SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Material's by Rule 14a-6(c)(2))
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
HOMESTORE.COM, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 of Move.com, Inc. (a)
Common Stock, par value $0.01 of Welcome Wagon International, Inc. (a)
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
30,428,196 shares of Move.com, Inc. common stock (b)
1,000 shares of Welcome Wagon International, Inc. common stock (b)
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$1.40 per share of Move.com Group common stock (c)
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$59,103,000 (d)
------------------------------------------------------------------------
(5) Total fee paid:
$11,820.60 (e)
------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
(a) This Schedule 14A relates to two business combinations: (i) a business
combination involving the exchange of all of the issued and outstanding
capital stock of Move.com, Inc. for shares of Homestore.com, Inc. common
stock and (ii) a business combination involving the exchange of all of the
issued and outstanding capital stock of Welcome Wagon International, Inc.
for shares of Homestore.com common stock.
(b) The number of Move.com common shares to be received by the acquiring
person in the Move.com merger has been determined based upon (i)
22,500,000 shares of Move.com common stock, (ii) options to purchase
6,342,196 shares of the common stock of Cendant Corporation that are
designed to track the performance of Move.com (the "Tracking Stock")
outstanding as of October 31, 2000 and (iii) warrants to purchase
1,586,000 shares of Tracking Stock outstanding as of October 31, 2000. The
number of shares of Welcome Wagon common stock to be received by the
acquiring person in the Welcome Wagon merger has been determined based
upon 1,000 shares of Welcome Wagon common stock outstanding as of October
31, 2000.
(c) Because the common stock of Move.com and Welcome Wagon are not publicly
traded, pursuant to Rule 0-11(a)(4) of the Securities Exchange Act of 1934
(the "Exchange Act"), the value per share of the common stock of the
Move.com Group, which includes Move.com and Welcome Wagon, was determined
to be $1.40, or the book value per share as of September 30, 2000.
(d) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 0-11 under the Exchange Act and represents the book value
of the Move.com Group, which was $59,103,000 as of September 30, 2000.
(e) Calculated in accordance with Rule 14a-6(i)(1) and Rule 0-11 under the
Exchange Act. Represents 1/50 of 1% of the proposed maximum aggregate
value of the transaction calculated as described in footnote (d).
[LOGO OF HOMESTORE.COM]
Homestore.com, Inc.
30700 Russell Ranch Road
Westlake Village, California 91362
November , 2000
To the Stockholders of Homestore.com, Inc.:
You are cordially invited to attend a special meeting of stockholders of
Homestore.com, Inc. to be held at Homestore.com's principal executive office at
30700 Russell Ranch Road, Westlake Village, California 91362 on , 2000
at a.m., Pacific Standard Time.
The matters expected to be acted upon at the meeting, including the issuance
of shares of common stock of Homestore.com in the proposed mergers that will
cause Move.com, Inc. and Welcome Wagon International, Inc. to become wholly-
owned subsidiaries of Homestore.com, are described in detail in the attached
documents.
After careful consideration, your board of directors has approved the
issuance of shares of Homestore.com common stock in the mergers and recommends
that you approve this item.
It is important that you use this opportunity to take part in the affairs of
Homestore.com by voting on the business to come before this meeting. Whether or
not you expect to attend the meeting, please complete, date, sign and promptly
return the accompanying proxy in the enclosed postage-paid envelope so that
your shares may be represented at the meeting. YOUR VOTE IS VERY IMPORTANT.
Returning the proxy does not deprive you of your right to attend the meeting
and to vote your shares in person.
Sincerely,
Stuart H. Wolff, Ph.D.
Chairman of the Board and Chief
Executive Officer
Homestore.com, Inc.
This document is dated , 2000 and was first mailed to stockholders on or
about , 2000.
[LOGO OF HOMESTORE.COM]
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
----------------
A special meeting of stockholders of Homestore.com, Inc., a Delaware
corporation, will be held at Homestore.com's principal executive office at
30700 Russell Ranch Road, Westlake Village, California 91362 on ,
2000 at a.m., Pacific Standard Time, for the following purposes:
1. To approve the issuance of shares of Homestore.com common stock in
connection with the acquisitions by Homestore.com of Move.com, Inc. and
Welcome Wagon International, Inc.
2. To transact any other business that may properly come before the
special meeting of the stockholders of Homestore.com or any adjournment
or postponement of the meeting.
The mergers cannot be completed unless the holders of a majority of the
total voting power of the shares of common stock of Homestore.com represented
in person or by proxy and voting at the meeting approve the issuance of
Homestore.com common stock in the mergers.
The mergers are discussed in more detail in the sections of this document
entitled "The Mergers" and "The Merger Agreement." You should read this
document carefully.
Only stockholders of record at the close of business on , 2000, the
record date, are entitled to notice of and to vote at the meeting or any
adjournment of the meeting.
By Order of the Board of Directors
of Homestore.com, Inc.
John M. Giesecke, Jr.
Executive Vice President, Chief
Financial Officer and Secretary
Westlake Village, California
, 2000
Whether or not you plan to attend the meeting, please complete, sign, date
and promptly return the accompanying proxy in the enclosed postage-paid
envelope so that your shares may be represented at the meeting.
Table of Contents
Page
----
Summary of the Proxy Statement............................................ 1
The Companies........................................................... 1
Summary of the Transaction.............................................. 2
Selected Consolidated Financial Data of Homestore.com................... 5
Selected Combined Financial Data of the Move.com Group.................. 7
Comparative Historical and Unaudited Pro Forma Per Share Data........... 8
Risks Relating to the Mergers............................................. 9
The Special Meeting....................................................... 11
Date, time and place.................................................... 11
Purpose................................................................. 11
Record date, outstanding shares and voting rights....................... 11
Quorum requirements and vote required................................... 11
Solicitation of proxies................................................. 12
Revocability and voting of proxies...................................... 12
No appraisal rights..................................................... 12
No preemptive rights.................................................... 13
Recommendation of the board of directors................................ 13
The Mergers............................................................... 14
Background of the mergers............................................... 14
Our reasons for the mergers............................................. 15
Opinion of our financial advisor........................................ 17
Closing and effectiveness of the mergers................................ 23
Structure of the mergers................................................ 23
Merger consideration.................................................... 23
Accounting treatment of the mergers..................................... 24
Regulatory filings and approvals required to complete the mergers....... 24
The Merger Agreement...................................................... 25
Closing................................................................. 25
Conditions to the mergers............................................... 25
Representations and warranties.......................................... 26
Homestore.com's, the Move.com Group's and Cendant's conduct of their
businesses before the closing of the mergers........................... 28
Our conduct of our business............................................. 30
No other negotiations................................................... 30
Public disclosure....................................................... 31
Retention bonuses....................................................... 31
Homestore.com board of directors........................................ 31
Expenses................................................................ 31
S-8 Registration Statement.............................................. 31
S-3 Registration Statement.............................................. 31
Termination of the merger agreement..................................... 31
Termination fee......................................................... 32
Amendment, extension and waiver of the merger agreement................. 32
Unaudited Pro Forma Condensed Combined Consolidated Financial
Information.............................................................. 33
Share Ownership by Our Principal Stockholders, Management and Directors... 42
Business of the Move.com Group............................................ 44
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Move.com Group......................................... 46
Related Agreements........................................................ 51
Master Operating Agreement.............................................. 51
NRT Listing Agreement................................................... 51
Page
----
Corporate Services Transition Agreement.................................. 52
Web Marketing Agreement.................................................. 52
Transaction Platform Marketing Agreements................................ 53
Software License Agreement............................................... 53
Marketplace Agreements................................................... 53
iLEAD Agent Services Agreement........................................... 54
Support Agreements....................................................... 54
Purchase Agreement....................................................... 54
Combined Value of Related Agreement...................................... 54
Registration Rights Agreement............................................ 54
Stockholder Agreement.................................................... 54
Stockholder Proposals...................................................... 56
Other Business............................................................. 56
Statements Regarding Forward-Looking Information........................... 56
Documents Incorporated by Reference in this Proxy Statement................ 57
Where You Can Find More Information........................................ 58
Index to Combined Financial Statements of the Move.com Group............... F-1
Annex A--Agreement and Plan of Reorganization.............................. A-1
Annex B--Opinion of Morgan Stanley & Co. Incorporated...................... B-1
ii
Summary of the Proxy Statement
The Companies
[LOGO OF HOMESTORE.COM]
Homestore.com, Inc.
30700 Russell Ranch Road
Westlake Village, California 91362
(805) 557-2300
Our family of websites, consisting of Homestore.com, REALTOR.com,
HomeBuilder.com, SpringStreet.com, Remodel.com and Homefair.com, is the leading
destination on the Internet for home and real estate-related information and
advertising products and services, based on the number of visitors, time spent
on our websites and number of property listings. As of September 30, 2000, we
had listings on our websites for over 1.4 million homes that we estimate are
listed nationally for sale, over 130,000 new homes for sale and over 45,000
rental properties. Our family of websites also offers a wide variety of home-
related information, products, services and tools. We have relationships with
the National Association of REALTORS, or the NAR, the National Association of
Home Builders, or the NAHB, the largest Multiple Listing Services, or the MLSs,
the NAHB Remodelors Council, the National Association of the Remodeling
Industry, or the NARI, the American Institute of Architects, or the AIA, the
Manufactured Housing Institute, or the MHI, real estate franchises, brokers,
builders and agents. We also have distribution agreements with a large number
of leading Internet portal websites.
[Move.com Logo]
Move.com, Inc.
795 Folsom Street,
San Francisco, California 94107
(415) 796-0000
Move.com, together with its subsidiaries that we are acquiring, operates a
popular network of websites, consisting of Move.com, Rent.net,
Seniorhousing.net, Corporatehousing.net, Selfstoreage.net and Housenet.com,
which offers a wide selection of quality relocation, real estate and home-
related products and services. Move.com seeks to improve the often stressful
and demanding moving experience by providing a one-source, "friend-in-need"
solution before, during and after the move. Move.com strives to establish
strong, long-term relationships with consumers by offering quality products and
services for each phase of the moving process from finding a home to improving
an existing home. Move.com also provides businesses that are trying to reach a
highly targeted and valued group of consumers at the most opportune times the
opportunity to deal with a single source providing multiples avenues of access
to such persons.
[Welcome Wagon logo]
Welcome Wagon International, Inc.
115 South Service Road
Westbury, NY 11590
(516) 333-1600
Welcome Wagon, together with its subsidiaries that we are acquiring,
distributes complimentary welcoming packages which provide new homeowners and
other consumers throughout the United States with discounts for local
merchants. These activities are conducted through Welcome Wagon International,
Inc.
Welcomewagon.com is the official website of Welcome Wagon. Welcomewagon.com
provides Move.com with local community information, including a directory of
more than 40,000 local merchants and service providers nationwide.
1
Summary of the Transaction
The mergers
We intend to acquire Move.com, Inc., Welcome Wagon International, Inc. and
certain of their subsidiaries through two mergers. We collectively refer to
these two companies as the Move.com Group. In the Move.com merger, Move.com and
one of our wholly-owned subsidiaries will merge, and, as a result, Move.com
will become our wholly-owned subsidiary. In the Welcome Wagon merger, Welcome
Wagon and one of our wholly-owned subsidiaries will merge, and, as a result,
Welcome Wagon will become our wholly-owned subsidiary.
The merger agreement is attached to this document as Annex A. We encourage
you to read the merger agreement carefully.
Votes required for approval
The holders of a majority of our outstanding shares of common stock present
in person or represented by proxy at the special meeting of stockholders and
entitled to vote must approve the issuance of our common stock in the mergers.
Our stockholders are entitled to cast one vote per share of common stock owned
as of , 2000, the record date for the special meeting of stockholders.
Six of our stockholders that own of record approximately % of our shares
of common stock outstanding as of the record date have agreed to vote in favor
of the issuance of shares of our common stock in the mergers and against any
proposal in opposition to or competition with the mergers. Please see "Related
Agreements-- Support Agreements." Our directors and executive officers as a
group beneficially owned approximately % of our outstanding shares of
common stock as of the record date.
Board of directors and management after the transactions
If the mergers are completed, our board of directors will be increased to
seven members and Cendant will have the right to appoint one member to our
board of directors.
Conditions to completion of the transactions
The completion of the mergers depends upon meeting a number of conditions
that have not yet been satisfied, including:
. the issuance of shares of our common stock under the merger agreement
shall have been approved by the requisite vote of our stockholders;
. the applicable waiting periods under certain antitrust laws must expire
or be terminated;
. the respective representations and warranties of all parties in the
merger agreement must be true and correct in all material respects;
. the commercial agreements described in the section entitled "Related
Agreements" shall be executed by the respective parties and those
agreements shall be in full force and effect; and
. Cendant shall have received an opinion of its tax counsel that the
mergers will qualify as tax-free reorganizations.
In addition to the conditions listed above, the mergers are subject to
additional customary closing conditions. For a more complete description of the
conditions to closing the mergers, see the section entitled "The Merger
Agreement--Conditions to the mergers" on page 25.
2
If any of the parties waive any of the closing conditions, we will consider
the facts and circumstances at that time and make a determination as to whether
a resolicitation of proxies from stockholders is appropriate.
Opinion of our financial advisor
Our board of directors has received a written opinion from Morgan Stanley &
Co. Incorporated as to the fairness, from a financial point of view, to us of
the consideration to be paid by us in the mergers. The full text of Morgan
Stanley & Co. Incorporated's written opinion, dated October 25, 2000, is
attached to this document as Annex B. We encourage you to read this opinion
carefully in its entirety for a description of the assumptions made, procedures
followed, matters considered and limitations on the review undertaken. Morgan
Stanley & Co. Incorporated's opinion is directed to our board of directors and
does not constitute a recommendation to any stockholder with respect to any
matter relating to the mergers.
Termination of the merger agreement
The merger agreement may be terminated by the parties' mutual consent or
under other limited circumstances.
For a more complete description of the manner in which the merger agreements
may be terminated, see the section entitled "The Merger Agreement--Termination
of the merger agreement" on page 31.
Termination fee
We may be obligated to pay a termination fee of $50.0 million to Cendant if
the merger agreement is terminated because our stockholders do not approve the
issuance of shares of our common stock in the mergers.
For a more complete description of the payment of termination fees, see the
section entitled "The Merger Agreement--Termination fee" on page 32.
Related agreements
In connection with the mergers, we will enter into a number of additional
agreements with Cendant Corporation, or Cendant, the parent corporation of both
Move.com and Welcome Wagon, with Real Estate Technology Trust, or RETT, with
Cendant Mortgage Corporation, and with NRT Incorporated, or NRT. RETT, Cendant
Mortgage Corporation and NRT are each affiliates of Cendant. Please refer to
the section entitled "Related Agreements" on page 51 for a description of these
agreements.
Accounting treatment of the mergers
We intend to account for the mergers under the purchase method for
accounting purposes, in accordance with generally accepted accounting
principles. After the mergers, the results of operations of the Move.com Group,
which includes Move.com and Welcome Wagon, will be included in our consolidated
financial statements.
Tax treatment of the mergers
We intend that the mergers will be treated as tax-free reorganizations for
federal income tax purposes.
Appraisal rights
Under Delaware law, our stockholders are not entitled to appraisal rights in
the mergers.
3
Antitrust review required to complete the mergers
The mergers are subject to review under applicable antitrust laws. We have
made the required filings with the Department of Justice and the Federal Trade
Commission. The Department of Justice currently is reviewing the mergers. The
Department of Justice or Federal Trade Commission, as well as a state or
private person, may challenge the mergers at any time before or after its
completion.
Forward-looking statements in this proxy statement
This proxy statement and the documents incorporated into this proxy
statement by reference contain forward-looking statements within the safe
harbor provisions of the Private Securities Litigation Reform Act. These
statements include statements with respect to the Move.com Group's and our
financial condition, results of operations and businesses and the expected
impact of the mergers on our financial performance. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions, as well as statements in the future tense, identify
forward-looking statements.
These forward-looking statements are not guarantees of future performance
and are subject to risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements. These risks and uncertainties include:
. the possibility that the value of our common stock in the transaction
will increase or decrease prior to closing the mergers;
. the technical, operational and personnel-related challenges in
integrating the Move.com Group with us;
. the possibility that the anticipated benefits from the mergers will not
be fully realized;
. the possible loss of key employees as a result of the mergers; and
. other risk factors described in the section titled "Risk Relating to the
Mergers" and as may be detailed from time to time in our public
announcements and filings with the Securities and Exchange Commission.
In evaluating the mergers, you should carefully consider the discussion of
these and other factors in the section entitled "Risks Relating to the Mergers"
on page 9.
This summary may not contain all of the information that is important to
you. You should read carefully this entire document and the other documents
referred to in the proxy statement for a more complete understanding of the
mergers. In particular, you should read the documents attached to this
document, including the merger agreement, which is attached as Annex A and the
opinion of Morgan Stanley & Co. Incorporated which is attached as Annex B.
In addition, we incorporate important business and financial information
about us into this proxy statement by reference that is not included in or
delivered with this proxy statement. See "Documents Incorporated by Reference
in this Proxy Statement" on page 57. You may obtain the information
incorporated into this proxy statement by reference without charge by following
the instructions in the section entitled "Where You Can Find More Information"
on page 58.
4
SELECTED CONSOLIDATED FINANCIAL DATA OF HOMESTORE.COM
The consolidated statement of operations data for the years ended December
31, 1996, 1997, 1998 and 1999, and the consolidated balance sheet data as of
December 31, 1997, 1998 and 1999, are derived from our audited consolidated
financial statements which are incorporated by reference in this document. The
consolidated statement of operations data for the year ended December 31, 1995
and the nine months ended September 30, 1999 and 2000, and the consolidated
balance sheet data as of December 31, 1995 and 1996, and as of September 30,
2000, are 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 data for the year ended
December 31, 1999 and nine months ended September 30, 2000 are derived from
unaudited pro forma condensed combined consolidated financial information
included elsewhere in this document.
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,
Homestore.com, Inc. and RealSelect, Inc. on a combined basis for 1999 and the
nine months ended September 30, 2000, is the only meaningful basis of
presentation for investors in evaluating our historical financial performance.
The unaudited pro forma condensed combined consolidated statement of
operations data assume that the following transactions occurred on January 1,
1999, except for preferred stock issued in connection with an acquisition. For
this preferred stock, the weighted average shares reflect the preferred stock
as if it had been issued as of January 1, 1999, or the date of issuance, if
later.
. the reorganization of our holding company structure in February 1999 by
merging NetSelect, Inc. and NetSelect, LLC with InfoTouch Corporation;
. our acquisition of SpringStreet, Inc. in June 1999 for common stock and
convertible preferred stock equivalent to an aggregate of 5,309,058
shares of our common stock, with an estimated fair value of $51.7
million;
. our acquisition of Homebuyer's Fair, Inc. and FAS-Hotline, Inc. in
October 1999 for 250,000 shares of our common stock, with an estimated
fair value of $11.2 million, a $37.5 million promissory note and $35.8
million in cash and other acquisition-related expenses; and
. our planned acquisition of the Move.com Group for 25,142,654 shares of
our common stock with an estimated fair value of $804.3 million,
including acquisition-related expenses. The share number includes shares
of Homestore.com common stock to be issued upon exercise of options to
purchase shares of Move.com common stock assumed by Homestore.com in the
mergers and excludes shares to be issued upon exercise of stock options
granted.
The unaudited pro forma condensed combined consolidated 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 unaudited pro forma consolidated 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.
5
Actual Pro Forma
-------------------------------------------------------------- --------------------------
Nine Months Ended Nine Months
Year Ended December 31, September 30, Year Ended Ended
----------------------------------------- ------------------- December 31, September 30,
1995 1996 1997 1998 1999 1999 2000 1999 2000
------ ------ ------ ------- -------- -------- --------- ------------ -------------
(in thousands, except per share amounts)
Consolidated Statement
of Operations Data:
Revenues................ $ 857 $1,360 $ 42 $ -- $ 62,580 $ 35,211 $150,954 $ 152,764 $ 216,874
Cost of revenues(1)..... 58 42 6 -- 21,022 13,007 40,033 41,749 67,552
------ ------ ------ ------- -------- -------- --------- --------- ---------
Gross profit........... 799 1,318 36 -- 41,558 22,204 110,921 111,015 149,322
Operating expenses:
Sales and
marketing(1).......... 559 479 14 -- 70,384 44,765 90,366 126,013 164,925
Product
development(1)........ 474 629 -- -- 4,933 3,322 9,767 6,704 11,482
General and
administrative(1)..... 649 441 38 3 21,781 12,953 39,458 66,255 70,498
Amortization of
intangible assets..... -- -- -- -- 10,192 4,313 31,455 208,746 166,653
Stock-based charges.... -- -- -- -- 21,227 12,711 33,271 29,915 37,354
In-process research and
development........... -- -- -- -- -- -- 4,048 -- 4,048
Restructuring charge... -- -- -- -- -- -- -- -- 3,313
Litigation settlement.. -- -- -- -- 8,406 8,406 -- 8,406 --
------ ------ ------ ------- -------- -------- --------- --------- ---------
Total operating
expenses.............. 1,682 1,549 52 3 136,923 86,470 208,365 446,039 458,273
------ ------ ------ ------- -------- -------- --------- --------- ---------
Loss from operations.... (883) (231) (16) (3) (95,365) (64,266) (97,444) (335,024) (308,951)
Interest and other
income (expense), net.. (30) (21) (1) -- 2,358 1,274 16,462 (2,844) 14,024
------ ------ ------ ------- -------- -------- --------- --------- ---------
Net loss................ (913) (252) (17) (3) (93,007) (62,992) (80,982) (337,868) (294,927)
Accretion of redemption
value on convertible
preferred stock........ -- -- -- -- (2,299) (1,846) -- -- --
------ ------ ------ ------- -------- -------- --------- --------- ---------
Net loss applicable to
common stockholders.... $ (913) $ (252) $ (17) $ (3) $(95,306) $(64,838) $ (80,982) $(337,868) $(294,927)
====== ====== ====== ======= ======== ======== ========= ========= =========
Net loss per share
applicable to common
stockholders:
Basic and diluted...... $ (.37) $ (.07) $ -- $ -- $ (2.32) $ (2.06) $ (1.03) $ (4.01) $ (2.94)
====== ====== ====== ======= ======== ======== ========= ========= =========
Weighted average
shares--basic and
diluted................ 2,435 3,477 8,650 9,173 41,142 31,421 78,769 84,181 100,476
====== ====== ====== ======= ======== ======== ========= ========= =========
- - --------
(1) Excluding non-cash charges for all periods presented. See notes to the
unaudited pro forma condensed combined consolidated financial information
included elsewhere in this document.
December 31, September 30, 2000
----------------------------------- -------------------
1995 1996 1997 1998 1999 Actual Pro Forma
----- ----- ----- ---- -------- --------- ---------
(in thousands)
Consolidated Balance
Sheet Data:
Cash and cash
equivalents and short-
term investments....... $ 5 $ 36 $ 155 $ 71 $ 90,382 $ 283,041 289,520
Working capital
(deficiency)........... (200) (46) (37) 1 40,822 302,386 292,914
Total assets............ 181 77 155 71 276,563 924,799 1,811,510
Notes payable, long term
and current............ -- -- -- -- 38,576 353 353
Total stockholders'
equity (deficit)....... (150) (116) (133) (95) 195,473 643,476 1,420,266
6
SELECTED COMBINED FINANCIAL DATA OF THE MOVE.COM GROUP
The following selected combined financial data is qualified by reference to,
and should be read in conjunction with, the combined financial statements and
related notes for the Move.com Group and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of the Move.com Group"
appearing elsewhere in this document. The selected combined statement of
operations data for the nine months ended September 30, 2000 and for the years
ended December 31, 1998 and 1999 and the balance sheet data as of September 30,
2000, December 31, 1998 and 1999, have been derived from the combined financial
statements of the Move.com Group that have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports which are included in
this document. The selected combined statement of operations data for the years
ended December 31, 1996 and 1997, and the balance sheet data as of December 31,
1996 and 1997, have been derived from unaudited combined financial statements
of the Move.com Group which are not included in this document. The unaudited
combined financial statements for the years ended, and as of December 31, 1996
and 1997, have been prepared on the same basis as the Move.com Group's audited
financial statements and, in the opinion of management, include all material
adjustments, consisting only of normal recurring adjustments, necessary to
present the financial position and results for the periods presented.
Year Ended Nine Months
December 31, Ended
------------------------------------ September 30,
1996 1997 1998 1999 2000
------- ------- -------- -------- -------------
(in thousands)
Combined Statement of
Operations Data:
Revenues................... $74,658 $75,650 $ 83,509 $ 79,826 $ 67,875
Cost of revenues........... 11,725 9,220 8,497 13,935 21,909
------- ------- -------- -------- --------
Gross profit............. 62,933 66,430 75,012 65,891 45,966
------- ------- -------- -------- --------
Operating expenses:
Sales and marketing...... 40,782 46,946 50,543 44,010 80,260
Product development...... -- -- 193 3,922 6,496
General and
administrative.......... 20,181 15,607 25,815 36,279 30,459
Depreciation and
amortization............ 2,169 2,461 3,599 4,465 5,058
Restructuring and other
unusual charges......... -- -- -- -- 3,313
Interest, net............ (88) (19) -- -- (479)
------- ------- -------- -------- --------
Total operating
expenses.............. 63,044 64,995 80,150 88,676 125,107
------- ------- -------- -------- --------
Income (loss) from
operations................ (111) 1,435 (5,138) (22,785) (79,141)
Income tax provision
(benefit)................. 318 (5,535) (1,725) (8,817) (31,464)
------- ------- -------- -------- --------
Net income (loss).......... $ (429) $ 6,970 $ (3,413) $(13,968) $(47,677)
======= ======= ======== ======== ========
December 31,
------------------------------------ September 30,
1996 1997 1998 1999 2000
------- ------- -------- -------- -------------
(in thousands)
Combined Balance Sheet
Data:
Cash and cash equivalents.. $ 548 $ -- $ -- $ 1,000 $ 3,779
Working capital
(deficiency).............. 13,011 16,273 1,068 (5,601) 9,959
Total assets............... 49,405 42,040 46,616 54,446 92,829
Total group equity......... 41,124 35,030 28,026 22,719 59,103
7
Comparative Historical and Unaudited Pro Forma Per Share Data
The following tables reflect the historical net loss and book value per
share of Homestore.com common stock in comparison with the unaudited pro forma
net loss and book value per share after giving effect to the proposed mergers.
Homestore.com has not paid dividends for the year ended December 31, 1999 and
for the nine months ended September 30, 2000. The Move.com Group has not paid
dividends for the year ended December 31, 1999 and for the nine months ended
September 30, 2000.
The Move.com Group's historical and pro forma per share information has not
been presented as the Move.com Group did not have a capital structure distinct
from Cendant, therefore, such information is not meaningful.
The information presented in the following tables should be read in
conjunction with the unaudited pro forma condensed combined consolidated
financial statements and with the historical financial statements and related
notes of Homestore.com incorporated by reference and of the Move.com Group
included elsewhere in this document.
Homestore.com
Nine Months Ended
Year ended September 30,
December 31, 1999 2000
----------------- -----------------
Historical Per Share Data:
Net loss per share:
Basic and diluted....................... $(2.32) $(1.03)
Book value per share(1)................... $ 2.60 $ 7.78
Pro Forma
Combined Pro Forma Per Share Data:
Net loss per share:
Basic and diluted....................... $ 3.68 $(2.94)
Book value per share(1)................... N/A $13.60
- - --------
(1) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding at that date.
The combined pro forma book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common
stock outstanding at that date.
8
RISKS RELATING TO THE MERGERS
The mergers involve a high degree of risk. In addition to the other
information contained or incorporated by reference in this document, you should
carefully consider the following risk factors in making your decision regarding
the issuance of shares of our common stock in connection with the mergers.
Technical, operational and personnel-related challenges may prevent the
combined company from successfully integrating the Move.com Group with our
company.
If the mergers are consummated, the combined company will have to integrate
our business with the businesses of the Move.com Group and their subsidiaries.
This integration could be complex, time-consuming and expensive, and may
disrupt the operations of the combined company after the mergers if it is not
completed in a timely and efficient manner. In addition, if the combined
company fails to manage this integration, it may not achieve any of the
anticipated synergies and other benefits of the mergers. Following the mergers,
Homestore.com, the Move.com Group and their respective subsidiaries must
operate as a combined organization utilizing common information and
communication systems, operating procedures, financial controls and human
resource practices. The combined company may encounter the following
difficulties, costs and delays involved in integrating these operations:
. potential incompatibility of business/revenue models;
. potential incompatibility of business cultures;
. potential difficulties in successfully integrating the technologies of
the companies;
. potential difficulties in successfully integrating and retaining the
management teams and employees of the companies;
. potential difficulties in managing a larger, more geographically-
dispersed organization;
. potential difficulties in successfully integrating the product and
services offerings of the companies;
. potential difficulties in managing changing relationships with customers,
strategic partners and other third parties; and
. loss of key employees and diversion of management's attention from other
ongoing business concerns.
In addition, pending the completion of the mergers, there could be
disruption of the businesses of Homestore.com, the Move.com Group and their
respective subsidiaries caused by employee uncertainty, confusion of our
respective customers or strategic partners or interruption of, or a loss of
momentum in, the activities of each of our businesses. These transitional
issues could cause quarterly operating results to be lower than expected.
Significant integration costs and charges may result from the mergers.
The integration of the operations of Homestore.com, the Move.com Group and
their respective subsidiaries may result in significant integration costs.
These costs may include costs for employee relocation or severance and other
compensation charges, facilities closures, relocation and other merger-related
costs. The significant costs of integration associated with the mergers
increase the risk that we will not realize the anticipated benefits of the
mergers. We have not yet determined the extent or the amount of these costs, as
we are in the process of developing an integration plan.
We will incur significant non-cash charges in connection with the mergers that
will reduce our earnings, under generally accepted accounting principles,
immediately and in the future, and the pro forma accounting may be subject to
change.
The mergers will be accounted for as a purchase. The purchase price will be
allocated based on the fair values of the assets acquired and the liabilities
assumed. The excess of cost over fair value of the net tangible
9
assets acquired has been preliminarily allocated to goodwill and other
identifiable intangible assets and will be amortized on a straight-line basis
over estimated lives ranging from 2 to 15 years, with an average life of
5.25 years. This will result in non-cash charges to operations of approximately
$39.1 million per quarter.
These allocations are subject to change pending a final analysis of the fair
values of the assets acquired and liabilities assumed. The impact of the final
valuation of goodwill and other identifiable intangible assets could be
material to the combined company's future operating results.
The completion of the mergers may result in the dilution in future earnings per
share of our stockholders.
The completion of the mergers will not necessarily result in increased
earnings per share of the combined company, taking into consideration the
greater number of shares of our common stock to be outstanding as a result of
the mergers, or a financial condition superior to that which would have been
achieved by Homestore.com on a stand-alone basis. The mergers could fail to
produce the benefits that Homestore.com anticipates, or could have other
adverse effects that Homestore.com currently does not foresee. In this event,
the mergers could result in a reduction of per-share earnings of the combined
company as compared to the per-share earnings that would have been achieved if
the mergers had not occurred.
The failure to complete the mergers could harm our future business and
prospects and our stock price.
We have expended substantial management time and incurred significant costs
in negotiating the mergers. Costs related to the mergers, such as legal and
accounting fees and financial advisor fees, must be paid even if the mergers
are not completed. In addition, we may be required to pay a termination fee
equal to $50.0 million if the mergers are not completed due to stockholder
vote. If the mergers are not completed, this failure could adversely affect our
future business and prospects.
In addition, our current and prospective employees may experience
uncertainty about their future roles with the combined company, which may hurt
our present ability to attract and retain key management, marketing, technical
and administrative personnel. Our reputation and relationships with our
customers could be damaged if the mergers are not completed.
10
THE SPECIAL MEETING
Date, time and place
The accompanying proxy is solicited on behalf of our board of directors for
use at a special meeting of stockholders to be held at a.m., Pacific
Standard Time, on , 2000, at our principal executive office at 30700
Russell Ranch Road, Westlake Village, California 91362. This proxy statement
and the accompanying form of proxy were first mailed to our stockholders on or
about , 2000.
Purpose
At the special meeting, stockholders of Homestore.com at the close of
business on , 2000 will be asked:
1. To approve the issuance of shares of our common stock in connection
with the acquisition of the Move.com Group through the mergers of Move.com
and Welcome Wagon with our wholly-owned subsidiaries.
2. To transact any other business that may properly come before the
meeting or any adjournment or postponement of the meeting.
Record date, outstanding shares and voting rights
Only holders of record of shares of our common stock at the close of
business on , 2000, the record date fixed by our board of directors,
are entitled to notice of and to vote at the meeting. As of the record date,
there were outstanding shares of our common stock held by
approximately holders of record, and this is the only class of stock
outstanding and entitled to vote. Each share of our common stock is entitled to
one vote on each matter submitted for a vote at the meeting.
Quorum requirements and vote required
The representation, in person or by properly executed proxy, of the holders
of a majority of all of the shares of common stock entitled to vote at the
meeting is necessary to constitute a quorum at the special meeting or any
adjournment of the meeting.
The approval of the issuance of shares of our common stock in connection
with the mergers will require the affirmative vote of a majority of the
outstanding shares of common stock present in person or represented by proxy at
the meeting and entitled to vote.
Shares of our common stock, represented in person or by proxy, will be
counted for the purpose of determining whether a quorum is present at the
meeting of stockholders. Shares that abstain from voting will be treated as
shares that are present and entitled to vote at the meeting for purposes of
determining whether a quorum exists, but will not be counted as votes cast. If
a broker or nominee holding stock in "street name" indicates on a proxy that it
does not have discretionary authority to vote as to a particular matter, which
we call a broker non-vote, those shares will be treated as present and entitled
to vote at the special meeting of stockholders for purposes of determining
whether a quorum exists, but will not be counted as votes cast on such matter.
Abstentions and broker non-votes will have no effect on the proposal to issue
shares of our common stock in the mergers.
Stockholders that have voting control over outstanding shares of our common
stock representing approximately [ ]% of the votes that may be cast at the
meeting have irrevocably appointed Cendant as proxy to vote all shares of our
common stock held by them in favor of approval of the issuance of shares of our
common stock in connection with the mergers.
11
Solicitation of proxies
This document is being furnished to our stockholders in connection with the
solicitation of proxies by and on behalf of our board of directors for use at
the meeting, and is accompanied by a form of proxy.
All expenses of our solicitation of proxies, including the cost of
preparing and mailing this document to our stockholders, will be borne by us.
In addition to solicitation by use of mail, proxies may be solicited from our
stockholders by our directors, officers and employees in person or by
telephone, facsimile or other means of communication. Our directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. In
addition, we have engaged ChaseMellon Shareholder Services, L.L.C., a proxy
solicitation firm, to assist in the solicitation of proxies for the special
meeting of stockholders. The firm may solicit proxies in person or by means of
telephone, facsimile or other means of communication. The firm has been
engaged on customary terms and the fees paid to the firm will not be material.
Arrangements will also be made with brokerage houses, custodians, nominees
and fiduciaries for forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such brokerage houses, custodians, nominees
and fiduciaries, and we will reimburse these brokerage houses, custodians,
nominees and fiduciaries for their reasonable expenses incurred in connection
with the forwarding of proxy solicitation materials.
Revocability and voting of proxies
A stockholder giving a proxy may revoke it at any time before it is voted.
Proxies may be revoked by:
. filing with the Secretary of Homestore.com, at or before the taking of
the vote at the meeting, a written notice of revocation bearing a later
date than the proxy;
. duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Homestore.com before the taking of the
vote at the special meeting of stockholders; or
. attending the meeting and voting in person, although attendance at the
meeting will not in and of itself constitute a revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent to
Homestore.com, Inc., 30700 Russell Ranch Road, Westlake Village, California
91362, Attention: John M. Giesecke, Jr., Secretary, or hand delivered to the
Secretary of Homestore.com at or before the taking of the vote at the meeting.
All shares of common stock that are entitled to vote and are represented at
the special meeting of stockholders by properly executed proxies received
prior to or at such meeting, and not revoked, will be voted at the meeting in
accordance with the instructions indicated on the proxies. If no instructions
are indicated, other than in the case of broker non-votes, the proxies will be
voted FOR approval of the issuance of shares of our common stock in connection
with the mergers.
If any other matters are properly presented at the meeting for
consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time and/or place, including, without
limitation, for the purpose of soliciting additional proxies, the persons
named in the enclosed forms of proxy and acting thereunder will have
discretion to vote on these matters in accordance with their best judgment.
No appraisal rights
Holders of our common stock are not entitled to dissenters' rights or
appraisal rights with respect to the mergers.
12
No preemptive rights
Holders of our common stock are not entitled to preemptive rights with
respect to the issuance of shares in the mergers.
Recommendation of the board of directors
Our management and board of directors have determined that the mergers are
in the best interests of Homestore.com and unanimously recommends that you vote
"FOR" approval of the issuance of our common stock in the mergers.
13
THE MERGERS
This section describes the proposed mergers. While we believe that the
description covers the material terms of the mergers and the related
transactions, this summary may not contain all of the information that is
important to you. You should read this entire document, including the annexes,
and the other documents referred to in this document carefully for a more
complete understanding of the mergers.
Background of the mergers
Beginning in June 1999, Stuart Wolff, our Chief Executive Officer, had a
series of conversations over a period of several days with Richard Smith,
Chairman and Chief Executive Officer, Real Estate Division of Cendant,
regarding a potential strategic relationship.
In April 2000, Stuart Wolff and Richard Smith again discussed a potential
business combination between Homestore.com and Cendant.
On May 24, 2000, Stuart Wolff, Peter Tafeen, our Executive Vice President,
Business Development, Sam Katz, Chief Executive Officer, Cendant Internet
Group, and Richard Smith held a conference call during which they discussed a
potential business combination between Homestore.com and Cendant.
On May 30, 2000, Stuart Wolff, Peter Tafeen, David Rosenblatt, our Senior
Vice President and General Counsel, and Joe Shew, our Vice President, Finance,
met with Sam Katz, Richard Smith and Eric J. Bock, Senior Vice President and
Corporate Secretary of Cendant, regarding preliminary due diligence between
Homestore.com and Cendant. General terms regarding the business combination
were also discussed.
Throughout the month of June, a series of conference calls were held between
our senior management and Cendant to discuss various issues regarding the
potential business combination between the two companies.
On June 26 and 27, 2000, various members of senior management of
Homestore.com and other personnel of Homestore.com and Cendant conducted
business, legal, operational and financial due diligence.
On July 6, 2000, Stuart Wolff, Joe Shew, Peter Tafeen, David Rosenblatt and
John Giesecke, Jr., our Chief Financial Officer, Executive Vice President and
Secretary, met with Sam Katz, Richard Smith, Eric J. Bock and other Cendant
personnel to discuss various terms of a potential business combination.
On July 7 and July 11, 2000, conference calls were held between the senior
management of both companies to further discuss various terms of a potential
business combination.
Throughout the latter half of July and the first half of August, conference
calls were held every two or three days between senior management of both
companies to discuss various terms of a potential business combination.
In late August 2000, a draft merger agreement was distributed to all
parties. The terms of the merger agreement, as well as the other related
agreements, were negotiated by the parties and their legal counsel. During this
period, Homestore.com and its legal and financial advisors conducted additional
business, legal and financial due diligence reviews of the Move.com Group.
On September 11 and 12, 2000, John Giesecke, Peter Tafeen, Joe Shew, David
Rosenblatt and other Homestore.com personnel, Sam Katz and other Cendant
personnel, and representatives of Morgan Stanley held various due diligence
meetings.
From the middle of September through the middle of October, various members
of senior management and other Homestore.com personnel, Cendant personnel and
representatives of Morgan Stanley met to discuss operations, technology,
website operations and other aspects of the business of the Move.com Group.
On September 19 and 20, 2000, Stuart Wolff and Richard Smith held conference
calls to further discuss the terms of a potential business combination.
14
On September 25, 2000, Stuart Wolff and Richard Smith met to further discuss
various terms of a potential business combination.
On September 28, 2000, John Giesecke, Joe Shew and other Homestore.com
personnel met with Cendant and Move.com personnel to conduct due diligence and
business strategy reviews.
On October 12, 2000, our board held a meeting to discuss the general terms
of the proposed transaction. In addition, Morgan Stanley discussed the proposed
transaction from a financial perspective.
On October 12, 2000, the Cendant board held a special meeting and approved
the mergers and the related transactions.
On four separate occasions beginning in mid September and ending in late
October, Homestore's in-house and outside counsel met with Cendant's in-house
and outside counsel to negotiate terms of the various agreements to be entered
into by the parties.
On October 25, 2000, our board held a special meeting, at which our
management, legal and financial advisors reported on their due diligence
reviews of the Move.com Group. Morgan Stanley & Co. Incorporated then made a
presentation to our board of directors regarding the financial analyses it had
performed in connection with its opinion and stated orally that it was prepared
to render, and subsequently did provide, its written opinion as of October 25,
2000 as to the fairness to Homestore.com of the consideration to be paid by
Homestore.com pursuant to the merger agreement.
Late in the evening on October 26, 2000, the parties executed the merger
agreement. Prior to the opening of the financial markets on October 27, the
parties announced the mergers.
Our reasons for the mergers
After careful consideration, our board of directors has unanimously
concluded that the merger agreement is advisable, and that the terms of the
merger agreement and the mergers are fair to and in the best interests of us
and our stockholders, and unanimously recommends that our stockholders approve
the issuance of shares of our common stock in the mergers. Our board of
directors approved the merger agreement and the mergers because it determined
that the combined company would have the potential to realize a stronger
competitive position and improved long-term operating and financial results.
This decision was based upon a number of potential benefits of the mergers that
our board of directors believes will contribute to the success of the combined
company, including the following:
. our board's judgment that the combination of the two companies would
enhance our business model by extending existing relationships with
Cendant's real estate franchise systems, increasing the users of our
websites and augmenting our rental listing products for our customers;
. our board's judgment that the two companies have significant potential to
reduce costs across multiple areas by eliminating redundancy and reducing
fees paid to third parties;
. our board's judgment that the mergers would increase avenues for
advertising revenue;
. our board's judgment that the mergers would open new revenue
opportunities through the business activities of Welcome Wagon, including
cross-selling opportunities and the strengthening of customer
relationships through direct mail solicitations;
. our board's judgment that combining established customer relationships of
both companies would benefit the long-term growth of our business;
. our board's judgment that the total consideration to be paid in the
mergers was fair from a financial point of view;
. the limitations on Cendant's purchases and sales of our common stock and
the voting restrictions on the stock Cendant receives in the mergers,
both of which our board believes will promote stability in the market for
our stock and will reduce the effects of the mergers on the voting rights
of existing stockholders;
15
. the combined company's potential to use the extensive sales force, strong
service organization and developed customer bases of the combined company
to develop a national and international presence in sales, support and
alliances; and
. the long-term relationships that the combined company would have with
Cendant and its affiliates and franchisees.
In identifying these benefits and evaluating the mergers, our board of
directors reviewed a number of factors and sources of information, including
the following:
. historical information concerning Homestore.com, Cendant, the Move.com
Group and their respective businesses, financial performance, condition,
operations, technology, management and position in the industry, and
information and evaluations regarding the two companies' strengths,
weaknesses and prospects, both before and after giving effect to the
mergers;
. the reports and presentations of our legal counsel, Fenwick & West LLP
and Wilson Sonsini Goodrich & Rosati, Professional Corporation, regarding
the terms of the transaction, the oral and written presentations of our
financial advisor, Morgan Stanley & Co. Incorporated, and Morgan
Stanley's opinion, which is attached to this document as Annex B, to the
effect that, based upon and subject to various considerations, as of
October 25, 2000, the total consideration of shares of our common stock
to be issued pursuant to the merger agreement was fair from a financial
point of view to Homestore.com;
. current financial market conditions and historical market prices,
volatility and trading information for our common stock, and various
factors that might affect the combined company's operating results and
the market value of our common stock in the future;
. the alternatives available to us, including acquiring other entities,
entering into commercial relationships without a business combination,
and the history of contacts with other parties concerning their possible
interest in a business combination with us; and
. the terms of the merger agreement and related agreements, by themselves
and in comparison to the terms of other transactions, and the intensive
negotiations between us and Cendant, including negotiations relating to
the details of the conditions to the parties' obligations to complete the
mergers, the restrictions on voting rights and purchases and sales by
Cendant of our common stock, the parties' termination rights, the
termination fee that we may be required to pay Cendant in certain
circumstances and the support agreements.
Our board of directors also identified and considered a number of risks and
uncertainties in its deliberations concerning the mergers, including the
following:
. the risk that the integration of the two companies would be difficult and
costly to achieve, which would jeopardize the revenue and cost synergies
necessary to create value for our stockholders;
. the fact that the total consideration is fixed and will not change with
increases or decreases in the market price of either company's stock
before the closing of the mergers, and the possibility that the dollar
value of a share of our common stock at the closing of the mergers may be
more or less than the dollar value of a share of our common stock at the
signing of the merger agreement;
. the risk that the potential benefits sought in the mergers may not be
fully realized, if at all;
. the possibility that the mergers may not be consummated and the effect of
the public announcement of the mergers on our sales, customer relations
and operating results, our relationships with industry groups and our
ability to attract and retain key management, marketing and technical
personnel;
. the risk that despite the efforts of the combined company, key technical,
marketing and management personnel might not choose to remain employed by
the combined company;
. the fact that pursuant to the merger agreement, we are required to obtain
Cendant's consent before we can take certain actions between the signing
and the closing of the mergers; and
16
. various other risks associated with the businesses of Homestore.com,
Cendant, the Move.com Group and the combined company and the mergers
described under the section entitled "Risks Relating to the Mergers"
beginning on page 9 of this document.
Our board of directors concluded, however, that many of these risks could be
managed or mitigated by us or by the combined company or were unlikely to have
a material impact on the mergers or the combined company, and that, overall,
the risks, uncertainties, restrictions and potentially negative factors
associated with the mergers were outweighed by the potential benefits of the
mergers.
The above discussion of information and factors considered and given weight
by our board of directors is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the merger,
our board of directors did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determinations and recommendations.
Our board unanimously recommends that you vote "FOR" approval of the
issuance of our common stock in the mergers.
Opinion of our financial advisor
Under an engagement letter dated August 17, 2000, we retained Morgan Stanley
to provide us with financial advice and assistance in connection with the
mergers. Our board of directors selected Morgan Stanley to act as our financial
advisor based on Morgan Stanley's qualifications, expertise and reputation and
its knowledge of our business and affairs. At the meeting of our board of
directors on October 25, 2000, Morgan Stanley rendered its oral opinion,
subsequently confirmed in writing, to the effect that, as of October 25, 2000
and based upon and subject to the various considerations set forth in the
opinion, the consideration to be paid by us under the merger agreement was fair
from a financial point of view to Homestore.com.
The full text of the written opinion of Morgan Stanley, dated as of October
25, 2000, is attached as Annex B to this document. The opinion sets forth,
among other things, the assumptions made, procedures followed, matters
considered and limitations on the scope of the review undertaken by Morgan
Stanley in rendering its opinion. We urge you to read the entire opinion
carefully. Morgan Stanley's opinion is directed to our board of directors and
addresses only the fairness of the consideration to be paid by Homestore.com
pursuant to the merger agreement from a financial point of view as of the date
of the opinion. It does not address any other aspects of the mergers and does
not constitute a recommendation to any holder of our common stock as to how to
vote at the special meeting of stockholders. The summary of the opinion of
Morgan Stanley set forth in this document is qualified in its entirety by
reference to the full text of the opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things:
. reviewed certain publicly available financial statements and other
information of Move.com, Welcome Wagon, Cendant and Homestore.com;
. reviewed certain internal financial statements and other financial and
operating data concerning Move.com and Welcome Wagon prepared by the
management of Move.com, Welcome Wagon and Cendant;
. reviewed certain financial projections prepared by the management of
Move.com, Welcome Wagon and Cendant;
. reviewed certain publicly available financial projections from equity
research analysts reports of Cendant related to Move.com;
. discussed the past and current operations and financial condition and
the prospects of Move.com and Welcome Wagon, including information
relating to certain strategic, financial and operational benefits
anticipated from the mergers, with senior executives of Move.com,
Welcome Wagon and Cendant;
17
. discussed the past and current operations and financial condition and
the prospects of Homestore.com, including information relating to
certain strategic, financial and operational benefits anticipated from
the mergers, with senior executives of Homestore.com;
. reviewed Homestore.com's analysis of the potential impacts of the
mergers on certain financial projections related to Move.com and Welcome
Wagon as prepared by the management of Move.com, Welcome Wagon and
Cendant.
. reviewed certain publicly available financial projections from equity
research analysts reports of Homestore.com;
. discussed certain financial projections related to Homestore.com
prepared by Homestore.com management;
. reviewed the reported prices and trading activity for the shares of
Homestore.com common stock;
. reviewed the reported prices and trading activity for the shares of
Cendant common stock;
. reviewed the pro forma impact of the mergers on certain of the financial
ratios of Homestore.com;
. compared the financial performance of Move.com, Welcome Wagon and
Homestore.com with that of certain other comparable publicly-traded
companies;
. reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
. reviewed and discussed with our senior management the strategic
rationale for the mergers;
. reviewed the draft merger agreement and certain related documents; and
. performed such other analyses and considered such other factors as
Morgan Stanley has deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by Morgan Stanley for
the purposes of its opinion. With respect to the financial and operating data
and estimates of the strategic, financial and operational benefits anticipated
from the mergers, Morgan Stanley assumed that they were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
prospects of Homestore.com, Move.com and Welcome Wagon, respectively. Morgan
Stanley relied upon the assessment by the managements of Homestore.com,
Move.com and Welcome Wagon of their ability to retain key employees of Move.com
and Welcome Wagon. Morgan Stanley also relied upon, without independent
verification, the assessment by the management of Homestore.com, Move.com and
Welcome Wagon of: (i) the strategic and other benefits expected to result from
the mergers; (ii) Move.com and Welcome Wagon's technologies, products and
intellectual property; (iii) the timing and risks associated with the
integration of Homestore.com, Move.com and Welcome Wagon; and (iv) the validity
of, and risks associated with, Homestore.com, Move.com and Welcome Wagon's
existing and future technologies, products and intellectual property.
Morgan Stanley has not made any independent valuation or appraisal of the
assets, liabilities, technologies and intellectual property of Move.com and
Welcome Wagon, nor has Morgan Stanley been furnished with any such appraisals.
In addition, Morgan Stanley assumed that the mergers will be treated as tax-
free reorganizations under the Internal Revenue Code of 1986 and will be
consummated in accordance with the terms set forth in the merger agreement.
Morgan Stanley's opinion is necessarily based on financial, economic, market
and other conditions as in effect on, and the information made available to it
as of, the date of its opinion.
The following is a brief summary of the material analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion letter dated October 25, 2000. Some of these summaries of
financial analyses include information presented in tabular format. In order to
fully understand the financial analyses used by Morgan Stanley, the tables must
be read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
18
Relative Contribution Analysis. Morgan Stanley analyzed the pro forma
contribution of Move.com and Homestore.com to the combined company assuming
consummation of the merger. The Move.com projected financial metrics were based
on estimates by the management of Move.com and certain revenue and cost
reduction synergies estimated by Homestore.com's management. The Homestore.com
projected financial metrics such as revenue and earnings before interest, tax
and amortization (EBITDA) were based on equity research analysts' estimates.
The analysis showed, among other things, the following:
% Pro Forma
Contribution
----------------------
Homestore.com Move.com
------------- --------
Projected Calendar Year--2001
Revenue................................................ 79% 21%
EBITA.................................................. 45% 55%
Projected Calendar Year--2002
Revenue................................................ 75% 25%
EBITA.................................................. 40% 60%
Morgan Stanley compared the estimated range of revenue and EBITA
contribution percentages of Move.com to the implied fully converted pro forma
ownership percentage of 21% implied by the merger agreement as of October 25,
2000. Morgan Stanley observed that the estimated range of revenue and EBITA
contribution percentages of Move.com were equal to or higher than the 21% pro
forma ownership percentage. Morgan Stanley further observed that the estimated
range of revenue and EBITA contribution percentages was higher when also
including Welcome Wagon compared to the contribution percentages excluding
Welcome Wagon.
Peer Group Analysis. To provide comparative market information, Morgan
Stanley reviewed selected historical and projected financial statistics and the
resulting multiples for Move.com and Welcome Wagon to corresponding data and
multiples of selected Internet and direct marketing companies whose securities
are publicly traded. Morgan Stanley divided the Internet peer group into
different sectors and within each sector classified companies as Tier I and
Tier II companies. Morgan Stanley observed that Tier II companies traded at
lower multiples compared to Tier I companies. The Internet peer group companies
included:
Internet Companies
Portal E-Commerce E-Travel Content Security B2B Enablers Job Sites
- - --------------- ------------------ --------------- -------------- -------------- ------------- -------------
Tier I
- - ------
America Online, Amazon.com, Inc. Priceline.com CNET VeriSign, Inc. Ariba, Inc. TMP Worldwide
Inc. Incorporated Networks, Inc. Inc.
Yahoo!, Inc.
Tier II
- - -------
At Home barnesandnoble.com Expedia, Inc Women.com Entrust Commerce One, HotJobs.com,
Corporation, inc. Travelocity.com Networks, Inc. Technologies Inc. Ltd.
referred to as Inc. Inc.
Excite@
Home
The direct marketing peer group companies included:
Direct Marketing Companies
Information Services
- - --------------------
. Axciom Corporation
. Harte-Hanks, Inc.
19
Direct Mail, Coupon & Inserts
- - -----------------------------
. ADVO, Inc.
. Catalina Marketing Corporation
. HA-LO Industries, Inc.
. Valassis Communications, Inc.
No company utilized in the peer group comparison analysis as a comparison is
identical to Homestore.com, Move.com or Welcome Wagon. In evaluating the peer
groups, Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Homestore.com, Move.com
or Welcome Wagon. These factors include, among others, the impact of
competition on the business of Homestore.com, Move.com and Welcome Wagon and
the industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of Homestore.com, Move.com and
Welcome Wagon or the industry or in the financial markets in general.
Analysis of Selected Precedent Transactions. To provide comparative
transaction information, Morgan Stanley reviewed selected historical and
projected financial statistics and the resulting multiples for Move.com and
Welcome Wagon to corresponding data and multiples of selected Internet and
marketing transactions. The Internet precedent transactions included:
Internet Transactions
- - ---------------------
. ZDNet & Ziff-Davis Inc./CNET Networks, Inc.
. HomeGrocer.com, Inc./Webvan Group, Inc.
. Lycos, Inc./Terra Networks, S.A.
. Flycast Communications Corporation/CMGI, Inc.
. ConsumerNet/24/7 Media, Inc.
. Abacus Direct Corporation/DoubleClick Inc.
. MovieFone, Inc./America Online, Inc.
The direct marketing precedent transactions included:
Direct Marketing Transactions
- - -----------------------------
. United Advertising Publications, Inc./Trader Publishing, Inc.
. Snyder Communications, Inc./Havas Advertising, S.A.
. Big Flower Holdings, Inc./Thomas H. Lee Company
. Neodata Corporation/Electronic Data Systems Corporation
. Heritage Media Corporation/News Corporation Limited
. DiMark, Inc./Harte-Hanks, Inc.
No company utilized in the precedent transaction analysis as a comparison is
identical to Homestore.com, Move.com or Welcome Wagon. In evaluating the
precedent transactions, Morgan Stanley made judgments and assumptions with
regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Homestore.com, Move.com or Welcome Wagon. These factors include, among others,
the impact of competition on the business of Homestore.com, Move.com and
Welcome Wagon and the industry generally, industry growth and the absence of
any adverse material change in the financial condition and prospects of
Homestore.com, Move.com and Welcome Wagon or the industry or in the financial
markets in general.
"Sum-of-Parts" Valuation. In conducting its analysis, Morgan Stanley applied
financial multiples to management estimates of various financial performance
metrics for Move.com and Welcome Wagon, excluding synergies (Management Case).
Morgan Stanley then estimated the value of Move.com and Welcome Wagon by
calculating the implied equity value of each of the three components of value:
Move.com, Welcome Wagon and Cendant's commitment to purchase professional
products from us and other contractual arrangements.
20
Morgan Stanley undertook the valuation using two methodologies: a standalone
trading valuation, which values Move.com and Welcome Wagon as if they were
publicly-traded entities and an acquisition valuation, which values Move.com
and Welcome Wagon as if they were to be acquired and incur a change of control.
To determine the trading valuation, Morgan Stanley valued Move.com by
applying a range of revenue multiples ranging from 50% to 75% of
Homestore.com's calendar year 2000 and 2001 revenue multiples as projected by
equity research analysts. Morgan Stanley observed that Homestore.com is
considered a Tier I Internet company and Move.com is considered a Tier II
Internet company in the real estate sector. Morgan Stanley applied a discount
to Homestore.com's multiple because it observed that Tier II Internet companies
generally trade at lower multiples compared to Tier I Internet companies. To
value Welcome Wagon, Morgan Stanley used multiples based on the results of the
Peer Group Analysis of selected direct marketing companies described above. To
determine the value of Cendant's commitment to purchase professional products
from us and other product synergies, Morgan Stanley performed an analysis of
the net present value of the calendar year 2001 and 2002 projected cash flows
and calculated a terminal value for the period thereafter. Based on a discount
rate of 20% and a terminal forward revenue multiple of 3.0x, Morgan Stanley
calculated an implied equity value of $176 million for these commitments and
product synergies.
To determine the acquisition valuation, Morgan Stanley valued Move.com by
applying a range of revenue multiples from 75% to 100% of our calendar year
2000 and 2001 revenue multiples as projected by equity research analysts. To
value Welcome Wagon, Morgan Stanley selected a range of revenue and EBITA
multiples based on precedent transactions of selected direct marketing
companies. To determine the value of Cendant's commitment to purchase
professional products from us and other contractual arrangements, Morgan
Stanley performed the same analysis performed for the trading valuation.
Morgan Stanley estimated the following:
Business Segment
Trading Valuation Acquisition Valuation
----------------- ---------------------
Multiple Range Multiple Range
----------------- ---------------------
Move.com
Calendar Year 2000 estimated
revenue............................. 5.3x--7.9x 7.9x--10.5x
Calendar Year 2001 estimated
revenue............................. 3.6x--5.4x 5.4x--7.2x
Welcome Wagon
Calendar Year 2000 estimated
revenue............................. 1.0x--2.0x 1.5x--2.5x
Calendar Year 2001 estimated
revenue............................. 1.0x--2.0x N/A
Calendar Year 2001 EBITA............. 7.0x--11.0x 8.0x--12.0x
Combined Valuation of the Acquired Assets
Implied Equity Value ($MM)
---------------------------------------
Trading Valuation Acquisition Valuation
----------------- ---------------------
Move.com............................... $293--$440 $440--$586
Welcome Wagon.......................... $60--$112 $74--$119
Cendant's commitments to purchase
professional products and other
contractual arrangements.............. $176--$176 $176--$176
Total implied value range.............. $530--$728 $690--$881
Morgan Stanley observed that the implied combined equity transaction value
of the assets acquired of $662 million as of October 24, 2000 was within the
estimated value range of the trading valuation and below the estimated value
range of the acquisition valuation.
21
Pro Forma Combination Analysis. Morgan Stanley analyzed the pro forma impact
of the merger with Move.com on Homestore.com's projected revenue per share and
earnings per share for the calendar years 2001 and 2002. This analysis was
based on revenue and earnings estimates from equity research analysts for
Homestore.com, estimates prepared by the management of Move.com and certain
revenue and cost reduction synergies estimated by Homestore.com's management
for Move.com, and the Homestore.com closing share price as of October 24, 2000.
Morgan Stanley observed that:
Financial Statistic
Calendar Year 2001 Calendar Year 2002
------------------ ------------------
Homestore.com standalone
Revenue per share...................... $3.40 $4.06
Cash earnings per share, defined as
earnings excluding goodwill
amortization and one time charges..... $0.32 $0.51
Pro forma
Revenue per share...................... $3.49 $4.38
Cash earnings per share, defined as
earnings excluding goodwill
amortization and one-time charges..... $0.37 $0.89
Morgan Stanley compared the revenue per share and cash earnings per share of
Homestore.com standalone to the revenue per share and cash earnings per share
on a pro forma basis. Morgan Stanley observed that on a pro forma basis the
revenue per share and cash earnings per share were higher than those in the
Homestore.com standalone case. Morgan Stanley further observed that the revenue
per share and cash earnings per share were higher when also including Welcome
Wagon compared to the pro forma analysis excluding Welcome Wagon.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any analysis
or factor it considered. Morgan Stanley believes that selecting any portion of
its analyses, without considering all analyses as a whole, would create an
incomplete view of the process underlying its analyses and opinion. In
addition, Morgan Stanley may have given various analyses and factors more or
less weight than other analyses and factors, and may have deemed various
assumptions more or less probable than other assumptions. As a result, the
ranges of valuations resulting from any particular analysis described above
should not be taken to be Morgan Stanley's view of the actual value of
Move.com, Welcome Wagon or Homestore.com. In performing its analyses, Morgan
Stanley made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters. Many of these assumptions
are beyond the control of Move.com, Welcome Wagon or Homestore.com. Any
estimates contained in Morgan Stanley's analyses are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates.
Morgan Stanley conducted the analyses described above solely as part of its
analysis of the fairness of the consideration paid by us under the merger
agreement from a financial point of view to Homestore.com and in connection
with the delivery of its opinion to our board of directors. These analyses do
not purport to be appraisals or to reflect the prices at which shares of common
stock of Homestore.com or Cendant might actually trade.
The consideration paid pursuant to the merger agreement was determined
through arm's-length negotiations between Homestore.com and Cendant and was
approved by Homestore.com's board of directors. Morgan Stanley provided advice
to us during these negotiations. Morgan Stanley did not, however, recommend any
specific consideration to us or that any specific consideration constituted the
only appropriate consideration for the combination.
22
In addition, Morgan Stanley's opinion and its presentation to our board of
directors was one of many factors taken into consideration by our board of
directors in deciding to approve the mergers. Consequently, the analyses as
described above should not be viewed as determinative of the opinion of our
board of directors with respect to the consideration paid or of whether our
board of directors would have been willing to agree to a different
consideration.
Our board of directors retained Morgan Stanley based upon Morgan Stanley's
qualifications, experience and expertise. Morgan Stanley is an internationally
recognized investment banking and advisory firm. Morgan Stanley, as part of its
investment banking and financial advisory business, is continuously engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate, estate and other purposes. In the past, Morgan
Stanley and its affiliates have provided financing services for Homestore.com
and Cendant and have received fees for the rendering of these services. Morgan
Stanley acted as lead underwriter in our initial public offering in 1999 and in
our follow-on public offering in 2000, and was compensated for such services in
the form of customary underwriting commissions and discounts. In the ordinary
course of Morgan Stanley's trading and brokerage activities, Morgan Stanley or
its affiliates may at any time hold long or short positions, may trade or
otherwise effect transactions, for its own account or for the account of
customers in the equity and other securities of Homestore.com, Cendant or any
other parties involved in the mergers.
Under the engagement letter, dated August 17, 2000, Morgan Stanley provided
financial advisory services and a financial fairness opinion in connection with
the mergers, and we agreed to pay Morgan Stanley a customary fee and have also
agreed to reimburse Morgan Stanley for its expenses incurred in performing its
services. In addition, we have agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities under the
federal securities laws, related to or arising out of Morgan Stanley's
engagement.
Closing and effectiveness of the mergers
The mergers will be completed when all of the conditions to closing the
mergers are satisfied or waived, including approval of the issuance of our
common stock in the mergers by our stockholders. The mergers will become
effective upon the filing of a certificate of merger with the Secretary of
State of the State of Delaware in connection with the Move.com merger, and a
certificate of merger with the Secretary of State of the State of New York in
connection with the Welcome Wagon merger.
Structure of the mergers
Metal Acquisition Corp., a newly formed and wholly-owned subsidiary of
Homestore.com, will merge with and into Move.com, with Move.com to survive the
merger. As a result, the separate corporate existence of Metal Acquisition
Corp. will cease and Move.com will survive the merger as a wholly-owned
subsidiary of Homestore.com.
WW Acquisition Corp., a newly formed and wholly-owned subsidiary of
Homestore.com, will merge with and into Welcome Wagon, with Welcome Wagon to
survive the merger. As a result, the separate corporate existence of WW
Acquisition Corp. will cease and Welcome Wagon will survive the merger as a
wholly-owned subsidiary of Homestore.com.
Merger consideration
Homestore.com will issue to Cendant, the sole stockholder of Move.com and
Welcome Wagon, an aggregate of up to 26,275,602 shares of common stock. This
number also includes shares of Homestore.com common stock to be issued upon
exercise of options to purchase shares of Move.com common stock assumed by
Homestore.com in the mergers and shares to be issued upon exercise of stock
options to be granted.
23
Accounting treatment of the mergers
The mergers will be accounted for as a purchase, in accordance with
generally accepted accounting principles. After the mergers, the results of
operations of the Move.com Group will be included in our consolidated financial
statements. The purchase price will be allocated based on the fair values of
the assets acquired and the liabilities assumed. The excess of cost over fair
value of the net tangible assets acquired has been preliminarily allocated to
goodwill and other identifiable intangible assets and will be amortized by
charges to operations under generally accepted accounting principles. These
allocations will be made based upon valuations and other studies that have not
yet been finalized.
Regulatory filings and approvals required to complete the mergers
The mergers are subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act, or HSR, which prevents some transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade
Commission and the appropriate waiting periods are terminated or expire. We
have filed the required information and materials with the Department of
Justice and the Federal Trade Commission, and the Department of Justice
currently is reviewing the mergers. The requirements of the HSR will be
satisfied if the mergers are completed within one year from the termination or
expiration of the waiting period.
At any time before or after the closing of the mergers, the Antitrust
Division of the Department of Justice or the Federal Trade Commission could
challenge the mergers and take action under the antitrust laws. Other persons
could take action under the federal antitrust laws, including seeking to enjoin
the mergers. Additionally, at any time before or after the completion of the
mergers, even if the applicable waiting period was terminated, a state or
private person could take action under federal and/or state antitrust laws.
Challenges to the mergers could be made, and if a challenge is made, we may not
prevail.
We are not aware of any other material governmental or regulatory approval
required for closing the mergers, other than compliance with the applicable
corporate law of Delaware and New York.
24
THE MERGER AGREEMENT
This section of document describes the merger agreement. While we believe
that the description below covers the material terms of the merger agreement,
this summary may not contain all of the information that is important to you. A
copy of this agreement is attached as Annex A to this document and we urge you
to read it carefully.
Closing
The closing of the mergers will take place as soon as practicable after the
special meeting and no later than the second business day after all conditions
to closing under the merger agreement are satisfied or waived.
Conditions to the mergers
The obligations of Cendant and the Move.com Group and Homestore.com to
effect the mergers are subject to a number of conditions, including:
. the issuance of shares of our common stock under the merger agreement
shall have been approved by the requisite vote of our stockholders;
. the absence of any temporary restraining order, preliminary or permanent
injunction or other order issued by any court or competent jurisdiction
or other legal or regulatory restraint or prohibition preventing the
consummation of either merger; and
. all applicable waiting periods under the HSR shall have expired or been
terminated and all required material foreign antitrust approvals shall
have been obtained.
Cendant's obligation to complete the mergers is subject to the satisfaction
or waiver of each of the following conditions that have not yet been satisfied:
. one of our officers shall certify that the representations and warranties
of us and our merger subsidiaries contained in the merger agreement shall
have been true and correct in all material respects as of the date of the
merger agreement, with limited exceptions;
. one of our officers shall certify that we and our merger subsidiaries
have performed or complied with all agreements and covenants required by
the merger agreement to be performed or complied with by us and our
merger subsidiaries;
. since the date of the merger agreement until the expiration or
termination of any applicable waiting periods under the HSR, there shall
not have occurred a material adverse effect with respect to us;
. we shall have executed the various related agreements and those
agreements shall remain in full force and effect;
. Cendant shall have received an opinion from its counsel, Skadden, Arps,
Slate, Meagher & Flom LLP, in form and substance reasonably satisfactory
to it, that the mergers will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code; and
. Officers of us and our merger subsidiaries shall have executed and
delivered tax certificates to Skadden to enable Skadden, Arps, Slate,
Meagher & Flom LLP to render the opinion referenced above.
Our obligation to complete the mergers is subject to the satisfaction or
waiver of each of the following conditions that have yet been satisfied:
. one of Cendant's officers shall certify that the representations and
warranties of Cendant and the Move.com Group and contained in the merger
agreement shall have been true and correct in all material respects as of
the date of the merger agreement, with limited exceptions;
25
. one of Cendant's officers shall certify that Cendant and the Move.com
Group have performed or complied with all agreements and covenants
required by the merger agreement to be performed or complied with by
them;
. since June 30, 2000 until the expiration or termination of any applicable
waiting periods under the HSR, Cendant and the Move.com Group shall not
have suffered any material adverse effect; and
. Cendant shall have executed the various related agreements and those
agreements shall remain in full force and effect.
Representations and warranties
The merger agreement contains customary representations and warranties of
the parties, including the merger subsidiaries, regarding aspects of their
respective businesses, financial condition, structure and other facts pertinent
to the mergers.
Cendant representations and warranties
Cendant made representations and warranties on behalf of the Move.com Group
that relate to, among other things, the following:
. their corporate organization, good standing and qualification to do
business;
. their certificate of incorporation and bylaws;
. their capitalization;
. their subsidiaries;
. their authority to enter into the merger agreement and the related
commercial agreements;
. their audited combined financial statements;
. the absence of any undisclosed liabilities;
. changes in their businesses since March 31, 2000, June 30, 2000 and
September 30, 2000;
. their taxes;
. restrictions on their business activities;
. title to the properties they own and lease;
. their intellectual property, intellectual property that they use and
infringement of other intellectual property;
. their agreements, contracts and commitments;
. interested party transactions;
. their possession of and compliance with material permits, licenses and
consents from governmental entities required to conduct their businesses;
. litigation to which they are a party;
. their insurance;
. their minute books;
. their hazardous materials activities and environmental liabilities;
. brokers' and finders fees in connection with the mergers;
. their employee benefit plans, compliance with employment laws and
employee relations;
26
. their compliance with laws;
. their bank accounts;
. the absence of any other merger or similar agreements; and
. Move.com's ownership interests in Liberty Digital, Inc.
In addition to the representations and warranties set forth above, Cendant
made representations and warranties on behalf of Cendant Membership Services
Holdings, Inc., a wholly-owned subsidiary of Cendant and the sole stockholder
of each of Move.com and Welcome Wagon, with respect to the following:
. its capitalization; and
. its authority to enter into the merger agreement and the related
agreements.
Cendant also made representations on its own behalf relating to, among other
things, the following:
. its investment in our common stock it is to receive in the mergers; and
. its representations and warranties do not contain any untrue statement of
a material fact and did not omit to state any material fact necessary in
order to make the statements contained in such representations and
warranties misleading.
Homestore.com representations and warranties
We, Metal Acquisition Corp. and WW Acquisition Corp. made representations
and warranties that relate to, among other things, the following:
. our respective corporate organization, good standing and qualification to
do business;
. our respective authority to enter into the merger agreement and the
related agreements;
. our respective authorization, execution and delivery of the merger
agreement;
. our respective capitalization;
. our filings with the SEC, including the financial statements included in
documents filed with the SEC;
. the absence of any undisclosed liabilities;
. the absence of any condition or event that had a material adverse effect
on our business subsequent to December 31, 1999;
. our taxes;
. the agreements, contracts and commitments of us and our subsidiaries;
. the absence of any related party transactions other than those disclosed
in our SEC filings;
. our hazardous materials activities and environmental liabilities;
. brokers' and finders fees in connection with the mergers; and
. our respective representations and warranties do not contain any untrue
statement of a material fact and did not omit to state any material fact
necessary in order to make the statements contained in such
representations and warranties misleading.
The representations and warranties in the merger agreement are complicated
and are not easily summarized. We urge you to read the sections of the merger
agreement entitled "Representations and Warranties of the Stockholder" and
"Representations and Warranties of Parent, Move.com Merger Sub and WW Merger
Sub" carefully.
27
Homestore.com's, the Move.com Group's and Cendant's conduct of their businesses
before the closing of the mergers
The Move.com Group's and Cendant's conduct of their business
Move.com, Welcome Wagon and Cendant have agreed that until the closing of
the mergers or termination of the merger agreement, they will
. carry on the business in the usual, regular and ordinary course in
substantially the same manner as previously conducted,
. pay their debts and taxes when due,
.perform other obligations when due, and
. use all reasonable efforts to
-- preserve intact their present business organization,
-- keep available the services of their present officers and key
employees, and
-- preserve their relationships with those having business dealings with
the business.
The business is defined in the merger agreement to be the business conducted
by Move.com, Welcome Wagon, RentNet, Inc. and HouseNet, Inc., and all of their
respective subsidiaries and business divisions, including, without limitation,
SeniorHousingNet, CorporateHousingNet, Movedotcom (U.K.) Limited and
SelfStorageNet. The Move.com Group and Cendant have further agreed that, except
as contemplated by the merger agreement, they will not do the following without
our prior written consent:
. enter into any commitment, activity or transaction that would have been
an exception to their representations and warranties in the merger
agreement had the commitment, activity or transaction occurred on or
after March 31, 2000, June 30, 2000 or August 31, 2000, as the case may
be, and prior to the date of the merger agreement;
. transfer to Cendant or any of Cendant's subsidiaries, other than
Move.com, Welcome Wagon or any of their subsidiaries, any of Move.com's
intellectual property or any other asset other than (1) cash, except for
proceeds from Move.com's sale of shares of Liberty Digital, and (2)
assets relating to National Home Connection, Metro Rent or Getko Canada,
or enter into any agreement with Cendant or any of Cendant's
subsidiaries, other than Move.com, Welcome Wagon or any of their
subsidiaries;
. transfer to Cendant or any of Cendant's subsidiaries, other than
Move.com, Welcome Wagon or any of their subsidiaries, any employee
engaged in the business;
. hire or terminate any employees other than for cause or encourage any
employees to resign from Move.com, Welcome Wagon or any of their
subsidiaries;
. enter into or amend a marketing, distribution, development or similar
agreement that provides for a right of first refusal, right of first
negotiation, or exclusive, preferential or "most favored nation"
placement or any similar rights, with limited exceptions;
. adversely amend or otherwise modify, other than in the ordinary course of
business, or violate the material terms of any agreement described in
Cendant's disclosure schedule to the merger agreement;
. commence or settle any litigation involving claims or payments in excess
of $100,000 or which seeks equitable relief, with limited exceptions;
. declare, set aside or pay any dividends on or make any other distribution
of the capital stock of Move.com, Welcome Wagon or any of their
subsidiaries;
. split, combine or reclassify any of the capital stock of Move.com,
Welcome Wagon or any of their subsidiaries;
28
. issue or authorize the issuance of any other securities in respect of or
in substitution for shares of the capital stock of Move.com, Welcome
Wagon or any of their subsidiaries;
. repurchase, redeem or otherwise acquire any shares of the capital stock
of Move.com, Welcome Wagon or any of their subsidiaries, or options,
warrants or other rights exercisable for such capital stock;
. issue, sell or grant any shares of Move.com capital stock, securities
convertible into or exchangeable for Move.com capital stock or options,
warrants, securities or other rights to purchase Move.com capital stock;
. amend their respective certificates of incorporation or bylaws;
. acquire, or agree to acquire, any entity or assets that are material,
singly or in the aggregate, to the business;
. sell, lease, license or otherwise dispose of any assets or properties of
Move.com, Welcome Wagon or any of their subsidiaries, except in the
ordinary course of business consistent with past practices, or create any
security interest in such assets or properties;
. incur any indebtedness, guarantee any indebtedness, purchase any debt
security or amend the terms of any outstanding agreements related to
borrowed money, with limited exceptions;
. grant any severance pay to any director, officer, employee or consultant,
other than payments made under written agreements outstanding as of the
date of the merger agreement;
. increase the salary or other compensation payable by Move.com, Welcome
Wagon or any of their subsidiaries to any of their officers, directors,
employees or advisors other than increases in the ordinary course of
business consistent with past practices, with no increase to be in excess
of 10% of such individual's base salary;
. declare, pay or make any commitment or obligation for the payment by
Move.com, Welcome Wagon or any of their subsidiaries of a bonus or
additional salary or compensation to any of their officers, directors,
employees or advisors other than increases in the ordinary course of
business consistent with past practices;
. adopt or amend any employee benefit plan or enter into any employment
contract;
. revalue any assets of the business;
. take any action to accelerate the vesting schedule of outstanding options
and capital stock, other than the acceleration of not more than 25% of
the shares underlying Move.com options outstanding as of the date of the
merger agreement;
. pay, in an amount in excess of $100,000 singly or $250,000 in the
aggregate, any claim, liability or obligation, other than in the ordinary
course of business;
. make or change any election, change any accounting method, enter into any
closing agreement or settle any claim or assessment in respect of taxes;
. enter into any strategic alliance, joint development or marketing
agreement or similar agreement, with certain limited exceptions;
. fail to pay or otherwise satisfy monetary obligations of the business as
they come due;
. cancel, materially amend or renew any insurance policy other than in the
ordinary course of business;
. alter, or enter into any agreement to alter, any entity in which
Move.com, Welcome Wagon or any of their subsidiaries held any interest as
of the date of the merger agreement, except at contemplated by the merger
agreement; and
. take any actions that would prevent Move.com, Welcome Wagon or any of
their subsidiaries from performing their covenants in the merger
agreement.
29
Notwithstanding the foregoing, Cendant will transfer prior to the closing of
the mergers, and shall be permitted without receiving our prior written consent
to transfer, out of the Move.com Group the business of National Home
Connections, LLC, Getko Canada and MetroRent and certain employees set forth in
the merger agreement, such that neither the Move.com Group nor any of their
subsidiaries has any liabilities with respect to such business or employees
following the closing.
Our conduct of our business
We have agreed to instruct our sales force and the sales force of our
SpringStreet.com rental site business not to use the existence of the mergers
as a means of persuading potential customers and advertisers of RentNet or
Move.com not to sign up with RentNet or Move.com, but to sign up with us or
SpringStreet.com instead. In addition, we have agreed that until the closing of
the merger or termination of the merger agreement, they will not, without our
prior written consent, enter into any transaction that would:
. require the approval of its stockholders under the rules of the Nasdaq
National Market, Delaware law or its certificate of incorporation; or
. both require a pre-merger notification to be made under the HSR and be
reasonably likely to materially delay or impede approval of the mergers
under the HSR.
The agreements related to the conduct of Cendant's, Move.com's and Welcome
Wagon's businesses in the merger agreement are complicated and not easily
summarized. We urge you to read the sections of the merger agreement entitled
"Conduct of business of the Company" and "Conduct of business of the Parent"
carefully.
No other negotiations
Until the mergers are completed or the merger agreement is terminated,
Cendant has agreed not to allow the Move.com Group or their subsidiaries to
take any of the following actions with any party other than us or our
designees:
. solicit, initiate, entertain or encourage any proposals or offers from,
or conduct discussions with or engage in negotiations with, any person
relating to any possible acquisition of Move.com, Welcome Wagon, any of
their subsidiaries or the business, any material portion of their capital
stock or any equity interest in Move.com, Welcome Wagon, any of their
subsidiaries or the business;
. provide information with respect to them to any person, other than us,
relating to, or otherwise cooperate with, facilitate or encourage any
effort or attempt by any such person with regard to, any possible
acquisition of Move.com, Welcome Wagon, any of their subsidiaries or the
business, any material portion of their capital stock or assets or any
equity interest in Move.com, Welcome Wagon, any of their subsidiaries or
the business;
. enter into an agreement with any person, other than us, providing for the
acquisition of Move.com, Welcome Wagon, any of their subsidiaries or the
business, any material portion of their capital stock or assets or any
equity interest in Move.com, Welcome Wagon, any of their subsidiaries or
the business; or
. make or authorize any statement, recommendation or solicitation in
support of any possible acquisition of Move.com, Welcome Wagon, any of
their subsidiaries or the business, any material portion of their capital
stock or assets or any equity interest in Move.com, Welcome Wagon, any of
their subsidiaries or the business by any person, other than by us.
Cendant has agreed to notify us promptly if Cendant, Move.com or Welcome
Wagon receives any offer or proposal relating to the actions listed above,
including information as to the identity of the offeror, the specific terms of
the offer or proposal and any other information that we may reasonably request.
30
Public disclosure
Each of Cendant and us will consult with, provide each other with a
reasonable opportunity to review and comment upon, and, to the extent
practicable, agree before issuing any press release or making any public
statement with respect to the mergers or the merger agreement.
Retention bonuses
In the event that the closing of the mergers has occurred prior to June 1,
2001, we will pay within 90 days after the closing retention bonuses to the
employees of the Move.com Group. These bonuses shall be paid to only those
employees who remain employees of the Move.com Group on the date of these bonus
payments unless the employees' employment was involuntarily terminated for
reasons other than cause. Cendant shall reimburse us an amount of cash equal to
the aggregate amount of these bonuses in excess of $4.0 million. In the event
that the closing of the mergers has not occurred prior to June 1, 2001, Cendant
shall pay bonuses to the employees of the Move.com Group. We will pay Cendant
an amount of cash equal to the aggregate amount of these bonuses, up to $4.0
million.
Homestore.com board of directors
We will take all actions reasonably necessary such that as soon as
practicable following the effective time of the mergers, the size of our board
of directors will be increased to seven members, divided into three classes.
The seven directors will initially consist of (1) six current directors of
Homestore.com, Stuart H. Wolff, our Chief Executive Officer, L. John Doerr and
Joe F. Hanauer, who are each Class III directors; William E. Kelvie and Kenneth
K. Klein, who are each Class II directors; and Richard R. Janssen, who is a
Class I director, and (2) Richard A. Smith, Chairman and Chief Executive
Officer, Real Estate Division of Cendant, who will serve as a Class I director.
Expenses
Whether or not the mergers are consummated, all fees and expenses incurred
in connection with the mergers shall be the obligation of the respective party
incurring the fees and expenses. All third party expenses incurred by the
Move.com Group or any of their subsidiaries shall be the sole obligation of
Cendant.
S-8 Registration Statement
On the closing date of the mergers, if possible, and subject to obtaining
any necessary consents or approvals, which consents and approvals we will use
commercially reasonable efforts to obtain, we will file, if available for use
by us, with the SEC a registration statement on Form S-8 registering a number
of shares of our common stock equal to the number of shares of our common stock
issuable upon the exercise of all Move.com options assumed by us in the
mergers.
S-3 Registration Statement
As promptly as practicable after the closing of the mergers, but in any
event not later than the later of (1) May 31, 2001 or (2) 90 days following the
closing, we will prepare and file with the SEC a registration statement on Form
S-3 registering shares of our common stock for any distribution by Cendant to
holders of Tracking Stock and holders of options to acquire Tracking Stock.
Termination of the merger agreement
The merger agreement may be terminated at any time before the mergers are
completed:
. by the mutual consent of Cendant and us;
31
. by either Cendant or us if:
-- the mergers have not been completed by 5:00 p.m. Pacific Standard
Time on April 2, 2001; provided that this period may be extended by
any party for a period of thirty days if the party reasonably
believes that the expiration or termination of the waiting period
under the HSR is likely to be obtained during the 30-day extension;
-- there is a final nonappealable order of a federal or state court in
effect preventing consummation of the mergers; or
-- there is any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the mergers by any governmental
entity that would make consummation of the mergers illegal;
. by us if there shall be any action taken, or any statute, rule,
regulation or order enacted or issued, by any governmental entity, which
would prohibit Move.com's, Welcome Wagon's or our ownership or operation
of all or any portion of the business or compel us or the Move.com Group
to dispose of or hold separate all or a portion of the business or assets
of the Move.com Group or us as a result of the mergers;
. by us, upon a material breach of any representation, warranty, covenant
or agreement on the part of Move.com or Cendant set forth in the merger
agreement, however we must give Cendant notice of the breach and Cendant
will then have 30 days to cure the breach;
. by Cendant, upon a material breach of any of our representations,
warranties, covenants or agreements set forth in the merger agreement,
however Cendant must give us notice of the breach and we will then have
30 days to cure the breach;
. by us, if prior to the expiration or termination of any applicable
waiting periods under the HSR, there has been any material adverse effect
on Move.com;
. by Cendant, if prior to the expiration or termination of any applicable
waiting periods under the HSR, there has been any material adverse effect
on us; or
. by either Cendant or us if our stockholders do not approve the issuance
of shares of our common stock in the mergers.
Termination fee
If the merger agreement is terminated because our stockholders do not
approve the issuance of shares of our common stock in the mergers at the
meeting, then we will be obligated to pay Cendant a termination fee of $50.0
million. We will not be obligated to pay this termination fee, however, if
Cendant fails to vote all of the shares of our common stock it holds or has the
right to vote by proxy in favor of approval of the issuance of our common stock
in the mergers or if Cendant takes action which causes approval by our
stockholders not to be obtained.
Amendment, extension and waiver of the merger agreement
The parties may amend the merger agreement at any time by execution of a
written instrument signed by each of the parties. Any of us may extend the
other's time for the performance of any of the obligations under the merger
agreement, waive any inaccuracies in any other's representations and warranties
and waive compliance by the other with any of the agreements or conditions
contained in the merger agreement.
32
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL INFORMATION
On February 4, 1999, NetSelect, Inc., or NSI, was merged with and into
Homestore.com in a non-substantive share exchange, which was provided for in
the agreements governing the formation and operation of RealSelect, Inc., the
operating company. The share exchange lacked substance since both Homestore.com
and NSI were shell companies for their respective investments in RealSelect,
and because the respective underlying ownership interests of the individual
investors were unaffected. Accordingly, the non-substantive share exchange was
accounted for at historical cost. The share exchange between Homestore.com and
NSI is referred to herein as the "Reorganization." This Reorganization was
completed solely to simplify Homestore.com's legal structure prior to its
initial public offering.
In June 1999, Homestore.com acquired SpringStreet, Inc. for common stock and
convertible preferred stock equivalent to an aggregate of 5,309,058 shares of
common stock. The aggregate acquisition cost of $51.7 million was based on
terms and preferences of the shares issued in the transaction relative to the
value received by Homestore.com in its April 1999 Series G preferred stock
financing. 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 $41.3 million has
been allocated to goodwill and other purchased intangible assets and are being
amortized on a straight-line basis over estimated lives ranging from three to
five years.
In October 1999, Homestore.com acquired Homebuyer's Fair, Inc. and FAS-
Hotline, Inc., which we collectively refer to as Homefair, for $35.8 million in
cash and other acquisition related expenses, a $37.5 million note payable and
250,000 shares of common stock, with an estimated fair value of $11.2 million,
for a total aggregate purchase price of $83.7 million. 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 $83.3 million has been allocated to goodwill and other purchased
intangible assets and are being amortized on a straight-line basis over
estimated lives ranging from three to five years.
In October 2000, Homestore.com announced its intention to acquire the
Move.com Group for 25,142,654 shares of common stock, including shares of
Homestore.com common stock to be issued upon exercise of options to purchase
shares of Move.com common stock assumed by Homestore.com in the mergers and
excluding shares to be issued upon exercise of stock options to be granted. The
mergers will be accounted for as a purchase. The purchase price will be
allocated based on the fair values of the assets acquired and the liabilities
assumed. The excess of cost over fair value of the net tangible assets acquired
has been allocated to goodwill and other identifiable intangible assets and
will be amortized on a straight-line basis over estimated lives ranging from 2
to 15 years. These allocations are subject to change pending a final analysis
of the fair values of the assets acquired and liabilities assumed. The impact
of the final valuation of goodwill and other identifiable intangible assets
could be material to the combined company's future operating results.
The following unaudited pro forma condensed consolidated combined statements
of operations for the nine months ended September 30, 2000 and for the year
ended December 31, 1999 give effect to the acquisitions and the contemplated
acquisition as if they had occurred at the beginning of each period presented.
The unaudited pro forma condensed combined consolidated statements of
operations were prepared based on the unaudited consolidated statement of
operations for the nine months ended September 30, 2000 for Homestore.com and
the audited combined statement of operations for the nine months ended
September 30, 2000 for the Move.com Group. The unaudited pro forma condensed
combined consolidated statement of operations for the year ended December 31,
1999 were prepared based on the unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1999 for Homestore.com
and the combined statement of operations for the year ended December 31, 1999
for the Move.com Group. Homestore.com's unaudited pro forma condensed combined
consolidated statement of operations for the year
33
ended December 31, 1999 and the period ended September 30, 2000 gives effect to
the Reorganization and the acquisitions of SpringStreet, Homefair and the
Move.com Group as if they had occurred on January 1, 1999.
The unaudited pro forma condensed combined consolidated balance sheet as of
September 30, 2000 gives effect to the mergers as if they had occurred on
September 30, 2000 and combines the historical consolidated balance sheet of
Homestore.com and the historical combined balance sheet of the Move.com Group.
The unaudited pro forma condensed combined consolidated financial
information is based on estimates and assumptions. These estimates and
assumptions are preliminary and have been made solely for purposes of
developing this pro forma information. Unaudited pro forma condensed combined
consolidated financial information is presented for illustrative purposes only
and is not necessarily indicative of the combined consolidated financial
position or results of operations of future periods or the results that
actually would have been realized had the entities been a single entity during
this period. This unaudited pro forma condensed combined consolidated financial
information is based upon the respective historical consolidated financial
statements of Homestore.com and the combined financial statements of the
Move.com Group and notes thereto, incorporated in this proxy by reference and
included elsewhere and should be read in conjunction with those statements and
the related notes.
34
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(in thousands)
Move.com
Homestore.com Group Adjustments Pro Forma
------------- -------- ----------- ----------
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 168,390 $ 3,779 $ 2,700 (1) $ 174,869
Short-term
investments.......... 114,651 -- -- 114,651
Marketable equity
securities........... 1,389 9,410 -- 10,799
Accounts receivable,
net.................. 40,649 18,605 -- 59,254
Current portion of
prepaid distribution
expense.............. 49,091 -- -- 49,091
Deferred income
taxes................ -- 6,223 (6,223)(3) --
Other current assets.. 12,072 1,668 -- 13,740
---------- ------- -------- ----------
Total current assets.... 386,242 39,685 (3,523) 422,404
Prepaid distribution
expense................ 171,516 -- -- 171,516
Property, plant and
equipment, net......... 33,034 19,787 2,065 (2) 54,886
Intangible assets, net.. 198,308 16,414 (16,414)(4) 1,019,529
821,221 (5)
Restricted equity
securities............. -- 11,429 (6,724)(2) 4,705
Restricted cash......... 90,000 -- -- 90,000
Deferred income taxes... 2,743 (2,743)(3) --
Other assets............ 45,699 2,771 -- 48,470
---------- ------- -------- ----------
Total assets......... $ 924,799 $92,829 $793,882 $1,811,510
========== ======= ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 14,119 $ 4,961 $ -- $ 19,080
Accrued liabilities... 41,186 13,708 (1,692)(2) 73,802
20,600 (6)
Deferred revenue...... 28,198 11,057 (3,000)(2) 36,255
Current portion of
notes payable........ 353 -- -- 353
---------- ------- -------- ----------
Total current
liabilities............ 83,856 29,726 15,908 129,490
Distribution
obligation............. 186,145 -- -- 186,145
Deferred tax liability,
net.................... -- -- 62,787 (3)(16) 62,787
Other non-current
liabilities............ 11,322 4,000 (2,500)(2) 12,822
---------- ------- -------- ----------
281,323 33,726 76,195 391,244
---------- ------- -------- ----------
Commitments and
contingencies
Stockholders' equity:
Convertible
preferred............
Common stock.......... 83 -- 22 (7) 105
Additional paid-in
capital.............. 1,014,402 -- 783,635 (7) 1,798,037
Treasury stock, at
cost................. (15,876) -- -- (15,876)
Notes receivable from
stockholders......... (10,544) -- -- (10,544)
Deferred stock-based
charges.............. (108,511) -- (6,867)(8) (115,378)
Accumulated other
comprehensive
income............... 637 -- -- 637
Accumulated deficit... (236,715) -- -- (236,715)
Group equity.......... -- 59,103 (59,103)(9) --
---------- ------- -------- ----------
Total stockholders'
equity.............. 643,476 59,103 717,687 1,420,266
---------- ------- -------- ----------
Total liabilities and
stockholders'
equity.............. $ 924,799 $92,829 $793,882 $1,811,510
========== ======= ======== ==========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Consolidated
Financial Statements
35
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
(in thousands, except for per share amounts)
Move.com Pro Forma
Homestore.com Group Adjustment Combined
------------- -------- ---------- ---------
Revenues................ $150,954 $ 67,875 $ (1,220)(10) $ 216,874
2,917 (11)
(3,652)(11)
Cost of revenues
(excluding non-cash
equity charges, see
note 15)............... 40,033 21,909 6,496 (11) 67,552
4,481 (11)
(3,652)(11)
(1,715)(11)
-------- -------- --------- ---------
Gross Profit............ 110,921 45,966 (7,565) 149,322
-------- -------- --------- ---------
Operating expenses:
Sales and marketing
(excluding non-cash
equity charges, see
note 15).............. 90,366 80,260 (1,220)(10) 164,925
(4,481)(11)
Product development
(excluding non-cash
equity charges, see
note 15).............. 9,767 6,496 (6,496)(11) 11,482
1,715 (11)
General and
administrative
(excluding non-cash
equity charges, see
note 15).............. 39,458 30,459 3,516 (11) 70,498
(2,935)(11)
Depreciation and
amortization of
intangible assets..... 31,455 5,058 (3,516)(11) 166,653
(1,542)(4)
135,198 (12)
Stock-based charges.... 33,271 -- 2,935 (11) 37,354
1,148 (13)
In-process research and
development........... 4,048 -- -- 4,048
Restructuring and other
unusual charges....... -- 3,313 -- 3,313
Interest, net.......... -- (479) 479 (11) --
-------- -------- --------- ---------
Total operating
expenses............... 208,365 125,107 124,801 458,273
-------- -------- --------- ---------
Loss from operations.... (97,444) (79,141) (132,366) (308,951)
Interest and other
income (expense), net.. 16,462 -- (2,917)(11) 14,024
479 (11)
-------- -------- --------- ---------
Net loss before income
tax benefit............ (80,982) (79,141) (134,804) (294,927)
Income tax benefit...... -- 31,464 (31,464)(17) --
-------- -------- --------- ---------
Net loss................ $(80,982) $(47,677) $(166,268) $(294,927)
======== ======== ========= =========
Historical basic and
diluted net loss per
share.................. $ (1.03)
========
Shares used to calculate
basic and diluted net
loss per share......... 78,769
========
Pro forma basic and
diluted net loss per
share.................. $ (2.94)
=========
Shares used to calculate
pro forma basic and
diluted net loss per
share.................. 100,476 (14)
=========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Consolidated
Financial Statements
36
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(in thousands, except for per share amounts)
Pro Forma (a) Move.com Pro Forma
Homestore.com Group Adjustments Combined
------------- -------- ----------- ---------
Revenues................ $ 73,367 $ 79,826 $ (429)(11) $ 152,764
Cost of revenues
(excluding non-cash
equity charges, see
note 15)............... 24,321 13,935 3,922 (11) 41,749
(429)(11)
--------- -------- --------- ---------
Gross profit............ 49,046 65,891 (3,922) 111,015
--------- -------- --------- ---------
Operating expenses:
Sales and marketing
(excluding non-cash
equity charges, see
note 15).............. 82,003 44,010 -- 126,013
Product development
(excluding non-cash
equity charges, see
note 15).............. 6,704 3,922 (3,922)(11) 6,704
General and
administrative
(excluding non-cash
equity charges, see
note 15).............. 28,620 36,279 1,620 (11) 66,255
(264)(11)
Depreciation and
amortization of
intangible assets..... 28,476 4,465 (1,620)(11) 208,746
(2,845)(4)
180,270 (12)
Stock-based charges.... 24,039 -- 264 (11) 29,915
5,612 (13)
Litigation settlement.. 8,406 -- -- 8,406
--------- -------- --------- ---------
Total operating
expenses............... 178,248 88,676 179,115 446,039
--------- -------- --------- ---------
Loss from operations.... (129,202) (22,785) (183,037) (335,024)
Interest and other
income (expense), net.. (2,844) -- -- (2,844)
--------- -------- --------- ---------
Net loss before income
tax benefit............ (132,046) (22,785) (183,037) (337,868)
Income tax benefit...... -- (8,817) 8,817 (17) --
--------- -------- --------- ---------
Net loss................ $(132,046) $(13,968) $(191,854) $(337,868)
========= ======== ========= =========
Pro forma basic and
diluted net loss per
share ................. $ (2.11) $ (4.01)
========= =========
Shares used to calculate
pro forma basic and
diluted net loss per
share.................. 62,474 84,181 (14)
========= =========
(a) See page 40 for a
full disclosure of
Homestore.com's
unaudited pro forma
condensed consolidated
statement of opertions
See accompanying Notes to Unaudited Pro Forma Condensed Combined Consolidated
Financial Statements
37
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL INFORMATION
Pro forma adjustments reflect the following in the unaudited pro forma
condensed combined consolidated balance sheet and statement of operations:
(1) Cash to be contributed by Cendant on or before completion of the mergers,
under the merger agreement
(2) To adjust the net book values of assets and liabilities acquired to their
estimated fair market value
(3) Netting of the Move.com Group's deferred tax assets by Homestore.com
against the deferred tax liability attributable to the preliminary
allocation of purchase price to identifiable intangible assets
(4) Elimination of the Move.com Group's intangible assets and related
amortization
(5) Preliminary allocation of the excess purchase consideration over the fair
value of net tangible assets acquired. The fair value of the common stock
to be issued was determined based on an average of the price per share of
Homestore.com common stock on the dates surrounding the announcement of
merger while the fair value of the assumed options was determined based
on the Black-Scholes Model. The deferred tax liability was determined
using a 40% effective tax rate and gives effect to an estimated
Homestore.com valuation allowance of $42.7 million at September 30, 2000
as follows (in thousands):
Purchase Price
Fair value of common stock issued..................................... $701,467
Fair value of the Move.com Group's options assumed.................... 82,190
Transaction costs..................................................... 20,600
--------
Total purchase price.................................................. $804,257
========
Net Assets Acquired
Fair value of net tangible assets of the Move.com Group............... $ 45,823
Goodwill.............................................................. 535,221
Identified intangible assets.......................................... 286,000
Deferred tax liability................................................ (62,787)
--------
Net assets acquired................................................... $804,257
========
The actual allocation of the purchase price will depend upon the composition
of the Move.com Group's net assets on the closing date and Homestore.com's
evaluation of the fair value of the net assets as of the closing date.
Consequently, the actual allocation of the purchase price could significantly
differ from that presented above.
(6) Estimated acquisition costs
(7) Issuance of 25,142,654 shares of common stock, including shares of
Homestore.com common stock to be issued upon exercise of options to
purchase shares of Move.com common stock assumed by Homestore.com in the
mergers and excluding shares to be issued upon exercise of stock options
to be granted
(8) Intrinsic value of unvested stock options assumed by Homestore.com
(9) Elimination of the Move.com Group's group equity account
(10) Elimination of intercompany transactions
(11) Reclass of revenue, expenses and other income, to conform to the
financial statement presentation of Homestore.com
38
(12) Amortization of goodwill and other identifiable intangible assets with
expected lives ranging from 2 to 15 years with a weighted average life of
5.25 years
(13) Stock-based charges relating to the assumption of the Move.com Group's
unvested options
(14) Additional weighted average shares used in the calculation of pro forma
basic and diluted net loss per share applicable to common stockholders
reflect the issuance of 21,706,773 shares of common stock as part of the
Move.com Group purchase consideration as if they had been issued on
January 1, 1999
(15) The following chart summarizes the stock-based charges that have been
excluded from the following captions for each of the periods presented
(in thousands):
Actual Pro Forma
---------------------------- ------------------------------
Nine Months
Ended
Year Ended September 30, Year Ended Nine Months Ended
December 31, ------------- December 31, September 30,
1999 1999 2000 1999 2000
------------ ------- ------- ------------ -----------------
Cost of revenues........ $ 943 $ 701 $ 483 $ 1,432 $ 483
Sales and marketing..... 14,726 7,875 29,873 16,383 29,873
Product development..... 447 333 455 677 455
General and
administrative......... 5,111 3,802 2,460 11,423 6,543
------- ------- ------- ------- -------
$21,227 $12,711 $33,271 $29,915 $37,354
======= ======= ======= ======= =======
(16) Deferred tax liability attributable to the book and tax basis difference
for acquired identifiable intangible assets. The tax benefit of deferred
tax liabilities recorded as a component of the purchase price allocation
will be realized prospectively in the results of Homestore.com
(17) Elimination of the Move.com Group tax benefit that was a result of a tax
sharing arrangement. On a pro forma basis no benefit will be recognized
due to the likelihood that Homestore.com may not generate sufficient
taxable income to utilize the benefit.
39
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
ENDED DECEMBER 31, 1999
(in thousands, except for per share amounts)
Pro Forma Pro Forma
Homestore.com NSI Adjustments Homestore Springstreet Homefair Adjustments Homestore.com
------------- ------- ----------- --------- ------------ -------- ----------- -------------
Revenues................ $ 62,580 $ 2,433 -- $ 65,013 $ 2,346 $6,159 $ (151)(1) $ 73,367
Cost of revenues
(excluding non-cash
equity charges, see
note 7)................ 21,022 798 21,820 1,675 826 24,321
-------- ------- ------ -------- -------- ------ -------- ---------
Gross profit............ 41,558 1,635 -- 43,193 671 5,333 (151) 49,046
-------- ------- ------ -------- -------- ------ -------- ---------
Operating expenses:
Sales and marketing
(excluding non-cash
equity charges, see
note 7)............... 70,384 4,064 74,448 5,506 2,200 (151)(1) 82,003
Product development
(excluding non-cash
equity charges, see
note 7)............... 4,933 174 5,107 1,134 463 6,704
General and
administrative
(excluding non-cash
equity charges, see
note 7)............... 21,781 1,053 22,834 4,416 1,370 28,620
Amortization of
intangible assets..... 10,192 261 10,453 -- 1,810 (1,810)(2) 28,476
18,023 (3)
Stock-based charges.... 21,227 569 21,796 2,243 24,039
In-process research and
development...........
Litigation settlement.. 8,406 -- -- 8,406 -- -- 8,406
-------- ------- ------ -------- -------- ------ -------- ---------
Total operating
expenses............... 136,923 6,121 143,044 13,299 5,843 16,062 178,248
-------- ------- ------ -------- -------- ------ -------- ---------
Loss from operations.... (95,365) (4,486) (99,851) (12,628) (510) (16,213) (129,202)
Interest and other
income (expense), net.. 2,358 (5) -- 2,353 44 (89) (5,152)(4) (2,844)
-------- ------- ------ -------- -------- ------ -------- ---------
Net loss................ (93,007) (4,491) (97,498) (12,584) (599) (21,365) (132,046)
-------- ------- ------ -------- -------- ------ -------- ---------
Accretion of redemption
value on convertible
preferred stock........ (2,299) (207) 2,506(5) -- -- -- -- --
-------- ------- ------ -------- -------- ------ -------- ---------
Net loss applicable to
common stockholders.... $(95,306) $(4,698) $2,506 $(97,498) $(12,584) $ (599) $(21,365) $(132,046)
======== ======= ====== ======== ======== ====== ======== =========
Historical basic and
diluted net loss per
share applicable to
common stockholders.... $ (2.32)
========
Shares used to calculate
historical basic and
diluted net loss per
share applicable to
common stockholders.... 41,142
========
Pro forma basic and
diluted net loss per
share applicable to
common stockholders.... $ (2.11)
=========
Shares used to calculate
pro forma basic and
diluted net loss per
share applicable to
common stockholders.... 62,474 (6)
=========
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
40
HOMESTORE.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Pro forma adjustments reflect the following in the unaudited pro forma
condensed consolidated statement of operations:
(1) Elimination of intercompany revenues and expenses
(2) Elimination of amortization of intangible assets
(3) Amortization of goodwill and other intangible assets on a straight-
line basis
(4) Reduction in interest income related to cash paid as part of the
purchase price, net of an increase in interest expense related to the
$37.5 million promissory note which bears interest at 10.875% per year
issued in connection with the acquisition
(5) Elimination of the accretion of redemption value and dividends on
convertible preferred stock resulting from the assumed conversion of
Homestore.com's preferred stock into common stock in connection with
its initial public offering
(6) Additional weighted average shares used in the calculation of pro
forma basic and diluted net loss per share applicable to common
stockholders reflect the following, as if they been issued as of
January 1, 1999, except for preferred stock that was not issued in
connection with an acquisition. For this preferred stock, the weighted
average shares reflect the preferred stock as if it had been issued as
of January 1, 1999 or the date of issuance, if later:
Year Ended
December 31,
1999
--------------
(in thousands)
SpringStreet acquisition.................................. 2,725
Homefair acquisition...................................... 208
NSI Reorganization........................................ 1,163
Conversion of preferred stock in connection with IPO...... 14,918
Conversion of NAR's RealSelect shares into Homestore.com
shares................................................... 2,318
(7) The following chart summarizes the stock-based charges that have been
excluded from the following captions for the period presented:
Year Ended
December 31,
1999
--------------
(in thousands)
Cost of revenues............................................ $ 1,432
Sales and marketing......................................... 16,383
Product development......................................... 677
General and administrative.................................. 5,547
-------
$24,039
=======
41
SHARE OWNERSHIP BY OUR PRINCIPAL
STOCKHOLDERS, MANAGEMENT AND DIRECTORS
The following table presents information with respect to the beneficial
ownership of our common stock as of September 30, 2000 by:
. each person who is known by us to own beneficially more than 5% of our
common stock;
. each of our directors;
. each of our five highest paid executive officers, including our chief
executive officer, who earned more than $100,000 during the fiscal year
ended December 31, 1999; and
. all of our directors and executive officers as a group.
The percentage ownership is based on 82,710,796 shares of common stock
outstanding at September 30, 2000. Shares of common stock that are subject to
options currently exercisable or exercisable within 60 days of September 30,
2000, are deemed outstanding for the purpose of computing the percentage
ownership of the person holding those options but are not deemed outstanding
for computing the percentage ownership of any other person. Unless otherwise
indicated in the footnotes following the table, 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.
Unless otherwise noted, the address for each stockholder listed is c/o
Homestore.com, Inc., 30700 Russell Ranch Road, Westlake Village, California
91362.
Shares Beneficially
Owned
---------------------
Name of Beneficial Owner Number Percentage
- - ------------------------ ---------- ----------
L. John Doerr(1)
Kleiner Perkins Caufield & Byers........................ 9,692,653 11.7%
America Online, Inc. (2)................................. 4,635,546 5.6
Joe F. Hanauer(3)(4)
Ingleside Interests, L.P................................ 4,525,876 5.5
National Association of REALTORS(4)...................... 4,025,640 4.9
Stuart H. Wolff, Ph.D.(5)................................ 3,346,422 4.1
William E. Kelvie(6)
Fannie Mae.............................................. 2,099,376 2.5
Richard R. Janssen(7).................................... 1,268,488 1.5
Michael A. Buckman(8).................................... 688,750 *
Peter B. Tafeen(9)....................................... 430,625 *
John M. Giesecke, Jr.(10)................................ 375,451 *
David M. Rosenblatt(11).................................. 282,082 *
Kenneth K. Klein(12)..................................... 39,888 *
All directors and executive officers as a group(13)...... 23,383,915 27.8
- - --------
* Represents beneficial ownership of less than 1% of Homestore.com's common
stock.
(1) Includes 8,917,630 shares held by Kleiner Perkins Caufield & Byers VIII,
516,665 shares held by KPCB VIII Founders Fund and 241,900 shares held by
KPCB Information Sciences Zaibatsu Fund II. L. John 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. Also includes 16,458 shares
subject to options that are held by Mr. Doerr that are vested and
exercisable as of November 29, 2000. The address of Kleiner Perkins
Caufield & Byers is 2750 Sand Hill Road, Menlo Park, CA 94025.
(2) Includes warrants to purchase 20,161 shares of our common stock which are
exercisable. The address of America Online, Inc. is 22000 AOL Way, Dulles,
Virginia 20166.
(3) Includes the 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 456,348
42
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. Also includes 43,888 shares subject to options that are held by Mr.
Hanauer that are vested and exercisable as of November 29, 2000.
(4) The address of the NAR is 430 North Michigan Avenue, Chicago, IL 60611
(5) Includes 2,813,090 shares held by Dr. Wolff, of which 613,019 are subject
to our right to repurchase these shares. This right of repurchase lapses
with respect to 30,728 shares per month. Also includes 533,332 shares
subject to options that are exercisable as of November 29, 2000. Also
includes 150,000 shares held in trust.
(6) Includes 2,083,335 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. Also includes 16,458 shares
subject to options that are held by Mr. Kelvie that are vested and
exercisable as of November 29, 2000. The address of Fannie Mae is 3900
Wisconsin Ave. NW, Washington, DC 20016.
(7) Includes 16,458 shares subject to options that are held by Mr. Janssen
that are vested and exercisable as of November 29, 2000. Also includes
9,490 shares held in trust.
(8) Includes 688,750 shares held by Mr. Buckman, of which 453,125 are subject
to our right to repurchase these shares. This right of repurchase lapses
with respect to 15,625 shares per month.
(9) Includes shares held by Mr. Tafeen, of which 90,440 are subject to our
right to repurchase these shares. This right of repurchase lapses with
respect to 6,249 shares per month. Also includes 114,224 shares subject to
options that are exercisable as of November 29, 2000. Also includes 25,000
shares held in trust.
(10) Includes 147,529 shares held by Mr. Giesecke, of which 68,223 are subject
to our right to repurchase these shares. This right of repurchase lapses
with respect to 3,645 shares per month. Also includes 227,922 shares
subject to options that are exercisable as of November 29, 2000.
(11) Includes 200,795 shares held by Mr. Rosenblatt, of which 71,108 are
subject to our right to repurchase these shares. This right lapses with
respect to 9,270 shares per month. Also includes 81,287 shares subject to
options that are exercisable as of November 29, 2000.
(12) Excludes 530,796 shares held by the National Association of Home Builders,
of which Mr. Klein is a member of the Executive Committee. Mr. Klein
disclaims beneficial ownership of all shares held by this association.
Includes 14,888 shares subject to options that are held by Mr. Klein that
are vested and exercisable as of November 29, 2000.
(13) Includes the shares beneficially owned by the persons and entities
described in footnotes (1), (3) and (5)-(12). Also includes an additional
292,946 shares held by other officers and 340,941 shares subject to
options held by those other officers that are exercisable as of November
29, 2000.
43
BUSINESS OF THE MOVE.COM GROUP
The Move.com Group
The Move.com Group operates a popular network of websites, which offer a
wide selection of quality relocation, real estate and home-related products and
services. The Move.com Group seeks to improve the often stressful and demanding
moving experience by providing a one-source, "friend-in-need" solution before,
during and after the move. The Move.com Group strives to establish strong,
long-term relationships with consumers by offering quality products and
services for each phase of the moving process from finding a home to improving
an existing home. The Move.com Group also provides businesses who are trying to
reach a highly targeted and valued group of consumers at the most opportune
times the opportunity to deal with a single source providing multiples avenues
of access to such persons.
Move.com Network
The Move.com network is comprised of the following websites that offer
quality relocation, real estate and home-related content and services.
Move.com. Move.com is the Move.com Group's Internet portal and flagship
site. Move.com is dedicated to providing consumers a one-stop solution for
their relocation, real estate and home-related needs before, during and after a
move. Move.com combines home and rental housing listings, mortgage services and
numerous moving and home-related services to help make moves easier, less
stressful, more efficient and enjoyable. Move.com offers content and services
through planning, renting, buying, selling, moving and living site tabs.
Rent.net. Rent Net is a leading online rental and relocation guide and
advertising source for the apartment industry, representing properties and
relocation services in more than 3,000 cities across North America. Rent Net's
paying advertising clients include managers and owners of over 13,000 apartment
communities representing over three million apartment units in all 50 states
and Canada. Rent Net provides rental listings containing detailed property
descriptions, photographs, floor plans, 360 degree virtual tours, and direct
communication links to rental property managers. According to Media Metrix,
Rent Net was the most visited website for real estate rental listings, based on
unique visitors, during 1999 and 2000 to date.
Seniorhousing.net. Senior Housing Net provides the Move.com network with a
directory of over 750 retirement communities, assisted living facilities and
nursing homes containing detailed property descriptions, photographs, floor
plans, 360 degree virtual tours and direct communication links to onsite
managers.
Corporatehousing.net. Corporate Housing Net is the leading online directory
and advertising source for the temporary/corporate housing industry, with over
400 local and national listing providers across the United States and Canada.
Through Corporate Housing Net, users are able to access detailed property
information, including photos, floor plans and available amenities, and may
contact leasing agents via e-mail, fax or phone.
Selfstorage.net. Selfstorage.net is the leading online directory and
advertising source for the self storage industry, with listings for over 3,000
storage facilities across the United States and Canada. Through
Selfstorage.net, users are able to access descriptions of facilities photos and
maps, as well as direct communication links to facility owners or managers.
Housenet.com. Housenet.com is a leading home-related content website,
serving over 250,000 "neighbor" visits each month by providing home repair,
remodeling and garden information, along with numerous home-related bulletin
boards, chats, expert columns and home-care e-commerce services. Visitors take
advantage of the site's numerous gardening and home improvement tips, project
planners and calculators, the latest news in real estate, decorating ideas,
sewing and crafts projects, and advice on family budgeting. With thousands of
articles on home-related topics, Housenet has received "hot site" honors from
numerous online sources.
44
Welcome Wagon
Welcome Wagon, founded in 1928, distributes complimentary welcoming packages
and other discount packages to new homeowners, other households and college
campuses throughout the United States and Canada, which provide consumers with
discounts for local merchants. Such packages include (1) personal address books
which contain the name and number of many local merchants and (2) gift
certificates and discount coupons from local merchants. In addition, in June of
2000, Welcome Wagon began to list local merchants and coupons on the move.com
website. Visitors to the site enter their zip code to view the Welcome Wagon's
sponsors in their particular neighborhood.
There are approximately 35,000 merchants in the Welcome Wagon sponsorship
network. The sponsor's information is organized by category. Generally,
merchants sponsor a specific category of products or services on an exclusive
basis in their location. Sponsorship agreements provide for a payment by the
merchant of a fixed price per book and generally have a term of twelve months.
Participation in the Welcome Wagon program entitles the sponsor to:
. An exclusive listing in the Welcome Wagon address book sent to new
homeowners in their local area. The listing includes the site address,
telephone number, website and a brief description of the services
offered;
. A gift certificate and/or discount coupon in the address book;
. A list of new homeowners that received the Welcome Wagon package for
follow up marketing efforts;
. An additional gift certificate sent to the new homeowner four months
after the initial address book was sent to reinforce the initial offer;
and
. A complimentary listing on Move.com. The searchable listing includes the
telephone number, email or website for the dealer, the dealer's street
address, and a downloadable coupon.
Approximately 3,050 editions of the Welcome Wagon address book have been
published. In 2000, Welcome Wagon will distribute about 1.8 million copies of
the 2000 edition of the book to new homeowners. The rack rate for each book is
typically $3.15 per book subject to certain discounts.
The Getko Direct Response, or GDR, business of Welcome Wagon manages one of
the largest files of names and addresses in the U.S. and Canada for new
homeowners. GDR manages a package insert program for Welcome Wagon which
permits merchants to provide inserts in the Welcome Wagon packages.
Welcome Wagon's main office and manufacturing facility is located at 115
South Service Road, Westbury, New York 11590.
45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE MOVE.COM GROUP
Overview
The Move.com Group operates in two segments, Welcome Wagon, which
distributes welcoming packages to new homeowners that include discounts for
local merchants through its online and offline resources, and Move.com, which
provides a broad range of quality relocation, real estate and home-related
products and services through its flagship portal site, move.com, and through
the Move.com network. Move.com Group's move.com website was launched on January
27, 2000.
The following discussion should be read in conjunction with the information
contained in the Move.com Group's Combined Financial Statements and
accompanying notes thereto included elsewhere in this document.
Combined Operations--Nine Months Ended September 30, 2000 vs. Nine Months Ended
September 30, 1999
Revenues
Revenues for the nine months ended September 30, 2000 increased compared
with the corresponding period in 1999, primarily due to growth related to the
Move.com Group's online businesses resulting from the launch of the move.com
website, partially offset by a decline in revenues related to the elimination
of our pre-mover program, a program that distributes welcoming packages to a
target audience of prospective homeowners.
Depreciation and Amortization Expense
Depreciation and amortization expense for the nine months ended September
30, 2000 increased compared with the corresponding period in 1999 as a result
of increased capital spending, which primarily supported growth and enhanced
marketing opportunities in the Move.com Group's businesses.
Benefit for Income Taxes
The Move.com Group's effective tax rate for the nine months ended September
30, 2000 increased compared with the corresponding period in 1999 primarily due
to additional non-deductible goodwill amortization arising from certain
acquisitions.
Net Loss
The Move.com Group's net loss for the nine months ended September 30, 2000
increased compared with the corresponding period in 1999 primarily due the
overall decrease in adjusted EBITDA, which is defined as earnings before non-
operating interest, income taxes and depreciation and amortization, adjusted to
exclude certain other charges which are of a non-recurring or unusual nature
and are not included in assessing segment performance or are not segment-
specific.
Results of Reportable Operating Segments--Nine Months Ended September 30, 2000
vs. Nine Months Ended September 30, 1999
The underlying discussions of segment operating results focuses on Adjusted
EBITDA. The Move.com Group believes such discussion is the most informative
representation of how to evaluate performance. However, Move.com Group's
presentation of Adjusted EBITDA may not be comparable with similar measures
used by other companies. For additional information, including a description of
the services provided in each of the Move.com Group's reportable operating
segments, see Note 13 to the Move.com Group Combined Financial Statements
included elsewhere in this document.
46
Welcome Wagon
Revenue for the nine months ended September 30, 2000 decreased compared with
the corresponding period in 1999. This decrease was due to the elimination of
our pre-mover program and an agreement between Welcome Wagon and Move.com
whereby Welcome Wagon agreed to allocate 25% of their revenues and 30% of their
expenses to Move.com or the transfer agreement.
Adjusted EBITDA for the nine months ended September 30, 2000 decreased
compared with the corresponding period in 1999. This decrease was due to a
decline in revenue attributable to reduced package distribution, partially
offset by a decrease in operating expenses primarily attributable to the
transfer agreement.
Move.com
Revenue for the nine months ended September 30, 2000 increased compared with
the corresponding period in 1999. This increase was due to revenue received in
connection with the transfer agreement, an increase in sponsorship revenue
resulting from launching the Move.com website, and an increase in apartment
listing revenue.
Adjusted EBITDA for the nine months ended September 30, 2000 decreased
compared with the corresponding period in 1999. This decrease was primarily due
to an increase in advertising costs and technology and compensation costs. Such
decrease was partially offset by an increase in revenues.
Combined Operations--Year Ended December 31, 1999 vs. Year Ended December 31,
1998
Revenue
Revenue for the year ended December 31, 1999 decreased $3.7 million, or 4%,
compared with the corresponding period in 1998. This decrease was primarily due
to reduced package distribution, partially offset by increased apartment
listing revenue.
Depreciation and Amortization Expense
Depreciation and amortization expense for the year ended December 31, 1999
increased $0.9 million, or 24%, compared with the corresponding period in 1998
as a result of increased capital spending, which primarily supported growth and
enhanced marketing opportunities in the Move.com Group's businesses.
Benefit for Income Taxes
The Move.com Group's effective tax rate for the years ended December 31,
1999 and 1998 was 38.7% and 33.6%, respectively. The increase in our effective
tax rate was primarily due to the greater impact of non-deductible goodwill
amortization relative to loss before income taxes.
Net Loss
The Move.com Group's net loss for the year ended December 31, 1999 increased
$10.6 million compared with the corresponding period in 1998 primarily due to
an overall decrease in adjusted EBITDA.
Results of Reportable Operating Segments--Year Ended December 31, 1999 vs. Year
Ended December 31, 1998
Welcome Wagon
Revenues for the year ended December 31, 1999 decreased $11.6 million, or
16%, compared with the corresponding period in 1998. The decrease was primarily
due to a decrease in distribution of new mover packages.
47
Adjusted EBITDA for the year ended December 31, 1999 increased $4.8 million
compared with the corresponding period in 1998. Such increase was partially due
to a decrease in selling and marketing costs, partially offset by a decrease in
revenues.
Move.com
Revenue for the year ended December 31, 1999 increased $7.9 million (82%)
compared with the corresponding period in 1998. This increase was primarily due
to an increase in apartment listing revenue and subscription revenue primarily
attributable to an increase in the number and size of new sponsorship
arrangements with customers advertising on our websites.
Adjusted EBITDA for the year ended December 31, 1999 decreased $21.6 million
compared with the corresponding period in 1998. The decrease was primarily due
to an increase in operating expenses, partially offset by an increase in
revenue. The increase in operating expenses primarily consisted of increased
advertising costs attributable to launching first time television and radio
commercials and costs associated with a one-time, broad-based bonus retention
program.
Liquidity and Capital Resources
Cendant, the Move.com Group's parent company, has provided all necessary
funding for the Move.com Group's operations and investments since inception and
this funding has been accounted for as capital contributions. Therefore, the
Move.com Group is dependent on Cendant, who has committed to providing all
necessary funding for the Move.com Group's operations and investments in the
future as long as the Move.com Group is owned by Cendant. During 2000, Cendant
entered into a series of capital transactions in which they received
consideration in exchange for the issuance of a tracking stock. As a result,
Cendant contributed amounts to the Move.com Group aggregating approximately $85
million in the form of equity infusions.
Acquisition
On May 12, 2000, Cendant acquired all the outstanding stock of Housenet,
Inc. and contributed the net assets to the Move.com Group.
Pending Sale of Our Businesses
On October 27, 2000, Cendant announced that it had entered into a definitive
agreement with Homestore.com, Inc. to sell the Move.com Group's businesses.
Consummation of the transaction is subject to certain customary closing
conditions, including antitrust approval under the HSR. Although no assurances
can be given, Cendant expects to complete the transaction during the first
quarter of 2001.
Strategic Alliance
On January 27, 2000, the Move.com Group announced a strategic alliance with
AltaVista, a new-media and commerce network, to create a co-branded real estate
channel on the AltaVista website. Under the terms of the three-year agreement,
the Move.com Group will pay AltaVista up to $40 million to be an exclusive real
estate content provider of the new AltaVista Real Estate Channel. In addition,
the move.com network will be exclusively featured through banners and links on
keyword searches for most real estate and moving related terms.
Cash Flows
During the nine months ended September 30, 2000, the Move.com Group used
$33.2 million of cash flows from continuing operations primarily for the
Move.com Group's increased investment in marketing and development of the
Move.com network. During the nine months ended September 30, 2000, the Move.com
Group used $12.4 million of cash flows from investing activities primarily for
increased capital expenditures and acquisition related activity. During the
nine months ended September 30, 2000, cash flows from financing activities were
$48.4 million, which consisted solely of funding from Cendant.
48
Capital Expenditures
During the nine months ended September 30, 2000, the Move.com Group invested
$11.6 million in property and equipment to support operational growth and to
enhance marketing opportunities. The Move.com Group anticipates an aggregate
capital expenditure investment of approximately $15 million.
Class Action Litigation and Government Investigations
Since the April 15, 1998 announcement of the discovery of accounting
irregularities in the former business units of CUC International Inc., or CUC,
approximately 70 lawsuits claiming to be class actions, two lawsuits claiming
to be brought derivatively on Cendant's behalf and several individual lawsuits
and arbitration proceedings have commenced in various courts and other forums
against Cendant and other defendants by or on behalf of persons claiming to
have purchased or otherwise acquired securities or options issued by CUC or
Cendant between May 1995 and August 1998.
The Securities and Exchange Commission, or SEC, and the United States
Attorney for the District of New Jersey are also conducting investigations
relating to the matters referenced above. As a result of the findings from
Cendant's internal investigations, Cendant made all adjustments considered
necessary by Cendant, which are reflected in its previously filed restated
financial statements for the years ended December 31, 1997, 1996, and 1995 and
for the six months ended June 30, 1998. On June 14, 2000, pursuant to an offer
of settlement made by Cendant, the SEC issued an Order Instituting Public
Administrative Proceedings Pursuant to Section 21C of the Securities and
Exchange Act of 1934, Making Findings and Imposing a Cease and Desist Order. In
such Order, the SEC found that Cendant had violated certain financial reporting
provisions of the Securities and Exchange Act of 1934 and ordered Cendant to
cease and desist from committing any future violations of such provisions. No
financial penalties were imposed against Cendant.
On December 7, 1999, Cendant announced that it reached a preliminary
agreement to settle the principal securities class action pending against
Cendant in the U.S. District Court in Newark, New Jersey, or the District
Court, brought on behalf of purchasers of all Cendant and CUC publicly traded
securities, other than PRIDES, between May 1995 and August 1998. Under the
agreement, Cendant would pay the class members approximately $2.85 billion in
cash. The definitive settlement document was approved by the District Court by
order dated August 14, 2000. Certain parties in the class action have appealed
the District Court's order approving the settlement and its related orders
approving the plan of allocation of the settlement fund and awarding attorneys'
fees and expenses to counsel for the lead plaintiffs. The U.S. Court of Appeals
for the Third Circuit has not issued a briefing schedule for the appeals.
The settlement does not encompass all litigation asserting claims associated
with the accounting irregularities. Cendant does not believe that it is
feasible to predict or determine the final outcome or resolution of these
unresolved proceedings. Move.com Group is currently not a party to such
litigation and do not believe that there is any basis for an assertion of a
claim thereunder. As such, the Move.com Group together with Cendant do not
believe that the impact of such unresolved proceedings should result in a
material liability to the Move.com Group in relation to our combined financial
position or liquidity.
Other Pending Litigation
The Move.com Group is involved in pending litigation in the usual course of
business. In the Move.com Group's opinion, such other litigation will not have
a material adverse effect on the Move.com Group's combined financial position,
results of operations or cash flows.
Recent Accounting Pronouncements
In June 2000, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities," which amends
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 was previously amended by SFAS No. 137 "Accounting for Derivative
Instruments
49
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133," which deferred the effective date of SFAS No. 133 to fiscal years
commencing after June 15, 2000. SFAS No. 133 requires that all derivatives be
recorded in the balance sheet as assets or liabilities and measured at fair
value. If the derivative does not qualify as a hedging instrument, changes in
fair value are to be recognized in net income. If the derivative does qualify
as a hedging instrument, changes in fair value are to be recognized either in
net income or other comprehensive income consistent with the asset or liability
being hedged. The Move.com Group does not have any significant derivative
financial instruments or hedging activities and as such, expects that there
will be no material impact as a result of the implementation of these
standards.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position, or 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 the Move.com Group's financial
position, results of operations or cash flows.
50
RELATED AGREEMENTS
Master Operating Agreement
We, Cendant and each of Cendant's Century 21 Real Estate Corporation,
Coldwell Banker and ERA Franchise Systems, Inc. brands, which we refer to as
the Brands, entered into a master operating agreement in which we agreed to
display on our websites information related to the sale, purchase, lease and/or
rental of real property provided by the Brands and by any real estate
franchiser created by Cendant or the Brands.
Cendant and the Brands agreed to give us an exclusive license to use listing
information related to the sale, purchase, lease and/or rental of real
property, which we refer to as Listing Data. Cendant and the Brands agreed to
give us a non-exclusive license to use (1) contact information relating to
persons or entities that have recently purchased, rented or leased real
property, which we refer to as New Resident Data, (2) information related to
real property sales agents and brokers, which we refer to as Broker Agent Data
and (3) any other relevant information other than Listing Data, Broker Agent
Data and New Resident Data, which we refer to as Other Data. Cendant and the
Brands are also obligated, subject to pre-existing obligations, to have any
acquired real estate franchiser or brokerage, which we refer to as Acquired
Brands, provide us a non-exclusive license to use Listing Data, Broker Agent
Data, New Resident Data and/or Other Data. We have a right of first refusal to
enter into an exclusive contract to receive this data from any Acquired Brands.
Beginning with the fifth anniversary of the effective date of the agreement, we
will retain an exclusive license to listing data for so long as our websites
maintain their position in the real estate website market with respect to
unique visitors.
Cendant, the Brands and the Acquired Brands will actively promote their
relationship with us, endorse some of our products, participate in co-branded
marketing campaigns, provide us with promotional opportunities at Cendant-
sponsored trade shows, conferences and conventions, promote us in online and
non-Internet advertising materials and provide us with favorable pricing for
advertising in Brand publications. For three years, Cendant, the Brands and the
Acquired Brands may not directly or indirectly participate in any business that
operates a real property listing service or similarly competitive business and
we may not directly or indirectly participate in any business whose gross
revenues primarily come from the ownership or operation of a residential real
property brokerage or real estate franchise system.
The initial term of the master operating agreement is 40 years, unless
terminated earlier. Either party may terminate the agreement for any material
breach that a defaulting party fails to cure. If any party engages in a
competitive business in violation of the agreement, we may not terminate the
agreement, but the other may terminate its corresponding obligations not to
participate in a competitive business.
NRT Listing Agreement
We and NRT entered into an agreement in which we agreed to display on our
websites listing data provided by NRT and any real estate franchiser or
brokerage acquired or created by NRT, which we collectively refer to as the NRT
entities. The NRT entities agreed to give us an exclusive license to use
Listing Data. The NRT entities agreed to give us a non-exclusive license to use
Broker Agent Data, New Resident Data and Other Data. Beginning with the fifth
anniversary of the effective date of the agreement, our license to the listing
data will be exclusive for so long as our websites maintain their position in
the real estate website market with respect to unique visitors.
The NRT entities will actively promote their relationship with us, endorse
some of our products, participate in co-branded marketing campaigns, provide us
with promotional opportunities at NRT-sponsored trade shows, conferences and
conventions, promote us in non-Internet advertising materials and provide us
with favorable pricing for advertising in NRT publications. For three years,
the NRT entities may not directly or indirectly participate in any business
that operates a real property listing service or similarly competitive
business. For three years, we may not directly or indirectly participate in any
business whose gross revenues primarily come from the ownership or operation of
a residential real property brokerage or real estate franchise system.
51
The term of the NRT Agreement shall initially expire on June 28, 2008,
unless terminated earlier. Either party may terminate the agreement for any
material breach that a defaulting party fails to cure. If any of the NRT
entities or us engages in a competitive business in violation of the agreement,
neither party may terminate the agreement, but may terminate the corresponding
obligations not to participate in a competitive business. We have a right of
first negotiation up until 90 days before the expiration of the agreement, and
after that time, NRT Agreement will negotiate with us on a non-exclusive basis
for 30 days regarding entering into a new agreement.
Corporate Services Transition Agreement
We and Cendant entered into a Corporate Services Transition Agreement for
the delivery of specified transitional and other services by Cendant to us and
from us to Cendant. Unless otherwise noted, each party will provide these
transitional services for a period of up to three months after the
effectiveness of the mergers, with an option to renew on a month-to-month
basis, as mutually agreed upon by both parties.
Services to be Provided by Cendant. Cendant agreed to provide the following
services to us for the Move.com and Welcome Wagon businesses:
. corporate payroll and human resources processing and tax compliance and
planning services, for a payroll processing fee per employee and a fee
for each manual check provided, and any one time costs associated with
the ownership change. Any additional fees will be charged based on
Cendant's actual cost plus a specified percentage;
. accounts payable and time and expense report processing services, for a
fee based on each invoice, report or form reissued, with any additional
fees to be charged based on Cendant's actual cost plus a specified
percentage; and
. fixed asset administration, corporate financial systems, general
accounting, general ledger and financial reporting and data center
support services for a fee based on Cendant's actual cost plus a
specified percentage.
Services to be Provided by Us. We agreed to provide services to National
Home Connections, LLC, which was owned by Move.com prior to the mergers, but
will be transferred to Cendant prior to the mergers. We agreed to provide
general accounting procedures and IT consulting for website design. The fees
charged will be based on our actual cost plus a specified percentage.
The agreement provides that the parties may agree to provide additional
services for a fee equal to the estimated fee plus 10%, or if not estimated, at
the other party's cost plus a specified percentage. This agreement may be
terminated if both parties agree. It may also be terminated upon 30 days notice
by either party, if the other party breaches its obligations under the
agreement, the other party becomes insolvent or performance becomes impossible
or impractical for a period of one month by reason of the occurrence of events
beyond the reasonable control of the party.
Web Marketing Agreement
We and Cendant entered into a web marketing agreement, in which we agreed to
display Cendant advertisements on our websites over a three year period.
Either party may terminate the agreement at any time in the event that the
other party materially breaches the agreement and the breach remains uncured
for 30 days, or if the other party becomes insolvent or unable to pay its
debts.
52
Transaction Platform Marketing Agreements
We entered into a Transaction Platform Marketing Agreement with Cendant and
other entities affiliated with Cendant and a Transaction Platform Marketing
Agreement with NRT. These agreements will provide that the parties to the
agreements will promote, endorse, recommend and market our real estate
transaction management platform technologies, which will provide transaction
processing and support services to aid real estate brokers in assisting real
estate purchasers and sellers in fulfilling the closing conditions of a real
estate purchase contract. In addition, Cendant, some of its affiliates and NRT
will also agree to exclusively install, implement and use the platform and key
system components. Pricing under these agreements will be negotiated between us
and Cendant and us and NRT, respectively, and if pricing terms are not agreed
to by April 1, 2001, the pricing terms shall be settled by arbitration.
These agreements have three-year terms, which will commence on the earlier
to occur of April 1, 2001 or the date upon which substantially all of the
transaction platform is first made generally commercially available by us. The
agreements may be terminated earlier by either party if: (1) the other
materially breaches the terms of the agreements; (2) the other becomes
voluntarily subject to bankruptcy or other similar proceedings; (3) an order
for the dissolution of the other remains unstayed and in effect for more than
60 days; (4) any involuntary bankruptcy or similar petition or application is
filed and the other party consents or acquiesces to the filing; or (5) an order
appointing a trustee, receiver, custodian, liquidator or similar official or
approving such a petition remains unstayed and in effect for more than 60 days.
Software License Agreement
We and RETT entered into a software license agreement under which we,
through our subsidiary Top Producer Systems Company, or Top Producer, will
develop and provide to RETT an automated sales associate and broker system. We
or Top Producer will provide updates and/or upgrades to RETT under the terms of
a maintenance and support agreement, the terms of which shall be agreed at a
later date. The agreement will become effective on the later of (1) January 2,
2001 or (2) the effective date of the Master Operating Agreement, and will
remain in force for a term of two years, however, the license granted under the
license agreement will be a perpetual license, subject to revocation. The
agreement may be terminated by a party if the other party (A) breaches
agreement in any material respect and fails to cure the violation within 60
days after receiving written notice of such violation or (B) undergoes a
dissolution, liquidation or other insolvency event.
Marketplace Agreements
We entered into Marketplace Agreements with Cendant and each of the Brands.
These agreements provide us (1) the right to act as the exclusive advertising
agent for Brand websites and Cendant websites, (2) the option to include a
marketplace on the Brand websites and the Cendant websites and (3) an option to
host these websites.
We will also have the exclusive right to sell some types of advertising
space on the Brand websites and the Cendant websites. The parties agreed to
share any advertising revenues that may be derived from the sale of
advertisements on these websites. The parties will also share any profits
derived from sales to customers linked to the marketplace from the Brands'
websites.
If we exercise our option to host the Brand websites and the Cendant
websites, the terms of the hosting arrangement will be negotiated between the
parties. These agreements will have 40 year terms. If a party materially
breaches the agreement, then within ten days of receipt of written notice of
the breach, an executive of each party will meet to determine whether a breach
occurred and the appropriate remedy for the breach. If the executives cannot
agree on whether a breach occurred or the appropriate remedy, then within 30
days of their initial meeting, the parties will submit the dispute to
arbitration if the parties' chief executive officers are unable to resolve the
dispute. Upon determination of an appropriate remedy by the parties or the
arbitrator, the breaching party will have 90 days, or such greater time as the
parties agree, to cure the breach, or the other party may terminate the
agreement.
53
iLEAD Agent Services Agreement
We and RETT entered into an agreement under which RETT will purchase from us
our iLEAD services for Brand sales associates. The agreement will become
effective on the later of (1) January 2, 2001 or (2) the effective date of the
Master Operating Agreement and will remain in force for a term of one year from
the date we actually begin providing services under the agreement.
Support Agreements
Cendant required some of our stockholders to enter into support agreements.
These stockholders were: America Online Inc.; Fannie Mae; Kleiner Perkins
Caufield & Byers; National Association of Realtors; Richard Janssen; and Stuart
Wolff, Ph.D. These support agreements require these stockholders to vote the
shares of our common stock owned by them in favor of the merger agreement and
the mergers and against any proposal in opposition to or competition with the
mergers. These stockholders also granted Cendant an irrevocable proxy to vote
their shares of our common stock at the special meeting. As of the record date,
these stockholders beneficially owned shares of our common stock, which
represented approximately % of our outstanding common stock. These
stockholders also agreed not to sell or transfer the Homestore.com common stock
they own until the termination of the support agreements. The support
agreements will terminate upon the earlier of the termination of the merger
agreement or the completion of the mergers.
Purchase Agreement
We and RETT entered into a Purchase Agreement under which it will purchase
some of our products and services for Cendant franchisees. RETT agreed to
purchase these products and services through 2002. The agreement may be
terminated if either party materially breaches a material term of the agreement
and fails to remedy the breach within 60 days of receiving notification of the
breach.
Combined Value of Related Agreements
The combined value of the commitments to purchase professional products from
us is approximately $176 million on a net present value basis. The net present
value was determined using the following assumptions: (1) projected cash flows,
(2) calculated terminal value, (3) discount rate of 20% and (4) a terminal
forward revenue multiple of 3.0x.
Registration Rights Agreement
We entered into a registration rights agreement with Cendant. On up to three
occasions, Cendant can request that we file a registration statement with the
SEC, registering for public resale of no more than 10% of the shares of our
common stock it receives in the mergers. We will only be required to effect one
registration in any 12-month period and shall not be required to keep a
registration statement effective for more than 120 days. Cendant will also be
entitled to "piggyback" registration rights after the first anniversary of the
closing of the mergers entitling it, subject to limitations, to include the
shares of our common stock it receives in the mergers in a registration
statement filed with the SEC by us.
In addition, no earlier than the earlier of 90 days after the closing of the
mergers, or May 31, 2001, we must file a registration statement on Form S-3 and
maintain the effectiveness of the registration statement for one (1) year for a
public offering of shares of our common stock held by holders of Tracking
Stock. The registration rights agreement will terminate ten years from the
effective date of the mergers or earlier if the shares may be publicly resold
in ninety (90) day period without registration under the Securities Act under
Rule 144 of the Securities Act.
Stockholder Agreement
We and Cendant will enter into a Stockholder Agreement.
Standstill Provisions. For a period of ten years, Cendant will not be
permitted to acquire additional shares of our common stock or other of our
voting securities if the acquisition would increase the number of our voting
securities beneficially owned by Cendant in excess of the number of shares
Cendant receives in the
54
mergers plus the shares of our common stock Cendant currently owns. This
restriction does not apply to additional shares of our voting stock acquired as
a result of a stock split, stock dividend, recapitalization or similar event.
During that same ten year period, Cendant will also be prohibited from:
. soliciting proxies or from acting in concert with any person soliciting
proxies with respect to any of our voting securities;
. depositing its shares of our stock into a voting trust;
. joining a group for the purposes of acquiring, holding, voting or
disposing of our stock; and
. either alone or in concert with others, seeking to control our
management, board of directors or policies.
Restrictions on Transfer. Cendant will be prohibited from transferring any
of our voting stock or any of our non-voting convertible securities to any
person who is currently, or will after the transfer, beneficially own more than
5% of our outstanding voting stock or voting power. This restriction will not
apply to transfers to institutional mutual funds that are only in the business
of passively holding and trading shares of publicly traded companies and are
not required to report its holdings with SEC on a Schedule 13D.
Between the first and third anniversary of the mergers, Cendant will be
permitted to transfer no more than 3.2 million shares and these shares may only
be transferred during four 90-day periods, with only 800,000 shares being able
to be transferred during any one ninety day period. In addition, any of these
sales must be made in compliance with the volume and manner of sale
requirements of Rule 144 of the Securities Act, or as a result of the exercise
of Cendant's piggyback registration rights. After the third anniversary of the
mergers, Cendant will be required to transfer its shares only in sales made in
compliance with the volume and manner of sale requirements of Rule 144 of the
Securities Act or upon exercise of its three (3) demand registration rights.
Cendant may not directly or indirectly, sell, offer to sell, contract to
sell, loan, grant an option to purchase or otherwise dispose of any shares it
holds immediately prior to the mergers for a period of 180 days after the
closing the mergers. If requested by any underwriter of our securities, Cendant
has agreed to be bound by similar restrictions on transfer for a period of 90
days after the effective date of the registration statement of that
underwritten offering, provided that a majority of our board of directors
agrees to be similarly bound.
Voting Restrictions. For a period ending on the later of five years from the
date of the mergers, or the earlier of (1) when Cendant transfers more than 50%
of its shares of our stock to persons not affiliated with Cendant or (2) when
Cendant ceases to beneficially own more than 5% of our outstanding voting
stock, Cendant will be obligated to vote the shares of our stock it holds in
the same manner and proportion as cast by the holders of our voting stock other
than Cendant or its affiliates. Cendant will also be required to be present in
person or proxy at all meetings of our stockholders. In addition, Cendant will
not be permitted to exercise any dissenter's rights in connection with any
merger, consolidation or other reorganization approved by our board of
directors. It has also agreed to be bound by any standard pooling affiliate
lock up agreement if requested by us if required to maintain pooling-of-
interests treatment with respect to a merger, consolidation or reorganization
transaction.
55
STOCKHOLDER PROPOSALS
Under Rule 14a-8 of the Exchange Act, a stockholder may present one proposal
for inclusion in our proxy statement and for consideration at a special meeting
of our stockholders if the stockholder is eligible under Rule 14a-8 and if that
stockholder complies with the procedural requirements of Rule 14a-8. Generally,
to be eligible, a stockholder must have held at least $2,000 in market value of
our common stock for at least one year before the date the stockholder submits
the proposal and must establish proof of ownership of these securities. The
proposal must clearly state the proposed course of action the stockholder
believes we should adopt, but may not exceed 500 words in length.
Proposals of stockholders which are intended to be presented by such
stockholders at our 2001 annual meeting must be received by us no later than
December 1, 2000 in order that they may be included in the proxy statement and
form of proxy relating to that meeting.
We advise stockholders that, until further notice, notice of a stockholder-
sponsored proposal submitted outside of the process of Rule 14a-8 under the
Securities Exchange Act of 1934 (i.e., a proposal to be presented at the next
annual meeting of stockholders but not submitted for inclusion in
Homestore.com's proxy statement) will be considered untimely under
Homestore.com's bylaws unless it is received between January 12 and February
11, 2001.
OTHER BUSINESS
Our board of directors does not presently intend to bring any other business
before the special meeting of stockholders, and, so far as is known to the
board, no matters are to be brought before the special meeting except as
specified in the Notice of the Meeting. As to any business that may properly
come before the meeting, however, it is intended that proxies, in the form
enclosed, will be voted in respect thereof in accordance with the judgment of
the persons voting those proxies.
Whether or not you expect to attend the meeting, please complete, date, sign
and promptly return the accompanying proxy in the enclosed postage paid
envelope so that your shares may be represented at the meeting.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This proxy statement contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," "forecasts," "may," "might," "could," "will"
and "should" and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking statements.
These risks and uncertainties include those described in the "Risks Relating to
the Mergers" section and in the section entitled "The Mergers--Our reasons for
the mergers."
You should not place undue reliance on forward looking statements contained
in the proxy statement, which reflect the analysis of our management as of the
date of this proxy statement. We do not undertake any obligation to release
publicly the results of any revision to these forward-looking statements which
may be made to reflect events or circumstances after the date of this proxy
statement or to reflect the occurrence of unanticipated events.
56
DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT
This proxy statement incorporates documents by reference that are not
presented in or delivered with it. All documents filed by us under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the
date of this proxy statement and before the date of the special meeting of
stockholders, are incorporated into this proxy statement by reference and will
constitute a part of this proxy statement from the date of filing of those
documents. You should rely only on the information contained in this proxy
statement or that we have referred you to. We have not authorized anyone to
provide you with information that is different.
The following documents, which have been filed by us with the Securities and
Exchange Commission, are incorporated into this proxy statement by reference:
. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999;
. Our Quarterly Report on Form 10-Q for the three-month period ended March
31, 2000;
. Our Quarterly Report on Form 10-Q for the three-month period ended June
30, 2000;
. Our Definitive Proxy Statement relating to our 2000 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission on March
10, 2000;
. Our Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 15, 1999;
. Our Amended Current Report on Form 8-K/A filed with the Securities and
Exchange Commission on December 7, 1999;
. Our Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 27, 2000; and
. The description of our common stock contained in our registration
statement on Form 8-A, effective August 6, 1999, and any amendment or
report filed for the purpose of updating that description.
To the extent that any statement in this proxy statement is inconsistent
with any statement that is incorporated by reference, the statement in this
proxy statement will control. The incorporated statement will not be deemed,
except as modified or superseded, to be a part of this proxy statement or the
registration statement of which this proxy statement is a part.
57
WHERE YOU CAN FIND MORE INFORMATION
The documents incorporated by reference into this proxy statement are
available from us upon request. We will provide a copy of any and all of the
information that is incorporated by reference in this proxy statement, not
including exhibits to the information, unless those exhibits are specifically
incorporated by reference into this proxy statement, to you, without charge,
upon written or oral request. You should make any request for documents by
, 2000 to ensure timely delivery of the documents.
We file reports, proxy statements and other information with the Securities
and Exchange Commission. Copies of the reports, proxy statements and other
information filed by us may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference section of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a website that contains reports, proxy statements and other
information regarding us. The address of this website is http://www.sec.gov.
This document does not constitute an offer to sell, or a solicitation of an
offer to purchase, the common stock of Homestore.com or the solicitation of a
proxy, in any jurisdiction to or from any person to whom or from whom it is
unlawful to make the offer, solicitation of an offer or proxy solicitation in
that jurisdiction. Neither the delivery of this document nor any distribution
of securities means, under any circumstances, that there has been no change in
the information set forth in this document or in the affairs of Homestore.com
since the date of this document. The information contained in this document
with respect to the Move.com Group was provided by Move.com, Welcome Wagon and
Cendant, and the information contained in this document with respect to and the
information contained in this document with respect to Homestore.com was
provided by Homestore.com.
58
INDEX TO COMBINED FINANCIAL STATEMENTS OF MOVE.COM GROUP
Page
----
Independent Auditors' Report.............................................. F-2
Combined Statements of Operations for the Nine Month Period Ended
September 30, 2000 and the Years Ended December 31, 1999 and 1998........ F-3
Combined Balance Sheets as of September 30, 2000 and December 31, 1999 and
1998..................................................................... F-4
Combined Statements of Cash Flows for the Nine Month Period Ended
September 30, 2000 and the Years Ended December 31, 1999 and 1998........ F-5
Combined Statements of Group Equity for the Nine Month Period Ended
September 30, 2000 and the Years Ended December 31, 1999 and 1998........ F-6
Notes to Combined Financial Statements.................................... F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Cendant Corporation
Parsippany, New Jersey
We have audited the accompanying combined balance sheets of Move.com Group
(the "Group"), as defined in Note 1, as of September 30, 2000, December 31,
1999 and 1998, and the related combined statements of operations, cash flows
and group equity for the periods then ended. These combined financial
statements are the responsibility of the Group's management. Our responsibility
is to express an opinion on these combined financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Group as of September 30,
2000, December 31, 1999 and 1998, and the results of its operations and its
cash flows for the periods then ended in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE, LLP
October 23, 2000
(October 27, 2000 as to Note 14)
F-2
MOVE.COM GROUP
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
Nine Months Years Ended
Ended December 31,
September 30, -----------------
2000 1999 1998
------------- -------- -------
Net revenue.................................... $ 67,875 $ 79,826 $83,509
Cost of revenue................................ 21,909 13,935 8,497
-------- -------- -------
Gross profit................................. 45,966 65,891 75,012
-------- -------- -------
Expenses
Selling and marketing........................ 80,260 44,010 50,543
General and administrative................... 30,459 36,279 25,815
Product development.......................... 6,496 3,922 193
Depreciation and amortization................ 5,058 4,465 3,599
Restructuring and other unusual charges...... 3,313 -- --
Interest, net................................ (479) -- --
-------- -------- -------
Total expenses............................. 125,107 88,676 80,150
-------- -------- -------
Loss before income tax benefit................. (79,141) (22,785) (5,138)
Income tax benefit............................. (31,464) (8,817) (1,725)
-------- -------- -------
Net loss....................................... $(47,677) $(13,968) $(3,413)
======== ======== =======
See Notes to Combined Financial Statements.
F-3
MOVE.COM GROUP
COMBINED BALANCE SHEETS
(In thousands)
December 31,
September 30, ---------------
2000 1999 1998
------------- ------- -------
Assets
Current assets
Cash and cash equivalents...................... $ 3,779 $ 1,000 $ --
Accounts receivable (net of allowance for
doubtful accounts of $7,681, $5,547 and
$4,522, respectively)......................... 18,605 20,589 16,368
Investment in marketable securities............ 9,410 -- --
Other current assets........................... 1,668 2,949 484
Deferred income taxes.......................... 6,223 491 --
------- ------- -------
Total current assets............................. 39,685 25,029 16,852
------- ------- -------
Investment in restricted securities.............. 11,429 -- --
Property and equipment, net...................... 19,787 10,536 9,573
Goodwill, net.................................... 16,414 14,922 17,253
Deferred income taxes............................ 2,743 1,199 802
Other assets..................................... 2,771 2,760 2,136
------- ------- -------
Total assets..................................... $92,829 $54,446 $46,616
======= ======= =======
Liabilities and group equity
Current liabilities
Accounts payable............................... $ 4,961 $ 3,256 $ 2,805
Accrued employee compensation.................. 2,476 7,293 1,411
Accrued expenses............................... 11,232 7,589 5,626
Deferred income................................ 11,057 12,492 5,339
Deferred income taxes.......................... -- -- 603
------- ------- -------
Total current liabilities........................ 29,726 30,630 15,784
------- ------- -------
Noncurrent liabilities........................... 4,000 1,097 2,806
------- ------- -------
Commitments and contingencies (Note 8)
Group equity..................................... 59,103 22,719 28,026
------- ------- -------
Total liabilities and group equity............... $92,829 $54,446 $46,616
======= ======= =======
See Notes to Combined Financial Statements.
F-4
MOVE.COM GROUP
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Years Ended
Ended December 31,
September 30, -----------------
2000 1999 1998
------------- -------- -------
Operating Activities
Net loss.................................... $(47,677) $(13,968) $(3,413)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 5,058 4,465 3,599
Provision for doubtful accounts........... 2,134 1,025 685
Non-cash stock option compensation........ 2,935 264 --
(Gain) loss on disposal of assets......... (99) 282 280
Loss on sale of marketable securities..... 2,924 -- --
Deferred income taxes..................... (1,763) (1,491) 23
Net change in assets and liabilities from
operations, net of acquisitions:
Accounts receivable..................... 31 (5,246) (3,872)
Other current assets.................... 1,281 (2,465) (40)
Accounts payable and other current
liabilities............................ 531 8,296 4,125
Deferred income......................... (1,435) 7,153 (1,777)
Noncurrent liabilities.................. 2,903 (1,709) 2,806
Other assets............................ (11) (624) (39)
-------- -------- -------
Net cash provided by (used in) operating
activities................................... (33,188) (4,018) 2,377
-------- -------- -------
Investing Activities
Property and equipment additions............ (11,583) (3,645) (4,368)
Acquisition related payments................ (4,157) -- (240)
Proceeds from sale of marketable
securities................................. 2,790 -- --
Proceeds from disposal of assets............ 530 -- --
Other, net.................................. -- 2 --
-------- -------- -------
Net cash used in investing activities......... (12,420) (3,643) (4,608)
-------- -------- -------
Financing Activities
Net funding from Cendant.................... 48,387 8,661 2,231
-------- -------- -------
Net increase in cash and cash equivalents..... 2,779 1,000 --
Cash and cash equivalents, beginning of year.. 1,000 -- --
-------- -------- -------
Cash and cash equivalents, end of year........ $ 3,779 $ 1,000 $ --
======== ======== =======
Supplemental Disclosure of Cash Flow
Information
Income tax payments......................... $ -- $ 44 $ 71
======== ======== =======
Supplemental Non-Cash Investing Activities
Move.com common stock issued in conjunction
with investment in marketable securities... $ 40,000 $ -- $ --
======== ======== =======
Move.com common stock issued in conjunction
with purchase business combinations........ $ 3,608 $ -- $ --
======== ======== =======
See Notes to Combined Financial Statements.
F-5
MOVE.COM GROUP
COMBINED STATEMENTS OF GROUP EQUITY
(In thousands)
Balance at January 1, 1998............................................ $ 29,208
Net loss.............................................................. (3,413)
Net funding from Cendant.............................................. 2,231
--------
Balance at December 31, 1998.......................................... 28,026
Net loss.............................................................. (13,968)
Net funding from Cendant.............................................. 8,661
--------
Balance at December 31, 1999.......................................... 22,719
Net loss.............................................................. (47,677)
Other comprehensive loss.............................................. (7,934)
Net funding from Cendant.............................................. 91,995
--------
Balance at September 30, 2000......................................... $ 59,103
========
See Notes to Combined Financial Statements.
F-6
MOVE.COM GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Move.com Group (the "Group") is a combined reporting entity comprised of
Welcome Wagon International, Inc. and certain subsidiaries ("Welcome Wagon")
and Move.com, Inc. and certain subsidiaries ("Move.com"). The Group operates as
two segments, Welcome Wagon, which distributes welcoming packages to new
homeowners that include discounts for local merchants through its online and
offline resources, and Move.com, which provides a broad range of quality
relocation, real estate and home-related products and services through its
flagship portal site, move.com and the move.com network. The move.com website
was launched on January 27, 2000.
All entities within the Group are wholly-owned or majority-owned
subsidiaries of Cendant Corporation ("Cendant" or the "Parent Company"). The
combined financial statements of the Group represent the aggregation of the
accounts and transactions of the following legal entities:
Welcome Wagon International, Inc.
GTKY Printing & Mailing Corp.
Getko Direct Response Ltd.
Move.com, Inc.
Move.com Mortgage, Inc.
Move.com Operations, Inc.
Rent Net, Inc.
Housenet, Inc.
Move.com U.K. Ltd.
The Group's operations exclude the results of Getko of Canada Ltd., National
Home Connections, LLC and MetroRent.
The accompanying Combined Financial Statements include the accounts and
transactions of all of the above-mentioned legal entities. All inter-Group
accounts and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Group considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Group to concentrations
of credit risk consist of accounts receivable. Management periodically performs
credit evaluations of its customers' financial condition and generally does not
require collateral on accounts receivable. During the periods ended September
30, 2000 and December 31, 1999 and 1998, no customers accounted for more than
10% of net revenue or net accounts receivable.
F-7
MOVE.COM GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Fair Value of Financial Instruments
The Group's financial instruments, including cash and cash equivalents,
accounts receivable and accounts payable are carried at cost, which
approximates their fair value, because of the short-term maturity and the
relatively stable interest rate environment.
Investments
Investment in marketable securities is classified as available for sale and
is carried at fair value, which is determined based upon specific
identification. The corresponding net unrealized gains or losses are reported
in group equity. Investment in restricted securities is restricted as to its
sale and, accordingly, is recorded at cost.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets of three, five and seven years.
Amortization of leasehold improvements is computed using the straight-line
method over the estimated useful lives of the related assets or the lease term,
if shorter.
Goodwill
Goodwill, which represents the excess of cost over fair value of net assets
acquired, is amortized on a straight-line basis over an estimated useful life
of five years. At September 30, 2000 and December 31, 1999 and 1998,
accumulated amortization amounted to $10,145, $8,603 and $5,758, respectively.
Asset Impairment
The Group periodically evaluates the recoverability of its investments,
intangible assets and long-lived assets, comparing the respective carrying
values to the current and expected future undiscounted cash flows, to be
generated from such assets. Property and equipment is evaluated separately
within each business. The recoverability of goodwill is evaluated on a separate
basis for each acquisition. Any enterprise goodwill is also evaluated using the
undiscounted cash flow method.
Insurance Contracts
Under the terms of a purchase agreement, the Group made premium payments for
various insurance contracts in which the Group retains a residual interest. The
Group's residual interest in these contracts approximates their respective cash
surrender value.
Revenue Recognition
Welcome Wagon recognizes revenues from advertising contracts with local
merchants and professionals to be distributed as complimentary welcoming
packages to new homeowners and other consumers throughout the United States at
the time of sale of these advertisements or at the time the Group fulfills its
obligation under the contract (by distributing the packages to the consumers),
depending on the terms of the sale or sales contract.
Move.com revenue sources include revenue from listing subscription fees
(paid by various apartment, senior housing, corporate housing and self storage
managers), banner advertising commitments and sponsorship advertising
contracts. Revenue from the listing subscription fees, including any up-front
payments, is
F-8
MOVE.COM GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
recognized on a straight-line basis over the contract period, which is
generally one year. Banner advertising commitments (ranging from one week to
one year) and sponsorship advertising contracts (ranging from three months to
three years), including any up-front payments, are recognized ratably over the
period in which the advertisement is displayed, provided that no significant
Group obligations remain at the end of a period and collection of the resulting
receivable is probable. The Group obligations may include guarantees of minimum
number of "impressions", or times that an advertisement appears in pages viewed
by users. To the extent minimum guaranteed impressions are not met, the Group
defers recognition of revenues until the remaining guaranteed impression levels
are achieved.
Revenue is recorded net of price adjustments.
Deferred income represents the unearned portion of listing and advertising
fees received in advance.
Product Development Expenses
Product development expenses are expensed as incurred and include costs
incurred by the Group to develop and enhance the move.com network.
Advertising Expenses
Advertising expenses are expensed in the period incurred. For the periods
ended September 30, 2000 and December 31, 1999 and 1998, advertising expenses
were $46,895, $13,176 and $6,919, respectively.
Commission Expenses
Commission expenses are expensed in the period incurred. For the periods
ended September 30, 2000 and December 31, 1999 and 1998, commission expenses
were $7,404, $10,239 and $8,538, respectively.
Income Taxes
The Group is included in the consolidated federal income tax return of
Cendant. In addition, the Group files unitary and combined state income tax
returns with Cendant in jurisdictions where required. As such, income tax
expense is allocated to the Group, and reflected in the Group's financial
statements, in accordance with Cendant's tax allocation policy.
Cendant's tax allocation policy provides that the financial statement
expense or benefit, as the case may be, will be allocated to the Group in an
amount equal to the difference between (x) the consolidated income tax expense
or benefit of Cendant for financial statement purposes, and (y) the
consolidated income tax expense or benefit of Cendant for financial statement
purposes computed without including the Group's financial statement pretax
income and any other relevant amounts properly allocable to the Group. If the
above computation results in a positive amount, such amount will be allocated
to the Group as a tax expense. If the above computation results in a negative
amount, such amount will be allocated to the Group as a tax benefit.
Valuation of the tax assets is not considered necessary by the Group based
on the Parent Company's ability to utilize such tax assets.
F-9
MOVE.COM GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Recent Accounting Pronouncements
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities," which amends
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 was previously amended by SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," which deferred the effective date of SFAS No. 133 to fiscal
years commencing after June 15, 2000. SFAS No. 133 requires that all
derivatives be recorded in the balance sheet as assets or liabilities and
measured at fair value. If the derivative does not qualify as a hedging
instrument, changes in fair value are to be recognized in net income. If the
derivative does qualify as a hedging instrument, changes in fair value are to
be recognized either in net income or other comprehensive income consistent
with the asset or liability being hedged. At September 30, 2000 and December
31, 1999 and 1998, the Group did not have any significant derivative financial
instruments or hedging activities. Accordingly, the Group expects that there
will be no material impact as a result of the implementation of these
standards.
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 SOP 98-1 in the first quarter of
1999 did not have a significant impact on the Group's financial position,
results of operations or cash flows.
3. COMPREHENSIVE INCOME
The components of comprehensive income are summarized as follows:
Nine Months Ended
September 30, 2000
------------------
Net loss................................................ $(47,677)
Unrealized loss on marketable securities, net of tax of
$5,513................................................. (7,934)
--------
Total comprehensive income.............................. $(55,611)
========
The after tax components of accumulated other comprehensive loss for the
nine months ended September 30, 2000 are as follows:
Unrealized Loss
on Marketable
Securities
---------------
Balance, January 1, 2000..................................... $ --
Current period change........................................ (7,934)
------
Balance, September 30, 2000.................................. (7,934)
======
4. RESTRUCTURING AND OTHER UNUSUAL CHARGES
During the nine months ended September 30, 2000, the Group's management,
with the appropriate level of authority, formally committed to various
strategic initiatives. As a result of such initiatives, during the nine months
ended September 30, 2000, the Group incurred restructuring and other unusual
charges ("Unusual Charges") of $3,313, all of which were personnel related
charges. The restructuring initiatives were aimed at improving the overall
level of organizational efficiency, consolidating and rationalizing existing
processes,
F-10
MOVE.COM GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
reducing cost structures in the Group's underlying businesses and other related
efforts. Through September 30, 2000, the Group paid out $2,451 of the Unusual
Charges. The remaining liability associated with the Unusual Charges of $862 at
September 30, 2000, is classified as a component of accrued expenses. These
initiatives are expected to be substantially completed over the next six
months. The personnel related costs include severance resulting from the
consolidation and relocation of business operations and certain corporate
functions as well as other related costs. The Group formally communicated to 38
employees, representing a wide range of employee groups, as to their separation
from the Group. As of September 30, 2000, approximately 24 employees were
terminated from the Group.
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of:
December 31,
September 30, --------------
2000 1999 1998
------------- ------- ------
Building..................................... $ 4,131 $ 4,134 $4,095
Leasehold improvements....................... 8,420 1,473 --
Computer and telephone equipment............. 13,103 10,665 9,284
Office furniture............................. 2,174 992 673
-------- ------- ------
27,828 17,264 14,052
Less accumulated depreciation and
amortization................................ 8,041 6,728 4,479
-------- ------- ------
$ 19,787 $10,536 $9,573
======== ======= ======
6. INCOME TAXES
The income tax benefit (expense) consisted of:
Nine Months Years Ended
Ended December 31,
September 30, --------------
2000 1999 2000
------------- ------- ------
Current:
Federal.................................... $ 23,660 $ 5,758 $1,402
State...................................... 6,041 1,568 346
-------- ------- ------
29,701 7,326 1,748
-------- ------- ------
Deferred:
Federal.................................... 1,543 1,305 (20)
State...................................... 220 186 (3)
-------- ------- ------
1,763 1,491 (23)
-------- ------- ------
$ 31,464 $ 8,817 $1,725
======== ======= ======
F-11
MOVE.COM GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Deferred income tax assets and liabilities consisted of:
December 31,
September 30, --------------
2000 1999 1998
------------- ------ ------
Current deferred tax asset (liability):
Accrued expenses........................... $ 409 $ 84 $ 103
Prepaid expenses........................... (2,771) (1,811) (2,514)
Unrealized loss on marketable securities... 5,513 -- --
Provision for doubtful accounts............ 3,072 2,218 1,808
Noncurrent deferred tax asset (liability):
Depreciation and amortization.............. 1,355 1,106 648
Stock option compensation.................. 1,281 105 --
Other...................................... 107 (12) 154
------- ------ ------
$ 8,966 $1,690 $ 199
======= ====== ======
The Group's effective income tax rate differs from the statutory federal
rate as follows:
December 31,
September 30, --------------
2000 1999 1998
------------- ------ ------
Federal statutory rate....................... 35.0% 35.0% 35.0%
State and local income taxes, net of federal
tax benefit................................. 5.2 5.0 4.3
Amortization of nondeductible goodwill....... (0.3) (1.0) (4.6)
Other, net................................... (0.1) (0.3) (1.1)
------- ------ ------
39.8% 38.7% 33.6%
======= ====== ======
7. RELATED PARTY TRANSACTIONS
The Group maintains several related party agreements with its Parent Company
and/or its affiliates.
During 1999 and 1998, the Group had an Internet engineering services
agreement with Cendant, whereby services were charged to the Group based upon
usage volume. Such charges were $1,773 and $795 for the years ended December
31, 1999 and 1998, respectively. During 2000, Cendant provided similar Internet
engineering services to the Group without a formal agreement between the Group
and Cendant. Charges for such services were $3,287 for the nine months ended
September 30, 2000.
On October 1, 1999, the Group entered into a 40-year Internet Cooperation
Agreement with each of Cendant's three real estate franchise systems. Under the
terms of these agreements, the Group receives fees for website management. Such
fees were $3,653 during 2000 and $429 during 1999.
On February 15, 1999, the Group entered into a one-year advertising
agreement with Cendant Mortgage Corporation, whereby the Group provides
advertising space and links to various mortgage programs and products on its
website. The agreement is renewable every six months commencing after the first
year until cancelled by either party. The Group received $1,931 and $360 of
revenue under this agreement during the periods ended September 30, 2000 and
December 31, 1999, respectively.
On January 1, 1999, Cendant entered into a four-year agreement with a
telecommunications service provider (the "Provider"), which permits the Group
to use the voice telecommunication services available to
F-12
MOVE.COM GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Cendant pursuant to a Cendant agreement that is shared with the Group. The
Group receives bills directly from the Provider and is obligated under the
service agreement to meet its affiliate guarantee of $300 of annual billings.
Any shortfalls in meeting that guarantee will be reimbursed to Cendant by the
Group. No such shortfall existed in 2000 or 1999.
Cendant and its subsidiaries also provide various services to the Group,
including certain general and administrative services and employee benefit
services. Such general and administrative services are accounted for as general
and administrative costs ("G&A") and are included in the Combined Statements of
Operations. Such charges include legal, accounting (tax and financial),
information and telecommunications services, marketing, intellectual property,
public relations, corporate offices and travel costs. Cendant allocates the
cost of its G&A services to the Group generally based on utilization. Where
determinations based on utilization are impracticable, Cendant uses percentage
of revenues or other methods and criteria. Allocated charges for G&A totaled
$469, $1,787 and $1,634 for the periods ended September 30, 2000 and December
31, 1999 and 1998, respectively. In addition, the Group paid $6,424 and $6,945
for the periods ended December 31, 1999 and 1998, respectively, to another
subsidiary of Cendant for the use of certain trademarks. These agreements were
terminated as of December 31, 1999.
The Group's employees participate in Cendant sponsored medical and defined
contribution benefit plans. The cost of such plans is allocated to the Group
based on a percentage of total payroll dollars. These allocations were $1,504,
$2,189 and $2,102 for the periods ended September 30, 2000 and December 31,
1999 and 1998, respectively.
Cendant has provided necessary funding for the operations and investments of
the Group and such funding has been accounted for as capital contributions from
Cendant and recorded as group equity along with the Group's accumulated net
income or loss and other comprehensive loss.
8. COMMITMENTS AND CONTINGENCIES
Leases
The Group leases its office facilities under operating leases. During the
fourth quarter of 1999, the Group entered into a lease for a larger facility
that was occupied during January 2000 to accommodate the operations of its
flagship portal site, move.com and the move.com network. Rental expense was
$3,729, $1,376 and $987 for the periods ended September 30, 2000 and December
31, 1999 and 1998, respectively.
Future minimum rental payments required under non-cancelable operating
leases as of September 30, 2000, including the January 2000 facility lease, are
as follows:
October 1, 2000 through December 31, 2000.......................... $ 1,095
2001............................................................... 4,147
2002............................................................... 4,190
2003............................................................... 3,787
2004............................................................... 3,869
Thereafter......................................................... 7,670
--------
$ 24,758
========
F-13
MOVE.COM GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Class Action Litigation and Government Investigations
Since the April 15, 1998 announcement of the discovery of accounting
irregularities in the former business units of CUC International Inc. ("CUC"),
approximately 70 lawsuits claiming to be class actions, two lawsuits claiming
to be brought derivatively on Cendant's behalf and several individual lawsuits
and arbitration proceedings have commenced in various courts and other forums
against Cendant and other defendants by or on behalf of persons claiming to
have purchased or otherwise acquired securities or options issued by CUC or
Cendant between May 1995 and August 1998.
The Securities and Exchange Commission ("SEC") and the United States
Attorney for the District of New Jersey are also conducting investigations
relating to the matters referenced above. As a result of the findings from
Cendant's internal investigations, Cendant made all adjustments considered
necessary by Cendant, which are reflected in its previously filed restated
financial statements for the years ended December 31, 1997, 1996, and 1995 and
for the six months ended June 30, 1998. On June 14, 2000, pursuant to an offer
of settlement made by Cendant, the SEC issued an Order Instituting Public
Administrative Proceedings Pursuant to Section 21C of the Securities and
Exchange Act of 1934, Making Findings and Imposing a Cease and Desist Order. In
such Order, the SEC found that Cendant had violated certain financial reporting
provisions of the Securities and Exchange Act of 1934 and ordered Cendant to
cease and desist from committing any future violations of such provisions. No
financial penalties were imposed against Cendant.
On December 7, 1999, Cendant announced that it reached a preliminary
agreement to settle the principal securities class action pending against
Cendant in the U.S. District Court in Newark, New Jersey ("District Court")
brought on behalf of purchasers of all Cendant and CUC publicly traded
securities, other than PRIDES, between May 1995 and August 1998. Under the
agreement, Cendant would pay the class members approximately $2.85 billion in
cash. The definitive settlement document was approved by the District Court by
order dated August 14, 2000. Certain parties in the class action have appealed
the District Court's order approving the settlement and its related orders
approving the plan of allocation of the settlement fund and awarding attorneys'
fees and expenses to counsel for the lead plaintiffs. The U.S. Court of Appeals
for the Third Circuit has not issued a briefing schedule for the appeals.
The settlement does not encompass all litigation asserting claims associated
with the accounting irregularities. Cendant does not believe that it is
feasible to predict or determine the final outcome or resolution of these
unresolved proceedings. The Group is currently not a party to such litigation
and management does not believe that there is any basis for asserting a claim
thereunder against the group. As such, Cendant and the Group do not believe
that the impact of such unresolved proceedings should result in a material
liability to the Group in relation to its combined financial position or
liquidity.
Other Pending Litigation
The Group is involved in pending litigation in the usual course of business.
In the opinion of management, such other litigation will not have a material
adverse effect on the Group's combined financial position, results of
operations or cash flows.
Employee retention bonus
In connection with Cendant's announcement during May 1999 to create a real
estate Internet portal, later named move.com, Cendant made commitments to pay
one-time, broad-based retention bonuses to certain Group employees aggregating
approximately $10,400. The costs associated with the bonuses were attributed to
the Group. Bonus payments during 1999 were approximately $5,240 and all
remaining payments were made by March 31, 2000.
F-14
MOVE.COM GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
9. ACQUISITION
On May 12, 2000, Cendant acquired all of the stock of Housenet, Inc. for
159,795 shares of the Cendant tracking stock ("Move.com Group common stock")
with an estimated fair value of $3,608, which is exclusive of other acquisition
related costs, and attributed the net assets to the Group. The acquisition has
been accounted for as a purchase. The acquisition cost has been allocated to
the assets acquired and liabilities assumed based on fair values. The excess of
purchase consideration over net tangible assets acquired of $3,472 has been
allocated to goodwill and is being amortized on a straight-line basis over 5
years.
10. LIBERTY DIGITAL, INC. INVESTMENT
On March 31, 2000, Liberty Digital, Inc. ("Liberty Digital") purchased
1,598,030 shares of Move.com Group common stock from Cendant for $31.29 per
share in exchange for consideration consisting of $10 million in cash and
813,215 shares of Liberty Digital Class A common stock valued at approximately
$40 million. Cendant contributed the proceeds of this transaction to the
Move.com Group.
Based on a contractual agreement with Liberty Digital, the Group can sell up
to one-seventh of the Liberty Digital shares per quarter. As of September 30,
2000, 232,347 shares are considered restricted and are recorded as a noncurrent
investment at cost. Had the noncurrent portion of the investment been recorded
as an available-for-sale security with corresponding unrealized gains or losses
reported as a component of other comprehensive loss, the additional net
unrealized loss on the noncurrent investment would have been $3,967, net of
tax.
As of September 30, 2000, there are 464,694 shares that are considered an
available-for-sale investment. The Group has reported unrealized losses of
$7,934, net of tax, as a component of group equity through September 30, 2000.
During the nine months ended September 30, 2000, the Group sold 116,174 shares
of its investment in Liberty Digital, reporting a loss of $2,924, net of tax.
At September 30, 2000, the Group reviewed its restricted and unrestricted
Liberty Digital shares to determine if the decline in fair value from inception
was other than temporary and therefore needed to be recognized in earnings.
Based upon the factors considered, including financial condition and near-term
prospects of the issuer, it was determined that such recognition was not
necessary.
11. MOVE.COM GROUP STOCK OPTION PLAN
On October 29, 1999, the Board of Directors of Move.com, Inc. adopted the
Move.com, Inc. 1999 Stock Option Plan as amended January 13, 2000 (the "Option
Plan"), which authorizes the granting of up to 6 million shares of Move.com,
Inc. common stock. Certain active employees of the Group and its affiliates are
eligible to be granted options under the Option Plan. Options under the plan
generally have a 10-year term and are exercisable at 33% per year commencing
one year from the grant date. On March 21, 2000, Cendant's stockholders
approved the amendment and restatement of Cendant's certificate of
incorporation to authorize a new series of Cendant common stock called Move.com
Group common stock and the assumption by Cendant of the Option Plan. Such
amendment authorizes the granting of an additional 5 million shares of Move.com
common stock. With the assumption of the Option Plan by Cendant, employees of
the plan are entitled to exercise their options into Move.com Group common
stock.
During the nine months ended September 30, 2000, 4,041,000 options to
purchase shares of Move.com common stock were granted to certain employees of
the Group under the Option Plan (the "Existing Grants") at a weighted average
exercise price of $22.76. Although the Company generally grants employee stock
options at fair value, certain options were granted below fair value during
1999. As such, compensation expense is
F-15
MOVE.COM GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
being recognized over the applicable vesting period. Compensation expense of
$2,935 and $264 has been recognized in general and administrative expense in
the Combined Statement of Operations during the nine months ended September 30,
2000 and the year ended December 31, 1999, respectively. At September 30, 2000,
there were 6,282,000 options outstanding, which were held by Move.com
employees, at a weighted average exercise price of $18.48.
In accordance with Cendant's Broad-Based Employee Stock Option Plan (the
"Cendant Plan"), 80,400 options to purchase shares of Cendant common stock were
granted to employees of Welcome Wagon during the nine months ended September
30, 2000, at fair value. At September 30, 2000, there were 356,332 options
outstanding, which were held by Welcome Wagon employees, at a weighted average
exercise price of $14.74.
The Group utilizes the intrinsic value method under Accounting Principles
Board ("APB") Opinion No. 25 and related interpretations in accounting for the
Option Plan. Under APB No. 25, compensation expense is recognized when the
exercise prices of Move.com Group's employee stock options are less than the
estimated fair value of the underlying Move.com stock on the date of grant.
12. STRATEGIC ALLIANCE WITH ALTAVISTA
On January 27, 2000, the Group announced a strategic alliance with
AltaVista, a new-media and commerce network, to create a co-branded real estate
channel on the AltaVista website. Under the terms of the three-year agreement,
the Group will pay AltaVista up to $40,000 to be an exclusive real estate
content provider of the new AltaVista Real Estate Channel. In addition, the
move.com network will be exclusively featured through banners and links on
keyword searches for most real estate and moving related terms. During the nine
months ended September 30, 2000, the Group recognized $8,879 in expense related
to such alliance.
13. SEGMENT INFORMATION
Management evaluates each segment's performance based upon an earnings
before interest, income taxes and depreciation and amortization calculation.
For this purpose, Adjusted EBITDA is defined as earnings before non-operating
interest, income taxes and depreciation and amortization, adjusted to exclude
items which are of a non-recurring or unusual nature and are not measured in
assessing segment performance.
In 2000, Welcome Wagon entered into an agreement with Move.com, whereby it
was agreed that 25% of Welcome Wagon's revenues and 30% of Welcome Wagon's
expenses would be allocated to Move.com. During the nine months ended September
30, 2000, Welcome Wagon allocated $9,911 and $11,889 of revenues and expenses,
respectively, to Move.com. No such agreement existed prior to 2000 and, as
such, no allocation was made for the years ended December 31, 1999 and 1998.
F-16
MOVE.COM GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Segment information is as follows:
Nine Months Ended Twelve Months Ended December 31,
September 30, ------------------------------------
2000 1999 1998
----------------- ----------------- -----------------
Net Adjusted Net Adjusted Net Adjusted
Revenues EBITDA Revenues EBITDA Revenues EBITDA
-------- -------- -------- -------- -------- --------
Welcome Wagon.......... $ 29,312 $ 360 $62,204 $ 2,874 $73,835 $(1,950)
Move.com............... 38,563 (71,609) 17,622 (21,194) 9,674 411
-------- -------- ------- -------- ------- -------
$ 67,875 $(71,249) $79,826 $(18,320) $83,509 $(1,539)
======== ======== ======= ======== ======= =======
A reconciliation of Adjusted EBITDA to combined loss before income taxes is
as follows:
December 31,
September 30, -----------------
2000 1999 1998
------------- -------- -------
Adjusted EBITDA............................ $ (71,249) $(18,320) $(1,539)
Depreciation and amortization.............. 5,058 4,465 3,599
Restructuring and other unusual charges.... 3,313 -- --
Interest, net.............................. (479) -- --
--------- -------- -------
$ (79,141) $(22,785) $(5,138)
========= ======== =======
Segment assets are as follows:
December 31,
September 30, -----------------
2000 1999 1998
------------- -------- -------
Welcome Wagon.............................. $ 35,475 $ 36,958 $38,002
Move.com................................... 57,354 17,488 8,614
--------- -------- -------
$ 92,829 $ 54,446 $46,616
========= ======== =======
14. SUBSEQUENT EVENT
On October 27, 2000, Cendant announced that it had entered into a definitive
agreement to sell Move.com Group to Homestore.com, Inc. Consummation of the
transaction is subject to certain customary closing conditions including Hart-
Scott-Rodino anti-trust approval. Although no assurances can be given, Cendant
expects to complete the transaction during the first quarter of 2001.
F-17
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of October 26, 2000 by and among homestore.com, Inc., a
Delaware corporation ("Parent"), Metal Acquisition Corp., a Delaware
corporation and a wholly-owned Parent Subsidiary ("Metal Merger Sub"), WW
Acquisition Corp., a New York corporation and a wholly-owned Parent Subsidiary
("WW Merger Sub"), Move.com, Inc., a Delaware corporation (the "Company"),
Welcome Wagon International Inc., a New York corporation ("WW"), Cendant
Membership Services Holdings, Inc., a Delaware corporation ("CMS"), and Cendant
Corporation, a Delaware corporation (the "Stockholder").
RECITALS
A. The Company is engaged in the Business (as defined in Section 1.6(a) of
this Agreement).
B. The Boards of Directors of each of the Stockholder, the Company, Parent,
Metal Merger Sub and WW Merger Sub believe it is in the best interests of each
company and its respective stockholders that Parent acquire (i) the Company
through the statutory merger of Metal Merger Sub with and into the Company with
the Company continuing as the surviving corporation (the "Metal Merger") and
(ii) WW through the statutory merger of WW Merger Sub with and into WW with WW
continuing as the surviving corporation (the "WW Merger" and, together with the
Metal Merger, the "Mergers") and, in furtherance thereof, have approved this
Agreement, the Mergers and the other transactions contemplated hereby.
C. The Board of Directors of the Stockholder has authorized the Stockholder
to approve this Agreement, the Mergers and the other transactions contemplated
hereby and the Stockholder has approved, and all subsidiaries of the
Stockholder that have any beneficial ownership of the Company or WW have
approved, the Mergers.
D. The Board of Directors of Parent has authorized the approval of this
Agreement, the Merger, the issuance of Parent Common Stock (as defined below)
and the other transactions contemplated hereby.
E. Pursuant to the Mergers, among other things, and subject to the terms and
conditions of this Agreement (i) all of the issued and outstanding capital
stock of the Company and WW immediately prior to the Mergers will be converted
into shares of the common stock of Parent, and (ii) all issued and outstanding
options, warrants and other rights to acquire or receive shares of the capital
stock of the Company and of the Stockholder which is designed to reflect the
performance of the Company (the "Tracking Stock") and (to the extent such
options for Tracking Stock are beneficially owned by employees of the Company
or WW immediately prior to the Mergers) shall be assumed by Parent, and shall
thereafter represent options, warrants or other rights to acquire or receive
common stock of Parent.
F. Concurrently with the execution and delivery of this Agreement, the
Stockholder, Parent and the Company are entering into certain of the operating
agreements and other agreements which are attached hereto as Exhibits A-1
through A-10 (collectively, the "Commercial Agreements").
G. Concurrently with the execution and delivery of this Agreement, the
Stockholder and Parent are executing and delivering a Stockholder Agreement in
the form attached hereto as Exhibit B hereto (the "Stockholder Agreement") and
a Registration Rights Agreement in the form attached hereto as Exhibit C (the
"Registration Rights Agreement" and, together with the Stockholder Agreement
and the Commercial Agreements, the "Ancillary Agreements").
H. Concurrently with the execution of this Agreement, each of the persons
set forth on Exhibit D hereto is entering into a support agreement with the
Stockholder in the form attached hereto as Exhibit E (collectively, the
"Support Agreements").
A-1
I. The Stockholder, Parent, Metal Merger Sub and WW Merger Sub desire to
make certain representations and warranties and other agreements in connection
with the Mergers.
J. For U.S. federal income tax purposes, it is intended by the parties
hereto that each of the Mergers shall qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code") and that this Agreement with respect to each of the Mergers constitutes
a "plan of reorganization" within the meaning of Section 1.368-2(g) of the
income tax regulations promulgated under the Code.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements, covenants, promises and representations set forth herein, the
mutual benefits to be gained by the performance of the terms hereof, and for
other good and valuable consideration, intending to be legally bound hereby the
parties agree as follows:
ARTICLE I
THE MERGERS
1.1 The Metal Merger. At the Effective Time (as defined in Section 1.2
hereof) and subject to and upon the terms and conditions of this Agreement and
the applicable provisions of the Delaware General Corporation Law ("Delaware
Law"), Metal Merger Sub shall be merged with and into the Company, the separate
corporate existence of Metal Merger Sub shall cease and the Company shall
continue as the surviving corporation and shall become a wholly-owned
subsidiary of Parent. The surviving corporation after the Metal Merger is
sometimes referred to hereinafter as the "Metal Surviving Corporation."
1.2 The WW Merger. At the Effective Time and subject to the terms and
conditions of this Agreement and the applicable provisions of the New York
Business Corporation Law ("New York Law"), WW Merger Sub shall be merged with
and into WW, the separate corporation existence of WW Merger Sub shall cease
and WW shall continue as the surviving corporation (the "WW Surviving
Corporation") and shall become a wholly-owned subsidiary of Parent.
1.3 Effective Time. Unless this Agreement is earlier terminated pursuant to
Section 8.1 hereof, the closing of the Mergers and the other transactions
contemplated by this Agreement (the "Closing") will take place as promptly as
practicable following the execution and delivery of this Agreement by each of
the parties hereto, but in no event later than two (2) business days following
satisfaction or waiver of the conditions set forth in Article VI hereof, at the
offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page
Mill Road, Palo Alto, California, unless another place and/or time is agreed to
in writing by Parent and the Stockholder. The date upon which the Closing
actually occurs is herein referred to as the "Closing Date." On the Closing
Date, the parties hereto shall cause each of the Mergers to be consummated by
filing a Certificate of Merger (or like instrument) (each, a "Certificate of
Merger" with respect to one of the Mergers, and collectively with respect to
both Mergers, the "Certificates of Merger") with the Secretaries of State of
the State of Delaware and the State of New York, respectively, in accordance
with the relevant provisions of Delaware Law and New York Law (the times at
which both Mergers have become fully effective (or such later time as may be
agreed in writing by the Company and Parent and specified in the Certificates
of Merger) is referred to herein as the "Effective Time").
1.4 Effect of the Mergers. At the Effective Time, the effect of the Mergers
shall be as provided in the applicable provisions of Delaware Law and New York
Law, as the case may be. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, except as provided herein, (i) all the
property, rights, privileges, powers and franchises of the Company and Metal
Merger Sub shall vest in the Metal Surviving Corporation, and all debts,
liabilities and duties of the Company and Metal Merger Sub shall become the
debts, liabilities and duties of the Metal Surviving Corporation and (ii) all
of the property, rights, privileges,
A-2
powers and franchises of WW and WW Merger Sub shall vest in the WW Surviving
Corporation, and all debts, liabilities and duties of WW and WW Merger Sub
shall become the debts, liabilities and duties of the WW Surviving Corporation.
1.5 Certificates of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time, (i) the Certificate of Incorporation of Metal Merger
Sub as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Metal Surviving Corporation at and
after the Effective Time until thereafter amended in accordance with the
Delaware Law and the terms of such Certificate of Incorporation; provided,
however, that at the Effective Time, Article I of the Certificate of
Incorporation of the Metal Surviving Corporation shall be amended and
restated in its entirety to read as follows: "The name of the corporation
is Move.com, Inc." and (ii) the Certificate of Incorporation of WW Merger
Sub as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the WW Surviving Corporation at and after
the Effective Time until thereafter amended in accordance with the New York
Law and the terms of such Certificate of Incorporation; provided, however,
that at the Effective Time, Article I of the Certificate of Incorporation
of the WW Surviving Corporation shall be amended and restated in its
entirety to read as follows: "The name of the Corporation is Welcome Wagon
International Inc."
(b) Unless otherwise determined by Parent prior to the Effective Time,
(i) the Bylaws of Metal Merger Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of the Metal Surviving Corporation at
and after the Effective Time, until thereafter amended in accordance with
Delaware Law and the terms of Certificate of Incorporation of the Metal
Surviving Corporation and such Bylaws and (ii) the Bylaws of WW Merger Sub
as in effect immediately prior to the Effective Time shall be the Bylaws of
the WW Surviving Corporation at and after the Effective Time, until
thereafter amended in accordance with New York Law and the terms of the
Certificate of Incorporation of the WW Surviving Corporation and such
Bylaws.
1.6 Metal Directors and Officers.
(a) Unless otherwise determined by Parent prior to the Effective Time,
the directors of Metal Merger Sub immediately prior to the Effective Time
shall be the directors of the Metal Surviving Corporation at and after the
Effective Time, each to hold the office of a director of the Metal
Surviving Corporation in accordance with the provisions of Delaware Law and
the Certificate of Incorporation and Bylaws of the Metal Surviving
Corporation until their successors are duly elected and qualified.
(b) Unless otherwise determined by Parent prior to the Effective Time,
the officers of Metal Merger Sub immediately prior to the Effective Time
shall be the officers of the Metal Surviving Corporation at and after the
Effective Time, each to hold office in accordance with the provisions of
the Bylaws of the Metal Surviving Corporation.
1.7 WW Directors and Officers.
(a) Unless otherwise determined by Parent prior to the Effective Time,
the directors of WW Merger Sub immediately prior to the Effective Time
shall be the directors of the WW Surviving Corporation at and after the
Effective Time, each to hold the office of a director of the WW Surviving
Corporation in accordance with the provisions of New York Law and the
Certificate of Incorporation and Bylaws of the WW Surviving Corporation
until their successors are duly elected and qualified.
(b) Unless otherwise determined by Parent prior to the Effective Time,
the officers of WW Merger Sub immediately prior to the Effective Time shall
be the officers of the WW Surviving Corporation at and after the Effective
Time, each to hold office in accordance with the provisions of the Bylaws
of the WW Surviving Corporation.
A-3
1.8 Merger Consideration.
(a) Certain Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
"Additional Options" shall mean the number of Company Options
reserved but unissued under the 2000 Option Plan such that, immediately
prior to the Effective Time and after giving effect to any acceleration
of vesting to the Company Options that occurs as a result of the
Mergers and any additional grants of Company Options required to be
granted as a result of the Mergers, the sum of (i) the number of
unvested Continuing Employee Options issued and outstanding and (ii)
such Additional Options equals no less than 10.7% of the Fully
Converted Shares (inclusive of the Additional Options).
"Business" shall mean, subject to the last paragraph of Section 4.1
of this Agreement, the business conducted by Move.com, Inc., RentNet,
Inc., HouseNet, Inc. and Welcome Wagon International Inc., and all of
their respective subsidiaries and business divisions, including without
limitation, SeniorHousingNet, CorporateHousingNet, SelfStorageNet and
Movedotcom(U.K.) Ltd. ("Move.com U.K."), and excluding the hosting of
websites for Century 21, Coldwell Banker and ERA.
"Company Capital Stock" shall mean shares of Company Common Stock
and any other shares of other capital stock of the Company.
"Company Common Stock" shall mean shares of the voting common stock
of Company, par value $.01 per share and the non-voting common stock of
the Company, par value $.01 per share.
"Company Convertible Securities" shall mean the Company Options
together with any other rights to acquire or receive shares of Company
Capital Stock, including all options, warrants and convertible
preferred stock.
"Company Options" shall mean (i) all, if any, issued and outstanding
options to purchase or otherwise acquire Company Capital Stock (whether
or not vested), (ii) all issued and outstanding options to purchase or
otherwise acquire Tracking Stock (whether or not vested) granted under
the Options Plans and held by Continuing Employees and (iii) all
reserved but unissued shares under the 2000 Option Plan.
"Continuing Employee" shall mean those employees who are, as of the
Closing, employed by the Company or WW or any of the Subsidiaries.
"Continuing Employee Option" shall mean each Company Option issued
to and held by a Continuing Employee.
"Fully Converted Shares" shall mean the sum of (i) all issued and
outstanding shares of Tracking Stock, (ii) all shares of Tracking Stock
issuable upon the exercise of all options or other rights to acquire
Tracking Stock, (iii) the Stockholder's notional interest in Tracking
Stock, (iv) all Company Options (without double counting any options or
other rights to acquire Tracking Stock), and (v) all Additional
Options.
"Knowledge" shall mean, with respect to the Stockholder, what is
within the actual knowledge of any of the directors or officers of the
Stockholder, the Company or WW, and in the case of Parent, what is
within the actual knowledge of any of the directors or officers of
Parent or any of the Parent Subsidiaries.
"Metal Consideration" shall mean that number of shares of Parent
Common Stock set forth on Schedule 1.8(a).
A-4
"Metal Exchange Ratio" shall mean a number of shares of Parent
Common Stock equal to the quotient obtained by dividing (i) the Metal
Consideration by (ii) the Metal Outstanding Shares (with the result
rounded to four decimal places).
"Metal Outstanding Shares" shall mean the aggregate number of shares
of Company Capital Stock outstanding immediately prior to the Effective
Time, including the aggregate number of shares of Company Capital Stock,
if any, issuable (with or without the passage of time or satisfaction of
other conditions) upon exercise or conversion of any Company Convertible
Securities outstanding or issuable (with or without the passage of time
or satisfaction of other conditions) immediately prior to the Effective
Time.
"1997 Option Plan" shall mean the Cendant Corporation amended and
restated 1997 Stock Incentive Plan.
"1999 Option Plan" shall mean the Cendant Corporation Move.com Group
1999 Stock Option Plan.
"Option Exchange Ratio" shall mean a number of shares of Parent
Common Stock equal to the quotient obtained by dividing (i) the Total
Consideration by (ii) the Fully Converted Shares (with the result
rounded to four decimal places).
"Option Plans" shall mean the 1999 Option Plan, the 1997 Option Plan
and the 2000 Option Plan.
"Options Assumed" shall mean the sum of the Company Options and the
Additional Options.
"Parent Common Stock" shall mean the common stock of Parent, $0.001
par value per share.
"Parent Closing Price" shall mean the average of the closing prices
of Parent Common Stock as quoted on the Nasdaq National Market for the
ten (10) days prior to the Closing Date.
"RentNet" shall mean RentNet, Inc., a Delaware corporation and a
Metal Subsidiary.
"SpringStreet" shall mean SpringStreet, Inc., a California
corporation and a Parent Subsidiary.
"Total Consideration" shall mean 26,275,602 shares of Parent Common
Stock.
"Total Option Consideration" shall mean a number of shares of Parent
Common Stock equal to the product obtained by multiplying (i) Options
Assumed by (ii) the Option Exchange Ratio.
"Total Outstanding Shares" shall mean the sum of the Metal
Outstanding Shares and the WW Outstanding Shares.
"2000 Option Plan" shall mean the Move.com, Inc. 2000 Stock Option
Plan.
"WW Capital Stock" shall mean shares of common stock of WW, par value
$.01 per share and any other shares of other capital stock of WW.
"WW Consideration" shall mean that number of shares of Parent Common
Stock equal to the Total Consideration minus the Total Option
Consideration minus the Metal Consideration.
"WW Convertible Securities" shall mean any other rights to acquire or
receive shares of WW Capital Stock, including all options, warrants and
convertible preferred stock.
"WW Exchange Ratio" shall mean a number of shares of Parent Common
Stock equal to the quotient obtained by dividing (i) the WW
Consideration by (ii) the WW Outstanding Shares (with the result rounded
to four decimal places).
A-5
"WW Outstanding Shares" shall mean the aggregate number of shares of
WW Capital Stock outstanding immediately prior to the Effective Time,
including the aggregate number of shares of WW Capital Stock issuable
(with or without the passage of time or satisfaction of other
conditions) upon exercise or conversion of any WW Convertible
Securities outstanding or issuable (with or without the passage of time
or satisfaction of other conditions) immediately prior to the Effective
Time.
(b) Shares to be Issued; Effect on Capital Stock. The number of shares
of Parent Common Stock issuable (including Parent Common Stock to be
reserved for issuance upon exercise of any of the Company Options to be
assumed by Parent) in exchange for the acquisition by Parent of all
outstanding Company Capital Stock and all outstanding WW Capital Stock and
the assumption of all (if any) unexpired and unexercised Company
Convertible Securities shall be equal to the Total Consideration minus the
Total Option Consideration. Subject to the terms and conditions of this
Agreement, as of the Effective Time, by virtue of the Mergers and without
any action on the part of Metal Merger Sub, WW Merger Sub, the Company, WW
or the holder of any shares of the Company Capital Stock, WW Capital Stock
or Company Convertible Securities, the following shall occur:
(i) Effect on Company Capital Stock. At the Effective Time, by
virtue of the Metal Merger and without any action on the part of
Company or the Stockholder, each share of Company Capital Stock issued
and outstanding immediately prior to the Effective Time shall be
canceled and extinguished and shall be converted automatically into the
right to receive, upon the terms and subject to conditions set forth
below and throughout this Agreement, a number of shares of Parent
Common Stock equal to the Metal Exchange Ratio (the "Metal Merger
Consideration").
(ii) Effect on WW Capital Stock. At the Effective Time, by virtue of
the WW Merger and without any action on the part of WW or the
Stockholder, each share of WW Capital Stock issued and outstanding
immediately prior to the Effective Time shall be canceled and
extinguished and shall be converted automatically into the right to
receive, upon the terms and subject to the conditions set forth below
and throughout this Agreement, a number of shares of Parent Common
Stock equal to the WW Exchange Ratio (the "WW Merger Consideration" and
together with the Metal Merger Consideration, the "Merger
Consideration").
(iii) Assumption of Certain Company Options. Effective as of the
Effective Time, each outstanding Continuing Employee Option issued to
and held by Continuing Employees pursuant to the Option Plans
(including any Company Options required to be issued to a Continuing
Employee as a result of the Mergers) and each Additional Option, in
each case whether vested or unvested and in the case of Additional
Options whether issued or unissued, will be assumed by Parent in
connection with the Mergers. Each Continuing Employee Option and
Additional Option so assumed by Parent under this Agreement shall
continue to have, and be subject to, the same terms and conditions set
forth in the Option Plans and/or as provided in the respective option
or similar agreement immediately prior to the Effective Time (including
any vesting schedule or repurchase rights), except that (i) each
Continuing Employee Option and Additional Option will be exercisable
for that number of whole shares of Parent Common Stock equal to the
product of the number of shares of Tracking Stock or Company Common
Stock, as applicable, that were issuable upon exercise of such
Continuing Employee Option or Additional Option, as applicable,
immediately prior to the Effective Time multiplied by the Option
Exchange Ratio, rounded down to the nearest whole number of shares of
Parent Common Stock and (ii) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed
Continuing Employee Option or Additional Option, as applicable, will be
equal to the quotient determined by dividing the exercise price per
share of Tracking Stock or Company Common Stock, as applicable, at
which such Continuing Employee Option or Additional Option, as
applicable, was exercisable immediately prior to the Effective Time by
the Option Exchange Ratio, rounded up to the nearest whole cent. The
Stockholder shall be responsible for, and shall indemnify and hold
harmless Parent and its affiliates and their officers,
A-6
directors, employees, affiliates and agents from and against any and
all claims, losses, damages, costs and expenses (including attorneys'
fees, costs and expenses) and other liabilities and obligations
relating to or arising out of Parent's assumption of Continuing
Employee Options under this Agreement or failure of Parent to assume
any options, rights or other securities of the Stockholder, the Company
or any of their respective affiliates in connection with the
transactions contemplated by this Agreement; provided that this
indemnity shall not apply to (i) Parent's failure to issue Parent
Common Stock in accordance with the Option Exchange Ratio upon the due
exercise of such Continuing Employee Options held by Continuing
Employees and assumed by Parent pursuant to this Section, (ii) Parent's
other obligations under the Option Plans with respect to the Continuing
Employee Options or the agreements governing such Continuing Employee
Options by virtue of such assumption, (iii) any actions taken by Parent
after the Closing with respect to the termination of employment of any
Continuing Employee who holds a Continuing Employee Option, or (iv) any
misstatement or omission in any Registration Statement on Form S-8 or
prospectus or similar securities law document prepared by Parent and
distributed to its employees with respect to the Continuing Employee
Options.
(iv) Fractional Shares. No fractional share of Parent Common Stock
shall be issued in the Mergers. In lieu thereof, any fractional share
shall be rounded to the nearest whole share of Parent Common Stock
(with .5 being rounded up).
(v) Cancellation of Company-Owned Stock. At the Effective Time, by
virtue of the Metal Merger and without any action on the part of any of
the parties hereto, each share of Company Capital Stock owned by, the
Company or any Metal Subsidiary immediately prior to the Effective
Time, shall be cancelled and extinguished without any conversion
thereof.
(vi) Cancellation of WW-Owned Stock. At the Effective Time, by
virtue of the WW Merger and without any action on the part of any of
the parties hereto, each share of WW Capital Stock owned by WW or any
WW Subsidiary immediately prior to the Effective Time, shall be
cancelled and extinguished without any conversion thereof.
(vii) Capital Stock of Metal Merger Sub. At the Effective Time, by
virtue of the Metal Merger and without any action on the part of any of
the parties hereto, each share of capital stock of Metal Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the Metal Surviving Corporation.
Each stock certificate of Metal Merger Sub evidencing ownership of any
such shares of Metal Merger Sub shall thereafter evidence ownership of
an equivalent number of shares of capital stock of the Metal Surviving
Corporation.
(viii) Capital Stock of WW Merger Sub. At the Effective Time, by
virtue of the WW Merger and without any action on the part of any of
the parties hereto, each share of capital stock of WW Merger Sub issued
and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the WW Surviving Corporation.
Each stock certificate of WW Merger Sub evidencing ownership of any
such shares of WW Merger Sub shall thereafter evidence ownership of an
equivalent number of shares of capital stock of the WW Surviving
Corporation.
1.9 Surrender of Certificates.
(a) At the Closing, the Stockholder shall surrender all certificates
formerly representing shares of Company Capital Stock and WW Capital Stock
(collectively, the "Certificates") for cancellation to Parent.
(b) Upon proper presentation of the Certificates and in exchange
therefor, the Stockholder shall be entitled to receive, and Parent shall
deliver, a certificate representing the number of whole shares of Parent
Common Stock to which Stockholder is entitled pursuant to this Article I,
and the Certificates so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the
A-7
Effective Time, represented shares of Company Capital Stock and WW Capital
Stock will be deemed from and after the Effective Time, for all corporate
purposes, other than the payment of dividends, to evidence the ownership of
the number of full shares of Parent Common Stock into which such shares of
Company Capital Stock and WW Capital Stock shall have been so converted.
(c) No Liability. Notwithstanding anything to the contrary in this
Section 1.9, neither Parent nor any party hereto shall be liable to a
holder of shares of Parent Common Stock, Company Capital Stock or WW
Capital Stock for any amount properly paid to a public official pursuant to
any applicable abandoned property, escheat or similar law.
(d) No Further Ownership Rights in Company Capital Stock. The shares of
Parent Common Stock issued in accordance with the terms hereof shall be
deemed to be full satisfaction of all rights pertaining to shares of each
of Company Capital Stock and WW Capital Stock outstanding prior to the
Effective Time, and there shall be no further registration of transfers on
the records of (i) the Metal Surviving Corporation of shares of Company
Capital Stock or (ii) the WW Surviving Corporation of shares of WW Capital
Stock that were outstanding prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Parent, Metal Surviving
Corporation or the WW Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Article I.
(e) Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Metal Surviving
Corporation or the WW Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and
franchises of the Business, then Parent, Merger Sub and the Company, and
the officers and directors of the Company, WW, Parent, Metal Merger Sub and
WW Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and
necessary action.
1.10 Treatment of Stockholder Guaranty. Following the Closing, Parent shall
use commercially reasonable efforts to release and cancel (or, to the extent
that it cannot be so released and cancelled, to cause Parent to be substituted
for the Stockholder with respect to) the guaranty of Stockholder in the
agreement set forth in Schedule 1.10 of the Stockholder Disclosure Letter (the
"Stockholder Guaranty") (or if not possible added as the primary obligor with
respect thereto). Parent shall indemnify and hold harmless Stockholder against
liabilities incurred by Stockholder arising as a result of events following the
Closing Date with respect to the guaranty of Stockholder in the agreement set
forth in Schedule 1.10 of the Stockholder Disclosure Letter after the Closing.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
As of the date hereof, the Stockholder represents and warrants to Parent and
Metal Merger Sub and WW Merger Sub, subject to such exceptions as are
specifically disclosed in the disclosure letter supplied by the Stockholder to
Parent (the "Stockholder Disclosure Letter") and dated as of the date hereof,
as follows:
2.1 Organization of the Company.
(a) Each of the Company and each Metal Subsidiary (as defined in Section
2.3 hereof) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of the
Company and each Metal Subsidiary has the corporate power to own its
respective properties and to carry on its respective businesses as
conducted. Each of the Company and each Metal Subsidiary is duly qualified
to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified (either individually
or collectively) would have a Material Adverse Effect on the Company. The
Stockholder has delivered to Parent a true and correct copy of the
certificate of incorporation and bylaws of each of the Company and the
Metal Subsidiaries, each as amended to date and in full force and effect on
the date hereof. There are no proposed or considered amendments to the
certificate of incorporation or bylaws of any of the Company or any Metal
Subsidiary. Schedule 2.1(a) of the Stockholder Disclosure Letter lists the
directors and officers of the Company and each Metal Subsidiary and each
jurisdiction in which the Company is qualified to do business.
(b) Each of WW and each WW Subsidiary (as defined in Section 2.3 hereof)
is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation. Each of WW and each WW
Subsidiary has the corporate power to own its respective properties and to
carry on its respective businesses as now being conducted and as proposed
to be conducted. Each of WW and each WW Subsidiary is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified (either individually or
collectively) would have a Material Adverse Effect on WW. The Stockholder
has delivered to Parent a true and correct copy of the certificate of
incorporation and bylaws of each of WW and the WW Subsidiaries, each as
amended to date and in full force and effect on the date hereof. There are
no proposed or considered amendments to the certificate of incorporation or
bylaws of any of the Company or any WW Subsidiary. Schedule 2.1(b) of the
Stockholder Disclosure Letter lists the directors and officers of each WW
Subsidiary and each jurisdiction in which WW is qualified to do business.
2.2 Company Capital Structure.
(a) The authorized Company Capital Stock consists of (i) 37,500,000
shares of common stock, par value $.01 per share, of which 22,500,000
shares are issued and outstanding as of the date hereof, (ii) 12,500,000
shares of non-voting common stock, par value $.01 per share, none of which
are issued and outstanding as of the date hereof; and (iii) 5,000,000
shares of Preferred Stock, par value $.01 per share, none of which are
issued and outstanding as of the date hereof. The total number of shares of
Company Capital Stock outstanding as of immediately prior to the Effective
Time (assuming the conversion, exercise or exchange of all Company
Convertible Securities) will be as set forth in Schedule 2.2(a) of the
Stockholder Disclosure Letter. All outstanding shares of the Company
Capital Stock are held (and as of immediately prior to the Effective Time
will be held) of record and beneficially by CMS. All of the capital stock
of CMS is held (and as of immediately prior to the Effective Time will be
held) of record and beneficially by the Stockholder. All outstanding shares
of Company Capital Stock are duly authorized, validly issued, fully paid
and non-assessable and not subject to preemptive rights created by statute,
the Certificate of Incorporation or Bylaws of the Company or any agreement
to which the Company or any of its Metal Subsidiaries is a party or by
which it is bound, and have been issued in compliance with federal and
state securities laws. There are no declared or accrued but unpaid
dividends with respect to any shares of Company Common Stock. The Company
has no other capital stock authorized, issued or outstanding.
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The Company has no obligation to redeem or repurchase any capital stock of
any corporation or other entity, and has no liability in respect of any
capital stock of any corporation or other entity.
(b) The authorized WW Capital Stock consists of (i) 1,000 shares of
Common Stock, par value $.01 per share, of which 1,000 shares are issued
and outstanding as of the date hereof, and (ii) no shares of Preferred
Stock, par value $.01 per share, none of which are issued and outstanding
as of the date hereof. The total number of shares of WW Capital Stock
outstanding as of immediately prior to the Effective Time (assuming the
conversion, exercise or exchange of all WW Convertible Securities) will be
as set forth in Schedule 2.2(b) of the Stockholder Disclosure Letter. All
of the outstanding shares of the WW Capital Stock is held (and as of
immediately prior to the Effective Time will be held) of record and
beneficially by CMS. All outstanding shares of WW Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject
to preemptive rights created by statute, the Certificate of Incorporation
or Bylaws of WW or any agreement to which WW or any of its WW Subsidiaries
is a party or by which it is bound, and have been issued in compliance with
federal and state securities laws. There are no declared or accrued but
unpaid dividends with respect to any shares of WW Common Stock. WW has no
other capital stock authorized, issued or outstanding. WW has no obligation
to redeem or repurchase any capital stock of any corporation or other
entity, and has no liability in respect of any capital stock of any
corporation or other entity.
(c) Except for the Option Plans, neither the Company, WW nor any of
their respective Subsidiaries nor the Stockholder on behalf of the Company,
WW or any of its Subsidiaries has ever adopted or maintained any stock
option plan or other plan providing for equity compensation of any person.
The Stockholder has reserved an aggregate of 11,000,000 shares of Tracking
Stock for issuance to employees, directors and consultants upon the
exercise of Company Options pursuant to the Option Plans, of which (i)
573,250 and 5,768,946 shares are issuable, as of the date hereof, upon the
exercise of outstanding, unexercised Company Options granted under the 1997
Option Plan and 1999 Option Plan, respectively and (ii) 4,426,750 and
231,054 shares remain available for future grant under the 1997 Option Plan
and 1999 Option Plan, respectively. The Stockholder has reserved an
aggregate of 1,586,000 shares of Tracking Stock for future issuance
pursuant to the exercise of outstanding warrants. Schedule 2.2(c) of the
Stockholder Disclosure Letter sets forth for each outstanding Company
Convertible Security and each Fully Converted Share, the name of the holder
of such Company Convertible Security or Fully Converted Share, the number
and type of shares subject to such Convertible Security or Fully Converted
Share, the exercise price of such Convertible Security or Fully Converted
Share, the vesting schedule for such Convertible Security or Fully
Converted Share, including the extent vested to date and whether the
vesting exercisability of such Convertible Security or Fully Converted
Share will be accelerated and become exercisable by reason of the
transactions contemplated by this Agreement and whether such Convertible
Security or Fully Converted Share is intended to qualify as an incentive
stock option as defined in Section 422 of the Code. All Company Options are
held by employees of the Company or its Subsidiaries and have been issued
in compliance with federal and state securities laws. Except for the
Company Convertible Securities described in Schedule 2.2(c) of the
Stockholder Disclosure Letter, there are no options, warrants, calls,
rights, commitments or agreements of any character, written or oral, to
which the Company, WW or any of their respective Subsidiaries is a party or
by which any of them is bound obligating the Company or any of its
Subsidiaries to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of Company
Capital Stock, WW Capital Stock or Fully Converted Shares or the capital
stock of any of the Subsidiaries or obligating the Company, WW or any of
their respective Subsidiaries to grant, extend, accelerate the vesting of,
change the price of, otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or
other similar rights with respect to the Company, WW or any of their
respective Subsidiaries. Except as contemplated hereby, there are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting stock of the Company Capital Stock, WW Capital Stock or the Fully
Converted Shares. The holders of Company Convertible Securities, WW
Convertible Securities and Fully Converted Shares have been or will be
given, or shall have properly waived, any required notice prior to the
Mergers, and all such rights
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will be terminated at or prior to the Effective Time. Without limiting the
foregoing, neither the Company nor WW is, and nor will either of them be
obligated, to issue any Company Capital Stock or WW Capital Stock in
connection with any Tracking Stock or any obligation to issue any Tracking
Stock. As a result of the Mergers, Parent will be, upon the Effective Time,
the sole record holder and sole beneficial owner of all capital stock of
the Company, WW and their respective Subsidiaries and rights to acquire or
receive such capital stock. As a result of the Mergers and following the
Mergers, other than Continuing Employee Options, Parent shall have no
liabilities or obligations to any holders of Tracking Stock or options,
warrants or other convertible securities to acquire Tracking Stock.
(d) Under the terms of this agreement, the sum of (i) the WW
Consideration plus (ii) the Metal Consideration is equal to the sum of (x)
the product obtained by multiplying Stockholder's notional interest in the
Tracking Stock (as expressed in shares of Tracking Stock) times the Option
Exchange Ratio plus (y) the product obtained by multiplying the aggregate
number of outstanding shares of Tracking Stock held by persons other than
Stockholder plus the aggregate number of outstanding options or other
rights to purchase Tracking Stock held by persons other than Stockholder
times the Option Exchange Ratio, such that each holder of a Continuing
Employee Option would receive upon exercise of such Continuing Employee
Option an equivalent proportional amount of Parent Common Stock in respect
of such holder's interest in the Business as Stockholder is receiving in
respect of Stockholder's interest in the Company and WW in satisfaction of
the Stockholder's notional interest in the Tracking Stock.
2.3 Subsidiaries. Except for the subsidiaries of each of the Company and WW
listed in Schedule 2.3 of the Stockholder Disclosure Letter (each subsidiary of
the Company, a "Metal Subsidiary" and each subsidiary of WW, a "WW Subsidiary"
and together with Metal Subsidiaries, the "Subsidiaries"), each of which are
wholly owned by the Company or WW, as the case may be, and except as set forth
on Schedule 2.3 of the Stockholder Disclosure Letter, each of the Company and
WW does not have and has never had any subsidiaries and does not otherwise own
and has never otherwise owned any shares of capital stock or any interest in,
or control, directly or indirectly, any other corporation, partnership,
association, joint venture or other business entity. Schedule 2.3 of the
Stockholder Disclosure Letter sets forth the capitalization of each Subsidiary.
The Company or WW, as the case may be, is the record and beneficial owner of
all of the outstanding capital stock of each Subsidiary. Schedule 2.3 of the
Stockholder Disclosure Letter also sets forth the names of the directors and
officers of each Subsidiary. Each of the Company and WW has provided Parent
with true and correct copies of each Subsidiary's certificate of incorporation,
bylaws or other applicable charter documents. There are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which either the Company, WW or any Subsidiary is a party or by which it is
bound obligating any Subsidiary to issue, deliver, sell, repurchase or redeem,
or cause to be issued, delivered, sold, repurchased or redeemed, any shares of
the capital stock of any Subsidiary or obligating any Subsidiary to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or
enter into any such option, warrant, call, right, commitment or agreement.
There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or other similar rights with respect to any Subsidiary.
Getko Canada has no interest in any asset, property or right of any type or
description, real, personal, tangible and intangible.
2.4 Authority. Each of the Company, WW, CMS and the Stockholder (and each
subsidiary of the Stockholder, as appropriate) has all requisite corporate
power and authority to enter into this Agreement and the Ancillary Agreements
to which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Ancillary
Agreements to which it is party and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of each of the Company, WW, CMS and the Stockholder (and each
subsidiary of the Stockholder, as appropriate), as the case may be, in
accordance with applicable law and the Certificate of Incorporation of the
Company, WW, CMS and the Stockholder (and each subsidiary of the Stockholder,
as appropriate), as the case may be. The respective Boards of Directors of the
Company, WW, CMS and the Stockholder have approved and adopted the Mergers,
this Agreement and the Ancillary Agreements to which it (and/or a subsidiary of
it) is a party. This Agreement and the Ancillary Agreements to which it is
party have been duly executed and delivered by each of the Company, WW, CMS and
the Stockholder (and each
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subsidiary of the Stockholder, as appropriate) and, assuming the due execution
and delivery by Parent, Metal Merger Sub and WW Merger Sub, constitute the
valid and binding obligations of the Company, WW, CMS and the Stockholder (and
each subsidiary of the Stockholder, as appropriate), as the case may be,
enforceable in accordance with their respective terms. Except as set forth in
Schedule 2.4 of the Stockholder Disclosure Letter, the execution and delivery
of this Agreement and the Ancillary Agreements to which it is a party by the
Company, WW, CMS and the Stockholder (and each subsidiary of the Stockholder,
as appropriate), as the case may be, does not, and, as of the Effective Time,
the consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under
(any such event, a "Conflict") (i) any provision of the Certificate of
Incorporation or Bylaws of the Company, WW, CMS or the Stockholder, as the case
may be, or (ii) any agreement that would be required to be disclosed pursuant
to Section 2.11 or 2.12 of this Agreement or any instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company, WW, CMS or the
Stockholder or their respective properties or assets. No consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other federal, state,
county, local or foreign governmental authority, instrumentality, agency or
commission ("Governmental Entity") or any third party (so as not to trigger any
Conflict) is required by or with respect to the Company, WW, CMS or the
Stockholder in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for: (i) the
filing of the Certificates of Merger with the Secretaries of State for the
State of Delaware and the State of New York, respectively; (ii) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws;
(iii) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"); and (iv) such
other consents, waivers, authorizations, filings, approvals and registrations
which are set forth on Schedule 2.4 of the Stockholder Disclosure Letter. Each
of the Stockholder and CMS has approved the Mergers in its capacity as
stockholder of the Company and WW.
2.5 Company Financial Statements. Schedule 2.5 of the Stockholder Disclosure
Letter sets forth the audited combined balance sheets of the Company (together
with WW and the WW Subsidiaries as though WW and the WW Subsidiaries were
subsidiaries of the Company) as of December 31, 1999 and December 31, 1998 and
the unaudited combined balance sheet of the Company (together with WW and the
WW Subsidiaries as though WW and the WW Subsidiaries were subsidiaries of the
Company) as of September 30, 2000 (the "Balance Sheet") and the related audited
combined statements of operations and cash flows for each of the two one-year
periods ended December 31, 1998 and December 31, 1999, respectively, and the
related unaudited combined statements of operations and cash flows for the
nine-month period ended September 30, 2000 (collectively, the "Company
Financials"). The Company Financials, including the related schedules and notes
thereto, have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a basis consistent throughout the periods
indicated and consistent with each other (subject, in the case of unaudited
statements, to normal audit adjustments). The Company Financials, including the
related schedules and notes thereto, present fairly the financial condition and
operating results of the Company, WW, their respective Subsidiaries and the
Business as of the dates and during the periods indicated therein. Except as
disclosed on Schedule 2.5 of the Stockholder Disclosure Letter, (i) there are
no asset or revenue items that are included in the Company Financials that
would not be included in financial statements prepared in accordance with GAAP
of the Company, WW and the Subsidiaries on a stand-alone basis for the same
amounts and for the same periods, and (ii) there are no liabilities or expenses
that would be included in financial statements prepared in accordance with GAAP
of the Company, WW and their respective Subsidiaries on a stand alone basis
that are not included in the Company Financials for the same amounts and for
the same periods. At no time has the Company, WW or any Subsidiary factored its
accounts receivable or otherwise sold or transferred the right to collect any
of its accounts receivable. In addition, at no time has the Company, WW or any
Subsidiary, or any assets of the Company, WW or any Subsidiary, been placed in
receivership or otherwise been subject to any bankruptcy, insolvency or
liquidation proceeding.
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2.6 No Undisclosed Liabilities. The Company, WW, the Subsidiaries and the
Business do not have any liability, indebtedness, obligation, expense, claim,
guaranty or endorsement of any type, whether accrued, absolute, contingent,
matured, unmatured or other, of a nature required to be reflected in financial
statements (including the notes thereto) in accordance with GAAP
("Liabilities"), which individually or in the aggregate (i) has not been
reflected in the Balance Sheet, or (ii) has not arisen in the ordinary course
of the Company's or WW's business since the date of the Balance Sheet,
consistent with past practices, and does not reflect a material change to the
business (as previously conducted), results of operations or financial
condition of the Company, WW or any of the Subsidiaries (taking into account
any growth in revenues and commensurate growth in expenses).
2.7 No Changes. (i) Since June 30, 2000 and through the date hereof, there
has not been, occurred or arisen any:
(a) transaction by the Company, WW or any Subsidiary except in the
ordinary course of business as conducted on June 30, 2000;
(b) transfer in, sale, lease, license or allocation of any assets
(including intangible assets), Liabilities or employees to the Company, WW
or any Subsidiary by the Stockholder or any of its subsidiaries (other than
the Company, WW and its Subsidiaries);
(c) amendments or changes to the certificate of incorporation or bylaws
or other applicable charter documents of the Company, WW or any Subsidiary;
(d) use by the Business of any assets owned by or licensed to the
Stockholder or any of its subsidiaries (other than the Company, WW and its
Subsidiaries);
(e) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(f) addition to or modification of the employee benefit plans,
arrangements or practices described in Section 2.20 of this Agreement
(other than as described in Section 5.19 hereof);
(g) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company, WW or any
Subsidiary;
(h) revaluation by the Company, WW or any Subsidiary of any of its
assets;
(i) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, WW or any
Subsidiary, or any split, combination or reclassification with respect to
the capital stock of the Company, WW or any Subsidiary, or any issuance or
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, WW
or any Subsidiary or any direct or indirect redemption, purchase or other
acquisition by the Company, WW or any Subsidiary of any of its capital
stock (or options, warrants or rights convertible into, exercisable or
exchangeable therefor);
(j) increase in the salary or other compensation payable or to become
payable to any of its officers or directors of the Company, WW or any
Subsidiary other than increases made in the ordinary course of business
consistent with past practices and in no event in excess of ten percent
(10%) of such officer's or director's base salary, or the declaration,
payment or commitment or obligation of any kind for the payment of a bonus
or other additional salary or compensation to any such person, other than
bonuses or additional salary or compensation paid in the ordinary course of
business consistent with past practices;
(k) waiver or release of any right or claim of the Company, WW or any
Subsidiary in excess of $50,000 in the aggregate, including any write-off
or other compromise of any account receivable of the Company, WW or any
Subsidiary;
(l) except as contemplated by this Agreement, issuance, sale, or
contract to issue or sell, by the Company, WW or any Subsidiary of any
shares of Company Capital Stock or WW Capital Stock or shares of capital
stock of any Subsidiary or securities convertible into, or exercisable or
exchangeable for, shares
A-13
of Company Capital Stock or WW Capital Stock or shares of capital stock of
any Subsidiary, or any securities, warrants, options or rights to purchase
any of the foregoing;
(m) commencement or written notice or, to the Stockholder's Knowledge,
threat of any lawsuit or, to the Stockholder's Knowledge, proceeding or
investigation against the Company, WW or its affairs;
(n) agreement, understanding or commitment, or any modification to or
amendment of any such agreement, understanding or commitment, between the
Stockholder and any of its subsidiaries or affiliates on the one hand, and
the Company or WW, on the other hand;
(o) adoption of a plan of or resolutions providing for the liquidation,
dissolution, merger, consolidation or other arrangement of the Company, WW
or the Subsidiaries (except for the transactions contemplated hereby); or
(p) negotiation or agreement by the Company, WW or any Subsidiary or any
officer or employees thereof to do any of the things described in the
preceding clauses (a) through (o) (other than negotiations with Parent and
its representatives regarding the transactions contemplated by this
Agreement).
(ii) Since September 30, 2000 and through the date hereof, there has not
been, occurred or arisen any:
(a) material adverse change in the Company's or WW's condition
(financial or otherwise), results of operations, assets, liabilities,
working capital or reserves, except for changes contemplated hereby or set
forth in the Company Financials;
(b) payment, discharge or satisfaction, in any amount in excess of
$100,000 in any one case, or $250,000 in the aggregate, of any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) of the Company, WW or any Subsidiary, other than
payment, discharge or satisfaction of Liabilities in the ordinary course of
business consistent with past practices;
(c) capital expenditure or commitment by or on behalf of the Company, WW
or any Subsidiary or the Business, either individually or in the aggregate,
exceeding $100,000, other than, in the case of the Company and the Metal
Subsidiaries only, in the ordinary course of business consistent with past
practices;
(d) event or condition that has had or would be reasonably expected to
have a Material Adverse Effect (as defined in Section 10.2 hereof) on the
Company, WW or any Subsidiary;
(e) loan by the Company, WW or any Subsidiary to any person or entity,
incurring by the Company, WW of any indebtedness, guaranteeing by the
Company, WW or any Subsidiary of any indebtedness, issuance or sale of any
debt securities of the Company or any Subsidiary or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(f) cancellation of any material indebtedness owed to the Company, WW or
its Subsidiaries relating to any of the Company's or WW's business
activities or properties (or the business activities or properties of the
Subsidiaries), whether or not in the ordinary course of business;
(g) making or changing in any election in respect of Taxes (as defined
in Section 2.8 hereof) of the Company, WW or any Subsidiary, adoption or
change in any accounting method in respect of Taxes of the Company, WW or
any Subsidiary, agreement or settlement of any claim or assessment in
respect of Taxes of the Company, WW or any Subsidiary, or extension or
waiver of the limitation period applicable to any claim or assessment in
respect of Taxes of the Company, WW or any Subsidiary; or
(h) negotiation or agreement by the Company, WW or any Subsidiary or any
officer or employees thereof to do any of the things described in the
preceding clauses (a) through (g) (other than negotiations with Parent and
its representatives regarding the transactions contemplated by this
Agreement).
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(iii) Since March 31, 2000 and through the date hereof, there has not been,
occurred or arisen any transfer out, sale, lease or license of any assets
(including intangible assets and URLs), Liabilities or employees of the
Company, WW or any Subsidiary to (with respect to material assets only) a third
party or to (with respect to all assets) the Stockholder or any of its
subsidiaries (other than the Company, WW and the Subsidiaries).
2.8 Tax and Other Returns and Reports
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or,
collectively, "Taxes," means (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts, (ii) any
liability for the payment of any amounts of the type described in clause
(i) of this Section 2.8(a) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period, and (iii) any
liability for the payment of any amounts of the type described in clauses
(i) or (ii) of this Section 2.8(a) as a result of any express or implied
obligation to indemnify any other person or as a result of any obligations
under any agreements or arrangements with any other person with respect to
such amounts and including any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8(b) of
the Stockholder Disclosure Letter:
(i) Each of the Company, WW and each Subsidiary has prepared and
timely filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to
any and all Taxes concerning or attributable to it or its operations
and such Returns are true and correct and have been completed in
accordance with applicable law.
(ii) Each of the Company, WW and each Subsidiary (A) has paid or
accrued all Taxes it is required to pay or accrue and (B) has reported
and withheld with respect to employees of the Company, WW and each
Subsidiary all federal and state income taxes, Federal Income
Contribution Act ("FICA"), Federal Unemployment Tax Act ("FUTA"), and
other Taxes required to be reported and withheld.
(iii) Neither the Company, WW nor any Subsidiary has been delinquent
in the payment of any Tax nor is there any Tax deficiency outstanding,
proposed or assessed against the Company, WW or any Subsidiary, nor has
the Company, WW or any Subsidiary executed any waiver of any statute of
limitations on or extending the period for the assessment or collection
of any Tax.
(iv) No audit or other examination of any Return of the Company, WW
or any Subsidiary is currently in progress, nor has the Company, WW or
any Subsidiary been notified of any request for such an audit or other
examination.
(v) Neither the Company, WW nor any Subsidiary has any liabilities
for unpaid federal, state, local and foreign Taxes which have not been
accrued or reserved against in accordance with GAAP on the Balance
Sheet, whether asserted or unasserted, contingent or otherwise, and the
Stockholder has no Knowledge of any basis for the assertion of any such
liability attributable to the Company, WW or any Subsidiary, or any of
their respective assets or operations.
(vi) The Stockholder has provided to Parent copies of all foreign,
federal, state and local income and all state and local sales and use
Tax Returns relating to any and all Taxes concerning or attributable to
the Company, WW or any Subsidiary for the past two (2) years.
(vii) There are no liens, pledges, charges, claims, security
interests or other encumbrances of any sort except for liens for Taxes
not yet due and payable ("Liens") on the assets of the Company, WW or
any Subsidiary relating to or attributable to Taxes.
A-15
(viii) The Stockholder has no Knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the
Company, WW or any Subsidiary.
(ix) None of the Company's, WW's or any Subsidiary's assets are
treated as "tax-exempt use property" within the meaning of Section
168(h) of the Code.
(x) There is not any contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering
any employee or former employee of the Company, WW or any Subsidiary
that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Sections 280G, 404
or 162(m) of the Code.
(xi) Neither the Company, WW nor any Subsidiary has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a Subsection
(f) asset (as defined in Section 341(f)(4) of the Code) owned by the
Company, WW or any Subsidiary.
(xii) Neither the Company, WW nor any Subsidiary is a party to a tax
sharing or allocation agreement nor does the Company, WW or any
Subsidiary owe any amount under any such agreement.
(xiii) No adjustment relating to any Return filed by the Company, WW
or any Subsidiary has been proposed formally or, to the Knowledge of
the Stockholder, informally by any tax authority to the Company, WW or
any Subsidiary or any representative thereof.
(xiv) Neither the Company, WW nor any Subsidiary has ever been a
party to any joint venture, partnership or other agreement that could
be treated as a partnership for Tax purposes.
(xv) Neither the Company, WW nor any Subsidiary has constituted
either a "distributing corporation" or a "controlled corporation" in a
distribution of stock qualifying for tax-free treatment under Section
355 of the Code (x) in the two years prior to the date of this
Agreement or (y) in a distribution prior to the Mergers which could
otherwise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Mergers.
2.9 Restrictions on Business Activities. Except as set forth in Schedule
2.9(a) of the Stockholder Disclosure Letter, there is no agreement (noncompete
or otherwise), commitment, judgment, injunction, order or decree to which the
Company, WW or any Subsidiary is a party or otherwise binding upon the Company,
WW or any Subsidiary or the Business which has or reasonably would be expected
to have the effect of prohibiting or impairing any business practice of the
Company, WW or any Subsidiary, any acquisition of property (tangible or
intangible) by the Company, WW or any Subsidiary. Without limiting the
foregoing, except as set forth in Schedule 2.9(b) of the Stockholder Disclosure
Letter, neither the Company, WW nor any Subsidiary has entered into or is bound
by any agreement under which any of them is restricted from selling, licensing
or otherwise distributing any of its technology to any class of customers
during any period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances
(a) Except as set forth in Schedule 2.10 of the Stockholder Disclosure
Letter, neither the Company, WW nor any Subsidiary owns any real property.
Schedule 2.10(a) of the Stockholder Disclosure Letter sets forth a list of
all real property currently leased by the Company, WW or any Subsidiary.
All such current leases are in full force and effect, are valid and
effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a
default).
(b) Each of the Company, WW and each Subsidiary has good and valid title
to, or, in the case of leased properties and assets, valid leasehold
interests in, all of their tangible properties and assets
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(including accounts receivable), real, personal and mixed, used or held for
use in the Business, free and clear of any Liens, except as reflected in
the Company Financials and except for liens for taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which are
not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of
the property subject thereto or affected thereby.
(c) Other than as set forth in Schedule 2.10(c) of the Stockholder
Disclosure Letter, all material items of equipment (the "Equipment")
(including all of the Equipment contained in the San Francisco location of
the Business) used in or by the Business are owned or leased by the
Company, WW or a Subsidiary.
(d) All of the assets, properties and rights of every type and
description, real, personal, tangible and intangible, used in the conduct
of the Business are licensed by third parties to or owned by the Company or
WW or the Company or WW otherwise has the right to use such assets
properties and rights. Neither the Stockholder nor any subsidiary or
affiliate of Stockholder (including NRT) has any ownership, license or
similar interest to any of the assets, properties or rights of any type and
description, real, personal, tangible and intangible, used in the conduct
of the Business. Except as provided for in Exhibit A to the Transition
Services Agreement or Schedule 2.10(d) of the Stockholder Disclosure
Letter, (i) the Stockholder and its subsidiaries (other than the Company,
WW and the Subsidiaries) do not provide any products or services used in
the conduct of the Business, and (ii) there is no other agreement or
understanding between the Stockholder or any of its affiliates and the
Company, WW or any Subsidiary.
2.11 Intellectual Property
For the purposes of this Agreement, the following terms have the following
definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and continuations-
in-part thereof; (ii) all proprietary inventions (whether patentable or not),
proprietary invention disclosures, proprietary improvements, proprietary trade
secrets, proprietary information (insofar as such proprietary information
relates to intellectual property), proprietary know how, proprietary
technology, proprietary technical data and proprietary customer lists, and all
documentation relating to any of the foregoing; (iii) all copyrights, copyright
registrations and applications therefor, and all other rights corresponding
thereto throughout the world; (iv) all industrial designs and any registrations
and applications therefor throughout the world; (v) all trade names, logos,
domain names, URLs, common law trademarks and service marks, trademark and
service mark registrations and applications therefor throughout the world
(except that trade names, common law trademarks and service marks and trademark
and service mark registrations and applications therefor shall be limited to
those arising in the United States and the United Kingdom); (vi) all databases
and data compilations and collections and all rights therein throughout the
world; (vii) all software in object code and source code form and related
documentation; (viii) all moral and economic rights of authors and inventors,
however denominated, throughout the world; (ix) any similar or equivalent
rights to any of the foregoing anywhere in the world; and (x) all tangible
embodiments of any of the foregoing.
"Company Intellectual Property" shall mean any Intellectual Property that is
owned by, or exclusively licensed to, the Company, WW or any of the
Subsidiaries.
"Registered Intellectual Property" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks, applications to register trademarks,
intent-to-use applications, or other registrations or applications related to
trademarks; (iii) registered copyrights and applications for copyright
registration; and (iv) any other Intellectual Property that is the subject of
an application, certificate, filing, registration or other document issued,
filed with, or recorded by any state, government or other public legal
authority.
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(a) No Company Intellectual Property or product or service of the
Company, WW or any Subsidiary is party to any proceeding or outstanding
decree, order, judgment, agreement or stipulation restricting in any manner
the use, transfer, or licensing thereof by the Company, WW or any
Subsidiary, or which may affect the validity, use or enforceability of such
Company Intellectual Property.
(b) Schedule 2.11(b) of the Stockholder Disclosure Letter is a complete
and accurate list of all Company Registered Intellectual Property and
specifies, where applicable, the jurisdictions in which each such item of
Company Registered Intellectual Property has been issued or registered or
in which an application for such issuance and registration has been filed,
including the respective registration or application numbers. Each item of
Company Registered Intellectual Property is valid and subsisting, all
necessary registration, maintenance and renewal fees currently due in
connection with such Registered Intellectual Property have been made and
all necessary documents, recordations and certificates in connection with
such Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property in the jurisdictions where the
Business is conducted.
(c) Each of the Company, WW and each of its Subsidiaries owns and has
good and exclusive title to, or has license (sufficient for the conduct of
the Business as conducted) to, each item of Company Intellectual Property
or other Intellectual Property used by the Company, WW or any Subsidiary,
as applicable, in the Business as conducted free and clear of any lien or
encumbrance; and the Company, WW or one of the Subsidiaries is the
exclusive owner of all URLs, domain names, trademarks and trade names used
in connection with the operation or conduct of the Business as conducted,
including the sale of any products or the provision of any services by the
Company, WW or any of the Subsidiaries.
(d) Neither Stockholder nor any of its subsidiaries (other than the
Company, WW and the Subsidiaries) owns or licenses to the Company, WW or
the Subsidiaries any Intellectual Property that is used in the Business as
conducted or otherwise permits the Company to use any Intellectual Property
that is licensed by the Stockholder or its subsidiaries (other than the
Company, WW and the Subsidiaries).
(e) The Company, WW and the Subsidiaries own exclusively, and have good
title to, all copyrighted works that are the products of the Company, WW or
any of the Subsidiaries or which the Company, WW or any of the Subsidiaries
otherwise expressly purports to own. The Company, WW and the Subsidiaries
own exclusively, and have good title to or a license to use (which license
is disclosed on Schedule 2.11(i) of the Stockholder Disclosure Letter), all
source-code and object-code used in or incorporated in the products or
services of the Company, WW or any of the Subsidiaries.
(f) The Company, WW and the Subsidiaries own, and have good title to and
all necessary rights for the use of, all Intellectual Property used in the
operation of the websites listed on Schedule 2.11(f), and no such right
will terminate or be adversely affected by virtue of the Mergers and the
transactions contemplated hereby.
(g) To the extent that any Intellectual Property has been developed or
created by a third party for the Company, WW or any Subsidiary, the
Company, WW or such Subsidiary, as the case may be, has a written agreement
with such third party (each of which agreements is in full force and effect
and is binding and enforceable against the parties thereto) with respect
thereto and the Company, WW or such Subsidiary, as the case may be, thereby
either (i) has obtained ownership of, and is the exclusive owner of or (ii)
has obtained a license (sufficient for the conduct of its business) to all
such third party's Intellectual Property in such work, material or
invention by operation of law or by valid assignment.
(h) Neither the Company, WW nor any Subsidiary has transferred ownership
of, or granted any exclusive license with respect to, any Intellectual
Property that is or was material to the Company Intellectual Property, to
any third party (including Stockholder and its subsidiaries other than the
Company, WW and the Subsidiaries).
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(i) Schedule 2.11(i) lists all material contracts, licenses and
agreements to which the Company, WW or any Subsidiary is a party (i) with
respect to the Company Intellectual Property licensed or transferred to any
third party, including without limitation, any agreement pursuant to which
the Company, WW or any Subsidiary has granted or may grant in the future to
any party a source-code license or option or other rights to use or acquire
source code; or (ii) pursuant to which a third party or the Stockholder and
its subsidiaries (other than the Company, WW and the Subsidiaries) has
licensed or transferred any material Intellectual Property to the Company,
WW or any Subsidiary.
(j) The consummation of the transactions contemplated by this Agreement
will neither violate nor result in the breach, modification, cancellation,
termination or suspension of such contracts, licenses and agreements or the
loss of, or any adverse effect on, any ownership or license rights of the
Company or WW in any Company Intellectual Property. The Company, WW and the
Subsidiaries are in compliance with, and have not breached any material
term of any of such contracts, licenses and agreements and, to the
Knowledge of the Stockholder, all other parties to such contracts, licenses
and agreements are in compliance with, and have not breached any term of,
such contracts, licenses and agreements. Following the Effective Time, the
Surviving Corporation will be permitted to exercise all of the rights of
the Company, WW and the Subsidiaries under such contracts, licenses and
agreements to the same extent the Company, WW or the Subsidiaries, as the
case may be, would have been able to had the transactions contemplated by
this Agreement not occurred and without the payment of any additional
amounts or consideration other than ongoing fees, royalties or payments
which the Company, WW or the Subsidiaries would otherwise be required to
pay.
(k) The operation of the Business as conducted in the jurisdictions
conducted, including the design, development, manufacture, marketing and
sale of the products or services of the Company, WW or any Subsidiary
(including with respect to products and services currently under
development) has not, does not and will not infringe or misappropriate the
Intellectual Property of any third party or the Stockholder or any of its
subsidiaries (other than the Company, WW and the Subsidiaries), or
constitute unfair competition or trade practices under the laws of any
jurisdiction in which the Business is conducted.
(l) Neither the Company, WW nor any Subsidiary has received notice from
any third party that the operation of the Business or any act, product or
service of the Company, WW or any Subsidiary, infringes or misappropriates
the Intellectual Property of any third party or constitutes unfair
competition or trade practices under the laws of any jurisdiction.
(m) To the Knowledge of the Stockholder, no person has or is infringing
or misappropriating, any Company Intellectual Property or engaging in any
unfair competition or trade practice against the Company, WW or any
Subsidiary under the laws of any jurisdiction.
(n) Neither this Agreement nor the transactions contemplated by this
Agreement, including the assignment to Parent, Metal Merger Sub or WW
Merger Sub by operation of law or otherwise of any contracts or agreements
to which the Company or WW is a party, will result in (i) either Parent,
Metal Merger Sub or WW Merger Sub granting to any third party any right to
or with respect to any material Intellectual Property right owned by, or
licensed to, either of them, (ii) the Company, WW, Parent, Metal Merger Sub
or WW Merger Sub being bound by, or subject to, any non-compete or other
material restriction on the operation or scope of their respective
businesses, or (iii) either Parent, Metal Merger Sub or WW Merger Sub being
obligated to pay any royalties or other material amounts to any third party
in excess of those payable by Parent, Metal Merger Sub, WW Merger Sub, WW
or the Company or any of the Subsidiaries, respectively, prior to the
Closing.
(o) Each of the Company and WW has taken all reasonable steps to protect
the rights of the Company, WW and the Subsidiaries in the rights of the
Company, WW and the Subsidiaries in confidential information and trade
secrets that it wishes to protect or any trade secrets or confidential
information of third parties provided to the Company, WW or any Subsidiary,
and, without limiting the foregoing, the Company has and enforces a policy
requiring each employee and contractor to execute a proprietary
information/confidentiality and invention assignment agreement with the
Company, and all
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current and former employees and contractors of the Company, WW an the
Subsidiaries have executed such an agreement with the Company or WW, as
applicable, except where the failure to do so is not reasonably expected to
be material to the Company, WW or any of its Subsidiaries.
(p) No (i) product, technology, service or publication of the Company,
WW or any Subsidiary, (ii) material published or distributed by the
Company, WW or any Subsidiary, or (iii) conduct or statement of the
Company, WW or any Subsidiary constitutes obscene material, a defamatory
statement or material, false advertising or otherwise violates any law or
regulation in the jurisdictions where the Business is conducted.
(q) The Company licenses all right, title and interest to the assets and
Intellectual Property related to the development by Stockholder, the
Company and/or WW of real estate transaction management platform
technologies which will provide transaction processing and support services
designed to aid real estate brokers in assisting real estate purchasers and
sellers in fulfilling the closing conditions of a real estate purchase
contract as described by Stockholder to Parent as Project Red Head
("Project Red Head").
2.12 Agreements, Contracts and Commitments
(a) Except as set forth in Schedule 2.12(a) of the Stockholder
Disclosure Letter, as of the date hereof, neither the Company, WW nor any
Subsidiary has, is a party to, is bound by, and the Business is not the
beneficiary of, or subject to, any of the following (those agreements,
arrangements, contracts or commitments to which the Business is subject,
but to which the Company, WW or the Subsidiaries is not, as between the
Stockholder or its subsidiaries (other than the Company, WW and the
Subsidiaries) and the Company, WW and the Subsidiaries, are clearly marked
as such on Schedule 2.12(a)):
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance pay
or post-employment liabilities or obligations,
(ii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any
firm or other organization provides services to the Company, WW or any
Subsidiary,
(v) any agreement or plan, including any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the 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,
(vi) any agreement or plan to issue, grant, deliver or sell or
authorize, or that proposes the issuance, grant, delivery or sale of,
or to purchase or that proposes the purchase of, any shares, or any
rights attached to any shares, in the Company, WW or any Subsidiary or
any securities convertible into or exchangeable for shares in the
Company, WW or any Subsidiary, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any shares in the Company, WW or any Subsidiary
or other convertible securities,
(vii) any fidelity or surety bond or completion bond,
(viii) any lease of personal property requiring payments over the
term of such lease or series of related leases individually in excess
of $200,000 or any lease of real property,
(ix) any agreement of indemnification or guaranty,
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(x) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company, WW or any Subsidiary to engage in
any line of business or to compete with any person,
(xi) any agreement, contract or commitment relating to capital
expenditures or involving future payments or a series of related
payments in excess of $100,000,
(xii) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Company's or WW's
business, as applicable,
(xiii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit, including guaranties
referred to in clause (ix) hereof,
(xiv) any purchase order or contract for the purchase of raw
materials involving $50,000 or more,
(xv) any construction contracts involving future payments or a
series of related payments in excess of $50,000,
(xvi) any sales representative, original equipment manufacturer,
value added, remarketer, reseller or independent software vendor or
other agreement for use of distribution of the Company's or WW's
products, technologies or services;
(xvii) any distribution, joint marketing or development agreement
that includes any provision granting any person a right of first
refusal, right of first negotiation or exclusive, "most favored nation"
or preferential placement or other preferential rights,
(xviii) any agreement pursuant to which the Company, WW or any
Subsidiary has developed for and/or delivered to or has received funds
from any Governmental Entity to develop and/or deliver any Intellectual
Property,
(xix) any agreement, contract or commitment for the purchase of
advertising,
(xx) any other agreement, contract or commitment that involves
$100,000 or more or is not cancelable without penalty within thirty
(30) days.
(b) Except for such alleged breaches, violations and defaults, and
events that would constitute a breach, violation or default with the lapse
of time, giving of notice, or both, as are all noted in Schedule 2.12(b) of
the Stockholder Disclosure Letter, neither the Company, WW nor any
Subsidiary nor the Stockholder nor any of its subsidiaries has materially
breached, violated or defaulted under, or received written notice that it
has materially breached, violated or defaulted under, any of the terms or
conditions of any agreement, contract or commitment required to be set
forth on Schedule 2.12(a) of the Stockholder Disclosure Letter or Schedule
2.11(g) of the Stockholder Disclosure Letter (any such agreement, contract
or commitment, a "Contract"). Each Contract is in full force and effect
(assuming the Contracts have been duly authorized, executed and delivered
by the respective other parties thereto) and is not subject to any default
thereunder of which the Stockholder has Knowledge by any party obligated to
the Company, WW or any Subsidiary pursuant thereto.
2.13 Interested Party Transactions. Other than as contemplated by this
Agreement, none of the Stockholder or any trust, partnership or corporation in
which the Stockholder has an interest or is affiliated, any subsidiary of the
Stockholder or any officer or director of the Company, WW or any Subsidiary,
has directly or indirectly, (i) an economic interest in any entity which
furnished or sold, or furnishes or sells, services or products that the
Company, WW or any Subsidiary furnishes or sells, or proposes to furnish or
sell, (ii) an economic interest in any entity that purchases from or sells or
furnishes to, or licenses to or licenses from, the Company, WW or any
Subsidiary, any goods or services or Intellectual Property or (iii) a material
pecuniary interest in any contract or agreement set forth in Schedule 2.12(a)
of the Stockholder Disclosure Letter or Schedule 2.11(i) of the Stockholder
Disclosure Letter; provided, that ownership of no more than one percent (1%) of
the outstanding voting stock of a publicly traded corporation shall not be
deemed an "economic interest in any entity" for purposes of this Section 2.13.
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2.14 Governmental Authorization. Schedule 2.14 of the Stockholder Disclosure
Letter accurately lists each material consent, license, permit, grant or other
authorization issued to the Company or WW relating to the Business by a
Governmental Entity (herein collectively referred to as "Company
Authorizations"), which Company Authorizations are in full force and effect and
constitute all Company Authorizations required to permit the Company and WW to
operate or conduct the Business or hold any interest in their respective
properties or assets.
2.15 Litigation. Except as set forth in Schedule 2.15 of the Stockholder
Disclosure Letter, there is no action, suit or proceeding of any nature pending
or to Knowledge of the Stockholder, threatened against the Company, WW or any
of its Subsidiaries or Stockholder or any of its subsidiaries, their respective
properties or any of their respective officers or directors, in their
respective capacities as such. To the Knowledge of the Stockholder, there is no
investigation pending or threatened against the Company, WW or any Subsidiary
or the Stockholder or any of its subsidiaries, their respective properties or
any of their respective officers or directors by or before any Governmental
Entity. Schedule 2.15 of the Stockholder Disclosure Letter sets forth, with
respect to any such pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages claimed or other remedy requested. No Governmental Entity
has at any time challenged or questioned the legal right of the Company, WW or
any Subsidiary or the Stockholder or any of its subsidiaries to conduct the
Business or offer or sell any of its products or services.
2.16 Insurance. Schedule 2.16 of the Stockholder Disclosure Letter contains
a true and complete list of all current policies or insurance binders of fire,
property, title, business interruption, general liability, workers'
compensation and errors or omissions insurance (showing as to each policy or
binder as are applicable to the Business, the carrier, policy number, coverage
limits (including without limitation, retentions and deductibles), expiration
dates, annual premiums and a general description of the type of coverage
provided) maintained by the Company or WW on the Business, property or
employees within the last three years. All of such policies are sufficient for
compliance with all material contracts or leases to which the Company, WW or
any Subsidiary is a party and, to the Knowledge of the Stockholder, all
material requirements of applicable law. Neither the Company nor WW has not
failed to give any written notice or to present any material claim under any
such policy or binder in a due and timely fashion. There are no outstanding
unpaid claims under any such policies or binders for which adequate reserves
have not been established. Such policies and binders are in full force and
effect on the date hereof and shall be kept in full force and effect by the
Company and WW through the Closing Date. True and complete copies of the
documents described above have been delivered or made available to Parent.
2.17 Minute Books. The minute books of the Company, WW and each of the
Subsidiaries made available to counsel for Parent are the only minute books of
the Company, WW and such Subsidiaries and contain a reasonably accurate summary
of all meetings of directors (or committees thereof) and stockholders or
actions by written consent since the incorporation of the Company, WW or such
Subsidiary, as the case may be.
2.18 Environmental Matters
(a) Definitions:
(i) "Hazardous Material" is any material or substance that is
prohibited or regulated by any Environmental Law or that has been
designated by any Governmental Authority to be radioactive, toxic,
hazardous or otherwise a danger to health, reproduction or the
environment.
(ii) "Governmental Authority" is any local, state, provincial,
federal, or international governmental authority or agency which has
had or now has jurisdiction over any portion of the subject matter of
this Agreement, any Business Facility, the Company, WW or any
Subsidiary.
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(iii) "Business Facility" is any property including the land, the
improvements thereon, the groundwater thereunder and the surface water
thereon, that is or at any time has been owned, operated, occupied,
controlled or leased by the Company, WW or any Subsidiary in connection
with the operation of the Business.
(iv) "Disposal Site" is a landfill, disposal site, disposal agent,
waste hauler or recycler of Hazardous Materials, or any real property
other than a Business Facility receiving Hazardous Materials used or
generated by a Business Facility.
(v) "Environmental Laws" are all applicable laws, directives,
guidance, rules, regulations, orders, treaties, statutes, and codes
promulgated by any Governmental Authority which prohibit, regulate or
control any Hazardous Material or any Hazardous Material Activity,
including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, the Resource
Recovery and Conservation Act of 1976, the Federal Water Pollution
Control Act, the Clean Air Act, the Hazardous Materials Transportation
Act, the Clean Water Act, all as amended at any time.
(vi) "Hazardous Materials Activity" is the transportation, transfer,
disposal, discharge, recycling, storage, use, treatment, manufacture,
removal, remediation, release, exposure of others to, sale, or
distribution of any Hazardous Material or any product or waste
containing a Hazardous Material, or product manufactured with Ozone
depleting substances.
(vii) "Environmental Permit" is any approval, permit, registration,
certification, license, clearance or consent required to be obtained
from any private person or any Governmental Authority with respect to a
Hazardous Materials Activity which is or was conducted by the Company,
WW or any Subsidiary.
(b) Condition of Property: As of the Closing, except in compliance with
Environmental Laws in a manner that could not reasonably be expected to
subject the Company, WW or any Subsidiary to liability, no Hazardous
Materials are present on any Business Facility currently owned, operated,
occupied, controlled or leased by the Company, WW or any Subsidiary or were
present on any other Business Facility at the time it ceased to be owned,
operated, occupied, controlled or leased by the Company, WW or any
Subsidiary. Except as set forth in Schedule 2.18(b) of the Stockholder
Disclosure Schedule, there are no underground storage tanks, asbestos which
is friable or likely to become friable or PCBs present on any Business
Facility currently owned, operated, occupied, controlled or leased by the
Company, WW or any Subsidiary or as a consequence of the acts of the
Company, WW or any Subsidiary or their respective agents.
(c) Hazardous Materials Activities: Each of the Company, WW and each
Subsidiary has conducted all Hazardous Material Activities relating to its
business in compliance in all material respects with all applicable
Environmental Laws. The Hazardous Materials Activities of the Company, WW
and each Subsidiary prior to the Closing have not resulted in the exposure
of any person to a Hazardous Material in a manner which has caused or could
reasonably be expected to cause an adverse health effect to any such
person.
(d) Permits: Schedule 2.18(d) of the Stockholder Disclosure Schedule
accurately describes all of the Environmental Permits currently held by the
Company, WW or any Subsidiary and relating to the Business and the listed
Environmental Permits are all of the Environmental Permits necessary for
the continued conduct of any Hazardous Material Activity of the Company, WW
or any Subsidiary relating to the Business as such activities are currently
being conducted. All such Environmental Permits are valid and in full force
and effect. The Company, WW or the Subsidiary, as applicable, has complied
in all material respects with all covenants and conditions of any
Environmental Permit which is or has been in force with respect to its
Hazardous Materials Activities. No circumstances exist which could cause
any Environmental Permit to be revoked, modified, or rendered non-renewable
upon payment of the permit fee. All Environmental Permits and all other
consent and clearances required by any Environmental Law
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or any agreement to which the Company, WW or any Subsidiary is bound as a
condition to the performance and enforcement of this Agreement, have been
obtained or will be obtained prior to the Closing at no cost to Parent.
(e) Environmental Litigation: Except as set forth in Schedule 2.18(e) of
the Stockholder Disclosure Schedule, no action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or
to the best of the Stockholder's knowledge, threatened, concerning or
relating to any Environmental Permit or any Hazardous Materials Activity of
the Company, WW or any Subsidiary relating to the Business or any Business
Facility.
(f) Offsite Hazardous Material Disposal: Each of the Company, WW and
each Subsidiary has transferred or released Hazardous Materials only to
those Disposal Sites set forth in Schedule 2.18(f) of the Stockholder
Disclosure Schedule; and no action, proceeding, liability or claim exists
or is threatened against any Disposal Site or against the Company, WW or
any Subsidiary with respect to any transfer or release of Hazardous
Materials relating to the Business to a Disposal Site which could
reasonably be expected to subject the Company, WW or any Subsidiary to
liability.
(g) Environmental Liabilities: The Stockholder is not aware of any fact
or circumstance, which could result in any environmental liability which
could reasonably be expected to harm the Business or financial status of
the Company, WW or any Subsidiary.
(h) Reports and Records: Each of the Company and WW, as applicable, has
delivered to Parent or made available for inspection by Parent and its
agents, representatives and employees all records in the Stockholder's, the
Company's and WW's possession concerning the Hazardous Materials Activities
of the Company, WW or any Subsidiary relating to the Business and all
environmental audits and environmental assessments of any Business Facility
conducted at the request of, or otherwise in the possession of the
Stockholder, the Company and WW. Each of the Company, WW and each
Subsidiary has complied with all environmental disclosure obligations
imposed by applicable law with respect to this transaction.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Neither the Company,
WW nor any Subsidiary has incurred, nor will any of them incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges or any other transaction expenses in connection with
this Agreement, the Commercial Agreements or any transaction contemplated
hereby and thereby.
2.20 Employee Matters and Benefit Plans
(a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 2.20(a)(i) below (which definition shall apply only to
this Section 2.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with the Company or WW within the meaning of Section 414(b),
(c), (m) or (o) of the Code and the regulations thereunder;
(ii) "Company Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock
or stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or
unfunded, including each "employee benefit plan", within the meaning of
Section 3(3) of ERISA, which is or has been maintained, contributed to,
or required to be contributed to, by the Stockholder or the Company or
WW or any Affiliate for the benefit of any "Employee" (as defined
below), and pursuant to which the Stockholder or the Company or WW or
any Affiliate has or is reasonably expected to have any material
liability contingent or otherwise;
(iii) "DOL" means the Department of Labor;
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(iv) "Employee" shall mean any current, former, or retired employee,
officer, or director of the Company, WW or any Subsidiary;
(v) "Employee Agreement" shall refer to each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas,
work permit or similar agreement or contract between the Stockholder,
the Company, WW or any Subsidiary and any Employee or consultant of the
Company, WW or any Subsidiary;
(vi) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
(vii) "IRS" shall mean the Internal Revenue Service;
(viii) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA; and
(ix) "Pension Plan" shall refer to each Company Employee Plan which
is an "employee pension benefit plan," within the meaning of Section
3(2) of ERISA.
(b) Schedule. Schedule 2.20(b) of the Stockholder Disclosure Letter
contains an accurate and complete list of each Company Employee Plan and
each Employee Agreement. Except as set forth in Schedule 2.20(b) of the
Stockholder Disclosure Letter, none of the Stockholder, the Company, WW nor
any Subsidiary has any plan or commitment, whether legally binding or not,
to establish any new Company Employee Plan or Employee Agreement, to modify
any Company Employee Plan or Employee Agreement (except to the extent
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as
previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Company Employee Plan or Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing.
(c) Documents. The Stockholder has made available to Parent (i) correct
and complete copies of all documents embodying or relating to each Company
Employee Plan and each Employee Agreement including all amendments thereto
and written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the
three (3) most recent annual reports (Series 5500 and all schedules
thereto), if any, required under ERISA or the Code in connection with each
Company Employee Plan or related trust; (iv) if the Employee Plan is
funded, the most recent annual and periodic accounting of Company Employee
Plan assets; (v) the most recent summary plan description together with the
most recent summary of material modifications, if any, required under ERISA
with respect to each Company Employee Plan; (vi) the most recent IRS
determination letters and rulings relating to Company Employee Plans and
copies of all applications and material correspondence to or from the IRS
or DOL with respect to any Company Employee Plan; and (vii) all
communications material to any Employee or Employees relating to any
Company Employee Plan and any proposed Company Employee Plans, in each
case, relating to any amendments, terminations, establishments, increases
or decreases in benefits, acceleration of payments or vesting schedules or
other events which would result in any material liability to the Company.
(d) Employee Plan Compliance. (i) Each of the Company, WW and each
Subsidiary has performed all material obligations required to be performed
by it under each Company Employee Plan, is not in material default or
violation of, and the Stockholder has no Knowledge of any material default
or violation by any party to any Company Employee Plan, and each Company
Employee Plan has been established and maintained in all material respects
in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA
or the Code; (ii) each Company Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code has either received a favorable determination, opinion,
notification or advisory letter from the IRS with respect to each such
Company Employee Plan as to its qualified status under the Code, including
all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has remaining a period of time under applicable
Treasury regulations or IRS pronouncements in which to apply for such a
letter and make any amendments necessary to obtain
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a favorable determination as to the qualified status of each such Company
Employee Plan; (iii) no "prohibited transaction," within the meaning of
Section 4975 of the Code or Section 406 and 407 of ERISA, and not otherwise
exempt under Section 408 of ERISA, has occurred with respect to any Company
Employee Plan; (iv) there are no actions, suits or claims pending, or, to
the Knowledge of the Stockholder, the Company, WW or any Affiliates,
threatened or anticipated (other than routine claims for benefits) against
any Company Employee Plan or against the assets of any Company Employee
Plan; (v) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its
terms, without liability to the Company, WW, Parent or any of its
Affiliates (other than ordinary administration expenses typically incurred
in a termination event); (vi) there are no audits, inquiries or proceedings
pending or, to the Knowledge of the Stockholder, the Company, WW or any
Affiliates, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vii) none of the Company, WW, the Stockholder nor any
Affiliate is subject to any penalty or tax with respect to any Company
Employee Plan under Section 502(i) of ERISA or Section 4975 through 4980 of
the Code.
(e) Pension Plans. Neither the Company, WW nor any Subsidiary has, nor
has the Stockholder on behalf of the Company, WW or any Subsidiary, ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA,
Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Stockholder (on behalf of
the Company, WW or any Subsidiary), the Company, WW or any Subsidiary
contributed to or been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. No Company Employee Plan provides,
or has any liability to provide, life insurance, medical or other employee
benefits to any Employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute.
(h) COBRA. The Company and each Affiliate has, prior to the Effective
Time, complied in all material respects with the health care continuation
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
(i) Effect of Transaction.
(i) Except as set forth on Schedule 2.20(i) of the Stockholder
Disclosure Letter, the execution of this Agreement and the consummation
of the transactions contemplated hereby will not (either alone or upon
the occurrence of any additional or subsequent events) constitute an
event under any Company Employee Plan, Employee Agreement, trust or
loan that will or may result in any payment (whether of severance pay
or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any Employee.
(ii) No payment or benefit which will or may be made by the Company,
WW or any Subsidiary with respect to any Employee will be characterized
as an "excess parachute payment", within the meaning of Section
280G(b)(1) of the Code.
(j) Employment Matters. Each of the Company, WW and each Subsidiary: (i)
is in material compliance with all applicable federal, state and local
laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours, in each case, with
respect to Employees; (ii) has withheld and reported all amounts required
by law or by agreement to be withheld and reported with respect to the
wages, salaries and other payments to Employees by virtue of their
employment; (iii) is not liable for any arrears of wages or any taxes or
any penalty for failure to comply with any of the foregoing; and (iv) is
not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending, or to
the Knowledge of the Stockholder, threatened claims or actions against the
Company, WW or any Subsidiary under any worker's compensation policy or
long-term disability policy.
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(k) Labor. No work stoppage or labor strike against the Company or any
Subsidiary is pending or, to the Knowledge of the Stockholder or any
Affiliate, threatened. None of the Stockholder, the Company, WW nor any
Subsidiary is involved in or, to the Knowledge of the Stockholder,
threatened with, any labor dispute, grievance, or litigation relating to
labor, safety or discrimination matters involving any Employee, including
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in
liability to the Company or WW. None of the Stockholder, Company, WW nor
any Subsidiary has engaged in any unfair labor practices within the meaning
of the National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly result in a liability to the Company, WW
or any Subsidiary. Neither the Stockholder, the Company nor WW is
presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees
and no collective bargaining agreement is being negotiated by the
Stockholder (with respect to the Company, WW or any Subsidiary), the
Company, WW or any Subsidiary.
(l) No Interference or Conflict. No director, stockholder, manager,
officer, employee or consultant of the Company, WW or any of their
respective Subsidiaries is obligated under any Contract or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with such person's efforts to promote the interests of the
Company, WW or any of the Subsidiaries. To the Knowledge of the
Stockholder, neither the execution nor delivery of this Agreement, nor the
carrying on of the Business, as presently conducted, nor any activity of
such officers, directors, employees or consultants in connection with the
carrying on of the Business as presently conducted, will conflict with or
result in a breach of the terms, conditions or provisions of, or constitute
a default under, any Contract under which any of such officers, directors,
employees or consultants is now obligated.
2.21 Compliance with Laws. Each of Company, WW and each Subsidiary has
complied in all material respects with, is not in violation of, and has not
received any written notices of violation with respect to, any foreign,
federal, state or local statute, law or regulation.
2.22 Investment Representations
(a) Stockholder is aware of Parent's business affairs and financial
condition and has acquired sufficient information about Parent to reach an
informed and knowledgeable decision to acquire the shares of Parent Common
Stock constituting the Merger Consideration. Stockholder is receiving the
shares of Parent Common Stock constituting the Merger Consideration for
investment for its own account only and not with a view to, or for resale
in connection with, any "distribution" thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act").
(b) Stockholder understands that the shares of Parent Common Stock
constituting the Merger Consideration have not been registered under the
Securities Act by reason of a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of its investment
intent and other representations as expressed herein.
(c) Stockholder further acknowledges and understands that the shares of
Parent Common Stock constituting the Merger Consideration must be held
indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Stockholder
understands that the certificate evidencing the shares of Parent Common
Stock constituting the Merger Consideration will be imprinted with a legend
which prohibits the transfer of the securities unless they are registered
or Parent receives an opinion of counsel, reasonably acceptable to it, to
the effect that such registration is not required.
(d) Stockholder, by reason of Stockholder's business or financial
experience has the capacity to protect its own interests in connection with
the receipt of the shares of Parent Common Stock constituting the Merger
Consideration.
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(e) Stockholder is aware of the adoption of Rule 144 by the Securities
and Exchange Commission (the "SEC"), promulgated under the Securities Act,
which permits limited public resale of securities acquired in a non-public
offering subject to the satisfaction of certain conditions set forth
therein, including, among other things, a one-year holding period, the
availability of certain public information about the issuer, the
requirement that the sale be effected through a "broker's transaction" or
in transactions directly with a "market maker" (as defined in Rule 144) and
the number of shares being sold in any three-month period not exceeding
specific limitations.
(f) Stockholder further acknowledges that in the event all of the
requirements of Rule 144 are not met, some other registration exemption
will be required; and that although Rule 144 is not exclusive, the staff of
the SEC has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and other than
pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such
offers or sales and that such persons and the brokers who participate in
the transactions do so at their own risk.
(g) Stockholder is an "accredited investor" as defined in Rule 501 of
the Rules and Regulations promulgated under the Securities Act.
2.23 Bank Accounts. Schedule 2.23 of the Stockholder Disclosure Letter
contains a true and complete listing of all bank accounts or other depositary
accounts maintained by the Company or WW and the authorized signatories
thereto.
2.24 No Other Agreements. Except as contemplated hereby, each of the Company
and WW has no legal obligation, absolute or contingent, to any other person or
entity to sell any material portion of the assets of the Company or WW, as
applicable, to sell Company Capital Stock or WW Capital Stock, as applicable,
to effect any merger, consolidation or reorganization of the Company or WW, or
to enter into any agreement with respect thereto.
2.25 Liberty Digital Stock. As of the date hereof, the Company owns an
aggregate of 697,041 shares of common stock of Liberty Digital, Inc. ("Liberty
Digital Stock"), and since August 14, 2000, the Company has disposed of only
116,174 shares of Liberty Digital Stock for aggregate proceeds of $2,700,000
(the "Liberty Digital Proceeds").
2.26 Representations Complete. None of the representations or warranties
made by the Stockholder (as modified by the Stockholder Disclosure Letter)
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements contained herein, in the light
of the circumstances under which made, not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT,
METAL MERGER SUB AND WW MERGER SUB
As of the date hereof, Parent, Metal Merger Sub and WW Merger Sub represent
and warrant to the Stockholder, subject to such exceptions as are specifically
disclosed in the disclosure letter supplied by the Parent to the Stockholder
(the "Parent Disclosure Letter") and dated as of the date hereof, as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware. Each of Metal Merger Sub and WW Merger Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and the State of New York, respectively. Each
of Parent, Metal Merger Sub and WW Merger Sub has the corporate power to
own its respective properties and to carry on its respective business as
now being conducted. Each of Parent, Metal Merger Sub and WW Merger Sub is
duly qualified to do business and is in good standing in each jurisdiction
in which the failure to be so qualified (either individually or
collectively) would have a Material Adverse Effect on Parent. Each of the
subsidiaries required to be listed in the periodic reports of Parent
pursuant Item 601(b) of Regulation S-K of the Rules and Regulations
promulgated under the Securities Act (the "Parent Subsidiaries") is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has the corporate or other applicable
power to owns its property and carry on its business as now being
conducted. Each of the Parent Subsidiaries is duly qualified to do business
and is in good standing in each jurisdiction outside of the jurisdiction of
formation in which the failure to be so qualified (either individually or
collectively) would have a Material Adverse Effect on Parent.
3.2 Authority. Parent, Metal Merger Sub and WW Merger Sub have all
requisite corporate power and authority to enter into this Agreement and
the Ancillary Agreements to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of each of Parent, Metal Merger
Sub and WW Merger Sub, subject only to the approval of the stockholders of
Parent of the issuance of the Parent Common Stock in connection with the
Mergers pursuant to the rules of the Nasdaq Stock Market. The respective
Boards of Directors of Parent, Metal Merger Sub and WW Merger Sub have
approved the Mergers, this Agreement and the Ancillary Agreements to which
Parent, Metal Merger Sub or WW Merger Sub, as applicable, is a party. This
Agreement and the Ancillary Agreements to which it is a party have been
duly executed and delivered by each of Parent, Metal Merger Sub and WW
Merger Sub and, assuming the due execution and deliver by the Company, WW,
CMS and the Stockholder, constitute the valid and binding obligations of
Parent, Metal Merger Sub and WW Merger Sub, enforceable in accordance with
their respective terms. The execution and delivery of this Agreement and
the Ancillary Agreements to which it is a party by Parent, Metal Merger Sub
and WW Merger Sub does not, and as of the Effective Time, will not result
in any Conflict with (i) any provision of the Certificate of Incorporation
or Bylaws of Parent, Metal Merger Sub or WW Merger Sub; or (ii) any
material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order,
decree, statute law, ordinance, rule or regulation applicable to Parent,
Metal Merger Sub or WW Merger Sub, as applicable, or their respective
properties or assets. No consent, waiver, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity or
any third party (so as not to trigger any Conflict) is required by or with
respect to the Parent, Metal Merger Sub or WW Merger Sub in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the
Certificates of Merger with the Secretaries of State for the State of
Delaware and the State of New York, respectively, (ii) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities
laws; (iii) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the HSR
Act; (iv) approval of the
A-29
stockholders of Parent of the issuance of the shares of Parent Common Stock
in connection with the Mergers pursuant to the rules of the Nasdaq Stock
Market; and (v) such other consents, waivers, authorizations, filings,
approvals and registrations as would not have a Material Adverse Effect on
Parent. Parent has approved the Mergers in its capacity as stockholder of
Metal Merger Sub and WW Merger Sub.
3.3 Capital Structure. The authorized stock of Parent consists of
500,000,000 shares of Common Stock, $0.001 par value per share, of which
83,245,513 shares were issued and outstanding as of October 23, 2000, and
5,000,000 shares of Preferred Stock, $0.001 par value per share, one share
of which was issued or outstanding. As of October 23, 2000, there were
unvested options to purchase 11,826,574 shares of Parent Common Stock. The
authorized capital stock of Metal Merger Sub consists of 1,000 shares of
Common Stock, 1,000 shares of which, as of the date hereof, are issued and
outstanding and are held by Parent. The authorized capital stock of WW
Merger Sub consists of 1,000 shares of Common Stock, 1,000 shares of which,
as of the date hereof, are issued and outstanding and are held by Parent.
All outstanding shares of Parent Common Stock are duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of the
Parent or any agreement to which Parent or any Parent Subsidiary is a party
or by which it is bound, and have been issued in compliance with federal
and state securities laws. There are no declared or accrued but unpaid
dividends with respect to any shares of Parent Common Stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to Parent. Except as
contemplated hereby, there are no voting trusts, proxies, or other
agreements or understandings with respect to the voting stock of Parent.
3.4 SEC Documents; Parent Financial Statements. Parent has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the Securities and Exchange
Commission (the "SEC") since August 7, 1999, all in the form so filed (all
of the foregoing being collectively referred to as the "SEC Documents"). As
of their respective filing dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act or the
Securities Exchange Act of 1934 (the "Exchange Act") as the case may be,
and none of the SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a document subsequently filed with the SEC. The financial
statements of Parent, including the notes thereto, included in the SEC
Documents (the "Parent Financial Statements") comply as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and present fairly the consolidated
financial position of Parent at the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal audit
adjustments). There has been no change in Parent accounting policies except
as described in the notes to the Parent Financial Statements; provided,
however, Parent may have restated or may restate one or more of the Parent
Financial Statements to reflect acquisitions entered into subsequent to the
respective dates thereof. The SEC Documents contained an audited
consolidated balance sheet of Parent as of December 31, 1999 (the "Parent
Balance Sheet") and the related audited consolidated statements of income
and cash flow for the year then ended (collectively, the "Parent
Financials").
3.5 No Undisclosed Liabilities. Parent does not have any Liabilities,
except for those that, (i) have been reflected in the Parent Balance Sheet,
or (ii) have arisen in the ordinary course of the Parent's business since
the date of the Parent Balance Sheet, or (iii) do not have a Material
Adverse Effect on Parent.
3.6 No Material Adverse Effect. Since the date of the Parent Balance
Sheet and through the date hereof, there has not occurred any event or
condition of any character that has had a Material Adverse Effect on
Parent.
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3.7 Tax and Other Returns and Reports
(a) Tax Returns and Audits.
(i) Except as set forth on Schedule 3.7(a)(i) of the Parent
Disclosure Letter, Parent has prepared and filed all material (as to
Parent) required federal, state, local and foreign Returns, relating
to any and all Taxes concerning or attributable to Parent or its
operations and such Returns shall be true and correct in all
material respects and have been completed in all material respects
in accordance with applicable law. Notwithstanding the foregoing, no
representation or warranty is hereby made regarding the amount or
availability of the net operating losses of Parent.
(ii) Parent, (A) has paid or accrued all material (as to Parent)
Taxes that Parent is required to pay or accrue and (B) has reported
and withheld with respect to employees of the Parent all material
federal and state income taxes, FICA, FUTA, and other Taxes required
to be reported and withheld.
(iii) Parent has not been delinquent in the payment of any
material Tax nor is there any material Tax deficiency outstanding,
proposed or assessed against the Parent, nor has Parent executed any
waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of Parent is
currently in progress, nor has Parent been notified of any request
for such an audit or other examination.
(v) There are no Liens on the assets of Parent relating to or
attributable to Taxes.
(vi) Parent is not a party to a tax sharing or allocation
agreement nor does Parent owe any amount under any such agreement.
(b) No material adjustment relating to any Return filed by Parent
has been proposed formally, or, to Parent's Knowledge, informally by
any tax authority to Parent or any representative thereof.
3.8 Agreements, Contracts, Commitments. Parent and each Parent
Subsidiary is in compliance in all material respects with and has not, in
any material respects, breached, violated or defaulted under or received
notice that it has breached, violated or defaulted under, any of the terms
or conditions of any agreement, contract or commitment that is included in
any Securities Act or Exchange Act filing a "Material Contract" pursuant to
Item 601(b)(10) of Regulation S-K of the Rules and Regulations promulgated
under the Securities Act. Except as set forth on Schedule 3.8 of the Parent
Disclosure Letter, Parent has no agreement regarding the repurchase from
any person of a number of shares of Parent Common Stock in excess of
200,000 shares.
3.9 Interested Party Transactions. To Parent's Knowledge, no executive
officer or director of Parent is a party to any transaction required to be
disclosed under Item 404 of Regulation S-K of the Rules and Regulations
promulgated under the Securities Act in the SEC Documents that has not been
disclosed in the SEC Documents.
3.10 Environmental Matters
(a) Hazardous Material. Neither Parent nor any Parent Subsidiary has
operated any underground storage tanks, and neither Parent has no
Knowledge of the existence, at any time, of any underground storage
tank (or related piping or pumps), at any property that Parent or any
Parent Subsidiary has at any time owned, operated, occupied or leased.
Neither Parent nor any Parent Subsidiary has released any amount of any
Hazardous Materials. No Hazardous Materials are present as a result of
the actions or omissions of Parent, or, to the Knowledge of Parent, as
a result of any actions of any third party or otherwise, in, on or
under any property, including the land and the improvements, ground
water and surface water thereof, that Parent or any Parent Subsidiary
has at any time owned, operated, occupied or leased.
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(b) Hazardous Materials Activities. Neither Parent nor any Parent
Subsidiary has engaged in Hazardous Materials Activities in violation
of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous
Material Activity.
(c) Permits. Parent and each Parent Subsidiary currently hold all
Environmental Permits necessary for the conduct of the Hazardous
Material Activities of Parent or any Parent Subsidiary and other
businesses of Parent or any Parent Subsidiary as such activities and
businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending,
or to the Knowledge of Parent, threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of
Parent or any Parent Subsidiary. Parent is not aware of any fact or
circumstance which could involve Parent or any Parent Subsidiary in any
environmental litigation or impose upon Parent or any Parent Subsidiary
any environmental liability.
3.11 Brokers' and Finders' Fees; Third Party Expenses. Except for fees
payable to Morgan Stanley & Co. Incorporated, neither Parent nor any Parent
Subsidiary has incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement, the Commercial
Agreements or any transaction contemplated hereby or thereby.
3.12 Representations Complete. None of the representations or warranties
made by Parent, Metal Merger Sub or WW Merger Sub (as modified by the
Parent Disclosure Letter) contains any untrue statement of a material fact,
or omits to state any material fact necessary in order to make the
statements contained herein, in the light of the circumstances under which
they were made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except for those matters set forth in Schedule
4.1 of the Stockholder Disclosure Letter, each of the Company and WW agrees and
the Stockholder agrees to cause the Company and WW (except to the extent that
Parent shall otherwise consent in writing) to carry on the Business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay the debts and Taxes of the Company, WW and the
Subsidiaries when due, to pay or perform other obligations when due, and, to
the extent consistent with the Business, to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
it, all with the goal of preserving unimpaired its goodwill and ongoing
businesses as of the Effective Time. Except as expressly contemplated by this
Agreement, neither the Company, WW nor any Subsidiary will, nor will the
Stockholder permit the Company, WW or any of the Subsidiaries to, without the
prior written consent of Parent:
(a) Enter into any commitment, activity or transaction that would have
been an exception to the representations or warranties set forth in Section
2.7, had such commitment, activity or transaction occurred on or after
March 31, 2000, June 30, 2000 or August 31, 2000, as the case may be, and
prior to the date of this Agreement;
(b) Transfer or license to the Stockholder or any of its subsidiaries
(other than the Company, WW or any of the Subsidiaries) any rights to any
Company Intellectual Property or any other asset (other than cash (except
for the Liberty Digital Proceeds) and assets as of the date hereof of
National Home Connection, MetroRent or Getko Canada) or enter into any
agreement with respect to Company
A-32
Intellectual Property or any other asset (other than assets relating to
National Home Connection) with Stockholder or its subsidiaries (other than
the Company, WW and the Subsidiaries);
(c) Transfer to the Stockholder or any of its subsidiaries (other than
the Company, WW or any of the Subsidiaries) any employee engaged in the
Business;
(d) Hire or terminate any employees other than for cause or encourage
any employees to resign from the Company, WW or any Subsidiary;
(e) Enter into or amend any agreement pursuant to which any party is
granted marketing, distribution, development or similar rights of any type
or scope which includes any provision granting any person a right of first
refusal, right of first negotiation or exclusive, "most favored nation" or
preferential placement or other preferential rights, except for agreements
regarding sponsorship or the sale of advertising to third parties for
placement on the Company's website with no payment or other obligations on
the part of the Company or any Subsidiary outside the ordinary course of
business and that are terminable within sixty (60) days without penalty;
(f) Adversely amend or otherwise modify (or agree to do so), except in
the ordinary course of business, or violate the material terms of, any
agreement set forth or described in the Stockholder Disclosure Letter;
(g) Commence or settle any litigation involving claims or payments in
excess of $100,000 or which seeks equitable relief; provided, however, that
this restriction shall not apply to the commencement of (i) any litigation
regarding accounts receivable in the ordinary course of business or other
litigation relating to the ordinary course enforcement of contractual
rights generally or (ii) any litigation regarding a breach of this
Agreement;
(h) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, WW
or any Subsidiary, or repurchase, redeem or otherwise acquire, directly or
indirectly, any shares of its capital stock (or options, warrants or other
rights exercisable therefor);
(i) Issue, sell, grant, contract to issue, grant or sell, or authorize
the issuance, delivery, sale or purchase of any shares of Company Capital
Stock or securities convertible into, or exercisable or exchangeable for,
shares of Company Capital Stock, or any securities, warrants, options or
rights to purchase any of the foregoing;
(j) Cause or permit any amendments to its Certificate of Incorporation
or Bylaws;
(k) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
or divest any assets which are material, individually or in the aggregate,
to the Business;
(l) Sell, lease, license or otherwise dispose of any of the assets or
properties of Company, WW or any Subsidiary except in the ordinary course
of business consistent with past practices or create any security interest
in such assets or properties;
(m) Grant any loan to any person or entity, incur any indebtedness or
guarantee any indebtedness, issue or sell any debt securities, guarantee
any debt securities of others, purchase any debt securities of others or
amend the terms of any outstanding agreements related to borrowed money,
except for advances to employees for travel and business expenses in the
ordinary course of business consistent with past practices;
(n) Grant any severance or termination pay (i) to any director or
officer or (ii) to any employee or consultant, except payments made
pursuant to standard written agreements outstanding as of the date
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hereof and disclosed on Schedule 4.1(n) of the Stockholder Disclosure
Letter, or increase in the salary or other compensation payable or to
become payable by Company or any of their respective Subsidiaries to any of
their officers, directors, employees or advisors other than increases made
in the ordinary course of business consistent with past practices and in no
event in excess of ten percent (10%) of such individual's base salary, or
declare, pay or make any commitment or obligation of any kind for the
payment by the Company, WW or any of their respective Subsidiaries of a
bonus or other additional salary or compensation to any such person other
than bonuses or additional salary or compensation paid in the ordinary
course of business consistent with past practices, or adopt or amend any
employee benefit plan or enter into any employment contract;
(o) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the
ordinary course of business and consistent with past practice;
(p) Other than the acceleration of not more than twenty-five percent
(25%) of the shares underlying Company Options (or acceleration of such
greater amount as disclosed in the Employment Agreements set forth on
Schedule 4.1(p)) outstanding as of the date hereof in connection with the
transactions contemplated by this Agreement, take any action to accelerate
the vesting schedule of any of the outstanding Company Options, Company
Capital Stock or WW Capital Stock;
(q) Pay, discharge or satisfy, in an amount in excess of $100,000 (in
any one case) or $250,000 (in the aggregate) any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities;
(r) Make or change any election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, enter into any closing agreement or
settle any claim or assessment in respect of Taxes;
(s) Enter into any agreement of the type described in Section 2.12
hereof except, with respect to 2.12(a)(xvii), for agreements regarding
sponsorship or the sale of advertising to third parties for placement on
the Company's website with no payment or other obligations on the part of
the Company or any Subsidiary outside the ordinary course of business and
that are terminable within sixty (60) days without penalty and, with
respect to 2.12(a)(xix), for agreements that are cancelable without penalty
within thirty (30) days and for which, if such agreement is in effect after
the Closing, (i) Stockholder shall be the sole obligor under such agreement
after the Closing and (ii) Parent has no liability after the Closing under
the agreement, by operation of law or otherwise;
(t) Fail to pay or otherwise satisfy its monetary obligations as they
become due, except such as are being contested in good faith;
(u) Cancel, materially amend or renew any insurance policy other than in
the ordinary course of business;
(v) Except as contemplated by this Agreement, alter, or enter into any
commitment to alter, its interest in any corporation, association, joint
venture, partnership or business entity in which the Company, WW or any
Subsidiary directly or indirectly holds any interest on the date hereof; or
(w) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (v) above, or any other action that
would prevent the Company, WW or the Subsidiaries from performing or cause
the Company, WW or the Subsidiaries not to perform its covenants hereunder.
Notwithstanding the foregoing, Stockholder will cause the transfer prior to
the Closing, and shall be permitted without receiving the prior written consent
of Parent to transfer, out of the Company the business of National Home
Connections, LLC, Getko Canada and MetroRent and the employees set forth on
Schedule 4.1(x), such that neither the Company, WW nor any Subsidiary has any
Liabilities with respect to such business or employees following the Closing.
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4.2 No Solicitation. Until the earlier of the Effective Time or the date of
termination of this Agreement pursuant to the provisions of Section 8.1 hereof,
the Stockholder will not permit (nor will it permit any of the respective
officers, directors, employees, stockholders, agents, representatives or
affiliates of) the Company, WW or any of the Subsidiaries to directly or
indirectly, take any of the following actions with any party other than Parent
and its designees: (a) solicit, initiate, entertain, or encourage any proposals
or offers from, or conduct discussions with or engage in negotiations with, any
person relating to any possible acquisition of the Company or WW, any of its
subsidiaries or the Business (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise), any material portion of its capital
stock or assets or any equity interest in the Company, WW, any of the
Subsidiaries or the Business, (b) provide information with respect to it to any
person, other than Parent, relating to, or otherwise cooperate with, facilitate
or encourage any effort or attempt by any such person with regard to, any
possible acquisition of the Company, WW, any of the Subsidiaries or the
Business (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its capital stock or assets or
any equity interest in the Company, WW, any of the Subsidiaries or the
Business, (c) enter into an agreement with any person, other than Parent,
providing for the acquisition of the Company, WW, any of the Subsidiaries or
the Business (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its capital stock or assets or
any equity interest in the Company, WW, any of the Subsidiaries or the
Business, or (d) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of the Company, WW, any of
the Subsidiaries or the Business (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise), any material portion of its capital
stock or assets or any equity interest in the Company, WW, any of the
Subsidiaries or the Business by any person, other than by Parent. The
Stockholder shall immediately cease and cause to be terminated any such
contacts or negotiations with third parties relating to any such transaction or
proposed transaction. In addition to the foregoing, if the Company, WW or the
Stockholder receives prior to the Effective Time or the termination of this
Agreement any offer or proposal relating to any of the above, the Stockholder
shall immediately notify Parent thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and the
specific terms of such offer or proposal, as the case may be, and such other
information related thereto as Parent may reasonably request. Except as
contemplated by this Agreement, disclosure by the Company, WW or Stockholder of
the terms hereof (other than the prohibition of this Section 4.2) shall be
deemed to be a violation of this Section 4.2. The parties hereto agree that
irreparable damage would occur in the event that the provisions of this Section
4.2 were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed by the parties hereto that Parent
shall be entitled to seek an injunction or injunctions to prevent breaches of
the provisions of this Section 4.2 and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which Parent may be
entitled at law or in equity.
4.3 Conduct of Business of Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
and the Effective Time, Parent agrees it shall not, without the prior written
consent of the Stockholder, enter into any transaction which would (i) require
the approval of the stockholders of Parent under the rules of the Nasdaq Stock
Market, or Delaware Law, or its Certificate of Incorporation, or (ii) both (A)
require a pre-merger notification filing to be made under the HSR Act (without
respect to whether the "size of the person" test pertaining to the entity to be
acquired is met) and (B) be reasonably likely to materially delay or impede
approval of the Mergers under the HSR Act. If Parent intends to enter into any
transaction which would require a pre-merger notification filing to be made
under the HSR Act (without respect to whether the "size of the person" test
pertaining to the entity to be acquired is met), then it shall, prior entering
into such transaction, consult with the Stockholder to discuss the reasonable
likely effects of such transaction on approval of the Mergers under the HSR
Act. Parent shall instruct and provide training to its sales force and the
sales force of Spring Street and Parent not to use the existence of the
proposed Mergers as a means of persuading potential customers and advertisers
of RentNet or the Company not to sign up with RentNet or the Company but to
sign up with Spring Street or Parent instead.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Stockholder Approval; Proxy Statement; Delivery of Financials
(a) As promptly as practicable after the execution of this Agreement,
Parent will prepare and file, with the cooperation of the Company, WW and
the Stockholder, a proxy statement (the "Proxy Statement") relating to
approval of the issuance of the shares of Parent Common Stock in connection
with the Mergers pursuant to the rules and regulations of the Nasdaq Stock
Market and the SEC. The Company, WW and Stockholder shall provide promptly
to Parent such information concerning their respective business and
financial statements and affairs, as, in the reasonably judgment of Parent
or its counsel, may be required or appropriate for inclusion in the Proxy
Statement, or in any amendments or supplements thereto, and to cause its
counsel and auditors to cooperate with Parent's counsel and auditors in the
preparation of the Proxy Statement, including, without limitation, that
each of the Company and WW agrees, and the Stockholder agrees to cause the
Company and WW, to deliver an audited combined consolidated balance sheet
of the Company (together with WW and the WW Subsidiaries as though WW and
the WW Subsidiaries were subsidiaries of the Company) as of September 30,
2000 and the related audited combined consolidated statements of operations
and cash flows for the nine-month period ended September 30, 2000 as soon
as practicable after the date of this Agreement and in no event later than
November 15, 2000. Without limiting the generality of the foregoing, in
particular, the Stockholder, the Company and WW will cause its management
and its independent auditors to facilitate on a timely basis (and no later
than fifteen (15) business days after the date of this Agreement) (i) the
preparation and delivery to Parent for inclusion in the Proxy Statement of
financial statements (including pro forma financial statements if required)
as required by Parent to comply with applicable rules and regulations of
the SEC, (ii) the review of any Company or WW audit or review work papers
for up to the past three (3) complete fiscal years, including the
examination of selected interim financial statements and data and (iii) the
delivery of such consents and representations from the Stockholder's, the
Company's and WW's independent accountants as may be required by applicable
laws or the rules or regulations promulgated thereunder.
Parent shall use commercially reasonable efforts to respond after
consultation with the other parties hereto to any comments of the SEC as
promptly as promptly practicable after such filing. Parent shall give the
Stockholder and its counsel the opportunity to review the Proxy Statement
prior to its being filed with the SEC and shall give the Stockholder and
its counsel the opportunity to review all amendments and supplements to the
Proxy Statement and all written responses to requests for additional
information and written replies to comments prior to their being filed
with, or sent to, the SEC. Parent will cause the Proxy Statement to be
mailed to all stockholders of Parent, at the earliest practicable time
after the expiration of the period of time prescribed by Rule 14a-6(a) of
the Exchange Act or if comments are received by the SEC prior to the
expiration of such period of time, upon receipt of written notice from the
SEC advising Parent of the SEC's permission to file the Proxy Statement in
definitive form. As promptly as practicable after the date of this
Agreement, Parent, the Company, WW and Stockholder will prepare and file
any other filings required under the Securities Act, Exchange Act or any
other federal, foreign, or state "Blue Sky" laws relating to the Mergers
and the transactions contemplated by this Agreement (the "Other Filings").
The Proxy Statement will comply in all material respects with all
applicable requirements of law and the rules and regulations promulgated
thereunder. Whenever any event occurs that is required to be set forth in
amendment or supplement to the Proxy Statement or any Other Filing, as the
case may be, Parent, the Company, WW or Stockholder, as the case may be,
will promptly inform the others of such occurrence and cooperate in filing
with the SEC or its staff or any other government officers, and/or mailing
to the stockholders of Parent, such amendment or supplement as promptly as
practicable. The Proxy Statement shall include the recommendation of the
Board of Directors of Parent in favor of the issuance of shares of Parent
Common Stock in connection with the Mergers; provided, however, that such
recommendation may be withdrawn or amended in the event (i) of termination
of this Agreement pursuant
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to Section 8.1 or (ii) that the Stockholder, the Company or WW has engaged
in fraudulent behavior with respect to this Agreement, the Mergers or the
transactions contemplated hereby.
(b) At the earliest practicable date after the expiration of the period
of time prescribed by Rule 14a-6(a) of the Exchange Act or if comments are
received by Parent from the SEC prior to the expiration of such period of
time, upon receipt of written notice from the SEC advising Parent of the
SEC's permission to file the Proxy Statement in definitive form, Parent
will use its good faith reasonable efforts to take all action necessary in
accordance with Delaware Law, the Certificate of Incorporation and Bylaws
of Parent, and the rules and regulations of the Nasdaq Stock Market to duly
call, give notice of and convene and hold a special meeting of stockholders
for purposes of voting on a proposal to approve the issuance of the shares
of Parent Common Stock in connection with the Mergers. Parent will, subject
to federal and state securities laws and the rules and regulations
promulgated thereunder, solicit from its stockholders proxies in favor of
the issuance of the shares of Parent Common Stock in connection with the
Mergers.
5.2 Nasdaq Listing. Parent shall use commercially reasonable efforts to
ensure that at the Effective Time, the shares of Parent Common Stock to be
delivered to the Stockholder pursuant to this Agreement shall have been
accepted for quotation on the Nasdaq National Market.
5.3 Restrictions on Transfer. Except for certificates representing those
shares of Parent Common Stock which are subject to an effective registration
statement on Form S-3 filed by Parent pursuant to Section 5.12, all
certificates representing Parent Common Stock deliverable to the Stockholder or
any of its Subsidiaries pursuant to this Agreement in connection with the
Mergers and any certificates subsequently issued with respect thereto or in
substitution therefor (including any shares issued or issuable in respect of
any such shares upon any stock split stock dividend, recapitalization, or
similar event) shall bear the following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR A WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE
ISSUER IN FORM AND SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND VOTING CONTAINED IN STOCKHOLDER AGREEMENT
WHICH MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST OF THE HOLDER OR RECORD
OF THIS SECURITY TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
OFFICES OF THE CORPORATION.
If, and to the extent shares of Parent Common Stock held by the Stockholder
are no longer subject to the restrictions described in the legends set forth
above, upon the request of the Stockholder, Parent shall cause its transfer
agent to remove the appropriate legend set forth above from the certificates
evidencing the shares of Parent Common Stock or issue to the Stockholder new
certificates therefor free of such legend.
Such certificate shall also bear any legend required by any federal, state,
local or foreign law governing such securities.
5.4 Access to Information. The Company and WW shall afford Parent and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all
properties, books, contracts, commitments, records and auditors of the Company,
WW and the Subsidiaries, and (b) all other information concerning the Business
and the properties and personnel of the Company, WW and the Subsidiaries
(subject to restrictions imposed by applicable law) as Parent may reasonably
request; provided that any photocopying or similar costs of such access shall
be incurred at Parent's expense and that such access will conducted at a
reasonable time, under the supervision of the Stockholder's, the Company's or
WW's personnel and in such a manner as to maintain the confidentiality of this
Agreement
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and the transactions contemplated hereby and not to interfere unreasonably with
the normal operation of the business of the Company or WW. Parent shall afford
Stockholder, the Company and WW, and their respective accountants, counsel and
other representatives, access during normal business hours during the period
prior to the Effective Time to the senior executive management team of Parent
to the same extent as such access was provided prior to the date of this
Agreement; provided that any photocopying or similar costs of such access shall
be incurred at Stockholder's expense and that such access will conducted at a
reasonable time, under the supervision of Parent's personnel and in such a
manner as to maintain the confidentiality of this Agreement and the
transactions contemplated hereby and not to interfere unreasonably with the
normal operation of the business of Parent. Parent and the Stockholder
acknowledge and agree that all information received from or on behalf of the
Parent, Company, WW or any Subsidiary in connection with the transactions
contemplated hereby prior to the Closing shall be deemed to be received
pursuant to the Confidentiality Agreement dated as of May 19, 2000 and Parent,
Metal Merger Sub, WW Merger Sub, the Stockholder, the Company and WW shall, and
shall cause their respective affiliates and representatives, to comply with the
provisions of such Confidentiality Agreement with respect to such information.
No information or knowledge obtained in any investigation pursuant to this
Section 5.4 shall affect or be deemed to modify any representation or warranty
contained herein.
5.5 Expenses. Except as set forth in Section 5.13 hereof, whether or not the
Mergers are consummated, all fees and expenses incurred in connection with the
Mergers including all legal, accounting, financial advisory, consulting and all
other fees and expenses of third parties ("Third Party Expenses") incurred by a
party in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby, shall be
the obligation of the respective party incurring such fees and expenses;
provided, however, all Third Party Expenses incurred by the Company, WW or any
Subsidiary in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby shall be
the sole obligation of the Stockholder.
5.6 Public Disclosure. Parent and the Stockholder shall consult with and
provide each other the reasonable opportunity to review and comment upon any
public disclosure prior to the public disclosure relating to this Agreement or
the transactions contemplated hereby, provided, that neither Parent nor the
Stockholder shall issue any such public disclosure prior to such consultation
and mutual agreement by the other party except as may be otherwise required by
law (including federal and state securities laws) or, as to Parent, by the
rules and regulations of the National Association of Securities Dealers, Inc.
or the Nasdaq Marketplace Rules. Parent and Stockholder further agree that for
the first twelve (12) months the key messaging to the public will be that of
the initial public disclosures made by and agreed to by the parties.
5.7 Consents. The Stockholder shall use all commercially reasonable efforts
and shall cause the Company and WW to use all commercially reasonable efforts
to obtain the consents, waivers and approvals and to give the notices under any
of the Contracts as may be required in connection with the Mergers (all of such
consents, waivers and approvals are set forth in Stockholder Disclosure Letter)
so as to preserve all rights of and benefits to the Company, WW and Parent
thereunder.
5.8 FIRPTA Compliance. On or prior to the Closing Date, the Stockholder
shall deliver to Parent an affidavit in a form reasonably satisfactory to
Parent stating under penalties of perjury Stockholder's taxpayer identification
number and that Stockholder is not a foreign person within the meaning of
Section 1445 of the Code.
5.9 Reasonable Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties hereto shall use its reasonable good faith
efforts (subject to, and in accordance with, applicable law) to take promptly,
or cause to be taken, all actions, and to do promptly, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby, to obtain
all necessary waivers, consents and approvals, to effect all necessary
registrations and filings, and to remove any injunctions or other impediments
or delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of
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securing to the parties hereto the benefits contemplated by this Agreement,
subject to the limitations on divestiture set forth in Section 5.13 hereof.
5.10 Notification of Certain Matters. The Stockholder shall give prompt
notice to Parent, and Parent shall give prompt notice to the Stockholder, of
(i) the occurrence or non-occurrence of any event of which such party has
Knowledge, the occurrence or non-occurrence of which causes any representation
or warranty of the Company, WW and the Stockholder, on the one hand, and
Parent, on the other hand, contained in this Agreement to be untrue or
inaccurate such that the conditions set forth in Section 6.3(a) hereof or
Section 6.2(a) hereof, as the case may be, would not be satisfied, and (ii) any
failure of the Company, WW and the Stockholder, on the one hand, or Parent, on
the other hand, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder in any
material respect; provided, however, that the delivery of any notice pursuant
to this Section 5.10 shall not limit or otherwise affect any remedies available
to the party receiving such notice.
5.11 S-8 Registration. At the Closing Date, if possible, and subject to
obtaining any necessary consents or approvals, which consents and approvals
Parent will use commercially reasonable efforts to obtain, Parent agrees to
file, if available for use by Parent, with the SEC a registration statement on
Form S-8 registering a number of shares of Parent Common Stock equal to the
number of shares of Parent Common Stock issuable upon the exercise of all
Company Options assumed by Parent pursuant to Section 1.6(b) hereof.
5.12 S-3 Registration Statement. As promptly as practicable after the
Closing, but in any event not later than the later of (i) May 31, 2001 or (ii)
ninety (90) days following the Closing, Parent agrees to prepare and file with
the SEC a registration statement on Form S-3, or any successor form,
registering for distribution to holders of Tracking Stock (other than in
respect of the Stockholder's notional interest therein) and holders of options
to acquire Tracking Stock (other than Continuing Employee Options) (such
holders collectively, the "Distributees") such number of shares of Parent
Common Stock equal to the product obtained by multiplying (x) the Option
Exchange Ratio times (y) the number of Fully Converted Shares held by such
holders and issuable upon exercise of such options, provided that in no event
shall such number of shares of Parent Common Stock so registered exceed
5,316,930 (the "Distributable Shares").
5.13 HSR Act. Each party agrees to provide the other party with copies of
any documentation or written materials provided to or by governmental
authorities with respect to the HSR approval process. Notwithstanding anything
to the contrary in this Agreement, Parent shall not be required to agree to any
divestiture by Parent, the Company or WW or any of their respective
subsidiaries or affiliates (i) of shares of capital stock, (ii) of any of their
respective businesses, assets or properties or (iii) the imposition of any
material limitation on the ability of any of them to conduct their respective
businesses (including the Business) or to own or exercise control of such
assets, properties and stock. All expenses incurred by the Company, WW, Parent
and the Stockholder (including expenses of counsel) in connection with
obtaining termination of the waiting period under the HSR Act shall be borne
solely by the party incurring such expense.
5.14 Transfer of Assets.
(a) Subject to the provisions of the last paragraph of Section 4.1 of
this Agreement, prior to the Closing, the Stockholder shall transfer,
assign or license (on a worldwide, perpetual, royalty-free and non-
exclusive basis to conduct the Business) to the Company and WW, as
applicable, all tangible, intangible, real and personal property assets
used in the Business, including all Intellectual Property, owned by or
licensed to Stockholder or any of its subsidiaries that are used in the
conduct of the Business, including any assets which are necessary to the
continued realization of any revenues of the Business as conducted;
provided, however, that to the extent that the transfer, assignment or
license of any such assets is provided for in any of the Commercial
Agreements, then the terms of such Commercial Agreement shall govern such
transfer, assignment or license.
(b) Following the Closing, the Stockholder shall assist Parent, the
Company and WW with perfecting the Company's and WW's title in any such
assets. Such assistance shall include the following: (i)
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executing all documents prepared by the Company, WW or Parent necessary to
perfect the Company's or WW's title in any such assets; (ii) making
available to Parent, the Company, WW or their counsel, inventors and other
persons employed by Stockholder for interviews and/or testimony to assist
in good faith in further prosecution, maintenance or litigation of any
registrations or applications involving any such assets, including
Registered Intellectual Property; (iii) forwarding copies of all
correspondence sent and received concerning such assets within a reasonable
time after receipt by Stockholder; and (iv) making all relevant documents
in the possession or control of Stockholder and relating to such assets,
available to Parent or its counsel.
5.15 Trade Secret License. Without limiting anything set forth herein,
including Company's and WW's ownership of its trade secrets, effective as of
the Closing, the Stockholder hereby grants to Parent, and to the Company and WW
after the Closing, a non-exclusive license to use all trade secrets and know-
how owned by the Stockholder used in the conduct of the Business. Subject to
the terms of this Agreement and the Commercial Agreements and the Ancillary
Agreements, Parent, the Stockholder, the Company and WW shall treat such trade
secrets in the same manner that they treat comparable other trade secrets owned
by each of them.
5.16 Equitable Remedy. The Stockholder agrees that it would be impossible or
inadequate to measure and calculate Parent's damages from any breach of the
covenants set forth in Sections 5.14 and 5.15. Accordingly, the Stockholder
agrees that if it breaches any provision of Sections 5.14 or 5.15, Parent will
have available, in addition to any right or remedy otherwise available, the
right to obtain an injunction from a court of competent jurisdiction
restraining such breach or threatened breach and to specific performance of any
such provision of this Agreement. The Stockholder further agrees that no bond
or other security shall be required in obtaining such equitable relief, nor
will proof of actual damages be required for such equitable relief. The
Stockholder hereby expressly consents to the issuance of such injunctive
relief, whether in the form of a temporary restraining order or otherwise, and
to the ordering of such specific performance.
5.17 Stockholder Employee Plans
(a) Liabilities Under Plans. From and after the Effective Time, except
as otherwise specifically set forth in this Agreement, the Stockholder
shall (a) sponsor and (b) assume or retain, as the case may be, and be
solely responsible for all Benefits Liabilities (as defined herein) arising
under, resulting from or relating to the Company Employee Plans of the
Stockholder or any of its subsidiaries, whether incurred before, on or
after the Effective Time; provided, however, that the Stockholder shall be
under no obligation (except with respect to any obligation specifically
described in this Agreement or one of the Company Employee Plans) to permit
Continuing Employees to continue to participate in the Company Employee
Plans of Stockholder after the Effective Time. "Benefits Liabilities" shall
mean with respect to any Company Employee Plan of Stockholder, the Company
or WW (if applicable) any and all claims, debts, liabilities, commitment
and obligations, whether fixed, contingent or absolute, matured or
unmatured, liquidated or unliquidated, accrued or unaccrued, known or
unknown, whenever or however arising, including all costs and expenses
relating thereto (except with respect to any obligations of Parent
specifically described in this Agreement), and including those debts,
liabilities and obligations arising under law, rule, regulation, permits,
action or proceeding before any court or regulatory agency or
administrative agency, order or consent decree or any award of any
arbitrator of any kind, and those arising under contract, commitment or
undertaking; provided, however, that "Benefits Liabilities" shall exclude
any such liabilities arising under the plans listed on Schedule 5.17(a).
(b) COBRA. The Stockholder assumes any and all Benefits Liabilities
relating to, arising out of, or resulting from noncompliance with or
violation of COBRA to the extent incurred prior to the Closing.
5.18 Stay Bonuses. In the event that the Closing has occurred prior to June
1, 2001, Parent shall pay within ninety (90) days after the Closing bonuses to
the employees of the Company and WW in the amounts set forth on Schedule 5.18,
provided that such bonuses shall be paid to only those employees who remain
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employees of the Company or WW, as applicable, on the date of such bonus
payments; provided, further, that Parent shall notify Stockholder at least six
(6) business days prior to the date of such bonus payments and Stockholder
shall pay to Parent in cash any aggregate amount of such bonuses in excess of
$4,000,000, such payment being due to Parent no fewer than three (3) business
days prior to the date of such bonus payments. In the event that the Closing
has not occurred prior to the June 1, 2001 (the "Bonus Payment Date"),
Stockholder shall pay on the Bonus Payment Date bonuses to the employees of the
Company and WW in the amounts set forth on Schedule 5.18, provided that such
bonuses shall be paid to only those employees who remain employees of the
Company or WW, as applicable, on the Bonus Payment Date; provided, further,
that Stockholder shall notify Parent at least six (6) business days prior to
the Bonus Payment Date and Parent shall pay Stockholder all of such bonuses if
the bonuses aggregate to less than $4,000,000, but only a portion of such
bonuses up to a maximum of $4,000,000 if the bonuses aggregate to more than
$4,000,000, such payment being due to Stockholder no later than May 31, 2001;
provided, that Parent shall not be obligated in any manner under this Section
5.18 if this Agreement is terminated by Parent pursuant to Section 8.1(d) or
8.1(f) hereof.
5.19 Additional Option Grants. Immediately prior to and subject to the
consummation of the Closing, the Company shall, and the Stockholder shall cause
the Company to, adopt the 2000 Option Plan in form and substance as directed by
Parent (which form and substance shall be substantially similar to Parent's
option plan) and shall reserve under such 2000 Option Plan the Additional
Options. The Additional Options shall not be subject to accelerated vesting
upon the Mergers, and the Company shall not, and the Stockholder shall cause
the Company not to, issue any Additional Options without Parent's prior written
consent.
5.20 Cancellation of Intercompany Obligations and Liberty Digital
Proceeds. Prior to the Closing, the Stockholder, the Company and WW shall take
all necessary actions so that (i) all liabilities (contingent or other) and all
ongoing obligations (other than pursuant to the Ancillary Agreements) of (x)
the Company, WW or any Subsidiary to the Stockholder or any of its subsidiaries
and (y) the Stockholder or any of its subsidiaries to the Company, WW or any
Subsidiary (but in the case of clause (y), only to the extent that the Company,
WW or any Subsidiary does not have a corresponding liability or obligation to
any third party), in each case are cancelled as of the Closing and (ii) an
amount equal to the Liberty Digital Proceeds is paid in cash by Stockholder to
the Company.
5.21 Tax Matters
(a) None of the Stockholder, the Company, WW, Parent, Metal Merger Sub,
WW Merger Sub or their respective affiliates shall take any action that
would reasonably be expected to cause the Metal Merger or the WW Merger to
fail to qualify as a reorganization within the meaning of Section 368(a) of
the Code. In addition, none of Parent, Metal Merger Sub or WW Merger Sub,
or following the Effective Time, the Company or WW, shall breach any of the
covenants included in the respective certificates delivered pursuant to
Section 5.21(b) hereof to the extent that such breach causes the Metal
Merger or the WW Merger to fail to qualify as a reorganization within the
meaning of Section 368(a) of the Code
(b) Officers of the Stockholder, on the one hand, and, Parent, Metal
Merger Sub, WW Merger Sub, on the other hand, shall execute and deliver to
Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden") certificates
substantially in the form attached hereto as Exhibits F-1(a) and (b) and F-
2(a) and (b), respectively, contemporaneously with the execution of this
Agreement and at the Closing, respectively, in connection with the delivery
by Skadden of its opinion pursuant to Section 6.2(f).
5.22 Liberty Digital Stock. After the date hereof, the Company shall not,
and the Stockholder shall cause the Company not to, sell, transfer or otherwise
dispose of any Liberty Digital Stock. Prior to the Closing, Stockholder shall
transfer an amount equal to the Liberty Digital Proceeds in cash to the
Company, and such amount shall be held in the Company's accounts as of the
Effective Time.
5.23 Purchase of New GBR Collating Machine. Prior to the Closing,
Stockholder shall order and pay for in WW's name (or, if full payment is not
due until after Closing, then Stockholder shall transfer sufficient cash
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to make full payment to WW as of the Closing) one (1) new GBR custom-built
collating machine according to the description set forth in Schedule 5.23, with
such additional satisfactory specifications as are set forth in the purchase
order for such machine, and, if delivered before Closing, shall take all
necessary efforts to install and enable such collating machine in the WW
facility located at 115 S. Service Road, Westbury, New York, including without
limitation paying for (or reimbursing Parent if delivered after Closing) all
associated labor costs and any capital improvements required to such facility
in order to accommodate the ordinary use of such collating machine upon
delivery.
5.24 Employees. Parent agrees not to reduce the base salary of any
Continuing Employee during the period beginning immediately after the Effective
Time and ending on the six-month anniversary of the Effective Time; provided
that Parent shall not be restricted from terminating the employment of any
Continuing Employee.
5.25 Termination of Broker Licenses. Prior to the Closing, (i) the Company
shall, and Stockholder shall cause the Company and WW to, terminate all
mortgage broker licenses and related surety bonds held by the Company or any
Subsidiary; provided that Parent shall reimburse Stockholder for its documented
out-of-pocket expenses in connection with such terminations up to a maximum of
$25,000, and (ii) neither the Company nor any Subsidiary will perform any
functions that would require it to be licensed as a mortgage broker in any
jurisdiction. From and after the Effective Time, neither the Company, WW or
Parent will have any liability related to mortgage broker operations conducted
by the Company, WW or any Subsidiary prior to the Closing ("Broker
Liabilities"), and Stockholder agrees to indemnify Parent for any such Broker
Liabilities.
5.26 Qualifications to Do Business. Until the Effective Time, the Company
and WW, as applicable, shall, and the Stockholder shall cause the Company and
WW to, cause the Company, WW and the Subsidiaries to be qualified to do
business in all jurisdictions where such entities are required to be so
qualified.
5.27 Bifurcated Contracts. From and after the Effective Time, Parent and the
Company, on the one hand, and Stockholder, on the other hand, shall cooperate
to perform, or, in the case of Stockholder to cause its subsidiaries to
cooperate with Parent and the Company to perform, the obligations of the
Company or the subsidiaries of Parent, as the case may be, with respect to
contracts numbers 52, 113, 138, 173, 199 and 217 on Exhibit 2.12(a) of the
Stockholder Disclosure Letter (the "Bifurcated Contracts"). Parent shall
collect all funds under the Bifurcated Contracts and shall cause a portion of
the net proceeds derived from the Bifurcated Contracts which corresponds to the
relative proportion and value of the services to be performed by the
Stockholder and its subsidiaries under the Bifurcated Contracts to be remitted
to Stockholder as soon as reasonably practicable after receipt of the funds
representing such revenues by the Company or Parent. Neither Parent nor the
Company nor any of their affiliates shall enter into any amendments, renewals,
extensions, or in any way extend the Bifurcated Contracts in a manner that
would extend the obligations of Stockholder and its subsidiaries under the
Bifurcated Contracts past their respective current terms.
5.28 Transfer of Ownership in Move.com U.K. Prior to the Closing,
Stockholder shall cause all shares of Move.com U.K. not owned by the Company to
be transferred to the Company (without payment or additional consideration on
the part of Parent, the Company, WW or any Subsidiary other than the entering
into of this Agreement and the transactions contemplated hereby) such that, as
of the Effective Time, the Company is the sole and exclusive owner of all
shares or interest in Move.com U.K. and there are no options or other
preemptive rights to purchase any shares or interests of Move.com U.K.
outstanding; provided, however, that so long as all agreements effecting such
transfer are executed by all parties thereto and delivered to Parent at the
Closing and the only remaining action required to be taken to effect such
transfer is the filing by the Company of such executed agreements with the
relevant Governmental Entity, this covenant shall be deemed satisfied as of the
Closing. Parent agrees that, after the Effective Time, it will transfer one
percent (1%) of the outstanding shares of Move.com U.K. to a trust or similar
entity established and controlled by Parent in its discretion, the
beneficiaries of which trust or similar entity shall be those estate agents of
the HomeSale Network in the United Kingdom, from time to time, who have
uploaded all of their respective real estate listings to www.move.com.uk.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Mergers. The
respective obligations of each party to this Agreement to effect the Mergers
shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Stockholder Approval. The stockholders of Parent shall have approved
the issuance of Parent Common Stock in connection with the Mergers in
accordance with the rules and regulations of the Nasdaq Stock Market.
(b) No Injunctions or Restraints; Illegality; HSR Act. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of either of the
Mergers shall be in effect. All waiting periods, if any, under the HSR Act
relating to the transactions contemplated hereby will have expired or
terminated early and all material foreign antitrust approvals required to
be obtained prior to the Mergers in connection with the transactions
contemplated hereby shall have been obtained.
6.2 Additional Conditions to Obligations of the Stockholder. The obligations
of the Stockholder to consummate the Mergers and the transactions contemplated
by this Agreement shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, by the Stockholder:
(a) Representations and Warranties. The representations and warranties
of Parent, Metal Merger Sub and WW Merger Sub contained in this Agreement
shall have been true and correct in all material respects on and as of the
date hereof, except for those representations and warranties which address
matters only as of a particular date (which shall be true and correct in
all material respects as of such date), and notwithstanding the failure of
the representations and warranties set forth in Sections 3.4, 3.5, 3.7,
3.10 and 3.12 of this Agreement to be true and correct in all material
respects, this condition shall be deemed satisfied unless the failure of
such representations and warranties to be true and correct in all material
respects constitutes a Material Adverse Effect on Parent, as defined in
Section 10.2 hereof). The Stockholder shall have received a certificate to
such effect signed by an officer of Parent, on behalf of Parent.
(b) Agreements and Covenants. Parent, Metal Merger Sub and WW Merger Sub
shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by them on or prior to the Effective Time, and the
Stockholder shall have received a certificate to such effect signed by an
officer of Parent on behalf of Parent.
(c) Material Adverse Effect. Since the date hereof and until the
expiration or termination of any applicable waiting periods under the HSR
Act for the transactions contemplated hereby, there has not been any
Material Adverse Effect (as defined in Section 10.2 hereof) on Parent.
(d) Stockholder Agreement. Parent shall have executed and delivered the
Stockholder Agreement in the form attached hereto as Exhibit B.
(e) Registration Rights Agreement. Parent shall have executed and
delivered the Registration Rights Agreement in the form attached hereto as
Exhibit C.
(f) Tax Opinion of Skadden. The Stockholder shall have received the
opinion of Skadden, in form and substance reasonably satisfactory to it,
dated as of the Closing Date, on the basis of the facts, representations
and assumptions set forth in such opinion and certificates obtained from
officers of Parent, Metal Merger Sub or WW Merger Sub, as applicable, and
the Stockholder, all of which are consistent with the state of facts
existing as of the Effective Time, to the effect that, for U.S. federal
income tax
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purposes, the Metal Merger and the WW Merger, in each case, will qualify as
a reorganization within the meaning of Section 368(a) of the Code;
provided, however, under all circumstances it is agreed that the condition
set forth in this Section 6.2(g) shall be deemed to be satisfied even if
such tax opinion of Skadden shall not have been delivered unless the sole
reason that such opinion has not been delivered is because of a Change in
Law (as defined below) that precludes the delivery of such an opinion. In
rendering the opinion described above, Skadden shall rely upon the
certificates and representations referred to in Section 6.2(h) hereof. For
purposes of this Section 6.2(h), "Change in Law" shall mean a change after
the execution of this Agreement in a statute, regulation, judicial
authority, administrative interpretation or other authority that would
prevent Skadden from issuing the opinion set forth in this Section 6.2(g).
(g) Tax Certificates. Officers of Parent, Metal Merger Sub and WW Merger
Sub shall have executed and delivered to Skadden certificates substantially
in the forms attached hereto as Exhibit F-2(a) and (b) contemporaneously
with the execution of this Agreement and at the Effective Time.
(h) Commercial Agreements. Parent shall have executed and delivered each
of the Commercial Agreements in the forms attached hereto as Exhibits A-1
through A-10, each of which agreements shall be in full force and effect.
6.3 Additional Conditions to the Obligations of Parent, Metal Merger Sub and
WW Merger Sub. The obligations of Parent, Metal Merger Sub and WW Merger Sub to
consummate the Mergers and the transactions contemplated by this Agreement
shall be subject to the satisfaction at or prior to the Closing of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. The representations and warranties
of the Company, WW and the Stockholder contained in this Agreement shall
have been true and correct in all material respects on and as of the date
hereof, except for those representations and warranties which address
matters only as of a particular date (which shall be true and correct in
all material respects as of such date), and notwithstanding the failure of
the representations and warranties set forth in Sections 2.6, 2.10(a), (b),
(c), 2.14, 2.16, 2.18, 2.21 and 2.25 of this Agreement to be true and
correct in all material respects, this condition shall be deemed satisfied
unless the failure of such representations and warranties to be true and
correct in all material respects constitutes a Business Adverse Effect, as
defined in Section 10.2 hereof. Parent, Metal Merger Sub and WW Merger Sub
shall have received a certificate to such effect signed by the chief
executive officer and chief financial officer of the Stockholder.
(b) Agreements and Covenants. The Company, WW and the Stockholder shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
each of them on or prior to the Effective Time, and Parent, Metal Merger
Sub and WW Merger Sub shall have received a certificate to such effect
signed by the chief executive officer and chief financial officer of the
Company, WW and the Stockholder, on behalf of the Company, WW and the
Stockholder, respectively.
(c) Material Adverse Effect. Since June 30, 2000 and until the
expiration or termination of any applicable waiting periods under the HSR
Act for the transactions contemplated hereby, there shall not have been any
Material Adverse Effect (as defined in Section 10.2 hereof) on the Company,
WW or any of their respective Subsidiaries or the Business (taken as a
whole).
(d) Stockholder Agreement. The Stockholder shall have executed and
delivered the Stockholder Agreement in the form attached hereto as Exhibit
B, which agreement shall be in full force and effect.
(e) Commercial Agreements. All parties to the Commercial Agreements
other than Parent shall have executed and delivered to Parent each of the
Commercial Agreements in the forms attached hereto as Exhibits A-1 through
A-10, each of which agreements shall be in full force and effect.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 Survival of Representations and Warranties. Except as otherwise provided
in Section 9.6(c) of this Agreement, all of the representations and warranties
of the Stockholder and Parent, in this Agreement or in any certificate,
instrument or other document delivered pursuant to this Agreement (each as
modified by the Stockholder Disclosure Letter or the Parent Disclosure Letter,
as the case may be) shall survive the Mergers and continue until 5:00 p.m.,
Pacific Time, on the date which is twelve (12) months following the Closing
Date; provided, however, that the representations and warranties of the
Stockholder contained in Sections 2.2 and 2.18 hereof shall survive
indefinitely (subject to any applicable statute of limitations); provided,
further, that the representations and warranties of the Stockholder contained
in Section 2.11(d) and the second and third sentences of Section 2.10(d) hereof
shall survive until 5:00 p.m., Pacific Time, on the date which is thirty-six
(36) months following the Closing Date (the end date of such survival, as
applicable, (or an indefinite period in the case of Sections 2.2 and 2.18) is
hereinafter referred to as the "Expiration Date").
7.2 Indemnification
(a) In addition to the matters set forth in Article IX hereof, until the
Expiration Date, the Stockholder agrees to indemnify and hold Parent and
its officers, directors and affiliates harmless against all claims, losses,
liabilities, damages, costs and expenses, including reasonable attorneys'
fees (hereinafter individually a "Loss" and collectively "Losses"),
incurred by Parent or its officers, directors, or affiliates: (i) as a
result of any inaccuracy or breach of a representation or warranty of the
Stockholder contained in this Agreement or any certificate, instrument or
other document delivered pursuant to this Agreement; (ii) except as set
forth in Section 7.3 below, relating to any liability, obligation,
judgment, penalty, fine, cost or expense, of any kind or nature, or the
duty to indemnify, defend or reimburse any Person with respect to: (1) the
presence on or before the Closing Date of any Hazardous Materials in the
soil, groundwater, surface water, air or building materials of any Business
Facility ("Pre-Existing Contamination"); (2) the migration at any time
prior to or after the Closing Date of Pre-Existing Contamination to any
other real property, or the soil, groundwater, surface water, air or
building materials thereof; (3) any Hazardous Materials Activity conducted
on any Business Facility prior to the Closing Date or otherwise occurring
prior to the Closing Date in connection with or to benefit the Business
("Pre-Closing Hazardous Materials Activities"); (4) the exposure of any
person to Pre-Existing Contamination or to Hazardous Materials in the
course of or as a consequence of any Pre-Closing Hazardous Materials
Activities, without regard to whether any health effect of the exposure has
been manifested as of the Closing Date; (5) the violation of any
Environmental Laws by the Company, WW or any Subsidiary or its agents,
employees, predecessors in interest, contractors, invitees or licensees
prior to the Closing Date or in connection with any Pre-Closing Hazardous
Materials Activities prior to the Closing Date; (6) any actions or
proceedings brought or threatened by any third party with respect to any of
the foregoing; and (7) any of the foregoing to the extent they continue
after the Closing Date (collectively, "Seller's Retained Environmental
Liabilities"); (iii) relating to or arising out of Parent's assumption of
Continuing Employee Options and Additional Options under this Agreement or
failure of Parent to assume any options, rights or other securities of the
Stockholder, the Company or any of their respective affiliates in
connection with the transactions contemplated by this Agreement, provided
that this indemnity in clause (iii) shall not apply to: (w) Parent's
failure to issue Parent Common Stock in accordance with the Option Exchange
Ratio upon the due exercise of such Continuing Employee Options and
Additional Options held by Continuing Employees and assumed by Parent
pursuant to Section 1.6(b)(iii)of this Agreement, (x) Parent's other
obligations under the Option Plans with respect to the Continuing Employee
Options or the agreements governing such Continuing Employee Options by
virtue of such assumption, (y) any actions taken by Parent after the
Closing with respect to the termination of employment of any Continuing
Employee who holds a Continuing Employee Option, or (z) any misstatement or
omission in any Registration Statement on Form S-8 or prospectus or similar
securities law document prepared by Parent and distributed to its employees
with respect to the Continuing Employee Options; or (iv) Broker
Liabilities. Notwithstanding
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the foregoing, there shall be no right to indemnification pursuant to this
Article VII unless and until an Indemnification Certificate (as defined
below) identifying aggregate Losses in excess of $5,000,000 (the "Threshold
Amount") has been delivered to Stockholder, in which event Parent shall be
entitled to recover all such amounts in excess of the Threshold Amount;
provided, however, that such Threshold Amount shall not apply to any
indemnification pursuant to Section 7.2(a)(i) above with respect to any
inaccuracy or breach of a representation or warranty contained in Section
2.2, 2.4, the second and third sentences of 2.10(d), 2.11(d) or 2.18 or
pursuant to Section 7.2(a)(ii), (iii) or (iv) above. In no event shall the
Stockholder's aggregate obligation to indemnify Parent under this Section
7.2(a) exceed an amount of cash or Parent Common Stock equal to the value
of fifty percent (50%) of the Total Consideration (based on the valuation
of the Parent Common Stock at the Parent Closing Price) (the "Limit") ;
provided, however, that such Limit shall not apply to any indemnification
pursuant to Section 7.2(a)(i) above with respect to any inaccuracy or
breach of a representation or warranty contained in Section 2.2, the second
and third sentences of 2.10(d), 2.11(d) or 2.18 or pursuant to Section
7.2(a)(ii), (iii) or (iv) above. The amount of any Losses shall be reduced
by the amount of any Tax Benefit Actually Realized by Parent, WW, the
Company or their respective subsidiaries or affiliates relating thereto and
any amount received by Parent with respect thereto under any insurance
coverage (net of any reasonably expected premium adjustments). If Parent
actually receives an amount under insurance coverage with respect to Losses
at any time subsequent to any indemnification provided by the Stockholder
pursuant to this Section 7.2, then Parent shall promptly reimburse the
Stockholder for any payment made by the Stockholder to Parent in connection
with providing the indemnification for a particular matter up to such
amount received by Parent with respect to that matter, provided, however,
that Parent may retain an amount from proceeds received under insurance
coverage or from such other party with respect to Losses to the extent that
the Stockholder has not indemnified Parent for the full amount of its
claim. Stockholder shall not have any right of contribution from the
Company or WW or any of their respective Subsidiaries with respect to any
Loss claimed by an Indemnified Party after the Effective Time.
(b) Claims. Upon receipt by the Stockholder at any time on or before the
last day of the Indemnification Period of a certificate signed by any
officer of Parent (an "Officer's Certificate"): (A) stating that Parent has
paid or properly accrued or reasonably anticipates that it will have to pay
or accrue Losses, and (B) specifying in reasonable detail the individual
items of Losses included in the amount so stated, the date each such item
was paid or properly accrued, or the basis for such anticipated liability,
and the nature of the misrepresentation, breach of warranty or covenant to
which such item is related, the Stockholder shall, subject to the
provisions of Section 7.2(c) hereof, deliver to Parent, as promptly as
practicable, funds in an amount equal to such Losses. The Stockholder
shall, at its sole discretion, pay all claims for indemnification hereunder
in (i) cash or (ii) shares of Parent Common Stock; provided, however that
all claims for indemnification pursuant to Section 7.2(a)(i) (with respect
to breaches or inaccuracies of the representations and warranties set forth
in Section 2.18) or Section 7.2(a)(ii) above shall be paid in cash only. In
the event the Stockholder determines to pay any claim, in whole or in part,
in shares of Parent Common Stock, the Stockholder shall transfer to Parent
the number of shares of Parent Common Stock having an aggregate value
(based on the valuation of each share at 97% of the Parent Closing Price
(adjusted for splits, combinations and the like)) equal to the Losses with
respect to such claim.
(c) Objections to Claims. No such payment or delivery may be required
pursuant to Section 7.2(b) above if the Stockholder shall object in a
written statement to the claim made in the Officer's Certificate with
thirty (30) days of delivery of such Officer's Certificate, and such
statement shall have been delivered to Parent prior to the expiration of
such thirty (30)-day period.
(d) Resolution of Conflicts.
(i) In case the Stockholder shall so object in writing to any claim
or claims made in any Officer's Certificate, the Stockholder and Parent
shall attempt in good faith to agree upon the rights of the respective
Parties with respect to each of such claims. If the Stockholder and
Parent should so agree, a memorandum setting forth such agreement shall
be prepared and signed by both parties and
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Stockholder shall deliver to Parent, as promptly as practicable, an
amount equal to such Losses in cash or shares of Parent Common Stock.
(ii) If no such agreement can be reached after good faith
negotiation and prior to sixty (60) days after delivery of an Officer's
Certificate, either of Parent or the Stockholder may demand arbitration
of the matter unless the amount of the Loss is at issue in pending
litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to
arbitration, and in either such event the matter shall be settled by
arbitration conducted by one arbitrator mutually agreeable to Parent
and the Stockholder. In the event that, within thirty (30) days after
submission of any dispute to arbitration, Parent and the Stockholder
cannot mutually agree on one arbitrator, then, within fifteen (15) days
after the end of such thirty (30) day period, Parent and the
Stockholder shall each select one arbitrator within ten (10) additional
days. The two arbitrators so selected shall select a third arbitrator.
If the Stockholder does not select an arbitrator during this fifteen
(15) day period, then the parties agree that the arbitration will be
conducted by one arbitrator selected by Parent.
(iii) Any such arbitration shall be held under the expedited rules
then in effect of the American Arbitration Association. The
arbitrator(s) shall determine how all expenses relating to the
arbitration shall be paid, including without limitation, the respective
expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association. The
arbitrator or arbitrators, as the case may be, shall set a limited time
period and establish procedures designed to reduce the cost and time
for discovery while allowing the parties an opportunity, adequate in
the sole judgment of the arbitrator or majority of the three
arbitrators, as the case may be, to discover relevant information from
the opposing parties about the subject matter of the dispute. The
arbitrator or a majority of the three arbitrators, as the case may be,
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys' fees and costs, to
the extent as a competent court of law or equity, should the
arbitrators or a majority of the three arbitrators, as the case may be,
determine that discovery was sought without substantial justification
or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the
three arbitrators, as the case may be, as to the validity and amount of
any claim in such Officer's Certificate shall be final, binding, and
conclusive upon the parties to this Agreement. Such decision shall be
written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree or order
awarded by the arbitrator(s). Within five (5) days of a decision of the
arbitrator(s) requiring payment by one party to another, such party
shall make the payment to such other party.
(iv) Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction.
(e) Third-Party Claims. In the event Parent becomes aware of a third-
party claim which Parent believes may result in a demand for
indemnification, Parent shall notify the Stockholder of such claim, and the
Stockholder, shall be entitled, at its expense, to participate in any
defense of such claim. Parent shall have the right in its sole discretion
to settle any such claim; provided, however, that except with the consent
of the Stockholder, no settlement of any such claim with third-party
claimants shall alone be determinative of the amount of any claim for
indemnification if the settlement is unreasonable. Any dispute as to the
reasonableness of such settlement shall be resolved pursuant to the terms
of Section 7.2(d) above. To the extent that such settlement is determined
after such dispute resolution to be unreasonable, then the arbitrator(s)
shall determine the amount, if any, that Stockholder shall be required to
indemnify Parent in respect of such settled claim. In the event that the
Stockholder has consented to any such settlement, the Stockholder shall
have no power or authority to object under any provision of this Article
VII to the amount of any claim by Parent for indemnification with respect
to such settlement.
(f) Sole Remedy. Parent's rights to indemnification as provided for in
Section 7.2 for a breach of representations or warranties contained in this
Agreement shall constitute Parent's sole remedy for such a
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breach and the Stockholder shall have no other liability or damages to the
other party resulting from the breach; provided, however, that nothing
contained herein shall prevent Parent from pursuing remedies, including
equitable remedies, as may be available to it under applicable law or
equitable principles in the event of the Stockholder's failure to comply
with its indemnification obligations hereunder or in the event of a claim
of fraud by Parent against the Stockholder.
7.3 Further Conditions on Environmental Indemnity.
(a) Stockholder's indemnification obligations under Section 7.2(a)(i)
with respect to a breach of the representations and warranties contained in
Section 2.18, and Stockholder's indemnification obligations set forth in
Section 7.2(a)(ii) (collectively "Stockholder's Environmental Indemnity")
shall be subject to the following limitations: (i) Stockholder's
Environmental Indemnity for violations of Environmental Laws occurring in
the course of ongoing operation of the Business, which violations continue
after the Closing Date, shall not apply to any such violations to the
extent they arise either from a change in operations of the Business after
the Closing Date or from the continuation of the operations as they existed
prior to the Closing Date for a period continuing beyond that date which is
one year following the Closing Date; (ii) Stockholder shall not be liable
for any diminution in property value of any real property owned by the
Company as of the Closing Date; (iii) to the extent Stockholder's
Environmental Indemnity applies to Cleanup, Stockholder's Environmental
Indemnity shall only apply to Cleanup to the extent such Cleanup is
required by a Governmental Entity under applicable Environmental Laws in
effect and enforceable as of the Closing Date or is required to be
undertaken under any applicable Environmental Laws in effect and
enforceable as of the Closing Date; (iv) Stockholder's Environmental
Indemnity shall not apply to that portion of the cost of a Cleanup to the
extent (but only to the extent) that the Cleanup is not conducted using
Cost-Effective Methods; (v) Stockholder's Environmental Indemnity shall not
apply to costs to the extent such costs result from the application of more
stringent Environmental Laws as a result of the change in use of a Business
Facility to a use other than industrial, commercial or retail where such
change in use results from the voluntary actions of Parent or its
subsidiaries; and (vi) Stockholder's Environmental Indemnity shall not
apply to any Cleanup costs to the extent caused by the exacerbation or
worsening (excluding the mere discovery of contamination) of Pre-Existing
Contamination as a result of the acts of Parent, its subsidiaries,
employees or agents or the acts of any third parties on any property owned
by Parent or its affiliates.
(b) Parent or its affiliate shall promptly notify Stockholder in writing
in the event of the discovery of Pre-Existing Contamination subject to
Stockholder's Environmental Indemnity ("Contamination Notice"); provided,
however, that a failure to so notify Stockholder shall not limit
Stockholder's indemnification obligations hereunder except to the extent
that Stockholder is prejudiced thereby. Such notice shall reasonably
identify the location and information on the impacted media and the basis
upon which the claimant seeks indemnification. For claims relating to
Cleanup within the scope of this Section 7.3, the Stockholder shall have
the right to assume responsibility for managing the Cleanup and related
matters thereto, by providing notice to the Parent within sixty (60) days
following receipt of the Contamination Notice. If the Stockholder assumes
responsibility for management of a Cleanup under this subsection, the
Stockholder shall perform such Cleanup using Cost-Effective Methods in
compliance with all applicable legal requirements and in accordance with
plans approved by Parent or its affiliate, and utilizing a consultant
approved by Parent or its affiliate, which approvals shall not be
unreasonably withheld. Where the Stockholder has assumed responsibility for
management of a Cleanup under this subparagraph (b), the Parent or its
affiliate shall have the right, at its sole cost and expense, to: (i)
review and approve (which approval shall not be unreasonably withheld) all
draft plans and reports, as well as correspondence to any Governmental
Entity regarding the Cleanup, and (ii) participate in activities related to
the Cleanup, including, but not limited to, participation in meetings with
respect to the determination of applicable Remediation Standards or methods
for conducting the Cleanup.
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(c) As used in this Section 7.3, the following terms have the meanings
set forth below.
(i) "Business Facility" means any property that is or at any time
has been owned, operated, occupied, controlled or leased by the
Company, WW or any Subsidiary in connection with the operation of the
Business.
(ii) "Remediation Standard" means a numerical standard that defines
the concentrations of Hazardous Materials that may be permitted to
remain in any environmental media after an investigation, remediation
or containment of a release of Hazardous Materials.
(iii) "Cleanup" means any Loss related to investigation, feasibility
study, remediation, treatment, removal, transport, disposal,
characterization, sampling, health assessment, risk assessment,
encapsulation, monitoring, study, report, assessment or analysis with
respect to any Pre-Existing Contamination.
(iv) "Cost-Effective Methods" means the most cost-effective approach
to remediation that is consistent with applicable Environmental Laws or
the requirements of a Governmental Entity; provided, however, that
Cost-Effective Methods shall not include those that (1) result in the
interruption of Parent or its affiliates' business operations on a
Business Facility periodically or for a period of more than twenty-four
hours; (2) result in the imposition of a deed restriction or other
restriction or limitation on the use or development of any property
other than a Business Facility, or result in the imposition of a deed
restriction or other restriction or limitation on the development of a
Business Facility (or any portion thereof) for industrial, retail or
commercial purposes; or (3) result in the diminution of the value of a
Business Facility or any other property.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement may
be terminated and the Mergers abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Stockholder and Parent;
(b) by Parent or the Stockholder if: (i) the Effective Time has not
occurred prior to 5:00 p.m. Pacific Standard Time on April 2, 2001 (the
"End Date"); provided that the End Date may be extended by any party for a
period of thirty (30) days if such party reasonably believes that the
expiration or termination of the waiting period under the HSR Act is likely
to be obtained during such 30-day extension; (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Mergers; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Mergers by any governmental entity that would make consummation of the
Mergers illegal;
(c) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Mergers, by any Governmental Entity, which would: (i) prohibit
Parent's, the Company's or WW's ownership or operation of all or any
portion of the Business or (ii) compel Parent, the Company or WW to dispose
of or hold separate all or a portion of the business or assets of the
Company, WW or Parent as a result of the Mergers;
(d) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of the Company or the Stockholder set forth in
this Agreement, such that the conditions set forth in Section 6.2(a) or
Section 6.2(b) hereof would not be satisfied as of the time of such breach
or as of the date hereof, as applicable, provided, that if such inaccuracy
in the Stockholder representations and warranties or breach by the Company
or the Stockholder is curable by the Stockholder through the exercise of
its commercially reasonable efforts, then Parent may not terminate this
Agreement under this Section 8.1(d) prior to 30 days following the date of
the notice to the Stockholder of the breach, provided the Stockholder
continues to exercise commercially reasonable efforts to cure such breach
(it being understood
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that Parent may not terminate this Agreement pursuant to this Section
8.1(d) if it shall have be in material breach of this Agreement or if such
breach by the Company or the Stockholder is cured prior to 30 days
following notice to Parent or the Stockholder of the breach, provided,
however, no cure period shall be required for a breach which by its nature
cannot be cured);
(e) by the Stockholder, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement,
such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
hereof would not be satisfied as of the time of such breach or as of the
date hereof, as applicable, provided, that if such inaccuracy in Parent's
representations and warranties or breach by Parent is curable by Parent
through the exercise of its commercially reasonable efforts, then the
Stockholder may not terminate this Agreement under this Section 8.1(e)
prior to 30 days following the date of the notice to Parent of the breach,
provided Parent continues to exercise commercially reasonable efforts to
cure such breach (it being understood that the Stockholder may not
terminate this Agreement pursuant to this Section 8.1(e) if it shall be in
material breach of this Agreement or if such breach by Parent is cured
prior to 30 days following notice to Parent of the breach, provided,
however, no cure period shall be required for a breach which by its nature
cannot be cured);
(f) by Parent, if prior to the expiration or termination of any
applicable waiting periods under the HSR Act, there has been any Material
Adverse Effect on the Company, any of its Subsidiaries or the Business
(taken as a whole).
(g) by the Stockholder, if prior to the expiration or termination of any
applicable waiting periods under the HSR Act, there has been any Material
Adverse Effect on Parent.
(h) by either the Stockholder or Parent if the required approval of the
stockholders of Parent contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting
of the stockholders of Parent duly convened therefor or at any adjournment
thereof.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Metal Merger Sub, WW
Merger Sub, the Company, WW, CMS or the Stockholder, or their respective
officers, directors or stockholders, provided that each party shall remain
liable for any knowing or willful breaches of this Agreement prior to its
termination; and provided further that, the provisions of Section 5.5, Section
5.6, Section 5.18 and Article VIII of this Agreement shall remain in full force
and effect and survive any termination of this Agreement.
8.3 Termination Fee. In the event that this Agreement is terminated pursuant
to Section 8.1(h), then Parent shall promptly remit to the Stockholder payment
in the amount of $50,000,000 (the "Termination Fee"); provided, however, that
the Termination Fee shall not be paid to the Stockholder if the Stockholder (a)
fails to vote all of the shares of Parent Common Stock it holds either
beneficially or has the right to vote by proxy in favor of approval of the
issuance of Parent Common Stock pursuant to this Agreement (the "Proposal") at
the meeting of stockholders, or (b) otherwise takes action to cause stockholder
approval of the Proposal not to be obtained.
8.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
8.5 Extension; Waiver. At any time prior to the Effective Time, Parent,
Metal Merger Sub and WW Merger Sub, on the one hand, and the Stockholder, WW
and the Company, on the other, may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any
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document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
TAX MATTERS
9.1 Indemnity
(a) The Stockholder agrees to indemnify and hold harmless Parent, WW,
the Company and each Subsidiary against the following Taxes (net of any Tax
Benefit Actually Realized, as hereinafter defined, by Parent, WW, the
Company or their respective Subsidiaries and affiliates as a result of the
payment or accrual of any of the following) and against any loss, damage,
liability or expense, including reasonable fees for attorneys and other
outside consultants with respect to matters not controlled by the
Stockholder, incurred in contesting or otherwise in connection with any
such Taxes: (i) Taxes imposed on the Company, WW or any Subsidiary with
respect to taxable periods ending on or before the Closing Date; (ii) with
respect to taxable periods beginning before the Closing Date and ending
after the Closing Date, Taxes imposed on the Company, WW or any Subsidiary
which are allocable, pursuant to Section 9.1(b) hereof, to the portion of
such period ending on the Closing Date; (iii) Taxes imposed on any member
of any affiliated group with which any of the Company, WW and any
Subsidiary file or have filed a Return on a consolidated or combined basis
for a taxable period ending on or before the Closing Date; and (iv) Taxes
imposed on Parent or the Company, WW or any Subsidiary as a result of any
breach of warranty or misrepresentation under Section 2.8 hereof; provided,
however, that the Stockholder shall not be liable for and shall not
indemnify the Parent, the Company, WW or any Subsidiary for (I) any Taxes
resulting from transactions or actions taken by the Company, WW or any
Subsidiary on the Closing Date (other than transactions contemplated by
this Agreement) that are properly allocable to the portion of the Closing
Date after the Closing except for transactions or actions undertaken in the
ordinary course of business; or (II) any Transfer Taxes for which Parent is
liable pursuant to Section 9.5 (Taxes referred to in this proviso are
referred to hereinafter as "Excluded Taxes"). Parent shall indemnify and
hold harmless the Stockholder (net of any Tax Benefit Actually Realized by
the Stockholder or its affiliates as a result of the payment or accrual
thereof) for (i) Taxes (including Excluded Taxes) and any loss, damage,
liability or expense, including reasonable fees for attorneys and other
outside consultants ("Tax Related Losses") of Parent, the Company, WW or
any Subsidiary not allocated to the Stockholder pursuant to the first
sentence of this Section 9.1(a) and (ii) any Taxes or Tax Related Losses
attributable to any breach by Parent, Metal Merger Sub or WW Merger Sub, or
following the Effective Time, the Company or WW, of Section 5.21(a) hereof.
(b) In the case of Taxes that are payable with respect to a taxable
period that begins before the Closing Date and ends after the Closing Date,
the portion of any such Tax that is allocable to the portion of the period
ending on the Closing Date shall be:
(i) in the case of Taxes that are either (x) based upon or related
to income or receipts, or (y) imposed in connection with any sale or
other transfer or assignment of property (real or personal, tangible or
intangible) (other than Transfer Taxes covered by Section 9.5 hereof),
deemed equal to the amount which would be payable if the taxable year
ended with the Closing Date; and
(ii) in the case of Taxes imposed on a periodic basis with respect
to the assets of the Company, WW or any Subsidiary, or otherwise
measured by the level of any item, deemed to be the amount of such
Taxes for the entire period (or, in the case of such Taxes determined
on an arrears basis, the amount of such Taxes for the immediately
preceding period), multiplied by a fraction the numerator of which is
the number of calendar days in the period ending on the Closing Date
and the denominator of which is the number of calendar days in the
entire period.
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(c) To the extent permitted or required by law or administrative
practice, (A) the taxable year of the Company, WW and any Subsidiary which
includes the Closing Date shall be treated as closing on (and including)
the Closing Date and, notwithstanding the foregoing, (B) all transactions
not in the ordinary course of business occurring after the Closing (other
than transactions contemplated by this Agreement) shall be reported on
Parent's consolidated United States federal income Tax Return to the extent
permitted by Treasury Regulation Section 1.1502-76(b)(1)(ii)(B) and shall
be similarly reported on other Tax Returns of the Parent or its affiliates
to the extent permitted by law.
9.2 Returns and Payments
(a) From the date of this Agreement through and after the Closing Date,
the Stockholder shall prepare and file or otherwise furnish in proper form
to the appropriate Governmental Authority (or cause to be prepared and
filed or so furnished) in a timely manner all Returns relating to the
Company, WW and the Subsidiaries that are due on or before or relate to any
taxable period ending on or before the Closing Date (and Parent shall do
the same with respect to any taxable period ending after the Closing Date);
provided, however, that to the extent the Stockholder cannot file such
Returns under applicable law, the Stockholder shall deliver (or cause to be
delivered), within 20 days before the due date (including extensions) for
the filing of such Returns, to Parent all such Returns, and Parent shall
sign and file or cause to be signed and filed such Returns no later than
such due date. Any such Return that is prepared by the Stockholder shall be
prepared in accordance with past practice to the extent permitted by
applicable law. Any Return required to be filed by Parent relating to any
taxable year or period beginning on or before and ending after the Closing
Date (the "Straddle Period") shall be submitted (with copies of any
relevant schedules, work papers and other documentation then available) to
the Stockholder for the Stockholder's approval not less than 30 days prior
to the due date for the filing of such Return, which approval shall not be
unreasonably withheld. Such Returns shall be prepared in accordance with
past practice of the Company or WW (or the Subsidiaries), if any, to the
extent permissible under applicable law.
(b) The Stockholder shall pay or cause to be paid when due and payable
all Taxes with respect to the Company, WW and the Subsidiaries for any
taxable period ending on or before the Closing Date or otherwise described
in Section 9.1(a)(i) through (iv) (except for Excluded Taxes) and Parent
shall so pay or cause to be paid (i) Taxes for any taxable period ending
after the Closing Date (subject to its right of indemnification from the
Stockholder for Taxes attributable to the pre-closing portion of any
Straddle Period pursuant to Section 9.1(a)(ii) and Section 9.1(b) hereof)
and (ii) Excluded Taxes.
(c) The Stockholder may amend any Return of the Company, WW or any
Subsidiary filed or required to be filed for any taxable years or periods
ending on or before the Closing Date, provided that any such amendment
shall not adversely affect any of Parent, the Company, WW or their
respective subsidiaries.
(d) Neither Parent nor any affiliate of Parent shall (or shall cause or
permit the Company, WW or any of their respective Subsidiaries to) amend,
refile or otherwise modify any Return relating in whole or in part to the
Company, WW or any Subsidiary with respect to any taxable year or period
ending on or before the Closing Date (or with respect to any Straddle
Period) without the prior written consent of the Stockholder, which consent
may be withheld by Stockholder in its sole discretion, subject to and in
compliance with applicable law.
9.3 Refunds. Any Tax refund (including any interest with respect thereto)
relating to the Company, WW or any Subsidiary for any taxable period prior to
the Closing Date shall be the property of the Stockholder, and if received by
Parent or the Company, WW or any of their respective Subsidiaries shall be paid
over promptly to the Stockholder. Notwithstanding the foregoing sentence, any
Tax refund (or equivalent benefit to the Stockholder through a reduction in Tax
liability) for a period before the Closing Date arising out of the carryback of
a loss or credit incurred by the Company, WW or any Subsidiary in a taxable
year beginning after the Closing Date shall be the property of Parent and, if
received by the Stockholder, shall be paid over
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promptly to Parent. For purposes of this Section 9.3, where it is necessary to
apportion a refund or credit between Parent and the Stockholder for a Straddle
Period, such refund or credit shall be apportioned between the period deemed to
end at the close of the Closing Date, and the period deemed to begin at the
beginning of the day following the Closing Date on the basis of an interim
closing of the books, except that refunds or credits of Taxes imposed on a
periodic basis (e.g., real property Taxes) shall be allocated on a daily basis.
In addition, Parent shall cooperate, and cause the Company, WW and any
Subsidiary to cooperate, in obtaining any refund that the Stockholder
reasonably believes should be available, including through the filing of
appropriate forms with the applicable taxing authorities.
9.4 Contests
(a) After the Closing, Parent shall promptly notify the Stockholder in
writing of any written notice of any pending or threatened audits, notice
of deficiency, proposed adjustment, assessment, examination or other
administrative or court proceeding, suit, dispute or other claim (a "Tax
Claim") of Parent or of any of the Company, WW and the Subsidiaries which,
if determined adversely to the taxpayer, would be grounds for
indemnification under this Article IX; provided, however, that a failure to
give such notice will not affect Parent's right to indemnification under
this Article IX except to the extent, if any, that, but for such failure,
the Stockholder could have avoided all or a portion of the Tax liability in
question.
(b) In the case of an audit or administrative or judicial proceeding
that relates to periods ending on or before the Closing Date, the
Stockholder shall have the right at its expense to participate in and
control the conduct of such audit or proceeding; Parent also may
participate in any such audit or proceeding and, if the Stockholder does
not assume the defense of any such audit or proceeding, Parent may defend
the same in such manner as it may deem appropriate, including, but not
limited to, settling such audit or proceeding after giving ten days' prior
written notice to the Stockholder setting forth the terms and conditions of
settlement. In the event that issues relating to a potential adjustment for
which the Stockholder would be liable are required to be dealt with in the
same proceeding as separate issues relating to a potential adjustment for
which Parent would be liable, Parent shall have the right, at its expense,
to control the audit or proceeding with respect to the latter issues.
(c) With respect to any Tax Claim related to a Straddle Period for which
both the Stockholder and Parent or the Company, WW or any Subsidiary could
be liable, each party may participate in the audit or proceeding, and (ii)
the audit or proceeding shall be controlled by that party which would bear
the burden of the greater portion of the sum of the adjustment based on the
principles set forth in Section 9.1(b) hereof.
(d) If as a result of any Tax Claim or amended Tax Return, there is any
change after the Closing Date in an item of income, gain, loss, deduction
or credit that results in an increase in a Tax liability for which the
Stockholder would otherwise be liable pursuant to Section 9.1(a), and such
change results in a decrease in the Tax liability of Parent or any
affiliate or successor thereof for any taxable year or period beginning
after the Closing Date or for the portion of any Straddle Period beginning
after the Closing Date, the Stockholder shall not be liable pursuant to
Section 9.1(a) with respect to such increase to the extent of such
decrease. If as a result of any Tax Claim or amended Tax Return, there is
any change after the Closing Date in an item of income, gain, loss,
deduction or credit that results in an increase in a Tax liability for
which Parent would otherwise be liable pursuant to Section 9.1(a), and such
change results in a decrease in the Tax liability of the Stockholder or any
affiliate or successor thereof for any taxable year or period ending on or
before the Closing Date or for the portion of any Straddle Period ending on
the Closing Date (other than by reason of a carryback of losses or
deductions), Parent shall not be liable pursuant to Section 9.1(a) with
respect to such increase to the extent of such decrease.
(e) Neither Parent nor the Stockholder shall enter into any compromise
or agree to settle any Tax Claim which would adversely affect the other
party for such year or a subsequent year without the written consent of the
other party, which consent may not be unreasonably withheld. Parent and the
Stockholder agree to cooperate, and Parent agrees to cause the Company, WW
and any Subsidiary to cooperate, in the defense against or compromise of
any Tax Claim.
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9.5 Conveyance Taxes. The Stockholder and Parent shall each pay one-half of
any real property transfer or gains, sales, use, transfer, value added, stock
transfer, and stamp taxes, any transfer, recording, registration, and other
fees, and any similar Taxes which become payable in connection with the
transactions contemplated by this Agreement, other than transfers of assets
contemplated by Section 5.14 hereof ("Transfer Taxes"). Notwithstanding Section
9.2, which shall not apply to Returns relating to Transfer Taxes, any Returns
that must be filed in connection with Transfer Taxes shall be prepared and
filed when due by the party primarily or customarily responsible under the
applicable local law for filing such Returns, and such party will use its
reasonable efforts to provide such Returns to the other party at least 10 days
prior to the due date of such Returns.
9.6 Miscellaneous
(a) Except as otherwise required by applicable law, the Stockholder and
Parent agree to treat all payments made by either of them to or for the
benefit of the other (including any payments to the Company, WW or any
Subsidiary) under this Article IX and under other indemnity provisions of
this Agreement as adjustments to the Purchase Price for Tax purposes.
(b) Any tax sharing agreement, arrangement or policy (whether written or
oral) between the Stockholder and the Company, WW or any Subsidiary shall
be terminated immediately prior to the Closing.
(c) Notwithstanding any provision in this Agreement to the contrary, the
obligations of the Stockholder to indemnify and hold harmless Parent, the
Company, WW and any Subsidiary pursuant to this Article IX, and the
representations and warranties contained in Section 2.8 hereof shall
terminate at the close of business on the 30th day following the expiration
of the applicable statute of limitations with respect to the Tax
liabilities in question (giving effect to any waiver, mitigation or
extension thereof). The obligations of Parent to indemnify and hold
harmless the Stockholder pursuant to this Article IX shall terminate at the
close of business on the 30th day following the expiration of the
applicable statute of limitations with respect to the Tax liabilities in
question (giving effect to any waiver, mitigation or extension thereof).
(d) Resolution of All Tax-Related Disputes. In the event that the
Stockholder and Parent cannot agree on the calculation of any amount
relating to Taxes or the interpretation or application of any provision of
this Agreement relating to Taxes, such dispute shall be resolved by a
nationally recognized accounting firm mutually agreeable to each of the
Stockholder and Parent, whose decision shall be final and binding upon all
persons involved and whose expenses shall be shared equally by the
Stockholder and Parent.
(e) Notwithstanding anything to the contrary contained in this
Agreement, all matters relating to Taxes shall be governed by this Article
IX. In the event of a conflict between the provisions of this Article IX
and the any other section of this Agreement, this Article IX shall govern
and control.
(f) "Tax Benefits" shall mean the sum of the amount by which the actual
Tax liability (after giving effect to any alternative minimum or similar
Tax) of a corporation to the appropriate taxing authority is reduced
(including, without limitation, by or as a result of a deduction, increase
in basis, entitlement to refund, credit or otherwise, whether available in
the current taxable year, as an adjustment to the taxable income in any
other taxable year or as a carryforward or carryback, as applicable) plus
any interest (on an after-Tax basis) from such government or jurisdiction
relating to such Tax liability. For purposes of this Agreement, a Tax
Benefit shall be deemed to have been "Actually Realized" at the time any
refund of Taxes is actually received or applied against other Taxes due, or
at the time of the filing of a Tax Return (including any Tax Return
relating to estimated Taxes) on which a loss, deduction or credit or
increase in basis is applied to reduce the amount of Taxes which would
otherwise be payable. In accordance with the provisions of this paragraph
(f), Parent and the Stockholder agree that for purposes of this Agreement,
where a Tax Benefit may be realized that may result in the payment to, or
reduce a payment by, the other party hereto, each party will as promptly as
practicable take or cause its affiliates to take such reasonable
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or appropriate steps (including, without limitation, the filing of an
amended Tax Return or claim for refund) to obtain at the earliest possible
time any such reasonable available Tax Benefit.
(g) For purposes of any Tax Benefit Actually Realized determined under
Section 9.6(f) of this Agreement, no later than 90 days after the filing of
a Tax Return for any taxable period that includes a date upon which any
amount was paid or accrued by Parent, the Company, WW or their respective
Subsidiaries or affiliates, on the one hand, or the Stockholder or its
affiliates, on the other hand (each an "Indemnified Party"), in respect of
a claim for which the Stockholder is required to indemnify Parent or Parent
is required to indemnify Stockholder, as the case may be, pursuant to this
Agreement (the "Indemnifying Party"), Parent shall provide Stockholder or
Stockholder shall provide Parent, as appropriate, a detailed statement (the
"Tax Benefit Statement") specifying the amount, if any, of any Tax Benefit
that was Actually Realized by the Indemnified Parties for such Tax period.
To the extent that any deductions or other Tax items (including basis) that
could give rise to a Tax reduction or savings do not result in the actual
realization of such a Tax reduction or savings in the year described in the
previous sentence, this Section 9.6(g) shall apply to each subsequent
taxable period of the Indemnified Parties until either such Tax savings are
Actually Realized (resulting in a Tax Benefit) or the losses or other
carryforwards to which such deductions or other Tax items (including basis)
gave rise expire unused, if applicable. For each relevant taxable period,
the Indemnifying Party shall be provided with full access to the non-
proprietary work papers and other materials and information of the
Indemnified Parties' accountants in connection with the review of the Tax
Benefit Statement. If the Indemnifying Party disagrees in any respect with
the computation of the amount of the Tax Benefit Actually Realized set
forth in the Tax Benefit Statement, the Indemnifying Party may, on or prior
to 45 days after the receipt of the Tax Benefit Statement, deliver a notice
to the Indemnified Parties setting forth in reasonable detail the basis for
the Indemnifying Party's disagreement therewith ("Tax Benefit Dispute
Notice"). If no Tax Benefit Dispute Notice is received by the Indemnified
Parties on or prior to the 45th day after the Indemnifying Party's receipt
of the Tax Benefit Statement from Parent, the Tax Benefit Statement shall
be deemed accepted by the Indemnifying Party.
(h) Payments. Parent shall pay all amounts for indemnification for which
it is liable pursuant to this Agreement in cash; provided, however, that,
if and to the extent any such cash payment (the "Excess Cash Payment")
would, in the opinion of Skadden, cause Skadden to no longer be able to
issue an opinion that each of the Mergers will qualify as a reorganization
pursuant to Section 368(a) of the Code, Parent shall use commercially
reasonable efforts to pay such Excess Cash Payment in Parent Common Stock
(valued in accordance with Section 7.2(b)); provided, further, that in no
event will Parent be obligated to pay such Excess Cash Payment in Parent
Common Stock unless, in the opinion of counsel to Parent, such payment in
Parent Common Stock would be exempt from registration under the Securities
Act.
A-55
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(i) if to Parent, Metal Merger Sub or WW Merger Sub, to:
Homestore.com, Inc.
225 W. Hillcrest Drive, Suite 100
Thousand Oaks, CA 91360
Attention: David M. Rosenblatt, Esq.
Telephone No.: (805) 557-2300
Facsimile No.: (805) 557-2689
with a copy to:
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Martin W. Korman, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
and a copy to:
Fenwick & West
Two Palo Alto Square
Palo Alto, California 94306
Attention: Gordon K. Davidson, Esq.
C. Kevin Kelso, Esq.
Telephone No.: (650) 494-0600
Facsimile No.: (650) 494-1417
(ii) if to the Company, WW or Stockholder, to:
Cendant Corporation
9 West 57th Street, 7th Floor
New York, NY 10019
Attention: Eric Bock, Esq.
Telephone No.: (212) 413-1800
Facsimile No.: (212) 413-1923
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: David Fox, Esq.
Telephone No.: (212) 735-3000
Facsimile No.: (212) 735-2000
A-56
10.2 Interpretation.
(a) The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without
limitation."
(b) As used herein, the term "Material Adverse Effect" shall mean any
change, event or effect that is materially adverse to the business, assets
(including intangible assets), financial condition, capitalization or
results of operations of an entity.
For purposes of Articles VI and VIII hereof with respect to a Material
Adverse Effect on the Company, WW or any Subsidiary (taken as a whole):
(i) if there shall be any shortfall in revenue of the Company or WW,
such shortfall shall not be deemed in and of itself, a Material Adverse
Effect on the Company.
(ii) adverse changes in the economy generally, or in the real
estate, Internet or advertising industries shall not be taken into
account in determining a Material Adverse Effect on the Company, WW and
any Subsidiary (taken as a whole) (provided that such adverse changes
do not affect the Company or WW or any of the Subsidiaries, as
applicable, in a materially disproportionate manner);
(iii) adverse changes in stock market conditions shall not be taken
into account in determining a Material Adverse Effect on the Company,
WW and any Subsidiary (taken as a whole); or
(iv) the Company's or WW's loss of suppliers, customers or employees
shall not be taken into account in determining a Material Adverse
Effect on the Company, WW and any Subsidiary (taken as a whole)
(provided that this exception shall not apply (A) to the loss of
customers or suppliers caused by the Stockholder or its affiliates,
including NRT Incorporated ("NRT") or its controlled affiliates and, in
the case of customers only, subject to the exception same provision as
set forth in clause (b)(i) above, or (B) in the case of the Company's
or WW's employees, those employees hired by the Stockholder or its
affiliates without the prior written consent of Parent).
For purposes of Articles VI and VIII hereof with respect to a Material
Adverse Effect on Parent:
(i) if there shall be any shortfall in revenue of Parent, such
shortfall shall not be deemed in and of itself a Material Adverse
Effect on the Company;
(ii) adverse changes in the economy generally, or in the real
estate, Internet or advertising industries shall not be taken into
account in determining a Material Adverse Effect on Parent (provided
that such adverse changes do not affect Parent in a materially
disproportionate manner);
(iii) adverse changes in stock market conditions or price of Parent
Common Stock shall not be taken into account in determining a Material
Adverse Effect on Parent; or
(iv) Parent's loss of suppliers, customers or employees shall not be
taken into account in determining a Material Adverse Effect on Parent.
(c) As used herein, the term "Business Adverse Effect" shall mean (i) a
material impairment of Parent's ability to continue operating the Business
substantially as it was operated prior to the Closing; (ii) a material
impairment in Parent's ability to use the Intellectual Property
substantially as used by the Company or WW or any of the Subsidiaries prior
to the Closing; or (iii) any material liability that would be reasonably
likely to have a material adverse effect on the Company, WW or any of the
Subsidiaries taken as a whole.
(d) The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.3 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 counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
A-57
10.4 Entire Agreement; Assignment. This Agreement, the Stockholder
Disclosure Letter and Exhibits hereto, the Mutual Disclosure Agreement and the
documents and instruments and other agreements among the parties hereto
referenced herein: (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
Mergers; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically permitted, except that Parent, Metal
Merger Sub and WW Merger Sub may assign their respective rights and delegate
their respective obligations hereunder to their respective affiliates (except
that with respect to the indemnification obligations of Stockholder set forth
in Section 7.2(a)(ii), Parent or its affiliate, as applicable, shall have the
right to assign such indemnities in whole or in part to any third party without
the consent of Stockholder).
10.5 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the 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 such void or unenforceable provision.
10.6 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 or equity
upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
10.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto agrees that process may be served upon them
in any manner authorized by the laws of the State of Delaware for such persons
and waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
10.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
10.9 Specific Performance. The parties hereto agree 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,
including Section 5.13 and Section 5.14 hereof. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
10.10 Attorney's Fees. If any action or other proceeding relating to the
enforcement of any provision of this Agreement is brought by any party hereto,
the prevailing party shall be entitled to recover reasonable attorney's fees,
costs and disbursements (in addition to any other relief to which the
prevailing party may be entitled).
10.11 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY FOR ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
(Remainder of page intentionally left blank.)
A-58
IN WITNESS WHEREOF, Parent, Metal Merger Sub, WW Merger Sub, the Company,
WW, CMS and Stockholder, and have caused this Agreement to be signed by their
duly authorized respective officers, all as of the date first written above.
HOMESTORE.COM, INC. CENDANT CORPORATION
By: /s/ David M. Rosenblatt By: /s/ Eric Bock
--------------------------------- ------------------------------------
Name: Name:
------------------------------- ----------------------------------
Title: Title:
------------------------------ ---------------------------------
MOVE.COM, INC. METAL ACQUISITION CORP.
By: /s/ Eric Bock By: /s/ David M. Rosenblatt
--------------------------------- ------------------------------------
Name: Name:
------------------------------- ----------------------------------
Title: Title:
------------------------------ ---------------------------------
WELCOME WAGON INTERNATIONAL INC. WW ACQUISITION CORP.
By: /s/ Eric Bock By: /s/ David M. Rosenblatt
--------------------------------- ------------------------------------
Name: Name:
------------------------------- ----------------------------------
Title: Title:
------------------------------ ---------------------------------
CENDANT MEMBERSHIP SERVICES, INC.
By: /s/ Eric Bock
---------------------------------
Name:
-------------------------------
Title:
------------------------------
***REORGANIZATION AGREEMENT***
A-59
ANNEX B
October 25, 2000
Board of Directors
Homestore.com, Inc.
225 West Hillcrest Drive
Suite 100
Thousand Oaks, CA 91360
Members of the Board:
We understand that the Move.com, Inc. ("Move"), Welcome Wagon International
Inc. ("Welcome Wagon") (together the "Companies"), Cendant Corporation
("Cendant"), Homestore.com, Inc. ("Homestore"), Metal Acquisition Corp., a
wholly-owned subsidiary of Homestore, WW Acquisition Corp., another wholly-
owned subsidiary of Homestore, and Cendant Membership Services Holdings, Inc.
propose to enter into an Agreement and Plan of Reorganization, substantially in
the form of the draft agreement dated October 25, 2000 (the "Merger
Agreement"), which provides, among other things, for the merger of Metal
Acquisition Corp. with and into Move (the "Move Merger") and WW Acquisition
Corp. with and into Welcome Wagon (the "WW Merger" and together with the Move
Merger, the "Merger"). Pursuant to the Merger, Move and Welcome Wagon will
become wholly owned subsidiaries of Homestore and each outstanding share of
common stock, par value $0.01 per share (the "Move Common Stock"), of Move and
each outstanding share of common stock, par value $0.01 per share (the "Welcome
Wagon Common Stock"), of Welcome Wagon will be converted into the right to
receive a certain number of shares of common stock, par value $0.001 per share
(the "Homestore Common Stock"), of Homestore, determined pursuant to certain
formulas as described further in the Merger Agreement (collectively, the
"Consideration"). We note that the Move Merger and WW Merger are to be
consummated simultaneously pursuant to the terms of the Merger Agreement. The
terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the Consideration to be paid by
Homestore pursuant to the Merger Agreement is fair from a financial point of
view to Homestore.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Move, Welcome Wagon, Cendant and Homestore;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Companies prepared by the
management of the Companies and Cendant;
(iii) reviewed certain financial projections prepared by the management of
the Companies and Cendant;
(iv) reviewed certain publicly available financial projections from equity
research analysts reports of Cendant related to Move;
(v) discussed the past and current operations and financial condition and
the prospects of the Companies, including information relating to
certain strategic, financial and operational benefits anticipated
from the Merger, with senior executives of the Companies and Cendant;
(vi) discussed the past and current operations and financial condition and
the prospects of Homestore, including information relating to certain
strategic, financial and operational benefits anticipated from the
Merger, with senior executives of Homestore;
(vii) reviewed Homestore.com's analysis of the potential impact of the
Merger on certain financial projections related to the Companies
prepared by the management of the Companies and Cendant;
B-1
Board of Directors
Homestore.com, Inc.
October 25, 2000
Page 2
(viii) reviewed certain publicly available financial projections from
equity research analysts reports of Homestore;
(ix) discussed certain financial projections related to Homestore
prepared by the management of Homestore;
(x) reviewed the reported prices and trading activity for the Homestore
Common Stock;
(xi) reviewed the reported prices and trading activity for the shares of
common stock, par value $0.01 per share, of Cendant (the "Cendant
Common Stock");
(xii) reviewed the pro forma impact of the Merger on certain of the
financial ratios of Homestore;
(xiii) compared the financial performance of Move, Welcome Wagon, and
Homestore with that of certain other comparable publicly-traded
companies;
(xiv) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(xv) reviewed and discussed with the senior management of Homestore the
strategic rationale for the Merger;
(xvi) reviewed the draft Merger Agreement and certain related documents;
(xvii) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial and operating data and estimates of
the strategic, financial and operational benefits anticipated from the Merger,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the prospects of Homestore
and the Companies, respectively. We have relied upon the assessment by the
managements of Homestore and the Companies of their ability to retain key
employees of the Companies. We have also relied upon, without independent
verification, the assessment by the managements of Homestore and the Companies
of: (i) the strategic and other benefits expected to result from the Merger;
(ii) the Companies' technologies, products and intellectual property; (iii) the
timing and risks associated with the integration of Homestore and the
Companies; and (iv) the validity of, and risks associated with, Homestore's and
the Companies' existing and future technologies, products and intellectual
property. We have not made any independent valuation or appraisal of the
assets, liabilities, technologies and intellectual property of the Companies,
nor have we been furnished with any such appraisals. In addition, we have
assumed that the Merger will be treated as a tax-free reorganization pursuant
to the Internal Revenue Code of 1986 and will be consummated in accordance with
the terms set forth in the Merger Agreement. Our opinion is necessarily based
on financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have acted as financial advisor to Homestore in connection with this
transaction and will receive a fee for our services. In the past, Morgan
Stanley & Co. Incorporated and its affiliates have provided financing and
advisory services for Homestore and Cendant and have received fees for the
rendering of these services. In addition, in the ordinary course of our
business we may actively trade the securities of Homestore and Cendant for our
own account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
B-2
Board of Directors
Homestore.com, Inc.
October 25, 2000
Page 3
It is understood that this letter is for the information of the Board of
Directors of Homestore and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing, if required, of a proxy or registration statement with the
Securities and Exchange Commission made by Homestore in respect of this
transaction. In addition, this opinion does not in any manner address the
prices at which the Homestore Common Stock or the Cendant Common Stock will
trade following the consummation of the Merger, and Morgan Stanley & Co.
Incorporated expresses no opinion or recommendation as to how the shareholders
of Homestore should vote at the shareholders' meeting to be held in connection
with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be paid by Homestore pursuant to the Merger
Agreement is fair from a financial point of view to Homestore.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Charles R. Cory
-----------------------------
Charles R. Cory
Managing Director
B-3
[PROXY CARD PROPOSAL]
[FRONT]
PROXY
HOMESTORE.COM, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS, _____ ___, 2000
The undersigned hereby appoints Stuart H. Wolff, Ph.D, John M. Giesecke,
Jr., David M. Rosenblatt and Joseph J. Shew, and each of them, attorneys and
proxies, each with full power of substitution and resubstitution, in the name,
place and stead of the undersigned, to vote as proxy all shares of common stock,
par value $0.001 per share, of the undersigned in Homestore.com, Inc. (the
"Company") which the undersigned is entitled to vote at the Special Meeting of
Stockholders of the Company to be held on _____ _____, 2000 and at any and all
adjournments thereof.
1. The approval of the issuance of shares of Homestore.com, Inc. common stock
in connection with the acquisitions by Homestore.com, Inc. of Move.com, Inc. and
Welcome Wagon International, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion with respect to any other matters that may properly
come before the meeting.
(Continued and to be signed on reverse side.)
------------------------------------------
[BACK]
The shares represented by this Proxy, when properly executed and dated,
will be voted in accordance with the specifications made herein. The shares
represented by this Proxy will be voted for the approval of the issuance of
shares of Homestore.com, Inc. common stock in connection with the acquisitions
by Homestore.com, Inc. of Move.com, Inc. and Welcome Wagon International, Inc.
if no instructions to the contrary are indicated or if no instruction is given.
If any other matters are properly presented at the Meeting for action to be
taken thereon, the shares represented by this proxy will be voted on such
matters by the persons named as Proxies herein in accordance with their best
judgment.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
SIGNATURE:
--------------------------------
Dated: , 2000
------------------------------
SIGNATURE:
--------------------------------
Dated: , 2000
------------------------------
(IMPORTANT: PLEASE SIGN NAME EXACTLY AS IT
APPEARS HEREON. EXECUTORS, ADMINISTRATORS,
ATTORNEYS, GUARDIANS, TRUSTEES, ETC.
SHOULD SO INDICATE WHEN SIGNING, GIVING
FULL TITLE AS SUCH. IF SIGNER IS A
CORPORATION, EXECUTE IN FULL CORPORATE
NAME BY AUTHORIZED OFFICER. IF SHARES ARE
HELD IN THE NAME OF TWO OR MORE PERSONS,
ALL SHOULD SIGN.)