StreetwatchVictor Fleischer

Research Fellow in Transactional Studies, Columbia Law School1

January 20022

Dan Jennings was eager to get started. His startup company, Streetwatch, rated Wall Street research analysts for institutional clients. Streetwatch had already gathered some momentum, but it needed more capital quickly to hire staff, de-bug the computer program (called “Watchman”) and take advantage of an employer-friendly job market. It was early January 2002, just over one year after Jennings had written up a business plan, gathered up seed capital and launched the company. The founders, each of whom put in capital, included Jennings himself, his former boss, Steve Newman, and two friends with experience in computer programming, Christine Raker and Bridget Cooley. They were now just about out of money.

Streetwatch aspired to answer the age-old question, “Who watches the watchmen?” – at least as far as Wall Street research analysts are concerned. Research analysts were being bad-mouthed in the press, yet again, for their biased judgment. Analysts have been criticized as little more than company cheerleaders (or worse, self-interested market manipulators) rather than helpful researchers. In the wake of the Enron collapse – where analysts almost uniformly maintained “Strong Buy” or “Buy” ratings on Enron stock until just before bankruptcy – politicians were wondering if analysts needed government oversight.

Jennings himself took a more balanced view of analysts and believed there was a private market solution to be had. Jennings had been a research analyst at a major New York investment bank until 2000, and he knew that a good research analyst could provide valuable information to his clients. An experienced analyst offered industry-specific knowledge, access to company insiders, thorough understanding of company earnings and how that translates into stock price, and knowledge about how a company should perform relative to its peers, and why. Even if an investor came to make her own judgment about whether to buy or sell a stock, the work of a good analyst was a valuable resource. By ranking analysts for institutional investors, Streetwatch could help match up investors with good analysts.

Jennings also knew the limitations of the job, and he believed Streetwatch could help in that regard as well. Analysts labored under an intense conflict of interest. The investment banks, which employ the “sell-side” analysts, directly and indirectly pressure their analysts to shade their forecasts positively – so as to curry favor with the company they cover and reap lucrative investment banking fees. A negative or neutral forecast or

1 This is a fictional case study. The companies Kiplinger, Starmine, and Bulldog Research are real, but Streetwatch is not, and the case is designed for classroom use only. The author would like to thank Joe Gatto, CEO of Starmine, for his assistance in discussing the case.2 Revised 3/28/03

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rating, if viewed as unwarranted, could negatively affect an analyst’s bonus, which usually comprised half or more of her annual compensation. The real money came in from underwriting fees, and firms rarely let the analysts forget this. Even apart from this pressure, analysts have a natural tendency to move as a group and avoid risky predictions (especially negative ones), even if their own research suggests that bad news is to come. Moreover, a negative forecast could sour relations with the management of the companies an analyst covered, making it even more difficult to obtain good information. By penalizing analysts with bad rankings when they remain overly optimistic and rewarding analysts who hit the mark, Streetwatch would help pressure analysts to remain more objective.

Jennings and his partners had spoken to many of their former clients (mostly institutional investors) and several dozen had signed up for Streetwatch’s services. Jennings was still designing the pricing structure (the clients were paying a nominal fee at the moment), and he wanted to make sure the technology ran smoothly before launching. Streetwatch’s current clients were helping “beta-test” the computer program, and it looked like the technology would launch smoothly. Jennings thought it would take about a year before they really knew how well the product worked: year-end earnings for most companies come out in early or mid-February, and Jennings expected a surge in interest and Internet traffic just before and after that time period.

Jennings knew that if Streetwatch developed a good name it could become an integral part of the Wall Street research world. In theory, the marketplace for sell-side analysts would police itself. Bad analysts would develop bad reputations, and investors would seek out the advice of (and bring their business to) investment banks that employed the best unbiased analysts. But, in fact, the market was having trouble policing itself. Among other things, the number of analysts continued to increase, and it was increasingly hard for investors to keep track of who had real expertise in what area. Moreover, investors relied heavily on word-of-mouth reputation, which could sometimes be useful, but also proved unreliable and difficult to interpret. Put another way, the market for analyst reputation was failing because there was no central clearinghouse for information.

Streetwatch aspired to satisfy the need for more reliable information about research analysts. Jennings knew that investors and buy-side analysts would continue to rely on the sell-side analysts working for the investment banks, if nothing else to find necessary cover and support for their own recommendations. Streetwatch would make the research analyst landscape a bit more defined and objective. Analysts filled a useful niche as informational intermediaries, but it was becoming exceedingly difficult to tell who was in the know and who was just pretending; who was basing their opinion on thorough research versus who was just parroting the company’s own forecast. By deriving revenue from the investors rather than the companies, Jennings hoped that Streetwatch would soon develop a reputation for integrity and trustworthiness, becoming the “Consumer Reports” for Wall Street.

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Kiplinger’s offer to invest. As his friends were gathering in his apartment to watch the Super Bowl pre-game show, Jennings sat in his bedroom looking over two stacks of documents. The first proposal described a proposed investment in Streetwatch by Kiplinger.com, a division of the privately-held Kiplinger Washington Editors Inc. Kiplinger is best known for its flagship product, Kiplinger’s Personal Finance magazine, a monthly publication with a circulation of about 3,000,000. The Kiplinger term sheet (Exhibit A below) called for Kiplinger to buy 2,000,000 newly issued shares of common stock from Streetwatch, which would eventually result in Kiplinger owning just over 50% of the company. The proposed purchase price was $2.00 per share. The resulting $4,000,000 infusion of capital would take place in three stages over a two-year period as called for by the Streetwatch business plan. All three stages of the investment would be mandatory, however, regardless of whether Streetwatch meets the goals of the business plan. The staging was designed so that Kiplinger would not have to invest cash before it was needed by the Streetwatch business.

Kiplinger promised to help Jennings move the business forward, but it appeared that it could, in fact, offer little more than technical support. Kiplinger’s staff included many journalists and editors familiar with Wall Street, but nearly all of them focused on personal finance rather than institutional investing. Once the Streetwatch website was launched, Kiplinger planned to ask Jennings to dismiss the tech-savvy founders Raker and Cooley to put in Kiplinger’s own tech people to maintain the site, but would allow Raker and Cooley to retain their common stock and consult with the Company as needed. Kiplinger viewed Jennings and Newman as the key to the Company’s success. Jennings would remain CEO of Streetwatch, and Newman would remain Executive Vice President in charge of client relations. Jennings and Newman would each receive five-year employment contracts with a good salary and significant stock options. At any point during the next ten years, Kiplinger would have the option of buying Jennings’ and Newman’s existing common shares at a strike price of $8 per share. The Kiplinger option, however, did not extend to any options which Jennings or Newman exercised. Kiplinger also agreed to give Jennings and Newman a put option on their existing common shares which would vest in two years, payable in cash or Kiplinger stock (at Kiplinger’s option) at a price of $1 per share.

Tom Wheeler’s offer. Tom Wheeler was an old friend of Jennings’ partner, Steve Newman. Wheeler had a networking list on his Palm Pilot that was as deep as anyone’s on Wall Street. Wheeler had left his job as a top research analyst some years before and now provided consulting services to various institutional clients. Wheeler was intrigued by Streetwatch, and he proposed the following investment in the company (Exhibit B below). A group of private investors, headed by Wheeler, would invest $1,750,000 in Streetwatch. Wheeler’s group would receive participating preferred stock, convertible into common stock at Wheeler’s discretion.

The Preferred would receive an 8% cumulative dividend and would have a “2x liquidation preference” over the common. This preference means that in the event of a liquidation or sale, the preferred shareholders would make back twice the amount of money they invested, plus dividends, before the common shareholders received anything.

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In addition, the Preferred would “participate” with the common by sharing pro rata with any remaining assets after it had received the liquidation preference. The Preferred would automatically convert to common and the liquidation preference would disappear upon the closing of a qualified IPO.

Wheeler would also receive an option to acquire another 500,000 shares of Streetwatch at the same price, exercisable one year from the closing date. Because Jennings believed that the company would increase in value, he was reluctant to promise to sell new shares to Wheeler at the same price of $3.50 per share. Wheeler would pay Streetwatch $250,000 for the option, bringing the total amount of cash coming in to Streetwatch to $2,000,000. If Wheeler exercised the option, he would then control about one-third of the outstanding shares of the company.

Jennings knew that he would have to give up some control of the company in order to raise capital, but he was sad to see how much things had changed since the hey-day of the Internet frenzy. Kiplinger viewed itself as a big, friendly, resource-rich partner, and Jennings’ negotiations with Kiplinger were easy – except for the price. The Kiplinger offer took away a great deal of Jennings’ upside potential in the venture. The Kiplinger valuation of the Company was low. And while Kiplinger left Jennings with day-to-day operational control as CEO, Kiplinger would within two years have enough common shares to take control of the enterprise. On the other hand, it seemed unlikely that Kiplinger could acquire either the contacts or expertise to run Streetwatch effectively, so Jennings at least felt that his job would be safe.

The Wheeler group offer gave Streetwatch a higher valuation, but arguably extracted more power over the company’s future. Wheeler would have three seats out of seven on the Board from day one, which means that he would want a voice in the long-term strategy of the company. Moreover, Wheeler seemed distrustful of Jennings’ ability to lead the company and did not offer him an employment contract. Jennings was not even sure what Wheeler’s plans were.

Significantly, Jennings was concerned that the $2,000,000 put up by Wheeler would not carry the company long enough to turn a profit, and Streetwatch would have to raise more money from the Wheeler group or another source in about a year. The term sheet also gave Wheeler the right of first refusal over any new issuances of Streetwatch stock. In contrast, the $4,000,000 offer from Kiplinger would probably carry Streetwatch all the way to profitability, and, indeed, even gave Streetwatch a bit of a cushion in case costs exceeded the initial projections. (See Exhibit E below.) On the other hand, the Wheeler group offer did allow Jennings and Newman the possibility of participating in the upside potential, which Jennings was confident of. If things worked out, Jennings thought the company could have revenues above $20,000,000 per year and, he believed, had the potential for a very successful IPO.

Jennings tucked the documents into his briefcase and went back to the living room to join his guests and watch the game. He would have to make up his mind before

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meeting with Newman, Raker and Cooley the next day, as both Wheeler and Kiplinger were expecting answers by the end of the week.

Background

Sell-side research analysts have a tough job. They are typically responsible for at least a handful of companies in a single industry or related industries, such as telecommunications, airlines, banking, or tobacco. Through independent research, private phone calls and meetings, conference calls with company management, and general market awareness, analysts write up reports or “notes” on the companies they cover, as well as make earnings projections and buy, hold or sell recommendations. They must constantly keep abreast of each company’s press releases, earnings and revenue projections, and so on, all the while keeping an eye on broader trends in the industry and market as a whole. Analysts tend to move in a herd, since it is generally thought to be safer to be wrong if one is surrounded by good company.

Earnings forecasts are at the core of an analyst’s job. Companies release earnings projections, typically on a quarterly basis but sometimes updated more frequently. Companies make their projections based on their internal financial information and management projections of how the company will fare in the upcoming weeks, months and years. Analysts take these company projections and make their own forecasts, reflecting their own research, discussions with management, and more detailed examination of the industry and company financials. A company named “Thomson Financial / First Call” compiles the forecasts of all the various industry analysts to come up with a “consensus” forecast. Companies, in turn, are under tremendous pressure to meet or beat the Street estimate, and stock prices often move significantly in response, especially when a company misses “the number.”3

So, for example, in 2001 Amazon.com had predicted a small loss in the fourth quarter of 2001, then adjusted their earnings projection downwards on several occasions to reflect a slow holiday shopping season. The consensus estimate was for a loss of 7 cents per share for the quarter. In mid-January, Amazon surprised the Street by reporting a 9 cents per share profit for the quarter. The unexpected profit was the result of a combination of (1) better-than-expected book sales and (2) a decline in the Euro, which allowed Amazon to pay less on its Euro-denominated debt. Analysts who were able to forecast either the better-than-expected book sales or figure out how the decline in the Euro would affect Amazon’s earnings provided more accurate earnings estimates and more useful explanations of Amazon’s reports.

Really good analysts are hard to find. Obviously, an analyst who can reliably forecast when a company will “beat the number” or “miss the number” is worth a lot to

3 Because of the pressure to meet the consensus forecast, companies will often “low-ball” their projections, which even if adjusted upwards somewhat by analysts, results in a target that companies can meet. Because of the low-ball effect, there is also a “whisper” number that smart money investors and analysts rely on. So, for example, GE might officially forecast a $3 eps number, leading to a consensus estimate of $3.10 eps, and a whisper number of $3.14. If GE then comes in at $3.12, its stock price might decline slightly even while allowing it to report that it had beaten the consensus estimate.

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an investor. Even if an analyst is wrong much of the time, anything better than 50-50 tends to improve her client’s position vis-à-vis the market as a whole. But few analysts are willing to risk being the first to sound negative news. As part of the job of a good analyst is to form a relationship with company management, analysts sometimes have trouble turning around and bad-mouthing the same people who have become their friends. Moreover, negative comments make it less likely that a company will bring investment banking work to the firm that made the negative comments, and an analyst’s compensation is directly or indirectly tied to the amount of investment banking fees brought in to the firm.

The Streetwatch Strategy

Jennings had a two-part strategy for Streetwatch. The first was to provide investors with an objective approach to rating the analysts. Raker and Cooley had written a computer program (Watchman) that gathered information about analysts’ earnings estimates, upgrades, and downgrades and then matched how each analyst fared as compared to the Street average. This part of the Streetwatch rating would be entirely based on publicly available information and would be transparent and verifiable, ensuring objectivity. Thus, on a continuous basis, the computer program would review how each analyst in each industry had performed and give them a grade from A+ to F. The grades would be skewed to place more importance on recent forecasts, but would reward past experience to some degree.

The computer program still had some bugs and would need constant attention to ensure that the information it gathered was accurate and up-to-date. But the beta-testing was running fairly smoothly and Jennings and his colleagues had been working steadily to expand the number of analysts the program covered. Kiplinger had expressed concern that the website would need much more support as the number of clients grew, and they felt that their IT people could improve the situation. The real test would come in January 2003 when analysts predicted year-end earnings and traffic to the site increased.

The second part of the Streetwatch strategy was to serve as a central clearinghouse for the word-of-mouth information that the Street relied on. Streetwatch would issue a companion “Reputation” grade to go along with the objective rating generated by the Watchman computer program. The Reputation rating would be subjective, based on what Jennings and his staff knew about the different analysts, how good their access to company information was, and how objective the analysts could be expected to be. Jennings’ partner, Steve Newman, would be crucial here. Not only did he know many of the important analysts on the street, he had the contacts to get trustworthy information on many more. Jennings knew that the success of Streetwatch depended on its credibility, and only by retaining top people could the company succeed. Jennings felt that Wheeler could help out a great deal in terms of pulling in both information and clients, but he feared that his own role might diminish.

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The Competition

Bulldog Research

BulldogResearch.com was a web-oriented business that had been founded at the height of the Internet boom and faded just as quickly, folding in May 2001. Like many Internet startups, Bulldog spent a lot of money on advertising its product and was, in-turn, too dependent on web-banner advertising for its revenue. Moreover, it focused too much energy chasing individual investors and day traders rather than more stable and lucrative institutional investors.

Starmine

Starmine is another web-based competitor, but it seems to be faring much better than Bulldog. Starmine ranks analysts “objectively,” primarily according to the accuracy of their earnings forecasts, awarding them one to five stars. Starmine particularly rewards analysts who depart from the consensus estimate and come closer to the mark. It currently ranks 3,650 analysts. Although some information on the website is free, an enhanced version is available for a fee. Annual fees range from $16,000 to $150,000, depending on the level of data requested about analysts’ records. Starmine was funded by Hummer Winblad Venture Partners, a Silicon Valley venture capital firm, and American Century Ventures, a Midwestern mutual fund and brokerage services company. Although Starmine had a head start on Streetwatch and has technology that seems to work well, Jennings felt that Streetwatch had better New York connections, equivalent technology, and a business plan to provide valuable “soft” information on analysts as well as the hard data which Starmine produced.

Institutional Investor

Institutional Investor magazine, a subsidiary of Euromoney, plc, is a competitor of sorts. Each year, Institutional Investor magazine polls hundreds of asset managers to determine the most highly regarded securities analysts in each industry group. The poll is followed closely. To many on Wall Street, anything more scientific than the Institutional Investor magazine poll is seen as a misguided attempt to make an art into a science. Jennings was aware of the limitations of objective rankings, but felt that Streetwatch could still capitalize on the reputation market. As Streetwatch grew, more investors would turn to it for advice just to be “in the know.” And if, like the Institutional Investor poll, buy-side analysts simply looked to it to take refuge, so be it. They would pay the fee either way.

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EXHIBIT A

[Kiplinger term sheet]

Streetwatch, Inc.Summary of Principal Terms for an Offering of Common Stock

Issuer Streetwatch, Inc., a Delaware corporation (the “Company”)

Amount $4,000,000 total (in three stages of $500,000, $1,500,000 and $2,000,000)

Type of Security

2,000,000 shares Common Stock

Price per share $2.00 (for a fully-diluted pre-money company valuation of $4,000,000)

Investors Kiplinger Washington Editors, Inc.

Date of investment

The investment will be made on a phased basis over 2 years in accordance with the requirements of the Streetwatch business plan.

Employment Contracts

Dan Jennings and Stephen Newman will enter into employment contracts for a term of five years, subject to six months notice, which cannot be given earlier than the end of the second year.

Jennings will earn a salary of $250,000 per year, and Newman a salary of $185,000 per year. Jennings and Newman will also each receive 100,000 warrants with a strike price of $2 per share, with 25,000 warrants vesting at the end of each calendar year.

Non-compete agreement

Jennings and Newman will sign standard non-compete agreements agreeing not to compete for a period of 2 years after they leave the Company for any reason.

Jennings and Newman Put Option

The Company will grant Jennings and/or Newman an option to put their shares to Kiplinger, payable in cash or Kiplinger stock (at Kiplinger’s option), after two years and up until five years, at a price of $1 per share.

Kiplinger call option

Kiplinger will have the right to buy Jennings’ and Newman’s shares at a price of $8 per share at any time prior to February 28, 2007.

Board Seats Seven; Jennings will serve as chair and have the right to nominate three others

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Capitalization:

Capitalization of the Company is assumed to be as outlined below (on a fully diluted basis).

Type of Security Common Stock Equivalent Shares ---------------------------------------- ------------------------------ New Common for Kiplinger 250,000 Obligation to Issue Common to Kiplinger 1,750,000Existing Common 1,500,000

Dan Jennings 700,000Steve Newman 500,000Christine Raker 150,000Bridget Cooley 150,000

Outstanding Options for Common Stock 300,000 Dan Jennings 150,000Steve Newman 150,000

Common Stock Reserved for Future Options 200,000 ------------------------------ Total 4,000,000

This Term Sheet merely constitutes a statement of the present material intentions of the parties. A binding commitment with respect to the transactions will result only upon the execution of definitive agreements, if any. No oral modifications to this statement shall be valid.

Streetwatch, Inc. ('Company') Kiplinger Washington Editors, Inc. ('Investor') By: ____________________ By: ______________________________ Title: __________________ Title: ____________________________ Date: February ___, 2002

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EXHIBIT B

[Wheeler Fund term sheet]

Streetwatch, IncSummary of Principal Terms for an Offering of Series A Preferred Stock

Issuer Streetwatch, Inc., a Delaware corporation (the “Company”)

Amount $1,750,000

Type of Security

Series A Convertible Preferred Stock

Number of Shares

500,000

Price per share $3.50 (The Original Purchase Price”). The Original Purchase Price represents a fully-diluted pre-money company valuation of $7 million.4

Investors Wheeler Venture Fund LLC (the “Investors”)

Anticipated Closing Date

April 25, 2003

Dividends Annual 8% cumulative dividend on the Series A Preferred, accruing quarterly in arrears.

Liquidation Preference

In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred shall be entitled to receive in preference to the Common Stock (the "Common”) an amount payable in cash equal to twice the Original Purchase Price for the Series A Preferred plus unpaid dividends (the “Liquidation Preference”). After the payment of the Liquidation Preference, the remaining assets shall be distributed ratably to the holders of the Common and the Series A Preferred (assuming the conversion of all Preferred Stock).

A merger, reorganization or other acquisition type transaction in which control of the Company or all or substantially all of its assets is transferred will be treated by holders of the Series A Preferred as a liquidation.

4 The valuation and cap table reflect all outstanding options except for Wheeler’s right to purchase 500,000 newly issued shares on one year from the closing date (the Series B Option). The $250,000 option premium for the Series B Option is also not reflected in the investment amount.

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Series B Option

The Investors will have the right to purchase an additional 500,000 shares of convertible participating preferred stock, with substantially the same rights as the Series A Preferred and at a price of $3.50 per share subject to customary anti-dilution protections, on a date one year from the closing date of the Series A Preferred.

Conversion Each share of Series A Preferred will be convertible into one share of Common Stock (subject to antidilution provisions).

Automatic Conversion

In the event of: (1) an underwritten public offering of shares of the Company at a total offering of not less than $30 million at a price per share not less than $10.50 (subject to adjustment) (a "Qualifying IPO"); or (2) the consent of the holders of at least a majority of the then outstanding shares of Series A Preferred, the Series A Preferred will be automatically converted into Common at the then applicable conversion rate.

Antidilution Provision

Proportional adjustment for stock splits, stock dividends, recapitalizations, and the like. The conversion price will be adjusted on a weighted average basis (based on all outstanding shares of Series A Preferred and Common Stock) for issuances of additional equity securities at a purchase price below the then effective conversion price (subject to standard exceptions).

Voting Rights The holders of a share of the Series A Preferred will have a right to that number of votes equal to the number of shares of Common issuable upon conversion of the Series A Preferred.

Protective Provisions

The Series A Preferred votes with common on an as-converted basis, but also has a separate class vote as provided by law. The consent of a majority of the Series A Preferred, voting as a single class, shall be required for the following actions: (i) any amendment or change to the rights, preferences, privileges or power of the Series A Preferred; (ii) any action that authorizes, creates or issues shares of any class of stock having rights, preferences or privileges superior to or on parity with the Series A Preferred; (iii) any increase or decrease in the authorized number of shares of the Series A Preferred or Common; (iv) any merger or consolidation of the Company with one or more other corporations in which the stockholders of the Company immediately after such merger or consolidation hold stock representing less than a majority of the voting power of the outstanding stock of the surviving corporation and any sale of all or substantially all of the assets of the Company; (v) any amendment or waiver of any provisions of the Company's Articles of Incorporation (the "Articles") or Bylaws that affects the rights of the Series A Preferred; (vi) the payment of any

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dividend on the Common Stock; and (vii) other protective provisions to be set forth in the Articles.

The consent of a majority of the Series A Preferred, voting as a separate series, shall be required for the following actions: (i) any amendment or waiver of provisions of the Company's Articles or Bylaws that adversely affects the rights, preferences and privileges of the Series A Preferred; and (ii) any action that authorizes, creates or issues shares of stock having rights, preferences or privileges superior to or on a parity with the Series A Preferred.

Information and Registration Rights

The Investors shall receive standard information rights including audited financial reports, quarterly and monthly financial reports, and annual budget and business plan. The Investors shall receive standard inspection and visitation rights. Such rights shall terminate upon the closing of a Qualifying IPO. The Investors will have demand, piggyback and S-3 registration rights with expenses payable by the Company. The registration rights may be transferred to a transferee who acquires at least 25% of an Investor's shares. Transfer of registration rights to a partner or affiliate of the Investors will be without restrictions as to minimum share holdings.

Preemptive Right

The Investors shall have a pro rata right, based on their percentage equity ownership, on a fully diluted basis, to participate in subsequent equity financings of the Company, subject to customary exclusions. Such right will terminate upon the closing of a Qualifying IPO.

Board of Directors

Holders of the Series A Preferred, voting as a separate series, shall be entitled to elect 3 members of the Company’s Board of Directors. The number of Board members shall be 7.

Right of First Refusal and Co-Sale Agreement

The Company, the holders of the Series A Preferred and the Founders will enter into a right of first refusal and co-sale agreement pursuant to which any Founder who proposes to sell all or a portion of his shares to a third party (subject to standard exceptions) must either permit the holders of the Series A Preferred at their option (i) to purchase such stock on the same terms as the proposed transferee, or (ii) sell a proportionate part of their shares on the same terms offered by the proposed transferee. The holders of the Series A Preferred will also have a right of first refusal regarding any new equity or debt financings of the Company. (See also Preemptive Right above.)

These rights will terminate upon the closing of a Qualifying IPO.

Closing Conditions

The obligation of Investors to purchase the shares is subject, among other things, to (i) completion of and satisfaction of a due diligence

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investigation of the Company, (ii) the execution of definitive stock purchase agreements and other documentation between and among (and acceptable to) the Investors and the Company, including various representations and warranties, (iii) the obtaining of all requisite consents to the transaction and (iv) the receipt of an opinion of counsel to the Company in form and substance acceptable to the Investors.

Exclusivity Neither the Company nor any of the Company's directors, officers, employees, agents or representatives will solicit, encourage or entertain proposals from or enter into negotiations with or furnish any nonpublic information to any other person or entity regarding the possible sale of the Company's stock. The Company shall notify the Investors promptly of any proposals by third parties with respect to the acquisition of the Company's stock and furnish the Investors the material terms thereof. The Company shall deal exclusively with the Investors with respect to any such possible transaction and the Investors shall have the right to match such proposed transactions in lieu of such third parties. This right shall last for a period of 30 days from the date hereof.

Pre-Closing Capitalization:

Capitalization of the Company prior to the issuance of the Series A Preferred is assumed to be as outlined below (on a fully diluted basis). Items affecting the capitalization include the adequacy of the post-financing employee stock option pool. Items affecting the capitalization may cause an adjustment to the Original Purchase Price.

Type of Security Common Stock Equivalent Shares ---------------------------------------- ------------------------------ Series A Preferred 500,000 Common Stock 1,500,000

Dan Jennings 700,000Steve Newman 500,000Christine Raker 150,000Bridget Cooley 150,000

Outstanding Options for Common Stock 300,000 Dan Jennings 150,000Steve Newman 150,000

Common Stock Reserved for Future Options 200,000 ------------------------------ Total 2,500,000

This Term Sheet merely constitutes a statement of the present material intentions of the parties. A binding commitment with respect to the transactions will result only upon the execution of definitive agreements, if any. No oral modifications to this statement shall be valid.

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Streetwatch, Inc. ('Company') Wheeler Venture Funds ('Investor') By: ____________________ By: ______________________________ Title: __________________ Title: ____________________________ Date: April ___, 2003

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EXHIBIT C

Sample Institutional Investor Magazine Ranking

Internet Portals & Commerce

First TeamHolly Becker, Lehman Brothers

The Internet has a new ruler: Holly Becker takes the crown in this recently combined category, inheriting a devastated sector that fell an astounding 75 percent during 2000, only to see some of its industry leaders down another 90 percent through August of this year. She displaces Merrill Lynch's Henry Blodget (last year's first-teamer in both E-Commerce and New Media) and Morgan Stanley analyst Mary Meeker (a four-time first-teamer who slipped to second in both categories last year and does not place this year). Becker joined Lehman Brothers in June 2000 from Salomon Smith Barney, where she covered cosmetics and household products. Her first order of business? Slapping a hold on Yahoo! - a controversial move, as many deemed the portal one of the hardier denizens of the Internet space. But Becker, 34, was unenthusiastic: A proprietary survey of 60 blue-chip advertisers indicated that most thought Internet advertising - Yahoo!'s principal revenue source - was overpriced. "It was a great contrarian call," says a convert. "The rest of the analysts were sticking with their buy recommendations and banking relationships." The shares, at 115 in June (down from over 200 in January), plunged to 11 by April 2001, when she upgraded to catch a rise to 20 in June. But by August the stock was back at 11.

Second TeamAnthony Noto, Goldman, Sachs & Co.

Goldman Sachs' Anthony Noto, runner-up in last year's E-Commerce category, snags second, partly for his "excellent proprietary work on the dismal outlook for online ads," says one supporter, citing Noto's prediction that demand for online advertising wasn't going to grow in the foreseeable future. Although Noto admits he remained positive too long last year, not downgrading until year-end, this year he has done better. Two of his top recommendations this January - eBay and 1-800-Flowers.com - were up 85 percent and 189 percent, respectively. Noto also garners praise for being "communicative, in both written reports and e-mails."

Third TeamHenry Blodget, Merrill Lynch

Despite the controversy surrounding Henry Blodget - Merrill Lynch reached an out-of-court settlement, for a reported $400,000, with a retail investor who alleged a conflict of interest on Blodget's part - the third-teamer "remained visible, writing and talking about the sector," says an adherent. Still, Blodget's perceived role as an industry booster throughout 2000 and early 2001 even as stock prices collapsed, colored investors' perceptions. "He said to buy all the way down," one unhappy client laments.

Runner-upJamie Kiggen, Credit Suisse First Boston

Runner-upCharles (Lanny) Baker, Salomon Smith Barney

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EXHIBIT D

Sample Starmine Ratings

AMZN : Amazon.Com Inc. (Internet) Top Analysts: 39 Analysts Analyst Broker Rel Accuracy # of Years Covered Koerber, K. WR Hambrecht & Co ***** 1.50 Fieler, J. Bear, Stearns & Co. ***** 1.25 Patel, J. Deutsche Banc ***** 2.00 Reamer, S. SG Cowen **** 3.25 Baker, L. Salomon Brothers **** 0.75 Rowen, M. Prudential Securities **** 2.25 Newman G. Klauer Mattison & Co.**** 0.75 Meeker, M. MSDW **** 4.25 Noto, A. Goldman Sachs & Co.**** 2.25 Rashtchy, S. U.S. Bancorp **** 0.75 Gustauson, H. Legg Mason **** 1.25 Benedict, P. C.I.B.C. **** 0.75 Kiggen, J. CSFB **** 4.00 Weinstein, S. Pacific Crest *** 3.00 Rodgers, A. Ragen Mackenzie *** 0.75 Undisclosed *** 2.25 Undisclosed *** 1.50 Undisclosed *** 0.00 Undisclosed *** 2.50 Undisclosed ** 3.25 Undisclosed ** 0.25

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Exhibit E Pro Forma Income Statement

Period Ending: 3/31/02 6/30/02 9/30/02 12/31/02 2002total

2003 2004 2005

Revenues: Subscriptions 271 511 577 1033 2392 4389 12628 20735 Advertising and e-commerce 0 0 30 90 120 260 480 1060 Licensing 0 0 65 65 130 487 687 907

Net Revenues: 271 511 672 1188 2642 5136 13795 22702

Cost of Revenues: Royalties 25 25 25 25 100 250 600 950 Production Costs 65 76 86 121 348 548 713 1,210

Total Cost of Revenues 90 101 111 146 448 798 1313 2160

Gross Profit 181 410 561 1042 2194 4338 12,482 20,542

Expenses Product Development 235 485 884 735 2,339 2,430 3,080 3,010 Sales and Marketing 60 60 90 150 360 1,188 4,030 5,683 General Administrative 195 358 235 415 1,203 1,607 2,003 2,608

Total Expenses 490 903 1,209 1,300 3,902 5,225 9,113 11,301

Operating Income (309) (493) (648) (258) (1,708) (887) 3,369 9,241

Tax Provision 0 0 0 0 0 0 285 2,887

Net Income (309) (493) (648) (258) (1,708) (887) 3,084 6,354

Pro forma Cash Flow Statement

Period Ending: 3/31/02 6/30/02 9/30/02 12/31/02 2002total

2003 2004 2005

Sources of Cash Net Income from Operations

0 0 0 0 0 0 3,084 6,354

Investment Income / Other

0 20 20 20 60 90 125 185

Total Provided from Operations

0 20 20 20 60 90 3.209 6,539

Cash Outflows Net Loss from Operations

309 493 648 258 1,708 887 0 0

Capital Expenditures 0 0 0 0 0 0 120 180 Increase in Working Capital

80 45 75 75 275 405 485 735

Total cash outflows 389 538 723 333 1,983 1,292 605 915

Net cash flow (389) (518) (703) (313) (1,923) (1,202) 2,,604 5,624

Cumulative cash flow (389) (907) (1,610) (1,923) (1,923) (3,125) (521) 5,103

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