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Restricted Cash

March 26, 2002

Judge Denies Memberworks' Attempt To Delay Homestore?s Sale Of

Inman News Features

A U.S. District Court judge today pulled the plug on MemberWorks? attempt to block Homestore?s sale of its iPlace-related assets, but the judge also ruled that a portion of the cash proceeds from the sale must be set aside in a constructive trust, according to a Homestore statement issued this afternoon.

Judge Janet Arterton of the U.S. District Court in Connecticut denied Memberworks? request for a temporary restraining order and a preliminary injunction that would have prevented Homestore from completing its planned sale of But the judge decided that $58 million?an amount subject to future adjustment?of the $130 million the company expects to receive from the sale of must be placed in a constructive trust. Arterton also ordered the case transferred from Connecticut to the Central District of California, where class-action lawsuits alleging violations of securities law are pending against Homestore.

Homestore said it believes the imposition of a constructive trust on the proceeds of the transaction is unnecessary and the company intends to seek elimination or reduction of the trust in the appropriate forum.

A constructive trust is a complex legal mechanism though which a court may impose a set-aside of funds in certain circumstances that might involve a legal action for unjust enrichment. The practical implication in this case appears to be that the sale of may be consummated, but Homestore?s use of the cash may be hindered at least temporarily.

Homestore CEO Mike Long said the company is "pleased the judge has allowed the sale of to proceed as planned."

The Westlake Village, Calif.-based operator of and other homes-related Web sites acquired as part of its $151 million acquisition of iPlace in August and has entered into a definitive agreement to sell the online credit reporting service to Experian in a $130 million cash deal. Memberworks was the majority owner of iPlace.

MemberWorks had alleged that Homestore neglected to file a registration statement with the Securities Exchange Commission for approximately $36 million of Homestore stock that was a substantial portion of the consideration Homestore paid MemberWorks for its equity interest in iPlace. MemberWorks said it hadn?t been able to sell any of the Homestore shares because they aren?t registered.

The shares were worth about $22 each when Homestore acquired iPlace and closed at $2.01 today.

Copyright: Inman News Service

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