-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Igw/Rr8i4QshO2Qi7WdZYko95U5ZeVTrccdfcLIDhOS1V3vDHbaU/Uxec+MP0TAd 7lA5Q4EBFIQGmKZ88SXFHA== 0000944209-99-000909.txt : 19990625 0000944209-99-000909.hdr.sgml : 19990625 ACCESSION NUMBER: 0000944209-99-000909 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 40 FILED AS OF DATE: 19990528 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMESTORE COM INC CENTRAL INDEX KEY: 0001085770 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770442995 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-79689 FILM NUMBER: 99637993 BUSINESS ADDRESS: STREET 1: 225 WEST HILLCREST DRIVE, STE. 100 CITY: THOUSAND OAKS STATE: CA ZIP: 91360 BUSINESS PHONE: 8055572300 MAIL ADDRESS: STREET 1: 225 WEST HILLCREST DRIVE, STE. 100 CITY: THOUSAND OAKS STATE: CA ZIP: 91360 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on May 28, 1999 Registration No. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- 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 --------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. --------------- 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. [_] --------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Title of Each Class of Proposed Maximum Securities to be Aggregate Offering Amount of Registered Price(1) Registration Fee - ------------------------------------------------------------------------------- Common Stock, $0.001 par value per share....... $100,000,000 $27,800
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the amount of the registration fee. --------------- 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +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. ----------- PRICE $ A SHARE -----------
Underwriting Price to Discounts and Proceeds to Public Commissions HomeStore.com -------- ------------- ------------- Per Share................... $ $ $ Total....................... $ $ $
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 [INSIDE FRONT COVER ARTWORK] TABLE OF CONTENTS
Page ---- 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
Page ---- 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
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 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 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 THE OFFERING 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
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.
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 ------ ------ ------ ------ -------- ------------ --------------- 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
6 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.
March 31, 1999 ------------------------------- Pro Forma Actual Pro Forma As Adjusted -------- --------- ----------- 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
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 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 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 . 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 10 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; 11 . 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 12 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. 13 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!; 14 . 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; 15 . 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 16 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 17 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. 18 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." 19 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 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 . 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 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 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.
March 31, 1999 ------------------------------- Pro Pro Forma Actual Forma As Adjusted -------- -------- ----------- (in thousands) 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 $ ======== ======== ========
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 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: 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........................ $ ======
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:
Shares Purchased Total Consideration Average ------------------ ------------------- Price Number Percent Amount Percent Per Share ---------- ------- ----------- ------- --------- Existing stockholders... 18,373,996 % $61,771,073 % $3.36 New investors........... ---------- --- ----------- --- ----- Total................... 100% 100% ========== === =========== === =====
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 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 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.
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) 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
December 31, March 31, 1999 ------------------------------- ------------------- 1994 1995 1996 1997 1998 Actual Pro Forma ----- ----- ---- ----- ---- -------- --------- (in thousands) 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
27 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 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 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 $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." 31 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.
Three Months Year Ended Ended December 31, March 31, ------------------- ------------------ 1997 1998 1998 1999 -------- -------- ------- -------- 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) ======== ======== ======= ======== Three Months Year Ended Ended December 31, March 31, ------------------- ------------------ 1997 1998 1998 1999 -------- -------- ------- -------- 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)% ======== ======== ======= ========
32 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 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 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 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.
Three Months Ended --------------------------------------------------- Mar. Sept. 31, June 30, 30, Dec. 31, Mar. 31, 1998 1998 1998 1998 1999 ------- -------- -------- -------- -------- 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)% ======= ======== ======== ======== ========
36 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 37 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 38 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. 39 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. 40 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: 41 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. 42 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 43 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 44 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 45 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. 46 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. 47 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. 48 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; 49 . 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. 50 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. 51 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. 52 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. 53 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. 54 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 55 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 56 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 MANAGEMENT Executive Officers and Directors The following table sets forth certain information regarding our executive officers and directors as of March 31, 1999.
Name Age Position ---- --- -------- 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
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 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 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 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 $100,000. Summary Compensation Table
Long Term Compensation Annual Compensation Awards -------------------- ------------ Securities Underlying Name and Principal Positions Salary ($) Bonus ($) Options (#) - ---------------------------- ---------- --------- ------------ 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
- -------- (1) Mr. Giesecke commenced his employment in June 1998. 61 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.
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% - ---- ---------- ---------- -------- ---------- -------- ---------- 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
- -------- (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. 62 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.
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 - ---- ----------- ----------- ---------- ------------ ----------- ------------ 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
- -------- (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. 63 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 64 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. 65 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. 66 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. 67 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. 68 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. 69 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:
Series F Preferred Common Aggregate Shares Shares Purchase Purchaser Purchased Purchased Price --------- --------- --------- ----------- 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
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; 70 . 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 71 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. 72 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; 73 . 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; 74 . 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. 75 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.
Percentage of Shares Beneficially Shares Owned Beneficially ----------------- Owned Prior Before After Name of Beneficial Owner to Offering Offering Offering - ------------------------ ------------ -------- -------- 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%
- -------- * 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 76 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. 77 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 78 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. 79 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; 80 . 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 81 . 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. 82 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:
Approximate Number of Shares Eligible For Future Date Sale Comment ---- ----------- ------- 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.
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. 83 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. 84 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:
Number of Underwriter Shares ----------- ------ Morgan Stanley & Co. Incorporated................................. Donaldson, Lufkin & Jenrette Securities Corporation............... Merrill Lynch, Pierce, Fenner & Smith Incorporated................................................. BancBoston Robertson Stephens Inc................................. ----- Total........................................................... =====
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 $ . 85 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 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 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 HOMESTORE.COM, INC. INDEX TO FINANCIAL STATEMENTS
Page ---- 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
F-1 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 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 HOMESTORE.COM, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1999 (in thousands)
HomeStore.com SpringStreet Adjustments Pro Forma ------------- ------------ ----------- --------- 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 ======== ======== ======== ========
See accompanying notes to Pro Forma Condensed Consolidated Financial Information F-4 HOMESTORE.COM, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (in thousands, except per share amounts)
Adjust- Pro Forma Adjust- HomeStore.com NSI ments HomeStore.com Enterprise MultiSearch SpringStreet ments ------------- -------- ------- ------------- ---------- ----------- ------------ ------- 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...... Pro Forma ------------- 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) =============
See accompanying notes to Pro Forma Condensed Consolidated Financial Information F-5 HOMESTORE.COM, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 (in thousands, except per share amounts)
Pro Forma HomeStore.com NSI Adjustments HomeStore.com SpringStreet Adjustments Pro Forma ------------- ------- ----------- ------------- ------------ ----------- --------- 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) ========
See accompanying notes to Pro Forma Condensed Consolidated Financial Information F-6 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 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 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 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 HOMESTORE.COM, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
Pro Forma Stockholders' December 31, Equity at ---------------- March 31, March 31, 1997 1998 1999 1999 ------- ------- --------- ------------- (unaudited) 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 ======= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-11 HOMESTORE.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
Year Ended December Three Months Ended 31, March 31, ---------------------- -------------------- 1996 1997 1998 1998 1999 ------ ------ ------ --------- ---------- (unaudited) 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 ==========
The accompanying notes are an integral part of these consolidated financial statements. F-12 HOMESTORE.COM, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (in thousands)
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) ------ ------- ------ ------ ---------- -------- ----------- ------------ ----------- ------------- 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 ====== ======= ====== === ======== ======== ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-13 HOMESTORE.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year ended Three months ended December 31, March 31, ----------------- -------------------- 1996 1997 1998 1998 1999 ----- ---- ---- -------------------- (unaudited) 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 $ -- $ -- $ -- ===== ==== ==== ====== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-14 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 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 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 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 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):
December 31, ----------------- 1997 1998 ------- -------- 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
October 28, 1996 (Inception) Year Ended to December 31, December 31, ---------------- 1996 1997 1998 ------------ ------ -------- Revenues..................................... $ -- $1,282 $ 15,003 Loss from operations......................... (391) (6,031) (51,278) Net loss applicable to common stockholders... (248) (5,132) (60,396)
F-19 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): 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
F-20 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):
February 4, 1999 ----------- (unaudited) 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 ========
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 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):
Year Ended Three Months December 31, Ended March 31, ----------------- ----------------- 1997 1998 1998 1999 ------- -------- ------- -------- 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
7. Property and Equipment: Property and equipment consists of the following (in thousands):
March 31, 1999 ----------- (unaudited) Computer equipment............................................... $1,854 Furniture and fixtures........................................... 592 Leasehold improvements........................................... 700 ------ 3,146 Less: Accumulated depreciation................................... (959) ------ $2,187 ======
F-22 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):
March 31, 1999 ----------- (unaudited) Goodwill......................................................... $13,243 NAR operating agreement.......................................... 6,745 Other............................................................ 1,356 ------- 21,344 Less: Accumulated amortization................................... (2,972) ------- $18,372 =======
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):
December 31, December 31, March 31, 1997 1998 1999 ------------ ------------ ----------- (unaudited) Accrued payroll and related benefits........................... $33 $-- $2,563 Accrued distribution fees........... 3,566 Accrued royalties................... 1,364 Other............................... 16 2,083 --- --- ------ $49 $-- $9,576 === === ======
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 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):
Year ending Principal December 31, Payments ------------ --------- 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 ======
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 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):
Weighted Average Number of Price Per Exercise Shares Share Price --------- ------------ -------- 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 =====
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):
Options Options Outstanding Exercisable -------------------------------- --------------- Number Weighted Average Average Number Average of Remaining Exercise of Exercise Prices: Shares Contractual Life Price Shares Price ------- ------ ---------------- -------- ------ -------- $.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 ===== ===
F-25 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:
Years Ended December 31, ---------------- 1996 1997 1998 ---- ---- ---- Risk-free interest rates...................................... 6% 6% 5% Expected lives (in years)..................................... 4 5 4 Dividend yield................................................ 0% 0% 0% Expected volatility........................................... 0% 0% 0%
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 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):
Shares ---------------------- Liquidation Authorized Outstanding Amount ---------- ----------- ----------- 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 ===== ===== =======
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 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):
Year Ended Three Months December 31, Ended March 31, ---------------------- ---------------- 1996 1997 1998 1998 1999 ------ ------ ------ ------ -------- (unaudited) 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) ========
F-28 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):
December 31, ------------ 1997 1998 ----- ----- Deferred tax assets: Net operating loss carryforwards............................. $ 838 $ 839 Other........................................................ 90 90 ----- ----- 928 929 Less: valuation allowance.................................... (928) (929) ----- ----- Net deferred taxes............................................. $ -- $ -- ===== =====
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 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): 1999............................................................... $ 2,295 2000............................................................... 2,686 2001............................................................... 2,553 2002............................................................... 1,636 2003............................................................... 1,365 ------- Total.......................................................... $10,535 =======
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): 1999............................................................... $21,143 2000............................................................... 19,036 2001............................................................... 14,646 2002............................................................... 4,250 2003............................................................... 500 ------- Total.......................................................... $59,575 =======
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 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 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 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 NETSELECT, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
December 31, ----------------- February 4, 1997 1998 1999 ------- -------- ----------- (unaudited) 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 ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-34 NETSELECT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
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) 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) ===== ======= ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-35 NETSELECT, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
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 ------ ------ ------ ------ ---------- -------- ------------ ------------ ----------- ------------- 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 ===== === ===== ==== ======= ======= ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-36 NETSELECT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
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) 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 $ -- $ -- ======= ======= ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-37 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 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 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 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):
December 31, December 31, March 31, 1997 1998 1998 ------------ ------------ --------- Revenues............................... $ 8,505 $ 18,026 $ 3,182 Net loss applicable to common stockholders.......................... (9,470) (61,969) (3,922)
F-41 NETSELECT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Property and Equipment: Property and equipment consists of the following (in thousands):
December 31, December 31, 1997 1998 ------------ ------------ 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 ===== ======
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):
December 31, December 31, 1997 1998 ------------ ------------ 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 ====== =======
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):
December 31, December 31, 1997 1998 ------------ ------------ Accrued payroll and related benefits.................. $ 442 $1,973 Accrued distribution fees............................. 1,366 Accrued royalties..................................... 979 Other................................................. 330 1,483 ----- ------ $ 772 $5,801 ===== ======
F-42 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):
Year Ending Principal December 31, Payments ------------ --------- 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 ======
F-43 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):
Weighted Average Number of Price Exercise Shares Per Share Price --------- ------------ -------- 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 =====
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):
Options Options Outstanding Exercisable --------------------------- --------------- Weighted Average Number Remaining Average Number Average of Contractual Exercise of Exercise Prices: Shares Life Price Shares Price ------- ------ ----------- -------- ------ -------- $.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 ===== ===
F-44 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:
December 31, December 31, December 31, 1996 1997 1998 ------------ ------------ ------------ Risk-free interest rates.............. 6% 6% 5% Expected lives (in years)............. 4 5 4 Dividend yield........................ 0% 0% 0% Expected volatility................... 0% 0% 0%
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 NETSELECT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 12. Capitalization: Convertible preferred stock at December 31, 1998 consists of the following (in thousands):
Shares ---------------------- Liquidation Authorized Outstanding Amount ---------- ----------- ----------- 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 ===== ===== =======
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 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 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):
December 31, ----------------- 1997 1998 ------- -------- 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...................................... $ -- $ -- ======= ========
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 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): 1999............................................................. $ 2,295 2000............................................................. 2,686 2001............................................................. 2,553 2002............................................................. 1,636 2003............................................................. 1,365 ------- Total.......................................................... $10,535 =======
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): 1999............................................................. $21,143 2000............................................................. 19,036 2001............................................................. 14,646 2002............................................................. 4,250 2003............................................................. 500 ------- Total.......................................................... $59,575 =======
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 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 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 NETSELECT, LLC CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
December 31, February 4, ----------------- ----------- 1997 1998 1999 ------- -------- ----------- (unaudited) 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 ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-52 NETSELECT, LLC CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
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) 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) ===== ======= ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-53 NETSELECT, LLC CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
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 ------ ------ ------ ------ ---------- -------- ------------ ------------ ----------- ------------- 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 ===== === ===== === ======= ======= ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-54 NETSELECT, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
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) 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 $ -- $ -- ======= ======= ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-55 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 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 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 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):
December 31, December 31, March 31, 1997 1998 1998 ------------ ------------ --------- Revenues............................... $ 8,505 $ 18,026 $ 3,182 Net loss applicable to common stockholders.......................... (9,470) (61,969) (3,922)
F-59 NETSELECT, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. Property and Equipment: Property and equipment consists of the following (in thousands):
December 31, December 31, 1997 1998 ------------ ------------ 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 ===== ======
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):
December 31, December 31, 1997 1998 ------------ ------------ 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 ====== =======
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):
December 31, December 31, 1997 1998 ------------ ------------ Accrued payroll and related benefits.................. $ 442 $1,973 Accrued distribution fees............................. 1,366 Accrued royalties..................................... 979 Other................................................. 330 1,483 ----- ------ $ 772 $5,801 ===== ======
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 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):
Year Ending Principal December 31, Payments ------------ --------- 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 ======
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 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):
Weighted Average Number of Price Per Exercise Shares Share Price --------- ------------ -------- 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 =====
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):
Options Options Outstanding Exercisable --------------------------- --------------- Weighted Average Number Remaining Average Number Average of Contractual Exercise of Exercise Prices: Shares Life Price Shares Price ------- ------ ----------- -------- ------ -------- $.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 ===== ===
F-62 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:
December 31, December 31, December 31, 1996 1997 1998 ------------ ------------ ------------ Risk-free interest rates.............. 6% 6% 5% Expected lives (in years)............. 4 5 4 Dividend yield........................ 0% 0% 0% Expected volatility................... 0% 0% 0%
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 NETSELECT, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 11. Capitalization: Convertible preferred stock at December 31, 1998 consists of the following (in thousands):
Shares ---------------------- Liquidation Authorized Outstanding Amount ---------- ----------- ----------- 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 ===== ===== =======
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 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 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):
December 31, ----------------- 1997 1998 ------- -------- 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...................................... $ -- $ -- ======= ========
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 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): 1999............................................................. $ 2,295 2000............................................................. 2,686 2001............................................................. 2,553 2002............................................................. 1,636 2003............................................................. 1,365 ------- Total.......................................................... $10,535 =======
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): 1999............................................................. $21,143 2000............................................................. 19,036 2001............................................................. 14,646 2002............................................................. 4,250 2003............................................................. 500 ------- Total.......................................................... $59,575 =======
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 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 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 THE ENTERPRISE OF AMERICA, LTD. BALANCE SHEETS
December 31, March 31, 1997 1998 ------------ ----------- 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 =========== ===========
The accompanying notes are an integral part of these financial statements. F-70 THE ENTERPRISE OF AMERICA, LTD. STATEMENTS OF OPERATIONS
Three Months Year Ended Ended December 31, March 31, 1997 1998 ------------ ------------ 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) ========== ========
The accompanying notes are an integral part of these financial statements. F-71 THE ENTERPRISE OF AMERICA, LTD. STATEMENTS OF STOCKHOLDERS' DEFICIT
Common Stock Additional Note ------------- Paid-In Receivable Accumulated Shares Amount Capital Stockholder Deficit Total ------ ------ ---------- ----------- ----------- --------- 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) === ==== ======== ========= =========== =========
The accompanying notes are an integral part of these financial statements. F-72 THE ENTERPRISE OF AMERICA, LTD. STATEMENTS OF CASH FLOWS
Three Months Year Ended Ended December 31, March 31, 1997 1998 ------------ ------------ 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 ========= =========
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 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 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:
December 31, March 31, 1997 1998 ------------ ---------- 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 ========== ==========
4. Accrued Liabilities: Accrued liabilities consist of the following:
December 31, March 31, 1997 1998 ------------ --------- 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 ======== ========
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 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:
Capital Operating Leases Leases -------- --------- 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 ========
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 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 MULTISEARCH SOLUTIONS, INC. CONSOLIDATED BALANCE SHEETS
December 31, June 30, 1997 1998 ------------ ---------- 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 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-78 MULTISEARCH SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Year Ended Ended December 31, June 30, 1997 1998 ------------ ---------- 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 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-79 MULTISEARCH SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Common Stock Treassury Stock ------------- Additional ---------------- Paid-In Accumulated Shares Amount Capital Shares Amount Deficit Total ------ ------ ---------- ------ --------- ----------- --------- 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) ==== ==== ======== === ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements F-80 MULTISEARCH SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Year Ended Ended December 31, June 30, 1997 1998 ------------ ---------- 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 ========= ========
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 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 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:
December 31, June 30, 1997 1998 ------------ --------- 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 ========= =========
3. Accrued Liabilities: Accrued liabilities consist of the following:
December 31, June 30, 1997 1998 ------------ -------- 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 ======== ========
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: 1999............................................................ $335,447 2000............................................................ 262,737 2001............................................................ 58,411 -------- $656,595 ========
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 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:
December 31, June 30, 1997 1998 ------------ -------- 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) -------- -------- $ -- $ -- ======== ========
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 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 SPRINGSTREET, INC. BALANCE SHEETS (in thousands, except share and per share amounts)
December 31, ---------------- March 31, 1997 1998 1999 ------- ------- ----------- (Unaudited) 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 ======= ======= ========
See accompanying notes. F-86 SPRINGSTREET, INC. STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts)
Period through Year ended Quarter ended March 31, December 31, December 31, ----------------------- 1997 1998 1998 1999 -------------- ------------ ----------- ----------- (unaudited) 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 ======= ======= =========== ===========
See accompanying notes. F-87 SPRINGSTREET, INC. STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (in thousands)
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) ------ ------- ------ ------- ------ ------ ------------ ----------- ---------------- 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 ===== ======= ===== ======= ===== ====== ======= ======== =======
See accompanying notes. F-88 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)
Three months Period through Year ended ended March 31, December 31, December 31, ---------------- 1997 1998 1998 1999 -------------- ------------ ------- ------- (unaudited) 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 $ -- $ -- $ -- ======= ======= ======= =======
See accompanying notes. F-89 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 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 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.
Period Quarter through Year ended Ended December 31, December 31, March 31, 1977 1998 1999 ------------ ------------ ----------- (unaudited) 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) =========== =========== ===========
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 SPRINGSTREET, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) 3. Fixed Assets: Fixed assets consist of the following:
December 31, ------------------- 1997 1998 March 31, 1999 -------- --------- ---------------- (unaudited) 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 ======== ========= ==========
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:
December 31, ---------------------- 1997 1998 --------- ----------- 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.............................. $ -- $ -- ========= ===========
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 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: 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 ==========
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:
December 31, -------------------- 1997 1998 March 31, 1999 --------- ---------- --------------- (unaudited) 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 ========= ========== ==========
F-94 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:
December 31, 1997 December 31, 1998 March 31, 1999 ---------------------- ----------------------- ----------------------- Shares Shares Shares Outstanding Amount Outstanding Amount Outstanding Amount ----------- ---------- ----------- ----------- ----------- ----------- (unaudited) 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 ========= ========== ========== =========== ========== ===========
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 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:
Weighted- Average Exercise Shares Price per Share --------- --------------- 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 ========= =====
F-96 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:
Weighted-Average Shares Remaining Shares Exercise Price Outstanding Contractual Life Exercisable -------------- ----------- ---------------- ----------- 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 ========= ========= =======
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:
Period through Year ended December 31, December 31, 1997 1998 ------------ ------------ 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)
F-97 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 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 [LOGO OF HOMESTORE.COM, INC.] 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. 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......................................................... $ ========
- -------- * 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 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:
Exhibit Document Number ---------------- ------ 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
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.
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. 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............
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Aggregate Class of Date Title of Number of Purchase Form of Purchaser of Sale Securities Securities (1) Price Consideration - --------- -------- -------------------------------- ------------- ----------- ----------------- 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 Sales by InfoTouch, Inc. 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 Sales made in connection with NetSelect-InfoTouch merger: 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
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Aggregate Class of Date Title of Number of Purchase Form of Purchaser of Sale Securities Securities (1) Price Consideration - --------- --------- ------------------- ------------- ---------- ---------------- 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 Sales by (Post- InfoTouch-NetSelect Merger) NetSelect, Inc. 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
- -------- (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 Item 16. Exhibits and Financial Statement Schedules. (a) The following exhibits are filed herewith:
Number Exhibit Title ------ ------------- 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.
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Number Exhibit Title ------ ------------- 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.
- -------- * 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 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 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.
Signature Title Date --------- ----- ---- Principal Executive Officer: /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
II-8
Signature Title Date --------- ----- ---- /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
II-9 EXHIBIT INDEX
Exhibit Number Exhibit Title ------- ------------- 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.
EX-2.01 2 AGREEMENT AND PLAN OF MERGER DATED 12/31/1998 EXHIBIT 2.01 Agreement and Plan of Merger by and between NetSelect, Inc. and InfoTouch Corporation Dated as of DECEMBER 31, 1998 TABLE OF CONTENTS 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
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
ii 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
iii 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
iv 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
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 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"). 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 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 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 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 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 6 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 7 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 8 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 9 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 10 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; 11 (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, 12 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 13 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 14 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, 15 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 16 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 17 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 18 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 19 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 20 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; 21 (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 22 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. 23 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 24 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 25 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. 26 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 27 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 -------- ------- 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 28 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. 29 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. 30 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. 31 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. 32 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. 33 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 34 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 35 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 36 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; 37 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: 38 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 39 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] 40 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 --------------------------- -------------------------------------- 41 EX-2.02 3 AGREEMENT AND PLAN OF REORGANIZATION DATED 6/20/98 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. "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 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 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 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 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 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 (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 (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 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 (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 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 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 13 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 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 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. 16 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 (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 (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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 (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 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 (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 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 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 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 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% EX-2.03 4 EXCHANGE AGREEMENT DATED 3/31/98 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. 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 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, 3 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. 4 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 5 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 6 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 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 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 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; 10 (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; 11 (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; 12 (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 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 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 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 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 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 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 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 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 21 (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. 22 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 (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 (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 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 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 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 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 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 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 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 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 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 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 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, 36 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 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 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 (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 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 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 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 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 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 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 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 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 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 LIST OF EXHIBITS 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)
EX-3.05.1 5 CERTIFICATE OF INCORPORATION DATED 10/25/96 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. 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- 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- 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- 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- EX-3.06 6 REALSELECT, INC.'S BYLAWS DATED 11/26/96 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-4.02.1 7 SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT 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. 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 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 (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 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 5 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 6 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 7 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) 8 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 9 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 10 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 11 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. ----------------------- 12 (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. 13 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 14 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 (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 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 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 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 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 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 "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 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 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 "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 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 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 [SIGNATURE PAGE TO SECOND AMENDED AND RESTATED NETSELECT, INC. STOCKHOLDERS' AGREEMENT] 28 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 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 [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 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 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 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 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:
2 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 EX-4.02.2 8 AMENDMENT 1 TO SECOND AMENDED & RESTATED STOCKHOLDERS AGREEMENT 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 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 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. 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] 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. 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: --------------------------------------- -------------------------------------
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: ------------------------------------------ -------------------------------------
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: ----------------------------------------------- ------------------------------------------
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 -------------------------------- --------------------------------
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. -------------------------------- --------------------------------
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 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: --------------------------------------------------- -------------------------------------------------
EX-10.01 9 FORM OF INDEMNITY AGREEMENT 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 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- 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- 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- 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- 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- 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- 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- 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- EX-10.02 10 OPERATING AGREEMENT DATED 11/26/96 EXHIBIT 10.02 OPERATING AGREEMENT Dated as of November 26, 1996 Between REALTORS(R) Information Network, Inc. and RealSelect, Inc. TABLE OF CONTENTS -----------------
Page ---- 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
i 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
SCHEDULES
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
ii 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). -------------- "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 "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 "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 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 "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 (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 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 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 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 (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 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 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 (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 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 (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 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 (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 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.
- --------------------------------------------------------------------------------------------------------------- Aggregate Payments to Aggregate Payments Calendar Year Data Content Providers Payment to RIN by Operator - --------------------------------------------------------------------------------------------------------------- 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% - ---------------------------------------------------------------------------------------------------------------
19 - --------------------------------------------------------------------------------------------------------------- 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/ - ---------------------------------------------------------------------------------------------------------------
____________________ 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 (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 (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 (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 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 (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 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 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 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 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 (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 the matters addressed herein. No prior agreement or representation, whether oral or written, shall have any force or effect thereon. * * * * * 31 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 32 EX-10.04 11 JOINT OWNERSHIP AGREEMENT DATED 11/26/96 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 1 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 2 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. 3 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 4 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. 5 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 ------------------------------------- 6 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: _____________________________________ 7 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. 8 EX-10.05 12 TRADEMARK LICENSE DATED 11/26/96 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 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. 2 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 3 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. 4 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. 5 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. 6 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. 7 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). 8 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 --------------------------- -------------------------------- Its: Its: Executive Vice President -------------------------- ------------------------------- 9 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. "emailname@REALTOR.com" 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. 10 EX-10.06 13 STOCK AND INTEREST PURCHASE AGREEMENT EXHIBIT 10.06 EXECUTION COPY ============== - -------------------------------------------------------------------------------- STOCK AND INTEREST PURCHASE AGREEMENT Dated as of November 26, 1996 by and among _______________ NETSELECT, INC. _______________ NETSELECT, L.L.C. ________________ AND ________________ INFOTOUCH CORPORATION _______________ - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page 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
i 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
ii 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 iii 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). -1- 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 ------- 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: -2- (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, -3- 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 ------- 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 -4- 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. -5- 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. -6- 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 -7- 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. -8- 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. -9- 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 -10- 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 -11- 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 -12- 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 -13- 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; -14- (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; -15- (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; -16- (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 -17- 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. -18- 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- 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- 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- 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- 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- [SIGNATURE PAGES FOLLOW.] -24- 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 ANNEX A NETSELECT INVESTORS AND CAPITALIZATION NetSelect Corp Net Select Incorporated Capitalization Table
Round 1 ---------------------------------------------------------------- Voting Non-voting Imputed Total Shares Shares Share price Shares Value ---------------------------------------------------------------- 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 Before Options Fully Diluted ---------------------------------------- Ownership Voting Ownership Voting % % % % ---------------------------------------- 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%
1 $7M ROUND (PRO RATA) NET SELECT L.L.C. CAPITALIZATION TABLE
ROUND 1 BEFORE OPTIONS -------------------------------------------------------------------------------------------- VOTING NON-VOTING IMPUTED TOTAL OWNERSHIP VOTING SHARES SHARES SHARE PRICE SHARES VALUE % % -------------------------------------------------------------------------------------------- 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% - ----------------------------------------------------------- FULLY DILUTED -------------------------------------------- POST MONEY OWNERSHIP VOTING VALUATION % % -------------------------------------------- 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% ---------------------------------------- ----------------------------------------
- ----------------------------------------------------------- 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% - ----------------------------------------------------------- ANNEX B ESTIMATE OF LIABILITIES AND EXPENSES OF CDW INTERNET, L.L.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]
2 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 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 - ------------------ 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
4 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)
5 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: 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)
6 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 InfoTouch Corporation FINANCIAL STATEMENTS (UNAUDITED) OCTOBER 31, 1996 8 InfoTouch Corporation Balance Sheet October 31,1996 Unaudited
ASSETS 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 ======================
9 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 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 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 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 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 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 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):
Options available Options outstanding ------------------- for grant Shares Price per share 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 -- -- --------- ---------
16 Balance at September 30, 1996 402,928 597,072 $1.00 to $1.50 =========
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 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 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 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"). 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 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 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 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 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 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 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 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 (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 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 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 (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 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 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. 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 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 3 EXHIBIT E B Y - L A W S OF NETSELECT, 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, 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 ------------------------ 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, 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, ---------------- 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 ------------------ 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 ------ 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 2 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 3 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 ------ 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. 4 (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 -------------------- 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 WITHOUT MEETING. Unless otherwise provided by the ---------------------- 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 5 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 ----------- 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 ------------------ 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. 6 SECTION 2. NUMBER AND TERM. The number of directors shall be fixed --------------- 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 ------------ 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 ------- 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 -------- 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, the Chairman or by the Secretary on the written request of any director with at least two days' notice 7 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 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 ---------- 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 8 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 ------------------------ 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. 9 ARTICLE IV OFFICERS -------- 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 ------------------------- 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 maybe from time to time assigned to him by the Board. SECTION 4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer --------------- 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 10 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 ----------------------- 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 --------- 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, 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 11 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, 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 ----------------------------- 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. 12 SECTION 11. OWNERSHIP OF STOCK OF ANOTHER CORPORATION. The Chief ----------------------------------------- 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 -------------------- 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. 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 13 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. 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 14 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 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. 15 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 -------------------- SECTION 1. AMENDMENTS. These By-Laws may be amended or repealed, or ---------- 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 ---- 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. 16 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 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 17 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) ------------------- 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 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 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. 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 (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 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 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 (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 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 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 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 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 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 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 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 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 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 (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 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 (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 (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 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 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 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 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 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:
Pre-closing Post-closing Type Authorized Outstanding Outstanding - ---- ---------- ----------- ----------- 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
24 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 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 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 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 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 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 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 32 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 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 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 SCHEDULE 5.5 ------------ NETSELECT CONSENTS AND APPROVALS; NO VIOLATIONS NONE 36 EX-10.07 14 GEOCAPITAL IV, L.P. SUBSCRIPTION AGREEMENT 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. 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 (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 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 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 EX-10.08 15 BROADVIEW PARTNERS GROUP SUBSCRIPTION AGREEMENT 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. 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 (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 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 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 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 EX-10.09 16 INGLESIDE INTEREST SUBSCRIPTION AGREEMENT 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. 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 (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 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 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 EX-10.10 17 DANIEL KOCH SUBSCRIPTION AGREEMENT 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. 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 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 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 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 EX-10.11 18 WHITNEY EQUITY PARTNERS SUBSCRIPTION AGREEMENT 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. 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 (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 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 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 EX-10.12 19 CDW INTERNET SUBSCRIPTION AGREEMENT 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. 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 (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 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 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 EX-10.13 20 NETSELECT SERIES D PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 10.13 STOCK PURCHASE AGREEMENT BETWEEN NETSELECT, INC. AND GENERAL ELECTRIC CAPITAL CORPORATION Dated as of December 31, 1997 TABLE OF CONTENTS -----------------
Page ---- 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 ------------------------
- i - TABLE OF CONTENTS -----------------
Page ---- 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 ---------
- ii - 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 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 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 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 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 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 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 "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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 "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 statements with respect to the transactions contemplated hereby as each may be advised is legally necessary upon advice of its counsel. 25 [This page intentionally left blank.] 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 EX-10.14 21 NETSELECT SERIES F PREFERRED STOCK PURCHASE AGREEMENT 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. 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 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 (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 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 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 (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 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 (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 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 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 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 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 (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 (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 (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 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 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 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 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 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 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 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 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 "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: -------------------------------------------
24 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 EX-10.15 22 NETSELECT SERIES G PREFERRED STOCK PURCHASE AGREEMENT 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 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 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 (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 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 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 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 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 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 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 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 (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 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 "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 "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 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 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 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 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 COUNTERPART SIGNATURE PAGE TO NETSELECT INC. STOCK PURCHASE AGREEMENT DATED AS OF APRIL 9, 1999
"PURCHASERS": "PURCHASERS": 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: -------------------------- -------------------------------------------
20 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 Exhibit A --------- Schedule of Purchasers
Aggregate Number Name and Address Purchase Price of Shares - ---------------- --------------- ---------- 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
22 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 =========== =======
23 EX-10.16 23 NETSELECT, INC. 1996 STOCK INCENTIVE PLAN. 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 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 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 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 4 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. 5 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 6 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 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. 8 (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. 9 (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 10 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: 11 (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 12 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 13 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. 14 EX-10.17 24 NETSELECT, INC. 1999 EQUITY INCENTIVE PLAN. 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 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 (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 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 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 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 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 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 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 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 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 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 "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 (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 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 EX-10.21 25 EMPLOYMENT AGREEMENT WITH STUART H. WOLFF, PH.D. 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 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. 2 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 (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 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 (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 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 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 (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 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 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 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. 12 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 13 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 14 EX-10.22 26 EMPLOYMENT AGREEMENT WITH RICHARD JANSSEN 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 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. 2 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 3 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 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 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 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 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 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 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 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 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 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 EX-10.23 27 EMPLOYMENT AGREEMENT WITH MICHAEL A. BUCKMAN 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: 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 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 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 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 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 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 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 EX-10.24.1 28 OFFICE LEASE DATED SEPTEMBER 18, 1998 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 TABLE OF CONTENTS -----------------
PAGE ---- 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
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) 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) 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
(iv) 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- 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- 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 -3- 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- (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 -5- 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). -6- 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"); -7- 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 -8- 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 --------- 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 -9- 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 -10- 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- 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 -12- 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. -13- 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 -14- 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. -15- 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 -16- 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 -17- 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. -18- 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. -19- 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. -20- 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 -21- 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. -22- 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 -23- 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- 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. -25- 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 ----------------------------------- -26- EXHIBIT A --------- OUTLINE OF FLOOR PLAN OF PREMISES --------------------------------- -1- 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 -1- 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- 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- 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 -1- 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- 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. -2- EXHIBIT E --------- CLEANING SPECIFICATIONS ----------------------- -1- EXHIBIT F --------- TENANT CERTIFICATE ------------------ - -------------------------------------------------------------------------------- Please complete all of the blanks with the appropriate information - -------------------------------------------------------------------------------- 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 --------- ----
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- 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- 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- 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- 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- 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- 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- 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:_______________________________ -2- 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- 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:___________________________ -2- EX-10.24.2 29 FIRST AMENDMENT TO OFFICE LEASE DATED 3/31/1999 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" 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.
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 ----------------- ------------ ----------- ------------- 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
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- 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- 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- 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- IN WITNESS WHEREOF, this First Amendment has been entered into as of the day and year first above written.
"Landlord" "Tenant" 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 ------------------------------------------
-6- EXHIBIT A FLOOR PLAN FOR NEW SPACE ------------------------ EXHIBIT A - Page 1 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 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 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. EX-10.27 30 EMPLOYMENT AGREEMENT WITH JOHN M. GIESECKE 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 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 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 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 EX-10.28 31 EMPLOYMENT AGREEMENT WITH DAVID ROSENBLATT 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 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 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 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 EX-10.29 32 AGREEMENT DATED 8/21/98 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: 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 (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 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 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 EX-21.01 33 SUBSIDIARIES OF REGISTRANT EXHIBIT 21.01 Subsidiaries of Registrant RealSelect, Inc. The Enterprise of America Ltd. National New Homes, Inc. SpringStreet, Inc. TouchTech, Inc. EX-23.02 34 CONSENT OF PRICEWATERHOUSECOOPERS LLP 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 EX-23.03 35 CONSENT OF PRICEWATERHOUSECOOPERS LLP 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 EX-23.04 36 CONSENT OF PRICEWATERHOUSECOOPERS LLP 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 EX-23.05 37 CONSENT OF PRICEWATERHOUSECOOPERS LLP 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 EX-23.06 38 CONSENT OF PRICEWATERHOUSECOOPERS LLP 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 EX-23.07 39 CONSENT OF ERNST & YOUNG LLP 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 EX-27.01 40 FINANCIAL DATA SCHEDULE
5 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. 1,000 YEAR YEAR DEC-31-1997 DEC-31-1998 JAN-01-1997 JAN-01-1998 DEC-31-1997 DEC-31-1998 155 71 0 0 0 0 0 0 0 0 155 71 0 0 0 0 155 71 192 70 0 0 0 0 0 0 2,730 3,322 (2,863) (3,417) 155 71 0 0 42 0 0 0 6 0 52 3 0 0 1 0 (17) (3) 0 0 0 0 0 0 0 0 0 0 (17) (3) 0 0 0 0
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