentation, breach or default existed at the Closing Date).
Any Damages asserted by an Indemnified Person shall be adjusted to reflect the
Tax Benefit to such Indemnified Person resulting from the payment of such
amount, and the amount of Damages for purposes of indemnification payments
hereunder shall be so adjusted. For these purposes, "Tax Benefit" shall mean
the actual reduction in federal and state taxes (as defined in Section 3.6) paid
(determined, if the Indemnified Person is a member of a group with NetSelect
that reports its taxes on a consolidated basis, on a consolidated basis) which
does or will result from the appropriate tax treatment (as reasonably determined
by the Indemnified Person) of such payment of the item of Damage as a deduction
(whether immediate or through depreciation/amortization or otherwise) or credit
and, in the case of any determinable actual future Tax Benefit (i.e., a Tax
Benefit which will not be realized for the tax year such indemnification payment
is made), such amount shall be discounted to its present value using a discount
rate equal to the Prime Rate as published in The Wall Street Journal as of the
date of satisfaction of the claim. Any claim of indemnity made by an
Indemnified Person under this Section 11.2 must be asserted no later than the
Release Date. An Indemnified Person may not make a claim for indemnification
pursuant to Section 11 unless, at the time such assertion of a claim is made,
the Indemnified Person has a good faith basis for assertion of the claim.
(b) NetSelect agrees to indemnify and hold harmless the Enterprise
Shareholder from and against any and all Damages incurred and arising out of any
inaccuracy, misrepresentation, breach of, or default in, any of the
representations, warranties or covenants given or made by NetSelect in this
Agreement or in the NetSelect Schedule of Exceptions or in any certificate
delivered by or on behalf of NetSelect pursuant hereto (if such inaccuracy,
misrepresentation, breach or default existed at the Closing Date). Any Damages
asserted by the Enterprise Shareholder shall be adjusted (as set forth above) to
reflect the Tax Benefit (as set forth above) to the Enterprise Shareholder
resulting from the payment of such amount, and the amount of Damages for
purposes of indemnification payments hereunder shall be so adjusted.
11.3 Limitation. (a) Except as provided herein, the Enterprise
----------
Shareholder's indemnification liability under Section 11.2 shall be satisfied
by, and shall be limited to,
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withholding and offsetting that portion of the purchase price for the Enterprise
Stock as is represented by the cash payments that are payable (but not payments
already made) by NetSelect pursuant to this Agreement after the Closing Date
evidenced by the Note and the payments pursuant to the Earn-Out pursuant to this
Agreement (such payments referred to as the "Payments"), and such amounts shall
be the exclusive remedies of NetSelect and the other Indemnified Persons under
this Agreement or in any cause of action based thereon (subject to the
exceptions in the last sentence of this Section) against the Enterprise
Shareholder for any inaccuracy, misrepresentation, breach of, or default in, any
of the representations, warranties or covenants given or made by Enterprise or
the Enterprise Shareholder in this Agreement or in any certificate, document or
instrument delivered by or on behalf of Enterprise pursuant hereto or in any
cause of action based thereon (subject to the exceptions in the last sentence of
this Section). In no event, however, shall any portion of the Additional
Deferred Amount be subject to the provisions of this Section 11 or otherwise
available to satisfy the Enterprise Shareholder's indemnification obligations
hereunder. If NetSelect has made a payment pursuant to the Note or the Earn-Out,
then once such payment is made the amount of such payment shall no longer be
considered to be included in the Payments and shall not be available to satisfy
the Enterprise Shareholder's indemnity obligations hereunder (subject to the
exceptions in the last sentence of this Section). Amounts that are unpaid under
the Note because of nonpayment constituting a material breach by NetSelect of
provisions of the Note shall not be considered to be amounts available to
satisfy the Enterprise Shareholder's indemnification obligations hereunder
(subject to the exceptions in the last sentence of this Section). If an
Indemnified Person becomes entitled to indemnity under this Section 11 for
amounts in excess of the amounts then-represented by amounts remaining to be
paid pursuant to the Note, but no amounts are then-owed pursuant to the Earn-
Out, then the person obligated to provide indemnity under this Section 11 (an
"Indemnitor") shall be obligated to make additional indemnity payments only at
such time, if any, as amounts become due and payable pursuant to the Earn-Out,
and in such event only to the extent of such Payments (subject to the exceptions
in the last sentence of this Section). In addition, the other provisions of
Section 11 notwithstanding, if the aggregate Damages for which one or more
Indemnified Persons seeks or has sought indemnification against the Enterprise
Shareholder hereunder exceeds a cumulative aggregate of Fifty Thousand Dollars
($50,000) (the "Basket"), then (i) the Enterprise Shareholder shall be liable to
indemnify the Indemnified Persons for only Damages in excess of the Basket and
(ii) NetSelect shall be entitled to withhold, forgo and offset against such
amount any of the Payments that would otherwise be owed by NetSelect to the
Enterprise Shareholder. The limitations on the indemnification obligations set
forth in this Section shall not be applicable to (aa) Misconduct Damages (as
---
defined below), (bb) Damages resulting from breach of the representations and
warranties set forth in Section 3.6 of this Agreement and (cc) Damages incurred
and arising out of any inaccuracy, misrepresentation, breach of, or default in,
the representations and warranties set forth in Sections 3.1, 3.2, 3.3 and 3.8.
As used herein, "Misconduct Damages" means Damages resulting from fraudulent
conduct of Enterprise or the Enterprise Shareholder.
(b) Except as provided herein, NetSelect shall not have any liability to
the Enterprise Shareholder under Section 11.2 of this Agreement in excess of the
Payments, and such amounts shall be the exclusive remedies of the Enterprise
Shareholder under this Agreement or in any cause of action based thereon (except
for Damages resulting from fraudulent conduct of NetSelect) against NetSelect
for any inaccuracy, misrepresentation, breach
37
<PAGE>
of, or default in, any of the representations, warranties or covenants given or
made by NetSelect in this Agreement or in any certificate, document or
instrument delivered by or on behalf of NetSelect pursuant hereto or in any
cause of action based thereon (except for Damages resulting from fraudulent
conduct of NetSelect). In addition, the other provisions of Section 11
notwithstanding, if the aggregate Damages for which the Enterprise Shareholder
seeks or has sought indemnification against NetSelect hereunder exceeds the
Basket, then NetSelect shall be liable to indemnify the Enterprise Shareholder
for only Damages in excess of the Basket.
11.4 Notice. Promptly after an Indemnified Person becomes aware of the
------
existence of any claim by an Indemnified Person for indemnity from an Indemnitor
based on any action, suit or proceeding commenced by a third party, the
Indemnified Person will notify the Indemnitor of such potential claim (in the
case of third party claims, such notice shall in any event be given within
twenty (20) days of filing or assertion of any claim against the person claiming
indemnification, stating the nature and basis of such claim) and will, to the
extent that it can reasonably do so without materially impairing its ability to
adequately defend and respond to any such claim, permit the Indemnitor the
option to assume the defense of such claim. The Indemnified Person will
cooperate with the Indemnitor in obtaining copies of any records or other
information which is relevant to the defense of such claim. Delay in giving
such notice shall not affect any rights or remedies of an Indemnified Person or
the Indemnitor hereunder with respect to indemnification for Damages unless such
delay renders the Indemnified Person or the Indemnitor unable to defend the
claim. If the Indemnitor shall assume the defense of a claim, it shall promptly
notify the other parties that it has elected to assume such defense, and shall
have the right and obligation (i) to conduct any proceedings or negotiations in
connection therewith and necessary or appropriate to defend the indemnified
person, (ii) to take all other required steps or proceedings to settle or defend
any such claims and (iii) to employ counsel reasonably satisfactory to the
Indemnified Person to contest any such claim or liability in the name of the
Indemnified Person or otherwise. If and only if the Indemnitor shall not assume
the defense of any such claim, the Indemnified Person may defend against any
such claim or litigation in such manner as it may deem appropriate and the
Indemnified Person may settle such claim or litigation on such terms as it may
deem appropriate. In addition to the foregoing, the Indemnified Person shall
have the right to participate (at its own expense and with counsel of its
choice) in the defense, compromise or settlement of the action, suit,
proceeding, claim or demand. The Indemnitor will not compromise or settle any
such action, suit, proceeding, claim or demand without the prior written consent
of the Indemnified Person, which consent will not be unreasonably withheld or
delayed. So long as the Indemnitor is defending in good faith any such action,
suit, proceeding, claim or demand asserted by a third party against the
Indemnified Person, the Indemnified Person shall not settle or compromise such
action, suit, proceeding, claim or demand without the prior written consent of
the Indemnitor, which consent will not be unreasonably withheld or delayed. If
the Indemnitor shall fail to promptly and adequately defend any such action,
suit, proceeding, claim or demand, or if the Indemnified Person has been advised
by counsel that there may be additional or different defenses available to the
Indemnified Person or that a conflict of interest may exist between Indemnitor
and the Indemnified Person, then the Indemnified Person may defend, through
counsel of its own choosing, such action, suit, proceeding, claim or demand and
(so long as the Indemnified Person gives Indemnitor at least ten (10) days
notice of the terms of the proposed settlement thereof and permits the
Indemnitor to then undertake the defense thereof if the Indemnitor objects to
the proposed settlement) to settle
38
<PAGE>
such action, suit, proceeding, claim or demand and to recover from the
Indemnitor the amount of any resulting Damages, with the attorney's fees and
expenses of counsel to the Indemnified Person to be paid by the Indemnitor.
11.5 Further Procedures. (a) If an Indemnified Person intends to assert
------------------
a claim for indemnification, it must first notify the Indemnitor in writing. If
the Indemnitor disputes the claim, it shall deliver a notice of dispute within
30 days of the date on which the Indemified Person's notice was delivered, and
the dispute ("Dispute") shall be resolved by binding arbitration in Los Angeles,
California, under the commercial arbitration rules of the American Arbitration
Association ("AAA") (subject to the provisions set forth below) (and, if AAA is
unable or unwilling to resolve the Dispute as provided below, then under the
auspices of Judicial Arbitration and Mediation Services, Inc.). Any judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction over the subject matter thereof. The arbitrators shall have the
authority to grant any equitable and legal remedies that could be available in
any judicial proceeding instituted to resolve a Dispute. The parties shall use
their best efforts to select an arbitrator within 30 days and to resolve the
Dispute within 60 days.
(b) Each party shall select one arbitrator, and the two arbitrators
so selected shall appoint the third arbitrator. The parties shall each pay one-
half of the costs of the arbitrators. The arbitrators shall be compensated at a
rate to be determined by the parties or by AAA, but based upon reasonable hourly
or daily consulting rates for the arbitrators in the event the parties are not
able to agree upon rates of compensation.
(c) Enterprise Shareholder and NetSelect will each pay 50% of the
initial compensation to be paid to the arbitrators in any such arbitration and
50% of the costs of transcripts and other normal and regular expenses of the
arbitration proceedings. The parties shall pay their own attorneys' fees and
costs.
(d) For any Dispute submitted to arbitration, the burden of proof
will be as it could be if the claim were litigated in a judicial proceeding.
(e) Upon the conclusion of any arbitration proceedings hereunder,
the arbitrators will render findings of fact and conclusions of law and a
written opinion setting forth the basis and reasons for any decision reached and
will deliver such documents to each party to this Agreement along with a signed
copy of the award.
(f) The arbitrators chosen in accordance with these provisions will
not have the power to alter, amend or otherwise affect the terms of these
arbitration provisions or the provisions of this Agreement.
12. INCIDENTAL REGISTRATION RIGHTS
12.1 Definitions. For the purposes of this Section 12, the following
-----------
words shall have the meanings set forth below:
(a) An "Affiliate" of any Person is any other Person which controls,
---------
is controlled by or is under common control with such Person.
39
<PAGE>
(b) "Corporation" shall mean NetSelect.
-----------
(c) "Person" includes an individual, partnership, trust, corporation,
------
limited liability company, joint venture, association, government, government
bureau or agency or other entity of whatsoever kind or nature.
(d) The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act.
(e) "Registrable Stock" means (x) the shares of NetSelect Class A
-----------------
Common Stock issued pursuant to this Agreement or upon exercise of the stock
options referenced in the Employment Agreements and held by the Enterprise
Shareholder, Kevin Malloy or Cleary; and (y) any shares issued or issuable with
respect to the securities identified in clause (x) above by reason of a stock
dividend or stock split or in connection with a combination of shares of Class A
Common Stock, merger, consolidation or other reorganization. Each share of
Registrable Stock shall cease to be Registrable Stock when transferred to any
person who is not Affiliated with a holder or transferred pursuant to a
registered public offering or pursuant to Rule 144 promulgated by the Securities
and Exchange Commission (the "Commission") under the 1933 Act.
(f) "Short-Form Registration Statement" means a registration
---------------------------------
statement on Form S-3 or any similar form of registration statement adopted by
the Commission from and after the date hereof.
12.2 Incidental Registration.
-----------------------
(a) If the Corporation at any time proposes to register on a firmly
underwritten public offering basis any of its shares of Class A Common Stock to
be offered for cash for its own account pursuant thereto (other than a
registration requested pursuant to registration rights held by other
shareholders), it shall give written notice (the "Corporation's Notice"), at its
expense, to all holders of Registrable Stock of its intention to do so at least
15 days prior to the filing of a registration statement with respect to such
registration with the Commission. If any holder of Registrable Stock desires to
dispose of all or part of such stock, it may request registration thereof in
connection with the Corporation's registration by delivering to the Corporation,
within ten days after receipt of the Corporation's Notice, written notice of
such request (the "Holder's Notice") stating the number of shares of Registrable
Stock to be disposed. The Corporation shall use its best efforts to cause all
shares of Class A Common Stock specified in the Holder's Notice to be registered
under the 1933 Act so as to permit the sale or other disposition by such holder
or holders of the shares so registered, subject however, to the limitations set
forth in Section 12.3 hereof.
(b) Notwithstanding anything to the contrary contained in this
Section 12.2, no person (as defined, for these purposes, in Rule 144(a)(2) of
the Commission under the 1933 Act) who then beneficially owns one percent (1%)
or less of the outstanding shares of the Class A Common Stock (including the
Registrable Stock) may request that any of its shares of Registrable Stock be
included in any registration statement filed by the Corporation pursuant to this
Section 12.2 unless, in the opinion of counsel for such person, such person's
intended
40
<PAGE>
disposition of Registrable Stock could not be effected within 90 days of the
date of said opinion without registration of such shares under the Securities
Act (assuming, for this purpose, that if "current public information" (as
defined in Rule 144 (c) of the Commission under the 1933 Act) is available with
respect to the Corporation as of the date of such opinion, it will remain so
available for such 90-day period).
Section 12.3 Limitations on Incidental Registration.
--------------------------------------
(a) The Corporation shall have the right to limit the aggregate size
of the offering or the number of shares of Registrable Stock to be included
therein by stockholders of the Corporation if requested to do so in writing and
good faith by the managing underwriter or agent of the offering. Only
securities which are to be included in the underwriting may be included in the
registration. NetSelect shall deliver a copy of such written request to the
Enterprise Shareholder.
(b) Whenever the number of shares of Registrable Stock which may be
registered pursuant to Section 12.2 is limited by the provisions of Section
12.3(a) hereof, the Corporation will include in such registration, (i) first,
the securities the Corporation proposes to sell, (ii) second, the shares of
Registrable Stock requested to be sold by the holders of Registrable Stock and
other shares of NetSelect Common Stock requested to be included in the
registration by stockholders of the Corporation who have the contractual right
to include all or a portion of their shares in the registration, on a pro rata
basis, and (iii) third, any other securities of the Corporation requested to be
included in such registration on a pro rata basis; provided, that, if, at level
--------
(ii) above, any such holder would thus be entitled to include more shares than
such holder requested to be registered, the excess will be allocated among the
other requesting holders pro rata based upon the number of shares owned by such
--- ----
holders of Registrable Stock and other stockholders.
(c) Notwithstanding anything to the contrary contained in this
Section, the Corporation may decide, in its sole and absolute discretion, not to
proceed with or to discontinue any registration commenced or proposed to be
commenced under Section 12.2 hereof.
12.4 Registration Procedures.
-----------------------
(a) If and when the Corporation is required by the provisions of this
Agreement to use its best efforts to effect the registration of shares of
Registrable Stock, the Corporation shall:
(1) furnish to each holder of shares of Registrable Stock selling
shares in the registration (a "Prospective Seller") such number of copies of
each prospectus, including preliminary prospectuses, in conformity with the
requirements of the 1933 Act, and such other documents, as the Prospective
Seller may reasonably request in order to facilitate the public sale or other
disposition of the shares of Registrable Stock owned by it;
(2) if requested by a Prospective Seller, use its best efforts to
register or qualify the shares of Registrable Stock covered by such registration
statement under the applicable securities or blue sky laws of such jurisdictions
as the Prospective Seller reasonably
41
<PAGE>
requests and take such other similar actions that the Prospective Seller
reasonably requests to qualify the disposition of such Registerable Stock under
the laws of such jurisdiction;
(3) if the registration is underwritten, furnish to each
Prospective Seller a copy of a "comfort" letter addressed to the Corporation and
the underwriter, if any, of the Prospective Sellers, signed by the independent
public accountants who have certified the Corporation's financial statements
included in the registration statement; covering substantially the same matters
with respect to the registration statement (and the prospectus included therein)
and (in the case of the accountants' letter) with respect to the events
subsequent to the date of the financial statements, as are customarily covered
(at the time of such registration) in accountants' letters delivered to the
underwriters in connection with underwritten public offerings of securities; and
(4) use its best efforts to cause all such Registrable Stock to
be listed on each securities exchange on which similar securities issued by the
Corporation are then listed.
(b) Each Prospective Seller of Registrable Stock shall furnish to the
Corporation in writing such information as the Corporation may reasonably
require from the Prospective Seller for inclusion in the registration statement
(and the prospectus included therein).
(c) The Prospective Sellers shall not (until further notice) effect
sales of the shares of Registrable Stock covered by the registration statement
after receipt of telegraphic or written notice from the Corporation to suspend
sales to permit the Corporation to correct or update a registration statement or
prospectus.
12.5 Expenses of Registration. All expenses incurred in effecting any
------------------------
registration requested pursuant to Section 12.2 hereof, including, without
limitation, all registration and filing fees, printing expenses, expenses of
compliance with blue sky laws, fees and disbursements of counsel for the
Corporation, and expenses of any audits incidental to or required by any each
registration ("Registration Expenses") shall be borne by the Corporation;
provided that each Prospective Seller shall bear its own legal expenses (if it
- --------
retains separate counsel) and all underwriting discounts or brokerage fees or
commissions relating to the sale of its Registrable Stock.
12.6 Indemnification and Contribution. (a) The Corporation shall
--------------------------------
indemnify each Stockholder who sells Registrable Stock in a registration
("Selling Stockholder") (and each person, if any, who controls such Selling
Stockholder) against all claims, losses, damages, expenses and liabilities
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
incident to the offering, or any omission (or alleged omission) to state a
material fact required to be stated or necessary to make the statements
contained in any such document not misleading, or any violation by the
Corporation of any rule or regulation promulgated under the 1933 Act applicable
to the Corporation, and shall reimburse such Selling Stockholder (and each
person, if any, who controls such selling Stockholder) for any legal and any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action; provided, however, that the
-------- -------
Corporation shall not be liable to the extent that any claim,
42
<PAGE>
loss, damage, expense or liability arises out of or is based on any untrue
statement or omission based upon written information furnished to the
Corporation by such Selling Stockholder specifically for use in such document.
(b) Each Selling Stockholder shall indemnify the Corporation and its
officers and directors against all claims, losses, damages, expenses and
liabilities arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document incident to the offering or any omission (or alleged omission) to
state a material fact required to be stated or necessary to make the statements
contained in any such document not misleading, and shall reimburse the
Corporation and its officers and directors for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, expense, liability or action; provided, however, that such
-------- -------
statement or omission was made in reliance upon and in conformity with
information furnished to the Corporation in writing by such Selling Stockholder
specifically for use in such document. In no event shall the liability of a
Selling Stockholder exceed the net amount received by such Selling Stockholder
upon the sale of Registrable Stock pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 12, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided,
--------
however, that the failure of any indemnified party to give notice as provided
- -------
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 12, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties is reasonably likely to exist in respect of
such claim, the indemnifying party shall be entitled to participate in and, to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties arises in respect of such claim after the
assumption of the defense thereof and the indemnified party notifies the
indemnifying party of such indemnified party's judgment and the basis therefor.
No indemnifying party shall be liable for any settlement of any action or
proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation.
(d) If the indemnification provided for in this Section 12.6 is held
to be unavailable by a court of competent jurisdiction to an indemnified party
in respect of any claims, losses, damages, expenses or liabilities referred to
herein, then each applicable indemnifying
43
<PAGE>
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such claims,
losses, damages, expenses or liabilities in such proportion as is appropriate to
reflect the relative fault of the Corporation, on the one hand, and the Selling
Stockholder, on the other hand, in connection with the statements or omissions
which resulted in such claims, losses, damages, expenses or liabilities, as well
as any other relative equitable considerations. The relative fault of the
Corporation, on the one hand, and of such Selling Stockholder, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Corporation, on the one hand, or by such Selling Stockholder, on the other hand,
and the party's relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the claims, losses, damages, expenses and
liabilities referred to above shall be deemed to include any legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any such action or claim. The Corporation and Stockholders agree
that it would not be just and equitable if contribution pursuant to this Section
12.6(c) were determined by pro rata allocation or by any other method of
--- ----
allocation that does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this Section 12.6(c), no Selling
Stockholder shall be required to contribute any amount in excess of the amount
by which the net price at which the shares of Registrable Stock sold by such
Selling Stockholder and distributed to the public or offered to the public
exceeds the amount of any damages which such Selling Stockholder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
13. MISCELLANEOUS
13.1 Governing Law; Consent to Jurisdiction. The laws of the State of
--------------------------------------
California (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
Each party to this Agreement hereby consents to exclusive personal jurisdiction
and venue of the federal and state courts for Los Angeles, California, and
agrees that service of process in any such action may be made in the manner
provided in this Agreement for the delivery of notices.
13.2 Assignment; Binding Upon Successors and Assigns. Neither party
-----------------------------------------------
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other party hereto, except that NetSelect may assign its
respective rights and/or obligations to any wholly-owned subsidiary of
NetSelect; and except that after the Closing, NetSelect may assign its rights
and obligations hereunder without the prior written consent of Enterprise or the
Enterprise Shareholder in connection with a merger, consolidation or sale of all
or substantially all of NetSelect's assets, provided that the acquiring or
surviving corporation agrees to assume all of NetSelect's obligations under this
Agreement. This Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
44
<PAGE>
13.3 Severability. If any provision of this Agreement, or the application
------------
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
13.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
both parties reflected hereon as signatories.
13.5 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
13.6 Amendment and Waivers. Any term or provision of this Agreement may
---------------------
be amended prior to the Closing by the written consent of NetSelect, Enterprise
and the Enterprise Shareholder, and, after the Closing by NetSelect and the
Enterprise Shareholder (or their successors in interest). The observance of any
term, condition or provision of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only by a
writing signed by the party to be bound thereby or for whose benefit such
condition was provided. The waiver by a party of any breach hereof or default
in the performance hereof will not be deemed to constitute a waiver of any other
default or any succeeding breach or default. In addition, at any time prior to
the Closing, the Enterprise Shareholder and each of Enterprise and NetSelect (by
action taken by its respective Board of Directors) may, to the extent legally
allowed: (i) extend the time for the performance of any of the obligations or
other acts of the other; (ii) waive any inaccuracies in the representations and
warranties made to it contained herein or in any document delivered pursuant
hereto; and (iii) waive compliance with any of the agreements or conditions for
its benefit contained herein. No such waiver or extension shall be effective
unless signed in writing by the party against whom such waiver or extension is
asserted. The failure of any party to enforce any of the provisions hereof will
not be construed to be a waiver of the right of such party thereafter to enforce
such provisions or any other provisions.
13.7 Expenses. Each party will bear its respective expenses and legal
--------
fees incurred with respect to this Agreement, and the transactions contemplated
hereby; provided, however, that the Enterprise Shareholder shall pay all of the
-------- -------
expenses and legal, accounting and other fees incurred by Enterprise with
respect to this Agreement and transactions contemplated hereby.
13.8 Attorneys' Fees. Should suit be brought to enforce or interpret any
---------------
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including, without limitation,
45
<PAGE>
costs, expenses and fees on any appeal). The prevailing party will be entitled
to recover its costs of suit, regardless of whether such suit proceeds to final
judgment.
13.9 Notices. All notices and other communications required or permitted
-------
under this Agreement will be in writing and will be either hand delivered in
person, sent by telecopier, sent by certified or registered first class mail,
postage pre-paid, or sent by nationally recognized express courier service.
Such notices and other communications will be effective upon receipt if hand
delivered or sent by telecopier, five (5) days after mailing if sent by mail,
and one (l) day after dispatch if sent by express courier, to the following
addresses, or to such other addresses or fax number as any party may notify the
other parties in accordance with this Section:
(i) If to NetSelect:
NetSelect, Inc.
5655 Lindero Canyon Road, Suite 120
Westlake Village, CA 91362
Attention: Stuart Wolff, Chairman and Chief Executive Officer
with a copy to:
Mark Stevens, Esq.
Fenwick & West LLP
Two Palo Alto Square, Suite 800
Palo Alto, CA 94306
Fax Number: (415) 494-1417
(ii) If to Enterprise:
The Enterprise of America, Ltd.
823 South 60/th/ Street
Milwaukee, WI 53214
Attention: Roger Scommegna, President
with a copy to:
John C. Vitek, Esq.
Beck, Chaet, Molony & Bamberger, S.C.
Two Plaza East, Suite 1085
330 East Kilbourn Avenue
Milwaukee, WI 53202
Fax Number: (414) 273-7786
with a copy to:
Craig H. Zetley, Esq.
46
<PAGE>
Zetley & Cohn, S.C.
324 East Wisconsin Avenue
Suite 1400
Milwaukee, WI 53202
Fax Number: (414) 272-1435
(iii) If to Enterprise Shareholder:
Roger Scommegna
20740 Lincolnshire Court
Brookfield, WI 53005
with a copy to:
John C. Vitek, Esq.
Beck, Chaet, Molony & Bamberger, S.C.
Two Plaza East, Suite 1085
330 East Kilbourn Avenue
Milwaukee, WI 53202
Fax Number: (414) 273-7786
with a copy to:
Craig H. Zetley, Esq.
Zetley & Cohn, S.C.
324 East Wisconsin Avenue
Suite 1400
Milwaukee, WI 53202
Fax Number: (414) 272-1435
13.10 Construction of Agreement. This Agreement has been negotiated by
-------------------------
the respective parties hereto and their attorneys and the language hereof will
not be construed for or against either party. A reference to a Section or an
exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
13.11 No Joint Venture. Nothing contained in this Agreement will be
----------------
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other party and their
status is, and at all times will continue to be, that of independent contractors
with respect to each other. No party will have any power or authority to bind
or commit any other. No party will hold itself out as having any authority or
relationship in contravention of this Section.
47
<PAGE>
13.12 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
13.13 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner, employee, agent, consultant or any
party hereto or any other person or entity unless specifically provided
otherwise herein, and, except as so provided, all provisions hereof will be
personal solely between the parties to this Agreement.
13.14 Confidentiality. Enterprise, the Enterprise Shareholder, and
---------------
NetSelect each confirm that they have entered into the Confidentiality Agreement
and that they are each bound by, and will abide by, the provisions of such
Confidentiality Agreement (except that NetSelect will cease to be bound by the
Confidentiality Agreement after the Exchange becomes effective). If this
Agreement is terminated, all copies of documents containing confidential
information of a disclosing party shall be returned by the receiving party to
the disclosing party or be destroyed, as provided in the Confidentiality
Agreement.
13.15 Entire Agreement. This Agreement and the exhibits hereto constitute
----------------
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto other than the Confidentiality
Agreement. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
13.16 Withholding. All amounts payable to the Enterprise Shareholder
-----------
hereunder shall be reduced by all federal, state, local and other withholding,
employment and similar taxes and payments on such amounts (e.g., if required,
social security, Medicare, Medicaid, etc.) that NetSelect determines in good
faith are required by applicable law. In connection herewith, the parties
acknowledge that payments and deliveries to the Enterprise Shareholder pursuant
to Section 2 of this Agreement are intended as consideration in exchange for the
transfer of the Enterprise Stock. The parties agree to report the transactions
contemplated under this Agreement consistent with that understanding and will
not take an inconsistent position in connection therewith in connection with any
tax filing or reporting.
[Remainder of Page Intentionally Left Blank]
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
NETSELECT, INC. THE ENTERPRISE OF AMERICA, LTD.
a Delaware corporation a Wisconsin corporation
By: /s/ Stuart Wolff By: /s/ Roger Scommegna
--------------------------------- ----------------------------------
Stuart Wolff Roger Scommegna, President
Chairman and Chief Executive Officer
ENTERPRISE SHAREHOLDER
ROGER SCOMMEGNA
/s/ Roger Scommegna
-------------------------------------
Roger Scommegna, individually
[SIGNATURE PAGE TO EXCHANGE AGREEMENT]
49
<PAGE>
LIST OF EXHIBITS
<TABLE>
<C> <S>
Exhibit 1.4 Enterprise Print Business
Exhibit A Enterprise Shareholder
Exhibit 2(a) Note
Exhibit 2(b) Security Agreement
Exhibit 2(c) Enterprise's Obligations to the Scommegnas
Exhibit 2.4A Investment Representation Letter (Enterprise Shareholder)
Exhibit 2.4B Investment Representation Letter (Cleary)
Exhibit 2.5 Put Option Agreement
Exhibit 3 Enterprise Schedule of Exceptions
Exhibit 3.7 Enterprise Financial Statements
Exhibit 3.10 Contracts and Commitments of Enterprise
Exhibit 3.12 Enterprise IP Rights
Exhibit 3.12.4 Enterprise Employee Invention and Proprietary Information
Agreements
Exhibit 3.15.1 List of Enterprise Employees, Officers and Consultants
Exhibit 3.15.4 Enterprise Benefit Arrangements
Exhibit 3.19 Insurance Policies
Exhibit 4 NetSelect Schedule of Exceptions
Exhibit 5.12 Invention Assignment and Confidentiality Agreement
Exhibit 5.15 Consultants to Become Employees
Exhibit 8.5 Form of Opinion of Fenwick & West LLP
Exhibit 9.5 Form of Opinion of Beck, Chaet, Molony & Bamberger, S.C.
Exhibit 9.8 Non-Competition and Non-Solicitation Agreement
Exhibit 9.9A Employment Agreement (Enterprise Shareholder)
Exhibit 9.9B Employment Agreement (Kevin Malloy)
</TABLE>
<PAGE>
EXHIBIT 3.05.1
CERTIFICATE OF INCORPORATION
OF
REALSELECT, INC.
THE UNDERSIGNED, in order to form a corporation for the purposes
herein stated, under and pursuant to the provisions of the General Corporation
Law of the State of Delaware, does hereby certify as follows:
FIRST: The name of the Corporation is RealSelect, Inc. (hereinafter
-----
called the "Corporation").
SECOND: The registered office of the Corporation is to be located at
------
15 East North Street, in the city of Dover, in the County of Kent, in the State
of Delaware. The name of its registered agent at that address is United
Corporate Services, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity, without limitation, for which a corporation may be organized under
the General Corporation Law of the State of Delaware.
FOURTH: The aggregate number of shares of all classes of stock which
------
the Corporation is authorized to issue is One Thousand (1,000) shares,
designated Common Stock, of the par value of $0.001 per share.
FIFTH: The name and mailing address of the incorporator is:
-----
NAME ADDRESS
---- -------
George S. Vanarthos c/o Battle Fowler LLP
75 East 55/th/ Street
New York, New York 10022
SIXTH: The election of directors need not be by written ballot unless
the Bylaws so provide.
SEVENTH: The Board of Directors of the Corporation is authorized and
empowered from time to time in its discretion to make, alter, amend or repeal
By-laws of the Corporation, except as such power may be restricted or limited by
the General Corporation Law of the State of Delaware.
<PAGE>
EIGHTH: No director of the Corporation shall be 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 involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit.
NINTH: The Corporation shall, to the fullest extent permitted by the
provisions of 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 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 any By-law, 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.
TENTH: Approval by 6/7 of the Board of Directors of the Corporation
shall be required on the following actions:
i. Mergers, consolidations, reorganizations, recapitalizations, or sale of all
or substantially all of the assets of the Corporation, or any similar
transactions; and
ii. Any change in the business purpose of the Corporation.
ELEVENTH: Approval by 662/3% of the stockholders of the Corporation
shall be required on the following actions:
Mergers, consolidations, reorganizations, recapitalizations, or sales
of all or substantially all of the assets of the Corporation, or any
similar transactions.
IN WITNESS WHEREOF, I have hereunto set my hand the 25/th/ day of
October, 1996.
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
REALSELECT, INC.
----------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
----------------------------------
RealSelect, Inc., a Delaware corporation (the "Corporation"), does
hereby certify as follows:
FIRST: Article THIRD of the Corporation's Certificate of Incorporation is
-----
hereby amended to read in its entirety as set forth below:
THIRD: The sole purpose of the Corporation is to engage in the
operation of the REALTOR.COM domain site and real property advertising
programming for electronic display, and related businesses.
SECOND: Article TENTH of the Corporation's Certificate of Incorporation is
------
hereby amended to read in its entirety as set forth below:
TENTH: Approval by 6/7 of the board of Directors of the Corporation
shall be required on the following actions:
(i) mergers, consolidations, reorganizations, or sales,
leases or exchanges of all or substantially all of the
asset of the Corporation; and
(ii) any change in the business purpose of the Corporation.
THIRD: Article ELEVENTH of the Corporation's Certificate of Incorporation
-----
is hereby amended to read in its entirety as set forth below:
ELEVENTH: The affirmative vote of (i) Realtors(R) Information
--------
Network, Inc., an Illinois corporation, ("RIN") and (ii) not less than
a majority of the outstanding shares (not including the shares held by
RIN) entitled to vote on the subject matter, present in person or
represented by proxy at a meeting at which a quorum is present, shall
be required to approve any of the following actions: mergers or
sales, leases or exchanges of all or substantially all of the assets
of the Corporation, or the issuance by the Corporation of a number of
shares
-3-
<PAGE>
representing ten percent (10%) or more of the issued and outstanding
shares of capital stock of the Corporation as of November 26, 1996, or
any amendment of Article TENTH, this Article ELEVENTH or article
TWELFTH of this Certificate of Incorporation; provided, however, that
-------- -------
this Article ELEVENTH shall not be applicable to the
extent that the right of the National Association of REALTORS, an
Illinois not-for-profit organization, to designate nominees to the
Board of Directors of the Corporation ceases or is suspended pursuant
to that certain RealSelect, Inc. Stockholders Agreement, dated as of
November 26, 1996, by and among RIN, NetSelect, L.L.C., a Delaware
limited liability company, and the Corporation.
FOURTH: Article TWELFTH shall be added to the Corporation's Certificate of
------
Incorporation to read in its entirety as follows:
TWELFTH: No action to be taken by the stockholders may be taken
without a meeting unless it is approved by the written consent of all
of the stockholders entitled to vote thereon.
FIFTH: The foregoing amendments were duly adopted in accordance with
-----
Section 242 of the General Corporation Law of the State of Delaware.
-4-
<PAGE>
IN WITNESS WHEREOF, RealSelect, Inc. has caused this Certificate to be
duly executed in its corporate name this 25/th/ day of November, 1996.
REALSELECT, INC.
__________________________________
Name: Stuart Wolff
Title: Chief Executive Officer
-5-
<PAGE>
EXHIBIT 3.06
BY - LAWS
OF
REALSELECT, INC.
(a Delaware corporation)
___________________________
ARTICLE I
OFFICES
-------
SECTION 1. OFFICES. The Corporation shall maintain its registered
-------
office in the State of Delaware at 15 North East Street, in the City of Dover,
in the County of Kent and its resident agent at such address is United Corporate
Services. The Corporation may also have offices in such other places in the
United States or elsewhere as the Board of Directors may, from time to time,
appoint or as the business of the Corporation may require.
ARTICLE 11
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
---------------
election of directors and for such other business as may properly be conducted
at such meeting shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors shall determine
by resolution and set forth in the notice of the meeting. In the event that the
Board of Directors fails to so determine the time, date and place for the annual
meeting, it shall be held at the principal office of the Corporation at 10
o'clock A.M. on the last Friday in May of each year.
1
<PAGE>
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders,
----------------
unless otherwise prescribed by statute, may be called by the Chairman of the
Board and shall be called by the Chief Executive Officer or Secretary upon
direction of the Board of Directors or the written request of not less than 10%
in interest of the stockholders entitled to vote thereat. Notice of each
special meeting shall be given in accordance with Section 3 of this Article II.
Unless otherwise permitted by law, business transacted at any special meeting of
stockholders shall be limited to the purpose stated in the notice.
SECTION 3. NOTICE OF MEETINGS. Whenever stockholders are required or
------------------
permitted to take any action at a meeting, a written notice of the meeting,
which shall state the place, date and time of the meeting, and, in the case of a
special meeting, the purposes for which the meeting is called, shall be mailed
to or delivered to each stockholder of record entitled to vote thereat. Such
notice shall be given not less than ten (10) days nor more than sixty (60) days
before the date of any such meeting.
SECTION 4. QUORUM. Unless otherwise required by law or the
------
Certificate of Incorporation, the holders of a majority of the issued and
outstanding stock entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all meetings
of stockholders. When a quorum is once present to organize a meeting, the
quorum is not broken by the subsequent withdrawal of any stockholders.
SECTION 5. VOTING. (a) Each stockholder shall be entitled to one
------
vote for each share of capital stock held by such stockholder. Upon the request
of not less than 10% in interest of the stockholders entitled to vote at a
meeting, voting shall be by written ballot. All
2
<PAGE>
elections of directors shall be decided by plurality vote of the shares present
in person or represented by proxy at the meeting and entitled to vote on the
election of directors. Unless otherwise provided in the Certificate of
Incorporation, all elections of directors shall be by written ballot.
(b) Unless otherwise required by law or provided herein, the vote of a
majority of the outstanding shares, present in person or represented by proxy
and entitled to vote on the subject matter, at a meeting at which a quorum is
present, shall constitute the act of the stockholders.
SECTION 6. CHAIRMAN OF MEETINGS. The Chairman of the Board of
--------------------
Directors of the Corporation, or, in his absence or disability, the Chief
Executive Officer of the Corporation, shall preside at all meetings of the
stockholders.
SECTION 7. SECRETARY OF MEETING. The Secretary of the Corporation
--------------------
shall act as Secretary at all meetings of the stockholders. In the absence or
disability of the Secretary, the Chairman of the Board of Directors or the Chief
Executive Officer shall appoint a person to act as Secretary at such meetings.
SECTION 8. ACTION BY CONSENT. [Allow stockholder action by written
-----------------
consent, since will be a wholly-owned subsidiary?]
SECTION 9. ADJOURNMENT. At any meeting of stockholders of the
-----------
Corporation, if less than a quorum be present, a majority of the stockholders
entitled to vote thereat, present in person or by proxy, shall have the power to
adjourn the meeting from time to
3
<PAGE>
time without notice other than announcement at the meeting until a quorum shall
be present. Any business may be transacted at the adjourned meeting which might
have been transacted at the meeting originally noticed. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 1. POWERS. The business and affairs of the Corporation shall
------
be managed by or under the direction of its Board of Directors. The Board shall
exercise all of the powers and duties conferred by law except as provided by the
Certificate of Incorporation or these By-Laws.
SECTION 2. NUMBER AND TERM. [The number of directors shall be fixed
---------------
at seven.] The Board of Directors shall be elected by the stockholders at their
annual meeting, and each director shall be elected to serve for the term of one
year and until his successor shall be elected and qualified or until his earlier
resignation or removal. Directors need not be stockholders.
SECTION 3. RESIGNATIONS. Any director may resign at any time. Such
------------
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time is specified, at the time of its receipt by
the Chief Executive Officer or Secretary. The acceptance of a resignation shall
not be necessary to make it effective.
4
<PAGE>
SECTION 4. REMOVAL. Any director or the entire Board of Directors
-------
may be removed either with or without cause at any time by the affirmative vote
of the holders of a majority of the shares then entitled to vote for the
election of directors at any annual or special meeting of the stockholders
called for that purpose. Vacancies thus created may be filled at such meeting
by the affirmative vote of the holders of a majority of the shares then entitled
to vote for the election of directors.
SECTION 5. MEETINGS. The newly elected directors shall hold their
--------
first meeting to organize the Corporation, elect officers and transact any other
business which may properly come before the meeting. An annual organizational
meeting of the Board of Directors shall be held immediately after each annual
meeting of the stockholders, or at such time and place as may be noticed for the
meeting.
Regular meetings of the Board may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors; provided, however, that at least one regular meeting of the Board of
-------- -------
Directors shall be held every three months.
Special meetings of the Board shall be called by the Chief Executive
Officer or by the Secretary on the written request of any director with at least
two days' notice to each director and shall be held at such place as may be
determined by, the directors or as shall be stated in the notice of the meeting.
SECTION 6. QUORUM, VOTING AND ADJOURNMENT. A majority of the total
------------------------------
number of directors or any committee thereof shall constitute a quorum for the
transaction
5
<PAGE>
of business. Unless otherwise required by law or provided herein, the
affirmative vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board. In the absence of a quorum, a
majority, of the directors present thereat may adjourn such meeting to another
time and place. Notice of such adjourned meeting need not be given if the time
and place of such adjourned meeting are announced at the meeting so adjourned.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution
----------
passed as provided in Section 6 of this Article III, designate one or more
committees, including, but not limited to, an Executive Committee and an Audit
Committee, each such committee to consist of two or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee to replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members present at any, meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in
the resolution of the Board, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority to amend the Certificate of Incorporation, adopt an agreement
of merger or consolidation, recommend to the stockholders the sale, lease, or
exchange of all or substantially all of the Corporation's properties and assets,
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution or to amend these By-Laws. No such
6
<PAGE>
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock of the Corporation or to adopt a certificate of ownership
and merger. All committees of the Board shall keep minutes of their meetings and
shall report their proceedings to the Board when requested or required by the
Board.
SECTION 8. ACTION WITHOUT A MEETING. Unless otherwise restricted by
------------------------
the Certificate of Incorporation, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board or any committee thereof, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or such committee, as the
case may be.
SECTION 9. COMPENSATION. The Board of Directors shall have the
------------
authority to fix the compensation of directors for their services. A director
may also serve the Corporation in other capacities and receive compensation
therefor.
SECTION 10. TELEPHONIC MEETING. Unless otherwise restricted by the
------------------
Certificate of Incorporation, members of the Board, or any committee designated
by the Board, may participate in a meeting by means of conference telephone or
similar communications equipment in which all persons participating in the
meeting can hear each other. Participation in a meeting by means of conference
telephone or similar communications equipment shall constitute the presence in
person at such meeting.
ARTICLE IV
OFFICERS
--------
7
<PAGE>
SECTION 1. The officers of the Corporation shall include a Chief
Executive Officer, President, Chief Operating Officer and a Secretary, each of
whom shall be elected by the Board of Directors and who shall hold office for a
term of one year and until their successors are elected and qualify or until
their earlier resignation or removal. In addition, the Board of Directors may
elect one or more Vice Presidents and a Chief Financial Officer who shall hold
their office for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors. The
initial officers shall be elected at the first meeting of the Board of Directors
and, thereafter, at the annual organizational meeting of the Board held after
each annual meeting of the stockholders. Any number of offices may be held by
the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may
-------------------------
appoint such other officers and agents as it deems advisable, who shall hold
their respective office for such terms and shall exercise and perform such
powers and duties as shall be determined from time to time by the Board of
Directors.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board of
---------------------
Directors shall, if present, preside at all meetings of the Board and exercise
and perform such other powers and duties as may be from time to time assigned to
him by the Board.
SECTION 4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
-----------------------
shall be the chief executive officer of the Corporation, and shall, subject to
the supervision, control and annual review of the stockholders and the Board of
Directors, have general supervision, direction and control of the business and
affairs of the Corporation. The Chief
8
<PAGE>
Executive Officer shall preside at all meetings of the stockholders of the
Corporation and, in the absence of the Chairman of the Board, at all meetings of
the Board.
SECTION 5. CHIEF OPERATING OFFICER. Subject to such supervisory
-----------------------
powers, if any, as may be given by the Board to the Chairman of the Board and
the Chief Executive Officer, the Chief Operating Officer shall, subject to the
control of the Board and the Chairman, be the chief operating officer of the
Corporation and have general supervision, direction and control of the business
and officers of the Corporation. The Chief Operating Officer shall have such
other powers and duties as may be from time to time prescribed to him by the
Board.
SECTION 6. PRESIDENT. Subject to such supervisory powers, if any, as
---------
may be given by the Board to the Chairman of the Board and the Chief Executive
Officer, the President shall, subject to the control of the Board, have general
supervision, direction and control of the business and the officers of the
Corporation (other than the Chairman and Chief Executive Officer). The
President shall preside at all meetings of the stockholders of the Corporation
in the absence of the Chairman and the Chief Executive Officer, and, in the
absence of the Chairman and the Chief Executive Officer, at all meetings of the
Board. The President shall have the general powers and duties of management
usually vested in the office of president and general manager of a corporation,
and shall have such other powers and duties as may be prescribed by the Board.
SECTION 7. VICE PRESIDENT. In the absence or disability of the
--------------
Chairman, the Chief Executive Officer, the Chief Operating Officer and the
President, the Vice Presidents,
9
<PAGE>
if any, in order of their rank as fixed by the Board, or, if not ranked, the
Vice President designated by the Board shall perform all the duties of such
officer and when so acting shall have all the powers of, and be subject to all
the restrictions upon, such offices. The Vice Presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the Board, the Chief Executive Officer or the President.
SECTION 8. SECRETARY. The Secretary shall be the Chief
---------
Administrative Officer of the Corporation and shall: (a) cause minutes of all
meetings of the stockholders and directors to be recorded and kept; (b) cause
all notices required by these By-Laws or otherwise to be given properly; (c) see
that the minute books, stock books, and other nonfinancial books, records and
papers of the Corporation are kept properly; and (d) cause all reports,
statements, returns, certificates and other documents to be prepared and filed
when and as required. The Secretary shall have such further powers and perform
such other duties as prescribed from time to time by the Board.
SECTION 9. CORPORATE FUNDS AND CHECKS. The funds of the Corporation
--------------------------
shall be kept in such depositories as shall from time to time be prescribed by
the Board of Directors. All checks or other orders for the payment of money
shall be signed by the Chief Executive Officer, or the Chief Operating Officer
or such other person or agent as may from time to time be authorized and with
such countersignature, if any, as may be required by the Board of Directors.
SECTION 10. CONTRACTS AND OTHER DOCUMENTS. The Chief Executive
-----------------------------
Officer, or Chief Operating Officer, or such other officer or officers as may
from
10
<PAGE>
time to time be authorized by the Board of Directors or any other committee
given specific authority in the premises by the Board of Directors during the
intervals between the meetings of the Board of Directors, shall have power to
sign and execute on behalf of the Corporation deeds, conveyances and contracts,
and any and all other documents requiring execution by the Corporation. [Add
language concerning individual authority to sign documents?]
SECTION 11. OWNERSHIP OF STOCK OF ANOTHER CORPORATION. The Chief
-----------------------------------------
Executive Officer, the Chief Operating Officer, or such other officer or agent
as shall be authorized by the Board of Directors, shall have the power and
authority, on behalf of the Corporation, to attend and to vote at any meeting of
stockholders of any corporation in which the Corporation holds stock and may
exercise, on behalf of the Corporation, any and all of the rights and powers
incident to the ownership of such stock at any such meeting, including the
authority to execute and deliver proxies and consents on behalf of the
Corporation.
SECTION 12. DELEGATION OF DUTIES. In the absence, disability or
--------------------
refusal of any officer to exercise and perform his duties, the Board of
Directors may delegate to another officer such powers or duties.
SECTION 13. RESIGNATION AND REMOVAL. Any officer of the Corporation
-----------------------
may be removed from office for or without cause at any time by the Board of
Directors. Any officer may resign at any time in the same manner prescribed
under Section 3 of Article III of these By-Laws.
SECTION 14. VACANCIES. The Board of Directors shall have power to
---------
fill vacancies occurring in any office.
11
<PAGE>
ARTICLE V
STOCK
-----
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
---------------------
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation by, the Chairman of the Board, the Chief Executive Officer, the
Chief Operating Officer, or a Vice President and by the Secretary, certifying
the number and class of shares of stock in the Corporation owned by him. Any or
all of the signatures on the certificate may be a facsimile. The Board of
Directors shall have the power to appoint one or more transfer agents and/or
registrars for the transfer or registration of certificates of stock of any
class, and may require stock certificates to be countersigned or registered by
one or more of such transfer agents and/or registrars.
SECTION 2. TRANSFER OF SHARES. Shares of stock of the Corporation
------------------
shall be transferable upon its books by the holders thereof, in person or by
their duly authorized attorneys or legal representatives, upon surrender to the
Corporation by delivery thereof to the person in charge of the stock and
transfer books and ledgers. Such certificates shall be cancelled and new
certificates shall thereupon be issued. A record shall be made of each
transfer. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer if, when the certificates are presented, both the transferor and
transferee request the Corporation to do so. The Board shall have power and
authority to make such rules and regulations as it may deem necessary or proper
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
12
<PAGE>
SECTION 3. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. A new
------------------------------------ ------------
certificate of stock may be issued in the place of any, certificate previously
issued by the Corporation, alleged to have been lost, stolen or destroyed, and
the Board of Directors may, in their discretion, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to give the
Corporation a bond, in such sum as the Board may direct, not exceeding double
the value of the stock, in order to indemnify the Corporation against any claims
that may be made against it in connection therewith. A new certificate of stock
may be issued in the place of any certificate previously issued by the
Corporation which has become mutilated without the posting by the owner of any
bond upon the surrender by such owner of such mutilated certificate.
SECTION 4. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The stock ledger
-------------------------------------
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Delaware General Corporation Law (S) 219
or the books of the Corporation, or to vote in person or by proxy at any meeting
of stockholders.
SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate
---------
of Incorporation, the Board of Directors may at any regular or special meeting,
declare dividends upon the stock of the Corporation either (i) out of its
surplus, as defined in and computed in accordance with Delaware General
Corporation Law (S) 154 and (S) 244 or (ii) in case there shall be no such
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Before the declaration of any
dividend, the Board of Directors may set apart, out of any funds of the
Corporation available for dividends, such sum or sums as from time to time in
their discretion may be deemed proper for working capital or as a reserve
13
<PAGE>
fund to meet contingencies or for such other purposes as shall be deemed
conducive to the interests of the Corporation.
ARTICLE VI
NOTICE AND WAIVER OF NOTICE
---------------------------
SECTION 1. NOTICE. Whenever any written notice is required to be
------
given by law, the Certificate of Incorporation or these By-Laws, such notice, if
mailed, shall be deemed to be given when deposited in the United States mail,
postage prepaid, addressed to the person entitled to such notice at his address
as it appears on the books and records of the Corporation.
SECTION 2. WAIVER OF NOTICE. Whenever notice is required to be given
----------------
by law, the Certificate of Incorporation or these By-Laws, a written waiver
thereof signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any meeting of the stockholders, directors, or members of a
committee of the Board need be specified in any written waiver of notice.
ARTICLE VII
AMENDMENT OF BY-LAWS
--------------------
14
<PAGE>
SECTION 1. AMENDMENTS. These By-Laws may be amended or repealed or
----------
new By-Laws may be adopted by the affirmative vote of a majority of the
stockholders at any regular or special meeting of the stockholders. [Add
provision allowing the Board to amend the Bylaws?]
ARTICLE VIII
SECTION 1. SEAL. The seal of the Corporation shall be circular in
----
form and shall have the name of the Corporation on the circumference and the
jurisdiction and year of incorporation in the center.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall end
-----------
on December 31 of each year, or such other twelve consecutive months as the
Board of Directors may designate.
SECTION 3. INDEMNIFICATION. 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
(other than an action by or in the right of the Corporation), by reason of the
fact that he is or was a director, officer or employee of the Corporation, or is
or was serving at the request of the Corporation as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the Corporation to the fullest extent
permitted by law against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
15
<PAGE>
of the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer or employee of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonable believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of Delaware,
or such other court shall deem proper.
16
<PAGE>
Any indemnification pursuant to this Article VIII (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer or employee
is proper in the circumstances because he has met the applicable standard of
conduct set forth in this Article VIII. Such determination shall be made (i) by
a majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders.
SECTION 4. ADVANCE OF EXPENSES. Expenses (including attorneys' fees)
-------------------
incurred by an officer, director, or employee in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking satisfactory to the Board of Directors
by or on behalf of such director, officer, or employee to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
SECTION 5. REMEDIES NOT EXCLUSIVE. The indemnification and
----------------------
advancement of expenses provided by this Article VIII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may, be entitled under any by-law, 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, unless otherwise provided when authorized or ratified,
continue
17
<PAGE>
as to a person who has ceased to be a director, officer, or employee and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 6. INSURANCE. The Corporation may purchase and maintain
---------
insurance, at its expense, to protect itself and any director, officer, or
employee of the Corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
Date of Adoption: November 26, 1996
Date Amended: _______, 1999
18
<PAGE>
EXHIBIT 4.02.1
SECOND AMENDED AND RESTATED
NETSELECT, INC. STOCKHOLDERS' AGREEMENT
This Second Amended and Restated NetSelect Stockholders' Agreement (this
"Agreement") is made as of January 28, 1999, by and among NetSelect, Inc., a
Delaware corporation (the "PreMerger NetSelect"), InfoTouch Corporation, a
Delaware corporation (the "Company"), CDW Internet, L.L.C., a Delaware limited
liability company ("CDW Internet"), the National Association of Home Builders, a
Nevada not for profit corporation (the "NAHB"), Whitney Equity Partners, L.P., a
Delaware limited partnership ("Whitney"), Allen & Co., Michael N. Flannery
("Flannery"), John F. Petrick, Jr. ("Petrick"), Daniel A. Koch ("Koch"),
Ingleside Interests, a California limited partnership ("Ingleside"), Geocapital
IV, L.P., a Delaware limited partnership ("Geocapital"), Broadview Partners
Group ("Broadview"), General Electric Capital Corporation, a New York
corporation ("GE Capital"), the National Association of Realtors, an Illinois
not for profit corporation ("NAR"), Kleiner Perkins Caufield & Byers VIII, L.P.,
Kleiner Perkins Caufield & Byers Founders Fund VIII, L.P. and KPCB Information
Sciences Zaibatsu Fund II, L.P. (collectively, the "KP Entities"), Intuit, Inc.,
a Delaware corporation, Fannie Mae, a corporation formed under the laws of the
United States ("Fannie Mae"), Cox Interactive Media, Inc., a Delaware
corporation ("Cox"), UBS Capital II, LLC, a Delaware limited liability company,
Fred White, R. Fred White III, Morgan Stanley Venture Partners III, L.P., Morgan
Stanley Venture Investors III, L.P., The Morgan Stanley Venture Partners
Entrepreneurs Fund III, L.P. and Morgan Stanley Dean Witter Equity Funding, Inc.
(collectively, the "MS Entities") and the persons and entities who were
stockholders of the Company before the closing of the InfoTouch Merger (defined
below), listed on Exhibit A hereto (the "InfoTouch Stockholders"). All of the
---------
parties hereto, other than the Company and Pre-Merger NetSelect, together with
any persons or entities hereafter becoming a party to this Agreement as provided
herein, are collectively referred to herein as the "Stockholders."
WHEREAS, the Company and certain Stockholders have entered into that
certain Amended and Restated NetSelect Stockholders Agreement dated August 21,
1998, as amended by that certain Amendment to Amended and Restated NetSelect
Stockholders' Agreement dated as of October 22, 1998, which amended and restated
the NetSelect Stockholders' Agreement dated as of November 26, 1996, as amended
(such agreement as amended, the "Prior Stockholders' Agreement") and in
connection with the merger of PreMerger NetSelect with and into the Company,
with the Company as the surviving corporation and being renamed as "NetSelect,
Inc.," pursuant to the terms of that certain Agreement and Plan of Merger (the
"Merger Agreement") by and between PreMerger NetSelect and the Company (the
"InfoTouch Merger"), the parties thereto desire to amend and restate the Prior
Stockholders' Agreement as set forth herein and consent to the addition of the
InfoTouch Stockholders that were not parties to the Prior Stockholders'
Agreement, all conditioned upon and effective as of the Effective Time (as such
term is defined in the Merger Agreement) of the InfoTouch Merger.
WHEREAS, the execution and delivery of this Agreement is a condition to the
effectiveness of the InfoTouch Merger.
<PAGE>
WHEREAS, the Stockholders, immediately after the effective time of the
InfoTouch Merger (assuming the completion of the Company's repurchase of the
certain of the Shares pursuant to the Redemption (as such term is defined in
Section 2(a)(ii) below)), will hold an aggregate of approximately 3,550,448
shares of the Company's Common Stock, 1,647,059 shares of its Series A
Convertible Preferred Stock, 352,941 shares of its Series B Convertible
Preferred Stock, 614,374 shares of its Series C Convertible Preferred Stock,
681,201 shares of its Series D Convertible Preferred Stock, 315,250 shares of
its Series E Convertible Preferred Stock and 1,664,049 shares of its Series F
Convertible Preferred Stock (collectively, the "Shares").
WHEREAS, the Stockholders know of, and are familiar with, the business,
affairs, financial condition, current status and future prospects of PreMerger
NetSelect and the Company, except for certain agreements entered into by the
Company and/or PreMerger NetSelect which they consider confidential and which
the Company and PreMerger NetSelect claim will have no adverse effect on any of
the stockholders.
WHEREAS, the Stockholders desire to promote their mutual interest and the
interest of the Company by imposing certain restrictions and obligations on
themselves, the Company and the shares of capital stock of the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is hereby agreed as follows:
ARTICLE I
REPRESENTATIONS OF THE CORPORATION
The Company hereby represents and warrants that:
Section 1.1 Organization. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware.
The Company has all required right, power and authority to carry on its business
as now conducted and as proposed to be conducted, to enter into and perform this
Agreement, and to carry out the matters contemplated hereby.
Section 1.2 Capitalization. As of immediately after the Effective Time of
--------------
the InfoTouch Merger (assuming the completion of the Company's repurchase of
certain of the Shares pursuant to the Redemption), the authorized capital stock
of the Company will consist of: (i) 45,000,000 shares of Common Stock, par value
$0.001 per share, of which 3,906,718 shares are issued and outstanding; and (ii)
10,000,000 shares of Preferred Stock, par value $0.001 per share, of which
1,647,059 shares have been designated as Series A Convertible Preferred Stock,
of which 1,378,000 are outstanding, 352,941 shares have been designated as
Series B Convertible Preferred Stock, of which 190,336 are outstanding, 614,374
shares have been designated and issued as Series C Convertible Preferred Stock,
681,201 shares have been designated and issued as Series D Convertible Preferred
Stock, 325,000 shares have been
2
<PAGE>
designated and issued as Series E Convertible Preferred Stock and 2,100,000
shares have been designated as Series F Convertible Preferred Stock, of which
1,664,049 shares have been issued. Stock options to purchase an aggregate of
1,254,962 shares of the Company's Common Stock are also outstanding as of the
date of this Agreement immediately after the Effective Time of the InfoTouch
Merger. Warrants, convertible securities, agreements and other rights to acquire
or purchase 638,717 shares of Company capital stock are outstanding as of the
date of this Agreement immediately after the Effective Time of the InfoTouch
Merger (which includes the MLS agreements described below). The Company, as the
successor to Pre-Merger NetSelect, and RealSelect, Inc., a Delaware corporation
("RealSelect") intends to enter into Broker Gold Program Agreements and related
agreements pursuant to which the Company may enter into arrangements with
approximately 100 real estate brokers concerning, among other things, providing
listings to RealSelect. Pursuant to the Broker Gold Program Agreements, the
Company may sell to each broker an investment unit at a purchase price expected
to be $40,000 that is comprised of shares of Series F Convertible Preferred
Stock and shares of Common Stock (in amounts determined pursuant to the Broker
Gold Program Agreements). In addition, as part of such transaction, the Company
would agree to issue to participating brokers warrants to purchase shares of
Common Stock. The Company, as the successor to Pre-Merger NetSelect, has entered
into and may continue to enter into agreements with individual real estate
multi-listing services (each, an "MLS") pursuant to which the MLS would agree to
---
provide real estate listing information for display on the Internet exclusively
to the Company (subject to certain conditions) in exchange for warrants to
purchase up to 289,145 shares of Common Stock.
Section 1.3 Authority. The execution, delivery and performance of this
---------
Agreement have been duly authorized by all requisite action by the Company. This
Agreement has been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
Section 1.4 No Violation. The execution, delivery and performance of this
------------
Agreement by the Company and the consummation of the transactions contemplated
hereby do not and will not (i) constitute a violation of, conflict with or
constitute a default under, any term or provision of the Company's Certificate
of Incorporation or Bylaws, each as amended to date, or any agreement to which
the Company is a party or by which its assets or properties are bound or (ii)
constitute or result in a violation of any statute, ordinance or regulation
applicable to the Company.
ARTICLE II
MANAGEMENT AND VOTING
Section 2.1 Election of Directors.
---------------------
3
<PAGE>
(a) The Stockholders, one with the other, hereby agree, that they
shall during the term of this Agreement each vote their respective Shares at all
meetings of the stockholders of the Company, or by written consent in lieu
thereof, to:
(i) cause the authorized number of Directors of the Company to
be fixed at the number of directors who are entitled to be nominees pursuant to
Section 2.1(a)(ii) below; and
(ii) except as set forth in the next sentence, cause at all times
that the following nominees shall be elected to the Board of Directors of the
Company: (1) one nominee designated by CDW Internet and such nominee shall be
Stuart Wolff, (2) one nominee designated by Whitney, (3) one nominee designated
by the InfoTouch Stockholders (such nominee to be determined by a vote of the
majority of the Shares held by the InfoTouch Stockholders), (4) one nominee
designated by GE Capital, except and to the extent of a Default as defined in
that certain Stock Purchase Agreement dated as of December 31, 1997 between the
Company and GE Capital (the "GE Capital Agreement"), in which case two nominees
designated by GE Capital in accordance with Section 4.11 of the GE Capital
Agreement, (5) one nominee designated by the KP Entities (which nominee shall be
John Doerr for so long as Mr. Doerr shall represent an affiliate of Kleiner
Perkins Caufield & Byers on the Board of Directors, or its equivalent, of any
other company), (6) one nominee by the NAHB (which nominee shall be Ken Klein or
such other nominee as is mutually acceptable to the NAHB and a majority of the
members of the Board), (7) one nominee designated by Fannie Mae (which nominee
shall be William Kelvie or such other nominee as is mutually acceptable to
Fannie Mae and a majority of the members of the Board) and (8) one nominee
designated by the NAR. The Stockholders shall not take, or support the taking
of, any action to remove a Director nominated by a particular person, entity or
group unless such person, entity or group has requested that such Director be so
removed (in which case the Stockholders shall cooperate in effecting such
removal and electing a replacement). Notwithstanding anything to the contrary
herein, except as otherwise provided in Section 2.1(c) hereof, in no event shall
the InfoTouch Stockholders involuntarily surrender their collective right to
designate that number of nominees as set forth in this Section prior to the
consummation of a Qualified Public Offering (as defined in Section 4.9 hereto),
and the right of the NAR to designate a nominee to the Board of Directors of the
Company pursuant to this section shall (A) cease upon the termination of that
certain Operating Agreement, dated as of November 26, 1996, between Realtors
Information Network, Inc. and RealSelect, Inc. (the "Operating Agreement"), (B)
be suspended upon the occurrence of, and during the continuance of, the breach
by the NAR of that certain (i) Joint Ownership Agreement, dated as of November
26, 1996, among the NAR, PreMerger NetSelect and NetSelect, L.L.C., or (ii)
Trademark License, dated as of November 26, 1996, by and between the NAR and
PreMerger NetSelect, (C) be suspended upon the occurrence of, and during the
continuance of, the Transfer by NAR of eighty percent (80%) or more of the
shares of common stock, par value $0.001 per share (the "RealSelect Shares"), of
RealSelect owned by NAR as of the consummation of that certain Stock Transfer
and Rights Assignment Agreement dated February 9, 1998 (the "Transfer Date");
provided, however, that in the event that NAR shall transfer greater than eighty
- -------- -------
percent (80%) of the RealSelect Shares owned by NAR as of the Transfer Date, and
NAR shall not, within forty-five (45) days from the date of such Transfer,
increase its ownership in RealSelect Shares so that NAR shall own at least
twenty percent (20%) of the RealSelect Shares owned by
4
<PAGE>
NAR immediately prior to the Transfer Date, NAR's right to designate a nominee
to the Board of Directors of the Company pursuant to this Section 2.1(a)(ii)
shall terminate. In addition, notwithstanding anything herein to the contrary,
if the NAHB does not agree by January 31, 1999 to extend certain existing
exclusivity provisions contained in that certain Operating Agreement dated June
__, 1998 in perpetuity (subject to certain conditions contained in such
Operating Agreement) no nominee shall be designated pursuant to subclause (7) of
this clause (ii).
(b) In the event that a Director of the Company shall vacate the Board
of Directors of the Company, whether by resignation, retirement, removal, death,
disability or otherwise, such vacancy shall be filled by a person designated
within thirty (30) days of such vacancy by that person, entity or group
specified in Section 2.1(a) hereof that designated such departing Director as a
nominee to the Board. In the event that such person, entity or group shall not
designate a nominee within thirty (30) days of such vacancy, then a majority of
the remaining Directors may appoint a Director to fill such vacancy; provided,
--------
however, if the person, entity or group entitled to designate a nominee shall
- -------
thereafter so designate, the Stockholders shall call a special meeting of the
Stockholders for the purpose of removing any person elected by the Board of
Directors, and use their respective best efforts to elect such nominee.
(c) In the event that any of the persons, entities or groups specified
in Section 2.1(a) hereof shall sell, assign, transfer or otherwise convey
("Transfer") their respective Shares, other than to Permitted Transferees (as
defined below), such persons', entities' or groups' right to designate nominees
to the Board of Directors of the Company pursuant to Section 2.1(a) hereof shall
be reduced as follows:
In the event that any Stockholder or Stockholders (except for the
InfoTouch Stockholders, whom are addressed in the next paragraph) that
have a right to designate one or more nominees pursuant to Section
2.1(a) shall hold less than one-half (1/2) of the Shares held by such
Stockholder or Stockholders immediately after the Effective Time of
the InfoTouch Merger, then such Stockholder or Stockholders shall
forfeit its or their right to designate its respective nominee or
nominees to the Board of Directors of the Company and any Transferee
(as defined in Section 3.1) of such Shares shall acquire such right;
provided, however, that in the event that any entity to the extent
-------- -------
that such entity or entities have forfeited a nominee or nominees to
the Board of Directors of the Company pursuant to this paragraph shall
increase its ownership in Shares so that such entity or entities shall
hold a number of Shares exceeding the forfeiture threshold as referred
to above, then such entity or entities shall be permitted to designate
that number of nominees as it or they had the right to nominate prior
to falling below such forfeiture threshold.
In the event that the InfoTouch Stockholders shall hold less than one-
half (1/2) of the Shares held by such InfoTouch Stockholders holders
immediately after the Effective Time of the InfoTouch Merger (less any
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Shares repurchased by the Company in the Redemption), then the
InfoTouch Stockholders shall forfeit their right to designate their
nominee to the Board of Directors of the Company and any Transferee
(as defined in Section 3.1) of the majority of such securities shall
acquire such right; provided, however, that in the event that the
-------- -------
InfoTouch Stockholders, to the extent that such holders have forfeited
their nominee to the Board of Directors of the Company pursuant to
this paragraph and such holders shall increase their ownership in
shares of capital stock in the Company so that such holders hold a
number of such securities exceeding the forfeiture threshold as
referred to above, then such holders shall be permitted to designate a
nominee.
(d) Geocapital, Cox and Allen & Co. shall each have the right to
appoint an observer to the Board of the Company for so long as such respective
entity shall be the owner of shares of the Company's Preferred Stock. Each such
observer shall have the rights of a Director with respect to the Board of
Directors on any action it shall take other than voting or approval rights
(whether in person or by written consent) with respect to any matter coming
before the Board of Directors (including, without limitation, the right to
receive copies of all documents (including, without limitation, notices of
meetings and requests for written consents) at the same time that members of the
Board of Directors receive such documents). The Company agrees to pay all
reasonable travel costs incurred by each such observer for the purpose of
attending and observing the Board of Directors meetings of the Company and
conducting such business as shall be directed by the Board of Directors.
(e) The Company shall cause to be created a Compensation Committee
("Compensation Committee") that will be responsible for establishing
compensation for the Company's executive officers, approving stock option grants
and other matters that are customarily within the responsibilities of a
compensation committee of a company similarly situated as the Company. The
compensation for the Chief Executive Officer, the Chief Financial Officer and
the President of the Company shall be at a reasonable amount (industry
standard); provided, however, that in the event a dispute shall arise as to the
-------- -------
amount of such compensation, the amount of such compensation shall be determined
by the Compensation Committee. The Compensation Committee shall consist of the
Chief Executive Officer or President (ex-officio) and at least two Directors, of
which one shall be the nominee of the KP Entities. Any and all determinations
made by the Compensation Committee pursuant to this Section 2.1(e) shall be
final and binding.
ARTICLE III
TRANSFERS OF SHARES
Section 3.1 Right of First Offer; Transfer.
------------------------------
(a) If at any time after the Effective Time of the InfoTouch Merger a
Stockholder desires to Transfer (the "Transferring Stockholder") any of the
outstanding Shares of
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the Company to a bona fide third-party (the "Transferee"), other than to the
Company or a Permitted Transferee, it shall promptly deliver a notice (the
"Transfer Notice") to the non-Transferring Stockholders (the "Non-Transferring
Stockholders") and the Company setting forth the terms and conditions of such
Transfer, including the price and number of Shares proposed to be Transferred.
The Transfer Notice shall constitute an offer by the Transferring Stockholder to
Transfer the Shares subject to the Transfer (the "Transfer Shares") to the Non-
Transferring Stockholders on the terms and conditions set forth in the Transfer
Notice.
(b) The Non-Transferring Stockholders and the Company shall have the
right, exercisable by written notice (the "Purchase Notice"), to the
Transferring Stockholder and the Company not later than thirty (30) days
following their receipt of the Transfer Notice, to purchase all, but not less
than all, of their portion of the Transfer Shares on the same terms and
conditions pursuant to this Section 3.1.
(c) Each Non-Transferring Stockholder shall have the right to purchase
up to that portion of the Transfer Shares that bears the same ratio to the total
number of Transfer Shares as the number of Shares owned by such Non-Transferring
Stockholder bears to the total number of Shares owned by all of the Non-
Transferring Stockholders. For purposes of calculations pursuant to this Section
3.1, it shall be assumed that all Shares convertible into Common Stock have been
so converted.
(d) In the event that any of the Non-Transferring Stockholders are
unable or unwilling to buy all of the Transfer Shares allocated to it pursuant
to Section 3.1(c) hereof within the thirty (30) day period set forth in Section
3.1(b) hereof, the other Non-Transferring Stockholders shall each have the right
to purchase their pro rata share thereof for a period of ten (10) days. If the
Non-Transferring Stockholders are unable or unwilling to buy all, but not less
than all, of the Transfer Shares, then the Company shall have the right to buy
any Transfer Shares not purchased by the Non-Transferring Stockholders.
(e) Each Non-Transferring Stockholder shall notify each other Non-
Transferring Stockholder and the Company of its decision whether to purchase its
allotted portion of the Transfer Shares within thirty (30) days of receipt of
the Transfer Notice. A failure to notify the other Non-Transferring Stockholders
and the Company shall be deemed an election not to purchase the allotted portion
of the Transfer Shares. Such notice may be the same notice as the Purchase
Notice referred to in Section 3.1(b).
(f) If the Non-Transferring Stockholders and the Company do not elect
to purchase all of the Shares offered for Transfer pursuant to this Section 3.1,
the Transferring Stockholder shall be free to Transfer any such remaining Shares
pursuant to this Section 3.1 to one or more Transferees on the same terms and
conditions set forth in the Transfer Notice or for greater consideration than
that set forth in the Transfer Notice at any time within one hundred (100) days
of the delivery to the Non-Transferring Stockholders of the Transfer Notice;
provided, however, that if any of such Shares are thereafter acquired by any
- -------- -------
Stockholder who is a party to this Agreement, such Shares shall continue to be
subject to all the provisions hereof; provided, further, however, that if any of
-------- -------- -------
such Shares are proposed to be Transferred to a person or entity
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who is not a party to this Agreement, such proposed Transferee shall have
executed and delivered to the Company and each Stockholder an agreement, in form
and substance reasonably satisfactory to the Company and Stockholders holding a
majority of the shares of the Company's capital stock held by all Stockholders
(on an as-converted basis), to be bound by the terms and provisions of this
Agreement.
(g) A "Permitted Transferee" shall mean, with respect to a
Stockholder:
(i) the spouse of such Stockholder, any lineal descendant of a
grandparent of such Stockholder, or of the spouse of such Stockholder, and any
spouse of such lineal descendant (which lineal descendants, their spouses, the
Stockholder, and his or her spouse are herein collectively referred to as the
"Stockholder's Family Members");
(ii) the trustee of a trust (including a voting trust)
principally for the benefit of such Stockholder's Family Members; provided, that
--------
such trust may also grant a general or special power of appointment to one or
more of such Stockholder's Family Members and may permit trust assets to be used
to pay taxes, legacies and other obligations of the trust or of the estates of
one or more of such Stockholder's Family Members payable by reason of the death
of any of such Stockholder's Family Members;
(iii) in the case of a partnership or limited liability company,
(A) such partnership's partners (limited or general) or limited liability
company's members, (B) the estates or legal representatives of any such limited
partners, general partners or members and (C) any affiliates of such partnership
or limited liability company; and
(iv) in the case of a corporation, (A) any of its wholly-owned
subsidiaries, (B) any stockholder of such corporation or (C) any of the
affiliates of such corporation.
Every Permitted Transferee to whom any Shares are Transferred, shall,
as a condition of such Transfer, execute and deliver to the Company and each
Stockholder an agreement, in form and substance reasonably satisfactory to the
Company and the Stockholders, to be bound by this Agreement.
Section 3.2 Right of First Offer; Issuance of Securities.
--------------------------------------------
(a) In the event that, after the Effective Time of the InfoTouch
Merger, the Company shall, in any single issuance, propose to issue additional
equity securities of the Company (the "Securities") representing in excess of
ten percent (10%) of the issued and outstanding shares of capital stock of the
Company (on a fully diluted and converted basis) (other than securities issued
pursuant to employee benefit plans, options or warrants outstanding as of the
date hereof, securities issued with respect to the conversion of Shares, options
issued after the date hereof pursuant to grants by the Board under stock option
plans approved by the Board, and securities issued in connection with the
acquisition of businesses or securities issued pursuant to a Qualified Public
Offering) for a consideration per share equal to or greater than (v) in the case
of the Series A Preferred Stock, $2.83; (w) in the case of the Series B
Preferred Stock, $6.19; (x)
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in the case of the Series C Preferred Stock, $7.32; (y) in the case of the
Series D Preferred Stock, $14.67 and (z) in the case of the Series F Preferred
Stock, $24.00, the Company shall promptly deliver a notice (the "Issuance
Notice") to the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series F Preferred Stock,
as the case may be, setting forth the terms and conditions of such proposed
issuance, and the holders of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series F Preferred
stock, as the case may be, shall have the right to purchase those Securities
described in the Issuance Notice; provided, however, that in the event that the
-------- -------
Company shall issue in any consecutive twelve-month period (after the Effective
Time of the InfoTouch Merger) in a series of issuances shares in excess of 10%
(ten percent) of the issued and outstanding shares of Common Stock of the
Company (on a fully diluted and converted basis) (other than securities issued
pursuant to employee benefit plans, options or warrants outstanding as of the
date hereof, securities issued with respect to conversion of Shares, options
issued after the date hereof pursuant to grants by the Board under stock option
plans approved by the Board, securities issued in connection with the
acquisition of businesses or securities issued pursuant to a Qualified Public
Offering) for a weighted-average consideration per security equal to or greater
than (v) in the case of the Series A Preferred Stock, $2.83; (w) in the case of
the Series B Preferred Stock, $6.19; (x) in the case of the Series C Preferred
Stock, $7.32; (y) in the case of the Series D Preferred Stock, $14.67, and (z)
in the case of the Series F Preferred Stock, $24.00, the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series F Preferred Stock, as the case may be, shall have the
right to purchase those Securities in the last proposed issuance by the Company
that shall cause the Company to issue in excess of such 10% (ten percent) of the
issued and outstanding shares of Common Stock of the Company (on a fully diluted
and converted basis). The Issuance Notice shall constitute an offer by the
Company to issue the Securities subject to the issuance (the "Issuance
Securities") to such Stockholders on the terms and conditions set forth in the
Issuance Notice. All dollar amounts contained in this Section 3.2(a) shall be
adjusted for stock splits, stock dividends, recapitalizations and the like.
(b) In the event that the Company shall after the Effective Time of
the InfoTouch Merger propose to issue additional Securities (other than
Securities issued pursuant to employee benefit plans) for a consideration per
Security less than (v) in the case of the Series A Preferred Stock, $2.83; (w)
in the case of the Series B Preferred Stock, $6.19; (x) in the case of the
Series C Preferred Stock, $7.32; (y) in the case of the Series D Preferred
Stock, $14.67 and (z) in the case of the Series F Preferred Stock, $24.00, the
Company shall first offer to the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series F
Preferred Stock (collectively, the "Subject Preferred Shares"), depending upon
the consideration per security, a pro rata share of the securities proposed to
be issued (based on the Common Stock equivalent of such holder's shares versus
the Common Stock equivalent of the shares held by all holders entitled to
receive notice). The Company shall promptly deliver an Issuance Notice to the
holders of the Subject Preferred Shares setting forth the terms and conditions
of such proposed issuance. The Issuance Notice shall constitute an offer by the
Company to issue the securities subject to the issuance also (the "Issuance
Securities") to such Stockholders on the terms and conditions set forth in the
Issuance Notice. All dollar
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amounts in this Section 3.2(b) are subject to adjustment for stock splits, stock
dividends, recapitalizations and the like.
(c) The Stockholders who shall have received such Issuance Notice
shall have the right, exercisable by written notice (the "Response Notice"), to
the Company not later than fifteen (15) days following their receipt of the
Issuance Notice, to purchase all of the Issuance Securities on the same terms
and conditions, as set forth in the Issuance Notice.
(d) Each Stockholder who shall have received such Issuance Notice
shall have the right to purchase up to that portion of the Issuance Securities
that bears the same ratio to the number of Issuance Securities being issued as
the number of shares of Common Stock into which the Subject Preferred Shares
owned by the Stockholder are convertible bears to the total number of shares of
Common Stock into which the Subject Preferred Shares owned by all of the
Stockholders are convertible on such date who shall have received such Issuance
Notice. For purposes of calculations pursuant to this Section 3.2, it shall be
assumed that all Shares convertible into Common Stock have been so converted.
(e) In the event that any of the Stockholders who shall have received
such Issuance Notice are unable or unwilling to buy all of the Issuance
Securities allocated to it pursuant to Section 3.2(d) hereof, the other
Stockholders who shall have received such Issuance Notice shall each have the
right to purchase their pro rata share thereof for a period of ten (10) days.
--- ----
(f) If the Stockholders who shall have received such Issuance Notice
do not elect to purchase all of the Issuance Securities, the Company shall be
free to issue such Securities on the same terms and conditions set forth in such
Issuance Notice or for greater consideration than that set forth in the Issuance
Notice at any time within one hundred (100) days of the delivery to the
Stockholders of such Issuance Notice; provided, however, that if any of such
-------- -------
Issuance Securities are thereafter acquired by any Stockholder who is a party to
this Agreement, such Issuance Securities shall thereafter be subject to all the
provisions of this Agreement; provided, further, however, that if any of the
-------- ------- -------
Issuance Securities are proposed to be issued to a person, entity or group who
is not a party to this Agreement, such person, entity or group shall have
executed and delivered to the Company and each Stockholder an agreement, in form
and substance reasonably satisfactory to the Company and the Stockholders, to be
bound by the terms and provisions of this Agreement.
Section 3.3 NAR Restriction on Transfer.
---------------------------
(a) In connection with any proposed Transfer after the Effective Time
of the InfoTouch Merger, other than a Transfer occurring in connection with the
Redemption and other than to a Stockholder or Permitted Transferee hereunder,
that would result in such Transferee becoming the owner, whether of record or
beneficially, of more than five percent (5%) of the shares of outstanding
capital stock of the Company (on an as-converted basis), the Transferring
Stockholder shall first obtain the written approval of NAR, which approval shall
not be unreasonably withheld. In seeking such approval, the Transferring
Stockholder must identify the proposed Transferee and the number of Shares
proposed to be Transferred, and provide such
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<PAGE>
additional publicly available information regarding the proposed Transferee
available to the Transferring Stockholder as NAR may reasonably request. Any
decision by NAR pursuant to this Section 3.3, whether to approve or not approve
such Transfer, shall be set forth in writing and shall set forth in reasonable
detail the basis of such decision; provided, however, that in the event NAR
-------- -------
shall fail to approve or not approve such Transfer within thirty (30) days after
the date of receipt of such request, NAR shall be deemed to have approved such
Transfer.
(b) Prior to making any proposed Transfer hereunder after the
Effective Time of the InfoTouch Merger that would result in the ownership of
Shares, whether of record or beneficially, by a Transferee whose primary
business is "real estate related", the Transferring Stockholder shall first
obtain the written approval of NAR, which approval shall not be unreasonably
withheld. Any decision by NAR pursuant to this Section 3.3, whether to approve
or not approve such Transfer, shall be set forth in writing and shall set forth
in reasonable detail the basis of such decision. In seeking such approval, the
Transferring Stockholder must identify the proposed Transferee and the number of
Shares proposed to be Transferred, and provide such additional publicly
available information regarding the proposed Transferee available to the
Transferring Stockholder as NAR may reasonably request. For purposes of this
Agreement, "real estate related" shall mean real estate brokerage, real estate
management, mortgage financing, appraising, counseling, land development and
building, title insurance, escrow services, franchising, operation of an
association comprised of real estate licensees, operation of a multiple listing
service, and entities that own or are owned by firms engaged in any of the
foregoing.
(c) The Company shall not sell, lease or exchange all or substantially
all of the assets of the Company without the prior written consent of NAR, which
consent shall not be unreasonably withheld.
(d) The rights granted to NAR in this Section 3.3 shall cease, or be
suspended, to the extent that the NAR's right to designate nominees to the Board
of Directors of the Company ceases or is suspended as provided in Section
2.1(a)(ii) hereof.
ARTICLE IV
REGISTRATION UNDER SECURITIES ACT.
Section 4.1 Registration on Request.
-----------------------
(a) Request. Subject to Section 4.8 hereof, at any time from the date
-------
that is six months following the date that the Company effected an initial
public offering of shares of Common Stock under the Securities Act of 1933, as
amended (the "Securities Act"), Stockholders holding at least 10% of the
Registrable Securities then outstanding (other than GE Capital and the KP
Entities, for which such percentage limitation shall not apply) shall have the
right to require the Company to file a registration statement under the
Securities Act covering all or part of its Registrable Securities, by delivering
a written request therefor to the Company specifying the number of Registrable
Securities to be included in such registration by such
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<PAGE>
Initiating Holders and the intended method of distribution thereof, whereupon
the Company shall, within ten (10) business days of the receipt of such written
request, give written notice of such request (the "Request Notice") to all
Stockholders, and effect, as soon as practicable, the registration under the
Securities Act of all Registrable Securities that Stockholders request to be
registered and included in such registration by written notice given by such
Stockholders to the Company within twenty (20) days after receipt of the Request
Notice, subject to the limitations of this Section 4.
(b) Registration of Other Securities. Whenever the Company shall
--------------------------------
effect a registration pursuant to this Section 4.1 in connection with an
underwritten offering by the Initiating Holders, no securities other than
Registrable Securities shall be included among the securities covered by such
registration unless (a) the managing underwriter of such offering shall have
advised the Initiating Holders in writing that the inclusion of such other
securities would not adversely affect such offering or (b) the Initiating
Holders shall have consented in writing to the inclusion of such other
securities.
(c) Registration Statement Form. Registrations under this Section 4.1
---------------------------
shall be on such appropriate registration form of the Commission as shall be
selected by the Company.
(d) Expenses. The Company will pay the Registration Expenses in
--------
connection with the first two registrations on Form S-1 or any successor form
requested pursuant to this Section 4.1 and, in addition, the first two (2)
registrations per year on Form S-3 or any successor form requested pursuant to
this Section 4.1.
(e) Effective Registration Statement. A registration requested
--------------------------------
pursuant to this Section 4.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective, (ii)
if after it has become effective, such registration is interfered with by any
stop order, injunction or other order or requirement of the Commission or other
governmental agency or court and has not thereafter become effective or (iii) if
the conditions to closing specified in the underwriting agreement, if any,
entered into in connection with such registration are not satisfied or waived.
(f) Selection of Underwriters. The underwriter or underwriters of each
-------------------------
underwritten offering of the Registrable Securities so to be registered shall be
selected by the Company (which underwriter shall be acceptable to the Initiating
Holders).
(g) Limitations on Registration on Request. Notwithstanding anything
--------------------------------------
in this Section 4.1 to the contrary, in no event will the Company be required to
effect, pursuant to this Section 4.1, more than four registrations during the
term of this Agreement (two of which shall be exercisable only by GE Capital)
unless the Company is eligible at the time of a request for registration
pursuant to this Section 4.1 to use Form S-3 or any successor form, in which
event there shall be no limit to the number of registrations which may be
requested by the Initiating Holders pursuant to this Section 4.1 (provided that
the anticipated aggregate offering price in each such registration on Form S-3
will exceed $1,000,000).
Section 4.2 Incidental Registration.
-----------------------
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(a) Right to Include Registrable Securities. If the Company proposes
---------------------------------------
at any time to register any of its securities under the Securities Act by
registration on Forms S-1, S-2 or S-3 or any successor or similar form(s)
(except registrations on such Forms or similar form(s) solely for registration
of securities in connection with an employee benefit plan or dividend
reinvestment plan or a merger, reorganization, or consolidation), whether or not
for sale for its own account, it will, subject to Section 4.8 hereof, each such
time give prompt written notice to the Stockholders of its intention to do so
and of the Stockholders' rights under this Section 4.2. Upon the written request
of any Stockholder made as promptly as practicable and in any event within 20
days after the receipt of any such notice (10 days if the Company states in such
written notice or gives telephonic notice to such Stockholder, with written
confirmation to follow promptly thereafter, that (i) such registration will be
on Form S-3 and (ii) such shorter period of time is required because of a
planned filing date), the Company will, subject to Section 4.8 hereof, use its
best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
such Stockholder; provided, however, that if, at any time after giving written
-------- -------
notice of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give written
notice of such determination to such Stockholder and (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
any obligation of the Company to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of such Stockholder to
request that such registration be effected as a registration under Section 4.1
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities, for the same period as the
delay in registering such other securities. No registration effected under this
Section 4.2 shall relieve the Company of its obligation to effect any
registration upon request under Section 4.1. The Company will pay all
Registration Expenses in connection with registration of Registrable Securities
requested pursuant to this Section 4.2.
(b) Priority in Incidental Registrations. If the managing underwriter
------------------------------------
of any underwritten offering shall inform the Company (or, in the case of a
secondary offering, the selling stockholders initiating such offering) of its
belief that the number or type of Registrable Securities requested to be
included in such registration would materially adversely affect such offering,
then the Company will include in such registration, to the extent of the number
and type which the Company is (or the selling stockholders initiating such
offering are) so advised can be sold in (or during the time of) such offering,
first, all securities proposed by the Company (or, in the case of a secondary
offering, the Stockholders initiating such offering) to be sold for its (or
their) own account, second, all Registrable Securities requested to be included
in such registrations by the Stockholders on a pro rata basis, and third, any
other securities of the Company requested to be included in such registration on
a pro rata basis.
(c) Selection of Managing Underwriter. The managing underwriter of any
---------------------------------
underwritten offering pursuant to this Section 4.2 shall be selected by the
Company at its sole discretion.
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Section 4.3 Registration Procedures. If and whenever the Company is
-----------------------
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Section 4.1 and 4.2, the Company will as
expeditiously as possible:
(i) use its best efforts to prepare and (as soon as
practicable, and in any event within 75 days in the case of Forms S-1 or S-2 and
30 days in the case of a registration requested on Form S-3) file with the
Commission the requisite registration statement to effect such registration and
thereafter use its best efforts to cause such registration statement to become
effective; provided, however, that the Company may discontinue any registration
-------- -------
of its securities which are not Registrable Securities (and, under the
circumstances specified in Section 4.2(a), its securities which are Registrable
Securities) at any time prior to the effective date of the registration
statement relating thereto;
(ii) use its best efforts to prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement for such period as shall be required for
the disposition of all of such Registrable Securities, provided, that such
period need not exceed 180 days;
(iii) use its best efforts to furnish to each selling
Stockholder, such number of conformed copies of such registration statement and
of each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the Securities
Act, in conformity with the requirements of the Securities Act, and such other
documents, as each selling Stockholder may reasonably request;
(iv) use its best efforts (x) to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such States of the
United States of America where an exemption is not available and as each selling
Stockholder shall reasonably request, (y) to keep such registration or
qualification in effect for so long as such registration statement remains in
effect, and (z) to take any other action which may be reasonably necessary or
advisable to enable each selling Stockholder to consummate the disposition in
such jurisdictions of the securities to be sold by each selling Stockholder,
except that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign Company in any jurisdiction wherein it
would not but for the requirements of this subdivision (iv) be obligated to be
so qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by such
other federal or state governmental agencies or authorities as may be necessary
in the opinion of counsel to the
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<PAGE>
Company and counsel to each selling Stockholder to consummate the disposition of
such Registrable Securities;
(vi) in the case of an underwritten public offering of securities,
furnish to each selling Stockholder and the underwriters a signed counterpart of
(x) an opinion of counsel for the Company, and (y) a "comfort" letter signed by
the independent public accountants who have certified the Company's financial
statements included or incorporated by reference in such registration statement
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountant's comfort letter, with respect to events subsequent to the date of
such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountant's comfort letters delivered to the underwriters in
underwritten public offerings of securities (and dated the dates such opinions
and comfort letters are customarily dated) and, in the case of the accountant's
comfort letter, such other financial matters, and in the case of the legal
opinion, such other legal matters, as each selling Stockholder, or the
underwriters, may reasonably request;
(vii) notify each selling Stockholder at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which, in the
judgment of the Company, the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, in the light of the circumstances under which
they were made, and at the request of each selling Stockholder promptly prepare
and furnish to it a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, in the judgment of the
Company, as thereafter delivered to the selling Stockholders of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 promulgated thereunder, and promptly
furnish to each selling Stockholder a copy of any amendment or supplement to
such registration statement or prospectus;
(ix) provide and cause to be maintained a transfer agent and
registrar (which, in each case, may be the Company) for all Registrable
Securities covered by such registration statement from and after a date not
later than the effective date of such registration; and
15
<PAGE>
(x) use its best efforts to list all Registrable Securities covered by
such registration statement on any national securities exchange or national
quotations system on which Registrable Securities of the same class covered by
such registration statement are then listed.
The Company may require each selling Stockholder to furnish the Company in
writing as promptly as reasonably practicable such information regarding such
selling Stockholder and the distribution of such Registrable Securities as the
Company may from time to time reasonably request in writing.
Each selling Stockholder agrees that upon receipt of any notice from the
Company of the happening of any event of the kind described in subdivision (vii)
of this Section 4.3, such selling Stockholder will forthwith discontinue its
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such selling Stockholder's receipt
of the copies of the supplemented or amended prospectus contemplated by
subdivision (vii) of this Section 4.3 and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such selling Stockholder's possession, of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice.
Section 4.4 Underwritten Offerings.
----------------------
(a) Requested Underwritten Offerings. If requested by the underwriters
--------------------------------
for any underwritten offering by holders of Registrable Securities pursuant to a
registration requested under Section 4.1, the Company will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Company, each selling
Stockholder and the underwriters and to contain such representations and
warranties by the Company and such other terms as are generally prevailing in
agreements of that type, including, without limitation, indemnities to the
effect and to the extent provided in Section 4.7. Each selling Stockholder will
cooperate with the Company in the negotiation of the underwriting agreement and
will give consideration to the reasonable suggestions of the Company regarding
the form thereof. Such selling Stockholder shall be a party to such underwriting
agreement and may, at its option, require that any or all of the representations
and warranties by, and the other agreements on the part of, the Company to and
for the benefit of such underwriters shall also be made to and for the benefit
of such selling Stockholder and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligation of such selling Stockholder. No selling
Stockholder shall be required to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such selling Stockholder, such selling
Stockholder's Registrable Securities, such selling Stockholder's intended method
of distribution and any other representations required by law.
(b) Incidental Underwritten Offerings. If the Company proposes to
---------------------------------
register any of its securities under the Securities Act as contemplated by
Section 4.2 and such securities
16
<PAGE>
are to be distributed by or through one or more underwriters, the Company will,
subject to Section 4.8 hereof, if requested by any selling Stockholder arrange
for such underwriters to include all the Registrable Securities to be offered
and sold by such selling Stockholder among the securities of the Company to be
distributed by such underwriters. Such selling Stockholder shall be a party to
the underwriting agreement between the Company and such underwriters and may, at
its option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such selling
Stockholder and that any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement be conditions precedent
to the obligation of such selling Stockholder. No selling Stockholder shall be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or agreements
regarding such selling Stockholder, such selling Stockholder's Registrable
Securities and such selling Stockholder's intended method of distribution or any
other representations required by law. Notwithstanding the foregoing provisions
of this Section 4.4(b), the Company need not include any Registrable Securities
in an underwritten offering of the Company's securities pursuant to Section 4.2
if the inclusion of such securities, in the opinion of the managing underwriter
for such offering by the Company, might adversely affect such offering by the
Company.
(c) Market Stand-Off Agreements.
---------------------------
(i) In the case of the initial underwritten public offering by
the Company of shares of Common Stock, if the officers and directors of the
Company agree not to effect any disposition (other than a bona fide pledge or
disposition of an Affiliate of any Stockholder who agrees to be bound by the
provisions of this paragraph) (a "Disposition") of any equity security of the
-----------
Company or of any security convertible into or exchangeable or exercisable for
any equity security of the Company (in each case, other than as part of such
underwritten public offering), each Stockholder agrees to the same during the
180-day period (or such longer period as may be reasonably requested by the
underwriter of such offering) beginning on, the effective date of such
registration statement (except as a part of such registration), provided that
such Stockholder has received written notice of such registration prior to such
effective date; provided, however, that any waiver of the foregoing restriction
-------- -------
by the Company or the Company's underwriters shall apply to all persons subject
to such restrictions pro rata based on the number of shares of Company capital
stock owned.
(ii) If any registration of Registrable Securities shall be in
connection with the initial underwritten public offering, the Company agrees (A)
not to effect any public sale or distribution of any of its equity securities or
of any security convertible into or exchangeable or exercisable for any equity
security of the Company (other than any such sale or distribution of such
securities in connection with any merger or consolidation by the Company or any
subsidiary of the Company or the purchase of the capital stock or substantially
all the assets of any other person or in connection with an employee stock
option or other benefit plan) during the 90 days prior to, and during the 180-
day period beginning on, the effective date of such registration statement
(except as part of such registration) and (B) that any agreement entered into
after the date of this Agreement pursuant to which the Company issues or agrees
to
17
<PAGE>
issue any privately placed equity securities shall contain a provision under
which holders of such securities agree not to effect any Disposition of any such
securities during the period referred to in the foregoing clause (i) (except as
part of such registration, if permitted).
Section 4.5 Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give each selling Stockholder, its
underwriters, if any, and its counsel and accountants the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and, to the extent practicable,
each amendment thereof or supplement thereto, and give each of them such access
to its books and records (to the extent customarily given to underwriters of the
Company's securities) and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
selling Stockholder's and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
Section 4.6 Limitations, Conditions and Qualifications to Obligations
---------------------------------------------------------
under Registration Covenants. The obligation of the Company to use its best
- ----------------------------
efforts to cause the Registrable Securities to be registered under the
Securities Act is subject to the limitation, condition and qualification that
the Company shall be entitled to postpone for a reasonable period of time (but
not exceeding 180 days) the filing of any registration statement otherwise
required to be prepared and filed by it pursuant to Section 4.1 if the Company
determines, in its reasonable judgment, that such registration and offering
would interfere with any financing, acquisition, corporate reorganization or
other material transaction involving the Company or any of its Affiliates or
would require premature disclosure thereof and promptly gives each selling
Stockholder written notice of such delay provided, however, that the Company may
postpone a filing in such manner only once in each twelve-month period. If the
Company shall so postpone the filing of a registration statement, each selling
Stockholder shall have the right to withdraw the request for registration by
giving written notice to the Company within 30 days after receipt of the notice
of postponement and, in the event of such withdrawal, such request shall not be
counted for purposes of the requests for registration to which such selling
Stockholder is entitled pursuant to Section 4.1 hereof.
Section 4.7 Indemnification.
---------------
(a) Indemnification by the Company. In the event of any
------------------------------
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless, in the case of any
registration statement filed pursuant to Section 4.1 or 4.2, each selling
Stockholder, its directors, officers, partners, agents and Affiliates and each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such selling Stockholder
or any such underwriter within the meaning of the Securities Act, insofar as
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any
18
<PAGE>
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in which
they were made not misleading, and the Company will reimburse such selling
Stockholder and each such director, officer, partner, agent or affiliate,
underwriter and controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided, that the Company
--------
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument executed by or on behalf of such selling
Stockholder or underwriter, as the case may be, specifically stating that it is
for use in the preparation thereof; and provided, further, that the Company
-------- -------
shall not be liable to any Person who participates as an underwriter in the
offering or sale of Registrable Securities or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's failure to
send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the Person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus so long as such
final prospectus, and any amendments or supplements thereto, have been furnished
to such underwriter. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such selling Stockholder
or any such underwriter, director, officer, partner, agent or affiliate or
controlling Person and shall survive the transfer of such securities by such
selling Stockholder.
(b) Indemnification by Stockholders. As a condition to including any
-------------------------------
Registrable Securities in any registration statement, the Company shall have
received an undertaking satisfactory to it from each selling Stockholder, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 4.7) the Company, and each director of
the Company, each officer of the Company and each other Person, if any, who
controls the Company within the meaning of the Securities Act and each other
selling Stockholder and its affiliates, with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such selling Stockholder specifically stating that
it is for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement;
provided, however, that the liability of each selling Stockholder under this
- -------- -------
Section 4.7(b) shall be limited to the amount of proceeds received by such
selling Stockholder in the offering giving rise to such liability. Such
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company or any
19
<PAGE>
such director, officer or controlling Person or selling Stockholder or affiliate
and shall survive the transfer of such securities by such selling Stockholder.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
-----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 4.7, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
-------- -------
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 4.7, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties is reasonably likely to exist
in respect of such claim, the indemnifying party shall be entitled to
participate in and, to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation unless in such indemnified party's reasonable judgment a conflict
of interest between such indemnified and indemnifying parties arises in respect
of such claim after the assumption of the defense thereof and the indemnified
party notifies the indemnifying party of such indemnified party's judgment and
the basis therefor. No indemnifying party shall be liable for any settlement of
any action or proceeding effected without its written consent, which consent
shall not be unreasonably withheld. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section
------------
4.7 shall for any reason be held by a court to be unavailable to an indemnified
party under subparagraph (a) or (b) hereof in respect of any loss, claim, damage
or liability, or any action in respect thereof, then, in lieu of the amount paid
or payable under subparagraph (a) or (b) hereof, the indemnified party and the
indemnifying party under subparagraph (a) or (b) hereof shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same), (i) in
such proportion as is appropriate to reflect the relative fault of the Company
and each selling Stockholder, with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative benefits received by
the Company and each selling Stockholder from the offering of the securities
covered by such registration statement. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. In addition, no Person shall be obligated to
contribute hereunder any amounts
20
<PAGE>
in payment for any settlement of any action or claim effected without such
Person's consent, which consent shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution similar to
---------------------
that specified in the preceding subdivisions of this Section 4.7 (with
appropriate modifications) shall be given by the Company and selling Stockholder
with respect to any required registration or other qualification of securities
under any federal or state law or regulation of any governmental authority other
than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution
------------------------
required by this Section 4.7 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred. In any case in which
it shall be judicially determined that a party is not entitled to
indemnification or contribution, any payments previously received by such party
hereunder shall be promptly reimbursed.
Section 4.8 Limitations on Registrations of Registrable Securities. The
------------------------------------------------------
Company shall not be required to effect any registration of Registrable
Securities pursuant to Section 4.1 or 4.2 hereof if it shall deliver to each
selling Stockholder an opinion of counsel (which opinion and counsel shall be
reasonably satisfactory to such selling Stockholder) to the effect that all
Registrable Securities held by such selling Stockholder may be sold immediately
in the public market without registration under the Securities Act and any
applicable state securities laws.
Section 4.9 Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
---------
of the General Rules and Regulations under the Exchange Act.
"Commission" means the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of any such similar
Federal statute.
"Initiating Holder" means the holder of Registrable Securities
-----------------
initially requesting registration pursuant to Section 4.1 hereof.
"Person" means a corporation, an association, a partnership, a limited
------
liability company, an organization, a business, an individual, a governmental or
political subdivision thereof or a governmental agency.
21
<PAGE>
"Qualified Public Offering" shall have the meaning given to it in the
-------------------------
Company's Certificate of Incorporation, as amended.
"Registration Expenses" means all expenses incident to the Company's
---------------------
performance of or compliance with Section 4, including, without limitation, all
registration, filing and NASD fees, all listing fees, all fees and expenses of
complying with securities or blue sky laws (including, without limitation,
reasonable fees and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Securities), all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of "cold comfort" letters required by
or incident to such performance and compliance, any fees and disbursements of
underwriters (including, without limitation, fees and expenses of counsel to the
underwriters) customarily paid by issuers or sellers of securities; provided,
--------
however, that Registration Expenses shall exclude, and such selling Stockholder
- -------
shall pay, underwriters' fees and underwriting discounts and commissions and
transfer taxes in respect of the Registrable Securities being registered by such
selling Stockholder and the fees and disbursements of counsel for such selling
Stockholder.
"Registrable Securities" means (i) any shares of Common Stock held by
----------------------
the Stockholders, (ii) the shares of Common Stock (or other securities) issuable
or issued upon conversion of the Shares, (iii) any securities of the Company
issuable or issued with respect to the Shares and/or Common Stock (or other
securities) referred to in clause (i) or (ii) by way of a merger, consolidation,
stock split, stock dividend, recapitalization of the Company or similar
transaction and (iv) any other securities of the Company acquired by a
Stockholder after the date of this Agreement. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (a) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (b) they
shall have been sold as permitted by, and in compliance with, Rule 144 (or any
successor provision) promulgated under the Securities Act, (c) they shall have
been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer under the Securities Act shall have been delivered
by the Company and subsequent public distribution of them shall not require
registration of them under the Securities Act or (d) they shall have ceased to
be outstanding.
"Securities Act" means the Securities Act of 1933, or any similar
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. References to a particular section
of the Securities Act of 1933 shall include a reference to the comparable
section, if any, of any such similar federal statute.
Section 4.11 Rule 144. From and after such time as any class or series of
--------
equity securities of the Company has been registered under Section 12 or 15(d)
of the Exchange Act (the "IPO"), the Company shall take all actions reasonably
necessary to enable each Stockholder to sell its Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the
22
<PAGE>
Commission including, without limiting the generality of the foregoing, filing
on a timely basis all reports required to be filed by the Exchange Act. Upon the
request of each Stockholder, the Company will deliver to such Stockholder a
written statement as to whether it has complied with such requirements.
Section 4.12 Assignment. This Agreement shall be binding upon and inure
----------
to the benefit of and be enforceable by the parties hereto and, with respect to
the Company, its respective successors and assigns and, with respect to any
Stockholder, any beneficial owner of more than 125,000 shares (adjusted for
stock splits, stock dividends, recapitalizations and the like) of Registrable
Securities.
Section 4.13 Termination. The terms and provisions of this Section 4
-----------
shall automatically and without any further action terminate upon the earlier of
(i) the opening of business on the fifth anniversary of the date of the IPO and
(ii) as to each Holder, when all Registrable Securities that such Holder holds
may be publicly offered, sold and distributed without registration under the Act
pursuant to Rule 144 within any three month period, Regulation S or other
exemption from registration promulgated by the Commission under the Act.
ARTICLE V
TERMINATION AND EFFECTIVENESS
Section 5.1 Events of Termination. This Agreement shall terminate upon the
---------------------
earliest occurrence of any of the following events: (i) the written agreement of
66-2/3% of the voting power of the Shares held by the Stockholders; provided,
--------
however, that the terms and conditions of Section 3.3 (as applied to non-public
- -------
market transfers of shares) shall remain in full force and effect; (ii) the
dissolution, bankruptcy or insolvency of the Company; and (iii) the consummation
of a Qualified Public Offering, Company Merger (as defined below), sale, lease
or exchange of all or substantially all of the assets of the Company (other than
as contemplated by the InfoTouch Merger); provided, however, that the terms and
-------- -------
conditions of Section 3.3(a) and (b) (as applied to non-public market transfers
of shares) and Article IV hereof shall remain in full force and effect.
For purposes hereof, "Company Merger" shall mean any consolidation of
the Company with, or merger of the Company with or into, another corporation or
reorganization of the Company; other than a consolidation, reorganization or
merger in which the Company is the surviving corporation. The Company shall be
the "surviving corporation" in any merger if the Company, or its stockholders
immediately before the transaction, shall own (immediately after the
transaction) equity securities, other than warrants, options or similar rights
to subscribe to or purchase equity securities, of the surviving or acquiring
corporation, or its parent corporation, possessing more than 50% of the voting
power of the surviving or acquiring corporation or its parent corporation; and
in making the determination of ownership by the stockholders of a corporation,
immediately after the transaction, of equity securities pursuant to the
preceding clause, equity securities which they owned immediately before the
transaction as shareholders of another party to the transaction shall be
disregarded. For the purposes hereof, voting power of a corporation shall be
calculated by assuming the conversion of all then outstanding convertible
23
<PAGE>
equity securities (including those convertible at some future date), but not
assuming the exercise of any warrants, options or other rights to subscribe to
or purchase voting shares.
Section 5.2 Effect of Termination. In the event of termination of this
---------------------
Agreement pursuant to Section 5.1 hereof, this Agreement shall forthwith become
null and void and of no further force and effect, without any liability on the
part of any party or its directors, officers, partners, members, managers,
affiliates, employees, agents or security holders, except as otherwise provided
in Sections 5.1(i) and (iii) hereof.
Section 5.3 Effectiveness. Notwithstanding anything in this Agreement to
-------------
the contrary, this Agreement shall be conditioned on, and effective as of
immediately prior to, the Effective Time of the InfoTouch Merger, and in the
event that the InfoTouch Merger does not close on or before February 28, 1999,
this Agreement shall be of no force or effect, and the Prior Stockholders'
Agreement shall continue to be effective and apply to the parties thereunder.
If and when this Agreement becomes effective it shall amend, restate and
supersede in its entirety the Prior Stockholders Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1 Additional Parties. If pursuant to Section 1.3 of the Stock
------------------
Purchase Agreement dated August 21, 1998, as amended, additional parties
purchase shares of Series F Preferred Stock as "New Purchasers" thereunder, then
each such New Purchaser shall become a party to this Agreement as a
"Stockholder" hereunder, without the need for any consent, approval or signature
of any Purchaser when such New Purchaser has both: (i) purchased shares of
Series F Stock under such Stock Purchase Agreement and paid the Company all
consideration payable for such shares and (ii) executed one or more counterpart
signature pages to this Agreement as a "Stockholder", with the Company's
consent.
Section 6.2 Information Rights. The Company shall deliver to each
------------------
Stockholder, on an annual and quarterly basis, consolidated financial statements
(audited in the case of annual statements), the Company's annual budget and
business plan, and any other information that may be reasonably requested by (i)
any Stockholder that owns more than twenty percent (20%) of the Shares on a
fully diluted basis; or (ii) any holder of Series C Preferred Stock, Series D
Preferred Stock or Series F Preferred Stock; provided, however, that, unless
-------- -------
required by any law or regulation promulgated by a governmental agency, any
statements or information delivered or disclosed by the Company pursuant to this
paragraph shall be confidential and shall not be disclosed by any Stockholder to
any third party without the prior written consent of the Company.
Section 6.3 Legend. All certificates representing the issued and
------
outstanding Shares of the capital stock of the Company shall bear the following
legend:
24
<PAGE>
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED BY A STOCK PURCHASE AGREEMENT DATED AUGUST 21, 1998, AS
AMENDED, AND A STOCKHOLDER'S AGREEMENT DATED AS OF JANUARY 28, 1999,
BY AND BETWEEN THE COMPANY AND CERTAIN OF ITS SECURITYHOLDERS COPIES
OF WHICH ARE ON FILE IN THE PRINCIPAL OFFICE OF THE COMPANY."
Such endorsement shall not affect the rights of Stockholders to vote the shares
of Common Stock and Preferred Stock and receive dividends thereon. Following any
termination of this Agreement, a Stockholder may have any legend referring to
the existence of this Agreement removed from any certificates representing such
Stockholder's Shares.
Section 6.4 Third Party Beneficiary. No provision of this Agreement is
-----------------------
intended to confer upon any person other than the parties hereto (and their
respective successors and assigns) any rights or remedies hereunder.
Section 6.5 Further Documents. The parties hereto shall execute and
-----------------
deliver any and all documents or legal instruments necessary or desirable to
carry out the provisions of this Agreement.
Section 6.6 Binding Agreement; Entire Agreement; Successors and Assigns.
-----------------------------------------------------------
This Agreement shall be binding upon the Stockholders and the Company, and their
respective successors and assigns. This Agreement constitutes the entire
contract between the Company and the Stockholders relative to the subject matter
hereof. Any previous agreement between the Company and any Stockholders
concerning the subject matter hereof is superseded by this Agreement, including
without limitation the Prior Stockholders' Agreement. Subject to the exceptions
specifically set forth in this Agreement, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successor, and assigns of the parties
(including transferees of any of the Shares issued upon conversion thereof).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
Section 6.7 Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Delaware except for those provisions governing conflict of laws,
notwithstanding that one or more of the parties to this Agreement is now, or may
hereafter become, a resident or citizen of a different State.
Section 6.8 Amendment; Waiver. This Agreement or any provision hereof may
-----------------
be amended, waived, discharged or altered in any manner, but any such change
shall become effective only if, when and to the extent it is reduced to a
writing signed by a two thirds (2/3rds) of the voting power of the Shares held
by the Stockholders provided, however, that any amendment, waiver, discharge or
-------- -------
alteration of Section 2.1, Section 3.3 or Section 5.1 hereof or
25
<PAGE>
this Section 6.8 (as it relates to Sections 2.1, 3.3 or 5.1) shall require the
prior approval of NAR, which approval shall not be unreasonably withheld.
Section 6.9 Notices. All notices, requests, demands and other
-------
communications made hereunder shall be in writing and shall be deemed duly given
when delivered personally against receipt or sent by facsimile, delivered by
recognized overnight delivery service (i.e., Federal Express, Airborne or UPS),
----
or on the third day after deposit with the post office by registered or
certified mail, postage prepaid and return receipt requested, as set forth on
Exhibit B hereto, or to such other address or person as a party may hereafter
designate by notice to the other party:
Section 6.10 No Continuing Waiver. No waiver of any default or breach of
--------------------
this Agreement shall be determined a continuing waiver or a waiver of any other
breach or default hereunder.
Section 6.11 Severability. The invalidity or unenforceability of any
------------
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed, in all respects, as though such
invalid or unenforceable provisions were omitted.
Section 6.12 Headings. Headings that appear in this Agreement are intended
--------
solely for ease of reference and not as substantive language, and should not be
considered in the construction hereof.
Section 6.13 Books and Records. The books and records of the Company shall
-----------------
be available to the Stockholders, and to any of them, for review at the address
of the Company at normal business hours on normal business days.
Section 6.14 Aggregation of Stock. All shares held or acquired by
--------------------
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
Section 6.15 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of will shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[SIGNATURE PAGES FOLLOW]
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
date first above written.
NETSELECT, INC. INGLESIDE INTERESTS, A CALIFORNIA
LIMITED PARTNERSHIP
By:___________________________________ By:_______________________________
Name: Stuart Wolff, Ph.D. Joseph Hanauer, General Partner
Title: Co-Manager
CDW INTERNET, L.L.C. GEOCAPITAL IV, L.P.
By:___________________________________ By: GEOCAPITAL MANAGEMENT, L.P.,
Name: Stuart Wolff, Ph.D. its General Partner
Title: Co-Manager
WHITNEY EQUITY PARTNERS, L.P. By:_______________________________
By: J.H. Whitney Equity Partners, LLC Name:
its General Partner Title:
By:___________________________________ BROADVIEW PARTNERS GROUP
Name:
a Managing Member
ALLEN & CO. By: Peter J. Mooney, Nominee
By:___________________________________ By:_______________________________
Name: Name: Peter J. Mooney
Title: Title:
INFOTOUCH CORPORATION GENERAL ELECTRIC CAPITAL
CORPORATION
By:____________________________________ By:_______________________________
Name: Richard Janssen Name:
Title: President and Chief Executive Title:
Officer
_______________________________________
Michael N. Flannery, Individually
27
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND
RESTATED NETSELECT, INC. STOCKHOLDERS' AGREEMENT]
28
<PAGE>
NATIONAL ASSOCIATION OF REALTORS
_______________________________________
John F. Petrick, Jr., Individually
By:_____________________________
_______________________________________
Daniel A. Koch, Individually Name:
Title:
_______________________________________ MORGAN STANLEY VENTURE PARTNERS
Fred White, Individually III, L.P.
_______________________________________ By:Morgan Stanley Venture
R. Fred White III, Individually Partners III, L.L.C.
its General Partner
KLEINER PERKINS CAUFIELD & BYERS By:Morgan Stanley Venture Capital
III, Inc. its
Institutional Managing Member
By: KPCB VIII Associates, L.P., its By:____________________________
General Partner Name:
Title:
By: ____________________________________ MORGAN STANLEY VENTURE INVESTORS
Name: III, L.P.
Title: General Partner
KPCB VIII FOUNDERS FUND, L.P. By:Morgan Stanley Venture Partners
III, L.L.C. its General Partner
By: KPCB VIII Associates, L.P., its By:Morgan Stanley Venture Capital
General Partner III, Inc. its
Institutional Managing Member
By: ____________________________________ By:_____________________________
Name: Name:
Title: General Partner Title:
[SIGNATURE PAGE TO SECOND AMENDED AND
RESTATED NETSELECT, INC. STOCKHOLDERS' AGREEMENT]
28
<PAGE>
KPCB INFORMATION SCIENCES THE MORGAN STANLEY VENTURE PARTNERS
ZAIBATSU FUND II, L.P. ENTREPRENEUR FUND, L.P.
By:KPCB VII Associates, L.P., its By: Morgan Stanley Venture Partners
General Partner III, L.L.C. its General Partner
By:________________________________ By: Morgan Stanley Venture Capital
Name: III Inc. its
Title: General Partner Institutional Managing Member
INTUIT, INC. By:_______________________________
Name:
Title:
By:________________________________ MORGAN STANLEY DEAN WITTER EQUITY
Name: FUNDING, INC.
Title:
By:________________________________
Name:
Title:
FANNIE MAE
COX INTERACTIVE MEDIA, INC. By:_________________________________
Name:
Title:
By:________________________________ UBS CAPITAL II, LLC
Name:
Title:
By:_________________________________
FANNIE MAE Name:
Title:
By:_________________________________ INFOTOUCH CORPORATION
Name:
Title: By:_________________________________
Name:
Title:
29
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND
RESTATED NETSELECT, INC. STOCKHOLDERS' AGREEMENT]
INFOTOUCH STOCKHOLDER THE NATIONAL ASSOCIATION OF HOME BUILDERS
OF THE UNTIED STATES
By: ______________________________ By:______________________________________
Name: Name:
Title: Title:
[SIGNATURE PAGE TO SECOND AMENDED AND
RESTATED NETSELECT, INC. STOCKHOLDERS' AGREEMENT]
31
<PAGE>
Exhibit A
---------
INFOTOUCH STOCKHOLDERS
Kalpana & Naresh Saxena HWTM Partners XII
18847 Edleen Drive c/o Richard Troop
Tarzana, CA 91350 2029 Century Park East
818-988-8101 Suite BLC 17-253
Los Angeles, CA 90067-3010
(310) 728-3128
Daniel A. Koch Richard Janssen
12905 Lafayette Ave RealSelect
Omaha, NE 68154 225 West HillCrest Drive Suite 100
(402) 861-7000 Thousand Oaks, CA 91360
(805) 557-2300
Michael Flannery Saakey A. Johnson
Valley Business Printers Hidden Creek Industries
16230 Filbert St. 4508 IDS Center
Sylmar, CA 91342 Minneapolis, MN 55402
(818) 362-7771 612-332-2335
Luther Nussbaum Roger C. Schultz & Priscilla Schultz
First Consulting Group 865 S. Figueroa St. #3500
111 W. Ocean Bl., 4th Floor Los Angeles, CA 90017
Long Beach, CA 90802 213-683-4208
(562) 624-5220
Vikram Singh Walter F. Bauer Family Trust
2935 Highridge Road 15935 Valley Vista Blvd.
LaCrescenta, CA 91214 Encino, CA 91436
818-559-3043 818-783-5688
Bert Zaccaria SBH Investments
3000 Sand Hill Road #3-210 c/o Lee Spitler
Menlo Park, CA 94025 10 E. Ridge Court
650-854-1980 Danville, CA 94506
Robin Janssen John Petrick
RealSelect Caldwell Becker Dervin Petrick
5095 Murphy Canyon Road #260 20750 Ventura Bl., Suite 140
San Diego, CA 92123 Woodland Hills, CA 91364
619-715-3700 (818) 704-1040
<PAGE>
KL LLC Carol Garrison
c/o Mike Luther 23428 Westford Place
2410 S. 156th Circle #100 Valencia, CA 91354
Omaha, NE 68130 805-296-2271
402-334-5556
William Spazante Robert Wilkinson
Globe Wireless 18760 Clearbrook Street
550 Pilgrim Drive Northridge, CA 91326
Foster City, CA 94404 818-613-9007
(650) 372-2650
1/st/Natl. Bank of Omaha TTEE for Michael S. Luther
Harry A. Koch 2410 S. 156/th/ Circle #100
Trust Dept. Omaha, NE 68130
PO Box 3128 402-334-5556
Omaha, NE 68103
402-341-0500
Dieter Trelle MD, Inc. James D. Slavik
Money Purchase pension Plan 5 Kent
17901 Sunburst St. Irvine, CA 92715
Northridge, CA 91324 714-851-1688
818-886-4011
Anthony B. Joseph Philip Dawley
DACOR RealSelect
950 S. Raymond Ave 225 West HillCrest Drive, Suite 100
Pasadena, CA 91109-7202 Thousand Oaks, CA 91360
818-799-1000 x 115 (805) 557-2300
Mark Kajiwara Anil Agarwal
RealSelect 626 North 164/th/ St.
225 West HillCrest Drive Suite 100 Omaha, NE 68118
Thousand Oaks, CA 91360
(805) 557-2300
2
<PAGE>
Exhibit B
---------
NOTICE INFORMATION
If to the Company, to: If to GeoCapital, to:
NetSelect, Inc. GeoCapital IV, L.P.
225 West Hillcrest Drive, Suite 100 One Bridge Plaza
Thousand Oaks, CA 91360 Fort Lee, NJ 07024-7502
Attention: Chief Executive Officer Facsimile No.: (201) 346-9191
Facsimile No.: (805) 557-2680
With a copy to: If to Broadview, to:
Mark C. Stevens, Esq. Broadview Partners Group
Fenwick & West, LLP One Bridge Plaza
Two Palo Alto Square Fort Lee, NJ 07024-7502
Palo Alto, CA 94306 Facsimile No.: (201) 346-9191
Facsimile No.: (650) 494-1417
If to CDW Internet or Allen & Co., to: If to InfoTouch, Flannery, Petrick,
Koch or Ingleside, to:
NetSelect, Inc. InfoTouch Corporation
225 West Hillcrest Drive, Suite 100 225 West Hillcrest Drive, Suite 100
Thousand Oaks, CA 91360 Thousand Oaks, CA 91360
Attention: Stuart Wolff, Ph.D. Attention: Richard R. Janssen
Facsimile No.: (805) 557-2680 Facsimile No.: (805) 557-2680
With a copy to: With a copy to:
Battle Fowler LLP Troop Meisinger Steuber & Pasich LLP
Park Avenue Tower 10940 Wilshire Boulevard
75 East 55th Street Los Angeles, California 90024-3902
New York, NY 10022 Attention: Alan B. Spatz, Esq.
Attention: Charles H. Baker, Esq. Facsimile No.: (310) 443-7599
Facsimile: (212) 856-7814
If to Whitney, to: If to NAR, to
Whitney Equity Partners, L.P. National Association of REALTORS(R)
177 Broad Street 430 North Michigan Avenue
Stamford, CT 06901 Chicago, Illinois 60611-4087
Attention: Daniel J. O'Brien, Esq. Attention: General Counsel
Facsimile No.: (203) 973-1422 Facsimile No.: (312) 329-8256
With a copy to: If to a KP Entity, to:
Morgan, Lewis & Bockius LLP
101 Park Avenue Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
<PAGE>
<TABLE>
<S> <C>
New York, NY 10178-0060 Menlo Park, CA 94025
Facsimile No.:[ ] Facsimile No.: (650) 233-0300
If to GE Capital, to: With a copy to:
General Electric Capital Corporation Latham & Watkins
260 Long Ridge Road 75 Willow Road
Stamford, CT 06907 Menlo Park, CA 94025
Attention: Equity Capital Group - NetSelect Attention: Allen Morgan, Esq.
Account Manager Facsimile No.: (650) 463-2600
Attention: Counsel
Facsimile No.: (203) 961-2088 & (203)
357-3047
With a copy to: If to Fred White or R. Fred White I II, to:
Warren de Wied, Esq. National New Homes Co., Inc.
Fried, Frank, Harris, Shriver & Jacobson 17120 North Dallas Parkway, Suite 175
One New York Plaza Dallas, Texas 75248
New York, New York 10004 Facsimile No.: (800) 600-3903
Facsimile No.: (212) 859-4000
If to NAHB, to: With a copy to:
The National Association of Home Builders of Ronald G. Houdyshell
the United States Ford, Ferraro, Fritz, Byrne, Rhea & Head,
National Housing Center L.L.P.
1201 15/th/ Street, N.W. 98 San Jacinto Blvd., Suite 2000
Washington, D.C. 20005 Austin, Texas 78701-4286
Facsimile No.: 202-861-2161 Facsimile No.: (512) 477-5267
With a copy to: If to Intuit, to:
Eliot W. Robinson, Esq. Intuit, Inc.
Powell, Goldstein, Frazer & Murphy LLP 2535 Garcia Avenue
191 Peachtree Street, NE, 16th Floor Mountain View, CA 94043
Atlanta, GA 30303 Attention: Raymond Stern and Catherine
Facsimile No.: 404-572-6999 Valentine
Facsimile No.: (650) 944-5577
If to Fannie Mae, to: If to Cox, to:
</TABLE>
2
<PAGE>
Fannie Mae Cox Interactive Media, Inc.
Attn: General Counsel 1400 Lake Hearn Drive, N.E.
3900 Wisconsin Ave., N.W. Atlanta, GA 30319
Washington, D.C. 20016 Attn: William L. Killen, Jr.
Facsimile No.: (202) 752-4439 Facsimile No.: (404) 843-5256
If to a Morgan Stanley Venture Partner If to UBS Capital II, LLC:
Entity, to:
UBS Warburg Dillon Read
3000 Sand Hill Road 299 Park Avenue
B-4, Suite 250 New York, NY 10171
Menlo Park, CA 94025 Attn: Michael Greene
Fax: (650) 233-2626 Facsimile No.: (212) 906-7064
and
1221 Avenue of the Americas, 33rd floor
New York, NY 10020
Fax: (212) 762-8424
If to Morgan Stanley Dean Witter Equity
Funding, Inc.
c/o Morgan Stanley Dean Witter
1585 Broadway
36th Floor
New York, NY 10036
Phone: (212) 761-6559
Fax: (212) 761-9869
With a copy to:
Latham & Watkins
75 Willow Road
Menlo Park, CA 94025
Attention: Allen Morgan, Esq.
Facsimile No.: (650) 463-2600
3
<PAGE>
EXHIBIT 4.02.2
AMENDMENT NO. 1 TO THE SECOND AMENDED AND RESTATED
NETSELECT, INC. STOCKHOLDERS AGREEMENT
This Amendment No. 1 (this "Amendment No. 1") to that certain Second
Amended and Restated NetSelect Stockholders' Agreement (the " NetSelect
Stockholders Agreement") is made as of April 9, 1999, by and among those
individuals and entities listed on Exhibit A to that certain NetSelect, Inc.
---------
Stock Purchase Agreement dated of even date herewith (the "Stock Purchase
Agreement") (except for Cox (as defined below), individually, a "New
Stockholder" and, collectively, the "New Stockholders"), NetSelect, Inc., a
Delaware corporation (the "Company"), CDW Internet, L.L.C., a Delaware limited
liability company, the National Association of Home Builders, a Nevada not for
profit corporation, Whitney Equity Partners, L.P., a Delaware limited
partnership, Allen & Co., Michael N. Flannery, John F. Petrick, Jr., Daniel A.
Koch, Ingleside Interests, a Colorado limited partnership, Geocapital IV, L.P.,
a Delaware limited partnership, Broadview Partners Group, General Electric
Capital Corporation, a New York corporation, the National Association of
Realtors, an Illinois not for profit corporation, Kleiner Perkins Caufield &
Byers VIII, L.P., Kleiner Perkins Caufield & Byers Founders Fund VIII, L.P. and
KPCB Information Sciences Zaibatsu Fund II, L.P. , Intuit, Inc., a Delaware
corporation, Fannie Mae, a corporation formed under the laws of the United
States, Cox Interactive Media, Inc. ("Cox"), a Delaware corporation, UBS Capital
II, LLC, a Delaware limited liability company, Fred White, R. Fred White III,
Morgan Stanley Venture Partners III, L.P., Morgan Stanley Venture Investors III,
L.P., The Morgan Stanley Venture Partners Entrepreneurs Fund III, L.P. and
Morgan Stanley Dean Witter Equity Funding, Inc. and the persons and entities who
were stockholders of the Company before the closing of the InfoTouch Merger (as
defined in that certain Agreement and Plan of Merger dated as of December 31,
1998 by and among NetSelect, Inc., NetSelect, LLC and InfoTouch Corporation (the
"Merger Agreement")) listed on Exhibit A to the Merger Agreement. All of the
---------
parties hereto, other than the Company are collectively referred to herein as
the "Stockholders."
WHEREAS, the parties hereto entered into the NetSelect Stockholders
Agreement and the parties hereto now desire to amend the NetSelect Stockholders
Agreement as set forth herein; and
WHEREAS, the execution and delivery of this Amendment is a condition of
closing to the Stock Purchase Agreement.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. The New Stockholders shall be included in the definition of
"Stockholders" for all purposes of the NetSelect Stockholders Agreement and
"Shares" shall include all shares of the company's Series G Preferred Stock held
by the Stockholders.
2. Sections 3.2(a) and 3.2(b) of the NetSelect Stockholders Agreement
shall be amended in full to read as follows:
"Section 3.2 Right of First Offer; Issuance of Securities.
--------------------------------------------
(a) In the event that the Company shall, in any single issuance,
propose to issue additional equity securities of the Company (the "Securities")
representing in excess of ten percent (10%) of the issued and outstanding shares
of capital stock of the Company (on a fully
<PAGE>
diluted and converted basis) (other than securities issued pursuant to employee
benefit plans, options or warrants outstanding as of the date hereof, securities
issued with respect to the conversion of Shares, options issued after the date
hereof pursuant to grants by the Board under stock option plans approved by the
Board, and securities issued in connection with the acquisition of businesses or
securities issued pursuant to a Qualified Public Offering) for a consideration
per share equal to or greater than (u) in the case of the Series A Preferred
Stock, $2.83; (v) in the case of the Series B Preferred Stock, $6.19; (w) in the
case of the Series C Preferred Stock, $7.32; (x) in the case of the Series D
Preferred Stock, $14.67; (y) in the case of the Series F Preferred Stock, $24.00
and (z) in the case of the Series G Preferred Stock, $49.86, the Company shall
promptly deliver a notice (the "Issuance Notice") to the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock, as the
case may be, setting forth the terms and conditions of such proposed issuance,
and the holders of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series F Preferred Stock,
and Series G Preferred Stock, as the case may be, shall have the right to
purchase those Securities described in the Issuance Notice; provided, however,
-------- -------
that in the event that the Company shall issue in any consecutive twelve-month
period (after the Effective Time of the InfoTouch Merger) in a series of
issuances shares in excess of 10% (ten percent) of the issued and outstanding
shares of Common Stock of the Company (on a fully diluted and converted basis)
(other than securities issued pursuant to employee benefit plans, options or
warrants outstanding as of the date hereof, securities issued with respect to
conversion of Shares, options issued after the date hereof pursuant to grants by
the Board under stock option plans approved by the Board, securities issued in
connection with the acquisition of businesses or securities issued pursuant to a
Qualified Public Offering) for a weighted-average consideration per security
equal to or greater than (u) in the case of the Series A Preferred Stock, $2.83;
(v) in the case of the Series B Preferred Stock, $6.19; (w) in the case of the
Series C Preferred Stock, $7.32; (x) in the case of the Series D Preferred
Stock, $14.67, (y) in the case of the Series F Preferred Stock, $24.00, and (z)
in the case of the Series G Preferred Stock, $49.86, the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock, as the
case may be, shall have the right to purchase those Securities in the last
proposed issuance by the Company that shall cause the Company to issue in excess
of such 10% (ten percent) of the issued and outstanding shares of Common Stock
of the Company (on a fully diluted and converted basis). The Issuance Notice
shall constitute an offer by the Company to issue the Securities subject to the
issuance (the "Issuance Securities") to such Stockholders on the terms and
conditions set forth in the Issuance Notice. All dollar amounts contained in
this Section 3.2(a) shall be adjusted for stock splits, stock dividends,
recapitalizations and the like after March 31, 1999.
(b) In the event that the Company shall after the Effective Time of
the InfoTouch Merger propose to issue additional Securities (other than
Securities issued pursuant to employee benefit plans) for a consideration per
Security less than (u) in the case of the Series A Preferred Stock, $2.83; (v)
in the case of the Series B Preferred Stock, $6.19; (w) in the case of the
Series C Preferred Stock, $7.32; (x) in the case of the Series D Preferred
Stock, $14.67, (y) in the case of the Series F Preferred Stock, $24.00, and (z)
in the case of the Series G Preferred Stock, $49.86, the Company shall first
offer to the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock (collectively, the "Subject Preferred Shares"),
depending upon the consideration per security, a pro rata share of the
securities proposed to be issued (based on the Common Stock equivalent of such
holder's shares versus the Common Stock equivalent of the
<PAGE>
shares held by all holders entitled to receive notice). The Company shall
promptly deliver an Issuance Notice to the holders of the Subject Preferred
Shares setting forth the terms and conditions of such proposed issuance. The
Issuance Notice shall constitute an offer by the Company to issue the securities
subject to the issuance also (the "Issuance Securities") to such Stockholders on
the terms and conditions set forth in the Issuance Notice. All dollar amounts in
this Section 3.2(b) are subject to adjustment for stock splits, stock dividends,
recapitalizations and the like after March 31, 1999."
3. Section 4.4(c)(i) of the NetSelect Stockholders Agreement shall
be amended in full to read as follows:
"(c) Market Stand-Off Agreements.
---------------------------
(i) In the case of the initial underwritten public offering by
the Company of shares of Common Stock, if the officers and directors of the
Company agree not to effect any disposition (other than a bona fide pledge or
disposition to an Aff iliate of any Stockholder who agrees to be bound by the
provisions of this paragraph) (a "Disposition") of any equity security of the
-----------
Company or of any security convertible into or exchangeable or exercisable for
any equity security of the Company (in each case, other than as part of such
underwritten public offering), each Stockholder agrees to the same during the
180-day period (or such longer period as may be reasonably requested by the
underwriter of such offering) beginning on, the effective date of such
registration statement (except as a part of such registration), provided that
such Stockholder has received written notice of such registration prior to such
effective date; provided, however, that any waiver of the foregoing restriction
-------- -------
by the Company or the Company's underwriters shall apply to all persons subject
to such restrictions pro rata based on the number of shares of Company capital
stock owned and provided further, however, that any equity securities that are
-------- ------- -------
purchased in the underwritten public offering or in the open market on or after
the effective date of such registration statement shall not be subject to the
restrictions set forth in this Section 4.4(c)(i)."
4. Section 6.2 of the NetSelect Stockholders Agreement shall be amended
in full to read as follows:
"Section 6.2 Information Rights. The Company shall deliver to each
------------------
Stockholder, on an annual and quarterly basis, consolidated financial statements
(audited in the case of annual statements), the Company's annual budget and
business plan, and any other information that may be reasonably requested by (i)
any Stockholder that owns more than twenty percent (20%) of the Shares on a
fully diluted basis; or (ii) any holder of Series C Preferred Stock, Series D
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock; provided,
--------
however, that, unless required by any law or regulation promulgated by a
- -------
governmental agency, any statements or information delivered or disclosed by the
Company pursuant to this paragraph shall be confidential and shall not be
disclosed by any Stockholder to any third party without the prior written
consent of the Company."
5. The amendment to Section 4.4(c)(i) to the NetSelect Stockholders
Agreement that is set forth in Section 2 to this Amendment may only be amended
with the prior written consent of each New Stockholder and Cox.
<PAGE>
6. Each New Stockholder hereby acknowledges and agrees to be subject to
and bound by all of the terms and conditions of the NetSelect Stockholders
Agreement, as amended, as a Stockholder.
7. This Agreement will be effective upon the Closing (as such term is
defined in the Stock Purchase Agreement).
8. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
9. Except as amended hereby, the NetSelect Stockholders Agreement shall
remain in full force and effect in accordance with its terms.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
to the Second Amended and Restated NetSelect Stockholders Agreement as of the
date first written above.
<TABLE>
<S> <C>
NETSELECT, INC. NETSELECT, INC.
By: /s/ Stuart Wolff By:
----------------------------------------- ---------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Name: Amerindo Technology Growth Fund II
--------------------------------------- -------------------------------------
By: By: /s/ Gary A. Tanaka
----------------------------------------- ---------------------------------------
Name of Signatory: Name of Signatory: Gary A. Tanaka
-------------------------- ------------------------
Title: Title: Director
-------------------------------------- ------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ Stuart Wolff
- -------------------------------------------- ------------------------------------------
Name: Stuart Wolff, Ph.D Name:
--------------------------------------- -------------------------------------
NETSELECT, INC. NETSELECT, INC.
By: By:
----------------------------------------- ---------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Litton Master Trust-Attorney in Fact Name:
--------------------------------------- -------------------------------------
By: /s/ Gary A. Tanaka By:
----------------------------------------- ---------------------------------------
Name of Signatory: Gary A. Tanaka Name of Signatory:
-------------------------- ------------------------
Title: Title:
-------------------------------------- ------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ James Stableford
- -------------------------------------------- ------------------------------------------
Name: Name: James Stableford
--------------------------------------- -------------------------------------
NETSELECT, INC. NETSELECT, INC.
By: By:
----------------------------------------- ---------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Name: Ralph H. Cechettini 1995 Trust
--------------------------------------- -------------------------------------
By: By: /s/ Ralph H. Cechettini
----------------------------------------- ---------------------------------------
Name of Signatory: Name of Signatory: Ralph H. Cechettini
-------------------------- ------------------------
Title: Title: Trustee
-------------------------------------- ------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ Anthony Ciulla
- -------------------------------------------- ------------------------------------------
Name: Anthony Ciulla Name:
--------------------------------------- -------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
NETSELECT, INC. NETSELECT, INC.
By: By:
-------------------------------------------- ---------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Pivotal Partners, L.P. Name:
------------------------------------------ -------------------------------------
By: /s/ Ralph H. Cechettini By:
-------------------------------------------- ---------------------------------------
Name of Signatory: Ralph H. Cechettini Name of Signatory:
----------------------------- ------------------------
Title: Managing Partner Title:
----------------------------------------- ------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ Marc Weiss
- ----------------------------------------------- ------------------------------------------
Name: Name: Marc Weiss
------------------------------------------ -------------------------------------
NETSELECT, INC. NETSELECT, INC.
By: By:
-------------------------------------------- ---------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Name: Cox Interactive Media
------------------------------------------ -------------------------------------
By: By: /s/ William H. Killen Jr.
-------------------------------------------- ---------------------------------------
Name of Signatory: Name of Signatory: William H. Killen
----------------------------- ------------------------
Title: Title: Vice President
----------------------------------------- ------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ Dana E. Smith
- ----------------------------------------------- ------------------------------------------
Name: Dana E. Smith Name:
------------------------------------------ -------------------------------------
NETSELECT, INC. NETSELECT, INC.
By: By:
-------------------------------------------- ---------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Kleiner Perkins Caufield Byers VIII, L.P. Name: KPCB VIII Founders Fund L.P.
------------------------------------------ -------------------------------------
By: /s/ L. John Doerr By: /s/ L. John Doerr
-------------------------------------------- ---------------------------------------
Name of Signatory: John Doerr Name of Signatory: John Doerr
----------------------------- ------------------------
Title: Partner Title:
----------------------------------------- ------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
- ----------------------------------------------- ------------------------------------------
Name: Name:
------------------------------------------ -------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
NETSELECT, INC. NETSELECT, INC.
By: By:
------------------------------------------------- --------------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: KPCB Information Sciences Zaibatsu Fund, L.P. Name: Broadview Partners Group
----------------------------------------------- ------------------------------------------
By: /s/ L. John Doerr By: /s/ Peter J. Mooney
------------------------------------------------- --------------------------------------------
Name of Signatory: John Doerr Name of Signatory: Peter J. Mooney
---------------------------------- -----------------------------
Title: Title: Nominee
---------------------------------------------- -----------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
- ---------------------------------------------------- -----------------------------------------------
Name: Name:
----------------------------------------------- ------------------------------------------
NETSELECT, INC. NETSELECT, INC.
By: By:
------------------------------------------------- --------------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: CDW Internet, LLC Name:
----------------------------------------------- ------------------------------------------
By: /s/ Stuart Wolff By:
------------------------------------------------- --------------------------------------------
Name of Signatory: Stuart Wolff Name of Signatory:
---------------------------------- -----------------------------
Title: Co-Manager Title:
---------------------------------------------- -----------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ Richard R. Janssen
- ---------------------------------------------------- -----------------------------------------------
Name: Name: Richard R. Janssen
----------------------------------------------- ------------------------------------------
NETSELECT, INC. NETSELECT, INC.
By: By:
------------------------------------------------- --------------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Ingleside Interests, L.P. Name: Fannie Mae
----------------------------------------------- ------------------------------------------
By: /s/ Joe F. Hanauer By: /s/ William E. Kelvie
------------------------------------------------- --------------------------------------------
Name of Signatory: Joe F. Hanauer Name of Signatory: William E. Kelvie
---------------------------------- -----------------------------
Title: Managing Partner Title: EVP CIO
---------------------------------------------- -----------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
- ---------------------------------------------------- -----------------------------------------------
Name: Name:
----------------------------------------------- ------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
NETSELECT, INC. NETSELECT, INC.
By: By:
---------------------------------- ----------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: UBS Capital II LLC Name:
-------------------------------- --------------------------------
By: /s/ Michael Greene By:
---------------------------------- ----------------------------------
Name of Signatory: Michael Greene Name of Signatory:
------------------- -------------------
Title: Partner Title:
------------------------------- -------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ Jason Chapnik
- ------------------------------------- -------------------------------------
Name: Name: Jason Chapnik
-------------------------------- --------------------------------
NETSELECT, INC. NETSELECT, INC.
By: By:
---------------------------------- ----------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Name: Intuit
-------------------------------- --------------------------------
By: By: /s/ Mark R. Gomes
---------------------------------- ----------------------------------
Name of Signatory: Name of Signatory: Mark R. Gomes
------------------- -------------------
Title: Title: Senior Vice President
------------------------------- -------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ Glenn Craff
- ------------------------------------- -------------------------------------
Name: Glenn Craff Name:
-------------------------------- --------------------------------
NETSELECT, INC. NETSELECT, INC.
By: By:
---------------------------------- ----------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Tri-Properties, Ltd. Name:
-------------------------------- --------------------------------
By: /s/ R. Fred White By:
---------------------------------- ----------------------------------
Name of Signatory: R. Fred White Name of Signatory:
------------------- -------------------
Title: General Partner Title:
------------------------------- -------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ R. Fred White Jr.
- ------------------------------------- -------------------------------------
Name: Name: R. Fred White
-------------------------------- --------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
NETSELECT, INC. NETSELECT, INC.
By: By:
---------------------------------- ----------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: J.H. Whitney & Co. Name:
-------------------------------- --------------------------------
By: /s/ Michael C. Brooks By:
---------------------------------- ----------------------------------
Name of Signatory: Michael C. Brooks Name of Signatory:
------------------- -------------------
Title: General Partner Title:
------------------------------- -------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ John F. Petrick, Jr.
- ------------------------------------- -------------------------------------
Name: Name: John F. Petrick, Jr.
-------------------------------- --------------------------------
</TABLE>
Morgan Stanley Venture Partners III, L.P.
By Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By Morgan Stanley Venture Capital III, Inc.
its Institutional Managing Member
/s/ William J. Harding
-------------------------------------------
William J. Harding
Morgan Stanley Venture Investors III, L.P.
By Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By Morgan Stanley Venture Capital III, Inc.
its Institutional Managing Member
/s/ William J. Harding
-------------------------------------------
William J. Harding
The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
By Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By Morgan Stanley Venture Capital III, Inc.
its Institutional Managing Member
/s/ William J. Harding
-------------------------------------------
William J. Harding
<PAGE>
<TABLE>
<S> <C>
NETSELECT, INC. NETSELECT, INC.
By: By:
----------------------------------------------------- ---------------------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Name:
--------------------------------------------------- -------------------------------------------------
By: By:
----------------------------------------------------- ---------------------------------------------------
Name of Signatory: Name of Signatory:
-------------------------------------- ------------------------------------
Title: Title:
-------------------------------------------------- ------------------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ Charles M. Ingrum /s/ Daniel Koch
- -------------------------------------------------------- ------------------------------------------------------
Name: Charles M. Ingrum Name: Daniel Koch
--------------------------------------------------- -------------------------------------------------
NETSELECT, INC. NETSELECT, INC.
By: By:
----------------------------------------------------- ---------------------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Morgan Stanley Dean Witter Equity Funding, Inc. Name:
--------------------------------------------------- -------------------------------------------------
By: /s/ David Powers By:
----------------------------------------------------- ---------------------------------------------------
Name of Signatory: David Powers Name of Signatory:
-------------------------------------- ------------------------------------
Title: Vice President Title:
-------------------------------------------------- ------------------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
/s/ Michael Flannery
- -------------------------------------------------------- ------------------------------------------------------
Name: Name: Michael Flannery
--------------------------------------------------- -------------------------------------------------
NETSELECT, INC. NETSELECT, INC.
By: By:
----------------------------------------------------- ---------------------------------------------------
Name: Stuart Wolff Name: Stuart Wolff
Title: Chief Executive Officer Title: Chief Executive Officer
STOCKHOLDER (if an entity): STOCKHOLDER (if an entity):
Name: Integral Capital Partners Name: Integral Capital Partners IV MS Side Fund, L.P.
--------------------------------------------------- -------------------------------------------------
By: Integral Capital Management IV, LLC By: Integral Capital Partners MS Management, LLC
its General Partner its General Partner
By: /s/ Pamela Hagenah By: /s/ Pamela Hagenah
----------------------------------------------------- ---------------------------------------------------
Name of Signatory: Pamela Hagenah Name of Signatory: Pamela Hagenah
-------------------------------------- ------------------------------------
Title: Manager Title: Manager
-------------------------------------------------- ------------------------------------------------
STOCKHOLDER (if an individual): STOCKHOLDER (if an individual):
- -------------------------------------------------------- ------------------------------------------------------
Name: Name:
--------------------------------------------------- -------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.01
INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement"), is entered into as of
_________, ____ by and between HomeStore.com, Inc., a Delaware corporation (the
"Company"), and [the undersigned] [INSERT NAME], a director and/or officer of
the Company (the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;
B. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as officers and directors of the
Company, and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company contractually to
indemnify officers and directors and to assume for itself maximum liability for
expenses and damages in connection with claims against such officers and
directors in connection with their service to the Company;
C. Section 145 of the General Corporation Law of Delaware, under which the
Company is organized (the "Law"), empowers the Company to indemnify by agreement
its officers, directors, employees and agents, and persons who serve, at the
request of the Company, as directors, officers, employees or agents of other
corporations or enterprises, and expressly provides that the indemnification
provided by the Law is not exclusive; and
D. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
-----------
1.1 Agent. For the purposes of this Agreement, "agent" of the Company
-----
means any person who is or was a director or officer of the Company or a
subsidiary of the Company; or is or was serving at the request of, for the
convenience of, or to represent the interest of the Company or a subsidiary of
the Company as a director or officer of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or an affiliate of the
<PAGE>
Company; or was a director or officer of a foreign or domestic corporation which
was a predecessor corporation of the Company, including, without limitation,
NetSelect, Inc., a Delaware corporation, or was a director or officer of another
enterprise or affiliate of the Company at the request of, for the convenience
of, or to represent the interests of such predecessor corporation. The term
"enterprise" includes any employee benefit plan of the Company, its
subsidiaries, affiliates and predecessor corporations.
1.2 Expenses. For purposes of this Agreement, "expenses" includes all
--------
direct and indirect costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements and other out-of-
pocket costs) actually and reasonably incurred by the Indemnitee in connection
with the investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification or advancement of expenses under this
Agreement, Section 145 or otherwise; provided, however, that expenses shall not
-------- -------
include any judgments, fines, ERISA excise taxes or penalties or amounts paid in
settlement of a proceeding.
1.3 Proceeding. For the purposes of this Agreement, "proceeding" means
----------
any threatened, pending or completed action, suit or other proceeding, whether
civil, criminal, administrative, investigative or any other type whatsoever.
1.4 Subsidiary. For purposes of this Agreement, "subsidiary" means any
----------
corporation of which more than fifty percent (50%) of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more of its subsidiaries or by one or more of the Company's subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
------------------
serve as an agent of the Company, at the will of the Company (or under separate
agreement, if such agreement exists), in the capacity the Indemnitee currently
serves as an agent of the Company, faithfully and to the best of his ability, so
long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the charter documents of the Company or any subsidiary
of the Company; provided, however, that the Indemnitee may at any time and for
-------- -------
any reason resign from such position (subject to any contractual obligation that
the Indemnitee may have assumed apart from this Agreement), and the Company or
any subsidiary shall have no obligation under this Agreement to continue the
Indemnitee in any such position.
3. Directors' and Officers' Insurance. The Company shall, to the extent
----------------------------------
that the Board determines it to be economically reasonable, maintain a policy of
directors' and officers' liability insurance ("D&O Insurance"), on such terms
and conditions as may be approved by the Board.
4. Mandatory Indemnification. Subject to Section 9 below, the Company
-------------------------
shall indemnify the Indemnitee:
4.1 Third Party Actions. If the Indemnitee is a person who was or is a
-------------------
party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of
-2-
<PAGE>
anything done or not done by him in any such capacity, against any and all
expenses and liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful; and
4.2 Derivative Actions. If the Indemnitee is a person who was or is a
------------------
party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, against any amounts paid in settlement of any such
proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company; except that no
------
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and
4.3 Exception for Amounts Covered by Insurance. Notwithstanding the
------------------------------------------
foregoing, the Company shall not be obligated to indemnify the Indemnitee for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) to the extent such have been paid directly to the Indemnitee by D&O
Insurance.
5. Partial Indemnification and Contribution.
----------------------------------------
5.1 Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but is not entitled, however, to indemnification for all
of the total amount thereof, then the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled to indemnification.
5.2 Contribution. If the Indemnitee is not entitled to the
------------
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the Law, then in respect of any threatened, pending or
completed proceeding in which the Company is jointly
-3-
<PAGE>
liable with the Indemnitee (or would be if joined in such proceeding), the
Company shall contribute to the amount of expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
and paid or payable by the Indemnitee in such proportion as is appropriate to
reflect (i) the relative benefits received by the Company on the one hand and
the Indemnitee on the other hand from the transaction from which such proceeding
arose and (ii) the relative fault of the Company on the one hand and of the
Indemnitee on the other hand in connection with the events which resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of the Indemnitee on the other hand shall be determined by reference
to, among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such expenses, judgments, fines or settlement amounts. The Company agrees that
it would not be just and equitable if contribution pursuant to this Section 5
were determined by pro rata allocation or any other method of allocation which
does not take account of the foregoing equitable considerations.
6. Mandatory Advancement of Expenses.
---------------------------------
6.1 Advancement. Subject to Section 9 below, the Company shall advance
-----------
all expenses incurred by the Indemnitee in connection with the investigation,
defense, settlement or appeal of any proceeding to which the Indemnitee is a
party or is threatened to be made a party by reason of the fact that the
Indemnitee is or was an agent of the Company or by reason of anything done or
not done by him in any such capacity. The Indemnitee hereby undertakes to
promptly repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Company under the provisions of this Agreement, the Certificate of
Incorporation or Bylaws of the Company, the Law or otherwise. The advances to be
made hereunder shall be paid by the Company to the Indemnitee within thirty (30)
days following delivery of a written request therefor by the Indemnitee to the
Company.
6.2 Exception. Notwithstanding the foregoing provisions of this Section
---------
6, the Company shall not be obligated to advance any expenses to the Indemnitee
arising from a lawsuit filed directly by the Company against the Indemnitee if
an absolute majority of the members of the Board reasonably determines in good
faith, within thirty (30) days of the Indemnitee's request to be advanced
expenses, that the facts known to them at the time such determination is made
demonstrate clearly and convincingly that the Indemnitee acted in bad faith. If
such a determination is made, the Indemnitee may have such decision reviewed by
another forum, in the manner set forth in Sections 8.3, 8.4 and 8.5 hereof, with
all references therein to "indemnification" being deemed to refer to
"advancement of expenses," and the burden of proof shall be on the Company to
demonstrate clearly and convincingly that, based on the facts known at the time,
the Indemnitee acted in bad faith. The Company may not avail itself of this
Section 6.2 as to a given lawsuit if, at any time after the occurrence of the
activities or omissions that are the primary focus of the lawsuit, the Company
has undergone a change in control. For this purpose, a change in control shall
mean a given person or group of affiliated
-4-
<PAGE>
persons or groups increasing their beneficial ownership interest in the Company
by at least twenty (20) percentage points without advance Board approval.
7. Notice and Other Indemnification Procedures.
-------------------------------------------
7.1 Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
7.2 If, at the time of the receipt of a notice of the commencement of a
proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such D&O Insurance policies.
7.3 In the event the Company shall be obligated to advance the expenses
for any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved by the
Indemnitee (which approval shall not be unreasonably withheld), upon the
delivery to the Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by the Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to the
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
the Indemnitee with respect to the same proceeding, provided that: (a) the
--------
Indemnitee shall have the right to employ his own counsel in any such proceeding
at the Indemnitee's expense; (b) the Indemnitee shall have the right to employ
his own counsel in connection with any such proceeding, at the expense of the
Company, if such counsel serves in a review, observer, advice and counseling
capacity and does not otherwise materially control or participate in the defense
of such proceeding; and (c) if (i) the employment of counsel by the Indemnitee
has been previously authorized by the Company, (ii) the Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and the Indemnitee in the conduct of any such defense or (iii) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of the Company.
8. Determination of Right to Indemnification.
-----------------------------------------
8.1 To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this
Agreement or in the defense of any claim, issue or matter described therein, the
Company shall indemnify the Indemnitee against expenses actually and reasonably
incurred by him in connection with the investigation, defense or appeal of such
proceeding, or such claim, issue or matter, as the case may be.
-5-
<PAGE>
8.2 In the event that Section 8.1 is inapplicable, or does not apply
to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee
unless the Company shall prove by clear and convincing evidence to a forum
listed in Section 8.3 below that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
8.3 The Indemnitee shall be entitled to select the forum in which the
validity of the Company's claim under Section 8.2 hereof that the Indemnitee is
not entitled to indemnification will be heard from among the following, except
------
that the Indemnitee can select a forum consisting of the stockholders of the
Company only with the approval of the Company:
(a) A quorum of the Board consisting of directors who are not
parties to the proceeding for which indemnification is being sought;
(b) The stockholders of the Company;
(c) Legal counsel mutually agreed upon by the Indemnitee and the
Board, which counsel shall make such determination in a written opinion;
(d) A panel of three arbitrators, one of whom is selected by the
Company, another of whom is selected by the Indemnitee and the last of whom is
selected by the first two arbitrators so selected; or
(e) The Court of Chancery of Delaware or other court having
jurisdiction of subject matter and the parties.
8.4 As soon as practicable, and in no event later than thirty (30) days
after the forum has been selected pursuant to Section 8.3 above, the Company
shall, at its own expense, submit to the selected forum its claim that the
Indemnitee is not entitled to indemnification, and the Company shall act in the
utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.
8.5 If the forum selected in accordance with Section 8.3 hereof is not
a court, then after the final decision of such forum is rendered, the Company or
the Indemnitee shall have the right to apply to the Court of Chancery of
Delaware, the court in which the proceeding giving rise to the Indemnitee's
claim for indemnification is or was pending or any other court of competent
jurisdiction, for the purpose of appealing the decision of such forum, provided
--------
that such right is executed within sixty (60) days after the final decision of
such forum is rendered. If the forum selected in accordance with Section 8.3
hereof is a court, then the rights of the Company or the Indemnitee to appeal
any decision of such court shall be governed by the applicable laws and rules
governing appeals of the decision of such court.
8.6 Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and
-6-
<PAGE>
against all expenses incurred by the Indemnitee in connection with any other
proceeding between the Company and the Indemnitee involving the interpretation
or enforcement of the rights of the Indemnitee under this Agreement unless a
court of competent jurisdiction finds that each of the material claims and/or
defenses of the Indemnitee in any such proceeding was frivolous or not made in
good faith.
9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses to
------------------------------
the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, except with respect to
------
proceedings specifically authorized by the Board or brought to establish or
enforce a right to indemnification and/or advancement of expenses arising under
this Agreement, the charter documents of the Company or any subsidiary or any
statute or law or otherwise, but such indemnification or advancement of expenses
may be provided by the Company in specific cases if the Board finds it to be
appropriate; or
9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder for
------------------------
any amounts paid in settlement of a proceeding unless the Company consents in
advance in writing to such settlement, which consent shall not be unreasonably
withheld; or
9.3 Securities Law Actions. To indemnify the Indemnitee on account of
----------------------
any suit in which judgment is rendered against the Indemnitee for an accounting
of profits made from the purchase or sale by the Indemnitee of securities of the
Company pursuant to the provisions of Section l6(b) of the Securities Exchange
Act of 1934 and amendments thereto or similar provisions of any federal, state
or local statutory law; or
9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final
------------------------
decision by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful. In this respect, the Company and the Indemnitee
have been advised that the Securities and Exchange Commission takes the position
that indemnification for liabilities arising under the federal securities laws
is against public policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication.
10. Non-Exclusivity. The provisions for indemnification and advancement
---------------
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in the Indemnitee's official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
-7-
<PAGE>
11. General Provisions.
------------------
11.1 Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification and advancement of expenses to the Indemnitee to the fullest
extent now or hereafter permitted by law, except as expressly limited herein.
11.2 Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
then: (a) the validity, legality and enforceability of the remaining provisions
of this Agreement (including, without limitation, all portions of any paragraphs
of this Agreement containing any such provision held to be invalid, illegal or
unenforceable that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 11.1 hereof.
11.3 Modification and Waiver. No supplement, modification or amendment
-----------------------
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver.
11.4 Subrogation. In the event of full payment under this Agreement,
-----------
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary or desirable to secure such rights
and to enable the Company effectively to bring suit to enforce such rights.
11.5 Counterparts. This Agreement may be executed in one or more
------------
counter-parts, which shall together constitute one agreement.
11.6 Successors and Assigns. The terms of this Agreement shall bind,
----------------------
and shall inure to the benefit of, the successors and assigns of the parties
hereto.
11.7 Notice. All notices, requests, demands and other communications
------
under this Agreement shall be in writing and shall be deemed duly given: (a) if
delivered by hand and signed for by the party addressee; or (b) if mailed by
certified or registered mail, with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement or as subsequently modified by written notice.
-8-
<PAGE>
11.8 Governing Law. This Agreement shall be governed exclusively by
-------------
and construed according to the laws of the State of California, as applied to
contracts between California residents entered into and to be performed entirely
within California.
11.9 Consent to Jurisdiction. The Company and the Indemnitee each
-----------------------
hereby irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.
11.10 Attorneys' Fees. In the event Indemnitee is required to bring any
---------------
action to enforce rights under this Agreement (including, without limitation,
the expenses of any Proceeding described in Section 3), the Indemnitee shall be
entitled to all reasonable fees and expenses in bringing and pursuing such
action, unless a court of competent jurisdiction finds each of the material
claims of the Indemnitee in any such action was frivolous and not made in good
faith.
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.
HomeStore.com, Inc.: Indemnitee:
By:_______________________________ _______________________________
[Name]
Name:_____________________________
Title:____________________________ Address:_______________________
HomeStore.com, Inc. _______________________________
225 West Hillcrest Drive, Suite 100
Thousand Oaks, California 91360 _______________________________
Attn: President
-9-
<PAGE>
EXHIBIT 10.02
OPERATING AGREEMENT
Dated as of November 26, 1996
Between
REALTORS(R) Information Network, Inc.
and
RealSelect, Inc.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I Definitions and Interpretation................... 1
1.1 Definitions......................................... 1
1.2 Interpretation...................................... 6
ARTICLE II Purposes; Effectiveness.......................... 7
2.1 Purposes............................................ 7
2.2 Effectiveness....................................... 7
ARTICLE III Designation as Operator; Nature of Agreement..... 7
3.1 Engagement.......................................... 7
3.2 Exclusive Nature of Relationship.................... 7
3.3 RIN/NAR Activities.................................. 7
3.4 Relationship........................................ 8
ARTICLE IV Personnel; Operations; Performance............... 8
4.1 Personnel........................................... 8
4.2 Operations.......................................... 8
4.3 Licenses, Etc....................................... 9
4.4 Insurance........................................... 9
4.5 Expenses............................................ 9
4.6 Performance Standards............................... 9
4.7 Inspection of Records............................... 10
4.8 Reports; Meetings................................... 10
ARTICLE V Data Content and Handling........................ 11
5.1 Data Sourcing....................................... 11
5.2 Data Collection..................................... 12
5.3 Preparation of Real Property Ads.................... 12
5.4 Presentation of Real Property Ads................... 14
5.5 Other Information................................... 15
5.6 Electronic Display Outlets.......................... 16
5.7 Advertising......................................... 17
5.8 Links to Other Systems.............................. 19
ARTICLE VI Fees: Operator's Compensation.................... 19
6.1 Fees................................................ 19
6.2 Operator Compensation............................... 19
6.3 Fixed Payments...................................... 20
6.4 Variable Payment.................................... 20
6.5 Late Payments....................................... 21
ARTICLE VII Term: Termination and Extension................. 22
7.1 Term................................................ 22
7.2 Termination......................................... 22
7.3 Transition.......................................... 23
7.4 Effect of Termination............................... 23
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE VIII Confidentiality.................................. 24
8.1 Confidential Information............................ 24
ARTICLE IX Liability and Indemnification.................... 24
9.1 LMITATION OF LIABILITY.............................. 24
9.2 Indemnification..................................... 25
ARTICLE X Dispute Resolution............................... 25
10.1 Informal Dispute Resolution......................... 25
10.2 Arbitration......................................... 26
10.3 Recourse to Courts and Other Remedies............... 27
10.4 Attorneys' Fees..................................... 28
ARTICLE XI Representations and Warranties................... 28
11.1 Representations and Warranties Made by Each Party... 28
11.2 Representations and Warranties Made by RIN.......... 28
ARTICLE XII Miscellaneous.................................... 29
12.1 Notices............................................. 30
12.2 Amendments.......................................... 30
12.3 Counterparts........................................ 30
12.4 Parties in Interest; No Assignment.................. 30
12.5 Applicable Law...................................... 30
12.6 Waiver.............................................. 30
12.7 Partial invalidity.................................. 30
12.8 Force Majeure....................................... 30
12.9 Entire Agreement.................................... 32
</TABLE>
SCHEDULES
<TABLE>
<CAPTION>
<C> <S>
Schedule A: Authorized Advertisers
Schedule B: RIN Authorized Representatives
Schedule C: Operator Authorized Representatives
Schedule D: Existing Content Providers
Schedule E: Description of Software
Schedule F: Leased Equipment
Schedule G: Transition and Disaster Recovery Plan
Schedule H: Form of Standard Data Content Provider Agreement
Schedule I: Data Formats
Schedule J: Real Property Ad Specifications
Schedule K: Guidelines for Links to Other REALTOR(R) Internet Sites
Schedule L: Exceptions
Schedule M: Claims Relating to RPA Business
</TABLE>
ii
<PAGE>
OPERATING AGREEMENT
THIS OPERATING AGREEMENT (this "Agreement") is entered into as of this 26th
day of November, 1996, between REALTORS(R) Information Network, Inc., an
Illinois corporation ("RIN"), and RealSelect, Inc., a Delaware corporation
("Operator").
W I T N E S S E T H:
W'HEREAS, RIN was formed to serve the members of the National Association
of REALTORS(R) and is engaged in the business of, among other things, soliciting
and collecting information related to real estate available for sale for the
purpose of presenting such information through Electronic Display (as
hereinafter defined) for review by interested persons and operates an Internet
URL address known as "realtor.com" for the purpose of, among other things,
providing access to, and displaying, such information to interested persons;
WHEREAS, RIN desires to engage Operator, and Operator is willing to accept
such engagement, to manage and operate the business of soliciting, collecting
and processing such real estate information and presenting it through Electronic
Display in accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
Definitions and Interpretation
1.1 Definitions. When used in this Agreement, the following terms shall
have the respective meanings set forth below:
"AAA Rules" shall have the meaning specified in Section 10.2(b).
---------------
"Active" shall mean Real Property Ads located on Operator's servers
that are capable of being accessed electronically by users of the System through
the Domain Site.
"Advertising" shall mean the advertisements and promotional items
permitted under this Agreement.
"Affected Party" shall have the meaning specified in Section 12.8(a).
---------------
"Agreement" shall mean this Operating Agreement dated as of November
26, 1996, between RIN and Operator.
"Arbitrators" shall have the meaning specified in Section 10.2(c).
---------------
"Authorized Advertisers" shall mean the Persons described by SIC code
or similar means in Schedule A, as such Schedule may be amended from time to
----------
time as contemplated in Section 5.7(a).
--------------
<PAGE>
"Authorized Content Provider" shall mean (i) a REALTOR(R) owned and
controlled multiple listing service, (ii) a REALTOR(R) owned and controlled real
estate entity, (iii) a REALTOR(R) or (iv) if approved by RIN in its sole and
absolute discretion (any such approval to be evidenced in writing by an
Authorized Representative of RIN), a Person not covered by clauses (i), (ii) or
(iii) of this definition.
"Authorized Representative" shall mean (i) with respect to RIN, any of
the officers or individuals set forth on Schedule B, as such Schedule may be
----------
amended from time to time by RIN by notice given to Operator, and (ii) with
respect to Operator, any of the officers or individuals set forth on Schedule C,
----------
as such Schedule may be amended from time to time by Operator by notice given to
RIN.
"Available Advertising Space" shall mean the aggregate number of
banner ad views and other forms of advertising displays available for sale to
advertisers during any thirty day period.
"Basic Qualifications" shall have the meaning specified in Section
-------
10.2(c).
- -------
"Basic RPA Information" shall have the meaning specified in Section
-------
5.3(b).
- ------
"Business Day" shall mean a day of the calendar week, other than
Saturday, Sunday or any holiday, on which Operator is open for the transaction
of business.
"Commercially Viable Form of Electronic Display" shall mean any form
of Electronic Display the current users of which represent ten percent or more
of the households in the United States.
"Confidential Information" shall have the meaning specified in Section
-------
8.1.
- ---
"Controlled Entity" shall mean, with respect to any Person, any other
Person which, directly or indirectly, (i) owns or controls such Person, (ii) is
owned or controlled by such Person, or (iii) is under common control with such
Person. As used herein, "control" means the power to direct the management or
affairs of a Person and "ownership" means the beneficial ownership of more than
50% of the equity securities of the Person.
"Data Content Provider" shall mean each, and "Data Content Providers"
shall mean all, of the Existing Content Providers and each Authorized Content
Provider who shall hereafter enter into a Data Content Provider Agreement.
"Data Content Provider Agreements" shall mean the agreements between
Operator and Data Content Providers, whereby such Data Content Providers have
agreed to provide information for Real Property Ads for Electronic Display.
"Default Rate" shall mean the sum of (i) the annual base interest rate
on corporate loans posted by at least 75% of the thirty largest banks in the
United States as published in the Money Rates section of the Wall Street
Journal, from time to time, and shall vary when and as such published rate
varies, plus (ii) four hundred basis points (4.00%).
2
<PAGE>
"Defaulting Party" shall have the meaning specified in Section
-------
7.2(d)(i).
- ----------
"Dispute" shall have the meaning specified in Section 10.1(a).
---------------
"Domain Site" shall mean the Internet URL address owned by NAR and
known as of the date of this Agreement as "realtor.com"
(http://www.realtor.com).
"EBIT" with respect to an entity for a specified period of time, shall
mean the earnings of such entity for such period before interest and any
deductions related to extraordinary depreciation and/or amortization for such
period, but after taxes for such period.
"Electronic Display" shall mean the display of all information
contemplated to be located at the Domain Site in a form such that it may be
viewed or accessed via electronic transmission through (i) the Intenet or
systems substantially like the Internet (such as America On-Line or @Home) and
(ii) subject to the provisions of Section 5.6(c), other electronic media or
--------------
formats.
"Enhanced Content Agreement" shall have the meaning specified in
Section 5.3(d).
- --------------
"Enhanced RPA Information" shall have the meaning specified in Section
-------
5.3(b).
- ------
"Existing Content Providers" shall mean each of the Persons listed on
Schedule D.
- ----------
"Force Majeure Event" shall have the meaning specified in Section
-------
12.8(a).
- -------
"Free Operating Cash Flow" shall mean the cumulative total over the
immediately preceding four calendar quarters of Operator's cash flows from
operating activities, as determined in accordance with generally accepted
accounting principles consistently applied and reported in Operator's statement
of cash flows. Payments to RIN under the provisions of Article VI shall be
----------
deducted in calculating Free Operating Cash Flow to the extent such payments
have been paid and have not been deducted pursuant to the preceding sentence.
The following items shall be excluded from, and have no effect on, the
calculation of Free Operating Cash Flow: (i) any accelerated write-offs or
write-downs of intangible assets (such as software or goodwill) or fixed assets,
(ii) depreciation and amortization, (iii) expenditures which in the ordinary
course of business would typically be funded through financing activities (this
provision is not intended to include normal purchases of computer equipment, but
is intended to include major leasehold improvements or large scale replacement
of computer technology).
"Internet" shall mean the worldwide network of computers commonly
referred to as the Internet.
"Level 1 Review" shall have the meaning specified in Section 10.1(b).
---------------
"Level 1 Termination Date" shall have the meaning specified in Section
-------
10.1(c).
- -------
3
<PAGE>
"NAR" shall mean the National Association of REALTORS(R), an Illinois
not for profit corporation. The term "REALTORS(R)" is a registered collective
membership mark of NAR and is used herein to refer to individuals who are
REALTORS(R) members of NAR.
"Net Revenues" shall have the meaning specified in Section 6.2.
-----------
"Number of Active Real Property Ads" shall mean the sum of (i) number
of Active Real Property Ads housed, maintained or operated by Operator and its
Controlled Entities and franchisees plus (ii) the number of Real Property Ads
available for display by linking to Subcontractors.
"Number of Active U.S. Real Property Ads" shall mean the sum of (i)
number of Active Real Property Ads relating to Real Property located in the
United States on the Domain Site plus (ii) the number of Real Property Ads
relating to Real Property located in the United States available for display by
linking to Subcontractors.
"Operator" shall mean RealSelect, Inc., a Delaware corporation.
"Other REALTOR(R) Internet Sites" shall mean Internet sites owned and
controlled by (i) state REALTOR(R) associations, (ii) local REALTOR(R)
associations, (iii) institutes, societies and councils of NAR, (iv) REALTOR(R)
owned and controlled multiple listing services and (v) REALTOR(R) owned and
controlled brokerage entities or franchisers.
"Panel" shall have the meaning specified in Section 10.2(c).
---------------
"Parent" shall mean NetSelect, Inc., a Delaware corporation.
"Person" shall mean any natural person, partnership, limited liability
company, corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental agency or instrumentality, or other
entity.
"Prime Rate" shall mean the sum of (i) the annual base interest rate
on corporation loans posted by at least 75% of the thirty largest banks in the
United States as published in the Money Rates section of the Wall Street
Journal, from time to time, and shall vary when and as such published rate
varies, plus (ii) fifty basis points (0.50%), provided, however, such rate, as
-------- -------
so determined, shall not exceed 10.5%.
"Real Property" shall mean residential homes (including single and
multi-family dwellings, condominiums, cooperatives and townhouses), land, farms,
exotic homes, vacation homes, and improved and unimproved commercial real
property located throughout the World.
"Real Property Ads" shall mean graphical, pictorial and/or textual
electronic displays relating to the sale, lease or rental of Real Property that
meet the requirements of Section 5.3.
-----------
"REALTOR(R) Intranet" shall mean a NAR sponsored network by which
access is gained to, and containing, information accessible only to members of
NAR and other Persons
4
<PAGE>
expressly permitted access by NAR. It is understood that such network shall not
be accessible to or by members of the general public.
"Restricted Advertisers" shall mean those Authorized Advertisers whose
business could reasonably appear to conflict with the real estate business of a
broker or agent associated with a Real Property Ad, including competing real
estate entities, lenders, title companies, escrow companies and home inspection
companies.
"Revenues" shall have the meaning specified in Section 6.4(a).
--------------
"RIN" shall mean REALTORS(R) Information Network, Inc., an Illinois
corporation.
"RPA Business" shall mean the business associated with soliciting,
collecting, processing, maintaining, distributing and the Electronic Display of
(or arranging for the Electronic Display of) Real Property Ads and Advertising,
and activities associated therewith, or incidental thereto.
"Software" shall mean the software described in Schedule E and shall
----------
include any modifications, enhancements or improvements thereto or any
replacements thereof, and any other computer software programs, including
related documentation and materials, developed by Operator for use in the RPA
Business.
"Statistical Data" shall mean aggregate statistical data collected by
Operator from the usage of the information housed or maintained by Operator
under this Agreement, which data shall not include the identities (whether by
name, address or otherwise) of the users (i.e., persons accessing such
information).
"Subcontractor" shall mean an operator of another Internet site who
has entered into an agreement with Operator whereunder such operator has agreed
to house, operate and maintain real property information similar to Real
Property Ads and to migrate such information to the Domain Site. It is expected
that any such agreement would provide for some form of revenue sharing between
Operator and Subcontractor; and consequently, the term "Subcontractor" would not
include any Person whose agreement or arrangement for linking between such
Person's Internet site and the Domain Site does not provide for compensation
for, or revenue sharing with, Operator.
"Surveyor" shall have the meaning specified in Section 4.8(c).
--------------
"System" mean the overall system made up of hardware, Software,
scripts and programs that generate the graphical, pictorial and textual screens
by which data content, including Real Property Ads and Advertising, is retrieved
and presented to users.
"Trademark License Agreement" shall have the meaning that certain
Trademark License dated as of November 26, 1996, between NAR and Operator.
"Transition" shall have the meaning specified in Section 7.3(a).
--------------
5
<PAGE>
"Transition and Disaster Recovery Plan" shall have the meaning
specified in Section 4.2(c).
--------------
"Unaffected Party" shall have the meaning specified in Section
-------
12.8(b)(ii).
- -----------
1.2 Interpretation. (a) In this Agreement, unless a clear contrary
--------------
intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any gender includes each other gender;
(iii) reference to any agreement (including this Agreement),
document or instrument means such agreement, document or instrument as amended
or modified and in effect from time to time in accordance with the term thereof
and, if applicable, the terms hereof;
(iv) reference to any statute means such statue as amended,
modified, codified or reenacted, in whole or in part, and in effect from time to
time, including any rules and regulations promulgated thereunder;
(v) reference to any Article, Section or Schedule means such
Article or Section of this Agreement or such Schedule to this Agreement, as the
case may be, and references in any Article, Section or definition to any clause
means such clause of such Article. Section or definition;
(vi) "hereunder", "hereof", "hereto" and words of similar
import shall be deemed references to this Agreement as a whole and not to any
particular Section or other provision hereof; and
(vii) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding such
term.
(b) Each party has reviewed, and has been represented by counsel in
connection with the negotiation of this Agreement, and no question of
construction shall be resolved by any rule of interpretation providing for
interpretation against that drafting party.
(c) Article and Section headings and titles in this Agreement are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
ARTICLE II
Purchase; Effectiveness
2.1 Purposes. (a) The primary purpose of the activities contemplated by
--------
this Agreement are (i) to house, maintain and operate the Domain Site; (ii) the
Electronic Display of Real Property Ads and Advertising; and (iii) to continue,
maintain, improve and provide an electronic means for generating, acquiring,
storing, transforming, processing, retrieving, utilizing, displaying or making
available information provided by or on behalf of Data Content Providers with
respect to the availability for sale, lease or rental of Real Property.
6
<PAGE>
(b) Except to the extent otherwise provided in Section 5.7(f).
Operator shall not generate, acquire, store, transform, process, retrieve,
utilize, display or make available information assistance with respect to real
estate being offered for lease or sale directly by the owner thereof without the
assistance of a licensed real estate broker or salesperson.
2.2 Effectiveness. This Agreement shall become effective as of the date
-------------
hereof.
ARTICLE III
Designation as Operator; Nature of Agreement
3.1 Engagement. RIN hereby engages Operator to perform the services
----------
described in this Agreement for the term specified in Section 7.1, and Operator
-----------
hereby agrees to perform such services for such term, on the terms and
conditions specified in this Agreement.
3.2 Exclusive Nature of Relationship. Except as provided in this
--------------------------------
Agreement, during the terms of this Agreement, Operator and RIN shall not
engage, directly or indirectly, in the Electronic Display or Real Property Ads
and shall not, directly or indirectly, develop, market, sell, acquire an equity
position in, be engaged or employed by, or endorsed any service or enterprise,
or authorize, appoint or engage any other Person for the purposes of the
Electronic Display of the RPA Business.
3.3 RIN/NAR Activities. It is expected that Operator shall be allowed to
------------------
include a full page advertisement in each issue of NAR's magazine publication.
Today's REALTOR(R), for the purpose of promoting REALTOR.COM as the door that
leads to both Real Property Ads and the REALTOR(R) Intranet. It is expected
that such advertisements would include explaining advertising opportunities
available to REALTORS(R) and their firms, promoting the value of REALOR.COM to
REALTOR(R), and promoting specific features of the REALTOR(R) Intranet.
Advertising copy submitted by Operator would be subject to the guidelines with
respect to content, format and submission deadlines that are applied generally
to advertisers in Today's REALTOR(R). The charges for the inclusion of such
advertisements (a) during the period ending on the second anniversary of the
insertion of the first full page advertisement, shall not exceed NAR's lowest
discounted rates for similar as and shall be paid one-half by Operator and one-
half by RIN, and (b) after such second anniversary, shall not exceed NAR's
lowest discounted rates offered to its affiliates for similar ads and shall be
paid by Operator.
3.4 Relationship. This Agreement is not intended to create, and shall not
------------
be deemed or treated as creating, a partnership, joint venture, employment
contract or any other relationship between the parties other than the service
relationship expressly provided for in this Agreement. All commitments,
obligations, undertakings and liabilities associated with the RPA Business shall
be entered in the name of, and shall be the sole responsibility of, Operator,
and neither party shall be authorized to enter into any commitment, obligation,
undertaking or liability in the name of, or on behalf of, the other party.
ARTICLE IV
Personnel; Operations; Performance
7
<PAGE>
4.1 Personnel. (a) Operator shall assemble and maintain personnel (i)
---------
adequate to perform its obligations under this Agreement and (ii) possessing
such qualifications, knowledge and experience in the provision of the tasks to
which they are assigned as would be required for comparable positions and tasks
in competitive businesses. Operator shall provide appropriate training to such
personnel as and when required in order to facilitate the efficient and
knowledgeable performance of services under this Agreement. Operator shall
monitor the performance of such personnel and shall take such action as is
necessary to remedy promptly and deficiencies in such performance.
(b) Such personnel may be employees, consultant or contractors to
Operator. If such personnel are employees, they shall be governed by Operator's
personnel policies and practices. Operator shall be solely responsible for all
policy and administrative aspects of such employment relationship, including
compliance with applicable federal and state laws relating to equal opportunity,
nondiscrimination and occupational health and safety and payment of payroll
taxes, compensation and employee benefits. Operator shall have sole
responsibility for the supervision, daily direction and control of such
personnel. Operator shall advise such personnel that they are not entitled to
any RIN employee benefits. Without limiting the foregoing, RIN shall not be
responsible for workers' compensation, disability benefits, unemployment
insurance or withholding income taxes or social security for such employees.
4.2 Operations. (a) Operator shall assemble (whether by acquisition or
----------
lease) and maintain suitable facilities and equipment for the efficient and
effective operation of the RPA Business. Such facilities and equipment shall be
kept in good working order, normal wear and tear excepted.
(b) Operator shall be entitled to use the equipment described in
Schedule F (which equipment is owned by RIN) during the term of this Agreement.
- ----------
There shall be no rental charge for the use of such equipment; however, Operator
shall be responsible for all costs associated with the possession, use,
operation and maintenance of such equipment, including any personal property
taxes assessed in respect of such equipment.
(c) Attached hereto as Schedule G is Operator's plan (the
----------
"Transition and Disaster Recovery Plan") to (i) allow for the orderly migration
and transition of operating responsibility for the Domain Site and the RPA
Business to RIN and/or a third party in the event this Agreement is terminated
pursuant to Section 7.2 and (ii) protect the Domain Site and the operations of
-----------
the RPA Business in the event of a disaster or other emergency. During the term
of this Agreement, Operator shall comply with the Transition and Disaster
Recovery Plan as such plan may be revised and updated upon the agreement of both
parties, not be unreasonably withheld or delayed.
4.3 Licenses, Etc. Operator shall be responsible for obtaining and
-------------
maintaining (i) all licenses and permits required from any governmental body or
agency for the performance of its services hereunder, the collection of
information from Data Content Providers, the formatting of such information into
Real Property Ads and the Electronic Display of Real Property Ads and (ii) all
licenses or rights required from any third parties (other than Data Content
Providers) for the performance of its services hereunder and the Electronic
Display of Real Property Ads.
8
<PAGE>
4.4 Insurance. Operator shall obtain, and maintain during the terms of
---------
this Agreement insurance against such risks and in such amounts as are carried
by similar businesses in similar circumstances; provided that Operator shall, at
--------
a minimum, obtain and maintain in force insurance policies providing coverages
against the following risks and in the following amounts: (i) general liability,
$2,000,000, (ii) umbrella liability, $1,000,000, (iii) products/completed
operations, $2,000,000, (iv) non-owned & hired automobile liability $1,000,000,
and (v) workers compensation as required by applicable state laws. RIN, Parent
and NAR shall be named as additional insureds under any such policies providing
liability coverage. Operator shall furnish RIN with evidence of the insurance
required to be maintained under this Section 4.4 from time to time upon the
-----------
reasonable request of RIN.
4.5 Expenses. Operator shall be solely responsible for all expenses,
--------
obligations or commitments incurred in connection with the performance of its
obligations under this Agreement.
4.6 Performance Standards. (a) Except to the extent otherwise expressly
---------------------
provided, Operator shall, in the performance of its obligations and duties under
this Agreement, exercise and use a degree of care and skill that a similarly
situated service provider would exercise and use in providing services in
similar circumstances.
(b) Operator shall perform its responsibilities set forth in this
Agreement so that the Domain Site, and the Real Property Ads and any other
information maintained threat, are competitive with any other similar (based on
markets and customers, features, services and volumes) for profit real estate
sites that use Electronic Display in terms of objective performance factors,
including user response time, functionality, reliability and price to customers
and REALTORS(R).
(c) Operator shall maintain adequate server, communications and
other capability to handle all Active Real Property Ads. Operator shall also
maintain sufficient equipment and resources such that the following performance
requirements are met at least 28 out of 30 days each month, excluding reasonable
scheduled maintenance or System failure not the fault of Operator.
(i) the number of connections shall not reach (1) eighty
percent for more than sixty percent of any individual day or (20 ninety-
five percent more than five percent of any individual day; and
(ii) the amount of any individual system resource (central
processing unit, disk and network bandwidth) on any individual Internet
server, or on the System as a whole, shall not exceed (1) eighty percent
for more than sixty percent of any individual day or (2) ninety-five
percent for more than five percent of any individual day.
As additional new Electronic Display media is added and as industry standards
change related to expected Internet performance, Operator shall create new or
revised performance standards for each Electronic Display media that it operates
under this Agreement. Any such standards so developed shall be subject to the
approval of RIN, which shall not be unreasonably withheld if the proposed
performance standards reasonably measure performance necessary to assure
9
<PAGE>
competitive performance of the System. If RIN reasonably believes performance
standards are not being met, it (1) shall notify Operator in writing of such
belief and the reasons therefor and (2) can request Operator to measure and
report the performance on any future three day period of RIN's choice. If RIN
requests, it may, at its costs, have a qualified and independent auditor review
Operator's compliance with the performance standards set forth in, or
established under, this Section 4.6.
-----------
(d) Operator shall use reasonable commercial efforts (i) to broaden
the geographic penetration of the RPA Business in terms of the Data Content
Providers who are providing Real Property information for conversion into Real
Property Ads and (ii) to increase the volume of Active Real Property Ads on the
System.
4.7 Inspection of Records. RIN may (i) at any time it reasonably believes
---------------------
Operator is in breach of any provision of this Agreement (in which case, it
shall notify Operator in writing of such belief and the reasons therefor) and
(ii) once during any calendar year, request Operator to, and Operator shall,
upon reasonable advance notice, permit employees, agents or representatives of
RIN, during normal business hours, to review, inspect and/or audit Operator's
financial records and its operating procedures relating to the performance of
services under this Agreement. Operator shall cooperate and make available
appropriate personnel to assist representatives of RIN in inspecting or auditing
the books, records and facilities of Operator, and Operator will reasonably
cooperate with respect to any such audit or inspection.
4.8 Reports; Meetings. (a) On or before the commencement of each calendar
-----------------
year, commencing with calendar year 1997, Operator shall prepare and forward to
RIN a business plan with respect to such calendar year, indicating projections
of revenues and expenses, sales activities and the resources to be devoted to
such activities.
(b) On or before the last day of each month during the term of this
Agreement, commencing February 28, 1997. Operator shall prepare and forward to
RIN a report containing the number of Real Property Ads made Active during the
prior month and the aggregate number of Active Real Property Ads on the System
at such end of such prior month.
(c) On or before March 1 in each year, commencing March 1, 1998,
Operator shall cause to be delivered to RIN a report prepared by an independent
third party (the "Surveyor") reflecting the results of a survey of REALTORS(R)
and consumers regarding their use of the Domain Site. Such Surveyor shall (i)
be chosen by Operator, subject to the reasonable approval of RIN and NAR as to
the independence, qualifications and experience of the Person so chosen, (ii)
prepare the form and content of the survey, based upon input from Operator, RIN
and NAR (each of which shall have a reasonable opportunity to provide such input
and to review the proposed form and content of the survey), and (iii) conduct
the survey. Operator shall be responsible for all costs associated with such
survey; provided that such costs shall not exceed $30,000 annually.
--------
(d) Operator shall cause its senior management to meet with the
following persons at the following frequencies in order to review the RPA
Business and the status of Operator's activities under this Agreement:
10
<PAGE>
(i) the Board of Directors of RIN, quarterly;
(ii) senior management of NAR, quarterly; and
(iii) the Executive Committee of NAR and the Board of Directors
of NAR three times per year in conjunction with meetings of such
Committee or Board.
In addition, Operator shall cause appropriate personnel to meet at least twice
per year with an advisory group appointed by NAR. The purpose of such meetings
with such advisory group shall be to review and discuss the Domain Site and the
System and ways in which it might be made more effective for REALTORS(R) and
consumers.
ARTICLE V
Data Content and Handling
5.1 Data Sourcing. (a) Operator shall be responsible for developing and
-------------
implementing a program, with the reasonable assistance of RIN, (i) to identify
Authorized Content Providers, (ii) to solicit such Authorized Content Providers
to enter into Data Content Providers Agreements and (iii) to solicit renewals of
Data Content Provider Agreements that are scheduled to expire; and Operator
shall be responsible for carrying out such program. Operator shall establish a
means by which Data Content Providers may communicate problems or questions with
respect to their Data Content Provider Agreements and/or activities associated
therewith; and Operator shall seek to respond promptly to such problems or
questions.
(b) Operator is authorized (i) enter into Data Content Provider
Agreements with Authorized Content Providers, provided such agreements are in
--------
the form of Schedule H or contain in an addendum to such form only such
----------
substantive changes as may be approved by an Authorized Representative of RIN,
and (ii) to enter into renewals of Data Content Provider Agreements with Data
Content Providers. Copies of all such Data Content Provider Agreements and any
renewals thereof shall be provided to RIN. RIN shall use reasonable commercial
efforts to complete its review of any addendum to a Data Content Provider
Agreement, and to notify Operator of its approval thereof or objectives thereto,
within three Business Days of RIN's receipt of such addendum and the
accompanying Data Content Provider Agreement (it being understood that such
turnaround may be delayed during the time of conventions or association meetings
of the NAR).
(c) Operator shall perform all of RIN's obligations accruing under
the Data Content Provider Agreements with the Existing Content Providers from
and after the Effective Date; it being understood that (i) except as provided in
clause (iii) of this sentence, Operator is not assuming, and shall not be
responsible for, any breach or default by RIN of its obligations under such Data
Content Provider Agreements as a result of events that occurred prior to the
Effective Date, (ii) except as provided in clause (iii) of the sentence, RIN
shall remain responsible for, and shall indemnify and hold Operator harmless
from, any such breaches or defaults and (iii) Operator shall be responsible for,
and shall indemnify and hold RIN harmless from, any breaches or defaults by
InfoTouch Corporation of its service obligations to RIN in connection with such
Data Content Provider Agreements. RIN shall cooperate with Operator in
11
<PAGE>
securing each Existing Content Provider's consent that is required to the
assignment to Operator of such Existing Data Content Provider's Data Content
Provider Agreement and upon receipt of such consent, shall assign its rights and
obligations under such Data Contract Provider Agreement. To the extent that such
consent and assignment have not been previously obtained, Operator shall use
reasonable commercial efforts in connection with any renewal or extension of any
such Data Content Provider Agreements to obtain the consent of such Existing
Content Provider to (i) the assignment of RIN's rights under such Data Content
Provider Agreement to Operator and (ii) the assumption by Operator of, and the
release of RIN from, RIN's post-Effective Date duties and obligations under such
Data Content Provider Agreement. Operator shall be solely responsible for the
performance of its obligations under Data Content Provider Agreements with Data
content Providers other than Existing Content Providers.
5.2 Data Collection. (a) Operator shall be responsible for maintaining
----------------
adequate means to facilitate the transmission, receipt and collection of Real
Property information from Data Content Providers in accordance with the
applicable Data Content Provider Agreements.
(b) Data receipt and collection with respect to Basic RPA
Information shall be performed without charge to the Data Content Provider;
provided that the data is received in one of the formats described in Schedule
- -------- --------
I. In the event that the data is not receivable or received in one of such
- --
formats, Operator may charge the Data Content Provider (i) a reasonable fee for
developing and maintaining an appropriate conversion link and (ii) Operator's
additional cost, if any, related to transmitting data for such Data Content
Provider: provided, however, that if the Data Content Provider so desires, it
-------- -------
may arrange with a third party to develop the required conversion link and
Operator shall provide the necessary specifications for such third party to
develop such link: provided, further, such specifications shall only be
-------- -------
disclosed under a standard confidentiality agreement.
5.3 Preparation of Real Property Ads. (a) Operator shall be responsible
--------------------------------
for preparing Real Property Ads from the Real Property information received from
Data Content Providers in accordance with the requirements of this Section 5.3.
-----------
Real Property information received from a Data Content Provider in the form
specified in the related Data Content Provider Agreement shall be converted into
Real Property Ads and made Active on the System (i) in the case of the initial
bulk delivery of Real Property information from a new Data Content Provider,
within thirty days of the receipt of such information by Operator, and (ii) in
the case of subsequent deliveries of Real Property information from Data Content
Providers, within three Business Days of the receipt of such information by
Operator. Operator shall be responsible for updating the Active Real Property
Ads at least weekly with information provided by Data Content Providers.
Operator shall employ a reasonable means to verify that errors are not being
introduced into the Real Property information as a result of Operator's
activities and shall undertake all reasonable commercial efforts to correct
errors that are detected.
(b) Real Property Ads (i) shall contain the information specified in
Section 5.3(c) (the "Basic RPA Information") and (ii) may contain additional
- --------------
information as described in Section 5.3(d) (the "Enhanced RPA Information").
--------------
Notwithstanding the foregoing, in no event shall a Real Property Ad contain
information with respect to (1) the name of the property owner, (2) whether the
property is presently occupied or vacant, or (3) content, if any, restricted or
prohibited in the relevant Data Content Provider Agreement. If specifically
permitted in the
12
<PAGE>
relevant Data Content Provider Agreement or specifically requested by the Data
Content Provider (or, if a Data Content Provider has authorized the listing
brokers, if requested by a listing broker), a Real Property Ad may contain the
street address of the property.
(c) Real Property Ads shall contain the following information:
(i) a color (if available) or black and white (if available)
photograph of the property;
(ii) a text description of the property;
(iii) additional information regarding the property; and
(iv) the firm name (including branch office identification, if
any) and telephone number (including area code).
It is understood that Basic RPA Information will be accessed in two levels, the
first level containing a smaller photograph (if available) of the property, the
information specified in clause (ii) and the listing broker's name and phone
number along with similar information on other properties; and the second level
containing a larger photograph (if available) of the property and the
information specified in clause (ii) through (iv), inclusive. Each Real
Property Ad shall be prepared to meet the general specifications set forth in
Schedule J.
- ----------
(d) Real Property Ads may contain such additional information as
Operator may agree in an agreement (an "Enhanced Content Agreement") with (i) A
Data Content Provider and/or (ii) the listing broker. Operator shall be
authorized to solicit, and to enter into, Enhanced Content Agreements with Data
Content Providers and/or listing brokers containing such terms as Operator shall
deem appropriate: provided, however, such terms shall not be inconsistent with
-------- -------
this Agreement or the related Data Content Provider Agreement; and provided
--------
further that copies of all such Enhanced Content Agreements shall be provided to
- -------
RIN within ten Business Days of their execution. Any such additional
information shall be presented in a manner that does not adversely affect the
size or graphic presentation of Real Property Ads for Persons who do not elect
to have additional information included -- i.e., additional information shall be
presented generally via additional screens beyond the screens containing the
Basic RPA Information.
5.4 Presentation of Real Property Ads. (a) The parties recognize that
---------------------------------
Real Property Ads are the basic informational component of the electronic
delivery system to be maintained under this Agreement, but that such information
will need to be organized in some manner (i) to facilitate consumer and general
public access and searches for relevant information and (ii) to provide
opportunities for the insertion of Advertising to assist Operator in generating
revenues. Consequently, it is likely that a user will proceed from a main
introductory screen through one or more icon/menu driven screens in order to
access Real Property Ads in a particular geographical area or price range or
Real Property Ads offered by a particular listing broker or firm. The purpose
of this Section is to describe general standards with respect to the
organization and presentation of such information and to allow for the
generation of additional revenue by Operator.
13
<PAGE>
(b) The System shall be organized in a fashion to facilitate
efficient access to the Real Property Ads by a user. Graphical interfaces shall
be designed in a professional manner with the objective of providing a sharp,
uncluttered image and ease of use. At present, the System provides a series of
sublevels based upon a narrowing geographic search pattern using map graphics
and zip code information. It is expected that the series of graphical maps will
be retained as a primary means of searching for Real Property Ads; however,
Operator may develop improvements to such search and/or alternative means for
searching for relevant Real Property Ads. It is also expected that the user will
not be required to step through primarily advertising screens on such user's
search to relevant Real Property Ads unless such user so elects by deliberate
mouse click. Operator may recommend to RIN changes to the user interface based
upon its market research, user feedback and changes in technology that it
reasonably believes will improve the overall functionality and usability of Real
Property Ads. Any such changes, as they relate to the use and presentation of
the marks covered by the Trademark Agreement and the functionality of the user
interface, shall be subject to the approval of RIN (which approval shall not be
unreasonably withheld) prior to their implementation. RIN shall respond to a
request to approve such changes within ten Business Days of Operator's
submission of any such proposed changes.
(c) The design and layout for the main home page (introductory
screen) for the Domain Site shall be prepared and submitted by Operator to NAR
for its approval (which approval shall not be unreasonably withheld or delayed);
however, it is understood that the functional space available on such home page
(i.e., space available after meeting technical and legal requirements) shall be
split evenly between Operator and NAR/RIN. NAR may request reasonable changes,
consistent with the above, in such content or design so long as such changes
shall not adversely financially impact Operator, and Operator shall make such
changes. Such home page shall provide a visual and electronic link to (i) the
System, including Real Property Ads, (ii) NAR's externally-accessible databases
(i.e., information that is intended to be accessible to, and accessed by, the
general public), (iii) NAR's internally-accessible databases (i.e., the
REALTOR(R) Intranet and other information that is intended to be accessible to,
and accessed by, a restricted group) and (iv) such information as Operator and
RIN shall agree from time to time.
(d) Screens containing Real Property Ads shall meet the requirements
set forth in Section 5.3(b). In addition, such screens shall, as to content and
--------------
linkages, be subject to any restrictions contained in the corresponding Data
Content Provider Agreement; and Operator shall observe such restrictions.
(e) Appropriate copyrights, service mark and trademark notifications
shall be included in the presentation. Operator shall receive appropriate
credit as the designer and operator of the Domain Site.
(f) In addition, Operator shall be authorized to prepare and present
printed listings of Real Property Ads for the purposes of (i) increasing the
visibility of the Domain Site and the Real Property Ads housed thereat and (ii)
marketing the availability of Real Property Ads via Electronic Display. It is
expected that such printed material will refer the reader back to the Domain
Site.
14
<PAGE>
5.5 Other Information. (a) If NAR determines to produce and make
-----------------
available the following Content, Operator shall integrate such content into the
System and store and maintain such content on its facilities:
(i) questions and answers regarding the process of buying and
selling real estate, the definition of a REALTOR(R), the services
performed by REALTOR(R), and related matters;
(ii) news related to, or affecting, real estate; and
(iii) information related to NAR's economic forecast, home
sales statistics and consumer related press releases.
(b) If NAR determines to allow the linkage for one or more of the
following areas, Operator shall provide a means whereby users of the System may
link to the following information which would be maintained by NAR:
(i) NAR press releases;
(ii) NAR memberships, including information on joining NAR and
information regarding careers in real estate.
(iii) NAR conventions, meetings and other gatherings or events;
(iv) NAR legislative briefing papers; and
(v) other information which does not compete with the RPA
Business.
5.6 Electronic Display Outlets. (a) Operator shall be responsible for
--------------------------
maintaining the Domain Site, and the interconnection between such Domain Site
and other Electronic Display sites and/or databases.
(b) Operator shall also exercise reasonable commercial efforts to
identify, solicit and contract for the Electronic Display and distribution of
Real Property Ads and Advertising with the objective of reaching as broad a
geographic audience as is possible in each form of Electronic Display. Operator
shall identify Commercially viable Forms of Electronic Display of Real Property
Ads. With respect to Commercially viable Forms of Electronic Display, Operator
shall either assemble the necessary equipment and personnel to furnish Real
Property Ads via such Commercially Viable Form of Electronic Display or use
reasonable commercial efforts to negotiate, execute and deliver such contracts
or agreements as may be required to provide for the distribution of Real
Property Ads via such Commercially Viable Form of Electronic Display; provided,
--------
however, that if Operator shall fail to do either of the foregoing within six
- -------
months of notice from RIN of a Commercially Viable Form of Electronic Display,
then RIN's recourse shall be to declare such form of Electronic Display to be
excluded from the provisions of this Agreement (i.e., Operator shall have no
rights under this Agreement to present Real Property Ads via such form of
Electronic Display). Any contracts or agreements with third parties with
respect to the handling, distribution and display of Real Property Ads shall be
subject to the following:
16
<PAGE>
(i) subject to the technological constraints of the
Electronic Display system, such contracts shall provide for Real
Property Ads to be carried in approximately the same form and with the
same content from one Electronic Display system to another, it being
the objective of this requirement to ensure, whether possible,
relative uniformity in content and appearance of Real Property Ads and
to avoid discriminatory restrictions in favor of a particular system
or media; provided, however, this section is not intended to prevent
-------- -------
the Operator from taking advantage of technology differences between
media or from conforming to design requirements reasonably placed on
it by the related contracts or agreements for Electronic Display.
(ii) unless otherwise approved by RIN in its sole discretion,
such contracts shall not grant an exclusive to the delivery medium or
owner so as to prohibit or restrict the carriage or display of Real
Property Ads by competitive or alternative means;
(iii) such contracts shall (1) provide that the parties thereto
shall not challenge the Data Content Provider's claim of ownership of
the data constituting the Real Property Ads, (2) incorporate any
restrictions on the use of data, or its juxtaposition with other
content or data (including advertisements), contained in the related
Data Content Provider Agreements, (3) prohibit such Person from
copying the data for its own use and (4) prohibit association with
non-REALTOR(R) material, except as otherwise permitted by this
Agreement; and
(iv) such contracts shall contain a provision allowing their
assignment to, and assumption by, RIN in the event this Agreement is
terminated in accordance with Section 7.2.
-----------
(c) Operator may propose, for RIN's consideration, other electronic
media or formats for the display of the information contemplated to be located
at the Domain Site so that such information may be viewed or accessed via
electronic transmission. If RIN decides in its sole discretion that such
proposed media or format is acceptable, such media or format shall be included
within the term "Electronic Display," as used in this Agreement, subject to
arriving at mutually acceptable performance standards for such media or format
and mutually acceptable guidelines for the proposed format of Real Property Ads
on such media or format. It is understand that the economic terms of this
Agreement shall apply to such approved media or format and shall not be subject
to renegotiation. If RIN decides in its sole discretion that such proposed
media or format is not acceptable, (i) such media or format shall not be
included within the definition of the term "Electronic Display," and Parent
shall be free to pursue such media or format within RIN on economic terms that
are not more favorable than those available to RIN under this Agreement and (ii)
RIN shall not pursue the display of the information contemplated to be located
at the Domain Site on such media or format for a period of eighteen months after
the date its decision is communicated to Operator.
5.7 Advertising. (a) Subject to the provisions of this Section 5.7,
----------- -----------
Operator shall be permitted to carry Advertising from Authorized Advertisers in
connection with the Electronic Display of Real Property ads, provided such
--------
Advertising shall relate only to the businesses or
16
<PAGE>
activities described in Schedule A. From time to time, either party may propose
----------
changes to Schedule A to the other party for its approval, which approval shall
----------
not be unreasonably withheld; provided, however, such changes are appropriate to
-------- -------
maintaining the professionalism of the particular Electronic Display of Real
Property Ads, will not reflect negatively on the reputations of NAR, RIN,
REALTORS(R) or Operator, and in the case of proposed deletions will not affect
adversely Operator's revenue opportunities by more than $5,000 in any six month
period. Any such changes so approved shall be reflected in a new or supplemented
Schedule A.
(b) Operator shall be responsible for developing and implementing a
program to identify Authorized Advertisers for the System and to solicit
advertisements from such Persons; and Operator shall be responsible for carrying
out such program. Operator shall be responsible for the costs of soliciting
such advertising, setting such advertisements up on the System in compliance
with the requirements set forth in Section 5.7, and collecting the revenues
-----------
associated therewith.
(c) Operator shall exercise reasonable commercial efforts to assure
that all advertising is appropriate to maintaining the professionalism of the
System and that it not negatively reflect on the reputations of REALTORS(R), RIN
or NAR. In the event RIN determines that (i) a particular advertisement
violates the foregoing standard or (ii) an advertisement does not meet the
requirements of the first sentence of Section 5.7(a). RIN may request the
--------------
removal of such advertisement. and Operator shall remove such advertisement
within thirty calendar days after it receives such request from RIN. No
Advertising shall indicate that a product or service is endorsed or sponsored by
NAR or RIN unless the advertiser has been authorized to do so by NAR or RIN, as
the case may be.
(d) No advertisements from Restricted Advertisers shall be placed
on, or linked from, a Data Content Provider's Real Property Ad that shows
information on a single property. Except as provided in the next sentence,
Advertising on other Real Property Ads screens (i.e., screens that do not
display a single property) shall not be so restricted. In the event that RIN
shall determine, based on a survey of Data Content Providers, that there is a
problem with the placement of Advertising from certain Restricted Advertisers on
Real Property Ads screens that display more than one Real Property Ad, then RIN
may request Operator to undertake, and Operator shall undertake the following
actions:
(i) Operator shall provide a clear means in any thereafter
executed Data Content Provider Agreements for Data Content Providers to indicate
that they want any Advertising from such Restricted Advertisers to be excluded
from Real Property Ads screens carrying such Data Content Provider's Real
Property Ads, and
(ii) Operator shall contact all Data Content Providers who
have an effective Data Content Provider Agreement and shall offer such Data
Content Providers the opportunity to exclude Advertising from such Restricted
Advertisers from Real Property Ads screens carrying such Data Content Provider's
Real Property Ads.
(e) No Restricted Advertiser shall be (i) allowed to reserve or
occupy more than 25% of the Available Advertising Space in any geographic
location, or (ii) given an exclusive right to advertising with respect to a
particular type of business.
17
<PAGE>
(f) Without the express written consent of an affected Data Content
Provider, Operator shall not establish linkages from such Data Content
Provider's Real Property Ads to apartment rental advertising services or to new
home developments advertisements. It is understood that NAR engages in public
education and promotional programs with respect to the need for, importance of,
and role of, a REALTOR(R); and that such activities shall not in any way be
affected by, or deemed a violation of this Section 5.7. It is further
-----------
understood that NAR may arrange, conduct or host forums for Data Content
Providers to discuss issues related to this Agreement or other issues of common
interest.
(g) Operator may market Statistical Data, Operator shall not market
any data or information received or derived from Data Content Providers;
provided, however, Operator may request that RIN approve the marketing of
- -------- -------
particular data or information and:
(i) in the event that RIN shall, in its sole discretion,
approve in writing such marketing then Operator may market such data or
information; or
(ii) in the event that RIN shall not approve such marketing, or
shall not respond to a request from Operator to approve such marketing within 90
days of the receipt of a request from Operator so to approve, then Operator may
solicit the approval in writing of Data Content Providers to such marketing and
may market such data or information of any Data Content Provider so approving.
Notwithstanding the foregoing, in no event may Operator disclose or market data
or information with respect to (1) the name of property owners, (2) whether any
property is presently occupied or vacant, or (3) content, if any, restricted or
prohibited in a Data Content Provider Agreement. Furthermore, in the event that
a means shall be developed to identify a user of data or information available
through Electronic Display (i.e., a Person accessing such data or information),
such as "Caller ID" for telephone users, the parties must reach agreement on the
use of such information before Operator shall be entitled to use or market such
information. Finally, in the event that RIN shall determine based on a survey
of Data Content Providers, that there is a problem with Operator's marketing of
certain information or data approved by RIN pursuant to clause (i) of this
Section 5.7(g), then RIN may request Operator to undertake, and Operator shall
- --------------
undertake, (x) to contact all Data Content Providers who have an effective Data
Content Provider Agreement and shall offer such Data Content Providers the
opportunity to prohibit the use of such information or data and (y) to offer any
Persons thereafter executing Data Content Provider Agreements the opportunity to
prohibit the use of such information or data.
5.8 Links to Other Systems. Schedule K sets forth the guidelines
---------------------- ----------
whereunder Operator shall be required to establish a means, link or connection
for users of the Domain Site to connect to Other REALTOR(R) Internet Sites.
ARTICLE VI
Fees; Operator's Compensation
6.1 Fees. With respect to Data Content Providers, Operator shall have the
----
authority to establish, revise and collect fees only with respect to the
handling and distribution of
18
<PAGE>
Enhanced RPA Information. Operator shall have the authority to establish, revise
and collect fees from other Persons, including, without limitation, advertisers
with respect to advertising carried on the System and third party distributors
under Section 5.6(b). Notwithstanding the foregoing, no charges or fees shall be
--------------
assessed against, or collected from, Data Content Providers with respect to the
collection handling or distribution of Basic RPA Information, except
specifically provided in Section 5.2(b).
--------------
6.2 Operator Compensation. As compensation for its services hereunder,
---------------------
Operator shall be entitled to retain all New Revenues. As used herein, the term
"Net Revenues" means the gross revenues (including the fees described in Section
-------
6.1) derived from, or related to, content or services accessed via Electronic
- ---
Display (but not including any revenues derived from, or related to, content or
services accessed via the REALTOR(R) Intranet., after deducting the payments
described in Section 6.3 and 6.4. Notwithstanding the foregoing, Net Revenues
----------- ---
shall not include any revenues derived from, or related to, the activities of
RIN and its Controlled Entities described in Schedule L, as such Schedule may be
----------
amended from time to time by RIN (or by RIN at the request of one of its
Controlled Entities) with the approval of Operator, which approval shall not be
unreasonably withheld.
6.3 Fixed Payments. (a) Operator shall owe RIN the sum of $1,000,000 as
--------------
soon as the Number of Active Real Property Ads shall exceed 1,300,000. Such sum
shall be paid to RIN in thirty-six equal monthly installments of principal plus
interest at the Prime Rate, with the first such installment to commence on the
thirtieth day following the date on which the Number of Active Real Property Ads
shall exceed 1,300,000; provided, however, that if (i) Operator (or Parent)
-------- -------
raises more than $7 million (after deduction of underwriters' discounts and
commissions) from an offering of its stock (or the stock of Parent) or (ii)
Operator generates Free Operating Cash Flow of at least $4 million, then the
unpaid balance of such installments shall be paid in full within fifteen days
following the receipt by Operator (or Parent) of the proceeds of such stock
offering or within sixty days after the end of the calendar quarter in which the
Free Operating Cash Flow equals or exceeds $4 million, as applicable.
(b) Operator shall pay to RIN the sum of $1,000,000 (i) within sixty
days after the end of the calendar quarter in which the Free Operating Cash Flow
equals or exceeds $2 million or (ii) if earlier, within fifteen days following
the receipt by Operator (or Parent) of proceeds of more than $7 million (after
deduction of underwriters' discounts and commissions) from an offering of its
stock (or the stock of Parent).
6.4 Variable Payment. (a) Operator shall pay to the Data Content
----------------
Providers (in the aggregate) and to RIN an amount in respect of the indicated
calendar years during the terms of this Agreement equal to the indicated
percentages of Operator's Revenues during such calendar year.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Aggregate Payments to Aggregate Payments
Calendar Year Data Content Providers Payment to RIN by Operator
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
1997 10% None 10%
- ---------------------------------------------------------------------------------------------------------------
1998 10% None 10%
- ---------------------------------------------------------------------------------------------------------------
1999 Amount to be determined Lessor of (i) 5% or (ii) the Lesser or (i) the sum of 5%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
by RIN difference between 12 1/2% plus the percentage of
and the percentage of Revenues paid to the Data
revenue paid to the Data Content Providers or (ii)
Content Providers/1/ 12 1/2%
- ---------------------------------------------------------------------------------------------------------------
2000 and Amount to be determined by Less or (i) 5% or (ii) the Less or (i) the sum of 5%
thereafter RIN difference between 15% and plus the percentage of
the percentage of Revenues Revenues paid to the Data
paid to the Data Content Content Providers or (ii) 15%
Providers/1/
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
____________________
1 In the event that Operator's EBIT for a quarter is, or would be after
deducting the payments otherwise required to be made to RIN under this
Section 6.4(a), less than 10% of Operator's Revenues for such quarter, the
amount otherwise payable to RIN under this Section 6.4(a) shall be reduced
(but not more than an aggregate of 2% of Operators Revenues) until such
condition does not exist: provided, however, that if Operator's EBIT for the
calendar year in which any such reductions are made shall exceed 10% of
Revenues, then the reductions shall be restored, and the difference paid to
RIN, to the extent that operators EBIT, after such restored payments, shall
equal or exceed 10% of Operator's Revenues.
Such amount shall be payable in quarterly installment during each calendar year
within thirty days of the end of each calendar quarter based upon Operator's
Revenues during such quarter. As used in this Section 6.4, the term "Revenues"
-----------
shall mean the collected gross revenues of Operator after deducting (i) sales
commissions payable or paid to third parties related to such revenues and (ii)
collected gross revenues from the marketing of information or data permitted to
be so marketed by Data Content Providers under the provisions of Section
-------
5.7(g)(ii). Also if Operator in the future sells any products or services that
- ----------
have a significant related cost of sales, then the excess of such cost of sales
over the costs incurred on typical sales shall be subtracted from Revenues
related to these product or services. Such products could include but not be
limited to printing of property flyers for REALTORS(R) and reselling of products
or services produced by other companies.
(b) Operator shall propose the method or methods for determining the
individual amounts and manner of distribution of payments under Section 6.4(a)
--------------
to Data Content Providers, which method or methods shall be subject to the
approval of RIN. In evaluating any such method or methods so proposed, RIN
shall give consideration to (i) the revenues generated by Operator as a result
of the Red Property information provided by a Data Content Provider, including
home page sales and banner advertising, and (ii) whether such Data Content
Provider is providing such Real Property information on an exclusive basis to
Operator. The objectives of such determination shall be, among other things, to
create reasonable incentives to Data Content Providers to furnish real property
information to Operator, to promote actively the Domain Site to such Data
Content Providers' respective local communities, and to assist Operator in
selling Enhanced Real Property Ads, home pages and related services to
REALTORS(R). Furthermore, in determining the percentage of Revenues to be
available for distribution to Data Content Providers in the aggregate in 1998
and later years, RIN shall take into account competitive conditions concerning
the payment of fees to content providers and shall provide its determination
with respect to a given calendar year on or before the immediately preceding
July 1. It is understood by the parties that such proposals approvals and
determinations cannot be inconsistent with the contractual obligations
undertaken to Data Content Providers.
20
<PAGE>
(c) Until the fifth anniversary of the date of this Agreement, it is
expected that RIN will use all of the payments, if any, received by it from
Operator pursuant to Section 6.4(a) (i) to support its activities under this
---------------
agreement and (ii) to meet its obligations to NAR.
6.5 Late Payments. Any payment not made by a party when due under the
-------------
terms of this Agreement shall bear interest as the Default Rate from the due
date under this Agreement until paid.
ARTICLE VII
Term; Termination and Extension
7.1 Term. This Agreement shall continue in effect until terminated by one
----
of the parties pursuant to Section 7.2.
-----------
7.2 Termination. (a) RIN may terminate this Agreement by notice to
-----------
Operator in the event that Operator shall fail to make any payment specified in
Sections 6.3 or 6.4 on the date such payment is due, and such failure shall
- ------------ ---
continue for thirty days after written notice thereof is given by RIN to
Operator.
(b) RIN may terminate this Agreement by notice to Operator in the
event that, after December 31, 1998, the aggregate Number of Active U.S. Real
Property Ads falls below 500,000, and such condition shall continue for ninety
days after written notice thereof is given by RIN to Operator.
(c) Operator may terminate this Agreement under the circumstances
contemplated in Section 9.2(b)(iv).
------------------
(d) Except as otherwise provided in Sections 7.2(a), 7.2(b) and
------ ------
7.2(c) a party may terminate this Agreement by notice to the other party in the
- ------
event that:
(i) the other party (the "Defaulting Party") shall fail
to perform, or shall breach, any of its obligations set forth in this
Agreement, and such failure shall continue for thirty days after written
notice thereof has been given to the Defaulting Party, or if the breach is
not capable of cure within such 30 days, reasonable efforts to cure have
not been undertaken; or
(ii) the other party (1) makes any general assignment for
the benefit of creditors, (2) initiates or is the subject of a request to
initiate a bankruptcy or insolvency proceeding under any provision of law,
including the United States Bankruptcy Code, that is intended to liquidate
or rehabilitate such other party, and is not dismissed within sixty days,
(3) files, or is the subject of a filing (that is not dismissed within
sixty days) with a court of competent jurisdiction for the appointment of a
receiver, guardian, conservator or similar officer, or (4) is rendered or
declared insolvent; and a termination hereunder shall be effective, if no
cure has occurred thirty days after notice has been given to such other
party.
21
<PAGE>
(e) In the event that after the date on which either Parent or
Operator becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), a "change in control"
occurs, RIN may terminate this Agreement by giving written notice of such
termination to Operator prior to end of the period ending one hundred eighty
(180) days after the later of (i) the effectiveness of such "change in control"
and (ii) notice to RIN of such "change in control." Any such termination shall
become effective thirty days after notice thereof is given to Operator. For the
purposes of this Section 7.2(e) a "change in control" shall mean: (1) the
--------------
acquisition by any Person, including any "person" within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership, within the
meaning of Rule 13d-3 promulgated under the Exchange Act, of more than 50% of
the combined voting power of the then outstanding securities entitled to vote
generally in the election of directors of Operator or Parent; or (2) individuals
who, as of the date hereof, constitute the Board of Directors of Operator or
Parent (in each case, the "Incumbent Board") cease for any reason to constitute
at least a majority of such Boards; provided that any individual who becomes a
--------
director of Operator or Parent subsequent to the date hereof whose election or
nomination for election by Operator's or Parent's stockholders, as the case may
be, was approved by the vote of at least a majority of the directors then
comprising such Incumbent Board shall be deemed a member of such incumbent
Board; and provided, further, that any individual who was initially elected as a
-------- -------
director of Operator or Parent as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act, or any other actual or threatened solicitation of
proxies or consents by or on behalf of any Person other than the Board in
question shall not be deemed a member of the Incumbent Board in question.
(f) In the event that RIN's nominees to the Board of Directors of
Operator shall not be elected to such Board in the manner contemplated by the
Stockholders Agreement dated as of November 26, 1996, among Operator and its
stockholders, or shall be removed in violation of the provisions of said
Stockholders Agreement, RIN may terminate this Agreement upon thirty days notice
to Operator if such condition is continuing upon the expiration of such thirty
day notice period.
7.3 Transition. (a) Notwithstanding the provisions of Section 7.2, in the
---------- -----------
event that this Agreement is terminated by either party, RIN may request an
extension of this Agreement, and Operator shall continue to perform hereunder at
RIN's sole cost and expense, for a period of up to six months from the otherwise
effective date of termination in order to allow the orderly migration and
transition of operating responsibility for the Domain Site and the RPA Business
to RIN and/or a third party (the "Transition") in accordance with the Transition
and Disaster Recovery Plan. The foregoing provision shall not apply if (i)
Operator shall terminate this Agreement due to a breach by RIN of its
obligations under Section 3.2 or (ii) this Agreement shall be terminated by RIN
-----------
(or a trustee or receiver in bankruptcy acting on behalf of RIN) as a result of
the bankruptcy of RIN.
(b) If deemed reasonably necessary by RIN in order to facilitate the
Transition, RIN shall have the right to enter the facilities where the personnel
and equipment related to the operation of the Domain Site and the RPA Business
are located for the purposes of (i) observing such operations, (ii) directing
such operations and retaining personnel, if felt to be necessary to the
continued operation of the Domain Site and the RPA Business, and
22
<PAGE>
(iii) obtaining copies of Data Content Provider Agreement, copies of agreements
with advertisers and copies of any and all related records. In addition,
Operator shall provide to RIN copies of all source codes and related
documentation for the Software without charge.
7.4 Effect of Termination. In the event that this Agreement shall be
---------------------
terminated, all further obligations of the parties under this Agreement shall be
terminated without further liability of either party to the other, except (a)
rights to indemnification under Section 9 2 shall continue with respect to
-----------
events occurring prior to such termination notwithstanding such termination and
(b) nothing in this Section 7.4 shall relieve Operator from liability for breach
-----------
of its accrued payment obligations prior to termination or a Defaulting Pam from
liability for breaches prior to termination.
ARTICLE VIII
Confidentiality
8.1 Confidential Information. (a) Except as provided in Section 5.29(b)
------------------------ ---------------
or in connection with a transition contemplated by Section 7.3, neither party
-----------
will make any intellectual property, documentation software, enhancements or
know-how, trade secrets, procedures and methods, financial and operational
information and other matters relating to the Domain Site ("Confidential
Information") available, in any form, to any other person without the prior
written consent of the other. The foregoing shall not restrict a party with
respect to information or data identical or similar to that contained in the
Confidential Information but which (i) such party rightfully possessed before it
received such information from the other party as evidenced by written
documentation; (ii) subsequently becomes publicly available through no fault of
such party; (iii) is subsequently provided to such party by a third party
without restrictions on use or disclosure; or (iv) is required to be disclosed
by law.
(b) Except as expressly authorized in a Data Content Provider's Data
Content Provider Agreement, Operator shall not use or disclose any information
or data received from such Data Content Provider in connection with Operators
activities under this Agreement.
(c) Upon termination of this Agreement, the parties agree to return
to each other all Confidential Information and copies thereof in their physical
possession, in any form, and to deliver to the other a certification to that
effect.
ARTICLE IX
Liability and Indemnification
9.1 LIMITATION OF LIABILITY. IN NO EVENT OR UNDER ANY CIRCUMSTANCES SHALL
-----------------------
EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY LOSS OF PROFITS, INDIRECT,
SPECIAL, INCIDENTIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTAL DAMAGES OF ANY KIND
WHATSOEVER EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED,
HOWEVER, THAT THE FORGOING LIMITATION SHALL NOT APPLY TO AN INTENTIONAL OR
WILLFUL BREACH OF THIS AGREEMENT (IT BEING UNDERSTOOD THAT IN ORDER TO
DEMONSTRATE THAT A FAILURE TO PROVIDE AN APPROVAL, UNDER
23
<PAGE>
CIRCUMSTANCES WHERE THIS AGREEMENT REQUIRES SUCH APPROVAL NOT TO BE UNREASONABLY
WITHHELD, AMOUNTED TO AN INTENTIONAL OR WILLFUL BREACH OF SUCH REQUIREMENT, A
PARTY MUST SHOW THAT THE OTHER PARTY ACTED IN BAD FAITH).
9.2 Indemnification. (a) Each party shall indemnify and hold the other
---------------
party and its officers, directors, agents, employees and Controlled Entities
harmless from and against any and all claims, demands, actions, losses,
liabilities, costs, expenses (including reasonable legal fees and expenses),
suits and proceedings of any nature whatsoever arising from the gross negligence
or willful misconduct of the indemnifying party that arise out of or are in any
manner connected with its performance under this Agreement, except to the extent
such claim, demand, action, loss, liability, expense, suit or proceeding is
attributable to the gross negligence, willful misconduct, or breach of this
Agreement by, the party seeking indemnification hereunder.
(b) Operator shall indemnify and hold RIN and its officers,
directors, agents, employees and its Controlled Entities harmless from and
against any and all claims, demands, actions, losses, liabilities, expenses
(including reasonable legal fees and expenses), suits and proceedings arising
from the infringement, or alleged infringement, of any third party's
intellectual property rights (including copyright, patent and other proprietary
rights or claims). If such a claim arises, of in Operator's judgment is likely
to arise, Operator may, at its option:
(i) procure the right for RIN to continue to benefit
from such intellectual property; or
(ii) replace or modify same in an equivalent manner so
that it becomes noninfringing; or
(iii) discontinue the feature subject to such claim unless
such feature is fundamental to the operation and the Electronic Display of
Real Property Ads; or
(iv) in none of the foregoing options are available, or
are not available at a commercially reasonable cost, terminate this
Agreement without any liability whatsoever.
ARTICLE X
Dispute Resolution
10.1 Informal Dispute Resolution. (a) Any dispute, controversy, claim or
---------------------------
disagreement between or among any of the parties hereto arising from, relating
to or in connection with this Agreement, any agreement, certificate or other
document referred to herein or delivered in connection herewith, or the
relationships of the parties hereunder or thereunder, including questions
regarding the interpretation, meaning or performance of this Agreement. and
including claims based on contract, tort, common law, equity statute,
regulation. order or otherwise ("Dispute") shall be resolved in accordance with
this Section.
24
<PAGE>
(b) Upon written request of any party, each party shall appoint a
designated representative whose task it will be to meet for the purpose of
endeavoring to resolve such Dispute ("Level 1 Review"). The designated
representatives shall meet as often as the parties reasonably deem necessary to
discuss the Dispute and negotiate in good faith in an effort to resolve the
Dispute without the necessity of any formal proceeding.
(c) If resolution of the Dispute cannot be resolved within fifteen
days of the first Level 1 Review meeting ("Level 1 Termination Date"), the
parties to the Dispute shall submit the Dispute to mediation in accordance with
the Commercial Mediation Rules of the American Arbitration Association ("AAA")
and shall bear equally the costs of the mediation. The parties will act in
good faith to jointly appoint a mutually acceptable mediator, seeking
assistance in such regard from the AAA within fifteen (15) days of the Level 1
Termination Date. The parties agree to participate in good faith in the
mediation and negotiations related thereto for a period of thirty days
commencing with the selection of the mediator and any extension of such period
as mutually agreed to by the parties.
10.2 Arbitration. (a) If the parties cannot agree to a mediator within
-----------
fifteen days of the Level 1 Termination Date or if the Dispute is not resolved
within thirty days after the beginning of the mediation and any extension of
such periods as mutually agreed to by the parties, the Dispute shall be
submitted to, and finally determined by, binding arbitration in accordance with
the following provisions of this Section 10.2, regardless of the amount in
------------
controversy or whether such Dispute would otherwise be considered justiciable or
ripe for resolution by a court or arbitration panel.
(b) Any such arbitration shall be conducted by the AAA in accordance
with its current Commercial Rules ("AAA Rules"), except to the extent that the
AAA Rules conflict with the provisions of this Section, in which event the
provisions of this Section shall control.
(c) The arbitration panel (the "Panel") shall consist of three
neutral arbitrators ("Arbitrators"), each of whom shall be an attorney having
five or more years experience in the primary area of law as to which the dispute
relates, and shall be appointed in accordance with the AAA Rules (the "Basic
Qualifications").
(d) Should an Arbitrator refuse or be unable to proceed with
arbitration proceedings as called for by this Section 10.2, a substitute
------------
Arbitrator possessing the Basic Qualifications shall be appointed by the AAA.
If an Arbitrator is replaced after the arbitration hearing has commenced, then a
rehearing shall take place in accordance with the provisions of this Section
-------
10.2 and the AAA Rules.
- ----
(e) The arbitration shall be conducted in the location of the party
against whom the arbitration claim is being filed; provided, that the Panel may
--------
from time to time convene, carry on hearings, inspect property or documents and
take evidence at any location which the Panel deems appropriate.
(f) The Panel may in its discretion order a pre-exchange of
information including production of documents, exchange of summaries of
testimony or exchange of statements of position, and shall schedule promptly all
discovery and other procedural steps and
25
<PAGE>
otherwise assume case management initiative and control to effect an efficient
and expeditious resolution of the Dispute.
(g) At any oral hearing of evidence in connection with any
arbitration conducted pursuant to this Section 10.2, each party and its legal
------------
counsel shall have the right to examine its witnesses and to cross-examine the
witnesses of the other party. No testimony of any witness shall be presented in
written form unless the opposing parties shall have the opportunity to cross-
examine such witness, except as the parties otherwise agree in writing and
except under extraordinary circumstances where, in the opinion of Panel, the
interests of justice require a different procedure.
(h) Within fifteen days after the closing of the arbitration
hearing, the Panel shall prepare and distribute to the parties a written award,
setting forth the Panel's findings of facts and conclusions of law relating to
the Dispute, including the reasons for the giving or denial of any requested
remedy or relief. The Panel shall have the authority to award any remedy or
relief that a court of competent jurisdiction could order or grant, and shall
award interest on any monetary award from the date that the Loss or Expense was
incurred by the successful party. In addition, the Panel shall have the
authority to decide issues relating to the interpretation, meaning or
performance of this Agreement, any agreement, certificate or other document
referred to herein or delivered in connection herewith, or the relationships of
the parties hereunder or thereunder, even if such decision would constitute an
advisory opinion in a court proceeding or if the issues would otherwise not be
ripe for resolution in a court proceeding, and any shall bind the parties in
their performance of this Agreement and such other documents.
(i) Except as necessary in court proceedings to enforce this
arbitration provision or an award rendered hereunder, or to obtain interim
relief or as otherwise provided in Section 10.3, no party nor any arbitrator
------------
shall disclose the existence, content or results of any arbitration conducted
hereunder without the prior written consent of the other parties.
(j) To the extent that the relief or remedy granted in an award
rendered by the Panel is relief or a remedy on which a court could enter
judgment, a judgment upon the award rendered by the Panel may be entered in any
court having jurisdiction thereof. Otherwise, the award shall be binding on the
parties in connection with their obligations under this Agreement and in any
subsequent arbitration or judicial proceedings among any of the parties.
(k) The parties agree to share equally the cost of any arbitration,
including the administrative fee, the compensation of the arbitrators and the
costs of any neutral witnesses or proof produced at the direct request of the
Panel.
(1) Notwithstanding the choice of law provision set forth in Section
-------
12.5, The Federal Arbitration Act, 9 U.S.C. Sections 1 to 14, except as
- ----
modified hereby, shall govern the interpretation and enforcement of this Section
-------
10.2.
- ----
10.3 Recourse to Courts and Other Remedies. Notwithstanding the Dispute
-------------------------------------
resolution procedures contained in Sections 10.1 and 10.2, any party may apply
------------- ----
to any court having jurisdiction (a) to enforce this agreement to arbitrate, (b)
to seek provisional injunctive relief so as to maintain the status quo until the
arbitration award is rendered or the Dispute is otherwise resolved, (c) to avoid
the expiration of any applicable limitation period, (d) to preserve
26
<PAGE>
a superior position with respect to other creditors or (e) to challenge or
vacate any final judgment, award or decision of the Panel that does not comport
with the express provisions of Section 10.2.
------------
10.4 Attorneys' Fees. If any action, suit or proceeding is commenced to
---------------
establish, maintain, or enforce any right or remedy under this Agreement, the
party not prevailing therein shall pay, in addition to any damages or other
award, all reasonable attorneys' fees and litigation expenses incurred therein
by the prevailing party.
ARTICLE XI
Representations and Warranties
11.1 Representations and Warranties Made by Each Party. As an inducement
-------------------------------------------------
to the other party to enter into this Agreement and to consummate the
transactions contemplated hereby, each party hereby covenants, represents and
warrants to such other party as follows:
(a) Corporate Authority. Such party is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the jurisdiction of its
organization, with adequate power and authority to enter into this Agreement,
and is duly qualified and registered to do business and has or will take all
action necessary to enable it to conduct all activity contemplated by this
Agreement in all appropriate states in connection with the conduct of its
business.
(b) Due Authorization. This Agreement has been duly authorized,
-----------------
executed and delivered by such party and, assuming due authorization, execution
and delivery by the other party, constitutes a valid, legal and binding
agreement, enforceable against such party in accordance with its terms, except
to the extent that the enforceability of remedies therein provided may be
limited under generally applicable laws relating to specific performance,
bankruptcy and creditors rights.
(c) Governmental Approvals. No approval, consent or withholding of
----------------------
objections is or will be required from any federal, state or local governmental
authority or instrumentality with respect to the entry into or performance by
such party of this Agreement, except such as have already been obtained.
(d) No Violation. The entry into and performance by such party of
------------
this Agreement will not: (a) violate any judgment, order, law or regulation
applicable to such party or any provision of such party's certificate of
incorporation or by-laws, or (b) result in any breach of, constitute a default
under or result in the creation of any lien, charge, security interest or other
encumbrance upon any other agreement binding upon such party.
(e) big Legal Proceedings. There are no suits or proceedings pending
-----------------
or threatened in court or before any regulatory commission, board or other
administrative or governmental agency against or affecting such party, which if
adversely decided would have a material adverse effect on the ability of such
party to fulfill its obligations under this Agreement.
11.2 Representations and Warranties Made by RIN. RIN represents and
------------------------------------------
warrants to Operator that (i) the Persons listed in Schedule D constitute all of
----------
the Persons with whom RIN
27
<PAGE>
has entered into an agreement to provide information for Real Property Ads for
Electronic Display which is in force on the date hereof (ii) RIN has provided
true, correct and complete copies of such agreements to Operator, (iii) each of
the Data Content Provider Agreements with the Existing Content Providers has
been duly authorized, executed and delivered by RIN and, assuming due
authorization, execution and delivery by the applicable Existing Content
Provider, constitutes a valid, legal and binding agreement, enforceable against
RIN in accordance with its terms, except to the extent that the enforceability
of remedies therein provided may be limited under generally applicable laws
relating to specific performance, bankruptcy and creditors' rights and (iv) no
claims other than those listed in Schedule M have been made against RIN, NAR or
----------
their Controlled Entities relating to the RPA Business, including the Domain
Site.
THE PARTIES HEREBY WAIVE ANY AND ALL WARRANTIES IMPLIED BY LAW INCLUDING
THE IMPLIED WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE XII
Miscellaneous
12.1 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given and
effective (a) upon receipt, if delivered in person, by cable or by telegram, (b)
one Business Day after deposit prepaid with a national overnight express
delivery service (e.g., Federal Express or Airborne) or (c) three Business Days
after deposit in the United States mail (registered or certified mail, postage
prepaid, return receipt requested):
If to RIN:
REALTORS(R) Information Network, Inc.
430 North Michigan Avenue
Chicago, Illinois 60611-4087
Attention: President and Chief Executive Officer
Fax No: (312) 329-8539
with a copy to:
National Association of REALTORS(R)
430 North Michigan Avenue
Chicago, Illinois 60611-4087
Attention: General Counsel
Fax No: (312) 329-8256
and if to Operator:
RealSelect, Inc.
5655 Lindero Canyon Road -- Suite 106
Westlake Village, California 91362
28
<PAGE>
Attention. Stuart Wolff, Ph.D.
Fax No: (818) 879-5922
with a copy to:
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
Now York, New York 10022
Attention: Charles H. Baker, Esq.
Fax No: (212) 856-7814
12.2 Amendments. This Agreement may be amended or modified only by a
----------
written instrument so stating and executed by the parties.
12.3 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.4 Parties in Interest; No Assignment. This Agreement shall inure to
----------------------------------
the benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies under or by
reason of this Agreement. Notwithstanding the foregoing, the rights and
responsibilities of the parties hereto under this Agreement may not be assigned
without the prior written consent of the other party hereto provided, however,
-------- -------
that RIN may assign its rights and obligations hereunder to NAR upon notice to,
but without the prior consent of Operator.
12.5 Applicable Law. The rights and obligations of the pestles shall be
--------------
construed under and governed by the internal laws (without application of the
conflicts of laws provisions thereof) of the State of California.
12.6 Waiver. No provision in this Agreement shall be deemed waived by
------
course of conduct, unless such waiver is in writing signed by both parties and
stating specifically that it was intended to modify this Agreement.
12.7 Partial Invalidity. Wherever possible, each provision hereof shall
------------------
be interpreted in such manner as to be effective and valid under applicable law,
but in case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
provision shall be ineffective to the extent, but only to the extent, of such
invalidity, illegality or unenforceability without invalidating the remainder of
such invalid, illegal or unenforceable provision or provisions or any other
provisions hereof, unless such a construction would be unreasonable.
12.8 Force Majeure. (a) Definition. For the purposes of this Agreement,
------------- ----------
"Force Majeure Event" means an event, condition or circumstance beyond the
reasonable control of the party affected (the "Affected Party") which, despite
all reasonable efforts of the Affected Party to prevent it or mitigate its
effects, prevents the performance by such Affected Party of its obligations
hereunder. Subject to the foregoing, Force Majeure Events shall include:
29
<PAGE>
(i) explosion and fire,
(ii) flood, earthquake, storm, or other natural calamity or
act of God,
(iii) strike or other labor dispute;
(iv) war, insurrection or riot;
(v) acts of or failure to act by any governmental authority;
and
(vi) changes in law;
provided, however, that in no event will the unavailability of funds constitute
- -------- -------
a Force Majeure Event.
(b) Obligations Under Force Majeure.
-------------------------------
(i) If an Affected Party is rendered unable, wholly or in
part, by a Force Majeure Event, to carry out some or all of its obligations
under this Agreement, then, during the continuance of such inability, the
obligation of such Affected Party to perform the obligations so affected shall
be suspended.
(ii) The Affected Party shall give written notice of the Force
Majeure Event to the other party (the "Unaffected Party") as soon as practicable
after such event occurs, which notice shall include information with respect to
the nature, cause and date of commencement of the occurrence(s), and the
anticipated scope and duration of the delay. Upon the conclusion of a Force
Majeure Event, the Affected Party shall, with all reasonable dispatch, take all
necessary steps to resume the obligation(s) previously suspended.
(iii) Notwithstanding the foregoing, an Affected Party shall
not be excused under this Section 12.8 for (1) any non-performance of its
------------
obligations under this Agreement having a greater scope or longer period than is
justified by the Force Majeure Event, or (2) for the performance of obligations
that arose prior to the Force Majeure Event. Nothing contained herein shall be
construed as requiring an Affected Party to settle any strike, lockout or other
labor dispute in which it may be involved.
(c) Continued Payment Obligation. Either party's obligation to make
----------------------------
payments already owing shall not be suspended by Force Majeure Events.
(d) Extended Force Majeure. Either party may terminate this
----------------------
Agreement upon thirty days prior written notice to the other party if Force
Majeure Event prevent the other party from substantially performing its
obligations hereunder for a cumulative period of 720 days provided that strikes
or other labor disputes shall be disregarded in determining such cumulative
period.
12.9 Entire Agreement. This Agreement and the agreement referred to
----------------
herein and the schedules attached hereto constitute the entire agreement between
the parties governing
30
<PAGE>
the matters addressed herein. No prior agreement or representation, whether oral
or written, shall have any force or effect thereon.
* * * * *
31
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
REALTORS(R) INFORMATION NETWORK, INC.
By: /s/ Alan R. [Illegible]
-------------------------------------
Name:
Title:
REALSELECT, INC.
By: /s/ Stuart Wolff
-------------------------------------
Name: Stuart Wolff
Title: Chairman & Chief Executive
Officer
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EXHIBIT 10.04
Joint Ownership Agreement
This Joint Ownership Agreement ("Agreement") is entered into November 26, 1996
by and between the NATIONAL ASSOCIATION of REALTORS(R), an Illinois not for
profit corporation having offices at 430 North Michigan Avenue, Chicago,
Illinois 60611-4087 ("NAR"), and NetSelect, L.L.C., a Delaware limited liability
company having offices at 5655 Lindero Canyon Road, Suite 106, Westlake Village,
California 91362 ("NetSelect") and NetSelect, Inc., a Delaware corporation
having offices at 5655 Lindero Canyon Road, Suite 106, Westlake Village,
California 91362 ("NetSelect, Inc.").
WHEREAS, the REALTORS Information Network/TM/, Inc., a wholly owned subsidiary
of NAR and RealSelect, Inc., ("RealSelect") which is owned in part by NetSelect,
have entered into an Operating Agreement (as hereinafter defined);
WHEREAS, NAR and NetSelect desire to own jointly the Software and Enhanced
Software (as each are hereinafter defined) used by RealSelect to perform its
obligations under the Operating Agreement;
WHEREAS, the parties desire to limit certain of their business activities during
the term of the Operating Agreement;
NOW, THEREFORE, in consideration of the foregoing and mutual agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
Definitions
1.1 "Agreement" shall mean this Joint Ownership Agreement.
"Control" shall mean the beneficial ownership of more than 50% of the
equity or voting securities of any Person.
"Controlled Entities" shall mean any Person which is (i) owned or
controlled by NAR, NetSelect or NetSelect, Inc. or (ii) is owned or
controlled by such Person or (iii) is under common control with such
Person.
"Enhanced Software" shall have the meaning specified in Article III.
"Operating Agreement" shall mean that certain Operating Agreement dated the
date hereof between RealSelect and REALTORS(R) Information Network, Inc.
"Person(s)" shall mean any actual person, partnership, limited liability
company, corporation, business trust, joint stock company, trust,
unincorporated association, or joint venture.
"Real Estate Related Business" shall mean real estate brokerage, real
estate management, mortgage financing, appraising, counseling, land
development and building, title
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insurance, escrow services, franchising, operation of an association
comprised of real estate licensees and operation of a multiple listing
service.
"Software" shall mean the software described in Schedule A.
ARTICLE II
Joint Ownership
2.1 NetSelect hereby grants joint and independent right, title and interest,
including without limitation all copyrights, in the Software to NAR.
Until the termination of the Operating Agreement, NAR and its Controlled
Entities use of the Software and the Enhanced Software shall be solely in
connection with the Electronic Display (as defined in the Operating
Agreement) of information in connection with Real Estate Related
Businesses.
2.2 NetSelect shall provide NAR an electronic copy of the source code of the
Software by December 10, 1996. During the term of the Operating
Agreement, NAR shall not, nor shall it permit its Controlled Entities to,
sublicense, transfer, distribute, assign, disclose or give a copy of the
Software or Enhanced Software to a Person other than NAR or a Controlled
Entity.
2.3 NetSelect shall have the right to modify, use, license, distribute, copy,
display and maintain the Software for all purposes without accounting for
profits, including without limitation the right to grant a non-exclusive,
royalty free license to the Software and the Enhanced Software to
RealSelect.
ARTICLE III
Enhancements
Any modification, update, correction, upgrade, enhancement and development
made by or for NetSelect or NAR to the Software ("Enhanced Software") during the
term of the Operating Agreement shall be jointly owned by NAR and NetSelect and
subject to the rights granted by, and restrictions of, this Agreement. As of
the date of termination of the Operating Agreement, Enhanced Software shall be
jointly and independently owned by NAR and NetSelect. NetSelect agrees to
transfer to NAR a copy of Enhanced Software, including related documentation and
materials, as of the date of termination of the Operating Agreement. After the
termination of the Operating Agreement, (i) NAR shall have unrestricted and
unlimited ownership rights in the Software and Enhanced Software, except that
any use by NAR or its Controlled Entities of the Software and Enhanced Software
shall be limited to Real Estate Related Businesses, (ii) NAR and its Controlled
Entities may only license, transfer, distribute, assign, disclose or give a copy
of the Software or Enhanced Software to a Person for use in Real Estate Related
Businesses, and (iii) any modification, update, correction, upgrade, enhancement
or development shall be owned by the party creating same.
ARTICLE IV
Restrictions
Each of the parties agrees for itself and on behalf of its Controlled
Entities that, except as permitted in the Operating Agreement, during the term
of the Operating Agreement, it and its Controlled Entities shall not engage,
directly or indirectly, in the Electronic Display of Real
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Property Ads (each as defined in the Operating Agreement) and shall not directly
or indirectly develop, market, sell, acquire an equity position in, be engaged
or employed by, or endorse, sponsor or support any service or enterprise or
authorize, appoint or engage any other Persons for the purpose of the Electronic
Display of Real Property Ads or real estate information similar to the content
of Real Property Ads. A failure by any party or its Controlled Entities to
comply with the obligations set forth in this Article shall not constitute a
breach of this Agreement unless it continues for thirty (30) days after written
notice has been given to the defaulting party by another party.
ARTICLE V
Warranties
NetSelect's grant of joint ownership of the Software and Enhanced Software
to NAR is on an "As Is", "Where Is" basis, without warranty of any kind
whatsoever, except that NetSelect hereby warrants that it has full and complete
ownership of the Software and knows of no claims challenging its ownership of
the Software, including copyright or patent claims. In the event that
NetSelect's ownership of the Software is adversely impacted by any patent claim
asserted by any Person, then NAR agrees to limit its remedies to those set forth
in Article VI.
THE PARTIES HEREBY WAIVE ANY AND ALL WARRANTIES IMPLIED BY LAW INCLUDING
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE VI
Infringement Indemnification
NetSelect shall indemnify and hold NAR, its Controlled Entities and their
respective officers, directors, agents and employees harmless from and against
any and all claims, demands, actions, losses, liabilities, expenses (including
reasonable legal fees and expenses), suits and proceedings arising from the
infringement or alleged infringement, of any third party's intellectual property
rights (including copyright, patent and other property rights or claims), in
relation to the Software and Enhanced Software. If such claim arises, or in
NetSelect's judgment is likely to arise, NetSelect may, at its option either:
(i) Pursue the right for, including entering into agreements which
permit, NAR and its Controlled Entities to continue to benefit from the Software
and Enhanced Software as provided herein; or
(ii) Replace or modify same in an equivalent manner so that it becomes
non-infringing; or
(iii) Discontinue the feature subject to such claim.
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ARTICLE VII
Miscellaneous
7.1 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given and
effective (a) upon receipt, if delivered in person, by cable, by telegram or
facsimile (b) one business day after deposit prepaid with a national overnight
express delivery service (e.g. Federal Express or Airborne) or (c) three
business days after deposit in the United States mail (registered or certified
mail, postage prepaid, return receipt requested):
If to NAR
National Association of REALTORS(R)
430 N. Michigan Avenue
Chicago, IL 60611-4087
Attention: Executive Vice President
Fax No.: (312) 329-8256
if to NetSelect
NetSelect, L.L.C.
5655 Lindero Canyon, Suite 106
Westlake Village, CA 91362
Attention: President
Fax No.: (818) 879-5822
and if to NetSelect, Inc.
NetSelect, Inc.
5655 Lindero Canyon, Suite 106
Westlake Village, CA 91362
Attention: President
or such other addresses as specified by the parties in writing from time to
time.
7.2 Amendments. This Agreement may be amended or modified only by a
written instrument so stating and executed by the parties.
7.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.4 Parties in Interest; No Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Notwithstanding the foregoing, the rights and
responsibilities of the parties under this Agreement may not be assigned without
the prior written consent of the other party.
7.5 Applicable Law. THIS AGREEMENT AND ALL THE RIGHTS AND DUTIES OF THE
PARTIES ARISING FROM OR RELATING IN ANY WAY TO THE SUBJECT MATTER OF THIS
AGREEMENT OR THE TRANSACTION(S) CONTEMPLATED BY IT, SHALL BE GOVERNED BY,
CONSTRUED, AND ENFORCED IN ACCORDANCE
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WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ITS RULES
RELATING TO CONFLICTS OF LAWS.
7.6 Waiver. No provision in this Agreement shall be deemed waived by
course of conduct, unless such waiver is in writing signed by both parties and
stating specifically that it was intended to modify this Agreement.
7.7 Partial Invalidity. Wherever possible, each provision hereof shall be
interpreted in such manner as to be effective and valid under applicable law,
but in case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
provision shall be ineffective to the extent, but only to the extent, of such
invalidity, illegality or unenforceability without invalidating the remainder of
such invalid, illegal or unenforceable provision or provisions or any other
provisions hereof, unless such a construction would be unreasonable.
7.8 Negation of Agency. The parties are independent contractors. Nothing
contained herein shall be deemed to create an agency, joint venture, franchise,
or partnership relation between the parties, and no party shall so hold itself
out. No party shall have the right to obligate or bind another party in any
manner whatsoever, and nothing contained in this Agreement shall give or is
intended to give any rights of any kind to third persons.
7.9 Entire Agreement. This Agreement constitutes the entire agreement
between the parties governing the matters addressed herein. No prior agreement
or representation, whether oral or written, shall have any force or effect
thereon.
7.10 NAR Representation. NAR hereby represents that (i) the current RIN
debt owed to NAR is not in default and (ii) in November, 1994, the NAR Board of
Directors made the original loan to RIN on the condition that it be for a five
year term with principal and interest payments commencing at the beginning of
the fifth year.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the Effective Date.
NATIONAL ASSOCIATION OF REALTORS(R)
By: /s/ Alman R. Smith
----------------------------------------
Name: Alman R. Smith
--------------------------------------
Title: Executive Vice President
-------------------------------------
NetSelect, L.L.C.
By: /s/ Stuart Wolff
----------------------------------------
Name: Stuart Wolff
--------------------------------------
Title: CEO
-------------------------------------
NetSelect, Inc.
By: /s/ Stuart Wolff
----------------------------------------
Name: Stuart Wolff
--------------------------------------
Title: CEO
-------------------------------------
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the Effective Date.
NATIONAL ASSOCIATION OF REALTORS(R)
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
NetSelect, L.L.C.
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
NetSelect, Inc.
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
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Schedule A
Description of Software
1. The Software performs the following major functions:
A. Download property and member information from the Data Content Providers
and convert this information into the format need to display Real
Property Ads. This software's function is detailed in Section 5.3(a) and
Schedule I.
B. Displaying of Real Property Ads on the Internet as described in Section
5.3.(b), 5.4. and Schedule J.
C. Reformatting Real Property Ads data for interfacing with newspapers print
products.
D. Display and accounting for banner advertising.
E. Back office accounting functions for the Real Property Ad Business.
F. Back office customer service support software.
G. Credit card processing and accounting.
2. The Software includes all software developed by InfoTouch Corporation under
its DISTRIBUTION AND WEB SITE DEVELOPMENT AGREEMENT with RIN and any
enhancements and modifications thereto including all programs, scripts,
tables that store information and the HTML scripts that drive the screen
displays on the Domain Site.
3. The Software was developed and is maintained using a number of operating
systems and programming utilities licensed from third parties including but
not limited to the following:
A. Microsoft C++ compilers
B. Microsoft NT and Windows operating
C. Microsoft Back Office including Microsoft SQL server
D. Various communications and scripting languages including: Crosstalk,
Pearl, etc.
E. Various software utilities and tools used for development and
maintenance.
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EXHIBIT 10.05
TRADEMARK LICENSE
This Agreement, dated this 26th day of November, 1996, is made by and between
the NATIONAL ASSOCIATION OF REALTORS(R), an Illinois not for profit corporation
having offices as 430 N. Michigan Ave., Chicago Illinois 60611-4087 (hereinafter
"NAR"), and RealSelect, Inc. a Delaware corporation having offices at 5655
Lindero Canyon, Suite 106, Westlake Village, California 91362 (hereinafter
"RealSelect").
Whereas, NAR has established and desires to preserve, protect, enhance and
promote the national image and prestige of NAR as an association of real estate
professionals and RealSelect acknowledges and recognizes this image and
prestige; and
Whereas, NAR is the owner of all rights in and to various trademarks, trade
names, logos, initials and other symbols associated with NAR, including common
law rights; and
Whereas, NAR possesses valid Federal and/or State registrations for Trademarks
(as defined below); and
Whereas, RealSelect desires a license to use certain of NAR's Trademarks in
connection with the collection and distribution of information related to the
availability for sale of all types of real estate via Electronic Display, as
defined in the Operating Agreement dated as of November ___, 1996 between
REALTORS(R) Information Network, Inc. ("RIN") and RealSelect (the "Operating
Agreement"), (the "RealSelect Business");
Now, Therefore, for and in consideration of the mutual covenants and undertaking
hereinafter set forth and other good and valuable consideration hereby
acknowledged, it is agreed as follows:
ARTICLE I
DEFINITIONS
I.1 The term "Agreement" shall mean this License Agreement between NAR and
RealSelect.
I.2 The term "Block R Logo" shall mean that logo owned by NAR consisting of a
vertically oriented rectangular block, an "R" in a futura type face inside
the block and the term REALTOR(R) centered below the block, all as shown in
registration No. 1,137,081 of the Principal Register issued by the United
States Patent and Trademark Office on June 17, 1980.
I.3 The term "Licensed Mark" shall mean NAR's federally registered membership
mark, REALTOR(R) and the suffixes ".com" so as to appear as "REALTOR.com",
"@home" so as to appear as "REALTOR@home", and "@aol" so as to appear as
"REALTOR@aol" and shall include any other Trademarks, if any, which NAR
grants to RealSelect after (i) RealSelect has received the approval from
RIN, pursuant to the operating Agreement, for the Electronic Display of
Real Property Ads (each as defined in the Operating Agreement) on a new
electronic display vehicle or media and (ii) RealSelect has notified
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NAR of this new electronic display vehicle or media and has requested
NAR's permission to use a specific Trademark in connection therewith and
(iii) NAR has granted its approval for such use, such approval not to be
unreasonably withheld or delayed. NAR is the owner of all rights in and to
the Licensed Mark.
I.4 The term "Parties" shall mean RealSelect and NAR.
I.5 The term "Trademarks" shall mean NAR's trademarks, service marks, marks,
logos, insignias, seals, designs or other symbols/devices used by NAR or
any of its members, affiliates or subsidiaries and associated with or
referring to NAR or any of its goods, services or membership. NAR is the
exclusive owner and licensor of these Trademarks.
ARTICLE II
GRANT OF LICENSE
II.1 Subject to the terms of this Agreement and to the extent permitted by law,
NAR hereby grants to RealSelect an exclusive worldwide license except for
use in Canada to use the Licensed Mark in connection with the RealSelect
Business pursuant to the Operating Agreement. The license is limited to
use of the Licensed Mark as it is defined herein, but shall include any
manner of display or communication of the Licensed Mark, and any variation
in its form provided such variation has been approved in advance by NAR.
The forms of display and communication of the Licensed Mark set forth in
Schedule A, attached hereto and made a part hereof and as may be amended,
shall be deemed approved by NAR for use by RealSelect.
II.2 NAR also hereby grants to RealSelect an exclusive license for the
RealSelect Business to use NAR's federally registered membership mark,
REALTOR(R) and the suffix "ads.com", so as to appear as the domain site
"REALTORads.com" (the "Location Mark"). However, the license is limited to
use of the Location Mark as a part of an Internet URL in connection with
the operation of the RealSelect Business. RealSelect shall not include or
use the Location Mark in the marketing or distribution of the RealSelect
Business or for any other purpose except with NAR's prior authorization.
II.3 Subject to the rights granted herein NAR expressly reserves for itself the
exclusive right to license its Trademarks, including the Licensed Mark,
and RealSelect may not assign its rights or sublicense the use of the
Licensed Mark to third parties. RealSelect may use a subcontractor to
manufacture, create or promote the services in connection with which the
Licensed Mark is used, but must require said third party to be bound to
the same terms and conditions as is RealSelect relating to this Agreement.
II.4 RealSelect shall at no time adopt or use, without NAR's prior written
consent, any variation of the Trademarks or any word or mark likely to be
similar to or confusingly similar to or with any of the Trademarks.
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II.5 It is understood and agreed that RealSelect shall not use the phrases
REALTOR(R) Property Ads and Voice for Real Estate in describing or
promoting the RealSelect Business.
II.6 It is understood and agreed that RealSelect may used the phrase "The
Official Internet Site of the NATIONAL ASSOCIATION OF REALTORS(R) in
connection with the RealSelect Business so long as all uses clearly
indicate that the business is operated by RealSelect, Inc; provided
further that RealSelect may use the Block "R" logo in conjunction with
such phrase provided such use is consistent with NAR's rules governing
usage of the Block "R" logo; provided further that RealSelect may replace
the word "Internet" with other approved forms of Electronic Display where
such phrase is to appear in the other form of Electronic Display.
II.7 It is understood and agreed that RealSelect may answer its business
phones with "REALTOR.COM operations."
II.8 It is further understood and agreed that the approved domain name can
also be used on advertising, promotional materials, stationery, etc., all
in connection with the RealSelect Business.
ARTICLE III
QUALITY ASSURANCE
III.I RealSelect agrees to maintain a standard of quality for the service in
connection with which the Licensed Mark is used that will enhance and
contribute to the national image and prestige of NAR as an association of
real estate professionals and will at all times avoid impugning the
character and reputation of NAR and/or its members. If at any time
RealSelect is in breach of this requirement, NAR may terminate this
license as provided for hereinafter.
ARTICLE IV
TRADEMARK USE AND OWNERSHIP
IV.I NAR hereby represents and warrants to that to the best of NAR's knowledge
(i) the Licensed Mark and the Location Mark are valid and enforceable,
(ii) the Licensed Mark and the Location Mark do not infringe upon any
rights of any third parties, (iii) there is no claim, pending or
threatened, relating to the Licensed Mark or the Location Mark, (iv) NAR
has no commitment, whether express or implied, with any other person or
entity which is in conflict with the terms, conditions and understandings
contained in this Agreement and (v) NAR has all of the rights necessary
to enter into this Agreement and to make the grants herein contained.
IV.2 RealSelect agrees to use the Licensed Mark only in the form and manner
and with appropriate legends as prescribed in writing from time to time
by NAR, and not to use any other trademark, word, symbol or device in
combination with said Licensed Mark
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without the prior written approval of NAR. RealSelect agrees it will not
alter, modify, dilute or otherwise misuse any of NAR's Trademarks.
IV.3 RealSelect agrees that upon request it shall cause to appear on or in
connection with its services any reasonable trademark notices as NAR may
from time to time, upon reasonable notice, designate.
IV.4 RealSelect hereby acknowledges NAR's ownership of the Trademarks, the
Licensed Mark and the Location Mark and RealSelect agrees that it will do
nothing inconsistent with such ownership. Any and all use of the Licensed
Mark or any other Trademark by RealSelect shall inure solely and
exclusively to the benefit of NAR. RealSelect agrees that it shall not
apply for registration or seek to obtain ownership of any NAR Trademark,
including the Licensed Mark and, Location Mark, in any nation. Further,
RealSelect agrees that neither now, nor at any time in the future, will
RealSelect, its parent corporations, subsidiaries, or affiliates,
challenge or assist in any challenge to NAR's ownership rights in NAR's
Trademarks, including the Licensed Mark and Location Mark.
IV.5 RealSelect agrees it will use the Licensed Mark only in a fashion
authorized by this Agreement and will comply with all appropriate local
and national laws in the United States. RealSelect further agrees that
any use of the Trademarks by RealSelect will conform with the rules
governing the use of the Trademarks issued by NAR and its affiliates,
including specifically using the membership mark REALTOR(R) only where
the context of use will clearly express the meaning of the term
REALTOR4(R) as an indicator of membership in NAR.
IV.6 RealSelect recognizes goodwill associated with the Licensed Mark and
acknowledges that said goodwill belongs to NAR, and that any goodwill
associated with use of the Licensed Mark pursuant to this Agreement shall
inure to the benefit of NAR.
IV.7 NAR agrees that it shall be responsible for maintaining the validity of
the Licensed Mark and all registrations thereon in the United States. NAR
further agrees that upon RealSelect's request, and in consultation with
RealSelect, it will take reasonable steps to protect the Licensed Mark in
those foreign countries where RealSelect can demonstrate it needs such
protection in furtherance of its business operations, provided that any
and all expenses incurred by NAR in connection with such activities which
are undertaken at the request of RealSelect shall be paid equally by
RealSelect and NAR.
ARTICLE V
TERM
V. I This Agreement shall be in full force and effect from the Effective Date
as defined in Article XXIII and shall remain in effect as co-terminous
with the Operating Agreement unless terminated earlier in accordance with
the terms of this Agreement.
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ARTICLE VI
INFRINGEMEENT
VI.1 RealSelect agrees to notify NAR promptly of any known use of the
Trademarks or the Licensed Mark by others not duly authorized by NAR.
Notification of such unauthorized use shall include all details known by
RealSelect that would enable or aid NAR in investigating such use.
VI.2 Upon learning of any infringement, NAR shall, at its sole discretion,
take such action as NAR may deem to be appropriate to enforce its rights
or suppress or eliminate such infringement. RealSelect shall fully
cooperate with NAR in the prosecution of any action against an
infringer, but RealSelect shall not be liable for any legal fees or
other expenses unless agreed upon in advance.
ARTICLE VII
TERMINATION BY LICENSEE
VII.I RealSelect shall have the right to terminate this Agreement of
termination by RealSelect of the Operating Agreement, provided however,
that such termination shall not impair or affect any accrued rights of
NAR. A failure by NAR to comply with the obligations set forth in this
Agreement shall not constitute a breach of this Agreement by NAR unless
it continues for thirty (30) days after written notice has been given to
NAR by RealSelect.
ARTICLE VIII
TERMINATION BY LICENSOR
VIII.I NAR may terminate this Agreement by notice to RealSelect in the event
that RealSelect should fail to materially perform any act required by
this Agreement, or otherwise breach any covenant or agreement herein,
and such failure or breach shall continue for thirty days after written
notice thereof is given by NAR to RealSelect; provided that the prompt
cessation by RealSelect of any breach shall not give rise to a
termination right unless such breach was undertaken by RealSelect in bad
faith.
VIII.2 It is expressly agreed that the provisions of 7.2 of the Operating
Agreement shall be applicable also to this Trademark License Agreement.
It is expressly recognized that the termination of the Operating
Agreement can be the basis for termination of this Agreement.
VIII.3 RealSelect acknowledges that money damages alone are inadequate to
compensate NAR for any breach by RealSelect of any provision of this
Agreement concerning the protection of the Licensed Mark. Therefore, in
the event of a breach or threatened breach of any such provision of this
Agreement by RealSelect, NAR may, in addition to all other remedies,
immediately seek to obtain and enforce appropriate injunctive relief.
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ARTICLE IX
EFFECT OF TERMINATION
IX.I Upon termination of this Agreement, RealSelect agrees to immediately
discontinue the use of any of NAR's Trademarks, including the Licensed
Mark, all in accordance with 7.3 of the Operating Agreement.
IX.2 RealSelect agrees that all legal rights and goodwill associated with NAR
Trademarks, including the Licensed Mark, shall remain the property of
NAR and RealSelect shall make no claim to them.
ARTICLE X
INDEMNIFCATION
X.I Each party hereto (the "indemnifying party") shall defend, indemnify,
and hold harmless the other party (the "indemnified party"), its
officers, employees, and agents from and against any losses and expenses
(including attorneys' fees), claims, suits or other liability, arising
out of or in any way connected with the negligent or intentional acts of
the indemnifying party in connection with the exercise of the license
granted in this Agreement.
ARTICLE XI
SEVERABILITY
XI.1 Should any provision of this Agreement be held unenforceable or in
conflict with the law of any jurisdiction, then the validity of the
remaining provisions shall not be affected by such a holding.
ARTICLE XII
NEGATION OF AGENCY
XII.I RealSelect is an independent contractor. Nothing contained herein shall
be deemed to create an agency, joint venture, franchise, or partnership
relation between the Parties, and neither Party shall so hold itself
out. RealSelect shall have no right to obligate or bind NAR in any
manner whatsoever, and nothing contained in this Agreement shall give or
is intended to give any rights of any kind to third persons.
ARTICLE XIII
MODIFICATION AND WAIVER
XIII.1 This Agreement may not be amended except by a written instrument
executed by the Parties.
XIII.2 It is agreed that no waiver by either Party hereto of any breach or
default of any of the provisions herein set forth shall be deemed a
waiver as to any subsequent and/or similar breach or default.
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ARTICLE XIV
LICENSE RESTRICTIONS
XIV.1 It is agreed that the rights and privileges granted to RealSelect are
each and all expressly conditioned upon the faithful performance on the
part of RealSelect of every requirement herein contained, and that each
of such conditions and requirements are specific license restrictions.
ARTICLE XV
LIMITED WARRANTY
XV.1 NAR makes no representations or warranties with respect to the services
provided by RealSelect and disclaims any liability arising out of the
service rendered under the Licensed Mark. No use by RealSelect shall
create the implication of a warranty or guarantee by NAR or RealSelect's
activities.
ARTICLE XVI
ASSIGNABILITY
XVI.1 This Agreement shall inure to the benefit of NAR, its successors and
assigns, but will be personal to RealSelect and shall be assignable by
RealSelect only with the prior written consent of NAR.
ARTICLE XVII
GOVERNING LAW
XVII.1 This Agreement shall be construed in accordance with and all disputes
hereunder shall be governed by the laws of the State of Illinois. The
Parties hereto consent to the jurisdiction of the courts of the
competent jurisdiction, federal or state, situated in the State of
Illinois for the bringing of any and all actions hereunder.
ARTICLE XVIII
HEADINGS
XVIII.1 The headings herein are for reference purposes only and shall not
constitute a part hereof or be deemed to limit or expand the scope of
any provisions of this Agreement.
ARTICLE XIX
NOTICES AND PAYMENTS
XIX.1 Any notice required by this Agreement shall be deemed to have been
properly received when delivered in person or when mailed by registered
first class mail return receipt requested to the address as given
herein, or such address as may be designated from time to time during
the terms of this Agreement.
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To RealSelect:
RealSelect, Inc.
5655 Lindero Canyon, Suite 106
Westlake Village, CA 91362
Attn: Richard Janssen
TO NAR:
NATIONAL ASSOCIATION OF REALTORS(R)
430 N. Michigan Avenue
Chicago, IL 60611-4087
Attn: Laurene K. Janik, General Counsel
ARTICLE XX
COMPLETE AGREEMENT
XX.1 It is understood and agreed between the parties that this Agreement
constitutes the entire agreement between them and that all prior
agreements or representations respecting the licensing of NAR's
Trademarks, whether written or oral, expressed or implied, and whether
the NAR or ant party, shall be abrogated, canceled and are null and
void
ARTICLE XXI
ACCEPTANCE
XXI.1 This Agreement may be accepted and executed by the Parties hereto by
facsimile transmission of their respective signature.
ARTICLE XXII
SURVIVAL
XXII.1 The provisions of paragraphs II.3, II.4, IV.4, VIII.3, X.1, XV.1 and
XXII.1 will survive the expiration of termination of this Agreement.
ARTICLE XXIII
EFFECTIVE DATE
XXIII.1 Infotouch Corporation, a Delaware corporation ("Infotouch") and
NetSelect, Inc. a Delaware corporation ("NetSelect") have entered into
an Agreement and Plan of Merger, dated as of November __, 1996 (the
"Merger Agreement"), pursuant to which NetSelect will be merged with
and into Infotouch, with Infotouch being the surviving corporation (the
"Merger"). This Trademark License Agreement shall only be effective
(the "Effective Date") from and after the "Closing" of the Merger (as
that term is defined in the Merger Agreement).
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives and to become effective as of the date and
year first above written.
REALSELECT, Inc. NATIONAL ASSOCIATION OF REALTORS(R)
By: /s/ Stuart Wolff By: /s/ Alan R. Smith
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Its: Its: Executive Vice President
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SCHEDULE A
1. REALTOR.COM as an approved Internet Domain Site name.
2. REALTOR.XX as a Domain Site name where XX is used as an Internet designator
for country location, such as REALTOR.AU where "AU" stands for Australia, or
where XX is a recognized Internet suffix used by commercial enterprises now and
in the future provided the foregoing site names are only used to transfer users
to the REALTOR.com domain site.
3. YY.REALTOR where YY is a designator for a state or location such as "TN"
for Tennessee as a modification of an otherwise approved Domain Name provided
the foregoing site names are only to transfer users to the REALTOR.com domain
site.
4. Addition of other prefixes and suffixes reasonably necessary for the
effective use of any approved Domain Mane on the Internet where such suffixes
and prefixes are separated from REALTOR by punctuation (i.e. "`", "/", "\", ",",
"@" and other similar symbols). These would include the following:
i. "[email protected]" as an email address as long as the user of the
email address is a member of NAR, works for RealSelect, or works for an
Association of REALTORS that is a member or NAR.
ii. "HTTP://www.REALTOR.com".
iii. "http://REALTOR.com/directoryname/subdirectoryname/" where the
directoryname and subdirectoryname refer to directories and subdirectories on
the REALTOR.COM Domain Site that allow for proper organization of the Domain
Site.
5. It is agreed that the above approved Domain Site name can use the Licensed
Mark in upper or lower case.
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EXHIBIT 10.06
EXECUTION COPY
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STOCK AND INTEREST PURCHASE AGREEMENT
Dated as of November 26, 1996
by and among
_______________
NETSELECT, INC.
_______________
NETSELECT, L.L.C.
________________
AND
________________
INFOTOUCH CORPORATION
_______________
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TABLE OF CONTENTS
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Page
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ARTICLE I PURCHASE AND SALE OF STOCK AND INTERESTS................................ 1
SECTION 1.1. Transfer of Stock................................................... 1
SECTION 1.2. Transfers of Interests.............................................. 1
SECTION 1.3. Amount and Payment of Purchase Price................................ 2
SECTION 2.1. The Closing......................................................... 2
SECTION 2.2. Deliveries by NetSelect............................................. 3
SECTION 2.3. Deliveries by NS LLC................................................ 3
SECTION 2.4. Deliveries by InfoTouch............................................. 3
ARTICLE III CLOSING MATTERS....................................................... 4
SECTION 3.1. Certificate of Incorporation........................................ 4
SECTION 3.2. By-laws............................................................. 4
SECTION 3.3. LLC Agreement....................................................... 4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INFOTOUCH............................ 5
SECTION 4.1. Organization; Etc................................................... 5
SECTION 4.2. Capitalization...................................................... 5
SECTION 4.3. Authorization....................................................... 6
SECTION 4.4. Consents and Approvals; No Violations............................... 6
SECTION 4.5. Intellectual Property............................................... 6
SECTION 4.6. Compliance with Laws................................................ 7
SECTION 4.7. Brokers and Finders................................................. 7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF NETSELECT............................. 7
SECTION 5.1. Organization; Etc................................................... 7
SECTION 5.2. No Prior Activities................................................. 7
SECTION 5.3. Capitalization...................................................... 8
SECTION 5.4. Authorization....................................................... 8
SECTION 5.5. Consents and Approvals; No Violations............................... 9
SECTION 5.6. Brokers and Finders................................................. 9
ARTICLE VI COVENANTS OF THE PARTIES............................................... 9
SECTION 6.1. Reasonable Best Efforts............................................. 9
SECTION 6.2. Public Announcements................................................ 10
SECTION 6.3. Additional Capital Contributions of InfoTouch Investors............. 10
SECTION 6.4. Solvency Letter..................................................... 10
SECTION 6.5. Additional Capital Contributions of NetSelect....................... 11
SECTION 6.6. Merger of NetSelect and InfoTouch................................... 11
SECTION 6.7. InfoTouch Public Offering and NetSelect Capital Stock Issuance...... 13
SECTION 6.8. NetSelect Options................................................... 13
SECTION 6.9. InfoTouch Audit..................................................... 13
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SECTION 6.10. RIN Restriction on Transfer......................................... 14
SECTION 6.11. InfoTouch Stockholder Restrictions.................................. 15
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE AGREEMENT............................. 16
SECTION 7.1. Condition to Each Party's Obligations to Consummate the Agreement... 16
SECTION 7.2. Further Conditions to InfoTouch's Obligations....................... 17
SECTION 7.3. Further Conditions to NetSelect's and NS LLC's Obligations.......... 18
ARTICLE VIII TERMINATION AND ABANDONMENT............................................ 19
SECTION 8.1. Termination......................................................... 19
SECTION 8.2. Effect of Termination............................................... 19
ARTICLE IX SURVIVAL AND INDEMNIFICATION............................................. 19
SECTION 9.1. Survival; Remedy for Breach......................................... 19
SECTION 9.2. Indemnification by InfoTouch........................................ 20
SECTION 9.3. Indemnification by NetSelect........................................ 20
SECTION 9.4. Indemnification Limits.............................................. 21
SECTION 9.5. Indemnification; Notice and Settlements............................. 21
ARTICLE X MISCELLANEOUS PROVISIONS.................................................. 22
SECTION 10.1. Amendment and Modification.......................................... 22
SECTION 10.2. Extension; Waiver................................................... 22
SECTION 10.3. Entire Agreement; Assignment........................................ 22
SECTION 10.4. Validity............................................................ 22
SECTION 10.5. Notices............................................................. 22
SECTION 10.6. Governing Law....................................................... 23
SECTION 10.7. Descriptive Headings................................................ 23
SECTION 10.8. Counterparts........................................................ 24
SECTION 10.9. Parties in Interest................................................. 24
SECTION 10.10. No Waivers.......................................................... 24
SECTION 10.11. Specific Performance................................................ 24
SECTION 10.12. Definition of Knowledge............................................. 24
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EXHIBITS and ANNEXES
ANNEX A NetSelect Investors and Capitalization
ANNEX B Liabilities and Expenses of CDW Internet, L.L.C.
EXHIBIT A Intellectual Property, Assets and Liabilities of InfoTouch
EXHIBIT B Names of Directors and Officers of NetSelect
EXHIBIT C Board of Managers of NetSelect, L.L.C.
EXHIBIT D Form of Amended and Restated Certificate of Incorporation of
NetSelect
EXHIBIT E Form of Amended and Restated By-Laws of NetSelect
EXHIBIT F Form of Subscription Agreement
EXHIBIT G Form of Investor Representation Letter
EXHIBIT H Form of InfoTouch Stockholder Agreement
Schedule 4.2 InfoTouch Capitalization and Stockholders
Schedule 4.3 InfoTouch Consents and Approvals; No Violations
Schedule 4.5 Intellectual Property Rights
Schedule 5.2 Prior Activities of NetSelect
Schedule 5.3 NetSelect Capitalization
Schedule 5.5 NetSelect Consents and Approvals; No Violations
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EXHIBIT 10.06
STOCK AND INTEREST PURCHASE AGREEMENT
-------------------------------------
STOCK AND INTEREST PURCHASE AGREEMENT, dated as of November 26, 1996
(this "Agreement"), by and among NETSELECT, INC., a Delaware corporation
("NetSelect"), NetSelect, L.L.C., a Delaware limited liability company ("NS
LLC"), and INFOTOUCH CORPORATION, a Delaware corporation ("InfoTouch").
WHEREAS, NetSelect desires to issue to those certain investors listed
on Annex A hereto (the "Investors") the capital stock set forth and described
thereon, and such Investors desire to purchase, 236,470 shares of NetSelect
Class A common stock, par value $0.001 per share (the "NetSelect Class A Common
Stock"), 116,470 shares of NetSelect Class B common stock, par value $0.001 per
share (the "NetSelect Class B Common Stock"), and 1,647,059 shares of NetSelect
Series A Convertible Preferred Stock, par value $0.001 per share (the "NetSelect
Series A Preferred Stock") upon and subject to the terms, conditions and
provisions hereinafter set forth; and
WHEREAS, NS LLC desires to issue to NetSelect and InfoTouch, and
InfoTouch and NetSelect desire to purchase Membership interests in NS LLC (the
"Interests"), upon and subject to the terms, conditions and provisions
hereinafter set forth and in the LLC Agreement (as defined in Section 1.2
below).
NOW, THEREFORE, in consideration of the respective covenants,
representations and warranties herein contained, and intending to be legally
bound hereby to the covenants and agreements contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK AND INTERESTS
----------------------------------------
SECTION 1.1. Transfer of Stock. Upon the terms and subject to the
-----------------
conditions set forth herein, NetSelect shall sell, convey, transfer, assign and
deliver to the Investors, and the Investors shall purchase from NetSelect,
236,470 shares of NetSelect Class A Common Stock, 116,470 shares of NetSelect
Class B Common Stock, and 1,647,059 shares of NetSelect Series A Preferred
Stock, in the proportions set forth on Annex A hereto.
SECTION 1.2. Transfers of Interests. Upon the terms and subject to
----------------------
the conditions set forth herein, NS LLC shall, convey, transfer, assign and
deliver to InfoTouch, and InfoTouch shall purchase from NS LLC, the InfoTouch
Membership Interest (as defined in that certain L.L.C. Limited Liability Company
Agreement of NetSelect, L.L.C. (the "LLC Agreement"), and NS LLC shall convey,
transfer, assign and deliver to NetSelect and NetSelect shall purchase from NS
LLC, the NetSelect Membership Interest (as defined in the LLC Agreement).
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SECTION 1.3. Amount and Payment of Purchase Price. In consideration
------------------------------------
of the sale, conveyance, transfer, assignment and delivery of the InfoTouch
Membership Interest to InfoTouch on the Closing Date pursuant to Section 1.1
hereof, InfoTouch shall, on the Closing Date, in full payment therefor, transfer
and assign to NS LLC all of the Intellectual Property (as defined in section 4.5
hereof) free and clear of all Liens (as defined in Section 2.4(a)), and certain
assets and liabilities, as listed on Exhibit A hereto (the "Assets and
Liabilities"), pursuant to appropriate assignment provisions in such Exhibit A
in form and substance acceptable to NS LLC in its sole discretion. In
consideration of the sale, conveyance, transfer, assignment and delivery of the
NetSelect Membership Interest to NetSelect on the Closing Date (except as such
date may otherwise be provided in Sections 7.2(c) and (d) hereof) pursuant to
Section 1.2 hereof, NetSelect shall, in full payment therefor, (x) on the
Closing Date, transfer and assign to NS LLC all of NetSelect's ownership rights
in the capital stock (the "RealSelect Capital Stock") of RealSelect, Inc., a
Delaware corporation ("RealSelect"), including by operation of law, all of
RealSelect's contract rights under and pursuant to that previously executed and
delivered Operating Agreement, dated as of November 26, 1996 (the "RIN Operating
Agreement"), by and between RealSelect and REALTORS(R) Information Network,
Inc., an Illinois corporation ("RIN"), (y) pay to NS LLC (i) $2,600,000 on the
Closing Date, (ii) $1,600,000 on or before December 12, 1996 (of which $150,000
would be paid by the assumption of certain indebtedness (created pursuant to
that certain Loan Agreement, dated November 4, 1996, between Michael N. Flannery
and InfoTouch, the proceeds of which were used for funding operating activity of
InfoTouch during November, 1996) by NS LLC from InfoTouch at the Closing (the
"InfoTouch Debt")), and (iii) $2,800,000 on or before February 1, 1997; and (z)
on the Closing Date, transfer the liabilities and expenses of CDW Internet,
L.L.C., a Delaware limited liability company ("CDW Internet"), including those
expenses incurred by CDW Internet in the reasonable course of its business
including, in connection with consummating the transactions contemplated by this
Agreement and all other agreements referred to herein, including, without
limitation, those personal expenses of Mr. Stuart Wolff and all legal fees and
expenses incurred by CDW Internet, as set forth on Annex B hereto.
ARTICLE II
CLOSING
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SECTION 2.1. The Closing. Upon the terms and subject to the
-----------
conditions contained in this Agreement, the Closing will take place at 10:00
a.m. at the offices of Battle Fowler LLP, Park Avenue Tower, 75 East 55th
Street, New York, New York 10022, on the date on which all of the conditions to
each party's obligations hereunder have been satisfied or waived; or at such
other place or time or both as the parties may mutually agree (the "Closing
Date").
SECTION 2.2. Deliveries by NetSelect. (a) On the Closing Date,
-----------------------
NetSelect will deliver the following to the Investors:
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(a) Certificates representing shares of NetSelect Class A Common
Stock, NetSelect Class B Common Stock and NetSelect Series A Preferred Stock.
(b) Certified copies of the resolutions, duly adopted by each of
the Board of Directors of NetSelect and the stockholders of NetSelect, which
will be in full force and effect at the time of delivery, authorizing the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby, including, without limitation, the election or appointment,
as the case may be, of each of the officers and directors of NetSelect set forth
on Exhibit B hereto, to be effective immediately upon the Closing.
(c) All other documents, instruments and writings required to be
delivered by NetSelect at the Closing Date pursuant to this Agreement.
(B) On the Closing Date, NetSelect will deliver the following to NS
LLC:
(a) The RealSelect Capital Stock.
(b) The aggregate amount of those capital contributions to
NetSelect contemplated by Sections 7.2(c) and (d) hereof.
(c) Those liabilities of CDW Internet set forth on Annex B
hereto.
(d) All other documents, instruments and writings required to be
delivered by NetSelect on the Closing Date pursuant to this Agreement.
SECTION 2.3. Deliveries by NS LLC. On the Closing Date, NS LLC will
--------------------
deliver the following to NetSelect and InfoTouch:
(a) The LLC Agreement.
(b) Certified copies of the resolutions, duly adopted by the
Board of Managers of NS LLC, which will be in full force and effect at the time
of delivery, authorizing the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, including, without
limitation, the election or appointment, as the case may be, of the Board of
Managers of NS LLC set forth on Exhibit C hereto, to be effective immediately
upon the Closing.
(c) All other documents, instruments and writings required to be
delivered by NS LLC on the Closing Date pursuant to this Agreement.
SECTION 2.4. Deliveries by InfoTouch. On the Closing Date, InfoTouch
-----------------------
will deliver the following to NS LLC:
(a) The Intellectual Property, Assets and Liabilities described
on Exhibit A hereto pursuant to Exhibit A, free and clear of all claims, levies,
charges, pledges,
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hypothecations, trusts, security interests, proxies, voting arrangements,
conditional sales or title retention contracts, or other encumbrances or
restrictions of any kind, including restrictions affecting voting rights,
transferability or incidents of record or beneficial ownership (any of such
being referred to as a "Lien").
(b) All other documents, instruments and writings required to be
delivered by InfoTouch on the Closing Date pursuant to this Agreement.
ARTICLE III
CLOSING MATTERS
---------------
SECTION 3.1. Certificate of Incorporation. In connection with the
----------------------------
transactions contemplated hereby, the Certificate of Incorporation of NetSelect,
in effect immediately prior to the Closing Date, shall be amended and restated
in its entirety as set forth in Exhibit D hereto; and, from and after the
Closing Date and, until further amended as provided by law, such amended and
restated certificate of incorporation, shall be, and may be separately certified
as, the Amended and Restated Certificate of Incorporation of NetSelect.
SECTION 3.2. By-laws. In connection with the transactions
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contemplated hereby, the By-laws of NetSelect in effect immediately prior to the
Closing Date, shall be amended and restated in their entirety as set forth in
Exhibit E hereto; and, from and after the Closing Date and, until further
amended as provided by law, such amended and restated By-laws, shall be, and may
be separately certified as, the By-laws of NetSelect.
SECTION 3.3. LLC Agreement. In connection with the transactions
-------------
contemplated hereby, the LLC Agreement and Certificate of Formation of NS LLC
(the "Certificate of Formation"), in effect immediately prior to the Closing
Date, shall be the LLC Agreement and Certificate of Formation of NS LLC in
effect from and after the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INFOTOUCH
-------------------------------------------
InfoTouch hereby represents and warrants to NetSelect that as of the
Closing Date, the following shall be true, complete and correct:
SECTION 4.1. Organization; Etc. (a) InfoTouch is a corporation duly
-----------------
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has all requisite power and authority to own, lease and
operate its properties and to carry on the business conducted by it as now
conducted.
(b) InfoTouch is duly qualified or licensed and in good standing
to do business as a foreign corporation in each jurisdiction in which
qualification is required and there
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are no other jurisdictions in which InfoTouch's ownership of property or the
conduct of its business requires such qualification, except where the failure to
be so qualified would not have a Material Adverse Effect (as hereinafter
defined). Complete and correct copies of the InfoTouch Certificate of
Incorporation, as amended to date ("InfoTouch Certificate of Incorporation") and
By-laws, as amended to date ("InfoTouch By-laws"), and as in effect on the date
hereof have been delivered to NetSelect prior to the date of this Agreement.
"Material Adverse Effect" with respect to a party shall mean any event having
(or reasonably likely to have) a material adverse effect on the business,
condition, (financial or otherwise), results of operations, properties or
prospects of such party or which may materially impair the ability of such party
to consummate the transactions contemplated by this Agreement.
SECTION 4.2. Capitalization. The authorized capital stock of
--------------
InfoTouch consists of (i) 5,000,000 shares of InfoTouch Common Stock and
1,000,000 shares of Preferred Stock, of which 3,809,239 shares of InfoTouch
Common Stock will be issued and outstanding. The issued and outstanding capital
stock is owned by, and in the amounts set forth opposite, the stockholders of
InfoTouch listed on Exhibit 4.2 hereto.
(a) Except as set forth on Schedule 4.2 of the disclosure
schedule delivered by InfoTouch to NetSelect in connection herewith (the
"InfoTouch Disclosure Schedule"), there are no (i) subscriptions, options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character, whether oral or written, relating to the issuance,
transfer or sale, delivery, transfer, voting or redemption (including any right
of conversion or exchange under any outstanding security or other instrument) of
any of the capital stock or other equity interests of InfoTouch, or (ii)
agreements, arrangements, or understandings granting any Person (as hereinafter
defined) any rights in InfoTouch similar to capital stock or other equity
interests (collectively, "Options"). All of the outstanding shares of InfoTouch
Common Stock and InfoTouch Preferred Stock and outstanding Options were issued
by InfoTouch in compliance with all applicable securities laws. Except as
provided on Schedule 4.2 of the InfoTouch Disclosure Schedule, there are no
voting trusts, shareholder agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of the
outstanding shares of InfoTouch Common Stock or shares of InfoTouch Preferred
Stock or Shares to which InfoTouch or, to the best of its knowledge, any of its
stockholders, is a party or is bound.
SECTION 4.3. Authorization. InfoTouch has taken all corporate action
-------------
required to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, and this Agreement has
been duly executed by InfoTouch and constitutes the legal, valid and binding
obligation of InfoTouch enforceable in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally and
(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law.
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SECTION 4.4. Consents and Approvals; No Violations. Except as
-------------------------------------
contemplated by this Agreement, no filing with, and no permit, authorization,
consent or approval of, any public body or governmental authority, domestic or
foreign, is necessary for the consummation by InfoTouch of the transactions
contemplated by this Agreement. Any consents, approvals, or authorizations of
any third party or governmental authority, domestic or foreign, required or
necessary to assign and deliver the Intellectual Property hereunder and pursuant
to Exhibit A have been obtained. Except as set forth on Schedule 4.3 of the
InfoTouch Disclosure Schedule, neither the execution and delivery of this
Agreement by InfoTouch nor the consummation by InfoTouch of the transactions
contemplated hereby nor compliance by InfoTouch with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of the
InfoTouch Certificate of Incorporation or InfoTouch By-laws; (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, or require any consent under, any of the terms,
conditions, or provisions of any indenture, license, contract, agreement, or
other instrument or obligation to which InfoTouch is a party or by which it or
any of its properties or assets may be bound, except for violations, breaches
and defaults which in the aggregate would not have a Material Adverse Effect on
InfoTouch; or (iii) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to InfoTouch, except for violations of statutes, rules
and regulations which in the aggregate would not have a Material Adverse Effect
on NetSelect or NS LLC.
SECTION 4.5. Intellectual Property. InfoTouch is the owner or the
---------------------
exclusive licensee of all of the intellectual property set forth on Exhibit A
hereto (the "Intellectual Property"). InfoTouch owns, or is licensed to use all
of the Intellectual Property, free and clear of all Liens, and has not assigned,
hypothecated or otherwise encumbered any of the Intellectual Property. Except as
set forth on Schedule 4.4(b) of the InfoTouch Disclosure Schedule, (i) no Person
has a right to receive a royalty with respect to any of the Intellectual
Property; (ii) no claim has been asserted or, to the best of the knowledge of
InfoTouch, threatened by a third party with respect to the use of such
Intellectual Property by InfoTouch; (iii) to the knowledge of InfoTouch, the use
of Intellectual Property by InfoTouch does not infringe on the rights of any
Person; (iv) consummation of the transactions contemplated by this Agreement
will not impair or alter any of the rights to the Intellectual Property rights;
and (v) to the best of the knowledge of InfoTouch, there are no infringements of
the Intellectual Property by any third party.
SECTION 4.6. Compliance with Laws. InfoTouch is not, and within the
--------------------
prior three years has not been, in violation of (i) any judgment, decree,
injunction, order or ruling of any federal, state or local court or governmental
or regulatory body or authority that is binding on any such Person or its
property under applicable law; or (ii) any statute, law, ordinance, regulation,
order or rule of any federal, state, local or other governmental agency or body,
which in either case is likely to have a Material Adverse Effect on NetSelect or
NS LLC.
SECTION 4.7. Brokers and Finders. InfoTouch has not employed any
-------------------
broker or finder nor incurred any liability for any investment banking fees,
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NETSELECT
-------------------------------------------
NetSelect hereby represents and warrants to InfoTouch that as of the
Closing Date, the following shall be true and correct:
SECTION 5.1. Organization; Etc. (a) NetSelect is a corporation duly
-----------------
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has all requisite power and authority to own, lease and
operate its properties and to carry on the business conducted by it as now
conducted.
(b) NetSelect is duly qualified or licensed and in good standing
to do business as a foreign corporation in each jurisdiction in which
qualification is required and there are no other jurisdictions in which
NetSelect's ownership of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect on NetSelect. Complete and correct copies of the
NetSelect Certificate of Incorporation and the NetSelect By-laws as in effect on
the date hereof have been made available or delivered to NetSelect prior to the
date of this Agreement.
SECTION 5.2. No Prior Activities. As of the date hereof, except for
-------------------
as set forth on Schedule 5.2 of the disclosure schedules delivered by NetSelect
herewith (the "NetSelect Disclosure Schedule"), and for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated hereby, NetSelect has not and will not have
incurred, directly or indirectly through any subsidiary or affiliate, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreements or arrangements with any
Person.
SECTION 5.3. Capitalization. (a) The capitalization of NetSelect
--------------
consists of (i) 35,000,000 shares of the NetSelect Class A Common Stock; (ii)
10,000,000 shares of NetSelect Class B Common Stock, par value $0.001 per share
of NetSelect (the "NetSelect Class B Common Stock"); (iii) 5,000,000 shares of
Preferred Stock, par value $0.001 per share (the "NetSelect Preferred Stock"),
and, together with the NetSelect Class A Common Stock and the NetSelect Class B
Common Stock, the "NetSelect Shares"). As of the date hereof and prior to the
Closing, (i) 236,470 shares of NetSelect Class A Common Stock are issued and
outstanding; (ii) 116,470 shares of NetSelect Class B Common Stock are issued
and outstanding, and (iii) zero (0) shares of NetSelect Preferred Stock are
issued and outstanding. All of such issued and outstanding NetSelect Shares are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. All of the outstanding NetSelect Shares were issued by
NetSelect in compliance with all applicable securities laws.
(b) The NetSelect Shares represent all of the issued and
outstanding capital stock and equity interests in NetSelect. Except as set forth
on Schedule 5.3 of the NetSelect Disclosure Schedule and except for the
NetSelect, Inc. Stockholders Agreement (as
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hereinafter defined), the NetSelect Preferred Stock, and the NetSelect Class B
Common Stock, there are no (i) subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character,
whether oral or written, relating to the issuance, transfer or sale, delivery,
transfer, voting or redemption (including any right of conversion or exchange
under any outstanding security or other instrument) of any of the capital stock
or other equity interests of NetSelect; or (ii) agreements, arrangements, or
understandings granting any person or entity any rights in NetSelect similar to
capital stock or other equity interests. Except as set forth on Schedule 5.3 of
the NetSelect Disclosure Schedule, and except for the NetSelect, Inc.
Stockholders Agreement, that certain RealSelect, Inc. Stockholders Agreement,
dated as of the date hereof, by and between NetSelect and RIN, the NetSelect
Preferred Stock and the NetSelect Class B Common Stock, there are no voting
trusts, shareholder agreements, proxies or other agreements or understandings in
effect with respect to the voting or transfer of the NetSelect Shares to which
NetSelect is a party or is bound.
SECTION 5.4. Authorization. NetSelect has taken all corporate action
-------------
required to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, and this Agreement has
been duly executed by NetSelect and constitutes the legal, valid and binding
obligation of NetSelect enforceable in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally and
(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law.
SECTION 5.5. Consents and Approvals; No Violations. Except as
-------------------------------------
contemplated by this Agreement, and except for "blue sky" laws and regulations,
no filing with, and no permit, authorization, consent or approval of, any public
body or governmental authority, domestic or foreign, is necessary for the
consummation by NetSelect of the transactions contemplated by this Agreement.
Except as set forth on Schedule 5.4 of the NetSelect Disclosure Schedule,
neither the execution and delivery of this Agreement by NetSelect nor the
consummation by NetSelect of the transactions contemplated hereby nor compliance
by NetSelect with any of the provisions hereof, will (i) conflict with or result
in any breach of any provision of the NetSelect Certificate of Incorporation or
NetSelect By-laws; (ii) result in a violation or breach of, or constitute (with
or without due notice or lapse of time, or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, or require any
consent under, any of the terms, conditions, or provisions of any indenture,
license, contract, agreement, or other instrument or obligation to which
NetSelect is a party or by which it or its properties or assets may be bound,
except for violations, breaches and defaults which in the aggregate would not
have a Material Adverse Effect on NetSelect; or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to NetSelect, except
for violations of statutes, rules and regulations which in the aggregate would
not have a Material Adverse Effect.
SECTION 5.6. Brokers and Finders. NetSelect has not employed any
-------------------
broker or finder nor incurred any liability for any investment banking fees,
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
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<PAGE>
ARTICLE VI
COVENANTS OF THE PARTIES
------------------------
SECTION 6.1. Reasonable Best Efforts. (a) Subject to the terms and
-----------------------
conditions herein provided, each of the parties hereto agrees to use reasonable
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or advisable to fulfill the conditions to
the parties' obligations hereunder and to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
making all required filings and applications and complying with or responding to
any requests by governmental agencies and obtaining all consents, approvals,
orders, waivers, licenses, permits and authorizations required in connection
with the transactions contemplated hereby.
(b) If at any time after the Closing Date any further action is
necessary or desirable to carry out the purposes of this Agreement, the parties
hereto shall take or cause to be taken all such necessary action, including,
without limitation, the execution and delivery of such further instruments and
documents as may be reasonably requested by the other party for such purposes or
otherwise to consummate and make effective the transactions contemplated hereby.
SECTION 6.2. Public Announcements. InfoTouch, NetSelect and NS LLC
--------------------
will consult with each other before issuing any press release or otherwise
making any public statements with respect to the transactions contemplated by
this Agreement, and shall not issue any press release or make any such public
statement without the prior approval of InfoTouch, NetSelect and NS LLC, as the
case may be, except as may be required by law.
SECTION 6.3 Additional Capital Contributions of InfoTouch Investors.
-------------------------------------------------------
On or prior to December 12, 1996, InfoTouch shall use its best efforts to cause
certain investors to enter into that certain NetSelect, Inc. Stockholders
Agreement, dated as of the date hereof (the "NetSelect Stockholders Agreement"),
a subscription agreement, substantially in the form of Exhibit F hereto (the
"Subscription Agreement"), and an investor representation letter substantially
in the form of Exhibit G hereto ("Investor Representation Letter"), with
NetSelect, pursuant to which each of the investors shall subscribe to purchase
from NetSelect 352,941 shares of Series B Preferred Stock, for an aggregate
purchase price of not less than $2,333,333, and such purchase price shall be
paid to NetSelect, in immediately available funds in two installments of not
less than $1,600,000 of which $1,450,000 represents cash consideration and
$150,000 represents the contribution and forgiveness of the InfoTouch Debt on or
prior to December 12, 1996, and not less than $733,333 on or prior to February
1, 1997. NetSelect shall issue the shares concurrently with the receipt of each
installment. In the event InfoTouch shall not obtain at least $1,600,000 equity
investment prior to December 12, 1996, InfoTouch shall transfer to NetSelect on
a pro rata basis 419,140 of the Units (as defined in the LLC Agreement) free and
clear of all Liens. In the event InfoTouch shall not obtain at least $733,333
equity investment prior to February 1, 1997, InfoTouch shall transfer to
NetSelect on a pro rata basis 148,204 of the Units (as defined in the LLC
Agreement) free and clear of all Liens.
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<PAGE>
SECTION 6.4. Solvency Letter. Prior to the sale, assignment,
---------------
transfer, pledge, distribution or other conveyance (a "Distribution") of any or
all of the InfoTouch Membership Interests by InfoTouch to any of the
stockholders of InfoTouch, and provided such Distribution shall occur prior to
December 31, 2000, InfoTouch shall: (a) Obtain an opinion letter (containing
customary assumptions, qualifiers and disclaimers), satisfactory to NetSelect in
its sole and absolute discretion, from a nationally recognized independent
investment banking or solvency firm substantially to the following effect:
(i) InfoTouch is not insolvent and will not be rendered insolvent as a
result of the consummation of the Distribution. The present fair saleable value
of the assets of InfoTouch, and the assets of InfoTouch at fair valuation,
exceed InfoTouch's existing debts and other liabilities.
(ii) The property of InfoTouch does not, and shall not, following the
consummation of the transactions contemplated hereby, constitute unreasonably
small capital, for InfoTouch to carry out its business as now conducted and as
proposed to be conducted following consummation of the transactions contemplated
hereby, including the capital needs of InfoTouch, taking into account the
particular capital requirements of the business conducted by InfoTouch, and
projected capital requirements and capital availability thereof.
(iii) InfoTouch has not incurred and does not intend to incur debts beyond
its ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be received, and of amounts to be payable on or in respect of
the debts of InfoTouch). The cash flow of InfoTouch, after taking into account
all anticipated uses of the cash of InfoTouch, will at all times be sufficient
to pay all amounts on or in respect of the debts of InfoTouch when such amounts
are required to be paid; and
(b) Represent to NetSelect that (i) InfoTouch does not believe that
any final judgments against InfoTouch or any actions against InfoTouch for money
damages will be rendered at a time when, or in an amount such that, InfoTouch
would be unable to satisfy such judgments promptly and in accordance with their
terms (taking into account the maximum reasonable amount of such judgments in
such actions at the earliest reasonable time at which such judgments might be
rendered); and (ii) the cash flow of InfoTouch, after taking into account all
other anticipated uses of the cash of InfoTouch (including the payments on or in
respect of the debt referred to above in Section 6.4(c)), will at all times be
sufficient to pay all such judgments promptly and in accordance with their
terms.
SECTION 6.5. Additional Capital Contributions of NetSelect. On or
---------------------------------------------
prior to the Closing Date, Whitney (as defined in Section 7.1(i)) shall make a
$1,400,000 equity investment in NetSelect, Allen & Co. shall make a $700,000
equity investment in NetSelect, and CDW Internet shall make a $500,000 equity
investment in NetSelect. On February 1, 1997, CDW Internet shall make a $666,667
equity investment in NetSelect, Allen & Co. shall make a $466,667 equity
investment in NetSelect, and Whitney shall make a $933,333 equity investment in
NetSelect. In the event NetSelect shall not contribute a $2,066,667 equity
investment to NS
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<PAGE>
LLC prior to or on February 1, 1997, NS LLC shall cancel that number of Units
(as defined in the LLC Agreement) held by NetSelect determined by dividing (i)
the amount not contributed by NetSelect by (ii) $2.83.
SECTION 6.6. Merger of NetSelect and InfoTouch. Prior to May 1, 1997,
---------------------------------
InfoTouch shall terminate its operating activities and its sole activity
thereafter shall be to own the InfoTouch Membership Interest. Except as may
otherwise be provided below in this Section 6.6, NetSelect agrees that its sole
activity shall be to own the NetSelect Membership Interest. In the event that
(a) the Board of Directors of NetSelect shall determine that NetSelect shall
file a registration statement with the Securities and Exchange Commission for
the sale of shares of capital stock of NetSelect in a public offering, (b) the
Board of Directors of NetSelect shall resolve to enter a Merger (as defined
below), consolidation or sale of NetSelect or all or substantially all of the
assets of NetSelect, (c) the stockholders of NetSelect upon the issuance of all
of the NetSelect Shares contemplated by this Agreement shall own equity
securities of NetSelect possessing less than 50% of the voting power of
NetSelect, or (d) the Board of Managers of NS LLC shall resolve to sell the
Membership Interests in a public offering, then NetSelect shall promptly notify
InfoTouch thereof. Upon receipt of notice from NetSelect (the "Notice Date"),
InfoTouch shall have thirty (30) days to request that NetSelect merge InfoTouch
with NetSelect and NetSelect shall have thirty (30) days to request that
InfoTouch merge with NetSelect, and, if either party so requests, the parties
shall enter into such merger subject to the satisfaction of all of the following
within ninety (90) days following the Notice Date: (v) InfoTouch shall have
terminated all of its operating activities by May 1, 1997 and its sole activity
shall be to own the InfoTouch Membership Interest in NS LLC; (w) InfoTouch shall
have a full audit of its financial statements for its three prior fiscal years
conducted and certified by a "Big 6" accounting firm (the "Full Audit"), and
shall deliver the certified financial statements, together with the accountants'
unqualified opinion (which may contain a "going-concern" reservation) thereon
(such Full Audit to be paid by NS LLC), to NetSelect; (x) the Full Audit shall
show as of the date of the most recent balance sheet included in its financial
statements that the stockholders' equity of InfoTouch shall be greater than zero
and the total liabilities of InfoTouch (including, without limitation,
contingent liabilities) shall not exceed $100,000 (either of the foregoing
results set forth in clause (x), a "Qualified Audit"). If any of the foregoing
conditions are not satisfied, neither NetSelect nor NS LLC shall be obligated to
merge with InfoTouch and neither NetSelect nor NS LLC shall be precluded from
commencing a public offering at such time, and furthermore, InfoTouch (not NS
LLC) shall pay the expenses of the "Big 6" accounting firm in preparing such
Full Audit. InfoTouch shall be provided a reasonable opportunity to "cure" any
Qualified Audit rendered, for example, by paying money or posting another form
of security, reasonably satisfactory to NetSelect, to settle any contingent
liability, and to have a Full Audit which is not a Qualified Audit rendered. If
InfoTouch is able to obtain a Full Audit which is not a Qualified Audit,
InfoTouch shall pay the expenses of the "Big 6" firm in connection therewith,
and NetSelect shall merge with InfoTouch.
Any merger shall be pursuant to an agreement in form and substance
reasonably approved by InfoTouch and NetSelect. In the case of a merger prior
to a public offering of
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<PAGE>
NetSelect, the agreement shall provide that the shareholders of InfoTouch shall
receive a combination of shares of Class A Common Stock and Class B Common Stock
of NetSelect (in the same ratio as owned by InfoTouch in NS LLC) equal to the
(i) Adjusted Fully Diluted Shares of NetSelect outstanding as of the date of the
merger divided by (ii) one minus the InfoTouch LLC Percentage minus (iii) the
number of Adjusted Fully Diluted Shares outstanding as of such date. In the
event of any public offering of NetSelect prior to any merger between NetSelect
and InfoTouch, upon any such merger, the parties shall invoke the valuation
procedures set forth in Section 3.5 of that certain RealSelect, Inc.
Stockholders Agreement, dated as of the date hereof, to determine the relative
equity interests of the InfoTouch Stockholders and the NetSelect Stockholders in
the surviving entity. For purposes of this Section 6.6, the following terms
shall have the meaning set forth below:
"ADJUSTED FULLY DILUTED SHARES" of NetSelect outstanding at any date
shall mean (i) the number of shares of Class A Common Stock of NetSelect
outstanding on such date, plus (ii) the maximum number of shares of Class A
Common Stock of NetSelect which are issuable pursuant to convertible securities,
options, warrants or other rights outstanding on such date, excluding, for this
purpose, any outstanding options granted to officers and employees of NetSelect
in their capacities as such, which grants have been approved by the Board of
Managers of NS LLC.
"INFOTOUCH LLC PERCENTAGE" at any date shall mean a fraction, the
numerator of which is the aggregate membership interests of InfoTouch in NS LLC
at such date and the denominator of which is the aggregate membership interests
of all Members in NS LLC outstanding at such date.
"MERGER" shall mean any consolidation of NetSelect with, or merger of
NetSelect with or into, another corporation or reorganization of NetSelect,
other than a consolidation, reorganization or merger in which NetSelect is the
surviving corporation. NetSelect shall be the "surviving corporation" in any
merger if NetSelect, or its stockholders immediately before the transaction,
shall own (immediately after the transaction) equity securities, other than
warrants, options or similar rights to subscribe to or purchase equity
securities, of the surviving or acquiring corporation, or its parent
corporation, possessing more than 50% of the voting power of the surviving or
acquiring corporation or its parent corporation; and in making the determination
of ownership by the stockholders of a corporation, immediately after the
transaction, of equity securities pursuant to the preceding clause, equity
securities which they owned immediately before the transaction as shareholders
of another party to the transaction shall be disregarded. For the purposes
hereof, voting power of a corporation shall be calculated by assuming the
conversion of all then outstanding convertible equity securities (including
those convertible at some future date), but not assuming the exercise of any
warrants, options or other rights to subscribe to or purchase voting shares.
SECTION 6.7 InfoTouch Public Offering and NetSelect Capital Stock
-----------------------------------------------------
Issuance. InfoTouch hereby agrees that it shall not commence any public offering
- --------
(regardless of the
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<PAGE>
aggregate value established for the InfoTouch capital stock at such time)
without first merging with NetSelect pursuant to the provisions of Section 6.6
hereof.
SECTION 6.8. NetSelect Options. Except as contemplated on the
-----------------
Closing Date, NetSelect agrees not to issue any equity securities of NetSelect
without the prior approval of the Board of Managers of NS LLC.
SECTION 6.9. InfoTouch Audit. Promptly following the Closing Date,
---------------
InfoTouch shall have a pre-Closing balance sheet audit conducted and certified
by a "Big 6" accounting firm (the "Balance Sheet Audit") and shall deliver the
balance sheet, together with accountant's unqualified opinion thereon (which may
contain a "going concern" qualification), to NetSelect. To the extent that the
Balance Sheet Audit confirms that InfoTouch contributed an amount to NS LLC in
excess of $50,000 more than that represented by InfoTouch on Exhibit A hereto
----
(the "Excess"), NetSelect shall then transfer to InfoTouch at NetSelect's
option, (i) cash in the amount of such Excess, or (ii) that number of Units of
the NetSelect Membership Interest as shall equal such Excess divided by $2.83.
To the extent that the Balance Sheet Audit confirms that InfoTouch contributed
an amount to NS LLC in excess of $50,000 less than that represented by InfoTouch
----
on Exhibit A hereto (the "Deficit"), InfoTouch shall promptly transfer to
NetSelect at InfoTouch's option, either (i) cash in the amount of such Deficit,
or (ii) that number of Units of the InfoTouch Membership Interest as shall equal
such Deficit divided by $2.83.
SECTION 6.10. RIN Restriction on Transfer. (a) Prior to making any
---------------------------
proposed Transfer (as hereinafter defined), other than to a Member or a
Permitted Transferee (as hereinafter defined) that would result in such
transferee (a "Transferee") becoming the owner, whether of record or
beneficially, of more than five percent (5%) of the Units in NS LLC, the
transferring Member shall first obtain the written approval of RIN, which
approval shall not be unreasonably withheld. In seeking such approval, a Member
must identify the proposed Transferee and the number of Membership Interests
proposed to be Transferred, and provide such additional publicly available
information regarding the proposed Transferee as RIN may reasonably request. Any
decision by RIN pursuant to this Section 6.10, whether to approve or not approve
such Transfer, shall be set forth in writing and shall set forth in reasonable
detail the basis of such decision; provided, however, that in the event RIN
-------- -------
shall fail to approve or not approve such Transfer within thirty (30) days after
the date of the receipt of such request, RIN shall be deemed to have approved
such Transfer. For purposes hereof, "Transfer" shall mean any transfer, pledge,
sale, assignment, hypothecation, creation of a security intent or a lien on,
placing in trust (voting or otherwise), or any other way encumbrance or
disposal, directly or indirectly, in one or more transactions.
(b) Prior to making any proposed Transfer hereunder that shall result
in the ownership of Membership Interests, whether of record or beneficially, by
a Transferee whose primary business is "real estate related", the transferring
Member shall first obtain the written approval of RIN, which approval shall not
be unreasonably withheld. In seeking such approval a Member must identify the
proposed Transferee and the number of Membership Interests proposed to be
Transferred, and provide such additional publicly available information
regarding
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<PAGE>
the proposed Transferee as RIN may reasonably request. Any decision by RIN
pursuant to this Section 6.10, whether to approve or not approve such Transfer,
shall be set forth in writing and shall set forth in reasonable detail the basis
of such decision. For purposes of this Agreement, "real estate related" shall
mean any person, entity or group whose primary business is comprised of real
estate brokerage, real estate management, mortgage financing, appraising,
counseling, land development and building, title insurance, escrow services,
franchising, operation of an association comprised of real estate licensees,
operation of a multiple listing service, and entities that own or are owned by
firms engaged in any of the foregoing.
(c) The approval rights of RIN described in Sections 6.10(a) and (b)
above shall (a) cease upon the termination of that certain Operating Agreement,
dated as of November 26, 1996 (the "Operating Agreement"), by and between RIN
and RealSelect, (B) be suspended upon the occurrence of, and during the
continuance of, any breach by the NAR of that certain (i) Joint Ownership
Agreement, dated as of November 26, 1996, between the NAR and NS LLC, or (ii)
Trademark License, dated as of November 26, 1996, by and between the NAR and
RealSelect, (C) be suspended upon the occurrence of, and during the continuance
of, the Transfer by RIN of eighty percent (80%) or more of the shares of common
stock, par value $0.001 per share (the "RealSelect Shares"), of RealSelect owned
by RIN as of the Closing Date; provided, however, that in the event that RIN
-------- -------
shall transfer greater than eighty percent (80%) of the RealSelect Shares owned
by RIN as of the Closing Date, and RIN shall not, within forty-five (45) days
from the date of such Transfer, increase its ownership in RealSelect Shares so
that RIN shall own at least twenty percent (20%) of the RealSelect Shares owned
by RIN as of the Closing Date, RIN's rights pursuant to Section 6.10(a) and (b)
shall terminate, and (D) be suspended upon the execution of a memorandum of
understanding, letter of intent, or such other binding understanding or
agreement in connection with the sale of RIN to any person, entity or group
other than a Member or a Permitted Transferee (as hereinafter defined);
provided, however, that such right shall terminate upon the closing of any such
- -------- -------
sale contemplated by such memorandum of understanding, letter of intent, or such
other binding understanding or agreement.
(d) A "Permitted Transferee" shall mean, with respect to a Member:
(i) the spouse of such Member, any lineal descendant of a grandparent
of such Member, or of the spouse of such Member, and any spouse of such lineal
descendant (which lineal descendants, their spouses, the Member, and his or her
spouse are herein collectively referred to as the "Member's Family Members");
(ii) the trustee of a trust (including a voting trust) principally for
the benefit of such Member's Family Members; provided, that such trust may also
--------
grant a general or special power of appointment to one or more of such Member's
Family Members and may permit trust assets to be used to pay taxes, legacies and
other obligations of the trust or of the estates of one or more of such Member's
Family Members payable by reason of the death of any of such Member's Family
Members;
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<PAGE>
(iii) in the case of a partnership or limited liability company, (a) such
partnership's partners (limited or general) or such limited liability company's
members, (B) the estates or legal representatives of any such limited partners,
general partners or members, and (C) any affiliates of such partnership or
limited liability company; and
(iv) in the case of a corporation, (a) any of its wholly-owned
subsidiaries, (B) any stockholder of such corporation, or (C) any of the
affiliates of such corporation.
SECTION 6.11. InfoTouch Stockholder Restrictions. InfoTouch shall use
-----------------------------------
its best efforts to cause as many of its stockholders, representing as great a
percentage of the InfoTouch Capital Stock as possible, to execute a stockholders
agreement, substantially in the form of Exhibit H hereto (the "InfoTouch
Stockholder Agreement"), consistent with the terms and restrictions set forth
with respect to the InfoTouch Membership Interest in Section 6.10 above.
NetSelect hereby acknowledges and agrees to the registration rights provisions
contained in the InfoTouch Stockholder Agreement, including, without limitation,
Section 2.11 thereof.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE AGREEMENT
-------------------------------------------
SECTION 7.1. Condition to Each Party's Obligations to Consummate the
-------------------------------------------------------
Agreement. The respective obligations of each party to consummate this Agreement
- ---------
is subject to the satisfaction or waiver of the following conditions on or
before the Closing Date:
(a) No statute, rule, regulation, executive order, decree, or
injunction shall have been enacted, entered, promulgated, enforced or threatened
by any court or governmental entity which prohibits or restricts the
consummation of this Agreement;
(b) All authorizations, approvals, consents and waivers required
to be obtained from and notices and filings required to be given to or made with
any governmental agency or third party shall have been obtained, given or made;
(c) That certain Employment Agreement by and between NetSelect
and Stuart Wolff, Ph.D., dated as of the Closing Date (the "Wolff Employment
Agreement"), shall have been executed and delivered, and shall be effective as
and after the Closing Date;
(d) That certain Employment Agreement by and between NetSelect
and Richard R. Janssen, dated as of the Closing Date (the "Janssen Employment
Agreement"), shall have been executed and delivered, and shall be effective as
and after the Closing Date;
(e) That certain Software License Agreement, by and among NAR,
RealSelect, and NetSelect shall have been executed and delivered;
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<PAGE>
(f) That certain Trademark License Agreement, by and between NAR
and RealSelect shall have been executed and delivered;
(g) That certain Joint Ownership Agreement, by and among NAR,
NetSelect and NS LLC shall have been executed and delivered;
(h) NetSelect shall have duly elected or appointed and
qualified, as Directors and officers to NetSelect, at and after the Closing
Date, those individuals listed on Exhibit B hereto;
(i) CDW Internet, Whitney Equity Partners, L.P., a Delaware
limited partnership ("Whitney"), Allen & Co., InfoTouch, and NetSelect shall
have duly executed the NetSelect, Inc. Stockholders Agreement;
(j) NetSelect shall have granted to Stuart Wolff incentive stock
options to purchase up to an aggregate of 174,118 shares pursuant to NetSelect's
1996 Stock Incentive Plan;
(k) NetSelect shall have granted to Richard Janssen incentive
stock options to purchase up to an aggregate of 130,588 shares pursuant to
NetSelect's 1996 Stock Incentive Plan;
(l) That certain Distribution and Web Site Development
Agreement, dated as of February 1, 1996, shall have been properly terminated;
(m) That certain RIN Operating Agreement shall have been
executed and delivered;
(n) NetSelect shall have transferred the RealSelect Capital
Stock to NS LLC;
(o) That certain Master Agreement shall have been executed and
delivered; and
(p) InfoTouch and NetSelect shall have duly executed and
delivered the LLC Agreement.
SECTION 7.2. Further Conditions to InfoTouch's Obligations. The
---------------------------------------------
obligations of InfoTouch to consummate the transactions contemplated hereby at
the Closing are subject to satisfaction or waiver by InfoTouch of the following
conditions on or before the Closing Date:
(a) The representations and warranties of NetSelect contained
herein shall be true and correct in all material respects as of the date of this
Agreement and at and as of the Closing Date;
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<PAGE>
(b) NetSelect and NS LLC shall have performed and complied in
all material respects with all respective agreements, obligations, covenants and
conditions required by this Agreement to be performed or complied with by each
on or prior to the Closing;
(c) Each of Whitney and Allen & Co. shall have duly executed and
delivered a Subscription Agreement, dated as of the Closing Date, pursuant to
which (i) Whitney shall have committed to pay to NetSelect $1,400,000 on or
before the Closing Date and $933,333 on or before February 1, 1997 and (ii)
Allen & Co. shall have committed to pay to NetSelect $700,000 on or before the
Closing Date and $466,667 on or before February 1, 1997, to purchase shares of
Series A Preferred Stock consistent with the amounts set forth in Annex A
hereto, to be paid and issued, respectively, on the Closing Date and February 1,
1997;
(d) CDW Internet shall have duly executed and delivered a
Subscription Agreement, dated as of the Closing Date, pursuant to which CDW
Internet shall have committed to pay to NetSelect $500,000 on or before the
Closing Date and $666,667 on or before February 1, 1997 to purchase shares of
capital stock of NetSelect consistent with the amounts set forth in Annex A
hereto, to be paid and issued, respectively, on the Closing Date and February 1,
1997;
(e) NS LLC shall have delivered to InfoTouch the InfoTouch
Membership Interest; and
(f) InfoTouch shall have received a duly executed certificate of
an authorized officer of NetSelect to the effect that the conditions in Section
7.2(a) and Section 7.2(b) have been satisfied.
SECTION 7.3. Further Conditions to NetSelect's and NS LLC's
----------------------------------------------
Obligations. The obligations of NetSelect to consummate the transactions
- -----------
contemplated hereby at the Closing are subject to the satisfaction or waiver by
NetSelect and NS LLC of the following conditions:
(a) The representations and warranties of InfoTouch contained
herein shall be true, complete and correct in all material respects as of the
date of this Agreement and at and as of the Closing Date;
(b) InfoTouch shall have performed and complied in all material
respects with all agreements, obligations, covenants and conditions required by
this Agreement or to be performed or complied with by it on or prior to the
Closing;
(c) NetSelect and NS LLC shall have received a duly executed
certificate from a duly authorized officer of InfoTouch to the effect that the
conditions in Section 7.3(a) and Section 7.3(b) have been satisfied;
(d) Each of CDW Internet, L.L.C., WREN L.L.C., Stuart Wolff,
Ph.D., Dort Cameron, III, Andrew Dwyer, Whitney and Allen & Co. shall have duly
executed
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<PAGE>
and delivered a Subscription Agreement and an Investor Representation Letter,
substantially in the form, set forth as Exhibit F and Exhibit G, respectively;
(e) All actions, proceedings, instruments and documents required
to carry out the transactions contemplated by this Agreement or incidental
thereto and all other related legal matters shall be reasonably satisfactory to
counsel for NetSelect and NS LLC, and such counsel shall have been furnished
with such certified copies of such actions and proceedings and such other
instruments, documents and opinions as it shall have reasonably requested;
(f) All consents, approvals, orders and permits of, and
registrations, declarations and filings with, any governmental authority that
shall be required in order to enable InfoTouch to consummate the transactions
contemplated hereby;
(g) That certain indebtedness owed by RIN to InfoTouch shall
have been forgiven by InfoTouch in all respects, and RIN shall be released
therefrom;
(h) InfoTouch shall have duly delivered Exhibit A; and
(i) Stockholders of InfoTouch holding shares of capital stock of
InfoTouch representing at least a majority of those shares outstanding on the
Closing Date shall have executed the InfoTouch Stockholder Agreement.
ARTICLE VIII
TERMINATION AND ABANDONMENT
---------------------------
SECTION 8.1. Termination. This Agreement may be terminated at any
-----------
time prior to the Closing:
(a) by the mutual written consent of each of InfoTouch,
NetSelect and NS LLC;
(b) by either InfoTouch, NetSelect or NS LLC, if there shall be
any law or regulation that makes consummation of this Agreement illegal or if
any judgment, injunction, order or decree enjoining InfoTouch or NetSelect from
consummating this Agreement is entered and such judgment, injunction, order or
decree shall become final and non-appealable; and
(c) by either NetSelect, InfoTouch or NS LLC, if the Closing has
not been consummated by December 4, 1996; provided, however, that the right to
-------- -------
terminate this Agreement under this paragraph shall not be available to any
party whose willful failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure to meet the date requirements of
this subsection.
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<PAGE>
SECTION 8.2. Effect of Termination. In the event of termination of
---------------------
this Agreement and abandonment of the transactions contemplated hereby by the
parties hereto pursuant to Section 8.1 hereof, this Agreement shall forthwith
become null and void and of no further force and effect, without any liability
on the part of any party or its directors, officers, partners, members,
managers, affiliates, employees, agents or securityholders. Nothing in this
Section 8.2 shall relieve any party from any liability for any willful breach of
this Agreement or any intentional tort.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
----------------------------
SECTION 9.1. Survival; Remedy for Breach. The representations and
---------------------------
warranties of the parties contained herein or in any writing delivered pursuant
hereto or in connection herewith shall survive the Closing for a period equal to
the earlier of (i) the IPO (as defined in Section 9.4 hereof) or (ii) three
months following the completion of the audit for the 1998 fiscal year of
NetSelect. Notwithstanding the preceding sentence, any representation or
warranty in respect of which indemnity may be sought under Section 9.2 or
Section 9.3 hereof shall survive the time at which it would otherwise terminate
pursuant to such sentence, if notice of the inaccuracy or breach thereof giving
rise to such indemnity shall have been given to the party against whom such
indemnity may be sought prior to such time. All representations and warranties
of InfoTouch and NetSelect set forth in this Agreement, together with each of
the InfoTouch Disclosure Schedule, delivered by InfoTouch, and the NetSelect
Disclosure Schedule, delivered by NetSelect, herewith shall be deemed to have
been made by each of InfoTouch and NetSelect at and as of the Closing, except as
otherwise specified in this Agreement.
SECTION 9.2. Indemnification by InfoTouch. InfoTouch hereby agrees
----------------------------
that it shall indemnify, save and hold harmless NetSelect, NS LLC and their
respective officers, directors, employees, managers, members, agents and
affiliates (other than InfoTouch), and their respective representatives
(collectively, the "NetSelect Affiliates"), from and against any and all costs,
losses, liabilities, damages, lawsuits, deficiencies, claims, actions, suits,
administrative, arbitration or other proceedings or governmental investigations
and expenses (whether or not arising out of third-party actions), including,
without limitation, interest, penalties, attorneys' fees and all amounts paid in
investigation, defense or settlement of any of the foregoing (herein,
collectively, the "Damages"), incurred in connection with or arising out of or
resulting from (i) all liabilities of InfoTouch (other than those liabilities
specifically set forth and described on Exhibit A hereto) not disclosed herein
and on the InfoTouch Disclosure Schedule arising, or based on acts, omissions or
conditions occurring or failing to occur, prior to or on the Closing Date; (ii)
any breach of any covenant or agreement by InfoTouch, not waived in writing by
NetSelect and NS LLC prior to the Closing Date, or the inaccuracy of any
representation or warranty, made by InfoTouch in this Agreement, the LLC
Agreement or any documents delivered in connection herewith or therewith prior
to the Closing Date, including the InfoTouch Disclosure Schedules and (iii) any
Damages arising from any liabilities of InfoTouch not
-19-
<PAGE>
disclosed herein or in the InfoTouch Disclosure Schedule relating to any or all
of the Intellectual Property, Assets and Liabilities assigned and transferred by
InfoTouch to NS LLC hereunder and pursuant to Exhibit A, but not including
liabilities arising out of actions, incurrences or circumstances by persons
other than InfoTouch after the Closing. The term "Damages" as used in this
Section 9.2 and Section 9.3 hereof is not limited to matters asserted by third
parties against InfoTouch, NetSelect, NS LLC or the NetSelect Affiliates, but
includes Damages incurred or sustained by InfoTouch, NetSelect, NS LLC or the
NetSelect Affiliates in the absence of third party claims.
SECTION 9.3. Indemnification by NetSelect. NetSelect hereby agrees
----------------------------
that it shall indemnify, save and hold harmless InfoTouch and its officers,
directors, employees, managers, members, agents and affiliates, and their
respective representatives (collectively, the "InfoTouch Affiliates"), from and
against any and all Damages incurred in connection with or arising out of or
resulting from any breach of any covenant or agreement by NetSelect or NS LLC,
not waived in writing by InfoTouch prior to the Closing Date, or the inaccuracy
of any representation or warranty, made by NetSelect in this Agreement or any
documents delivered in connection herewith prior to the Closing Date, including
the NetSelect Disclosure Schedule.
SECTION 9.4. Indemnification Limits. Notwithstanding any provision
----------------------
to the contrary contained in this Agreement, InfoTouch and NetSelect shall not
be obligated to indemnify the NetSelect Affiliates or the InfoTouch Affiliates,
as the case may be, for any Damages unless and until the aggregate amount of all
Damages subject to indemnification by NetSelect or InfoTouch, as the case may
be, hereunder exceeds $100,000, and then only to the extent that such Damages
shall exceed $100,000. In addition, NetSelect's and InfoTouch's respective
indemnification obligations hereunder shall commence on the Closing Date and
terminate upon the earlier of (i) the IPO or (ii) three months following the
completion of the audit of the 1998 fiscal year of NetSelect. Notwithstanding
the preceding sentence, any claims for indemnification shall survive the time at
which it would otherwise terminate pursuant to such sentence if notice of the
inaccuracy or breach thereof giving rise to such indemnity shall have been given
to the party against whom such indemnity may be sought prior to such time. For
purposes of this Agreement, "IPO" shall mean the initial public offering,
pursuant to a registration statement on Form S-1, Form S-2, Form SB-2, or any
similar form of registration statement adopted by the Securities and Exchange
Commission from and after the date hereof, which (a) yields proceeds of at least
$10,000,000 (net of underwriting discounts and commissions) and (b) would
establish an aggregate value for the NetSelect Class A Common Stock (assuming
the conversion of the NetSelect Class B Common Stock and the NetSelect Preferred
Stock) outstanding immediately prior to the consummation of such offering of at
least $40,000,000.
SECTION 9.5. Indemnification; Notice and Settlements. A party seeking
---------------------------------------
indemnification pursuant to Section 9.2 or Section 9.3 hereof (an "Indemnified
Party") shall give prompt notice to the party from whom such indemnification is
sought (the "Indemnifying Party") of the assertion of any claim, or the
commencement of any action or proceeding, in respect of which indemnity may be
sought hereunder. The Indemnified Party shall not have the right to,
-20-
<PAGE>
but shall, at the request of the Indemnifying Party, assume the defense of any
such suit, action or proceeding at the expense of the Indemnifying Party. The
Indemnified Party shall be entitled to participate in such defense so assumed,
but shall not be entitled to indemnification with respect to the costs and
expenses of such defense if the Indemnifying Party shall have assumed the
defense of the claim with counsel reasonably satisfactory to the Indemnified
Party. The Indemnifying Party shall not be liable under Section 9.2 or Section
9.3 hereof for any settlement effected without its consent, which consent may
not be unreasonably withheld, of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder. No investigation by an Indemnified
Party at or prior to the Closing shall relieve an Indemnifying Party of any
liability hereunder.
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
SECTION 10.1. Amendment and Modification. This Agreement may be
--------------------------
amended or modified at any time by the parties hereto pursuant to an instrument
in writing signed by InfoTouch, NS LLC and NetSelect; provided, that Sections
--------
6.10 and 6.11 shall not be amended without RIN's written approval for so long as
RIN's approval rights granted pursuant to Sections 6.10(a) and (b) have not
terminated pursuant to Section 6.10(c).
SECTION 10.2. Extension; Waiver. At any time prior to the Closing
-----------------
Date, the party entitled to the benefit of any respective term or provision
hereof may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document, certificate
or writing delivered pursuant hereto or (c) waive compliance with any
obligation, covenant, agreement or condition contained herein. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed by the party entitled to the benefits
of such extended or waived term or provisions The representations, warranties
and agreements of any of the parties provided for in this Agreement, and the
parties' obligations hereunder, shall continue in effect notwithstanding any
investigation made by the other party hereto.
SECTION 10.3. Entire Agreement; Assignment. This Agreement and the
----------------------------
other agreements contemplated hereby or referred to herein (a) constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties hereto with respect to the subject matter
hereof and (b) shall not be assigned, by operation of law or otherwise by a
party hereto, without the prior written consent of the other parties.
SECTION 10.4. Validity. The invalidity or unenforceability of any
--------
term or provision of this Agreement in any situation or jurisdiction shall not
affect the validity or enforceability of the other terms or provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
-21-
<PAGE>
SECTION 10.5. Notices. Unless otherwise provided herein, all notices
-------
and other communications hereunder shall be in writing and shall be deemed given
upon receipt by the other parties at the following addresses or facsimile
numbers:
(a) if to NetSelect, NS LLC or the NetSelect Affiliates, to:
NetSelect, Inc.
5655 Lindero Canyon Road
Westlake Village, CA 91362
Attention: Stuart Wolff, Ph.D.
Chairman and Chief Executive Officer
Facsimile No.: (818) 879-5822
With a copy to:
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
New York, NY 10022
Attention: Charles H. Baker, Esq.
Facsimile No.: (212) 856-7814
(b) If to InfoTouch or the InfoTouch Affiliates, to:
InfoTouch Corporation
5655 Lindero Canyon Road, Suite 106
Westlake Village, CA 91362
Attention: Richard R. Janssen
President, Chief Executive Officer
Facsimile No.: (818) 879-5822
With a copy to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Los Angeles, CA 90024-3902
Attention: Alan B. Spatz, Esq.
Facsimile No.: (310) 443-7599
SECTION 10.6. Governing Law. This Agreement shall be governed by the
-------------
laws of the State of Delaware (regardless of the laws that might otherwise
govern under applicable Delaware principles of conflicts of law) as to all
matters, including but not limited to matters of validity, construction, effect,
performance and remedies.
-22-
<PAGE>
SECTION 10.7. Descriptive Headings. The descriptive headings herein
--------------------
are inserted for convenience of reference only and shall in no way be construed
to define, limit, describe, explain, modify, amplify, or add to the
interpretation, construction or meaning of any provision of, or scope or intent
of, this Agreement nor in any way affect this Agreement.
SECTION 10.8. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 10.9. Parties in Interest. This Agreement shall be binding
-------------------
upon and insure solely to the benefit of each party hereto and its affiliates
and nothing in this Agreement, express or implied, is intended by or shall
confer upon any other person or entity any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement, provided, however, that
each of CDW Internet, Allen & Co. and Whitney shall be deemed third party
beneficiaries of the representations and warranties of NetSelect set forth in
Article V hereof and, provided, further, however that InfoTouch, NS LLC and RIN
shall be deemed third party beneficiaries of each of the Subscription
Agreements, substantially in the form of Exhibit F hereto, obtained by
NetSelect, and RIN shall be deemed a third party beneficiary of Sections 6.10,
6.11 and 10.1 hereof.
SECTION 10.10. No Waivers. Except as otherwise expressly provided
----------
herein, no failure to exercise, delay in exercising or single or partial
exercise of any right, power or remedy by any party, and no course of dealing
between the parties, shall constitute a waiver of any such right, power or
remedy.
SECTION 10.11. Specific Performance. The parties hereto agree that
--------------------
if any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the
terms hereof and immediate injunctive relief, in addition to any other remedy at
law or equity.
SECTION 10.12. Definition of Knowledge. Any reference in this
-----------------------
Agreement or in any certificate delivered pursuant hereto to the "knowledge" of
InfoTouch (whether to "the best of InfoTouch's knowledge," "InfoTouch's
knowledge", or other similar expressions relating to the knowledge or awareness
of InfoTouch) shall include all matters which each of InfoTouch, any of the
respective officers or directors actually knew or should have known after
diligent inquiry. In making each representation or warranty set forth in this
Agreement, the InfoTouch Disclosure Schedule and any certificate delivered
pursuant hereto which is qualified by any such expression as to the knowledge of
InfoTouch, InfoTouch hereby represents and warrants that it has duly and
diligently inquired of all relevant officers, directors, and all other relevant
persons or entities as to the accuracy and completeness of such representation
or warranty.
-23-
<PAGE>
[SIGNATURE PAGES FOLLOW.]
-24-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement
to be duly signed as of the date first above written.
NETSELECT, INC.
By: /s/ Stuart Wolff
-------------------------------------------
Name: Stuart Wolff
Title: Chief Executive Officer
NETSELECT, L.L.C.
By: /s/ Stuart Wolff
-------------------------------------------
Name: Stuart Wolff
Title: Chairman of the Board of Managers
INFOTOUCH CORPORATION
By: /s/ Richard Janssen
-------------------------------------------
Name:
Title: President & CEO
<PAGE>
ANNEX A
NETSELECT INVESTORS AND CAPITALIZATION
<PAGE>
NetSelect Corp
Net Select Incorporated Capitalization Table
<TABLE>
<CAPTION>
Round 1
----------------------------------------------------------------
Voting Non-voting Imputed Total
Shares Shares Share price Shares Value
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Series A Preferred
J. H. Whitney 823,529 2.83 823,529 2,333,333
Allen & Co. 411,765 2.83 411,765 1,166,667
CDW 411,765 2.83 411,765 1,166,667
Subtotal: Institutional Investors 1,647,059 1,647,059 4,666,667
Series B Preferred
InfoTouch Investors 235,294 8.50 235,294 2,000,000
117,647 2.83 117,647 333,333
Subtotal: InfoTouch Investors 352,941 6.61 351,941 2,333,333
COMMON STOCK CLASS A CLASS B
--------------------------
CDW (voting) 236,470 236,470
CDW (non-voting) 116,470 116,470
-------------------------- -----------
Subtotal: CDW 236,470 116,470 352,940
SUBTOTAL: NETSELECT INC. 2,236,470 116,470 2,352,940 7,000,000
NetSelect Inc. Options
Richard Janssen 130,588 2.83 130,588 370,000
Stuart Wolff 174,118 2.83 174,118 493,333
Other management options 130,588 2.83 130,588 370,000
-------------------------- ----------------------
435,294 - 435,294 1,233,334
Total fully diluted shares 2,671,764 116,470 2,788,234 8,233,334
<CAPTION>
Before Options Fully Diluted
----------------------------------------
Ownership Voting Ownership Voting
% % % %
----------------------------------------
<S> <C> <C> <C> <C>
Series A Preferred
J. H. Whitney 35.00% 36.82% 29.54% 30.82%
Allen & Co. 17.50% 18.41% 14.77% 15.41%
CDW 17.50% 18.41% 14.77% 15.41%
Subtotal: Institutional Investors 70.00% 73.65% 59.07% 61.65%
Series B Preferred
InfoTouch Investors 10.00% 10.52% 8.44% 8.81%
5.00% 5.26% 4.22% 4.40%
Subtotal: InfoTouch Investors 15.00% 15.78% 12.66% 13.21%
COMMON STOCK
CDW (voting) 10.05% 10.57% 8.48% 8.85%
CDW (non-voting) 4.95% 0.00% 4.18% 0.00%
----------------------------------------
Subtotal: CDW 15.00% 10.57% 12.66% 8.85%
SUBTOTAL: NETSELECT INC. 108.60% 100.00% 84.39% 83.71%
NetSelect Inc. Options
Richard Janssen 4.68% 4.89%
Stuart Wolff 6.24% 6.52%
Other management options 4.68% 4.89%
---------------------
15.61% 16.29%
Total fully diluted shares 100% 100%
</TABLE>
1
<PAGE>
$7M ROUND (PRO RATA)
NET SELECT L.L.C. CAPITALIZATION TABLE
<TABLE>
<CAPTION>
ROUND 1 BEFORE OPTIONS
--------------------------------------------------------------------------------------------
VOTING NON-VOTING IMPUTED TOTAL OWNERSHIP VOTING
SHARES SHARES SHARE PRICE SHARES VALUE % %
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A Preferred
J. H. Whitney 823,529 2.83 823,529 2,333,333 18.92% 23.03%
Allen & Co. 411,765 2.83 411,765 1,166,667 9.48% 11.51%
CDW 411,765 2.83 411,765 1,166,667 9.48% 11.51%
----------- --------- --------------------------------
Subtotal: Institutional Investors 1,647,059 1,647,059 4,666,667 37.84% 46.05%
Series B Preferred
InfoTouch Investors 235,294 8.50 235,294 2,000,000 5.41% 6.58%
117,647 2.83 117,647 333,333 2.70% 3.29%
----------- --------------------- ---------------------------------
Subtotal: InfoTouch Investors 352,941 6.61 351,941 2,333,333 8.11% 9.87%
COMMON STOCK CLASS A CLASS B
-----------------------------
CDW (voting) 236,470 236,470 5.43% 6.61%
CDW (non-voting) 116,470 116,470 2.68% 0.01%
----------------------------- ----------- ------------------
Subtotal: CDW 236,470 116,470 352,940 8.11% 6.61%
SUBTOTAL: NETSELECT INC. 2,236,470 116,470 2,352,940 7,000,000 54.85% 62.53%
InfoTouch Corporation (voting) 1,340,001 1,340,001 30.78% 37.41%
InfoTouch Corporation (non-voting) 660,001 660,001 15.16% 0.09%
----------------------------- ------------------ ------------------------
SUBTOTAL: INFOTOUCH CORPORATION 1,340,001 660,001 2,000,001 45.95% 37.47%
SUBTOTAL: COMMON AND PREFERRED 3,576,471 776,471 4,352,941 2,000,000 100.00% 100.00%
------------------------
Ownership Voting
% %
-------------------------------------------------------------------------------------------------
Institutional Investors 46% 53%
-------------------------------------------------------------------------------------------------
InfoTouch Corp. & InfoTouch Investors 54% 47%
-------------------------------------------------------------------------------------------------
NetSelect Inc. Options
Richard Janssen 130,588 2.83 130,588 370,000
Stuart Wolff 174,118 2.83 174,118 493,333
Other management options 130,588 2.83 130,588 370,000
----------------------------- ------------------------------
435,294 - 435,294 1,233,334
TOTAL FULLY DILUTED SHARES 4,011,768 776,461 4,788,236 8,233,334
---------------------------------------
Institutional Investors
---------------------------------------
InfoTouch
---------------------------------------
Note: excludes unallocated options
---------------------------------------
- -----------------------------------------------------------
Option pool 10%
CDW Promote 0.02%
New money 1,060,000
Effective price 2.83
R. Janssen share of option pool 50%
Stuart Wolff share of option pool 40%
Others' share of option pool 50%
- -----------------------------------------------------------
<CAPTION>
FULLY DILUTED
--------------------------------------------
POST MONEY OWNERSHIP VOTING
VALUATION % %
--------------------------------------------
<S> <C> <C> <C>
Series A Preferred
J. H. Whitney 12,333,335 17.20% 20.58%
Allen & Co. 12,333,335 8.60% 10.25%
CDW 12,333,335 8.60% 10.28%
---------------------
Subtotal: Institutional Investors 34.40% 41.04%
Series B Preferred
InfoTouch Investors 37,000,006 4.91% 5.87%
12,333,335 2.46% 2.93%
-----------------------------------
Subtotal: InfoTouch Investors 28,777,782 7.37% 8.80%
COMMON STOCK
CDW (voting) 4.94% 5.89%
CDW (non-voting) 2.43% 0.00%
-----------------------------------
Subtotal: CDW 7.37% 5.89
SUBTOTAL: NETSELECT INC. 49.14% 55.75%
InfoTouch Corporation (voting) 27.99% 33.40%
InfoTouch Corporation (non-voting) 13.78% 0.00%
-----------------------------------
SUBTOTAL: INFOTOUCH CORPORATION 41.77% 33.40%
SUBTOTAL: COMMON AND PREFERRED 2.73% 3.269%
3.64% 3.64%
2.73% 3.26%
-----------------------------------
9.09% 10.85%
100.00% 100.00%
--------------------------------------
Ownership Voting
% %
----------------------------------------
45% 51%
----------------------------------------
52% 45%
----------------------------------------
----------------------------------------
</TABLE>
- -----------------------------------------------------------
Option pool 10%
CDW Promote 0.02%
New money 1,060,000
Effective price 2.83
R. Janssen share of option pool 50%
Stuart Wolff share of option pool 40%
Others' share of option pool 50%
- -----------------------------------------------------------
<PAGE>
ANNEX B
ESTIMATE OF
LIABILITIES AND EXPENSES OF CDW INTERNET, L.L.C.
<TABLE>
<S> <C> <C>
Stuart Wolff, Ph.D. $35,000.00 (representing consulting fees
for time accrued on a monthly basis)
CDW Internet, L.L.C. 18,000.00
Legal [TBD]
</TABLE>
2
<PAGE>
EXHIBIT "A"
ASSIGNMENT
---------
1. InfoTouch hereby irrevocably assigns, transfers and sets over unto
NetSelect, its successors and assigns, all of its right, title and interest in
and to, and all of the covenants, conditions, agreements, terms and obligations
of InfoTouch associated with, the assets and liabilities of InfoTouch set forth
on Schedule A attached hereto ("Transferred Assets and Liabilities"), to have,
hold, perform, observe and discharge the same, from and after the Closing Date;
provided however InfoTouch hereby expressly retains a royalty-free, license
(without any obligation to account therefor to NetSelect), which license shall
terminate on May 1, 1997, to use, modify and copy the Transferred Assets and
Liabilities consisting solely of the software, trademarks and patents identified
on Schedule A for the purpose of engaging in the kiosk business, which is
defined for these purposes as a non-internet connected stand alone interactive
business based on touch screen devices.
2. NetSelect, for itself and its successors and assigns, hereby accepts
all of InfoTouch's right, title and interest in and to, and covenants and agrees
with InfoTouch and its successors and assigns that it accepts, adopts and
assumes and agrees to perform, observe and discharge, from and after the Closing
Date, all of the covenants, conditions, agreements, terms and obligations on the
part of InfoTouch to be performed with respect to, the Transferred Assets and
Liabilities.
3. InfoTouch agrees to execute, acknowledge (where appropriate) and
deliver such other or further instruments of transfer or assignment as NetSelect
may reasonably require to confirm the foregoing, or as may be otherwise
reasonably requested by NetSelect to carry out the intent and purpose hereof.
3
<PAGE>
Schedule A
Transferred Assets and Liabilities
Intellectual Property
- ---------------------
1. Software developed by InfoTouch (all software developed and currently owned
by InfoTouch and the copyrights thereto)
This software includes all software included in Schedule A of the Operating
Agreement between RIN and RealSelect as further described in Schedule J
thereof. It also includes similar software developed by InfoTouch for use
with its HomeSelect kiosks.
2. Patents (all filed for)
InfoTouch has filed for a patent on the search methodology it uses to
select and display homes on the Internet and on kiosks. InfoTouch makes no
claim that this patent will be granted.
3. Trademarks (all filed for)
InfoTouch has filed for certain trademarks such as HomeSelect, AutoSelect,
LoanSelect. InfoTouch makes no claim that these trademarks will be upheld
or that they have not been used by other companies prior to InfoTouch
filing for their trademark.
4. Domain Site Registrations (all registered with Intemic showing InfoTouch as
the owner, except InfoTouch.com)
InfoTouch does not make any claim that it owns these registered names and
that they are not subject to possible dispute by third parties who may
claim prior rights or use.
5. Software licensed from Third Parties
InfoTouch either purchased (licensed) this software from retail stores and
through other retail distribution methods or as part of the purchase of a
computer system. Not withstanding anything herein to the contrary,
InfoTouch shall only be obligated to exercise reasonable commercial efforts
(not including payments to third parties) to assign such third party
software.. This software, if capitalized, is included in the fixed assets
listed below. Not included in this software licensed from third parties is
software necessary to run the kiosk business but not used for the Internet.
Financial Balances
- ------------------
<TABLE>
<S> <C>
1. Current Assets $0
A. Cash Balance
(less $18,433 to be retained by InfoTouch)
B. Accounts Receivable
i. HomeSelect Services Toronto $71,739
(See Note 2 to October 31, 1996 Balance Sheet)
ii. Internet Other Receivables $8,494
C. Allowance for Bad Debts ($2,000)
D. Security Deposits - Current
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
i. PS Limited (San Diego Office Deposit) $1,471
E. Prepaid Expenses
i. NAR Annual Convention Costs $15,030
F. Unbilled License Fees HomeSelect Toronto $90,000
(See Note 2 to October 31, 1996 Balance Sheet)
Total Current Assets $184,734
--------
2. Fixed Assets
A. Computer Equipment less depreciation 5,065
B. Computer Equipment - newer less depreciation $22,415
C. Furniture less depreciation (fully depreciated) $0
D. Furniture newer less depreciation $3,353
E. Office Equipment less depreciation (fully depreciated) $0
F. Software less depreciation $3,733
G. Software newer less depreciation $1,161
H. Hardware Purchased by InfoTouch never paid by RIN $60,022
(see attached schedule of assets, this computer equipment was
purchase for use on REALTOR.COM Internet Site but never paid
for by RIN)
I. Hardware Purchased by InfoTouch for RIN $45,777
(see attached schedule of assets, this computer equipment was
purchased for use on REALTOR.COM Internet Site and was paid
for by RIN but in Operating Agreement RIN agreed to provide
hardware to RWSelect for term of Operating Agreement at no
cost since the S262,504 receivable from RIN was written of by
InfoTouch as part of the agreements)
Total Fixed Assets $141,526
--------
3. Security Deposit Long Term
A. Rent deposit on Westlake office (Greenbrier Properties) $8,048
------
4. Current Liabilities
A. Accounts Payable
i. Balance as of 10/31/96 (see attached schedule) $107,230
B. Accrued Commissions $1,750
C. Accrued Bonus $6,140
D. Accrued Vacation $35,915
(limited to vacation earned for one year period per employee)
E. Accrued Sick Pay $35,359
F. Other Accrued Liabilities $5,801
G. Loans payable - Richard Janssen $152,307
Total Current Liabilities $344,502
--------
Total Book Value of Specific Assets ($9,504)
</TABLE>
5
<PAGE>
Note: the above assets and liabilities are indicated as of October 31, 1996, as
of the closing date November 26, 1996, these accounts have changed in the normal
course of business of InfoTouch and therefore the actual assets and liabilities
to be transferred should be those relating to the above in effect as of the
closing date November 26, 1996. InfoTouch will provide a closing balance sheet
as of November 26, 1996 indicating the actual assets and liabilities transferred
to NS LLC. Attached are the Financial Statements of InfoTouch Corporation
(unaudited) as of October 31, 1996 and the related notes. Also attached is an
analysis of the balance sheet that adjusts certain accounts and allocates the
balances between InfoTouch and NS LLC.
The above assets transferred to NS LLC include all of InfoTouch's Intellectual
Property and fixed assets, except those that are predominately used in the kiosk
business.
The following material unusual transactions occurred in November 1996 and will
be included in the transferred liabilities as of the November 26, 1996:
<TABLE>
<S> <C>
1. Loan from Mike Flannery $150,000
(this loan will be offset against planned investment by
"InfoTouch Investors" that InfoTouch has committed to be
invested in NetSelect, Inc. by December 6, 1996.)
2. Legal Fees by Troop Meisinger Steuber & Pasich, LLP. TBD
(these legal fees are related to the RIN/NAR transaction and incurred
in October and November and were estimated to be approximately S60,000
as of November 19, 1996)
3. NAR Annual Convention Estimated Expenses TBD
(see attached schedule, this includes estimated booth, hotel, equipment
promotion items, brochures, and PR and Video News Release activities
and totals $120,277)
</TABLE>
6
<PAGE>
Notes Regarding Allocation of Assets and Liabilities
to NetSelect L.L.C and lnfoTouch as of 10131/96
1. Accounts Receivable- RIN receivable written off as part of new agreement
--------------------
with RIN and NAR $262,504. Remaining balance includes $71,739 in billed
Internet fees to Toronto Franchisee, see note 2 below and $8,494 is
miscellaneous Internet receivables.
2. Toronto Unbilled Software License Fees: This $90,000 is unbilled license
---------------------------------------
fees per unsigned agreement with Toronto Franchisee. This amount and the
receivable above will be offset against a purchase of the Toronto
Franchisee that is currently under discussion.
3. Internet Hardware Purchased by InfoTouch for RIN: This was not included on
-------------------------------------------------
the books of InfoTouch because under our operating agreement this hardware
was to be paid for by RIN. The $60,022 (see attached schedule) was
Internet hardware purchased by InfoTouch for RIN but never paid for by RIN
and therefore should be capitalized as fixed assets on the balance sheet.
The $45,777 (see attached schedule) is Internet hardware purchased by
InfoTouch for RIN and paid for by RIN. However, as part of the agreement
to forgive the receivable due to InfoTouch by RIN, RIN agreed to provide
this equipment to us at no cost. Therefore this should be capitalized as a
fixed asset on the books of NetSelect.
4. Accrued Vacation: he amount of accrued vacation over one years vacation
-----------------
was transferred as a liability to InfoTouch and not included as a
liability of NetSelect.
5. Officer Loans and Warrants: The InfoTouch Board voted to convert these
---------------------------
shares to InfoTouch stock at the price that InfoTouch's financing round
will come in at. This will only dilute InfoTouch shareholders and have no
effect on NetSelect.
6. For Analysis of Other-Balances: See October 31, 1997 balance sheet and
-------------------------------
related footnotes.
7
<PAGE>
InfoTouch Corporation
FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1996
8
<PAGE>
InfoTouch Corporation
Balance Sheet
October 31,1996
Unaudited
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash and cash equivalents $ 18,433
Accounts receivable, net (Notes 2 and 14) 334,100
Security deposits-current (Note 3) 16,984
Prepaid expenses (Note 4) 16,618
---------------------
Total current assets 386,135
Property and equipment, net (Note 5) 61,027
Security deposits (Note 3) 8,738
----------------------
Total assets $ 455,900
======================
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $ l07,230
Customer deposits 6,000
Current portion of lease obligation 19,972
Accrued liabilities (Note 6) 135,260
Loans payable-officers and directors (Note 7) 4O2,3O7
Total current liabilities 670,769
Stockholders' equity (Notes 11, 12 and 14
Equity 2,479,382
Retained earnings (2,694,251)
---------------------
Total stockholders' equity (214,869)
---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 455,900
======================
</TABLE>
9
<PAGE>
InfoTouch Corporation
Notes to Financial Statements
NOTE I- THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
The Company
InfoTouch Corporation (hereinafter "InfoTouch" or the "Company"), a Delaware
corporation, was incorporated in July 29, 1993. The Company specializes in
developing and operating high traffic Internet sites with content related to
real estate and other areas traditionally seen in classified sections of
newspapers. In addition to creating Internet sites, the Company's technology
allows it to help newspaper and other similar organizations create
electronically generated print advertisements directly from its Internet
advertising database. The Company's significant accounting policies are set
forth below.
Product Development
Statement of Financial Accounting Standards No. 96, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based upon the Company's product
development process, technological feasibility is established upon completion of
a working model. At October 31, 1996, all costs associated with the development
of the Company's software site have been expensed.
Property and equipment
Property and equipment, consisting of computer equipment, software, furniture
and mixtures, are stated at cost, net of accumulated depreciation and
amortization and net of a reserve of $225,000 (associated with the writedown of
certain of the Company's kiosk assets to net realizable value recorded in
September 1995). Depreciation is computed using the straight-line method over
the estimated lives of the assets, generally from two to five years, or the life
of the lease, whichever is shorter.
Income taxes
Income taxes are computed in accordance with Statement of Financial Accounting
Standards No. 109, " Accounting for Income Taxes." ("SFAS 109"). Under the
asset and liability method per SFAS 109, deferred income taxes represent the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using currently enacted tax rates and laws.
Management estimates and assumptions and interim financial statements
10
<PAGE>
The Company's fiscal and tax years both end on December 31. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. In the opinion of management, the unaudited interim
financial statements at October 31, 1996 include all adjustments consisting only
of normal recurring accruals necessary to present fairly the Company's financial
position at October 31, 1996.
NOTE 2- ACCOUNTS RECEIVABLE
Accounts Receivable at October 31, 1996 are comprised of the following:
REALTORS(R) Information Network $262,504
HomeSelect Services-Toronto 71,739
Internet-other 8,494
Kiosk-other 13,975
----------
356,712
Less: allowance for doubtful accounts 22,612)
----------
334,100
==========
As of October 31, 1996, the Sum of the Guaranty Payment was $719,335, which when
netted against the receivable from RIN is a net amount of $456,83 1. As of
November 1, 1996, the amount of the operational listing fees earned for November
1996 was $90,728 ($.20 per listing on the first day of each month), which
receivable from REALTORS(R) Information Network would then be $353,232 and the
Sum of the Guaranty Payments to the REALTORS(R) Information Network would then
be $366,103 (see 'Monthly Accounting Statement-Distribution and Web Site
Development Agreement as of November 1, 1996").
On January 18, 1995, the Company entered into a licensing understanding for its
HomeSelect Kiosk System with TouchTech Corporation, an Ontario Canada company
for license of its kiosk system for the province of Ontario as its territory,
with options to expand throughout Canada. The original license arrangement
letter was for $100,000, $5,000 on or before January 18, 1995, $5,000 April 15,
1995 $45,000 upon signing the definitive license agreement and $45,000 payable 6
months after the definitive license agreement has been entered into. On May 4,
1995, the licensing agreement understanding was expanded to include not only the
kiosks but all computer actuated systems and mediums that HomeSelect and/or
InfoTouch markets. All computer actuated systems will be subject to a 5%
royalty fee generated from such system (gross revenues) and $.40 per active
property listing. As of October 31, 1996, the Company is owed $71,739, such
amount for listing fees billed and unpaid as of October 31, 1996. The Company
has not invoiced or collected from TouchTech the $45,000 owed upon signing the
definitive license agreement and $45,000 payable 6 months after the definitive
license agreement was
11
<PAGE>
entered into. The Company has engaged in discussions with TouchTech regarding a
potential acquisition of the business, however, any and all discussions have
been preliminary with no agreement reached._
NOTE 3- SECURITY DEPOSITS
Security deposits as of October 31, 1996 include the following:
Sandicor royalty deposit $ 5,000
Prepaid PC leases 9,317
PS Limited (San Diego office deposit) 1,471
Greenbrier Properties (Westlake Village office deposit) 8,048
Other 1,886
---------
25,722
Amount classified as current (16,984)
---------
Amount classified as non-current $ 8,738
=========
NOTE 4- PREPAID EXPENSES
Prepaid expenses as of October 31, 1996 include the following:
NAR Convention costs $ 15,030
Prepaid insurance and other 1,588
---------
$ 16,618
=========
NOTE 5- PROPERTY AND EQUIPMENT
A summary of property and equipment as of October 31, 1996 follows:
Computer and kiosk related equipment $ 609,921
Furniture and office equipment 6,393
---------
656,314
Less: accumulated depreciation, amortization and reserves (595,287)
---------
Net fixed assets $ 61,027
=========
Included above are assets being utilized in both the Company's Internet business
and kiosk business that were written down to their net realizable value at
September 30, 1995 ($225,000 charge), including 42 computers, Pentium computers
and 17 inch monitors and HP printers.
NOTE 6- ACCRUED LIABILITIES
Accrued liabilities as of October 31, 1996 include the following:
Vacation $ 2,877
12
<PAGE>
Sick pay 35,359
CEO deferred compensation 33,333
Bonuses 6,140
Commissions 1,750
Other 5,801
--------
$135,260
========
NOTE 7- LOANS PAYABLE-OFFICERS AND DIRECTORS AND WARRANTS
On August 23, 1994, the Company entered into a loan and security agreement with
Richard R. Janssen, its founder, President and Chief Executive Officer. The
agreement calls for Mr. Janssen to make loans to the Company at a monthly
interest rate of 10%. The loans were due and payable on August 23, 1995 and are
currently due on demand. The balance at October 31, 1996 of principal and
interest is $152,307. To date, the Company has made no payments of either
principal or interest to Mr. Janssen. In connection with this loan and security
agreement, the Company granted Mr. Janssen a continuing security interest in all
of the Company's current and future computer and office equipment, including
those used in the HomeSelect kiosk, but excluding the Gateway personal computers
in the kiosks, which are subject to pre-existing lease agreements. The Company
has agreed not to encumber, assign or transfer the collateral without prior
written permission of Mr. Janssen.
In July 1996, three of the Company's directors, Daniel A. Koch, Michael S.
Luther and Luther J. Nussbaum, along with one officer, William A. Spazante,
entered into a loan and warrant agreement with the Company under which
cumulative $250,000 was loaned to the Company interest free. The loans are due
and payable the earlier of July 1997 or at the completion of an initial public
offering of the Company's securities, whichever comes first. The terms of the
loan also called for the Company to grant those individuals warrants to purchase
shares of the Company's common stock totaling 32,500 at $5.00 per share. On
November 8, 1996, the Company's Board of Directors approved the conversion of
the loans and cancellation of the warrants referred to above into shares of the
Company's common stock at a value to be determined.
NOTE 8- LINE OF CREDIT
The Company has a line of credit with Bank One for $20,000 dated July 23,1996.
The line of credit has a 15% interest rate, with monthly principal due of 2.5%
of the amount borrowed. To date, the Company has not borrowed against such line
of credit.
NOTE 9- COMMITMENTS AND CONTINGENCIES
The Company leases its Westlake Village and San Diego, California offices. On
July 12, 1996, the Company entered into a lease for new office and operations
space for its Westlake Village operations. The agreement calls for a term of
four years commencing on the first day of November 1996 or upon completion of
construction. Under the terms of the new lease, the monthly rent is $8,048 per
month, with cost of living adjustments on the first day of each new
13
<PAGE>
lease year tied to the local Consumer Price Index, with each increase to be no
greater than 5% annually. If at any time after eighteen months of occupancy the
Company finds itself in need of additional office space of 150% or greater and
the landlord cannot accommodate the Company, then the Company has the right to
terminate the lease upon 120 days written notice. In addition, if after 36
months of occupancy the Company wishes to terminate the lease for any reason,
the Company has the right to give the landlord 120 days prior written notice of
its intent to terminate the lease. In both cases of early termination, the
Company shall be responsible for the remaining balance of facilities
improvements that are amortized over 48 months from the inception of the lease,
such costs expected to initially total approximately $30,000 to $40,000. The
Company also leases its sales and marketing facilities in its San Diego,
California office under terms of a lease which runs through January 31, 1997,
with monthly payments of $2,426.
In fiscal 1994, the Company entered into lease agreements covering equipment
used in its Internet and kiosk-based operations. These capital leases expire
through April 1, 1997. Monthly payments, including interest, total $4,160 and
the terms of each lease provide for a bargain purchase option of $1 at the end
of the lease term.
The Company currently has rental agreements with various locations in the San
Diego County area to locate its 17 of its kiosks in the retail location at a
monthly rental of $100 per location. The Company has been notified by the
retail location of its intent to terminate the rental agreements and has
provided the Company with the required 6 months notification, effective February
1997. The Company also has 13 kiosk remaining at various other real estate and
military locations at no monthly rental.
The Company has entered into two agreements for Internet access utilized by the
Company, one each for its Westlake Village and San Diego locations. The Company
pays a monthly fees covering both locations. Both agreements originally for a
one year period and currently are on a month-to-month basis. The Company
anticipates adding additional Internet capacity as it moves into its new
facilities and as business conditions warrant.
The Company also entered into an agreement with Sandicor, Inc., the exclusive
multiple listing service ("MLS") for the San Diego resale home market, whereby
the Company pays Sandicor for exclusive use of their MLS data on the kiosks.
The royalty is based on a certain percentage of the Company's adjusted kiosk
sales each month. The agreement is for a five year period, with an additional
five year option period. The agreement contains are early termination clause
which the Company believes that it will exercise in early 1997.
In 1994, the Company entered into leasing arrangements for Gateway computers
used in the Company's business. The leases are with AT&T Capital Leasing for 10
P-5-66 Best Buy Gateway 2000 Computers and with Finova for 32 P-5-66 Best Buy
Gateway 2000 Computers. Monthly payments, including interest, total $4,160 and
the terms of each lease provide for a bargain purchase option of $1 at the end
of the lease term. Both computer leases are completed in early April 1997.
14
<PAGE>
The Company has entered into a credit card processing arrangement with Union
Bank in which all Mastercard and Visa credit cards processed am charged a
processing fee of 2.9% and American Express 3.25%. The Company's President has
guaranteed chargebacks of credit card charges to the Company's account in the
event the Company fails to pay the chargebacks.
NOTE 1O- INCOME TAXES
Effective April 1, 1994, the Company converted from a sub-chapter "S"
corporation to a subchapter "C" corporation upon completion of its first private
stock offering. Prior to this election, all tax benefits were passed to the
shareholders. No provision for federal and state income taxes has been recorded
as the Company has incurred net operating losses through September 30, 1996. As
of December 31, 1995, the Company has federal and state net operating loss
carryforwards of approximately $1,838,000 and $1,121,000, respectively.
NOTE 11 - CONVERTIBLE PREFERRED STOCK AND COMMON STOCK
The authorized and outstanding capital stock of lnfoTouch Corporation as of
October 31, 1996 is summarized as follows:
Type Authorized Outstanding
---- ---------- -----------
Common Stock 5,000,000 l,281,147
Series A Convertible Preferred Stock 400,000 398,000
Series B Convertible Preferred Stock 200,000 200,000
Undesignated Preferred Stock 400,000 0
1994 Stock Incentive Plan options 1,000,000 597,072
Warrants to purchase shares of Common Stock 32,500 32,500
In March 1994, the Company issued a stock split such that the Company's original
100 shares of stock then outstanding were split to become 472,417 shares. In
March 1994, in conjunction with the closing of the Series A Convertible
Preferred Stock (see Note 9; CONVERTIBLE PREFERRED STOCK), the Company's founder
and current President and Chief Executive Officer, Richard R. Janssen, purchased
an additional 333,333 shares of common stock at $1.50 per share, for a total
consideration of $500,000, in the form of cash and cancellation of amounts
payable by the Company to Mr. Janssen.
In March 1994, an additional 87,273 shares of common stock were acquired by
several key employees as previously committed founders stock, at $.0l per share
for total consideration of $873. The Company has the right to repurchase a
declining percentage of certain of these shares at the original purchase price
under written agreements with these employees. The right to repurchase declines
on a percentage basis over three years based on the length of the employees'
continual employment with the Company. On June 6, 1994, one employee terminated
employment with the Company and the Company exercised its repurchase option on
8,606 shares issued to that employee.
In August 1994, the Company's current Chairman of the Board of Directors, Luther
J. Nussbaum, acquired 38,730 shares as part of an employment agreement with the
Company, for $1.50 per
15
<PAGE>
share ($58,095 total consideration). In February 1996, Mr. Nussbaum also
converted a loan and interest due from the Company into 27,083 shares of common
stock at $1.00 per share.
In February 1996, the Company converted advances for purchases of common stock
from two current members of the Company's Board of Directors totaling $303,000
into 303,000 shares of common stock at $1.00 per share. In May 1996, the
Company's Chief Financial Officer acquired 17,500 shares of common stock at
$2.00 per share as part of a stock purchase agreement with the Company ($35,000
total consideration).
Effective October 23, 1996, Michael S. Luther sold 23,267.33 shares of Series B
Convertible Preferred Stock to Daniel A. Koch.
NOTE 12- COMMON STOCK INCENTIVE PLAN
In August 1994, the Company's Board of Directors adopted the 1994 Stock
Incentive Plan (the "Plan") which originally provided for the grant of up to
300,000 incentive stock options and nonqualified stock options (increased by the
Board of Directors in September 1995 by 700,000 to 1,000,000 total options
available to be granted). Under the Plan, incentive stock options may be
granted to officers, employees, former employees, consultants and Directors of
the Corporation, any Parent or any Subsidiary. Options granted under the Plan
are for periods not to exceed ten years, and must be issued at prices not less
than 100% and 85%, for incentive and non-qualified stock options, respectively,
of the fair value of the stock on the date of grant as determined by the Board
of Directors. Options granted to shareholders who own greater than 10% of the
outstanding stock are for periods not to exceed five years and must be issued at
prices not less than 100% of the fair market value of the stock on the date of
grant as determined by the Board of Directors. Options under the plan generally
vest 25% after the first year and ratably each year over the remaining vesting
period. A summary of the Plan's activity is as follows (with authorized shares
shown as if the increase in authorized shares was for the entire period):
<TABLE>
<CAPTION>
Options
available Options outstanding
-------------------
for grant Shares Price per share
<S> <C> <C> <C>
Options authorized 1,000,000
1994:
Options granted (79,323) 79,323 $1.50
Options exercised -- --
--------- --------
Balance at December 31, 1994 920,677 79,323 $1.50
1995:
Options granted (418,249) 418,249 $1.00
Options exercised -- --- --
--------- --------
Balance at December 31, 1995 502,428 497,572 $1.00 to $1.50
Options granted (99,500) 99,500 $1.00 to $1.50
Options exercised -- --
--------- ---------
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C>
Balance at September 30, 1996 402,928 597,072 $1.00 to $1.50
=========
</TABLE>
On November 8, 1996, the Company's Board of Directors approved the acceleration
of all vesting provisions of all outstanding options of the Company totaling
597,072 shares.
NOTE 13- REALTORS(R) INFORMATION NETWORK
Effective February 1, 1996, the Company entered into the "Distribution and Web
Site Development Agreement" ("Agreement) with the REALTORS(R) Information
Network calling for the Company to design, develop and operate REALTOR.COM, with
RIN responsible for all data acquisition, sales and marketing efforts for the
site, including, home page sales, third party banner advertising sales and other
forms on revenue to be potentially derived from the site. The agreement also
called for RIN to pay the Company a minimum of $95,000 per month ("Guaranty
Payment") until such time as the Company's portion of the cash flow from the
site was sufficient to provide it with at least $95,000 a month. In late June,
RIN notified the Company of the financial difficulties that it was experiencing
and ceased paying the $95,000 monthly guaranteed amount. Subsequent to this
notification, RIN made two payments to the Company, $42,422 in July and $50,000
in August. RIN also notified the Company that it could retain RIN's portion of
any and all sales of agent and broker home pages collected by InfoTouch.
Effective July 24, 1996, the Company notified RIN that during June and July
1996, RIN had discontinued making the Guaranty Payments as called for in the
Agreement and that the Company accepted the failure to pay as the equivalent of
the 60 day prior written notice of RIN's intent to discontinue such payments and
that RIN was relieved of its obligation to make such payments as of August 1,
1996. The Company also notified RIN that as a result of RIN's discontinuance of
payments, the Company exercised its option to purchase exclusive, full, complete
and unencumbered ownership of the software associated with the domain site for
$1. By letter dated July 29, 1996, RIN stated that it disagreed with the
characterization of the current status of the financial payments between it and
the Company and that RIN had not provided InfoTouch with notice of its intent to
discontinue the guarantee payments and that in light of the foregoing, does not
believe that InfoTouch may exercise the option to purchase the software
associated with the domain site for $1. Assuming the $1 option is not
available, the buyout price would be $457,000 on October 31, 1996 and is
$366,000 on November 1, 1996.
In connection with the Merger and the related agreements, it is anticipated that
all amounts owed to and from RIN will be eliminated.
NOTE 14- SUBSEQUENT EVENTS
In addition to the agreements above, as part of its participation in the
November 1996 NAR convention, the Company will be responsible for various
convention associated expenses, including, but not limited to hotel, meals and
entertainment and other convention associated expenses.
17
<PAGE>
Effective November 4, 1996, the Company entered into a Loan agreement with
Michael Flannery for $150,000. The loan from Mr. Flannery is intended to be
converted into equity at a price per share as part of the $2,000,000 financing
portion of the transaction.
Effective November 4, 1996, Michael S. Luther transferred 157,000 shares of his
stock to KL LLC.
Effective November 12, 1996, Michael S. Luther entered into the Third Extension
and Security Agreement by and among Michael S. Luther, Dr. Anil K. Agarwal and
Security Escrow Co. ("Escrow Agent") pursuant to which Mr. Luther has granted a
security interest in 400,000 shares of lnfoTouch Common Stock owned by him (on
an as converted basis).
On November 15, 1996, the Company filed its 1994 and 1995 State of Delaware
Annual Franchise Tax Reports and paid taxes, filing fees, interest and penalties
totaling $1,116.96. Also on November 15, 1996, the Company filed a Certificate
For Renewal and Revival of Charter. On November 20, 1996, the Company was
notified by the State of Delaware that it has been reinstated as a corporation
in good standing.
Effective November 22, 1996, the Series A Convertible Preferred Stock and Series
B Convertible Preferred Stock stockholders elected to convert all of the shares
of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock
into shares of Common Stock, par value $01 per share pursuant to the terms as
set forth in the Certificate of Incorporation of InfoTouch Corporation and the
Purchase Agreement Series A Convertible Preferred Stock and Purchase Agreement
Series B Convertible Preferred Stock, such election contingent upon the
completion of the transaction with the NAR and RIN described in the Company's
letter dated November 21, 1996.
EXHIBIT B
Names of Directors and Officers of NetSelect, Inc.
--------------------------------------------------
DIRECTORS
Representing Entity Name of Director
- ------------------- ----------------
J.H. Whitney Michael Brooks
Allen & Co. Dort Cameron, III
CDW Internet, L.L.C. Stuart Wolff, Ph.D.
InfoTouch Investors Richard Janssen
OFFICERS
18
<PAGE>
Title Name of Officer
- ----- ---------------
Chairman and CEO Stuart Wolff, Ph.D.
President and COO Richard Janssen
VP and CFO William Spazante
Sr. VP, Sales Perry Morton
VP, Marketing Liesi Pike
EXHIBIT C
Board of Members of NetSelect, L.L.C.
MEMBERS
Representing Entity Name of Member
- ------------------- --------------
REALTORS(R) Information Network Joe Hanauer
J. H. Whitney Michael Brooks
Allen & Co. Dort Cameron, III
CDW Internet, L.L.C. Stuart Wolff, Ph.D.
InfoTouch Investors John Petrick
InfoTouch Corporation Richard Janssen
InfoTouch Corporation Daniel Koch
OFFICERS
Title Name of Officer
- ----- ---------------
Chairman and CEO Stuart Wolff, Ph.D.
President and COO Richard Janssen
VP and CFO William Spazante
Sr. VP, Sales Perry Morton
VP, Marketing Lisle Pike
VP, Technology Philip Dolly
19
<PAGE>
EXHIBIT D
AMENDED
AND
RESTATED
CERTIFICATE OF INCORPORATION
OF
NETSELECT, INC.
NetSelect, Inc., a corporation (the "Corporation") organized and
existing under the General Corporation Law of the State of Delaware (the "GCL")
does hereby certify as follows:
FIRST: The name of ft corporation is NetSelect, Inc. (the
"Corporation"). "The original Certificate of Incorporation of the Corporation
was filed with the office of the Secretary of State of Delaware on October 28,
1996.
SECOND: This Amended and Restated Certificate of Incorporation was
duly adopted in accordance with Sections 228, 242 and 245 of the GCL. In lieu
of a meeting of stockholders of the Corporation in accordance with Section 242
of the GCL and a vote of stockholders thereat, all of the stockholders of the
Corporation adopted and approved this Amended and Restated Certificate of
Incorporation by written consent pursuant to Sections 228 of the GCL. As such
written consent of stockholders was unanimous, no notice of said corporate
action was required to be given, and none was given, under Section 228 of the
GCL.
THIRD: This Amended and Restated Certificate of Incorporation
restates and integrates and further amends the Certificate of Incorporation of
the Corporation, as heretofore amended, supplemented, and/or restated (the
"Certificate of Incorporation").
<PAGE>
FOURTH: The text of the Certificate of incorporation is hereby
amended restated and integrated to read in its entirety as follows:
1. Name; Registered Office. The name of the corporation is
-----------------------
NetSelect, Inc. The registered office of the Corporation is to be located at 15
East North Street in the City of Dover, in the County of Kent, in the State of
Delaware. The name of its registered agent at that address is United Corporate
Services, Inc.
2. Purposes of the Corporation. The purpose for which the
---------------------------
Corporation is organized is to engage in any lawful act or activity for which
corporations may be organized under the GCL.
3. Capitalization. (a) The total number of shares of all classes of
--------------
stock which the Corporation shall have authority to issue is 50,000,000 shares,
consisting of (x) 35,000,000 shares of Class A Common Stock, $0.001 par value
(the "Class A Common Stock"), (y) 10,000,000 shares of Class B Common Stock,
$0.001 par value (the "Class B Common Stock," and together with the Class A
Common Stock, the "Corporation Common Stock") and (z) 5,000,000 shares of
Preferred Stock, par value $0.001 per share (the "Preferred Stock").
(b) The Board of Directors may issue Preferred Stock having such
preferences, conversion and other rights, voting powers, restrictions and
limitations as to dividends, qualifications and terms and conditions of
redemption of stock as the Board of Directors may from time to time determine
when designating such series.
(c) The designations, powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions of the Corporation Common Stock is as follows:
Class A Common Stock.
--------------------
(i) Voting.
------
(A) Except as otherwise provided by law or this Certificate
of Incorporation, at each annual or special meeting of
stockholders, in the case of any written consent of
stockholders, and for all other purposes, each holder of
record of shares of Class A Common Stock on the relevant
record data shall rank equally and be entitled to one (1)
vote for each share of Class A Common Stock standing in such
holder's name on the stock transfer records of the
Corporation.
(B) Approval by 66-2/3% of the issued and outstanding
shares of Class A Common Stock and Preferred Stock, voting
as a single class and representing at least 66-2/3% of the
combined voting power of the Class A
2
<PAGE>
Common and the Preferred Stock shall be required to
constitute the act of the stockholders on any actions
permitted pursuant to the GCL.
(ii) Dividends. Subject to the provisions of law and the rights
---------
of the Preferred Stock, dividends may be paid on the Class A Common
Stock at such times and in such amounts as the Board of Directors
shall determine; provided, however, that in the case of dividends or
-------- -------
other distributions payable in stock of the Corporation, including
distributions pursuant to stock splits or divisions of capital stock
of the Corporation (other than a split or division of the Preferred
Stock), only shares of Class A Common Stock shall be distributed with
respect to Class A Common Stock and only shares of Class B Common
Stock shall be distributed with respect to Class B Common Stock (with
no dividend or distribution payable in Corporation Common Stock being
paid on any shares of either class of Corporation Common Stock unless
a dividend or distribution of the same number of shares of Corporation
Common Stock is paid simultaneously on the shares of the other class
of Corporation Common Stock) and that, in the case of any combination
or reclassification of either the Class A Common Stock or the Class B
Common Stock, the shares of the other class of Corporation Common
Stock shall also be combined or reclassified so the number of shares
of each class of Corporation Common Stock outstanding immediately
following such combination or reclassification shall bear the same
ratio to the number of shares of such class of Corporation Common
Stock outstanding immediately prior to such combination or
reclassification as the number of shares of the other class of
Corporation Common Stock outstanding immediately prior to such
combination or reclassification bears to the number of shares of such
class of Corporation Common Stock outstanding immediately prior to
such combination or reclassification; provided, further, that no
-------- -------
dividend or distribution may be declared or paid in cash or property
on shares of either Class A Common Stock nor Class B Common Stock
unless the same dividend or distribution per share is paid
simultaneously on the other class of Corporation Common Stock.
(iii) Rights on Liquidation, Dissolution and Winding-up. Upon any
-------------------------------------------------
duly authorized voluntary or any involuntary liquidated, dissolution,
or winding-up of the affairs of the Corporation, after payment in full
or reasonable provision for payment in full of all claims and
obligations of the Corporation, in accordance with Section 281 of the
GCL, as the same now exists or may hereafter be amended, or with the
provisions of any successor statute, shall have been made, and subject
to any preferential or other rights of holders of outstanding shares
of Preferred Stock, the holders of shares of Class A Common Stock and
Class B Common Stock shall be entitled to shares ratably, in
accordance with the number of shares of Class A Common Stock held by
each such holder, in all assets of the Corporation available for
distribution among the holder of Class A Common Stock and Class B
Common Stock, whether such assets are capital, surplus or earnings.
3
<PAGE>
Class B Common Stock.
--------------------
(i) Voting. The holders of the Class B Common Stock shall not be
------
entitled to vote.
(ii) Dividends. Subject to the provisions of law and the rights of
---------
the Preferred Stock, dividends may be paid on the Class B Common Stock
at such times and in such amounts as the Board of Directors shall
determine; provided, however, that in the case of dividends or other
-------- -------
distributions payable in stock of the Corporation, including
distributions pursuant to stock splits or divisions of capital stock
of the Corporation (other than a split or division of the Preferred
Stock), only shares of Class B Common Stock shall be distributed with
respect to Class B Common Stock and only shares of Class A Common
Stock shall be distributed with respect to Class A Common Stock (with
no dividend or distribution payable in Corporation Common Stock being
paid on any shares of either class of Corporation Common Stock unless
a dividend or distribution of the same number of shares of Corporation
Common Stock is paid simultaneously on the shares of the other class
of Corporation Common Stock) and that, in the case of any combination
or reclassification of either the Class B Common Stock or the Class A
Common Stock, the shares of the other class of Corporation Common
Stock shall also be combined or reclassified so that the number of
shares of each class of Corporation Common Stock outstanding
immediately following such combination or reclassification shall bear
the same ratio to the number of shares of such class of Corporation
Common Stock outstanding immediately prior to such combination or
reclassification as the number of shares of the other class of
Corporation Common Stock outstanding immediately prior to such
combination or reclassification bears to the number of shares of such
class of Corporation Common Stock outstanding immediately prior to
such combination or reclassification: provided, further, that no
-------- -------
dividend or distribution may be declared or paid in cash or property
on shares of either Class B Common Stock nor Class A Common Stock
unless the same dividend or distribution per share is paid
simultaneously on the other class of Corporation Common Stock.
(iii) Automatic Conversion. (A) Promptly upon the occurrence of a
--------------------
Triggering Event (as hereinafter defined), each outstanding share of
Class B Common Stock shall, by virtue of, and simultaneously with, the
consummation of such offering and without any action on the part of
the holder thereof, be deemed automatically converted into one fully
paid and nonassessable share of Class A Common Stock.
"Triggering Event" means that time at which the Board of
----------------
Directors of the Corporation shall effect a qualified public
offering (a "Qualified Public Offering") of any or all of the
shares of Class A Common Stock then outstanding pursuant to an
effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of shares of Class
A Common Stock which (A) yields proceeds to the Corporation
4
<PAGE>
of at least $10,000,000 (net of underwriting discounts and
commissions) and (B) would establish an aggregate value for the
shares of Class A Common Stock outstanding immediately prior to
the consummation of such offering of at least $40,000,000.
(B) Promptly upon the occurrence of a Triggering Event,
such that shares of Class B Common Stock are converted automatically
into shares of Class A Common Stock, the Corporation shall deliver
written notice to each of the holders of Class A Common Stock, Class B
Common Stock and Preferred Stock, and the certificate or certificates
that represented such shares of Class B Common Stock immediately prior
to the occurrence of the Triggering Event shall upon conversion
represent that number of shares of Class A Common Stock into which
such shares of Class B Common Stock theretofore represented by such
certificate shall have been automatically converted, and the holder of
such shares of Class B Common Stock shall surrender such certificate
of certificates, duly endorsed in blank or accompanied by proper
instruments of transfer, at the principal office of the Corporation or
of any transfer agent for shares of the Class A Common Stock.
Delivery of such certificates shall obligate the Corporation to issue
such shares of Class A Common Stock, and thereupon the Corporation or
its transfer agent shall promptly issue and deliver at such stated
address to such holder of shares of Class A Common Stock to which such
holder is entitled by reason of such conversion, and shall cause such
shares of Class A Common Stock to be registered in the name of such
holder.
(C) The Corporation shall pay all documentary, stamp or
other transactional taxes attributable to the issuance or delivery of
shares of capital stock of the Corporation upon conversion of any
shares of Class B Common Stock; provided, however, that the
-------- -------
Corporation shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than that
of the holder of the shares of Class B Common Stock in respect of
which such shares are being issued.
(D) The Corporation shall reserve, free from preemptive
rights, out of its authorized but unissued shares of Class A Common
Stock, solely for the purpose of effecting the conversion of the
shares of Class B Common Stock, sufficient shares to provide for the
conversion of all outstanding shares of Class B Common Stock.
(E) All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon
issuance by the Corporation, be validly issued, fully paid and
nonassessable, with no personal liability attaching to the ownership
thereof, and free from all taxes, liens or charges with respect
thereto.
5
<PAGE>
4. Reclassification. Upon the filing (the "Effective Time") of this
----------------
Amended and Restated Certificate of Incorporation pursuant tot he GCL, the one
hundred (100) shares of the Corporation Common Stock, par value $0.001 per
share, issued and outstanding immediately prior to the Effective Time (the "Old
Common Stock"), shall be reclassified as and changed into an aggregate of
236,470 validly issued, fully paid, and non-assessable shares of Class A Common
Stock authorized by Section 3 hereof. Each certificate that theretofore
represented a share of shares of Old Common Stock shall thereafter represent
that number of shares of Class A Common Stock into which the share or shares of
Old Common Stock represented by such certificate shall have been reclassified;
provided, however, that each record holder of a stock certificate or
- -------- -------
certificates that theretofore represented a share or shares of Old Common Stock
shall receive, upon surrender of such certificate or certificates, a new
certificate or certificates evidencing and representing the number of shares of
Class A Common Stock to which such record holder is entitled pursuant to the
foregoing reclassification.
5. Ranking. Except as otherwise provided herein, the Class A Common
-------
Stock and the Class B Common Stock shall have the same rights and privileges and
shall rank equally, share ratably and be identical in all respects as to all
matters.
6. Liability of Directors. The Corporation eliminates the personal
----------------------
liability of each member of its Board of Directors to the Corporation for
monetary damages for breach of fiduciary duty as a Director to the Corporation;
provided, however, that the foregoing shall not eliminate the stockholders, (ii)
- -------- -------
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the GCL or (iv) for
any transaction from which such Director derived an improper personal benefit.
IN WITNESS WHEREOF, I have hereunto set my hand this 26/th/ day of
November, 1996.
/s/ Stuart Wolff
__________________________________________
Name: Stuart Wolff, Ph.D.
Title: Chief Executive Officer
6
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
NETSELECT, INC.
_____________________________
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
______________________________
NetSelect, Inc., a Delaware corporation (the "Corporation"), does
hereby certify as follows:
FIRST: The first sentence of paragraph 4 of Article Fourth of the Restated
-----
Certificate of Incorporation is hereby deleted and integrated to read in its
entirety as follows:
Upon the filing (the "Effective Date") of this Amended and Restated
Certificate of Incorporation pursuant to the GCL, the one hundred (100)
shares of the Corporation Common Stock, par value $0.001 per share, issued
and outstanding immediately prior to the Effective Time (the "Old Common
Stock"), shall be reclassified and changed into (x) an aggregate of 236,470
validly issued, fully paid, and non-assessable shares of Class A Common
Stock and (y) and aggregate of 116,470 validly issued, fully paid, and non-
assessable shares of Class B Common Stock.
SECOND: The foregoing amendments were duly adopted in accordance with
------
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, NetSelect, Inc. has caused this Certificate of
Incorporation to be duly executed in its corporate name this 27/th/ day of
November, 1996.
NETSELECT, INC.
/s/ Stuart Wolff
________________________________________
Name: Stuart Wolff
Title: Chief Executive Officer
<PAGE>
NETSELECT, INC.
Certificate of Designations for Series A Convertible Preferred Stock
--------------------------------------------------------------------
and Series B Convertible Preferred Stock
----------------------------------------
Pursuant to the authority expressly granted to the Board of Directors
of this Corporation in accordance with the provisions of its Certificate of
Incorporation, as amended, two series of the Preferred Stock, par value $.001
per share, of the Corporation are hereby established (A) one, consisting of
1,647,059 shares, to be designated "Series A Convertible Preferred Stock"
(hereinafter "Series A Preferred Stock"), and (B) one, consisting or 352,941
shares, to be designated "Series B Convertible Preferred Stock" (hereinafter,
"Series B Preferred Stock", and together with the Series A Preferred Stock, the
"Convertible Preferred Stock"). The Board of Directors hereby is authorized to
issue such shares of Convertible Preferred Stock from time to time and for such
consideration and on such terms as the Board of Directors shall determine; and
subject to the limitations provided by law and by the Certificate of
Incorporation as amended, the designations, powers, preferences and relative
participating, optional and other special rights of, and the qualifications,
limitations and restrictions upon, the Convertible Preferred Stock are as
follows:
(1) Dividends.
---------
The holders of Convertible Preferred Stock shall be entitled to
participate with the holders of Class A Common Stock and Class B Common Stock in
any dividends paid or set aside for payment (other than dividends payable solely
in shares of Class A Common Stock and Class B Common Stock) so that the holders
of Convertible Preferred Stock shall receive with respect to each share of
Convertible Preferred Stock an amount equal to (x) the dividend payable with
respect to each share of Class A Common Stock multiplied by (y) the number of
shares (and fraction of a share, if any) of Class A Common Stock into which such
share of Convertible Preferred Stock is convertible as of the record date for
such dividend.
(2) Voting Rights.
-------------
Except as otherwise provided herein or by law, the holders of
Convertible Preferred Stock shall have full voting rights and powers, and they
shall be entitled to vote on all matters as to which holders of Class A Common
Stock shall be entitled to vote, voting together with the holders of Class A
Common Stock as one class. Each holder of shares of Convertible Preferred Stock
shall be entitled to the number of votes equal to the number of shares of Class
A
2
<PAGE>
Common Stock into which such shares of Convertible Preferred Stock could be
converted, Fractional votes shall not, however, be permitted and any fractional
voting rights resulting from the above formula (after aggregating all shares
into which shares of Convertible Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
(3) Rights on Liquidation.
---------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (any such event being hereinafter
referred to as a "Liquidation"), before any distribution of assets of the
Corporation shall be made to or set apart for the holders of Class A Common
Stock or Class B Common Stock, the holders of Convertible Preferred Stock shall
be entitled to receive payment out of such assets of the Corporation in the
following amounts: (i) with respect to each share of Series A Preferred Stock,
the sum of (A) $2.83, plus (B) an amount equal to $0.18 per annum accruing on a
quarterly basis on the last day of each calendar quarter for the period from the
date of issuance of such share to the date of Liquidation, plus (C) any declared
and unpaid dividends on such share; and (ii) with respect to each share of
Series B Preferred Stock, the sum of (A) $6.19, plus (B) an amount equal to
$0.40 per annum accruing on a quarterly basis on the last day of each calendar
quarter for the period from the date of issuance of such share to the date of
Liquidation, plus (C) any declared and unpaid dividends on such share. The
amount payable with respect to each share of Series A Preferred Stock and Series
B Preferred Stock pursuant to clause (i) or (ii) above is referred to as the
"Preferred Stock Liquidation Preference" for such share. If the assets of the
Corporation available for distribution to the holders of Convertible Preferred
Stock shall not be sufficient to make in full the payments herein required, such
assets shall be distributed ratably among the holders of Convertible Preferred
Stock based upon the aggregate Liquidation Preferences of the shares of
Convertible Preferred Stock held by each such holder.
(b) If the assets of the Corporation available for distribution to
stockholders exceed the aggregate amount payable pursuant to paragraph (a)
above, the remainder of such assets shall be distributed to the holders of
Convertible Preferred Stock, Class A Common Stock and Class B Common Stock on a
pro-rata basis, with the amount distributable to the holders of Convertible
Preferred Stock to be computed on the basis of the number of shares of Class A
Common Stock which would be held by them if immediately prior to the Liquidation
all of the outstanding shares of Convertible Preferred Stock had been converted
into shares of Class A Common Stock.
(c) A merger or consolidation including the Corporation and a sale,
lease or transfer of all or substantially all of the assets of the Corporation
shall be deemed a Liquidation, unless in connection with such transaction, the
Convertible Preferred Stock remains unchanged or the holders of Convertible
Preferred Stock receive a stock having terms and condition which are no less
favorable than the terms and conditions of the Convertible Preferred Stock;
provided, however, that any such event shall not be deemed a Liquidation if so
- -------- -------
determined by action of the holders of at least 66-2/3% of the shares of
Convertible Preferred Stock at the time outstanding.
3
<PAGE>
(4) Conversion.
----------
(a) Right to Convert. The holder of any share or shares of
----------------
Convertible Preferred Stock shall have the right at any time, as such holder's
option, to convert all or a portion of the shares of Convertible Preferred Stock
held by such holder into such number of fully paid nonassessable shares of Class
A Common Stock at the Conversion Rate (as defined below). The Initial
"Conversation Rate" shall be one share of Common Stock for each share of
Convertible Preferred Stock. In the event the Corporation shall issue any
shares of Class A Common Stock (i) by stock dividend or any other distribution
upon any stock of the Corporation payable in Class A Common Stock or securities
convertible into Class A Common Stock or (ii) its subdivision of its outstanding
Class A Common Stock, by reclassification or otherwise, the Conversion Rate then
in effect shall be increased proportionately, and, in like manner, in the event
of any combination of shares of Class A Common Stock, by reclassification or
otherwise, the Conversion Rate in effect shall be issued upon the conversion of
any Convertible Preferred Stock. With respect to any fraction of a share of a
Convertible Preferred Stock called for upon any conversion (after multiplying
the Conversion Rate in effect by the total number of Conversion Shares, as
defined below), the Corporation shall pay to the holder an amount in cash equal
to such fraction multiplied by the current market value of a share, determined
in good faith by the Board of Directors of the Corporation.
(b) Mechanics of Conversion. Such right of conversion shall be
-----------------------
exercised by the holder of shares of Convertible Preferred Stock by giving prior
written notice to the Corporation (the "Conversion Notice") that such holder
elects to convert a stated number of shares of Convertible Preferred Stock(the
"Conversion Shares") into shares of Class A Common Stock on the date specified
in the Conversion Notice (which date shall not be earlier than the date of the
Conversion Notice), and by surrender of the certificate or certificates
representing such Conversion Shares. The Conversion Notice shall also contain a
statement of the name or names (with addresses) in which the certificate or
certificates for Class A Common Stock shall be issued. Promptly after the
receipt of the Conversion Notice and surrender of the Conversion Shares, the
Corporation shall issue and deliver, or cause to be delivered, to the holder of
the Conversion Shares or his nominee or nominees, a certificate or certificates
for the number of shares of Class A Common Stock issuable upon conversion of
such Conversion Shares. Such conversion shall be deemed to have been effected
as of the close of business on the date specified in the Conversion Notice, and
the person or persons entitled to receive the shares of Class A Common Stock
issuable upon conversion shall be treated for all purposes as the holder of
holders of record of such shares of Class A Common Stock as the close of
business of such date.
(c) Stock Reserved. The Corporation shall at all times reserve and
--------------
keep available out of its authorized but unissued Class A Common Stock, solely
for issuance upon the conversion of shares of Convertible Preferred Stock as
herein provided, such number of shares of Class A Common Stock as shall from
time to time be issuable upon the conversion of all of the shares of Convertible
Preferred Stock at the time outstanding.
(d) Reorganization. If any capital reorganization or
--------------
reclassification of the Class A Common Stock of the Corporation, or
consolidation or merger of the Corporation with
4
<PAGE>
or into another corporation, shall be effected, then, as a condition of such
reorganization, reclassification, consolidation or merger, lawful or adequate
provision shall be made whereby the holders of Convertible Preferred Stock shall
thereafter have the right to receive, in lieu of the shares of Class A Common
Stock of the Corporation immediately theretofore receivable upon the exercise of
the conversion rights, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of outstanding
shares of such Class A Common Stock equal to the number of shares of such Class
A Common Stock immediately theretofore receivable upon the exercise of such
rights had such reorganization, reclassification, consolidation or merger not
taken place, and, in any such case, appropriate provision shall be made with
respect rights and interests of the holders of Convertible Preferred Stock to
the end that such conversion rights (including, without limitation, provisions
for adjustment of Conversion Rate) shall thereafter be applicable, as nearly as
may be practicable in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise thereof. The Corporation shall not
effect any such consolidation or merger to which this paragraph (d) is
applicable, unless prior to or simultaneously with the consummation thereof the
successor corporation (of other than the Corporation) resulting from such
consolidation or merger shall assume by written instrument, executed and mailed
or delivered to the holders of the Convertible Preferred Stock, the obligation
to deliver to such holders such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holders may be entitled to
receive upon conversion of the Convertible Preferred Stock.
(e) Automatic Conversion. Notwithstanding any other provisions of
--------------------
this Section 4:
(i) If the Corporation shall effect a public offering of shares of
Class A Common Stock registered under the Securities Act of 1933 at a price per
share of Class A Common Stock which (A) yields proceeds to the Corporation of at
least $10,000,000 (net of underwriting discounts and commissions) and (B) would
establish an aggregate value for the Corporation's Class A Common Stock
(assuming the conversion of all Convertible Preferred Stock and Class B Common
Stock) outstanding immediately prior to the consummation of such offering of at
least $40,000,000, the Corporation, by action of its Board of Directors, shall
have the right to require that each share of Convertible Preferred Stock be
converted into Class A Common Stock. Following any such action by the Board of
Directors, all outstanding shares of Convertible Preferred Stock shall, by
virtue of, and simultaneously with, the consummation of such transaction and
without any action on the part of the holder thereof, be deemed automatically
converted into the number of fully paid and nonassessable shares of Class A
Common Stock into which such shares of Convertible Preferred Stock are
convertible at such time pursuant to Section 4(a) hereof.
(ii) Upon the approval, set forth in a written notice to the
Corporation, of the holders of at least 75% of the outstanding shares of
Convertible Preferred Stock, of an election to convert the Convertible Preferred
Stock into Class A Common Stock, all outstanding shares of Convertible Preferred
Stock shall be automatically converted into the number of fully paid and
nonassessable shares of Class A Common Stock which such shares of Convertible
Preferred
5
<PAGE>
Stock are convertible on the date of such approval without any further action by
the holders of such shares.
(f) Stock Transfer Taxes. The issue of stock certificates upon
--------------------
conversion of the Convertible Preferred Stock shall be made without charge to
the converting holder for any tax in respect of such issue. The Corporation
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of shares in any name other
than that of the holder of any of the Convertible Preferred Stock converted, and
the Corporation shall not be required to issue or deliver any stock certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
(g) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Rate, 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 Convertible
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Convertible Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth the number of shares of Class A Common Stock and
the amount, if any, of other property which at the time would be received upon
the conversion of Convertible Preferred Stock owned by such holder.
(h) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any shares of Class
A Common Stock or other securities, or any right to subscribe for, purchase or
otherwise acquire, or any option for the purchase of, any shares of stock of any
class or any other securities or property, or to receive any other right, the
Corporation shall mail to each holders of Convertible Preferred Stock at least
thirty (30) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or rights, and the amount and character of such dividend,
distributions or right.
(i) Notices. Any notice required by the provisions of this Section 4
-------
to be given to the holders of shares of Convertible Preferred Stock shall be
deemed given if deposited in the United States mall, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
(5) Negative Covenants.
------------------
In addition to any other rights provided by law, neither the
Corporation nor any subsidiary of the Corporation shall, without first obtaining
the affirmative vote or written consent of the holders of not less than 66-2/3%
of the then outstanding shares of Convertible Preferred Stock:
6
<PAGE>
(a) Amend or repeal any provision, or add any provision to, the
Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, Series A Preferred Stock or the Series
B Preferred Stock;
(b) Authorize or issue any additional shares of any existing class or
series of capital stock or any shares of any new class or series of capital
stock (except for (i) shares of Class A Common Stock upon conversion of shares
of Convertible Preferred Stock and Class B Common Stock and (ii) up to an
aggregate of 400,000 shares of Class A Common Stock pursuant to the NetSelect,
Inc. 1996 Stock Incentive Plan).
(c) Recapitalize or reclassify any class or series of capital stock;
(d) In the case of the Corporation, pay or declare any dividend or
distribution on any shares of its capital stock (except dividends, pursuant to
Section 1(a) above), or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock;
(e) Merge or consolidate with or into any other corporation or other
entity, or sell or otherwise dispose of all or substantially all of its assets;
(f) Provide for any voluntary dissolution, liquidation or winding up;
(g) Effect any material change in its business as such business was
proposed to be conducted or operated on the date this Certificate of Designation
became effective;
(h) Enter into any transaction with any employee, consultant, officer
or director of the Corporation or any subsidiary or holder of 5% of any class of
capital stock of the Corporation, or any member of their respective immediate
families or any corporation or other entity directly or indirectly controlled by
one or more of such employees, consultants, officers, directors or 5%
stockholders or members of their immediate families, on terms less favorable to
the Corporation or the subsidiary than it would obtain in a transaction between
unrelated parties.
(6) Purchase Rights.
---------------
If at any time the Corporation grants, issues or sells any options,
securities convertible into Class A Common Stock or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of Class A
Common Stock (the "Purchase Rights"), then each holder of Convertible Preferred
Stock will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Class A Common Stock acquirable
upon conversion of such holder's Convertible Preferred Stock immediately before
the date on which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is
7
<PAGE>
taken, the date as of which the record holders of Class A Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
IN WITNESS WHEREOF, the undersigned, acting for an on behalf of the
Corporation, has hereunto subscribed his name on this 26/th/ day of November,
1996.
NETSELECT, INC.
/s/ Stuart Wolff
_____________________________________
Name: Stuart Wolff, Ph.D.
Title: Chief Executive Officer
8
<PAGE>
CERTIFICATE OF INCORPORATION
OF
NETSELECT, INC.
THE UNDERSIGNED, in order to form a corporation for the purposes
herein stated, under and pursuant to the provisions of the General Corporation
Law of the State of Delaware, does hereby certify as follows:
FIRST: The name of the corporation is NetSelect, Inc.(hereinafter
called the "Corporation").
SECOND: The registered office of the Corporation is to located at 15
East North Street in the City of Dover, in the County of Kent, in the State of
Delaware. The name of its registered agent at that address if United Corporate
Services, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity, without limitation, for which a corporation may be organized under
the General Corporation Law of the State of Delaware.
FOURTH: The aggregate number of shares of all classes of stock which
the Corporation is authorized to issue is One Thousand (1,000) shares,
designated Common Stock, of the par value of $0.001 per share.
<PAGE>
FIFTH: The name and mailing address of the incorporator is:
NAME ADDRESS
---- -------
George S. Vanarthos c/o Battle Fowler LLP
75 East 55/th/ Street
New York, New York 10022
SIXTH: The election of directors need not be by written ballot unless
the By-laws so provide.
SEVENTH: The Board of Directors of the Old Common Stock is authorized
and empowered from time to time in its discretion to make, alter, amend or
repeal By-laws of the Corporation, except as such power may be restricted or
limited by the General Corporation Law of the State of Delaware.
EIGHTH: No director of the Corporation shall be 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 involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit.
NINTH: The Corporation shall, to the fullest extent permitted by the
provisions of 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 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 any By-
2
<PAGE>
law, 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.
TENTH: Approval by 6/7 of the Board of Directors of the Corporation
shall be required on the following actions:
i. Mergers, consolidations, reorganizations, recapitalizations, or sales
of all or substantially all of the assets of the Corporation, or any
similar transactions; and
ii. Any change in the business purpose of the Corporation.
ELEVENTH: Approval by 66-2/3% of the stockholders of the Corporation
shall be required on the following actions:
Mergers, consolidations, reorganizations, recapitalizations, or sales
of all or substantially all of the assets of the Corporation, or any
similar transactions.
IN WITNESS WHEREOF, I have hereunto set my hand the 25/th/ day of
October, 1996.
/s/ George S. Vanarthos
__________________________________________
George S. Vanarthos, Sole Incorporator
75 East 55/th/ Street
New York, New York 10022
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EXHIBIT E
B Y - L A W S
OF
NETSELECT, INC.
(a Delaware corporation)
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ARTICLE I
OFFICES
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SECTION 1. OFFICES. The Corporation shall maintain its registered
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office in the State of Delaware at 15 North East Street, in the City of Dover,
in the County of Kent, and its resident agent at such address is United
Corporate Services, Inc. The Corporation may also have offices in such other
places in the United States or elsewhere as the Board of Directors may, from
time to time, appoint or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
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SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
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election of directors and for such other business as may properly be conducted
at such meeting shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors shall determine
by resolution and set forth in the notice of the meeting. In the event that the
Board of Directors fails to so determine the time, date and place
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for the annual meeting, it shall be held, beginning in March 1997, at the
principal office of the Corporation at 10 o'clock A.M. on the last Friday in
March of each year.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders,
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unless otherwise prescribed by statute, may be called by the Chairman of the
Board and shall be called by the Chief Executive Officer or Secretary upon the
direction of the Board of Directors or the written request of not less than 10%
in interest of the stockholders entitled to vote thereat. Notice of each
special meeting shall be given in accordance with Section 3 of this Article II.
Unless otherwise permitted by law, business transacted at any special meeting of
stockholders shall be limited to the purpose stated in the notice.
SECTION 3. NOTICE OF MEETINGS. Whenever stockholders are required or
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permitted to take any action at a meeting, a written notice of the meeting,
which shall state the place, date and time of the meeting, and, in the case of a
special meeting, the purposes for which the meeting is called, shall be mailed
to or delivered to each stockholder of record entitled to vote thereat. Such
notice shall be given not less than ten (10) days nor more than sixty (60) days
before the date of any such meeting.
SECTION 4. QUORUM. (a) At each meeting of the stockholders, except
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where otherwise provided by law, the Certificate of Incorporation or these By-
Laws, the holders of record of a majority in voting power of the issued and
outstanding shares of stock of the Corporation entitled to vote at such meeting,
present in person or represented by proxy, shall be required to constitute a
quorum for the transaction of business. Where a separate vote by class or
classes or one or more series of a class or classes of stock is required by law
or the Certificate of Incorporation for any matter, the holders of a majority in
voting power of the issued and outstanding shares of each such class or classes
or one or more series of a class or classes entitled
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to vote, present in person or represented by proxy, shall be required to
constitute a quorum with respect to a vote on that matter, except that where the
unanimous affirmative vote or written consent of all of the holders of the
outstanding shares of a class or classes of stock is required by the Certificate
of Incorporation with respect to any matter, all of the holders of the
outstanding shares of such class or classes entitled to vote, present in person
or by proxy, shall be required to constitute a quorum with respect to a vote on
that matter. For purposes of these By-Laws, the term "total voting power" shall
mean, (a) in the case of matters which do not require a separate vote by class
or classes or one or more series of a class or classes of stock, the aggregate
number of votes which all of the shares of stock, excluding the votes of shares
of stock having such entitlement only upon the happening of a contingency, would
be entitled to cast on any such matter, if all such shares of stock were present
at a meeting of the Corporation's stockholders for the purpose of stockholder
action on such matter, and (b) in the case of matters which do require a
separate vote by class or classes or one or more series of a class or classes of
stock, the aggregate number of votes which all of the shares of such class or
classes or one or more series of a class or classes of stock, excluding the
votes of shares of stock having such entitlement only upon the happening of a
contingency, would be entitled to cast on any such matter, if all of the shares
of such class or classes or one or more series of a class or classes of stock
were present and voted at a meeting of the Corporation's stockholders for the
purpose of stockholder action on such matter.
(b) In the absence of a quorum at any annual or special meeting of
stockholders, a majority in total voting power of the shares of stock entitled
to vote, or in the case of matters requiring a separate vote by any class or
classes or one or more series of a class or classes of stock, a majority in
total voting power of the shares of each such class or classes or one of more
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series of a class or classes entitled to vote, present in person or represented
by proxy or, in the absence of all such stockholders, any person entitled to
preside at or act as secretary of such meeting, shall have the power to adjourn
the meeting from time to time, if the date, time and place thereof are announced
at the meeting at which the adjournment is taken. At any such adjourned meeting
at which a quorum shall be present, any business may be transacted which might
have been transacted at the meeting as originally called. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
SECTION 5. VOTING. (a) Except as otherwise provided by law or by
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the Certificate of Incorporation or these By-Laws, at every meeting of the
stockholders, in the case of any written consent of stockholders, and for all
other purposes, each holder of record of shares of (x) Class A Common Stock, par
value $.001 per share (the "Class A Common Stock"), on the relevant record date
shall be entitled to one (1) vote for each share of Class A Common Stock
standing in such person's name on the stock transfer records of the Corporation,
(y) Class B Common Stock, par value $.001 per share (the "Class B Common
Stock"), shall have no voting rights, and shall not be entitled to vote such
shares of Class B Common Stock standing in such person's name on the stock
transfer records of the Corporation on any matters, and (z) each of the Series A
Convertible Preferred Stock, par value $0.001 per share (the "Series A Preferred
Stock"), and Series B Convertible Preferred Stock, par value $0.001 per share
(the "Series B Preferred Stock," and, together with the Series A Preferred
Stock, the "Preferred Stock"), shall be entitled to the number of votes equal to
the number of shares of Class A Common Stock into which such shares of Preferred
Stock could be converted.
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(b) Unless otherwise provided in the Certificate of Incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder. Upon the request of not less than 10% in interest of
the stockholders entitled to vote at a meeting, voting shall be by written
ballot. Unless otherwise required by law, the vote of a majority of the
outstanding shares, present in person or represented by proxy and entitled to
vote on the subject matter, at a meeting at which a quorum is present shall
constitute the act of the stockholders.
(c) At all meetings of the stockholders at which a quorum is present,
except as otherwise provided by law or by the Certificate of Incorporation or
these By-Laws, all actions shall be decided by the affirmative vote of not less
than 66-2/3% of the total voting power of all of the issued and outstanding
shares of NetSelect Class A Common Stock and the Preferred Stock, voting as a
single class, at a meeting at which a quorum is present, shall be required to
constitute the act of the stockholders on any actions permitted pursuant to the
General Corporation Law of Delaware.
SECTION 6. CHAIRMAN OF MEETINGS. The Chairman of the Board of
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Directors of the Corporation, or, in his absence or disability, the Chief
Executive Officer of the Corporation, shall preside at all meetings of the
stockholders.
SECTION 7. SECRETARY OF MEETING. The Secretary of the Corporation
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shall act as Secretary at all meetings of the stockholders. In the absence or
disability of the Secretary, the Chairman of the Board of Directors or the Chief
Executive Officer shall appoint a person to act as Secretary at such meetings.
SECTION 8. ACTION WITHOUT MEETING. Unless otherwise provided by the
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Certificate of Incorporation, any action required by law to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
such meetings, may be taken
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without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote were present and voted. Every written consent shall
bear the date of signature of each stockholder who signs the consent. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
SECTION 9. ADJOURNMENT. At any meeting of stockholders of the
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Corporation, if less than a quorum be present, a majority of the stockholders
entitled to vote thereat, present in person or by proxy, shall have the power to
adjourn the meeting from time to time without notice other than announcement at
the meeting until a quorum shall be present. Any business may be transacted at
the adjourned meeting which might have been transacted at the meeting originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
ARTICLE III
BOARD OF DIRECTORS
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SECTION 1. POWERS. The business and affairs of the Corporation shall
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be managed by or under the direction of its Board of Directors. The Board shall
exercise all of the powers and duties conferred by law except as provided by the
Certificate of Incorporation or these By-Laws.
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SECTION 2. NUMBER AND TERM. The number of directors shall be fixed
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at four. The Board of Directors shall be elected by the stockholders at their
annual meeting, and each director shall be elected to serve for the term of one
year and until his successor shall be elected and qualified or until his earlier
resignation or removal. Directors need not be stockholders.
SECTION 3. RESIGNATIONS. Any director may resign at any time. Such
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resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time is specified, at the time of its receipt by
the Chief Executive Officer or Secretary. The acceptance of A resignation shall
not be necessary to make it effective.
SECTION 4. REMOVAL. Any director or the entire Board of Directors
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may be removed at any time by the affirmative vote of not less than 66-2/3% of
the total combined voting power of all of the issued and outstanding shares of
Class A Common Stock and Preferred Stock, voting as a single class.
SECTION 5. MEETINGS. The newly elected directors shall hold their
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first meeting to organize the Corporation, elect officers and transact any other
business which may properly come before the meeting. An annual organizational
meeting of the Board of Directors shall be held immediately after each annual
meeting of the stockholders, or at such time and place as may be noticed for the
meeting.
Regular meetings of the Board may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors; provided however, that at least one regular meeting of the Board of
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Directors shall be held every three months.
Special meetings of the Board shall be called by the Chief Executive
Officer, the Chairman or by the Secretary on the written request of any director
with at least two days' notice
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to each director and shall be held at such place as may be determined by the
directors or as shall be stated in the notice of the meeting.
SECTION 6. QUORUM, VOTING AND ADJOURNMENT. A majority of the total
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number of directors or any committee thereof shall constitute a quorum for the
transaction of business. Unless otherwise required by law, the affirmative vote
by at least 66-2/3 of the entire Board of Directors shall be the act of the
Board of Directors. In the absence of a quorum, a majority of the directors
present thereat may adjourn such meeting to another time and place. Notice of
such adjourned meeting need not be given if the time and place of such adjourned
meeting are announced at the meeting so adjourned.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution
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passed as provided in Section 6 of this Article III, designate one or more
committees, including, but not limited to, an Executive Committee and an Audit
Committee, each such committee to consist of two or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee to replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in
the resolution of the Board, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority to amend the Certificate of Incorporation, adopt an agreement
of merger or consolidation, recommend to the
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stockholders the sale, lease, or exchange of all or substantially all of the
Corporation's properties and assets, recommend to the stockholders a dissolution
of the Corporation or a revocation of a dissolution or to amend these By-Laws.
No such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock of the Corporation or to adopt a certificate of
ownership and merger. All committees of the Board shall keep minutes of their
meetings and shall report their proceedings to the Board when requested or
required by the Board.
SECTION 8. ACTION WITHOUT A MEETING. Unless otherwise restricted by
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the Certificate of Incorporation, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board or any committee thereof, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or such committee, as the
case may be.
SECTION 9. COMPENSATION. The Board of Directors shall have the
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authority to fix the compensation of directors for their services. A director
may also serve the Corporation in other capacities and receive compensation
therefor.
SECTION 10. TELEPHONIC MEETING. Unless otherwise restricted by the
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Certificate of Incorporation, members of the Board, or any committee designated
by the Board, may participate in a meeting by means of conference telephone or
similar communications equipment in which all persons participating in the
meeting can hear each other. Participation in a meeting by means of conference
telephone or similar communications equipment shall constitute the presence in
person at such meeting.
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ARTICLE IV
OFFICERS
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SECTION 1. The officers of the Corporation shall include a Chief
Executive Officer, Chief Operating Officer and a Secretary, each of whom shall
be elected by the Board of Directors and who shall hold office for a term of one
year and until their successors are elected and qualify or until their earlier
resignation or removal. In addition, the Board of Directors may elect one or
more Vice Presidents and a Chief Financial Officer, who shall hold their office
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors. The initial officers
shall be elected at the first meeting of the Board of Directors and, thereafter,
at the annual organizational meeting of the Board held after each annual meeting
of the stockholders. Any number of offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may
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appoint such other officers and agents as it deems advisable, who shall hold
their respective office for such terms and shall exercise and perform such
powers and duties as shall be determined from time to time by the Board of
Directors.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board of
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Directors shall, if present, preside at all meetings of the Board and exercise
and perform such other powers and duties as maybe from time to time assigned to
him by the Board.
SECTION 4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
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shall be subject to the supervision, control and annual review of the
stockholders and the Board of Directors have general supervision, direction and
control of the business and affairs of the
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Corporation. The Chief Executive Officer shall preside at all meetings of the
stockholders of the Corporation and, in the absence of the Chairman of the
Board, at all meetings of the Board.
SECTION 5. CHIEF OPERATING OFFICER. Subject to such supervisory
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powers, if any, as may be given by the Board to the Chairman of the Board and
the Chief Executive Officer, the Chief Operating Officer shall, subject to the
control of the Board and the Chairman, have general supervision, direction and
control of the business and officers of the Corporation. The Chief Operating
Officer shall have such other powers and duties as may be from time to time
prescribed to him by the Board.
SECTION 6. PRESIDENT. Subject to such supervisory powers, if any, as
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may be given by the Board to the Chairman of the Board and the Chief Executive
Officer, the President shall, subject to the control of the Board, have general
supervision, direction and control of the business and the officers of the
Corporation (other than the Chairman and Chief Executive Officer). The
President shall preside at all meetings of the stockholders of the Corporation
in the absence of the Chairman and the Chief Executive Officer, and, in the
absence of the Chairman and the Chief Executive Officer, at all meetings of the
Board. The President shall have the general powers and duties of management
usually vested in the office of president and general manager of a corporation,
and shall have such other powers and duties as may be prescribed by. the Board.
SECTION 7. VICE PRESIDENT. In the absence or disability of the
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Chairman, the Chief Executive Officer, the Chief Operating Officer and the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board, or, if not ranked. the Vice President designated by the Board shall
perform all the duties of such officer and when so acting shall have all the
powers of, and be subject to all the restrictions upon, such offices. The Vice
Presidents
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shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board, the Chief Executive
Officer or the President.
SECTION 8. SECRETARY. The Secretary shall be the Chief
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Administrative Officer of the Corporation and shall: (a) cause minutes of all
meetings of the stockholders and directors to be recorded and kept; (b) cause
all notices required by these By-Laws or otherwise to be given properly; (c) see
that the minute books, stock books, and other nonfinancial books, records and
papers of the Corporation are kept properly; and (d) cause all reports,
statements, returns, certificates and other documents to be prepared and filed
when and as required. The Secretary shall have such further powers and perform
such other duties as prescribed from time to time by the Board.
SECTION 9. CORPORATE FUNDS AND CHECKS. The funds of the Corporation
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shall be kept in such depositories as shall from time to time be prescribed by
the Board of Directors. All checks or other orders for the payment of money
shall be signed by the Chief Executive Officer, Chairman or the Chief Operating
Officer or such other person or agent as may from time to time be authorized and
with such countersignature, if any, as may be required by the Board of
Directors.
SECTION 10. CONTRACTS AND OTHER DOCUMENTS. The Chief Executive
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Officer, Chairman or Chief Operating Officer, or such other officer or officers
as may from time to time be authorized by the Board of Directors or any other
committee given specific authority in the premises by the Board of Directors
during the intervals between the meetings of the Board of Directors, shall have
power to sign and execute on behalf of the Corporation deeds, conveyances and
contracts, and any and all other documents requiring execution by the
Corporation.
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SECTION 11. OWNERSHIP OF STOCK OF ANOTHER CORPORATION. The Chief
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Executive Officer, Chairman or the Chief Operating Officer, or such other
officer or agent as shall be authorized by the Board of Directors, shall have
the power and authority, on behalf of the Corporation, to attend and to vote at
any meeting of stockholders of any corporation in which the Corporation holds
stock and may exercise, on behalf of the Corporation, any and all of the rights
and powers incident to the ownership of such stock at any such meeting,
including the authority to execute and deliver proxies and consents on behalf of
the Corporation.
SECTION 12. DELEGATION OF DUTIES. In the absence, disability or
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refusal of any officer to exercise and perform his duties, the Board of
Directors may delegate to another officer such powers or duties.
SECTION 13. RESIGNATION AND REMOVAL. Any officer of the Corporation
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may be removed from office for or without cause at any time by the Board of
Directors. Any officer may resign at any time in the same manner prescribed
under Section 3 of Article III of these By-Laws.
SECTION 14. VACANCIES. The Board of Directors shall have power to
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fill vacancies occurring in any office.
ARTICLE V
STOCK
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SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
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Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation by, the Chairman of the Board, the Chief Executive Officer, the
Chief Operating Officer, or a Vice President and by the Secretary, certifying
the number and class of shares of stock in the
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Corporation owned by him. Any or all of the signatures on the certificate may be
a facsimile. The Board of Directors shall have the power to appoint one or more
transfer agents and/or registrars for the transfer or registration of
certificates of stock of any class, and may require stock certificates to be
countersigned or registered by one or more of such transfer agents and/or
registrars.
SECTION 2. TRANSFER OF SHARES. Shares of stock of the Corporation
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shall be transferable upon its books by the holders thereof, in person or by
their duly authorized attorneys or legal representatives, upon surrender to the
Corporation by delivery thereof to the person in charge of the stock and
transfer books and ledgers. Such certificates shall be cancelled and new
certificates shall thereupon be issued. A record shall be made of each transfer.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented, both the transferor and transferee request the
Corporation to do so. The Board shall have power and authority to make such
rules and regulations as it may deem necessary or proper concerning the issue,
transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 3. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. A new
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certificate of stock may be issued in the place of any certificate previously
issued by the Corporation, alleged to have been lost, stolen -or destroyed, and
the Board of Directors may, in their discretion, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to give the
Corporation a bond, in such sum as the Board may direct, not exceeding double
the value of the stock, in order to indemnify the Corporation against any claims
that may be made against it in connection therewith. A new certificate of stock
may be issued in the place of any certificate previously issued by the
Corporation which
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has become mutilated without the posting by the owner of any bond upon the
surrender by such owner of such mutilated certificate.
SECTION 4. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The stock ledger
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shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Delaware General Corporation Law (S) 219
or the books of the Corporation, or to vote in person or by proxy at any meeting
of stockholders.
SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate
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of Incorporation, the Board of Directors may at any regular or special meeting,
declare dividends upon the stock of the Corporation either (i) out of its
surplus, as defined in and computed in accordance with Delaware General
Corporation Law (S) 154 and (S) 244 or (ii) in case there shall be no such
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Before the declaration of any
dividend, the Board of Directors may set apart, out of any funds of the
Corporation available for dividends, such sum or sums as from time to time in
their discretion may be deemed proper for working capital or as a reserve fund
to meet contingencies or for such other purposes as shall be deemed conducive
to-the interests of the Corporation.
ARTICLE VI
NOTICE AND WAIVER OF NOTICE
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SECTION 1. NOTICE. Whenever any written notice is required to be
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given by law, -the Certificate of Incorporation or these By-Laws, such notice,
if mailed, shall be deemed to be given when deposited in the United States mail,
postage prepaid, addressed to the person entitled to such notice at his address
as it appears on the books and records of the Corporation.
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SECTION 2. WAIVER OF NOTICE. Whenever notice is required to be given
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by law, the Certificate of Incorporation or these By-Laws, a written waiver
thereof signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any meeting of the stockholders, directors, or members of a
committee of the Board need be specified in any written waiver of notice.
ARTICLE VII
AMENDMENT OF BY-LAWS
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SECTION 1. AMENDMENTS. These By-Laws may be amended or repealed, or
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new By-Laws may be adopted by the affirmative vote of at least three-fifths
(3/5) of the entire Board of Directors.
ARTICLE VIII
SECTION 1. SEAL. The seal of the Corporation shall be circular in
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form and shall have the name of the Corporation on the circumference and the
jurisdiction and year of incorporation in the center.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall
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end on December 31 of each year, or such other twelve consecutive months as the
Board of Directors may designate.
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SECTION 3. INDEMNIFICATION. Any person who was or is a party or is
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threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation), by reason of the
fact that he is or was a director, officer or employee of the Corporation, or is
or was serving at the request of the Corporation as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the Corporation to the fullest extent
permitted by law against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith. and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not, of itself, create a
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presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer or employee of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in
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connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless. and only to the extent
that the Court of Chancery of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery of Delaware, or such other court shall deem proper.
Any indemnification pursuant to this Article VIII (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer or employee
is proper in the circumstances because he has met the applicable standard of
conduct set forth in this Article VIII. Such determination shall be made (i) by
a majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders.
SECTION 4. ADVANCE OF EXPENSES. Expenses (including attorneys' fees)
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incurred by an officer, director, or employee in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking satisfactory to the Board of Directors
by or on behalf of such director, officer or employee to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VIII.
18
<PAGE>
SECTION 5. REMEDIES NOT EXCLUSIVE. The indemnification and
----------------------
advancement of expenses provided by this Article VIII shall not be deemed
exclusive of any other rights to which those seek in indemnification or
advancement of expenses may be entitled under any by-law, 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, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer or employee and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 6. INSURANCE. The Corporation may purchase and maintain
---------
insurance, at its expense, to protect itself and any director, officer or
employee of the Corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
Date of Adoption: November 26, 1996
19
<PAGE>
Exhibit F
---------
FORM OF SUBSCRIPTION AGREEMIENT
This SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of _________,
1996, is made by and between (the "Subscriber"), and NetSelect, Inc., a Delaware
corporation (the "Corporation").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the capitalization of the Corporation consists of (x)
35,000,000 shares of NetSelect Class A Common Stock, par value $0.001 per share
(the "NetSelect Class A Common Stock"); (y) 10,000,000 shares of NetSelect Class
B Common Stock, par value $0.001 per share (the "NetSelect Class B Common
Stock"); and (z) 5,000,000 shares of Preferred Stock, par value $0.001 per share
(the "Preferred Stock"), of which 1,647,059 shares of Preferred Stock have been
designated as Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), and 352,941 shares of Preferred Stock have been designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock"); and
WHEREAS, the Subscriber desires to acquire an equity interest in the
Corporation, representing of the issued and outstanding shares of Series A
Preferred Stock, of which _______ shares (the "Initial Shares") of Series A
Preferred Stock shall be purchased. by the Subscriber on the closing date of the
transactions contemplated by that certain Stock and Interest Purchase Agreement,
dated as of the date hereof, by and among NetSelect, Inc., NetSelect, L.L.C. and
InfoTouch Corporation, and of which shares (the "Remaining Shares," and together
with the Initial Shares, the "Subscription Shares") of Series A Preferred Stock
shall be purchased by the Subscriber on February 1, 1997, in consideration of a
capital contribution by the Subscriber to the Corporation in the amount of
$_______.
NOW, THEREFORE, in consideration of these premises, the mutual
covenants and agreements contained in this Agreement, and in reliance upon the
representations and warranties and covenants set forth herein, the Subscriber
hereby agrees with the Corporation as follows:
SECTION 1. CAPITALIZATION OF PARTNERSHIP.
- ----------------------------------------
1.1. "Subscriptions. The Subscriber hereby subscribes for the
-------------
Subscription Shares.
<PAGE>
1.2. Contribution of Cash. The Subscriber shall purchase from the
--------------------
Corporation, (x) on the date hereof, the Initial Shares for a cash payment in an
amount equal to $________ (the "First Payment") and (y) on February 1, 1997, the
Remaining Shares for a cash payment in an amount equal to $_______ (the 'Second
Payment.' and together with the First Payment, the 'Contribution Amount').
1.3. The Closing. The Closing of the transactions contemplated by
-----------
Section 1.1 and Section 1.2 hereof (the "Closing") shall take place on December
4, 1996 (the "Closing Date") at the offices of Battle Fowler LLP, Park Avenue
Tower, 75 East 55th Street, New York, New York 10022.
1.4. Deliveries at the Closing.
-------------------------
(a) Deliveries at Closing the Corporation. At the Closing, the
-------------------------------------
Corporation shall deliver to the Subscriber the following Stock certificates
representing the duly authorized, validly issued, fully paid and nonassessable
Subscription Shares.
(b) Deliveries at Closing by the Subscriber. At the Closing, the
---------------------------------------
Subscriber shall deliver by wire transfer in immediately available funds the
Contribution Amount.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER.
- -----------------------------------------------------------
2.1. The Subscriber hereby represents and warrants to, and covenants
with the Corporation as follows:
(i) The Subscriber is purchasing the Subscription Shares for its own
account and not on behalf of any other person, group or entity, the Subscriber
is aware and acknowledges that the Subscription Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold unless the Subscription Shares are registered under the
Securities Act or an exemption from the registration requirements of the
Securities Act is available;
(ii) The Subscriber has had a reasonable opportunity to ask questions
of and receive answers from the Corporation concerning the Corporation and the
Subscription Shares, and all such questions, if any, have been answered to the
full satisfaction of the Subscriber;
(iii) No person or entity other than the Subscriber has any rights in
and to the Subscription Shares or any right to acquire the Subscription Shares;
(iv) The Subscriber has such knowledge and expertise in financial and
business matters that the Subscriber is capable of evaluating the merits and
risks involve in an investment in the Subscription Shares; and the Subscriber is
financially able to bear the economic risk of the investment in the Subscription
Shares, including a total loss of such investment,
2
<PAGE>
(v) The Subscriber is purchasing the Subscription Shares for
investment, with no present intention of dividing or allowing others to
participate in the investment or of reselling, or otherwise participating
directly or indirectly, in a distribution of the Subscription Shares, and shall
not make any sale, transfer or pledge thereof without registration under the
Securities Act and any applicable securities laws of any state or unless an
exemption from registration is available;
(vi) The Subscriber understands that the Subscription Shares are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities law and
that the Corporation is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Subscriber set forth herein in order to determine the applicability of such
exemptions and the suitability of Subscriber to acquire the Subscription Shares;
and
(vii) The Subscriber expressly acknowledges and agrees that the
Corporation is relying upon the Purchaser's representations contained in this
Agreement.
SECTION 3. MISCELLANEOUS.
- ------------------------
3.1. Fees and Ex2Snses. Except as expressly provided herein each of
-----------------
the parties hereto shall each pay all of their own costs and expenses, including
any and all legal and accounting fees, incident to the negotiation, execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby whether or not such transactions shall be consummated.
3.2. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
3.3. Binding Effect. All of the terms of this Agreement shall be
-------
binding upon the respective personal representatives, heirs and successors of
the parties hereto and shall inure to the benefit of and be enforceable by the
parties hereto and their respective personal representatives, heirs and
successors.
3.4. Assignment. Neither this Agreement nor any right or interest
----------
hereunder may be assigned in whole or in part by any party without the prior
written consent of the other parties.
3.5. Entire Agreement and Amendment. This Agreement contains the
------------------------------
entire agreement between the parties hereto with respect to the subject matter
hereof. No change, modification, extension, termination, notice of termination,
discharge, abandonment or waiver of this Agreement or any of the provisions
hereof, nor any representations, promise or condition relating to this
Agreement, shall be binding upon the parties hereto unless made in writing and
signed by the parties hereto.
3.6. Captions. The captions of Sections hereof are for convenience
--------
only and shall not control or affect the meaning or construction of any of the
provisions of this Agreement.
3
<PAGE>
3.7. Notices. All notices or other communications to be given or made
-------
hereunder shall be in writing and shall be deemed given when delivered
personally or mailed, by registered or certified mail, return receipt requested,
postage prepaid, or overnight delivery, to the parties hereto, as the case may
be, at the respective addresses set forth on the signature pages hereto.
3.8. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Delaware as applied to
residents of that State executing contracts wholly to be performed in that
State. The Investor hereby expressly submits to the jurisdiction of all federal
and state courts located in the State of Delaware and consents that any process
or notice of motion or other application to any of said courts or a judge
thereof may be served within or without such court's jurisdiction by registered
mail or by personal service, provided a reasonable time for appearance is
allowed. The Investor also waives any claim that Delaware is an inconvenient
forum.
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date and year first above written.
[SUBSCRIBER]
By: _______________________________
Name:
Title:
NETSELECT, INC.
By: _______________________________
Name: Stuart Wolff
Title: Chief Executive Officer
Exhibit G
---------
FORM OF INVESTOR REPRESENTATION LETTER
__________, 1996
NetSelect, Inc.
5655 Lindero Canyon Road Suite 106
Westlake Village, CA 91362
Gentlemen:
1. Representations and Warranties. The undersigned investor
------------------------------
("Investor" or the "undersigned") understands that the offering of shares
pursuant to the Subscription Agreement (as hereinafter defined) is intended to
be exempt from registration under the Securities Act of 1933 as amended, and the
regulations thereunder (the `Securities Act"), by virtue of Section 4(2) of the
Securities Act, and the undersigned hereby acknowledges, represents and warrants
to, and agrees with, the Corporation (as hereinafter defined) as follows:
5
<PAGE>
(i) The offering hereto is being made pursuant to that Subscription
Agreement, dated as of the date hereof (the "Subscription
Agreement'", by and between the Investor and NetSelect, Inc., a
Delaware corporation (the "Corporation'), pursuant to which the
Investor has subscribed to purchase __________ shares of the
Corporation's Series A Convertible Preferred Stock, par value
$0.001 per share (the "Shares"). There is currently no public
or other market for the Corporation's securities, and none is
expected to develop.
(ii) The Investor and/or the Investor's advisor(s) has/have had a
reasonable opportunity to ask questions of and receive answers
from a person or persons acting on behalf of the Corporation
concerning the Stock Purchase Agreement, and all such questions
have been answered to the reasonable satisfaction of the
Investor.
(iii) The Investor is not investing in -the Corporation as a result
of or subsequent to any advertisement, article, notice, or
other communication published in any newspaper, magazine, or
similar media or broadcast over television or radio, or
presented at any seminar or meeting, or any solicitation of an
investment by a person other than a representative of the
Corporation with which the Investor had a preexisting
relationship, in connection with investments in securities
generally.
(iv) The Investor has adequate means of providing for the Investor's
current financial needs and contingencies, is able to bear the
economic risks of an investment in the Corporation for an
indefinite period of time, has no need for liquidity in such
investment, and, at the present time, could afford a complete
loss of such investment.
(v) The Shares have not been registered under the Securities Act or
under the securities laws of certain states. The Investor
represents that the Investor is purchasing the Shares for the
undersigned's own account, for investment and not with a view
to resale or distribution except in compliance with the
Securities Act. The Investor is aware that an exemption from
the registration requirements of the Securities Act pursuant to
Rule 144 promulgated thereunder is not presently available, and
that the Corporation has no obligation to make available an
exemption from the registration requirements pursuant to such
Rule 144 or any successor rule for resale of the Shares.
(vi) The Investor acknowledges that the representations, warranties,
and agreements of the Investor contained herein will be relied
upon by the Corporation as a basis for the exemption of the
issuance of the Shares from the registration requirements of
the Securities Act and applicable
6
<PAGE>
state securities laws and shall survive the execution and
delivery of this Letter and the purchase of the Shares.
(vii) The Investor is either (A) an "accredited investor" as such
term is defined in the rules promulgated under the Securities
Act; or (B) has such knowledge and experience in business and
financial matters as to be capable of evaluating the merits and
risks of an investment in the Shares to be received pursuant to
the Stock Purchase Agreement (the "Stock Purchase Shares") and
has the capacity to protect its own interest in connection with
the acquisition of the Stock Purchase Shares.
(viii) The Investor agrees not to sell, transfer or assign the Stock
Purchase Shares, or any interest therein (collectively,
"Transfer"), except pursuant to an effective registration
statement under the Securities Act or unless the Corporation
shall have received a written opinion of counsel, in form and
substance reasonably satisfactory to the Corporation, to the
effect that the Transfer may be effected without registration
under the Securities Act; as a further condition to any such
Transfer, except in the event that such Transfer is made
pursuant to an effective registration statement under the
Securities Act, if in the reasonable opinion of the
Corporation's counsel any Transfer of the Stock Purchase Shares
by the contemplated transferee thereof would not be exempt from
the registration and prospectus delivery requirements of the
Securities Act, the Corporation may require the contemplated
transferee to furnish it with an investment letter,
substantially similar to this Letter, to insure compliance by
such transferee with the Securities Act.
(ix) The Investor understands and agrees that the following
statement will be affixed as a legend on all certificates
representing the Stock Purchase Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER
THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR
THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE ISSUER, IS AVAILABLE.
7
<PAGE>
2. Binding Effect. The undersigned hereby acknowledges and agrees that
--------------
this Letter shall survive the death or disability of the undersigned and shall
be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and permitted
assigns.
3. Modification. Neither this Letter nor any provisions hereof shall be
------------
waived, modified, discharged, or terminated except by an instrument in writing
signed by the party against whom any such waiver, modification, discharge or
termination is sought.
4. Notices. Any notice or other communication required or permitted to
-------
be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given (a) if to the undersigned, at the address set forth above,
Attention: ___________; with a copy to _____________; and with a copy to Battle
Fowler LLP, Park Avenue Tower, 75 East 55th Street, New York, New York 10022,
Attention: Charles H. Baker, Esq., or (b) if to the Corporation, at the address
set forth above; and with a copy to Battle Fowler LLP, Park Avenue Tower, 75
East 55th Street, New York, New York 10022, Attention: Charles H. Baker, Esq.
(or, in either case, to such other address as the part), shall have furnished in
writing in accordance with the provisions of this Section 4). Any notice or
other communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof.
5. Assignability. This Letter and the rights and obligations hereunder
-------------
are not transferable or assignable by the undersigned.
6. Applicable Law. This Letter shall be governed by and construed in
----------
accordance with the laws of the State of Delaware as applied to residents of
that State executing contracts wholly to be performed in that State. The
Investor hereby expressly submits to the jurisdiction of all federal and state
courts located in the State of Delaware and consents that any process or notice
of motion or other application to any of said courts or a judge thereof may be
served within or without such court's jurisdiction by registered mail or by
personal service, provided a reasonable time for appearance is allowed. The
Investor also waives any claim that Delaware is an inconvenient forum.
7. Counterparts. This Letter may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall be deemed to be one and the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement this
____ day of _________, 1996.
_________________________________________
Signature of Investor
_________________________________________
Social Security Number
Address:
ACCEPTED AND AGREED:
NETSELECT,INC.
By:______________________________
Name: Stuart Wolff, Ph.D.
Title: Chief Executive Officer
Dated: __________, 1996
9
<PAGE>
EXHIBIT H
INFOTOUCH STOCKHOLDER AGREEMENT
-------------------------------
This Agreement (this "Agreement"), dated as of the th day of December
1996, is entered into by and between InfoTouch Corporation, a Delaware
corporation ("InfoTouch"), and the undersigned, a stockholder of InfoTouch (the
"Stockholder" and collectively with all other stockholders of InfoTouch who sign
a substantially identical agreement, the "Stockholders").
WHEREAS, InfoTouch has entered into that certain Stock and Interest
Purchase Agreement (the "Stock and Interest Purchase Agreement"), dated as of
November 26, 1996, by and among InfoTouch, NetSelect, Inc., a Delaware
corporation ("NetSelect" or the "Corporation"), and NetSelect, L.L.C., a
Delaware limited liability company ("NS LLC");
WHEREAS, NetSelect and its stockholders, as well as InfoTouch, have
entered into that certain NetSelect, Inc, Stockholders Agreement, dated as of
November 26, 1996 (the "NetSelect Stockholders Agreement"), pursuant to which
Realtors Information Network, Inc., an Illinois corporation ("RIN"), was granted
(as a third party beneficiary) the right to approve certain transfers of
NetSelect's capital stock (the "RIN Approval Rights"), which RIN Approval Rights
are substantially identical to the rights granted to RIN pursuant to Article 1
below; and
WHEREAS, as an inducement and condition to NetSelect entering into the
Stock and Interest Purchase Agreement, InfoTouch has agreed to use its best
efforts to cause as many stockholders of InfoTouch (but, in any event, not less
than a majority in interest) to execute a form of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is hereby agreed as follows:
ARTICLE 1
RESTRICTIONS ON TRANSFER
------------------------
Section 1.1 RIN Restriction on Transfer. (a) Prior to the
---------------------------
Stockholder making any proposed Transfer (as hereinafter defined) hereunder,
other than to another stockholder of InfoTouch or a Permitted Transferee (as
defined below), that would result in such transferee (the "Transferee")
becoming the owner, whether of record or beneficially, of more than five percent
(5%) of the shares of Common Stock, par value $0.01 per share, of InfoTouch (the
"Shares"), the stockholder shall first obtain the written approval of RIN, which
approval shall not be unreasonably withheld. In seeking such approval, the
Stockholder must identify the proposed Transferee and the number of Shares
proposed to be Transferred, and provide such additional publicly available
information regarding the proposed Transferee as RIN may reasonably request.
Any decision by RIN pursuant to this Section 1.1, whether to approve or not
approve
10
<PAGE>
such Transfer, shall be set forth in writing and shall set forth in reasonable
detail the basis of such decision; provided, however, that in the event RIN
-------- -------
shall fail to approve or not approve such Transfer within thirty (30) days after
the date of the receipt of such request, RIN shall be deemed to have approved
such Transfer. For purposes of this Agreement, "Transfer" shall mean" the
transfer, pledge, sale, assignment, hypothecation, creation of a security
interest in or a lien on, place in trust (voting or otherwise), or in any other
encumbrance or disposal, directly or indirectly, in one or more transactions.
(b) Prior to making any proposed Transfer hereunder that shall result
in the ownership of Shares, whether of record or beneficially, by a Transferee
whose primary business is "real estate related", the Stockholder shall first
obtain the written approval of RIN, which approval shall not be unreasonably
withheld. In seeking such approval, the Stockholder must identify the proposed
Transferee and the number of Shares proposed to be Transferred, and provide such
additional publicly available information regarding the proposed Transferee as
RIN may reasonably request. Any decision by RIN pursuant to this section 1.1,
whether to approve or not approve such Transfer, shall be set forth in writing
and shall set forth in reasonable detail the bases of such decision. For
purposes of this Agreement, "real estate related" shall mean any person, entity
or group whose primary business is comprised of real estate brokerage, real
estate management, mortgage financing, appraising, counseling, land development
and building, title insurance, escrow services, franchising, operation of an
association comprised of real estate licensees, operation of a multiple listing
service, and entities that own or are owned by firms engaged in any of the
foregoing.
(c) From and after the date of any Qualified Public offering (as such
term is defined in Section 2.2 of Article 2 of this Agreement), no approval of
RIN pursuant to Section 1.1(a) or Section 1.1(b) hereof shall be required with
respect to any Transfer made by or on behalf of the Stockholder other than a
Transfer made pursuant to a Long-Form Registration Statement or a Short-Form
Registration Statement on a nationally recognized securities exchange or
pursuant to an automatic quotation system, on which the Shares shall trade
following any Qualified Public offering, such approval; right of RIN pursuant to
Section 1(a)and Section 1(b) hereof shall remain in full force and effect.
(d) The rights granted to RIN in this Section 1.1 shall (A) cease upon
the termination of that certain Operating Agreement, dated as of November 26,
1996, between RIN and RealSelect, Inc., a Delaware corporation ("RealSelect"),
(B) be suspended upon the occurrence of, and during the continuance of, the
breach by the National Association of Realtors, an Illinois not-for-profit
organization (the "NAR"), of that certain (i) Joint Ownership Agreement, dated
as of November 26, 1996, between the NAR and NS LLC, or (ii) Trademark License,
dated as of November 26, 1996, by and between the NAR and RealSelect, (C) be
suspended upon the occurrence of, and during the continuance of, the Transfer by
RIN of eighty percent (80%) or more of the shares of common stock, par value
$0.001 per share, of RealSelect (the "RealSelect Shares") owned by RIN as of the
closing of the Stock and Interest Purchase Agreement (the "Closing Date");
provided, however, that in the event that RIN shall transfer greater than eighty
percent (80%,) of the RealSelect Shares owned by RIN as of the Closing Date, and
RIN shall not, within forty-five (45) days from the date of such Transfer,
increase its
11
<PAGE>
its ownership in RealSelect Shares so that RIN shall own at least twenty percent
(20%) of the RealSelect Shares owned by RIN as of the Closing Date, RIN's rights
pursuant to this Section 1.1 shall terminate, and (D) be suspended upon the
execution of a memorandum of understanding, letter of intent, or such other
binding understanding or agreement in connection with the sale of RIN to any
person, entity or group other than a member of NS LLC or a Permitted Transferee
of RIN; provided, however, that such right shall terminate upon the closing of
any such sale contemplated by such memorandum of understanding, letter of
intent, or such other binding understanding or agreement.
(e) If at any time, the RIN Approval Rights contained in the NetSelect
Stockholders Agreement are amended or revised in such a manner as to benefit the
NetSelect stockholders subject to the RIN Approval Rights, then simultaneously
with such amendment or revision, the terms of this Article 1 shall be similarly
amended or revised so that the restrictions on the Transfer of the Shares held
by the Stockholder are never more burdensome than the restrictions on the shares
of stock held by the stockholders of NetSelect.
(f) A "Permitted Transferee" shall mean, with respect to the
Stockholder:
(i) the spouse of such Stockholder, any lineal descendant of a
grandparent of such Stockholder, or of the spouse of such Stockholder, and any
spouse of such lineal descendant (which lineal descendants, their spouses, the
Stockholder, and his or her spouse are herein collectively referred to as the
"Stockholder's Family Members");
(ii) the trustee of a trust (including a voting trust) principally
for the benefit of such Stockholder's Family Members; provided, that such trust
--------
may also grant a general or special power of appointment to one or more of such
Stockholder's Family Members and may permit trust assets to be used to pay
taxes, legacies and other obligations of the -trust or of the estates of one or
more of such Stockholder's Family Members payable by reason of the death of any
such Stockholder's Family Members; in the case of a partnership or limited
liability company, (A) such partnership or limited liability company and any of
its partners (limited or general) or members, (B) the estates or legal
representatives of any such limited partners, general partners or members, and
(C) any affiliated of such partnership or limited liability company; and
(iv) in the case of a corporation, (A) any of its wholly-owned
subsidiaries, (B) any stockholder or such corporation, or (C) any of the
affiliates of such corporation.
Every Permitted Transferee to whom any Shares are Transferred, shall,
as a condition of such Transfer, execute and deliver to InfoTouch an agreement,
in form and substance reasonably satisfactory to InfoTouch, to be bound by this
Agreement.
12
<PAGE>
ARTICLE 2
REGISTRATION UNDER SECURITIES ACT
---------------------------------
Section 2.1 Definitions. For the purposes of this Article 2, the
-----------
following words shall have the meanings set forth below:
(a) An "Affiliate" of any Person is any other Person which
---------
controls, is controlled by or is under common control with such Person.
(b) "Initiating Holders" means the holders of Registrable Stock
------------------
initially requesting registration pursuant to Section 2.2 of this Article 2.
(c) "Long-Form Registration Statement" means a registration
--------------------------------
statement on Form S-1, Form S-2, Form SB-1 or Form SB-2, or any similar form of
registration statement adopted by the Commission from and after the date hereof.
(d) "Person" includes an individual, partnership, trust,
------
corporation, joint venture, association, government, government bureau or agency
or other entity of whatsoever kind or nature.
(e) The terms "register," "registered" and "registration" refer to
-------- ---------- ------------
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act.
(f) "Registrable Stock" means (x) the shares held by the
Stockholders; and (y) any securities issued or issuable with respect to the
securities identified in clause (x) above by reason of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
Each share of Registrable Stock shall continue to be Registrable Stock
in the hands of each subsequent holder thereof; provided that each share of
--------
Registrable Stock shall cease to be Registrable Stock when transferred to any
person who is not Affiliated with a holder pursuant to a registered public
offering or pursuant to Rule 144 promulgated by the Commission under the
Securities Act.
(g) "Short-Form Registration Statement" means a registration
---------------------------------
statement on Form S-3 or any similar form of registration statement adopted by
the Commission from and after the date hereof.
Section 2.2 Required Registrations.
----------------------
(a) If, at any time following the date that is six months after
the consummation of the Corporation's initial Qualified Public Offering, the
Initiating Holders propose, pursuant to a Long-Form Registration Statement, to
dispose of at least 20% of the Registrable Stock then outstanding in a Qualified
Public offering, then such Initiating Holders
13
<PAGE>
may request the Corporation in writing to effect such registration, stating the
number of shares to be disposed of, the intended method of disposition of such
shares, and the anticipated offering price. The Corporation shall have the
absolute right to determine the form of registration statement, and shall have
the absolute right to cause the registration to be filed on a Short Form
Registration Statement if the Corporation is then entitled to use a Short Form
Registration Statement. A "Qualified Public Offering" shall mean a firmly
underwritten, public offering pursuant to an effective registration statement
covering the offer and sale of shares of Class A Common Stock, par value $0.001
per share (the "Class A Common Stock") a class of equity securities of the
Corporation which (A) yields proceeds to the Corporation of at least $10,000,000
(net of underwriting discounts and commissions) and (B) would establish an
aggregate value for the Class A Common Stock (assuming the conversion of all of
the Preferred Stock and Class B Common Stock of the Corporation then convertible
into such class of equity securities) outstanding immediately prior to the
consummation of such offering of at least $40,000,000.
(b) If, at any time when the Corporation is entitled to file a
registration statement on a Short-Form Registration Statement, one or more
holders of Registrable Stock propose to dispose of shares of Registrable Stock
which would have an anticipated aggregate offering price of at least $1,000,000
pursuant to a Short-Form Registration Statement, then such holders may request
the Corporation in writing to effect such registration pursuant to a Short Form
Registration Statement under the Securities Act, the number of shares of
Registrable Stock to be disposed of, the intended method of disposition of such
shares of Registrable stock and the anticipated offering price.
(c) Upon receipt of the request of the Initiating Holders pursuant to
Sections 2.2(a) or 2.2(b) hereof, the Corporation shall give prompt written
notice thereof to all other holders of Registrable Stock and to all other
holders of Shares who have the contractual right to include all or any portion
of their Shares in the registration. Subject to the provisions of Section 2.3
hereof, the Corporation shall use its best efforts promptly to effect the
registration under the Securities Act of all shares of Registrable Stock
specified in the requests of the Initiating Holders and the requests (stating
the number of shares of Registrable Stock to be disposed of) of other holders of
shares of Registrable Stock (collectively, "Requesting Holders") and other
holders of Shares ("Additional Requesting Holders") given within fifteen (15)
days after receipt of such notice from the Corporation.
(d) Notwithstanding anything to the contrary contained in this Section
2.2. no Person (as defined, for these purposes, in Rule 144(a) (2) of the
Commission under the Securities Act) who then beneficially owns one percent (1%)
or less of the then outstanding shares of Registrable Stock may request (either
as an Initiating Holder, Requesting Holder or as an Additional Requesting
Holder) that any of its shares of Registrable Stock be included in any
registration statement filed by the Corporation pursuant to this Section 2,2
unless, in the opinion of counsel for the Corporation, such Person's intended
disposition of Registrable Stock could not be effected within 90 days of the
date of said opinion without registration of such shares under the Securities
Act (assuming, for this purpose, that if "current public information" (as
defined in
14
<PAGE>
Rule 144(c) of the Commission under the Securities Act) is available with
respect to the Corporation as of the date of such opinion, it will remain so
available for such 90-day period).
Section 2.3 Limitations on Required Registrations.
-------------------------------------
(a) The Corporation shall not be required to prepare and file more
than two registration statements at the request of holders of Registrable Stock.
pursuant to Section 2.2 hereof; provided, however, in no case shall the
-------- -------
corporation be required to file more than one Long-Form Registration Statement.
(b) The registration requested by the Initiating Holders must be
for a firmly underwritten offering, unless such registration shall be registered
on Form S-3 under the Securities Act. In the event that the managing underwriter
advises the Corporation in writing that the number of shares of Registrable
Stock requested to be included exceeds the number which can be sold in such
offering, the Corporation shall include in such registration, prior to any
shares held by Additional Requesting Holders, the Registrable Stock requested to
be included which in the opinion of the managing underwriters can be sold, among
the Requesting Holders on the basis of the aggregate number of shares of
Registrable Stock then held by each holder; provided that if any such holder
--------
would thus be entitled to include more shares of Registrable stock than such
holder requested to be registered, the excess will be allocated among the other
holders on the basis of the number of shares of Registrable Stock then held by
each holder. For purposes of making any such reduction, each Stockholder and the
Permitted Transferees shall be deemed to be a single "holder" of Registrable
Stock, and any pro rata reduction with respect to such "holder" shall be based
--- ----
upon the aggregate amount of Registrable Stock owned by all entities and
individuals included in such "holder," as defined in this sentence (and the
aggregate amount so allocated to such "holder" shall be allocated among the
entities and individuals included in such "holder" in such manner as such
Stockholder may reasonably determine.) If any holder of Registrable Stock
disapproves of the terms of the underwriting, such Person may elect to withdraw
therefrom by written notice to the Corporation, the managing underwriter and the
Initiating Holders. The Registrable stock so withdrawn shall also be withdrawn
from registration. Only securities which are to be included in the underwriting
may be included in the registration.
(c) The Corporation shall not be required to prepare and file a
registration statement pursuant to Section 2.2 hereof (x) which would become
effective within 270 days following the effective date of a registration
statement (other than a registration statement filed on Form S-8) filed by the
Corporation with the Commission pertaining to an underwritten public offering of
securities for cash for the account of the Corporation or its other shareholders
or (y) if the Corporation in good faith gives written notice to the holders of
Registrable Stock that the Corporation has determined to prepare a Corporation-
initiated registration statement in which, on the terms and subject to the
conditions of Sections 2.4 and 2.5 hereof, holders of Registrable Stock may
participate, and the Corporation is actively employing in good faith reasonable
efforts to cause such registration statement to he filed and thereafter to
become effective.
15
<PAGE>
(d) Notwithstanding the foregoing, if the Corporation shall
furnish to Initiating Holders a certificate signed by the Chief Executive
officer of the Corporation stating that in the good faith judgment of the Board
of Directors of the Corporation it would be seriously detrimental to the
Corporation and its stockholders for such registration statement to be filed and
it is therefore essential to defer the filing of such registration statement,
then the Corporation shall have the right to defer taking action with respect to
such filing for a period of not more than 90 days after receipt of the request
of the Initiating Holders. Additionally, if such a registration statement is
currently in effect and if the corporation shall furnish to all Prospective
Sellers (as defined below) a certificate signed by the Chief Executive officer
of the Corporation stating that in the good faith judgment of the Board of
Directors of the Corporation it would be seriously detrimental to the
Corporation and its stockholders for sales to continue under such registration
statement, then the Prospective Sellers shall cease to sell the Registrable
Stock for a period of up to 90 days following the date of the certificate of the
Chief Executive Officer of the Corporation. The Corporation may not utilize its
rights contained in this Section 2.3(d) to defer or stop an offering more than
once in any twelve month period.
Section 2.4 Incidental Registration.
-----------------------
(a) If the Corporation at any time proposes to register on a
firmly underwritten public offering basis any of its shares of Class A Common
Stock to be offered for cash for its own account pursuant thereto (other than a
registration requested pursuant to Section 2.2 hereof), it shall give written
notice (the "Corporation's Notice"), at its expense, to all holders of
Registrable Stock of its intention to do so at least 15 days prior to the filing
of a registration statement with respect to such registration with the
Commission. If any holder of Registrable Stock desires to dispose of all or part
of such stock, it may request registration thereof in connection with the
Corporation's registration by delivering to the Corporation, within ten days
after receipt of the Corporation's Notice, written notice of such request (the
"Holder's Notice") stating the number of shares of Registrable Stock to be
disposed. The Corporation shall use good faith reasonable efforts to cause all
shares of Class A Common stock specified in the Holder's Notice to be registered
under the Securities Act so as to permit the sale or other disposition by such
holder or holders of the shares so registered, subject however, to the
limitations set forth in Section 2.5 hereof.
(b) Notwithstanding anything to the contrary contained in this
Section 2.4, no person (as defined, for these purposes, in Rule 144 (a) (2) of
the Commission under the Securities Act) who then beneficially owns one percent
(it) or less of the outstanding shares of Class A Common Stock (including the
Registrable Stock) may request that any of its shares of Registrable Stock be
included in any registration statement filed by the Corporation pursuant to this
Section 2.4 unless, in the opinion of counsel for such person, such person's
intended disposition of Registrable Stock could not be effected within 90 days
of the date of said opinion without registration of such shares under the
Securities Act (assuming, for this purpose, that if "current public information"
(as defined in Rule 144(c) of the Commission under the Securities Act) is
available with respect to the Corporation as of the date of such opinion, it
will remain so available for such 90-day period).
16
<PAGE>
Section 2.5 Limitations on Incidental Registration.
--------------------------------------
(a) The Corporation shall have the right to limit the aggregate
size of the offering or the number of shares of to be included therein by
stockholders of the Registrable Stock corporation if requested to do so in good
faith by the managing underwriter or agent of the offering. Only securities
which are to be included in the underwriting may be included in the
registration.
(b) Whenever the number of shares of Registrable Stock which may
be registered pursuant to Section 2.4 is limited by the provisions of Section
2.5(a) hereof, the Corporation will include in such registration, (i) first, the
securities the Corporation proposes to sell, and (ii) second, the securities
requested to be sold pro rata among the holders of Registrable Stock and all
--- ----
other stockholders of the Corporation who have the contractual right to include
all or a portion of their Shares in the registration allocated on the basis of
the number of Shares owned by each such holder; provided, that, if, at level
--------
(ii) above, any such holder would thus be entitled to include more Shares than
such holder requested to be registered, the excess will be allocated among the
other requesting holders pro rata based upon the number of Shares owned by such
--- ----
holders of Registrable Stock and other stockholders. For purposes of making any
such reduction, each Stockholder and the Permitted Transferees shall be deemed
to be a single "holder" of Registrable Stock, and any pro rata reduction with
--- ----
respect to such "holder" shall be based upon the aggregate amount of Registrable
Stock owned by all entities and individuals included in such "holder," as
defined in this sentence (and the aggregate amount so allocated to such "holder"
shall be allocated among the entities and individuals included in such "holder"
in such manner as such Stockholder may reasonably determine.)
(c) The Corporation shall not grant any Person registration rights
which shall have priority over the registration rights granted to the
Stockholders by this Agreement, but may grant pari passu rights to additional
---- -----
purchasers of the Corporation's securities.
(d) Notwithstanding anything to the contrary contained in this
Article 2, the Corporation may decide, in its sole and absolute discretion, not
to proceed with or to discontinue any registration commenced or proposed to be
commenced under Section 2.4 hereof.
Section 2.6 Designation of Underwriter. In the case of any registration
--------------------------
initiated by the holders of Registrable Stock pursuant to the provisions of
Section 2.2 hereof which is proposed to be effected pursuant to a firm
commitment underwriting, the Corporation shall have the right to designate the
managing underwriter (which underwriter shall be acceptable to the Initiating
Holders), and all holders of Registrable Stock participating in the registration
shall sell their shares of- Registrable Stock only pursuant to such
underwriting.
Section 2.7 Registration Procedures.
-----------------------
(a) If and when the Corporation is required by the provisions of
this Agreement to use its best efforts to effect the registration of shares of
Registrable Stock, the Corporation shall:
17
<PAGE>
(i) prepare and file with the Commission a registration
statement with respect to such shares and use its best efforts to cause such
registration statement to become and remain effective as provided herein;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectuses used in
connection therewith as may be necessary to keep such registration statement
effective and current for a period equal to the earlier of (x) 180 days from its
effective date or (y) until such time as the shares of Registrable Stock shall
have been sold (or for such additional period as such registration is suspended
pursuant to Section 2,3(d) hereof or pursuant to Section 2.7(c) hereof) and to
comply with the provisions of the Securities Act with respect to the sale or
other disposition of all shares covered by such registration statement,
including such amendments and supplements as may be necessary for a period equal
to the earlier of (x) 180 days from its effective date or (y) until such time as
the shares of Registrable Stock shall have been sold (or for such additional
period as such registration is suspended pursuant to Section 2.3(d) hereof or
pursuant to Section 2.7(c) hereof) to reflect the intended method of disposition
from time to time of the holder or holders of Registrable Stock of the
Corporation who have requested that any of their shares be sold or otherwise
disposed of in connection with the registration (the "Prospective Sellers");
(iii) furnish to each Prospective Seller such number of copies of
each prospectus, including preliminary prospectuses, in conformity with the
requirements of the Securities Act, and such other documents, as the'
Prospective Seller may reasonably request in order to facilitate the public sale
or other disposition of the shares of Registrable Stock owned by it;
(iv) if requested by a Prospective Seller, use its best efforts
to register or qualify the shares of Registrable Stock covered by such
registration statement under the securities or blue sky laws of California,
Illinois, Nebraska and New York ;
(v) furnish to each Prospective Seller a copy of a "comfort"
letter addressed to the Corporation and the underwriter, if any, of the
Prospective Sellers, signed by the independent public accountants who have.
certified the Corporation's financial statements included in the registration
statement; covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountants' letter) with respect to the events subsequent to the date of
the financial statements, as are customarily covered (at the time Of such
registration) in accountants' letters delivered to the underwriters in
connection with underwritten public offerings of securities;
(vi) cause all such Registrable Stock to be listed on each
securities exchange on which similar securities issued by the Corporation are
then listed;
(vii) provide a transfer agent and registrar for all shares of
Registrable Stock not later than the effective date of such registration
statement;
18
<PAGE>
(viii) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other customary.
actions as the holders of a majority of the Registrable Stock being sold may
reasonably request in order to expedite or facilitate the disposition of
Registrable Stock; and
(ix) make available for inspection by any underwriter
participating in any Prospective Seller, any underwriter participating in any
disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such Prospective Seller or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Corporation, and cause the Corporation's officers, directors
and employees to supply all information reasonably requested by any such seller,
underwriter attorney accountant or agent in connection with the preparation of
such registration statement.
(b) Each Prospective Seller of Registrable stock shall furnish to the
Corporation in writing such information as the Corporation may reasonably
require from the Prospective Seller for inclusion in the registration statement
(and the prospectus included therein).
(c) The Prospective Sellers shall not (until further notice) effect
sales of the shares of Registrable Stock covered by the registration statement
after receipt of telegraphic or written notice from the corporation to suspend
sales to permit the Corporation to correct or update a registration statement or
prospectus.
Section 2. 8 Expenses of Registration. All expenses incurred in
------------------------
effecting any registration requested pursuant to Section 2.2 or Section 2.4
hereof, including, without limitation, all registration and filing fees,
printing expenses of compliance with blue sky laws, fees and disbursements of
counsel for the Corporation, and expenses of any audits incidental to or
required by any each registration ("Registration Expenses") shall 3.3. be borne
by the corporation; provided that each Prospective Seller shall bear its own
--------
legal expenses (if it retains separate counsel) and all underwriting discounts
or brokerage fees or commissions relating to the sale of its Registrable Stock.
Section 2.9 Indemnification and Contribution. (a) The Corporation
--------------------------------
shall indemnify each Stockholder who sells Registrable Stock in a registration
("Selling Stockholder") (and each person, if any, who controls such Selling
Stockholder) against all claims, losses, damages, expenses and liabilities
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
incident to the offering, or any omission (or alleged omission) to state a
material fact required to be stated or necessary to make the statements
contained in any such document not misleading, or any violation by the
Corporation of any rule or regulation promulgated under the Securities Act
applicable to the Corporation, and shall reimburse such selling Stockholder (and
each person, if any, who controls such Selling Stockholder) for any legal and
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action; provided, however,
-------- -------
that the Corporation shall not be liable to the extent that any claim, loss,
damage, expense or liability arises out of or is based on any untrue statement
or
19
<PAGE>
omission based upon written information furnished to the Corporation by such
Selling Stockholder specifically for use in such document.
(b) Each Selling Stockholder shall indemnify the Corporation
and its officers and directors against all claims, losses, damages, expenses and
liabilities arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document incident to the offering or any omission (or alleged omission) to
state a material fact required to be stated or necessary to make the statements
contained in any such document not misleading, and shall reimburse the
Corporation and its officers and directors for any legal and any other expenses
reasonably incurred in connection with investigating, or defending any such
claim, loss, damage, expense, liability or action; provided, however, that such
-------- -------
statement or omission was made in reliance upon and in conformity with
information furnished to the corporation in -writing by such Selling Stockholder
specifically for use in such document, In no event shall the liability of a
Selling Stockholder exceed the net amount received by such Selling Stockholder
upon the sale of Registrable Stock pursuant to such registration.
(c) If the indemnification provided for in this Section 2.9 is
unavailable to an indemnified party in respect of any claims, losses, damages,
expenses or liabilities referred to herein, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such claims,
losses, damages, expenses or liabilities in such proportion as is appropriate to
reflect the relative fault of the Corporation, on the one hand, and the Selling
Stockholder, on the other hand, in connection with the statements or omissions
which resulted in such claims, losses, damages, expenses or liabilities, as well
as any other relative equitable considerations. The relative fault of the
Corporation, on the one hand, and of such Selling Stockholder, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Corporation, on the one hand, or by such Selling Stockholder, on the other hand,
and the party's relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the claims, losses, damages, expenses and
liabilities referred to above shall be deemed to include any legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any such action or claim. The Corporation and Stockholders agree
that it would not be just and equitable if contribution pursuant to this Section
2.9(c) were determined by pro rata allocation or by any other method of
--- ----
allocation that does not take account of the equitable considerations referred.
to above. Notwithstanding the provisions of this Section 2.9(c), no Selling
Stockholder shall be required to contribute any amount in excess of the amount
by which the net price at which the shares of Registrable Stock sold by such
selling Stockholder and distributed to the public or offered to the public
exceeds the amount of any damages which such Selling Stockholder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged commission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
20
<PAGE>
Section 2.10. If at any time, the registration rights contained in the
NetSelect Stockholders Agreement are amended or revised in such a manner as to
benefit the NetSelect stockholders, the simultaneously with such amendment or
revision, the terms of this Article 2 shall be similarly amended or revised so
that the Stockholders are-similarly benefited.
Section 2.11 In the event that any of the provisions regarding
registration rights set forth in this Agreement are not consistent with any of
the provisions regarding registration rights in the NetSelect Stockholders
Agreement the provisions of the NetSelect Stockholders Agreement shall be deemed
to supersede the provisions set forth herein and shall govern the rights of the
Stockholders hereunder.
ARTICLE 3
MISCELLANEOUS
-------------
Section 3.1 Legend. All certificates representing the issued and
------
outstanding Shares of the capital stock of InfoTouch shall bear the following
legend:
The shares represented by this Certificate are subject to the terms
of a Stockholder Agreement, dated December ___, 1996, by and
between InfoTouch and the Stockholder, a copy of which is on file
in the principal office of InfoTouch,
Such endorsement shall not affect the rights of Stockholder to vote the Shares
and receive dividends thereon. Following any termination of this Agreement,
Stockholder may have any legend referring to the existence of this Agreement
removed from any certificates representing such Stockholder's Shares.
Section 3.2 Third Party Beneficiary. No provision of this
-----------------------
Agreement, other than Article 1, is intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
Section 3.3 Further. Documents. The parties hereto shall execute
------- ---------
and deliver any and all documents or legal instruments necessary or desirable to
carry out the provisions of this Agreement.
Section 3.4 Binding Agreement. This Agreement shall be binding
-----------------
upon the Stockholders and the Corporation, and their respective successors and
assigns.
Section .3.5 Governing Law. This Agreement shall be governed by
the laws of the State of Delaware except for those provisions governing conflict
of laws, notwithstanding that one or more of the parties to this Agreement is
now, or may hereafter become, a resident or citizen of a different State.
21
<PAGE>
Section 3.6 Amendment. This Agreement may be amended or altered
---------
in any provision, but any such change shall become effective only if, when and
to the extent it is reduced to a writing signed by the Stockholders and
InfoTouch.
Section 3.7 Notices. All notices, requests, demands and other
-------
communications made hereunder shall be in writing and shall be deemed duly given
when delivered personally against receipt, sent by facsimile, delivered by
recognized overnight delivery service (i.e., Federal Express, Airborne or UPS),
or on the third day after deposit with the post offic6lby registered or
certified mail, postage prepaid and return receipt requested, as follows, or to
such other address or person as a party may hereafter designate by notice to the
other party:
If to the Stockholder, to:
the address set forth on the
signature page hereto
If to InfoTouch to:
InfoTouch Corporation
56SS Lindero Canyon Rd., Ste. 106
Los Angeles, California 91362
Attention: President
Section 3.8 No Continuing Waiver. No waiver of any default or
--------------------
breach of this Agreement shall be determined a continuing waiver or a waiver of
any other breach or default hereunder.
Section 3.9 Severability. The invalidity or unenforceability of
------------
any particular provision of this Agreement shall not affect-the other provisions
hereof, and this Agreement shall be construed, in all respects, as though such -
invalid or unenforceable provisions were omitted.
Section 3.10 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of will shall be deemed an original, but all of
which together shall constitute one and the same instrument.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the date first above written.
INFOTOUCH CORPORATION
By:____________________________
Name:
Title:
_______________________________
Stockholder
Address:
_______________________________
_______________________________
_______________________________
23
<PAGE>
STOCK AND INTEREST PURCHASE AGREEMENT
Schedules 4.1, 4.2, 4.3, 4.4 and
General Representations and Warranties of InfoTouch Corporation
THE EXCEPTIONS TO THE REPRESENTATIONS AND WARRANTIES OF INFOTOUCH CORPORATION
("THE COMPANY") MADE PURSUANT TO ARTICLE IV OF THE STOCK AND INTEREST PURCHASE
AGREEMENT DATED AS OF NOVEMBER 26,1996 BY AND AMONG NETSELECT, INC., NETSELECT,
L.L.C., AND INFOTOUCH CORPORATION ARE SET FORTH UNDER THE SECTION NUMBER OF THE
REPRESENTATION TO WHICH IT MOST DIRECTLY RELATES BUT SHOULD BE READ AS A
DISCLOSURE APPLICABLE TO, AND IS DISCLOSED AS AN EXCEPTION TO, ALL OTHER
REPRESENTATIONS TO WHICH ITS PLAIN LANGUAGE REASONABLY RELATES, ADDITIONALLY,
THE SUMMARIES OF ANY CONTRACTS OR AGREEMENTS LISTED BELOW ARE NOT COMPLETE AND
ARE FOR DISCLOSURE PURPOSES ONLY, SUCH SUMMARIES ARE SUBJECT IN THEM ENTIRETY TO
THE FULL TEXT OF THE APPROPRIATE CONTRACT OR AGREEMENT WHICH HAS BEEN PROVIDED
TO NETSELECT, INC.
SCHEDULE 4.1 Organization; Etc:
-----------------
On November 15, 1996, the Company filed its 1994 and 1995 State of Delaware
Annual Franchise Tax Reports and paid taxes, filing fees, interest and penalties
totaling $1,495.96. Also on November 15, 1996, the Company filed a Certificate
For Renewal and Revival of Charter. On November 20, 1996, the Company was
notified by the State of Delaware that it has been reinstated as a corporation
in good standing.
SCHEDULE 4.2 Capitalization
--------------
The authorized and outstanding capital stock of InfoTouch Corporation as of
closing is summarized as follows:
<TABLE>
<CAPTION>
Pre-closing Post-closing
Type Authorized Outstanding Outstanding
- ---- ---------- ----------- -----------
<S> <C> <C> <C>
Common Stock 5,000,000 1,281,147 3,809,239
Series A Convertible Preferred Stock 400,000 398,000 0
Series B Convertible Preferred Stock 200,000 200,000 0
Undesignated Preferred Stock 400,000 0 0
1994 Stock Incentive Plan options 1,000,000 721,072 721,072
Warrants to purchase shares
of Common Stock 32,500 32,500 32,500
</TABLE>
24
<PAGE>
The issued and outstanding capital stock is owned by, and in the amounts set
forth opposite, the stockholders of' InfoTouch listed on EXHIBIT 4.2 as of
November 26, 1996 attached to this Schedule.
The Purchase Agreement Series A Convertible Preferred Stock and the Purchase
Agreement Series B Convertible Preferred Stock contain various rights and
conversion provisions. Refer to attached form of Purchase Agreement Series A
Convertible Preferred Stock and Purchase Agreement Series B Convertible
Preferred Stock.
On November 8, 1996, the Company's Board of Directors approved the conversion of
the loans and cancellation of the warrants outstanding into the equivalent
number of shares of the Company's common stock at the $28,777,771 Post Money
-----------------------------
valuation the NetSelect Capitalization Table dated November 25, 1996 to be
- ------------------------ --------------------------------------------
effected within 15 days after the effective date of the transaction (estimated
to be 83,327 InfoTouch shares).
On November 8, 1996, the Company's Board of Directors approved the acceleration
of all vesting provisions of all outstanding options of the Company totaling
597,072 shares.
On December 2, 1996 the Company's Board of Directors approved the issuance of
124,000 options to two key employees of InfoTouch who will also become employees
of RealSelect, Inc.
Effective November 4, 1996, the Company entered into a Loan agreement with
Michael Flattery for $150,000. See attached Loan Agreement. The loan from Mr.
Flattery is intended to be converted into equity at $28,777,771 Post Money
-------------------------
valuation per the NetSelect Capitalization Table dated November 25, 1996
- ------------------------------------------------------------------------
pursuant to the transaction.
Effective November 22, 1996, the Series A Convertible Preferred Stock and Series
B Convertible Preferred Stock stockholders elected to convert all of the shares
of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock
into shares of Common Stock, par value $.01 per share pursuant to the terms as
set forth in the Certificate of Incorporation of Infotouch Corporation and the
Purchase Agreement Series A Convertible Preferred Stock and Purchase Agreement
Series B Convertible Preferred Stock, such election contingent upon the closure
of the transaction described in the Company's letter dated November 21, 1996.
Effective November 12, 1996, Michael S. Luther entered into the Third Extension
and Security Agreement by and among Michael S. Luther, Dr. Anil K. Agarwal and
Security Escrow Co. ("Escrow Agent") pursuant to which Mr. Luther has granted a
security interest in 400,000 shares of InfoTouch Stock owned by him (on an as
converted basis).
Effective November 4, 1996, Michael S. Luther transferred 157,000 shares of his
stock to KL LLC.
Effective October 23, 1996, Michael S. Luther sold 23,267.33 shares of Series B
Convertible Preferred Stock to Daniel A. Koch.
25
<PAGE>
By letter dated March 31, 1994, InfoTouch Corporation agreed that in the event
that any taxing authority claims for any reason whatsoever, including any defect
in the content of filing of the Section 83(b) election, that the fair market
value of the shares issued to the named individuals is in excess of $.34 per
share, InfoTouch will indemnify and hold harmless with respect to any and all
additional taxes, interest and penalties resulting from that determination
provided that the named individuals agree to several items.
In addition, InfoTouch has provided copies of the following documents:
Form of summary and detail of equity
Form of 1994 Stock Incentive Plan
Form of Common Stock Purchase Agreement
Form of Purchase Agreement Series A Convertible Preferred Stock
Form of Purchase Agreement Series B Convertible Preferred Stock
Form of Loan Agreement with Michael Flannery
Form of November 21, 1996 Letter to Stockholders and Vote Ledger
Form of Michael S. Luther Third Extension and Security Agreement by and
among
Michael Luther, Dr. Anil K. Agarwal and Security Escrow Co.
Form of memorandum from Michael S. Luther to William A. Spazante
Form of Legal Opinion and Investment Intent Letter
Form of March 31, 1994 Section 83(b) elections and letters
SCHEDULE 4.3 Consents and Approvals: No Violations (SECTION 4.4)
---------------------------------------------------
On November 15, 1996, the Company filed its 1994 and 1995 State of Delaware
Annual Franchise Tax Report and paid taxes, filing fees, interest and penalties
totaling $1,495.96. Also on November 15, 1996, the Company riled a Certificate
For Renewal and Revival of Charter. On November 20, 1096, the Company was
notified by the State of Delaware that it has been reinstated as a corporation
in good standing.
In connection with a loan and security agreement by and between the Company and
Richard Janssen, dated August 23, 1994, the Company granted Mr. Janssen a
continuing security interest in all of the Company's current and future computer
and office equipment, including those used in the HomeSelect kiosk, but
excluding the Gateway personal computers in the kiosks, which are subject to
pre-existing lease agreements. The Company has agreed not to encumber, assign
or transfer the collateral without prior written permission of Mr. Janssen.
Refer to attached Loan and Security Agreement between Richard R. Janssen and
InfoTouch Corporation.
In 1994, the Company entered into leasing arrangements for Gateway computers
used in the Company's business. The lease are with AT&T Capital Leasing for 10
P-5-66 Best Buy Gateway 2000 Computers and with Finova for 32 P-5-66 Best Buy
Gateway 2000 Computers. Monthly payments, including interest, total $4,160 and
the terms of each lease provide for a bargain purchase option of at the end of
the lease term. Both computer leases are completed ill early April 1997 and are
recorded as liabilities in the Company's balance sheet as of September 30, 1996.
Refer to attached leases.
26
<PAGE>
The Company entered into a lease with Greenbrier Properties ("Landlord") dated
July 12, 1996 (signed by the Company August 19, 1996 and by Greenbrier on
September 25, 1996) for certain office space at 5655 Lindero Canyon Road, Suite
121, Westlake Village, California 91362. The agreement calls for a term of four
years commencing on the first day of November 1996 or upon completion of
construction of leasehold improvements. Under the terms of the new lease, die
monthly rent is $8,048 per month, with cost of living adjustments on the first
day of each new lease year tied to the local Consumer Price Index, with each
increase to be no greater than 5% annually. Other significant terms and
- --------
conditions apply, including, but not limited to early termination clauses and
leasehold improvements. Refer to attached lease for full and complete terms and
conditions.
Attached find copies of the following corporate governance documents:
Certificate of Incorporation
Certificate of Amendment of Certificate of Incorporation (3/94)
Certificate of Amendment of Certificate of Incorporation (9/94)
Certificate of Designation of Preferences, Rights and Restrictions (9/94)
Bylaws
Board of Directors and Stockholder Minutes and Written Consents since inception
State of Delaware Certificate of Good Standing
State of Delaware Certificate of Renewal
State of California Certificate of Qualification
Statement and Designation by Foreign Corporation
State Board of Equalization Sellers Permit
City of San Diego Business Application
SCHEDULE 4.4(b) Intellectual Property (SECTION 4.5)
-----------------------------------
Refer to Section 1.3 of the STOCK AND INTEREST PURCHASE AGREEMENT Dated as of
November 26,1996 by and among NETSELECT, INC., NETSELECT L.L.C. AND INFOTOUCH
CORPORATION.
GENERAL
NetSelect, NetSelect LLC, CDW Internet, L.L.C., J.H. Whitney, Allen & Co. and
any and all other parties to this Agreement have had, during the course of this
transaction the opportunity to ask questions of, and receive answers from,
InfoTouch and its management concerning the Company and its operations.
The following are material contracts and supplemental disclosures to the Stock
and Interest Purchase Agreement dated as of November 26, 1996 by and among
NetSelect Inc., NetSelect LLC and lnfoTouch Corporation..
27
<PAGE>
The Company has entered into a lease with PS Partners V, Ltd., ("Landlord") on
January 31, 1995 for certain office space at 316O Camino del Rio South, Suites
B301-303-305, San Diego, California 92108 under terms of a lease which runs
through January 31, 1997, with monthly payments of $2,426. Refer to lease for
full and complete terms and conditions.
In 1994, the Company entered into leasing arrangements for Gateway computers
used in the Company's business. The leases are with AT&T Capital Leasing for 10
P-5-66 Best Buy Gateway 2000 Computers and with Finova for 32 P-5-66 Best Buy
Gateway 2000 Computers. Monthly payments, including interest, total $4,160 and
the terms of each lease provide for a bargain purchase option of $1 at the end
of the lease term. Both computer leases are completed in early April 1997 and
are recorded as liabilities in the Company's balance sheet as of September 30,
1996. Refer to leases.
In connection with a loan and security agreement by and between the Company and
Richard Janssen, dated August 23, 1994, the Company granted Mr. Janssen a
continuing security interest in all of the Company's current and future computer
and office equipment, including those used in the HomeSelect kiosk, but
excluding the Gateway personal computers in the kiosks, which are subject to
pre-existing lease agreements. The Company has agreed not to encumber. assign
or transfer the collateral without prior written permission of Mr. Janssen.
Refer to Loan and Security Agreement between Richard R. Janssen and InfoTouch
Corporation.
Refer to copies of the Company's Federal income tax and California Franchise tax
returns:
Form 1120 U.S. Corporation Income Tax Return 1995 and related returns and/or
schedules
Form 100 Califomia Corporation Franchise or Income Tax Return 1995 anti related
returns and/or schedules
Form 1120S U.S. Income Corporation Income Tax Return 1994 and related returns
and/or schedules
Form 100S California Corporation Franchise or Income Tax Return 1994 and related
returns and/or schedules
Form 1120S U.S. Income Tax Return for an S Corporation 1994
Form 100S California S Corporation Franchise or Income Tax Return
Form 100S U.S. Income Tax Return for an S Corporation 1994
Form 100S Califomia S Corporation Franchise or Income Tax Return
State of Delaware 1995 Annual Franchise Tax Report
State of Delaware 1994 Annual Franchise Tax Report
State of Delaware Certificate for Renewal and Revival of Charter
Copies of Sales, Local and District Sales & Use Tax Returns
Copies of Property tax returns
October 31, 1996 Unaudited Financial Statements of lnfotouch Corporation.
28
<PAGE>
The Company extends offers of employment in the normal course of its business.
Refer to employee offer letters, as well as an offer letter to a current
employee or the REALTORS Information Network, Mr. Perry Morton.
The Company has a line of credit card processing with Bank One for $20,000 dated
July 23,1996. The line of credit has a 15%, interest rate, with monthly
principal due of 2.5% of the amount borrowed Company has $95 outstanding as. it
was charged a annual fee of $95.
The Company has entered into a credit card processing arrangement with Union
Bank in which all Mastercard and Visa credit cards processed are charged a
processing fee of 2.9% and American Express 3.25%. The Company's President has
guaranteed chargebacks of credit card charges to the Company's account in the
event the Company fails to pay the chargebacks.
GNN/Webcrawler advertising contracts for REALTOR.COM dated October 18, 1996 and
October 17, 1996, for Internet advertising.
Distribution and Web Site Development Agreement entered into as of February 1,
1996 between REALTORS Information Network and Infotouch Corporation
Initial Development Contract between Union Tribune Publishing Co. and InfoTouch
dated March 29, 1996
Kiosk contract: Longs dated March 3. 1994
Kiosk contract: Naval installations dated various 1994
Kiosk contract: Sandicor dated December 22, 1993
Kiosk contract: Prudential dated July 1, 1995
Kiosk contract: Parkway Plaza dated May 28, 1996
Union Bank Credit Card Processing Agreement
Showsites estimate of costs for the November 12, 1996 NAR convention.
Broadcast lmages agreement for the November 12, 1996 NAR convention dated
October 27,1996 for public relations campaign for realtor.com.
In addition to the agreements above, as part of its participation in the
November 1996 NAR convention, the Company will be responsible for various
convention associated expenses, including, but not limited to hotel, meals and
entertainment and other convention associated expenses. Refer to summary of
budgeted NAR convention costs.
29
<PAGE>
The Company currently has rental agreements with various locations in the San
Diego County area to locate its 17 of its kiosks in the retail location at a
monthly rental of $100 per location. The Company has been notified by the
retail location of its intent to terminate the rental agreements and has
provided the Company with the required 6 months notification, effective February
1997. The Company has 13 other kiosks at various locations with no monthly
rental fees.
The Company has entered into two agreements for Internet access, one each for
its Westlake Village and San Diego locations. The Company pays monthly fees
totaling approximately $2,900 covering both locations. Both agreements were
originally for a one year period and currently are on a month-to-month basis.
The Company anticipates adding additional Internet capacity as it moves into its
new facilities and as business conditions warrant.
The Company entered into an agreement dated December 22, 1993 with Sandicor,
Inc., the exclusive multiple listing service ("MLS") for the San Diego resale
home market, whereby the Company pays Sandicor for exclusive use of their MLS
data on the kiosks. The royalty paid to Sandicor is based on a percentage of
the Company's adjusted kiosk sales each month. The agreement is for a five year
period, with an additional five year option period.
On January 18, 1995, the Company entered into a licensing understanding for its
HomeSelect Kiosk System with TouchTech Corporation, an Ontario Canada company
for license of its kiosk system for the province of Ontario as its territory.
The original license arrangement letter was for $100,000, $5,000 on or before
January 18, 1995, $5,000 April 15, 1995, $45,000 upon signing the definitive
license agreement and $45,000 payable 6 months after the definitive license
agreement has been centered into. On May 4, 1995, the licensing agreement
understanding was expanded to include not only the kiosks but all computer
actuated systems and mediums that HomeSelect and/or InfoTouch markets. All
computer actuated systems will be subject to a 5% royalty fee generated from
such system (gross revenues) and $.40 per active property listing. As of
October 31, 1996. The (Company is owed $71,739, such amount for listing fees
billed and unpaid as of October 31, 1996. The Company has not invoiced or
collected from TouchTech the $45,000 owed upon signing the definitive license
agreement and $45,000 payable 6 months after the definitive license agreement
was entered into. The Company has engaged in discussions TouchTech regarding a
potential acquisition of the business, however, nothing definitive has been
agreed to or resolved. Any and all discussions have been preliminary with no
agreement reached. The Company was notified by TouchTech that the Toronto Real
Estate Board ("TREB") is currently considering exercising one of its options to
subscribe for common shares of TouchTech (refer to copy of letter from TouchTech
to Company dated November 28, 1996 and letter from TREB to TouchTech dated
November 27, 1996).
Pursuant to the Company's Bylaws and Certificate of Incorporation documents, the
Company indemnifies its directors and officers to the extent allowable under
Delaware law.
The Company has not entered into any formal employee indemnification,
confidentiality or trade secrets agreements.
30
<PAGE>
In connection with the and the related agreements, anticipated that all amounts
owed to and from RIN will be eliminated.
During October 1996, the Company received notification of a small claims court
judgment against it for a small claims case totaling less than $2,000. In
November 1996, the Company paid such amount to claimant.
The Company has entered into the following discretionary bonus plans:
-Mr. Richard Janssen. President and CEO, is eligible for a Board approved
-------------------
discretionary bonus of 15% of base salary. To date, no amounts have been earned
or paid.
-Ms. Carol Garrison, Vice President of Product Development, is eligible for
------------------
a 15% of base discretionary bonus based upon objectives agreed to by and between
Ms. Garrison and the Management of the Company. To date, no amounts have been
earned or paid.
-Mr. Philip Dawley,VP Technology, is eligible for a 15% of base
-----------------
discretionary bonus based upon objectives agreed to by and between Mr. Dawley
and the Management of the Company. In fiscal 1996, $7,326 his been paid and
$3,663 has been accrued but not paid.
-Mr. Mark Kajiwara, Technical Operations Manager, is eligible for a 10% of
-----------------
base discretionary bonus based upon objectives agreed to by and between Mr.
Kajiwara and the Management of the Company. In fiscal 1996, $4,000 has been
paid and $2,000 has been accrued but not paid.
-Mr. Todd Lyche, Senior Software Engineer, is eligible for a $5,000 per
--------------
year discretionary bonus based upon objectives agreed to by and between Mr.
Lyche and the Management of the Company. To date, no amounts have been
committed to or paid.
-Mr. William Spazante, VP Finance and CFO, is eligible for a 10% of base
--------------------
discretionary bonus based upon objectives agreed to by and between Mr. Spazante
and the Management of the Company. To date, no amounts have been committed to
or paid.
InfoTouch's 1994 Stock Incentive Plan.
The Company has a standard medical plan with Blue Cross. Refer to form of
plans.
Janssen and Wolff employment agreements
Effective October 30, 1996, Ms. Carol Garrison, resigned from the Board of
Directors of the Company. Ms. Garrison is currently on a leave of absence from
her employment with the Company.
In November, 1996, the Company purchased 2 Gateway computers for $9,936.83 for
its Realtor.com Internet business.
In November 1996, the Company's Westlake Village offices were broken into and a
notebook computer, laser printer and telephone were stolen. The incident was
reported to the local authorities and the Company's insurance company, and at
present, the Company expects the replacement notebook computer to be covered by
the insurance proceeds.
31
<PAGE>
32
<PAGE>
SCHEDULE 5.2
------------
PRIOR ACTIVITIES OF NETSELECT
1. Stock and Interest Purchase Agreement, by and among NetSelect, Inc.,
InfoTouch Corporation and NetSelect L.L.C., dated November 26, 1996.
2. NetSelect, Inc. Stockholders Agreement, by and among CDW Internet, L.L.C.,
Whitney Equity Partners, L.P., Allen & Co., InfoTouch Corporation,
NetSelect L.L.C. and NetSelect, Inc., dated November 26, 1996.
3. RealSelect, Inc. Stockholders Agreement, by and among REALTORS/(R)/
Information Network, Inc., NetSelect, L.L.C. and RealSelect, Inc., dated
November 26, 1996.
4. Joint Ownership Agreement, by and between National Association of
REALTORS/(R)/, NetSelect, Inc. and RealSelect, Inc., dated November 26,
1996.
5. Software License Agreement, by and among NetSelect, Inc., RealSelect, Inc.
an REALTORS/(R)/ Information Network, Inc., dated November 26, 1996.
6. Trademark License, by and between the National Association of REALTORS/(R)/
and RealSelect, Inc., dated November 26, 1996.
7. Operating Agreement, ' by and between REALTORS Information Network, Inc.
and RealSelect, Inc., dated November 26, 1996.
8. Allen & Co. Subscription Agreement, by and between Allen & Co. and
NetSelect, Inc., dated November 26, 1996.
9. CDW Internet, L.L.C. Subscription Agreement, by and between CDW Internet,
L.L.C. and NetSelect, Inc., dated November 26, 1996.
10. Whitney Equity Partners, L.P. Subscription Agreement, by and between
Whitney Equity Partners, L.P. and NetSelect, Inc., dated November 26, 1996.
11. REALTORS/(R)/ Information Network, Inc. Subscription and Capital
Contribution Agreement, by and between REALTORS' Information Network, Inc.
and RealSelect, Inc., dated November 26, 1996.
12. Employment Agreement, dated as of November 26, 1996, by and between
NetSelect, Inc. and Stuart Wolff, Ph.D.
13. Employment Agreement, dated as of November 26, 1996, by and between
NetSelect, Inc. and Richard R. Janssen.
33
<PAGE>
14. Master Agreement, dated November 26, 1996, by and among NetSelect. Inc.,
RealSelect. Inc., CDW Internet, L.L.C., Whitney Equity Partners, L.P.,
Allen & Co., InfoTouch Corporation, and REALTORS/(R)/ Information Network,
Inc.
15. NetSelect, Inc. 1996 Stock Incentive Plan.
16. Incentive Stock Option Agreement, dated as of November 26, 1996, by and
between NetSelect, Inc. and Richard R. Janssen.
17. Incentive Stock Option Agreement, dated as of November 26, 1996, by and
between NetSelect, Inc. and Stuart Wolff, Ph.D.
18. Investor Representation, by and between Stuart Wolff, Ph.D. and InfoTouch
Corporation, dated November 26, 1996.
19. Investor Representation Letter, by and between WREN, L.L.C. and InfoTouch
Corporation, dated November 26, 1996.
20. Investor Representation Letter, by and between Dort Cameron, III and
InfoTouch Corporation, dated November 26, 1996.
21. Investor Representation Letter, by and between Andrew Dwyer and InfoTouch
Corporation, dated November 26 1996.
22. Investor Representation Letter, by and between Whitney Equity Partners,
L.P. and InfoTouch Corporation, dated November 26, 1996.
23. Investor Representation Letter, by and between Allen & Co. and InfoTouch
Corporation, dated November 26, 1996.
24. Investor Representation Letter, by and between CDW Internet, L.L.C. and
InfoTouch Corporation, dated November 26, 1996.
25. NetSelect, L.L.C. Operating Agreement, dated as of November 26, 1996, by
and between NetSelect, Inc. and InfoTouch Corporation.
26. Booz-Allen/Reach Settlement Agreement and Mutual Release, dated as of
November 26, 1996, by and between Booz-Allen & Hamilton and RealSelect,
Inc. REALTORS/(R) /Information Network, Inc.
27. Settlement Agreement and Release, dated as of November 26, 1996, by and
between InfoTouch Corporation and REALTORS/(R) /Information Network, Inc.
34
<PAGE>
SCHEDULE 5.3
------------
CAPITALIZATION
Items 2, 3, 9, 10, 11, 12, 15, 16, 17, 18, 19. 20, 21, 22, 23, 24 and 25 of
Schedule 5.2 hereto are incorporated herein by reference.
35
<PAGE>
SCHEDULE 5.5
------------
NETSELECT CONSENTS AND APPROVALS; NO VIOLATIONS
NONE
36
<PAGE>
EXHIBIT 10.07
GEOCAPITAL IV, L.P. SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of September
29, 1997, is made by and between Geocapital IV, L.P., a Delaware limited
partnership (the "Subscriber"), and NetSelect, Inc., a Delaware corporation (the
"Corporation").
W I T N E S S E T H:
WHEREAS, the capitalization of the Corporation consists of (x)
35,000,000 shares of NetSelect Class A Common Stock, par value $0.001 per share
(the "NetSelect Class A Common Stock"); (y) 10,000,000 shares of NetSelect Class
B Common Stock, par value $0.001 per share (the "NetSelect Class B Common
Stock"); and (z) 5,000,000 shares of Preferred Stock, par value $0.001 per share
(the "Preferred Stock"), of which 1,647,059 shares of Preferred Stock have been
designated as Series A Convertible Preferred Stock (the 'Series A Preferred
Stock"), 352,941 shares of Preferred Stock have been designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), and 700,000 shares
of Preferred Stock have been designated as Series C Convertible Preferred Stock
(the "Series C Preferred Stock"); and
WHEREAS, the Subscriber desires to acquire, on the date hereof, an
equity interest in the Corporation, representing 307,188 of the issued and
outstanding shares of Series C Preferred Stock (the "Subscription Shares") to be
purchased by the Subscriber in consideration of a capital contribution by the
Subscriber to the Corporation in the aggregate amount of $2,250,000.
NOW, THEREFORE, in consideration of these premises, the mutual
covenants and agreements contained in this Agreement. and in reliance upon the
representations and warranties and covenants set forth herein, the Subscriber
hereby agrees with the Corporation as follows:
SECTION 1. CAPITALIZATION OF PARTNERSHIP.
- -----------------------------------------
1.1 Subscriptions. The Subscriber hereby subscribes for the
-------------
Subscription Shares.
1.2 Contribution of Cash. The Subscriber shall purchase from the
--------------------
Corporation, on September 29, 1997, the Subscription Shares for a cash payment
in an amount equal to $2,250,000 (the "Contribution Amount").
1.3. The Closing. The Closing of the transactions contemplated by
-----------
Section 1.1 and Section 1.2 hereof (the "Closing") shall take place on September
29, 1997 (the "Closing Date") at the offices of Battle Fowler LLP, Park Avenue
Tower, 75 East 55th Street, New York, New York 10022. or such other place and
time as the parties shall mutually agree.
<PAGE>
1.4. Deliveries at the Closing.
-------------------------
(a) Deliveries at Closing by the Corporation. At the Closing,
----------------------------------------
the Corporation shall deliver to the Subscriber, stock certificates representing
the duly authorized, validly issued, fully paid and nonassessable Subscription
Shares.
(b) Deliveries at Closing by the Subscribers. At the Closing.
----------------------------------------
the Subscriber shall:
(i) deliver by wire transfer in immediately available funds the
Contribution Amount;
(ii) deliver to the Corporation that certain Amendment No. 1 to the
NetSelect. Inc. Stockholders Agreement, dated as of the date hereof
("Amendment No. 1 to the NetSelect, Inc. Stockholders Agreement"), by and
among the Corporation and its stockholders, duly executed by Subscriber;
(iii) deliver to the Corporation that certain Investor Representation
Letter, dated as of the date hereof (the "Investor Representation Letter"),
between the Corporation and the Subscriber, duly executed by Subscriber;
(iv) deliver to the Corporation this Agreement, duly executed by
Subscriber; and
(v) deliver to the Corporation any other documents, writings,
certificates or opinions as may be requested by the Corporation.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER.
- ------------------------------------------------------------
2.1. The Subscriber hereby represents and warrants to, and covenants
with the Corporation as follows:
(i) The Subscriber is purchasing the Subscription Shares for its
own account and not on behalf of any other person, group or entity, the
Subscriber is aware and acknowledges that the Subscription Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and may not be offered or sold unless the Subscription Shares are registered
under the Securities Act or an exemption from the registration requirements of
the Securities Act is available;
(ii) The Subscriber has had a reasonable opportunity to ask
questions of and receive answers from the Corporation concerning the Corporation
and the Subscription Shares, and all such questions, if any, have been answered
to the full satisfaction of the Subscriber;
(iii) No person or entity other than the Subscriber and a general
partner or limited partner of the Subscriber has any rights in and to the
Subscription Shares or any right to acquire the Subscription Shares;
2
<PAGE>
(iv) The Subscriber has such knowledge and expertise in financial
and business matters that the Subscriber is capable of evaluating the merits and
risks involved in an investment in the Subscription Shares; and the Subscriber
is financially able to bear the economic risk of the investment in the
Subscription Shares, including a total loss of such investment;
(v) The Subscriber is not purchasing the Subscription Shares with
a view to distribution, and has no present intention of dividing or allowing
others to participate in the investment or of reselling, or otherwise
participating directly or indirectly, in a distribution of the Subscription
Shares, and shall not make any sale, transfer or pledge thereof without
registration under the Securities Act and any applicable securities laws of any
state or unless an exemption from registration is available;
(vi) The Subscriber understands that the Subscription Shares are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Corporation is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Subscriber set forth herein in order to determine the applicability of such
exemptions and the suitability of Subscriber to acquire the Subscription Shares;
(vii) The Subscriber expressly acknowledges and agrees that the
Corporation is relying upon the Purchaser's representations contained in this
Agreement, and
(viii) The Subscriber expressly agrees that Subscriber shall not
initiate a suit or cause of action against Corporation for the Corporation's
failure to obtain additional financing in the form of Series C Convertible
Preferred Stock; provided, however, the foregoing shall not bar Subscriber from
-------- -------
bringing such suit as a result of fraudulent acts on the part of the
Corporation.
SECTION 3. MISCELLANEOUS.
- -------------------------
3.1. Fees and Expenses. Except as expressly provided herein each of
-----------------
the parties hereto shall each pay all of their own costs and expenses, including
any and all legal and accounting fees, incident to the negotiation, execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby whether or not such transactions shall be consummated;
provided, however, that the Corporation shall pay and reimburse Subscriber for
- -------- -------
all reasonable and documented due diligence expenses, legal fees and closing
costs incurred by the Subscriber in connection with the transactions
contemplated hereby, to the extent such expenses, fees and costs shall not
exceed $20,000.
3.2. Counterparts. This -Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
3.3. Binding Effect. All of the terms of this Agreement shall be
--------------
binding upon the respective personal representatives, heirs and successors of
the parties hereto and shall inure
3
<PAGE>
to the benefit of and be enforceable by the parties hereto and their respective
personal representatives, heirs and successors.
3.4. Assignment. Neither this Agreement nor any right or interest
----------
hereunder may be assigned in whole or in part by any party without the prior
written consent of the other parties.
3.5. Entire Agreement and Amendment. This Agreement, the Investor
------------------------------
Representation Letter and Amendment-No. 1 to the NetSelect Stockholders
Agreement contains the entire agreement between the parties hereto with respect
to the subject matter hereof. No change, modification, extension, termination,
notice of termination. discharge, abandonment or waiver of this Agreement or any
of the provisions hereof, nor any representations, promise or condition relating
to this Agreement, shall be binding upon the parties hereto unless made in
writing and signed by the parties hereto.
3.6. Captions. The captions of Sections hereof are for convenience
--------
only and shall not control or affect the meaning or construction of any of the
provisions of this Agreement.
3.7. Notices. All notices or other communications to be given or
-------
made hereunder shall be in writing and shall be deemed given when delivered
personally or mailed, by registered or certified mail, return receipt requested,
postage prepaid, or overnight delivery, to the parties hereto. (a) if to
Geocapital, to Geocapital Partners, c/o Testa, Hurwitz & Thibeault, LLP, High
Street Tower, 125 High Street, Boston, Massachusetts, 02110, Attention: Jennifer
Post, Esq. or (b) if to the Corporation, to NetSelect, Inc., 5655 Lindero Canyon
Road, Suite 106, Westlake Village, CA 91362, Attention: Stuart Wolff, Ph.D.,
with a copy to: Battle Fowler LLP, 75 East 55th Street, Park Avenue Tower, New
York, New York 10022, Attention: Charles H. Baker, Esq.
3.8. Applicable-Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Delaware as applied to
residents of that State executing contracts wholly to be performed in that
State. The Subscriber hereby expressly submits to the jurisdiction of all
federal and state courts located in the State of Delaware and consents that any
process or notice of motion or other application to any of said courts or a
judge thereof may be served within or without such court's jurisdiction by
registered mail or by personal service, provided a reasonable time for
appearance is allowed. The Subscriber also waives any claim that Delaware is an
inconvenient forum.
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date and year first above written.
GEOCAPITAL IV, L.P.
By: GEOCAPITAL MANAGEMENT L.P.,
its General Partner
By: /s/ Lawrence W. [Illegible]
--------------------------------
Name: Lawrence W. [Illegible]
Title: General Partner
NETSELECT, INC.
By: /s/ Stuart Wolff
--------------------------------
Name: Stuart Wolff, Ph.D.
Title: Chief Executive Officer
5
<PAGE>
EXHIBIT 10.08
BROADVIEW PARTNERS GROUP SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of September
29, 1997, is made by and between Broadview Partners Group (the "Subscriber"),
and NetSelect, Inc., a Delaware corporation (the "Corporation").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the capitalization of the Corporation consists of (x)
35,000,000 shares of NetSelect Class A Common Stock, par value $0.001 per share
(the "NetSelect Class A Common Stock"); (y) 10,000,000 shares of NetSelect Class
B Common Stock, par value $0.001 per share (the "NetSelect Class B Common
Stock"); and (z) 5,000,000 shares of Preferred Stock, par value $0.001 per share
(the "Preferred Stock"), of which 1,647,059 shares of Preferred Stock have been
designated as Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), 352,941 shares of Preferred Stock have been designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), and 700,000 shares
of Preferred Stock have been designated as Series C Convertible Preferred Stock
(the "Series C Preferred Stock"); and
WHEREAS, the Subscriber desires to acquire, on the date hereof, an
equity interest in the Corporation, representing 13,652 of the issued and
outstanding shares of Series C Preferred Stock (the "Subscription Shares") to be
purchased by the Subscriber in consideration of a capital contribution by the
Subscriber to the Corporation in the aggregate amount of $100,000.
NOW, THEREFORE, in consideration of these premises, the mutual
covenants and agreements contained in this Agreement, and in reliance upon the
representations and warranties and covenants set forth herein, the Subscriber
hereby agrees with the Corporation as follows:
SECTION 1. CAPITALIZATION OF PARTNERSHIP.
- -----------------------------------------
1.1. Subscriptions. The Subscriber hereby subscribes for the
-------------
Subscription Shares.
1.2. Contribution of Cash. The Subscriber shall purchase from the
--------------------
Corporation, on September 29, 1997, the Subscription Shares for a cash payment
in an amount equal to $100,000 (the "Contribution Amount").
1.3. The Closing. The Closing of the transactions contemplated by
-----------
Section 1.1 and Section 1.2 hereof (the "Closing") shall take place on September
29, 1997 (the "Closing Date") at the offices of Battle Fowler LLP, Park Avenue
Tower, 75 East 55th Street, New York, New York 10022, or such other place and
time as the parties shall mutually agree.
<PAGE>
1.4. Deliveries at the Closing.
-------------------------
(a) Deliveries at Closing by the Corporation. At the Closing, the
----------------------------------------
Corporation shall deliver to the Subscriber, stock certificates representing the
duly authorized, validly issued, fully paid and nonassessable Subscription
Shares.
(b) Deliveries at Closing by the Subscribers. At the Closing, the
----------------------------------------
Subscriber shall:
(i) deliver by wire transfer in immediately available funds the
Contribution Amount;
(ii) deliver to the Corporation that certain Amendment No. 1 to the
NetSelect, Inc. Stockholders Agreement, dated as of the date hereof
("Amendment No. 1 to the NetSelect, Inc. Stockholders Agreement"), by and
among the Corporation and its stockholders, duly executed by Subscriber;
(iii) deliver to the Corporation that certain Investor Representation
Letter, dated as of the date hereof (the "Investor Representation Letter"),
between the Corporation and the Subscriber, duly executed by Subscriber;
(iv) deliver to the Corporation this Agreement, duly executed by
Subscriber; and
(v) deliver to the Corporation any other documents, writings,
certificates or opinions as may be requested by the Corporation.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER.
- ------------------------------------------------------------
2.1. The Subscriber hereby represents and warrants to, and
covenants with the Corporation as follows:
(i) The Subscriber is purchasing the Subscription Shares for its
own account and not on behalf of any other person, group or entity, the
Subscriber is aware and acknowledges that the Subscription Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and may not be offered or sold unless the Subscription Shares are registered
under the Securities Act or an exemption from the registration requirements of
the Securities Act is available;
(ii) The Subscriber has had a reasonable opportunity to ask
questions of and receive answers from the Corporation concerning the Corporation
and the Subscription Shares, and all such questions, if any, have been answered
to the full satisfaction of the Subscriber;
(iii) No person or entity other than the Subscriber and a general
partner or limited partner of the Subscriber has any rights in and to the
Subscription Shares or any right to acquire the Subscription Shares;
2
<PAGE>
(iv) The Subscriber has such knowledge and expertise in financial
and business matters that the Subscriber is capable of evaluating the merits and
risks involved in an investment in the Subscription Shares; and the Subscriber
is financially able to bear the economic risk of the investment in the
Subscription Shares, including a total loss of such investment;
(v) The Subscriber is not purchasing the Subscription Shares with
a view to distribution, and has no present intention of dividing or allowing
others to participate in the investment or of reselling, or otherwise
participating directly or indirectly, in a distribution of the Subscription
Shares, and shall not make any sale, transfer or pledge thereof without
registration under the Securities Act and any applicable securities laws of any
state or unless an exemption from registration is available;
(vi) The Subscriber understands that the Subscription Shares are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Corporation is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Subscriber set forth herein in order to determine the applicability of such
exemptions and the suitability of Subscriber to acquire the Subscription Shares;
(vii) The Subscriber expressly acknowledges and agrees that the
Corporation is relying upon the Purchaser's representations contained in this
Agreement; and
(viii) The Subscriber expressly agrees that Subscriber shall not
initiate a suit or cause of action against Corporation for the Corporation's
failure to obtain additional financing in the form of Series C Convertible
Preferred Stock; provided, however, the foregoing shall not bar Subscriber from
-------- -------
bringing such suit as a result of fraudulent acts on the part of the
Corporation.
SECTION 3. MISCELLANEOUS.
- ------------------------
3.1. Fees and Expenses. Except as expressly provided herein each of
-----------------
the parties hereto shall each pay all of their own costs and expenses, including
any and all legal and accounting fees, incident to the negotiation, execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby whether or not such transactions shall be consummated.
3.2. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
3.3. Binding Effect. All of the terms of this Agreement shall be
--------------
binding upon the respective personal representatives, heirs and successors of
the parties hereto and shall inure to the benefit of and be enforceable by the
parties hereto and their respective personal representatives, heirs and
successors.
3
<PAGE>
3.4. Assignment. Neither this Agreement nor any right or interest
----------
hereunder may be assigned in whole or in part by any party without the prior
written consent of the other parties.
3.5. Entire Agreement and Amendment. This Agreement, the Investor
-------------------------------
Representation Letter and Amendment No. 1 to the NetSelect Stockholders
Agreement contains the entire agreement between the parties hereto with respect
to the subject matter hereof. No change, modification, extension, termination,
notice of termination, discharge, abandonment or waiver of this Agreement or any
of the provisions hereof, nor any representations, promise or condition relating
to this Agreement, shall be binding upon the parties hereto unless made in
writing and signed by the parties hereto.
3.6. Captions. The captions of Sections hereof are for convenience
--------
only and shall not control or affect the meaning or construction of any of the
provisions of this Agreement.
3.7. Notices. All notices or other communications to be given or
-------
made hereunder shall be in writing and shall be deemed given when delivered
personally or mailed, by registered or certified mail, return receipt requested,
postage prepaid, or overnight delivery, to the parties hereto, (a) if to the
Subscriber, c/o Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High
Street, Boston, Massachusetts, 02110, Attention: Jennifer Post, Esq. or (b) if
to the Corporation, to NetSelect, Inc., 5655 Lindero Canyon Road, Suite 106,
Westlake Village, CA 91362, Attention: Stuart Wolff, Ph.D., with a copy to:
Battle Fowler LLP, 75 East 55th Street, Park Avenue Tower, New York, New York
10022, Attention: Charles H. Baker, Esq.
3.8. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Delaware as applied to
residents of that State executing contracts wholly to be performed in that
State. The Subscriber hereby expressly submits to the jurisdiction of all
federal and state courts located in the State of Delaware and consents that any
process or notice of motion or other application to any of said courts or a
judge thereof may be served within or without such court's jurisdiction by
registered mail or by personal service, provided a reasonable time for
appearance is allowed. The Subscriber also waives any claim that Delaware is an
inconvenient forum.
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date and year first above written.
BROADVIEW PARTNERS GROUP
By: Peter J. Mooney, Nominee
By:________________________________
Name: Peter J. Mooney
Title:
NETSELECT, INC.
By:___________________________________
Name: Stuart Wolff, Ph.D.
Title: Chief Executive Officer
5
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date and year first above written.
BROADVIEW PARTNERS GROUP
By: Peter J. Mooney, Nominee
By: /s/ Peter J. Mooney
-------------------------------
Name: Peter J. Mooney
Title: Nominee
NETSELECT, INC.
By:___________________________________
Name: Stuart Wolff, Ph.D.
Title: Chief Executive Officer
6
<PAGE>
EXHIBIT 10.09
INGLESIDE INTERESTS, A CALIFORNIA LIMITED PARTNERSHIP
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of September
29, 1997, is made by and between Ingleside Interests, A California Limited
Partnership, a California limited partnership (the "Subscriber"), and NetSelect,
Inc., a Delaware corporation (the "Corporation").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the capitalization of the Corporation consists of (x)
35,000,000 shares of NetSelect Class A Common Stock, par value $0.001 per share
(the "NetSelect Class A Common Stock"); (y) 10,000,000 shares of NetSelect Class
B Common Stock, par value $0.001 per share (the "NetSelect Class B Common
Stock"); and (z) 5,000,000 shares of Preferred Stock, par value $0.001 per share
(the "Preferred Stock"), of which 1,647,059 shares of Preferred Stock have been
designated as Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), 352,941 shares of Preferred Stock have been designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), and 700,000 shares
of Preferred Stock have been designated as Series C Convertible Preferred Stock
(the "Series C Preferred Stock"); and
WHEREAS, the Subscriber desires to acquire, on the date hereof, an
equity interest in the Corporation, representing 95,569 of the issued and
outstanding shares of Series C Preferred Stock (the "Subscription Shares") to be
purchased by the Subscriber in consideration of a capital contribution by the
Subscriber to the Corporation in the amount of $700,000.
NOW, THEREFORE, in consideration of these premises, the mutual
covenants and agreements contained in this Agreement, and in reliance upon the
representations and warranties and covenants set forth herein, the Subscriber
hereby agrees with the Corporation as follows:
SECTION 1. SUBSCRIPTION.
- ------------------------
1.1. Subscriptions. The Subscriber hereby subscribes for the
-------------
Subscription Shares.
1.2. Contribution of Cash. On the hereof, the Subscriber shall
--------------------
purchase from the Corporation, on September 29, 1997, the Subscription Shares
for a cash payment in an amount equal to $700,000 (the "Contribution Amount").
1.3. The Closing. The Closing of the transactions contemplated by
-----------
Section 1.1 and Section 1.2 hereof (the "Closing") shall take place on September
29, 1997 (the "Closing Date"), at the offices of Battle Fowler LLP, Park Avenue
Tower, 75 East 55th Street, New York, New York 10022, or at such other place and
time as the parties hereto shall mutually agree.
<PAGE>
1.4. Deliveries at the Closing.
-------------------------
(a) Deliveries at Closing by the Corporation. At the Closing, the
----------------------------------------
Corporation shall deliver to the Subscriber, stock certificates representing the
duly authorized, validly issued, fully paid and nonassessable Subscription
Shares, a copy of the resolutions of the Corporation's Board of Directors
creating and authorizing the issuance of the shares of Series C Preferred Stock
(including the Subscription Shares), and a copy of a certified copy of the
certificate of designation filed with the Delaware Secretary of State with
respect to the Series C Preferred Stock.
(b) Deliveries at Closing by the Subscriber. At the Closing, the
---------------------------------------
Subscriber shall:
(i) deliver by wire transfer in immediately available funds the
Contribution Amount;
(ii) deliver to the Corporation that certain Amendment No. 1 to the
NetSelect, Inc. Stockholders Agreement, dated as of the date hereof ("Amendment
No. 1 to the NetSelect, Inc. Stockholders Agreement"), by and among the
Corporation and its stockholders, duly executed by Subscriber;
(iii) deliver to the Corporation that certain Investor Representation
Letter, dated as of the date hereof (the "Investor Representation Letter"),
between the Corporation and the Subscriber, duly executed by Subscriber; and
(iv) deliver to the Corporation this Agreement, duly executed by
Subscriber.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER.
- ------------------------------------------------------------
2.1. The Subscriber hereby represents and warrants to, and covenants
with the Corporation as follows:
(i) The Subscriber is purchasing the Subscription Shares for its
own account and not on behalf of any other person, group or entity, the
Subscriber is aware and acknowledges that the Subscription Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and may not be offered or sold unless the Subscription Shares are registered
under the Securities Act or an exemption from the registration requirements of
the Securities Act is available;
(ii) The Subscriber has had a reasonable opportunity to ask
questions of and receive answers from the Corporation concerning the Corporation
and the Subscription Shares, and all such questions, if any, have been answered
to the full satisfaction of the Subscriber;
2
<PAGE>
(iii) No person or entity other than the Subscriber and the general
or limited partners of the Subscriber has any rights in and to the Subscription
Shares or any right to acquire the Subscription Shares;
(iv) The Subscriber has such knowledge and expertise in financial
and business matters that the Subscriber is capable of evaluating the merits and
risks involved in an investment in the Subscription Shares; and the Subscriber
is financially able to bear the economic risk of the investment in the
Subscription Shares, including a total loss of such investment;
(v) The Subscriber is not purchasing the Subscription Shares with a
view to distribution, and has no present intention of dividing or allowing
others to participate in the investment or of reselling, or otherwise
participating directly or indirectly, in a distribution of the Subscription
Shares. and shall not make any sale, transfer or pledge thereof without
registration under the Securities Act and any applicable securities laws of any
state or unless an exemption from registration is available;
(vi) The Subscriber understands that the Subscription Shares are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Corporation is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Subscriber set forth herein in order to determine the applicability of such
exemptions and the suitability of Subscriber to acquire the Subscription Shares;
(vii) The Subscriber expressly acknowledges and agrees that the
Corporation is relying upon the Purchaser's representations contained in this
Agreement; and
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
- -------------------------------------------------------------
3.1. The Corporation hereby represents and warrants to, and
covenants with the Corporation as follows:
The Corporation hereby represents and warrants to, and
covenants with, the Subscriber that the Subscription Shares are duly authorized
and, when the Contribution Amount is received by the Corporation, will be
validly issued, fully paid and nonassessable.
SECTION 4. MISCELLANEOUS.
- -------------------------
4.1. Fees and Expenses. Except as expressly provided herein each of
-----------------
the parties hereto shall each pay all of their own costs and expenses, including
any and all legal and accounting fees, incident to the negotiation, execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby whether or not such transactions shall be consummated,
3
<PAGE>
4.2. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
4.3. Binding Effect. All of the terms of this Agreement shall be
--------------
binding upon the respective personal representatives, heirs and successors of
the parties hereto and shall inure to the benefit of and be enforceable by the
parties hereto and their respective personal representatives, heirs and
successors.
4.4. Assignment. Neither this Agreement nor any right or interest
----------
hereunder may be assigned in whole or in part by any party without the prior
written consent of the other parties.
4.5. Entire Agreement and Amendment. This Agreement, the Investor
------------------------------
Representation Letter and Amendment No. 1 to the NetSelect Stockholders
Agreement contains the entire agreement between the parties hereto with respect
to the subject matter hereof. No change, modification, extension, termination,
notice of termination, discharge, abandonment or waiver of this Agreement or any
of the
**missing pages or text
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date and year first above written.
INGLESIDE INTERESTS, A CALIFORNIA
LIMITED PARTNERSHIP
By: /s/ Joe F. Hanauer
-----------------------------------
Joe F. Hanauer, General Partner
NETSELECT, INC.
By: /s/ Stuart Wolff
-----------------------------------
Name: Stuart Wolff, Ph.D.
Title: Chief Executive Officer
4
<PAGE>
3.7. Notices. All notices or other communications to be given or
-------
made hereunder shall be in writing and shall be deemed given when delivered
personally or mailed, by registered or certified mail, return receipt requested,
postage prepaid, or overnight delivery, to the parties hereto, as the case may
be, (a) in the case of the Subscriber, to Grubb & Ellis Co., 361 Forest Ave.,
Suite 220, Laguna Beach, CA 92651; and (b) in the case of the Corporation, to
NetSelect, Inc., 5655 Lindero Canyon Road, Suite 106, Westlake Village,
California 91632, Attention: Stuart Wolff, Ph.D., facsimile no.: (818) 879-5822.
3.8. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Delaware as applied to
residents of that State executing contracts wholly to be performed in that
State. The Subscriber hereby expressly submits to the jurisdiction of all
federal and state courts located in the State of Delaware and consents that any
process or notice of motion or other application to any of said courts or a
judge thereof may be served within or without such court's jurisdiction by
registered mail or by personal service, provided a reasonable time for
appearance is allowed. The Subscriber also waives any claim that Delaware is an
inconvenient forum.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date and year first above written.
By:__________________________________
Joe F. Hanauer, Individually
NETSELECT, INC.
By:__________________________________
Name: Stuart Wolff, Ph.D.
Title: Chief Executive Officer
5
<PAGE>
EXHIBIT 10.10
DANIEL A. KOCH SUBSCRIPTION AGREEMEENT
This SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of September 29,
1997 is made by and between Daniel A. Koch (the "Subscriber"), and NetSelect,
Inc., a Delaware corporation (the "Corporation").
W I T N E S S E T H:
-------------------
WHEREAS, the capitalization of the Corporation consists of (x) 35,000,000
shares of NetSelect Class A Common Stock, par value $0.001 per share (the
"NetSelect Class A Common Stock"); (y) 10,000,000 shares of NetSelect Class B
Common Stock, par value $0.001 per share (the "NetSelect Class B Common Stock");
and (z) 5,000,000 shares of Preferred Stock, par value $0.001 per share (the
"Preferred Stock"), of which 1,647,059 shares of Preferred Stock have been
designated as Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), 352,941 shares of Preferred Stock have been designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), and 700,000 shares
of Preferred Stock have been designated as Series C Convertible Preferred Stock
(the "Series C Preferred Stock"); and
WHEREAS, the Subscriber desires to acquire, on December 15, 1997, an equity
interest in the Corporation, representing 75,090 of the issued and outstanding
shares of Series C Preferred Stock (the "Subscription Shares") to be purchased
by the Subscriber in consideration of a capital contribution by the Subscriber
to the Corporation in the amount of $550,000.
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and agreements contained in this Agreement, and in reliance upon the
representations and warranties and covenants set forth herein, the Subscriber
hereby agrees with the Corporation as follows:
SECTION 1. CAPITALIZATION OF PARTNERSHIP,
- -----------------------------------------
1.1. Subscriptions. The Subscriber hereby subscribes for the
-------------
Subscription Shares.
1.2. Contribution of Cash. On December 15, 1997, the Subscriber
--------------------
shall purchase from the Corporation the Subscription Shares for an aggregate
cash payment in an amount equal to $550,000, plus interest accruing from the
date hereof through and including the Closing Date at a rate equal to the Prime
Rate (as reported in the Wall Street Journal. on the Closing Date) (the
"Contribution Amount").
1.3. The Closing. The Closing of the transactions contemplated
-----------
by Section 1.1 and Section 1.2 hereof (the "Closing") shall take place on
December 15, 1997 (the "Closing Date"), at the offices of Battle Fowler LLP,
Park Avenue Tower, 75 East 55th Street, New York, New York 10022, or at such
other place and time as the parties hereto shall mutually agree.
<PAGE>
1.4. Deliveries at the Closing.
-------------------------
(a) Deliveries at Closing by the Corporation. At the Closing, the
----------------------------------------
Corporation shall deliver to the Subscriber, stock certificates representing the
duly authorized, validly issued, fully paid and nonassessable Subscription
Shares.
(b) Deliveries at Closing by the Subscriber. At the Closing, the
---------------------------------------
Subscriber shall:
(i) deliver by wire transfer in immediately available funds the
Contribution Amount;
(ii) deliver to the Corporation that certain Investor Representation
Letter, dated as of the date hereof (the "Investor Representation Letter"),
between the Corporation and the Subscriber. duly executed by Subscriber;
(iii) deliver to the Corporation this Agreement, duly executed by
Subscriber; and
(iv) deliver to the Corporation any other documents, writings,
certificates or opinions as may be requested by the Corporation.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER.
- ------------------------------------------------------------
2.1. The Subscriber hereby represents and warrants to, and covenants
with the Corporation as follows:
(i) The Subscriber is purchasing the Subscription Shares for its own
account and not on behalf of any other person, group or entity, the Subscriber
is aware and acknowledges that the Subscription Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold unless the Subscription Shares are registered under the
Securities Act or an exemption from the registration requirements of the
Securities Act is available;
(ii) The Subscriber has had a reasonable opportunity to ask questions
of and receive answers from the Corporation concerning the Corporation and the
Subscription Shares, and all such questions, if any, have been answered to the
full satisfaction of the Subscriber;
(iii) No person or entity other than the Subscriber and a general
partner or limited partner of the Subscriber has any rights in and to the
Subscription Shares or any right to acquire the Subscription Shares;
(iv) The Subscriber has such knowledge and expertise in financial and
business matters that the Subscriber is capable of evaluating the merits and
risks involved in an investment in the Subscription Shares; and the Subscriber
is financially able to bear the
2
<PAGE>
economic risk of the investment in the Subscription Shares, including a total
loss of such investment;
(v) The Subscriber is not purchasing the Subscription Shares with a
view to distribution, and has no present intention of dividing or allowing
others to participate in the investment or of reselling, or otherwise
participating directly or indirectly, in a distribution of the Subscription
Shares, and shall not make any sale, transfer or pledge thereof without
registration under the Securities Act and any applicable securities laws of any
state or unless an exemption from registration is available;
(vi) The Subscriber understands that the Subscription Shares are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Corporation is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Subscriber set forth herein in order to determine the applicability of such
exemptions and the suitability of Subscriber to acquire the Subscription Shares;
(vii) The Subscriber expressly acknowledges and agrees that the
Corporation is relying upon the Purchaser's representations contained in this
Agreement;
(viii) The Subscriber expressly agrees that Subscriber shall not
initiate a suit or cause of action against Corporation for the Corporation's
failure to obtain additional financing in the form of Series C Convertible
Preferred Stock; provided, however, the foregoing shall not bar the Subscriber
-------- -------
from bringing such suit as a result of fraudulent acts on the part of the
Corporation; and
(ix) The Subscriber agrees to be bound to the terms and provisions
of this Agreement regardless of whether a material adverse change in the
business, operations, results of operations or condition (financial or
otherwise) of the Corporation has occurred prior to the Closing Date, including
any damage, destruction or loss of any material assets or properties of the
Corporation that could have or has had a material adverse effect on the
business, operations, results of operations or condition (financial or
otherwise) of the Corporation, whether or not covered by insurance.
SECTION 3. MISCELLANEOUS.
- -------------------------
3.1. Fees and Expenses. Except as expressly provided herein each of
-----------------
the parties hereto shall each pay all of their own costs and expenses, including
any and all legal and accounting fees, incident to the negotiation, execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby whether or not such transactions shall be consummated.
3.2. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
3
<PAGE>
3.3. Binding Effect. All of the terms of this Agreement shall be
--------------
binding upon the respective personal representatives, heirs and successors of
the parties hereto and shall inure to the benefit of and be enforceable by the
parties hereto and their respective personal representatives, heirs and
successors.
3.4. Assignment. Neither this Agreement nor any right or interest
----------
hereunder may be assigned in whole or in part by any party without the prior
written consent of the other parties.
3.5. Entire Agreement and Amendment. This Agreement and the Investor
------------------------------
Representation Letter contains the entire agreement between the parties hereto
with respect to the subject matter hereof. No change, modification, extension,
termination, notice of termination, discharge, abandonment or waiver of this
Agreement or any of the provisions hereof, nor any representations, promise or
condition relating to this Agreement, shall be binding upon the parties hereto
unless made in writing and signed by the parties hereto.
3.6. Captions. The captions of Sections hereof are for convenience
--------
only and shall not control or affect the meaning or construction of any of the
provisions of this Agreement.
3.7. Notices. All notices or other communications to be given or made
-------
hereunder shall be in writing and shall be deemed given when delivered
personally or mailed, by registered or certified mail, return receipt requested,
postage prepaid, or overnight delivery, to the parties hereto, as the case may
be, (a) in the case of the Subscriber, to Harry Koch & Co., 2121 S. 44th St..
Omaha, NE 68106; and (b) in the case of the Corporation, to NetSelect, Inc.,
5655 Lindero Canyon Road, Suite 106, Westlake Village, California 91632,
Attention: Stuart Wolff, Ph.D., facsimile no.: (818) 879-5822.
3.8. Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of Delaware as applied to residents of
that State executing contracts wholly to be performed in that State. The
Subscriber hereby expressly submits to the jurisdiction of all federal and state
courts located in the State of Delaware and consents that any process or notice
of motion or other application to any of said courts or a judge thereof may be
served within or without such court's jurisdiction by registered mail or by
personal service, provided a reasonable time for appearance is allowed. The
Subscriber also waives any claim that Delaware is an inconvenient forum.
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date and year first above written.
/s/ Daniel A. Koch
---------------------------------
Daniel A. Koch, Individually
NETSELECT, INC.
By: /s/ Stuart Wolff
------------------------------
Name: Stuart Wolff, Ph.D.
Title: Chief Executive Officer
5
<PAGE>
EXHIBIT 10.11
WHITNEY EQUITY PARTNERS, L.P. SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of September 29,
1997, is made by and between Whitney Equity Partners, L.P., a Delaware limited
liability partnership (the "Subscriber"), and NetSelect, Inc., a Delaware
corporation (the "Corporation").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the capitalization of the Corporation consists of (x) 35,000,000
shares of NetSelect Class A Common Stock, par value $0.001 per share (the
"NetSelect Class A Common Stock"); (y) 10,000,000 shares of NetSelect Class B
Common Stock, par value $0.001 per share (the "NetSelect Class B Common Stock");
and (z) 5,000,000 shares of Preferred Stock, par value $0.001 per share (the
"Preferred Stock"), of which 1,647,059 shares of Preferred Stock have been
designated as Series A Convertible Preferred Stock (the 'Series A Preferred
Stock"), 352,941 shares of Preferred Stock have been designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), and 700,000 shares
of Preferred Stock have been designated as Series C Convertible Preferred Stock
(the "Series C Preferred Stock"); and
WHEREAS, the Subscriber desires to acquire, on the date hereof, an equity
interest in the Corporation, representing 122,875 of the issued and outstanding
shares of Series C Preferred Stock (the "Subscription Shares") to be purchased
by the Subscriber in consideration of a capital contribution by the Subscriber
to the Corporation in the aggregate amount of $900,000.
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and agreements contained in this Agreement, and in reliance upon the
representations and warranties and covenants set forth herein, the Subscriber
hereby agrees with the Corporation as follows:
SECTION 1. CAPITALIZATION OF PARTNERSHIP
- -----------------------------------------
1.1. Subscriptions. The Subscriber hereby subscribes for the Subscription
-------------
Shares.
1.2. Contribution of Cash. On the date hereof, the Subscriber shall
--------------------
purchase from the Corporation the Subscription Shares for a cash payment in an
amount equal to $900,000 (the "Contribution Amount").
1.3. The Closing. The Closing of the transactions contemplated by Section
-----------
1.1 and Section 1.2 hereof (the "Closing") shall take place on September 29,
1997 (the "Closing Date"), at the offices of Battle Fowler LLP, Park Avenue
Tower, 75 East 55th Street, New York, New York 10022, or at such other place and
time as the parties hereto shall mutually agree.
<PAGE>
1.4. Deliveries at the Closing.
-------------------------
(a) Deliveries at Closing by the Corporation. At the Closing, the
----------------------------------------
Corporation shall deliver to the Subscriber, stock certificates representing the
duly authorized, validly issued, fully paid and nonassessable Subscription
Shares.
(b) Deliveries at Closing by the Subscriber. At the Closing, the
---------------------------------------
Subscriber shall:
(i) deliver by wire transfer in immediately available funds the
Contribution Amount;
(ii) deliver to the Corporation that certain Investor Representation
Letter, dated as of the date hereof (the "Investor Representation Letter"),
between the Corporation and the Subscriber, duly executed by Subscriber;
(iii) deliver to the Corporation this Agreement, duly executed by
Subscriber, and
(iv) deliver to the Corporation any other documents, writings,
certificates or opinions as may be requested by the Corporation.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER.
- ------------------------------------------------------------
2.1. The Subscriber hereby represents and warrants to, and covenants with
the Corporation as follows:
(i) The Subscriber is purchasing the Subscription Shares for its own
account and not on behalf of any other person, group or entity, the Subscriber
is aware and acknowledges that the Subscription Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold unless the Subscription Shares are registered under the
Securities Act or an exemption from the registration requirements of the
Securities Act is available;
(ii) The Subscriber has had a reasonable opportunity to ask questions of
and receive answers from the Corporation concerning the Corporation and the
Subscription Shares, and all such questions, if any, have been answered to the
full satisfaction of the Subscriber;
(iii) No person or entity other than the Subscriber and a general partner
or limited partner of the Subscriber has any rights in and to the Subscription
Shares or any right to acquire the Subscription Shares;
(iv) The Subscriber has such knowledge and expertise in financial and
business matters that the Subscriber is capable of evaluating the merits and
risks involved in an investment in the Subscription Shares; and the Subscriber
is financially able to bear the economic risk of the investment in the
Subscription Shares, including a total loss of such investment;
2
<PAGE>
(v) The Subscriber is not purchasing the Subscription Shares with a view
to distribution, and has no present intention of dividing or allowing others to
participate in the investment or of reselling, or otherwise participating
directly or indirectly, in a distribution of the Subscription Shares, and shall
not make any sale, transfer or pledge thereof without registration under the
Securities Act and any applicable securities laws of any state or unless an
exemption from registration is available,
(vi) The Subscriber understands that the Subscription Shares are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Corporation is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Subscriber set
forth herein in order to determine the applicability of such exemptions and the
suitability of Subscriber to acquire the Subscription Shares;
(vii) The Subscriber expressly acknowledges and agrees that the
Corporation is relying upon the Purchaser's representations contained in this
Agreement; and
(viii) The Subscriber expressly agrees that Subscriber shall not initiate a
suit or cause of action against Corporation for the Corporation's failure to
obtain additional financing in the form of Series C Convertible Preferred Stock;
provided, however, the foregoing shall not bar the Subscriber from bringing such
- -------- -------
suit as a result of fraudulent acts on the part of the Corporation.
SECTION 3. MISCELLANEOUS.
- -------------------------
3.1. Fees and Expenses. Except as expressly provided herein each of the
-----------------
parties hereto shall each pay all of their own costs and expenses, including any
and all legal and accounting fees, incident to the negotiation, execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby whether or not such transactions shall be consummated.
3.2. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
3.3. Binding Effect. All of the terms of this Agreement shall be binding
--------------
upon the respective personal representatives, heirs and successors of the
parties hereto and shall inure to the benefit of and be enforceable by the
parties hereto and their respective personal representatives, heirs and
successors.
3.4. Assignment. Neither this Agreement nor any right or interest hereunder
----------
may be assigned in whole or in part by any party without the prior written
consent of the other parties.
3.5. Entire Agreement and Amendment. This Agreement the Investor
------------------------------
Representation Letter contains the entire agreement between the parties hereto
with respect to the subject matter hereof. No change, modification, extension,
termination, notice of
3
<PAGE>
termination, discharge, abandonment or waiver of this Agreement or any of the
provisions hereof, nor any representations, promise or condition relating to
this Agreement, shall be binding upon the parties hereto unless made in writing
and signed by the parties hereto.
3.6. Captions. The captions of Sections hereof are for convenience only and
--------
shall not control or affect the meaning or construction of any of the provisions
of this Agreement.
3.7. Notices. All notices or other communications to be given or made
-------
hereunder shall be in writing and shall be deemed given when delivered
personally or mailed, by registered or certified mail, return receipt requested,
postage prepaid, or overnight delivery, to the parties, as the case may be, (a)
in the case of the Subscriber, to 177 Broad Street, 15th Floor, Stamford, CT
06901, Attention: Daniel J. O'Brien; and (b) in the case of the Corporation, to
NetSelect, Inc., 5655 Lindero Canyon Road, Suite 106, Westlake Village,
California 91632, Attention: Stuart Wolff, Ph.D., facsimile no.: (818) 879-5822.
3.8. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Delaware as applied to residents of
that State executing contracts wholly to be performed in that State. The
Subscriber hereby expressly submits to the jurisdiction of all federal and state
courts located in the State of Delaware and consents that any process or notice
of motion or other application to any of said courts or a judge thereof may be
served within or without such court's jurisdiction by registered mail or by
personal service, provided a reasonable time for appearance is allowed. The
Subscriber also waives any claim that Delaware is an inconvenient forum.
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date and year first above written.
WHITNEY EQUITY PARTNERS, L.P.
By: J. H. Whitney & Co.
its General Partner
By: /s/ David J. [Illegible]
-------------------------------------
Name: David J. [Illegible]
Title: Managing Member
NETSELECT, INC.
By: _____________________________________
Name: Stuart Wolff, Ph.D.
Title: Chief Executive Officer
5
<PAGE>
EXHIBIT 10.12
CDW INTERNET, L.L.C. SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of September 29,
1997, is made by and between CDW Internet, L.L.C., a Delaware limited
partnership (the "Subscriber"), and NetSelect, Inc., a Delaware corporation (the
"Corporation").
WHEREAS, the capitalization of the Corporation consists of (x) 35,000,000
shares of NetSelect Class A Common Stock, par value $0.001 per share (the
"NetSelect Class A Common Stock"); (y) 10,000,000 shares of NetSelect Class B
Common Stock, par value $0.001 per share (the "NetSelect Class B Common Stock");
and (z) 5,000,000 shares of Preferred Stock, par value $0.001 per share (the
"Preferred Stock"), of which 1,647,059 shares of Preferred Stock have been
designated as Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), 352,941 shares of Preferred Stock have been designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), and 700,000 shares
of Preferred Stock have been designated as Series C Convertible Preferred Stock
(the "Series C Preferred Stock"); and
WHEREAS, the Subscriber desires to acquire, on December 15, 1997, an equity
interest in the Corporation, representing 75,090 of the issued and outstanding
shares of Series C Preferred Stock (the "Subscription Shares") to be purchased
by the Subscriber in consideration of a capital contribution by the Subscriber
to the Corporation in the amount of $550,000.
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and agreements contained in this Agreement, and in reliance upon the
representations and warranties and covenants set forth herein, the Subscriber
hereby agrees with the Corporation as follows:
SECTION 1. CAPITALIZATION OF PARTNERSHIP.
- ------------------------------------------
1.1. Subscriptions. The Subscriber hereby subscribes for the Subscription
-------------
Shares.
1.2. Contribution of Cash. On December 15, 1997, the Subscriber shall
--------------------
purchase from the Corporation the Subscription Shares for an aggregate cash
payment in an amount equal to $550,000, plus interest accruing from the date
hereof through and including the Closing Date at a rate equal to the Prime Rate
(as reported in the Wall Street Journal on the Closing Date) (the "Contribution
Amount").
1.3. The Closing. The Closing of the transactions contemplated by Section
-----------
1.1 and Section 1.2 hereof (the "Closing") shall take place on December 15, 1997
(the "Closing Date"), at the offices of Battle Fowler LLP, Park Avenue Tower, 75
East 55th Street, New York, New York 10022, or at such other place and time as
the parties hereto shall mutually agree.
<PAGE>
1.4. Deliveries at the Closing.
-------------------------
(a) Deliveries at Closing by the Corporation. At the Closing,
----------------------------------------
the Corporation shall deliver to the Subscriber, stock certificates representing
the duly authorized, validly issued, fully paid and nonassessable Subscription
Shares.
(b) Deliveries at Closing by the Subscriber. At the Closing, the
---------------------------------------
Subscriber shall:
(i) deliver by wire transfer in immediately available funds the
Contribution Amount;
(ii) deliver to the Corporation that certain Investor
Representation Letter, dated as of the date hereof (the "Investor
Representation Letter"), between the Corporation and the Subscriber,
duly executed by Subscriber;
(iii) deliver to the Corporation this Agreement, duly executed by
Subscriber; and
(iv) deliver to the Corporation any other documents, writings,
certificates or opinions as may be requested by the Corporation.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER.
- ------------------------------------------------------------
2.1. The Subscriber hereby represents and warrants to, and covenants with
the Corporation as follows:
(i) The Subscriber is purchasing the Subscription Shares for its own
account and not on behalf of any other person, group or entity, the Subscriber
is aware and acknowledges that the Subscription Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold unless the Subscription Shares are registered under the
Securities Act or an exemption from the registration requirements of the
Securities Act is available;
(ii) The Subscriber has had a reasonable opportunity to ask questions of
and receive answers from the Corporation concerning the Corporation and the
Subscription Shares, and all such questions, if any, have been answered to the
full satisfaction of the Subscriber;
(iii) No person or entity other than the Subscriber and a general partner
or limited partner of the Subscriber has any rights in and to the Subscription
Shares or any right to acquire the Subscription Shares;
(iv) The Subscriber has such knowledge and expertise in financial and
business matters that the Subscriber is capable of evaluating the merits and
risks involved in an investment in the Subscription Shares; and the Subscriber
is financially able to bear the economic risk of the investment in the
Subscription Shares, including a total loss of such investment;
2
<PAGE>
(v) The Subscriber is not purchasing the Subscription Shares with a view
to distribution, and has no present intention of dividing or allowing others to
participate in the investment or of reselling, or otherwise participating
directly or indirectly, in a distribution of the Subscription Shares, and shall
not make any sale, transfer or pledge thereof without registration under the
Securities Act and any applicable securities laws of any state or unless an
exemption from registration is available;
(vi) The Subscriber understands that the Subscription Shares are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Corporation is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Subscriber
set forth herein in order to determine the applicability of such exemptions and
the suitability of Subscriber to acquire the Subscription Shares;
(vii) The Subscriber expressly acknowledges and agrees that the
Corporation is relying upon the Purchaser's representations contained in this
Agreement; and
(viii) The Subscriber expressly agrees that Subscriber shall not initiate a
suit or cause of action against Corporation for the Corporation's failure to
obtain additional financing in the form of Series C Convertible Preferred Stock,
provided, however, the foregoing shall not bar Subscriber from bringing such
- -------- -------
suit as a result of fraudulent acts on the part of the Corporation.
(ix) The Subscriber agrees to be bound to the terms and provisions of
this Agreement regardless of whether a material adverse change in the business,
operations, results of operations or condition (financial or otherwise) of the
Corporation has occurred prior to the Closing Date, including any damage,
destruction or loss of any material assets or properties of the Corporation that
could have or has had a material adverse effect on the business, operations,
results of operations or condition (financial or otherwise) of the Corporation,
whether or not covered by insurance.
SECTION 3. MISCELLANEOUS.
- -------------------------
3.1. Fees and Expenses. Except as expressly provided herein each of the
-----------------
parties hereto shall each pay all of their own costs and expenses, including any
and all legal and accounting fees, incident to the negotiation, execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby whether or not such transactions shall be consummated.
3.2. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
3.3. Binding Effect. All of the terms of this Agreement shall be binding
--------------
upon the respective personal representatives, heirs and successors of the
parties hereto and shall inure to the benefit of and be enforceable by the
parties hereto and their respective personal representatives, heirs and
successors.
3
<PAGE>
3.4. Assignment. Neither this Agreement nor any right or interest hereunder
----------
may be assigned in whole or in part by any party without the prior written
consent of the other parties.
3.5. Entire Agreement and Amendment. This Agreement and the Investor
------------------------------
Representation Letter contain the entire agreement between the parties hereto
with respect to the subject matter hereof. No change, modification, extension,
termination, notice of termination, discharge, abandonment or waiver of this
Agreement or any of the provisions hereof, nor any representations, promise or
condition relating to this Agreement, shall be binding upon the parties hereto
unless made in writing and signed by the parties hereto.
3.6. Captions. The captions of Sections hereof are for convenience only and
--------
shall not control or affect the meaning or construction of any of the provisions
of this Agreement.
3.7. Notices. All notices or other communications to be given or made
-------
hereunder shall be in writing and shall be deemed given when delivered
personally or mailed, by registered or certified mail, return receipt requested,
postage prepaid, or overnight delivery, to the parties hereto, as the case may
be, (a) in the case of the Subscriber, to NetSelect, Inc.. 5655 Lindero Canyon
Road, Suite 106, Westlake Village, California 91632, Attention: Stuart Wolff,
Ph.D. ; and (b) in the case of the Corporation, to NetSelect, Inc., 5655 Lindero
Canyon Road, Suite 106, Westlake Village, California 91632, Attention: Stuart
Wolff, Ph.D., facsimile no.: (818) 879-5822.
3.8. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Delaware as applied to residents of
that State executing contracts wholly to be performed in that State. The
Subscriber hereby expressly submits to the jurisdiction of all federal and state
courts located in the State of Delaware and consents that any process or notice
of motion or other application to any of said courts or a judge thereof may be
served within or without such court's jurisdiction by registered mail or by
personal service, provided a reasonable time for appearance is allowed. The
Subscriber also waives any claim that Delaware is an inconvenient forum.
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date and year first above written.
CDW INTERNET, L.L.C.
By:
-------------------------------
Name:
Title:
NETSELECT, INC.
By: /s/ Stuart Wolff
-------------------------------
Name: Stuart Wolff, Ph.D.
Title: Chief Executive Officer
5
<PAGE>
EXHIBIT 10.13
STOCK PURCHASE AGREEMENT
BETWEEN
NETSELECT, INC.
AND
GENERAL ELECTRIC CAPITAL CORPORATION
Dated as of December 31, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purchase and Sale of Series D Preferred Stock.................. 1
---------------------------------------------
1.1. Closing.................................................. 1
-------
1.2. Deliveries at Closing.................................... 1
---------------------
1.3. Definitions.............................................. 2
-----------
2. Representations and Warranties of the Company.................. 2
---------------------------------------------
2.1. Organization and Qualification........................... 2
------------------------------
2.2. Due Authorization........................................ 2
-----------------
2.3. Subsidiaries............................................. 2
------------
2.4. Financial Statements..................................... 3
--------------------
2.5. Litigation............................................... 3
----------
2.6. Conflicting Agreements and Charter Provisions............ 3
---------------------------------------------
2.7. Capitalization........................................... 3
--------------
2.8. Status of Series D Preferred Stock....................... 4
----------------------------------
2.9. Laws and Regulations..................................... 4
--------------------
2.10. Use of Proceeds.......................................... 4
---------------
2.11. Title to Properties; Insurance........................... 4
------------------------------
2.12. Governmental Consents, etc. ............................. 5
--------------------------
2.13. Taxes.................................................... 5
-----
2.14. ERISA.................................................... 5
-----
2.15. Possession of Franchises, Licenses, Etc. ................ 6
---------------------------------------
2.16. Patents and Trademarks................................... 6
----------------------
2.17. Material Contracts and Obligations....................... 6
----------------------------------
2.18. Labor Matters............................................ 7
-------------
2.19. Books and Records........................................ 7
-----------------
2.20. Brokers.................................................. 7
-------
2.21. Holding Company Act and Investment Company Act........... 7
----------------------------------------------
2.22. Accuracy of Information.................................. 8
-----------------------
2.23. Costs of "Year 2000" Modifications....................... 8
----------------------------------
3. Representations and Warranties of Purchaser.................... 8
-------------------------------------------
3.1. Organization and Qualification........................... 8
------------------------------
3.2. Due Authorization........................................ 8
-----------------
3.3. Governmental Consents, etc. ............................. 9
--------------------------
3.4. Conflicting Agreements and Other Matters................. 9
----------------------------------------
3.5. Acquisition for Investment............................... 9
--------------------------
3.6. Accredited Investor...................................... 9
-------------------
3.7. Brokers.................................................. 9
-------
4. Certain Covenants.............................................. 9
-----------------
4.1. Dividends, Senior Securities............................. 9
----------------------------
4.2. Sale of Assets; Merger; New Businesses................... 10
--------------------------------------
4.3. Compliance with Laws..................................... 10
--------------------
4.4. Limitation on Agreements................................. 10
------------------------
</TABLE>
- i -
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4.5. Preservation of Franchises and Existence............... 10
----------------------------------------
4.6. Insurance.............................................. 11
---------
4.7. Payment of Taxes and Other Charges..................... 11
----------------------------------
4.8. ERISA and Employee Matters............................. 11
--------------------------
4.9. Financial Statements and Other Reports................. 12
--------------------------------------
4.10. Inspection of Property................................. 13
----------------------
4.11. Board Membership....................................... 13
----------------
4.12. Directors' and Officers' Insurance..................... 14
----------------------------------
4.13. Expenses............................................... 14
--------
4.14. Lost, Stolen, Damaged and Destroyed Stock Certificates. 14
------------------------------------------------------
4.15. Related Party Transactions............................. 15
--------------------------
4.16. Operations in Accordance with Business Plan............ 15
-------------------------------------------
4.17. Most Favored Nation Pricing............................ 15
---------------------------
4.18. Stock Options.......................................... 15
-------------
4.19. Management Compensation................................ 15
-----------------------
4.20. Initial Public Offering................................ 15
-----------------------
4.21. Provision of Advertising Space......................... 15
------------------------------
4.22. Notice of Breach....................................... 15
----------------
4.23. Restatement of Financial Statements.................... 16
-----------------------------------
4.24. Update of Minutes...................................... 16
-----------------
4.25. Survival of Covenants.................................. 16
---------------------
5. Interpretation................................................. 16
--------------
5.1. Definitions............................................ 16
-----------
5.2. Accounting Principles.................................. 20
---------------------
6. Miscellaneous.................................................. 20
-------------
6.1. Severability........................................... 20
------------
6.2. Specific Enforcement................................... 20
--------------------
6.3. Entire Agreement....................................... 20
----------------
6.4. Counterparts........................................... 20
------------
6.5. Notices and other Communications....................... 21
--------------------------------
6.6. Amendments............................................. 21
----------
6.7. Cooperation............................................ 22
-----------
6.8. Heirs, Successors and Assigns.......................... 22
-----------------------------
6.9. Expenses and Remedies.................................. 22
---------------------
6.10. Survival of Representations and Warranties............. 23
------------------------------------------
6.11. Transfer of Securities................................. 23
----------------------
6.12. Governing Law.......................................... 24
-------------
6.13. Term................................................... 24
----
6.14. Publicity.............................................. 24
---------
</TABLE>
- ii -
<PAGE>
THIS STOCK PURCHASE AGREEMENT, dated as of December 31, 1997 (this
"Agreement"), between NETSELECT, INC., a Delaware corporation (the "Company"),
--------- -------
and GENERAL-ELECTRIC CAPITAL CORPORATION, a New York corporation ("Purchaser").
---------
WHEREAS, Purchaser wishes to purchase from the Company, and the Company
wishes to sell to Purchaser, shares of a new series of preferred stock, $.001
par value per share, of the Company, to be designated "Cumulative Convertible
Series D Preferred Stock" (the "Series D Preferred Stock"); and
------------------------
WHEREAS, Purchaser and the Company desire to provide for such purchase and
sale and to establish various rights and obligations in connection therewith.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto agree as follows:
1. Purchase and Sale of Series D Preferred Stock.
---------------------------------------------
1.1. Closing. The closing of the transactions contemplated hereby
-------
(the "Closing") shall take place at the offices of Fried, Frank, Harris, Shriver
-------
& Jacobson, New York, New York, at 9:00 a.m. on January 12, 1998 (the "Closing
-------
Date").
- ----
1.2. Deliveries at Closing. At the Closing:
---------------------
(i) Fenwick & West LLP, counsel to the Company, shall deliver to
Purchaser an opinion dated the Closing Date with respect to the
matters set forth in Exhibit A hereto;
(ii) the Stockholders Agreement, dated November 26, 1996, by and
among the Company and CDW Internet, L.L.C. ("CDW Internet"), Whitney
------------
Equity Partners, L.P. ("Whitney"), Allen & Co. ("Allen & Co."),
------- -----------
InfoTouch Corporation ("InfoTouch"), Michael N. Flannery ("Flannery"),
--------- --------
John F. Petrick, Jr. ("Petrick"), Daniel A. Koch ("Koch")
------- ----
(collectively, the "Initial Stockholders"), as amended by Amendment
--------------------
No. 1, dated September 29, 1997, by and among the Company, the Initial
Stockholders, Ingleside Interests ("Ingleside"), Geocapital IV, L.P.
---------
("Geocapital") and Broadview Partners Group ("Broadview," together
---------- ---------
with Ingleside, Geocapital and Broadview, the "Subsequent
----------
Stockholders", and together with the Initial Stockholders, the
"Stockholders"), shall have been amended in accordance with the
-------------
provisions set forth in Exhibit B hereto (as amended, the
"Stockholders' Agreement," together with this Agreement, the
------------------------
"Documents"), and the Company shall deliver a copy of the
----------
Stockholders' Agreement, as amended and executed, dated as of the date
hereof, to Purchaser;
(iii) the Certificate of Incorporation of the Company shall have
been amended and supplemented by a Certificate of Designation in the
form of Exhibit C setting forth the rights and preferences of the
Series D Preferred Stock (the "Certificate of Designation"), which
--------------------------
shall have been filed with the Secretary
<PAGE>
of State of the State of Delaware in accordance with Delaware General
Corporation Law;
(iv) the Company shall have delivered to Purchaser stock
certificates registered in name of Purchaser representing 681,201
shares of Series D Preferred Stock;
(v) Purchaser shall have paid to the Company $10,000,000 by wire
transfer of immediately available funds, representing the purchase
price for the Series D Preferred Stock; and
(vi) the Company shall have obtained any third-party consents
that are required or necessary in connection with this Agreement and
the transactions contemplated hereby.
1.3. Definitions. Capitalized terms used in this Agreement but not
-----------
otherwise defined shall have the meanings given to them in Section 5 hereof.
2. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants as of the Closing Date as follows:
2.1. Organization and Qualification. Each of the Company and its
------------------------------
Subsidiaries is duly organized and existing in good standing under the laws of
the jurisdiction `in which it is organized and has the power to own its property
and to carry on its business as now being conducted.
2.2. Due Authorization. The execution and delivery of the
-----------------
Documents by the Company, the issuance and sale of the Series D Preferred Stock
by the Company and compliance by the Company with all the provisions of the
Documents, and the Certificate of Designation (i) are within the corporate power
and authority of the Company and (ii) have been duly authorized by all requisite
corporate proceedings on the part of the Company. The Documents have been duly
executed and delivered by the Company and constitute valid and binding
agreements of the Company, enforceable in accordance with their terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The Company has furnished to Purchaser true and correct copies
of the Certificates of Incorporation and By-Laws of the Company and RealSelect,
Inc. ("RealSelect") and the limited liability agreement of Net Select L.L.C., in
----------
each case as in effect on the date of this Agreement.
2.3. Subsidiaries. Schedules 2.3 sets forth for each Subsidiary of
------------
the Company (i) its name and jurisdiction of organization, (ii) the number of
shares of authorized capital stock of each class of its capital stock, (iii) the
number of issued and outstanding shares of each class of its capital stock, the
names of the holders thereof, and the number of shares held by each such holder
(or if such Subsidiary is not a corporation, the equity structure of such
Subsidiary and a list of its owners and their relative interests therein). All
of the issued and outstanding shares of
2
<PAGE>
capital stock or ownership interests of each Subsidiary have been duly
authorized and are validly issued, fully paid, and nonassessable. None of the
Company and its Subsidiaries control, directly or indirectly, or has any direct
or indirect equity participation in, any corporation, partnership, trust or
other business association which is not a subsidiary of the Company.
2.4. Financial Statements. The Company has delivered to Purchaser
--------------------
true and complete copies of the consolidated financial statements (including any
related schedules and/or notes) of the Company and its Subsidiaries set forth on
Schedule 2.4 (the "Financial Statements"). The Financial Statements have been
--------------------
prepared in accordance with generally accepted accounting principles
consistently followed (except as indicated in the notes thereto and, in the case
of unaudited financial statements, except for the absence of footnotes and
subject to normal year-end adjustments, none of which shall be material in
amount) throughout the periods involved and fairly present the financial
condition, results of operations, cash flows and changes in stockholders' equity
of the Company and its Subsidiaries as of their respective dates. Since
December 31, 1996, the Company and its Subsidiaries have operated their
respective businesses only in the ordinary course and, to the best knowledge of
the Company, no event has occurred which has had or is reasonably likely to have
a Material Adverse Effect.
2.5. Litigation. There is no action, suit, investigation or
----------
proceeding pending or, to the best knowledge of the Company, threatened against
the Company or any of its Subsidiaries or any of their respective properties or
assets by or before any court, arbitrator or Governmental Authority.
2.6. Conflicting Agreements and Charter Provisions. Neither the
---------------------------------------------
Company nor any of its Subsidiaries is a party to any organizational documents
or contract or agreement or subject to any organizational documents or judgment
or decree which has or is reasonably likely to have a Material Adverse Effect.
None of (i) the execution and delivery of the Documents and the issuance of
Series D Preferred Stock and (ii) the fulfillment of and compliance with the
terms and provisions hereof and thereof and of the Series D Preferred Stock
shall conflict with or result in a breach of the terms, conditions or provisions
of, or give rise to a right of termination under, or constitute a default under,
or result in any violation of, the organizational documents of the Company or
any Subsidiary or any mortgage, agreement, instrument, order, judgment, decree,
statute, law, rule or regulation to which the Company or any Subsidiary or any
of their respective properties is subject. Neither the Company nor any of its
Subsidiaries (i) is in default under any outstanding indenture or other debt
instrument or with respect to the payment of principal of or interest on any
outstanding obligation for borrowed money, or (ii) is in default under any of
their respective contracts or agreements, or under any instrument by which the
Company or any of its Subsidiaries is bound.
2.7. Capitalization. (a) As of the date of this Agreement prior to
--------------
the issuance of the Series D Preferred Stock, the authorized capital stock of
the Company consists of: (i) 35,000,000 shares of Class A Common Stock, par
value $0.001 per share ("Class A Common Stock"), of which 236,470 shares are
---------------------
issued and outstanding; (ii) 10,000,000 shares of Class B Common Stock, par
value $0.001 per share ("Class B Common Stock," together with Class A Common
--------------------
Stock, the "Common Stock"), of which 116,470 shares are issued and outstanding;
------------
and (iii) 5,000,000 shares of Preferred Stock, par value $0.001 per share, of
which 1,647,059 shares have been designated and issued as Series A Convertible
Preferred Stock (the "Series A
--------
3
<PAGE>
Preferred Stock"), 352,941 shares have been designated and issued as Series B
- ---------------
Convertible Preferred Stock (the "Series B Preferred Stock") and 700,000 shares
------------------------
have been designated as Series C Convertible Preferred Stock (the "Series C
--------
Preferred Stock" and together with the Series A Preferred Stock and the Series B
- ---------------
Preferred Stock, the "Preferred Stock"), of which 689,464 shares have been
---------------
issued. All shares of Preferred Stock that have been issued are still
outstanding, and the Company does not have any commitment or obligation to issue
those shares of Series C Preferred Stock that have been designated but not
issued. As of the date of this Agreement, the Company anticipates that an
additional 29,382 shares of Class A Common Stock (and options to acquire 29,382
shares of Class A Common Stock) will be issued and outstanding shortly after the
Closing Date. Schedule 2.7 sets forth a list of all the outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, shares of any
class of capital stock of the Company or any Subsidiary, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound relating to the issuance or transfer of any
shares of capital stock or options, warrants or rights to purchase or acquire
any shares of capital stock of the Company or relating to the voting of any
shares of capital stock of the Company or a Subsidiary, the names of the holders
thereof, the numbers of such securities held by such holders, the expiration
dates of such securities, their vesting schedules and their exercise price.
2.8. Status of Series D Preferred Stock. The shares of Series D
----------------------------------
Preferred Stock have been duly authorized by all necessary corporate action on
the part of the Company and, upon payment therefor as provided in Article 1
hereof, the shares of Series D Preferred Stock shall be, and the shares of
Common Stock issuable upon conversion of the Series D Preferred Stock, upon such
conversion and issuance shall be, validly issued and outstanding, fully paid and
nonassessable. The shares of Common Stock issuable upon conversion of the
shares of Series D Preferred Stock have been validly reserved for issuance.
2.9. Laws and Regulations. The Company and each of its
--------------------
Subsidiaries are in compliance in all material respects with all applicable
federal, state, local and foreign laws and regulations and have obtained all
real estate licenses required or necessary for the conduct of the Real Estate
Business. There are no claims, notices, civil, criminal or administrative
actions, suits, hearings, investigations, inquiries or proceedings pending or,
to the best knowledge of the Company, threatened against the Company or any of
its Subsidiaries.
2.10. Use of Proceeds. The proceeds of the sale of the Series D
---------------
Preferred Stock shall be used by the Company for the proposed acquisition of
certain companies listed in Schedule 2.10 and for the purpose of operating the
Real Estate Business, which includes, without limitation, operating, marketing
and selling those products and services described in the business plan (and
related documents) of RealSelect dated August 18, 1997, a copy of which has been
attached to Schedule 22(i).
2.11. Title to Properties; Insurance. (a) The Company and each of its
------------------------------
Subsidiaries have good and valid title to, or, in the case of property leased by
any of them as lessee, a valid and subsisting leasehold interest in, their
respective properties and assets, free of all liens and encumbrances other than
those referred to in Schedule 2.11(a) except in each case for such defects in
title and such other liens and encumbrances which are disclosed in
4
<PAGE>
Schedule 2.11(a) or which do not in the aggregate materially detract from the
value to the Company and its Subsidiaries of their respective properties and
assets.
(b) As of the date hereof, the Company and its Subsidiaries carry
liability, property and casualty, automobile, and workers' compensation
insurance in scope, coverage and amounts as set forth on Schedule 2.11(b). Each
of the insurance policies is in full force and effect, and all premiums due and
payable have been paid. To the best knowledge of the Company, the insurance
coverage of the Company and its Subsidiaries is in an amount and of a scope
customary for companies of similar size engaged in the same or similar lines of
business, and the Company and each of its Subsidiaries are in compliance in all
material respects with the terms and conditions of such insurance policies.
Within the last three years, there have not been any claims, individually or in
the aggregate, that could lead to an increase in the premium of the insurance
policies or adversely affect the insurance coverage of the Company and its
Subsidiaries.
(c) All material properties and assets owned or utilized by the
Company or the Subsidiaries, including but not limited to software and computer
equipment and hardware, are in good operating condition and repair (except for
ordinary wear and tear), free from any defects, have been maintained consistent
with the standards generally followed in the industry and are sufficient to
carry on the business of the Company and the Subsidiaries as presently conducted
or proposed to be conducted.
2.12. Governmental Consents, etc. The Company is not required to
--------------------------
obtain any consent, approval or authorization of, or to make any declaration or
filing with, any Governmental Authority as a condition to or in connection with
the valid execution, delivery and performance of the Documents, the valid offer,
issue, sale or delivery of the Series D Preferred Stock, or the performance by
the Company of its obligations in respect thereof, except for any filings
required to effect any registration pursuant to the Registration Rights
Agreement.
2.13. Taxes. The Company and each of its Subsidiaries have filed
-----
or caused to be filed all tax returns which are required to be filed and have
paid or caused to be paid all taxes as shown on said returns and on all
assessments received by them to the extent that such taxes have become due,
except taxes the validity or amount of which is being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside. The Company and its Subsidiaries have paid or caused to be paid, or
have established adequate reserves for all federal income tax liabilities and
state income tax liabilities now applicable to the Company or any of its
Subsidiaries for all fiscal years which have not been examined and reported on
by the taxing authorities (or closed by applicable statutes).
2.14. ERISA. No accumulated funding deficiency (as defined in
-----
Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists
with respect to any Pension Plan (as defined in Section 11) (other than a
Multiemployer Plan (as defined below)). No liability to the PBGC has been, or is
reasonably likely to be, incurred with respect to any Pension Plan (other than a
Multiemployer Plan) by the Company, any of its Subsidiaries or any ERISA
Affiliate (as defined below). Neither the Company nor any of its Subsidiaries
and any ERISA Affiliate has incurred, or is reasonably likely to incur, any
withdrawal liability under Title IV of ERISA with respect to any Multiemployer
Plan and if the Company, its Subsidiaries and ERISA
5
<PAGE>
Affiliates, were to completely withdraw as of the date hereof from each
Multiemployer Plan in which they participate, the Company, its Subsidiaries and
its ERISA Affiliates would not incur any withdrawal liability under Title IV of
ERISA. Neither the Company nor any of its Subsidiaries has any obligation to
provide post-retirement health benefits to any employee or former employee. No
fiduciary of any employee benefit plan (as defined in Section 3(3) of ERISA)
maintained or contributed to by the Company or any of its subsidiaries, for the
benefit of their respective employees (each an "Employee Plan") has engaged or
-------------
caused any Employee Plan to engage in any transaction prohibited by Section 4975
of the Code or Section 406 of ERISA which is reasonably likely to subject the
Company or any Subsidiary or any entity the Company or any Subsidiary has an
obligation to indemnify to any tax or penalty imposed under Section 4975 of the
Code or Section 502 of ERISA. Each Employee Plan has been maintained and
administered in compliance with all applicable law including ERISA and the Code
in all material respects. An "ERISA Affiliate" for purposes of this Section is
---------------
any trade or business, whether or not incorporated, which, together with the
Company, is under common control, as described in Section 414(b) or (c) of the
Code, and the term "Multiemployer Plan" shall mean any Pension Plan which is a
------------------
"multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA).
2.15. Possession of Franchises, Licenses, Etc. The Company and its
---------------------------------------
Subsidiaries possess all franchises, certificates, licenses, permits and other
authorizations from governmental or political subdivisions or regulatory
authorities and all patents, trademarks, service marks, trade names, copyrights,
licenses and other rights, free from burdensome restrictions, that are necessary
for the ownership, maintenance and operation by the Company and its Subsidiaries
of their respective properties and assets, and neither the Company nor any of
its Subsidiaries is in violation of any thereof in any material respect.
2.16. Patents and Trademarks. Set forth on Schedule 2.16 is a true
----------------------
and complete list of all patents, patent applications, trademarks, service
marks, trademark and service mark applications, trade names and copyrights
presently used by the Company or any Subsidiary or necessary for the conduct of
the business of the Company and its Subsidiaries as conducted and as proposed to
be conducted (the "Intellectual Property Rights"). The Company owns, or has the
----------------------------
right to use under the agreements or upon the terms described on Schedule 2.16,
all of the Intellectual Property Rights. To the best knowledge of the Company,
the business conducted or proposed to be conducted by the Company and its
Subsidiaries does not infringe or violate any of the patents, trademarks,
service marks, trade names, copyrights, trade secrets or other proprietary
rights of any other person or entity, and neither the Company nor any Subsidiary
has received any charge, complaint, claim, demand or notice alleging any such
infringement or violation. Except as set forth on Schedule 2.16, to the
Company's knowledge, no other Person has any right to or interest in any
inventions, improvements, discoveries or other confidential information utilized
by the Company or any Subsidiary in its business.
2.17. Material Contracts and Obligations. Schedule 2.17 sets forth
----------------------------------
a list of the following agreements or commitments of any nature to which the
Company or any Subsidiary is a party or by which it is bound: (a) and any
agreement relating to the Intellectual Property Rights having a value in excess
of $5,000, (b) all employment and consulting agreements which require future
cash payments in excess of $100,000, and all employee benefit, bonus, pension,
profit-sharing, stock option, stock purchase and similar plans and arrangements,
(c) all data content
6
<PAGE>
provider agreements, including, but not limited to, master listings service
agreements (and indication of whether each such agreement offers the Company
exclusive listing rights), (d) all agreements with National Association of
Realtors or Realtor Information Network, Inc., (e) all agreements with third
parties under which such third parties agree to direct Internet traffic to the
Internet site operated by RealSelect, (f) all agreements with third parties
under which such third parties agree to pay the Company or any Subsidiary for
furnishing additional information about such third parties to visitors of the
Internet site operated by RealSelect, (g) all agreements between the Company and
any stockholder of the Company, (h) all agreements with suppliers or vendors
which require future payments in excess of $50,000 not already covered by (a)
through (g) above, (i) all agreements or commitments which restrict the ability
of the Company or any Subsidiary or Affiliate to engage in any business or line
of business in any location, (j) all agreements or commitments relating to
Indebtedness or Guarantees of the Company or any Subsidiary and (k) any other
agreement or commitment which requires future payments by or to the Company or
any Subsidiary in excess of $100,000 or which is otherwise material to the
Company or any of its Subsidiaries. The Company has delivered or made available
to the Purchaser copies of all of the foregoing agreements and commitments. All
of such agreements and commitments are valid, binding and in full force and
effect, except that, with respect to parties to such agreements and commitments
other than the Company and its Subsidiaries, this representation is made only to
the best knowledge of the Company. Attached to Schedule 2.17 is true and
complete copy of the traffic report of the Company and its Subsidiaries as of
November 30, 1997.
2.18. Labor Matters. Except as set forth in Schedule 2.18, neither
-------------
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement covering employees of the Company or its Subsidiaries nor does any
labor union or collective bargaining agent represent any of the employees of the
Company or its Subsidiaries. Except as set forth in Schedule 2.18, there is no
labor strike, slow-down or stoppage pending or, to the Company's knowledge,
threatened by the employees.
2.19. Books and Records. All the books, records and accounts of
-----------------
the Company and its Subsidiaries are in all material respects true and complete,
are maintained in accordance with good business practice and all laws applicable
to its business, and accurately present and reflect in all material respects all
of the transactions therein described, except as supplemented by the actions
required to be undertaken by the Company and its Subsidiaries pursuant to
Section 4.24. The Company has previously delivered to the Purchaser true and
complete texts of all of the minutes relating to meetings of the stockholders,
the Board and committees of the Board of the Company and each Subsidiary for the
past two years. The current members of the Board and officers of the Company
and its Subsidiaries, a list of which is set forth in Schedule 2.19, have been
duly elected.
2.20. Brokers. Neither the Company nor any Subsidiary has engaged any
-------
finder, broker or investment adviser, and has no obligation to pay any fees -in
relating thereto, in connection with the transactions contemplated hereby.
2.21. Holding Company Act and Investment Company Act. Neither the
----------------------------------------------
Company nor any Subsidiary is: (i) a "public utility company" or a "holding
company," or an "affiliate" or a "subsidiary company" of a "holding company," or
an "affiliate" of such a
7
<PAGE>
"subsidiary company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended, or (ii) a "public utility," as defined in the
Federal Power Act, as amended, or (iii) an "investment company" or an
"affiliated person" thereof or an "affiliated person" of any such "affiliated
person," as such terms are defined in the Investment Company Act of 1940, as
amended.
2.22. Accuracy of Information. None of the representations and
-----------------------
warranties of the Company contained in the Documents contains any material
misstatement of fact or omits any material fact required to be stated herein or
therein or necessary to make the statements herein and therein not misleading.
The information (other than projections) which has been furnished by the Company
to Purchaser in connection with the transactions contemplated by the Documents,
did not, in the aggregate and to the best knowledge of the Company, as of the
date such information was furnished, contain any material misstatement of fact,
or omit any material fact required to be stated therein or necessary to make the
statements therein not misleading. The projections listed on Schedule 2.22 (i)
were prepared by management of the Company using its reasonable business
judgment and (ii) based upon the assumptions set forth in such projections,
represent as of the date of this Agreement the best estimate by management of
the Company as to the financial performance of the Company for the periods
indicated, but do not represent any guarantee or assurance of the future
financial results of the Company. The Company does not believe that such
projections are inaccurate or misleading in any material respect.
2.23. Costs of "Year 2000" Modifications. The Company represents and
----------------------------------
warrants that its computer system and software are able to accurately process
date data, including but not limited to, calculating comparing and sequencing
from, into and between the twentieth century (through year 1999), the year 2000
and the twenty-first century, including leap year calculations. To the best
knowledge of the Company, it is not aware of any inability on the part of any
service provider to timely remedy its own deficiencies in respect of the year
2000 problem.
3. Representations and Warranties of Purchaser. Purchaser represents
-------------------------------------------
and warrants as of the date hereof and as of each Closing as follows:
3.1. Organization and Qualification. Purchaser is a corporation duly
------------------------------
organized and existing in good standing under the laws of the jurisdiction of
its formation and has the power to own its property and to carry on its business
as now being conducted.
3.2. Due Authorization. Purchaser has all necessary right, power and
-----------------
authority to enter into the Documents and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of the Documents by
Purchaser and the consummation by Purchaser of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on behalf
of Purchaser. The Documents have been duly executed and delivered by Purchaser
and constitutes valid and binding agreements of Purchaser enforceable in
accordance with their terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and (ii) the remedy of
specific performance and injunctive and other forms of
8
<PAGE>
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
3.3. Governmental Consents, etc. Except as obtained or made,
--------------------------
Purchaser is not required to obtain any consent, approval or authorization of,
or to make any declaration or filing with, any Governmental Authority as a
condition to or in connection with the valid execution, delivery and performance
of the Documents and the valid offer, issue, sale or delivery of the Series D
Preferred Stock, or the performance by Purchaser of its obligations in respect
thereof.
3.4. Conflicting Agreements and Other Matters. Neither the execution
----------------------------------------
and delivery of the Documents nor the performance by Purchaser of its
obligations hereunder shall conflict with, result in a breach of the terms,
conditions or provisions of, constitute a default under or require any consent,
approval or other action by or any notice to or filing with any court or
administrative or governmental body pursuant to, the organizational documents of
Purchaser or any of its Subsidiaries or any mortgage, agreement, instrument,
order, judgment, decree, statute, law, rule or regulation to which Purchaser or
any of its Subsidiaries or any of their respective properties are subject.
3.5. Acquisition for Investment. Purchaser is acquiring the Series D
--------------------------
Preferred Stock for its own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof, and Purchaser
has no present intention or plan to effect any distribution thereof. Purchaser
acknowledges that the shares of Series D Preferred Stock and the shares of
Common Stock issuable upon conversion thereof have not been registered under the
Securities Act and may be sold or disposed of in the absence of such
registration only pursuant to an exemption from such registration.
3.6. Accredited Investor. Purchaser is an "accredited investor"
-------------------
within the meaning of Rule 501 promulgated under the Securities Act.
3.7. Brokers. Purchaser has not engaged any finder, broker or
-------
investment advisor, and has no obligation to pay any fees relating thereto, in
connection with the transaction contemplated hereby.
4. Certain Covenants.
-----------------
4.1. Dividends, Senior Securities. (a) Except with the prior written
----------------------------
consent of Purchaser, neither the Company nor any of its Subsidiaries shall pay,
declare or set aside any sums for the payment of, any dividends, or make any
distribution on, any shares of its capital stock or redeem, repurchase or
otherwise acquire any outstanding shares of its capital stock (other than any
nonvested shares of Common Stock purchased from employees pursuant to a stock
option plan approved by the Board).
(b) Except with the prior written consent of Purchaser, the Company
shall not issue any equity securities or any rights, options, warrants or other
securities which are exercisable for, exchangeable for or convertible into
shares of any class of capital stock ranking senior or on a parity as to
dividends or upon liquidation to the Series D Preferred Stock other than
issuances in accordance with Section 4.17; provided, however, no such consent
-------- -------
shall be required when (x) the issuance of any such senior securities for a
common equivalent value equal
9
<PAGE>
to or greater than $17.60 per share and the Company raises an aggregate of at
least $15,000,000 from such issuance or (y) any such pari passu securities are
issued and the Company raises an aggregate of at least $5,000,000 from such
issuance.
(c) Except with the approval of the Board, the Company shall not
incur any capital expenditures beyond those provided in the annual capital
budget plan of the Company approved by the Board.
(d) Except with the approval of the Board, neither the Company nor
any of its Subsidiaries shall create, incur, assume or suffer to exist any
Guarantee or Lien other than Permitted Liens.
4.2. Sale of Assets; Merger; New Businesses. Except as between (i)
--------------------------------------
the Company and any wholly-owned Subsidiary of the Company, (ii) any wholly-
owned Subsidiaries of the Company and (iii) the Company and InfoTouch:
(a) the Company shall not, and shall not permit any of its
Subsidiaries to sell, lease, exchange or transfer any assets of the Company
and/or any of its Subsidiaries, except in the ordinary course of business
consistent with past practice or except with the prior approval of the Board.
(b) neither the Company nor any of its Subsidiaries shall merge with
or into or consolidate with any other Person except with the prior approval of
the Board.
(c) the Company shall not issue any equity securities or securities
convertible into, exchangeable for or exercisable for, equity securities of the
Company to any Person or Group (other than Purchaser and its Affiliates) if
giving effect to such issuance, such Person would beneficially own more than 10%
of the outstanding equity securities of the Company, except with the prior
approval of the Board.
(d) the Company shall not directly or indirectly through any
Subsidiary or joint venture engage in any line of business other than the Real
Estate Business except with the prior written consent of Purchaser prior to the
consummation of a Qualified Public Offering.
4.3. Compliance with Laws. The Company shall, and shall cause its
--------------------
Subsidiaries to, comply in all material respects with all applicable statutes,
rules, regulations and orders of all Governmental Authorities with respect to
the conduct of its business and the ownership of its properties, including,
without limitation, those relating to the environment and human health, equal
employment opportunity, employee safety, foreign corrupt practices and ERISA.
4.4. Limitation on Agreements. The Company shall not, and shall
------------------------
not permit any of its Subsidiaries to, enter into any agreement or any
amendment, modification, extension or supplement to any existing agreement,
which contractually prohibits the payment of dividends on the Series D Preferred
Stock in accordance with the Certificate of Designation.
4.5. Preservation of Franchises and Existence. The Company shall,
----------------------------------------
and shall cause each of its Subsidiaries (so long as they are conducting any
business) to, maintain its
10
<PAGE>
corporate existence, and all material rights and franchises, in full force and
effect unless the Board determines that it is in the best interest of the
Company not to do so and such rights and franchises, as the case may be, are not
material to the business of the Company.
4.6. Insurance. (a) The Company shall, and shall cause each of its
---------
Subsidiaries to, effective as of the Closing, maintain with insurers believed by
the Company to be responsible such insurance, in such amounts and of such types
as are customarily carried under similar circumstances by companies of similar
size and engaged in the same or a similar business or having similar properties
similarly situated and in any event not less than the amounts set forth on
Schedule 4.6.
(b) The Company shall have, as soon as practicable and in any event
by January 31, 1998, obtained a "key man" insurance policy on the life of Stuart
H. Wolff in the amount of $1,000,000 from a reputable insurer and shall deliver
a true and complete copy of such insurance policy to Purchaser, which shall
specify that the beneficiary thereof shall be Purchaser. The Company shall
maintain such insurance policy for so long as Stuart H. Wolff remains as the
Chief Executive Officer of the Company or so long as Stuart H. Wolff, in the
judgment of Purchaser, is essential to the success and prospects of the Company
and its Subsidiaries. The beneficiary of such insurance policy shall be
Purchaser.
4.7. Payment of Taxes and Other Charges. Except as otherwise
----------------------------------
permitted by law, the Company shall pay or discharge, and shall cause each of
its Subsidiaries to pay or discharge, before the same shall become delinquent,
(i) all taxes, assessments and other governmental charges or levies imposed upon
it or any of its properties or income (including, without limitation, such as
may arise under Section 4062, 4063 or 4064 of ERISA or any similar provision of
law) and (ii) all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons which, in the case of either
clause (i) or clause (ii), if unpaid, might result in the creation of a material
lien upon any of its properties, provided, however, that the Company and its
Subsidiaries shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith pursuant to appropriate
proceedings.
4.8. ERISA and Employee Matters. Except as otherwise required by
--------------------------
law, neither the Company nor any of its Subsidiaries shall incur any material
liability with respect to retiree medical or death benefits or unfunded benefits
payable after termination of employment. All employee benefit plans and
arrangements maintained or contributed to by the Company, any of its
Subsidiaries or any ERISA Affiliate shall be maintained in material compliance
with all applicable laws, including any reporting requirements. With respect to
any plan maintained by or contributed to by the Company or any of its
Subsidiaries, neither the Company nor any of its Subsidiaries shall fail to make
any contribution due from it under the terms of such plan or as required by law.
Neither the Company nor any ERISA Affiliate shall permit a Pension Plan to incur
an accumulated funding deficiency (as such term is defined in Section 302 of
ERISA or Section 412 of the Code), whether or not waived, cause a lien or a
security interest to attach to any asset of the Company or any of its
Subsidiaries for the benefit of any Plan, or incur any liability which would be
material to the Company and its Subsidiaries taken as a whole under Title IV of
ERISA, including withdrawal liability (other than the payment of premiums, none
of which are overdue). Neither the Company nor any of its Subsidiaries, nor any
other Person
11
<PAGE>
including any fiduciary, shall engage in any transaction prohibited by Section
406 of ERISA or Section 4975 of the Code which is reasonably likely to subject
the Company, any of its Subsidiaries or any entity that the Company or any of
its Subsidiaries has an obligation to indemnify, to any tax or penalty imposed
under Section 4975 of the Code or Section 502 of ERISA.
4.9. Financial Statements and Other Reports.
--------------------------------------
(i) The Company shall, as soon as practicable and in any event
within 30 days after the end of each month (other than the last month
of any quarterly period) in each fiscal year, furnish to Purchaser
unaudited consolidated and consolidating statements of net income and
unaudited consolidated statements of cash flows and changes in
consolidated stockholders' equity of the Company and its Subsidiaries
for the period from the beginning of the then current fiscal year to
the end of such month, and a consolidated balance sheet of the Company
and its Subsidiaries as of the end of such month, setting forth in
each case in comparative form figures for the corresponding month or
date in the preceding fiscal year and a comparison of such data with
the Company's budget for such month, all in reasonable detail and
certified by an authorized financial officer of the Company, subject
to changes resulting from year-end adjustments.
(ii) The Company shall, as soon as practicable and in any event
within 30 days after the end of each quarterly period (other than the
last quarterly period) in each fiscal year, furnish to Purchaser
unaudited consolidated and consolidating statements of net income and
unaudited consolidated statements of cash flows and changes in
stockholders' equity of the Company and its Subsidiaries for the
period from the beginning of the then current fiscal year to the end
of such quarterly period, and consolidated and consolidating balance
sheets of the Company and its Subsidiaries as of the end of such
quarterly period, setting forth in each case in comparative form
figures for the corresponding period or date in the preceding fiscal
year and a comparison of such data with the Company's budget for such
quarter, all in reasonable detail and certified by an authorized
financial officer of the Company, subject to changes resulting from
year-end adjustments.
(iii) The Company shall, as soon as practicable and in any
event within 90 days after the end of each fiscal year, furnish to
Purchaser audited consolidated and unaudited consolidating statements
of net income and audited consolidated statements of cash flows and
changes in stockholders' equity of the Company and its Subsidiaries
for such year, and audited consolidated and unaudited consolidating
balance sheets of the Company and its Subsidiaries as of the end of
such year. In addition, the Company shall furnish to Purchaser a
comparison of the foregoing data with the Company's budget for such
year.
(iv) If the Company becomes a reporting company pursuant to
Section 13 or Section 15(d) of the Exchange Act, it shall, promptly
upon transmission thereof, furnish to Purchaser copies of all such
financial statements,
12
<PAGE>
proxy statements, notices and reports at the same time as it shall
file such documents with the Commission or send such documents to its
stockholders, and copies of all registration statements (without
exhibits), other than registration statements relating to employee
benefit or dividend reinvestment plans, and all such regular and
periodic reports as it shall file with the Commission.
(v) The Company shall prepare an annual capital and operating
budget for each calendar year which shall be submitted to and approved
by the Board of the Company not later than October 31 of the
immediately preceding calendar year.
(vi) The Company shall promptly furnish to Purchaser copies of
any compliance certificates furnished to lenders in respect of
Indebtedness of the Company and its Subsidiaries and, with reasonable
promptness, furnish to Purchaser such other financial and other data
of the Company and its Subsidiaries as Purchaser may reasonably
request.
(vii) The Company shall, as soon as practicable and in any
event within 20 Business Days after the end of each month, furnish to
Purchaser copies of the traffic report of the Company and its
Subsidiaries for the preceding month.
4.10. Inspection of Property. The Company shall permit
----------------------
representatives of Purchaser to visit and inspect any of the properties of the
Company and its Subsidiaries, to examine the corporate books and make copies or
extracts therefrom and to discuss the affairs, finances and accounts of the
Company and its Subsidiaries with the principal officers of the Company, all at
such reasonable times, upon reasonable notice and as reasonably often as
Purchaser may reasonably request without undue disruption of the business of the
Company or its Subsidiaries.
4.11. Board Membership. (a) The Company shall take all necessary
----------------
action such that from and after the Closing, the number of authorized directors
of the Company shall be no more than nine. Prior to or at the Closing, the
Company shall take all necessary action to cause the appointment of one nominee
of Purchaser as a member to the Board and the board of managers (the "LLC
---
Board") of Net Select, L.L.C. For so long as Purchaser owns at least 49% of the
- -----
outstanding shares of Series D Preferred Stock (or the Class A Common Stock
issuable upon the conversion of the Series D Preferred Stock) purchased
hereunder, and prior to a Qualified Public Offering, the Company shall take all
necessary action to cause (i) prior to the occurrence of a Default Event, one
nominee, and (ii) after the occurrence of a Default Event and for so long as
such Default Event remains uncured, two nominees of Purchaser to be elected (so
long as there is a vacancy on the Board of the LLC Board, as the case may be, at
such time; provided that if there is no such vacancy at such time, the Company
-------- ----
will use its commercially reasonable efforts to create one such vacancy on the
Board or the LLC Board, as the case may be, as promptly as practicable); as (y)
director(s) of the Company and (z) member(s) of the LLC Board at each meeting of
stockholders or members, as applicable, for the election of directors or
managers, as applicable, or action by written consent in lieu thereof. In the
event of the death, resignation, removal or inability to serve of a nominee
designated by Purchaser, provided that
13
<PAGE>
Purchaser still has the right to nominate directors hereunder, Purchaser shall
be entitled to designate a successor to such nominee.
(b) As soon as practicable after the Closing Date, but in no
event later than ten Business Days thereafter, the Company shall, prior to the
consummation of a Qualified Public Offering, cause the composition of the audit
and compensation committees of the Board to be in compliance with section 303 of
the New York Stock Exchange Listed Company Manual, as such section may be
amended from time to time. As long as Purchaser has the right to appoint one
member or one observer to the Board, Purchaser shall be entitled, subject to the
limitation in (c) below, to have one observer selected by Purchaser present at
all meetings of the audit and compensation committees of the Board and such
observer shall have the same access to information concerning the business and
operations of the Company and its Subsidiaries and at the same time as members
of the audit and compensation committees and shall be entitled to participate in
discussions and consult with members of the audit and compensation committees at
each such meeting, without voting.
(c) If Purchaser at any time for any reason elects not to
nominate a member to the Board or to cause such nominee to resign, Purchaser
shall be entitled to, before the consummation of a Qualified Public Offering,
have one observer selected by Purchaser present at all meetings (whether in
person, by telephone or video conference) of the Board in lieu of such member of
the Board and such observer shall have the same access to information concerning
the business and operations of the Company and its Subsidiaries and at the same
time as directors of the Company and shall be entitled to participate in
discussions and consult with the Board at each such meeting, without voting;
provided that (i) such observer enters into a customary confidentiality
agreement with the Company and (ii) the Board may choose to exclude such
observer if failure to do so may cause the Company to lose its attorney-client
privilege.
4.12. Directors' and Officers' Insurance. The Company shall
----------------------------------
obtain and cause to be maintained in effect, with financially sound insurers, a
policy of directors' and officers' liability insurance covering members of the
Board (and their respective successors) in an amount of at least $2,000,000.
4.13. Expenses. The Company shall pay the reasonable out-of-pocket
--------
expenses incurred by each nominee of Purchaser to the Board in connection with
performing his or her duties, including without limitation the reasonable out-
of-pocket expenses incurred by such person attending meetings of the Board or
any committee thereof or meetings of any Board or other similar managing body
(and any committee thereof) of any Subsidiary of the Company.
4.14. Lost, Stolen, Damaged and Destroyed Stock Certificates. Upon
------------------------------------------------------
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any certificate for shares of Series D Preferred Stock and in
the case of loss, theft or destruction, upon delivery of an indemnity or bond
satisfactory to the Company (which may be an undertaking by Purchaser so to
indemnify the Company), or, in the case of mutilation, upon surrender and
cancellation thereof, the Company shall issue a new certificate of like tenor
for a number of shares of Series D Preferred Stock equal to the number of shares
of such stock represented by the certificate lost, stolen, destroyed or
mutilated.
14
<PAGE>
4.15. Related Party Transactions. Except with the written consent
--------------------------
of a majority of the disinterested directors of the Board, the Company shall
not, directly or indirectly, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into, amend or terminate any contract, arrangement
or transaction with a Related Party, other than compensation arrangements in the
ordinary course of business on arm's length terms.
4.16. Operations in Accordance with Business Plan. The business
-------------------------------------------
and operations of the Company and its Subsidiaries shall be conducted in all
material respects in accordance with the Company's annual business plan as
approved or modified by the Board.
4.17. Most Favored Nation Pricing. For a period of 90 days after
---------------------------
the Closing Date, the Company shall not enter into any financing arrangement
involving equity securities on terms that are more favorable to the investors
than those that are offered to Purchaser in the Documents unless the Company
issues to Purchaser, at no cost to Purchaser, such number of additional shares
of Series D Preferred Stock and otherwise amend the terms of the Documents so as
to make the price and other terms of the Documents at least as favorable to
Purchaser as other transaction.
4.18. Stock Options. Except with the prior written consent of the
-------------
Board, the Company shall not reserve additional shares of Common Stock for
issuance in connection with awards of options or restricted stock under the
Company's incentive compensation plan to directors, officers, employees and
consultants. As promptly as practicable after the Closing Date, the Company
shall reserve additional shares of Common Stock to cover any stock options that
have been awarded as of the Closing Date but for which shares of Common Stock
have not been reserved for by the Board.
4.19. Management Compensation. Except with the prior written
-----------------------
consent of the compensation committee of the Board, the Company shall not enter
into or amend, modify or extend the term of any compensation arrangements with
any officer of the Company or any of its Subsidiary or any Person whose annual
compensation exceeds $150,000.
4.20. Initial Public Offering. The Company shall not effect a
-----------------------
public offering under the Securities Act unless such offering constitutes a
Qualified Public Offering.
4.21. Provision of Advertising Space. Immediately after the
------------------------------
Closing Date, the Company shall enter into good-faith discussions with Purchaser
with respect to the provision of free advertising space on the Company's or a
Subsidiary's Internet site equal to at least 1.5 million displays per month for
three months after the Closing Date for Purchaser, its Affiliates or other
Persons designated by Purchaser or its Affiliates.
4.22. Notice of Breach. As promptly as practicable, and in any
----------------
event not later than five Business Days, after management of the Company becomes
aware of any breach by the Company of any provision of this Agreement, the
Company shall provide Purchaser with written notice specifying the nature of
such breach and any actions proposed to be taken by the Company to cure such
breach.
15
<PAGE>
4.23. Restatement of Financial Statements. As promptly as
-----------------------------------
practicable, and in any event no later than March 31, 1998, the Company shall
have completed restating its financial statements in connection with certain
revenue recognition accounting issues.
4.24. Update of Minutes. As promptly as practicable, and in any
-----------------
event no later than January 31, 1998, the Company shall have completed updating
its minutes and those of its Subsidiaries.
4.25. Survival of Covenants. Notwithstanding anything to the
---------------------
contrary herein, Sections 4.l(a), 4.l(c), 4.l(d), 4.2(a), 4.2(b), 4.2(c),
4.2(d), 4.3, 4.5, 4.6, 4.7, 4.8, 4.15, 4.16, 4.17, 4.18 and 4.19 shall terminate
upon the consummation of a Qualified Public Offering.
5. Interpretation.
--------------
5.1. Definitions.
-----------
"Affiliate" and "Associate" shall have the respective meanings
--------- ---------
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
"Beneficial owner" has the meaning given to such term in Rule 13d-3
----------------
under the Exchange Act, and the terms "beneficially own" and "beneficial
ownership" shall have the correlative meanings.
"Board" means the Board of Directors of the Company.
-----
"Business Day" shall mean any day other than a Saturday, Sunday or a
------------
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Capitalized Lease" shall mean, with respect to any Person, any lease
-----------------
or any other agreement for the use of property which, in accordance with
generally accepted accounting principles, should be capitalized on the lessee's
or user's balance sheet.
"Capitalized Lease Obligation" of any Person shall mean and include,
-----------------------------
as of any date as of which the amount thereof is to be determined, the amount of
the liability capitalized or disclosed (or which should be disclosed in
accordance with generally accepted accounting principles) in a balance sheet of
such Person in respect of a Capitalized Lease of such Person.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency then administering the Securities Act and other federal
securities laws.
"Company" shall have the meaning specified in the first paragraph of
-------
this Agreement.
"Consolidated" or "consolidated", when used with reference to any
------------ ------------
financial term in this Agreement (but not when used with respect to any tax
return or tax liability), shall mean
16
<PAGE>
the aggregate for two or more Persons of the amounts signified by such term for
all such Persons, with inter-company items eliminated and, with respect to
earnings, after eliminating the portion of earnings properly attributable to
minority interests, if any, in the capital stock of any such Person or
attributable to shares of preferred stock of any such Person not owned by any
other such Person.
"Default Event" shall mean the Company shall have breached in any
-------------
material respect any of the covenants set forth in this Agreement or any of the
provisions of the Certificate of Designation and such breach continues for 30
days after notice in writing by the Company to Purchaser.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
-------------
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at any time.
Reference to a particular section of the Exchange Act shall include reference to
the comparable section, if any, of any such successor federal statute.
"Fully Diluted" shall mean, when used with reference to any class or
-------------
chances of equity securities, at any date as of which the number of shares
thereof is to be determined, (i) all such equity securities outstanding at such
date and (ii) all equity securities issuable in respect of vested options or
warrants to purchase, or securities convertible into, exercisable for or
exchangeable for, such equity securities outstanding on such date.
"GAAP" shall mean generally accepted accounting principles in the
----
United States of America in effect from time to time.
"Governmental Authority" shall mean any federal, state, local or
----------------------
foreign court, administrative agency, commission or other governmental or
regulatory body, agency, instrumentality or authority or any department or
subdivision thereof.
"Group" shall have the meaning ascribed to such term in Rule 13d-5
-----
under the Exchange Act.
"Guarantee" by any Person shall mean (without duplication on a
---------
consolidated basis) all obligations (other than endorsements in the ordinary
course of business of negotiable instruments for deposit or collection) of any
Person guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or
other obligation of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, all obligations
incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any property or assets constituting
security therefor, (ii) to advance or supply funds (x) for the purchase or
payment of such Indebtedness or obligation, (y) to maintain working capital or
other balance sheet condition or otherwise to advance or make available funds
for the purchase or payment of such Indebtedness or obligation, (iii) to lease
property or to purchase securities or other property or services primarily for
the purpose of assuring the owner of such Indebtedness or obligation of the
ability of the primary obligor to make payment of such Indebtedness or
obligation, or (iv) otherwise to assure the owner of the
17
<PAGE>
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of any computations made under this Agreement, a
Guarantee in respect of any Indebtedness for borrowed money shall be deemed to
be Indebtedness equal to the principal amount of the Indebtedness for borrowed
money which has been guaranteed, and a Guarantee in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Indebtedness" shall mean, with respect to any Person (without
------------
duplication on a consolidated basis), (i) all obligations of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (iii) all obligations of such Person
under conditional sale or other title retention agreements relating to property
purchased by such Person, (iv) all obligations of such Person issued or assumed
as the deferred purchase price of property or services (other than accounts
payable to suppliers and similar accrued liabilities incurred in the ordinary
course of business and paid in a manner consistent with industry practice), (v)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any lien or security interest on property owned or acquired by such Person
whether or not the obligations secured thereby have been assumed, (vi) all
Capitalized Lease Obligations of such person, (vii) all Guarantees of such
person, (viii) all obligations (including but not limited to reimbursement
obligations) relating to the issuance of letters of credit for the account of
such person, (ix) all obligations arising out of foreign exchange contracts, and
(x) all obligations arising out of interest rate and currency swap agreements,
cap, floor and collar agreements, interest rate insurance, currency spot and
forward contracts and other agreements or arrangements designed to provide
protection against fluctuations in interest or currency exchange rates.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
----
deposit arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of any effective
financing statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing.
"Material Adverse Effect" with respect to any Person shall mean any
-----------------------
event or events, taken singly or in the aggregate, (a) as a result of which such
Person and its Subsidiaries, taken as a whole, would be unable (i) to continue
to operate their business in a manner consistent with the manner of operation of
such business as of the date of this Agreement or (ii) to effectuate their
proposed business strategy, or (b) which would have a material adverse effect on
the assets, liabilities, business, results of operations, financial condition or
prospects of such Person and its Subsidiaries, taken as a whole.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
----
successor thereto.
"Pension Plan" shall mean any multiemployer plan or single employer
------------
plan, as defined in Section 4001 of ERISA, that is subject to Title IV of ERISA,
that the Company, any Subsidiary or any ERISA Affiliate maintains or is or ever
has been obligated to contribute to for
18
<PAGE>
the benefit of employees or former employees of the Company, any Subsidiary or
any ERISA Affiliate.
"Permitted Lien" shall mean (i) Liens for taxes, assessments or other
--------------
governmental charges not yet due or which are being contested in good faith and
by appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of the Company or such Subsidiary, as the case may be,
in accordance with GAAP; (ii) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business in respect of obligations which are not yet due or which are being
contested in good faith and by appropriate proceedings if adequate reserves with
respect thereto are maintained on the books of the Company or such Subsidiary,
as the case may be, in accordance with GAAP; (iii) pledges or deposits in
connection with workmen's compensation, unemployment insurance and other social
security legislation; (iv) Liens or deposits to secure the performance of bids,
tenders, trade or government contracts (other than for borrowed money), leases,
licenses, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business;
(v) easements, right-of-way, zoning and similar restrictions and other similar
encumbrances or title defects incurred, or leases or subleases granted to
others, in the ordinary course of business, which do not interfere with or
adversely affect in any material respect the ordinary conduct of the business of
the Company and its Subsidiaries taken as a whole; (vi) Liens on assets of
corporations which became or become Subsidiaries of the Company, provided that
--------
such Liens exist at the time such corporations became or become Subsidiaries and
are not created in anticipation thereof.
"Person" shall mean any individual, firm, corporation, business trust,
------
partnership or other entity, and shall include any successor (by merger or
otherwise) of such entity.
"Qualified Public Offering" shall mean a public offering of Common
-------------------------
Stock under the Securities Act at a per share price of at least $22 yielding an
enterprise value for the Company of at least $135,000,000 and gross underwriting
proceeds of not less than $20,000,000. As used herein, "enterprise value" shall
mean (x) the product of the number of the Corporation's Common Stock Equivalents
outstanding (as defined in Section 4(k)(ii)(c) of the Certificate of
Designation) multiplied by such per share offering price, plus (y) the
outstanding amount of the Company's indebtedness for borrowed money.
the value of the Company's capital stock based on the offering price
of the Qualified Public Offering plus the outstanding amount of the Company's
indebtedness for borrowed money.
"Related Party" shall mean any management officer of the Company or
-------------
any of their respective Subsidiaries, any spouse, parent, child or sibling of
any management officer of the Company or any of their respective Subsidiaries,
and any Affiliate or Associate of any of the foregoing persons.
"Real Estate Business" shall mean any business associated with real
--------------------
state (residential and commercial) and classifieds and activities associated
therewith or incidental thereto, including but not limited to promotion (online,
T.V., radio, print, telecommunication), related information services,
advertising, financing information and services, marketing of
19
<PAGE>
products and services to real estate and related professionals and companies,
financing transaction services, product and service transaction services, data
mining and other services generally performed by companies doing any of the
foregoing.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Subsidiary" of any Person means any corporation or other entity of
----------
which a majority of the voting power or the voting equity securities or equity
interests is owned, directly or indirectly, by such Person.
5.2. Accounting Principles. The character or amount of any asset,
---------------------
liability, capital account or reserve and of any item of income or expense
required to be determined pursuant to this Agreement, and any consolidation or
other accounting computation required to be made pursuant to this Agreement, and
the construction of any definition in this Agreement containing a financial
term, shall be determined or made, as the case may be, in accordance with United
States generally accepted accounting principles, to the extent applicable,
unless such principles are inconsistent with the express requirements of this
Agreement.
6. Miscellaneous.
-------------
6.1. Severability. If any term, provision, covenant or restriction
------------
of this Agreement or any exhibit hereto is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement and such exhibits shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such which may be hereafter declared
invalid, void or unenforceable.
6.2. Specific Enforcement. Each of the parties hereto acknowledges
--------------------
and agrees that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to injunctive or other equitable relief to prevent
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to which
they may be entitled at law or equity.
6.3. Entire Agreement. This Agreement (including the Schedules and
----------------
documents set forth in the exhibits hereto) contains the entire understanding of
the parties with respect to the transactions contemplated hereby.
6.4. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
20
<PAGE>
6.5. Notices and other Communications. All notices, consents,
--------------------------------
requests, instructions, approvals, financial statements, proxy statements,
reports and other communications provided for herein shall be given in writing
and delivered personally, by telecopy (with a confirmation copy to be sent by
first class mail) or sent by nationally recognized overnight courier service,
to:
THE COMPANY:
NetSelect, Inc.
5655 Lindero Canyon Road, Suite 120
Westlake Village, CA 91362
Attention: Chief Executive Officer
Telecopy No.: (818) 879-2893
With a copy to:
Mark C. Stevens, Esq.
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA 94306
Telecopy No.: (650) 494-1417
PURCHASER:
General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06907
Attention: Equity Capital Group-NetSelect Account
Manager
Attention: Counsel
Telecopy No. (203) 961-2088 & (203) 357-3047
With a copy to:
Warren de Wied, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy No. (212) 859-4000
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner.
6.6. Amendments. The Company may take any action herein
----------
prohibited, or omit to perform any act required to be performed by it
(including, without limitation, under Article 4 of this Agreement), if the
Company shall obtain the written consent or waiver of the registered holders of
not less than 66 2/3% of the outstanding shares of Series D Preferred Stock.
Any amendment to this Agreement shall require the written consent of (i) the
registered holders of not less than 66 2/3% of the outstanding shares of Series
D Preferred Stock and (ii) the Company.
21
<PAGE>
6.7. Cooperation. Each of the parties hereto agrees to take, or
-----------
cause to be taken, all such further or other actions as shall reasonably be
necessary to make effective and consummate the transactions contemplated by this
Agreement.
6.8. Heirs, Successors and Assigns. Except as expressly provided
-----------------------------
otherwise in this Agreement, all covenants and agreements contained herein shall
bind and inure to the benefit of the parties hereto, their respective heirs,
successors and assigns, and to any transferee of any Series D Preferred Stock.
There are no other intended third-party beneficiaries to this Agreement.
6.9. Expenses and Remedies. (a) The Company agrees to pay or
---------------------
reimburse Purchaser for (i) all reasonable legal counsel, to Purchaser in
connection with the Documents and the Certificate of Designation and the
consummation of all transactions contemplated hereby and thereby (the
"Transaction Fees"), (ii) all costs, expenses and reasonable legal fees relating
----------------
to any future amendments or supplements to the Documents or the Series D
Preferred Stock (or any proposal by the Company for such amendment or
supplement) whether or not consummated or any waiver or consent with respect
thereto (or any proposal for such waiver or consent) whether or not consummated
and (iii) all costs, expenses and reasonable legal fees of Purchaser relating to
the enforcement against the Company, the Document or the Certificate of
Designation. The maximum amount of Transaction Fees payable by the Company
under this Section 6.9(a) shall in the aggregate not exceed $50,000.
(b) The Company agrees to indemnify and save harmless Purchaser and
its officers, directors, partners, employees, trustees and agents, and each
person who controls Purchaser within the meaning of the Securities Act or the
Exchange Act, from and against any and all costs, expenses (including, without
limitation, reasonable attorneys' fees, whether incurred in connection with a
claim against the Company or a third party claim), damages or other liabilities
(collectively, "Losses") resulting from any breach of any representation,
------
warranty, covenant or agreement set forth in this Agreement by the Company or
any legal, administrative or other proceedings brought by any third party
arising out of the transactions contemplated hereby and thereby (other than
Losses resulting, directly or indirectly, (i) from the breach by Purchaser of
any of its agreements contained herein or (ii) from the gross negligence or
willful misconduct of Purchaser or any of its respective officers, directors,
partners, employees or agents, or any person who controls Purchaser within the
meaning of the Securities Act or the Exchange Act); provided, however, that, if
-------- -------
and to the extent that such indemnification is unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
such indemnified liability which shall be permissible under applicable laws.
(c) Each party entitled to indemnification under this Section 6.9
(each, an "indemnified party") shall, promptly after the receipt of notice of
the commencement of any action against such `indemnified party in respect of
which indemnity may be sought from a party (each, an "indemnifying party") on
account of an indemnity agreement contained in this Section 6.9, notify the
indemnifying party in writing of the commencement thereof. The omission of any
indemnified party so to notify the indemnifying party of any such action shall
not relieve the indemnifying party from any liability which the indemnifying
party may have to such indemnified party except to the extent the indemnifying
party shall have been materially
22
<PAGE>
prejudiced by the omission of such indemnified party so to notify the
indemnifying party, pursuant to this Section 6.9. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that the indemnifying party may wish, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under this
Section 6.9 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof nor for any settlement
thereof entered into without the consent of the indemnifying party; provided,
--------
however, that (i) if the indemnifying party shall elect not to assume the
- -------
defense of such claim or action or (ii) if the indemnified party reasonably
determines (x) that there may be a conflict between the positions of the
indemnifying party and of the indemnified party in defending such claim or
action or (y) that there may be legal defenses available to such indemnified
party different from or in addition to those available to the indemnifying
party, then separate counsel for the indemnified party shall be entitled to
participate in and conduct the defense, in the case of (i) and (ii)(x), or such
different defenses, in the case of (ii)(y), and the indemnifying party shall be
liable for any reasonable legal or other expenses incurred by the indemnified
party in connection with the defense.
(d) In case any one or more of the covenants and/or agreements set
forth in this Agreement shall have been breached by the Company, Purchaser may
proceed to protect and enforce its rights either by suit in equity and/or by
action at law, including, but not limited to, an action for damages as a result
of any such breach and/or an action for specific performance of any such
covenant or agreement contained in this Agreement.
6.10. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the issuance and delivery of the shares of Series D Preferred
Stock, regardless of any investigation made by or on behalf of any party.
6.11. Transfer of Securities. (a) Purchaser understands and agrees
----------------------
that the shares of Series D Preferred Stock (and the shares of Common Stock
issuable upon conversion thereof) have not been registered under the Securities
Act or the securities laws of any state and that they may be sold or otherwise
disposed of only in one or more transactions registered under the Securities Act
and, where applicable, such laws or transactions as to which an exemption from
the registration requirements of the Securities Act and, where applicable, such
laws are available. Purchaser acknowledges that, except as provided in this
Agreement, Purchaser has no right to require the Company to register any of such
shares. Purchaser understands and agrees that each certificate representing any
of such shares shall bear the following legends:
"THE TRANSFER OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE IS RESTRICTED BY A STOCK
PURCHASE AGREEMENT DATED AS OF DECEMBER 31, 1997,
A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE
CORPORATION."
23
<PAGE>
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS
AS CONFIRMED BY AN OPINION IN FORM AND FROM COUNSEL
REASONABLY ACCEPTABLE TO THE CORPORATION."
6.12. Governing Law. (a) This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the STATE of DELAWARE
without giving effect to conflict of laws principles. Each of the Parties
hereby waives any right it may have to a trial by jury in any litigation
directly or indirectly arising out of this Agreement.
(b) Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive Jurisdiction of the courts
of the State of Delaware and of the United States of America, in each case
located in the State of Delaware, for any action, proceeding or investigation in
any court or before any governmental authority ("Litigation") arising out of or
----------
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any Litigation relating thereto except in such courts), and
further agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in this Agreement shall be
effective service of process for any Litigation brought against it in any such
court. Each of the parties hereto hereby irrevocably and unconditionally waives
any objection to the laying of venue of any Litigation arising out of this
Agreement or the transactions contemplated hereby in the courts of the State of
Delaware or the United States of America, in each case located in the State of
Delaware, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such Litigation brought in any
such court has been brought in an inconvenient forum.
6.13. Term. Except as otherwise provided in this Agreement, this
----
Agreement shall terminate when none of the shares of Series D Preferred Stock
remain outstanding, except that Sections 5.1 and 6.9 shall survive the
termination of this Agreement.
6.14. Publicity. Each of the parties hereto agrees that, without
---------
the nor written consent of the other, it shall not (and it shall cause its
Subsidiaries, if any, not to) mention the name of any of the parties hereto
(including any Affiliate) or any of the trade marks or trade names of any of the
parties hereto or any of its Affiliates in any document or advertisement. Each
of the parties hereto agrees that it shall (and it shall cause its Subsidiaries,
if any, to) agree that it shall make no statement regarding the transactions
contemplated hereby which is inconsistent with any press release agreed to by
the parties hereto. Notwithstanding the foregoing, each of the parties hereto
may, in documents required to be filed by it with any regulatory body or
pursuant to any federal or state law (such as a proxy statement), make such
24
<PAGE>
statements with respect to the transactions contemplated hereby as each may be
advised is legally necessary upon advice of its counsel.
25
<PAGE>
[This page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Stock
Purchase Agreement to be executed on its behalf as of the date first above
written.
NETSELECT, INC.
By: /s/ Stuart Wolff
-------------------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ James Brown
-------------------------------------
Name: James Brown
Title: Region Operations Manager
<PAGE>
EXHIBIT 10.14
NETSELECT, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of August 21, 1998 (the
"Agreement"), is entered into between NetSelect, Inc., a Delaware corporation
---------
(the "Company"), and each of those persons and entities, severally and not
-------
jointly, whose names are set forth on the Schedule of Purchasers attached hereto
as Exhibit A (which persons and entities are hereinafter collectively referred
---------
to as "Purchasers" and each individually as a "Purchaser"). Capitalized terms
---------- ---------
used in this Agreement but not otherwise defined shall have the meanings given
to them in Section 6 hereof.
WHEREAS, Purchasers wish to purchase from the Company, and the Company
wishes to sell to Purchasers, an aggregate of One Million Six Hundred Sixty Four
Thousand Forty Nine (1,664,049) shares of a new series of preferred stock, $.001
par value per share, of the Company, to be designated "Cumulative Convertible
Series F Preferred Stock" (the "Series F Preferred Stock"), such Series F
------------------------
Preferred Stock to have the rights, preferences, privileges, and restrictions as
set forth in the Amended and Restated Certificate of Incorporation substantially
in the form attached as Exhibit B hereto (the "Restated Certificate");
--------- --------------------
WHEREAS, certain of the Purchasers wish to purchase from the Company, and
the Company wishes to sell to such Purchasers, an aggregate of One Million Six
Hundred Seventy Three Thousand Nine Hundred Ninety One (1,673,991) additional
shares of its Class A Common Stock (the "Common Stock" and, together with the
------------
Series F Preferred Stock, the "Purchased Securities"); and
--------------------
WHEREAS, Purchasers and the Company desire to provide for such purchase and
sale and to establish various rights and obligations in connection therewith.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto agree as follows:
1. Agreement to Purchase and Sell Stock; Closing.
---------------------------------------------
1.1 Agreement to Purchase and Sell Stock. The Company agrees to sell
-------------------------------------
to each Purchaser at the Closing, and each Purchaser agrees, severally and not
jointly, to purchase from the Company at the Closing, the Purchased Securities
at a purchase price per share as set forth beside such Purchaser's name on
Exhibit A.
- ---------
1.2 Closing. The purchase and sale of the Purchased Securities will
-------
take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo
Alto, California, at 10:00 a.m. Pacific Time, on August 21, 1998 or at such
other time and place as the Company and Purchasers mutually agree upon (which
time and place are referred to in this Agreement as the "Closing"). At the
-------
Closing, the Company will deliver to each Purchaser certificates representing
the number of shares of Series F Preferred Stock and Common Stock that such
Purchaser has agreed to purchase hereunder as shown on Exhibit A against
---------
delivery to the Company by such Purchaser of the full purchase price of such
Purchased Securities, paid by check payable to the Company, wire transfer of
funds to the Company or conversion of principal and interest related to
promissory notes that were issued to the Purchasers by the Company on July 20,
1998.
<PAGE>
1.3 Additional Closing(s).
---------------------
(a) Conditions of Additional Closing(s). At any time and from
------------------------------------
time to time during the ninety (90) day period immediately following the Closing
(the "Additional Closing Period"), subject to the satisfaction of the conditions
-------------------------
set forth in Section 1.4 below the Company may, at one or more additional
closings (each an "Additional Closing"), without obtaining the signature,
------------------
consent or permission of any of the Purchasers, offer and sell to other
purchasers ("New Purchasers"), at a price of $24.00 per share, up to that number
--------------
of shares of Series F Preferred Stock that is equal to the total number of
shares of Series F Preferred Stock authorized by the Restated Certificate less
the number of shares of Series F Preferred Stock actually issued and sold by the
Company at the Closing. New Purchasers may include persons or entities who are
already Purchasers under this Agreement.
(b) Amendments. The Company and the New Purchasers purchasing
----------
Series F Preferred Stock at each Additional Closing will execute counterpart
signature pages to this Agreement and the NetSelect Stockholders' Agreement (as
defined in Section 5.1(j)) and such New Purchasers will, upon delivery to the
Company of such signature pages, become parties to, and bound by, this Agreement
and the NetSelect Stockholders' Agreement, each to the same extent as if they
had been Purchasers at the Closing. Immediately after each Additional Closing,
Exhibit A to this Agreement will be amended to list the New Purchasers
- ---------
purchasing shares of Series F Preferred Stock hereunder and the number of shares
of Series F Preferred Stock purchased by each of them under this Agreement at
each such Additional Closing. The Company will promptly furnish to each
Purchaser copies of the amendments to Exhibit A referred to in the preceding
---------
sentence.
(c) Status of New Purchasers. Upon the completion of each
------------------------
Additional Closing as provided in this Section 1.3, each New Purchaser will be
deemed to be a "Purchaser" for all purposes of this Agreement and the NetSelect
Stockholders' Agreement.
1.4 KP Adjustment. To the extent that the number of equivalent
-------------
shares of capital stock of the Company referenced on Schedule 2.7a under the
column "Buy Back Shares" are not repurchased by October 31, 1998, the Company
shall promptly sell to the KP Entities (as such term is defined in the NetSelect
Stockholders Agreement attached hereto as Exhibit E) such number of shares of
---------
Common Stock, at a purchase price of $0.001 per share and calculated on a fully-
diluted basis, in an amount equal to 15% of the equivalent shares of capital
stock of the Company that were not so repurchased.
2. Representations and Warranties of the Company. Except as set forth on
---------------------------------------------
the Disclosure Schedule separately delivered to the Purchasers, the Company
represents and warrants as of the Closing Date as follows:
2.1 Organization and Qualification. Each of the Company and its
------------------------------
Subsidiaries is duly organized and existing in good standing under the laws of
the jurisdiction in which it is organized and has the power to own its property
and to carry on its business as now being conducted. Each of the Company and
its Subsidiaries is qualified to transact business and is in good standing in
each jurisdiction in which the failure to so qualify would have a Material
Adverse Effect on the Company.
2
<PAGE>
2.2 Due Authorization. The execution and delivery of this Agreement
-----------------
and the NetSelect Stockholders' Agreement by the Company, the issuance and sale
of the Purchased Securities by the Company and compliance by the Company with
all the provisions of this Agreement, the NetSelect Stockholders' Agreement, the
Voting Agreement and the Restated Certificate (i) are within the corporate power
and authority of the Company and (ii) have been duly authorized by all requisite
corporate proceedings on the part of the Company. This Agreement, the Voting
Agreement and the NetSelect Stockholders' Agreement have been duly executed and
delivered by the Company and constitute valid and binding agreements of the
Company, enforceable against the Company in accordance with their terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The Company has furnished to each Purchaser true and correct
copies of the Certificates of Incorporation and By-Laws of the Company and
RealSelect, Inc. ("RealSelect") and the limited liability agreement of NetSelect
----------
L.L.C. ("NS LLC"), in each case as in effect on the date of this Agreement.
------
2.3 Subsidiaries. Schedule 2.3 sets forth for each Subsidiary of the
------------ ------------
Company (i) its name and jurisdiction of organization, (ii) the number of shares
of authorized capital stock of each class of its capital stock, and (iii) the
number of issued and outstanding shares of each class of its capital stock, the
names of the holders thereof, and the number of shares held by each holder (or
if such Subsidiary is not a corporation, the equity structure of such Subsidiary
and a list of its owners and their relative interests therein). All of the
issued and outstanding shares of capital stock or ownership interests of each
Subsidiary have been duly authorized and are validly issued, fully paid, and
nonassessable. Neither of the Company nor any of its Subsidiaries control,
directly or indirectly, or has any direct or indirect equity participation in,
any corporation, partnership, trust or other business association which is not a
Subsidiary of the Company.
2.4 Financial Statements; Undisclosed Liabilities; Changes.
------------------------------------------------------
(a) The Company has delivered to each Purchaser true and complete
copies of its unaudited consolidated balance sheet of the Company dated May 31,
1998, its unaudited statement of operations and its unaudited statement of cash
flows for the five months ended May 31, 1998 and for its fiscal year ended
December 31, 1997 (all such financial statements being collectively referred to
herein as the "Financial Statements"). The Financial Statements have been
--------------------
prepared in accordance with generally accepted accounting principles
consistently followed (except as indicated in the notes thereto and, subject to
normal year-end adjustments, none of which are expected to be material in
amount) throughout the periods involved and fairly present the financial
condition, results of operations and cash flows of the Company and its
Subsidiaries as of their respective dates.
(b) Except as set forth in the Financial Statements, to the
Company's knowledge, neither the Company nor any of its Subsidiaries has any
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to May 31, 1998, and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements, which in both cases individually or in
the aggregate are not material to the financial condition or operating results
of the Company and its Subsidiaries taken as a whole.
3
<PAGE>
(c) Since May 31, 1998, the Company and its Subsidiaries have
operated their respective businesses only in the ordinary course and, to the
knowledge of the Company, no event has occurred which has had or is reasonably
likely to have a Material Adverse Effect on the Company.
Without limiting the foregoing, since May 31, 1998 there has not
been:
(i) any damage, destruction or loss to any of the material
assets or properties of the Company or any of its Subsidiaries;
(ii) any declaration, setting aside or payment of any
dividend or distribution or capital return in respect of any shares of the
Company's capital stock or any redemption, purchase or other acquisition by the
Company or any of its Subsidiaries of any shares of the Company's capital stock,
except as contemplated by employee stock plans or the Voting Agreement (as
defined below);
(iii) any sale, assignment, transfer, lease or other
disposition or agreement to sell, assign, transfer, lease or otherwise dispose
of any of the assets of the Company or any of its Subsidiaries outside the
normal course of business;
(iv) any acquisition (by merger, consolidation, or
acquisition of stock or assets) by the Company or any of its Subsidiaries of any
corporation, partnership or other business organization or division thereof;
(v) any incurrence by the Company or any of its Subsidiaries
of any indebtedness for borrowed money or any assumption, granting, guarantee or
endorsement, or other accommodation arrangement making the Company or any of its
Subsidiaries responsible for the indebtedness for borrowed money of any person
or entity (other than another Subsidiary);
(vi) any material change in any method of accounting or
accounting practice used by the Company or any of its Subsidiaries, other than
such changes required by generally accepted accounting principles;
(vii) (A) any employment, deferred compensation, severance
or similar agreement entered into or amended by the Company or any of its
Subsidiaries, (B) increase in the compensation payable or to become payable by
it to any of its directors or officers, or (C) any increase in the coverage or
benefits available under any severance pay, termination pay, vacation pay,
company awards, salary continuation or disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or other
employee benefit plan, payment or arrangement made to, for or with such
directors, officers, employees, agents or representatives, other than, in the
case of (B) and (C) above, normal increases in the ordinary course of business
consistent with past practice and that in the aggregate have not resulted in a
material increase in the benefits or compensation expense of the Company or any
of its Subsidiaries;
(viii) any writing down, in accordance with generally
accepted accounting principles and consistent with past practice, of the value
of any material accounts receivable or any revaluation by the Company or any of
its Subsidiaries of any of its material assets or any cancellation or writing
off as worthless and uncollectible of any debt, note or account
4
<PAGE>
receivable by the Company or any of its Subsidiaries, excluding write-offs and
writedowns in the aggregate of less than $50,000;
(ix) any material transaction with a Related Party (other
than compensation for services rendered in the ordinary course of business); or
(x) any agreement to take any actions specified in this
Section 2.4(c), except for this Agreement and the transactions contemplated
hereby.
2.5 Litigation. There is no action, suit, investigation or proceeding
----------
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries or any of their respective properties or assets by or
before any court, arbitrator or Governmental Authority.
2.6 Conflicting Agreements and Charter Provisions. Neither the
---------------------------------------------
Company nor any of its Subsidiaries is a party to any organizational documents
or contract or agreement or subject to any organizational documents or judgment
or decree which is reasonably likely to have a Material Adverse Effect on the
Company. None of (i) the execution and delivery of this Agreement, the Voting
Agreement, the NetSelect Stockholders' Agreement and the issuance of Purchased
Securities and (ii) the fulfillment of and compliance with the terms and
provisions hereof and thereof and of the Purchased Securities shall conflict
with or result in a breach of, or require a consent, approval or other action
under, the terms, conditions or provisions of, or give rise to a right of
termination under, or constitute a default under, or result in any violation of,
the organizational documents of the Company or any Subsidiary or any mortgage,
agreement, instrument, order, judgment, decree, statute, law, rule or regulation
to which the Company or any Subsidiary or any of their respective properties is
subject except those which have been obtained before the Closing. Neither the
Company nor any of its Subsidiaries (i) is in default under any outstanding
indenture or other debt instrument or with respect to the payment of principal
of or interest on any outstanding obligation for borrowed money, or (ii) is in
material default under any of their respective material contracts or agreements,
or under any instrument by which the Company or any of its Subsidiaries is bound
(including those listed in the Disclosure Schedule).
2.7 Capitalization. (a) As of the date of this Agreement prior to the
--------------
issuance of the Purchased Securities, the authorized capital stock of the
Company consists of: (i) 35,000,000 shares of Class A Common Stock, par value
$0.001 per share ("Class A Common Stock"), of which 370,852 shares are issued
--------------------
and outstanding; (ii) 10,000,000 shares of Class B Common Stock, par value
$0.001 per share ("Class B Common Stock," together with Class A Common Stock,
--------------------
the "Common Stock"), of which 116,470 shares are issued and outstanding; and
------------
(iii) 10,000,000 shares of Preferred Stock, par value $0.001 per share, of which
1,647,059 shares have been designated and issued as Series A Preferred Stock
(the "Series A Preferred Stock"), 352,941 shares have been designated and issued
------------------------
as Series B Preferred Stock (the "Series B Preferred Stock"), 614,374 shares
------------------------
have been designated and issued as Series C Preferred Stock (the "Series C
--------
Preferred Stock"), 681,201 shares have been designated and issued as Series D
- ---------------
Preferred Stock (the "Series D Preferred Stock"), 325,000 shares have been
------------------------
designated and issued as Series E Preferred Stock (the "Series E Preferred
------------------
Stock") and 2,100,000 shares have been designated as Series F Preferred Stock,
- -----
none of which have been issued (the "Series F Preferred Stock" and together with
------------------------
the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, Series D Preferred Stock and the Series E Preferred Stock, the
"Preferred Stock"). All shares of Preferred Stock that have been issued are
---------------
still outstanding. Except
5
<PAGE>
as set forth on the Disclosure Schedule or in the NetSelect Stockholders'
Agreement, there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, shares of any class of capital stock of
the Company or any Subsidiary, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound
relating to the issuance or transfer of any shares of capital stock or options,
warrants or rights to purchase or acquire any shares of capital stock of the
Company or relating to the voting of any shares of capital stock of the Company
or a Subsidiary. The Disclosure Schedule sets forth the names of the holders of
securities of the Company, the numbers of such securities held by such holders,
the expiration dates of such securities, their vesting schedules (if any) and
their exercise price (if any). Except for rights of first refusal held by the
Company to purchase shares of its stock issued under the Company's 1996 Stock
Incentive Plan, no shares of the Company's outstanding capital stock, or stock
issuable upon exercise or exchange of any outstanding options, warrants or
rights, or other stock issuable by the Company, are subject to any preemptive
rights, rights of first refusal or other rights to purchase such stock (whether
in favor of the Company or any other person), pursuant to any agreement or
commitment of the Company. The only registration rights granted by the Company
are contained in the NetSelect Stockholders' Agreement and that certain Stock
and Interest Purchase Agreement dated as of November 26, 1996 among the Company,
NS LLC and InfoTouch Corporation, a Delaware corporation.
2.8 Status of Purchased Securities. The Purchased Securities have
------------------------------
been duly authorized by all necessary corporate action on the part of the
Company and, upon payment therefor as provided in Section 1 hereof, the
Purchased Securities shall be, and the shares of Class A Common Stock issuable
upon conversion of the Series F Preferred Stock, upon such conversion and
issuance shall be, validly issued and outstanding, fully paid and nonassessable
(the Purchased Securities and such shares of Class A Common Stock issuable upon
conversion of the Series F Preferred Stock are collectively referred to herein
as the "Securities"). The shares of Series A Common Stock issuable upon
----------
conversion of the shares of Series F Preferred Stock have been validly reserved
for issuance.
2.9 Laws and Regulations. The Company and each of its Subsidiaries
--------------------
are in compliance in all material respects with all applicable federal, state,
local and foreign laws and regulations and have obtained all permits, licenses,
franchises, and similar documentation, including without limitation real estate
licenses, required or necessary for the conduct of the Real Estate Business.
There are no claims, notices, civil, criminal or administrative actions, suits,
hearings, investigations, inquiries or proceedings pending or, to the knowledge
of the Company, threatened against the Company or any of its Subsidiaries.
2.10 Title to Properties; Insurance. The Company owns its properties
------------------------------
and assets free and clear of all mortgages, deeds of trust, liens, encumbrances,
security interests and claims except for statutory liens for the payment of
current taxes that are not yet delinquent and liens, encumbrances and security
interests which arise in the ordinary course of business and which do not affect
material properties and assets of the Company. With respect to the property and
assets it leases, the Company and each of its Subsidiaries is in compliance with
such leases and, to the best of the Company's knowledge, the Company and each of
its Subsidiaries holds valid leasehold interests in such assets free of any
liens, encumbrances, security interests or claims of any party other than the
lessors of such property and assets. Each of the Company and its Subsidiaries
maintains insurance with respect to their properties and business against such
casualties and contingencies, of such types (including, without limitation,
errors and omissions coverage), on such terms and in such amounts
6
<PAGE>
(including deductibles, co-insurance and self-insurance, if adequate reserves
are maintained with respect thereto) as is customary in the case of similarly
situated entities engaged in the same or a similar business. The Company has
obtained a policy of directors' and officers' insurance in the amount of
$2,000,000.
2.11 Governmental Consents, etc. The Company is not required to
--------------------------
obtain any consent, approval or authorization of, or to make any declaration or
filing with, any Governmental Authority as a condition to or in connection with
the valid execution, delivery and performance of this Agreement and the
NetSelect Stockholders' Agreement, the valid offer, issue, sale or delivery of
the Purchased Securities, or the performance by the Company of its obligations
in respect thereof, except for any filings required to effect any registration
pursuant to the NetSelect Stockholders' Agreement and any state or federal
securities filings.
2.12 Taxes. The Company and each of its Subsidiaries have filed or
-----
caused to be filed all tax returns which are required to be filed and have paid
or caused to be paid all taxes as shown on said returns and on all assessments
received by them to the extent that such taxes have become due, except taxes the
validity or amount of which is being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been set aside. The
Company and its Subsidiaries have paid or caused to be paid, or have established
adequate reserves for, all federal income tax liabilities and state income tax
liabilities now applicable to the Company or any of its Subsidiaries for all
fiscal years which have not been examined and reported on by the taxing
authorities (or closed by applicable statutes).
2.13 ERISA. The Company does not have any Employee Pension Benefit
-----
Plan as defined in Section 3 of the Employee Retirement Income Security Act of
1974, as amended.
2.14 Patents and Trademarks. Set forth in Schedule 2.14 is a true and
---------------------- -------------
complete list of all patents, patent applications, trademarks, service marks,
trademark and service mark applications, trade names and copyrights presently
used by the Company or any Subsidiary or necessary for the conduct of the
business of the Company and its Subsidiaries as conducted and as proposed to be
conducted (the "Intellectual Property Rights"). The Company owns, or has the
------------------------------
right to use under the agreements or upon the terms described in Schedule 2.14,
-------------
all of the Intellectual Property Rights. To the knowledge of the Company, the
business conducted or proposed to be conducted by the Company and its
Subsidiaries does not infringe or violate any of the patents, trademarks,
service marks, trade names, copyrights, trade secrets or other proprietary
rights of any other person or entity, and neither the Company nor any Subsidiary
has received any charge, complaint, claim, demand or notice alleging any such
infringement or violation. To the Company's knowledge, no other Person has any
right to or interest in any inventions, improvements, discoveries or other
confidential information utilized by the Company or any Subsidiary in its
business.
2.15 Material Contracts and Obligations. Schedule 2.15 sets forth a
---------------------------------- -------------
list of the following agreements or commitments of any nature to which the
Company or any Subsidiary is a party or by which it is bound: (a) any agreement
relating to the Intellectual Property Rights having a value in excess of
$50,000, (b) all employment and consulting agreements which require future
annual cash payments in excess of $125,000, and all employee benefit, bonus,
pension, profit-sharing, stock option, securities purchase and similar plans and
arrangements, (c) all data content provider agreements, including, but not
limited to, master listings service agreements (and indication
7
<PAGE>
of whether each such agreement offers the Company exclusive listing rights), (d)
all agreements with National Association of Realtors or Realtor Information
Network, Inc., (e) all agreements with third parties under which such third
parties agree to direct Internet traffic to the Internet site operated by
RealSelect, (f) all agreements with third parties under which such third parties
agree to pay the Company or any Subsidiary for furnishing additional information
about such third parties to visitors of the Internet site operated by
RealSelect, (g) all agreements with suppliers or vendors which require future
payments in excess of $125,000 not already covered by (a) through (f) above, (h)
all agreements or commitments which restrict the ability of the Company or any
Subsidiary or Affiliate or employee to engage in any business or line of
business in any location, (i) all agreements or commitments relating to
Indebtedness or Guarantees of the Company or any Subsidiary and (j) any other
agreement or commitment which requires future payments by or to the Company or
any Subsidiary in excess of $125,000 or which is otherwise material to the
Company or any of its Subsidiaries. The Company has delivered or made available
to each Purchaser copies of all of the foregoing agreements and commitments. All
of such agreements and commitments are valid, binding and in full force and
effect, except that, with respect to parties to such agreements and commitments
other than the Company and its Subsidiaries, this representation is made only to
the knowledge of the Company.
2.16 Labor Matters. Neither the Company nor any of its Subsidiaries
-------------
is a party to any collective bargaining agreement covering employees of the
Company or its Subsidiaries nor does any labor union or collective bargaining
agent represent any of the employees of the Company or its Subsidiaries. There
is no labor strike, slow-down or stoppage pending or, to the Company's
knowledge, threatened by the employees.
2.17 Books and Records. All the books, records and accounts of the
-----------------
Company and its Subsidiaries are in all material respects true and complete, are
maintained in accordance with good business practice and all laws applicable to
its business, and accurately present and reflect in all material respects all of
the transactions therein described. The Company has previously delivered to the
each Purchaser true and complete texts of all of the minutes relating to
meetings of the stockholders, the Board and committees of the Board of the
Company and each Subsidiary for the past two years.
2.18 Brokers. Neither the Company nor any Subsidiary has engaged any
-------
finder, broker or investment adviser, and has no obligation to pay any fees
relating thereto, in connection with the transactions contemplated hereby.
2.19 Holding Company Act and Investment Company Act. Neither the
----------------------------------------------
Company nor any Subsidiary is: (i) a "public utility company" or a "holding
company," or an "affiliate" or a "subsidiary company" of a "holding company," or
an "affiliate" of such a "subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility," as defined in the Federal Power Act, as amended, or (iii) an
"investment company" or an "affiliated person" thereof or an "affiliated person"
of any such "affiliated person," as such terms are defined in the Investment
Company Act of 1940, as amended.
2.20 Costs of "Year 2000" Modifications. The Company represents and
----------------------------------
warrants that its computer system and software are able to accurately process
date data, including but not limited to, calculating, comparing and sequencing
from, into and between the twentieth century
8
<PAGE>
(through year 1999), the year 2000 and the twenty-first century, including leap
year calculations. To the knowledge of the Company, it is not aware of any
inability on the part of any service provider to timely remedy its own
deficiencies in respect of the year 2000 problem.
2.21 Related Party Transactions. Except as set forth in the
--------------------------
Disclosure Schedule, no beneficial owner of 5% or more of the Company's or any
of its Subsidiaries' outstanding capital stock or officer or director of the
Company or any of its Subsidiaries or any spouse, parent, child or sibling of
any officer or director or any person or entity (other than the Company or a
Subsidiary) in which any such person or entity owns any beneficial interest
(collectively, "Related Parties") has any interest in: (i) any contract,
---------------
arrangement or understanding with, or relating to, the business or operations
of, the Company or any of its Subsidiaries; (ii) any loan, arrangement,
understanding, agreement or contract for or relating to indebtedness of the
Company or any of its Subsidiaries; or (iii) any property (real, personal or
mixed), tangible or intangible, used in the business or operations of the
Company or any of its Subsidiaries; excluding any such contract, arrangement,
understanding or agreement constituting an employee compensation arrangement.
2.22 Accuracy of Information. None of the representations and
-----------------------
warranties of the Company contained herein or in the NetSelect Stockholders'
Agreement contains any material misstatement of fact or omits any material fact
required to be stated herein or therein or necessary to make the statements
herein and therein not misleading. The information (other than projections)
which has been furnished in writing by the Company to the Purchasers in
connection with the transactions contemplated hereby, did not, in the aggregate
and to the knowledge of the Company, as of the date such information was
furnished, contain any material misstatement of fact, or omit any material fact
required to be stated therein or necessary to make the statements therein not
misleading. The projections delivered to certain of the Purchasers dated August
18, 1998 were prepared by management of the Company using its reasonable
business judgment and based upon the assumptions set forth in such projections,
represent as of the date of this Agreement the best estimate by management of
the Company as to the financial performance of the Company for the periods
indicated, but do not represent any guarantee or assurance of the future
financial results of the Company. The Company does not believe that such
projections are inaccurate or misleading in any material respect.
3. Representations and Warranties of Purchaser. Each Purchaser represents
-------------------------------------------
and warrants as of the date hereof and as of the Closing, individually and not
jointly, as follows:
3.1 Organization and Qualification. Such Purchaser is duly organized
------------------------------
and existing in good standing under the laws of the jurisdiction of its
formation and has the power to own its property and to carry on its business as
now being conducted.
3.2 Due Authorization. Such Purchaser has all necessary right, power
-----------------
and authority to enter into this Agreement and the NetSelect Stockholders'
Agreement, and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the NetSelect Stockholders'
Agreement by such Purchaser and the consummation by such Purchaser of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on behalf of such Purchaser. This Agreement and the NetSelect
Stockholders' Agreement have been duly executed and delivered by such Purchaser
and constitute valid and binding agreements of such Purchaser enforceable in
accordance with their terms, except that (i) such
9
<PAGE>
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
3.3 Governmental Consents, etc. Except as obtained or made, such
--------------------------
Purchaser is not required to obtain any consent, approval or authorization of,
or to make any declaration or filing with, any Governmental Authority as a
condition to or in connection with the valid execution, delivery and performance
of this Agreement and the NetSelect Stockholders' Agreement and the valid offer,
issue, sale or delivery of the Purchased Securities, or the performance by such
Purchaser of its obligations in respect thereof.
3.4 Conflicting Agreements and Other Matters. Neither the execution
----------------------------------------
and delivery of this Agreement and the NetSelect Stockholders' Agreement nor the
performance by such Purchaser of its obligations hereunder conflict with, result
in a breach of the terms, conditions or provisions of, constitute a default
under or require any consent, approval or other action by or any notice to or
filing with any court or administrative or governmental body pursuant to, the
organizational documents of such Purchaser or any mortgage, agreement,
instrument, order, judgment, decree, statute, law, rule or regulation to which
such Purchaser or any of its properties are subject.
3.5 Acquisition for Investment. Such Purchaser is acquiring the
--------------------------
Securities for its own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof, and such Purchaser
has no present intention or plan to effect any distribution thereof. Such
Purchaser acknowledges that the Securities have not been registered under the
Securities Act and may be sold or disposed of in the absence of such
registration only pursuant to an exemption from such registration.
3.6 Investment Experience. Such Purchaser understands that the
---------------------
purchase of the Purchased Securities involves substantial risk. Such Purchaser:
(i) has experience as an investor in securities of companies in the development
stage and acknowledges that such Purchaser is able to fend for itself, can bear
the economic risk of such Purchaser's investment in the Purchased Securities and
has such knowledge and experience in financial or business matters that such
Purchaser is capable of evaluating the merits and risks of this investment in
the Purchased Securities and protecting its own interests in connection with
this investment and/or (ii) has a preexisting personal or business relationship
with the Company and certain of its officers, directors or controlling persons
of a nature and duration that enables such Purchaser to be aware of the
character, business acumen and financial circumstance of such persons.
3.7 Accredited Purchaser. Such Purchaser is an "accredited investor"
--------------------
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act.
3.8 Brokers. Such Purchaser has not engaged any finder, broker or
-------
investment advisor, and has no obligation to pay any fees relating thereto, in
connection with the transaction contemplated hereby.
4. Certain Covenants.
-----------------
10
<PAGE>
4.1 Compliance with Laws. The Company shall, and shall cause its
--------------------
Subsidiaries to, comply in all material respects with all applicable statutes,
rules, regulations and orders of all Governmental Authorities with respect to
the conduct of its business and the ownership of its properties, including,
without limitation, those relating to the environment and human health, equal
employment opportunity, employee safety, foreign corrupt practices and ERISA.
4.2 Limitation on Agreements. The Company shall not, and shall not
------------------------
permit any of its Subsidiaries to, enter into any agreement or any amendment,
modification, extension or supplement to any existing agreement, which
contractually prohibits the payment of dividends on the Series F Preferred Stock
in accordance with the Restated Certificate.
4.3 Preservation of Franchises and Existence. The Company shall, and
----------------------------------------
shall cause each of its Subsidiaries (so long as they are conducting any
business) to, maintain its corporate existence, and all material rights and
franchises, in full force and effect unless the Board determines that it is in
the best interest of the Company not to do so and such rights and franchises, as
the case may be, are not material to the business of the Company.
4.4 Insurance. The Company shall, and shall cause each of its
---------
Subsidiaries to, effective as of the Closing, maintain with insurers believed by
the Company to be responsible such insurance, in such amounts and of such types
as are customarily carried under similar circumstances by companies of similar
size and engaged in the same or a similar business or having similar properties
similarly situated and in any event not less than the amounts set forth on
Schedule 4.4.
- ------------
4.5 Lost, Stolen, Damaged and Destroyed Stock Certificates. Upon
------------------------------------------------------
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any certificate for shares of Series F Preferred Stock or Class
A Common Stock, and in the case of loss, theft or destruction, upon delivery of
an indemnity or bond satisfactory to the Company (which may include an
undertaking by the Purchasers so to indemnify the Company), or, in the case of
mutilation, upon surrender and cancellation thereof, the Company shall issue a
new agreement or certificate of like tenor for a number of shares of Series F
Preferred Stock or Class A Common Stock equal to the number of shares of such
stock represented by the lost, stolen, destroyed or mutilated certificate.
4.6 Related Party Transactions. Except for transactions contemplated
--------------------------
in the Voting Agreement and except with the written consent of a majority of the
disinterested directors of the Board, the Company shall not, directly or
indirectly, and shall not permit any of its Subsidiaries to, directly or
indirectly, enter into, amend or terminate any material contract, arrangement or
transaction with a Related Party, other than compensation arrangements in the
ordinary course of business on arm's length terms.
4.7 Use of Proceeds. The Company will use that portion of the
---------------
proceeds obtained from the sale of shares of Purchased Securities above
$28,000,000 that is necessary to fulfill its obligations as set forth in Section
2.1 of the Voting Agreement (as defined below).
4.8 Merger of InfoTouch, Inc. and NS LLC. The Company shall use its
------------------------------------
best efforts to effect the InfoTouch Merger (as defined in the Voting Agreement)
by October 31, 1998. Prior to the consummation of the InfoTouch Merger, the
Company shall deliver a capitalization table
11
<PAGE>
to the Purchasers setting forth the fully diluted capitalization of the Company
after giving effect to the InfoTouch Merger.
4.9 Merger of RealSelect, Inc. and the Company. The Company shall
------------------------------------------
use its reasonable best efforts to effect a merger of RealSelect, Inc. with the
Company by November 15, 1998 pursuant to terms that the Company's Board of
Directors believe are in the best interests of the Company (the "NAR Collapse").
------------
Prior to the consummation of the NAR Collapse, the Company shall deliver a
capitalization table to the Purchasers setting forth the fully diluted
capitalization of the Company after giving effect to the NAR Collapse.
4.10 Employee Agreements. The Company will use its best efforts to
-------------------
have each employee, consultant and officer of the Company and each of its
Subsidiaries execute an agreement with such entity regarding confidentiality and
proprietary information substantially in the form delivered to special counsel
for the Purchasers.
4.11 Audited Financial Statements. The Company shall use its best
----------------------------
efforts to deliver to the Purchasers audited consolidated financial statements
for its fiscal year ended December 31, 1997 by October 31, 1998.
4.12 Certain Issuances. The approval of Investors affiliated with
-----------------
Kleiner Perkins Caufield & Byers shall be required prior to the issuance by the
Company of any securities to Cendant Corporation prior to the effectiveness of a
Registration Statement covering the Company's common stock for an initial public
offering.
4.13. Stock Option Agreements. On or before the earlier of (i) October
-----------------------
31, 1998 or (ii) the InfoTouch Merger, the Company shall enter into customary
stock option agreements with current holders of the Company's stock options,
which agreements shall reflect standard terms and conditions and contain a right
to repurchase unvested shares in favor of the Company. The Company shall require
all future grantees of Company stock options to execute standard and customary
stock option agreements, which agreements shall contain a right to repurchase
unvested shares in favor of the Company.
5. Conditions to Obligations at Closing.
------------------------------------
5.1 Conditions to Purchasers' Obligations at Closing. The obligations
------------------------------------------------
of each Purchaser under Section 1 of this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions, the waiver of which shall not be effective against any Purchaser who
does not consent to such waiver, which consent may be given by written, oral or
telephone communication to the Company, its counsel or to special counsel to the
Purchasers:
(a) Representations and Warranties True. Each of the
-----------------------------------
representations and warranties of the Company contained in Section 2 shall be
true and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
(b) Performance. The Company shall have performed and complied
-----------
with all agreements, obligations and conditions contained in this Agreement that
are required to be
12
<PAGE>
performed or complied with by it on or before the Closing and shall have
obtained all approvals, consents and qualifications necessary to complete the
purchase and sale described herein.
(c) Restated Certificate Effective. The Restated Certificate shall
------------------------------
have been duly adopted by the Company by all necessary corporate action of its
Board of Directors and stockholders, and shall have been duly filed with and
accepted by the Secretary of State of the State of Delaware.
(d) Compliance Certificate. The Company shall have delivered to each
----------------------
Purchaser at the Closing a certificate signed on its behalf by its President,
Chief Executive Officer, or Chief Financial Officer certifying that the
conditions specified in Sections 5.1(a), 5.1(b) and 5.1(c) have been fulfilled
and stating that there shall have been no material adverse change in the
business, affairs, prospects, operations, properties, assets or condition of the
Company not previously disclosed to the Purchasers in writing.
(e) Securities Exemptions. The offer and sale of the Purchased Shares
---------------------
to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act, the qualification requirements
of the California Corporate Securities Law of 1968, as amended (the "Law") and
---
the registration and/or qualification requirements of all other applicable state
securities laws.
(f) Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to each
Purchaser and to the Purchasers' special counsel.
(g) Board of Directors and Managers.
-------------------------------
(i) NetSelect. The directors of the Company as of the Closing
---------
shall be Stuart Wolff, John Doerr, William Kelvie, Ken Klein, Richard Janssen,
James Brown, Michael Brooks, Joseph Hanauer and Dort Cameron, III.
(ii) RealSelect. The directors of RealSelect as of the Closing
----------
shall be Stuart Wolff, John Doerr, William Kelvie, Ken Klein, Richard Janssen,
James Brown, Michael Brooks, Joseph Hanauer and Dennis Cronk.
(iii) NetSelect, L.L.C. The managers of NS LLC as of the Closing
----------------
shall be Stuart Wolff, John Doerr, William Kelvie, Ken Klein, Richard Janssen,
James Brown, Michael Brooks, Joseph Hanauer and Dort Cameron, III.
(h) No Material Change. There shall have been no material adverse
------------------
change in the business, affairs, prospects, operations, properties, assets or
condition of the Company since the date of this Agreement.
(i) Opinion of Company Counsel. Each Purchaser shall have received an
--------------------------
opinion from Fenwick & West, LLP, counsel for the Company, dated as of the date
of the Closing, in the form attached hereto as Exhibit D.
---------
13
<PAGE>
(j) NetSelect Stockholders' Agreement. The Amended and Restated
---------------------------------
NetSelect Stockholders' Agreement in the form attached to this Agreement as
Exhibit E (the "NetSelect Stockholders' Agreement") shall have been executed and
- --------- ---------------------------------
delivered by NetSelect and the holders of at least two-thirds (2/3) of the
Shares (as defined therein) held by the parties thereto (other than the
Purchasers and NetSelect).
(k) RealSelect Stockholders' Agreement. The Amendment No. 2 to the
----------------------------------
RealSelect Stockholders' Agreement in the form attached to this Agreement as
Exhibit F (the "RealSelect Stockholders' Agreement") shall have been executed
- --------- ----------------------------------
and delivered by each party thereto.
(l) Voting Agreement. The Voting Agreement in the form attached to
----------------
this Agreement as Exhibit G (the "Voting Agreement") shall have been executed
--------- ----------------
and delivered by the holders agreeing to have repurchased at least 431,664
shares of the Company's Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and at least 440,000 shares of capital stock of
InfoTouch Corporation.
(m) Executed Consent and Waivers. Holders of (i) at least two-thirds
----------------------------
(2/3) of the voting power of Shares held by the Stockholders (as such terms are
defined in the NetSelect Stockholders' Agreement), (ii) at least two-thirds
(2/3) of the shares of outstanding Series A Preferred Stock and Series B
Preferred Stock (voting on an as-converted basis), (iii) at least two-thirds of
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock (voting on an as-converted basis) and (iv) at least two-thirds (2/3) of
the shares of outstanding Series D Preferred Stock shall have executed and
delivered to the Company a Consent and Waiver in the form of Exhibit H hereto
---------
(the "Consent and Waiver").
------------------
(n) Increase in Stock Option Plan. The pool of shares of the
-----------------------------
Company's Class A Common Stock available for grant under the Company's 1996
Stock Incentive Plan shall have been increased to 2,000,000 shares.
(o) Wolff Employment Agreement. The Employment Agreement with Stuart
--------------------------
Wolff in the form attached to this Agreement as Exhibit I (the "Wolff Employment
--------- ----------------
Agreement") shall have been executed and delivered by the parties thereto.
- ---------
(p) Janssen Employment Agreement. The Employment Agreement with
----------------------------
Richard Janssen in the form attached to this Agreement as Exhibit J (the
---------
"Janssen Employment Agreement") shall have been executed and delivered by the
- -----------------------------
parties thereto.
5.2 Conditions to the Company's Obligations at Closing. The obligations of
--------------------------------------------------
the Company to each Purchaser under this Agreement are subject to the
fulfillment or waiver on or before the Closing of each of the following
conditions by such Purchaser:
(a) Representations and Warranties. The representations and warranties
------------------------------
of such Purchaser contained in Section 3 shall be true and correct on the date
of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
(b) Payment of Purchase Price. Each Purchaser shall have delivered to
-------------------------
the Company the purchase price specified for such Purchaser on Exhibit A in
---------
accordance with the provisions of Section 2.
14
<PAGE>
(c) Restated Certificate Effective. The Restated Certificate shall
------------------------------
have been duly adopted by the Company by all necessary corporate action of its
Board of Directors and stockholders, and shall have been duly filed with and
accepted by the Secretary of State of the State of Delaware.
(d) Securities Exemptions. The offer and sale of the Purchased Shares
---------------------
to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act, the qualification requirements
of the Law and the registration and/or qualification requirements of all other
applicable state securities laws.
(e) Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Company and to the Company's legal counsel.
(f) Board of Directors and Managers.
-------------------------------
(i) NetSelect. The directors of the Company shall be Stuart
---------
Wolff, John Doerr, William Kelvie, Ken Klein, Richard Janssen, James Brown,
Michael Brooks, Joe Hanauer and Dort Cameron, III.
(ii) RealSelect. The directors of RealSelect shall be Stuart
----------
Wolff, John Doerr, William Kelvie, Ken Klein, Richard Janssen, Michael Brooks,
Joseph Hanauer and Dennis Cronk.
(iii) NetSelect, L.L.C. The managers of NS LLC shall be Stuart
----------------
Wolff, John Doerr, William Kelvie, Ken Klein, Richard Janssen, James Brown,
Michael Brooks, Joseph Hanauer and Dort Cameron, III.
(g) NetSelect Stockholders' Agreement. The NetSelect Stockholders'
---------------------------------
Agreement shall have been executed and delivered by the holders of at least two-
thirds (2/3) of the Shares (as defined therein) held by the parties thereto
(other than the Purchasers).
(h) RealSelect Stockholders' Agreement. The RealSelect Stockholders'
----------------------------------
Agreement shall have been executed and delivered by each party thereto.
(i) Voting Agreement. The Voting Agreement shall have been executed
----------------
and delivered by the holders of at least 431,664 shares of the Company's Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and at
least 440,000 shares of capital stock of InfoTouch Corporation.
(j) Executed Consent and Waivers. Holders of (i) at least two-thirds
----------------------------
(2/3) of the voting power of Shares held by the Stockholders (as such terms are
defined in the NetSelect Stockholders' Agreement), (ii) at least two-thirds
(2/3) of the shares of outstanding Series A Preferred Stock and Series B
Preferred Stock (voting on an as-converted basis), (iii) at least two-thirds of
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock (voting on an as-converted basis) and (iv) at least two-thirds (2/3) of
the shares of outstanding Series D Preferred Stock shall have executed and
delivered to the Company the Consent and Waiver.
15
<PAGE>
(k) Increase in Stock Option Plan. The pool of shares of the
-----------------------------
Company's Class A Common Stock available for grant under the Company's 1996
Stock Incentive Plan shall have been increased to 2,000,000 shares.
(l) Wolff Employment Agreement. The Wolff Employment Agreement shall
--------------------------
have been executed and delivered by Stuart Wolff.
(m) Janssen Employment Agreement. The Janssen Employment Agreement
----------------------------
shall have been executed and delivered by Richard Janssen.
6. Interpretation.
--------------
6.1 Definitions.
-----------
"Affiliate" and "Associate" shall have the respective meanings
--------- ---------
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
"Beneficial owner" has the meaning given to such term in Rule 13d-3
----------------
under the Exchange Act, and the terms "beneficially own" and "beneficial
ownership" shall have the correlative meanings.
"Board" means the Board of Directors of the Company.
-----
"Business Day" shall mean any day other than a Saturday, Sunday or a
------------
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Capitalized Lease" shall mean, with respect to any Person, any lease
-----------------
or any other agreement for the use of property which, in accordance with
generally accepted accounting principles, should be capitalized on the lessee's
or user's balance sheet.
"Capitalized Lease Obligation" of any Person shall mean and include,
----------------------------
as of any date as of which the amount thereof is to be determined, the amount of
the liability capitalized or disclosed (or which should be disclosed in
accordance with generally accepted accounting principles) in a balance sheet of
such Person in respect of a Capitalized Lease of such Person.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency then administering the Securities Act and other federal
securities laws.
"Company" shall have the meaning specified in the first paragraph of
-------
this Agreement.
"Consolidated" or "consolidated", when used with reference to any
------------ ------------
financial term in this Agreement (but not when used with respect to any tax
return or tax liability), shall mean the aggregate for two or more Persons of
the amounts signified by such term for all such Persons, with inter-company
items eliminated and, with respect to earnings, after eliminating the portion of
16
<PAGE>
earnings properly attributable to minority interests, if any, in the capital
stock of any such Person or attributable to shares of preferred stock of any
such Person not owned by any other such Person.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at any time. Reference
to a particular section of the Exchange Act shall include reference to the
comparable section, if any, of any such successor federal statute.
"GAAP" shall mean generally accepted accounting principles in the
----
United States of America in effect from time to time.
"Governmental Authority" shall mean any federal, state, local or
----------------------
foreign court, administrative agency, commission or other governmental or
regulatory body, agency, instrumentality or authority or any department or
subdivision thereof.
"Group" shall have the meaning ascribed to such term in Rule 13d-5
-----
under the Exchange Act.
"Guarantee" by any Person shall mean (without duplication on a
---------
consolidated basis) all obligations (other than endorsements in the ordinary
course of business of negotiable instruments for deposit or collection) of any
Person guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or
other obligation of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, all obligations
incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any property or assets constituting
security therefor, (ii) to advance or supply funds (x) for the purchase or
payment of such Indebtedness or obligation, (y) to maintain working capital or
other balance sheet condition or otherwise to advance or make available funds
for the purchase or payment of such Indebtedness or obligation, (iii) to lease
property or to purchase securities or other property or services primarily for
the purpose of assuring the owner of such Indebtedness or obligation of the
ability of the primary obligor to make payment of such Indebtedness or
obligation, or (iv) otherwise to assure the owner of the Indebtedness or
obligation of the primary obligor against loss in respect thereof. For the
purposes of any computations made under this Agreement, a Guarantee in respect
of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal
to the principal amount of the Indebtedness for borrowed money which has been
guaranteed, and a Guarantee in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.
"Indebtedness" shall mean, with respect to any Person (without
------------
duplication on a consolidated basis), (i) all obligations of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (iii) all obligations of such Person
under conditional sale or other title retention agreements relating to property
purchased by such Person, (iv) all obligations of such Person issued or assumed
as the deferred purchase price of property or services (other than accounts
payable to suppliers and similar accrued liabilities incurred in the ordinary
course of business and paid in a manner consistent with industry practice), (v)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any lien or security interest on property owned or acquired by such Person
whether or not the obligations secured thereby have been assumed, (vi) all
17
<PAGE>
Capitalized Lease Obligations of such person, (vii) all Guarantees of such
person, (viii) all obligations (including but not limited to reimbursement
obligations) relating to the issuance of letters of credit for the account of
such person, (ix) all obligations arising out of foreign exchange contracts, and
(x) all obligations arising out of interest rate and currency swap agreements,
cap, floor and collar agreements, interest rate insurance, currency spot and
forward contracts and other agreements or arrangements designed to provide
protection against fluctuations in interest or currency exchange rates.
"Material Adverse Effect" with respect to any Person shall mean any
-----------------------
event or events, taken singly or in the aggregate, (a) as a result of which such
Person and its Subsidiaries, taken as a whole, would be unable to continue to
operate their business in a manner consistent with the manner of operation of
such business as of the date of this Agreement or (b) which could reasonably be
expected to have a material adverse effect on the assets, liabilities, business,
results of operations, financial condition or prospects of such Person and its
Subsidiaries, taken as a whole.
"Person" shall mean any individual, firm, corporation, business trust,
------
partnership, limited liability company or other entity, and shall include any
successor (by merger or otherwise) of such entity.
"Real Estate Business" shall mean any business associated with real
--------------------
estate (residential and commercial) and classifieds and activities associated
therewith or incidental thereto, including but not limited to promotion (online,
T.V., radio, print, telecommunication), related information services,
advertising, financing information and services, marketing of products and
services to real estate and related professionals and companies, financing
transaction services, product and service transaction services, data mining and
other services generally performed by companies doing any of the foregoing.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Subsidiary" of any Person means any corporation or other entity of
----------
which a majority of the voting power or the voting equity securities or equity
interests is owned, directly or indirectly, by such Person or Subsidiary of such
Person.
6.2 Accounting Principles. The character or amount of any asset,
---------------------
liability, capital account or reserve and of any item of income or expense
required to be determined pursuant to this Agreement, and any consolidation or
other accounting computation required to be made pursuant to this Agreement, and
the construction of any definition in this Agreement containing a financial
term, shall be determined or made, as the case may be, in accordance with United
States generally accepted accounting principles, to the extent applicable,
unless such principles are inconsistent with the express requirements of this
Agreement.
7. Miscellaneous.
-------------
7.1 Severability. If any term, provision, covenant or restriction of
------------
this Agreement or any exhibit hereto is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement and such exhibits
18
<PAGE>
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such which may be hereafter declared
invalid, void or unenforceable.
7.2 Specific Enforcement. Each of the parties hereto acknowledges and
--------------------
agrees that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to injunctive or other equitable relief to prevent
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to which
they may be entitled at law or equity.
7.3 Entire Agreement. This Agreement (including the Schedules and
----------------
documents set forth in the exhibits hereto) contains the entire understanding of
the parties with respect to the transactions contemplated hereby, and no other
agreements exist between the Company and any of the parties hereto with respect
to the subject matter of this transaction, except: (i) the Amended and Restated
NetSelect, Inc. Stockholders' Agreement, dated as of the date hereof, (ii) the
Voting and Recapitalization Agreement dated as of the date hereof, (iii) the
Amendment No. 2 to the RealSelect, Inc. Stockholders' Agreement dated as of the
date hereof, (iv) the Amended and Restated NetSelect Stockholders Agreement
dated as of the date hereof, (v) the Closing Documents (as such terms is
defined in the legal opinion of Fenwick & West LLP dated as of the date hereof),
(vi) the Internet Cooperation and Licensing Agreement between the Company and
Fannie Mae, dated as of the date hereof, (vii) the consents, waivers and
approvals under existing agreements with the Company, (viii) all of the
Company's charter and formation documents; (ix) all documents and agreements
relating to the Loan Agreement dated as of July 20, 1998 between the Company,
NetSelect L.L.C., RealSelect and the Investors (as such term is defined
therein), (ix) the Agreement between the Company, NetSelect L.L.C., RealSelect,
REALTORS(R) Information Network, Inc., and the National Association of
REALTORS(R) dated as of the date hereof, and (x) any and all agreements and
documents entered into or dated prior to the closing of the NetSelect Series D
Preferred Stock financing.
7.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
7.5 Notices and other Communications. All notices, consents,
--------------------------------
requests, instructions, approvals, financial statements, proxy statements,
reports and other communications provided for herein shall be given in writing
and delivered personally, by facsimile (with a confirmation copy to be sent by
first class mail) or sent by nationally recognized overnight courier service,
to, in the case of a Purchaser, as set forth below such Purchaser's name on
Exhibit A hereto, and in the case of the Company, as set forth below:
- ---------
THE COMPANY:
NetSelect, Inc.
5655 Lindero Canyon Road, Suite 120
19
<PAGE>
Westlake Village, CA 91362
Attention: Chief Executive Officer
Facsimile No.: (818) 879-2893
With a copy to:
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Mark C. Stevens, Esq.
Facsimile No.: (650) 494-1417
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner.
7.6 Amendments. The Company may take any action herein prohibited, or
----------
omit to perform any act required to be performed by it (including, without
limitation, under Article 4 of this Agreement), retroactively or prospectively,
if the Company shall obtain the written consent or waiver of the registered
holders of not less than 66 2/3% of the outstanding shares of Purchased
Securities (voting on an as-converted basis). Any amendment to this Agreement
shall require the written consent of (i) the registered holders of not less than
66 2/3% of the outstanding shares of Series F Preferred Stock and (ii) the
Company. Any such actions or acts shall be binding on all Purchasers; provided,
however, that no amendment or waiver shall discriminate against any Purchaser
without the consent of such Purchaser and this Section 7.6 may only be amended
with the consent of all of the Purchasers.
7.7 Cooperation. Each of the parties hereto agrees to take, or cause
-----------
to be taken, all such further or other actions as shall reasonably be necessary
to make effective and consummate the transactions contemplated by this
Agreement.
7.8 Heirs, Successors and Assigns. Except as expressly provided
-----------------------------
otherwise in this Agreement, all covenants and agreements contained herein shall
bind and inure to the benefit of the parties hereto, their respective heirs,
successors and assigns, and to any transferee of any Securities. There are no
other intended third-party beneficiaries to this Agreement.
7.9 Expenses. The Company agrees to pay or reimburse each Purchaser
--------
for (i) all reasonable fees and expenses of one outside legal counsel for the
Purchasers in connection with the NetSelect Stockholders' Agreement and the
Restated Certificate and the consummation of all transactions contemplated
hereby and thereby through the Closing (the "Financing Transaction Fees") and
--------------------------
from the Closing through the NAR Collapse (the "Merger Transaction Fees"), (ii)
-----------------------
all costs, expenses and reasonable legal fees relating to any future amendments
or supplements to the NetSelect Stockholders' Agreement, this Agreement or the
Restated Certificate (or any proposal by the Company for such amendment or
supplement) whether or not consummated or any waiver or consent with respect
thereto (or any proposal for such waiver or consent) whether or not consummated
and (iii) all costs, expenses and reasonable legal fees of each Purchaser
relating to the enforcement against the Company, of the NetSelect Stockholders'
Agreement or the Restated Certificate. The maximum amount of Financing
Transaction Fees payable by the Company under this
20
<PAGE>
Section 7.9 and Section 6.12 of that certain Loan Agreement dated July 20, 1998
among the Company, NS LLC, RealSelect and the Purchasers shall in the aggregate
for all Purchasers not exceed $75,000.
7.10 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
issuance and delivery of the Purchased Securities, regardless of any
investigation made by or on behalf of any party.
7.11 Transfer of Securities. Each Purchaser understands and agrees
----------------------
that the Purchased Securities (and the shares of Common Stock issuable upon
conversion thereof) have not been registered under the Securities Act or the
securities laws of any state and that they may be sold or otherwise disposed of
only in one or more transactions registered under the Securities Act and, where
applicable, such laws or transactions as to which an exemption from the
registration requirements of the Securities Act and, where applicable, such laws
are available. Each Purchaser acknowledges that, except as provided in this
Agreement and the NetSelect Stockholders' Agreement, each Purchaser has no right
to require the Company to register any of such shares. Each Purchaser
understands and agrees that each certificate representing any of such shares
shall bear the following legends:
"THE TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS RESTRICTED BY A STOCK PURCHASE
AGREEMENT AND A STOCKHOLDERS' AGREEMENT DATED AS OF
AUGUST 21, 1998, COPIES OF WHICH ARE ON FILE AT THE
OFFICES OF THE CORPORATION."
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS
AS CONFIRMED BY AN OPINION IN FORM AND FROM COUNSEL
REASONABLY ACCEPTABLE TO THE CORPORATION."
The second legend set forth in this Section 7.11 shall be removed by
the Company from any certificate evidencing Securities upon delivery to the
Company of an opinion by counsel, reasonably satisfactory to the Company, that a
registration statement under the Securities Act is at that time in effect with
respect to the legended security or that such security can be freely transferred
in a public sale without such a registration statement being in effect and that
such transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Company issued the
21
<PAGE>
Securities. The Company shall waive the requirement of such a legal opinion for
customary transfers made pursuant to Rule 144 of the Exchange Act.
7.12 Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Delaware without giving
effect to conflict of laws principles. Each of the Parties hereby waives any
right it may have to a trial by jury in any litigation directly or indirectly
arising out of this Agreement. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America, in each case
located in the State of Delaware, for any action, proceeding or investigation in
any court or before any governmental authority ("Litigation") arising out of or
----------
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any Litigation relating thereto except in such courts), and
further agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in this Agreement shall be
effective service of process for any Litigation brought against it in any such
court. Each of the parties hereto hereby irrevocably and unconditionally waives
any objection to the laying of venue of any Litigation arising out of this
Agreement or the transactions contemplated hereby in the courts of the State of
Delaware or the United States of America, in each case located in the State of
Delaware, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such Litigation brought in any
such court has been brought in an inconvenient forum.
7.13 Term. Except as otherwise provided in this Agreement, this
----
Agreement shall terminate when none of the shares of Series F Preferred Stock
remain outstanding.
7.14 Publicity. Each of the parties hereto agrees that it shall (and
---------
it shall cause its Subsidiaries, if any, to) agree that it shall make no
statement regarding the transactions contemplated hereby which is inconsistent
with any press release agreed to by the parties hereto. Notwithstanding the
foregoing, each of the parties hereto may, in documents required to be filed by
it with any regulatory body or pursuant to any federal or state law (such as a
proxy statement), make such statements with respect to the transactions
contemplated hereby as each may be advised is legally necessary upon advice of
its counsel.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
"COMPANY":
NETSELECT, INC.
By: /s/ Stuart Wolff
---------------------------------------
Stuart Wolff, Chief Executive Officer
By: /s/ Richard Janssen
---------------------------------------
Richard Janssen, President
23
<PAGE>
COUNTERPART SIGNATURE PAGE TO
NETSELECT INC. STOCK PURCHASE AGREEMENT
DATED AS OF AUGUST 21, 1998
Morgan Stanley Venture Partners III, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital III, Inc.
Institutional Managing Member
/s/ R. J. Loatetz
-------------------------------------------
R. J. Loatetz
Title: Vice President
Morgan Stanley Venture Investors III, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital III, Inc.
its Institutional Managing Member
/s/ R. J. Loatetz
-------------------------------------------
R. J. Loatetz
Title: Vice President
The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital III, Inc.
its Institutional Managing Member
/s/ R. J. Loatetz
-------------------------------------------
R. J. Loatetz
Title: Vice President
<TABLE>
<S> <C>
"PURCHASERS": "PURCHASERS":
Name: Kleiner Perkins Caufield & Byers VIII, L.P. Name: KPCB VIII Founders Fund, L.P.
----------------------------------------------- -------------------------------------------
By: KPCB VIII Associates, L.P., By: KPCB VIII Associates, L.P.,
its General Partner its General Partner
By: /s/ William R. [ILLEGIBLE] By: /s/ William R. [ILLEGIBLE]
----------------------------------------------- -------------------------------------------
Printed Name: William R. [ILLEGIBLE] Printed Name: William R. [ILLEGIBLE]
--------------------------------------- ----------------------------------
Address: Address:
--------------------------------------------- ----------------------------------------
- ----------------------------------------------------- ------------------------------------------------
- ----------------------------------------------------- ------------------------------------------------
Facsimile: Facsimile:
------------------------------------------- --------------------------------------
"PURCHASERS": "PURCHASERS":
Name: KPCB Information Sciences Ziabatsu Fund II, L.P. Name: Intuit, Inc.
----------------------------------------------- ------------------------------------------
By: KPCB Associates, L.P., By: /s/ Raymond Stern
its General Partner ------------------------------------------
By: /s/ William R. [ILLEGIBLE] Printed Name: Raymond Stern
----------------------------------------------- ----------------------------------
Printed Name: William R. [ILLEGIBLE] Address:
--------------------------------------- ----------------------------------------
Address:
--------------------------------------------- ------------------------------------------------
- ----------------------------------------------------- ------------------------------------------------
- ----------------------------------------------------- ------------------------------------------------
Facsimile: Facsimile:
------------------------------------------- --------------------------------------
"PURCHASERS": "PURCHASERS":
Name: Whitney Equity Partners, L.P. Name:
----------------------------------------------- ------------------------------------------
By: /s/ Michael C. Brooks By: /s/ Lawrence W. [ILLEGIBLE]
----------------------------------------------- ------------------------------------------
Printed Name: Michael C. Brooks Printed Name: Lawrence W. [ILLEGIBLE]
--------------------------------------- General Partner
----------------------------------
Address: Address:
--------------------------------------------- ----------------------------------------
- ----------------------------------------------------- ------------------------------------------------
- ----------------------------------------------------- ------------------------------------------------
Facsimile: Facsimile:
------------------------------------------- --------------------------------------
"PURCHASERS": "PURCHASERS":
Name: Broadview Partners Group Name: Ingleside Interests
----------------------------------------------- ------------------------------------------
By: /s/ Peter Mooney By: /s/ Joe F. Hanauer
----------------------------------------------- Managing Partner
------------------------------------------
Printed Name: Peter Mooney Printed Name: Joe F. Hanauer
--------------------------------------- ----------------------------------
Address: Address:
--------------------------------------------- ----------------------------------------
- ----------------------------------------------------- ------------------------------------------------
- ----------------------------------------------------- ------------------------------------------------
Facsimile: Facsimile:
------------------------------------------- --------------------------------------
"PURCHASERS": "PURCHASERS":
Name: UBS Capital II LLC Name: GE Capital
----------------------------------------------- ------------------------------------------
By: /s/ Hyunja Laskin By: /s/ James Brown
----------------------------------------------- ------------------------------------------
Printed Name: Hyunja Laskin Printed Name: James Brown
--------------------------------------- ----------------------------------
Address: Address:
--------------------------------------------- ----------------------------------------
- ----------------------------------------------------- ------------------------------------------------
- ----------------------------------------------------- ------------------------------------------------
Facsimile: Facsimile:
------------------------------------------- --------------------------------------
"PURCHASERS": "PURCHASERS":
Name: Morgan Stanley Dean Witter Equity Funding, Inc. Name: Cox Interactive Media
----------------------------------------------- ------------------------------------------
By: /s/ David Powers By: /s/ William L. Killen, Jr.
----------------------------------------------- ------------------------------------------
Printed Name: David Powers Printed Name: William L. Killen, Jr.
--------------------------------------- ----------------------------------
Title: Vice President
---------------------------------------
Address: Address:
--------------------------------------------- ----------------------------------------
- ----------------------------------------------------- ------------------------------------------------
- ----------------------------------------------------- ------------------------------------------------
Facsimile: Facsimile:
------------------------------------------- --------------------------------------
"PURCHASERS":
Name: Fannie Mae
-----------------------------------------------
By: /s/ William E. Kelvie
-----------------------------------------------
Printed Name: William E. Kelvie
---------------------------------------
Address:
---------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
Facsimile:
-------------------------------------------
</TABLE>
24
<PAGE>
List of Exhibits:
- ----------------
A Schedule of Purchasers
B Restated Certificate
C Schedule of Exceptions
D Fenwick & West Opinion
E NetSelect Stockholders' Agreement
F RealSelect Stockholders' Agreement
G Voting Agreement
H Consent and Waiver
I Wolff Employment Agreement
J Janssen Employment Agreement
25
<PAGE>
EXHIBIT 10.15
NETSELECT, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of April 9, 1999 (the "Agreement"),
---------
is entered into between NetSelect, Inc., a Delaware corporation (the "Company"),
-------
and each of those persons and entities, severally and not jointly, whose names
are set forth on the Schedule of Purchasers attached hereto as Exhibit A (which
---------
persons and entities are hereinafter collectively referred to as "Purchasers"
----------
and each individually as a "Purchaser"). Capitalized terms used in this
---------
Agreement but not otherwise defined shall have the meanings given to them in
Section 6 hereof.
WHEREAS, Purchasers wish to purchase from the Company, and the Company
wishes to sell to Purchasers, up to an aggregate of Three Hundred and Forty
Thousand Nine Hundred and Fifty Five (340,955) shares of a new series of
preferred stock, $.001 par value per share, of the Company, to be designated
"Series G Preferred Stock" (the "Series G Preferred Stock" or the "Purchased
------------------------ ---------
Shares"), such Series G Preferred Stock to have the rights, preferences,
- ------
privileges, and restrictions as set forth in the Amended and Restated
Certificate of Incorporation substantially in the form attached as Exhibit B
---------
hereto (the "Restated Certificate"); and
--------------------
WHEREAS, Purchasers and the Company desire to provide for such purchase and
sale and to establish various rights and obligations in connection therewith.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto agree as follows:
1. Agreement to Purchase and Sell Stock; Closing.
---------------------------------------------
1.1 Agreement to Purchase and Sell Stock. The Company agrees to sell
-------------------------------------
to each Purchaser at the Closing, and each Purchaser agrees, severally and not
jointly, to purchase from the Company at the Closing, the Purchased Shares at a
purchase price per share as set forth beside such Purchaser's name on Exhibit A.
---------
1.2 Closing. The purchase and sale of the Purchased Shares will take
-------
place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto,
California, at 10:00 a.m. Pacific Time, on April 9, 1999 or at such other time
and place as the Company and Purchasers mutually agree upon (which time and
place are referred to in this Agreement as the "Closing"). At the Closing, the
-------
Company will deliver to each Purchaser certificates representing the number of
shares of Series G Preferred Stock that such Purchaser has agreed to purchase
hereunder as shown on Exhibit A against delivery to the Company by such
---------
Purchaser of the full purchase price of such Purchased Shares, paid by wire
transfer of funds to the Company.
2. Representations and Warranties of the Company. Except as set forth on
---------------------------------------------
the Disclosure Schedule separately delivered to the Purchasers, the Company
represents and warrants as of the Closing Date as follows:
2.1 Organization and Qualification. Each of the Company and its
------------------------------
Subsidiaries is duly organized and existing in good standing under the laws of
the jurisdiction in which it is
<PAGE>
organized and has the power to own its property and to carry on its business as
now being conducted. Each of the Company and its Subsidiaries is qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a Material Adverse Effect on the Company.
2.2 Due Authorization. The execution and delivery of this Agreement
-----------------
and the Stockholders' Agreement Amendment by the Company, the issuance and sale
of the Purchased Shares by the Company and compliance by the Company with all
the provisions of this Agreement, the Stockholders' Agreement Amendment and the
Restated Certificate (i) are within the corporate power and authority of the
Company and (ii) have been duly authorized by all requisite corporate
proceedings on the part of the Company. This Agreement and the Stockholders'
Agreement Amendment have been duly executed and delivered by the Company and
constitute valid and binding agreements of the Company, enforceable against the
Company in accordance with their terms, except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. The Company has furnished
to each Purchaser true and correct copies of the Certificates of Incorporation
and By-Laws of the Company and RealSelect, Inc. ("RealSelect"), in each case as
----------
in effect on the date of this Agreement.
2.3 Subsidiaries. Schedule 2.3 sets forth for each Subsidiary of the
------------ ------------
Company (i) its name and jurisdiction of organization, (ii) the number of shares
of authorized capital stock of each class of its capital stock, and (iii) the
number of issued and outstanding shares of each class of its capital stock, the
names of the holders thereof, and the number of shares held by each holder (or
if such Subsidiary is not a corporation, the equity structure of such Subsidiary
and a list of its owners and their relative interests therein). All of the
issued and outstanding shares of capital stock or ownership interests of each
Subsidiary have been duly authorized and are validly issued, fully paid, and
nonassessable. Neither of the Company nor any of its Subsidiaries control,
directly or indirectly, or has any direct or indirect equity participation in,
any corporation, partnership, trust or other business association which is not a
Subsidiary of the Company.
2.4 Financial Statements; Undisclosed Liabilities; Changes.
------------------------------------------------------
(a) The Company has delivered to each Purchaser true and
complete copies of its unaudited consolidated balance sheet of the Company dated
December 31, 1998 and its unaudited statement of operations and its unaudited
statement of cash flows for its fiscal year ended December 31, 1998 (all such
financial statements being collectively referred to herein as the "Financial
---------
Statements"). The Financial Statements have been prepared in accordance with
- ----------
generally accepted accounting principles consistently followed (except as
indicated in the notes thereto and, subject to normal year-end adjustments, none
of which are expected to be material in amount) throughout the periods involved
and fairly present the financial condition, results of operations and cash flows
of the Company and its Subsidiaries as of their respective dates.
(b) Except as set forth in the Financial Statements, to the
Company's knowledge, neither the Company nor any of its Subsidiaries has any
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to
2
<PAGE>
December 31, 1998, and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Financial Statements, which in both
cases individually or in the aggregate are not material to the financial
condition or operating results of the Company and its Subsidiaries taken as a
whole.
(c) Since December 31, 1998, the Company and its Subsidiaries
have operated their respective businesses only in the ordinary course and, to
the knowledge of the Company, no event has occurred which has had or is
reasonably likely to have a Material Adverse Effect on the Company.
Without limiting the foregoing, since December 31, 1998 there has
not been:
(i) any damage, destruction or loss to any of the
material assets or properties of the Company or any of its Subsidiaries;
(ii) any declaration, setting aside or payment of any
dividend or distribution or capital return in respect of any shares of the
Company's capital stock or any redemption, purchase or other acquisition by the
Company or any of its Subsidiaries of any shares of the Company's capital stock,
except as contemplated by employee stock plans;
(iii) any sale, assignment, transfer, lease or other
disposition or agreement to sell, assign, transfer, lease or otherwise dispose
of any of the assets of the Company or any of its Subsidiaries outside the
normal course of business;
(iv) any acquisition (by merger, consolidation, or
acquisition of stock or assets) by the Company or any of its Subsidiaries of any
corporation, partnership or other business organization or division thereof;
(v) any incurrence by the Company or any of its
Subsidiaries of any indebtedness for borrowed money or any assumption, granting,
guarantee or endorsement, or other accommodation arrangement making the Company
or any of its Subsidiaries responsible for the indebtedness for borrowed money
of any person or entity (other than another Subsidiary);
(vi) any material change in any method of accounting or
accounting practice used by the Company or any of its Subsidiaries, other than
such changes required by generally accepted accounting principles;
(vii) (A) any employment, deferred compensation,
severance or similar agreement entered into or amended by the Company or any of
its Subsidiaries, (B) increase in the compensation payable or to become payable
by it to any of its directors or officers, or (C) any increase in the coverage
or benefits available under any severance pay, termination pay, vacation pay,
company awards, salary continuation or disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or other
employee benefit plan, payment or arrangement made to, for or with such
directors, officers, employees, agents or representatives, other than, in the
case of (B) and (C) above, normal increases in the ordinary course of business
consistent with past practice and that in the aggregate have not resulted in a
material increase in the benefits or compensation expense of the Company or any
of its Subsidiaries;
3
<PAGE>
(viii) any writing down, in accordance with generally
accepted accounting principles and consistent with past practice, of the value
of any material accounts receivable or any revaluation by the Company or any of
its Subsidiaries of any of its material assets or any cancellation or writing
off as worthless and uncollectible of any debt, note or account receivable by
the Company or any of its Subsidiaries, excluding write-offs and writedowns in
the aggregate of less than $100,000;
(ix) any material transaction with a Related Party
(other than compensation for services rendered in the ordinary course of
business); or
(x) any agreement to take any actions specified in this
Section 2.4(c), except for this Agreement and the transactions contemplated
hereby.
2.5 Litigation. There is no action, suit, investigation or proceeding
----------
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries or any of their respective properties or assets by or
before any court, arbitrator or Governmental Authority.
2.6 Conflicting Agreements and Charter Provisions. Neither the
---------------------------------------------
Company nor any of its Subsidiaries is a party to any organizational documents
or contract or agreement or subject to any organizational documents or judgment
or decree which is reasonably likely to have a Material Adverse Effect on the
Company. None of (i) the execution and delivery of this Agreement, the
Stockholders' Agreement Amendment and the issuance of Purchased Shares and (ii)
the fulfillment of and compliance with the terms and provisions hereof and
thereof and of the Purchased Shares shall conflict with or result in a breach
of, or require a consent, approval or other action under, the terms, conditions
or provisions of, or give rise to a right of termination under, or constitute a
default under, or result in any violation of, the organizational documents of
the Company or any Subsidiary or any mortgage, agreement, instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company or any
Subsidiary or any of their respective properties is subject except those which
have been obtained before the Closing. Neither the Company nor any of its
Subsidiaries (i) is in default under any outstanding indenture or other debt
instrument or with respect to the payment of principal of or interest on any
outstanding obligation for borrowed money, or (ii) is in material default under
any of their respective material contracts or agreements, or under any
instrument by which the Company or any of its Subsidiaries is bound (including
those listed in the Disclosure Schedule).
2.7 Capitalization. (a) As of the date of this Agreement prior to the
--------------
issuance of the Purchased Shares, the authorized capital stock of the Company
consists of: (i) 90,000,000 shares of Common Stock, par value $0.001 per share
(the "Common Stock"), of which 8,479,580 shares are issued and outstanding; and
------------
(ii) 10,000,000 shares of Preferred Stock, par value $0.001 per share, of which
1,378,000 shares have been designated and issued as Series A Preferred Stock
(the "Series A Preferred Stock"), 190,336 shares have been designated and issued
------------------------
as Series B Preferred Stock (the "Series B Preferred Stock"), 614,374 shares
------------------------
have been designated and issued as Series C Preferred Stock (the "Series C
--------
Preferred Stock"), 681,201 shares have been designated and issued as Series D
- ---------------
Preferred Stock (the "Series D Preferred Stock"), 325,000 shares have been
------------------------
designated and issued as Series E Preferred Stock (the "Series E Preferred
------------------
Stock"), 2,100,000 shares have been designated as Series F Preferred Stock, of
which 1,771,149 shares of Series F Preferred Stock have been issued (the "Series
------
F Preferred Stock") and 340,955 shares have been designated as Series G
- -----------------
Preferred Stock,
4
<PAGE>
none of which have been issued (the "Series G Preferred Stock" and together with
------------------------
the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, Series D Preferred Stock, the Series E Preferred Stock and the
Series F Preferred Stock, the "Preferred Stock"). All shares of Preferred Stock
---------------
that have been issued are still outstanding. Except as set forth on the
Disclosure Schedule or in the NetSelect Stockholders' Agreement, there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, shares of any class of capital stock of the Company or any
Subsidiary, or contracts, commitments, understandings or arrangements by which
the Company or any Subsidiary is or may become bound relating to the issuance or
transfer of any shares of capital stock or options, warrants or rights to
purchase or acquire any shares of capital stock of the Company or relating to
the voting of any shares of capital stock of the Company or a Subsidiary. The
Disclosure Schedule sets forth the names of the holders of securities of the
Company, the numbers of such securities held by such holders, the expiration
dates of such securities, their vesting schedules (if any) and their exercise
price (if any). Except for rights of first refusal held by the Company to
purchase shares of its stock issued under the Company's 1996 Stock Incentive
Plan, no shares of the Company's outstanding capital stock, or stock issuable
upon exercise or exchange of any outstanding options, warrants or rights, or
other stock issuable by the Company, are subject to any preemptive rights,
rights of first refusal or other rights to purchase such stock (whether in favor
of the Company or any other person), pursuant to any agreement or commitment of
the Company. The only registration rights granted by the Company are contained
in the NetSelect Stockholders' Agreement.
2.8 Status of Purchased Shares. The Purchased Shares have been duly
--------------------------
authorized by all necessary corporate action on the part of the Company and,
upon payment therefor as provided in Section 1 hereof, the Purchased Shares
shall be, and the shares of Common Stock issuable upon conversion of the Series
G Preferred Stock, upon such conversion and issuance shall be validly issued and
outstanding, fully paid and nonassessable (the Purchased Shares and such shares
of Common Stock issuable upon conversion of the Series G Preferred Stock are
collectively referred to herein as the "Securities"). The shares of Series A
----------
Common Stock issuable upon conversion of the shares of Series G Preferred Stock
have been validly reserved for issuance.
2.9 Laws and Regulations. The Company and each of its Subsidiaries
--------------------
are in compliance in all material respects with all applicable federal, state,
local and foreign laws and regulations and have obtained all permits, licenses,
franchises, and similar documentation, including without limitation real estate
licenses, required or necessary for the conduct of the Real Estate Business.
There are no claims, notices, civil, criminal or administrative actions, suits,
hearings, investigations, inquiries or proceedings pending or, to the knowledge
of the Company, threatened against the Company or any of its Subsidiaries.
2.10 Title to Properties; Insurance. The Company owns its properties
------------------------------
and assets free and clear of all mortgages, deeds of trust, liens, encumbrances,
security interests and claims except for statutory liens for the payment of
current taxes that are not yet delinquent and liens, encumbrances and security
interests which arise in the ordinary course of business and which do not affect
material properties and assets of the Company. With respect to the property and
assets it leases, the Company and each of its Subsidiaries is in compliance with
such leases and, to the best of the Company's knowledge, the Company and each of
its Subsidiaries holds valid leasehold interests in such assets free of any
liens, encumbrances, security interests or claims of any party other than the
lessors of such property and assets. Each of the Company and its Subsidiaries
maintains insurance
5
<PAGE>
with respect to their properties and business against such casualties and
contingencies, of such types (including, without limitation, errors and
omissions coverage), on such terms and in such amounts (including deductibles,
co-insurance and self-insurance, if adequate reserves are maintained with
respect thereto) as is customary in the case of similarly situated entities
engaged in the same or a similar business. The Company has obtained a policy of
directors' and officers' insurance in the amount of $2,000,000.
2.11 Governmental Consents, etc. The Company is not required to
--------------------------
obtain any consent, approval or authorization of, or to make any declaration or
filing with, any Governmental Authority as a condition to or in connection with
the valid execution, delivery and performance of this Agreement and the
Stockholders' Agreement Amendment, the valid offer, issue, sale or delivery of
the Purchased Shares, or the performance by the Company of its obligations in
respect thereof, except for any filings required to effect any registration
pursuant to the NetSelect Stockholders' Agreement and any state or federal
securities filings.
2.12 Taxes. The Company and each of its Subsidiaries have filed or
-----
caused to be filed all tax returns which are required to be filed and have paid
or caused to be paid all taxes as shown on said returns and on all assessments
received by them to the extent that such taxes have become due, except taxes the
validity or amount of which is being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been set aside. The
Company and its Subsidiaries have paid or caused to be paid, or have established
adequate reserves for, all federal income tax liabilities and state income tax
liabilities now applicable to the Company or any of its Subsidiaries for all
fiscal years which have not been examined and reported on by the taxing
authorities (or closed by applicable statutes).
2.13 ERISA. The Company does not have any Employee Pension Benefit
-----
Plan as defined in Section 3 of the Employee Retirement Income Security Act of
1974, as amended.
2.14 Patents and Trademarks. Set forth in Schedule 2.14 is a true and
---------------------- -------------
complete list of all patents, patent applications, trademarks, service marks,
trademark and service mark applications, trade names and copyrights presently
used by the Company or any Subsidiary or necessary for the conduct of the
business of the Company and its Subsidiaries as conducted and as proposed to be
conducted (the "Intellectual Property Rights"). The Company owns, or has the
------------------------------
right to use under the agreements or upon the terms described in Schedule 2.14,
-------------
all of the Intellectual Property Rights. To the knowledge of the Company, the
business conducted or proposed to be conducted by the Company and its
Subsidiaries does not infringe or violate any of the patents, trademarks,
service marks, trade names, copyrights, trade secrets or other proprietary
rights of any other person or entity, and neither the Company nor any Subsidiary
has received any charge, complaint, claim, demand or notice alleging any such
infringement or violation. To the Company's knowledge, no other Person has any
right to or interest in any inventions, improvements, discoveries or other
confidential information utilized by the Company or any Subsidiary in its
business.
2.15 Material Contracts and Obligations. Schedule 2.15 sets forth a
---------------------------------- -------------
list of the following agreements or commitments of any nature to which the
Company or any Subsidiary is a party or by which it is bound: (a) any agreement
relating to the Intellectual Property Rights having a value in excess of
$100,000, (b) all employment and consulting agreements which require future
annual cash payments in excess of $250,000, and all employee benefit, bonus,
pension, profit-
6
<PAGE>
sharing, stock option, securities purchase and similar plans and arrangements,
(c) all data content provider agreements, including, but not limited to, master
listings service agreements (and indication of whether each such agreement
offers the Company exclusive listing rights), (d) all agreements with National
Association of Realtors or Realtor Information Network, Inc., (e) all agreements
with third parties under which such third parties agree to direct Internet
traffic to the Internet site operated by RealSelect, (f) all agreements with
third parties under which such third parties agree to pay the Company or any
Subsidiary for furnishing additional information about such third parties to
visitors of the Internet site operated by RealSelect, (g) all agreements with
suppliers or vendors which require future payments in excess of $250,000 not
already covered by (a) through (f) above, (h) all agreements or commitments
which restrict the ability of the Company or any Subsidiary or Affiliate or
employee to engage in any business or line of business in any location, (i) all
agreements or commitments relating to Indebtedness or Guarantees of the Company
or any Subsidiary and (j) any other agreement or commitment which requires
future payments by or to the Company or any Subsidiary in excess of $250,000 or
which is otherwise material to the Company or any of its Subsidiaries. The
Company has delivered or made available to each Purchaser copies of all of the
foregoing agreements and commitments. All of such agreements and commitments are
valid, binding and in full force and effect, except that, with respect to
parties to such agreements and commitments other than the Company and its
Subsidiaries, this representation is made only to the knowledge of the Company.
2.16 Labor Matters. Neither the Company nor any of its Subsidiaries
-------------
is a party to any collective bargaining agreement covering employees of the
Company or its Subsidiaries nor does any labor union or collective bargaining
agent represent any of the employees of the Company or its Subsidiaries. There
is no labor strike, slow-down or stoppage pending or, to the Company's
knowledge, threatened by the employees.
2.17 Books and Records. All the books, records and accounts of the
-----------------
Company and its Subsidiaries are in all material respects true and complete, are
maintained in accordance with good business practice and all laws applicable to
its business, and accurately present and reflect in all material respects all of
the transactions therein described. The Company has previously delivered to the
each Purchaser true and complete texts of all of the minutes relating to
meetings of the stockholders, the Board and committees of the Board of the
Company and each Subsidiary for the past two years.
2.18 Brokers. Neither the Company nor any Subsidiary has engaged any
-------
finder, broker or investment adviser, and has no obligation to pay any fees
relating thereto, in connection with the transactions contemplated hereby.
2.19 Holding Company Act and Investment Company Act. Neither the
----------------------------------------------
Company nor any Subsidiary is: (i) a "public utility company" or a "holding
company," or an "affiliate" or a "subsidiary company" of a "holding company," or
an "affiliate" of such a "subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility," as defined in the Federal Power Act, as amended, or (iii) an
"investment company" or an "affiliated person" thereof or an "affiliated person"
of any such "affiliated person," as such terms are defined in the Investment
Company Act of 1940, as amended.
7
<PAGE>
2.20 Costs of "Year 2000" Modifications. The Company represents and
----------------------------------
warrants that its computer system and software are able to accurately process
date data, including but not limited to, calculating, comparing and sequencing
from, into and between the twentieth century (through year 1999), the year 2000
and the twenty-first century, including leap year calculations. To the knowledge
of the Company, it is not aware of any inability on the part of any service
provider to timely remedy its own deficiencies in respect of the year 2000
problem.
2.21 Related Party Transactions. Except as set forth in the
--------------------------
Disclosure Schedule, no beneficial owner of 5% or more of the Company's or any
of its Subsidiaries' outstanding capital stock or officer or director of the
Company or any of its Subsidiaries or any spouse, parent, child or sibling of
any officer or director or any person or entity (other than the Company or a
Subsidiary) in which any such person or entity owns any beneficial interest
(collectively, "Related Parties") has any interest in: (i) any contract,
---------------
arrangement or understanding with, or relating to, the business or operations
of, the Company or any of its Subsidiaries; (ii) any loan, arrangement,
understanding, agreement or contract for or relating to indebtedness of the
Company or any of its Subsidiaries; or (iii) any property (real, personal or
mixed), tangible or intangible, used in the business or operations of the
Company or any of its Subsidiaries; excluding any such contract, arrangement,
understanding or agreement constituting an employee compensation arrangement.
2.22 Real Property Holding Corporation Status. Since its inception
----------------------------------------
the Company has not been a "United States real property holding corporation", as
defined in Section 897(c)(2) of the U.S. Internal Revenue Code of 1986, as
amended, and in Section 1.897-2(b) of the Treasury Regulations issued
thereunder.
2.23 Accuracy of Information. None of the representations and
-----------------------
warranties of the Company contained herein or in the Stockholders' Agreement
Amendment contains any material misstatement of fact or omits any material fact
required to be stated herein or therein or necessary to make the statements
herein and therein not misleading. The information (other than projections)
which has been furnished in writing by the Company to the Purchasers in
connection with the transactions contemplated hereby, did not, in the aggregate
and to the knowledge of the Company, as of the date such information was
furnished, contain any material misstatement of fact, or omit any material fact
required to be stated therein or necessary to make the statements therein not
misleading. The projections delivered to certain of the Purchasers in March of
1999 were prepared by management of the Company using its reasonable business
judgment and based upon the assumptions set forth in such projections, represent
as of the date of this Agreement the best estimate by management of the Company
as to the financial performance of the Company for the periods indicated, but do
not represent any guarantee or assurance of the future financial results of the
Company. The Company does not believe that such projections are inaccurate or
misleading in any material respect.
3. Representations and Warranties of Purchaser. Each Purchaser represents
-------------------------------------------
and warrants as of the date hereof and as of the Closing, individually and not
jointly, as follows:
3.1 Organization and Qualification. Such Purchaser is duly organized
------------------------------
and existing in good standing under the laws of the jurisdiction of its
formation and has the power to own its property and to carry on its business as
now being conducted.
8
<PAGE>
3.2 Due Authorization. Such Purchaser has all necessary right, power
-----------------
and authority to enter into this Agreement and the Stockholders' Agreement
Amendment, and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Stockholders' Agreement
Amendment by such Purchaser and the consummation by such Purchaser of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on behalf of such Purchaser. This Agreement and the
Stockholders' Agreement Amendment have been duly executed and delivered by such
Purchaser and constitute valid and binding agreements of such Purchaser
enforceable in accordance with their terms, except that (i) such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
3.3 Governmental Consents, etc. Except as obtained or made, such
--------------------------
Purchaser is not required to obtain any consent, approval or authorization of,
or to make any declaration or filing with, any Governmental Authority as a
condition to or in connection with the valid execution, delivery and performance
of this Agreement and the Stockholders' Agreement Amendment and the valid offer,
issue, sale or delivery of the Purchased Shares, or the performance by such
Purchaser of its obligations in respect thereof.
3.4 Conflicting Agreements and Other Matters. Neither the execution
----------------------------------------
and delivery of this Agreement and the Stockholders' Agreement Amendment nor the
performance by such Purchaser of its obligations hereunder conflict with, result
in a breach of the terms, conditions or provisions of, constitute a default
under or require any consent, approval or other action by or any notice to or
filing with any court or administrative or governmental body pursuant to, the
organizational documents of such Purchaser or any mortgage, agreement,
instrument, order, judgment, decree, statute, law, rule or regulation to which
such Purchaser or any of its properties are subject.
3.5 Acquisition for Investment. Such Purchaser is acquiring the
--------------------------
Securities for its own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof, and such Purchaser
has no present intention or plan to effect any distribution thereof. Such
Purchaser acknowledges that the Securities have not been registered under the
Securities Act and may be sold or disposed of in the absence of such
registration only pursuant to an exemption from such registration.
3.6 Investment Experience. Such Purchaser understands that the
---------------------
purchase of the Purchased Shares involves substantial risk. Such Purchaser: (i)
has experience as an investor in securities of companies in the development
stage and acknowledges that such Purchaser is able to fend for itself, can bear
the economic risk of such Purchaser's investment in the Purchased Shares and has
such knowledge and experience in financial or business matters that such
Purchaser is capable of evaluating the merits and risks of this investment in
the Purchased Shares and protecting its own interests in connection with this
investment and/or (ii) has a preexisting personal or business relationship with
the Company and certain of its officers, directors or controlling persons of a
nature and duration that enables such Purchaser to be aware of the character,
business acumen and financial circumstance of such persons.
9
<PAGE>
3.7 Accredited Purchaser. Such Purchaser is an "accredited investor"
--------------------
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act.
3.8 Brokers. Such Purchaser has not engaged any finder, broker or
-------
investment advisor, and has no obligation to pay any fees relating thereto, in
connection with the transaction contemplated hereby.
4. Certain Covenants.
-----------------
4.1 Compliance with Laws. The Company shall, and shall cause its
--------------------
Subsidiaries to, comply in all material respects with all applicable statutes,
rules, regulations and orders of all Governmental Authorities with respect to
the conduct of its business and the ownership of its properties, including,
without limitation, those relating to the environment and human health, equal
employment opportunity, employee safety, foreign corrupt practices and ERISA.
4.2 Limitation on Agreements. The Company shall not, and shall not
------------------------
permit any of its Subsidiaries to, enter into any agreement or any amendment,
modification, extension or supplement to any existing agreement, which
contractually prohibits the payment of dividends on the Series G Preferred Stock
in accordance with the Restated Certificate.
4.3 Preservation of Franchises and Existence. The Company shall, and
----------------------------------------
shall cause each of its Subsidiaries (so long as they are conducting any
business) to, maintain its corporate existence, and all material rights and
franchises, in full force and effect unless the Board determines that it is in
the best interest of the Company not to do so and such rights and franchises, as
the case may be, are not material to the business of the Company.
4.4 Insurance. The Company shall, and shall cause each of its
---------
Subsidiaries to, effective as of the Closing, maintain with insurers believed by
the Company to be responsible such insurance, in such amounts and of such types
as are customarily carried under similar circumstances by companies of similar
size and engaged in the same or a similar business or having similar properties
similarly situated and in any event not less than the amounts set forth on
Schedule 4.4.
- ------------
4.5 Lost, Stolen, Damaged and Destroyed Stock Certificates. Upon
------------------------------------------------------
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any certificate for shares of Series G Preferred Stock, and in
the case of loss, theft or destruction, upon delivery of an indemnity or bond
satisfactory to the Company (which may include an undertaking by the Purchasers
so to indemnify the Company), or, in the case of mutilation, upon surrender and
cancellation thereof, the Company shall issue a new agreement or certificate of
like tenor for a number of shares of Series G Preferred Stock equal to the
number of shares of such stock represented by the lost, stolen, destroyed or
mutilated certificate.
4.6 Related Party Transactions. Except with the written consent of a
--------------------------
majority of the disinterested directors of the Board, the Company shall not,
directly or indirectly, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into, amend or terminate any material contract,
arrangement or transaction with a Related Party, other than compensation
arrangements in the ordinary course of business on arm's length terms.
5. Conditions to Obligations at Closing.
------------------------------------
10
<PAGE>
5.1 Conditions to Purchasers' Obligations at Closing. The obligations
------------------------------------------------
of each Purchaser under Section 1 of this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions, the waiver of which shall not be effective against any Purchaser who
does not consent to such waiver, which consent may be given by written, oral or
telephone communication to the Company, its counsel or to special counsel to the
Purchasers:
(a) Representations and Warranties True. Each of the
-----------------------------------
representations and warranties of the Company contained in Section 2 shall be
true and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
(b) Performance. The Company shall have performed and complied
-----------
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
(c) Restated Certificate Effective. The Restated Certificate
------------------------------
shall have been duly adopted by the Company by all necessary corporate action of
its Board of Directors and stockholders, and shall have been duly filed with and
accepted by the Secretary of State of the State of Delaware.
(d) Compliance Certificate. The Company shall have delivered
----------------------
to each Purchaser at the Closing a certificate signed on its behalf by its
President, Chief Executive Officer, or Chief Financial Officer certifying that
the conditions specified in Sections 5.1(a), 5.1(b) and 5.1(c) have been
fulfilled and stating that there shall have been no material adverse change in
the business, affairs, prospects, operations, properties, assets or condition of
the Company not previously disclosed to the Purchasers in writing.
(e) Securities Exemptions. The offer and sale of the Purchased
---------------------
Shares to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act, the qualification requirements
of the California Corporate Securities Law of 1968, as amended (the "Law") and
---
the registration and/or qualification requirements of all other applicable state
securities laws.
(f) Proceedings and Documents. All corporate and other
-------------------------
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to each Purchaser and to the Purchasers' special counsel.
(g) No Material Change. There shall have been no material
------------------
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company since the date of this Agreement.
(h) Opinion of Company Counsel. Each Purchaser shall have
--------------------------
received an opinion from Fenwick & West, LLP, counsel for the Company, dated as
of the date of the Closing, in the form attached hereto as Exhibit D.
---------
11
<PAGE>
(i) Stockholders' Agreement Amendment. The Amendment in the
---------------------------------
form attached to this Agreement as Exhibit E (the "Stockholders' Agreement
-----------------------
Amendment") to that certain Second Amended and Restated NetSelect Stockholders'
- ---------
Agreement in the form attached to this Agreement Amended and Restated NetSelect
Stockholders' Agreement in the form attached to this Agreement as Exhibit F (the
---------
"NetSelect Stockholders' Agreement") shall have been executed and delivered by
---------------------------------
NetSelect and the holders of at least two-thirds (2/3) of the Shares (as defined
therein) held by the parties thereto (other than the Purchasers and NetSelect).
(j) Executed Consent and Waiver. Holders of (i) at least two-
---------------------------
thirds (2/3) of the voting power of Shares held by the Stockholders (as such
terms are defined in the Stockholders' Agreement Amendment), (ii) at least a
majority of the shares of outstanding Preferred Stock (voting on an as-converted
basis) shall have executed and delivered to the Company a Consent and Waiver in
the form of Exhibit G hereto (the "Consent and Waiver").
--------- ------------------
5.2 Conditions to the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Purchaser under this Agreement are subject to
the fulfillment or waiver on or before the Closing of each of the following
conditions by such Purchaser:
(a) Representations and Warranties. The representations and
------------------------------
warranties of such Purchaser contained in Section 3 shall be true and correct on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
(b) Payment of Purchase Price. Each Purchaser shall have
-------------------------
delivered to the Company the purchase price specified for such Purchaser on
Exhibit A in accordance with the provisions of Section 2.
- ---------
(c) Restated Certificate Effective. The Restated Certificate
------------------------------
shall have been duly adopted by the Company by all necessary corporate action of
its Board of Directors and stockholders, and shall have been duly filed with and
accepted by the Secretary of State of the State of Delaware.
(d) Securities Exemptions. The offer and sale of the Purchased
---------------------
Shares to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act, the qualification requirements
of the Law and the registration and/or qualification requirements of all other
applicable state securities laws.
(e) Proceedings and Documents. All corporate and other
-------------------------
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Company and to the Company's legal counsel.
(f) Stockholders' Agreement Amendment. The Stockholders'
---------------------------------
Agreement Amendment shall have been executed and delivered by the holders of at
least two-thirds (2/3) of the Shares (as defined therein) held by the parties
thereto (other than the Purchasers).
(g) Executed Consent and Waiver. Holders of (i) at least two-
---------------------------
thirds (2/3) of the voting power of Shares held by the Stockholders (as such
terms are defined in the Stockholders'
12
<PAGE>
Agreement Amendment) shall have executed and delivered to the Company the
Consent and Waiver (other than the Purchasers).
6. Interpretation.
--------------
6.1 Definitions.
-----------
"Affiliate" and "Associate" shall have the respective meanings
--------- ---------
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
"Beneficial owner" has the meaning given to such term in Rule 13d-3
----------------
under the Exchange Act, and the terms "beneficially own" and "beneficial
ownership" shall have the correlative meanings.
"Board" means the Board of Directors of the Company.
-----
"Business Day" shall mean any day other than a Saturday, Sunday or a
------------
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Capitalized Lease" shall mean, with respect to any Person, any lease
-----------------
or any other agreement for the use of property which, in accordance with
generally accepted accounting principles, should be capitalized on the lessee's
or user's balance sheet.
"Capitalized Lease Obligation" of any Person shall mean and include,
----------------------------
as of any date as of which the amount thereof is to be determined, the amount of
the liability capitalized or disclosed (or which should be disclosed in
accordance with generally accepted accounting principles) in a balance sheet of
such Person in respect of a Capitalized Lease of such Person.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency then administering the Securities Act and other federal
securities laws.
"Company" shall have the meaning specified in the first paragraph of
-------
this Agreement.
"Consolidated" or "consolidated", when used with reference to any
------------ ------------
financial term in this Agreement (but not when used with respect to any tax
return or tax liability), shall mean the aggregate for two or more Persons of
the amounts signified by such term for all such Persons, with inter-company
items eliminated and, with respect to earnings, after eliminating the portion of
earnings properly attributable to minority interests, if any, in the capital
stock of any such Person or attributable to shares of preferred stock of any
such Person not owned by any other such Person.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at any time. Reference
to a particular section of the Exchange Act shall include reference to the
comparable section, if any, of any such successor federal statute.
13
<PAGE>
"GAAP" shall mean generally accepted accounting principles in the
----
United States of America in effect from time to time.
"Governmental Authority" shall mean any federal, state, local or
----------------------
foreign court, administrative agency, commission or other governmental or
regulatory body, agency, instrumentality or authority or any department or
subdivision thereof.
"Group" shall have the meaning ascribed to such term in Rule 13d-5
-----
under the Exchange Act.
"Guarantee" by any Person shall mean (without duplication on a
---------
consolidated basis) all obligations (other than endorsements in the ordinary
course of business of negotiable instruments for deposit or collection) of any
Person guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or
other obligation of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, all obligations
incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any property or assets constituting
security therefor, (ii) to advance or supply funds (x) for the purchase or
payment of such Indebtedness or obligation, (y) to maintain working capital or
other balance sheet condition or otherwise to advance or make available funds
for the purchase or payment of such Indebtedness or obligation, (iii) to lease
property or to purchase securities or other property or services primarily for
the purpose of assuring the owner of such Indebtedness or obligation of the
ability of the primary obligor to make payment of such Indebtedness or
obligation, or (iv) otherwise to assure the owner of the Indebtedness or
obligation of the primary obligor against loss in respect thereof. For the
purposes of any computations made under this Agreement, a Guarantee in respect
of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal
to the principal amount of the Indebtedness for borrowed money which has been
guaranteed, and a Guarantee in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.
"Indebtedness" shall mean, with respect to any Person (without
------------
duplication on a consolidated basis), (i) all obligations of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (iii) all obligations of such Person
under conditional sale or other title retention agreements relating to property
purchased by such Person, (iv) all obligations of such Person issued or assumed
as the deferred purchase price of property or services (other than accounts
payable to suppliers and similar accrued liabilities incurred in the ordinary
course of business and paid in a manner consistent with industry practice), (v)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any lien or security interest on property owned or acquired by such Person
whether or not the obligations secured thereby have been assumed, (vi) all
Capitalized Lease Obligations of such person, (vii) all Guarantees of such
person, (viii) all obligations (including but not limited to reimbursement
obligations) relating to the issuance of letters of credit for the account of
such person, (ix) all obligations arising out of foreign exchange contracts, and
(x) all obligations arising out of interest rate and currency swap agreements,
cap, floor and collar agreements, interest rate insurance, currency spot and
forward contracts and other agreements or arrangements designed to provide
protection against fluctuations in interest or currency exchange rates.
14
<PAGE>
"Material Adverse Effect" with respect to any Person shall mean any
-----------------------
event or events, taken singly or in the aggregate, (a) as a result of which such
Person and its Subsidiaries, taken as a whole, would be unable to continue to
operate their business in a manner consistent with the manner of operation of
such business as of the date of this Agreement or (b) which could reasonably be
expected to have a material adverse effect on the assets, liabilities, business,
results of operations, financial condition or prospects of such Person and its
Subsidiaries, taken as a whole.
"Person" shall mean any individual, firm, corporation, business trust,
------
partnership, limited liability company or other entity, and shall include any
successor (by merger or otherwise) of such entity.
"Real Estate Business" shall mean any business associated with real
--------------------
estate (residential and commercial) and classifieds and activities associated
therewith or incidental thereto, including but not limited to promotion (online,
T.V., radio, print, telecommunication), related information services,
advertising, financing information and services, marketing of products and
services to real estate and related professionals and companies, financing
transaction services, product and service transaction services, data mining and
other services generally performed by companies doing any of the foregoing.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Subsidiary" of any Person means any corporation or other entity of
----------
which a majority of the voting power or the voting equity securities or equity
interests is owned, directly or indirectly, by such Person or Subsidiary of such
Person.
6.2 Accounting Principles. The character or amount of any asset,
---------------------
liability, capital account or reserve and of any item of income or expense
required to be determined pursuant to this Agreement, and any consolidation or
other accounting computation required to be made pursuant to this Agreement, and
the construction of any definition in this Agreement containing a financial
term, shall be determined or made, as the case may be, in accordance with United
States generally accepted accounting principles, to the extent applicable,
unless such principles are inconsistent with the express requirements of this
Agreement.
7. Miscellaneous.
-------------
7.1 Severability. If any term, provision, covenant or restriction of
------------
this Agreement or any exhibit hereto is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement and such exhibits shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such which may be hereafter declared
invalid, void or unenforceable.
7.2 Specific Enforcement. Each of the parties hereto acknowledges and
--------------------
agrees that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly
15
<PAGE>
agreed that the parties shall be entitled to injunctive or other equitable
relief to prevent breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which they may be entitled at law or equity.
7.3 Entire Agreement. This Agreement (including the Schedules and
----------------
documents set forth in the exhibits hereto) contains the entire understanding of
the parties with respect to the transactions contemplated hereby, and no other
agreements exist between the Company and any of the parties hereto with respect
to the subject matter of this transaction, except: (i) the NetSelect
Stockholders' Agreement (ii) the Stockholders' Agreement Amendment, (iii) the
NetSelect Stockholders Agreement dated as of the date hereof, (iv) the Closing
Documents (as such terms is defined in the legal opinion of Fenwick & West LLP
dated as of the date hereof), (v) the consents, waivers and approvals under
existing agreements with the Company, (vi) all of the Company's charter and
formation documents; and (vii) any and all agreements and documents entered into
or dated on or prior to the closing of the NetSelect Series F Preferred Stock
financing.
7.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
7.5 Notices and other Communications. All notices, consents,
--------------------------------
requests, instructions, approvals, financial statements, proxy statements,
reports and other communications provided for herein shall be given in writing
and delivered personally, by facsimile (with a confirmation copy to be sent by
first class mail) or sent by nationally recognized overnight courier service,
to, in the case of a Purchaser, as set forth below such Purchaser's name on
Exhibit A hereto, and in the case of the Company, as set forth below:
- ---------
THE COMPANY:
NetSelect, Inc.
225 W. Hillcrest Drive, Suite 100
Thousand Oaks, CA 91360
Attention: Chief Executive Officer
Facsimile No.: (805) 557-2699
With a copy to:
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: William R. Schreiber, Esq..
Facsimile No.: (650) 494-1417
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner.
7.6 Amendments. The Company may take any action herein prohibited, or
----------
omit to perform any act required to be performed by it (including, without
limitation, under Article 4 of this
16
<PAGE>
Agreement), retroactively or prospectively, if the Company shall obtain the
written consent or waiver of the registered holders of not less than 66 2/3% of
the outstanding shares of Purchased Shares (voting on an as-converted basis).
Any amendment to this Agreement shall require the written consent of (i) the
registered holders of not less than 66 2/3% of the outstanding shares of Series
G Preferred Stock and (ii) the Company. Any such actions or acts shall be
binding on all Purchasers; provided, however, that no amendment or waiver shall
discriminate against any Purchaser without the consent of such Purchaser and
this Section 7.6 may only be amended with the consent of all of the Purchasers.
7.7 Cooperation. Each of the parties hereto agrees to take, or cause
-----------
to be taken, all such further or other actions as shall reasonably be necessary
to make effective and consummate the transactions contemplated by this
Agreement.
7.8 Heirs, Successors and Assigns. Except as expressly provided
-----------------------------
otherwise in this Agreement, all covenants and agreements contained herein shall
bind and inure to the benefit of the parties hereto, their respective heirs,
successors and assigns, and to any transferee of any Securities. There are no
other intended third-party beneficiaries to this Agreement.
7.9 Expenses. The Company agrees to pay or reimburse each Purchaser
--------
for all reasonable fees and expenses of one outside legal counsel for the
Purchasers in connection with the Stockholders' Agreement Amendment and the
Restated Certificate and the consummation of all transactions contemplated
hereby and thereby through the Closing up to a maximum of $15,000.
7.10 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
issuance and delivery of the Purchased Shares, regardless of any investigation
made by or on behalf of any party.
7.11 Transfer of Securities. Each Purchaser understands and agrees
----------------------
that the Purchased Shares (and the shares of Common Stock issuable upon
conversion thereof) have not been registered under the Securities Act or the
securities laws of any state and that they may be sold or otherwise disposed of
only in one or more transactions registered under the Securities Act and, where
applicable, such laws or transactions as to which an exemption from the
registration requirements of the Securities Act and, where applicable, such laws
are available. Each Purchaser acknowledges that, except as provided in this
Agreement and the NetSelect Stockholders' Agreement, each Purchaser has no right
to require the Company to register any of such shares. Each Purchaser
understands and agrees that each certificate representing any of such shares
shall bear the following legends:
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS RESTRICTED BY A STOCK PURCHASE AGREEMENT AND A STOCKHOLDERS'
AGREEMENT DATED AS OF APRIL 9, 1999, COPIES OF WHICH ARE ON FILE AT
THE OFFICES OF THE CORPORATION."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE
17
<PAGE>
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS AS CONFIRMED BY AN OPINION IN FORM AND FROM
COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION."
The second legend set forth in this Section 7.11 shall be removed by
the Company from any certificate evidencing Securities upon delivery to the
Company of an opinion by counsel, reasonably satisfactory to the Company, that a
registration statement under the Securities Act is at that time in effect with
respect to the legended security or that such security can be freely transferred
in a public sale without such a registration statement being in effect and that
such transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Company issued the Securities. The Company shall waive the
requirement of such a legal opinion for customary transfers made pursuant to
Rule 144 of the Exchange Act.
7.12 Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Delaware without giving
effect to conflict of laws principles. Each of the Parties hereby waives any
right it may have to a trial by jury in any litigation directly or indirectly
arising out of this Agreement. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America, in each case
located in the State of Delaware, for any action, proceeding or investigation in
any court or before any governmental authority ("Litigation") arising out of or
----------
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any Litigation relating thereto except in such courts), and
further agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in this Agreement shall be
effective service of process for any Litigation brought against it in any such
court. Each of the parties hereto hereby irrevocably and unconditionally waives
any objection to the laying of venue of any Litigation arising out of this
Agreement or the transactions contemplated hereby in the courts of the State of
Delaware or the United States of America, in each case located in the State of
Delaware, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such Litigation brought in any
such court has been brought in an inconvenient forum.
7.13 Term. Except as otherwise provided in this Agreement, this
----
Agreement shall terminate when none of the shares of Series G Preferred Stock
remain outstanding.
7.14 Publicity. Each of the parties hereto agrees that it shall (and
---------
it shall cause its Subsidiaries, if any, to) agree that it shall make no
statement regarding the transactions contemplated hereby which is inconsistent
with any press release agreed to by the parties hereto. Notwithstanding the
foregoing, each of the parties hereto may, in documents required to be filed by
it with any regulatory body or pursuant to any federal or state law (such as a
proxy statement), make such statements with respect to the transactions
contemplated hereby as each may be advised is legally necessary upon advice of
its counsel.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
"COMPANY":
NETSELECT, INC.
By: /s/ Stuart Wolff
-------------------------------------
Stuart Wolff, Chief Executive Officer
19
<PAGE>
COUNTERPART SIGNATURE PAGE TO
NETSELECT INC. STOCK PURCHASE AGREEMENT
DATED AS OF APRIL 9, 1999
<TABLE>
<CAPTION>
"PURCHASERS": "PURCHASERS":
<S> <C>
Name: Anthony Ciulla Name: Amerindo Technology Growth Fund II
------------------------------- ------------------------------------------------
By: /s/ Anthony Ciulla By: /s/ Gary A. Tanaka
--------------------------------- --------------------------------------------------
Printed Name: Anthony Ciulla Printed Name: Gary A. Tanaka
----------------------- ----------------------------------------
Address: Address:
---------------------------- ---------------------------------------------
- ------------------------------------ -----------------------------------------------------
- ------------------------------------ -----------------------------------------------------
Facsimile: Facsimile:
-------------------------- -------------------------------------------
"PURCHASERS": "PURCHASERS":
Name: James Stableford Name: Litton Master Trust, Attorney in fact
------------------------------- ------------------------------------------------
By: /s/ James Stableford By: /s/ Gary A. Tanaka
--------------------------------- --------------------------------------------------
Printed Name: James Stableford Printed Name: Gary A. Tanaka
----------------------- ----------------------------------------
Address: Address:
---------------------------- ---------------------------------------------
- ------------------------------------ -----------------------------------------------------
- ------------------------------------ -----------------------------------------------------
Facsimile: Facsimile:
-------------------------- -------------------------------------------
"PURCHASERS": "PURCHASERS":
Name: Dana Smith Name: Integral Capital Partners IV, L.P.
------------------------------- ------------------------------------------------
By: /s/ Dana Smith By: Integral Capital Management IV, LLC
--------------------------------- its General Partner
Printed Name: Dana Smith
----------------------- By: /s/ Pamela Hagenah
Address: --------------------------------------------------
---------------------------- Printed Name: Pamela Hagenah, A Manager
----------------------------------------
- ------------------------------------ Address:
---------------------------------------------
- ------------------------------------
-----------------------------------------------------
Facsimile:
-------------------------- -----------------------------------------------------
Facsimile:
-------------------------------------------
"PURCHASERS": "PURCHASERS":
Name: Marc Weiss Name: Integral Capital Partners IV MS Side Fund, L.P.
------------------------------- ------------------------------------------------
By: /s/ Marc Weiss By: Integral Capital Partners MS Management, LLC
--------------------------------- its General Partner
Printed Name: Marc Weiss
----------------------- By: /s/ Pamela Hagenah
Address: --------------------------------------------------
---------------------------- Printed Name: Pamela Hagenah, A Manager
----------------------------------------
- ------------------------------------ Address:
---------------------------------------------
- ------------------------------------
-----------------------------------------------------
Facsimile:
-------------------------- -----------------------------------------------------
Facsimile:
-------------------------------------------
"PURCHASERS": "PURCHASERS":
Name: Pivitol Partners, LP Name: Ralph H. Cechettini 1995 Trust
------------------------------- ------------------------------------------------
By: /s/ Ralph H. Cechettini By: /s/ Ralph H. Cechettini
--------------------------------- --------------------------------------------------
Printed Name: Ralph H. Cechettini Printed Name: Ralph H. Cechettini
----------------------- ----------------------------------------
Address: Address:
---------------------------- ---------------------------------------------
- ------------------------------------ -----------------------------------------------------
- ------------------------------------ -----------------------------------------------------
Facsimile: Facsimile:
-------------------------- -------------------------------------------
</TABLE>
20
<PAGE>
List of Exhibits:
- ----------------
A Schedule of Purchasers
B Restated Certificate
C Schedule of Exceptions
D Fenwick & West Opinion
E Stockholders' Agreement Amendment
F NetSelect Stockholders' Agreement
G Consent and Waiver
21
<PAGE>
Exhibit A
---------
Schedule of Purchasers
<TABLE>
<CAPTION>
Aggregate Number
Name and Address Purchase Price of Shares
- ---------------- --------------- ----------
<S> <C> <C>
ATGF II $ 7,516,993 150,762
SUCRE Building Calle 48 Este
Bella Vista, P.O. Box 5168
Panama S, Panama
Litton Master Trust $ 1,121,850 22,500
c/o Chase Manhattan Bank
Four New York Plaza
Ground Floor
New York, NY 10004
Attention: Chase Acct. #P49391, Litton
Industries
James Stableford $ 49,860 1,000
Amerindo Investment Advisers, Inc.
43 Upper Grosvenor Street
London W1X 9PG
England
Anthony Ciulla $ 49,860 1,000
Amerindo Investment Advisers, Inc.
One Embarcadero Center, Suite 2300
San Francisco, CA 94111
Ralph H. Cechettini 1995 Trust $ 299,160 6,000
c/o Amerindo Investment Advisers, Inc.
One Embarcadero Center, Suite 2300
San Francisco, CA 94111
Attn: Diana Mah
Pivotal Partners, L.P. $ 698,040 14,000
c/o Ralph H. Cechettini 1995 Trust
Amerindo Investment Advisers, Inc.
One Embarcadero Center, Suite 2300
San Francisco, CA 94111
Marc Weiss $ 249,300 5,000
Amerindo Investment Advisers, Inc.
399 Park Avenue, 22nd Floor
New York, NY 10022
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C>
Dana Smith $ 14,958 300
Amerindo Investment Advisers, Inc.
399 Park Avenue, 22nd Floor
New York, NY 10022
Integral Capital Partners IV, L.P. $ 4,977,424 99,828
2750 Sand Hill Road
Menlo Park, CA 94025
Fax #(650) 233-0366
Integral Capital Partners IV MS Side $ 22,587 453
Fund, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025
Fax #(650) 233-0366
Cox Interactive Media, Inc. $ 1,999,984 40,112
1400 Lake Hearn Drive, N.E.
Atlanta, GA 30319
Attn: William L. Killen, Jr.
Fax # (404) 843-5256
Total $17,000,016 340,955
=========== =======
</TABLE>
23
<PAGE>
EXHIBIT 10.16
NETSELECT, INC.
1996 STOCK INCENTIVE PLAN
Section 1. Purpose of the Plan. The purpose of the 1996 Stock Incentive
Plan (the "Plan") is to aid NetSelect, Inc, (the "Corporation") and its
subsidiaries in securing and retaining directors, consultants, officers and
other employees of outstanding ability and to motivate such employees to exert
their best efforts on behalf of the Corporation and its subsidiaries. In
addition, the Corporation expects that it will benefit from the added interest
which the respective optionees and participants will have in the welfare of the
Corporation as a result of their ownership or increased ownership of the Class A
Common Stock, par value $0.001 per share, of the Corporation (the "Stock").
Section 2. Administration. (a) The Board of Directors of the Corporation
(the "Board") shall designate a committee of not less than (2) Directors (the
"Committee") who shall serve at the pleasure of the Board. The Board shall fill
any vacancies on the Committee and may remove any member of the Committee at any
time with or without cause. The Committee shall select its chairman and hold
its meeting at such time and places as it may determine. A majority of the
whole Committee present at a meeting at which a quorum is present, or an act
approved in writing by all members of the Committee, shall be an action of the
Committee. The Committee shall have full power and authority, subject to such
resolutions not inconsistent with the provisions of the Plan as may from time to
time be issued or adopted by the Board, to grant to Eligible Persons (as defined
herein) pursuant to the provisions of the Plan: (i) stock options to purchase
shares of Stock, (ii) stock appreciation rights, (iii) restricted Stock, (iv)
deferred Stock, or (v) other Stock-based awards permitted hereunder (each of the
foregoing being an "AWARD" and collectively, the "AWARDS"). The Committee shall
also interpret the provisions of the Plan and any AWARD issued under the Plan
(and any agreements relating thereto) and supervise the administration of the
Plan.
(b) The Committee shall: (i) select the Eligible Persons (as defined in
Section 4) to whom AWARDS may from time to time be granted hereunder, (ii)
determine whether incentive stock options (under Section 422 of the Internal
Revenue Code of 1986, as the same may be amended from time to time, hereinafter
referred to the "Code"), nonqualified stock option, stock appreciation rights,
restricted stock, deferred stock, or other Stock-based awards, or a combination
of the foregoing, are to be granted hereunder, (iii) determine the number of
shares to be covered by each AWARD granted hereunder, (iv) determine the terms
and conditions, not inconsistent with the provisions of the Plan, of any AWARD
granted hereunder (including but not limited to any restriction and forfeiture
condition on such AWARD and/or the shares of Stock relating thereto); (v)
determine whether, to what extent and under what circumstances AWARDS may be
settled in cash; (vi) determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an AWARD under
this Plan shall be deferred either automatically or at the election of the
participant; and (vii) determine whether, to what extent, and under what
circumstances option grants and/or other AWARDS under the Plan are to be made,
and operate, on a tandem basis.
(c) All decisions made by the Committee pursuant to the provisions of the
Plan and related orders or resolutions of the Board (as and to the extent
permitted hereunder) shall be
1
<PAGE>
final, conclusive and binding on all persons, including the Corporation, its
shareholders, employees and Plan participants,
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any AWARD
thereunder.
Section 3. Stock Subject to the Plan. (a) Except as otherwise provided
by this Section 3, the total number of share of Stock available for distribution
under the Plan is 500,000. The total number of shares of Stock with respect to
which AWARDS may be granted to any participant in any year is 200,000 shares.
Such shares may consist, in whole or in part, of authorized and unissued shares
or treasury shares, except that treasury shares must be used in the case of
restricted stock. If any shares that have been optioned cease to be subject to
option because the option has expired or has been deemed to have expired or has
been surrendered pursuant to the Plan, or if any shares of restricted stock are
forfeited or such AWARD otherwise terminates without the actual or deemed
delivery of such shares, such shares will again be subject to an AWARD under the
Plan.
(b) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to the (i) maximum
number and class of shares of Stock or other stock or securities with respect to
which AWARD may be granted under the Plan, and (ii) the number and class of
shares of Stock or other stock or securities which are subject to outstanding
AWARDS granted under the Plan, and the purchase price therefor, if applicable.
(c) Any such adjustments in the shares of Stock or other stock or
securities subject to outstanding incentive stock options (including any
adjustments in the purchase price) shall be made in such manner as not to
constitute a modification as defined by Section 424(h)(3) of the Code and only
to the extent otherwise permitted by Sections 422 and 424 of the Code.
(d) If, by reason of a Change in Capitalization, a holder of any AWARD
shall be entitled to, or holder shall be entitled to exercise an option with
respect to, new, additional or different shares of stock or securities, such new
additional or different shares shall thereupon be subject to all of the
conditions, restrictions and performance criteria which were applicable to the
shares of Stock subject to the AWARD, as the case may be, prior to such Change
in Capitalization.
(e) For purposes of the Plan, a "Change in Capitalization" means any
increase or reduction in the manner of shares of Stock, or any change
(including, but not limited to, a change in value) in the share of Stock or
exchange of shares of Stock for a different number or kind of shares or other
securities of the Corporation, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off, spit-up,
issuance of warrants or rights or debentures, stock dividend, stock split or
reverse stock, split, cash dividend, property dividend, combination or exchange
of shares, repurchase of shares, change in corporate structure or otherwise.
(f) Subject to the acceleration of the Plan, in the event of (i) the
liquidation or dissolution of the Corporation or (ii) a merger of consolidation
of the Corporation (a "Transaction"), the Plan and the AWARDS issued hereunder
shall continue in effect in
2
<PAGE>
accordance with their respective terms and each holder of an AWARD shall be
entitled to receive in respect of each share of Stock subject to any outstanding
AWARD or AWARDS, and the case may be, upon exercise of any option or payment or
transfer in respect of any AWARD, the same number and kind of stock, securities,
cash, property, or other consideration that each holder of a share of Stock was
entitled to receive in the Transaction in respect of a share of Stock.
Section 4. Eligibility. Directors, consultants, officers and other
employees of the Corporation and its subsidiaries who are responsible for the
management, growth, profitability and protection of the business of the
Corporation and its subsidiaries are eligible to be granted AWARDS under the
Plan (each an "Eligible Person" and collectively "Eligible Persons"). The
participants under the Plan shall be selected from time to time by the
Committee, in its sole discretion, from among those eligible, and the Committee
shall determine, in its sole discretion, the number of shares covered by each
stock option, the number of stock appreciation rights (if any) granted to each
optionee, and the number of shares (if any) subject to restricted stock,
deferred stock or other Stock-based awards granted to each participant.
For purposes of the Plan, a subsidiary of the Corporation shall be any
corporation which at the time qualifies as a subsidiary thereof under the
definition of "subsidiary corporation" in Section 424(f) of the Code.
Section 3. Stock Options. Any stock option granted under the Plan shall
be in such form as the Committee may from time to time approve. Any such option
shall be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the provisions of the
plan, as the Committee shall deem desirable.
(a) Option Price. The purchase price per share of the Stock .purchasable
under a stock option shall be determined by the Committee, but, in the case of
incentive stock options, will be not less than 100% of the fair market value of
the Stock on the date of the grant of the option, as determined in accordance
with procedures established by the Committee. Notwithstanding the foregoing,
the purchase price per share of the Stock purchasable under any incentive stock
option granted to any person who is the beneficial owner of more than 10% of the
Corporation's issued and outstanding Stock (a "10% owner") shall not be less
than 110% of the fair market value of the Stock on the date of the grant of the
option, as determined in accordance with procedures established by the
Committee.
(b) Option Period. The term of each stock option shall be fixed by the
Committee, but no incentive stock options shall be exercisable after the
expiration of 10 years from the date of the option is granted. Notwithstanding
the foregoing, no incentive stock option granted to a 10% owner shall be
exercisable after the expiration of five years from the date the option is
granted.
(c) Exercisability. (1) Stock options shall be exercisable at such time
or times as determined by the Committee at or subsequent to the grant. Unless
otherwise determines by the Committee at grant, stock options shall be
exercisable in full upon granting of the option, except a provided in paragraphs
(f), (g) or (h) of this Section 5; provided, however, the Committee shall
-------- -------
3
<PAGE>
have the right to accelerate the vesting any stock options including but not
limited to after a Change of Control (as hereinafter defined).
(2) Solely for Federal income tax purposes, to the extent that the
aggregate fair market value of Stock with respect to which incentive stock
options are exercisable for the first time by a participant during any calendar
year exceeds $100,000.00 (as of the date of grant), such options shall be
treated as options which are not incentive stock options. For purposes of this
rule, options shall be taken into account in the order in which they were
granted.
(3) "Change of Control" means the occurrence of any of the following
events: a merger, reorganization, sale, lease or exchange of all or
substantially all of the assets, of the Company or a Qualified Public Offering
(as defined in the Stockholders Agreement made as of the 26th day of November,
1996, by and among the CDW Internet, L.L.C., J.H. Whitney and Allen & Co. and
certain stockholders of InfoTouch Corporation and the Corporation). For
purposes of this Section 5(c)(3), "merger" shall mean any consolidation of the
Corporation with, or merger of the Corporation with or into, another
corporation; other than a consolidation or merger in which the Corporation is
the surviving corporation. The Corporation shall be the "surviving corporation"
in any merger if the Corporation, or its stockholders immediately before the
transaction, shall own (immediately after the transaction) equity securities,
other than warrants, options or similar rights to subscribe to or purchase
equity securities, of the surviving or acquiring corporation, or its parent
corporation, possessing more than fifty (50%) percent of the voting power of the
surviving or acquiring corporation or its parent corporation; and in making the
determination of ownership by the stockholders of a corporation, immediately
after the transaction, of equity securities pursuant to the preceding clause,
equity securities which they owned immediately before the transaction as
shareholders of another party to the transaction shall be disregarded. For the
purposes of this Section 5(c)(3), voting power of a corporation shall be
calculated by assuming the conversion of all then outstanding convertible equity
securities (including those convertible as some future date), but not assuming
the exercise of any warrants, options or other rights to subscribe to or
purchase voting shares.
(d) Method of Exercise. Stock options may be exercised, in whole or in
part, by giving written notice of exercise to the Corporation specifying the
number of shares to be purchased. Such notice shall be accompanied by payment
in full of the purchase price in cash, either by certified or bank check.
The written notice provided by the optionee shall specify the optionee's
election to purchase shares subject to the stock option or to receive the cash
payment herein provided.
Notwithstanding the foregoing, the Committee may, in its sole discretion,
authorize payment in whole or in part of the purchase price to be made in
unrestricted stock already owned by the optionee, or, in the case of the
nonqualified stock option, in restricted stock, or deferred stock subject to an
AWARD hereunder, in each case, based upon the fair market value of the Stock on
the date the option is exercised. The Committee may authorize such payment at
or after grant, except that in the case of an incentive stock option, any right
to make payment in unrestricted stock already owned must be included in the
option at the time of grant. No shares of Stock shall be issued until full
payment therefor has been made. An optionee shall have the rights to dividends
or other rights of a stockholder with respect to shares subject to the option
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when the optionee has given written notice of exercise, has paid in full for
such shares, and, if requested by the Corporation, has given the representation
described in paragraph (a) of Section 14.
As used in this paragraph (d) of Section 5, the fair market value of the
Stock on the date of exercise shall mean:
(i) with respect to an election by an optionee to receive cash in
respect of a stock option which is an incentive stock option, the "Change of
Control Fair Market Value", as defined in Section 6(b) below; and
(ii) with respect to election by an optionee to receive cash in
respect of a stock option which is an incentive stock option, the fair market
value of the Stock on the date of exercise, determined in the same manner as the
fair market value of the Stock on the date of grant of a stock option is
determined pursuant to paragraph (a) of Section 5 of the Plan.
(e) Nontransferability of Options. Unless otherwise determined by the
Committee at or after the time of grant, no stock option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution, and such options shall be exercisable, during the optionee's
lifetime, only by the optionee.
(f) Termination by Death. Except to the extent otherwise provided by the
Committee at or after the time of grant, if an optionee's relationship with or
employment by the Corporation and/or any of its subsidiaries terminates by
reason of death, the stock option may thereafter be immediately exercised in
full by the legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of 12 months from the date of such
death or until the expiration of the states period of the option whichever
period is the shorter.
(g) Termination by Reason of Retirement or Permanent Disability. Except
to the extent otherwise provided by the Committee at or after the time of grant,
if an optionee's relationship with or employment by the Corporation and/or any
of its subsidiaries terminates by reason of retirement or permanent disability,
any stock option, to the extent vested, held by such optionee may thereafter be
exercised in full, but may not be exercised after three years from the date of
such termination or the expiration of the stated period of the option, whichever
period is the shorter; provided, however, that if the optionee dies within such
three-year period, any unexercised stock option held by such optionee shall
thereafter be exercisable to the extent to which it was exercisable at the time
of death for a period of 12 months from the date of the optionee's death or for
the stated period of the option, whichever period is the shorter.
(h) Other Termination. Unless otherwise determined by the Committee at or
after grant, if an optionee's relationship with or employment by the Corporation
terminates for any reason other than death, permanent disability or retirement,
the stock option, to the extent vested, shall thereafter be exercisable for a
period of 12 months from the date of termination.
(i) Option Buyout. The Committee may at any time offer to repurchase an
option based on such terms and conditions as the Committee shall establish and
communicate to the optionee at the time that such offer is made.
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Section 6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock appreciation rights may be granted in
conjunction with (or in accordance with Section 9, separately from) all or part
of any stock option granted under the Plan, as follows: (i) in the case of a
nonqualified stock option, such rights may be granted either at the time of the
grant of such option or at any subsequent time during the term of the option;
and (ii) in the case of an incentive stock option, such rights may be granted
only at the time of the grant of the option. A "stock appreciation right" is a
right to receive cash or Stock, as provided in this Section 6, in lieu of the
purchase of a share under a related option. A stock appreciation right, or
applicable portion thereof, shall terminate and no longer be exercisable upon
the termination or exercise of the related stock option, except that a stock
appreciation right granted with respect to less than the full number of shares
covered by a related stock option shall not be reduced until the exercise or
termination of the related stock option exceeds the number of shares not covered
by the stock appreciation right. A stock appreciation right may be exercised by
an optionee, in accordance with paragraph (b) of this Section 6, by surrendering
the applicable portion of the related stock option. Upon such exercise and
surrender, the optionee shall be entitled to receive an amount determined in the
manner prescribed in paragraph (b) of this Section 6. Options which have been
so surrendered, in whole or in part, shall no longer be exercisable to the
extent the related stock appreciation rights have been exercised.
(b) Terms and Conditions. Stock appreciation rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock appreciation rights shall be exercisable only at such time
or times and to the extent that the stock options to which they relate shall be
exercisable.
(ii) Upon the exercise of a stock appreciation right, in an optionee
shall be entitled to receive up to, but no more than, an amount in cash or whole
shares of the Stock as determined by the Committee in its sole discretion equal
to the excess of the fair market value of one share of Stock over the option
price per share specified in the related stock option multiplied by the number
of shares in respect of which the stock appreciation rights shall have been
exercised; provided, however, that the payment in settlement of stock
appreciation rights during the period from and after a Change of Control shall
be entirely in cash. Each stock appreciation right may be exercised only at the
time and so long as a related option, if any, would be exercisable or as
otherwise permitted by applicable law. The fair market value of the Stock on
the date of exercise of a stock appreciation right shall be determined in the
same manner as the fair market value of the Stock on the date of grant of a
stock option is determined pursuant to paragraph (a) of Section 5 of the Plan;
provided however, that during the 60-day period from and after a Change of
Control, the fair market value of the Stock on the date of exercise shall man,
with respect to the exercise of a stock appreciation right accompanying an
option which is not an incentive stock option, the "Change of Control Fair
Market Value."
For purposes of this Plan, the "Change of Control Fair Market Value"
shall mean the higher of (x) the highest reported sale price, regular way, of a
share of the Stock on the Composite Tape for New Stock Exchange Listed Stock
during the 60-day period prior to the date
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of the Change of Control or, if such security is not listed or admitted to
trading on the New York Stock Exchange, on the principal national securities
exchange on which such security is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if such security is not quoted on such Nasdaq National
Market, the average of the closing bid and asked prices during such 60-day
period in the over-the-counter market as reported by the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system or, if bid and asked
prices for such security during such period shall not have been reported
through, NASDAQ, the average of the bid and asked prices for such period as
furnished by any new York Stock Exchange member firm regularly making a market
in such security selected for such purposes by the Board of Directors of the
Corporation or a committee thereof of, if such security is not publicly traded,
the fair market value thereof as determined by an independent investment banking
or appraisal firm experienced in the valuation of such securities selected in
good faith by the Board of Directors of the Corporation or a committee thereof
or, if not such investment banking or appraisal firm is in the good faith
judgment of the Board of Directors or such committee available to make such
determination, as determined in good faith by the Board of Directors of the
Corporation or such committee and (y) the highest price per share of the Stock
paid in a transition or series of transactions resulting in the Change of
Control.
(iii) No stock appreciation right shall be transferable by a
participant otherwise than by will or by the laws of descent and distribution,
and stock appreciation rights shall be exercisable, during the participant's
lifetime, only to the participant.
(iv) Upon the exercise of a stock appreciation right, the stock
option or part thereof to which such stock appreciation right is related shall
be deemed to have been exercised for the purpose of the limitation of the number
of shares of the Stock to be issued under the Plan, as set forth in Section 3 of
the Plan.
(v) Stock appreciation rights granted in connection with incentive
stock options may be exercised only when the market price of the Stock subject
to the incentive stock option exceeds the option price of the incentive stock
option.
Section 7. Restricted Stock.
(a) Stock and Administration. Shares of restricted stock may be issued
either alone or in addition to stock options, stock appreciation rights,
deferred stock or other Stock-based awards granted under the Plan. The
Committee shall determine the directors (excluding Committee members),
consultants, officers and employees of the Corporation and its subsidiaries to
whom, and the time or times at which, grants of restricted stock will be made,
the number of shares to be awarded, the time or times within which such AWARDS
may be subject to forfeiture, and all other conditions of the AWARDS. The
provisions of restricted stock AWARDS need not be the same with respect to each
recipient.
(b) Awards and Certificates. The prospective recipient of an AWARD of
shares of restricted stock shall not, with respect to such AWARD, be deemed to
have become a participant, or to have any rights with respect to such AWARD,
until and unless such recipient shall have executed an agreement or other
instrument evidencing the AWARD and delivered a
7
<PAGE>
fully executed copy thereof to the Corporation and otherwise complied with the
then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in respect
of shares of restricted stock awarded under the Plan. Such certificate shall be
registered in the name of the participant, and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such AWARD,
substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the NetSelect, Inc. 1996 Stock
Incentive Plan and an Agreement entered into between the
registered owner and NetSelect, Inc. Copies of such Plan and
Agreement are on file in the offices of NetSelect, Inc., 5655
Lindero Canyon Road, Suite 106, Westlake Village, CA 91362."
(ii) the Committee shall require that the stock certificates
evidencing such shares be held in custody by the Corporation until the
restrictions thereon shall have lapsed, and shall require, as a condition of any
restricted stock AWARD, that the participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such AWARD.
(c) Restrictions and Conditions. The shares of restricted stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) subject to the provisions of this Plan during a period set by
the Committee commencing with the date of such AWARD (the "restriction period"),
the participant shall not be permitted to sell, transfer, pledge, or assign
shares of restricted stock awarded under the Plan. Within these limits the
Committee may provide for the lapse of such restrictions in installments where
deemed appropriate.
(ii) Except as provided in paragraph (c) of this Section 7, the
participants shall have, with respect to the shares of restricted stock, all of
the rights of a stockholder of the Corporation, including the right to vote the
restricted stock and the right to receive any cash dividends. The Committee, in
its sole discretion, may permit or require the payment of cash dividends to be
deferred and, if the Committee so determines, reinvested in additional
restricted stock or otherwise reinvested. Certificates for shares of
unrestricted stock shall be delivered to the participant promptly after, and
only after, the restrictions thereon shall expire without forfeiture in respect
of such shares of restricted stock.
(iii) Subject to the provisions of paragraph (c)(iv) of this Section
7, upon termination of employment for any reason during the restriction period,
all shares still subject to restriction shall be forfeited by the participant
and reacquired by the Corporation.
(iv) In the event of a participant's retirement, permanent
disability, or death, or in cases of special circumstances, the Committee may,
in its sole discretion, when it finds that a waiver would be in the best
interests of the Corporation, waive in whole or in part any or all remaining
restrictions with respect to such participant's shares of restricted stock.
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<PAGE>
(v) Notwithstanding any thing in the foregoing to the contrary,
upon a Change of Control any and all restrictions on restricted stock shall
lapse regardless of the restriction period established by the Committee and all
such restricted stock shall become fully vested and nonforfeitable.
Section 8. Deferred Stock Awards
(a) Stock and Administration. AWARDS of the right to receive Stock that
is not to be distributed to the participant until after a specified deferral
period (such AWARD and the deferred stock delivered thereunder hereinafter as
the context shall require, referred to as the "deferred stock") my be made
either alone or in addition to stock options, stock appreciation rights, or
restricted stock, or other Stock-based awards granted under the Plan. The
Committee shall determine the directors, consultants, officers and employees of
the Corporation and its subsidiaries to whom and the time or times at which
deferred stock shall be awarded, the number of shares of deferred stock to be
awarded to any participant, the duration of the period (the "Deferral Period")
during which, and the conditions under which, receipt of the Stock will be
deferred, and the terms and conditions of the AWARD in addition to those
contained in paragraph (b) of this Section 8. In its sole discretion, the
Committee may provide for a minimum payment at the end of the applicable
Deferral Period based on a stated percentage of the fair market value on the
date of grant of the number of shares covered by a deferred stock AWARD. The
Committee may also provide for the grant of deferred stock upon the completion
of a specified performance period. The provisions of deferred stock AWARDS need
not be the same with respect to each recipient.
(b) Terms and Conditions. Deferred stock AWARDS made pursuant to this
Section 8 shall be subject to the following terms and conditions:
(i) Subject to the provisions of the Plan, the shares to be issued
pursuant to a deferred stock AWARD may not be sold, assigned, transferred,
pledged or otherwise encumbered during the Deferral Period or Elective Deferral
Period (defined below), where applicable, and may be subject to a risk of
forfeiture during all or such portion of the Deferral Period as shall be
specified by the Committee. At the expiration of the Deferral Period and
Elective Deferral Period, one or more share certificates shall be delivered to
the participant, or the participant's legal representative, evidencing ownership
of a number of shares equal to the number of shares covered by the deferred
stock AWARD.
(ii) Amounts equal to any dividends declared during the Deferral
Period with respect to the number of shares covered by a deferred stock AWARD
will be paid to the participant currently, or deferred and deemed to be
reinvested in additional deferred stock or otherwise reinvested, as determined
at the time of the AWARD by the Committee, in its sole discretion.
(iii) Subject to the provisions of paragraph (b)(iv) of this Section
8, upon termination of the relationship with or employment by the Corporation
for any reason during the Deferral Period for a given deferred stock AWARD, the
deferred stock in question shall be forfeited by the participant.
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(iv) In the event of the participant's retirement, permanent
disability or death during the Deferral Period (or Elective Deferral Period,
where applicable), or in cases of special circumstances, the Committee may, in
its sole discretion, when it finds that a waiver would be in the best interests
of the Corporation, waive in whole or in part any of all of the remaining
deferral limitations imposed hereunder with respect to any or all of the
participant's deferred stock. Anything in the Plan to the contrary
notwithstanding, upon the occurrence of a Change of Control, the Deferral Period
and the Elective Deferral Period with respect to each deferred stock AWARD shall
expire immediately and all share certificates relating to such deferred stock
AWARDS shall be delivered to each participant or the participant's legal
representative.
(v) Not less than sixty (60) days prior to completion of the
Deferral Period, a participant may elect to defer further the receipt of the
deferred stock AWARD for a specified period of until a specified event (the
"Elective Deferral Period"), subject to each case to the approval of the
Committee and under such terms as are determined by the Committee, all in its
sole discretion.
(vi) Each deferred stock AWARD shall be confirmed by a deferred
stock agreement or other instrument executed by the Committee and by the
participant.
Section 9. Other Stock-Based Awards.
(a) Stock and Administration. Other AWARDS of the Stock and other AWARDS
that are valued in whole or in part by reference to, or are otherwise based on
the Stock ("Other Stock-based AWARDS"), including (without limitation)
performance shares and convertible debentures, may be granted either alone or in
addition or other AWARDS granted under the Plan. Subject to the provisions of
the Plan, the Committee shall have sole and complete authority to determine the
directors (excluding Committee members), consultants, officers and key employees
of the Corporation and/or any of its subsidiaries to whom and the time or times
at which such Other Stock-based AWARDS shall be made, the number of shares of
the Stock to be awarded pursuant to such Other Stock-based AWARDS and all other
conditions of the Other Stock-based AWARDS. The Committee may also provide for
the grant of the Stock upon the completion of a specified performance period.
The provisions of Other Stock-based AWARDS need not be the same with respect to
each recipient.
(b) Terms and Conditions. Other Stock-based AWARDS made pursuant to this
Section 9 shall be subject to the following terms and conditions:
(i) Subject to the provisions of the Plan, shares or interests in
shares subject to Other Stock-based AWARDS made under this Section 9 may not be
sold, assigned, transferred, pledged or otherwise encumbered prior to the date
on which the shares are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.
(ii) Subject to the provisions of this Plan and the Other Stock-
based AWARD agreement, the recipients of Other Stock-based AWARDS under this
Section 9 shall be entitled to receive, currently or on a deferred basis,
interest or dividends or interest or dividend equivalents with respect to the
number of shares or interests herein covered by the Other stock-based AWARDS, as
determined at the time of the Other Stock-based AWARDS by the
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Committee, in its sole discretion, and the Committee may provide that such
amounts (if any) shall be deemed to have been reinvested in additional Stock or
otherwise reinvested.
(iii) Any Other Stock-based AWARDS under this Section 9 and any
Stock covered by any such Other Stock-based AWARD may be forfeited to the extent
so provided in the Other Stock-based AWARD agreement, as determined by the
Committee, in its sole discretion.
(iv) In the event of the participant's retirement, permanent
disability or death, or in cases of special circumstances, the Committee may, in
its sole discretion, when it finds that a waiver would be in the best interests
of the Corporation, waive in whole or in part any or all of the remaining
limitations imposed hereunder (if any) with respect to any or all Other Stock-
based AWARDS under this Section 9. Anything in the Plan to the contrary
notwithstanding, any limitations imposed with respect to any Other Stock-based
AWARD under this Section 9, including any, provision providing for the
forfeiture of any Other Stock-based AWARD under any circumstance, shall
terminate immediately upon a Change of Control and the number of shares of or
interests in the Stock subject to such Other Stock-based AWARD shall be
delivered to the participant (or, in the case of an Other Stock-based AWARD with
respect to which such number is not determinable, such number of shares of or
interests in the Stock as is determined by the Committee and set forth in the
terms of such Other Stock-based AWARD).
(v) Each Other Stock-based AWARD under this Section 9 shall be
confirmed by an agreement or other instrument executed by the Corporation and by
the participant.
(vi) The Stock or interests therein (including securities
convertible into the Stock) paid or awarded on a bonus basis under this Section
9 shall be issued for no cash consideration; the Stock or interests therein
(including securities convertible into the Stock) purchased pursuant to a
purchase right awarded under this Section 9 shall be priced at least 50% of the
fair market value of the Stock on the date of grant.
(vii) No Other Stock-based AWARD in the nature of a purchase right
shall be transferable by the participant otherwise than by will or by the laws
of descent and distribution, and such purchase rights shall be exercisable
during the participant's lifetime only by the participant.
Section 10. Transfer, Leave of Absence, etc. For purposes of the Plan
neither: (i) transfer of an employee from the Corporation to a subsidiary, or
vice versa, or from one subsidiary to another nor (ii) a leave of absence, duly
authorized in writing by the Corporation shall be deemed a termination of
employment.
Section 11. Amendments and Termination. The Board may amend, alter, or
discontinue the Plan, but no amendment, alteration, or discontinuation shall be
made which would impair the rights of an optionee or participant under any AWARD
theretofore granted, without the optionee's participant's consent, or which
without the approval of the shareholders would:
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(a) except as is provided in Section 3 of the Plan, increase the total
number of shares available for the purpose of the Plan by more than ten percent
of the number of shares previously approved by shareholders;
(b) extend the maximum option period under Section 5(b) of the Plan; or
(c) otherwise materially increase the benefits accruing to participants
under, or materially modify the requirements as to eligibility for participation
in, the Plan.
The Committee may amend the terms of any AWARD theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any holder without such holder's consent. Notwithstanding the foregoing, the
Board or the Committee may, in its discretion, amend the Plan or terms of any
outstanding AWARD held by a person then subject to Section 16 of the Exchange
Act without the consent of any holder in order to preserve exemptions under said
Section 16 which are or become available from time to time under rules of the
Securities and Exchange Commission. The Committee may also substitute new stock
options for previously granted options, including previously granted options
having higher option prices.
Section 12. Unfunded Status of the Plan. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to participant or optionee by the
Corporation, nothing contained herein shall give any such participant or
optionee any rights that are greater than those of a general creditor of the
Corporation, In its sole discretion, the Committee may authorize the creation
of trusts or other arrangements to meet the obligations created under the Plan
to deliver the Stock; provided, however, that the existence of such trusts or
other arrangements is consistent with the unfunded status of the Plan.
Section 13. Employment at Will. Nothing contained in the Plan, or in any
option granted pursuant to the Plan, nor in any agreement made pursuant to the
Plan, shall confer upon any optionee any right with respect to continuance of
employment by the Corporation or its subsidiaries, nor interfere in any way with
the right of the Corporation or its subsidiaries to terminate the optionee's
employment at will or change the optionee's compensation at any time.
Section 14. General Provisions. (a) Unless the shares of Stock to be
acquired pursuant to an AWARD may, at the time of such acquisition, be lawfully
resold in accordance with a then currently effective registration statement or
post-effective amendment under the Securities Act of 1933, as amended, the
Committee may provide, as a condition to the delivery of any shares of Stock to
be purchased pursuant to an AWARD, that the Corporation receive appropriate
evidence that the AWARD holder is acquiring the shares for investment and not
with a view to the distribution or public offering of the shares, or any
interest in the shares, and a representation to the effect that the AWARD holder
shall make no sale or other disposition of the shares unless (i) the Corporation
shall have received an opinion of counsel satisfactory to it in the form and
substance that the sale or other disposition may be made without registration
under then applicable provisions of the Securities Act of 1933, as amended, and
the related rules and regulations of the Securities and Exchange Commission, or
(ii) the shares shall be included in a currently effective registration
statement or post-effective amendment under the Securities Act of
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1933 as amended. The certificates for such shares may include any legend which
the Committee deems appropriate to reflect any restrictions on transfer.
(b) All certificates for shares of the Stock delivered under the Plan
pursuant to any AWARD shall be subject to such stock transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then listed, and any applicable Federal or
state securities law, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.
(c) Recipients of shares of restricted stock, deferred stock and other
Stock-based AWARDS under the Plan (other than options) shall not be required to
make any payment or provide consideration other than the rendering of services.
(d) AWARDS granted under the Plan may, in the discretion of the
Committee, be granted either alone or in addition to, in tandem with, or in
substitution for, any other AWARDS granted under the Plan. If AWARDS are granted
in substitution for other AWARDS, the Committee shall require the surrender of
such other AWARDS in consideration for the grant of the new AWARDS. AWARDS
granted in addition to or in tandem with other AWARDS may be granted either at
the same time as or at a different time from the grant of such other AWARDS. The
exercise price of any option or the purchase price of any Other Stock-based
AWARD in the nature of a purchase right:
(i) granted in substitution for outstanding AWARDS or in lieu of
any other right of payment by the Corporation shall be the fair market value of
shares at the date such substitute AWARDS are granted or shall be such fair
market value at that date reduced to reflect the fair market value of the AWARDS
or other right or payment required to be surrendered by the participant as a
condition to receipt of the substitute AWARD; or
(ii) retroactively granted in tandem with outstanding AWARDS shall
be either the fair market value of shares at the date of grant of later AWARDS
or the fair market value of shares at the date of grant of earlier AWARDS.
(e) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required, and such arrangements may be
either generally applicable or applicable only in specific cases.
(f) If at any time the Committee shall determine in its discretion that
the listing, registration or qualification of the shares covered by the Plan
upon any national securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary to
desirable as a condition of, or in connection with the sale, or purchase of
shares subject to the Plan, no such shares shall be delivered unless and until
such listing, registration, qualification, consent or approval shall have been
effected or obtained or otherwise provided for, free of any conditions not
acceptable to the Committee.
Section 15. Taxes. Participants shall make arrangement satisfactory to
the Committee regarding payment of any Federal, state, or local taxes of any
kind required by law to be
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withheld with respect to any income which the participant is required, or
elects, to include in his gross income and the Corporation and its subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. Anything
contained herein to the contrary notwithstanding the Committee may, in its sole
discretion, authorize acceptance of Stock received in connection with the grant
or exercise of an AWARD or otherwise previously acquired in satisfaction of
withholding requirements.
Section 16. Effective Date of the Plan. The Plan shall be effective on
the date it is approved by the vote of the holders of a majority of all
outstanding shares of Common Stock.
Section 17. Term of the Plan. No AWARD shall be granted pursuant to the
Plan after November 25, 2006 but AWARDS thereto fore granted may extend beyond
that date.
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EXHIBIT 10.17
1999 EQUITY INCENTIVE PLAN
AS ADOPTED ON JANUARY 21, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
-------
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options and Restricted Stock. Capitalized terms not defined in
the text are defined in Section 22 hereof. This Plan is intended to be a written
compensatory benefit plan within the meaning of Rule 701 promulgated under the
Securities Act.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 17
--------------------------
hereof, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 517,151 Shares or such lesser number of Shares as
permitted under Section 260.140.45 of Title 10 of the California Code of
Regulations. In addition, additional Shares will be available for grant and
issuance under this Plan pursuant to the following two sentences. Subject to
Sections 2.2 and 17 hereof, Shares subject to Awards previously granted will
again be available for grant and issuance in connection with future Awards under
this Plan to the extent such Shares: (i) cease to be subject to issuance upon
exercise of an Option, other than due to exercise of such Option; (ii) are
subject to an Award granted hereunder, but the Shares subject to such Award are
forfeited or are repurchased by the Company at the original issue price; or
(iii) are subject to an Award that otherwise terminates without Shares being
issued. In addition, any shares issued under the NetSelect, Inc. 1996 Stock
Incentive Plan (the "PRIOR PLAN") that are forfeited or repurchased by the
Company or that are issuable upon exercise of options granted pursuant to the
Prior Plan that expire or become unexercisable for any reason without having
been exercised in full will no longer be available for grant and issuance under
the Prior Plan but will be available for grant and issuance under this Plan.
Notwithstanding the foregoing, the total number of Shares issued under the Plan
upon exercise of ISOs will in no event exceed 4,000,000 shares (adjusted in
proportion to any adjustments under Section 2.2 hereof) over the term of the
Plan. At all times the Company will reserve and keep available a sufficient
number of Shares as will be required to satisfy the requirements of all Awards
granted and outstanding under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (i) the number of Shares reserved for issuance under
this Plan, (ii) the Exercise Prices of and number of Shares subject to
outstanding Options and (iii) the Purchase Prices of and number of Shares
subject to other outstanding Awards will be proportionately adjusted, subject to
any required action by the Board or the
1
<PAGE>
stockholders of the Company and compliance with applicable securities laws;
provided, however, that fractions of a Share will not be issued but will either
be paid in cash at the Fair Market Value of such fraction of a Share or will be
rounded down to the nearest whole Share, as determined by the Committee; and
provided, further, that the Exercise Price of any Option may not be decreased to
below the par value of the Shares.
3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted only
-----------
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in
Section 5 hereof) and Restricted Stock Awards may be granted to employees,
officers, directors and consultants of the Company or any Parent or Subsidiary
of the Company; provided such consultants render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted more than one Award under this Plan.
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or the Board if no Committee is created by the Board. Subject to the
general purposes, terms and conditions of this Plan, and to the direction of the
Board, the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan;
(c) approve persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or awards under any other incentive
or compensation plan of the Company or any Parent or Subsidiary
of the Company;
(g) grant waivers of any conditions of this Plan or any Award;
(h) determine the terms of vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Award, any Award Agreement, any
Exercise Agreement or any Restricted Stock Purchase Agreement;
(j) determine whether an Award has been earned; and
2
<PAGE>
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Unless in contravention of any express
--------------------
terms of this Plan or Award, any determination made by the Committee with
respect to any Award will be made in its sole discretion either (i) at the time
of grant of the Award, or (ii) subject to Section 5.9 hereof, at any later time.
Any such determination will be final and binding on the Company and on all
persons having an interest in any Award under this Plan. The Committee may
delegate to one or more officers of the Company the authority to grant an Award
under this Plan, provided such officer or officers are members of the Board.
5. OPTIONS. The Committee may grant Options to eligible persons described
-------
in Section 3 hereof and will determine whether such Options will be Incentive
Stock Options within the meaning of the Code ("ISOS") or Nonqualified Stock
Options ("NQSOS"), the number of Shares subject to the Option, the Exercise
Price of the Option, the period during which the Option may be exercised, and
all other terms and conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
--------------------
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
-------------
on which the Committee makes the determination to grant such Option, unless a
later date is otherwise specified by the Committee. The Stock Option Agreement
and a copy of this Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately but
---------------
subject to repurchase pursuant to Section 11 hereof or may be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement governing such Option; provided, however, that no Option
will be exercisable after the expiration of ten (10) years from the date the
Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after
the expiration of five (5) years from the date the ISO is granted. The
Committee also may provide for Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number of Shares or percentage
of Shares as the Committee determines. Subject to earlier termination of the
Option as provided herein, each Participant who is not an officer, director or
consultant of the Company or of a Parent or Subsidiary of the Company shall have
the right to exercise an Option granted hereunder at the rate of no less than
twenty percent (20%) per year over five (5) years from the date such Option is
granted.
3
<PAGE>
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may not be less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date of
grant; provided that (i) the Exercise Price of an ISO will not be less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date of
grant and (ii) the Exercise Price of any Option granted to a Ten Percent
Stockholder will not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 7 hereof.
5.5 Method of Exercise. Options may be exercised only by delivery to
------------------
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant). The Exercise Agreement will state (i) the number of Shares
being purchased, (ii) the restrictions imposed on the Shares purchased under
such Exercise Agreement, if any, and (iii) such representations and agreements
regarding Participant's investment intent and access to information and other
matters, if any, as may be required or desirable by the Company to comply with
applicable securities laws. Participant shall execute and deliver to the Company
the Exercise Agreement together with payment in full of the Exercise Price, and
any applicable taxes, for the number of Shares being purchased.
5.6 Termination. Subject to earlier termination pursuant to Sections
-----------
17 and 18 hereof and notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason other than death,
Disability or for Cause, then the Participant may exercise such
Participant's Options only to the extent that such Options are
exercisable upon the Termination Date. Such Options must be
exercised by the Participant, if at all, as to all or some of the
Vested Shares calculated as of the Termination Date, within three
(3) months after the Termination Date (or within such shorter
time period, not less than thirty (30) days, or within such
longer time period, not exceeding five (5) years, after the
Termination Date as may be determined by the Committee, with any
exercise beyond three (3) months after the Termination Date
deemed to be an NQSO) but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than for Cause), then Participant's
Options may be exercised only to the extent that such Options are
exercisable by Participant on the Termination Date. Such options
must be exercised by Participant (or Participant's legal
representative or authorized assignee), if at all, as to all or
some of the Vested Shares calculated as of the Termination Date,
within twelve (12) months after the Termination Date (or within
such shorter time period, not less than six (6) months, or within
such longer time period, not exceeding
4
<PAGE>
five (5) years, after the Termination Date as may be determined
by the Committee, with any exercise beyond (i) three (3) months
after the Termination Date when the Termination is for any reason
other than the Participant's death or disability, within the
meaning of Section 22(e)(3) of the Code, or (ii) twelve (12)
months after the Termination Date when the Termination is for
Participant's disability, within the meaning of Section 22(e)(3)
of the Code, deemed to be an NQSO) but in any event no later than
the expiration date of the Options.
(c) If the Participant is terminated for Cause, then Participant's
Options shall expire on such Participant's Termination Date, or
at such later time and on such conditions as are determined by
the Committee.
5.7 Limitations on Exercise. The Committee may specify a reasonable
-----------------------
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value (determined
-------------------
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company or any Parent or
Subsidiary of the Company) will not exceed One Hundred Thousand Dollars
($100,000). If the Fair Market Value of Shares on the date of grant with
respect to which ISOs are exercisable for the first time by a Participant during
any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the
Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to
become exercisable in such calendar year will be ISOs and the Options for the
amount in excess of One Hundred Thousand Dollars ($100,000) that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date (as
defined in Section 18 hereof) to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISOs, then such different
limit will be automatically incorporated herein and will apply to any Options
granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
----------------------------------
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. Subject to Section 5.10 hereof, the Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants by a
written notice to them; provided, however, that the Exercise Price may not be
reduced below the minimum Exercise Price that would be permitted under Section
5.4 hereof for Options granted on the date the action is taken to reduce the
Exercise Price; provided, further, that the Exercise Price will not be reduced
below the par value of the Shares, if any.
5
<PAGE>
5.10 No Disqualification. Notwithstanding any other provision in
-------------------
this Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant, to disqualify any Participant's ISO
under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
----------------
to sell to an eligible person Shares that are subject to certain specified
restrictions. The Committee will determine to whom an offer will be made, the
number of Shares the person may purchase, the Purchase Price, the restrictions
to which the Shares will be subject, and all other terms and conditions of the
Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted
------------------------------
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The Restricted Stock Award will be accepted by the Participant's execution
and delivery of the Restricted Stock Purchase Agreement and full payment for the
Shares to the Company within thirty (30) days from the date the Restricted Stock
Purchase Agreement is delivered to the person. If such person does not execute
and deliver the Restricted Stock Purchase Agreement along with full payment for
the Shares to the Company within such thirty (30) days, then the offer will
terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
--------------
Restricted Stock Award will be determined by the Committee and will be at least
eighty-five percent (85%) of the Fair Market Value of the Shares on the date the
Restricted Stock Award is granted or at the time the purchase is consummated,
except in the case of a sale to a Ten Percent Stockholder, in which case the
Purchase Price will be one hundred percent (100%) of the Fair Market Value on
the date the Restricted Stock Award is granted or at the time the purchase is
consummated. Payment of the Purchase Price must be made in accordance with
Section 7 hereof.
6.3 Restrictions. Restricted Stock Awards may be subject to the
------------
restrictions set forth in Section 11 hereof or such other restrictions not
inconsistent with Section 25102(o) of the California Corporations Code.
7. PAYMENT FOR SHARE PURCHASES.
---------------------------
7.1 Payment. Payment for Shares purchased pursuant to this Plan may
-------
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company owed to the
Participant;
(b) by surrender of shares that: (i) either (A) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of
6
<PAGE>
SEC Rule 144 (and, if such shares were purchased from the Company
by use of a promissory note, such note has been fully paid with
respect to such shares) or (B) were obtained by Participant in
the public market and (ii) are clear of all liens, claims,
encumbrances or security interests;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are
not employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares; provided,
further, that the portion of the Exercise Price or Purchase
Price, as the case may be, equal to the par value of the Shares
must be paid in cash or other legal consideration permitted by
Delaware General Corporation Law;
(d) by waiver of compensation due or accrued to the Participant from
the Company for services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(i) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD Dealer") whereby
the Participant irrevocably elects to exercise the Option
and to sell a portion of the Shares so purchased sufficient
to pay the total Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward
the total Exercise Price directly to the Company; or
(ii) through a "margin" commitment from the Participant and an
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan
from the NASD Dealer in the amount of the total Exercise
Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the total Exercise Price
directly to the Company; or
(f) by any combination of the foregoing.
7.2 Loan Guarantees. The Committee may, in its sole discretion,
---------------
elect to assist the Participant in paying for Shares purchased under this Plan
by authorizing a guarantee by the Company of a third-party loan to the
Participant.
7
<PAGE>
8. WITHHOLDING TAXES.
-----------------
8.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash by the Company, such payment
will be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
8.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee for such elections and be in writing in a form
acceptable to the Committee.
9. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
9.1 Voting and Dividends. No Participant will have any of the rights
--------------------
of a stockholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will
be a stockholder and have all the rights of a stockholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock. The Participant will have no right to retain such stock
dividends or stock distributions with respect to Unvested Shares that are
repurchased pursuant to Section 11 hereof. The Company will comply with Section
260.140.1 of Title 10 of the California Code of Regulations with respect to the
voting rights of Common Stock.
9.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant annually during the period such Participant has
Awards outstanding, or as otherwise required under Section 260.140.46 of Title
10 of the California Code of Regulations. Notwithstanding the foregoing, the
Company will not be required to provide such financial statements to
Participants when issuance is limited to key employees whose services in
connection with the Company assure them access to equivalent information.
10. TRANSFERABILITY. Awards granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, other than by
will or by the laws of descent and distribution, and may not be made subject to
execution, attachment or similar process. During the lifetime of the
Participant an Award will be exercisable only by the
8
<PAGE>
Participant or Participant's legal representative and any elections with respect
to an Award may be made only by the Participant or Participant's legal
representative.
11. RESTRICTIONS ON SHARES.
----------------------
11.1 Right of First Refusal. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
provided that such right of first refusal terminates upon the Company's initial
public offering of Common Stock pursuant to an effective registration statement
filed under the Securities Act.
11.2 Right of Repurchase. At the discretion of the Committee, the
-------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase Unvested Shares held by a Participant for cash and/or
cancellation of purchase money indebtedness owed to the Company by the
Participant following such Participant's Termination at any time within the
later of ninety (90) days after the Participant's Termination Date and the date
the Participant purchases Shares under the Plan at the Participant's Exercise
Price or Purchase Price, as the case may be, provided that, unless the
Participant is an officer, director or consultant of the Company or of a Parent
or Subsidiary of the Company, such right of repurchase lapses at the rate of no
less than twenty percent (20%) per year over five (5) years from: (a) the date
of grant of the Option or (b) in the case of Restricted Stock, the date the
Participant purchases the Shares.
12. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares set forth in Section 11 hereof, the Committee may require
the Participant to deposit all certificates representing Shares, together with
stock powers or other instruments of transfer approved by the Committee,
appropriately endorsed in blank, with the Company or an agent designated by the
Company to hold in escrow until such restrictions have lapsed or terminated. The
Committee may cause a legend or legends referencing such restrictions to be
placed on the certificates. Any Participant who is permitted to execute a
promissory note as partial or full consideration for the purchase of Shares
under this Plan will be required to pledge and deposit with the Company all or
part of the Shares so purchased as collateral to secure the payment of
Participant's obligation to the Company under the promissory note; provided,
however, that the Committee may require or accept other or additional forms of
collateral to secure the payment of such obligation and, in any event, the
Company will have full recourse against the Participant under the promissory
note notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant will be
9
<PAGE>
required to execute and deliver a written pledge agreement in such form as the
Committee will from time to time approve.
14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
-----------------------------
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, shares of Common
Stock of the Company (including Restricted Stock) or other consideration, based
on such terms and conditions as the Committee and the Participant may agree.
15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended
----------------------------------------------
to comply with Section 25102(o) of the California Corporations Code. Any
provision of this Plan which is inconsistent with Section 25102(o) shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o). An Award will not be effective
unless such Award is in compliance with all applicable federal and state
securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to (i) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (ii) compliance with any exemption, completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the exemption, registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company will have no liability
for any inability or failure to do so.
16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
-----------------------
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
Cause.
17. CORPORATE TRANSACTIONS.
----------------------
17.1 Assumption or Replacement of Awards by Successor or Acquiring
-------------------------------------------------------------
Corporation. In the event of (i) a dissolution or liquidation of the Company,
- -----------
(ii) a merger or consolidation in which the Company is not the surviving
corporation, (iii) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder which merges with the Company in such merger, or
which owns or controls another corporation which merges with the Company in such
merger) cease to own their shares or other equity interests in the Company, or
(iv) the
10
<PAGE>
sale of all or substantially all of the assets of the Company, any or all
outstanding Awards may be assumed, converted or replaced by the successor or
acquiring corporation (if any), which assumption, conversion or replacement will
be binding on all Participants. In the alternative, the successor or acquiring
corporation may substitute equivalent Awards or provide substantially similar
consideration to Participants as was provided to stockholders (after taking into
account the existing provisions of the Awards). The successor or acquiring
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant, substantially similar shares or other property subject to
repurchase restrictions and other provisions no less favorable to the
Participant than those which applied to such outstanding Shares immediately
prior to such transaction described in this Section 17.1. In the event such
successor or acquiring corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this Section
17.1, then notwithstanding any other provision in this Plan to the contrary,
such Awards will expire on such transaction at such time and on such conditions
as the Board will determine. Notwithstanding the foregoing, the Committee may,
in its sole discretion, provide that the vesting of any or all Awards granted
pursuant to this Plan will accelerate upon a transaction described in this
Section 17.1. If the Committee exercises such discretion with respect to
Options, such Options will become exercisable in full prior to the consummation
of such event at such time and on such conditions as the Committee determines,
and if such Options are not exercised prior to the consummation of the corporate
transaction, they shall terminate at such time as determined by the Committee.
17.2 Other Treatment of Awards. Subject to any greater rights
-------------------------
granted to Participants under the foregoing provisions of this Section 17, in
the event of the occurrence of any transaction described in Section 17.1 hereof,
any outstanding Awards will be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation or sale of assets.
17.3 Assumption of Awards by the Company. The Company, from time to
-----------------------------------
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (i) granting an Award under this Plan in substitution of
such other company's award or (ii) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
18. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on
---------------------------------
the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan will
be approved by the stockholders of the Company (excluding Shares issued pursuant
to this Plan),
11
<PAGE>
consistent with applicable laws, within twelve (12) months before or after the
Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to
this Plan; provided, however, that: (i) no Option may be exercised prior to
initial stockholder approval of this Plan; (ii) no Option granted pursuant to an
increase in the number of Shares approved by the Board shall be exercised prior
to the time such increase has been approved by the stockholders of the Company;
(iii) in the event that initial stockholder approval is not obtained within the
time period provided herein, all Awards granted hereunder shall be canceled, any
Shares issued pursuant to any Award shall be canceled and any purchase of Shares
issued hereunder shall be rescinded; and (iv) Awards granted pursuant to an
increase in the number of Shares approved by the Board which increase is not
timely approved by stockholders shall be canceled, any Shares issued pursuant to
any such Awards shall be canceled, and any purchase of Shares subject to any
such Award shall be rescinded.
19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of stockholder approval. This Plan and all agreements
hereunder shall be governed by and construed in accordance with the laws of the
State of California.
20. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the
---------------------------------
Board may at any time terminate or amend this Plan in any respect, including
without limitation amendment of any form of Award Agreement or instrument to be
executed pursuant to this Plan; provided, however, that the Board will not,
without the approval of the stockholders of the Company, amend this Plan in any
manner that requires such stockholder approval pursuant to Section 25102(o) of
the California Corporations Code or the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
--------------------------
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and other equity awards otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
22. DEFINITIONS. As used in this Plan, the following terms will have the
-----------
following meanings:
"AWARD" means any award under this Plan, including any Option or
Restricted Stock Award.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award, including the Stock Option Agreement and
Restricted Stock Agreement.
"BOARD" means the Board of Directors of the Company.
12
<PAGE>
"CAUSE" means Termination because of (i) any willful, material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, or any willful perpetration by the Participant of a common law fraud,
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in connection with the Company or any other entity
having a business relationship with the Company, (iii) any material breach by
the Participant of any provision of any agreement or understanding between the
Company or any Parent or Subsidiary of the Company and the Participant regarding
the terms of the Participant's service as an employee, officer, director or
consultant to the Company or a Parent or Subsidiary of the Company, including
without limitation, the willful and continued failure or refusal of the
Participant to perform the material duties required of such Participant as an
employee, officer, director or consultant of the Company or a Parent or
Subsidiary of the Company, other than as a result of having a Disability, or a
breach of any applicable invention assignment and confidentiality agreement or
similar agreement between the Company or a Parent or Subsidiary of the Company
and the Participant, (iv) Participant's disregard of the policies of the Company
or any Parent or Subsidiary of the Company so as to cause loss, damage or injury
to the property, reputation or employees of the Company or a Parent or
Subsidiary of the Company, or (v) any other misconduct by the Participant which
is materially injurious to the financial condition or business reputation of, or
is otherwise materially injurious to, the Company or a Parent or Subsidiary of
the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee created and appointed by the Board to
administer this Plan, or if no committee is created and appointed, the Board.
"COMPANY" means NetSelect, Inc. or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
13
<PAGE>
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported by The Wall
--------
Street Journal (or, if not so reported, as otherwise reported by
--------------
any newspaper or other source as the Board may determine); or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5 hereof.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock representing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PLAN" means this NetSelect, Inc. 1999 Equity Incentive Plan, as
amended from time to time.
"PURCHASE PRICE" means the price at which a Participant may purchase
Restricted Stock.
"RESTRICTED STOCK" means Shares purchased pursuant to a Restricted
Stock Award.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section
6 hereof.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock, par value $0.001
per share reserved for issuance under this Plan, as adjusted pursuant to
Sections 2 and 17 hereof, and any successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
representing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director or consultant to the Company
or a Parent or Subsidiary of the Company. A Participant will not be deemed to
have ceased to provide services in the case of (i) sick leave, (ii) military
leave, or (iii) any other leave of absence approved by the Committee, provided
that such leave is for a period of not more than ninety (90) days (a) unless
reinstatement (or, in the case of
14
<PAGE>
an employee with an ISO, reemployment) upon the expiration of such leave is
guaranteed by contract or statute, or (b) unless provided otherwise pursuant to
formal policy adopted from time to time by the Company's Board and issued and
promulgated in writing. In the case of any Participant on (i) sick leave, (ii)
military leave or (iii) an approved leave of absence, the Committee may make
such provisions respecting suspension of vesting of the Award while on leave
from the Company or a Parent or Subsidiary of the Company as it may deem
appropriate, except that in no event may an Option be exercised after the
expiration of the term set forth in the Stock Option Agreement. The Committee
will have sole discretion to determine whether a Participant has ceased to
provide services and the effective date on which the Participant ceased to
provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
15
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, executed on the 21/st/day of August, 1998 (the "Execution
Date"), effective as of August 21, 1998 (the "Effective Date"), is made by and
between NetSelect, Inc. and RealSelect, Inc., Delaware corporations (the
"Company"), and Stuart Wolff (the "Executive") and shall constitute an amendment
and restatement of the employment agreement between the Company and Executive
dated November 26, 1996.
WHEREAS, the Company and Executive previously entered into an agreement
dated November 26, 1996 providing for the Executive's employment as Chief
Executive Officer and, if so elected, for Executive's service on the Board of
Directors of the Company and as its Chairman;
WHEREAS, the Company and Executive desire to amend and restate such
agreement as hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the Company and the Executive agree as follows:
ARTICLE I
Term of Agreement
1.1 Term. The term of employment under this Agreement shall be for the
----
three-year period commencing on the Effective Date (the "Employment Term").
ARTICLE II
Position and Duties
2.1 Position. The Executive shall be employed as the Chairman of the Board
--- --------
and Chief Executive Officer of the Company and shall report directly to the
Board of Directors of the Company.
2.2 Duties. The Executive shall have such duties as the Board of
--- ------
Directors of the Company may from time to time prescribe consistent with his
position as Chief Executive Officer of the Company. The Executive's duties shall
include, but not be limited to (i) managing the overall affairs of the Company
and (ii) general supervision, direction and control of the business and officers
of the Company. Excluding periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees that during the Employment Term he
shall devote substantially all of his business time to the business and affairs
of the Company and to the duties and responsibilities assigned to him hereunder.
Notwithstanding the foregoing, the Executive may (i) provide substantial
services as a manager of NetSelect, L.L.C. ("NS LLC"), (ii) with the written
permission of the Board of Directors serve on corporate boards, (iii) serve on
civic or charitable boards or committees, (iv) manage personal investments and
(v) deliver lectures and teach at educational institutions, so long as such
activities in clauses (ii) through (v) do
<PAGE>
not significantly interfere with the performance of Executive's duties and
responsibilities hereunder.
ARTICLE III
Compensation
3.1 Base Salary. The Company agrees to pay or cause to be paid to the
-----------
Executive during the first year of the Employment Term a base salary at the rate
of $200,000 per annum and thereafter at a rate mutually agreed to by Executive
and the Board and which reflects Executive's level of contribution to the
Company or such larger amount as the Board of Directors may from time to time
determine (hereinafter referred to as the "Base Salary"). Such Base Salary shall
be payable in accordance with the Company's customary practices applicable to
its executives. Such rate of salary, or increased rate of salary, if any, as the
case may be, shall be reviewed at least annually by the Board of Directors and
may be further increased (but not decreased) in such amounts as the Board of
Directors in its discretion may decide.
3.2 Short-Term Incentives. For each calendar year ending during the
---------------------
Employment Term, the Executive's bonus compensation ("Annual Bonus") shall be at
an annual rate equal to a percentage between 0% and 100% of his Base Salary in
effect on the last day of such year, with a target of 40% of Base Salary (the
"Targeted Bonus") if the Company and the Executive achieve budgeted financial
and other performance targets which shall be established by the Board and as set
forth in the Company's Business Plan (the "Performance Goals"). The Executive's
Annual Bonus shall be 60% of Base Salary if 120% of the Performance Goals are
achieved and a percentage less than 40% of Base Salary to be determined by the
Board if the Company's performance falls short of the Performance Goals. The
Executive's Annual Bonus earned with respect to each year shall be paid at the
same time as annual incentive bonuses with respect to that year are paid to
other senior executives of the Company generally.
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<PAGE>
ARTICLE IV
Other Benefits
4.1 Long-Term Incentives; Other Prerequisites.
-----------------------------------------
(a) On December 4, 1996, the Executive was granted an option to
purchase 174,118 shares of the Company's voting common stock at $0.28 per share
(the "First Option"). The First Option was granted pursuant to the terms of the
NetSelect, Inc. Stock Incentive Plan (the "Plan") and, to the maximum extent
possible, qualifies as an incentive stock option (within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended) (an "ISO"). On the date of
grant, the First Option was to vest in three (3) nearly equal installments on
each of the dates that is six (6) months, eighteen (18) months and thirty-six
(36) months after November 26, 1996. As of the Effective Date, the First Option
shall vest monthly over the remaining three-year term commencing on November 26,
1996, except as otherwise provided in Section 5.1(c) below. The First Option
shall terminate ten years after the date of grant.
(b) On January 26, 1998, the Executive was granted an option to
purchase 75,000 shares of the Company's voting common stock at $5.00 per share
(the "Second Option"). The Second Option was granted pursuant to the terms of
the Plan and, to the maximum extent possible, qualifies as an ISO. On the date
of grant, the Second Option was to vest monthly over ten years subject to
acceleration as to 18,750 shares upon completion of certain performance goals.
As of the Effective Date, the Second Option shall be deemed vested as to 18,750
shares. The remaining portion of the Second Option shall vest and become
exercisable in monthly installments over a three-year term commencing on the
Effective Date, except as otherwise provided in Section 5.1(c) below. The Second
Option shall terminate ten years after the date of grant.
(c) The Executive shall be granted an option to purchase 220,000
shares of the Company's voting common stock at $6.31 per share (the "Third
Option"). The Third Option shall be granted pursuant to the terms of the Plan
and to the maximum extent possible, shall qualify as an ISO. The Third Option
shall vest in equal monthly installments over four years, except as otherwise
provided in Section 5.1(c) below, and shall terminate ten years after the date
of grant.
(d) The Company shall make a loan of up to $300,000 to Executive for
purposes of exercising his First Option, Second Option or Third Option
(collectively, the "Options") stock options or paying taxes thereon. The loan
shall be evidenced by a full recourse promissory note (the "Note"). The Note
shall accrue interest semi-annually at the "applicable federal rate" (within the
meaning of Section 1274(d) of the Code) and shall be secured with the shares of
stock received upon exercise of the Option (the "Option Shares") and shall be
payable in full no later than 180 days following termination of Executive's
employment for any reason and on a pro rata basis upon Executive's sale of the
stock acquired with the funds borrowed from the Company, if earlier.
3
<PAGE>
(e) The Executive shall also be eligible to participate, on terms
comparable to those applicable to other senior executives of the Company, in
such other long-term incentive compensation plans maintained by the Company
which provide opportunities to receive compensation in addition to annual base
salary to senior executives of the Company.
(f) Within five (5) days after an IPO (as defined in that certain
Stock and Interest Purchase Agreement, dated as of November 26, 1996, by and
among NetSelect, Inc., NS LLC and InfoTouch Corporation), the Company shall
cause a registration statement to be filed, in compliance with the Securities
Act of 1933, as amended, on Form S-8 or such other similar form adopted by the
Securities and Exchange Commission after the date hereof, which effects the
registration of all shares of the Company's voting common stock issuable
pursuant to the Plan, including, but not limited to, the shares of the Company's
voting common stock underlying the options granted to the Executive.
(g) On Change of Control, 50% of unvested options will immediately
become vested.
4.2 Executive Benefits. Subject to the terms of such plans, the Executive
------------------
will be covered under all retirement and welfare benefit plans maintained from
time to time by the Company for its senior executives.
4.3 Vacation and Sick Leave. The Executive shall be entitled to annual
-----------------------
vacation in accordance with the policies as periodically established by the
Board of Directors for similarly situated executives of the Company, which shall
in no event be less than three (3) weeks per year. The Executive shall be
entitled to sick leave (without loss of pay) in accordance with the Company's
policies as in effect from time to time.
4.4 Expenses. The Company shall reimburse the Executive for all
--------
reasonable travel, entertainment and other business expenses incurred by him in
accordance with Company policy regarding travel, entertainment and business
expenses in connection with the performance of the Executive's duties under this
Agreement during the Employment Term, such reimbursement to be made in
accordance with the Company's policy and practice relating to reimbursement of
senior executives.
4.5 Executive Allowance. The Executive shall be entitled to an annual
-------------------
allowance, not to exceed $4,800 for an automobile and cellular telephone. The
Company will pay such amounts as expenses are incurred upon presentation by the
Executive of an itemized account of such expense.
4
<PAGE>
ARTICLE V
Termination of Employment
5.1 Voluntary Resignation for Good Reason or Termination other than for
-------------------------------------------------------------------
Cause. If, during the Employment Term, the Company terminates the Executive's
- -----
employment other than for Cause, or if the Executive resigns his employment for
Good Reason the Company shall provide the following to the Executive:
(a) As soon as practicable after the Termination Date (as defined in
Section 6.6) a lump sum cash payment equal to the aggregate of the following:
(i) the portion of the Executive's then current Base Salary
accrued to the Termination Date but unpaid as of the
Termination Date (the "Unpaid Salary") and any Annual Bonus
accrued in a prior year but unpaid as of the Termination
Date (the "Unpaid Bonus"); plus
(ii) severance pay in an amount equal to 100% of the Executive's
then current Base Salary (the "Severance Amount").
(b) The amount and value of his entire plan account and interest under
any investment plan or stock ownership plan (which does not include the Plan),
and all employer contributions made or payable to any such plan for his account
prior to the end of the month in which the Termination Date occurs shall be
deemed vested and payable to him. Such payment or distribution shall be in
accordance with the elections made by the Executive.
(c) The Options and Option Shares and all stock appreciation rights,
restricted stock and other incentive compensation granted to the Executive by
the Company shall become immediately vested as to that number of shares that
would have vested twelve months after the Termination Date.
5.2 Termination for Cause.
---------------------
(a) All obligations of the Company under this Agreement shall cease
if, during the Employment Term, the Company terminates the Executive for Cause.
Upon such termination the Executive shall be entitled to receive in a lump sum
cash payment as soon as practicable after the Termination Date an amount equal
to the Unpaid Salary. In addition, the unvested portion of the Options or
Option Shares held by Executive shall be forfeited or repurchased at their
original purchase price and any vested Option Shares shall be subject to
repurchase by the Company as provided below at their then Fair Value.
5
<PAGE>
(b) For purposes of this Employment Agreement, the "Fair Value" of the
shares of Company Stock shall mean the fair market value thereof as agreed
between the Company and the Executive or, if the Company and the Executive are
unable to agree within 45 days, the Fair Value thereof determined in accordance
with the Appraisal Procedure. "Appraisal Procedure" shall mean a determination
of Fair Value per share by an appraiser selected by the Company and the
Executive. The Company and the Executive shall each submit to the appraiser a
statement setting forth their respective calculations of Fair Value of the
shares and the appraiser shall be instructed to select the proposed Fair Value
closest in amount to the value which the appraiser believes to be accurate. The
appraiser shall be obligated to select the Company's or the Executive's proposed
Fair Value and may not select any other amount. The determination of Fair Value
shall be deemed to be binding on the Company and the Executive upon (i)
resolution of any disagreement as to Fair Value by mutual agreement of the
parties or (ii) notification by the appraiser of its final selection of either
the Company's or the Executive's proposed Fair Value. The fee of such appraiser
shall be borne equally by the parties.
(c) The purchase price for any Option Shares to be purchased by the
Company pursuant to this Section 5.2 may be paid in cash, by certified check or
by wire transfer of immediately available funds.
(d) The right to buy the Executive's Option Shares hereunder shall be
exercised by the Company by the giving of written notice to the Executive within
120 days after the Termination Date. The closing of the purchase and sale of
Option Shares sold in accordance with this Section 5.2 shall take place on such
date or dates as the parties to such transaction may agree, but not later than
30 days after delivery of the notice exercising the right to buy such Shares.
Unless otherwise agreed, the closing of any sale and purchase of such Option
Shares shall take place in New York, New York. In the event of the purchase and
sale of the such Option Shares hereunder, certificates representing such Shares
shall be delivered at the closing endorsed in blank or accompanied by stock
powers endorsed in blank.
5.3 Voluntary Resignation other than for Good Reason. If, during the
------------------------------------------------
Employment Term, the Executive resigns other than for Good Reason the Executive
shall be entitled to receive in a lump sum cash payment as soon as practicable
after the Termination Date an amount equal to the Unpaid Salary and the Unpaid
Bonus. In addition, the unvested portion of the Options or Option Shares shall
be forfeited or repurchased at their original purchase price and any vested
Option Shares shall be subject to repurchase by the Company as provided in
Section 5.2 at their then Fair Value. In addition, the Options, stock
appreciation rights, restricted stock and other incentive compensation granted
to the Executive by the Company shall, to the extent vested, remain outstanding
for one (1) year from the Termination Date.
5.4 Payments upon the Executive's Termination. The foregoing payments
-----------------------------------------
upon the Executive's termination shall constitute the exclusive payments due the
6
<PAGE>
Executive upon termination from his employment with the Company under this
Agreement or otherwise; provided, however, that except as stated above, such
payments shall have no effect on any benefits which may be payable to the
Executive under any plan of the Company which provides benefits after
termination of employment, other than severance pay or salary continuation
pursuant to a Company plan which amount shall be reduced by the amount of the
Severance Amount received by the Executive pursuant to this Agreement. The
Executive shall not be required to mitigate the amount of any payment by seeking
other employment or otherwise, nor shall the amount of any such payment be
reduced by any compensation earned by the Executive as the result of employment
by another employer after the Termination Date.
ARTICLE VI
Certain Definitions
6.1 "Beneficiary" means the person or trust designated in writing by the
-------------
Executive to receive any payments due under this Agreement in the event of the
Executive's death and if no such person or trust is designated, the Executive's
estate.
6.2 "Cause" means (a) the Executive's material breach of this Agreement,
-------
(b) conviction of the Executive for (i) any crime constituting a felony in the
jurisdiction in which committed, (ii) any crime involving moral turpitude
(whether or not a felony), or (iii) any other criminal act against the Company
involving dishonesty or willful misconduct intended to injure the Company
(whether or not a felony), or (c) willful malfeasance or gross misconduct by the
Executive which damages the Company; provided, however, that the Company shall
not be deemed to have Cause pursuant to clause (a) or (c) unless the Company
gives the Executive written notice that the specified conduct or event has
occurred and the Executive fails to cure the conduct or event within thirty (30)
days after receipt of such notice. Termination of the Executive for Cause shall
be communicated by a Notice of Termination. For purposes of this Agreement, a
"Notice of Termination" shall mean delivery to the Executive of a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Company's Board of Directors at a meeting of the
Board called and held for the purpose (after reasonable notice to the Executive
and reasonable opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board prior to such vote), of finding that in
the good faith opinion of the Board the Executive was guilty of conduct
constituting Cause and specifying the particulars thereof in detail, including,
with respect to the conduct or event described in clause (a) or (c), that the
Executive failed to cure such conduct or event during the thirty-day period
following the date on which the Company gave written notice of the conduct or
event referred to in clause (a) or (c). For purposes of this Agreement, no such
purported termination of the Executive's employment shall be effective without
such Notice of Termination.
6.3 "Change in Control" means the occurrence of any one of the following
-------------------
events: a merger, reorganization, sale, lease or exchange of all or
substantially all of the
7
<PAGE>
assets, of the Company or a Qualified Public Offering (as defined in the
Stockholders Agreement made as of the 26th day of November, 1996, by and among
CDW Internet, L.L.C., J.H. Whitney and Allen & Co. and certain stockholders of
InfoTouch Corporation and the Company). For purposes of this Section 6.3,
"merger" shall mean any consolidation of the Company with, or merger of the
Company with or into, another corporation; other than a consolidation or merger
in which the Company is the surviving corporation. The Company shall be the
"surviving corporation" in any merger if the Company, or its stockholders
immediately before the transaction, shall own (immediately after the
transaction) equity securities, other than warrants, options or similar rights
to subscribe to or purchase equity securities, of the surviving or acquiring
corporation, or its parent corporation, possessing more than fifty (50%) percent
of the voting power of the surviving or acquiring corporation or its parent
corporation; and in making the determination of ownership by the stockholders of
a corporation, immediately after the transaction, of equity securities pursuant
to the preceding clause, equity securities which they owned immediately before
the transaction as shareholders of another party to the transaction shall be
disregarded. For the purposes of this Section 6.3, voting power of a corporation
shall be calculated by assuming the conversion of all then outstanding
convertible equity securities (including those convertible at some future date),
but not assuming the exercise of any warrants, options or other rights to
subscribe to or purchase voting shares.
6.4 "Disability" means any medically determinable physical or mental
------------
impairment that renders the Executive substantially unable to perform all of the
Executive's duties required under Article 1 hereof for 180 days out of any 360-
day period. The date of the Disability is the date on which the Executive is
certified as having incurred a Disability by a physician mutually acceptable to
the Executive (or the Executive's representative) and the Company.
6.5 "Good Reason" means, at any time during the Employment Term, the
-------------
occurrence of any one of the following events:
(i) The assignment to the Executive by the Company of duties
inconsistent with the Executive's duties as defined in Section 2.2 or any change
to the Executive's title as Chief Executive Officer other than as contemplated
by Section 2.1 or any material reduction in his duties or responsibilities,
except in connection with the termination of the Executive's employment for
Cause, Disability or as a result of the Executive's death or by the Executive
other than for Good Reason or, after the first year of the Employment Term, the
failure of the Company and Executive to agree to a level of Base Salary and
incentive compensation for the remainder of the Employment Term;
(ii) A reduction by the Company in the Executive's Base Salary as in
effect at the commencement of the Employment Term or as the same may be
increased from time to time during the term of this Agreement;
8
<PAGE>
(iii) A failure by the Company, without the Executive's written
consent, to continue the Executive as a participant in the Incentive Program on
at least the same basis as the Executive participates at the commencement of the
Employment Term or in one or more substitute plans with, in the aggregate,
benefits and bonus opportunities which are substantially similar to those
provided by the Incentive Program at the commencement of the Employment Term;
(iv) The failure by the Company to obtain the specific assumption of
this Agreement by any successor or assign of the Company or any person acquiring
substantially all of the Company's assets; or
(v) Any material breach by the Company of this Agreement.
6.6 "Termination Date" means the date as of which the Executive's
----------------
employment with the Company is terminated by the Company or by the Executive for
any reason which, except in the event of the Executive's death, shall be
specified in a written notice of termination received by either party from the
other.
ARTICLE VII
Confidential Information
7.1 Confidential Information. The Executive agrees and understands that
------------------------
in the Executive's position with the Company, the Executive may be exposed to
and receive information relating to the confidential affairs of the Company,
including but not limited to business and marketing plans, membership lists,
products, promotions, development, financing, expansion plans, business policies
and practices, and information considered by the Company to be confidential and
in the nature of trade secrets. The Executive agrees that during the Employment
Term and thereafter the Executive will keep such information confidential and
not disclose such information to any third person or entity without the prior
written consent of the Company. The Executive shall not be liable for the
inadvertent or accidental disclosure of such information, if such disclosure
occurs despite the exercise of a reasonable degree of care. This
confidentiality covenant shall not apply to any knowledge or information that:
(i) is or becomes available to others, other than as a result of a breach by the
Executive of this section 7.1(a); (ii_ was available to the Executive on a
nonconfidential basis prior to its disclosure to the Executive through his
status as an officer or director of the Company; or (iii) becomes available to
the Executive on a nonconfidential basis from a third party who is not bound by
any confidentiality obligation to the Company.
ARTICLE VIII
Taxes
8.1 Taxes. Any amounts payable to the Executive hereunder shall be paid
-----
to the Executive subject to all applicable taxes required to be withheld by the
Company
9
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pursuant to federal, state or local law. The Executive or his Beneficiary, if
applicable, shall be solely responsible for all taxes imposed on the Executive
or his Beneficiary by reason of his receipt of any amounts of compensation or
benefits payable to the Executive hereunder.
8.2 Excise Tax Payments. In the event that the severance and other
-------------------
benefits provided to Executive (i) constitute "parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended and
(ii) but for this Section 8.2, such severance and benefits would be subject to
the excise tax imposed by Section 4999 of the Code, then Executive's severance
benefits shall be payable either:
(a) in full, or
(b) as to such lesser amount which would result in no portion of such
severance and other benefits being subject to excise tax under Section 4999 of
the Code, whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by Executive on an after-tax basis, of the greatest
amount of severance benefits under Article V. Unless the Company and Executive
otherwise agree in writing, any determination required under this Section 8.2
shall be made in writing by independent public accountants agreed to by the
Company and Executive (the "ACCOUNTANTS"), whose determination shall be
conclusive and binding upon Executive and the Company for all purposes. For
purposes of making the calculations required by this Section 8.2, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section 8.2. The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated by this
Section 8.2.
10
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ARTICLE IX
Miscellaneous
9.1 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement or the breach of this Agreement that cannot be resolved by the
Executive and the Company, including (i) any dispute as to the calculation of
the amounts payable pursuant to Article V or (ii) any entitlement under Section
9.2(a), shall, at the instance of either the Executive or the Company, be
submitted to arbitration in California in accordance with California law and the
procedures of the American Arbitration Association. The determination of the
arbitrator(s) shall be conclusive and, subject to the provision for
indemnification in Section 9.2, binding on the Company and the Executive and,
subject to Section 9.9, judgment may be entered on the arbitrator(s)' award in
any court having jurisdiction.
11
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9.2 Fees, Expenses and Indemnification.
----------------------------------
(a) The Company shall pay all reasonable legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as a result of (i) the Executive's hearing before the Board as
contemplated in Section 6.2 of this Agreement or (ii) the Executive's seeking to
obtain or enforce any right or benefit provided by this Agreement, provided the
Executive substantially prevails in the proceeding.
(b) The Company shall indemnify the Executive to the fullest extent
permitted by the laws of the State of Delaware, as in effect at the time of the
subject act or omission, and shall advance to the Executive reasonable
attorney's fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined that by a judicial decision which is not subject to appeal that the
Executive was not entitled to the reimbursement of such fees and expenses) and
he will be entitled to the protection of any insurance policies the Company may
elect to maintain generally for the benefit of its directors and officers
against all costs, charges and expenses incurred or sustained by him in
connection with any action, suit or proceeding or which he may be made a party
by reason of his being or having been a director, officer or employee of the
Company or any of its subsidiaries or his serving or having served any other
enterprise as a director, officer or employee at the request of the Company
(other than any dispute, claim or controversy arising under or relating to this
Agreement).
9.3 Assignment, Succession. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns and the Executive and his Beneficiary.
9.4 Severability. If all or any part of this Agreement is declared by any
------------
court or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of this Agreement not
declared to be unlawful or invalid. Any paragraph or part of a paragraph so
declared to be unlawful or invalid shall, if possible, be construed in a manner
which will give effect to the terms of such paragraph or part of a paragraph to
the fullest extent possible while remaining lawful and valid.
9.5 Amendment and Waiver. This Agreement shall not be altered, amended or
--------------------
modified except by written instrument executed by the Company and the Executive.
A waiver of any term, covenant, agreement or condition contained in this
Agreement shall not be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any default in any such term, covenant, agreement
or condition shall not be deemed a waiver of any later default thereof or of any
other term, covenant, agreement or condition.
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9.6 Notices. All notices and other communications required hereunder
-------
shall be in writing and delivered by hand or by first class registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
NetSelect, Inc.
5655 Lindero Canyon Road
Suite 106
Westlake Village, CA 91362
With a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Mark C. Stevens
If to the Executive:
With a copy to:
Any party may from time to time designate a new address by notice given in
accordance with this Paragraph. Notice and communications shall be effective
when actually received by the addressee.
9.7 Counterpart Originals. This Agreement may be executed in several
---------------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
9.8 Entire Agreement. This Agreement and the Exhibits attached hereto and
----------------
made a part hereof from the entire agreement between the parties hereto with
respect to any severance payments and with respect to the subject matter
contained in this Agreement.
9.9 Applicable Law. This Agreement and the rights and obligations of the
--------------
parties hereto shall be governed by and construed and enforced in accordance
with the laws of the State of California, without giving effect to the conflicts
of law principles thereof. Subject to the parties' agreement to arbitrate
disputes set forth in Section 9.1, the
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Executive and the Company hereby irrevocably and unconditionally consent to
submit to the exclusive jurisdiction of the courts of the State of California or
the United States of America located in the State of California for any actions,
suits or proceedings arising out of or relating to this Agreement and the
transactions contemplated hereby (and the parties agree not to commence any
action, suit or proceeding relating hereto except in such courts), and further
agree that service of any process, summons, notice or documents by United States
registered mail to either party in accordance with Section 9.6 hereof shall be
effective service or process for any action, suit or proceeding brought against
the party in any such court and, absent any statue, rule or order to the
contrary, that each party shall have thirty (30) days from actual receipt of any
complaint to answer or otherwise plead with respect thereto. The parties hereby
irrevocably and unconditionally waive any objection to the laying of venue of
any action, suite or proceeding arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of California or the
United States of America located in the State of California, and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
NETSELECT, INC.
By: /s/ Stuart Wolff
------------------------------
REALSELECT, INC.
By: /s/ Stuart Wolff
------------------------------
STUART WOLFF
/s/ Stuart Wolff
------------------------------------
Executive
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<PAGE>
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, executed on the 21st day of August, 1998 (the "Execution
Date"), effective as of August 21, 1998 (the "Effective Date"), is made by and
between NetSelect, Inc. and RealSelect, Inc., Delaware corporations (the
"Company"), and Richard R. Janssen (the "Executive") and shall constitute an
amendment and restatement of the employment agreement between the Company and
Executive dated November 26, 1996.
WHEREAS, the Company and Executive previously entered into an agreement
dated November 26, 1996 providing for the Executive's employment as President
and Chief Operating Officer and, if so elected, for Executive's service on the
Board of Directors of the Company;
WHEREAS, the Company and Executive desire to amend and restate such
agreement as hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the Company and the Executive agree as follows:
ARTICLE I
Term of Agreement
1.1 Term. The term of employment under this Agreement shall be for the
----
one-year period commencing on the Effective Date (the "Employment Term").
ARTICLE II
Position and Duties
2.1 Position. The Executive shall be employed as the President of the
--------
Company. Notwithstanding the foregoing, the Executive shall continue to perform
duties as Chief Operating Officer until the Company hires a new Chief Operating
Officer. The Executive shall serve as an observer to the Chief Operating Officer
Selection Committee with rights to participate in all meetings. The Executive
shall serve as President of the Company until his full-time employment is no
longer required by the Company.
2.2 Duties.
------
(a) Phase I - The Executive agrees to perform the duties, undertake
the responsibilities and exercise the authority customarily performed,
undertaken and exercised by persons situated in a similar executive capacity.
The Executive shall report to the Chief Executive Officer. Excluding periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
that during the Employment Term he shall devote substantially all of his
business time to the business and affairs of the Company and to the duties and
responsibilities assigned to him hereunder. Notwithstanding the
<PAGE>
foregoing, with the written permission of the Board of Directors the Executive
may (i) serve on corporate boards, (ii) serve on civic or charitable boards or
committees, (iii) manage personal investments and (iv) deliver lectures and
teach at educational institutions, so long as such activities in clauses (i)
through (iv) do not significantly interfere with the performance of Executive's
duties and responsibilities hereunder.
(b) Phase II - Following the hiring by the Company of a new Chief
Operating Officer, the Executive shall assist in the transition of the new Chief
Operating Officer and shall have such responsibilities as assigned by the
Company's Chief Executive Officer.
(c) Phase III - When the Company no longer requires the Executive's
full time employment, the Executive agrees at the Company's option to maintain a
consulting relationship for up to 3 additional months following the Executive's
Termination Date. Executive shall report to the CEO on projects consistent with
previous positions and shall be paid $15,833 per month for such consulting
services.
ARTICLE III
Compensation
3.1 Base Salary. The Company agrees to pay or cause to be paid to the
-----------
Executive during the Employment Term a base salary at the rate of $190,000 per
annum or such larger amount as the Board of Directors may from time to time
determine (hereinafter referred to as the "Base Salary"). Such Base Salary shall
be payable in accordance with the Company's customary practices applicable to
its executives. Such rate of salary, or increased rate of salary, if any, as the
case may be, shall be reviewed at least annually by the Board of Directors and
may be further increased (but not decreased) in such amounts as the Board of
Directors in its discretion may decide.
3.2 Short-Term Incentives. For each calendar year ending during the
---------------------
Employment Term, the Executive's bonus compensation ("Annual Bonus") shall be at
an annual rate equal to a percentage between 0% and 100% of his Base Salary in
effect on the last day of such year, with a target of 40% of Base Salary (the
"Targeted Bonus") if the Company and the Executive achieve budgeted financial
and other performance targets which shall be established by the Board and as set
forth in the Company's Business Plan (the "Performance Goals"). The Executive's
Annual Bonus shall be 60% of Base Salary if 120% of the Performance Goals are
achieved and a percentage less than 40% of Base Salary to be determined by the
Board if the Company's performance falls short of the Performance Goals. The
Executive's Annual Bonus earned with respect to each year shall be paid at the
same time as annual incentive bonuses with respect to that year are paid to
other senior executives of the Company generally.
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<PAGE>
ARTICLE IV
Other Benefits
4.1 Long-Term Incentives; Other Prerequisites.
-----------------------------------------
(a) All options held by the Executive shall vest and be exercisable in
accordance with the terms of the respective stock option grants except as
described in Section 5.1(c) below and shall terminate ten years after the date
of grant.
(b) The Executive shall also be eligible to participate, on terms
comparable to those applicable to other senior executives of the Company, in
such other long-term incentive compensation plans maintained by the Company
which provide opportunities to receive compensation in addition to annual base
salary to senior executives of the Company.
(c) Within five (5) days after an IPO (as defined in that certain
Stock and Interest Purchase Agreement, dated as of November 26, 1996, by and
among NetSelect, Inc., NetSelect LLC and InfoTouch Corporation), the Company
shall cause a registration statement to be filed, in compliance with the
Securities Act of 1933, as amended, on Form S-8 or such other similar form
adopted by the Securities and Exchange Commission after the date hereof, which
effects the registration of all shares of the Company's voting common stock
issuable pursuant to the Plan, including, but not limited to, the shares of the
Company's voting common stock underlying the options granted to the Executive.
4.2 Executive Benefits. Subject to the terms of such plans, the Executive
------------------
will be covered under all retirement and welfare benefit plans maintained from
time to time by the Company for its senior executives.
4.3 Vacation and Sick Leave. The Executive shall be entitled to annual
-----------------------
vacation in accordance with the policies as periodically established by the
Board of Directors for similarly situated executives of the Company, which shall
in no event be less than three (3) weeks per year. The Executive shall be
entitled to sick leave (without loss of pay) in accordance with the Company's
policies as in effect from time to time.
4.4 Expenses. The Company shall reimburse the Executive for all
--------
reasonable travel, entertainment and other business expenses incurred by him in
accordance with Company policy regarding travel, entertainment and business
expenses in connection with the performance of the Executive's duties under this
Agreement during the Employment Term, such reimbursement to be made in
accordance with the Company's policy and practice relating to reimbursement of
senior executives.
4.5 Executive Allowance. The Executive shall be entitled to an annual
-------------------
allowance, not to exceed $4,800 for an automobile and cellular telephone. The
Company
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<PAGE>
will pay such amounts as expenses are incurred upon presentation by the
Executive of an itemized account of such expense.
ARTICLE V
Termination of Employment
5.1 Voluntary Resignation for Good Reason, Termination other than for
-----------------------------------------------------------------
Cause or after the Employment Term. The Company may terminate the Executive's
- ----------------------------------
employment for any reason at any time and the Executive may voluntarily resign
for any reason at any time. If, during the Employment Term, (i) the Company
terminates the Executive's employment other than for Cause or (ii) the Executive
resigns his employment for Good Reason, or if, at any time on or after the first
anniversary of the Effective Date, the Company terminates Executive for any
reason or Executive resigns for any reason, the Company shall provide the
following to the Executive:
(a) As soon as practicable after the Termination Date (as defined in
Section 6.6) a lump sum cash payment equal to the aggregate of the following:
(i) the portion of the Executive's then current Base Salary
accrued to the Termination Date but unpaid as of the
Termination Date (the "Unpaid Salary") and any Annual Bonus
accrued in a prior year but unpaid as of the Termination
Date (the "Unpaid Bonus"); plus
(ii) severance pay in an amount equal to 100% of the Executive's
then current Base Salary (the "Severance Amount").
(b) The amount and value of his entire plan account and interest
under any investment plan or stock ownership plan (which does not include the
Plan), and all employer contributions made or payable to any such plan for his
account prior to the end of the month in which the Termination Date occurs shall
be deemed vested and payable to him. Such payment or distribution shall be in
accordance with the elections made by the Executive.
(c) All stock options, stock appreciation rights, restricted stock,
and other incentive compensation granted to the Executive by the Company shall
become immediately vested.
5.2 Termination for Cause.
---------------------
(a) All obligations of the Company under this Agreement shall cease
if, during the Employment Term, the Company terminates the Executive for Cause.
Upon such termination the Executive shall be entitled to receive in a lump sum
cash payment as soon as practicable after the Termination Date an amount equal
to the Unpaid Salary. In addition, all unvested options or shares held by
Executive shall be forfeited or
4
<PAGE>
repurchased at their original purchase price and any vested shares held by
Executive which were acquired upon exercise of an option ("Option Shares") shall
be subject to repurchase by the Company as provided below at their then Fair
Value.
(b) For purposes of this Employment Agreement, the "Fair Value" of the
shares of Company Stock shall mean the fair market value thereof as agreed
between the Company and the Executive or, if the Company and the Executive are
unable to agree within 45 days, the Fair Value thereof determined in accordance
with the Appraisal Procedure. "Appraisal Procedure" shall mean a determination
of Fair Value per share by an appraiser selected by the Company and the
Executive. The Company and the Executive shall each submit to the appraiser a
statement setting forth their respective calculations of Fair Value of the
shares and the appraiser shall be instructed to select the proposed Fair Value
closest in amount to the value which the appraiser believes to be accurate. The
appraiser shall be obligated to select the Company's or the Executive's proposed
Fair Value and may not select any other amount. The determination of Fair Value
shall be deemed to be binding on the Company and the Executive upon (i)
resolution of any disagreement as to Fair Value by mutual agreement of the
parties or (ii) notification by the appraiser of its final selection of either
the Company's or the Executive's proposed Fair Value. The fee of such appraiser
shall be borne equally by the parties.
(c) The purchase price for any shares to be purchased by the Company
pursuant to this Section 5.2 may be paid in cash, by certified check or by wire
transfer of immediately available funds.
(d) The right to buy the Executive's Option Shares hereunder shall be
exercised by the Company by the giving of written notice to the Executive within
120 days after the Termination Date. The closing of the purchase and sale of
Option Shares sold in accordance with this Section 5.2 shall take place on such
date or dates as the parties to such transaction may agree, but not later than
30 days after delivery of the notice exercising the right to buy such Shares.
Unless otherwise agreed, the closing of any sale and purchase of such Option
Shares shall take place in New York, New York. In the event of the purchase and
sale of the such Option Shares hereunder, certificates representing such Shares
shall be delivered at the closing endorsed in blank or accompanied by stock
powers endorsed in blank.
5.3 Voluntary Resignation other than for Good Reason. If, during the
------------------------------------------------
Employment Term, the Executive resigns other than for Good Reason, the Executive
shall be entitled to receive in a lump sum cash payment as soon as practicable
after the Termination Date an amount equal to the Unpaid Salary and the Unpaid
Bonus In addition, all unvested options or shares held by Executive which were
acquired upon exercise of an option ("Option Shares") shall be forfeited or
repurchased at their original purchase price and any vested Option Shares held
by Executive shall be subject to repurchase by the Company as provided below at
their then Fair Value. In addition, all stock options, stock appreciation
rights, restricted stock and other incentive compensation
5
<PAGE>
granted to the Executive by the Company shall, to the extent vested, remain
outstanding for one (1) year from the Termination Date.
5.4 Payments upon the Executive's Termination. The foregoing payments upon
-----------------------------------------
the Executive's termination shall constitute the exclusive payments due the
Executive upon termination from his employment with the Company under this
Agreement or otherwise; provided, however, that except as stated above, such
payments shall have no effect on any benefits which may be payable to the
Executive under any plan of the Company which provides benefits after
termination of employment, other than severance pay or salary continuation
pursuant to a Company plan which amount shall be reduced by the amount of the
Severance Amount received by the Executive pursuant to this Agreement. The
Executive shall not be required to mitigate the amount of any payment by seeking
other employment or otherwise, nor shall the amount of any such payment be
reduced by any compensation earned by the Executive as the result of employment
by another employer after the Termination Date.
ARTICLE VI
Certain Definitions
6.1 "Beneficiary" means the person or trust designated in writing by the
-------------
Executive to receive any payments due under this Agreement in the event of the
Executive's death and if no such person or trust is designated, the Executive's
estate.
6.2 "Cause" means (a) the Executive's material breach of this Agreement,
-------
(b) conviction of the Executive for (i) any crime constituting a felony in the
jurisdiction in which committed, (ii) any crime involving moral turpitude
(whether or not a felony), or (iii) any other criminal act against the Company
involving dishonesty or willful misconduct intended to injure the Company
(whether or not a felony), or (c) willful malfeasance or gross misconduct by the
Executive which damages the Company; provided, however, that the Company shall
not be deemed to have Cause pursuant to clause (a) or (c) unless the Company
gives the Executive written notice that the specified conduct or event has
occurred and the Executive fails to cure the conduct or event within thirty (30)
days after receipt of such notice. Termination of the Executive for Cause shall
be communicated by a Notice of Termination. For purposes of this Agreement, a
"Notice of Termination" shall mean delivery to the Executive of a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Company's Board of Directors at a meeting of the
Board called and held for the purpose (after reasonable notice to the Executive
and reasonable opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board prior to such vote), of finding that in
the good faith opinion of the Board the Executive was guilty of conduct
constituting Cause and specifying the particulars thereof in detail, including,
with respect to the conduct or event described in clause (a) or (c), that the
Executive failed to cure such conduct or event during the thirty-day period
following the date on which the Company gave written notice of the conduct or
event referred to in clause (a) or (c). For
6
<PAGE>
purposes of this Agreement, no such purported termination of the Executive's
employment shall be effective without such Notice of Termination.
6.3 "Disability" means any medically determinable physical or mental
------------
impairment that renders the Executive substantially unable to perform all of the
Executive's duties required under Article 1 hereof for 180 days out of any 360-
day period. The date of the Disability is the date on which the Executive is
certified as having incurred a Disability by a physician mutually acceptable to
the Executive (or the Executive's representative) and the Company.
6.4 "Good Reason" means, at any time during the Employment Term, the
-------------
occurrence of any one of the following events:
(i) The assignment to the Executive by the Company of duties
inconsistent with the Executive's duties as defined in Section 2.2(a), any
change to the Executive's title other than as contemplated by Section 2.1 or any
material reduction in his duties or responsibilities prior to the date the
Company hires a new Chief Operating Officer, except in connection with the
termination of the Executive's employment for Cause, Disability or as a result
of the Executive's death or by the Executive other than for Good Reason;
(ii) A reduction by the Company in the Executive's Base Salary as in
effect at the commencement of the Employment Term or as the same may be
increased from time to time during the term of this Agreement;
(iii) A failure by the Company, without the Executive's written
consent, to continue the Executive as a participant in the Incentive Program on
at least the same basis as the Executive participates at the commencement of the
Employment Term or in one or more substitute plans with, in the aggregate,
benefits and bonus opportunities which are substantially similar to those
provided by the Incentive Program at the commencement of the Employment Term;
(iv) The failure by the Company to obtain the specific assumption of
this Agreement by any successor or assign of the Company or any person acquiring
substantially all of the Company's assets; or
(v) Any material breach by the Company of this Agreement.
6.5 "Termination Date" means the date as of which the Executive's full-
------------------
time employment with the Company is terminated by the Company or by the
Executive for any reason which, except in the event of the Executive's death,
shall be specified in a written notice of termination received by either party
from the other.
7
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ARTICLE VII
Confidential Information
7.1 Confidential Information. The Executive agrees and understands that
------------------------
in the Executive's position with the Company, the Executive may be exposed to
and receive information relating to the confidential affairs of the Company,
including but not limited to business and marketing plans, membership lists,
products, promotions, development, financing, expansion plans, business policies
and practices, and information considered by the Company to be confidential and
in the nature of trade secrets. The Executive agrees that during the Employment
Term and thereafter the Executive will keep such information confidential and
not disclose such information to any third person or entity without the prior
written consent of the Company. The Executive shall not be liable for the
inadvertent or accidental disclosure of such information, if such disclosure
occurs despite the exercise of a reasonable degree of care. This confidentiality
covenant shall not apply to any knowledge or information that: (i) is or becomes
available to others, other than as a result of a breach by the Executive of this
section 7.1(a); (ii) was available to the Executive on a nonconfidential basis
prior to its disclosure to the Executive through his status as an officer or
director of the Company; or (iii) becomes available to the Executive on a
nonconfidential basis from a third party who is not bound by any confidentiality
obligation to the Company.
8
<PAGE>
ARTICLE VIII
Taxes
8.1 Taxes. Any amounts payable to the Executive hereunder shall be paid
-----
to the Executive subject to all applicable taxes required to be withheld by the
Company pursuant to federal, state or local law. The Executive or his
Beneficiary, if applicable, shall be solely responsible for all taxes imposed on
the Executive or his Beneficiary by reason of his receipt of any amounts of
compensation or benefits payable to the Executive hereunder.
8.2 Excise Tax Payments. In the event that the severance and other
-------------------
benefits provided to Executive (i) constitute "parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended and
(ii) but for this Section 8.2, such severance and benefits would be subject to
the excise tax imposed by Section 4999 of the Code, then Executive's severance
benefits shall be payable either:
(a) in full, or
(b) as to such lesser amount which would result in no portion of such
severance and other benefits being subject to excise tax under Section 4999 of
the Code, whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by Executive on an after-tax basis, of the greatest
amount of severance benefits under Article V. Unless the Company and Executive
otherwise agree in writing, any determination required under this Section 8.2
shall be made in writing by independent public accountants agreed to by the
Company and Executive (the "Accountants"), whose determination shall be
conclusive and binding upon Executive and the Company for all purposes. For
purposes of making the calculations required by this Section 8.2, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section 8.2. The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated by this
Section 8.2.
9
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ARTICLE IX
Miscellaneous
9.1 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement or the breach of this Agreement that cannot be resolved by the
Executive and the Company, including (i) any dispute as to the calculation of
the amounts payable pursuant to Article V or (ii) any entitlement under Section
9.2(a), shall, at the instance of either the Executive or the Company, be
submitted to arbitration in California in accordance with California law and the
procedures of the American Arbitration Association. The determination of the
arbitrator(s) shall be conclusive and, subject to the provision for
indemnification in Section 9.2, binding on the Company and the Executive and,
subject to Section 9.9, judgment may be entered on the arbitrator(s)' award in
any court having jurisdiction.
9.2 Fees, Expenses and Indemnification.
----------------------------------
(a) The Company shall pay all reasonable legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as a result of (i) the Executive's hearing before the Board as
contemplated in Section 6.2 of this Agreement or (ii) the Executive's seeking to
obtain or enforce any right or benefit provided by this Agreement, provided the
Executive substantially prevails in the proceeding.
(b) The Company shall indemnify the Executive to the fullest extent
permitted by the laws of the State of Delaware, as in effect at the time of the
subject act or omission, and shall advance to the Executive reasonable
attorney's fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined that by a judicial decision which is not subject to appeal that the
Executive was not entitled to the reimbursement of such fees and expenses) and
he will be entitled to the protection of any insurance policies the Company may
elect to maintain generally for the benefit of its directors and officers
against all costs, charges and expenses incurred or sustained by him in
connection with any action, suit or proceeding or which he may be made a party
by reason of his being or having been a director, officer or employee of the
Company or any of its subsidiaries or his serving or having served any other
enterprise as a director, officer or employee at the request of the Company
(other than any dispute, claim or controversy arising under or relating to this
Agreement).
9.3 Assignment, Succession. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns and the Executive and his Beneficiary.
9.4 Severability. If all or any part of this Agreement is declared by any
------------
court or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of this Agreement not
declared to be unlawful or invalid. Any paragraph or part of a paragraph so
declared to be unlawful or invalid shall,
10
<PAGE>
if possible, be construed in a manner which will give effect to the terms of
such paragraph or part of a paragraph to the fullest extent possible while
remaining lawful and valid.
9.5 Amendment and Waiver. This Agreement shall not be altered, amended or
--------------------
modified except by written instrument executed by the Company and the Executive.
A waiver of any term, covenant, agreement or condition contained in this
Agreement shall not be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any default in any such term, covenant, agreement
or condition shall not be deemed a waiver of any later default thereof or of any
other term, covenant, agreement or condition.
9.6 Notices. All notices and other communications required hereunder
-------
shall be in writing and delivered by hand or by first class registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
NetSelect, Inc.
5655 Lindero Canyon Road
Suite 106
Westlake Village, CA 91362
With a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Mark C. Stevens
If to the Executive:
With a copy to:
Any party may from time to time designate a new address by notice given in
accordance with this Paragraph. Notice and communications shall be effective
when actually received by the addressee.
11
<PAGE>
9.7 Counterpart Originals. This Agreement may be executed in several
---------------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
9.8 Entire Agreement. This Agreement and the Exhibits attached hereto and
----------------
made a part hereof from the entire agreement between the parties hereto with
respect to any severance payments and with respect to the subject matter
contained in this Agreement.
9.9 Applicable Law. This Agreement and the rights and obligations of the
--------------
parties hereto shall be governed by and construed and enforced in accordance
with the laws of the State of California, without giving effect to the conflicts
of law principles thereof. Subject to the parties' agreement to arbitrate
disputes set forth in Section 9.1, the Executive and the Company hereby
irrevocably and unconditionally consent to submit to the exclusive jurisdiction
of the courts of the State of California or the United States of America located
in the State of California for any actions, suits or proceedings arising out of
or relating to this Agreement and the transactions contemplated hereby (and the
parties agree not to commence any action, suit or proceeding relating hereto
except in such courts), and further agree that service of any process, summons,
notice or documents by United States registered mail to either party in
accordance with Section 9.6 hereof shall be effective service or process for any
action, suit or proceeding brought against the party in any such court and,
absent any statue, rule or order to the contrary, that each party shall have
thirty (30) days from actual receipt of any complaint to answer or otherwise
plead with respect thereto. The parties hereby irrevocably and unconditionally
waive any objection to the laying of venue of any action, suite or proceeding
arising out of this Agreement or the transactions contemplated hereby in the
courts of the State of California or the United States of America located in the
State of California, and hereby further irrevocably and unconditionally waive
and agree not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
[SIGNATURE PAGE TO FOLLOW]
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
NETSELECT, INC.
By: /s/ Stuart Wolff
------------------------------
REALSELECT, INC.
By: /s/ Stuart Wolff
------------------------------
RICHARD R. JANSSEN
/s/ Richard R. Janssen
------------------------------------
Executive
13
<PAGE>
EXHIBIT 10.23
NETSELECT, INC.
EMPLOYMENT AGREEMENT
This Agreement (the "AGREEMENT") is made effective as of February 19, 1999
between NetSelect, Inc., a Delaware corporation ("COMPANY"), and Michael Buckman
("EXECUTIVE").
WHEREAS, the Company desires to secure the services of Executive as
President and Chief Operating Officer and Executive desires to perform such
services for the Company, on the terms and conditions as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. Effective Date, Term and Duties. The term of employment of Executive
-------------------------------
by the Company hereunder shall commence on February 19, 1999 (the
"COMMENCEMENT DATE") and shall continue thereafter on the same terms
and conditions (such term being hereinafter referred to as the
"EMPLOYMENT PERIOD") until terminated pursuant to Section 4. Subject
to Section 4 of this Agreement, Executive's employment with the
Company is on an "at will" basis, and either Executive or the Company
may terminate Executive's employment with the Company at any time, for
any or no reason. Executive shall have such duties as the Chief
Executive Officer of the Company may from time to time prescribe
consistent with his position as President and Chief Operating Officer
(the "SERVICES"). Executive shall provide the Services on a part-time
basis from the Commencement Date through March 31, 1999 or earlier.
No later than April 1, 1999, Executive shall devote his full time,
attention, energies and best efforts to the business. Notwithstanding
the foregoing, the Executive may (i) with the written permission of
the Board of Directors serve on corporate boards, (ii) serve on civic
or charitable boards or committees, (iii) manage personal investments
and (iv) deliver lectures and teach at educational institutions, so
long as such activities in clauses (i) through (iii) do not
significantly interfere with the performance of Executive's duties and
responsibilities hereunder. It is the intent of the Company and
Executive that this Agreement not conflict with any Agreement
Executive has with WORLDSPAN, L.P. Executive shall take such steps as
are necessary to properly terminate Executive's obligations to
WORLDSPAN, L.P. prior to the commencement of full-time Services to
Company under this Agreement. The Company recognizes that until the
Executive commences full-time Services under this Agreement,
Executive's obligations to it hereunder are subordinate to Executive's
obligations to WORLDSPAN, L.P. After Executive commences to provide
full-time Services to the Company, the Company recognizes and consents
to Executive's devotion of reasonable amounts of time and attention to
facilitate a WORLDSPAN, L.P. transition to new leadership.
2. Compensation. The Company shall pay and Executive shall accept as
------------
full consideration for the Services compensation consisting of the
following:
<PAGE>
2.1 Base Salary. $200,000.00 per year base salary, payable in bi-
-----------
monthly installments in accordance with the Company's normal payroll
practices, less such deductions or withholdings required by law.
2.2 Bonus. Executive will be eligible to earn an annual target bonus
-----
in the amount of one hundred twenty five percent (125%) of Executive's
base salary based on the achievement of certain business and financial
objectives that Executive and the Company's Chief Executive Officer
will mutually determine in good faith. The objectives for Executive's
first year will be determined within 60 days of the execution of this
Agreement; objectives for future years will be determined within 60
days after the beginning of each fiscal year of the Company. Such
bonus shall be paid annually in accordance with the Company's Annual
Incentive Program. For Executive's first year of employment, a bonus
of $250,000 will be guaranteed.
2.3 Stock Options. Executive shall be entitled to a stock option
-------------
grant of 150,000 shares of NetSelect Common Stock under the Company's
1999 Equity Incentive Plan to be awarded by the Compensation Committee
of the Company's Board of Directors within thirty (30) days after the
date hereof (the "OPTION"). Such Option shall be an incentive stock
option (within the meaning of Section 422 of the Internal Revenue Code
of 1986) to the maximum extent allowed by applicable law. Such Option
shall be granted at the fair market value on the date of grant as
determined by the Board of Directors and shall have a ten-year term,
unless earlier terminated as set forth in the stock option agreement.
Subject to Section 4 of this Agreement, the Option shall vest as to
twenty-five percent (25%) of the shares on the first anniversary of
the Commencement Date and as to 2.0833% of the shares each month
thereafter for the remaining three years until such Option is vested
with respect to 100% of the shares, unless earlier terminated or
vested as set forth in the stock option agreement.
2.4 Supplemental Bonuses. If the sum of (i) Executive's base salary,
--------------------
(ii) Executive's bonus pursuant to Section 2.2 of this Agreement and
(iii) the Spread (as defined below) on the portion of Executive's
Option which has vested as of February 19, 2000 in accordance with the
schedule set forth in Section 2.3 of this Agreement (items (i), (ii)
and (iii) collectively, the "FIRST YEAR COMPENSATION PACKAGE") is less
than $900,000 at all times during the period beginning on February 19,
2000 and ending April 15, 2000 (the "FIRST MEASUREMENT PERIOD"), the
Company shall pay Executive at the end of the First Measurement Period
a cash bonus equal to the difference between the highest value of the
First Year Compensation Package during the First Measurement Period
and $900,000 (the "FIRST SUPPLEMENTAL BONUS"), provided Executive is
employed by the Company on the last day of the First Measurement
Period. Notwithstanding the foregoing, if at any time during the
period beginning on April 15, 2000 and ending December 31, 2000 (the
"ADJUSTMENT PERIOD"), (i) the value of Executive's First Year
Compensation Package exceeds its highest value during the First
Measurement Period and (ii) Executive has not sold the stock subject
to the portion of his Option which had vested as of February 19, 2000,
then an amount equal to the difference between (i) the highest value
of the First Year Compensation Package during the Adjustment Period
and (ii) the highest value of the First Year Compensation Package
during the First Measurement period shall be deducted from Executive's
bonus for fiscal year 2001, provided that such deduction shall in no
event exceed the amount of the First Supplemental Bonus. For purposes
of this Section 2.4, the term "SPREAD" shall mean the
2
<PAGE>
difference between the exercise price of Executive's Option and the
fair market value (as defined in the 1999 Equity Incentive Plan) of
the Company's Common Stock on the date of determination.
If the sum of (i) Executive's salary, (ii) Executive's bonus
pursuant to Section 2.2 of this Agreement and (iii) the Spread on the
portion of Executive's Option which has vested after February 19, 2000
in accordance with the Schedule set forth in Section 2.3 of this
Agreement (items (i), (ii) and (iii) collectively, the "SECOND YEAR
COMPENSATION PACKAGE") is less than $900,000 at all times during the
period beginning February 19, 2000 and ending February 18, 2001 (the
"SECOND MEASUREMENT PERIOD"), the Company shall pay Executive on or
before April 15, 2001 a cash bonus equal to the difference between
$900,000 and the highest value of the Second Year Compensation Package
during the Second Measurement Period (the "SECOND SUPPLEMENTAL
BONUS"), provided Executive is employed by the Company on the date the
Second Supplemental Bonus is paid.
2.5 Benefits and Expenses. Executive will receive the Company's
---------------------
customary employee benefits package for similarly situated executives
of the Company, including full participation in current and future
group health insurance plans. Executive shall be entitled to vacation
in accordance with the policies as periodically established by the
Board of Directors for similarly situated executives of the Company,
which shall in no event be less than three weeks per Anniversary Year.
For purposes of this Agreement, Anniversary Year shall mean the period
from February 19 through February 18. The Company shall reimburse the
Executive for all reasonable travel and other business expenses
incurred by him in connection with the performance of the Executive's
duties under this Agreement during the Employment Period.
3. Relocation. Executive will be entitled to receive reimbursement for
----------
all reasonable moving expenses to southern California. Expenses shall
include but not be limited to: reimbursement of normal costs
associated with the sale of primary residence; movement of household
goods; reasonable travel to/from Los Angeles and Atlanta; and,
temporary lodging for a period not to exceed 60 days. In the event
that Executive's Atlanta residence has not been sold within 90 days
from the effective date of this Agreement, the Company shall, at the
discretion of the Company, either (i) reimburse Executive for all
mortgage payments on the Atlanta residence due after such 90-day
period until the Atlanta residence is sold, or (ii) request that
Executive reduce the sale price on the Atlanta residence and reimburse
Executive for the difference between the original sale price and the
reduced price as soon as practicable after the Atlanta residence is
sold, provided, however, that the Company and Executive shall agree on
the original sale price. Reimbursement will be made promptly after
submission of bonafide receipted expenses for approval by the CEO.
4. Benefits Upon Termination of Employment Period. Executive's
----------------------------------------------
employment by the Company shall terminate immediately upon Executive's
receipt of written notice by the Company, upon the Company's receipt
of written notice by Executive, or upon Executive's death or permanent
disability. The Company shall provide Executive with termination
benefits upon termination of employment by the Company, as follows:
3
<PAGE>
4.1 Termination Within First Year of Employment Period. If
--------------------------------------------------
Executive's employment is terminated by the Company prior to the first
anniversary of the Commencement Date, for any reason other than for
"Cause" (as defined below), the vesting of Executive's Option shall
accelerate and become exercisable as to 37,500 shares. In addition,
Executive shall receive his guaranteed bonus for the first year of
employment payable in cash in one lump sum.
4.2 Other Termination. If, at any time, Executive's employment is
-----------------
terminated by the Company for any reason other than for "Cause" (as
defined below) and the Spread on the portion of Executive's Option
which has vested pursuant to the schedule set forth in Section 2.3 of
this Agreement as of the date of termination (the "FINAL COMPENSATION
PACKAGE") regardless of whether such Option has been exercised, is
less than $500,000 on the date of termination, the Company shall pay
Executive a cash bonus equal to the difference between $500,000 and
the value of Executive's Final Compensation Package on the date of
termination.
4.3 Definitions. For purposes of this Agreement, "CAUSE" means (a)
------------
conviction of the Executive for (i) any crime constituting a felony in
the jurisdiction in which committed, (ii) any crime involving moral
turpitude (whether or not a felony), or (iii) any other criminal act
against the Company involving dishonesty or willful misconduct
intended to injure the Company (whether or not a felony) or (b)
willful malfeasance or gross misconduct by the Executive which damages
the Company; provided, however, that the Company shall not be deemed
to have Cause pursuant to clause (b) unless the Company gives the
Executive written notice that the specified conduct or event has
occurred and the Executive fails to cure the conduct or event within
thirty (30) days after receipt of such notice. Termination of the
Executive for Cause shall be communicated by a Notice of Termination.
For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean
delivery to the Executive of a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the entire
membership of the Company's Board of Directors at a meeting of the
Board called and held for the purpose (after reasonable notice to the
Executive and reasonable opportunity for the Executive, together with
the Executive's counsel, to be heard before the Board prior to such
vote), of finding that in the good faith opinion of the Board the
Executive was guilty of conduct constituting Cause and specifying the
particulars thereof in detail, including, with respect to the conduct
or event described in clause (a) or (c), that the Executive failed to
cure such conduct or event during the thirty-day period following the
date on which the Company gave written notice of the conduct or event
referred to in clause (a) or (c). For purposes of this Agreement, no
such purported termination of the Executive's employment shall be
effective without such Notice of Termination.
5. Cooperation with the Company After Termination of the Employment
----------------------------------------------------------------
Following termination of the Employment Period by Executive, subject
to Executive's employment duties with a subsequent employer, Executive
shall fully cooperate with the Company in all matters relating to the
winding up of his pending work on behalf of the Company and the
orderly transfer of any such pending work to other employees of the
Company as may be designated by the Company.
6. Change in Control. In the event of a Change in Control (as defined
-----------------
below), the vesting of Executive's Option shall accelerate such that
25% of the shares which are unvested at
4
<PAGE>
the time of such Change in Control shall become vested and exercisable
immediately prior to the consummation of such Change in Control.
For purposes of this Agreement, "CHANGE IN CONTROL" means the
occurrence of any one of the following events: a merger,
reorganization, sale, lease or exchange of all or substantially all of
the assets of the Company. For purposes of this Section 6, "merger"
shall mean any consolidation of the Company with, or merger of the
Company with or into, another corporation; other than a consolidation
or merger in which the Company is the surviving corporation. The
Company shall be the "surviving corporation" in any merger if the
Company, or its stockholders immediately before the transaction, shall
own (immediately after the transaction) equity securities, other than
warrants, options or similar rights to subscribe to or purchase equity
securities, of the surviving or acquiring corporation, or its parent
corporation, possessing more than fifty (50%) percent of the voting
power of the surviving or acquiring corporation or its parent
corporation; and in making the determination of ownership by the
stockholders of a corporation, immediately after the transaction, of
equity securities pursuant to the preceding clause, equity securities
which they owned immediately before the transaction as shareholders of
another party to the transaction shall be disregarded. For the
purposes of this Section 6, voting power of a corporation shall be
calculated by assuming the conversion of all then outstanding
convertible equity securities (including those convertible at some
future date), but not assuming the exercise of any warrants, options
or other rights to subscribe to or purchase voting shares.
7. Confidentiality/Non-Solicitation. Executive acknowledges that as an
---------------------------------
employee of the Company, Executive will have access to certain Company
confidential information and Executive may, during the course of
Executive's employment, develop certain information that will be the
property of the Company. To protect the interest of the Company,
Executive agrees to sign the Company's standard Confidentiality
Agreement as a condition of Executive's employment. In addition, the
Executive agrees with the Company that during his employment with the
Company and for a period expiring two (2) years after the date of
termination of such employment, he will not solicit any of the
Company's then-current employees to terminate their employment with
the Company or to become employed by any firm, company or other
business enterprise with which the Executive may then be connected.
8. Indemnification. In the event that the Company hires Jeff Hoffman, a
---------------
former employee of WORLDSPAN, L.P., the Company shall indemnify
Executive against any cost or expense (including attorney's fees) or
liability arising out of any violation or alleged violation of the
non-solicitation clause in Executive's employment agreement with
WORLDSPAN, L.P. with respect to the hiring of Jeff Hoffman.
9. Taxes
-----
9.1 Taxes. Any amounts payable to the Executive hereunder shall be
-----
paid to the Executive subject to all applicable taxes required to be
withheld by the Company pursuant to federal, state or local law. The
Executive or his beneficiary, if applicable, shall be solely
responsible for all taxes imposed on the Executive or his beneficiary
by
5
<PAGE>
reason of his receipt of any amounts of compensation or benefits
payable to the Executive hereunder.
9.2 Excise Tax Payments. In the event that the severance and other
-------------------
benefits provided to Executive (i) constitute "parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended and (ii) but for this Section 8.2, such severance and
benefits would be subject to the excise tax imposed by Section 4999 of
the Code, then Executive's benefits shall be payable either:
(a) in full, or
(b) as to such lesser amount which would result in no portion of
such severance and other benefits being subject to excise
tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by
Section 4999, results in the receipt by Executive on an after-tax
basis, of the greatest amount of severance benefits under this
Agreement. Unless the Company and Executive otherwise agree in
writing, any determination required under this Section 8.2 shall be
made in writing by independent public accountants agreed to by the
Company and Executive (the "ACCOUNTANTS"), whose determination shall
be conclusive and binding upon Executive and the Company for all
purposes. For purposes of making the calculations required by this
Section 8.2, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable,
good faith interpretations concerning the application of Sections 280G
and 4999 of the Code. The Company and Executive shall furnish to the
Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this Section
8.2. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section
8.2.
10. General.
-------
10.1 Arbitration. Any controversy or claim arising out of or
-----------
relating to this Agreement or the breach of this Agreement that cannot
be resolved by the Executive and the Company shall, at the instance of
either the Executive or the Company, be submitted to arbitration in
California in accordance with California law and the procedures of the
American Arbitration Association. The determination of the
arbitrator(s) shall be conclusive and binding on the Company and the
Executive and judgment may be entered on the arbitrator(s)' award in
any court having jurisdiction.
10.2 Severability. If for any reason a court of competent
------------
jurisdiction or arbitrator finds any provision of this Agreement to be
unenforceable, the provision shall be deemed amended as necessary to
conform to applicable laws or regulations, or if it cannot be so
amended without materially altering the intention of the parties, the
remainder of the Agreement shall continue in full force and effect as
if the offending provision were not contained herein.
6
<PAGE>
10.3 Notices. All notices and other communications required or
-------
permitted to be given under this Agreement shall be in writing and
shall be considered effective upon personal service or upon depositing
such notice in the U.S. Mail, postage prepaid, return receipt
requested and addressed to the Chairman of the Board of the Company as
its principal corporate address, and to Executive at his most recent
address shown on the Company's corporate records, or at any other
address which he may specify in any appropriate notice to the Company.
10.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of
which taken together constitutes one and the same instrument and in
making proof hereof it shall not be necessary to produce or account
for more than one such counterpart.
10.5 Entire Agreement. The parties hereto acknowledge that each has
----------------
read this Agreement, understands it, and agrees to be bound by its
terms. The parties further agree that this Agreement and the
referenced stock option agreement constitute the complete and
exclusive statement of the agreement between the parties and
supersedes all proposals (oral or written), understandings,
representations, conditions, covenants, and all other communications
between the parties relating to the subject matter hereof.
10.6 Governing Law. This Agreement shall be governed by the law of
-------------
the State of California.
10.7 Assignment and Successors. The Company shall have the right to
-------------------------
assign its rights and obligations under this Agreement to an entity
which acquires substantially all of the assets of the Company. The
rights and obligation of the Company under this Agreement shall inure
to the benefit and shall be binding upon the successors and assigns of
the Company.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
set forth below.
NETSELECT, INC. EXECUTIVE
By:
Name: /s/ Stuart H. Wolff /s/ Michael Buckman
------------------------------------- -------------------------------
Stuart H. Wolff Michael Buckman
_______________________________
Title: Chairman and Chief Executive Officer Date
___________________________________________
Date
By:
Name: /s/ Catherine Kwong Giffen
--------------------------------------
Catherine Kwong Giffen
Title: Vice President of HR and Administration
___________________________________________
Date
8
<PAGE>
EXHIBIT 10.24.1
LINCOLN OAKS CORPORATE CENTRE
-----------------------------
OFFICE LEASE
------------
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership,
as Landlord,
and
REALSELECT, INC.,
a Delaware corporation,
as Tenant
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF BASIC LEASE INFORMATION...................................................... iii
OFFICE LEASE
ARTICLE 1 REAL PROPERTY, BUILDING AND PREMISES...................................... 1
ARTICLE 2 LEASE TERM................................................................ 2
ARTICLE 3 BASE RENT................................................................. 3
ARTICLE 4 ADDITIONAL RENT........................................................... 3
ARTICLE 5 USE OF PREMISES........................................................... 8
ARTICLE 6 SERVICES AND UTILITIES.................................................... 9
ARTICLE 7 REPAIRS................................................................... 11
ARTICLE 8 ADDITIONS AND ALTERATIONS................................................. 12
ARTICLE 9 COVENANT AGAINST LIENS.................................................... 13
ARTICLE 10 INDEMNIFICATION AND INSURANCE............................................. 13
ARTICLE 11 DAMAGE AND DESTRUCTION.................................................... 15
ARTICLE 12 CONDEMNATION.............................................................. 16
ARTICLE 13 COVENANT OF QUIET ENJOYMENT............................................... 16
ARTICLE 14 ASSIGNMENT AND SUBLETTING................................................. 16
ARTICLE 15 SURRENDER; OWNERSHIP AND REMOVAL OF TRADE FIXTURES........................ 18
ARTICLE 16 HOLDING OVER.............................................................. 19
ARTICLE 17 ESTOPPEL CERTIFICATES..................................................... 19
ARTICLE 18 SUBORDINATION............................................................. 19
ARTICLE 19 TENANT'S DEFAULTS; LANDLORD'S REMEDIES.................................... 20
ARTICLE 20 SECURITY DEPOSIT.......................................................... 21
ARTICLE 21 COMPLIANCE WITH LAW....................................................... 21
ARTICLE 22 ENTRY BY LANDLORD......................................................... 21
ARTICLE 23 TENANT PARKING............................................................ 22
ARTICLE 24 MISCELLANEOUS PROVISIONS.................................................. 22
</TABLE>
EXHIBITS
A OUTLINE OF PREMISES
B TENANT WORK LETTER
C AMENDMENT TO LEASE
D RULES AND REGULATIONS
E CLEANING SPECIFICATIONS
F SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
EXTENSION OPTION RIDER
LETTER OF CREDIT RIDER
GUARANTY OF LEASE
(ii)
<PAGE>
SUMMARY OF BASIC LEASE INFORMATION
----------------------------------
This Summary of Basic Lease Information ("SUMMARY") is hereby incorporated
into and made a part of the attached Office Lease. Each reference in the Office
Lease to any term of this Summary shall have the meaning as set forth in this
Summary for such term. In the event of a conflict between the terms of this
Summary and the Office Lease, the terms of the Office Lease shall prevail. Any
capitalized terms used herein and not otherwise defined herein shall have the
meaning as set forth in the Office Lease.
TERMS OF LEASE DESCRIPTION
(References are to
the Office Lease)
1. Date: September 18, 1998.
2. Landlord: WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
3. Address of Landlord WHLNF REAL ESTATE LIMITED PARTNERSHIP
(Section 24.19): c/o LPC MS, Inc.
455 Market Street, Suite 1520
San Francisco, California 94105
Attn: Mr. D. Allen Palmer
with a copy to:
WHLNF REAL ESTATE LIMITED PARTNERSHIP
c/o Lincoln Property Company
4041 MacArthur Boulevard, Suite 175
Newport Beach, California 92660
Attn: Steven M. Center
4. Tenant: REALSELECT, INC., a Delaware corporation
5. Address of Tenant 5655 Lindero Canyon Road, Suite 120
(Section 24.19): Westlake Village, California 91362
Attention: Catherine Kwong Giffen
(Prior to Lease Commencement Date)
and
225 West Hillcrest, Suite 100
Thousand Oaks, California
Attention: Catherine Kwong Giffen
(After Lease Commencement Date)
with a copy of any notice of default to
Pillsbury Madison & Sutro LLP
725 South Figueroa Street, Suite 1200
Los Angeles, California 90071
Attention: John J. Duffy, Esq.
6. Premises (Article 1): 34,324 rentable and 32,338 usable square
feet of space, consisting of (i) 18,681
rentable and 17,600 usable square feet
of space located on the east wing of the
ground floor of the Building, and (ii)
15,643 rentable and 14,738 usable square
feet of space located on the east wing
of the second (2nd) floor of the
Building, as set forth in Exhibit A
---------
attached hereto.
7. Term (Article 2).
7.1 Lease Term: Five (5) years.
7.2 Lease Commencement The earlier of (i) the date Tenant
Date: commences business in the Premises, or
(ii) the date the Premises are Ready for
Occupancy, which Lease Commencement Date
is anticipated to be November 20, 1998.
7.3 Lease Expiration Date: The date which is five (5) years after
Lease Commencement Date.
(iii)
<PAGE>
<TABLE>
<S> <C>
7.4 Amendment to Lease: Landlord and Tenant shall confirm the
Lease Commencement Date and Lease
Expiration Date in an Amendment to
Lease (Exhibit C) to be executed
---------
pursuant to Article 2 of the Office
Lease.
8. Base Rent (Article 3):
Monthly
Monthly Rental Rate
Months of Annual Installment per Rentable
Lease Term Base Rent of Base Rent Square Foot
---------- --------- ------------ -----------
1-11 $701,941.80 $58,495.15 $1.7042
12-30 $761,992.80 $63,499.40 $1.85
31-60 $840,251.52 $70,020.96 $2.04
9. Additional Rent
(Article 4).
9.1 Base Year Calendar year 1999.
9.2 Tenant's Share of
Direct Expenses: 21.8%
10. Security Deposit $70,020.96
(Article 20):
11. Parking (Article 23): Four (4) parking spaces for every
1,000 usable square feet of the
Premises; up to five percent (5%) of
such spaces shall be reserved, while
the remainder shall be unreserved.
12. Brokers (Section 24.25): Grubb & Ellis Company
</TABLE>
(iv)
<PAGE>
OFFICE LEASE
------------
This Office Lease, which includes the preceding Summary attached hereto and
incorporated herein by this reference (the Office Lease and Summary to be known
sometimes collectively hereafter as the "LEASE"), dated as of the date set forth
in Section 1 of the Summary, is made by and between WHLNF REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited liability partnership ("LANDLORD"), and
REALSELECT, INC., a Delaware corporation ("TENANT").
ARTICLE 1
---------
REAL PROPERTY, BUILDING AND PREMISES
------------------------------------
1.1 Real Property, Building and Premises. Upon and subject to the terms,
------------------------------------
covenants and conditions hereinafter set forth in this Lease, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the premises set forth
in Section 6 of the Summary (the "PREMISES"), which Premises are part of the
building (the "BUILDING") located at 225 West Hillcrest, Thousand Oaks,
California. The outline of the floor plan of the Premises is set forth in
Exhibit A attached hereto. The Building, the Building's surface parking
- ---------
facility located adjacent to the Building ("BUILDING PARKING FACILITY"), any
outside plaza areas, land and other improvements surrounding the Building which
are designated from time to time by Landlord as common areas appurtenant to or
servicing the Building, and the land upon which any of the foregoing are
situated, are herein sometimes collectively referred to as the "REAL PROPERTY."
Tenant is hereby granted the right to the nonexclusive use of the common
corridors and hallways, stairwells, elevators, restrooms and other public or
common areas located on the Real Property; provided, however, that the use
thereof shall be subject to the Rules and Regulations attached hereto as Exhibit
-------
D (as the same may be supplemented or modified by Landlord from time to time on
- -
a reasonable and non-discriminatory basis). Subject to the provisions of
Section 6.5, Landlord reserves the right to (i) make repairs, improvements,
alterations or additions to or to change the location of elements of the Real
Property and the common areas thereof, and/or (ii) use or close temporarily the
common areas and/or other portions of the Real Property while engaged in making
improvements, repairs or alterations to the Real Property or any portion
thereof, provided that Tenant's use and access to the Premises and parking to be
provided to Tenant under this Lease and Tenant's ability to conduct its business
operations in the Premises are not materially and adversely interfered with.
1.2 Condition of Premises. Except as expressly set forth in this Lease
---------------------
and in the Tenant Work Letter attached hereto as Exhibit B, Landlord shall not
---------
be obligated to provide or pay for any improvement, remodeling or refurbishment
work or services related to the improvement, remodeling or refurbishment of the
Premises, and Tenant shall accept the Premises in its "As Is" condition on the
Lease Commencement Date, subject only to (i) any latent defects in the Premises
which could not have been discovered by Tenant with the exercise of reasonable
diligence, and (ii) the completion of any work which is to be performed by
Landlord in the Premises or the Building pursuant to the Tenant Work Letter.
1.3 Rentable and Usable Square Feet. The rentable and usable square feet
-------------------------------
of the Premises are stipulated to be as set forth in Section 6.1 of the Summary,
and are not subject to adjustment or modification by Landlord or Tenant.
1.4 Right of First Offer. During the initial Lease Term, Tenant shall
--------------------
have the one-time right (subject, however, to the last sentence of Section 1.4.2
below) of first offer to lease that certain space on the third (3rd) floor of
the Building which is currently leased by Exxon, contains approximately 12,913
rentable square feet (the "FIRST OFFER SPACE") when such space becomes available
for lease as provided hereinbelow; provided, however: (i) if less than two (2)
years remain in the initial Lease Term at the time of Landlord's delivery of the
First Offer Notice (as defined below), Tenant shall not have such right of first
offer unless Tenant has either previously exercised its extension option
pursuant to the Extension Option Rider or exercises such option concurrently
with Tenant's delivery of Tenant's Election Notice (as defined below); and (ii)
if before such First Offer Space becomes available, at least 12,000 rentable
square feet of space on the 4th or 5th floors of the Building which are
currently leased by Exxon becomes available for lease, the First Offer Space
shall be redefined to consist of the entire rentable area of the space on such
floor which becomes so available, but only with respect to one (1) of such
floors (which floor shall be the first floor on which at least 12,000 rentable
square feet becomes available, unless at least 12,000 rentable square feet of
space becomes available on both floors at the same time, in which case, the
First Offer Space shall consist of the space located on the floor which has the
least amount of space available, unless the amount of space available on both
floors are approximately the same size (i.e. within 2,000 rentable square feet
of each other), in which case the First Offer Space shall consist of the entire
rentable area of the space which becomes so available on one (1) of such floors
as shall be selected by Landlord). Tenant's right of first offer shall be upon
the terms and conditions set forth in this Section 1.4. Notwithstanding
anything to the contrary contained in this Section 1.4, Tenant's right of first
offer contained in this Section 1.4 shall be subject and subordinate to (A) any
leases of the First Offer Space which, as of the date of execution of this
Lease, have been fully executed by Landlord and the tenants therein (the
"INITIAL LEASES"), (B) all expansion, first offer and similar rights currently
provided to the tenants in the Initial Leases and (C) renewals of the Initial
Leases, whether or not such renewals are pursuant to an express written
provision in such leases and regardless of whether any such renewals are
consummated pursuant to new leases or lease amendments (collectively, the
"SUPERIOR RIGHTS").
1.4.1 Procedure for Offer. Landlord shall give Tenant written notice
-------------------
(the "FIRST OFFER NOTICE") that the First Offer Space shall or has become
available for lease by Tenant pursuant to the terms of Tenant's right of first
offer, as set forth in this Section 1.4, provided that no holder of the Superior
Rights desires to lease all or any portion of such space. Pursuant to such
First Offer Notice, Landlord shall offer to lease to Tenant the then available
First Offer Space for a term coterminous with the Lease Term. The First Offer
Notice shall describe the space so offered to Tenant, including, without
limitation, Landlord's determination of the rentable square footage thereof as
calculated pursuant to Landlord's standard rentable area measurements for the
Building which shall be consistent with the measurement standards used for the
initial Premises, and shall also set forth Landlord's determination of the
"First Offer Rent," as that term is defined in Section 1.4.3 below, and the
other terms upon which Landlord is willing to lease such space to Tenant.
1.4.2 Procedure for Acceptance. If Tenant wishes to exercise
------------------------
Tenant's right of first offer with respect to the space described in the First
Offer Notice, then within ten (10) business days of Tenant's receipt of the
First Offer Notice, Tenant shall deliver written notice to Landlord ("TENANT'S
ELECTION NOTICE") pursuant to which Tenant shall elect either to: (i) lease the
-1-
<PAGE>
entire First Offer Space described in the First Offer Notice at the First Offer
Rent and upon the terms contained in such notice; or (ii) refuse to lease the
First Offer Space, specifying that Tenant is not interested in exercising its
right of first offer for the First Offer Space, in which event Tenant's right of
first offer contained in this Section 1.4 shall terminate and be of no further
force or effect and Landlord shall be free to lease the First Offer Space or any
portion thereof to anyone to whom Landlord desires on any terms Landlord
desires. If Tenant does not notify Landlord of its election of any of the
options in clauses (i) or (ii) hereinabove, Tenant shall be deemed to have
elected the option in clause (ii). Notwithstanding the foregoing to the
contrary, if pursuant to clause (ii) of Section 1.4 above, the First Offer Space
is redefined to consist of certain space located on the 4th or 5th floors of the
Building as described therein, but Tenant refuses or is deemed to refuse to
lease such First Offer Space when such space becomes available as provided
above, the First Offer Space shall thereupon be redefined again to mean the
approximately 12,913 rentable square foot space on the 3rd floor of the Building
depicted on Exhibit A, and Landlord's first offer right shall be in effect (and
---------
not terminated) with respect to such space when such space becomes available for
lease as provided in Section 1.4 above.
1.4.3 First Offer Space Rent. The Rent payable by Tenant for the
----------------------
First Offer Space (the "FIRST OFFER RENT") shall be equal to the Fair Market
Rental Rate for the First Offer Space, as defined in the Extension Option Rider
attached hereto. Concurrent with Tenant's delivery of Tenant's Election Notice
exercising such right of first offer, Tenant may object in writing to Landlord's
determination of the Fair Market Rental Rate set forth in Landlord First Offer
Notice, in which case the Fair Market Rental Rate shall be determined in
accordance with the appraisal procedures set forth in Section 4 of the Extension
Option Rider. If Tenant does not timely object in writing to Landlord's
determination of the Fair Market Rental Rate, then Tenant shall be deemed to
have rejected such determination and the appraisal procedures in Section 4 of
the Extension Option Rider shall apply.
1.4.4 Construction In First Offer Space. If Tenant leases the First
---------------------------------
Offer Space pursuant to the terms of this Section 1.4. Tenant shall take the
First Offer Space in its "as is" condition as of the date of delivery of such
space by Landlord to Tenant, subject to Landlord's construction of any initial
improvements in the First Offer Space and providing a tenant improvement
allowance to construct such improvements to the extent, if any, included in the
definition of "First Offer Rent", as set forth in Section 1.4.3.
1.4.5 Amendment to Lease. If Tenant timely exercises Tenant's right
------------------
to lease the First Offer Space as set forth herein, Landlord and Tenant shall
within fifteen (15) business days thereafter execute an amendment to the Lease
memorializing Tenant's lease for such First Offer Space upon the terms and
conditions set forth in this Section 1.4. Tenant shall commence payment of Rent
for the First Offer Space, and the term of the First Offer Space shall commence
upon the date of delivery of the First Offer Space to Tenant with the initial
tenant improvements therefor to be constructed by Landlord, if any,
substantially completed and a certificate or temporary certificate of occupancy
(or its equivalent) has been issued permitting occupancy of the First Offer
Space (the "FIRST OFFER COMMENCEMENT DATE") and terminate coterminous with the
termination of the Lease Term, as such may be extended pursuant to this Lease.
1.4.6 Suspension of Right of First Offer. At Landlord's option, in
----------------------------------
addition to its other remedies under this Lease, Tenant shall not have the right
to lease the First Offer Space, as provided in this Section 1.4, if, as of the
date of the attempted exercise of such right of first offer by Tenant, or as of
the scheduled date of delivery of the First Offer Space to Tenant, Tenant is in
default under this Lease beyond any applicable notice and cure periods. In
addition, and notwithstanding anything to the contrary contained in this Section
1.4, the rights to lease the First Offer Space contained in this Section 1.4
shall be personal to the original Tenant executing this Lease and any Affiliate
to which Tenant's entire interest in this Lease has been assigned pursuant to
Section 14.7 below, and may only be exercised by the original Tenant or such
Affiliate assignee, as the case may be (but not by any other assignee, sublessee
or other transferee of Tenant's interest in this Lease or the Premises, or any
part thereof) if, at the time of the attempted exercise of such right of first
offer, the original Tenant or such Affiliate assignee, as the case may be, is in
physical occupancy and possession of at least eighty percent (80%) of the
Premises then leased by Tenant under this Lease.
ARTICLE 2
---------
LEASE TERM
----------
The terms and provisions of this Lease shall be effective as of the date of
this Lease except for the provisions of this Lease relating to the payment of
Rent. The term of this Lease (the "LEASE TERM") shall be as set forth in
Section 7.1 of the Summary and shall commence on the date (the "LEASE
COMMENCEMENT DATE") set forth in Section 7.2 of the Summary (subject, however,
to the terms of the Tenant Work Letter), and shall terminate on the date (the
"LEASE EXPIRATION DATE") set forth in Section 7.3 of the Summary, unless this
Lease is sooner terminated as hereinafter provided, or extended pursuant to the
Extension Option Rider attached hereto. For purposes of this Lease, the term
"LEASE YEAR" shall mean each consecutive twelve (12) month period during the
Lease Term, provided that the last Lease Year shall end on the Lease Expiration
Date. At any time during the Lease Term, Landlord may deliver to Tenant an
amendment in the form as set forth in Exhibit C, attached hereto, which
---------
amendment Tenant shall execute and return to Landlord within ten (10) days of
receipt thereof. If Tenant fails to either execute and return such amendment to
Landlord or object thereto within ten (10) days of receipt thereof from
Landlord, the amendment as sent by Landlord shall be deemed to have correctly
set forth the Lease Commencement Date. Failure of Landlord to send such
amendment shall have no effect on the Lease Commencement Date. In the event
Landlord shall fail to send to Tenant such amendment within sixty (60) days
after the Lease Commencement Date, Tenant may send to Landlord an amendment
setting forth the Lease Commencement Date, in the form of the attached Exhibit
-------
C, which amendment Landlord shall execute and return to Tenant. If Landlord
- -
fails to either execute and return such amendment to Tenant or object thereto
within ten (10) days of receipt thereof from Tenant, the amendment as sent by
Tenant shall be deemed to have correctly set forth the Lease Commencement Date.
-2-
<PAGE>
ARTICLE 3
---------
BASE RENT
---------
Tenant shall pay, without notice or demand, to Landlord or Landlord's agent
at the management office of the Building, or at such other place as Landlord may
from time to time designate in writing, in currency or a check for currency
which, at the time of payment, is legal tender for private or public debts in
the United States of America, base rent ("BASE RENT") as set forth in Section 8
of the Summary, payable in equal monthly installments as set forth in Section 8
of the Summary in advance on or before the first day of each and every month
during the Lease Term, without any setoff or deduction whatsoever (except as
otherwise expressly set forth in this Lease). The Base Rent for the first full
month of the Lease Term shall be paid at the time of Tenant's execution of this
Lease. If any rental payment date (including the Lease Commencement Date) falls
on a day of the month other than the first day of such month or if any rental
payment is for a period which is shorter than one month, then the rental for any
such fractional month shall be a proportionate amount of a full calendar month's
rental based on the proportion that the number of days in such fractional month
bears to the number of days in the calendar month during which such fractional
month occurs. All other payments or adjustments required to be made under the
terms of this Lease that require proration on a time basis shall be prorated on
the same basis.
ARTICLE 4
---------
ADDITIONAL RENT
---------------
4.1 Additional Rent. In addition to paying the Base Rent specified in
---------------
Article 3 of this Lease, Tenant shall pay as additional rent "Tenant's Share" of
the annual "Direct Expenses," as those terms are defined in Sections 4.2.8 and
4.2.3 of this Lease, respectively, which are in excess of the amount of Direct
Expenses applicable to the "Base Year," as that term is defined in Section 4.2.1
of this Lease. Such additional rent, together with any and all other amounts
payable by Tenant to Landlord pursuant to the terms of this Lease (including,
without limitation, pursuant to Article 6), shall be hereinafter collectively
referred to as the "ADDITIONAL RENT." The Base Rent and Additional Rent are
herein collectively referred to as the "RENT." All amounts due under this
Article 4 as Additional Rent shall be payable for the same periods and in the
same manner, time and place as the Base Rent. Without limitation on other
obligations of Tenant which shall survive the expiration of the Lease Term, the
obligations of Tenant to pay the Additional Rent provided for in this Article 4
shall survive the expiration of the Lease Term.
4.2 Definitions. As used in this Article 4, the following terms shall
-----------
have the meanings hereinafter set forth:
4.2.1 "BASE YEAR" shall mean the year set forth in Section 9.1 of the
Summary.
4.2.2 "CALENDAR YEAR" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.
4.2.3 "DIRECT EXPENSES" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.4 "EXPENSE YEAR" shall mean each Calendar Year, provided that
Landlord, upon notice to Tenant, may change the Expense Year from time to time
to any other twelve (12) consecutive-month period, and, in the event of any such
change, Tenant's Share of Direct Expenses shall be equitably adjusted for any
Expense Year involved in any such change.
4.2.5 "OPERATING EXPENSES" shall mean all expenses, costs and amounts
of every kind and nature which Landlord shall pay during any Expense Year
because of or in connection with the management, maintenance, repair,
replacement, restoration or operation of the Building and Real Property,
including, without limitation, any amounts paid for: (i) the cost of supplying
all utilities, the cost of operating, maintaining, repairing, renovating and
managing the utility systems, mechanical systems, sanitary and storm drainage
systems, any elevator systems and all other "Systems and Equipment" (as defined
in Section 4.2.6 of this Lease), and the cost of supplies and equipment and
maintenance and service contracts in connection therewith (but excluding all
costs for materials, utilities, goods and services furnished by Landlord which
are not required to be furnished by Landlord, and which have been directly paid
for by Tenant or other tenants to Landlord); (ii) the cost of licenses,
certificates, permits and inspections, and the cost of contesting the validity
or applicability of any governmental enactments which may affect Operating
Expenses, and the costs incurred in connection with implementation and operation
of any government mandated transportation system management program or similar
program; (iii) costs of insurance obtained by Landlord, including commercially
reasonable deductibles for fire and extended coverage but in no event to include
any earthquake insurance deductibles; provided, however, that in the event
Landlord shall not carry a type or amount of insurance during the Base Year, but
shall either obtain an additional type of insurance or increase the amount of
coverage of an existing type of insurance in an Expense Year subsequent to the
Base Year, the Operating Expenses for the Base Year shall be increased by an
amount equal to the costs of such additional insurance and/or the increased
amount of such existing type of insurance that Landlord would have incurred had
Landlord obtained such additional or increased amount of such insurance during
the Base Year; (iv) the cost of landscaping, relamping, supplies, tools,
equipment and materials, and all fees, charges and other costs (including
consulting fees, legal fees and accounting fees) incurred in connection with the
management, operation, repair and maintenance of the Building and Real Property;
(v) the cost of parking area repair, restoration, and maintenance; (vi) any
equipment rental agreements or management agreements (including the cost of any
management fee and the fair rental value of any office space provided
thereunder); provided, however, that the management fee charged by Landlord for
the Building and Real Property shall not exceed the management fees being
charged by comparable landlords of Comparable Buildings (as defined in Section
6.1 below) for comparable services, and shall not be duplicative of any other
management fee charged by Landlord for the Building or Real Property; (vii)
wages, salaries and other compensation and benefits of all persons engaged in
the operation, management, maintenance or security of the Building and Real
Property, and employer's Social Security taxes, unemployment taxes or insurance,
and any other taxes which may be levied on such wages, salaries, compensation
and benefits; provided, however, that if any such persons provide services for
more than one (1) building of Landlord, then a prorated portion of their wages,
benefits and taxes shall be included in Operating Expenses based on the portion
of their working time devoted to the Building; (viii) subject to
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<PAGE>
the second to last paragraph of this Section 4.2.5, payments under any easement,
license, operating agreement, declaration, restrictive covenant, underlying or
ground lease (excluding rent), or instrument pertaining to the sharing of costs
by the Building or Real Property (collectively, "EASEMENT/SHARING AGREEMENTS");
(ix) the cost of janitorial service, alarm and security service, window
cleaning, trash removal, replacement of wall and floor coverings, ceiling tiles
and fixtures in lobbies, corridors, restrooms and other common or public areas
or facilities, maintenance and replacement of curbs and walkways, repair to
roofs and re-roofing; and (x) amortization on a straight-line basis over the
useful life [together with interest at the Interest Rate, as defined in Section
4.7 below, on the unamortized balance] of all of the following costs (or lease
expenses where the item is leased) of a capital nature (including, without
limitation, capital improvements, capital replacements, capital repairs, capital
equipment and capital tools): (1) reasonably intended to produce a reduction in
operating charges or energy consumption (provided the annual amortized cost does
not exceed the higher of the actual cost savings realized or the cost savings
reasonably anticipated to be available, and such savings do not redound
primarily to the benefit of any particular tenant or group of tenants (which
group does not include Tenant); or (2) required by (xx) any new (or change in)
local, state or federal ordinances, statutes, codes, laws, rules or regulations
issued after the Lease Commencement Date of any governmental or quasi-
governmental authority who shall have the power, authority and jurisdiction over
such local, state or federal ordinances, statutes, codes, laws, rules or
regulations (collectively "LAWS") or (yy) any currently existing Laws, the
enforcement of which does not become legally applicable to the Building until
after the Lease Commencement Date, it being agreed and understood that no cost
incurred by Landlord in connection with (aa) performing the initial Tenant
Improvements pursuant to the Tenant Work Letter, or (bb) the subsequent
performance of any work currently required in the Building pursuant to any
currently applicable and enforceable codes (including without limitation the
Americans with Disabilities Act), as such codes exist as of the date hereof,
shall be included in Operating Expenses for purposes of calculating Tenant's
Proportionate Share thereof; or (3) replacement of exterior perimeter window
coverings and of carpeting and wall coverings provided by Landlord in the common
areas of the Building; or (4) minor capital expenditures or improvements where
each such improvement or acquisition costs less than Twenty Thousand Dollars
($20,000.00) in any twelve-month period in the aggregate, and the cost of
capital tools not in excess of Five Thousand Dollars ($5,000.00) in any twelve
(12) month period in the aggregate. If Landlord is not furnishing any particular
work or service (the cost of which, if performed by Landlord, would be included
in Operating Expenses) to a tenant who has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, Operating Expenses shall
be deemed to be increased by an amount equal to the additional Operating
Expenses which would reasonably have been incurred during such period by
Landlord if it had at its own expense furnished such work or service to such
tenant. If the Building is less than 95% occupied during all or a portion of any
Expense Year (including the Base Year), Landlord shall make an appropriate
adjustment to the variable components of Operating Expenses for such year or
applicable portion thereof, employing sound accounting and management
principles, to determine the amount of Operating Expenses that would have been
paid had the Building been at least 95% occupied; and the amount so determined
shall be deemed to have been the amount of Operating Expenses for such year, or
applicable portion thereof. Landlord shall have the right, from time to time, to
equitably allocate some or all of the Operating Expenses among different tenants
of the Building (the "COST POOLS"). Such Cost Pools may include, without
limitation, the office space tenants and retail space tenants of the Building.
Notwithstanding the foregoing, Operating Expenses shall not, however,
include:
(A) costs, including permit, license and inspection costs,
incurred with respect to the installation of other tenants or occupants
improvements made for other tenants or occupants in the Building or incurred in
renovating or otherwise improving, decorating, painting or redecorating vacant
space for other tenants or occupants of the Building;
(B) costs of a capital nature for the Real Property, except as
specifically set forth in subclause (x) hereinabove;
(C) interest and principal payments, points and fees, on
mortgages or deeds of trust or other debt for borrowed money (except for
interest as described in subclause (x) hereinabove) ;
(D) specific costs or services billed to and paid by specific
tenants other than Tenant;
(E) costs of repairs and maintenance reimbursed by any other
party;
(F) marketing costs including any sale/transfer/leasing
commissions, attorneys' fees in connection with the negotiation and preparation
of letters, deal memos, letters of intent, agreements, leases, subleases and/or
assignments, space planning costs, and other costs and expenses incurred in
connection with sale/transfer/lease, sublease and/or assignment negotiations and
transactions with present or prospective purchasers, tenants or other occupants
of the Building;
(G) attorneys' fees and other costs incurred in attempting to
collect rent or evict tenants for nonpayment of rent;
(H) depreciation, amortization and interest payments, (except as
provided herein and except on materials, tools, supplies and vendor-type
equipment purchased by Landlord to enable Landlord to supply services Landlord
might otherwise contract for with a third party where such depreciation,
amortization and interest payments would otherwise have been included in the
charge for such third party's services, all as determined in accordance with
standard real estate accounting practices, consistently applied, and when
depreciation or amortization is permitted or required, the item shall be
amortized over its reasonably anticipated useful life);
(I) costs including penalties, fines and associated legal
expenses incurred due to the violation by Landlord or any other tenant in the
Building of applicable federal, state or local governmental laws, codes and
similar regulations that would not have been incurred but for any such
violations by Landlord or any tenant in the Building, it being intended that
each party shall be responsible for the costs resulting from its own violation
of such laws, codes and regulations (notwithstanding the immediately foregoing,
interest or penalties incurred in connection with assessments or taxes which are
reasonably contested by Landlord shall be deemed Operating Expenses);
-4-
<PAGE>
(J) general overhead and general administrative expenses,
advertising and promotional expenses incurred in leasing the Building;
(K) ground rental payments;
(L) insurance deductibles in excess of commercially reasonable
deductibles for fire and extended coverage, and any earthquake insurance
deductible in any Lease Year irrespective of whether such amount is considered
commercially reasonable;
(M) rentals and other related expenses incurred in leasing
systems, equipment and other items which are ordinarily considered capital items
and which, if purchased rather than rented, would constitute a capital cost
which is specifically excluded in subsection (B) hereinabove, except for (1)
costs of equipment not affixed to the Building which is used in providing
janitorial or similar services, (2) expenses in connection with making repairs
on or keeping the Systems and Equipment in operation while repairs are being
made, and (3) in the event of an emergency;
(N) costs incurred by Landlord for the repair of damage to the
Building, to the extent that Landlord is reimbursed by insurance proceeds;
(O) expenses in connection with services or other benefits which
are not provided to Tenant or for which Tenant is charged for directly but which
are provided to another tenant or occupant of the Building;
(P) costs incurred by Landlord due to the violation by Landlord
of (1) the terms and conditions of any lease or other occupancy of space in the
Building, (2) this Lease, or (3) any covenants, conditions and restrictions
encumbering the real property;
(Q) costs of correcting defects in the construction of the
Building;
(R) costs incurred in connection with upgrading the Building to
comply with disability, fire and life safety and earthquake retrofit codes in
effect (and legally applicable to the Building) prior to the Lease Commencement
Date. and costs incurred in steel frame construction testing required by
applicable laws in effect prior to the Lease Commencement Date;
(S) tax penalties incurred as a result of Landlord's negligence,
inability or unwillingness to make payments when due or to file any income tax
or informational returns when due;
(T) costs arising from Landlord's charitable or political
contributions;
(U) costs for acquisition of sculpture, paintings or other
objects of art except for the cost of acquiring any governmentally mandated art
objects;
(V) payments in connection with overhead or profit to
subsidiaries or affiliates of Landlord as a result of a noncompetitive selection
process for providing management or other services in or to the Building, or for
supplies or other materials to be provided to the Building, to the extent that
the costs of such services, supplies or materials shall exceed the costs that
would have been provided by parties unaffiliated with Landlord on a competitive
basis;
(W) costs arising from the presence of Hazardous Materials in or
about the Building or the Real Property (including, without limitation,
Hazardous Materials in the ground water or soil) to the extent such Hazardous
Materials are (i) in existence as of the Lease Commencement Date and in
violation of applicable Laws, in effect as of the Lease Commencement Date, or
(ii) introduced after the Lease Commencement Date in violation of applicable
Laws in effect as of the date of introduction;
(X) advertising and promotional expenditures, and
the cost of signs in or on the Building identifying the owner of the Building or
other tenants of the Building;
(Y) costs associated with the operation of the
business of the partnership or entity which constitutes Landlord as the same are
distinguished from the costs of operation of the Real Property, including
partnership accounting and legal matters, costs of defending any lawsuits with
any mortgagee (except actions where the default of Tenant may be in issue),
costs of selling, syndicating, financing, mortgaging or hypothecating any of
Landlord's interest in the Real Property, costs of any disputes between Landlord
and its employees (if any) not engaged in the operation of the Real Property,
disputes of Landlord with Real Property or parking management, or outside fees
paid in connection with disputes with other tenants; and
(Z) attorneys' fees and costs in connection with any litigation
between Landlord and Tenant.
Landlord agrees that any costs incurred in any Expense Year after the
Base Year (x) because of added services which were readily available during the
Base Year and customarily provided by landlords of Comparable Buildings during
the Base Year (but not by Landlord) and not included in the Base Year, and/or
(y) under any Easement/Sharing Agreement entered into after the Base Year, shall
be added to and included in the Base Year as if the costs were incurred and/or
paid in the Base Year.
Landlord agrees that since one of the purposes of Operating Expenses
and the 95% gross-up provision described above is to allow Landlord to require
Tenant to pay for the Operating Expenses attributable to the Premises, Landlord
agrees that (a) Landlord will not collect or be entitled to collect Operating
Expenses from all of its tenants in an amount which is in excess of one hundred
percent (100%) of the Operating Expenses actually paid by Landlord in connection
with the operation of the Building and the Real Property, (b) Landlord shall
make no profit from the collection of operating expenses from the tenants of the
Building, and (c) Landlord shall not charge Tenant, for utilities used by Tenant
within the Premises, an amount which shall exceed
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the amount charged Landlord by the provider of such utility, plus Landlord's
other actual costs of reasonable overhead, administration and depreciation
charges, as applicable.
4.2.6 "SYSTEMS AND EQUIPMENT" shall mean any plant, machinery,
transformers, duct work, cable, wires, and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity or
any other services or utilities, or comprising or serving as any component or
portion of the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life safety systems or equipment, or any other
mechanical, electrical, electronic, computer or other systems or equipment which
serve the Building in whole or in part.
4.2.7 "TAX EXPENSES" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, assessments, charges or other impositions
of every kind and nature, whether general, special, ordinary or extraordinary,
(including, without limitation, real estate taxes, general and special
assessments, transit assessments, fees and taxes, child care subsidies, fees
and/or assessments, job training subsidies, fees and/or assessments, open space
fees and/or assessments, housing subsidies and/or housing fund fees or
assessments, public art fees and/or assessments, leasehold taxes or taxes based
upon the receipt of rent, including gross receipts or sales taxes applicable to
the receipt of rent, personal property taxes imposed upon the fixtures,
machinery, equipment, apparatus, systems and equipment, appurtenances, furniture
and other personal property used in connection with the Real Property), which
Landlord shall pay during any Expense Year because of or in connection with the
ownership, leasing and operation of the Real Property or Landlord's interest
therein. For purposes of this Lease, Tax Expenses shall be calculated as if the
tenant improvements in the Building were fully constructed and the Real
Property, the Building, and all tenant improvements in the Building were fully
assessed for real estate tax purposes and the Building was at least 95% occupied
with tenants paying full rent.
4.2.7.1 Tax Expenses shall include, without limitation:
(i) Any tax on Landlord's rent, right to rent or
other income from the Real Property or as against Landlord's business of leasing
any of the Real Property;
(ii) Any assessment, tax, fee, levy or charge in
addition to, or in substitution, partially or totally, of any assessment, tax,
fee, levy or charge previously included within the definition of real property
tax, it being acknowledged by Tenant and Landlord that Proposition 13 was
adopted by the voters of the State of California in the June 1978 election
("PROPOSITION 13") and that assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, refuse removal and for other governmental
services formerly provided without charge to property owners or occupants. It is
the intention of Tenant and Landlord that all such new and increased
assessments, taxes, fees, levies, and charges and all similar assessments,
taxes, fees, levies and charges be included within the definition of Tax
Expenses for purposes of this Lease;
(iii) Any assessment, tax, fee, levy, or charge
allocable to or measured by the area of the Premises or the rent payable
hereunder, including, without limitation, any gross income tax upon or with
respect to the possession, leasing, operating, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises, or any portion
thereof;
(iv) Any assessment, tax, fee, levy or charge, upon
this transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises; and
(v) Any reasonable expenses incurred by Landlord in
attempting to protest, reduce or minimize Tax Expenses.
4.2.7.2 If in any Expense Year subsequent to the Base Year
("ADJUSTMENT YEAR"), the amount of Tax Expenses for such applicable Adjustment
Year decreases below the Tax Expenses for the Base Year, then for purposes of
such Adjustment Year and all subsequent Expense Years, the Tax Expenses for the
Base Year shall be decreased by an amount equal to the amount of the decrease in
Tax Expenses for the applicable Adjustment Year below the Tax Expenses for the
Base Year. Conversely, if the Tax Expenses for any Expense Year subsequent to
the Adjustment Year in question (the "READJUSTMENT YEAR") are increased as a
result of the assessor's denial of a Proposition 8 reduction (whether or not
Landlord timely filed for such a reduction) which is greater than or equal to
the Proposition 8 reduction secured during the Adjustment Year in question, then
for purposes of all subsequent Expense Years, including the Readjustment Year in
question, the Tax Expenses deemed attributable to the Base Year shall be
increased by an amount equal to the amount of the increase in Tax Expenses
during such Readjustment Year over the Tax Expenses for the Adjustment Year in
question which resulted from Landlord's failure to secure a Proposition 8
reduction greater than or equal to the Proposition 8 reduction secured during
such Adjustment Year. Landlord and Tenant acknowledge that this provision is
not intended to in any way affect the inclusion in Tax Expenses of the statutory
two percent (2.0%) annual increase in the assessed value of the Real Property or
the improvements thereon for the purpose of determining Tax Expenses for the
Base Year (as such statutory increase may be modified by subsequent legislation)
or the amount of Tax Expenses due to any changes of ownership.
4.2.7.3 Notwithstanding anything to the contrary contained in
this Section 4.2.7, there shall be excluded from Tax Expenses (i) all excess
profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and
succession taxes, estate taxes, federal and state net income taxes, and other
taxes to the extent applicable to Landlord's net income (as opposed to rents,
receipts or income attributable to operations at the Building or Real Property),
(ii) any items included as Operating Expenses, (iii) any items paid by Tenant
under Section 4.4 of this Lease, and (iv) taxes attributable to leasehold
improvements of other tenants' premises in the Building in excess of the Cut-Off
Point, as that term is defined in Section 4.4.1 below, but only to the extent
such taxes in excess of the Cut-Off Point are paid directly by other tenants (or
if not required by Landlord to be paid by such other tenants, to the extent
Landlord requires Tenant to pay such taxes attributable to leasehold
improvements in the Premises in excess of the Cut-Off Point).
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<PAGE>
4.2.7.4 All assessments for Tax Expenses which are not
specifically charged to Tenant because of what Tenant has done, which can be
paid by Landlord in installments, shall be paid by Landlord in the maximum
number of installments permitted by law and not included as Tax Expenses except
in the year in which the installment is actually paid; provided, however, if the
prevailing practice in Comparable Buildings is to pay such assessments on an
earlier basis, and Landlord pays on such basis, such assessments shall be
included in Tax Expenses as paid by Landlord; provided, however, that in no
event shall Landlord include any accrued interest resulting from such
assessments in its computation of Tax Expenses.
4.2.8 "TENANT'S SHARE" shall mean the percentage set forth in Section
9.2 of the Summary. Tenant's Share was calculated by multiplying the number of
rentable square feet of the Premises by 100 and dividing the product by the
total rentable square feet in the Building. In the event the total rentable
square feet of the Building is changed, Tenant's Share shall be appropriately
adjusted, and, as to the Expense Year in which such change occurs, Tenant's
Share for such year shall be determined on the basis of the number of days
during such Expense Year that each such Tenant's Share was in effect.
4.3 Calculation and Payment of Additional Rent.
------------------------------------------
4.3.1 Calculation of Excess. If for any Expense Year ending or
---------------------
commencing within the Lease Term, Tenant's Share of Direct Expenses for such
Expense Year exceeds Tenant's Share of Direct Expenses for the Base Year, then
Tenant shall pay to Landlord, in the manner set forth in Section 4.3.2, below,
and as Additional Rent, an amount equal to the excess (the "EXCESS").
4.3.2 Statement of Actual Direct Expenses and Payment by Tenant.
---------------------------------------------------------
Landlord shall endeavor to give to Tenant on or before the first day of April
following the end of each Expense Year, a detailed statement (the "STATEMENT")
which shall state the Direct Expenses on a general line item by line item basis
incurred or accrued for such preceding Expense Year, and which shall indicate
the amount, if any, of any Excess. Within thirty (30) days after receipt of the
Statement for each Expense Year ending during the Lease Term, if an Excess is
present, Tenant shall pay to Landlord the full amount of the Excess for such
Expense Year, less the amounts, if any, paid during such Expense Year as
"Estimated Excess," as that term is defined in Section 4.3.3 of this Lease. In
the event the Statement indicates that the Excess for such Expense Year is less
than the total Estimated Excess payments made by Tenant for such Expense Year,
Landlord shall refund such overpayment to Tenant within thirty (30) days after
delivery of such Statement (or at Landlord's option, such overpayment shall be
credited against the Rent next due and payable under this Lease). Even though
the Lease Term has expired and Tenant has vacated the Premises, when the final
determination is made of Tenant's Share of the Direct Expenses for the Expense
Year in which this Lease terminates, Tenant shall pay to Landlord the amount by
which the Excess for such Expense Year exceeds the Estimated Excess payments
made by Tenant for such Expense Year, or Landlord shall reimburse to Tenant any
overpayment of Estimated Excess payments made by Tenant for any such Expense
Year if such payments exceed the amount of Excess for such Expense Year, as the
case may be; such payment by Landlord or Tenant, as applicable, shall be made
within thirty (30) days after the Statement for such final Expense Year is
delivered by Landlord to Tenant. The failure of Landlord to furnish the
Statement for any Expense Year within such 120 day period shall not prejudice
Landlord from enforcing its rights under this Article 4; provided, however,
Landlord's failure to provide Tenant with a Statement for a particular Expense
Year within the earlier of (i) two (2) years after the end of the Expense Year
in question or (ii) one (1) year after the last Expense Year of the Lease Term,
shall constitute a waiver of Landlord's right to collect any increase in Direct
Expenses for the time period in question. Such waiver shall not affect Tenant's
right to a credit for overpayment should it be due under this Lease. The
provisions of this Section 4.3.2 shall survive the expiration or earlier
termination of the Lease Term.
4.3.3 Statement of Estimated Direct Expenses. In addition, Landlord
--------------------------------------
shall endeavor to give Tenant a yearly expense estimate statement (the "ESTIMATE
STATEMENT") which shall set forth Landlord's reasonable detailed estimate (the
"ESTIMATE"), on a general line item by line item basis, of what the total amount
of Direct Expenses for the then-current Expense Year shall be and the estimated
Excess (the "ESTIMATED EXCESS") as calculated by comparing Tenant's Share of
Direct Expenses, which shall be based upon the Estimate, to Tenant's Share of
Direct Expenses for the Base Year. The failure of Landlord to timely furnish
the Estimate Statement for any Expense Year shall not preclude Landlord from
enforcing its rights to collect any Estimated Excess under this Article 4. If
pursuant to the Estimate Statement an Estimated Excess is calculated for the
then-current Expense Year, Tenant shall pay, with its next installment of Base
Rent due, a fraction of the Estimated Excess for the then-current Expense Year
(reduced by any amounts paid pursuant to the last sentence of this Section
4.3.3). Such fraction shall have as its numerator the number of months which
have elapsed in such current Expense Year to the month of such payment, both
months inclusive, and shall have twelve (12) as its denominator. Until a new
Estimate Statement is furnished, Tenant shall pay monthly, with the monthly Base
Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated
Excess set forth in the previous Estimate Statement delivered by Landlord to
Tenant. Landlord agrees that the total amount of Direct Expenses set forth on
any Estimate Statement delivered to Tenant for any current Expense Year after
the Base Year shall not exceed the amount of actual Direct Expenses for the
prior Expense Year by more than ten percent (10%), unless Landlord shall,
concurrently with the delivery by Landlord to Tenant of the Estimate Statement
for such current Expense Year, deliver to Tenant reasonably detailed evidence
that the Direct Expenses are reasonably estimated by Landlord to be higher.
4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible.
----------------------------------------------------------------
Tenant shall reimburse Landlord upon demand for any and all taxes or assessments
required to be paid by Landlord (except to the extent included in Tax Expenses
by Landlord), excluding state, local and federal personal or corporate income
taxes measured by the net income of Landlord from all sources and estate and
inheritance taxes, whether or not now customary or within the contemplation of
the parties hereto, when:
4.4.1 Said taxes are measured by or reasonably attributable to the
cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the cost
or value of such leasehold improvements exceeds the amount per usable square
foot which Landlord uses as a base value above which Landlord charges tenants in
the Building for real estate taxes attributable to the cost or value of
leasehold improvements located in such tenants' premises (the "CUT-OFF POINT");
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<PAGE>
4.4.2 Said taxes are assessed upon or with respect to the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion of the Real Property
(including the Building Parking Facility); or
4.4.3 Said taxes are assessed upon this transaction or any document
to which Tenant is a party creating or transferring an interest or an estate in
the Premises.
4.5 Books and Records. Landlord shall maintain books and records, or make
-----------------
available such books and records, in Los Angeles County in accordance with sound
accounting and management practices, reflecting the Direct Expenses. Landlord
shall maintain such books and records for the Direct Expenses for each Expense
Year for the entirety of the period which ends on the earlier to occur of two
(2) years following Landlord's delivery to Tenant of each such Statement or one
(1) year as to the Statement pertaining to the final Expense Year.
4.6 Audit Rights. In the event Tenant disputes the amount of the Direct
------------
Expenses set forth in the Statement for the particular Expense Year delivered by
Landlord to Tenant pursuant to Section 4.3.2 above, Tenant shall have the right,
at Tenant's cost, after reasonable notice to Landlord, to have Tenant's
authorized employees inspect, at Landlord's office in Los Angeles County during
normal business hours, Landlord's books, records and supporting documents
concerning the Direct Expenses set forth in such Statement; provided, however,
Tenant shall have no right to conduct such inspection, have an audit performed
by the Accountant as described below, or object to or otherwise dispute the
amount of the Direct Expenses set forth in any such Statement, unless Tenant
notifies Landlord of such objection and dispute, completes such inspection, and
has the Accountant commence and complete such audit within two (2) years
immediately following Landlord's delivery of the particular Statement in
question (the "REVIEW PERIOD") (which Review Period shall be reduced to one (1)
year with respect to the Statement applicable to the last Expense Year during
the Lease Term); provided, further, that notwithstanding any such timely
objection, dispute, inspection, and/or audit, and as a condition precedent to
Tenant's exercise of its right of objection, dispute, inspection and/or audit as
set forth in this Section 4.6, Tenant shall not be permitted to withhold payment
of, and Tenant shall timely pay to Landlord, the full amounts as required by the
provisions of this Article 4 in accordance with such Statement. However, such
payment may be made under protest pending the outcome of any audit which may be
performed by the Accountant as described below. In connection with any such
inspection by Tenant, Landlord and Tenant shall reasonably cooperate with each
other so that such inspection can be performed pursuant to a mutually acceptable
schedule, in an expeditious manner and without undue interference with
Landlord's operation and management of the Real Property. If after such
inspection and/or request for documentation, Tenant still disputes the amount of
the Direct Expenses set forth in the Statement, Tenant shall have the right,
within the Review Period, to cause an independent certified public accountant
(which is not paid on a commission or contingency basis) mutually approved by
Landlord and Tenant (the "ACCOUNTANT") to complete an audit of Landlord's books
and records to determine the proper amount of the Direct Expenses incurred and
amounts payable by Tenant for the Expense Year which is the subject of such
Statement. Such audit by the Accountant shall be final and binding upon
Landlord and Tenant. If Landlord and Tenant cannot mutually agree as to the
identity of the Accountant within thirty (30) days after Tenant notifies
Landlord that Tenant desires an audit to be performed, then the Accountant shall
be of the "Big 6" accounting firms (which is not paid on a commission or
contingency basis), as selected by Tenant and reasonably approved by Landlord.
If such audit reveals that Landlord has over-charged Tenant, then within thirty
(30) days after the results of such audit are made available to Landlord,
Landlord shall reimburse to Tenant the amount of such over-charge. If the audit
reveals that the Tenant was under-charged, then within thirty (30) days after
the results of such audit are made available to Tenant, Tenant shall reimburse
to Landlord the amount of such under-charge. Tenant agrees to pay the cost of
such audit unless it is subsequently determined that Landlord's original
Statement which was the subject of such audit was in error to Tenant's
disadvantage by four percent (4%) or more of the total Direct Expenses which was
the subject of such audit. The payment by Tenant of any amounts pursuant to
this Article 4 shall not preclude Tenant from questioning, during the Review
Period, the correctness of the particular Statement in question provided by
Landlord, but the failure of Tenant to object thereto, conduct and complete its
inspection and have the Accountant conduct the audit as described above prior to
the expiration of the Review Period for such Statement shall be conclusively
deemed Tenant's approval of the Statement in question and the amount of Direct
Expenses shown thereon.
4.7 Late Charges. If any installment of Rent or any other sum due from
------------
Tenant shall not be received by Landlord or Landlord's designee within five (5)
business days after notice that the same is past due then Tenant shall pay to
Landlord a late charge equal to five percent (5%) of the amount due. The late
charge shall be deemed Additional Rent and the right to require it shall be in
addition to all of Landlord's other rights and remedies hereunder, at law and/or
in equity and shall not be construed as liquidated damages or as limiting
Landlord's remedies in any manner. In addition to the late charge described
above, any Rent or other amounts owing hereunder which are not paid within three
(3) business days after the date that they are due shall thereafter bear
interest until paid at a rate (the "INTEREST RATE") equal to the lesser of (i)
the "PRIME RATE" or "REFERENCE RATE" announced from time to time by the Bank of
America (or such reasonable comparable national banking institution as selected
by Landlord in the event Bank of America ceases to exist or publish a Prime Rate
or Reference Rate), plus two percent (2%), or (ii) the highest rate permitted by
applicable law. Landlord's failure to demand payment of any late charge or
interest shall not constitute a forbearance of such amounts and shall not
compromise Landlord's right to deem Tenant's failure to pay such amounts (or any
overdue rent upon which such late charge and interest are chargeable) in a
timely manner as a default by Tenant under this Lease or limit any other rights
given to Landlord under this Lease or by law or equity. Notwithstanding the
foregoing, in the event Landlord shall, at Landlord's sole and absolute
discretion, elect not to bill Tenant for any late charge and/or interest due on
the overdue amount within six (6) months of the date payment of such amount was
due, such payment of the late charge and/or interest on the overdue amount shall
be deemed to be waived and Tenant shall have no further obligation with respect
to such late charge or interest.
ARTICLE 5
---------
USE OF PREMISES
---------------
Tenant shall use the Premises solely for general office and administrative
purposes consistent with the character of the Building as a first-class office
building, and Tenant shall not use or permit the Premises to be used for any
other purpose or
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<PAGE>
purposes whatsoever. Tenant further covenants and agrees that it shall not use,
or suffer or permit any person or persons to use, the Premises or any part
thereof for any use or purpose contrary to the provisions of Exhibit D, attached
---------
hereto, or in violation of the laws of the United States of America, the state
in which the Building is located, or the ordinances, regulations or requirements
of the local municipal or county governing body or other lawful authorities
having jurisdiction over the Building. Tenant shall comply with all recorded
covenants, conditions, and restrictions, and the provisions of all ground or
underlying leases, now or hereafter affecting the Real Property. Landlord
represents and warrants to Tenant that general office use in the Premises is
permitted by any existing recorded covenants, conditions or restrictions. Tenant
shall not use or allow another person or entity to use any part of the Premises
for the storage, use, treatment, manufacture or sale of "Hazardous Material," as
that term is defined below, except for ordinary and general office supplies
typically used in the ordinary course of business within office space in first-
class office buildings (such as copier, toner, liquid paper, glue, ink and
common household cleaning supplies) which Tenant must use in compliance with all
applicable Laws. As used herein, the term "HAZARDOUS MATERIAL" means any
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the state in which the Building is located or
the United States Government.
ARTICLE 6
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SERVICES AND UTILITIES
----------------------
6.1 Standard Tenant Services. Landlord shall, subject to Tenant's repair
------------------------
obligations set forth in this Lease, operate the Building and Real Property, and
the common areas thereof, in a manner at least comparable to the manner of
operation of other comparable low-rise, suburban office buildings of similar age
and quality as the Building in Conejo Valley ("COMPARABLE BUILDINGS"). In
connection with the foregoing, and consistent with the services provided in the
Comparable Buildings, Landlord agrees to furnish or cause to be furnished to the
Premises the following services and utilities subject to the conditions and in
accordance with standards set forth below:
6.1.1 Landlord shall provide heat, ventilation and air conditioning
("HVAC") services to the Premises when reasonably required for the comfortable
occupancy of the Premises for normal general office use, from Monday through
Friday, during the period from 8:00 a.m. to 6:00 p.m., and on Saturday from 9:00
a.m. to 1:00 p.m., subject to any governmental requirements or standards
relating to, among other things, energy conservation and except for the date of
observation of New Year's Day, Presidents' Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, Christmas Day and other nationally recognized
holidays as established from time to time (collectively, the "HOLIDAYS"). The
hours set forth in this Section 6.1.1 are sometimes hereinafter referred to as
"BUSINESS HOURS." Notwithstanding the foregoing to the contrary, during
construction of the initial Tenant Improvements, Tenant shall install separate
24-hour supplemental HVAC units for Tenant's data center to be constructed by
Tenant in the Premises as described in the Tenant Work Letter ("DATA CENTER"),
which shall provide 24-hour HVAC to the Data Center and shall be located in the
Premises or, subject to Landlord's approval, on the roof of the Building
(collectively, "SUPPLEMENTAL HVAC UNITS").
Upon request, Landlord shall make available to the remainder of the
Premises which is other than the Data Center HVAC services at times other than
Business Hours at a charge to Tenant equal to Landlord's "actual cost" of such
services (which "actual cost" shall not include any profit to Landlord but may
include reasonable overhead, administration or depreciation charges) which is
currently Fifty Dollars ($50.00) per hour, as the same may increase from time to
time, but in no event shall such rate increase in excess of Landlord's actual
cost of providing such after-hours HVAC services. Upon request, Landlord shall
provide Tenant with documentation to support Landlord's after-hours HVAC charges
to Tenant. The expenses for such after-hours HVAC services shall be billed to
Tenant monthly, as additional rent, and shall be payable by Tenant to Landlord
within thirty (30) days of receipt.
6.1.2 Landlord shall make available to the Premises twenty-four (24)
hours a day, seven (7) days a week, electrical current adequate for normal
general office use in the Premises. Tenant's use of electric current (including
electric current for Tenant's Supplemental HVAC Units) shall not exceed the
capacity of the feeders to or risers of the Building, it being acknowledged by
the parties that the current design specifications for the Supplemental HVAC
Units set forth in the Final Space Plan (as defined in the Tenant Work Letter)
does not exceed the existing capacity of such feeders or risers. Electricity
for the Premises, including for Tenant's Supplemental HVAC Units, shall be
separately metered pursuant to electrical meter(s) installed during construction
of the initial Tenant Improvements pursuant to the Tenant Work Letter.
6.1.3 Upon request, Landlord shall replace lamps, starters and
ballasts for Building standard lighting fixtures within the Premises, the cost
of which shall be included in Operating Expenses. Tenant shall pay for the cost
of replacement of lamps, starters and ballasts for non-Building standard
lighting fixtures within the Premises.
6.1.4 Landlord shall make available to the Premises twenty-four (24)
hours a day, seven (7) days a week, city water from the regular Building outlets
for drinking, lavatory and toilet purposes for general office use.
6.1.5 Landlord shall provide janitorial services five (5) days per
week, except the date of observation of the Holidays, in and about the Premises
and window washing services in accordance with the Specifications attached
hereto as Exhibit E and at least comparable to that provided in Comparable
---------
Buildings.
6.1.6 Landlord shall provide nonexclusive automatic passenger
elevator service at all times.
6.2 Additional Use. Landlord may impose a reasonable charge, not in
--------------
excess of Landlord's actual cost therefor, for any utilities and services
provided to the Premises beyond the levels described in Section 6.1 above (which
the parties agree in the case of electric current is, on a demand load basis for
all equipment and lighting, four (4) watts per rentable square foot multiplied
by the rentable area of the Premises on a monthly basis for the Business Hours),
but such wattage amount shall not include any electric current attributable to
the operation of the base Building HVAC), or special electrical, cooling or
ventilating needs created
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<PAGE>
in certain areas by hybrid telephone equipment, computers and other similar
equipment or uses which require utilities or services in excess of the levels
described in Section 6.1 above.
6.3 Interruption of Use. Tenant agrees that Landlord shall not be liable
-------------------
for damages, by abatement of Rent (except as provided in Section 6.5 below) or
otherwise, for failure to furnish or delay in furnishing any service (including
telephone and telecommunication services), or for any diminution in the quality
or quantity thereof (including any failure or insufficiency of Tenant's
emergency back-up power through the Emergency Generator or Hubbell Plug
described in Section 6.7 below), when such failure or delay or diminution is
occasioned, in whole or in part, by repairs, replacements, or improvements, by
any strike, lockout or other labor trouble, by inability to secure electricity,
gas, water, or other fuel at the Building after reasonable effort to do so, by
any accident or casualty whatsoever, by act or default of Tenant or other
parties, or by any other cause beyond Landlord's reasonable control; and such
failures or delays or diminution shall never be deemed to constitute an eviction
or disturbance of Tenant's use and possession of the Premises or relieve Tenant
from paying Rent (except as provided in Section 6.5 below) or performing any of
its obligations under this Lease. In the event of any failure, stoppage or
interruption in utilities or services, Landlord shall use reasonable diligence
to cause such utilities and or services to be promptly resumed. Furthermore,
Landlord shall not be liable under any circumstances for a loss of, or injury
to, property or for injury to, or interference with, Tenant's business,
including, without limitation, loss of profits, however occurring, through or in
connection with or incidental to a failure to furnish any of the services or
utilities as set forth in this Article 6.
6.4 Additional Services. Landlord shall also have the right, but not the
-------------------
obligation, to provide any additional services which may be requested by Tenant,
including, without limitation, locksmithing, non-Building standard lamp
replacement, additional janitorial service, and additional repairs and
maintenance, provided that Tenant shall pay to Landlord within thirty (30) days
after billing, the actual costs to Landlord of providing such additional
services plus a five percent (5%) administration fee. Charges for any utilities
or service for which Tenant is required to pay from time to time hereunder,
shall be deemed Additional Rent hereunder and shall be billed on a monthly
basis.
6.5 Abatement of Rent When Tenant Is Prevented From Using Premises. In
----------------------------------------------- --------------
the event that Tenant is prevented from using, and does not use, the Premises or
any portion thereof, for five (5) consecutive business days (the "ELIGIBILITY
PERIOD") as a result of (i) any repair, maintenance or alteration performed by
Landlord after the Lease Commencement Date and required to be performed by
Landlord under this Lease or permitted pursuant to Section 24.30 below, or (ii)
any failure to provide to the Premises any of the essential utilities and
services required to be provided in Sections 6.1.1 or 6.1.2 above (which failure
is not the result of any defects in, damage to or repairs required to be made to
the Supplemental HVAC Units or other Data Center Work), (iii) any failure to
provide access to the Premises, or (iv) because of the presence of Hazardous
Materials in, on or around the Building, the Premises or the Real Property which
was not caused or introduced by Tenant, which Hazardous Materials could, in
Tenant's business judgment and taking into account the standards, guidances and
recommendations included in applicable Laws pertaining to Hazardous Materials,
pose a material and significant health risk to occupants of the Premises, then
Tenant's obligation to pay Base Rent and Direct Expenses shall be abated or
reduced, as the case may be, from and after the first (1st) day following the
Eligibility Period and continuing until such time that Tenant continues to be so
prevented from using, and does not use, the Premises or a portion thereof, in
the proportion that the rentable square feet of the portion of the Premises that
Tenant is prevented from using, and does not use, bears to the total rentable
square feet of the Premises. To the extent Tenant shall be entitled to
abatement of rent because of a damage or destruction pursuant to Article 11 or a
taking pursuant to Article 12, then the Eligibility Period shall not be
applicable.
6.6 Tenant's Right to Install Security System. If Tenant wishes to
-----------------------------------------
establish or install any automated and/or nonautomated security system in, on or
about the Premises, Tenant shall first notify Landlord of Tenant's plan for any
such system, and Landlord shall have the right to review and approve or
disapprove said plan in Landlord's discretion. If Landlord approves any such
plan and Tenant establishes or installs any automated and/or nonautomated
security system in, on or about the Premises, and should such system adversely
or materially affect the Premises or the Building or the desirability of the
Premises or the Building as office space, or as an office building, or have an
adverse or material effect on other tenants respectively, Landlord shall
subsequently have the right to review Tenant's security system from time to time
and request Tenant to make changes in the security services and/or equipment.
Tenant shall make such requested changes immediately thereafter. Landlord shall
have no obligation to maintain, service or respond to Tenant's security system.
Tenant hereby indemnifies, defends, protects and holds Landlord harmless from
and against any and all claims, losses and damages (including, but not limited
to actual and consequential damages) by or on behalf of Tenant, or any other
person, including but not limited to its employees, visitors, invitees,
licensees or customers, arising directly or indirectly from Landlord's not
maintaining, servicing or responding to Tenant's security system.
6.7 Back-Up Power. Tenant desires back-up emergency power for the
-------------
operation of Tenant's business in the Premises in the event of a power failure
in the Premises, which emergency back-up power shall be provided through one of
the following methods as mutually determined by Landlord and Tenant during the
preparation of the Working Drawings for the Tenant Improvements pursuant to the
Tenant Work Letter: (i) from a new emergency generator to be installed by
Landlord on the Real Property, which generator includes the generator itself, an
automatic transfer switch, distribution boards, conduit and wire directly
attributable to emergency power distribution, and fuel tank (collectively , the
"EMERGENCY GENERATOR"), with connections to the Premises via electrical cabling
to be installed by Landlord pursuant to the Tenant Work Letter during the
construction of the initial Tenant Improvements; or (ii) Tenant's own portable
emergency generator to be brought onto the Real Property during such power
failure and connected to the Premises via a "HUBBELL PLUG" and with connections
to the Premises via electrical cabling to be installed by Landlord pursuant to
the Tenant Work Letter during the construction of the initial Tenant
Improvements. The cost of acquisition and installation of the Emergency
Generator (or Hubbell Plug) and related electrical cabling shall be paid for by
Landlord, while the cost of Tenant's own emergency generator in the event the
Hubbell Plug is installed shall be paid for by Tenant; provided, however, Tenant
shall reimburse Landlord on a monthly basis, as Additional Rent, for Tenant's
pro rata share of the actual cost of acquisition and installation (amortized on
a monthly basis over the period which is the earlier of (A) the portion of the
Lease Term remaining following installation of the Emergency Generator or (B)
the useful life of the Emergency Generator, as reasonably determined by
Landlord), use, operation, repair and, if necessary, replacement of the
Emergency Generator if installed pursuant to (i) hereinabove. Such pro rata
share shall be determined based upon the ratio of the amperage capacity reserved
or required for Tenant's emergency power use to the total amperage capacity of
the Emergency Generator. Landlord
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<PAGE>
makes no representations or warranties whatsoever that the Emergency Generator
and/or Hubbell Plug (and related cabling and connections) will provide
sufficient back-up power for the Premises or are suitable for their intended
purposes.
ARTICLE 7
---------
REPAIRS
-------
7.1 Tenant's Repairs. Subject to Landlord's construction obligations in
----------------
the Tenant Work Letter and Landlord's repair obligations in Section 7.2 below,
Tenant shall, at Tenant's own expense, keep the Data Center and all non-
structural portions of the Premises, including all improvements, fixtures and
furnishings therein (but excluding the Base Building Systems, as defined in
Section 7.2 below), in good order, repair and condition at all times during the
Lease Term, except for damage by ordinary wear and tear, and except for any and
damage by casualty which is Landlord's obligation to repair in Section 11.1
below. Such repair obligations shall include, without limitation, (i) the
obligation to promptly and adequately repair all damaged or broken fixtures and
appurtenances, and (ii) maintaining, repairing and replacing, as necessary, at
Tenant's sole cost and expense, the Data Center and Data Center Work (including,
without limitation, the Supplemental HVAC Units, whether installed in the
Premises or on the roof of the Building), which repairs shall include ordinary
wear and tear and casualty damage and shall be performed by a third-party
maintenance contractor selected by Tenant and approved by Landlord pursuant to a
maintenance contract approved by Landlord; provided, however, Landlord may elect
to perform such maintenance, repairs and/or replacements, and Tenant shall pay
to Landlord, as Additional Rent, the actual, documented and reasonable cost
thereof (including the cost of the maintenance contract), without profit to
Landlord, within thirty (30) days after invoice from Landlord. If Tenant fails
to maintain the Premises in good order, condition and repair, Landlord shall
give Tenant written notice that Tenant must do such acts and expend such funds
at the expense of Tenant as are reasonably required to perform such work.
Should Tenant refuse or neglect to repair the Premises at any time within ten
(10) days from the date on which Landlord makes such written demand on Tenant to
effect such repair (or if such repair shall require more than ten (10) days to
complete and Tenant shall fail to commence such repair within such ten (10) day
period and to thereafter pursue such repair diligently to completion), Landlord
may enter the Premises and make such repairs, and upon completion thereof,
Tenant agrees to pay to Landlord, as additional rent, Landlord's reasonable
costs of completing such repairs plus an amount not to exceed five percent (5%)
of such costs for Landlord's overhead, within thirty (30) days of receipt from
Landlord of a written itemized bill therefor. Prior to commencing any item of
repair or maintenance work which is connected to or may potentially adversely
affect any structural portion of the Building or any of the Base Building
Systems, Tenant shall notify Landlord and Landlord may elect to perform the
required work at Tenant's cost, which shall in no event exceed the cost for
which Tenant could have had the work performed.
7.2 Landlord's Repairs. Anything contained in Section 7.1 above to the
------------------
contrary notwithstanding, and subject to Articles 11 and 12 of this Lease,
Landlord shall repair and maintain the structural portions of the Building, the
common areas of the Building and Real Property, the basic plumbing, heating,
ventilating, air conditioning and electrical systems serving the Building and
not located in the Premises (collectively, "BASE BUILDING SYSTEMS") and the
public restrooms on each floor of the Building in good order, repair and
condition and in a manner at least comparable to the Comparable Buildings;
provided, however, if such maintenance and repairs are caused in part or in
whole by the act, neglect, fault of or omission of any duty by Tenant, its
agents, servants, employees or invitees, Tenant shall, subject to Article 10,
pay to Landlord as additional rent, the reasonable cost of such maintenance and
repairs. The Base Building Systems shall not include Tenant's Supplemental HVAC
Units or any other Data Center Work, but shall include the Emergency Generator
or Hubbell Plug (as defined in Section 6.7 above) and related electrical cabling
to the Premises. In addition to the foregoing, such portions of the Building
and the Real Property (including, without limitation, the common areas and Base
Building Systems) shall be maintained by Landlord in a condition and a state of
repair at least comparable to the condition and state of repair in which the
Comparable Buildings are being maintained. Furthermore, Landlord shall comply
with all laws which are applicable to the common areas of the Building and Real
Property, the structural portions of the Building and the Base Building Systems,
the cost of which compliance shall be included in Operating Expenses except to
the extent specifically excluded therefrom in Article 4; provided however that
(i) to the extent any such costs are incurred to rectify any such non-compliance
of any such portion of the Real Property in existence as of the Lease
Commencement Date and not resulting from Tenant's Data Center Work, Landlord
shall pay for such costs from its own funds and not as part of Operating
Expenses, and (ii) to the extent any such compliance is necessitated by any
Tenant-Caused Events (as defined below), Tenant shall be liable for such
compliance at Tenant's sole cost and expense. As used herein, "TENANT-CAUSED
EVENTS" shall mean any such compliance necessitated by (A) any Alterations
performed by or for Tenant which is not otherwise included in Landlord's
obligation in clause (i) hereinabove, (B) the Data Center Work, (C) any specific
act or negligence of Tenant or Tenant's agents, employees, licensees or
invitees, and/or (D) by Tenant's specific manner of use of the Premises.
Landlord shall not be liable for any failure to make any such repairs, or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need of such repairs or maintenance is given to
Landlord by Tenant, and such repairs by Landlord shall be diligently prosecuted
to completion during non-Business Hours, to the extent practicable. There shall
be no abatement of rent (except as expressly provided in Section 6.5 and
Articles 11 and 12) and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances and equipment therein. Subject to Section
7.3 below, Tenant hereby waives and releases its right to make repairs at
Landlord's expense under Sections 1941 and 1942 of the California Civil Code; or
under any similar law, statute, or ordinance now or hereafter in effect.
7.3 Tenant's Right to Make Repairs. If Tenant provides written notice (or
------------------------------
oral notice in the event of an emergency, such as damage or destruction to or of
a structural component, or any electrical, plumbing, mechanical or
telecommunications system of or in the Building or the Premises (including but
not limited to damage to the roof, or exterior window or door)) to Landlord of
an event or circumstance which requires the action of Landlord with respect to
repair and/or maintenance pursuant to Section 7.2 above, and Landlord fails to
provide such action within a reasonable period of time, given the circumstances,
after the receipt of such notice, but in any event not later than thirty (30)
days after receipt of such notice (or such longer period as reasonably necessary
if more than 30 days are reasonably required to complete such repairs and
Landlord commences such repairs within such 30-day period and thereafter
diligently attempts to complete same), then Tenant may proceed to take the
required action upon delivery of an additional ten (10) business days' notice to
Landlord specifying that Tenant is taking such required action (provided,
however, that such additional notice shall not be required in the event of an
emergency), and if such action was
-11-
<PAGE>
required under the terms of this Lease to be taken by Landlord and was not taken
by Landlord within such ten (10) day period, then Tenant shall be entitled to
prompt reimbursement by Landlord of Tenant's reasonable costs and expenses in
taking such action plus interest thereon at the Interest Rate. In the event
Tenant takes such action, and such work will affect the Base Building Systems
(including, without limitation, any riser cabling) or the structural integrity
of the Building, Tenant shall use only those contractors used by Landlord in the
Building for work on such systems unless such contractors are unwilling or
unable to perform, or timely perform, such work, in which event Tenant may
utilize the services of any other qualified contractor which normally and
regularly performs similar work in Comparable Buildings. Further, if Landlord
does not deliver a detailed written objection to Tenant within thirty (30) days
after receipt of an invoice by Tenant of its costs of taking action which Tenant
claims should have been taken by Landlord, and if such invoice from Tenant sets
forth a reasonably particularized breakdown of its costs and expenses in
connection with taking such action on behalf of Landlord, then Tenant shall be
entitled to deduct from Rent payable by Tenant under this Lease, the amount set
forth in such invoice. If, however, Landlord delivers to Tenant within thirty
(30) days after receipt of Tenant's invoice, a written objection to the payment
of such invoice, setting forth with reasonable particularity Landlord's reasons
for its claim that such action did not have to be taken by Landlord pursuant to
the terms of this Lease or that the charges are excessive (in which case
Landlord shall pay the amount it contends would not have been excessive), then
Tenant shall not be entitled to such deduction from Rent, but as Tenant's sole
remedy, Tenant may proceed to claim a default by Landlord and file an action in
a court of competent jurisdiction in connection therewith.
ARTICLE 8
---------
ADDITIONS AND ALTERATIONS
-------------------------
8.1 Landlord's Consent to Alterations. Tenant may not make any
---------------------------------
improvements, alterations, additions or changes to the Premises (collectively,
the "ALTERATIONS") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
ten (10) days prior to the commencement thereof, and which consent shall not be
unreasonably withheld by Landlord; provided, however, Landlord may withhold its
consent in its sole and absolute discretion with respect to any Alterations
which may adversely affect the structural components of the Building or the
Systems and Equipment or which can be seen from (or may affect any area) outside
the Premises (the "PROHIBITED ALTERATIONS"). Notwithstanding the foregoing to
the contrary, Landlord's prior consent shall not be required with respect to any
interior Alterations to the Premises which (i) are not the Prohibited
Alterations, (ii) cost less than $25,000.00 for any one (1) job, and (iii) do
not require a permit of any kind, as long as (A) Tenant delivers to Landlord
notice and a copy of any final plans, specifications and working drawings for
any such Alterations at least ten (10) days prior to commencement of the work
thereof, and (B) the other conditions of this Article 8 are satisfied,
including, without limitation, conforming to Landlord's rules, regulations and
insurance requirements which govern contractors. Tenant shall pay directly for
all overhead, general conditions, fees and other costs and expenses of the
Alterations, and shall also pay to Landlord, within thirty (30) days after
invoice; (1) the actual and reasonable out-of-pocket costs incurred by Landlord
for professional services and for the general conditions of Landlord's third
party consultants if utilized by Landlord (but not Landlord's "in-house"
personnel) for review of all plans, specifications and working drawings for any
Alterations (provided, however, that such Landlord costs shall not exceed the
costs charged by comparable landlords of Comparable Buildings to so review and
approve such plans and specifications as set forth herein); plus (2) a Landlord
supervision fee of four percent (4%) of the cost of the Alterations. The
construction of the initial improvements to the Premises shall be governed by
the terms of the Tenant Work Letter and not the terms of this Article 8.
8.2 Manner of Construction. Landlord may impose, as a condition of its
----------------------
consent to all Alterations or repairs of the Premises or about the Premises,
such requirements as Landlord in its reasonable discretion may deem desirable,
including, but not limited to, the requirement that Tenant utilize for such
purposes only contractors, materials, mechanics and materialmen reasonably
approved by Landlord; provided, however, Landlord may impose such requirements
as Landlord may determine, in its sole and absolute discretion, with respect to
any work affecting the structural components of the Building or Systems and
Equipment (including designating specific contractors to perform such work as
long as such contractors are cost competitive). Tenant shall construct such
Alterations and perform such repairs in conformance with any and all applicable
rules and regulations of any federal, state, county or municipal code or
ordinance and pursuant to a valid building permit, issued by the city in which
the Building is located, and in conformance with Landlord's construction rules
and regulations. Landlord's approval of the plans, specifications and working
drawings for Tenant's Alterations shall create no responsibility or liability on
the part of Landlord for their completeness, design sufficiency, or compliance
with all laws, rules and regulations of governmental agencies or authorities.
All work with respect to any Alterations must be done in a good and workmanlike
manner and diligently prosecuted to completion to the end that the Premises
shall at all times be a complete unit except during the period of work. In
performing the work of any such Alterations, Tenant shall have the work
performed in such manner as not to obstruct access to the Building or the common
areas for any other tenant of the Building, and as not to obstruct the business
of Landlord or other tenants in the Building, or interfere with the labor force
working in the Building. If Tenant makes any Alterations, Tenant agrees to
carry "Builder's All Risk" insurance in an amount reasonably approved by
Landlord covering the construction of such Alterations, and such other insurance
as Landlord may reasonably require, it being understood and agreed that all of
such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease
immediately upon completion thereof. In addition, with respect to any
Alterations which costs in excess of $25,000.00, Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a co-
obligee. Upon completion of any Alterations, Tenant shall (i) cause a Notice of
Completion to be recorded in the office of the Recorder of the county in which
the Building is located in accordance with Section 3093 of the Civil Code of the
State of California or any successor statute, (ii) deliver to the Building
management office a reproducible copy of the "as built" drawings of the
Alterations, and (iii) deliver to Landlord evidence of payment, contractors'
affidavits and full and final waivers of all liens for labor, services or
materials.
8.3 Landlord's Property. All Alterations, improvements, fixtures and/or
-------------------
equipment which may be installed or placed in or about the Premises, and all
signs installed in, on or about the Premises, from time to time, shall be at the
sole cost of Tenant and shall be and become the property of Landlord and will
remain upon and be surrendered with the Premises at the end of the Lease Term;
provided, however, Landlord may, by written notice delivered to Tenant
concurrently with Landlord's approval of the final working drawings for any
Alterations, identify those Alterations which Landlord will require Tenant to
remove at the
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<PAGE>
expiration or earlier termination of this Lease; provided further, however, that
Tenant shall in no event be required to remove any of the initial Tenant
Improvements installed pursuant to the Tenant Work Letter or any Alteration
which is a typical office alteration (it being agreed by Tenant that internal
stairwells and raised floors are not typical office alterations). Landlord may
also require Tenant to remove Alterations which Landlord did not have the
opportunity to approve as provided in Section 8.1 above; provided, however, that
Tenant shall in no event be required to remove any Alteration which is a typical
office alteration. If Landlord requires Tenant to remove any such Alterations,
Tenant, at its sole cost and expense, agrees to remove the identified
Alterations on or before the expiration or earlier termination of this Lease and
repair any damage to the Premises caused by such removal. If Tenant fails to
complete such removal and/or to repair any damage caused by the removal of any
Alterations, Landlord may do so and may charge the cost thereof to Tenant.
ARTICLE 9
---------
COVENANT AGAINST LIENS
----------------------
Tenant has no authority or power to cause or permit any lien or encumbrance
of any kind whatsoever, whether created by act of Tenant, operation of law or
otherwise, to attach to or be placed upon the Real Property, Building or
Premises, and any and all liens and encumbrances created by Tenant shall attach
to Tenant's interest only. Landlord shall have the right at all times to post
and keep posted on the Premises any notice which it deems necessary for
protection from such liens. Tenant covenants and agrees not to suffer or permit
any lien of mechanics or materialmen or others to be placed against the Real
Property, the Building or the Premises with respect to work or services claimed
to have been performed for or materials claimed to have been furnished to Tenant
or the Premises, and, in case of any such lien attaching or notice of any lien,
Tenant covenants and agrees to cause it to be released and removed of record,
within twenty (20) days after the date of filing, by payment of the lien amount
or by posting a bond in the amount of such lien or otherwise. Should Tenant
fail to cause such liens to be released of record within such twenty (20) day
period, Landlord, at its sole option, may immediately take all action necessary
to release and remove such lien, without any duty to investigate the validity
thereof, and all sums, costs and expenses, including reasonable attorneys' fees
and costs, incurred by Landlord in connection with such lien shall be deemed
Additional Rent under this Lease and shall be due and payable by Tenant within
fifteen (15) days after receipt of invoice therefor from Landlord.
ARTICLE 10
----------
INDEMNIFICATION AND INSURANCE
-----------------------------
10.1 Indemnification and Waiver. Tenant hereby assumes all risk of
--------------------------
damage to property and injury to persons, in or on the Premises from any cause
whatsoever and agrees that Landlord, and its partners and subpartners, and their
respective officers, agents, property managers, servants, employees, and
independent contractors (collectively, "LANDLORD PARTIES") shall not be liable
for, and are hereby released from any responsibility for, any damage to property
or injury to persons or resulting from the loss of use thereof, which damage or
injury is sustained by Tenant or by other persons claiming through Tenant.
Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties
from any and all loss, cost, damage, expense and liability, including without
limitation court costs and reasonable attorneys' fees (collectively, "CLAIMS")
incurred in connection with or arising from any cause in or on the Premises
(including, without limitation, Tenant's installation, placement and removal of
Alterations, improvements, fixtures and/or equipment in or on the Premises), and
any acts, omissions or negligence of Tenant or of any person claiming by,
through or under Tenant, or of the contractors, agents, servants, employees,
licensees or invitees of Tenant or any such person, in, on or about the
Premises, Building and Real Property. Notwithstanding anything in this Section
10.1 to the contrary, the foregoing assumption of risk, release and indemnity
shall not apply to any Claims to the extent (i) resulting from the negligence or
willful misconduct of Landlord or its agents, contractors or employees, (ii) not
covered by Tenant's insurance (and which would not have been covered by Tenant's
insurance had Tenant carried the insurance required pursuant to the terms of
this Lease), and (iii) not self-insured by Tenant pursuant to the terms of this
Lease (collectively, the "EXCLUDED CLAIMS"), and Landlord shall indemnify,
protect, defend and hold harmless Tenant and its affiliates and their respective
partners, sub-partners, officers, agents and employees (collectively, "TENANT
PARTIES") from and against any such Excluded Claims, but only to the extent
Landlord's liability is not waived and released by Tenant pursuant to the terms
of Section 10.4 of this Lease (provided, however, that Landlord's indemnity
shall, in no event, extend to loss of profits, loss of business and other
consequential damages incurred by Tenant or any Tenant Parties). The provisions
of this Section 10.1 shall survive the expiration or sooner termination of this
Lease.
10.2 Landlord's Insurance. Landlord shall carry commercial general
--------------------
liability insurance with respect to the Building and Real Property during the
Lease Term, and shall further insure the Building (except, at Landlord's option,
with respect to items required to be insured by Tenant pursuant to Section
10.3.2 of this Lease) during the Lease Term against loss or damage due to fire
and other casualties covered within the classification of fire and extended
coverage, vandalism coverage and malicious mischief, sprinkler leakage, water
damage and special extended coverage. Such coverage shall be in such amounts,
from such companies, and on such other terms and conditions, as Landlord may
from time to time reasonably determine. Additionally, at the option of Landlord,
such insurance coverage may include the risks of earthquakes and/or flood damage
and additional hazards, a rental loss endorsement and one or more loss payee
endorsements in favor of the holders of any mortgages or deeds of trust
encumbering the interest of Landlord in the Building or the ground or underlying
lessors of the Building, or any portion thereof. Notwithstanding the foregoing
provisions of this Section 10.2, the coverage and amounts of insurance carried
by Landlord in connection with the Building shall, at a minimum, be comparable
to the coverage and amounts of insurance which are carried by reasonably prudent
landlords of Comparable Buildings (with at least full replacement cost coverage
with respect to casualty damage), provided that in no event shall Landlord be
required to carry earthquake or flood insurance. Tenant shall, at Tenant's
expense, comply as to the Premises with all insurance company requirements
pertaining to the use of the Premises. If Tenant's conduct or use of the
Premises causes any increase in the premium for such insurance policies, then
Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's
expense, shall comply with all rules, orders, regulations or requirements of the
American Insurance Association (formerly the National Board of Fire
Underwriters) and with any similar body.
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<PAGE>
10.3 Tenant's Insurance. Tenant shall maintain the following coverages
------------------
in the following amounts from and after the date (the "INSURANCE START DATE")
which is the earlier of (i) the date Tenant performs any work in, or takes
occupancy of, all or any portion of the Premises, or (ii) the Lease Commencement
Date, and continuing throughout the Lease Term:
10.3.1 Commercial General Liability Insurance covering the
insured against claims of bodily injury, personal injury and property damage
arising out of Tenant's operations, assumed liabilities or use of the Premises,
including a Broad Form Commercial General Liability endorsement covering the
insuring provisions of this Lease and the performance by Tenant of the indemnity
agreements set forth in Section 10.1 of this Lease, for limits of liability not
less than:
Bodily Injury and $3,000,000 each occurrence
Property Damage Liability $3,000,000 annual aggregate
Personal Injury Liability $3,000,000 each occurrence
$3,000,000 annual aggregate
0% Insured's participation
10.3.2 Physical Damage Insurance covering (i) all office
furniture, trade fixtures, office equipment, merchandise and all other items of
Tenant's property on the Premises installed by, for, or at the expense of
Tenant, (ii) the Tenant Improvements, including any Tenant Improvements which
Landlord permits to be installed above the ceiling of the Premises or below the
floor of the Premises, and (iii) the Tenant's Data Center Work and all other
improvements, alterations and additions to the Premises, including any
improvements, alterations or additions installed at Tenant's request above the
ceiling of the Premises or below the floor of the Premises. Such insurance shall
be written on an "all risks" of physical loss or damage basis, for the full
replacement cost value new without deduction for depreciation of the covered
items and in amounts that meet any co-insurance clauses of the policies of
insurance and shall include a vandalism and malicious mischief endorsement,
sprinkler leakage coverage and earthquake sprinkler leakage coverage.
10.3.3 Business Interruption Insurance in such amounts as will
reimburse Tenant for direct and indirect loss of earnings and incurred costs
attributable to the perils covered by Tenant's property insurance described in
Section 10.3.2 above; provided, however, Tenant may self-insure for the
insurance set forth in this Section 10.3.3, but any such self-insurance shall be
deemed to contain all of the terms and conditions applicable to such insurance
as required in this Article 10.
10.3.4 Form of Policies. The minimum limits of policies of
----------------
insurance required of Tenant under this Lease shall in no event limit the
liability of Tenant under this Lease. Such insurance shall: (i) name Landlord,
and any other party it so specifies that has an interest in the Real Property,
Building or Premises, as an additional insured (but Tenant shall not be required
to name Landlord as an additional insured with respect to Tenant's property
damage insurance described in Section 10.3.2 (i) above) ; (ii) specifically
cover the liability maintained by Tenant under this Lease, including, but not
limited to, Tenant's obligations under Section 10.1 of this Lease; (iii) be
issued by an insurance company having a rating of not less than A-X in Best's
Insurance Guide or which is otherwise acceptable to Landlord and licensed to do
business in the state in which the Building is located; (iv) be primary
insurance as to all claims thereunder and provide that any insurance carried by
Landlord is excess and is non-contributing with any insurance requirement of
Tenant; (v) provide that said insurance shall not be canceled or coverage
changed unless thirty (30) days' prior written notice shall have been given to
Landlord and any mortgagee or ground or underlying lessor of Landlord; (vi)
contain a cross-liability endorsement or severability of interest clause
acceptable to Landlord; and (vii) contain deductibles reasonably approved by
Landlord (which deductibles with respect to the insurance described in Section
10.3.2 shall in no event exceed $10,000.00). Tenant shall deliver certificates
of such insurance policies to Landlord at least five (5) days before the
Insurance Start Date and at least fifteen (15) days before the expiration dates
of such policies. If Tenant shall fail to procure such insurance, or to deliver
such certificates, within such time periods, Landlord may, at its option, in
addition to all of its other rights and remedies under this Lease, and without
regard to any notice and cure periods set forth in Section 19.1, procure such
policies for the account of Tenant, and the cost thereof shall be paid to
Landlord as Additional Rent within ten (10) days after delivery of bills
therefor.
10.4 Subrogation. Landlord and Tenant agree to have their respective
-----------
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. Anything in this Lease to the contrary
notwithstanding (including the provisions of Section 10.1 above), to the fullest
extent permitted by law, Landlord and Tenant hereby waive and release each other
of and from any and all rights of recovery, claims, actions or causes of action,
against each other, their partners, agents, officers and employees, for any loss
or damage that may occur to the Premises, Building or Real Property, or personal
property within the Building, regardless of cause or origin, including the
negligence of Landlord or Tenant and their partners, agents, representatives,
officers and employees, but only to the extent such loss or damage is covered
by, and proceeds are collectible under, insurance in effect at the time of such
loss or damage or would be covered by the casualty insurance required to be
carried under Sections 10.2 and 10.3 above if such insurance is self-insured or
is otherwise not being carried in breach of said obligations. Landlord and
Tenant agree to give immediately to their respective insurance companies, which
have issued policies of insurance covering any risk of direct physical loss,
written notice of the terms of the mutual waivers contained in this Section
10.4, and to have the insurance policies properly endorsed, if necessary.
Landlord and Tenant acknowledge that the waivers and releases set forth in this
Section 10.4 are intended to result in any loss or damage which is covered by
casualty insurance being borne by the insurance carrier of Landlord or Tenant,
as the case may be, or by the party having the insurable interest if such loss
is not covered by such insurance or is being self-insured and this Lease
required such party to maintain insurance to cover such loss. Landlord and
Tenant agree that such waivers and releases were freely bargained for and
willingly and voluntarily agreed to by Landlord and Tenant and do not constitute
a violation of public policy.
10.5 Additional Insurance Obligations. Upon demand but not more
--------------------------------
frequently than once each year, Tenant shall provide Landlord, at Tenant's
expense, with such increased amounts of existing insurance, and such other
insurance in such limits, as Landlord may reasonably require and such other
hazard insurance as the nature and condition of the Premises may require in the
reasonable good faith judgment of Landlord, to afford Landlord adequate
protection for said risks to the extent such additional
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<PAGE>
insurance coverage shall be available on a commercially reasonable basis;
provided however, that in no event shall any such insurance coverage be
increased in excess of that which is from time to time being required by
comparable landlords of comparable tenants leasing comparable amounts of space
in Comparable Buildings.
ARTICLE 11
----------
DAMAGE AND DESTRUCTION
----------------------
11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly
----------------------------------------
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any common areas of the Building serving or
providing access to the Premises shall be damaged by fire or other casualty,
Landlord shall promptly and diligently, subject to reasonable delays for
insurance adjustment or other matters beyond Landlord's reasonable control, and
subject to all other terms of this Article 11, restore the base, shell, and core
of the Premises and such common areas. Such restoration shall be to
substantially the same condition of the base, shell, and core of the Premises
and common areas prior to the casualty, except for modifications required by
zoning and building codes and other laws, or any other modifications to the
common areas deemed desirable by Landlord, in its reasonable discretion,
provided use of and access to the Premises and any common restrooms serving the
Premises shall not be materially impaired. Notwithstanding any other provision
of this Lease, upon the occurrence of any damage to the Premises, Tenant shall
assign to Landlord (or to any party designated by Landlord) all insurance
proceeds payable to Tenant under Tenant's insurance required under Sections
10.3.2(ii) and (iii) of this Lease, and Landlord shall repair any injury or
damage to the tenant improvements and alterations installed in the Premises
(using first proceeds available to the Landlord under Tenant's casualty
insurance policy and secondly using the proceeds available under Landlord's
casualty insurance policy) and shall return such tenant improvements and
alterations to their original condition; provided that if the cost of such
repair by Landlord exceeds the amount of insurance proceeds received by Landlord
from Tenant's insurance carrier, as assigned by Tenant and Landlord's insurance
carrier, the cost of such repairs shall be paid by Tenant to Landlord prior to
Landlord's repair of the damage. In connection with such repairs and
replacements, Tenant shall, prior to the commencement of construction, submit to
Landlord, for Landlord's review and approval (which approval shall not be
unreasonably withheld or delayed), all plans, specifications and working
drawings relating thereto, and Landlord shall, in its reasonable discretion,
select the contractors to perform such improvement work. Landlord shall not be
liable for any inconvenience or annoyance to Tenant or its visitors, or injury
to Tenant's business resulting in any way from such damage or the repair
thereof; provided however, that if such fire or other casualty shall have
damaged the Premises or common areas necessary to Tenant's occupancy, Landlord
shall allow Tenant a proportionate abatement of Base Rent and Tenant's Share of
Direct Expenses during the time and to the extent the Premises are unfit for
occupancy for the purposes permitted under this Lease, and not occupied by
Tenant for the purpose of conducting its business in the ordinary course as a
result thereof.
11.2 Termination Rights. Within sixty (60) days after Landlord becomes
------------------
aware of such damage, Landlord shall notify Tenant in writing ("LANDLORD'S
DAMAGE NOTICE") of the estimated time, in Landlord's reasonable judgment,
required to substantially complete the repairs of such damage (the "ESTIMATED
REPAIR PERIOD"). Notwithstanding the terms of Section 11.1 of this Lease,
Landlord may elect not to rebuild and/or restore the Premises and/or Building
and instead terminate this Lease by notifying Tenant in writing of such
termination within sixty (60) days after the date of damage, such notice to
include a termination date giving Tenant ninety (90) days to vacate the
Premises, but Landlord may so elect only if the Building shall be damaged by
fire or other casualty or cause, whether or not the Premises are affected, and
one or more of the following conditions is present: (i) repairs cannot, in
Landlord's opinion, as set forth in Landlord's Damage Notice, reasonably be
completed within two hundred seventy (270) days of the date of damage (when such
repairs are made without the payment of overtime or other premiums); or (ii) the
damage is not fully covered, except for deductible amounts, by Landlord's
insurance policies obtained or required to be obtained pursuant to Section 10.2
above; provided, however, that (A) if Landlord does not elect to terminate this
Lease pursuant to Landlord's termination right as provided above, (B) the damage
constitutes a Tenant Damage Event (as defined below), and (C) the repair of such
damage cannot, in the reasonable opinion of Landlord, as set forth in Landlord's
Damage Notice, be completed within two hundred seventy (270) days after the date
of the damage, then Tenant may elect to terminate this Lease by delivering
written notice thereof to Landlord within fifteen (15) days after Tenant's
receipt of Landlord's Damage Notice, which termination shall be effective as of
the date of such termination notice thereof to Landlord. As used herein, a
"TENANT DAMAGE EVENT" shall mean damage to all or any part of the Premises or
any common areas of the Building providing access to the Premises by fire or
other casualty, which damage is not the result of the gross negligence or
willful misconduct of Tenant or any of Tenant's employees, agents, contractors
or licensees, and which damage substantially interferes with Tenant's use of or
access to the Premises and would entitle Tenant to an abatement of Rent pursuant
to Section 11.1 above. In addition, in the event of a Tenant Damage Event, and
if neither Landlord nor Tenant has elected to terminate this Lease as provided
hereinabove, but Landlord fails to substantially complete the repair and
restoration of such Tenant Damage Event within the Estimated Repair Period plus
sixty (60) days, plus the number of days of delay, if any, attributable to
events of "Force Majeure," as that term is defined in Section 24.17 hereof
(provided that the total number of days of delay attributable to an event of
Force Majeure may not exceed thirty (30)), plus the number of days of delay, if
any, as are attributable to the acts or omissions of Tenant, then Tenant shall
have an additional right to terminate this Lease by delivering written
termination notice to Landlord within fifteen (15) days after the expiration of
such period, which termination shall be effective as of the date of such
termination notice. Further, in the event that the Premises or the Building is
destroyed or damaged to any substantial extent during the last twelve (12)
months of the Lease Term, then notwithstanding anything contained in this
Article 12, Landlord shall have the option to terminate this Lease, and to the
extent such destruction or damage constitutes a Tenant Damage Event and the
repair of same is reasonably expected by Landlord to require more than sixty
(60) days to complete, Tenant shall have the option to terminate this Lease, by
giving written termination notice to the other party of the exercise of such
option within thirty (30) days after the date of such damage or destruction. If
either Landlord or Tenant exercises any of its options to terminate this Lease
as provided hereinabove, (1) this Lease shall cease and terminate as of the date
of such termination notice, (2) Tenant shall pay the Base Rent and Additional
Rent, properly apportioned up to such date of termination, and (3) both parties
hereto shall thereafter be freed and discharged of all further obligations
hereunder, except as provided for in provisions of this Lease which by their
terms survive the expiration or earlier termination of the Lease Term.
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<PAGE>
11.3 Waiver of Statutory Provisions. The provisions of this Lease,
------------------------------
including this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or any other portion of the Real Property, and any
statute or regulation of the state in which the Building is located, including,
without limitation, Sections 1932(2) and 1933(4) of the California Civil Code,
with respect to any rights or obligations concerning damage or destruction in
the absence of an express agreement between the parties, and any other statute
or regulation, now or hereafter in effect, shall have no application to this
Lease or any damage or destruction to all or any part of the Premises, the
Building or any other portion of the Real Property.
ARTICLE 12
----------
CONDEMNATION
------------
12.1 Permanent Taking. If the whole or any part of the Premises or
----------------
Building shall be taken by power of eminent domain or condemned by any competent
authority for any public or quasi-public use or purpose, or if any adjacent
property or street shall be so taken or condemned, or reconfigured or vacated by
such authority in such manner as to require the use, reconstruction or
remodeling of any part of the Premises or Building, or if Landlord shall grant a
deed or other instrument in lieu of such taking by eminent domain or
condemnation, Landlord shall have the option to terminate this Lease upon ninety
(90) days' notice, provided such notice is given no later than one hundred
eighty (180) days after the date of such taking, condemnation, reconfiguration,
vacation, deed or other instrument. If more than twenty-five percent (25%) of
the rentable square feet of the Premises is taken, or if access to the Premises
is substantially impaired, Tenant shall have the option to terminate this Lease
upon ninety (90) days' notice, provided such notice is given no later than one
hundred eighty (180) days after the date of such taking. Landlord shall be
entitled to receive the entire award or payment in connection therewith, except
that (i) Tenant shall have the right to file any separate claim available to
Tenant for (A) any taking of Tenant's personal property and fixtures belonging
to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to
the terms of this Lease, (B) Tenant's moving expenses, and (C) interruption to
or damage to Tenant's business, and (ii) Landlord and Tenant shall each be
entitled to received fifty percent (50%) of the "bonus value" of the leasehold
estate in connection therewith, which bonus value shall be equal to the
difference between the Rent payable under this Lease and the sum established by
the condemning authority as the award for compensation for the leasehold estate.
Landlord shall reasonably cooperate with Tenant in connection with Tenant's
efforts to obtain such award to the extent the cooperation of Landlord shall be
necessary for Tenant to obtain its award. All Rent shall be apportioned as of
the date of such termination, or the date of such taking, whichever shall first
occur. If any part of the Premises shall be taken, and this Lease shall not be
so terminated, the Rent shall be proportionately abated. Tenant hereby waives
any and all rights it might otherwise have pursuant to Section 1265.130 of The
California Code of Civil Procedure.
12.2 Temporary Taking. Notwithstanding anything to the contrary
----------------
contained this Article 12, in the event of a temporary taking of all or any
portion of the Premises for a period of one hundred and eighty (180) days or
less, then this Lease shall not terminate but the Base Rent and the Additional
Rent shall be abated for the period of such taking in proportion to the ratio
that the amount of rentable square feet of the Premises taken bears to the
total rentable square feet of the Premises. Landlord shall be entitled to
receive the entire award made in connection with any such temporary taking.
CARTICLE 13
----------
COVENANT OF QUIET ENJOYMENT
---------------------------
Landlord covenants that Tenant, on paying the Rent, charges for services
and other payments herein reserved and on keeping, observing and performing all
the other terms, covenants, conditions, provisions and agreements herein
contained on the part of Tenant to be kept, observed and performed, shall,
during the Lease Term, peaceably and quietly have, hold and enjoy the Premises
subject to the terms, covenants, conditions, provisions and agreements hereof
without interference by any persons lawfully claiming by or through Landlord.
The foregoing covenant is in lieu of any other covenant express or implied.
ARTICLE 14
----------
ASSIGNMENT AND SUBLETTING
-------------------------
14.1 Transfers. Tenant shall not, without the prior written consent of
---------
Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to
attach to, or otherwise transfer, this Lease or any interest hereunder, permit
any assignment or other such foregoing transfer of this Lease or any interest
hereunder by operation of law, sublet the Premises or any part thereof, or
permit the use of the Premises by any persons other than Tenant and its
employees (all of the foregoing are hereinafter sometimes referred to
collectively as "TRANSFERS" and any person to whom any Transfer is made or
sought to be made is hereinafter sometimes referred to as a "TRANSFEREE"). If
Tenant shall desire Landlord's consent to any Transfer, Tenant shall notify
Landlord in writing, which notice (the "TRANSFER NOTICE") shall include (i) the
proposed effective date of the Transfer, which shall not be less than twenty
(20) days nor more than one hundred eighty (180) days after the date of delivery
of the Transfer Notice, (ii) a description of the portion of the Premises to be
transferred (the "SUBJECT SPACE"), (iii) all of the terms of the proposed
Transfer, the name and address of the proposed Transferee, and a copy of all
existing and/or proposed documentation pertaining to the proposed Transfer,
including all existing operative documents to be executed to evidence such
Transfer or the agreements incidental or related to such Transfer, (iv) current
financial statements of the proposed Transferee certified by an officer, partner
or owner thereof, and (v) such other information as Landlord may reasonably
require. Any Transfer made without Landlord's prior written consent shall, at
Landlord's option, be null, void and of no effect, and shall, at Landlord's
option, constitute a default by Tenant under this Lease if not cured within the
applicable cure period. Whether or not Landlord shall grant consent, Tenant
shall pay Landlord's reasonable legal fees incurred by Landlord (which shall not
exceed $1,500.00 in each instance), within thirty (30) days after written
request by Landlord.
14.2 Landlord's Consent. Landlord shall not unreasonably withhold its
------------------
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice, and shall notify Tenant of Landlord's
consent or
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<PAGE>
disapproval within ten (10) business days after Landlord's receipt of
the Transfer Notice and the other information described in Section 14.1 above.
The parties hereby agree that it shall be reasonable under this Lease and under
any applicable law for Landlord to withhold consent to any proposed Transfer
where one or more of the following apply, without limitation as to other
reasonable grounds for withholding consent:
14.2.1 The Transferee is of a character or reputation or engaged
in a business which is not consistent with the quality of the Building;
14.2.2 The Transferee intends to use the Subject Space for
purposes which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or
instrumentality thereof, other than a governmental entity comparable to a
governmental entity already leasing space in the Building directly from
Landlord;
14.2.4 The Transfer will result in more than a reasonable and safe
number of occupants per floor within the Subject Space;
14.2.5 The Transferee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities involved under the
Lease on the date consent is requested;
14.2.6 The proposed assignee or subtenant is engaged in a
business, and the Premises, or the relevant part thereof, will be used in a
manner that will violate any restrictive or exclusive covenant as to use
contained in any other lease of space in the Building or the Real Property;
14.2.7 Either the proposed Transferee, or any person or entity
which directly or indirectly, controls, is controlled by, or is under common
control with, the proposed Transferee, (i) occupies space in the Building at the
time of the request for consent and Landlord has space in the Building available
for lease to such party of comparable size as the proposed Subject Space, or
(ii) is in active negotiations with Landlord to lease space in the Building at
such time and Landlord has space in the Building available for lease to such
party of comparable size as the proposed Subject Space.
If Landlord consents to any Transfer pursuant to the terms of this Section
14.2 (and does not exercise any recapture rights Landlord may have under Section
14.4 of this Lease), Tenant may within six (6) months after Landlord's consent,
but not later than the expiration of said six-month period, enter into such
Transfer of the Premises or portion thereof, upon substantially the same terms
and conditions as are set forth in the Transfer Notice furnished by Tenant to
Landlord pursuant to Section 14.1 of this Lease, provided that if there are any
changes in the terms and conditions from those specified in the Transfer Notice
(i) such that Landlord would initially have been entitled to refuse its consent
to such Transfer under this Section 14.2, or (ii) which would cause the proposed
Transfer to be substantially more favorable to the Transferee than the terms set
forth in Tenant's original Transfer Notice, Tenant shall again submit the
Transfer to Landlord for its approval and other action under this Article 14
(including Landlord's right of recapture, if any, under Section 14.4 of this
Lease).
14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition
----------------
thereto which the parties hereby agree is reasonable, Tenant shall pay to
Landlord fifty percent (50%) of any "Transfer Premium," as that term is defined
in this Section 14.3, received by Tenant from such Transferee. "TRANSFER
PREMIUM" shall mean all rent, additional rent or other consideration payable by
such Transferee in excess of the Rent and Additional Rent payable by Tenant
under this Lease on a per rentable square foot basis if less than all of the
Premises is transferred, after deducting the actual, documented and reasonable
expenses incurred by Tenant for (i) any changes, alterations and improvements
made to the Premises in connection with the Transfer (and any planning and
improvement allowances provided by Tenant to the Transferee in connection
therewith), and (ii) attorneys' fees, brokerage commissions and advertising
expenses in connection with the Transfer (collectively, the "SUBLEASING COSTS").
14.4 Landlord's Option as to Subject Space. Notwithstanding anything to
-------------------------------------
the contrary contained in this Article 14, in the event Tenant contemplates an
assignment or subletting of all or a portion of the Premises (or in the event of
any other assignment or subletting entered into by Tenant as a subterfuge in
order to avoid the terms of this Section 14.4), Tenant shall give Landlord
notice (the "INTENTION TO TRANSFER NOTICE") of such contemplated assignment or
subletting (whether or not the terms of the contemplated assignment or
subletting have been determined). The Intention to Transfer Notice shall
specify the portion of and amount of square feet of the Premises which Tenant
intends to assign or sublet (the "CONTEMPLATED TRANSFER SPACE"), the
contemplated date of commencement of the contemplated assignment or subletting
(the "CONTEMPLATED EFFECTIVE DATE"), and the contemplated length of the term of
such contemplated subletting or assignment, and shall specify that such
Intention to Transfer Notice is delivered to Landlord pursuant to this Section
14.4 in order to allow Landlord to elect to recapture the Contemplated Transfer
Space for the term set forth in the Intention to Transfer Notice. Thereafter,
Landlord shall have the option, by giving written notice to Tenant within thirty
(30) days after receipt of any Intention to Transfer Notice, to recapture the
Contemplated Transfer Space. Such recapture shall cancel and terminate this
Lease with respect to such Contemplated Transfer Space as of the Contemplated
Effective Date until the last day of the term of the contemplated assignment or
subletting as set forth in the Intention to Transfer Notice. In the event of a
recapture by Landlord, if this Lease shall be canceled with respect to less than
the entire Premises, the Rent reserved herein shall be prorated on the basis of
the number of square feet retained by Tenant in proportion to the number of
square feet contained in the Premises, and this Lease as so amended shall
continue thereafter in full force and effect, and upon request of either party,
the parties shall execute written confirmation of the same. If Landlord
declines, or fails to elect in a timely manner, to recapture such Contemplated
Transfer
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<PAGE>
Space under this Section 14.4, then, subject to the other terms of this
Article 14, for a period of six (6) months (the "SIX MONTH PERIOD") commencing
on the last day of such thirty (30) day period, Landlord shall not have any
right to recapture the Contemplated Transfer Space with respect to any
assignment or subletting made during the Six Month Period, provided that any
such assignment or subletting is substantially on the terms set forth in the
Intention to Transfer Notice, and provided further that any such assignment or
subletting shall be subject to the remaining terms of this Article 14. If such
an assignment or subletting is not so consummated within the Six Month Period
(or if an assignment or subletting is so consummated, then upon the expiration
of the term of any assignment or subletting of such Contemplated Transfer Space
consummated within such Six Month Period), Tenant shall again be required to
submit a new Intention to Transfer Notice to Landlord with respect any
contemplated assignment or subletting, as provided above in this Section 14.4.
14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the
------------------
terms and conditions of this Lease shall in no way be deemed to have been waived
or modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, and (iv) no Transfer relating to this Lease or agreement entered into
with respect thereto, whether with or without Landlord's consent, shall relieve
Tenant or any guarantor of the Lease from liability under this Lease. Landlord
or its authorized representatives shall have the right at all reasonable times
to audit the books, records and papers of Tenant relating to any Transfer, and
shall have the right to make copies thereof. If the Transfer Premium respecting
any Transfer shall be found understated, Tenant shall, within thirty (30) days
after demand, pay the deficiency and Landlord's costs of such audit.
14.6 Additional Transfers. Except as expressly provided in Section 14.7
--------------------
below, for purposes of this Lease, the term "Transfer" shall also include (i) if
Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by
operation of law, of fifty percent (50%) or more of the partners, or transfer of
twenty-five percent or more of partnership interests, within a twelve (12)-month
period, or the dissolution of the partnership without immediate reconstitution
thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is
not publicly held and not traded through an exchange or over the counter), (A)
the dissolution, merger, consolidation or other reorganization of Tenant, (B)
the sale or other transfer, within a twelve (12)-month period, of more than an
aggregate of fifty percent (50%) of the voting shares of Tenant (other than by
reason of an initial public offering and/or to immediate family members by
reason of gift or death), or (C) the sale, mortgage, hypothecation or pledge of
more than an aggregate of fifty percent (50%) of the value of the unencumbered
assets of Tenant within a twelve (12) month period.
14.7 Affiliated Companies/Restructuring of Business Organization. The
-----------------------------------------------------------
assignment or subletting by Tenant of all or any portion of this Lease or the
Premises to (i) a parent or subsidiary of Tenant, or (ii) any person or entity
which controls, is controlled by or under common control with Tenant, or (iii)
any entity which purchases all or substantially all of the assets of Tenant, or
(iv) any entity into which Tenant is merged or consolidated (all such persons or
entities described in (i), (ii), (iii) and (iv) being sometimes hereinafter
referred to as "AFFILIATES") shall not be deemed a Transfer under this Article
14, provided that:
14.7.1 Any such Affiliate was not formed as a subterfuge to avoid
the obligations of this Article 14;
14.7.2 Tenant gives Landlord prior notice of any such assignment or
sublease to an Affiliate;
14.7.3 The successor of Tenant and Tenant have as of the effective
date of any such assignment or sublease a tangible net worth, in the aggregate,
computed in accordance with generally accepted accounting principles (but
excluding goodwill as an asset), which is sufficient to meet the obligations of
Tenant under this Lease;
14.7.4 Any such assignment or sublease shall be subject to all of
the terms and provisions of this Lease, and such assignee or sublessee shall
assume, in a written document reasonably satisfactory to Landlord and delivered
to Landlord upon or prior to the effective date of such assignment or sublease,
all the obligations of Tenant under this Lease; and
14.7.5 Tenant and any guarantor shall remain fully liable for all
obligations to be performed by Tenant under this Lease.
ARTICLE 15
----------
SURRENDER; OWNERSHIP
--------------------
AND REMOVAL OF TRADE FIXTURES
-----------------------------
15.1 Surrender of Premises. No act or thing done by Landlord or any
---------------------
agent or employee of Landlord during the Lease Term shall be deemed to
constitute an acceptance by Landlord of a surrender of the Premises unless such
intent is specifically acknowledged in a writing signed by Landlord. The
delivery of keys to the Premises to Landlord or any agent or employee of
Landlord shall not constitute a surrender of the Premises or effect a
termination of this Lease, whether or not the keys are thereafter retained by
Landlord, and notwithstanding such delivery Tenant shall be entitled to the
return of such keys at any reasonable time upon request until this Lease shall
have been properly terminated. The voluntary or other surrender of this Lease by
Tenant, whether accepted by Landlord or not, or a mutual termination hereof,
shall not work a merger, and at the option of Landlord shall operate as an
assignment to Landlord of all subleases or subtenancies affecting the Premises.
15.2 Removal of Tenant Property by Tenant. Upon the expiration of the
------------------------------------
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear and repairs and casualty damage which are specifically made the
responsibility of Landlord hereunder excepted. Upon such expiration or
termination, Tenant shall, without expense to Landlord, remove or cause to be
removed from the Premises all debris and rubbish, and such items of furniture,
equipment, free-standing cabinet work, and other articles of personal property
owned by Tenant or installed or placed by Tenant at its expense in the Premises,
and such similar articles of any other persons claiming under Tenant, as
Landlord may, in its sole discretion, require to be removed, and Tenant shall
repair at its own expense all damage to the Premises and Building resulting from
such removal.
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ARTICLE 16
----------
HOLDING OVER
------------
If Tenant holds over after the expiration of the Lease Term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case Base Rent shall be payable at a monthly
rate equal to one hundred fifty percent (150%) of the of Base Rent applicable
during the last rental period of the Lease Term under this Lease. Such month-
to-month tenancy shall be subject to every other term, covenant and agreement
contained herein. Landlord hereby expressly reserves the right to require
Tenant to surrender possession of the Premises to Landlord as provided in this
Lease upon the expiration or other termination of this Lease. The provisions of
this Article 16 shall not be deemed to limit or constitute a waiver of any other
rights or remedies of Landlord provided herein or at law. If Tenant fails to
surrender the Premises upon the termination or expiration of this Lease, in
addition to any other liabilities to Landlord accruing therefrom, Tenant shall
protect, defend, indemnify and hold Landlord harmless from all loss, costs
(including reasonable attorneys' fees) and liability resulting from such
failure, including, without limiting the generality of the foregoing, any claims
made by any succeeding tenant founded upon such failure to surrender, and any
lost profits to Landlord resulting therefrom.
ARTICLE 17
----------
ESTOPPEL CERTIFICATES
---------------------
Either party shall at any time and from time to time (but not more often
than three (3) times in any twelve (12) month period) upon not less than fifteen
(15) business day's prior notice from the other party, execute, acknowledge and
deliver to the other party a statement in writing (i) certifying that this Lease
is unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this Lease as so modified, is in full
force and effect), and the date to which the rental and other charges are paid
in advance, if any, (ii) acknowledging that there are not, to the actual
knowledge of the certifying party, any uncured defaults, or if there are any
uncured defaults, a description of such defaults, and (iii) certifying such
other reasonable matters as the requesting party may request. Any such
statement may be relied upon by any prospective purchaser or encumbrancer of all
or any portion of the Real Property or by any prospective assignee or subtenant
of Tenant. If one party does not provide the other party with such statement as
required in this Article 17 within such fifteen (15) business day period, the
non-complying party shall be deemed to have acknowledged, as true and correct,
all of the matters set forth in such statement.
ARTICLE 18
----------
SUBORDINATION
-------------
18.1 Subordination. This Lease is subject and subordinate to all present
-------------
and future ground or underlying leases of the Real Property and to the lien of
any mortgages or trust deeds, now or hereafter in force against the Real
Property and the Building, if any, and to all renewals, extensions,
modifications, consolidations and replacements thereof, and to all advances made
or hereafter to be made upon the security of such mortgages or trust deeds,
unless the holders of such mortgages or trust deeds, or the lessors under such
ground lease or underlying leases, require in writing that this Lease be
superior thereto. A condition precedent to the subordination of this Lease to
any future ground or underlying lease or to the lien of any future mortgage or
deed of trust is that Landlord shall obtain for the benefit of Tenant a
commercially reasonable subordination, non-disturbance and attornment agreement
from the lessor or lender of such future instrument. Tenant covenants and
agrees in the event any proceedings are brought for the foreclosure of any such
mortgage, or if any ground or underlying lease is terminated, to attorn to the
purchaser upon any such foreclosure sale, or to the lessor of such ground or
underlying lease, as the case may be, if required to do so pursuant to any
subordination, non-disturbance and attornment agreement executed pursuant to
this Section 18.1 or Section 18.2 below, and to recognize such purchaser or
lessor as the lessor under this Lease. Tenant shall, within fifteen (15) days
of request by Landlord, execute such further instruments or assurances as
Landlord may reasonably deem necessary to evidence or confirm the subordination
or superiority of this Lease to any such mortgages, trust deeds, ground leases
or underlying leases. Tenant waives the provisions of any current or future
statute, rule or law which may give or purport to give Tenant any right or
election to terminate or otherwise adversely affect this Lease and the
obligations of the Tenant hereunder in the event of any foreclosure proceeding
or sale.
18.2 Existing Agreement. Landlord represents and warrants to Tenant that
------------------
as of the date on which Landlord and Tenant execute this Lease there is only one
(1) deed of trust and/or ground lease encumbering, and in force against, the
Real Property in favor of General Electric Capital Corporation, a New York
corporation (the "CURRENT LENDER"). Simultaneously with Tenant's execution of
this Lease, Tenant shall sign, notarize and deliver to Landlord a subordination,
non-disturbance and attornment agreement substantially in the form of Exhibit F
---------
attached hereto ("SNDA"). Landlord shall cause the Current Lender to execute
such SNDA and deliver such executed SNDA to Tenant within sixty (60) days after
the date of execution of this Lease. If Landlord fails to deliver the SNDA
executed by Landlord and the Current Lender within such sixty (60) day period,
and such failure shall continue for an additional thirty (30) days after notice
thereof from Tenant, then Tenant shall have the right to terminate this Lease by
notice delivered to Landlord within ten (10) business days after the expiration
of such additional thirty (30) day period, but such termination shall be
ineffective if the SNDA has been delivered to Tenant prior to the date such
termination n otice is delivered to Landlord.
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ARTICLE 19
----------
TENANT'S DEFAULTS; LANDLORD'S REMEDIES
--------------------------------------
19.1 Events of Default by Tenant. All covenants and agreements to be
---------------------------
kept or performed by Tenant under this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any reduction of Rent. The occurrence
of any of the following shall constitute a default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, when due, where such
failure continues for five (5) business days after written notice thereof by
Landlord to Tenant; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under Section 1161 et seq., of the
-------
California Code of Civil Procedure; or
19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after written notice
thereof from Landlord to Tenant; provided however, that any such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161 or any similar or successor law; and provided
further that if the nature of such default is such that the same cannot
reasonably be cured within such thirty (30)-day period, Tenant shall not be
deemed to be in default if it diligently commences such cure within such period
and thereafter diligently proceeds to rectify and cure said default as soon as
possible.
19.2 Landlord's Remedies Upon Default. Upon the occurrence of any such
--------------------------------
default by Tenant, Landlord shall have, in addition to any other remedies
available to Landlord at law or in equity, the option to pursue any one or more
of the following remedies, each and all of which shall be cumulative and
nonexclusive, without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, without being liable for prosecution or any claim
or damages therefor; and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid rent
which has been earned at the time of such termination; plus
(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 Tenant proves could have been
reasonably avoided; plus
(iii) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom; and
(v) At Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant pursuant to the terms of
this Lease, whether to Landlord or to others. As used in Paragraphs 19.2.1(i)
and (ii), above, the "worth at the time of award" shall be computed by allowing
interest at the Interest Rate set forth in Section 4.7 of this Lease. As used
in Paragraph 19.2.1(iii) above, the "worth at the time of award" shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.2.3 Landlord may, but shall not be obligated to, make any such
payment or perform or otherwise cure any such obligation, provision, covenant or
condition on Tenant's part to be observed or performed (and may enter the
Premises for such purposes). In the event of Tenant's failure to perform any of
its obligations or covenants under this Lease, and such failure to perform poses
a material risk of injury or harm to persons or damage to or loss of property,
then Landlord shall have the right to cure or otherwise perform such covenant or
obligation at any time after such failure to perform by Tenant, whether or not
any such notice or cure period set forth in Section 19.1 above has expired. Any
such actions undertaken by Landlord pursuant to the foregoing provisions of this
Section 19.2.3 shall not be deemed a waiver of Landlord's rights and remedies as
a result of Tenant's failure to perform and shall not release Tenant from any of
its obligations under this Lease. Tenant shall pay to Landlord, within fifteen
(15) days after delivery by Landlord to Tenant of statements therefor, sums
equal to expenditures reasonably made and obligations incurred by Landlord in
connection with Landlord's performance or cure of any of Tenant's obligations
pursuant to the foregoing provisions of this Section 19.2.3.
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<PAGE>
19.3 Sublessees of Tenant. If Landlord elects to terminate this Lease on
--------------------
account of any default by Tenant, as set forth in this Article 19, Landlord
shall have the right to terminate any and all subleases, licenses, concessions
or other consensual arrangements for possession entered into by Tenant and
affecting the Premises or may, in Landlord's sole discretion, succeed to
Tenant's interest in such subleases, licenses, concessions or arrangements. In
the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.
19.4 Waiver of Default. No waiver by Landlord of any violation or breach
-----------------
by Tenant of any of the terms, provisions and covenants herein contained shall
be deemed or construed to constitute a waiver of any other or later violation or
breach by Tenant of the same or any other of the terms, provisions, and
covenants herein contained. Forbearance by Landlord in enforcement of one or
more of the remedies herein provided upon a default by Tenant shall not be
deemed or construed to constitute a waiver of such default. The acceptance of
any Rent hereunder by Landlord following the occurrence of any default, whether
or not known to Landlord, shall not be deemed a waiver of any such default,
except only a default in the payment of the Rent so accepted.
19.5 Efforts to Relet. For the purposes of this Article 19, Tenant's right
----------------
to possession shall not be deemed to have been terminated by efforts of Landlord
to relet the Premises, by its acts of maintenance or preservation with respect
to the Premises, or by appointment of a receiver to protect Landlord's interests
hereunder. The foregoing enumeration is not exhaustive, but merely illustrative
of acts which may be performed by Landlord without terminating Tenant's right to
possession
ARTICLE 20
----------
SECURITY DEPOSIT
----------------
Concurrent with Tenant's execution of this Lease, Tenant shall deposit with
Landlord a security deposit (the "SECURITY DEPOSIT") in the amount set forth in
Section 10 of the Summary. The Security Deposit shall be held by Landlord as
security for the faithful performance by Tenant of all the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the Lease
Term. If Tenant defaults with respect to any provisions of this Lease,
including, but not limited to, the provisions relating to the payment of Rent,
Landlord may, but shall not be required to, use, apply or retain all or any part
of the Security Deposit for the payment of any Rent or any other sum in default,
or for the payment of any amount that Landlord may spend or become obligated to
spend by reason of Tenant's default, or to compensate Landlord for any other
loss or damage that Landlord may suffer by reason of Tenant's default. If any
portion of the Security Deposit is so used or applied, Tenant shall, within five
(5) days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount, and Tenant's
failure to do so shall be a default under this Lease. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
Security Deposit, or any balance thereof, shall be returned to Tenant, or, at
Landlord's option, to the last assignee of Tenant's interest hereunder, within
thirty (30) days following the expiration of the Lease Term. Tenant shall not be
entitled to any interest on the Security Deposit. Tenant hereby waives the
provisions of Section 1950.7 of the California Civil Code, and all other
provisions of law, now or hereafter in force, which provide that Landlord may
claim from a security deposit only those sums reasonably necessary to remedy
defaults in the payment of rent, to repair damage caused by Tenant or to clean
the Premises, it being agreed that Landlord may, in addition, claim those sums
reasonably necessary to compensate Landlord for any other loss or damage,
foreseeable or unforeseeable, caused by the act or omission of Tenant or any
officer, employee, agent or invitee of Tenant.
ARTICLE 21
----------
COMPLIANCE WITH LAW
-------------------
Tenant shall not do anything or suffer anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall
promptly comply and cause the Premises to comply with all such governmental
measures, including, without limitation, the making of any improvements and
alterations to the Premises (including those considered to be capital
improvements); provided, however, that the making of structural changes, changes
to the Base Building Systems or changes to the common areas of the Building or
Real Property which are not necessitated by any Alterations to the Premises
installed by or on behalf of Tenant, by any specific act or negligence of Tenant
or Tenant's agents, employees, licensees or invitees, and/or by Tenant's
specific manner of use of the Premises, shall be performed by Landlord and the
cost thereof shall be included in Operating Expenses except to the extent
specifically excluded in Section 4.2.5. In addition, Tenant shall fully comply
with all present or future government mandated programs intended to manage
parking, transportation or traffic in and around the Building. The judgment of
any court of competent jurisdiction or the admission of Tenant in any judicial
action, regardless of whether Landlord is a party thereto, that Tenant has
violated any of said governmental measures, shall be conclusive of that fact as
between Landlord and Tenant.
ARTICLE 22
----------
ENTRY BY LANDLORD
-----------------
Landlord reserves the right at all reasonable times and upon reasonable
notice under the circumstances (which in the case of non-emergency repairs shall
be at least twenty-four (24) hours' prior notice) to Tenant to enter the
Premises to (i) inspect them; (ii) show the Premises to prospective purchasers
or mortgagees, or during the last nine (9) months of the Lease Term, to
prospective tenants; (iii) to post notices of nonresponsibility; or (iv) alter,
improve or repair the Premises or the Building if necessary to comply with
current building codes or other applicable laws, or for structural alterations,
repairs or improvements to the Building, or as Landlord may otherwise reasonably
desire or deem necessary. Notwithstanding anything to the contrary contained in
this Article 22, Landlord may enter the Premises at any time, without notice to
Tenant, to perform janitorial or other services required of Landlord pursuant to
this Lease. Any such entries shall be without the abatement of Rent and shall
include
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<PAGE>
the right to take such reasonable steps as required to accomplish the stated
purposes. Tenant hereby waives any claims for damages or for any injuries or
inconvenience to or interference with Tenant's business, lost profits, any loss
of occupancy or quiet enjoyment of the Premises, and any other loss occasioned
thereby. For each of the above purposes, Landlord shall at all times have a key
with which to unlock all the doors in the Premises, excluding Tenant's vaults,
safes and special security areas designated in advance by Tenant. In an
emergency, Landlord shall have the right to use any means that Landlord may deem
proper to open the doors in and to the Premises. Any entry into the Premises in
the manner hereinbefore described shall not be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or an actual or
constructive eviction of Tenant from any portion of the Premises.
Tenant may reasonably designate a certain reasonable number of areas within
the Premises as "SECURED AREAS" should Tenant require such areas for the purpose
of securing certain valuable property or confidential information. Landlord may
not enter such Secured Areas except in the case of an emergency or in the event
of a Landlord inspection, in which case Landlord shall provide Tenant with
forty-eight (48) hours prior written notice. Landlord shall not show the
Secured Area to a prospective lender, purchaser or tenant without forty-eight
(48) hours prior written notice and without Tenant being present.
ARTICLE 23
----------
TENANT PARKING
--------------
Tenant shall have the right to use up to the number and type of parking
spaces set forth in Section 11 of the Summary for parking in the Building
Parking Facility. Tenant shall not be required to pay any parking charges for
the use of such spaces during the initial Lease Term, but during the Option Term
if exercised pursuant to the Extension Option Rider, Tenant shall pay to
Landlord for the use of such spaces the prevailing monthly parking charges, if
any, charged by Landlord or Landlord's parking operator for reserved and
unreserved parking, as applicable, in the Building Parking Facility. Tenant
shall abide, and cause its employees and visitors who utilize the Building
Parking Facility to abide, by all reasonable, non-discriminatory parking rules
and regulations for parking in the Building Parking Facility, as may be adopted
and/or modified by Landlord and/or Landlord's parking operator from time to
time. Landlord specifically reserves the right to change the location, size,
configuration, design, layout and all other aspects of the Building Parking
Facility at any time (so long as Landlord makes available to Tenant in the
Building Parking Facility or in a parking facility within a reasonable distance
from the Premises, the full number of parking spaces set forth in Section 11 of
the Summary) and Tenant acknowledges and agrees that Landlord may, without
incurring any liability to Tenant and without any abatement of Rent under this
Lease, from time to time, temporarily close-off or restrict access to the
Building Parking Facility for purposes of permitting or facilitating any such
construction, alteration or improvements. The parking passes provided to Tenant
pursuant to this Article 23 are provided solely for use by Tenant's own
personnel and, except in connection with an assignment or sublease expressly
permitted under the terms of Article 14 of this Lease, such passes may not be
transferred, assigned, subleased or otherwise alienated by Tenant.
ARTICLE 24
----------
MISCELLANEOUS PROVISIONS
------------------------
24.1 Terms; Captions. The necessary grammatical changes required to make
---------------
the provisions hereof apply either to corporations or partnerships or
individuals, men or women, as the case may require, shall in all cases be
assumed as though in each case fully expressed. The captions of Articles and
Sections are for convenience only and shall not be deemed to limit, construe,
affect or alter the meaning of such Articles and Sections.
24.2 Binding Effect. Each of the provisions of this Lease shall extend to
--------------
and shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of Article 14 of this Lease.
24.3 No Waiver. No waiver of any provision of this Lease shall be implied
---------
by any failure of a party to enforce any remedy on account of the violation of
such provision, even if such violation shall continue or be repeated
subsequently, any waiver by a party of any provision of this Lease may only be
in writing, and no express waiver shall affect any provision other than the one
specified in such waiver and that one only for the time and in the manner
specifically stated. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Lease Term or
of Tenant's right of possession hereunder or after the giving of any notice
shall reinstate, continue or extend the Lease Term or affect any notice given
Tenant prior to the receipt of such monies, it being agreed that after the
service of notice or the commencement of a suit or after final judgment for
possession of the Premises, Landlord may receive and collect any Rent due, and
the payment of said Rent shall not waive or affect said notice, suit or
judgment.
24.4 Intentionally Deleted.
---------------------
24.5 Transfer of Landlord's Interest. Tenant acknowledges that Landlord
-------------------------------
has the right to transfer all or any portion of its interest in the Real
Property and Building and in this Lease, and Tenant agrees that in the event of
any such transfer, Landlord shall automatically be released from all liability
under this Lease arising after the effective date of such transfer, and Tenant
agrees to look solely to such transferee for the performance of Landlord's
obligations hereunder arising after the date of transfer. The liability of any
transferee of Landlord shall be limited to the interest of such transferee in
the Real Property and Building and such transferee shall be without personal
liability under this Lease, and Tenant hereby expressly waives and releases such
personal liability on behalf of itself and all persons claiming by, through or
under Tenant. Tenant further acknowledges that Landlord may assign its interest
in this Lease to a mortgage lender as additional security and agrees that such
an assignment shall not release Landlord from its obligations hereunder and that
Tenant shall continue to look to Landlord for the performance of its obligations
hereunder.
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<PAGE>
24.6 Prohibition Against Recording. Neither this Lease, nor any
-----------------------------
memorandum, affidavit or other writing with respect thereto, shall be recorded
by Tenant or by anyone acting through, under or on behalf of Tenant, and the
recording thereof in violation of this provision shall make this Lease null and
void at Landlord's election.
24.7 Landlord's Title; Air Rights. Landlord's title is and always shall be
----------------------------
paramount to the title of Tenant. Nothing herein contained shall empower Tenant
to do any act which can, shall or may encumber the title of Landlord. No rights
to any view or to light or air over any property, whether belonging to Landlord
or any other person, are granted to Tenant by this Lease.
24.8 Tenant's Signs.
---------------
24.8.1 Entry Door Sign. As part of the initial Tenant
Improvements, Tenant shall be entitled to one (1) identification sign outside of
the Premises on the floor on which the Premises are located. The location,
quality, design, style, lighting and size of such sign shall be consistent with
the Landlord's Building standard signage program and shall be subject to
Landlord's prior written approval, in its reasonable discretion. Upon the
expiration or earlier termination of this Lease, Tenant shall be responsible, at
its sole cost and expense, for the removal of such signage and the repair of all
damage to the Building caused by such removal. Except for such identification
sign and except for Tenant's name sign on the Monument Sign described in Section
24.8.2 below, Tenant may not install any signs on the exterior or roof of the
Building or the common areas of the Building or the Real Property. Any signs,
window coverings, or blinds (even if the same are located behind the Landlord
approved window coverings for the Building), or other items visible from the
exterior of the Premises or Building are subject to the prior approval of
Landlord, in its sole and absolute discretion.
24.8.2 Monument Sign. Subject to the approval of all applicable
-------------
governmental entities, and subject to all applicable governmental laws, rules,
regulations and codes, Landlord hereby grants Tenant the non-exclusive right to
have the name "RealSelect" (but no other markings) displayed on the existing
monument sign located at the main entrance to the Building (the "MONUMENT
SIGN"). The design, size, specifications, graphics, materials, colors, lighting
(if applicable) and exact location with respect to Tenant's name on the Monument
Sign shall be (i) consistent with the other signs (if any) to be placed on the
Monument Sign and the quality and appearance of the Real Property and (ii)
designated by Landlord, subject to the approval of all applicable governmental
authorities. Landlord shall install Tenant's name on the Monument Sign at
Tenant's cost (which shall be price competitive). In addition, Tenant shall pay
to Landlord, within ten (10) days after demand, from time to time, all other
costs (which shall be price competitive) attributable to the fabrication,
installation, insurance, lighting (if applicable), maintenance and repair of
Tenant's name on the Monument Sign. Landlord shall have the right to relocate,
redesign and/or reconstruct the Monument Sign from time to time. The signage
rights granted to Tenant under this Section 24.8.2 are personal to the original
Tenant executing this Lease and any assignee (including an Affiliate) to which
Tenant's entire interest in this Lease has been assigned pursuant to Article 14
of this Lease (but any name change on the Monument Sign to reflect such assignee
shall be subject to Landlord's reasonable approval), and may not be exercised or
used by or assigned to any other person or entity. Upon termination or
expiration of this Lease, or upon the earlier termination of Tenant's signage
rights under this Section 24.8.2, Landlord shall have the right to permanently
remove Tenant's name from the Monument Sign and to restore and repair all damage
to the Monument Sign resulting from such removal, and Tenant shall pay to
Landlord, within ten (10) days after demand, all costs incurred in connection
with such removal, restoration and repair.
24.9 Relationship of Parties. Nothing contained in this Lease shall be
-----------------------
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
24.10 Application of Payments. Landlord shall have the right to apply
-----------------------
payments received from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of Tenant hereunder, in
such order and amounts as Landlord, in its sole discretion, may elect.
24.11 Time of Essence. Time is of the essence of this Lease and each of
---------------
its provisions.
24.12 Partial Invalidity. If any term, provision or condition contained
------------------
in this Lease shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term, provision or condition to
persons or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
24.13 No Warranty. In executing and delivering this Lease, Tenant has not
-----------
relied on any representation, including, but not limited to, any representation
whatsoever as to the amount of any item comprising Additional Rent or the amount
of the Additional Rent in the aggregate or that Landlord is furnishing the same
services to other tenants, at all, on the same level or on the same basis, or
any warranty or any statement of Landlord which is not set forth herein or in
one or more of the Exhibits attached hereto.
24.14 Landlord Exculpation. It is expressly understood and agreed that
--------------------
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord and the Landlord
Parties hereunder (including any successor landlord) and any recourse by Tenant
against Landlord or the Landlord Parties shall be limited solely and exclusively
to an amount which is equal to the interest of Landlord in the Building, and
neither Landlord, nor any of the Landlord Parties shall have any personal
liability therefor, and Tenant hereby expressly waives and releases such
personal liability on behalf of itself and all persons claiming by, through or
under Tenant.
24.15 Entire Agreement. It is understood and acknowledged that there are
----------------
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease and
any side letter or separate
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<PAGE>
agreement executed by Landlord and Tenant in connection with this Lease and
dated of even date herewith contain all of the terms, covenants, conditions,
warranties and agreements of the parties relating in any manner to the rental,
use and occupancy of the Premises, shall be considered to be the only agreement
between the parties hereto and their representatives and agents, and none of the
terms, covenants, conditions or provisions of this Lease can be modified,
deleted or added to except in writing signed by the parties hereto. All
negotiations and oral agreements acceptable to both parties have been merged
into and are included herein. There are no other representations or warranties
between the parties, and all reliance with respect to representations is based
totally upon the representations and agreements contained in this Lease.
24.16 Right to Lease. Landlord reserves the absolute right to effect such
--------------
other tenancies in the Building as Landlord in the exercise of its sole business
judgment shall determine to best promote the interests of the Building. Tenant
does not rely on the fact, nor does Landlord represent, that any specific tenant
or type or number of tenants shall, during the Lease Term, occupy any space in
the Building.
24.17 Force Majeure. Any prevention, delay or stoppage due to strikes,
-------------
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease (collectively, the "FORCE MAJEURE"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.
24.18 Consent and Approvals. Except (i) for matters for which there is a
---------------------
standard of consent or discretion specifically set forth in this Lease, (ii)
matters which could have an adverse effect on the Building's structure or the
Systems and Equipment, or which could affect the exterior appearance of the
Building, or (iii) matters covered by Article 19 of this Lease (collectively,
the "EXCEPTED MATTERS"), any time the consent of Landlord or Tenant is required
under this Lease, such consent shall not be unreasonably withheld or delayed,
and, except with regard to the Excepted Matters, whenever this Lease grants
Landlord or Tenant the right to take action, exercise discretion, establish
rules and regulations or make an allocation or their determination, Landlord and
Tenant shall act reasonably and in good faith. With respect to the Excepted
Matters, Landlord shall be entitled to grant its consent or exercise its
discretion in its sole and absolute discretion, but shall act in good faith.
24.19 Notices. All notices, demands, statements or communications
-------
(collectively, "NOTICES") given or required to be given by either party to the
other hereunder shall be in writing, shall be sent by United States certified or
registered mail, postage prepaid, return receipt requested, or delivered
personally (i) to Tenant at the appropriate address set forth in Section 5 of
the Summary, or to such other place as Tenant may from time to time designate in
a Notice to Landlord; or (ii) to Landlord at the addresses set forth in Section
3 of the Summary, or to such other firm or to such other place as Landlord may
from time to time designate in a Notice to Tenant. Any Notice will be deemed
given on the date which is two (2) business days after it is mailed as provided
in this Section 24.19 or upon the date personal delivery is made. If Tenant is
notified of the identity and address of Landlord's mortgagee or ground or
underlying lessor, Tenant shall give to such mortgagee or ground or underlying
lessor written notice of any default by Landlord under the terms of this Lease
by registered or certified mail, and such mortgagee or ground or underlying
lessor shall be given a reasonable opportunity to cure such default prior to
Tenant's exercising any remedy available to Tenant.
24.20 Joint and Several. If there is more than one Tenant, the
-----------------
obligations imposed upon Tenant under this Lease shall be joint and several.
24.21 Authority. If Tenant is a corporation or partnership, each
---------
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in the state in which the Building is located and that Tenant has full
right and authority to execute and deliver this Lease and that each person
signing on behalf of Tenant is authorized to do so.
24.22 Jury Trial; Attorneys' Fees. IF EITHER PARTY COMMENCES LITIGATION
---------------------------
AGAINST THE OTHER FOR THE SPECIFIC PERFORMANCE OF THIS LEASE, FOR DAMAGES FOR
THE BREACH HEREOF OR OTHERWISE FOR ENFORCEMENT OF ANY REMEDY HEREUNDER, THE
PARTIES HERETO AGREE TO AND HEREBY DO WAIVE ANY RIGHT TO A TRIAL BY JURY. In
the event of any such commencement of litigation, the prevailing party shall be
entitled to recover from the other party such costs and reasonable attorneys'
fees as may have been incurred, including any and all costs incurred in
enforcing, perfecting and executing such judgment.
24.23 Governing Law. This Lease shall be construed and enforced in
-------------
accordance with the laws of the state in which the Building is located.
24.24 Submission of Lease. Submission of this instrument for examination
-------------------
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
24.25 Brokers. Landlord and Tenant hereby warrant to each other that they
-------
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the real estate brokers or agents
specified in Section 12 of the Summary (the "BROKERS"), and that they know of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Each party agrees to indemnify and defend the other party
against and hold the other party harmless from any and all claims, demands,
losses, liabilities, lawsuits, judgments, and costs and expenses (including
without limitation reasonable attorneys' fees) with respect to any leasing
commission or equivalent compensation alleged to be owing on account of the
indemnifying party's dealings with any real estate broker or agent other than
the Brokers. Landlord shall pay the brokers listed in Section 12 of the Summary
a commission in connection with this Lease pursuant to the terms of a separate
agreement among Landlord and the Brokers.
-24-
<PAGE>
24.26 Independent Covenants. This Lease shall be construed as though the
---------------------
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary.
24.27 Building Name and Signage. Landlord shall have the right at any
-------------------------
time to change the name of the Building and to install, affix and maintain any
and all signs on the exterior and on the interior of the Building as Landlord
may, in Landlord's sole discretion, desire. Tenant shall not use the name of
the Building or use pictures or illustrations of the Building in advertising or
other publicity, without the prior written consent of Landlord.
24.28 Building Directory. Tenant shall be entitled to one (1) line on the
------------------
Building directory to display Tenant's name and location in the Building.
24.29. Landlord's Default. Landlord shall not be in default under this
------------------
Lease unless Landlord fails to perform the obligations required of Landlord
hereunder within the time period set forth in this Lease, or if no time period
is provided, then within thirty (30) days after written notice by Tenant to
Landlord in writing specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance, then Landlord
shall not be in default if Landlord commences performance within such thirty
(30) day period and thereafter diligently prosecutes the same to completion.
Tenant shall have no rights as a result of any default by Landlord until Tenant
gives thirty (30) days' notice to any person who has a recorded interest
pertaining to the Building, specifying the nature of the default. Such person
shall then have the right to cure such default, and Landlord shall not be deemed
in default if such person cures such default within thirty (30) days after
receipt of notice of the default, or within such longer period of time as may
reasonably be necessary to cure the default. If Landlord or such person does
not cure the default, Tenant may exercise such rights or remedies as shall be
provided or permitted by law to recover any damages proximately caused by such
default.
Each of the parties agrees that, in the event that it becomes entitled to
receive damages from the other party, it shall not be allowed to recover from
the other party consequential damages except as otherwise expressly provided (i)
with respect to any holdover by Tenant in Article 16, and (ii) in connection
with any termination of this Lease by Landlord following Tenant's default
pursuant to Section 19.2.1.
24.30 Landlord Renovations. It is specifically understood and agreed that
--------------------
Landlord has no obligation and has made no promises to alter, remodel, improve,
renovate, repair or decorate the Premises, Building, Real Property, or any part
thereof and that no representations or warranties respecting the condition of
the Premises, the Building or the Real Property have been made by Landlord to
Tenant, except as specifically set forth in this Lease. However, Tenant
acknowledges that Landlord may from time to time, at Landlord's sole option,
renovate, improve, alter, or modify (collectively, the "RENOVATIONS") the
Building, and/or Real Property, including without limitation the Building
Parking Facility, common areas, Systems and Equipment, roof, and structural
portions of the same, which Renovations may include, without limitation, (i)
modifying the common areas and tenant spaces to comply with applicable laws and
regulations, including regulations relating to the physically disabled, seismic
conditions, and building safety and security, and (ii) installing new carpeting,
lighting, and wall coverings in the Building common areas, and in connection
with such Renovations, Landlord may, among other things, erect scaffolding or
other necessary structures in the Building, limit or eliminate access to
portions of the Real Property, including portions of the common areas, or
perform work in the Building, which work may create noise, dust or leave debris
in the Building. Tenant hereby agrees that such Renovations and Landlord's
actions in connection with such Renovations shall in no way constitute a
constructive eviction of Tenant nor entitle Tenant to any abatement of Rent,
except as expressly provided in Section 6.5. Landlord shall have no
responsibility or for any reason be liable to Tenant for any direct or indirect
injury to or interference with Tenant's business arising from the Renovations,
nor shall Tenant be entitled to any compensation or damages from Landlord for
loss of the use of the whole or any part of the Premises or of Tenant's personal
property or improvements resulting from the Renovations or Landlord's actions in
connection with such Renovations, or for any inconvenience or annoyance
occasioned by such Renovations or Landlord's actions in connection with such
Renovations; however, Landlord agrees to use commercially reasonable efforts to
minimize interference with Tenant's use of and access to the Premises as a
result of such Renovations.
24.31 Satellite Dish.
--------------
24.31.1 Landlord hereby agrees that Tenant shall have the
nonexclusive right at Tenant's sole cost and expense (but without any additional
rent payable to Landlord) and subject to the provisions of this Section 24.31,
to install one (1) satellite dish which shall not exceed eighteen (18) inches in
diameter ("SATELLITE DISH") on the roof of the Building in a location designated
by Landlord. In addition, Tenant shall have the right, subject to available
capacity of the Building, to install such connection equipment, such as
conduits, cables, risers, feeders and materials (collectively, the "CONNECTING
EQUIPMENT") in the shafts, ducts, conduits, chases, utility closets and other
facilities of the Building as is reasonably necessary to connect the Satellite
Dish to Tenant's other machinery and equipment in the Premises, subject however,
to the provisions of Section 24.31.2, below, and subject to the availability of
vertical riser and feeder excess capacity, as reasonably determined by Landlord.
Tenant shall also have the right of access, consistent with Section 24.31.4,
below, to the areas where any such Connecting Equipment is located for the
purposes of maintaining, repairing, testing and replacing the same. 24.31
24.31.2 The installation of the Satellite Dish and related Connecting
Equipment (hereby referred to together and/or separately as the "SATELLITE
EQUIPMENT") shall be performed in accordance with and subject to the provisions
of Article 8 of this Lease, and the Satellite Equipment shall be treated for all
purposes of this Lease as if the same were Tenant's property. For the purposes
of determining Tenant's obligations with respect to its use of the roof of the
Building herein provided, the portion of the roof of the Building affected by
the Satellite Equipment shall be deemed to be a portion of Tenant's Premises;
consequently, all of the provisions of this Lease with respect to Tenant's
obligations hereunder shall apply to the installation, use and maintenance of
the Satellite Equipment, including without limitation, provisions relating to
compliance with requirements as to insurance, indemnity, repairs and
maintenance, and compliance with laws. Landlord shall have no obligation with
regard to the affected portion of the roof or the Satellite Equipment except as
provided in this Section 24.31.
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<PAGE>
24.31.3 It is expressly understood that Landlord retains the right to
grant third parties the right to utilize any portion of the roof not utilized by
Tenant and to use the portion of the roof on which the Satellite Equipment is
located for any purpose whatsoever, provided in each event that Tenant shall
have reasonable access to, and Landlord shall not unduly interfere with the use
of, the Satellite Equipment.
24.31.4 Tenant shall install, use, maintain and repair the Satellite
Equipment so as not to damage or interfere with the operation of the Building or
the Systems and Equipment or any other communications or similar equipment
located on the roof of the Building; and Tenant hereby agrees to indemnify,
defend and hold Landlord harmless from and against any and all claims, costs,
damages, expenses and liabilities (including attorney's fees) arising out of
Tenant's failure to comply with the provisions of this Section 24.31.4.
24.31.5 Landlord shall not have any obligations with respect to the
Satellite Equipment or compliance with any requirements relating thereto nor
shall Landlord be responsible for any damage that may be caused to the Satellite
Equipment except to the extent (i) caused by the negligence or willful
misconduct of Landlord or Landlord's agents, employees or contractors, and (ii)
not insured or required to be insured by Tenant under this Lease. Landlord
makes no representation that the Satellite Equipment will be able to receive or
transmit communication signals without interference or disturbance and Tenant
agrees that Landlord shall not be liable to Tenant therefor.
24.31.6 Tenant, at Tenant's sole cost and expense, shall paint the
Satellite Equipment in such color(s) as Landlord shall reasonably determine and
shall maintain such equipment and install such fencing and other protective
equipment on or about the Satellite Equipment as Landlord may reasonably
determine.
24.31.7 Tenant shall (i) be solely responsible for any damage caused
as a result of the Satellite Equipment, (ii) promptly pay any tax, license or
permit fees charged pursuant to any requirements in connection with the
installation, maintenance or use of the Satellite Equipment and comply with all
precautions and safeguards recommended by all governmental authorities, and
(iii) make necessary repairs, replacements to or maintenance of the Satellite
Equipment.
24.31.8 If any of the conditions set forth in this Section 24.31 are
not complied with by Tenant, then without limiting Landlord's rights and
remedies it may otherwise have under this Lease, Tenant shall, upon written
notice from Landlord, have the option either to (i) reposition the Satellite
Equipment to a location designated by Landlord if Landlord elects to permit such
repositioning, and make such repairs and restorations as required under Section
24.31.9 below, or (ii) correct such noncompliance within thirty (30) days after
receipt of notice (or such longer period as may be reasonably required as long
as Tenant commences such correction within such 30-day period and diligently
prosecutes same to completion). If Tenant fails to correct noncompliance within
such thirty (30) day period (as may be extended), then Tenant shall immediately
discontinue its use of the Satellite Equipment and remove the same.
24.31.9 Upon the expiration of the Lease Term or upon any earlier
termination of this Lease, Tenant shall, subject to the control of and direction
from Landlord, remove the Satellite Equipment, repair any damage caused thereby,
and restore the roof and other facilities of the Building to their condition
existing prior to the installation of the Satellite Equipment.
24.31.10 Tenant's rights under this Section 24.31 shall be personal
to the original Tenant executing this Lease and any assignee (including any
Affiliate) to which Tenant's entire interest in this Lease has been assigned
pursuant to Article 14, and may only be utilized by the such entities (and may
not be exercised or utilized by any sublessee or other transferee of the
original Tenant's interest in this Lease or the Premises).
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: LPC MS, Inc.,
as agent and manager for Landlord
By: /s/ D. Allen Palmer
--------------------------------
Name: D. Allen Palmer
Its: Senior Vice President
"Tenant":
REALSELECT, INC.,
a Delaware corporation
By: /s/ John Giesecke
---------------------------------------
Name: John Giesecke
----------------------------------
Its: V.P. Finance & Corporate Secretary
-----------------------------------
By: /s/ Richard Janssen
---------------------------------------
Name: Richard Janssen
----------------------------------
Its: President
-----------------------------------
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EXHIBIT A
---------
OUTLINE OF FLOOR PLAN OF PREMISES
---------------------------------
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<PAGE>
EXHIBIT B
---------
TENANT WORK LETTER
------------------
Tenant acknowledges and agrees that the Premises have previously been
constructed including interior tenant improvements therein, and is satisfactory
and shall be accepted by Tenant in its "AS IS" condition as of the date of
execution of this Lease and on the Lease Commencement Date; provided, however,
that Landlord shall construct certain modifications to the interior of the
Premises pursuant to the Approved Working Drawings in accordance with the
following provisions of this Tenant Work Letter.
SECTION 1
---------
CONSTRUCTION DRAWINGS FOR THE PREMISES
--------------------------------------
1.1 Construction Drawings; Tenant Improvements. Prior to the execution
of this Lease, Landlord and Tenant have approved a detailed space plan for the
construction of certain improvements in the Premises, which space plan has been
prepared by Ware & Malcomb Architects, Inc., dated August 17, 1998 Job. No. 983-
631.02 (the "FINAL SPACE PLAN"). Based upon and in conformity with the Final
Space Plan, Landlord shall cause an architect and engineers selected by Landlord
to prepare and deliver to Tenant, for Tenant's approval, detailed specifications
and engineered working drawings for the tenant improvements shown on the Final
Space Plan (the "WORKING DRAWINGS"). The Working Drawings shall incorporate
modifications to the Final Space Plan as necessary to comply with the floor load
and other structural and system requirements of the Building. To the extent
that the finishes and specifications are not completely set forth in the Final
Space Plan for any portion of the tenant improvements depicted thereon, the
actual specifications and finish work shall be in accordance with the
specifications for the Building's standard improvement package items, as
determined by Landlord. Within five (5) business days after Tenant's receipt of
the Working Drawings, Tenant shall approve or disapprove the same, which
approval shall not be unreasonably withheld; provided, however, that Tenant may
only disapprove the Working Drawings to the extent such Working Drawings are
inconsistent with the Final Space Plan and only if Tenant delivers to Landlord,
within such five (5) business days period, specific changes proposed by Tenant
which are consistent with the Final Space Plan and do not constitute changes
which would result in any of the circumstances described in items (i) through
(iv) below. If any such revisions are timely and properly proposed by Tenant,
Landlord shall cause its architect and engineers to revise the Working Drawings
to incorporate such revisions and submit the same for Tenant's approval in
accordance with the foregoing provisions, and the parties shall follow the
foregoing procedures for approving the Working Drawings until the same are
finally approved by Landlord and Tenant. Upon Landlord's and Tenant's approval
of the Working Drawings, the same shall be known as the "APPROVED WORKING
DRAWINGS." Once the Approved Working Drawings have been approved by Landlord
and Tenant, Tenant shall make no changes, change orders or modifications thereto
without the prior written consent of Landlord, which consent may be withheld in
Landlord's sole discretion if such change or modification would: (i) directly or
indirectly delay the Substantial Completion of the Premises; (ii) increase the
cost of designing or constructing the Tenant Improvements above the cost of the
tenant improvements depicted in the Final Space Plan, unless Tenant agrees in
writing to pay for such increased costs; (iii) be of a quality lower than the
quality of the standard improvement package items for the Building; and/or (iv)
require any changes to the base, shell and core work or structural improvements
or systems of the Building. The Final Space Plan, Working Drawings and Approved
Working Drawings shall be collectively referred to herein as, the "CONSTRUCTION
DRAWINGS." The tenant improvements shown on the Approved Working Drawings shall
be referred to herein as the "TENANT IMPROVEMENTS"; provided, however, that
notwithstanding anything in this Tenant Work Letter to the contrary, the "Tenant
Improvements" for the portion of the Premises depicted on the Final Space Plan
as the Data Center to be constructed by Landlord shall include only the
----
following items (using Building standard materials), and Tenant shall be
responsible, at its sole cost and expense, which shall not be paid for by
Landlord, for the construction of all other improvements, and all fixtures,
equipment and electrical and other systems, shown on the Construction Drawings
or otherwise required for the Data Center (including, without limitation, the
Supplemental HVAC Units described in Section 6.1.1 of the Lease, all structural
platforms therefor and electrical and other cabling and connections from the
Supplemental HVAC Units to the Premises, and all floor and wall coverings for
the Data Center): (A) slab-to-slab walls of standard construction (including R-
19 insulation); (B) Building standard ceiling and lighting; and (C) relocation
and installation of raised flooring, including handicap ramp. The improvements,
fixtures, equipment and systems for the Data Center which are Tenant's
responsibility to construct and install as described hereinabove shall not be
included in the definition of Tenant Improvements for purposes of this Tenant
Work Letter and shall sometimes be referred to herein collectively as the
"TENANT'S DATA CENTER WORK." Notwithstanding that any portion of the
Construction Drawings are reviewed or approved by Landlord or prepared by
architects or engineers selected by Landlord, and notwithstanding any advice or
assistance which may be rendered to Tenant by Landlord or Landlord's architects,
engineers or consultants in connection with the Construction Drawings or the
Data Center Work, Landlord shall not be responsible for any errors or omissions
contained in the Construction Drawings and shall have no liability whatsoever
with respect to the design, quality, Code compliance or other matters pertaining
to the Data Center Work.
1.2 Landlord's Work. In addition to the Tenant Improvements, Landlord
---------------
shall (i) install the Emergency Generator or Hubbell Plug, together with related
electrical cabling and connections therefrom to the Premises as described in
Section 6.7 of the Lease, (ii) supply to the main point of entry of the
Building, fiber optics for use by Tenant with a DS3 rating, and (iii) separate
electrical meter(s) to determine usage of electricity for the Premises and the
Supplemental HVAC Units (collectively, "LANDLORD'S WORK").
SECTION 2
---------
COST OF IMPROVEMENTS/CONSTRUCTION OF DATA CENTER WORK
-----------------------------------------------------
2.1 Cost of Tenant Improvements. Landlord and Tenant hereby agree that
---------------------------
Landlord shall, at Landlord's expense (except as provided in this Section 2)
cause a contractor designated by Landlord (the "CONTRACTOR") to (i) obtain all
applicable building permits for construction of the Tenant Improvements and
Landlord's Work, and (ii) construct the Tenant Improvements
EXHIBIT B
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<PAGE>
and Landlord's Work as depicted on the Approved Working Drawings, in compliance
with such building permits and all applicable laws in effect at the time of
construction, including, without limitation, the Americans with Disabilities Act
and Title 24, and in good workmanlike manner; provided, however, in the event
that (A) the Approved Working Drawings differ with respect to the quality and
quantity of those tenant improvements depicted on the Final Space Plan, and/or
(B) Tenant shall request any changes or substitutions to any of the Construction
Drawings, and such differences, changes and/or substitutions result in increased
costs of construction of the Tenant Improvements in excess of the costs of those
tenant improvements depicted on the Final Space Plan, then Tenant shall pay such
excess costs (which shall include a Landlord supervision fee of four percent
(4%) of such costs) to Landlord in cash within ten (10) days after Landlord's
request therefor. In addition, to the extent any materials for the Tenant
Improvements are other than Building standards (unless specifically designated
in the Final Space Plan), Tenant shall pay for the cost of such non-Building
standard materials (including a four percent (4%) Landlord supervision fee for
such costs). Landlord shall pay for the cost of the Landlord's Work described in
Section 1.2 above, and there shall be no supervision fee charged to Tenant for
any such work. Notwithstanding the foregoing to the contrary, in no event shall
Landlord be obligated to pay for Tenant's Data Center Work, the
connection/extension of Tenant's fiber optics from the point of entry to the
Premises or any of Tenant's furniture, computer systems, telephone systems,
equipment or other personal property which may be depicted on the Construction
Drawings or otherwise required or desired by Tenant for the Premises; such items
shall be paid for by Tenant, at Tenant's sole cost and expense. Such costs to be
paid for by Tenant shall include a four percent (4%) Landlord supervision fee
but only with respect to the costs of the design and construction of the
improvements required for Tenant's Data Center Work, excluding, however (x) the
"hard" cost of acquisition of the Supplemental HVAC Units and (y) the costs of
any of Tenant's furniture, computer systems, telephone systems, equipment or
other personal property.
2.2 Construction of Data Center Work. Tenant shall construct Tenant's
--------------------------------
Data Center Work after Landlord substantially completes the Tenant Improvements
therefor described in clauses (A), (B) and (C) of Section 1.1 above, using
Landlord's contractor or such other contractors and subcontractors as Tenant
shall select subject to Landlord's reasonable approval thereof, except Landlord
may designate subcontractors to perform any work which may affect the Base
Building Systems or structural portions of the Building, provided such
subcontractors charge competitive costs for their work. To the extent
practicable and subject to receipt of all applicable governmental approvals and
permits, Landlord shall endeavor to substantially complete the Tenant
Improvements described in clauses (A), (B) and (C) of Section 1.1 above, at or
near the beginning of the construction process for the Tenant Improvements so
that Tenant will have a reasonable period of time to complete construction of
Tenant's Data Center Work. Tenant shall be solely responsible, at its expense,
for obtaining all permits and governmental approvals for Tenant's Data Center
Work and the certificate of occupancy, temporary certificate of occupancy (or
its equivalent) for the Data Center, and shall cause the Data Center Work to be
constructed in compliance with all laws, including, without limitation, the
Americans With Disabilities Act and Title 24, and pursuant to Landlord's
reasonable schedule requirements and construction rules and regulations. Tenant
shall construct the Data Center Work during Landlord's construction of the
Tenant Improvements (other than those Tenant Improvements described in clauses
(A), (B) and (C) of Section 1.1 above) and the parties shall cooperate with each
other and the Contractor in connection with the scheduling of such work so as to
minimize interference with such work (although any delays encountered by
Landlord in Substantial Completion of the Premises resulting from Tenant's Data
Center Work shall be a Tenant Delay as set forth in Section 3.2 below).
SECTION 3
---------
READY FOR OCCUPANCY; SUBSTANTIAL COMPLETION OF THE TENANT IMPROVEMENTS
----------------------------------------------------------------------
3.1 Ready for Occupancy; Substantial Completion. For purposes of
-------------------------------------------
determining the lease commencement date pursuant to Section 7.2 of the summary,
the premises shall be "READY FOR OCCUPANCY" upon Substantial Completion of the
Premises. "SUBSTANTIAL COMPLETION" of the Premises shall occur upon:
(i) the completion of construction of the Tenant Improvements in the
Premises pursuant to the Approved Working Drawings and completion of
construction of Landlord's Work, with the exception of (A) any punch-list items
(which shall be promptly completed), (B) Tenant's Data Center Work, and (C) any
tenant fixtures, work-stations, built-in furniture, systems or equipment to be
installed by Tenant or under the supervision of Contractor; and
(ii) the issuance of certificate or temporary certificate of occupancy
(or its equivalent) permitting occupancy of the Premises (other than the Data
Center). The Lease Commencement Date shall be determined notwithstanding the
date Tenant substantially completes Tenant's Data Center Work or obtains a
certificate of occupancy or temporary certificate of occupancy (or its
equivalent) for the Data Center.
3.2 Delay of the Substantial Completion of the Premises. If there shall
---------------------------------------------------
be a delay or there are delays in the Substantial Completion of the Premises as
a direct, indirect, partial, or total result of any of the following
(collectively, "TENANT DELAYS"):
3.2.1 Tenant's failure to timely approve the Working Drawings or any
other matter requiring Tenant's approval;
3.2.2 a breach by Tenant of the terms of this Tenant Work Letter or
the Lease;
3.2.3 Tenant's request for changes in any of the Construction
Drawings (other than changes to cause the Working Drawings to be consistent with
the Final Space Plan);
3.2.4 Tenant's requirement for materials, components, finishes or
improvements which are not available in a commercially reasonable time given the
estimated date of Substantial Completion of the Premises (but only if Landlord
notifies Tenant at the time of Tenant's selection of such items or within a
reasonable period of time thereafter, of such unavailability), as set forth in
the Lease, or which are different from, or not included in, Landlord's standard
improvement package items for the Building;
EXHIBIT B
-2-
<PAGE>
3.2.5 changes to the base, shell and core work, structural components
or structural components or systems of the Building required by the Tenant's
Data Center Work;
3.2.6 Tenant's construction of Tenant's Data Center Work; or
3.2.7 any other acts or omissions of Tenant, or its agents, or
employees;
then, notwithstanding anything to the contrary set forth in the Lease and
regardless of the actual date of Substantial Completion, the Lease Commencement
Date (as set forth in Section 7.2 of the Summary) shall be deemed to be the date
the Lease Commencement Date would have occurred if no Tenant Delay or Delays, as
set forth above, had occurred. Notwithstanding the foregoing, for purposes of
determining whether the Lease Commencement Date should be so accelerated (but
not for purposes of determining the First or Second Outside Dates, as provided
in Section 3.3 below), no Tenant Delay shall be deemed to have occurred unless
and until Landlord has provided notice to Tenant (the "DELAY NOTICE"),
specifying the action or inaction by Tenant which Landlord contends constitutes
the Tenant Delay. If such action or inaction is not cured by Tenant within one
(1) business day of receipt of such Delay Notice (the "GRACE PERIOD"), then a
Tenant Delay, as set forth in such Delay Notice, shall be deemed to have
occurred commencing as of the expiration of the Grace Period; provided that
Tenant shall only be permitted an aggregate of three (3) days of Grace Period
and, thereafter, a Tenant Delay shall commence upon the delivery of the Delay
Notice to Tenant.
3.3 Outside Date.
------------
3.3.1 Rent Abatement. Landlord shall use commercially
--------------
reasonable efforts to cause Substantial Completion of the Premises to occur by
November 20, 1998, but shall not be liable to Tenant for any delays, and Tenant
shall have no right to terminate this Lease as a result of any delays in
Substantial Completion beyond such date. Notwithstanding the foregoing, in the
event that the Lease Commencement Date has not occurred by the "FIRST OUTSIDE
DATE," which shall be December 20, 1998, as such December 20, 1998 date shall be
extended by the number of days of Tenant Delays (as determined pursuant to
Section 3.2 above without any notice or grace period) and by the number of days
of Force Majeure delays (as defined in Section 24.17 of the Lease) encountered
by Landlord affecting the work of design and construction of the Tenant
Improvements, then as Tenant's sole remedy for any such delay, Tenant shall
receive a day-for-day abatement of the monthly installments of Base Rent
initially payable by Tenant under this Lease for each day after such First
Outside Date that the Lease Commencement Date has not so occurred, which
abatement period shall commence as of the Lease Commencement Date.
3.3.1 Termination. In the event that the Lease Commencement
-----------
Date has not occurred by the "SECOND OUTSIDE DATE," which shall be April 1,
1999, as such April 1, 1999 date shall be extended by the number of days of
Tenant Delays (as determined pursuant to Section 3.2 above without any notice or
grace period) and by the number of Force Majeure Delays encountered by Landlord
affecting the work of design and construction of the Tenant Improvements, then
Tenant shall have the right, as its sole remedy for any such delay, to either
(i) deliver a notice to Landlord (the "OUTSIDE DATE TERMINATION NOTICE")
electing to terminate this Lease effective upon receipt of the Outside Date
Termination Notice by Landlord (the "EFFECTIVE DATE"), or (ii) continue any
rental abatement provided in Section 3.3.1 above. Except as provided
hereinbelow, the Outside Date Termination Notice must be delivered by Tenant to
Landlord, if at all, not earlier than the Second Outside Date and not later than
five (5) business days after the Second Outside Date. If Tenant delivers the
Outside Date Termination Notice to Landlord, then Landlord shall have the right
to suspend the Effective Date for a period ending thirty (30) days after the
original Effective Date. In order to suspend the Effective Date, Landlord must
deliver to Tenant, within five (5) business days after receipt of the Outside
Date Termination Notice, a certificate of the Contractor certifying that it is
such Contractor's best good faith judgment that Substantial Completion of the
Premises will occur within thirty (30) days after the original Effective Date.
If the Lease Commencement Date occurs within said thirty (30) day suspension
period, then the Outside Date Termination Notice shall be of no further force
and effect; if, however, the Lease Commencement Date does not occur within said
thirty (30) day suspension period, then this Lease shall terminate as of the
date of expiration of such thirty (30) day period. If prior to the Second
Outside Date Landlord determines that the Lease Commencement Date and
Substantial Completion of the Premises will not occur by the Second Outside
Date, Landlord shall have the right to deliver a written notice to Tenant
stating Landlord's opinion as to the date by which Substantial Completion of the
Premises and the Lease Commencement Date shall occur and Tenant shall be
required, within five (5) business days after receipt of such notice, to either
deliver the Outside Date Termination Notice (which will mean that this Lease
shall thereupon terminate and shall be of no further force and effect) or agree
to extend the Second Outside Date to that date which is set by Landlord. Failure
of Tenant to so respond in writing within said five (5) business day period
shall be deemed to constitute Tenant's agreement to extend the Second Outside
Date to that date which is set by Landlord. If the Second Outside Date is so
extended, Landlord's right to request Tenant to elect to either terminate or
further extend the Second Outside Date shall remain and shall continue to
remain, with each of the notice periods and response periods set forth above,
until the Lease Commencement Date occurs or until this Lease is terminated.
SECTION 4
---------
MISCELLANEOUS
-------------
In addition to Tenant's entering into the Premises to construct the Data
Center Work as provided in Section 2.2 above, Landlord and Contractor shall
allow Tenant access to the Premises up to approximately thirty (30) days prior
to the Substantial Completion of the Premises for the purpose of Tenant
installing overstandard equipment or fixtures (including Tenant's data and
telephone equipment) in the Premises, so long as Tenant and its agents do not
interfere with Contractor's work in the Building and the Premises in connection
therewith. Prior to Tenant's entry into the Premises as permitted by the terms
of this Section 4, Tenant shall submit a schedule to Landlord and Contractor,
for their approval, which schedule shall detail the timing and purpose of
Tenant's entry. Tenant shall hold Landlord harmless from and indemnify, protect
and defend Landlord against any loss or damage to the Premises or Real Property
and against injury to any persons caused by (i) Tenant's actions pursuant to
this Section 4 and/or (ii) Tenant's construction of the Data Center Work.
EXHIBIT B
-3-
<PAGE>
EXHIBIT C
---------
AMENDMENT TO LEASE
------------------
This AMENDMENT TO LEASE ("Amendment") is made and entered into effective as
of _________________, 19__, by and between ____________________________________,
a Delaware limited partnership ("Landlord"), and ______________________________,
a __________________________ ("Tenant")
R E C I T A L S :
- - - - - - - -
A. Landlord and Tenant entered into that certain Office Lease dated as of
_____________________ (the "Lease") pursuant to which Landlord leased to Tenant
and Tenant leased from Landlord certain "Premises", as described in the Lease,
known as Suite ____ of the Building located at ____________________ California
__________.
B. Except as otherwise set forth herein, all capitalized terms used in
this Amendment shall have the same meaning five such terms in the Lease.
C. Landlord and Tenant desire to amend the Lease to confirm the
commencement and expiration dates of the term, as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Confirmation of Dates. The parties hereby confirm that (a) the
---------------------
Premises are Ready for Occupancy, (b) the term of the Lease commenced as of
____________________ (the "Lease Commencement Date") for a term of
_________________________ ending on _______________________ (unless sooner
terminated as provided in the Lease and (c) in accordance with the Lease, Rent
commenced to accrue on _______________________________.
2. No Further Modification. Except as set forth in this Amendment, all of
-----------------------
the terms and provisions of the Lease shall remain unmodified and in full force
and effect.
IN WITNESS WHEREOF, this Amendment to Lease has been executed as of the day
and year first above written.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: LPC MS, Inc.,
as agent and manager for Landlord
By: ________________________________
Name: D. Allen Palmer
Its: Senior Vice President
"Tenant":
_________________________________________
a _______________________________________
By: ____________________________________
Name:_______________________________
Its:________________________________
EXHIBIT C
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<PAGE>
EXHIBIT D
---------
RULES AND REGULATIONS
---------------------
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Subject to Section 10.1 of the Lease, Landlord shall not be
responsible to Tenant for the nonperformance of any of said Rules and
Regulations by or otherwise with respect to the acts or omissions of any other
tenants or occupants of the Building.
1. Tenant shall not alter any lock or install any new or additional locks
or bolts on any doors or windows of the Premises without obtaining Landlord's
prior written consent. Tenant shall bear the cost of any lock changes or repairs
required by Tenant. Two keys will be furnished by Landlord for the Premises, and
any additional keys required by Tenant must be obtained from Landlord at a
reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at all
times except for normal ingress and egress to the Premises, unless electrical
hold backs have been installed.
3. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building during such hours as are customary for comparable
buildings in the vicinity of the Building. Tenant, its employees and agents must
be sure that the doors to the Building are securely closed and locked when
leaving the Premises if it is after the normal hours of business for the
Building. Any tenant, its employees, agents or any other persons entering or
leaving the Building at any time when it is so locked, or any time when it is
considered to be after normal business hours for the Building, may be required
to sign the Building register when so doing. Access to the Building may be
refused unless the person seeking access has proper identification or has a
previously arranged pass for access to the Building. Landlord and its agents
shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of invasion,
mob, riot, public excitement, or other commotion, Landlord reserves the right to
prevent access to the Building during the continuance of same by any means it
deems appropriate for the safety and protection of life and property.
4. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy property brought into the Building. Safes
and other heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such safe or
property in any case. All damage done to any part of the Building, its contents,
occupants or visitors by moving or maintaining any such safe or other property
shall be the sole responsibility of Tenant and any expense of said damage or
injury shall be borne by Tenant, except to the extent covered by Landlord's
insurance obtained as part of Operating Expenses.
5. No heavy and/or bulky furniture, freight, packages, supplies,
equipment or merchandise will be brought into or removed from the Building or
carried up or down in the elevators, except upon prior notice to Landlord, and
in such manner, in such specific elevator, and between such hours as shall be
designated by Landlord. Tenant shall provide Landlord with not less than 24
hours prior notice of the need to utilize an elevator for any such purpose, so
as to provide Landlord with a reasonable period to schedule such use and to
install such padding or take such other actions or prescribe such procedures as
are appropriate to protect against damage to the elevators or other parts of the
Building.
6. Landlord shall have the right to control and operate the public
portions of the Building, the public facilities, the HVAC, and any other
facilities furnished for the common use of tenants, in such manner as is
customary for Comparable Buildings.
7. The requirements of Tenant will be attended to only upon application
at the management office of the Building or at such office location designated
by Landlord. Employees of Landlord shall not perform any work or do anything
outside their regular duties unless under special instructions from Landlord.
8. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate with Landlord or Landlord's agents to prevent same.
9. The toilet rooms, 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
agents, shall have caused it.
10. Tenant shall not overload the floor of the Premises, nor (except for
pictures and other normal office wall hangings) mark, drive nails or screws, or
drill into the partitions, woodwork or plaster or in any way deface the Premises
or any part thereof without Landlord's consent first had and obtained.
11. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machine or machines of any description other
than fractional horsepower office machines shall be installed, maintained or
operated upon the Premises without the written consent of Landlord.
12. Tenant shall not use any method of HVAC other than that which may be
supplied by Landlord, without the prior written consent of Landlord.
13. Except as otherwise expressly provided in Article 5 of the Lease,
Tenant shall not use or keep in or on the Premises or the Building any kerosene,
gasoline or other inflammable or combustible fluid or material. Tenant shall not
use, keep or permit to be used or kept, any foul or noxious gas or substance in
or on the Premises, or permit or allow the Premises to be occupied or used in a
manner reasonably offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors, or vibrations, or interfere in any way
with other tenants or those having business therein.
-1-
<PAGE>
14. Tenant shall not bring into or keep within the Building or the
Premises any animals, birds, bicycles or other vehicles.
15. No cooking shall be done or permitted by Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for lodging or for
any unlawful purposes. Notwithstanding the foregoing, Underwriters' laboratory-
approved equipment and microwave ovens may be used in the Premises for heating
food and brewing coffee, tea, hot chocolate and similar beverages, provided that
such use is in accordance with all applicable federal, state and city laws,
codes, ordinances, rules and regulations, and does not cause odors which are
objectionable to Landlord and other tenants.
16. Landlord will reasonably approve where and how telephone and telegraph
wires are to be introduced to the Premises. No boring or cutting for wires shall
be allowed without the consent of Landlord. The location of telephone, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
17. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
these Rules and Regulations.
18. Tenant, its employees and agents shall not loiter in the entrances or
corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or
elevators, and shall use the same only as a means of ingress and egress for the
Premises.
19. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to ensure the most effective operation
of the Building's HVAC system, and shall refrain from attempting to adjust any
controls.
20. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in the city
in which the Building is located without violation of any law or ordinance
governing such disposal. All trash, garbage and refuse disposal shall be made
only through entry-ways and elevators provided for such purposes at such times
as Landlord shall designate.
21. Tenant shall comply with all safety, fire
protection and evacuation procedures and regulations established by Landlord or
any governmental agency.
22. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed, when the Premises are not
occupied.
23. No awnings or other projection shall be attached to the outside walls
of the Building without the prior written consent of Landlord. No curtains,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of the Premises without the prior written consent of
Landlord. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels or other articles be placed on the windowsills. All electrical ceiling
fixtures hung in offices or spaces along the perimeter of the Building must be
fluorescent and/or of a quality, type, design and bulb color approved by
Landlord.
24. The washing and/or detailing of or, the installation of windshields,
radios, telephones in or general work on, automobiles shall not be allowed on
the Real Property.
25. Food vendors shall be allowed in the Building upon receipt of a
written request from the Tenant. The food vendor shall service only the tenants
that have a written request on file in the Building's management office. Under
no circumstance shall the food vendor display their products in a public or
common area including corridors and elevator lobbies. Any failure to comply with
this rule shall result in immediate permanent withdrawal of the vendor from the
Building.
26. Tenant must comply with requests by the Landlord concerning the
informing of their employees of items of importance to the Landlord.
27. Tenant shall comply with any non-smoking ordinance adopted by any
applicable governmental authority.
28. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules or Regulations against any or all tenants of the Building; provided,
however, Landlord shall not enforce such Rules and Regulations against Tenant in
a discriminatory manner. Landlord reserves the right, upon notice to Tenant, to
make reasonable changes to and/or to rescind any one or more of these Rules and
Regulations, or to make such other and further reasonable Rules and Regulations
as in Landlord's reasonable judgment may from time to time be necessary for the
management, safety, care and cleanliness of the Premises, Building and Real
Property, and for the preservation of good order therein, as well as for the
convenience of other occupants and tenants therein; provided, however, that no
such changes or additions thereto shall interfere with Tenant's permitted use of
the Premises as set forth in Article 5 and no changes or additions to the Rules
and Regulations shall increase the Basic Rent to be paid by Tenant hereunder.
Subject to Section 10.1 of the Lease, Landlord shall not be responsible to
Tenant or to any other person for the nonobservance of the Rules and Regulations
by another tenant or other person. Tenant shall be deemed to have read these
Rules and Regulations and to have agreed to abide by them as a condition of its
occupancy of the Premises.
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<PAGE>
EXHIBIT E
---------
CLEANING SPECIFICATIONS
-----------------------
-1-
<PAGE>
EXHIBIT F
---------
TENANT CERTIFICATE
------------------
- --------------------------------------------------------------------------------
Please complete all of the blanks with the appropriate information
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
LEASED PREMISES: Suite 100, 225 West Hillcrest, Thousand Oaks, California (the
"Leased Premises")
---------------
LANDLORD/BORROWER: WHLNF REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited
partnership (the "Landlord")
--------
TENANT: REALSELECT, INC., a Delaware corporation (the "Tenant")
------
LEASE DATED: September 18, 1998 (the "Lease")
TENANT'S NOTICE ADDRESS: 5655 Lindero Canyon Road, Suite 120
Westlake Village, California 91362
Attention: Catherine Kwong Giffen
(Prior to Lease Commencement Date)
and
225 West Hillcrest, Suite 100
Thousand Oaks, California
Attention: Catherine Kwong Giffen
(After Lease Commencement Date)
DATE: September 18, 1998
--------- ----
</TABLE>
GENERAL ELECTRIC CAPITAL CORPORATION ("GECC") has made or is about to make a
----
loan (the "Loan") to the Landlord which will be secured by a mortgage or deed of
----
trust and security agreement (the "Deed of Trust"), covering the real property
-------------
described on EXHIBIT A and the buildings and improvements located thereon
---------
(collectively, the "Real Property"). In connection with the making of the Loan,
-------------
GECC has requested that the Tenant complete this Tenant Certificate with the
appropriate information as it pertains to the Tenant's lease and to agree to the
requirements set forth herein.
The undersigned, Tenant, hereby certifies to and agrees with GECC, as to the
following:
ACKNOWLEDGMENT OF LEASE
-----------------------
1. The Leased Premises contain approximately 34,324 rentable square feet. The
term of the Lease is for five (5) years, and shall commence on the Lease
Commencement Date as determined pursuant to the Lease.
2. The minimum monthly Base Rent initially payable under the Lease is
$58,495.15, and is subject to adjustment as set forth in the Lease.
3. Concurrently with Tenant's execution of the Lease, Tenant is required to
deliver to Landlord a security deposit of $70,020.96, and a letter of
credit in the amount of $250,000.00.
4. No rent or other sum which is payable under the Lease has been paid by or
on behalf of Tenant more than one (1) month in advance.
5. The Lease, upon execution by the Landlord, is valid and in full force and
effect, and, to the best of Tenant's knowledge, neither Landlord nor Tenant
is in default thereunder.
6. Any improvements required by the Lease to be made by Landlord have been
completed to the full satisfaction of Tenant, except as required pursuant
to Exhibit B attached to the Lease.
---------
7. The Lease has not been assigned, modified, supplemented or amended in any
way. Tenant shall not enter into any assignment, modification, supplement
or amendment to the Lease without the prior written consent of GECC. The
Lease constitutes the entire agreement between the parties and there are no
other agreements (including any letter agreements) between Landlord and
Tenant concerning the Leased Premises. Tenant shall not, without obtaining
the prior written consent of GECC, (a) prepay any of the rents, additional
rents or other sums due under the Lease for more than one (1) month in
advance of the due dates thereof, (b) voluntarily surrender the Leased
Premises or terminate the Lease without cause, or (c) assign the Lease or
sublet the Leased Premises other than pursuant to the provisions of the
Lease.
-1-
<PAGE>
SUBORDINATION
-------------
8. The Lease (including, without limitation, all rights to insurance proceeds
and condemnation awards, any rights of first refusal, options to purchase,
and any other rights granted to Tenant pursuant to the Lease) is, and shall
at all times continue to be, subject and subordinate in each and every
respect, to (a) the Deed of Trust and to any and all liens, security
interests, rights and any other interest created thereby and to any and all
increases, renewals, modifications, extensions, substitutions, replacements
and/or consolidations of the Deed of Trust and the Loan, and (b) any
additional financing of the Real Property or portions thereof provided by
GECC and the liens and security interests under the documents evidencing
and securing such additional financing, and to any increases therein or
supplements thereto.
NON-DISTURBANCE
---------------
9. So long as the Lease is in full force and effect and Tenant is not in
default in the payment of rent, additional rent, taxes, utility charges or
other sums payable by Tenant under the terms of the Lease, or under any of
the other terms, covenants or conditions of the Lease on Tenant's part to
be performed (beyond the period, if any, specified in the Lease within
which Tenant may cure such default) (a) Tenant's possession of the Leased
Premises under the Lease shall not be disturbed or interfered with by GECC
in the exercise of any of its rights under the Deed of Trust, including any
foreclosure, and (b) GECC will not join Tenant as a party defendant for the
purpose of terminating Tenant's interest and estate under the Lease in any
proceeding for foreclosure of the Deed of Trust.
ATTORNMENT
----------
10. If, at any time GECC (or any person, or such person's successors or
assigns, who acquire the interest of the Landlord under the Lease through
foreclosure action of the Deed of Trust, or upon a transfer of the Real
Property by conveyance in lieu of foreclosure, or otherwise) shall succeed
to the rights of the Landlord under the Lease as a result of a default or
event of default under the Mortgage, and if the Tenant is not then in
default under the Lease (beyond the time permitted therein, if any, to cure
such default), then (a) the Lease shall not terminate, (b) upon receipt by
Tenant of written notice of such succession, Tenant shall attorn to and
recognize such person as succeeding to the rights of the Landlord under the
Lease (herein sometimes called "Successor Landlord"), upon the terms and
------------------
conditions of the Lease, and (c) Successor Landlord shall accept such
attornment and recognize Tenant as the Successor Landlord's tenant under
the Lease. Upon such attornment and recognition, the Lease shall continue
in full force and effect as, or as if it were, a direct lease between the
Successor Landlord and Tenant upon all of the terms, conditions and
covenants (including any right under the Lease on the part of the Tenant to
extend the term of the Lease) as are set forth in the Lease and which shall
be applicable after such attornment and recognition. Notwithstanding
anything to the contrary set forth herein, GECC or such Successor Landlord
shall not be (i) liable for any act or omission of any previous landlord,
including the Landlord, except for any continuing non-monetary defaults
(such as, for example, failure to make Landlord required repairs under the
Lease), (ii) subject to any offset, defense or counterclaim which Tenant
might be entitled to assert against any previous landlord, including the
Landlord, except for any offset and abatement rights specifically provided
in the Lease, (iii) bound by any payment of rent or additional rent made by
the Tenant to any previous landlord (including the Landlord) for more than
one (1) month in advance, unless the same was paid to and received by the
Successor Landlord, (iv) bound by any material amendment or modification of
the Lease hereafter made without the written consent of GECC, or (v) liable
for any deposit that Tenant may have given to any previous landlord
(including the Landlord) which has not been transferred to the Successor
Landlord. Further, notwithstanding anything to the contrary set forth
herein, the liability of GECC for any obligations under the Lease shall be
limited to GECC's interest in the Real Property. GECC shall not have any
liability or responsibility under or pursuant to the terms of the Lease
after it ceases to own an interest in or to the Real Property.
11. The provisions of this Tenant Certificate regarding non-disturbance and
attornment by Tenant shall be self-operative and effective without the
necessity of execution of any new lease or other document on the part of
any party hereto or the respective heirs, legal representatives, successors
or assigns of any such party. Tenant agrees, however, to execute and
deliver at any time and from time to time, upon the request of GECC or of
any Successor Landlord, any instrument or certificate which, in the
reasonable judgment of GECC or such Successor Landlord may be necessary or
appropriate in any such foreclosure proceeding or otherwise to evidence
such non-disturbance and attornment, including, if requested, a new lease
of the Leased Premises on the same terms and conditions as the Lease.
HAZARDOUS MATERIALS
-------------------
12. Tenant shall neither suffer nor itself manufacture, store, handle,
transport, dispose of, spill, leak or dump any toxic or hazardous waste,
waste product or substance (as they may be defined in any federal or state
statute, rule or regulation pertaining to or governing such wastes, waste
products or substances) on the Leased Premises or on any property in the
vicinity of the Leased Premises at any time during the term (including any
renewal term) of the Lease and during Tenant's occupancy of the Leased
Premises.
NOTICE
------
13. Tenant hereby acknowledges and agrees that: (a) from and after the date
hereof, in the event of any act or omission of Landlord which would give
Tenant the right, either immediately or after the lapse of time, to
terminate the Lease or to claim a partial or total eviction, Tenant will
not exercise any such right (i) until it has given written notice of such
act or omission to GECC and (ii) until the expiration of thirty (30) days
following such giving of notice to GECC in which time period GECC shall be
entitled to cure any such act or omissions of Landlord; (b) Tenant shall
send to Landlord all copies of any such default, notice or statement under
the Lease at the same time such notice is sent to Landlord; and (c) if GECC
notifies Tenant of a default under the Deed of Trust and demands that
Tenant pay its rent and all other sums due under the Lease to GECC, Tenant
shall honor such demand and pay its rent and all of the sums due under the
Lease directly to
-2-
<PAGE>
STATE OF ___________________)
) ss.
COUNTY OF __________________)
GECC or as otherwise required pursuant to such notice, and following such
payment by Tenant, Tenant shall have no liability to Landlord for those
payments.
All notices and other communications from Tenant to GECC shall be in
writing and shall be delivered or mailed by registered mail, postage paid,
return receipt requested, or delivered by an overnight courier, addressed
to GECC at:
General Electric Capital Corporation
16479 Dallas Parkway, Suite 400
Two Bent Tree Tower
Dallas, TX 75248
Attention: Julie Krommenhock
Re: Loan No. __________________________
or at such other address as GECC, any successor, purchaser or transferee
shall furnish to the Tenant in writing.
This Tenant Certificate is being executed and delivered by Tenant to induce
GECC to make the Loan which is to be secured in part by an assignment to GECC of
Landlord's interest in the Lease and with the intent and understanding that the
above statements will be relied upon by GECC. This Tenant Certificate shall
inure to the benefit of and be binding upon the parties hereto, their successors
and permitted assigns, and any purchaser or purchasers at foreclosure of the
Real Property, and their respective heirs, personal representatives, successors
and assigns.
TENANT:
REALSELECT, INC.
a Delaware corporation
By:____________________________(Please sign name)
Name:__________________________(Please print name)
Title:_________________________(Please print title within Company)
Date:__________________________(Please print date of execution)
GECC:
GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation
By:_______________________
Name: Michael Hudspeth
Title: Its Attorney-In-Fact
Date:_____________________
LANDLORD:
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: LPC MS, Inc.,
as agent and manager for Landlord
By: _________________________
Name: D. Allen Palmer
Its: Senior Vice President
SIGNATURES MUST BE ACKNOWLEDGED, PLEASE ATTACH NOTARY FORMS.
-3-
<PAGE>
STATE OF______________)
) ss.
COUNTY OF_____________)
On ______________________________, before me, ___________________, a Notary
Public in and for said state, personally appeared _______________________ and
____________________________, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the persons whose names are subscribed to
the within instrument and acknowledged to me that they executed the same in
their authorized capacities, and that by their signatures on the instrument, the
persons, or the entity upon behalf of which the persons acted, executed the
instrument.
WITNESS my hand and official seal.
____________________________________________
Notary Public in and for said State
STATE OF______________)
) ss.
COUNTY OF_____________)
On ______________________________, before me, ___________________, a Notary
Public in and for said state, personally appeared _______________________ and
____________________________, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the persons whose names are subscribed to
the within instrument and acknowledged to me that they executed the same in
their authorized capacities, and that by their signatures on the instrument, the
persons, or the entity upon behalf of which the persons acted, executed the
instrument.
WITNESS my hand and official seal.
____________________________________________
Notary Public in and for said State
STATE OF______________)
) ss.
COUNTY OF_____________)
On ______________________________, before me, ___________________, a Notary
Public in and for said state, personally appeared _______________________ and
____________________________, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the persons whose names are subscribed to
the within instrument and acknowledged to me that they executed the same in
their authorized capacities, and that by their signatures on the instrument, the
persons, or the entity upon behalf of which the persons acted, executed the
instrument.
WITNESS my hand and official seal.
____________________________________________
Notary Public in and for said State
-4-
<PAGE>
EXTENSION OPTION RIDER
----------------------
This Extension Option Rider ("EXTENSION RIDER") is made and entered into by
and between WHLNF REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited liability
partnership ("LANDLORD"), and REALSELECT, INC., a Delaware corporation
("TENANT"), and is dated as of the date of the Office Lease ("LEASE") by and
between Landlord and Tenant to which this Extension Rider is attached. The
agreements set forth in this Extension Rider shall have the same force and
effect as if set forth in the Lease. To the extent the terms of this Extension
Rider are inconsistent with the terms of the Lease, the terms of this Extension
Rider shall control.
1. Option Right. Landlord hereby grants Tenant one (1) option to extend
------------
the Lease Term for all, but not less than all of, the Premises leased by Tenant,
for a period of five (5) years (the "OPTION TERM"), which option shall be
exercisable only by written Exercise Notice (as defined below) delivered by
Tenant to Landlord as provided below, provided that, as of the date of delivery
of such Exercise Notice, Tenant is not in default under the Lease beyond any
applicable notice and cure period. Upon the proper exercise of such option to
extend, and provided that, as of the end of the initial Lease Term Tenant is not
in default under the Lease beyond any applicable notice and cure period, the
Lease Term shall be extended for the Option Term. The rights contained in this
Extension Rider shall be personal to the original Tenant executing the Lease and
any assignee to which Tenant's entire interest in this Lease has been assigned
pursuant to Article 14, and may only be exercised by the original Tenant or such
assignee, as the case may be (but not by any sublessee or other transferee of
Tenant's interest in the Lease) if the original Tenant or such assignee occupies
at least 50% of the Premises as of the date of the Exercise Notice.
2. Option Rent. The Annual Base Rent payable by Tenant during the Option
-----------
Term (the "OPTION RENT") shall be equal to the "Fair Market Rental Rate" for the
Premises. As used herein, the "FAIR MARKET RENTAL RATE" for purposes of
determining the Annual Base Rent for the Option Term (and/or for purposes of
determining the Annual Base Rent for the First Offer Space pursuant to Section
1.4 of the Lease) shall mean the Annual Base Rent at which non-renewal, non-
equity, non-expansion tenants, as of the commencement of the Option Term (or the
lease term for the First Offer Space, as the case may be), will be leasing non-
sublease, unencumbered space comparable in size, location and quality to the
Premises (or First Offer Space, as the case may be) for a comparable term, which
comparable space is located in the Building and in other Comparable Buildings
(as defined in Section 6.1 of the Lease), taking into consideration free rent,
reduced rent, free and/or reduced parking (if any), and other lease concessions
(including tenant improvement allowances, but in determining such allowances,
the age, quality, value and layout of the existing tenant improvements in the
Premises, or First Offer Space, as the case may be, shall be taken into account)
generally being granted at such time for such comparable space for the Option
Term (or the lease term for the First Offer Space, as the case may be). The Fair
Market Rental Rate will be an effective rate, not specifically including, but
accounting for, the appropriate concessions described above. All other terms and
conditions of the Lease shall apply throughout the Option Term; however, Tenant
shall, in no event, have the option to extend the Lease Term beyond the Option
Term described in Section 1 above.
3. Exercise of Option. The option contained in this Extension Rider shall
------------------
be exercised by Tenant, if at all, only in the following manner: (i) Tenant
shall deliver written notice to Landlord not more than fifteen (15) months nor
less than twelve (12) months prior to the expiration of the initial Lease Term
stating that Tenant may be interested in exercising its option; (ii) Landlord,
---
after receipt of Tenant's notice, shall deliver notice (the "OPTION RENT
NOTICE") to Tenant not less than ten (10) months prior to the expiration of the
initial Lease Term setting forth Landlord's determination of the Option Rent;
and (iii) if Tenant wishes to exercise such option, Tenant shall, on or before
the date (the "EXERCISE DATE") which is the earlier of (A) the date occurring
nine (9) months prior to the expiration of the initial Lease Term, and (B) the
date occurring thirty (30) days after Tenant's receipt of the Option Rent
Notice, exercise the option by delivering written notice ("EXERCISE NOTICE")
thereof to Landlord. Concurrently with Tenant's delivery of the Exercise Notice,
Tenant may object, in writing, to Landlord's determination of the Fair Market
Rental Rate set forth in the Option Rent Notice, in which event such Fair Market
Rental Rate shall be determined pursuant to Section 4 below. Tenant's failure to
deliver the Exercise Notice on or before the Exercise Date, shall be deemed to
constitute Tenant's waiver of its extension right hereunder. If Tenant timely
delivers the Exercise Notice but fails to timely object in writing to Landlord's
determination of the Fair Market Rental Rate set forth in the Option Rent
Notice, Tenant shall be deemed to have objected thereto and the following
provisions of Section 4 shall apply.
4. Determination of Fair Market Rental Rate. If Tenant timely objects to
----------------------------------------
the Fair Market Rental Rate submitted by Landlord in the Option Rent Notice (or
timely objects to Landlord's determination of the Fair Market Rental Rate for
the First Offer Space pursuant to Section 1.4.3 of the Lease), Landlord and
Tenant shall thereafter attempt in good faith to agree upon such Fair Market
Rental Rate, using their best good faith efforts. If Landlord and Tenant fail to
reach agreement on such Fair Market Rental Rate within thirty (30) days
following Tenant's objection to such Fair Market Rental Rate (the "OUTSIDE
AGREEMENT DATE") then the applicable Fair Market Rental Rate shall be submitted
to appraisal in accordance with Sections 4.1 through 4.7 below.
4.1 Landlord and Tenant shall each appoint one (1) appraiser who
shall by profession be a real estate appraiser who shall have been active over
the five (5) year period ending on the date of such appointment in the appraisal
of office buildings in Conejo Valley. The determination of the appraisers shall
be limited solely to the issue of whether Landlord's or Tenant's submitted Fair
Market Rental Rate is the closer to the actual Fair Market Rental Rate as
determined by the appraisers, taking into account the requirements with respect
thereto set forth in Section 2 above. Each such appraiser shall be appointed
within fifteen (15) days after the Outside Agreement Date.
4.2 The two (2) appraisers so appointed shall, within fifteen (15)
days of the date of the appointment of the last appointed appraiser, agree upon
and appoint a third appraiser who shall be qualified under the same criteria set
forth hereinabove for qualification of the initial two (2) appraisers.
4.3 The three (3) appraisers shall, within thirty (30) days of the
appointment of the third appraiser, reach a decision as to which of Landlord's
or Tenant's submitted Fair Market Rental Rate is closer to the actual Fair
Market Rental Rate and shall select such closer determination as the Fair Market
Rental Rate and notify Landlord and Tenant thereof.
-1-
<PAGE>
4.4 The decision of the majority of the three (3) appraisers shall be
binding upon Landlord and Tenant.
4.5 If either Landlord or Tenant fails to appoint an appraiser within
the time period specified in Section 4.1 hereinabove, the appraiser appointed by
one of them shall reach a decision, notify Landlord and Tenant thereof, and such
appraiser's decision shall be binding upon Landlord and Tenant.
4.6 If the two (2) appraisers fail to agree upon and appoint a third
appraiser, a third appraiser shall be appointed by the Superior Court of Los
Angeles County, California.
4.7 Each party shall pay the fees and expenses of the appraiser
appointed by or on behalf of it, and each shall pay one-half of the fees and
expenses of the third appraiser, if any.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited liability partnership
By: LPC MS, Inc.,
as agent and manager for Landlord
By: ___________________________________
Name: D. Allen Palmer
Its: Senior Vice President
"Tenant":
REALSELECT, INC.,
a Delaware corporation
By: ___________________________________
Name:______________________________
Its:_______________________________
By: ___________________________________
Name:______________________________
Its:_______________________________
-2-
<PAGE>
LETTER OF CREDIT RIDER
----------------------
This Letter of Credit Rider ("LC RIDER") is made and entered into by and
between WHLNF REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited liability
partnership ("LANDLORD"), and REALSELECT, INC., a Delaware corporation
("TENANT"), and is dated as of the date of the Office Lease ("LEASE") by and
between Landlord and Tenant to which this LC Rider is attached. The agreements
set forth in this Letter of Credit Rider shall have the same force and effect as
if set forth in the Lease. To the extent the terms of this LC Rider are
inconsistent with the terms of the Lease, the terms of this LC Rider shall
control.
1. Within seven (7) days after Tenant's execution of the Lease, Tenant
shall deliver to Landlord, as collateral for the full and faithful performance
by Tenant of all of its obligations under the Lease and for all losses and
damages Landlord may suffer as a result of any default by Tenant under the
Lease, an irrevocable and unconditional negotiable letter of credit (the "LETTER
OF CREDIT"), in the form and containing the terms required herein, payable in
the County of Los Angeles, California, running in favor of Landlord issued by a
solvent bank under the supervision of the Superintendent of Banks of the State
of California, or a National Banking Association, in the amount of $250,000.00
("LC AMOUNT"), as the same may be reduced pursuant to Paragraph 5 below. The
Letter of Credit shall be (i) at sight and irrevocable, (ii) subject to the
terms of this LC Rider, maintained in effect, whether through replacement,
renewal or extension, for the entire period from the date of execution of this
Lease through the Lease Expiration Date and Tenant shall deliver a new Letter of
Credit or certificate of renewal or extension to Landlord at least fifteen (15)
days prior to the expiration of the Letter of Credit, without any action
whatsoever on the part of Landlord, (iii) subject to the Uniform Customs and
Practices for Documentary Credits (1993-Rev) International Chamber of Commerce
Publication #500, and (iv) fully assignable by Landlord in connection with a
transfer of Landlord's interest in the Lease and permit partial draws. In
addition to the foregoing, the form and terms of the Letter of Credit (and the
bank issuing the same) shall be acceptable to Landlord, in Landlord's reasonable
discretion, and shall provide, among other things, in effect that: (A) Landlord,
or its then managing agent, shall have the right to draw down an amount up to
the face amount of the Letter of Credit upon the presentation to the issuing
bank of Landlord's (or Landlord's then managing agent's) of a written statement
that such amount is due to Landlord under the terms and conditions of the Lease,
it being understood that if Landlord or its managing agent be a corporation,
partnership or other entity, then such statement shall be signed by an officer
(if a corporation), a general partner (if a partnership), or any authorized
party (if another entity); (B) the Letter of Credit will be honored by the
issuing bank without inquiry as to the accuracy thereof and regardless of
whether the Tenant disputes the content of such statement; and (C) in the event
of a transfer of Landlord's interest in the Building, Landlord shall transfer
the Letter of Credit, in whole or in part (or cause a substitute letter of
credit to be delivered, as applicable) to the transferee and thereupon the
Landlord shall, without any further agreement between the parties, be released
by Tenant from all liability therefor, and it is agreed that the provisions
hereof shall apply to every transfer or assignment of the whole or any portion
of said Letter of Credit to a new Landlord.
2. If, as result of any application or use by Landlord of all or any part
of the Letter of Credit (or any "Cash Collateral," as that term is defined,
below), the amount of the Letter of Credit and Cash Collateral shall
collectively be less than the LC Amount, Tenant shall, within ten (10) days
thereafter, provide Landlord with either (i) cash (the "CASH COLLATERAL") to be
held and applied by Landlord as collateral in the same manner as if Landlord
held such amount as part of the Letter of Credit, or (ii) additional letter(s)
of credit in an amount equal to the deficiency (or a replacement letter of
credit in the total amount of the Letter of Credit Amount) and any such
additional (or replacement) letter of credit shall comply with all of the
provisions of this LC Rider, and if Tenant fails to comply with the foregoing,
the same shall constitute an uncurable default by Tenant. Tenant further
covenants and warrants that it will neither assign nor encumber the Letter of
Credit or Cash Collateral, as the case may be, or any part thereof and that
neither Landlord nor its successors or assigns will be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance. Without
limiting the generality of the foregoing, if the Letter of Credit expires
earlier than the Lease Expiration Date, Landlord will accept Cash Collateral, a
renewal letter of credit or substitute letter of credit (such renewal or
substitute letter of credit or Cash Collateral to be in effect and delivered to
Landlord, as applicable, not later than fifteen (15) days prior to the
expiration of the Letter of Credit), which with respect to any letter of credit
shall be irrevocable and automatically renewable as above provided through the
Lease Expiration Date upon the same terms as the expiring Letter of Credit or
such other terms as may be acceptable to Landlord in its reasonable discretion.
However, if Cash Collateral is not timely delivered or the Letter of Credit is
not timely renewed or a substitute Letter of Credit is not timely received, or
if Tenant fails to maintain the Letter of Credit and/or the Cash Collateral in
the amount and in accordance with the terms set forth in this LC Rider, Landlord
shall have the right to present the Letter of Credit to the bank in accordance
with the terms of this LC Rider, and the entire sum evidenced thereby shall be
paid to and held by Landlord as Cash Collateral for performance of all of
Tenant's obligations under the Lease and for all losses and damages Landlord may
suffer as a result of any default by Tenant under the Lease.
3. If there shall occur a default under the Lease as set forth in Article
19 of the Lease, Landlord may, but without obligation to do so, draw upon the
Letter of Credit and/or utilize the Cash Collateral, in part or in whole, to
cure any default of Tenant and/or to compensate Landlord for any and all damages
of any kind or nature sustained or which may be sustained by Landlord resulting
from Tenant's default. Tenant agrees not to interfere in any way with payment
to Landlord of the proceeds of the Letter of Credit, either prior to or
following a "draw" by Landlord of any portion of the Letter of Credit,
regardless of whether any dispute exists between Tenant and Landlord as to
Landlord's right to draw from the Letter of Credit. No condition or term of the
Lease shall be deemed to render the Letter of Credit conditional to justify the
issuer of the Letter of Credit in failing to honor a drawing upon such Letter of
Credit in a timely manner.
4. Landlord and Tenant acknowledge and agree that in no event or
circumstance shall the Letter of Credit or any renewal thereof or substitute
therefor or Cash Collateral be (i) deemed to be or treated as a "security
deposit" within the meaning of California Civil Code Section 1950.7, (ii)
subject to the terms of such Section 1950.7, or (iii) intended to serve as a
"security deposit" within the meaning of such Section 1950.7. The parties
hereto (A) recite that the Letter of Credit and/or Cash Collateral, as the case
may be, is not intended to serve as a security deposit and such Section 1950.7
and any and all other laws, rules and regulations applicable to security
deposits in the commercial context ("SECURITY DEPOSIT LAWS") shall have no
applicability or relevancy thereto and (B) waive any and all rights, duties and
obligations either party may now or, in the future, will have relating to or
arising from the Security Deposit Laws.
-1-
<PAGE>
5. (a) Subject to Paragraph 5(c) below, notwithstanding the foregoing
provisions of this LC Rider to the contrary, in the event that Tenant
successfully completes an initial public offering of stock in Tenant through the
New York Stock Exchange or other nationally recognized stock exchange, then the
LC Amount shall be reduced by $150,000.00 (such that the remaining LC Amount
shall be $100,000) upon the date which is fifteen (15) days after Tenant
requests such reduction and delivers to Landlord evidence of such initial public
offering. Any such reduction in the LC Amount shall be accomplished through
amendment or replacement Letter of Credit to be provided by Tenant to Landlord
at Tenant's sole cost and expense.
(b) Subject to Paragraph 5(c) below, if at any time during the Lease
Term, whether or not the LC Amount has been reduced pursuant to the provisions
of Paragraph 5(a) above, Tenant shall be able to concurrently meet all three of
the following financial criteria, as evidenced by audited financial statements
certified as true and accurate by a national independent public accounting firm
selected by Tenant and approved by Landlord, then within fifteen (15) days
after Landlord's receipt of such certified audited financial statements and
Tenant's notice to Landlord that Tenant has met such financial criteria, Tenant
shall no longer be required to provide the Letter of Credit to Landlord and
Landlord shall return the Letter of Credit to Tenant:
(i) Tenant has at least $10,000,000.00 in cash held in its bank
accounts;
(ii) Tenant has at least $25,000,000.00 million in current
shareholder's equity; and
(iii) Tenant has positive net profitability for at least each of
the last four consecutive quarters ending prior to the date Tenant delivers such
notice to Landlord.
(c) There shall be no reduction in the LC Amount or return of the
Letter of Credit to Tenant at any time while Tenant is in default of any of its
obligations under this Lease.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited liability partnership
By: LPC MS, Inc.,
as agent and manager for Landlord
By: ___________________________________
Name: D. Allen Palmer
Its: Senior Vice President
"Tenant":
REALSELECT, INC.,
a Delaware corporation
By: ___________________________________
Name:______________________________
Its:_______________________________
By: ___________________________________
Name:______________________________
Its:_______________________________
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<PAGE>
GUARANTY OF LEASE
-----------------
The Office Lease (the "Lease") dated September 18, 1998, herewith has been
or will be executed by and between WHLNF ESTATE LIMITED PARTNERSHIP
("Landlord"), and REALSELECT, a Delaware corporation ("Tenant"), whereby
Landlord leased to Tenant and Tenant leased from Landlord certain space more
commonly known as Suite 100 in the Building whose address is 225 West Hillcrest,
Thousand Oaks, California. Landlord requires, as a condition to Landlord's
execution of the Lease, that NetSelect, Inc. ("Guarantor"), guaranty the full
performance of the obligations of Tenant under the Lease and execute and deliver
this Guaranty to Landlord.
NOW, THEREFORE, in consideration of Landlord's execution of the Lease and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Guarantor agrees as follows:
1. Guarantor hereby absolutely and unconditionally guaranties the full
and timely performance of each and all of the terms, covenants and obligations
of the Lease, as amended, to be kept and performed by Tenant, including payment
of all rent, expenses and charges thereunder, throughout the Term of the Lease,
as may be extended.
2. Guarantor hereby further agrees that this Guaranty shall continue in
favor of Landlord, notwithstanding any modification or alteration of the Lease
entered into by and between the parties thereto, or their successors or assigns,
and notwithstanding any assignment of the Lease (with or without the consent of
Landlord), and no modification, alteration or assignment of the Lease shall in
any manner release or discharge Guarantor. Guarantor hereby consents to any
such modification, alteration or assignment of the Lease.
3. No action which Landlord may take or omit to take in connection with
the Lease, and no course of dealing with Tenant or any other person, shall
relieve Guarantor's obligations hereunder, affect this Guaranty in any way, or
afford Guarantor any recourse against Landlord. By way of example, but not in
limitation of the foregoing, Guarantor hereby expressly agrees that Landlord
may, from time to time without notice to Guarantor, do any of the following:
(a) amend, change or modify in whole or in part the Lease, or any
document executed now or hereafter in connection therewith;
(b) waive any terms, conditions or obligations of the Lease, or any
document executed now or hereafter in connection therewith, or grant any
extension of time or forbearance of same;
(c) compromise or settle any amount due or owing, or claimed to be due
or owing, under the Lease, or any document executed now or hereafter in
connection therewith; and
(d) release, substitute or add to Guarantor.
4. Guarantor expressly waives notice of acceptance of this Guaranty,
presentment for payment or performance of the Lease, nonpayment or
nonperformance of the Lease, any right of set-off against amounts due under this
Guaranty, protest and notice of protest, demand, notice of dishonor, notice of
any and all proceedings to collect amounts due under such agreements and to
enforce any security given therefor, and diligence in collecting sums due under
such agreements or any liability under this Guaranty. Guarantor further waives
the following: (a) any defense by reason of any disability of Tenant; (b) any
defense arising out of the absence, impairment or loss of any right of
reimbursement, contribution, subrogation or any other rights or remedies of
Guarantor against Tenant, whether resulting from Landlord's election to exercise
certain rights or remedies it may have against Tenant, or otherwise; (c) any
defense to the obligations of Guarantor under this Guaranty arising from any
bankruptcy proceedings against Tenant, including, but not limited to, those
arising from Landlord's exercise of its right to file a claim in such
proceedings, or the exercise of any trustee's powers under Federal Bankruptcy
Code Sections 364 and 365; and (d) the right to enforce any remedies that
Landlord now has, or later may have, against Tenant. Guarantor expressly waives
the provisions of Sections 2809, 2810, 2819, 2820, 2821, 2822, 2845, 2848 and
2849 of the Civil Code of the State of California, as recodified from time to
time (except the right to require contribution from co-sureties as set forth in
Section 2848 therein). Until all of Tenant's obligations to Landlord have been
discharged in full, Guarantor shall have no right of subrogation against Tenant.
Guarantor agrees that Landlord shall have no duty to disclose to Guarantor any
information it receives regarding the financial status of Tenant, whether or not
such information indicates that the risk that Guarantor may be required to
perform hereunder has been or may be increased. Guarantor assumes full
responsibility for being and keeping informed of all such matters.
5. In the event of any default in the performance of Tenant's obligations
under the Lease, Landlord shall have the right (a) to enforce its rights under
this Guaranty, and/or (b) to enforce its right against Tenant including, without
limitation, its rights under any and all such instruments, in any order. All
remedies available to Landlord shall be nonexclusive. The obligations of
Guarantor hereunder are independent of the obligations of Tenant, and Landlord
may enforce its right under this Guaranty without first proceeding against or
joining Tenant or any other person, and without applying or enforcing any
security for the Lease. Guarantor hereby waives any rights that Guarantor may
have to compel Landlord to proceed against Tenant or against any security from
Tenant or to participate in any such security. Guarantor hereby authorizes
Landlord, its successors and assigns, in their sole discretion, without notice
to Guarantor, to exercise any right or remedy which Guarantor may have, even
though any rights which Guarantor may have against the Tenant or others may be
diminished or destroyed by the exercise or election to exercise any such remedy.
6. Guarantor hereby authorizes Landlord, without notice to Guarantor, to
apply all payments and credits received from Tenant or from Guarantor or
realized from the security from Tenant for the Lease, in such manner and in such
priority as Landlord, in its sole judgment, shall see fit.
-1-
<PAGE>
7. Guarantor agrees to indemnify Landlord for, and hold Landlord harmless
against, all losses, costs and expenses, including without limitation, all court
costs and attorneys' fees (including appellate fees, if any), incurred or paid
by Landlord in enforcing or compromising any rights under this Guaranty or
enforcing or compromising the performance of the Lease.
8. Guarantor's obligations hereunder shall not be assigned or delegated.
9. This Guaranty may not be changed orally, and no obligations of
Guarantor can be released or waived by Landlord, except in writing by Landlord.
10. If any term or provisions of this Guaranty shall be determined to be
illegal or unenforceable, all other terms and provisions hereof shall
nevertheless remain effective and shall be enforceable to the fullest extent
permitted by law.
11. If Guarantor shall become bankrupt or insolvent, or any application
shall be made to have Guarantor declared bankrupt or insolvent, or Guarantor
shall make an assignment for the benefit of creditors, notice of such occurrence
or event shall be promptly furnished to Landlord by Guarantor or Guarantor's
fiduciary. This Guaranty shall extend to and be binding upon Guarantor's
successors and assigns, including, but not limited to, trustees in bankruptcy.
12. If more than one person or entity executes this Guaranty as Guarantor,
each such person and entity shall be jointly and severally liable as guarantors
hereunder.
13. This Guaranty shall be construed and enforced in accordance with the
laws of the State of California. Guarantor hereby irrevocably consents to the
jurisdiction of the State of California, and agrees that any court of competent
jurisdiction sitting in Los Angeles County, State of California, shall be an
appropriate and convenient place of venue, and shall be the sole place of venue,
to resolve any dispute with respect to this Guaranty.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the 18th day
of September, 1998.
"GUARANTOR"
NETSELECT, INC.
a Delaware corporation
By: _________________________________
Name:____________________________
Title:___________________________
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<PAGE>
EXHIBIT 10.24.2
FIRST AMENDMENT TO OFFICE LEASE
-------------------------------
This FIRST AMENDMENT TO OFFICE LEASE ("FIRST AMENDMENT") is made and
entered into effective as of March 31, 1999, by and between WHLNF REAL ESTATE
LIMITED PARTNERSHIP, a Delaware limited partnership ("LANDLORD"), and
REALSELECT, INC., a Delaware corporation ("TENANT").
R E C I T A L S:
- - - - - - - -
A. Landlord and Tenant entered into that certain Office Lease dated
as of September 18, 1998 (the "Lease"), pursuant to which Landlord leased to
Tenant, and Tenant leased from Landlord, 34,324 rentable and 32,338 usable
square feet of space within the building located at 225 West Hillcrest, Thousand
Oaks, California (the "BUILDING"), consisting of (i) 18,681 rentable and 17,600
usable square feet of space located on the east wing of the ground floor of the
Building and (ii) 15,643 rentable and 14,738 usable square feet of space located
on the east wing of the second (2nd) floor of the Building, as further described
in the Lease (the "ORIGINAL PREMISES").
B. Landlord and Tenant now desire to amend the Lease in certain
respects, including to (i) expand the Original Premises to include those certain
premises consisting of approximately 8,000 rentable and 7,175 usable square feet
of space located on the first floor of the tower of the Building, as depicted on
Exhibit A attached hereto (the "EXPANSION SPACE"), (ii) expand the Premises to
include approximately 8,274 rentable and 7,421 usable square feet of space
located on the first floor of the tower of the Building as depicted on Exhibit A
attached hereto (the "MUST-TAKE SPACE"), and (iii) otherwise modify the Lease,
all upon the terms and conditions set forth in this First Amendment. The
Expansion Space and the Must-Take Space are sometimes referred to herein
collectively as the "NEW SPACE."
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Capitalized Terms. Except as otherwise expressly provided herein
-----------------
to the contrary, all capitalized terms used in this First Amendment shall have
the same meanings given such terms in the Lease.
2. Addition of New Space. Commencing on the date (the "NEW SPACE
---------------------
COMMENCEMENT DATE") which is thirty (30) days after the first to occur of (i)
the date upon which Tenant commences business operations in the Expansion Space
or Must-Take Space or (ii) the date of Substantial Completion (as such term is
defined in Section 3 of the Tenant Work Letter attached hereto as Exhibit B) of
the New Space, the Original Premises shall be expanded to include the New Space
for a term coterminous with the Lease Term for the Original Premises, and leased
on the same terms and conditions set forth in the Lease, subject to the
modifications set forth in this First Amendment, and the "PREMISES" shall mean
the Original Premises and the New Space, unless otherwise specified herein. The
New Space Commencement Date is anticipated to be June 1, 1999. Tenant shall have
the right to occupy all or portion of the New Space prior to the New Space
Commencement Date, but in no event prior to May 1, 1999 (the "BENEFICIAL
OCCUPANCY PERIOD"), provided that (i) a temporary certificate of occupancy (or
its equivalent) shall have been issued by the appropriate governmental
authorities for each such portion of the New Space to be occupied, and (ii) all
of the terms and conditions of the Lease, as amended hereby, shall apply during
the Beneficial Occupancy Period as though the New Space Commencement Date had
occurred (although the New Space Commencement Date shall not actually occur
until the date set forth in this Section 2 above) upon such occupancy of all or
a portion of the New Space by Tenant; provided that, during the Beneficial
Occupancy Period, Tenant shall not be obligated to pay any Base Rent or Direct
Expenses for the New Space so occupied by Tenant.
3. Tenant Improvements. Except as expressly set forth in this First
-------------------
Amendment and in the Tenant Work Letter, (i) Tenant shall occupy the New Space
in its current "AS IS"
<PAGE>
condition without any obligation on Landlord's part to construct or to pay for
any tenant improvements or refurbishment work in the New Space subject only to
(A) any latent defects in the New Space which could not have been discovered by
Tenant with the exercise of reasonable diligence, and (B) the completion of any
work which is to be performed by Landlord in the New Space or the Building
pursuant to the Tenant Work Letter, and (ii) Tenant shall be solely responsible,
at its sole cost and expense, for constructing any and all alterations and
refurbishment work for the New Space pursuant to and in accordance with the
provisions of Article 8 of the Lease, it being agreed to by the parties that all
provisions of the Original Lease (including the Tenant Work Letter attached
thereto as Exhibit B) which require Landlord to construct, pay for or provide an
allowance for any tenant improvements or refurbishment work shall not apply to
the New Space.
4. Base Rent. From and after the New Space Commencement Date and
---------
continuing through the initial Lease Term, the Base Rent payable by Tenant for
the New Space shall be as set forth in the following schedule. From the New
Space Commencement Date through October 31, 1999 (the "MUST-TAKE ABATEMENT
PERIOD"), the monthly installment of Base Rent is calculated based upon the
rentable square footage of the Expansion Space only because Tenant is not
obligated to pay Base Rent for the Must-Take Space during such period. From
November 1, 1999 through the expiration of the Lease Term, the monthly
installments of Base Rent are calculated based upon the rentable square footage
of the Expansion Space and of the Must-Take Space.
<TABLE>
<CAPTION>
Rentable Square
Monthly Monthly Rental Footage
Months of Lease Term Installment Rate per Rentable on Which Base
for the New Space of Base Rent Square Foot Rent is Based
----------------- ------------ ----------- -------------
<S> <C> <C> <C>
1 - 10/31/99 $15,360.00 $1.92 8,000
11/1/99 - Month 19 $31,246.08 $1.92 16,274
Months 20 - 31 $32,873.48 $2.02 16,274
Month 32 - Expiration $34,500.88 $2.12 16,274
of Lease Term
</TABLE>
5. Advance Month's Tenant Share of Rent. Concurrently with Tenant's
------------------------------------
execution of this First Amendment, Tenant shall pay to Landlord the amount of
$31,246.08 which shall represent the first (1st) month's installment of Base
Rent for the Expansion Space and the November, 1999 installment of Base Rent for
the Must-Take Space.
6. Security Deposit. Concurrently with Tenant's execution of this
----------------
First Amendment, Tenant shall deposit with Landlord the amount of $34,500.88 as
an increase to and as part of the Security Deposit which shall be held by
Landlord pursuant to the terms and conditions of Article 20 of the Lease.
7. Tenant's Share of Direct Expenses. On the New Space Commencement
---------------------------------
Date and continuing through the expiration of the Lease Term, Tenant's Share of
Direct Expenses shall be increased by 10.34% (i.e., 5.08% for the Expansion
Space and 5.26% for the Must-Take Space) to 32.14% to reflect the addition of
the New Space to the Original Premises; provided, however, for the first twelve
(12) months of the initial Lease Term for the New Space, Tenant shall have no
obligation to pay Tenant's Share of Direct Expenses for the New Space. The Base
Year for the New Space shall be same as the Base Year for the Original Premises
(i.e., calendar year 1999).
8. Parking. From and after the New Space Commencement Date and
-------
continuing through the expiration of the Lease Term, Tenant shall have the right
to use an additional four (4) parking spaces for every 1,000 usable square feet
of space in the Expansion Space, subject to the terms and conditions of Article
23 of the Lease; provided, however, that up to five percent (5%) of such spaces
shall be reserved and the remainder shall be unreserved. From and after November
1, 1999 and continuing through the expiration of the Lease Term, Tenant shall
have
-2-
<PAGE>
the right to use an additional four (4) parking spaces for every 1,000 usable
square feet of space in the Must-Take Space (the "MUST-TAKE SPACES"), subject to
the terms and conditions of Article 23 of the Lease; provided, however, that up
to five percent (5%) of such spaces shall be reserved and the remainder shall be
unreserved. Tenant may use the Must-Take Spaces upon Tenant's commencement of
business operations in the Must-Take Space; provided, however, prior to November
1, 1999, Tenant's use of the Must-Take Spaces shall be subject to availability.
9. Right of First Offer. Section 1.4 of the Lease is hereby deleted
--------------------
in its entirety and replaced with the following:
"1.4 Right of First Offer. During the initial Lease Term, Tenant
--------------------
shall have the one-time right of first offer to lease one (1) full floor of
either floors 3, 4 or 5 of the Building (the "FIRST OFFER SPACE ") when such
full floor becomes available for lease as provided hereinbelow; if more than one
of such full floors becomes available at the same time, the First Offer Space
shall consist of one (1) such full floors as shall be designated by Landlord, in
its sole discretion, in Landlord's First Offer Notice (as defined below).
Notwithstanding the foregoing, if less than two (2) years remain in the initial
Lease Term at the time of Landlord's delivery of the First Offer Notice, Tenant
shall not have such right of first offer to lease the First Offer Space
identified in such First Offer Notice unless Tenant has either previously
exercised its extension option pursuant to the Extension Option Rider or
exercises such option concurrently with Tenant's delivery of Tenant's Election
Notice (as defined below). Tenant's right of first offer shall be upon the terms
and conditions set forth in this Section 1.4. Notwithstanding anything to the
contrary contained in this Section 1.4, Tenant's right of first offer contained
in this Section 1.4 shall be subject and subordinate to (A) any leases of the
First Offer Space which, as of the date of execution of this Lease, have been
fully executed by Landlord and the tenants therein (the "INITIAL LEASES"), (B)
all expansion, first offer and similar rights currently provided to the tenants
in the Initial Leases and (C) renewals of the Initial Leases, whether or not
such renewals are pursuant to an express written provision in such leases and
regardless of whether any such renewals are consummated pursuant to new leases
or lease amendments (collectively, the "SUPERIOR RIGHTS"). In addition, Tenant
shall have no right of first offer, and Landlord shall not be obligated to
deliver to Tenant a First Offer Notice, with respect to less than an entire full
floor of space, if less than a full floor becomes available for lease at any
time.
1.4.1 Procedure for Offer. Landlord shall give Tenant written notice
-------------------
(the "FIRST OFFER NOTICE") that the First Offer Space shall or has become
available for lease by Tenant pursuant to the terms of Tenant's right of first
offer, as set forth in this Section 1.4, provided that no holder of the Superior
Rights desires to lease all or any portion of such space. Pursuant to such First
Offer Notice, Landlord shall offer to lease to Tenant such available First Offer
Space for a term coterminous with the Lease Term. The First Offer Notice shall
describe the space so offered to Tenant, including, without limitation,
Landlord's determination of the rentable square footage thereof as calculated
pursuant to Landlord's standard rentable area measurements for the Building
which shall be consistent with the measurement standards used for the initial
Premises, and shall also set forth Landlord's determination of the "FIRST OFFER
RENT," as that term is defined in Section 1.4.3 below, and the other terms upon
which Landlord is willing to lease such space to Tenant.
1.4.2 Procedure for Acceptance. If Tenant wishes to exercise
------------------------
Tenant's right of first offer with respect to the applicable full floor First
Offer Space described in the First Offer Notice, then within ten (10) business
days of Tenant's receipt of the applicable First Offer Notice, Tenant shall
deliver written notice to Landlord ("TENANT'S ELECTION NOTICE") pursuant to
which Tenant shall elect either to: (i) lease the entire First Offer Space
described in the First Offer Notice at the First Offer Rent and upon the terms
contained in such notice; or (ii) refuse to lease the First Offer Space,
specifying that Tenant is not interested in exercising its right of first offer
for such First Offer Space, in which event Tenant's right of first offer
contained in this Section 1.4 shall terminate and be of no further force or
effect and Landlord shall be free to lease the First Offer Space or any portion
thereof to anyone to whom Landlord desires on any terms Landlord desires. If
Tenant does not notify Landlord of its election of any of the options in clauses
(i) or (ii) hereinabove, Tenant shall be deemed to have elected the option in
clause (ii).
-3-
<PAGE>
1.4.3 First Offer Space Rent. The Rent payable by Tenant for the
----------------------
First Offer Space (the "FIRST OFFER RENT") shall be equal to the Fair Market
Rental Rate for the First Offer Space, as defined in the Extension Option Rider
attached hereto. Concurrent with Tenant's delivery of Tenant's Election Notice
exercising such right of first offer, Tenant may object in writing to Landlord's
determination of the Fair Market Rental Rate set forth in Landlord First Offer
Notice, in which case the Fair Market Rental Rate shall be determined in
accordance with the appraisal procedures set forth in Section 4 of the Extension
Option Rider. If Tenant does not timely object in writing to Landlord's
determination of the Fair Market Rental Rate, then Tenant shall be deemed to
have rejected such determination and the appraisal procedures in Section 4 of
the Extension Option Rider shall apply.
1.4.4 Construction In First Offer Space. If Tenant leases the First
---------------------------------
Offer Space pursuant to the terms of this Section 1.4, Tenant shall take the
First Offer Space in its "as is" condition as of the date of delivery of such
space by Landlord to Tenant, subject to Landlord's construction of any initial
improvements in such First Offer Space and providing a tenant improvement
allowance to construct such improvements to the extent, if any, included in the
definition of "FIRST OFFER RENT", as set forth in Section 1.4.3.
1.4.5 Amendment to Lease. If Tenant timely exercises Tenant's right
------------------
to lease the First Offer Space as set forth herein, Landlord and Tenant shall
within fifteen (15) business days thereafter execute an amendment to the Lease
memorializing Tenant's lease for such First Offer Space upon the terms and
conditions set forth in this Section 1.4. Tenant shall commence payment of Rent
for the First Offer Space, and the term of the First Offer Space shall commence
upon the date of delivery of such First Offer Space to Tenant with the initial
tenant improvements therefor to be constructed by Landlord, if any,
substantially completed and a certificate or temporary certificate of occupancy
(or its equivalent) has been issued permitting occupancy of such First Offer
Space (the "FIRST OFFER COMMENCEMENT DATE") and terminate coterminous with the
termination of the Lease Term, as such may be extended pursuant to this Lease.
1.4.6 Suspension of Right of First Offer. At Landlord's option, in
----------------------------------
addition to its other remedies under this Lease, Tenant shall not have the right
to lease the First Offer Space, as provided in this Section 1.4, if, as of the
date of the attempted exercise of such right of first offer by Tenant, or as of
the scheduled date of delivery of such First Offer Space to Tenant, Tenant is in
default under this Lease beyond any applicable notice and cure periods. In
addition, and notwithstanding anything to the contrary contained in this Section
1.4, the right to lease the First Offer Space contained in this Section 1.4
shall be personal to the original Tenant executing this Lease and any Affiliate
to which Tenant's entire interest in this Lease has been assigned pursuant to
Section 14.7 below, and may only be exercised by the original Tenant or such
Affiliate assignee, as the case may be (but not by any other assignee, sublessee
or other transferee of Tenant's interest in this Lease or the Premises, or any
part thereof) if, at the time of the attempted exercise of such right of first
offer, the original Tenant or such Affiliate assignee, as the case may be, is in
physical occupancy and possession of at least eighty percent (80%) of the
Premises then leased by Tenant under this Lease."
10. Emergency Generator. Landlord and Tenant hereby memorialize that
-------------------
the monthly installment of the amount payable by Tenant in connection with the
acquisition and installation of the Emergency Generator pursuant to Section 6.7
of the Original Lease is $1,799.30.
11. Affiliated Transfers. Landlord understands that Tenant may elect to
--------------------
merge the corporate entities of RealSelect and NetSelect as one corporation.
Provided such merger does not significantly diminish the assets held by the two
corporations separately, and such merger and assignment of the Lease in
connection therewith satisfies all of the conditions set forth in Sections
14.7.1 through 14.7.5 of the Lease, Landlord agrees that any such merger shall
not constitute a Transfer as defined in Article 14 of the Lease, and will not,
among other things, require the consent of Landlord.
12. Monument Sign. Landlord agrees and understands that while the Lease
-------------
specifically states in Section 24.8.2 that only the name "RealSelect" can be
displayed on the Monument Sign, Tenant will have the right to substitute a
different name in lieu thereof to reflect a change in Tenant's company name or a
d/b/a. However, any such name change shall be
-4-
<PAGE>
subject to Landlord's reasonable prior approval, although Landlord hereby
approves the name change on the Monument Sign to "Realtor.com". In addition, to
the extent that the original Tenant executing this First Amendment, and/or any
Affiliate to which Tenant's interest in the Lease, as amended hereby, or
interest in the Premises has been assigned or sublet, continues to lease and
occupy pursuant to the Lease, as amended hereby, in the aggregate at least
45,000 rentable square feet of space in the Building, Tenant shall have the non-
exclusive right to have its name displayed in a "preferred" manner on the
Monument Sign, the exact location and specifications of which shall be mutually
and reasonably agreed upon by Landlord and Tenant.
13. New Letter of Credit. Tenant shall deliver to Landlord a replacement
--------------------
letter of credit (the "NEW LETTER OF CREDIT"), which shall replace the Letter of
Credit (as defined in the LC Rider attached to the Lease). Once Tenant delivers
the New Letter of Credit to Landlord, the New Letter of Credit shall be subject
to all of the terms and conditions set forth in the LC Rider, except as amended
by this Section 13, provided that all references to the Letter of Credit in the
LC Rider shall be deemed to refer to the New Letter of Credit. Subject to the
terms of this Section 13 below, the amount of the New Letter of Credit (the "NEW
LC AMOUNT") shall be $370,000.00, and the New Letter of Credit shall be
delivered to Landlord no later than (i) the date which is sixty (60) days after
Tenant's execution of this First Amendment if, as of such date, Tenant has not
delivered to Landlord evidence satisfactory to Landlord that Tenant has received
at least $7,000,000.00 of private funding for Tenant (the "PRIVATE FUNDING"), or
(ii) September 30, 1999 if, as of the date which is sixty (60) days after
Tenant's execution of this First Amendment, Tenant has delivered to Landlord
evidence satisfactory to Landlord that Tenant has received the Private Funding.
In the event that Tenant successfully completes an initial public offering of
stock in Tenant through the New York Stock Exchange or other nationally
recognized stock exchange, then (A) notwithstanding the foregoing provisions of
this Section 13, if Tenant has not yet delivered the New Letter of Credit to
Landlord pursuant to the terms of this Section 13, provided Tenant has delivered
evidence to Landlord of such initial public offering, the New Letter of Credit
to be delivered by Tenant to Landlord in accordance with the terms of this
Section 13 shall have a New LC Amount of $160,000.00, and (B) if Tenant has
already delivered the New Letter of Credit to Landlord pursuant to the terms of
this Section 13, then the New Letter of Credit delivered by Tenant to Landlord
shall be reduced by $210,000.00 (such that the remaining New LC Amount shall be
$160,000.00) upon the date which is fifteen (15) days after Tenant requests such
reduction and delivers to Landlord evidence of such initial public offering. Any
such reduction in the New LC Amount shall be accomplished through amendment or
replacement of the New Letter of Credit to be provided by Tenant to Landlord at
Tenant's sole cost and expense. Once Tenant delivers the New Letter of Credit to
Landlord in accordance with the terms of this Section 13, the provisions of
Paragraph 5(a) of the LC Rider and the phrase "whether or not the LC Amount has
been reduced pursuant to the provisions of Paragraph 5(a) above" contained in
Paragraph 5(b) of the LC Rider shall be deleted in their entirety and shall be
of no further force or effect. All references in the LC Rider to the LC Amount
shall, for purposes of the New Letter of Credit, be deemed to refer to the New
LC Amount.
14. Brokers. Landlord and Tenant hereby represent and warrant to each
-------
other that they have not dealt with any real estate broker or agent in
connection with the negotiation of this First Amendment other than Grubb & Ellis
(the "BROKER"), which Broker shall be paid a brokerage commission in connection
with this First Amendment pursuant to a separate agreement between and/or among
Landlord and the Broker. Each party shall indemnify, defend and hold the other
harmless from any and all claims, demands, losses, liabilities, lawsuits,
judgments, and costs and expenses (including, without limitation, reasonable
attorney's fees) with respect to any leasing commission, compensation or fees
claimed by any other broker or agent in connection with this First Amendment or
its negotiation by reason of any act of the indemnifying party.
15. No Further Modification. Except as set forth in this First Amendment,
-----------------------
all of the terms and provisions of the Lease shall remain unmodified and in full
force and effect.
-5-
<PAGE>
IN WITNESS WHEREOF, this First Amendment has been entered into as of the
day and year first above written.
<TABLE>
<CAPTION>
"Landlord" "Tenant"
<S> <C>
WHLNF REAL ESTATE LIMITED PARTNERSHIP, REALSELECT, INC.,
a Delaware limited partnership a Delaware corporation
By: Legacy Partners Commercial, Inc., a Texas By: /s/ John Giesecke
corporation, as manager and agent for Landlord ----------------------------------------------
Name: John Giesecke
---------------------------------------------
Its: Chief Financial Officer & Corp. Secretary
------------------------------------------
By: /s/ D. Allen Palmer By: /s/ Richard Janssen
--------------------------------- ----------------------------------------------
Name: D. Allen Palmer Name: Richard Janssen
Its: Senior Vice President -----------------------------------------
Its: President
------------------------------------------
</TABLE>
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<PAGE>
EXHIBIT A
FLOOR PLAN FOR NEW SPACE
------------------------
EXHIBIT A - Page 1
<PAGE>
EXHIBIT B
TENANT WORK LETTER
------------------
Tenant acknowledges and agrees that the New Space has previously been
constructed including interior tenant improvements therein, and is satisfactory
and shall be accepted by Tenant in its "AS IS" condition as of the date of
execution of this First Amendment and on the New Space Commencement Date;
provided, however, that Landlord shall construct certain modifications to the
interior of the New Space pursuant to the Approved Working Drawings in
accordance with the following provisions of this Tenant Work Letter. The
defined terms used in this Tenant Work Letter shall apply to the design and
construction of the initial Tenant Improvements for the New Space, only, and the
defined terms used in Exhibit B to the Original Lease shall have no application
to the New Space or the design or construction of the initial Tenant
Improvements for the New Space.
SECTION 1
---------
CONSTRUCTION DRAWINGS FOR THE NEW SPACE
---------------------------------------
Prior to the execution of this First Amendment, Landlord and Tenant have
approved a detailed space plan for the construction of certain improvements in
the New Space, which space plan has been prepared by Ware & Malcomb Architects,
dated March 31, 1999 (the "FINAL SPACE PLAN"). Based upon and in conformity with
the Final Space Plan, Landlord shall cause an architect and engineers selected
by Landlord to prepare and deliver to Tenant, for Tenant's approval, detailed
specifications and engineered working drawings for the tenant improvements for
the New Space shown on the Final Space Plan (the "WORKING DRAWINGS"). The
Working Drawings shall incorporate modifications to the Final Space Plan as
necessary to comply with the floor load and other structural and system
requirements of the Building. To the extent that the finishes and specifications
are not completely set forth in the Final Space Plan for any portion of the
tenant improvements depicted thereon, the actual specifications and finish work
shall be in accordance with the specifications for the Building's standard
improvement package items, as determined by Landlord. Within five (5) business
days after Tenant's receipt of the Working Drawings, Tenant shall approve or
disapprove the same, which approval shall not be unreasonably withheld;
provided, however, that Tenant may only disapprove the Working Drawings to the
extent such Working Drawings are inconsistent with the Final Space Plan and only
if Tenant delivers to Landlord, within such five (5) business day period,
specific changes proposed by Tenant which are consistent with the Final Space
Plan and do not constitute changes which would result in any of the
circumstances described in items (i) through (iv) below. If any such revisions
are timely and properly proposed by Tenant, Landlord shall cause its architect
and engineers to revise the Working Drawings to incorporate such revisions and
submit the same for Tenant's approval in accordance with the foregoing
provisions, and the parties shall follow the foregoing procedures for approving
the Working Drawings until the same are finally approved by Landlord and Tenant.
Upon Landlord's and Tenant's approval of the Working Drawings, the same shall be
known as the "APPROVED WORKING DRAWINGS". Once the Approved Working Drawings
have been approved by Landlord and Tenant, Tenant shall make no changes, change
orders or modifications thereto without the prior written consent of Landlord,
which consent may be withheld in Landlord's sole discretion if such change or
modification would: (i) directly or indirectly delay the Substantial Completion
of the New Space; (ii) increase the cost of designing or constructing the Tenant
Improvements above the cost of the tenant improvements depicted in the Final
Space Plan, unless Tenant agrees in writing to pay for such increased cost;
(iii) be of a quality lower than the quality of the standard improvement package
items for the Building; and/or (iv) require any changes to the base, shell and
core work or structural improvements or systems of the Building. The Final Space
Plan, Working Drawings and Approved Working Drawings shall be collectively
referred to herein as, the "CONSTRUCTION DRAWINGS". The tenant improvements for
the New Space shown on the Approved Working Drawings shall be referred to herein
as the "TENANT IMPROVEMENTS".
EXHIBIT B - Page 1
<PAGE>
SECTION 2
---------
CONSTRUCTION OF AND PAYMENT FOR THE TENANT IMPROVEMENTS
-------------------------------------------------------
Landlord and Tenant hereby agree that Landlord shall, at Landlord's expense
(except as provided in this Section 2), cause a contractor designated by
Landlord (the "CONTRACTOR") to (i) obtain all applicable building permits for
construction of the Tenant Improvements, and (ii) construct the Tenant
Improvements as depicted on the Approved Working Drawings, in compliance with
such building permits and all applicable laws in effect at the time of
construction, including, without limitation, the Americans with Disabilities Act
and Title 24, and in good workmanlike manner. Landlord shall pay for the cost of
the design and construction of the Tenant Improvements in an amount up to, but
not exceeding, the product of (i) the total usable square feet of space in the
New Space (i.e., 14,596) and (ii) eighty-five percent (85%) of Landlord's
original contract cost (excluding Tenant's Data Center Work and Landlord's Work,
as those terms are defined in Exhibit B to the Original Lease) to construct the
Tenant Improvements for the Original Premises divided by the number of usable
square feet in the Original Premises (i.e., 32,338) (the "ALLOWANCE"). Tenant
shall pay for all costs in excess of the Allowance (which shall include a
Landlord supervision fee of our percent (4%) of such costs), which payment shall
be made to Landlord in cash within ten (10) days after Tenant's receipt of
invoice therefor from Landlord. In addition, to the extent any materials for the
Tenant Improvements are other than Building standard (unless specifically
designated in the Final Space Plan), Tenant shall pay for the cost of such non-
Building standard materials (including a four percent (4%) Landlord supervision
fee for such costs). In no event shall Landlord be obligated to pay for any of
Tenant's furniture, computer systems, telephone systems, equipment or other
personal property which may be depicted on the Construction Drawings; such items
shall be paid for by Tenant. Tenant shall not be entitled to receive in cash or
as a credit against any rental or otherwise, any portion of the Allowance not
used to pay for the cost of the design and construction of the Tenant
Improvements.
SECTION 3
---------
SUBSTANTIAL COMPLETION
----------------------
OF THE TENANT IMPROVEMENTS
--------------------------
3.1 Substantial Completion. For purposes of this First Amendment,
----------------------
"SUBSTANTIAL COMPLETION" of the New Space shall occur upon (i) the completion of
construction of the Tenant Improvements in the New Space pursuant to the
Approved Working Drawings, with the exception of any (A) punch list items (which
shall be promptly completed) and (B) any tenant fixtures, work-stations, built-
in furniture, systems or equipment to be installed by Tenant or under the
supervision of Contractor; and (ii) the issuance of a certificate or temporary
certificate of occupancy (or its equivalent) permitting occupancy of the New
Space.
3.2 Delay of the Substantial Completion of the New Space. If there shall
----------------------------------------------------
be a delay or there are delays in the Substantial Completion of the New Space as
a direct, indirect, partial, or total result of any of the following
(collectively, "TENANT DELAYS"):
3.2.1 Tenant's failure to timely approve the Working Drawings or any
other matter requiring Tenant's approval;
3.2.2 A breach by Tenant of the terms of this Tenant Work Letter or
the Lease (as amended by this First Amendment);
3.2.3 Tenant's request for changes in any of the Construction
Drawings (other than changes to cause the Working Drawings to be consistent with
the Final Space Plan);
3.2.4 Tenant's requirement for materials, components, finishes or
improvements which are not available in a commercially reasonable time given the
estimated date of Substantial Completion of the New Space (but only if Landlord
notifies Tenant at the time of Tenant's selection of such items or within a
reasonable period of time thereafter, of such unavailability),
EXHIBIT B - Page 2
<PAGE>
as set forth in the First Amendment, or which are different from, or not
included in, Landlord's standard improvement package items for the Building;
3.2.5 Changes to the base, shell and core work, structural components
or structural components or systems of the Building required by the Approved
Working Drawings; or
3.2.6 Any other acts or omissions of Tenant, or its agents, or
employees;
then, notwithstanding anything to the contrary set forth in the Lease or First
Amendment and regardless of the actual date of Substantial Completion of the New
Space, the New Space Commencement Date (as set forth in Section 2 of the First
Amendment) shall be deemed to be the date the New Space Commencement Date would
have occurred if no Tenant Delay or Delays, as set forth above, had occurred.
Notwithstanding the foregoing, for purposes of determining whether the New Space
Commencement Date should be so accelerated, no Tenant Delay shall be deemed to
have occurred unless and until Landlord has provided notice to Tenant (the
"Delay Notice"), specifying the action or inaction by Tenant which Landlord
contends constitutes the Tenant Delay. If such action or inaction is not cured
by Tenant within one (1) business day of receipt of such Delay Notice (the
"Grace Period"), then a Tenant Delay, as set forth in such Delay Notice, shall
be deemed to have occurred commencing as of the expiration of the Grace Period;
provided that Tenant shall only be permitted an aggregate of three (3) days of
Grace Period and, thereafter, a Tenant Delay shall commence upon the delivery of
the Delay Notice to Tenant.
SECTION 4
---------
MISCELLANEOUS
-------------
Provided that Tenant and its agents do not interfere with Contractor's
work in the Building and the New Space, Contractor shall allow Tenant access to
the New Space at least thirty (30) days prior to Substantial Completion thereof
for the purpose of Tenant installing overstandard equipment or fixtures
(including Tenant's data and telephone equipment) in the New Space. Prior to
Tenant's entry into the New Space as permitted by the terms of this Section 4,
Tenant shall submit a schedule to Landlord and Contractor, for their approval,
which schedule shall detail the timing and purpose of Tenant's entry. Tenant
shall hold Landlord harmless from and indemnify, protect and defend Landlord
against any loss or damage to the Premises, New Space and Real Property and
against injury to any persons caused by Tenant's actions pursuant to this
Section 4.
<PAGE>
EXHIBIT 10.27
NETSELECT, INC.
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is made effective as of the 18th day of
June 1998, between NetSelect, Inc., a Delaware corporation ("Company"), and John
M. Giesecke ("Executive").
WHEREAS, the Company desires to secure the services of Executive as Vice
President of Finance and Executive desires to perform such services for the
Company, on the terms and conditions as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. Effective Date, Term and Duties. The term of employment of Executive
-------------------------------
by the Company hereunder shall commence on June 29, 1998 (the
"Commencement Date") and shall continue thereafter on the same terms
and conditions (such term being hereinafter referred to as the
"Employment Period") until terminated pursuant to Section 4.
Executive's employment with the Company is on an "at will" basis, and
either Executive or the Company may terminate Executive's employment
with the Company at any time, for any or no reason. Executive shall
have such duties as the Chief Executive Officer of the Company may
from time to time prescribe consistent with his position as Vice
President of Finance (the "Services"). Executive shall devote his
full time, attention, energies and best efforts to the business.
2. Compensation. The Company shall pay and Executive shall accept as
------------
full consideration for the Services compensation consisting of the
following:
2.1 Base Salary. $130,000.00 per year base salary, payable in bi-
-----------
monthly installments in accordance with the Company's normal
payroll practices, less such deductions or withholdings required
by law.
2.2 Bonus. Executive will be eligible to earn an annual target bonus
-----
in the amount of twenty-five percent (25%) of Executive's base
salary based on the achievement of certain business and financial
objectives that Executive and the Company's Chief Executive
Officer will mutually determine in good faith. The objectives
for Executive's first year will be determined promptly after the
execution of this Agreement; objectives for future years will be
determined promptly after the beginning of each fiscal year of
the Company. Such bonus shall be paid semi-annually and shall be
prorated for 1998.
2.3 Stock Options. Executive shall be entitled to a stock option
-------------
grant of 34,187 shares of NetSelect Common Stock under the
Company's 1996 Stock Option Plan to be awarded by the
Compensation Committee of the Company's Board of Directors within
thirty (30) days after the date hereof (the "Option") Such
Option shall be granted at the fair market value by
<PAGE>
the Board of Directors and shall have a ten-year term, unless
earlier terminated as set forth in the stock option agreement.
Options shall vest as to twenty-five percent (25%) of the shares
on each anniversary of the Commencement Date until such Option is
vested with respect to 100% of the shares, unless earlier
terminated as set forth in the stock option agreement. In the
unlikely event that Executive's employment should be terminated
by the Company within the first twelve months of employment for
any reason other than "cause", Executive will be eligible to
receive those options that would have become vested in the first
twelve-month period beginning June 29, 1998.
2. Benefits and Expenses. Executive will receive the Company's customary
---------------------
employee benefits package for similarly situated executives of the
Company, including full participation in current and future medical
insurance plans. Executive shall be entitled to vacation in
accordance with the policies as periodically established by the Board
of Directors for similarly situated executives of the Company, which
shall in no event be less than three weeks per anniversary year. The
Company shall reimburse the Executive for all reasonable travel and
other business expenses incurred by him in connection with the
performance of the Executive's duties under this Agreement during the
Employment Period.
3. Severance Payment. If Executive's employment should be terminated for
-----------------
any reason other than "cause", Executive will be eligible to receive a
severance payment equal to 4 months of base salary.
4. Cooperation with the Company After Termination of the Employment
----------------------------------------------------------------
Period. Following termination of the Employment Period by Executive,
------
subject to Executive's employment duties with a subsequent employer,
Executive shall fully cooperate with the Company in all matters
relating to the winding up of his pending work on behalf of the
Company and the orderly transfer of any such pending work to other
employees of the Company as may be designated by the Company.
5. Confidentiality/Non-Solicitation. Executive acknowledges that as an
--------------------------------
employee of the Company, Executive will have access to certain Company
confidential information and Executive may, during the course of
Executive's employment, develop certain information that will be the
property of the Company. To protect the interest of the Company,
Executive agrees to sign the Company's standard Confidentiality
Agreement as a condition of Executive's employment. In addition, the
Executive agrees with the Company that during his employment with the
Company and for a period expiring two (2) years after the date of
termination of such employment, he will not solicit any of the
Company's then-current employees to terminate their employment with
the Company or to become employed by any firm, company or other
business enterprise with which the Executive may then be connected.
2
<PAGE>
6. General.
-------
6.1 Severability. If for any reason a court of competent
------------
jurisdiction or arbitrator finds any provision of this Agreement
to be unenforceable, the provision shall be deemed amended as
necessary to conform to applicable laws or regulations, or if it
cannot be so amended without materially altering the intention of
the parties, the remainder of the Agreement shall continue in
full force and effect as if the offending provision were not
contained herein.
6.2 Notices. All notices and other communications required or
-------
permitted to be given under this Agreement shall be in writing
and shall be considered effective upon personal service or upon
depositing such notice in the U.S. Mail, postage prepaid, return
receipt requested and addressed to the Chairman of the Board of
the Company as its principal corporate address, and to Executive
at his most recent address shown on the Company's corporate
records, or at any other address which he may specify in any
appropriate notice to the Company.
6.3 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all
of which taken together constitutes one and the same instrument
and in making proof hereof it shall not be necessary to produce
or account for more than one such counterpart.
6.4 Entire Agreement. The parties hereto acknowledge that each has
----------------
read this Agreement, understands it, and agrees to be bound by
its terms. The parties further agree that this Agreement and the
referenced stock option agreement constitute the complete and
exclusive statement of the agreement between the parties and
supersedes all proposals (oral or written), understandings,
representations, conditions, covenants, and all other
communications between the parties relating to the subject matter
hereof.
6.5 Governing Law. This Agreement shall be governed by the law of
-------------
the State of California.
6.6 Assignment and Successors. The Company shall have the right to
-------------------------
assign its rights and obligations under this Agreement to an
entity which acquires substantially all of the assets of the
Company. The rights and obligation of the Company under this
Agreement shall inure to the benefit and shall be binding upon
the successors and assigns of the Company.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
NETSELECT, INC. EXECUTIVE
By: /s/ Stuart H. Wolff /s/ John M. Giesecke
--------------------------------------- ---------------------------------
Name: Stuart H. Wolff John M. Giesecke
Title: Chairman and Chief Executive Officer
By: /s/ Catherine Kwong Giffen
---------------------------------------
Name: Catherine Kwong Giffen
Title: Vice President of HR and Administration
4
<PAGE>
EXHIBIT 10.28
NETSELECT, INC.
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is made effective as of the _____ day of
September, 1998, between NetSelect, Inc., a Delaware corporation ("Company"),
and David Rosenblatt ("Executive").
WHEREAS, the Company desires to secure the services of Executive as Vice
President and General Counsel and Executive desires to perform such services for
the Company, on the terms and conditions as set forth herein;
NOW, THEREFORE, in consideration of the promises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. Effective Date, Term and Duties. The term of employment of Executive
-------------------------------
by the Company hereunder shall commence on a date to be determined but
no later than October 12, 1998 (the "Commencement Date") and shall
continue thereafter on the same terms and conditions (such term being
hereinafter referred to as the "Employment Period") until terminated
pursuant to Section 4. Executive's employment with the Company is on
an "at will" basis, and either Executive or the Company may terminate
Executive's employment with the Company at any time, for any or no
reason. Executive shall have such duties as the Chief Executive
Officer of the Company may from time to time prescribe consistent with
his position as Vice President and General Counsel (the "Services").
Executive shall devote his full time, attention, energies and best
efforts to the business.
2. Compensation. The Company shall pay and Executive shall accept as
------------
full consideration for the Services compensation consisting of the
following:
2.1 Base Salary. $140,000.00 per year base salary, payable in bi-
-----------
monthly installments in accordance with the Company's normal
payroll practices, less such deductions or withholdings required
by law.
2.2 Bonus. Executive will be eligible to earn an annual target bonus
-----
in the amount of twenty-five percent (25%) of Executive's base
salary based on the achievement of certain business and financial
objectives that Executive and the Company's Chief Executive
Officer will mutually determine in good faith. The objectives
for Executive's first year will be determined promptly after the
execution of this Agreement; objectives for future years will be
determined promptly after the beginning of each fiscal year of
the
<PAGE>
Company. Such bonus shall be paid semi-annually and shall be
prorated for 1998.
2.3 Stock Options. Executive shall be entitled to a stock option
-------------
grant of 35,000 shares of NetSelect Common Stock under the
Company's 1996 Stock Option Plan to be awarded by the
Compensation Committee of the Company's Board of Directors within
thirty (30) days after the date hereof (the "Option"). Such
Option shall be granted at the fair market value by the Board of
Directors and shall have a ten-year term, unless earlier
terminated as set forth in the stock option agreement. Options
shall vest as to twenty-five percent (25%) of the shares on each
anniversary of the Commencement Date until such Option is vested
with respect to 100% of the shares, unless earlier terminated as
set forth in the stock option agreement.
2.4 Benefits and Expenses. Executive will receive the Company's
---------------------
customary employee benefits package for similarly situated
executives of the Company, including full participation in
current and future medical insurance plans. Executive shall be
entitled to vacation in accordance with the policies as
periodically established by the Board of Directors for similarly
situated executives of the Company, which shall in no event be
less than three weeks per anniversary year. The Company shall
reimburse the Executive for all reasonable travel and other
business expenses incurred by him in connection with the
performance of the Executive's duties under this Agreement during
the Employment Period.
3. Relocation. Executive will be entitled to receive six (6) months of
----------
corporate housing to be selected by the Company and at the Company's
expense. Executive will also be entitled to receive reimbursement for
all reasonable moving expenses not to exceed $5,000. Reimbursement
will be made promptly after submission of bonafide receipted expenses
for approval by the CEO.
4. Cooperation with the Company After Termination of the Employment
----------------------------------------------------------------
Period. Following termination of the Employment Period by Executive,
------
subject to Executive's employment duties with a subsequent employer,
Executive shall fully cooperate with the Company in all matters
relating to the winding up of his pending work on behalf of the
Company and the orderly transfer of any such pending work to other
employees of the Company as may be designated by the Company.
5. Confidentiality/Non-Solicitation. Executive acknowledges that as an
--------------------------------
employee of the Company, Executive will have access to certain Company
confidential information and Executive may, during the course of
Executive's employment, develop certain information that will be the
property of the Company. To protect the interest of the Company,
Executive agrees to sign the Company's standard Confidentiality
2
<PAGE>
Agreement as a condition of Executive's employment. In addition, the
Executive agrees with the Company that during his employment with the
Company and for a period expiring two (2) years after the date of
termination of such employment, he will not solicit any of the
Company's then-current employees to terminate their employment with
the Company or to become employed by any firm, company or other
business enterprise with which the Executive may then be connected.
6. General.
-------
6.1 Severability. If for any reason a court of competent
------------
jurisdiction or arbitrator finds any provision of this Agreement
to be unenforceable, the provision shall be deemed amended as
necessary to conform to applicable laws or regulations, or if it
cannot be so amended without materially altering the intention of
the parties, the remainder of the Agreement shall continue in
full force and effect as if the offending provision were not
contained herein.
6.2 Notices. All notices and other communications required or
-------
permitted to be given under this Agreement shall be in writing
and shall be considered effective upon personal service or upon
depositing such notice in the U.S. Mail, postage prepaid, return
receipt requested and addressed to the Chairman of the Board of
the Company at its principal corporate address, and to Executive
at his most recent address shown on the Company's corporate
records, or at any other address which he may specify in any
appropriate notice to the Company.
6.3 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed an original and
all of which taken together constitutes one and the same
instrument and in making proof hereof it shall not be necessary
to produce or account for more than one such counterpart.
6.4 Entire Agreement. The parties hereto acknowledge that each
----------------
has read this Agreement, understands it, and agrees to be bound
by its terms. The parties further agree that this Agreement and
the referenced stock option agreement constitute the complete and
exclusive statement of the agreement between the parties and
supersedes all proposals (oral or written), understandings,
representations, conditions, covenants, and all other
communications between the parties relating to the subject matter
hereof.
6.5 Governing Law. This Agreement shall be governed by the law
-------------
of the State of California.
6.6 Assignment and Successors. The Company shall have the right
-------------------------
to assign its rights and obligations under this Agreement to an
entity which
3
<PAGE>
acquires substantially all of the assets of the Company. The
rights and obligations of the Company under this Agreement shall
inure to the benefit and shall be binding upon the successors and
assigns of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written.
NETSELECT, INC. EXECUTIVE
By: /s/ Stuart H. Wolff /s/ David Rosenblatt
--------------------------------------- ---------------------------
Stuart H. Wolff David Rosenblatt
Title: Chairman and Chief Executive Officer
By: /s/ Catherine Kwong Giffen
---------------------------------------
Catherine Kwong Giffen
Title: Vice President of HR and Administration
4
<PAGE>
EXHIBIT 10.29
AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of August 21, 1998 by and among
---------
RealSelect, Inc., a Delaware corporation ("RealSelect"), the REALTORS(R)
----------
Information Network, Inc., an Illinois corporation ("RIN"), the National
---
Association of REALTORS(R), an Illinois not for profit corporation (the "NAR"),
---
NetSelect, Inc., a Delaware corporation ("NetSelect"), and NetSelect, L.L.C., a
---------
Delaware limited liability company ("NetSelect L.L.C.").
----------------
BACKGROUND
----------
A. Under the terms of that certain Operating Agreement dated as of November 26,
1996 by and between RIN and RealSelect, as amended by that certain First
Amendment of Operating Agreement dated as of December 27, 1996 (the "Operating
---------
Agreement") RealSelect is obligated to make certain payments to RIN of
- ---------
$1,000,000 (the "Active Real Property Ads Amount") pursuant to Section 6.3(a) of
-------------------------------
the Operating Agreement, payments of $1,000,000 (the "Free Operating Cash Flow
------------------------
Amount") pursuant to Section 6.3(b) of the Operating Agreement; and under the
- ------
terms of that certain agreement between NAR and/or RIN and RealSelect dated
April 29, 1998, RealSelect has agreed to fund certain portions of NAR
advertising activities, which obligation the parties agree is $1,200,000 (the
"Advertising Amount") (such amounts referred to collectively as the
------------------
"Obligations").
-----------
B. Pursuant to the terms of that certain RealSelect, Inc. Stockholders
Agreement dated as of November 26, 1998 by and among RealSelect, NetSelect
L.L.C. and RIN (the "Stockholders Agreement"), NAR (as successor in interest to
----------------------
the rights of RIN under the Stockholders Agreement) has certain rights (the "NAR
---
Right") to require, upon the announcement by NetSelect of a Qualified Public
- -----
Offering of NetSelect common stock (as defined in Section 4.2 of the
Stockholders Agreement), that NetSelect issue shares of NetSelect Convertible
Preferred Stock or NetSelect Class A Common Stock, as the case may be, in
exchange for shares of RealSelect Common Stock held by NAR.
C. The parties hereto desire to resolve the amount, timing and manner of
payment of the Obligations, in the manner set forth in this Agreement.
AGREEMENT
---------
NOW THEREFORE, in consideration of the foregoing recitals and mutual promises
set forth herein, the receipt and sufficiency of which are hereby acknowledged,
the parties do hereby agree as follows:
<PAGE>
1. Certain Agreements Related to the Obligations. In connection with payment
---------------------------------------------
of the Obligations, the parties hereby agree as follows:
(a) At the first closing of the sale and issuance by NetSelect of
shares of its Convertible Series F Preferred Stock ("Series F Preferred") and
------------------
shares of its Class A Common Stock ("NetSelect Common Stock") pursuant to that
----------------------
certain Stock Purchase Agreement dated as of August 21, 1998 by and among
NetSelect and certain Purchasers (as defined therein), $1,000,000 of the
Advertising Amount shall be deemed fully paid and such $1,000,000 of such
Obligation shall be demmed satisfied in exchange for the issuance by NetSelect
to NAR of a total of 26,504 shares of Series F Preferred (as a purchase price of
$24.00 per share) and 57,671 shares of NetSelect Common Stock (at a purchase
price of $6.31 per share).
(b) The remaining $200,000 of the Advertising Amount and $800,000 of
the Active Real Property Ads Amount shall be deemed fully paid and such amounts
of such Obligations shall be deemed satisfied, in consideration of the issuance
to (i) NAR by RealSelect of that number of shares of RealSelect Common Stock as
is equal to 11,905 shares of NetSelect Common Stock, calculated according to the
formula set forth in resolutions of the Board of Directors of NetSelect and
RealSelect in connection with the approval of previous issuances by RealSelect
to NetSelect, L.L.C. of shares of RealSelect Common Stock following issuance of
shares by NetSelect and the transfer of proceeds from such sales to NetSelect,
L.L.C. and from NetSelect, L.L.C. to RealSelect, and (ii) RIN by RealSelect of
that number of shares of RealSelect Common Stock as is equal to 47,619 shares of
NetSelect Common Stock, calculated according to the formula set forth in
resolutions of the Board of Directors of NetSelect and RealSelect in connection
with the approval of previous issuances by RealSelect to NetSelect, L.L.C. of
shares of RealSelect Common Stock following issuance of shares by NetSelect and
the transfer of proceeds from such sales to NetSelect, L.L.C. and from
NetSelect, L.L.C. to RealSelect; with such shares of RealSelect Common Stock
(the "RealSelect") to be issued upon the earliest of: (i) the closing of the
----------
issuance of NetSelect equity securities pursuant to the Brokers' Gold Program
approved by the NetSelect Board of Directors, (ii) the closing of a merger of
RealSelect and NetSelect, and (iii) the closing of a NetSelect Qualified Public
Offering (as defined in the Stockholders Agreement). If a NetSelect Qualified
Public Offering (as defined in the Stockholders Agreement) occurs before the
consummation of a merger between NetSelect and RealSelect, then the NAR Right
shall not apply to such RealSelect Shares and the RealSelect Shares shall be
excluded from definition of "Shares" under the Stockholders Agreement for
purposes of Section 3.5 thereof; and, at the option of NAR and RIN, RealSelect
shall repurchase the RealSelect Shares in exchange for delivery of RealSelect
promissory notes in an aggregate principal amount equal to $1,000,000 bearing
interest at the then applicable federal rate, which notes shall be payable upon
demand of the holder thereof and may be prepaid without penalty at any time by
RealSelect.
2
<PAGE>
(c) The remaining $200,000 of the Active Real Property Ads Amount and
all of the Free Operating Cash Flow Amount shall be paid to RIN by RealSelect no
later than April 1, 1999.
2. Investment Representations. In connection with the issuance of the above-
--------------------------
referenced securities (sometimes referred to collectively as the "Securities"),
----------
NAR and RIN, as the case may be, agrees to execute and deliver to NetSelect and
RealSelect (as the case may be) a customary investment representation letter
relating to issuance of the Securities. RealSelect and NetSelect consent to the
transfer by RIN to NAR of the Securities, provided that RIN and NAR execute
customary transfer instruments and investment representation letters in form
reasonably satisfactory to RealSelect and NetSelect.
3. Representations and Warranties of Each Party. Each party, severally and not
--------------------------------------------
jointly, represents and warrants, solely with respect to itself, that (i) such
party has all requisite corporate or company power and authority (as the case
may be) to enter into this Agreement and to perform its obligations hereunder,
and (ii) that this Agreement constitutes the valid and binding obligations of
such party, enforceable against such party in accordance with its terms.
NetSelect and RealSelect represent and warrant that the Securities have been
duly authorized by all necessary corporate action on the part of NetSelect and
RealSelect and, upon payment therefor as described in this Agreement, the
Securities shall be, and the shares of NetSelect Common Stock issuable upon
conversion of the Series F Preferred, upon such conversion and issuance shall
be, validly issued and outstanding, fully paid and nonassessable.
4. Miscellaneous.
-------------
4.1 Notices. Any and all notices required or permitted to be given under this
-------
Agreement shall be sent or delivered by hand, facsimile, prepaid certified or
registered mail, or by private nationally recognized express courier service
(such as Federal Express of D.H.L.) to the parties at the addresses set forth
below, (or to such other addresses as the parties shall in writing notify each
other pursuant to this Section):
If to NetSelect, [Entity Name]
NetSelect, L.L.C. or c/o NetSelect, Inc.
RealSelect: 5655 Lindero Canyon Road, Suite 120
Westlake Village, CA 91362
Attention:_________________________
Telephone:_________________________
Facsimile:_________________________
3
<PAGE>
If to RIN or NAR [Entity Name]
c/o National Association of REALTORS(R)
430 North Michigan Avenue
Chicago, Illinois 60611-4087
Attn: Vice President and General Counsel
Telephone: (312) 329-8371
Facsimile: (312) 329-8256
Notices delivered by hand, or sent by facsimile, shall be deemed given the
day so delivered or sent (or, in the case of facsimiles sent after normal
business hours, on the next business day), provided that in the case of
facsimiles, the sender receives telephonic or electronic confirmation that the
facsimile was received by the recipient. Notices mailed or sent courier as
provided herein shall be deemed given on the third (3rd) business day following
the date so mailed or on the date of actual receipt, whichever is earlier.
4.2 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of California as applied to contracts made and to be
fully performed entirely within that state between residents of that state.
4.3 Entire Agreement; Amendment. This Agreement constitutes the full and
---------------------------
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. This Agreement or any term hereof may be amended,
waived, discharged or terminated by a written instrument signed by the parties
hereto.
4.4 Counterparts. This Agreement may be executed in one or more
--- ------------
counterparts, each of which shall constitute an original but all of which taken
together shall constitute a single instrument.
[Remainder of this page intentionally left blank]
4
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as
of the date first written above.
NETSELECT, INC.
By: /s/ Stuart Wolff
----------------------------
Name:
----------------------------
Title:
----------------------------
NETSELECT, L.L.C.
By: /s/ Stuart Wolff
----------------------------
Name:
----------------------------
Title:
----------------------------
REALSELECT, INC. REALTORS(R) INFORMATION NETWORK
By: /s/ Stuart Wolff By: /s/ Robert A. Goldberg
---------------------------- ----------------------------
Name: Name: Robert A. Goldberg
---------------------------- ----------------------------
Title: Title: President & CEO
---------------------------- ----------------------------
NATIONAL ASSOCIATION OF REALTORS(R)
By: /s/ Terrence M. McDermott
----------------------------
Name: Terrence M. McDermott
----------------------------
Title: Executive Vice President
----------------------------
5
<PAGE>
EXHIBIT 21.01
Subsidiaries of Registrant
RealSelect, Inc.
The Enterprise of America Ltd.
National New Homes, Inc.
SpringStreet, Inc.
TouchTech, Inc.
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this registration statement on Form S-1 of
our report dated March 31, 1999, except as to the stock split described in
Note 20, which is as of April 5, 1999, relating to the consolidated financial
statements of HomeStore.com, Inc. which appear in such registration statement.
We also consent to the reference to us under the heading "Experts" in such
registration statement.
/s/ PricewaterhouseCoopers LLP
Century City, California
May 20, 1999
<PAGE>
EXHIBIT 23.03
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this registration statement of
HomeStore.com, Inc. on Form S-1 of our report dated March 31, 1999, except as
to the stock split described in Note 17, which is as of April 5, 1999,
relating to the consolidated financial statements of NetSelect, Inc. which
appear in such registration statement. We also consent to the reference to us
under the heading "Experts" in such registration statement.
/s/ PricewaterhouseCoopers LLP
Century City, California
May 20, 1999
<PAGE>
EXHIBIT 23.04
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this registration statement of
HomeStore.com, Inc. on Form S-1 of our report dated March 31, 1999, except as
to the stock split described in Note 16, which is as of April 5, 1999, relating
to the consolidated financial statements of NetSelect, LLC which appear in such
registration statement. We also consent to the reference to us under the
heading "Experts" in such registration statement.
/s/ PricewaterhouseCoopers LLP
Century City, California
May 20, 1999
<PAGE>
EXHIBIT 23.05
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this registration statement of
HomeStore.com, Inc. on Form S-1 of our report dated March 31, 1999, relating
to the financial statements of The Enterprise of America, Ltd. which appear in
such registration statement. We also consent to the reference to us under the
heading "Experts" in such registration statement.
/s/ PricewaterhouseCoopers LLP
Century City, California
May 20, 1999
<PAGE>
EXHIBIT 23.06
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this registration statement of
HomeStore.com, Inc. on Form S-1 of our report dated March 31, 1999, relating to
the financial statements of MultiSearch Solutions, Inc. which appear in such
registration statement. We also consent to the reference to us under the
heading "Experts" in such registration statement.
/s/ PricewaterhouseCoopers LLP
Century City, California
May 20, 1999
<PAGE>
EXHIBIT 23.07
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 12, 1999, except as to Note 11, as to which
the date is May 19, 1999, with respect to the financial statements of
SpringStreet, Inc. included in the Registration Statement (Form S-1 No. 333-
) and the related Prospectus of HomeStore.com, Inc. for the registration of
shares of its common stock.
/s/ Ernst & Young LLP
San Francisco, California
May 21, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
HOMESTORE.COM'S CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND
1998 AND FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 155 71
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 155 71
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 155 71
<CURRENT-LIABILITIES> 192 70
<BONDS> 0 0
0 0
0 0
<COMMON> 2,730 3,322
<OTHER-SE> (2,863) (3,417)
<TOTAL-LIABILITY-AND-EQUITY> 155 71
<SALES> 0 0
<TOTAL-REVENUES> 42 0
<CGS> 0 0
<TOTAL-COSTS> 6 0
<OTHER-EXPENSES> 52 3
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1 0
<INCOME-PRETAX> (17) (3)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (17) (3)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
